-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NxfaCYyixchYpi1acdFiPfZEm9sBApRKv9UpM+dE0mlDY4pXx8pie6TwFEvtYTxa /2xv2GR7GruAciTtuDk47A== 0001015402-04-000437.txt : 20040211 0001015402-04-000437.hdr.sgml : 20040211 20040211171819 ACCESSION NUMBER: 0001015402-04-000437 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 21ST CENTURY INSURANCE GROUP CENTRAL INDEX KEY: 0000100331 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 951935264 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10828 FILM NUMBER: 04587326 BUSINESS ADDRESS: STREET 1: 6301 OWENSMOUTH AVE STE 700 CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8187043700 FORMER COMPANY: FORMER CONFORMED NAME: 20TH CENTURY INDUSTRIES DATE OF NAME CHANGE: 19950420 10-K 1 doc1.txt 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 For the fiscal year ended December 31, 2003 Commission File Number 0-6964 21ST CENTURY INSURANCE GROUP (Exact name of registrant as specified in its charter) DELAWARE 95-1935264 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6301 OWENSMOUTH AVENUE WOODLAND HILLS, CALIFORNIA 91367 (Address of principal executive offices) (Zip Code) (818) 704-3700 WWW.21ST.COM (Registrant's telephone number, including area code) (Registrant's web site) SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED --------------------- ---------------- Common Stock, Par Value $0.001 New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements, incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of 21st Century Insurance Group, based on the average high and low prices for shares of the registrant's Common Stock on June 30, 2003, as reported by the New York Stock Exchange, was approximately $350,000,000. There were 85,435,505 shares of common stock outstanding on January 30, 2004. DOCUMENT INCORPORATED BY REFERENCE: Part III of this Form 10-K incorporates by reference certain information from the registrant's definitive proxy statement for the Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the year ended December 31, 2003.
TABLE OF CONTENTS Page Description Number - ----------------------------------------------------------------------------------------- Part I Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Geographic Concentration of Business. . . . . . . . . . . . . . . . . . . . . 4 Types and Limits of Insurance Coverage. . . . . . . . . . . . . . . . . . . . 5 Personal Auto Product Innovations . . . . . . . . . . . . . . . . . . . . . . 6 Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Consumer Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Customer Retention and Vehicles in Force. . . . . . . . . . . . . . . . . . . 7 Underwriting and Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Servicing of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Growth and Profitability Objectives . . . . . . . . . . . . . . . . . . . . . 10 Underwriting Expense Ratio - Personal Auto Lines. . . . . . . . . . . . . . . 10 Loss and Loss Adjustment Expense Reserves . . . . . . . . . . . . . . . . . . 11 Estimating the Frequency of Auto Accidents. . . . . . . . . . . . . . . . . 11 Estimating the Severity of Auto Claims. . . . . . . . . . . . . . . . . . . 12 Estimating Loss and LAE for Lines in Runoff . . . . . . . . . . . . . . . . 12 Loss and Reserve Development. . . . . . . . . . . . . . . . . . . . . . . . . 12 Auto Lines Reserve Development. . . . . . . . . . . . . . . . . . . . . . . 16 Homeowner and Earthquake Lines in Runoff. . . . . . . . . . . . . . . . . . 16 Reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 State Regulation of Insurance Companies . . . . . . . . . . . . . . . . . . . 18 Holding Company Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . 18 Non-Voluntary Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Debt Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 20 Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Item 5. Market for Registrant's Common Stock and Related Stockholder Matters. . 20 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 22 Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . 24 21st Century Insurance Group. . . . . . . . . . . . . . . . . . . . . . . . 24 Insurance Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Transactions with Related Parties . . . . . . . . . . . . . . . . . . . . . 25 Contractual Obligations and Commitments . . . . . . . . . . . . . . . . . . . 25 Off Balance Sheet Arrangements. . . . . . . . . . . . . . . . . . . . . . . . 26 Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Underwriting Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Personal Auto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Homeowner and Earthquake Lines in Runoff. . . . . . . . . . . . . . . . . . 28 Loss and LAE Incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1 Page Description Number - ----------------------------------------------------------------------------------------- Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Write-off of Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Critical Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . 30 Losses and Loss Adjustment Expenses . . . . . . . . . . . . . . . . . . . . 31 Property and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Deferred Policy Acquisition Costs . . . . . . . . . . . . . . . . . . . . . 32 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Stock-Based Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 35 New Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . 35 Forward-Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 35 Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . 37 Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . 38 Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . 38 Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 39 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . 43 Note 1. Description of Business. . . . . . . . . . . . . . . . . . . . . . 43 Note 2. Summary of Significant Accounting Policies . . . . . . . . . . . . 43 Note 3. Earnings (Loss) per Common Share . . . . . . . . . . . . . . . . . 47 Note 4. Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Note 5. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Note 6. Deferred Policy Acquisition Costs. . . . . . . . . . . . . . . . . 50 Note 7. Property and Equipment . . . . . . . . . . . . . . . . . . . . . . 51 Note 8. Unpaid Losses and Loss Adjustment Expenses . . . . . . . . . . . . 51 Note 9. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Note 10. Reinsurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Note 11. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 56 Note 12. Commitments and Contingencies. . . . . . . . . . . . . . . . . . . 58 Note 13. Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Note 14. Stock-Based Compensation . . . . . . . . . . . . . . . . . . . . . 62 Note 15. Statutory Financial Data . . . . . . . . . . . . . . . . . . . . . 64 Note 16. Northridge Earthquake. . . . . . . . . . . . . . . . . . . . . . . 65 Note 17. Unaudited Quarterly Results of Operations. . . . . . . . . . . . . 66 Note 18. Results of Operations by Line of Business. . . . . . . . . . . . . 67 Note 19. 21st Century Insurance Company of Arizona. . . . . . . . . . . . . 68 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . 69 Item 9A. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . 69 Part III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . 69 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 70 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . 70 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . 70 Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . 70 Part IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . 70 Schedule II - Condensed Financial Information of Registrant . . . . . . . . 74 Signatures of Officers and Board of Directors . . . . . . . . . . . . . . . 78 2 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 4.1 Indenture, dated December 9, 2003, between 21st Century Insurance Group and The Bank of New York, as trustee. 4.2 Exchange and Registration Rights Agreement, dated December 9, 2003. 10(i) 2003 Short Term Incentive Plan. 10(l) Lease Agreements for Registrant's Principal Offices substantially in the form of this Exhibit. 10(m) Forms of Amended and Restated Stock Option Agreements. 10(n) Form of Restricted Shares Agreement. 10(o) Retention Agreements substantially in the form of this Exhibit for executives Richard A. Andre, Michael J. Cassanego, G. Edward Combs, Carmelo Spinella and Dean E. Stark. 10(p) Sale and Leaseback Agreement between 21st Century Insurance Company and General Electric Capital Corporation, for itself, and as agent for Certain Participants, as amended, dated December 31, 2002. 14 Code of Ethics. 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 31.1 Certification of President and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a). 31.2 Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a). 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
3 PART I ITEM 1. BUSINESS GENERAL 21st Century Insurance Group (together with its subsidiaries, referred to hereinafter as the "Company", "we", "us" or "our") is an insurance holding company registered on the New York Stock Exchange (NYSE: TW). We primarily market and underwrite personal automobile, motorcycle, and umbrella insurance in California. We also provide personal automobile insurance in four other western states (Arizona, Nevada, Oregon and Washington) and three midwestern states (Illinois, Indiana and Ohio). We began offering personal auto insurance in Illinois, Indiana and Ohio on January 28, 2004(1). Twenty-four hours per day, 365 days a year, customers have the option to purchase insurance, service their policy or report a claim over the phone directly through our centralized licensed insurance agents at 1-800-211-SAVE or through our full service Internet site at www.21st.com. We believe that we have a reputation for high quality customer service and for being among the most efficient and lowest cost providers of personal auto insurance in the markets we serve. The Company was founded in 1958, and until recently was incorporated in California. Effective December 4, 2003, we were reincorporated under the laws of the State of Delaware. Several subsidiaries of American International Group, Inc. (hereinafter referred to as "AIG") together currently own approximately 63% of our outstanding common stock. Copies of our filings with the Securities and Exchange Commission on Form 10-K, Form 10-Q, Form 8-K and proxy statements are available along with copies of earnings releases on the Company's web site at www.21st.com. Copies may also be obtained free of charge directly from the Company's Investor Relations Department (6301 Owensmouth Avenue, Woodland Hills, California 91367, phone 818-701-3595). GEOGRAPHIC CONCENTRATION OF BUSINESS We write private passenger automobile insurance primarily in California (97% of policyholders Our remaining business is written in Arizona, Nevada, Oregon and Washington. - ----------- 1 Results from these markets are not expected to be material in 2004. 4 The following table presents a geographical summary of our direct premiums written for the past five years (in millions):
Direct Premiums Written - ------------------------------------------------------------------------ Years Ended December 31, 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------ Personal auto lines(1) California $1,189.5 $967.3 $879.4 $861.6 $848.9 Arizona(2) 21.2 13.0 - - - Nevada 6.7 8.1 8.9 7.7 2.7 Oregon 1.4 1.6 2.0 2.2 0.8 Washington 4.6 5.8 8.5 9.7 3.4 - ------------------------------------------------------------------------ Total personal auto lines 1,223.4 995.8 898.8 881.2 855.8 - ------------------------------------------------------------------------ Lines in runoff Homeowner(3) and Earthquake(4) 0.1 2.4 30.5 29.5 24.7 - ------------------------------------------------------------------------ Total $1,223.5 $998.2 $929.3 $910.7 $880.5 - ------------------------------------------------------------------------
The table below summarizes the concentrations of our California vehicles in force for the voluntary personal auto lines excluding personal umbrella and motorcycle coverages as of the end of each of the past five years. Our California market share reflects a weighted distribution that tracks the concentration of households and population. At the end of 2003, 32% of the vehicles insured by us were garaged in Los Angeles County. In comparison, data from the California Department of Motor Vehicles indicates that 27% of its registrations were for vehicles in Los Angeles County.
Concentration of Voluntary Personal Auto Lines California Vehicles in Force - --------------------------------------------------------------------------- December 31, 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------- Los Angeles County 32.3% 37.2% 42.0% 43.6% 45.2% San Diego County 13.5 13.4 13.4 12.6 12.3 Southern California excluding Los Angeles and San Diego Counties(5) 21.4 23.5 25.9 26.5 26.8 Central and Northern California(6) 32.8 25.9 18.7 17.3 15.7 - --------------------------------------------------------------------------- 100.0% 100.0% 100.0% 100.0% 100.0% - ---------------------------------------------------------------------------
TYPES AND LIMITS OF INSURANCE COVERAGE Our private passenger auto insurance contract generally covers: bodily injury liability; property damage; medical payments; uninsured and underinsured motorist; rental reimbursement; uninsured motorist property damage and collision deductible waiver; towing; comprehensive; and collision. All of our policies are written for a six-month term except for policies sold to the involuntary market, which are for twelve months. Minimum levels of bodily injury and property damage are required by state law and typically cover the other party's claims when our policyholder causes an accident. Uninsured and underinsured motorist are optional coverages and cover our policyholder when the other party is at fault and has no or insufficient liability insurance to cover the insured's injuries and loss of income. Comprehensive and collision - ------------ 1 Includes motorcycle and personal umbrella coverages, which are immaterial for all periods presented. 2 Excludes amounts not consolidated prior to our acquisition of a majority of the voting interests in 21st of Arizona: $12.8 million in 2001; $14.7 million in 2000; and $12.9 million in 1999. 3 We no longer have any California homeowner policies in force. See further discussion in Item 7 under the caption Underwriting Results - Homeowner and Earthquake Lines in Runoff. 4 We ceased writing earthquake coverage in 1994, but we have remaining loss reserves from the 1994 Northridge Earthquake that are subject to upward development. See further discussion in Item 7 under the captions Underwriting Results - Homeowner and Earthquake Lines, Critical Accounting Policies, and the Notes to Consolidated Financial Statements. 5 Includes the following counties: Imperial, Kern, Orange, Riverside, Santa Barbara, San Bernardino and Ventura. 6 Includes all California counties other than Los Angeles County, San Diego County, and those specified in Footnote 5. 5 coverages are also optional and cover damage to the policyholder's automobile whether or not the insured is at fault. In some states, we are required to offer personal injury protection coverage in lieu of the medical payments coverage required in California. Various limits of liability are underwritten with maximum limits of $500,000 per person and $500,000 per accident. Our most popular bodily injury liability limits in force are $100,000 per person and $300,000 per accident. Our personal umbrella policy ("PUP") provides a choice of liability coverage limits of $1.0 million, $2.0 million or $3.0 million in excess of underlying automobile liability coverage that we write. The $2.0 million and $3.0 million limits were added in May 2002. We require minimum underlying automobile limits, written by us, of $250,000 per person and $500,000 per accident for PUP policies sold since May 2002 (limits of $100,000 per person and $300,000 per accident were previously required). We reinsure 90% of any PUP loss with unrelated reinsurers. PERSONAL AUTO PRODUCT INNOVATIONS Starting in May 2002, we began offering motorcycle coverage primarily to our auto policyholders in California. In August 2002, we introduced a new private passenger auto policy in California that does not have certain standard features found in our primary policy. This limited-feature product is similar in most respects to the product offered by many of our competitors, and is positioned as a lower-cost alternative for customers who believe they need less coverage than provided by our standard product. In October 2002, we enhanced our underwriting guidelines allowing us to provide quotes to more customers who do not meet California's statutory "good driver" definition, but who are considered to be insurable risks within our class plan. The foregoing product innovations account for approximately 9% of new auto policies written in California in 2003. Each innovation was designed to earn an underwriting profit equivalent to the rest of the California auto product (with the exception of Assigned Risk program). Initial results for each product innovation are in line with expected profit levels. MARKETING While we offer personal auto policies in eight states, most of our marketing efforts are focused on the larger urban markets in California(1). Beginning in late 2002, we resumed active marketing in Arizona. Our marketing and underwriting strategy is to appeal to careful and responsible drivers who desire a feature-rich product at a competitive price. We use direct mail, broadcast and print media, outdoor, community events and the Internet to generate inbound telephone calls, which are served by centralized licensed insurance agents. Because our sales agents are centralized, we can deliver a highly efficient and professional experience for our California and Arizona customers 24 hours per day, 365 days per year through a convenient, toll-free 800-211-SAVE telephone number. California and Arizona customers may also obtain an auto rate quotation and purchase a policy on our web site. The following table summarizes advertising expenditures (in millions) and total new auto policies written in California, our primary market, for the past five years:
Years Ended December 31, 2003 2002 2001 2000 1999 - ----------------------------------------------------------------------------- Total advertising expenditures $ 53.9 $ 43.3 $ 16.9 $ 9.8 $ 21.3 New auto policies written in California(2) 254,830 185,927 51,002 50,901 86,703
- ------------ 1 We began offering personal auto insurance in Illinois, Indiana and Ohio on January 28, 2004. Results from these new markets are not expected to be material in 2004. 2 Includes new PUP and motorcycle policies, which are insignificant for all periods presented. 6 CONSUMER ADVOCACY We have introduced several publications and community events designed to assist customers and potential customers in making choices about their auto insurance and automobile safety. The Insider's Guide to Buying California Auto Insurance, currently available in both English and Spanish, compares coverage and service features of products offered by the Company and its major competitors. The comparisons are explained in understandable language to help "demystify" the choices consumers must make in selecting their personal auto insurance carrier. We also publish the Child Safety Seat Guide, Crash Test Ratings Guide, and A Driving Need - A Guide for Mature Drivers and Those Who Care about Them. All of these publications are available free of charge on our web site at www.21st.com/company/getmore/safety/safety.jsp. We have also distributed these publications in California movie theaters, county fairs, direct mail promotions and other venues. We extended our partnership with the California Highway Patrol to address the critical safety issues of proper child safety seat installation and distracted driving. Working in conjunction with Highway Patrol officers we held 16 child safety seat inspection events in under-served communities throughout California. During these events more than 1,600 inspections were conducted, 800 unsafe/recalled seats were replaced and 1,000 new seats were donated. We also posted billboards carrying the message "Wrap Your Most Important Package Safely" in high visibility locations around the state. On the issue of distracted driving we developed a handout discouraging cell phone usage by drivers in traffic as well as a billboard campaign under the theme of "Just Drive." All of the materials are co-branded by the Company and the Highway Patrol. CUSTOMER RETENTION AND VEHICLES IN FORCE Customer retention in California, measured based on the number of insured vehicles and the number of vehicles in force, were as follows as of the end of each of the past five years:
December 31, 2003 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------- Average customer retention - California personal auto(1) 92% 93% 92% 96% 96% California vehicles in force 1,383,175 1,178,459 1,051,982 1,150,643 1,179,928 All other states vehicles in force 33,332 27,174 23,489 31,337 18,130 - ----------------------------------------------------------------------------------------- Total auto lines exposure 1,416,507 1,205,633 1,075,471 1,181,980 1,198,058 - ----------------------------------------------------------------------------------------- California auto base rate +3.9% +5.7% +4.0% +6.4% -6.9% changes APRIL May July November February
From March 1996 to February 1999, we implemented six rate decreases which resulted in a cumulative reduction in rates of nearly 23% in our California Personal Auto Program. As a result of this series of rate decreases, retention rates rose to record levels for us through 2000. Growth in vehicles in force during this period was modest as our major competitors also lowered their rates. In the year 2000, we recognized that loss costs had stopped declining and were again rising. While our competitors took no action or, in some cases, continued to take rate decreases, we took decisive action to improve our results and position us for profitable growth when the marketplace ultimately did react to these adverse trends. In 2000, we curtailed our advertising, adopted stricter underwriting measures, modified our class plan rating system, and increased our California auto program base rate by 6.4%, followed by a further rate increase of 4% in 2001. These actions contributed to the declines in retention and vehicles in force in 2000 and 2001. Beginning in the latter half of 2001, our major California competitors began implementing rate increases and we restarted active marketing and advertising, both of which contributed - ------------ 1 Represents an overall measure of customer retention, including new customers as well as long-time customers. Retention rates for new customers are typically lower than for long-time customers. 7 to the increases in our retention and vehicles in force in 2002. In January 2003, the Company received approval for a 3.9% rate increase, which we implemented for new and renewal policies effective March 31, 2003. UNDERWRITING AND PRICING The regulatory system in California requires the prior approval of insurance rates. Within the regulatory framework, we establish our premium rates based primarily on actuarial analyses of our own historical loss and expense data. This data is compiled and analyzed to establish overall rate levels as well as classification differentials. Our rates are established at levels intended to generate underwriting profits and vary for individual policies based on a number of rating characteristics. These rates are a blend of base rates and class plan filings made with the California Department of Insurance ("CDI"). Base rates are the primary amount projected to generate an adequate underwriting profit. Class plan changes are filings that serve to modify the factors that impact the base rates so that each individual receives a rate that reflects their respective losses and expenses. Class plan changes are generally meant to be revenue neutral to us, but ultimately are done in conjunction with a base rate filing. California law requires that the primary rating characteristics that must be used for automobile policies are driving record (e.g., history of accidents and moving violations), annual mileage and number of years the driver has been licensed. A number of other "optional" rating factors are also permitted and used in California, which include characteristics such as automobile garaging location, make and model of car, policy limits and deductibles, and gender and marital status. The following table summarizes changes in our base premium rates for each of the past five years. Positive numbers represent increases; negative numbers represent decreases.
Changes in Our Base Premium Rates - --------------------------------------------------------------------- Years Ended December 31, 2003 2002 2001 2000 1999 - --------------------------------------------------------------------- Personal auto lines excluding PUP California 3.9% 5.7% 4.0% 6.4% (6.9)% Arizona 3.0 3.7 16.5 20.0 (9.7) Nevada - 22.0 12.6 - - Oregon - 3.1 14.0 21.0 - Washington - 10.7 44.9 - - Lines in runoff Homeowner N/A 13.2 4.0 - (7.5) Earthquake N/A N/A N/A N/A N/A
We are required to offer insurance to any California applicant who meets the statutory definition of a "Good Driver." This definition includes all drivers licensed more than three years with no more than one violation point count under criteria contained in the California Vehicle Code. These criteria include a variety of moving violations and certain at-fault accidents. We review many of our policies prior to the time of renewal and as changes occur during the policy period. Some mid-term changes may result in premium adjustments, cancellations or non-renewals because of a substantial increase in risk. COMPETITION The personal automobile insurance market is highly competitive and is comprised of a large number of well-capitalized companies, many of which operate in a number of states and offer a wider variety of products than us. Several of these competitors are larger and have greater financial resources than us on a stand-alone basis. According to A.M. Best, we were the seventh largest writer of private 8 passenger automobile insurance in California based on direct premiums written for 2002. Our main competition comes from other major writers who concentrate on the good driver market. Market shares in California of the top ten writers of personal automobile insurance, based on direct premiums written, according to A.M. Best, for the past five years were as follows:
Market Share in California Based on Direct Premiums Written - -------------------------------------------------------------------------------- Years Ended December 31, 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------- 21ST CENTURY INSURANCE GROUP 6% 6% 6% 6% 6% State Farm Group 14 13 13 14 15 Zurich/Farmers Group 11 12 13 14 15 California State Auto Group 9 10 10 10 10 Allstate Insurance Group 9 11 10 9 8 Automobile Club of Southern California Group 9 9 9 9 8 Mercury General Group 9 8 8 8 7 USAA Group 3 3 3 3 3 Government Employees Group (GEICO) 3 3 3 2 2 Progressive Insurance Group 2 2 2 3 2
SERVICING OF BUSINESS Computerized systems provide the information resources, telecommunications and data processing capabilities necessary to manage our business. These systems support the activities of our marketing, sales, service and claims people who are dedicated to serving the needs of customers. New technology investments have been focused on making it faster and easier for customers to transact business while ultimately lowering our per-transaction costs. Using our web site, most customers are now able to receive and accept quotations, bind policies, pay their bills, inquire about the status of their policies and billing information, make most common policy changes, submit first notice of loss on a claim and access a wealth of consumer information. New technology provides our sales and service agents with integrated knowledge about customer contacts and enables speedier and even more convenient customer service. CLAIMS Claims operations include the receipt and analysis of initial loss reports, assignment of legal counsel when necessary, and management of the settlement process. Whenever possible, physical damage claims are handled through the use of Company drive-in claims facilities, vehicle inspection centers and Direct Repair Program ("DRP") providers. The claims management staff administers the claims settlement process and oversees the work of the legal and adjuster personnel involved in that process. Each claim is carefully analyzed to provide for fair loss payments, compliance with our contractual and regulatory obligations and management of loss adjustment expenses. Liability and property damage claims are handled by specialists in each area. We make extensive use of our DRP to expedite the repair process. The program involves agreements between us and more than 160 independent repair facilities. We agree to accept the repair facility's damage estimate without requiring each vehicle to be reinspected by our adjusters. All DRP facilities undergo a screening process before being accepted, and we maintain an aggressive inspection audit program to assure quality results. Our inspection teams visit all repair facilities each month and perform a quality control inspection on approximately 40% of all repairable vehicles in this program. The customer benefits by getting the repair process started faster and by having the repairs guaranteed for as long as the customer owns the vehicle. We benefit by not incurring the overhead expense of a larger staff of adjusters and by negotiating repair prices we believe are beneficial. Currently, more than 30% of all damage repairs are handled using the DRP method. 9 Our policy is to use original equipment manufacturer ("OEM") parts. As a result, we believe we do not have exposure to the types of class action suits some competitors have drawn over their use of after market parts. We have established 12 claims division service offices in areas of major customer concentrations. Our eight vehicle inspection centers, located in Southern and Northern California, handle total losses, thefts and vehicles that are not drivable. The claims services division is responsible for subrogation and medical payment claims. We also maintain a Special Investigations Unit as required by the California State Insurance Code, which investigates suspected fraudulent claims. We believe our efforts in this area have been responsible for saving several million dollars annually. We utilize internal legal staff to handle most aspects of claims litigation. These attorneys handle approximately 75% of all lawsuits against our policyholders. Suits directly against us and those which may involve a conflict of interest, are assigned to outside counsel. GROWTH AND PROFITABILITY OBJECTIVES We have stated that our long-term goal is to build an organization that consistently produces a 96% combined ratio prepared using accounting principles generally accepted in the United States of America ("GAAP"), or better, and at least 15% annual growth in direct written premiums. To achieve these goals, we have undertaken many steps since 1999 including: - - Restored pricing and underwriting discipline; - - Successfully restarted active advertising for new customers; - - Introduced product innovations to spur growth and profitability; and - - Launched numerous initiatives to lower unit transaction costs. UNDERWRITING EXPENSE RATIO - PERSONAL AUTO LINES Our direct statutory underwriting expense ratio for private passenger auto (defined as direct underwriting expenses on a statutory basis divided by direct premiums written), was lower than seven of our nine largest competitors in the markets in which we served for 2002. The following table presents statutory underwriting expense ratio information extracted from statutory filings by A.M. Best for the top ten California personal automobile insurance companies for 1998 through 2002, the most recent data available.
Statutory Underwriting Expense Ratio (1) ------------------------------------ Years Ended December 31, 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------- 21ST CENTURY INSURANCE GROUP 20.3%(2) 15.0% 14.1% 13.8% 10.9% Zurich/Farmers Group 27.0% 26.2% 25.8% 26.6% 26.1% Mercury General Group 25.1% 25.8% 25.9% 26.7% 26.3% State Farm Group 23.0% 22.6% 23.5% 22.9% 21.6% California State Auto Group 22.8% 23.9% 25.1% 15.7% 19.0% Allstate Insurance Group 22.7% 23.1% 25.5% 24.1% 22.7% Progressive Insurance Group 21.5% 22.8% 21.1% 21.8% 22.7% Automobile Club of Southern California Group 21.2% 21.6% 22.2% 22.2% 22.1% Government Employees Group (GEICO) 14.7% 14.2% 17.0% 18.1% 17.7% USAA Group 12.0% 12.7% 12.3% 13.7% 11.7%
- ------------ 1 There is generally a difference between underwriting expense ratios prepared using statutory accounting principles and GAAP. In 2003, our GAAP underwriting expense ratio was 17.9% compared to our statutory underwriting expense ratio of 16.7%. 2 In the third quarter of 2002, we recorded a pre-tax charge to write-off $37.2 million of previously capitalized software costs for abandoned portions of an advanced personal lines processing system. The underwriting expense ratio excluding such write-down would have been 16.6%. 10 Our direct statutory underwriting expense ratio for 2003 was 16.7%. Excluding the effects of the 2002 software write-off recorded in the third quarter of 2002 our direct statutory, underwriting expense ratio increased by 0.1% from 16.6% to 16.7% in 2003 over 2002. Comparable 2003 figures for our competitors are not yet available. In 2002, the capacity of the Company's new business call center was doubled, enabling us to handle a record volume of new business throughout the year. Several productivity enhancement initiatives are underway aimed at reducing per-unit process costs. The increases in our ratio from 1998 through 2001 were primarily due to the cumulative 23% decrease in rate level in California from 1996 to 1999, and increases in data processing, depreciation and advertising expenditures. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES The cost to settle a customer's claim is comprised of two major components: losses and loss adjustment expenses. Losses in connection with third party coverages represent damages as a result of an insured's acts that result in property damage or bodily injury. First party losses involve damage or injury to the insured's property or person. In either case, the ultimate cost of the loss is not always immediately known and, over time, may be higher or lower than initially estimated. When establishing initial and subsequent estimates, the amount of loss is reduced for salvage (e.g., proceeds from the disposal of the wrecked automobile) and subrogation (e.g., proceeds from another party who is fully or partially liable, such as the insurer of the driver who caused the accident involving one of our customers). Loss adjustment expenses ("LAE") represent the costs of adjusting, investigating and settling claims, and are primarily comprised of the cost of our claim department, external inspection services, and internal and external legal counsel. Corporate support areas such as human resources, finance, and information technology support our overall operations, and, accordingly, a portion of their operational costs are also allocated to LAE. The LAE allocable portion of such corporate support costs is reviewed periodically as changes occur in our organization, and we modify the allocation percentages as appropriate. During 2003, such changes effectively decreased our ratio of LAE to earned premium by approximately 1.8% from 6.2% in 2002 to 4.4% in 2003. Accounting for losses and LAE is highly subjective because these costs must be estimated, often weeks, months or even years in advance of when the payments actually are made to claimants, attorneys, claims personnel and others involved in the claims settlement process. At the time of sale of an auto policy, for example, the number of claims that will happen is unknown, and so is the ultimate amount it will take to settle them. Accounting principles require insurers to record estimates for loss and LAE in the periods in which the insured events, such as automobile accidents, occur. This estimation process requires us to estimate both the number of accidents that may have occurred (called "frequency") and the ultimate amount of loss and LAE (called "severity") related to each accident. We employ actuaries who are professionally trained and certified in the process of establishing estimates for frequency and severity. From time to time, actuarial experts from outside firms are engaged to review the work of our actuaries. Historically, our actuaries have not projected a range around the carried loss reserves. Rather, they have used several methods and different underlying assumptions to produce a number of point estimates for the required reserves. Management reviews the assumptions underlying the loss ratios and selects the carried reserve after carefully reviewing the appropriateness of the underlying assumptions. Estimating the Frequency of Auto Accidents. By studying the historical lag between the actual date of loss and the date the accident is reported by the customer to the claims department, our actuaries can make a reasonable, yet never perfect, estimate for the number of claims that ultimately will be reported for a given period. This measurement is often referred to as frequency. The difference between the estimated ultimate number of claims that will be made and the number that have actually been reported in any given period is often referred to as "IBNR" (incurred but not reported) claims. 11 For example, when estimating the frequency of accidents, history has shown that approximately 99.7% of property damage claims and 89.2% of liability claims are reported by year-end. Accordingly, in this illustration, our actuaries add an estimated 0.3% to the number of property damage claims and 10.8% to the number of liability claims to provide for incurred but not reported ("IBNR") claims. In making these estimates, a fundamental assumption is that past events are representative indicators of future outcomes. Estimating the Severity of Auto Claims. Adjusters in our claim department establish loss estimates for individual claims based upon various factors such as the extent of the injuries, property damage sustained, and the age of the claim. Our actuaries review these estimates, giving consideration to the adjusters' historical ability to accurately estimate the ultimate claim and length of time it will take to settle the claim, and provide for development in the adjusters' estimates as applicable. Generally, the longer it takes to settle a claim, the higher the ultimate claim cost. The ultimate amount of the loss is considered the "severity" of the claim. In addition, the actuaries estimate the severity of the IBNR claims. The severities are estimated by our actuaries each month based on historical studies of average claim payments and the patterns of how the claims were paid. Again, the fundamental assumption used in making these estimates is that past events are reliable indicators of future outcomes. Estimating Loss and LAE for Lines in Runoff. While the personal auto lines represent our core business, we also have losses and LAE relating to developments on remaining loss reserves for homeowners and earthquake lines. These lines are said to be "in runoff" because we no longer have policies in force. As discussed in the Notes to Consolidated Financial Statements, we have not written any earthquake policies since 1994 and we exited the homeowners insurance business at the beginning of 2002. Developing reserve estimates for the earthquake line is particularly subjective because most of the remaining earthquake claims are in litigation. Our actuaries evaluate the homeowners reserve requirement on a quarterly basis, while personnel in our legal and claims areas prepare monthly evaluations of the earthquake reserves. LOSS AND RESERVE DEVELOPMENT Management believes that our reserves are adequate and represent our best estimate based on the information currently available. However, because reserve estimates are necessarily subject to the outcome of future events, changes in estimates are unavoidable in the property and casualty insurance business. These changes sometimes are referred to as "loss development" or "reserve development." For the personal auto lines, our actuaries prepare a monthly evaluation of loss and LAE indications by accident year, and we assesses whether there is a need to adjust reserve estimates. Homeowners reserves are reviewed quarterly. The adequacy of earthquake reserves is reviewed monthly by personnel in our legal and claims areas. As claims are reported and settled and as other new information becomes available, changes in estimates are made and are included in earnings of the period of the change. 12 The changes in prior accident year estimates recorded in each of the past five calendar years, net of applicable reinsurance, are summarized below (in thousands)(1):
Changes in the Calendar Year of Prior Accident Year Estimates, Net of Reinsurance - --------------------------------------------------------------------------- Years ended December 31, 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------- Personal auto $11,159 $16,200 $ 45,742 $42,178 $(14,239) Homeowner and Earthquake(2) 40,048 56,158 72,265 2,845 5,543 - --------------------------------------------------------------------------- $51,207 $72,358 $118,007 $45,023 $ (8,696) - ---------------------------------------------------------------------------
To understand these changes, it is useful to put them in the context of the cumulative reserve development experienced by the Company over a longer time frame. The tables on the following pages present the development of loss and LAE reserves for the personal auto lines (Table 1) and for the homeowner and earthquake lines in runoff (Table 2), for the years 1993 through 2003. The figures in both tables are shown gross of reinsurance. A redundancy (deficiency) exists when the original reserve estimate is greater (less) than the re-estimated reserves. Each amount in the tables includes the effects of all changes in amounts for prior periods. The tables do not present accident year or policy year development data. Conditions and trends that have affected the development of liabilities in the past may not necessarily occur in the future. Therefore, it would not be appropriate to extrapolate future deficiencies or redundancies based on the table. A detailed discussion of loss reserve development follows the tables. The top line of each table shows the reserves at the balance sheet date for each of the years indicated. The upper portion of the table indicates the cumulative amounts paid as of subsequent year-ends with respect to that reserve liability. The lower portion of the table indicates the re-estimated amount of the previously recorded reserves based on experience as of the end of each succeeding year, including cumulative payments made since the end of the respective year. The estimates change as more information becomes known about the frequency and severity of claims for individual years. - ------------ 1 Positive amounts represent deficiencies in loss and LAE expenses, while negative amounts represent redundancies. 2 We no longer have any California homeowners policies in force. We ceased writing earthquake coverage in 1994, but we have remaining loss reserves from the 1994 Northridge Earthquake that are subject to upward development. See further discussion in Item 7 under the captions Underwriting Results - Homeowner and Earthquake Lines in Runoff, Critical Accounting Policies, and the Notes to Consolidated Financial Statements. 13
- ------------------------------------------------------------------------------------------------------------------------------ TABLE 1 - Auto Lines as of December 31, (Amounts in thousands, except claims) 1993 1994 1995 1996 1997 1998 1999 2000 - ------------------------------------------------------------------------------------------------------------------------------ RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES, DIRECT $525,892 $552,872 $506,747 $468,257 $403,263 $329,021 $261,990 $286,057 PAID (CUMULATIVE) AS OF: One year later 319,938 329,305 318,273 260,287 253,528 247,317 242,579 268,515 Two years later 393,731 403,462 392,420 336,538 319,064 307,797 311,659 332,979 Three years later 410,808 429,595 416,541 354,854 333,349 324,778 324,740 352,592 Four years later 422,640 435,795 422,393 357,913 340,907 326,932 327,745 Five years later 425,021 437,041 423,429 363,068 341,446 327,418 Six years later 425,397 437,052 427,723 362,824 341,374 Seven years later 425,041 437,015 427,355 362,508 Eight years later 424,982 436,737 427,059 Nine years later 424,745 436,518 Ten years later 424,571 RESERVES RE-ESTIMATED AS OF: One year later 451,054 465,934 440,158 365,566 359,262 313,192 309,953 352,709 Two years later 429,602 438,672 424,091 366,858 337,258 321,711 340,914 354,720 Three years later 418,576 439,125 425,404 359,925 335,246 341,695 328,190 361,264 Four years later 424,630 438,895 424,643 357,607 355,605 326,506 329,182 Five years later 425,880 436,397 422,389 377,414 340,537 326,565 Six years later 424,475 435,878 442,024 361,980 340,552 Seven years later 424,188 451,478 426,719 361,865 Eight years later 424,603 448,972 426,636 Nine years later 424,435 436,237 Ten years later 424,388 - ------------------------------------------------------------------------------------------------------------------------------ REDUNDANCY (DEFICIENCY) $101,504 $116,635 $ 80,111 $106,392 $ 62,711 $ 2,456 $(67,192) $(75,207) - ------------------------------------------------------------------------------------------------------------------------------ Supplemental Auto Claims Data: Claims reported during the year for CA only 315,558 352,182 324,143 294,615 279,211 295,905 307,403 323,395 Claims pending at year-end for CA only 62,892 70,717 63,142 58,172 55,738 56,739 57,134 54,760 - ------------------------------------------------------------------------------------------------------------------------------ - ---------------------------------------------------------------------------- TABLE 1 - Auto Lines as of December 31, (Amounts in thousands, except claims) 2001 2002 2003 - ---------------------------------------------------------------------------- RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES, DIRECT $301,985 $333,113 $419,913 PAID (CUMULATIVE) AS OF: One year later 239,099 249,815 Two years later 312,909 Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Ten years later RESERVES RE-ESTIMATED AS OF: One year later 323,791 348,865 Two years later 338,338 Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Ten years later - ------------------------------------------------------------------ REDUNDANCY (DEFICIENCY) $(36,353) $(15,752) - ------------------------------------------------------------------ Supplemental Auto Claims Data: Claims reported during the year for CA only 298,417 293,955 331,734 Claims pending at year-end for CA only 50,365 51,488 58,577 - ----------------------------------------------------------------------------
See Notes 8 and 16 of the Notes to Consolidated Financial Statements 14
TABLE 2 - Homeowner and Earthquake Lines in Runoff as of December 31, (Amounts in thousands) 1993 1994 1995 1996 1997 1998 1999 - ------------------------------------------------------------------------------------------------------------------------- RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES, DIRECT $51,598 $ 203,371 $ 78,087 $ 75,272 $ 34,624 $ 52,982 $ 14,258 PAID (CUMULATIVE) AS OF: One year later 26,936 193,887 55,738 75,100 30,232 48,848 13,103 Two years later 34,717 236,406 119,211 100,296 74,127 58,281 37,404 Three years later 37,052 295,768 139,792 142,850 82,974 81,887 83,985 Four years later 39,504 314,225 180,799 151,342 106,274 128,266 147,856 Five years later 40,550 354,324 188,987 174,513 152,592 192,121 Six years later 41,217 362,379 211,771 220,805 216,383 Seven years later 42,318 385,161 257,839 284,455 Eight years later 42,339 431,154 321,169 Nine years later 42,455 494,260 Ten years later 42,502 RESERVES RE-ESTIMATED AS OF: One year later 41,685 253,775 116,741 101,903 77,445 58,582 18,024 Two years later 40,189 290,526 142,071 145,635 82,716 61,393 72,546 Three years later 39,657 316,256 182,616 150,434 85,519 116,429 125,089 Four years later 41,025 355,690 186,631 153,521 140,532 169,157 163,045 Five years later 41,205 359,084 190,334 208,533 193,375 207,064 Six years later 41,586 363,260 245,267 261,389 231,217 Seven years later 42,599 418,407 298,161 299,109 Eight years later 42,450 471,330 335,657 Nine years later 42,524 508,639 Ten years later 42,579 - ------------------------------------------------------------------------------------------------------------------------- REDUNDANCY (DEFICIENCY) $ 9,019 $(305,268) $(257,570) $(223,837) $(196,593) $(154,082) $(148,787) - ------------------------------------------------------------------------------------------------------------------------- (Amounts in thousands) 2000 2001 2002 2003 - ----------------------------------------------------------------------------------- RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES, DIRECT $ 12,379 $ 47,305 $ 50,896 $18,410 PAID (CUMULATIVE) AS OF: One year later 30,706 58,274 71,147 Two years later 78,647 125,447 Three years later 143,564 Four years later Five years later Six years later Seven years later Eight years later Nine years later Ten years later RESERVES RE-ESTIMATED AS OF: One year later 68,245 103,470 89,281 Two years later 121,176 142,211 Three years later 159,331 Four years later Five years later Six years later Seven years later Eight years later Nine years later Ten years later - -------------------------------------------------------------------------- REDUNDANCY (DEFICIENCY) $(146,952) $(94,906) $(38,385) - --------------------------------------------------------------------------
NOTE: Costs associated with claims that were re-opened as a result of SB 1899 are displayed in the table as a 1994 event (since they all related to the Northridge Earthquake), even though the legislation allowing the re-opening of related claims was not passed until almost seven years later. See Notes 8 and 16 of the Notes to Consolidated Financial Statements 15 Auto Lines Reserve Development. As shown in the ten-year development table, our auto lines historically developed redundancies prior to 1999 and have exhibited adverse development for 1999 through 2002. The period from 1993 to 1999 was quite unusual in that, during that time, we experienced declining frequencies and declining severities in our auto line. As Table 1 shows, we did not immediately have confidence in these declining trends and did not immediately lower our reserve estimates. Much of the decline in trend occurred between 1996 and 1998 because of moderation in health care costs due to greater use of HMO's and laws that were enacted in California that limited the ability of uninsured motorists and drunk drivers to collect non-economic damages. During 1999, we assumed that the past trend of declining frequencies and severities would continue. However, in retrospect, it can now be seen that the favorable decline in trends ended and loss costs began to increase. In 2000, we continued to assume lower loss severity primarily because of what then seemed to be an acceleration in the pattern of claims payments and the uncertainty inherent in identifying a change in multi-year patterns. In 2001, we experienced significant, unexpected development in our uninsured motorist coverage while the actuarial indications for most prior accident years were adjusted upward as more data became available. The changes in injury trends affected the entire California market and occurred, to a greater or lesser degree, in virtually every state in the country. Starting in 2001, we improved the quality and timeliness of the data available to make initial estimates and periodic changes in estimates. We have dedicated more resources to better understand the underlying drivers of the changes in frequency and severity trends as they begin emerging. For example, in the second quarter of 2003 we began making accident month actuarial analyses of our reserves for the auto lines. Homeowner and Earthquake Lines in Runoff. In Table 2, substantially all of the development relates to the earthquake line. A major earthquake occurred on January 17, 1994, centered in the San Fernando Valley community of Northridge (the "Northridge Earthquake"). Through December 31, 2003, we have settled over 46,000 Northridge Earthquake claims at a total cost (i.e., loss plus LAE) of over $1.2 billion. In September 2000, the State of California enacted Senate Bill 1899 ("SB 1899"), which allowed Northridge Earthquake claims barred by contract and the statute of limitations to be reopened during calendar year 2001. Please see Note 16 of the Notes to Consolidated Financial Statements for additional background on the Northridge Earthquake and SB 1899, including a discussion of factors that have contributed to the difficulty of obtaining accurate loss and LAE estimates in the wake of that legislation. The loss development in Table 2 is easiest to understand by dividing it into "pre-SB 1899" and "post-SB 1899" segments. This is because the costs relating to the re-opened claims are displayed in the table as a 1994 event (since they all related to the Northridge Earthquake), even though the legislation allowing the re-opening of certain claims was not passed until almost seven years later. Before SB 1899 was passed in late 2000, we had only approximately 50 earthquake claims remaining to be resolved out of an initial 35,000 homeowner earthquake claims. Although we settled 98% of the claims within a year of the quake, many upward changes in estimates were required in 1994 and beyond as new information emerged on the severity of the damages and as settlements of litigated claims occurred. As a result, we recorded the following upward changes in loss estimates after 1994, but before SB 1899 came into play: 1995 - $57 million; 1996 - $40 million; 1997 - $24.8 million; 1998 - $40 million; 1999 - $2.5 million; and 2000 - $3.5 million. Calendar year 2001 was the one-year window SB 1899 permitted for claimants to bring additional insurance claims and legal actions allegedly arising out of the Northridge Earthquake. Prior to the enactment of this law, such claims were considered by previously applicable law to be fully barred, or settled and closed. Any additional legal actions with respect to such claims were barred under the policy contracts, settlement agreements, and/or applicable statutes of limitation. As a result of the enactment of this unprecedented legislation, claimants asserted additional claims against the Company allegedly related to damages that occurred in the 1994 earthquake but which were now being reported seven years later in 2001. Plaintiff attorneys and public adjusters conducted extensive advertising campaigns to solicit claimants. Hundreds of claims were filed in the final days and hours before the December 31, 2001 deadline. 16 During 2001, the Company recorded an additional $70 million of pre-tax losses related to the 1994 earthquake, including $50 million in the fourth quarter to cover the indemnity and inspection portion of the claims. The Company lacked sufficient information to record a reasonable estimate of the related legal defense costs until the third quarter of 2002, at which time an additional provision of $46.9 million was recorded. In the first two quarters of 2002, we expensed an additional $11.9 million of legal defense costs as they were paid. Based on subsequent developments, we recorded an additional provision of $37.0 million in the first quarter of 2003. At the end of each month, legal and claim personnel within the Company review the adequacy of the remaining SB 1899 reserves based on the most current information available. Based on that review, we believe our remaining earthquake reserves are adequate as of December 31, 2003. However, we continue to caution that these estimates are subject to a greater than normal degree of uncertainty and possible future material adjustment as new facts become known. REINSURANCE A reinsurance transaction occurs when an insurer transfers or cedes a portion of its exposure to a reinsurer for a premium. The reinsurance cession does not legally discharge the insurer from its liability for a covered loss, but provides for reimbursement from the reinsurer for the ceded portion of the risk. We periodically monitor the continuing appropriateness of our reinsurance arrangements to determine that our retention levels are reasonable and that our reinsurers are financially sound, able to meet their obligations under the agreements and that the contracts are competitively priced. The majority of our cessions are with AIG subsidiaries, which have earned A.M. Best's highest financial rating of A++. The A.M. Best financial ratings of our other reinsurers range from A- to A+. Our reinsurance arrangements are discussed in more detail in Note 10 of the Notes to Consolidated Financial Statements. Our net retention of insurance risk after reinsurance for 2004 and the preceding five years is summarized below:
Contracts Incepting During ----------------------------------------- Net Retention 2004 2003 2002 2001 2000 1999 - ------------------------------------------------------------------------ Auto and motorcycle lines 100% 100% 97%(1) 94% 92% 90% Personal umbrella policies(2) 10 10 10 16 37 36 Homeowner line in runoff 0 0 0 94 92 0
We also have catastrophe reinsurance agreements relating to the auto line with Endurance Specialty Insurance Ltd., Folksamerica Reinsurance Company and Transatlantic Reinsurance Company (a majority held AIG subsidiary), which reinsure any covered events up to $30.0 million in excess of $15.0 million ($45.0 million in excess of $20.0 million effective January 1, 2004). - ------------ 1 Effective September 1, 2002, we entered into an agreement to cancel future cessions under our quota share with AIG subsidiaries. The treaty would have ceded 4% of premiums for the auto and motorcycle lines to AIG subsidiaries in the remainder of 2002 and would have declined to 2% in 2003. After September 1, 2002, 100% of auto and motorcycle premiums are retained by us. 2 Personal umbrella coverage is only available to our auto customers. Approximately 1% of the auto customers have umbrella coverage. 17 STATE REGULATION OF INSURANCE COMPANIES Insurance companies are subject to regulation and supervision by the insurance departments of the various states. The insurance departments have broad regulatory, supervisory and administrative powers, such as: - - Licensing of insurance companies, agents and customer service employees; - - Prior approval, in California and some other jurisdictions, of premium rates; - - Establishment of capital and surplus requirements and standards of solvency; - - Nature of, and limitations on, investments insurers are allowed to hold; - - Periodic examinations of the affairs of insurers; - - Annual and other periodic reports of the financial condition and results of operations of insurers; - - Establishment of statutory accounting rules; - - Issuance of securities by insurers; - - Restrictions on payment of dividends; and - - Restrictions on transactions with affiliates. Currently, the California Department of Insurance ("CDI") has primary regulatory jurisdiction over our subsidiaries, including prior approval of premium rates. The CDI typically conducts a financial examination of our affairs every three years. The most recently completed triennial examination, for the three years ended December 31, 1999, did not require us to restate our 1999 statutory financial statements. In general, the current regulatory requirements in the other states in which our subsidiaries are licensed insurers are no more stringent than in California. In addition to regulation by the CDI, we and the personal lines insurance business in general are also subject to legislative, judicial and political action in addition to the normal business forces of competition between companies and the choices of consumers. To our knowledge, no new laws were enacted in 2003 by any state in which we do business that are expected to have a material impact on the auto insurance industry. However, under the preceding Insurance Commissioner, the State of California began hearings for the purpose of implementing generic rating factors in connection with the Commissioner's authority to approve insurance rates, including the rating of auto insurance. The draft regulations made public by the CDI focus on restricting an insurer's rate of return rather than on the price charged by the insurer to the consumer. If implemented, we believe these draft regulations could negatively affect our profitability. HOLDING COMPANY REGULATION Our subsidiaries are also subject to regulation by the CDI pursuant to the provisions of the California Insurance Holding Company System Regulatory Act (the "Holding Company Act"). Many transactions defined to be of an "extraordinary" nature may not be effected without the prior approval of the CDI. In addition, the Holding Company Act limits the amount of dividends our insurance subsidiaries may pay. An extraordinary transaction includes a dividend which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurance company's policyholders' surplus as of the preceding December 31 or (ii) the insurance company's statutory net income for the preceding calendar year. The insurance subsidiaries currently have $75.1 million of statutory unassigned surplus that could be paid as dividends to the parent company without prior written approval from insurance regulatory authorities in 2004. However, given the current uncertainty surrounding the taxability of dividends received by holding companies from their insurance subsidiaries (see further discussion in Item 3 of this report and Note 15 of the Notes to Consolidated Financial Statements), it is unlikely that our insurance subsidiaries will make any dividend payments to us in 2004. There is no assurance that the related tax issue will be favorably resolved in the near term, in which case we face the prospect of raising additional capital at the holding company level, cutting or ceasing dividends to stockholders, or having to pay the additional tax on dividends from the insurance company to the holding company. 18 NON-VOLUNTARY BUSINESS Automobile liability insurers in California are required to participate in the California Automobile Assigned Risk Plan ("CAARP"). Drivers whose driving records or other relevant characteristics make them difficult to insure in the voluntary market may be eligible to apply to CAARP for placement as "assigned risks." The number of assignments for each insurer is based on the total applications received by the plan and the insurer's market share. As of December 31, 2003, the number of assigned risk insured vehicles was 3,678 compared to 2,436 at the end of 2002. The CAARP assignments have historically produced underwriting losses. As of December 31, 2003, this business represented less than 1% of our total direct premiums written, and the underwriting losses were $0.5 million in 2003, $0.5 million in 2002 and $0.7 million in 2001. Insurers offering homeowner insurance in California are required to participate in the California FAIR Plan ("FAIR Plan"). FAIR Plan is a state administered pool of difficult to insure homeowners. Each participating insurer is allocated a percentage of the total premiums written and losses incurred by the pool according to its share of total homeowner direct premiums written in the state. Participation in the current year FAIR Plan operations is based on the pool from two years prior. Since we ceased writing direct homeowners business in 2002, the Company will continue to receive assignments in the 2004 calendar year. Our FAIR Plan underwriting results for 2003, 2002 and 2001 were immaterial. However, a major shortfall in FAIR Plan operations, such as might be caused by a catastrophe, could result in an increase in costs. EMPLOYEES We had approximately 2,700 full and part-time employees at December 31, 2003. We provide medical, pension and 401(k) savings plan benefits to eligible employees, according to the provisions of each plan. DEBT OFFERING In December 2003, we completed a private offering of $100 million principal amount of 5.9 percent Senior Notes due in December 2013. The effective interest rate on the Senior Notes when all offering costs are taken into account and amortized over the term of the Senior Notes is approximately 6 percent per annum. Of the $99.2 million net proceeds from the offering, $85 million was used to increase the statutory surplus of our wholly-owned subsidiary, 21st Century Insurance Company, and the balance was retained by our holding company. Under a registration rights agreement executed in connection with the offering, we have agreed to, among other things: (i) file a registration statement on or before April 7, 2004 enabling holders to exchange the notes for publicly registered notes; (ii) use our reasonable best efforts to cause the registration statement relating to the exchange offer to become or be declared effective on or before June 6, 2004; (iii) use our reasonable best efforts to consummate the exchange offer within 45 days after the effective date of the registration statement. In the event such registration statement does not become effective by June 6, 2004, the interest rate on the Senior Notes will increase by 0.25%. ITEM 2. PROPERTIES We lease approximately 400,000 square feet of office space for our headquarters facilities, which are located in Woodland Hills, California. The lease term expires in February 2015, and the lease may be renewed for two consecutive five-year periods. We also lease office space in 17 other locations, of which 9 locations are in California primarily for claims-related employees. We anticipate no difficulty in extending these leases or obtaining comparable office facilities in suitable locations. On December 31, 2002, the Company entered into a sale-leaseback transaction for $15.8 million of equipment and leasehold improvements and $44.2 million of software. The leaseback transaction has been accounted for as a capital lease. For a summary of the Company's lease obligations, see discussion under Item 7 of this report and Notes 7 and 12 of the Notes to Consolidated Financial Statements. 19 ITEM 3. LEGAL PROCEEDINGS In the normal course of business, the Company is named as a defendant in lawsuits related to claims and insurance policy issues, both on individual policy files and by class actions seeking to attack the Company's business practices. A description of the legal proceedings to which the Company and its subsidiaries are a party is contained in Note 12 of the Notes to Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 17, 2003, the majority holder of the Company's common stock approved by written consent (i) to change the Company's state of incorporation from California to Delaware pursuant to a merger of the Company with and into a wholly owned subsidiary of the Company organized under the laws of the State of Delaware and (ii) a form of indemnity agreement for the Company's directors and officers. The Company's Certificate of Incorporation and Bylaws, attached as Appendices B and C, respectively, to the Information Statement filed with the SEC on November 13, 2003, are incorporated by reference. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) PRICE RANGE OF COMMON STOCK The following table sets forth the high and low bid prices on the New York Stock Exchange for the common stock for the indicated periods.
2003 2002 HIGH LOW High Low - ---------------------------------------------- Fourth Quarter $14.50 $13.00 $14.24 $ 9.60 Third Quarter 16.05 13.03 19.67 9.15 Second Quarter 17.25 12.00 21.80 17.70 First Quarter 13.50 11.20 19.50 15.82
(b) HOLDERS OF COMMON STOCK The approximate number of holders of our common stock on December 31, 2003 was 600. (c) DIVIDENDS We paid quarterly cash dividends of $0.08 per share from the first quarter of 2001 through the third quarter of 2002. Quarterly dividends of $0.02 per share were paid from the fourth quarter of 2002 through the fourth quarter of 2003. The Company's Board of Directors considers a variety of factors in determining the timing and amount of dividends. Accordingly, the Company's past history of dividend payments does not assure that future dividends will be paid. (d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS Securities authorized for issuance under equity compensation plans at December 31, 2003 are as follows:
COLUMN (A) COLUMN (B) COLUMN (C) WEIGHTED- NUMBER OF SECURITIES NUMBER OF SECURITIES AVERAGE EXERCISE REMAINING AVAILABLE FOR TO BE ISSUED UPON PRICE OF FUTURE ISSUANCE UNDER EQUITY EXERCISE OF OUTSTANDING COMPENSATION PLANS OUTSTANDING OPTIONS, OPTIONS, (EXCLUDING SECURITIES WARRANTS AND RIGHTS WARRANTS AND REFLECTED IN COLUMN (A)) PLAN CATEGORY (IN THOUSANDS) RIGHTS (IN THOUSANDS) - ------------------------------ --------------------- ----------------- ----------------------------- Equity compensation plans approved by security holders 6,744 $ 17.05 2,780 Equity compensation plans not approved by security holders None N/A N/A - ------------------------------ --------------------- ----------------- ----------------------------- Total 6,744 $ 17.05 2,780 - ------------------------------ --------------------- ----------------- -----------------------------
See note 14 to the Notes to Consolidated Financial Statements for additional information. 20 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for each of the years in the five-year period ended December 31, 2003 should be read in conjunction with the Company's consolidated financial statements and the accompanying notes included in Item 8 of this report. All amounts set forth in the following tables are in thousands, except for ratios and per share data.
Years Ended December 31, 2003 2002 2001 2000 1999 - ----------------------------------------------------------------------------------------- PERSONAL AUTO LINES DATA Direct premiums written $1,223,377 $995,794 $898,862 $881,212 $ 855,783 Ceded premiums written(1) (4,858) (18,902) (56,205) (72,675) (86,974) - ----------------------------------------------------------------------------------------- Net premiums written 1,218,519 976,892 842,657 808,537 768,809 Net premiums earned 1,172,679 924,559 838,489 803,770 770,234 Loss and LAE ratio(2) 78.6% 82.9% 88.1% 90.8% 77.4% Underwriting expense ratio(3) 17.9 15.6 14.9 14.2 12.3 - ----------------------------------------------------------------------------------------- Combined ratio(4) 96.5% 98.5% 103.0% 105.0% 89.7% - ----------------------------------------------------------------------------------------- ALL LINES DATA Direct premiums written $1,223,484 $998,248 $929,315 $910,720 $ 880,531 Ceded premiums written(5) (4,854) (32,949) (60,359) (78,592) (111,718) - ----------------------------------------------------------------------------------------- Net premiums written 1,218,630 965,299 868,956 832,128 768,813 Net premiums earned 1,172,677 924,559 864,145 825,486 770,423 Total revenues 1,246,464 981,295 914,078 869,762 832,681 Loss and LAE ratio 82.0% 89.4% 96.7% 90.8% 78.6% Expense ratio(3) 17.9 15.5 15.0 14.4 12.9 - ----------------------------------------------------------------------------------------- Combined ratio(6) 99.9% 104.9% 111.7% 105.2% 91.5% - ----------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 53,575 $(12,256) $(27,568) $ 12,945 $ 87,528 EARNINGS (LOSS) PER SHARE Basic $ 0.63 $ (0.14) $ (0.32) $ 0.15 $ 1.00 Diluted 0.63 (0.14) (0.32) 0.15 1.00 DIVIDENDS DECLARED 0.08 0.26 0.32 0.48 0.64 - ------------ 1 The decrease in premiums ceded from 1999 through 2003 was caused primarily by scheduled decreases in the AIG subsidiaries quota share program, which was terminated effective September 1, 2002. 2 The loss and LAE ratios have decreased since 2000 primarily due to increases in net premiums earned and the favorable impact on claim frequency of drought conditions that have largely prevailed in southern California over the past 36 months. 3 The increase in the 2003 and 2002 expense ratios is primarily due to increased acquisition costs in advertising and staffing. The increase in the expense ratio from 1999 to 2001 reflects higher depreciation charges due to investments in new technology and the effects of rate decreases taken in 1997 to 1999. 4 The combined ratio for the personal auto lines was impacted by the following items: $37.2 million of costs related to a write-off of software in 2002; $13.6 million of costs associated with workforce reductions and the settlement of litigation matters in 2001; Year 2000 remediation costs of $2.4 million in 1999; and unfavorable (favorable) prior accident year loss and LAE development of $11.2 million, $16.2 million, $45.7 million, $42.2 million and $(14.2) million in 2003, 2002, 2001, 2000, and 1999, respectively. 5 In addition to the AIG subsidiaries cession discussed in Note 1 above, our homeowners line was 100% reinsured in 1998, 1999 and 2002. 6 In addition to the effect of the items described in footnote 4 above, the combined ratio for all lines was impacted by adverse development on remaining loss reserves from the homeowner and earthquake lines, which are in runoff, of $40.2 million in 2003, $58.8 million in 2002, $77.6 million in 2001, $2.7 million in 2000, and $13.1 million in 1999.
21
December 31, 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------- BALANCE SHEET DATA: Total investments and cash $1,283,741 $1,030,478 $ 884,633 $ 920,327 $ 988,578 Total assets 1,737,187 1,470,037 1,354,398 1,340,916 1,383,076 Unpaid losses and loss adjustment expenses 438,323 384,009 349,290 298,436 276,248 Unearned premiums 312,254 266,477 236,473 236,519 232,702 Debt(1) 149,686 60,000 - - 67,500 Total liabilities 1,036,497 814,429 695,092 620,355 662,239 Stockholders' equity 700,690 655,608 659,306 720,561 720,837 Book value per common share 8.20 7.67 7.72 8.46 8.39 Statutory surplus(2) 531,658 397,381 393,119 475,640 581,440 Net premiums written to surplus ratio(3) 2.3:1 2.4:1 2.2:1 1.7:1 1.3:1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We primarily market and underwrite personal automobile, motorcycle, and umbrella insurance in California. We also provide personal automobile insurance in four other western states (Arizona, Nevada, Oregon and Washington) and three midwestern states (Illinois, Indiana and Ohio). We began offering personal auto insurance in Illinois, Indiana and Ohio on January 28, 2004. We believe that we have a reputation for high quality customer service and for being among the most efficient and lowest cost providers of personal auto insurance in the markets we serve. Our primary goals include realizing 15% revenue growth and attaining a 96% combined ratio for our personal auto lines. Our net premiums earned grew in excess of 20%, our best growth rate since 1987, and we improved our personal auto lines combined ratio by two points to 96.5%. For the year ended December 31, 2003, our net premiums earned increased to $1,218.5 million from $976.9 million in 2002. For the years ended December 31, 2003 and 2002, the combined ratio for the personal auto lines was 96.5% and 98.5%, respectively. Net income for 2003 was $53.6 million, compared to net losses in 2002 and 2001 of $12.3 million and $27.6 million, respectively. Results for the year ended December 31, 2003 include a first quarter after-tax charge of $24.1 million to strengthen earthquake reserves and certain nonrecurring, nonoperational items that increased second quarter net income by $9.6 million after-tax. In 2002, the Company's results included third quarter after-tax charges for earthquake and software write-offs totaling $58.4 million. For the year ended December 31, 2003, cash flow from operations was $187.5 million compared to $76.3 million for 2002. Total assets also increased to $1.7 billion at December 31, 2003 from $1.5 billion at December 31, 2002. In December 2003, the Company completed a $100 million senior debt offering and used $85 million of the proceeds to increase the statutory surplus of its principal insurance subsidiary. See "Results of Operations" for more details as to our overall and personal auto lines results. - ------------ 1 Amount shown for 2002 is a capital lease obligation (see Note 7 of the Notes to Consolidated Financial Statements). 2 Amount shown for 2002 would be $343,661 were it not for the sale-leaseback transaction described in Note 7 of the Notes to Consolidated Financial Statements. 3 Amount shown for 2002 would be 2.8:1 were it not for the sale-leaseback transaction referred to above. 4 Results from these markets are not expected to be material in 2004. 22 The remainder of our Management's Discussion and Analysis provides a narrative on the Company's financial condition and performance that should be read in conjunction with the accompanying financial statements. It includes the following sections: - - Financial Condition - - Liquidity and Capital Resources - - Contractual Obligations and Commitments - - Off Balance Sheet Arrangements - - Results of Operations - - Underwriting Results - - Loss and LAE Incurred - - Investment Income - - Other Income - - Write-off of Software - - Critical Accounting Policies - - New Accounting Pronouncements - - Forward-Looking Statements FINANCIAL CONDITION Investments and cash increased $253.2 million (24.6%) since the prior year primarily due to improved cash flow from operations of $187.5 million in 2003, and the $100 million senior notes private offering in December 2003. Investment-grade bonds comprised substantially all of the fair value of the fixed-maturity portfolio at December 31, 2003. Of our total investments at December 31, 2003, approximately 61.7% were invested in tax-exempt, fixed-income securities, compared to 54.5% at December 31, 2002. Increased advertising, compensation and other operating costs through December 31, 2003, associated with increased customer volume, contributed to an increase in deferred policy acquisitions costs (DPAC) of $6.9 million to $53.1 million, compared to $46.2 million at December 31, 2002. The Company's DPAC is estimated to be fully recoverable (see Critical Accounting Policies - Deferred Policy Acquisition Costs). Our loss and LAE reserves, gross and net of reinsurance, are summarized in the following table:
AMOUNTS IN THOUSANDS 2003 2002 December 31, GROSS NET Gross Net - -------------------------------------------------------------- Unpaid Losses and LAE: Personal auto lines $419,913 $413,348 $333,113 $320,032 Homeowner lines 4,172 1,774 10,952 3,682 Earthquake lines 14,238 14,237 39,944 39,944 - -------------------------------------------------------------- Total $438,323 $429,359 $384,009 $363,658 - --------------------------------------------------------------
Gross unpaid losses and LAE increased by $54.3 million since the prior year primarily due to a reserve increase of $62.1 million in the personal auto lines as a result of growth in our customer base. The increase in the personal auto lines was offset by the $17.0 million net decrease in the homeowner and earthquake lines, which are in runoff. 23 Unearned premiums increased 17.2% to $312.3 million at the end of 2003 compared to the prior year end, due to higher volume in our personal auto lines. Debt increased $89.7 million as a result of a private $100 million senior notes offering executed in December 2003 (see Note 10 of the Notes to Consolidated Financial Statements) offset by principal payments on a capital lease obligation. The primary purpose of the 2003 debt offering was to increase the statutory surplus of 21st Century Insurance Company, our wholly-owned subsidiary. Claims and other outstanding checks payable increased 14.0% at the end of 2003 from a year-ago, consistent with our increased business volume. Other liabilities rose $30.0 million primarily because of increases relating to various accruals for customer advances, taxes, and personnel costs. Stockholders' equity and book value per share increased to $700.7 million and $8.20, respectively, at December 31, 2003, compared to $655.6 million and $7.67 at December 31, 2002. The increase for the year ended December 31, 2003, was due to net income of $53.6 million, other increases relating to common stock of $0.3 million, less a decrease in other comprehensive income of $2.0 million and dividends to stockholders of $6.8 million. Effective December 4, 2003, we changed our state of incorporation from California to Delaware. In connection with the change, our common stock was assigned a par value of $0.001 per share, resulting in a reclassification of $419.2 million from common stock to additional paid-in capital. Delaware is the state of incorporation for 58% of the Fortune 500 and 51% of all publicly traded companies, and was selected by our Board of Directors after a careful study. There was no change in the location of company operations, location of employees, or in the way we do business. LIQUIDITY AND CAPITAL RESOURCES 21st Century Insurance Group. Our holding company's main sources of liquidity historically have been dividends received from our insurance subsidiaries and proceeds from issuance of debt or equity securities. Apart from the exercise of stock options and restricted stock grants to employees, the effects of which have not been significant, we have not issued any equity securities since 1998 when AIG exercised its warrants to purchase common stock for cash of $145.6 million. Our insurance subsidiaries have not paid any dividends to our holding company since 2001 due to the current uncertainty surrounding the taxability of dividends received by holding companies from their insurance subsidiaries (see further discussion in Note 15 of the Notes to Consolidated Financial Statements). In December 2003, we completed a private offering of $100 million principal amount of 5.9 percent Senior Notes due in December 2013. The effective interest rate on the Senior Notes when all offering costs are taken into account and amortized over the term of the Senior Notes is approximately 6 percent per annum. Of the $99.2 million net proceeds from the offering, $85 million was used to increase the statutory surplus of our wholly-owned insurance subsidiary, 21st Century Insurance Company, and the balance was retained by our holding company. Effective December 31, 2003, the California Department of Insurance approved an intercompany lease whereby 21st Century Insurance Company will lease certain computer software from our holding company. The monthly lease payment, currently $0.4 million, started in January 2004 and is subject to upward adjustment based on the cost incurred by the holding company to complete certain enhancements to the software. Our holding company's significant cash obligations over the next several years consist of interest payments on the Senior Notes (approximately $5.9 million annually) and the estimated cost to complete certain software enhancements (approximately $33.1 million), exclusive of any dividends to stockholders that our directors may declare, and the repayment of the $100 million principal on the Senior Notes due in 2013. We expect to be able to meet those obligations from sources of cash currently available - i.e., payments received from the intercompany lease and cash and investments currently on hand at the holding company, which 24 totaled $24.4 million at December 31, 2003(1) - plus additional funds obtained from the capital markets or from dividends received from our insurance subsidiaries. Absent a favorable resolution of the state income tax issue regarding taxability of intercompany dividends received by insurance holding companies, we may have to pay additional state income taxes of up to approximately 8.9% on the amount of any such dividends received. Our insurance subsidiaries in 2004 could pay $75.1 million as dividends to us without prior written approval from insurance regulatory authorities. We are unlikely to have our insurance subsidiaries pay dividends to our holding company in 2004 as long as the uncertainty persists over the taxability by the state of intercompany dividends. Insurance Subsidiaries. We have achieved underwriting profits in our core auto insurance operations for the last eight quarters and have thereby enhanced our liquidity. In California, where approximately 97.7% of our policies are written, we implemented a 3.9% auto premium rate increase effective March 31, 2003. This increase followed a 5.7% rate increase in May of 2002. However, there can be no assurance that insurance regulators will grant future rate increases that may be necessary to offset possible future increases in claims cost trends. Also, we remain exposed to possible upward development in previously recorded reserves for claims pursuant to SB 1899. As a result of such uncertainties, underwriting losses could occur in the future. Further, we could be required to liquidate investments to pay claims, possibly during unfavorable market conditions, which could lead to the realization of losses on sales of investments. Adverse outcomes to any of the foregoing uncertainties would create some degree of downward pressure on the insurance subsidiaries' earnings, which in turn could negatively impact our liquidity. As of December 31, 2003, our insurance subsidiaries had a combined statutory surplus of $531.7 million compared to $397.4 million at December 31, 2002. The change in statutory surplus was primarily due to statutory net income of $76.1 million, a capital contribution of $37.9 million and a decrease in nonadmitted assets of $20.9 million. Our ratio of net premiums written to statutory surplus was 2.3 at December 31, 2003, compared to 2.4 at December 31, 2002. The CDI is currently examining the statutory financial statements for the three year period ended December 31, 2002. We are not aware of any proposed adjustments to the statutory financial statements. On October 23, 2002, the CDI finalized its examination report on the 1999 statutory financial statements for the Company's California-domiciled insurance subsidiaries. The report did not require the insurance subsidiaries to restate those financial statements. Transactions with Related Parties. Since 1995, we have entered into several transactions with AIG subsidiaries, including various reinsurance agreements, which are discussed under "Item 1. Business." At December 31, 2003, reinsurance recoverables, net of payables, from AIG subsidiaries were $5.8 million, compared to $18.4 million at December 31, 2002. Other transactions with AIG subsidiaries, which are immaterial, have resulted from competitive bidding processes for certain corporate insurance coverages and certain software and data processing services. In October 2003, as a result of a competitive bidding process, we entered into an agreement with an AIG subsidiary to provide investment management services to us; the agreement was subject to approval by the California Department of Insurance, which granted such approval in October 2003. Apart from the foregoing, we have no material transactions with related parties. CONTRACTUAL OBLIGATIONS AND COMMITMENTS We have various contractual obligations that are recorded as liabilities in our consolidated financial statements. Certain contractual obligations, such as operating lease obligations, are not recognized as liabilities in our consolidated financial statements, but are required to be disclosed. - ------------ 1 On December 15, 2003, the Company declared a $1.7 million cash dividend to stockholders of record on December 29, 2003, which was paid January 23, 2004. 25 The following table summarizes our significant contractual obligations and commitments at December 31, 2003, and the future periods in which such obligations are expected to be settled in cash. In addition, the table reflects the timing of principal payments on outstanding senior notes.
Payments Due by Period ----------------------------------------------- 2005 2007 Remaining through through years after AMOUNTS IN MILLIONS TOTAL 2004 2006 2008 2008 - ------------------------------------------------------------------------------ Senior notes $159.0 $ 5.9 $ 11.8 $ 11.8 $ 129.5 Capital lease obligation 55.8 14.0 27.8 14.0 - - ------------------------------------------------------------------------------ Debt 214.8 19.9 39.6 25.8 129.5 Operating Leases(1) 175.2 19.8 36.0 29.0 90.4 - ------------------------------------------------------------------------------ Total $390.0 $39.7 $ 75.6 $ 54.8 $ 219.9 - ------------------------------------------------------------------------------
The capital lease obligation above resulted from the sale-leaseback transaction discussed earlier. The lease includes a covenant that if AIG ceases to have a majority interest in us, or if statutory surplus falls below $300.0 million, or if the net premiums written to surplus ratio is greater than 3.8:1, or if claims paying ratings fall below BBB+ (as rated by Standard & Poor's), Baa1 (as rated by Moody's) or B++ (as rated by A.M. Best) we will either deliver a letter of credit to the lessor or pay the lessor the then outstanding balance, including a prepayment penalty of up to 3%. Our largest insurance subsidiary is the obligor on both the capital lease obligation and the operating lease obligations. We sponsor defined benefit pension plans that may obligate us to make contributions to the plans from time to time. We do not expect to be required to contribute to our qualified defined benefit plan in 2004, and contributions required for 2005, if any, and future years will depend on a number of unpredictable factors including the market performance of the plan's assets and future changes in interest rates that affect the actuarial measurement of the plan's obligations. We had estimated liabilities for losses and LAE of $438.3 million at December 31, 2003, the majority of which will be required to be paid in 2004 as the related claims are settled. We expect operating cash flow to be sufficient to meet our obligations to pay claims and we have readily marketable investments available for sale should operating cash flows prove to be inadequate. We have no material purchase obligations or other on- or off-balance sheet long- term liabilities or obligations at December 31, 2003 (see further discussion in Note 2 of Notes to Consolidated Financial Statements). OFF BALANCE SHEET ARRANGEMENTS We currently have no letters of credit, have issued no guarantees on behalf of others (other than the guarantee by 21st Century Insurance Group of the capital lease obligation described above), have no trading activities involving non-exchange-traded contracts accounted for at fair value, and have no obligations under any derivative financial instruments. In addition, the Company has no material retained interests in assets transferred to any unconsolidated entity (see further discussion in Note 2 of Notes to Consolidated Financial Statements). RESULTS OF OPERATIONS Overall Results. We reported net income of $53.6 million, or $0.63 earnings per share (basic and diluted), on direct premiums written of $1,223.5 million for the year ended December 31, 2003, compared to a net loss of $12.3 million, or $0.14 loss per share, on direct premiums written of $998.2 million for the year ended December 31, 2002. For the year ended December 31, 2001, we reported a net loss of $27.6 million, or $0.32 - ------------ 1 Includes amounts due under long-term software license agreements of approximately $15.1 million. 26 loss per share, on direct premiums written of $929.3 million. The results for 2003, 2002 and 2001 include: (i) after-tax charges for 1994 Northridge earthquake costs of $24.1 million, $34.2 million and $45.6 million, respectively; (ii) after-tax net income of $9.6 million for the year ended December 31, 2003, resulting from nonrecurring, nonoperational items and a favorable tax settlement with the IRS; (iii) an after-tax charge of $24.2 million, for the year ended December 31, 2002, relating to a write-off of software; and (iv) $13.6 million for the year ended December 31, 2001, associated with workforce reductions and the settlement of litigation matters. The following table presents the components of our personal auto lines underwriting profit or loss and the components of the combined ratio for the past three years:
AMOUNTS IN THOUSANDS Personal Auto Lines --------------------------------- Years Ended December 31, 2003 2002 2001 - --------------------------------------------------------------------------------- Direct premiums written $1,223,377 $995,794 $898,862 - --------------------------------------------------------------------------------- Net premiums written $1,218,519 $976,892 $842,657 - --------------------------------------------------------------------------------- Net premiums earned $1,172,679 $924,559 $838,489 Net losses and loss adjustment expenses 922,122 768,277 738,335 Underwriting expenses incurred 209,551 142,899 124,564 - --------------------------------------------------------------------------------- Personal auto lines underwriting profit (loss) $ 41,006 $ 13,383 $(24,410) - --------------------------------------------------------------------------------- Ratios: Loss and LAE ratio 78.6% 82.9% 88.1% Underwriting expense ratio 17.9% 15.6% 14.9% - --------------------------------------------------------------------------------- Combined ratio 96.5% 98.5% 103.0% - ---------------------------------------------------------------------------------
The following table reconciles our personal auto lines underwriting profit or loss to our consolidated net income (loss):
AMOUNTS IN THOUSANDS Years Ended December 31, 2003 2002 2001 - ------------------------------------------------------------------------------- Personal auto lines underwriting profit (loss) $ 41,006 $ 13,383 $(24,410) Homeowner and earthquake lines in runoff, underwriting loss (40,175) (58,768) (77,598) Net investment income 45,833 46,345 45,930 Realized investment gains 13,177 10,391 5,001 Write-off of software - (37,177) - Other income (expense) 14,777 - (998) Interest and fees expense (3,471) - - Federal income tax (expense) benefit (17,572) 13,570 24,507 - ------------------------------------------------------------------------------- Net income (loss) $ 53,575 $(12,256) $(27,568) - -------------------------------------------------------------------------------
Comments relating to the underwriting results of the personal auto and the homeowner and earthquake lines in runoff are presented below. UNDERWRITING RESULTS The tables presented in the Notes to Consolidated Financial Statements summarize the Company's unaudited quarterly results of operations for each of the two years in the period ended December 31, 2003, and the results of operations by line of business for each of the three years then ended. The following discussion of underwriting results by line of business should be read in conjunction with the information presented in those tables and elsewhere herein. 27 Personal Auto. Personal automobile insurance is our primary line of business. Vehicles insured outside of California accounted for less than 3% of our direct written premium in 2003, 2002 and 2001. Direct premiums written for the year ended December 31, 2003, increased $227.6 million (22.9%) to $1,223.4 million in 2003 compared to $995.8 million in 2002 and $898.9 million in 2001. Of the $227.6 million increase in 2003, $35.2 million was due to rate increases, while $192.4 million was due to a higher number of insured vehicles. Of the $96.9 million increase in 2002, $36.7 million was due to rate increases, $12.9 million was due to the effects of the consolidation of 21st of Arizona, and $47.3 million resulted from a higher number of insured vehicles. Current growth is being generated through active advertising for new customers and product innovations. California auto retention was 92% for the year ended December 31, 2003, compared to 93% and 92% for the years ended December 31, 2002 and 2001, respectively. The decline in 2003 is primarily due to the April 2003 rate increase and the substantial increase in new customers, who typically have a lower retention rate than long-time customers. Net premiums earned increased $248.1 million (26.8%) to $1,172.7 million in 2003, compared to $924.6 million in 2002 and $838.5 million in 2001. The increases in 2003, 2002 and 2001 are greater than the proportional increase in the corresponding direct premiums written because of the decrease in the quota share reinsurance arrangement with AIG subsidiaries from 6% in 2001 to 4% until September 1, 2002, at which time we entered into an agreement to cancel future cessions under this treaty. The cancellation resulted in a one-time pre-tax charge of $0.9 million. The combined ratio was 96.5% for the year ended December 31, 2003, compared to 98.5% and 103.0% for 2002 and 2001, respectively. Our management remains focused on achieving sustainable 15% growth and a combined ratio of 96%. In 2003, we achieved an underwriting profit in each quarter and achieved growth of 22.9%, our best growth since 1987. Net losses and LAE incurred increased $153.8 million (20.0%) to $922.1 million in 2003 compared to $768.3 million and $738.3 million in 2002 and 2001, respectively. The loss and LAE ratios were 78.6%, 82.9% and 88.1% for the years ended December 31, 2003, 2002 and 2001, respectively. The effects on the loss and LAE ratios of changes in estimates relating to insured events of prior years were 1.0% in 2003, 1.8% in 2002 and 5.5% in 2001. These changes in estimates pertained mainly to development in average paid loss severities beyond amounts previously anticipated. For additional discussion of the factors that led to these changes in estimates, please see Item 1 of this report under the heading Loss and Loss Adjustment Expense Reserves. In general, changes in estimates are recorded in the period in which new information becomes available indicating that a change is warranted, usually in conjunction with our monthly actuarial review. The ratios of underwriting expenses to net premiums earned were 17.9%, 15.6% and 14.9% for the years ended December 31, 2003, 2002 and 2001, respectively. The increase was primarily due to growth in advertising expenditures and costs associated with increasing the number of new sales agents to handle record volume of new business during the latter half of 2002 and all of 2003. Several productivity enhancement initiatives are underway aimed at reducing per unit process costs and lowering fixed costs in corporate support areas. In the third quarter of 2002 the Company entered into a catastrophe reinsurance agreement, which reinsures any covered events, defined as auto physical damage, up to $30.0 million in excess of $15.0 million. This agreement expired on December 31, 2003. Effective January 1, 2004 we entered into a new, one-year catastrophe reinsurance agreement, which provides reinsurance on covered events up to $45 million in excess of $20 million. The premium for this reinsurance coverage is approximately $0.1 million per month. Homeowner and Earthquake Lines in Runoff. The homeowner and earthquake lines, which are in runoff, experienced adverse development on the remaining loss reserves of $40.1 million, compared to adverse development of $56.2 million in 2002 and $72.3 million in 2001, of which development related to SB 1899 earthquake claims accounted for $36.9 million, $52.6 million, and $70.3 million, respectively. 28 We have executed various transactions to exit from our homeowner line. Under a January 1, 2002 agreement with Balboa Insurance Company ("Balboa"), a subsidiary of Countrywide Financial Corporation ("Countrywide"), 100% of homeowner unearned premium reserves and losses on or after that date were ceded to Balboa. Under the terms of this agreement, we retain certain loss adjustment expenses. We began non-renewing homeowner policies expiring on February 21, 2002, and thereafter. Substantially all of these customers were offered homeowner coverage through an affiliate of Countrywide. We have completed this process and no longer have any homeowner policies in force. We caution that the recorded loss and LAE estimates for our earthquake lines are subject to a greater than normal degree of uncertainty for a variety of reasons (see Note 16 of the Notes to Consolidated Financial Statements). LOSS AND LAE INCURRED The following table summarizes losses and LAE incurred, net of reinsurance, for the periods indicated:
AMOUNTS IN THOUSANDS Years Ended December 31, 2003 2002 2001 - --------------------------------------------------------------------------------------- Net Losses and LAE incurred related to insured events of: Current year: Personal auto lines $910,963 $752,077 $692,593 Homeowner lines 141 2,222 25,636 Earthquake lines - - - - --------------------------------------------------------------------------------------- Total current year 911,104 754,299 718,229 - --------------------------------------------------------------------------------------- Prior years: Personal auto lines 11,159 16,200 45,742 Homeowner lines 3,125 3,519 1,952 Earthquake lines 36,923 52,639 70,313 - --------------------------------------------------------------------------------------- Total prior years 51,207 72,358 118,007 - --------------------------------------------------------------------------------------- Total $962,311 $826,657 $836,236 - ---------------------------------------------------------------------------------------
Historically, our actuaries have not projected a range around the carried loss reserves. Rather, they have used several methods and different underlying assumptions to produce a number of point estimates for the required reserves. Management reviews the assumptions underlying the loss ratios and selects the carried reserves after carefully reviewing the appropriateness of the underlying assumptions in relation to the outstanding exposures. These assumptions include, but are not limited to, the following: prior accident year and policy year loss ratios; rate changes in coverage, reinsurance, or mix of business; and changes in external factors impacting results, such as trends in loss costs or in the legal and claims environment. If our carried reserves are supported by actuarial methods and assumptions that are also believed to be reasonable, then the carried reserves would generally be considered reasonable, and no adjustment would be considered. The ultimate process by which the actual carried reserves are determined considers not only the actuarial point estimate, but also a number of other factors. Other internal and external factors considered include a qualitative assessment of inflation and other economic conditions, changes in legal, regulatory, and judicial environments underlying policy pricing, terms and conditions, and claims handling. Generally, actual historical loss development factors are the primary assumptions used to project future loss development. However, there can be no assurance that future loss development patterns will be the same as in the past. Historically, our carried loss reserves have developed both redundancies and deficiencies. Adverse development for our personal auto lines was less than 5% of carried personal auto lines reserves in 2003 and 2002, and approximately 15% of such reserves in 2001. If future loss 29 development differed by 5 percent from those assumptions utilized in the year-end 2003 personal auto lines loss reserve review, there would be approximately a $21.0 million redundancy or deficiency in the overall personal auto lines reserve position. While we have settled earthquake claims and are making progress in resolving outstanding litigation, estimates of both the litigation costs and ultimate settlement or judgment amounts related to these claims are subject to a high degree of uncertainty. Please see Note 16 of the Notes to Consolidated Financial Statements for additional background on the Northridge Earthquake and SB 1899, including a discussion of factors that have contributed to the difficulty of obtaining accurate loss and LAE estimates in the wake of that legislation. INVESTMENT INCOME We utilize a conservative investment philosophy. No derivatives or nontraditional securities are held in our investment portfolio and less than 1% of the portfolio consists of equity securities. Substantially the entire portfolio is investment grade. Net investment income was $45.8 million in 2003, compared to $46.3 million in 2002 and $45.9 million in 2001. Average invested assets increased 17.9% in 2003 and 1.3% in 2002 from each of the respective prior years. The average annual pre-tax yields on invested assets were 4.2% in 2003, 5.1% in 2002 and 2001. The average annual after-tax yields on invested assets were 3.6% in 2003, 4.3% in 2002 and 4.5% in 2001. Net realized gains on the sale of investments and fixed assets were $13.2 million in 2003 (gross realized gains were $13.7 million and gross realized losses were $0.5 million), compared to $10.4 million in 2002 (gross realized gains were $13.1 million and gross realized losses were $2.7 million) and net realized gains of $5.0 million in 2001. At December 31, 2003, $791.6 million (64.9%) of our total investments at fair value were invested in tax-exempt bonds with the remainder, representing 35.1% of the portfolio, invested in taxable securities, compared to 60.7% and 39.3%, respectively, at December 31, 2002. As of December 31, 2003, we had a pre-tax net unrealized gain of $36.1 million compared to a net unrealized gain on fixed maturity investments of $38.5 million in 2002 and a net unrealized loss of $1.5 million in 2001. We recognized no other-than-temporary impairments in 2003, 2002, or 2001 (see discussion under Critical Accounting Policies). OTHER INCOME Other income in the year ended December 31, 2003, included $9.3 million resulting from a nonrecurring, nonoperational item from the settlement of litigation, interest income of $4.8 million relating to a favorable settlement with the Internal Revenue Service ("IRS"), and miscellaneous items of $0.7 million. WRITE-OFF OF SOFTWARE In the third quarter of 2002, we recorded a one-time pre-tax charge to write-off $37.2 million of previously capitalized software costs for abandoned portions of an advanced personal lines processing system. CRITICAL ACCOUNTING POLICIES Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The financial information contained within those statements is, to a significant extent, financial information that is based on approximate measures of the financial effects of transactions and events that have already occurred. Our significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements and are essential to understanding Management's Discussion and Analysis of Results of Operations and Financial Condition. Some of our accounting policies require significant judgment to estimate values of either assets or liabilities. In addition, significant judgment may be needed to apply what often are complex accounting principles to individual transactions to determine the most appropriate treatment. We have established procedures and processes to facilitate making the judgments necessary to prepare financial statements. The following is a summary of the more judgmental and complex accounting estimates and principles. In each area, we have discussed the assumptions most important in the estimation process. We have used the 30 best information available to estimate the related items involved. Actual performance that differs from our estimates and future changes in the key assumptions could change future valuations and materially impact our financial condition and results of operations. Management has discussed our critical accounting policies and estimates, together with any changes therein, with the Audit Committee of our Board of Directors. Losses and Loss Adjustment Expenses. The estimated liabilities for losses and loss adjustment expenses ("LAE") include the accumulation of estimates of losses for claims reported prior to the balance sheet dates, estimates (based upon actuarial analysis of historical data) of losses for claims incurred but not reported, the development of case reserves to ultimate values and estimates of expenses for investigating, adjusting and settling all incurred claims. Amounts reported are estimates of the ultimate costs of settlement, net of estimated salvage and subrogation. The estimated liabilities are necessarily subject to the outcome of future events, such as changes in medical and repair costs, as well as economic and social conditions that impact the settlement of claims. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims. For our current mix of auto exposures, which include both property and liability exposures, an average of approximately 80% of the ultimate losses are settled within twelve months of the date of loss. Given the inherent variability in the estimates, management believes the aggregate reserves are adequate, although we continue to caution that the reserve estimates relating to SB 1899 are subject to a greater than normal degree of variability and possible future material adjustment as new facts become known. The methods of making such estimates and establishing the resulting reserves are reviewed and updated monthly and any resulting adjustments are reflected in current operations. Changes in the estimates for these liabilities flow directly to the income statement on a dollar-for-dollar basis. For example, an upward revision of $1 million in the estimated liability for unpaid losses and loss adjustment expenses would decrease underwriting profit, and pre-tax income, by the same $1 million amount. Conversely, a downward revision of $1 million would increase pre-tax income by the same $1 million amount. Property and Equipment. Accounting standards require a write-off to be recognized when an asset is abandoned or an asset group's carrying value exceeds its fair value. For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Accounting standards require asset groups to be tested for possible impairment under certain conditions. In the third quarter of 2002, we recorded a pre-tax charge to write-off $37.2 million of previously capitalized software costs for abandoned portions of an advanced personal lines processing system. As such, in 2002 we assessed the asset group that included the advanced personal lines processing system for impairment. However, an impairment was not triggered by the abandonment as we determined that the impairment recognition criterion had not been met. Future cash flows expected to be generated by the asset group exceeded their carrying amount. There have been no events or circumstances in 2003 that would require a reassessment of the asset group for impairment. Income Taxes. Determining the consolidated provision for income tax expense, deferred tax assets and liabilities and any related valuation allowance involves judgment. Generally accepted accounting principles require deferred tax assets and liabilities ("DTAs" and "DTLs," respectively) to be recognized for the estimated future tax effects attributed to temporary differences and carryforwards based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. Temporary differences 31 are differences between the tax basis of an asset or liability and its reported amount in the financial statements. For example, we have a DTA because the tax bases of our loss and LAE reserves are smaller than their book bases. Similarly, we have a DTL because the book basis of our capitalized software exceeds its tax basis. Carryforwards include such items as alternative minimum tax credits, which may be carried forward indefinitely, and net operating losses ("NOLs"), which can be carried forward 15 years for losses incurred before 1998 and 20 years thereafter. A summary of the significant DTAs and DTLs relating to the Company's temporary differences and carryforwards is included in Note 5 of the Notes to Consolidated Financial Statements. At December 31, 2003, our DTAs total $149.1 million, and our DTLs total $72.5 million. The net of those amounts, $76.6 million, represents the net deferred tax asset reported in the consolidated balance sheet. We are required to reduce DTAs (but not DTLs) by a valuation allowance to the extent that, based on the weight of available evidence, it is "more likely than not" (i.e., a likelihood of more than 50%) that any DTAs will not be realized. Recognition of a valuation allowance would decrease reported earnings on a dollar for dollar basis in the year in which any such recognition were to occur. The determination of whether a valuation allowance is appropriate requires the exercise of management judgment. In making this judgment, management is required to weigh the positive and negative evidence as to the likelihood that the DTAs will be realized. Portions of our NOL carryforward are scheduled to expire beginning in 2009, as shown in the table below (amounts in millions):
YEAR OF NOL EXCLUDING SRLY(1) NOL OF CONSOLIDATED EXPIRATION 21ST OF ARIZONA 21ST OF ARIZONA NOL - ------------------------------------------------------------- 2009 $37.9 $ - $37.9 2011 - 0.6 0.6 2017 - 2.0 2.0 2018 - 1.1 1.1 2019 - 1.5 1.5 2020 80.5 3.2 83.7 2021 134.6 2.2 136.8 2022 37.3 - 37.3 - ------------------------------------------------------------- Totals $290.3 $10.6 $300.9 - -------------------------------------------------------------
Our core business has generated an underwriting profit for the past two years. Management believes it is reasonable to expect future underwriting profits and to conclude it is at least more likely than not that we will be able to realize the benefits of our DTAs. If necessary, we believe we could implement tax-planning strategies, such as investing a higher proportion of our investment portfolio in taxable securities, in order to generate sufficient future taxable income to utilize the NOL carryforwards prior to their expiration. Accordingly, no valuation allowance has been recognized as of December 31, 2003. However, generating future taxable income is dependent on a number of factors, including regulatory and competitive influences that may be beyond our ability to control. Future underwriting losses could possibly jeopardize our ability to utilize our NOLs. In the event adverse development or underwriting losses due to either SB 1899 matters or other causes were to occur, management might be required to reach a different conclusion about the realization of the DTAs and, if so, recognize a valuation allowance at that time. Deferred Policy Acquisition Costs. Deferred policy acquisition costs ("DPAC") include premium taxes and other variable costs incurred in connection with writing business. These costs are deferred and amortized over the 6-month policy period in which the related premiums are earned. - ------------ 1 "SRLY" stands for Separate Return Limitation Year. Under the Federal tax code, only future income generated by 21st of Arizona may be utilized against this portion of our NOL. 32 Management assesses the recoverability of deferred policy acquisition costs on a quarterly basis. The assessment calculates the relationship of actuarially estimated costs incurred to premiums from contracts issued or renewed for the period. We do not consider anticipated investment income in determining the recoverability of these costs. Based on current indications, no reduction in DPAC is required. The loss and LAE ratio used in the recoverability estimate is based primarily on the assumption that the future loss and LAE ratio will approximate that of the recent past. While management believes that is a reasonable assumption, actual results could differ materially from such estimates. Investments. Impairment losses for declines in value of fixed maturity investments below cost attributable to issuer-specific events are based upon all relevant facts and circumstances for each investment and are recognized when appropriate in accordance with Staff Accounting Bulletin ("SAB") 59, Noncurrent Marketable Equity Securities, Emerging Issues Task Force ("EITF") No. 99-20, Recognition of Interest Income and Impairment of Certain Investments, EITF No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, and related guidance, which is evolving. For fixed maturity investments with unrealized losses due to market conditions or industry-related events, where we have the positive intent and ability to hold the investment for a period of time sufficient to allow a market recovery or to maturity, declines in value below cost are not assumed to be other-than-temporary. Where declines in values of securities below cost or amortized cost are considered to be other than temporary, a charge is required to be reflected in income for the difference between cost or amortized cost and the fair value. No such charges were recorded in 2003, 2002 or 2001. The determination of whether a decline in market value is "other than temporary" is necessarily a matter of subjective judgment and the guidance is continually evolving. The timing and amount of realized losses and gains reported in income could vary if conclusions other than those made by management were to determine whether an other-than-temporary impairment exists. However, there would be no impact on equity because any unrealized losses are already included in accumulated other comprehensive income. A summary by issuer of non-investment grade securities and unrated securities held at year-end follows:
AMOUNTS IN THOUSANDS December 31, 2003 2002 - ------------------------------------------------------------------------ Non-investment grade securities (i.e., rated below BBB): Corning, Inc. $ - $ 850 Unrated securities: Impact Community Capital LLC(1) 2,023 2,023 Impact C.I.L. Parent 2,444 - - ------------------------------------------------------------------------ Total non-investment grade and unrated securities $4,467 $2,873 - ------------------------------------------------------------------------
- ----------- 1 Impact Community Capital LLC, is a limited partnership that was established under California's COIN program (California Organized Investment Network), a voluntary association of California insurers providing funding for low cost housing projects. 33 The following table summarizes realized gains and losses for the past three years. Additional information has been provided with respect to how long securities sold at a loss in each year were in an unrealized loss position.
AMOUNTS IN THOUSANDS Years Ended December 31, 2003 2002 2001 - --------------------------------------------------------------------------------------------------- Realized (losses) on sales of securities: Held for less than one year $ (229) $(322) (322) $ (147) - --------------------------------------------------------------------------------------------------- Held one year or more In an unrealized loss position at December 31, 2002 (148) - N/A In an unrealized loss position at December 31, 2001 - (83) N/A In an unrealized loss position at December 31, 2000 - - - In an unrealized loss position at December 31, 1999 - (196) (372) In an unrealized loss position at December 31, 1998 - (1,567) (141) In an unrealized loss position at December 31, 1997 - - (216) In an unrealized gain position at December 31, 2002 (5) - N/A In an unrealized gain position at December 31, 2001 - (15) N/A In an unrealized gain position at December 31, 2000 - - (235) In an unrealized gain position at December 31, 1999 - - - - --------------------------------------------------------------------------------------------------- Total realized losses on sales of fixed maturity securities held one year or more(1) (153) (1,861) (964) - --------------------------------------------------------------------------------------------------- Total realized loss on sales of securities (382) (2,183) (1,111) Total realized gain on sales of securities 13,715 13,053 5,912 Realized gain (loss) on disposal of property and equipment (156) (479) 200 - --------------------------------------------------------------------------------------------------- Total realized investment gains $13,177 $ 10,391 $ 5,001 - ---------------------------------------------------------------------------------------------------
The following table summarizes the fair values of fixed maturity securities sold at a loss or at a gain on the date of sale:
Fair Value of Fixed Maturity AMOUNTS IN THOUSANDS Securities Sold at a Loss ---------------------------- Years Ended December 31, 2003 2002 2001 - ------------------------------------------------------------------------------------- Fair value of securities sold at a loss on date of sale $ 21,002 $111,144 $140,334 Fair value of securities sold at a gain on date of sale $297,230 $470,043 $363,467
The following table summarizes securities held by us having an unrealized loss of $0.1 million or more and aggregate information relating to all other investments in unrealized loss positions as of December 31:
2003 2002 - ----------------------------------------------------------------------------------------------------------------------------- AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF ISSUES UNREALIZED # Unrealized December 31, # ISSUES FAIR VALUE LOSS issues Fair Value Loss - ----------------------------------------------------------------------------------------------------------------------------- Fixed maturity securities with unrealized losses: Exceeding $0.1 million and for: Less than 6 months 4 $50,512 $680 3 $20,769 $1,601 6-12 months 2 8,509 662 2 7,431 530 More than 1 year - - - 1 850 131 Less than $0.1 million 83 179,166 2,074 16 44,590 405 - ----------------------------------------------------------------------------------------------------------------------------- Total(2) 89 $238,187 $3,416 22 $73,640 $2,667 - -----------------------------------------------------------------------------------------------------------------------------
- ----------- 1 Amount represents less than 0.001% of total fixed maturity securities. 2 Fair value of fixed maturity securities with unrealized losses represents less than 20% of total fixed maturity securities. 34 A summary by contractual maturity of bonds in an unrealized loss position by year of maturity follows:
2003 2002 -------------------------------------------- AMOUNTS IN THOUSANDS AMORTIZED CARRYING AMORTIZED CARRYING December 31, COST VALUE COST VALUE - -------------------------------------------------------------------------------------- Bond Maturities Due in one year or less $ 2,519 $ 2,515 $ - $ - Due after one year through five years 78,687 77,590 5,415 5,076 Due after five years through ten years 47,026 45,975 30,099 28,280 Due after ten years 113,371 112,107 40,792 40,284 - -------------------------------------------------------------------------------------- $ 241,603 $ 238,187 $ 76,306 $ 73,640 - --------------------------------------------------------------------------------------
Stock-based compensation. Under the provisions of Statement of Financial Standards No. 123, Accounting for Stock-Based Compensation, we have elected to continue using the intrinsic-value method of accounting for stock-based awards granted to employees in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, we have not recognized in income any compensation expense for the fair value of stock options awarded to employees. Companies electing to continue to follow the intrinsic-value method must make pro forma disclosures, as if the fair value based method of accounting had been applied. A summary of the expense that would have been recorded, together with the underlying assumptions, had we recognized for the fair value of stock-based awards is included in Notes 2 and 14 of the Notes to Consolidated Financial Statements. NEW ACCOUNTING PRONOUNCEMENTS In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS No. 150 in the third quarter of 2003 did not have an impact on the Company's results of operation or financial position. In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 ("FIN 46"), and amended it in December 2003. An entity is subject to the consolidation rules of FIN 46 and is referred to as a variable interest entity ("VIE") if it lacks sufficient equity to finance its activities without additional financial support from other parties or if its equity holders lack adequate decision making ability based on criteria set forth in the interpretation. We do not have any material VIEs that we need, or will need, to consolidate or disclose (see Note 2 of the Notes to Consolidated Financial Statements for additional discussion related to VIEs). FORWARD-LOOKING STATEMENTS This report contains statements that constitute forward-looking information. Investors are cautioned that these forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, and that actual results or developments may differ materially from the forward-looking statements as a result of various factors. You should not rely on forward-looking statements in this annual report on Form 10-K. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. You can usually identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend," "potential," or "continue" or with the negative of these terms or other comparable terminology. 35 Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee our future results, level of activity, performance or achievements. Forward-looking statements may address, among other things: discussions concerning our potential expectation, beliefs, estimates, forecasts, projections and assumptions: - - Our strategy for growth; - - Underwriting results; - - Our expected combined ratio and growth of written premiums; - - Product development; - - Computer systems; - - Regulatory approvals; - - Market position; - - Financial results; - - Dividend policy; and - - Reserves. It is possible that our actual results, actions and financial condition may differ, possibly materially, from the anticipated results, actions and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and actions to differ, possibly materially, from those in the specific forward-looking statements include those discussed in this report under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as: - - The effects of competition and competitors' pricing actions; - - Adverse underwriting and claims experience, including as a result of revived earthquake claims under SB 1899; - - Customer service problems; - - The impact on our operations of natural disasters, principally earthquake, or civil disturbance, due to the concentration of our facilities and employees in Woodland Hills, California; - - Information system problems, including failures to implement information technology projects on time and within budget; - - Adverse developments in financial markets or interest rates; - - Results of legislative, regulatory or legal actions, including the inability to obtain approval for rate increases and product changes and adverse actions taken by state regulators in market conduct examinations; and - - Our ability to service the senior notes, including our ability to receive dividends and/or sufficient payments from our subsidiaries to service our obligations. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 36 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in market prices and interest rates. In addition to market risk we are exposed to other risks, including the credit risk related to our financial instruments and the underlying insurance risk related to our core business and the exposure of the personal lines insurance business, as a regulated industry, to legal, legislative, judicial, political and regulatory action. The following table shows the financial statement carrying values of our financial instruments, which are reported at fair value. The estimated fair values at adjusted market rates/prices assumes a 100 basis point increase in market interest rates for the investment portfolio and a 100 basis point decrease in market interest rates for the debt. The following sensitivity analysis summarizes only the exposure to market interest rate risk as of December 31, 2003.
Estimated Fair Value Change in at Adjusted Market Value as a AMOUNTS IN MILLIONS Carrying Rates/Prices Percentage of December 31, 2003 Value Indicated Below Carrying Value - ------------------------------------------------------------------------------------------------ Fixed maturity investments available for sale $ 1,219.7 $ 1,121.9 8.02% Debt 149.7 158.9 6.15%
Our cash flow from operations and short-term cash position generally is more than sufficient to meet our obligations for claim payments, which by the nature of the personal automobile insurance business tend to have an average duration of less than a year. As a result, it has been unnecessary for us to employ elaborate market risk management techniques involving complicated asset and liability duration matching or hedging strategies. For all of our financial assets and liabilities, we seek to maintain reasonable average durations, currently approximately 6 years, consistent with the maximization of income without sacrificing investment quality and providing for liquidity and diversification. Financial instruments are not used for trading purposes. The sensitivity analysis provides only a limited, point-in-time view of the market risk sensitivity of our financial instruments. The actual impact of market interest rate and price changes on the financial instruments may differ significantly from those shown in the analysis. 37 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS STOCKHOLDERS AND BOARD OF DIRECTORS 21ST CENTURY INSURANCE GROUP In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 70 present fairly, in all material respects, the financial position of 21st Century Insurance Group and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for each of the three years in the period ended December 31, 2003 listed in the index appearing under Item 15(a)(2) on page 70 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Los Angeles, California February 10, 2004 38
21ST CENTURY INSURANCE GROUP CONSOLIDATED BALANCE SHEETS AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA December 31, 2003 2002 - ------------------------------------------------------------------------------------------------- ASSETS Fixed maturity investments available-for-sale, at fair value (amortized cost: $1,183,526 and $886,047) $1,219,676 $ 924,581 Cash and cash equivalents 64,065 105,897 - ------------------------------------------------------------------------------------------------- Total investments and cash 1,283,741 1,030,478 Accrued investment income 14,746 13,230 Premiums receivable 104,638 91,029 Reinsurance receivables and recoverables 12,135 28,105 Prepaid reinsurance premiums 1,719 1,893 Deferred income taxes 76,611 88,939 Deferred policy acquisition costs 53,079 46,190 Leased property under capital lease, net of deferred gain of $4,698 and $6,280 and net of accumulated amortization of $12,397 and $0 42,534 53,720 Property and equipment, at cost less accumulated depreciation of $60,070 and $52,125 101,237 87,274 Other assets 46,747 29,179 - ------------------------------------------------------------------------------------------------- Total assets $1,737,187 $1,470,037 - ------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Unpaid losses and loss adjustment expenses $ 438,323 $ 384,009 Unearned premiums 312,254 266,477 Debt 149,686 60,000 Claims and other outstanding checks payable 44,757 39,304 Reinsurance payable 1,761 4,952 Other liabilities 89,716 59,687 - ------------------------------------------------------------------------------------------------- Total liabilities 1,036,497 814,429 - ------------------------------------------------------------------------------------------------- Commitments and contingencies Stockholders' equity: Common stock, par value $0.001 per share in 2003, no par value in 2002; 110,000,000 shares authorized; shares issued & outstanding 85,435,505 and 85,431,505 85 418,984 Additional paid-in capital 419,245 - Retained earnings 259,808 213,067 Accumulated other comprehensive income (loss): Unrealized gains on available-for-sale investments, net of deferred income tax expense of $12,653 and of $13,487 23,497 25,047 Minimum pension liability in excess of unamortized prior service cost, net of deferred income tax benefit of $1,047 and $802 (1,945) (1,490) - ------------------------------------------------------------------------------------------------- Total stockholders' equity 700,690 655,608 - ------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,737,187 $1,470,037 - -------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 39
21ST CENTURY INSURANCE GROUP CONSOLIDATED STATEMENTS OF OPERATIONS AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA Years Ended December 31, 2003 2002 2001 - ----------------------------------------------------------------------------------------- REVENUES Net premiums earned $ 1,172,677 $ 924,559 $ 864,145 Net investment income 45,833 46,345 45,930 Net realized investment gains 13,177 10,391 5,001 Other income 14,777 - (998) - ----------------------------------------------------------------------------------------- Total revenues 1,246,464 981,295 914,078 - ----------------------------------------------------------------------------------------- LOSSES AND EXPENSES Net losses and loss adjustment expenses 962,311 826,657 836,236 Policy acquisition costs 202,189 123,642 102,558 Other operating expenses 7,346 19,645 27,359 Write-off of software - 37,177 - Interest and fees expense 3,471 - - - ----------------------------------------------------------------------------------------- Total losses and expenses 1,175,317 1,007,121 966,153 - ----------------------------------------------------------------------------------------- Income (loss) before provision for income taxes 71,147 (25,826) (52,075) Provision for income taxes 17,572 (13,570) (24,507) - ----------------------------------------------------------------------------------------- Net income (loss) $ 53,575 $ (12,256) $ (27,568) - ----------------------------------------------------------------------------------------- EARNINGS (LOSS) PER COMMON SHARE Basic and diluted $ 0.63 $ (0.14) $ (0.32) - ----------------------------------------------------------------------------------------- Weighted average shares outstanding - basic 85,432,838 85,414,076 85,340,461 - ----------------------------------------------------------------------------------------- Weighted average shares outstanding - diluted 85,637,672 85,414,076 85,340,461 - -----------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 40
21ST CENTURY INSURANCE GROUP CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AMOUNTS IN THOUSANDS, Common Stock ---------------------------------- EXCEPT SHARE DATA No par $0.001 par Accumulated value value Additional Other ---------------------------------- Paid in Retained Comprehensive Shares Amount Amount Capital Earnings Income (Loss) Total - ------------------------------------------------------------------------------------------------------------------------------ Balance - January 1, 2001 85,145,817 $ 415,064 $ - $ - $ 303,714 $ 1,783 $720,561 Comprehensive loss (27,568)(1) (8,103)(2) (35,671) Cash dividends declared on common stock ($0.32 per share) (27,310) (27,310) Other 216,031 1,927 (201) 1,726 - ------------------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2001 85,361,848 416,991 - - 248,635 (6,320) 659,306 Comprehensive (loss) income (12,256)(1) 29,877 (2) 17,621 Cash dividends declared on common stock ($0.26 per share) (22,210) (22,210) Other 69,657 1,993 (1,102) 891 - ------------------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2002 85,431,505 418,984 - - 213,067 23,557 655,608 Comprehensive income (loss) 53,575 (1) (2,005)(2) 51,570 Cash dividends declared on common stock ($0.08 per share) (6,834) (6,834) Other 4,000 346 346 Effects of reincorporation (419,330) 85 419,245 - - ------------------------------------------------------------------------------------------------------------------------------ Balance - December 31, 2003 85,435,505 $ - $ 85 $ 419,245 $ 259,808 $ 21,552 $ 700,690 - ------------------------------------------------------------------------------------------------------------------------------ (1) Net (loss) income for the year. (2) Net change in accumulated other comprehensive income (loss) for 2003, 2002 and 2001 is as follows:
Years Ended December 31, 2003 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- Unrealized gain (loss) on available-for-sale investments, net of tax expense (benefit) of $3,833, $17,811 and $(152), respectively $ 7,116 $33,078 $ (282) Less reclassification adjustment for investment gains included in net income, net of tax expense of $4,667, $3,805 and $1,784, respectively 8,666 7,065 3,314 Minimum pension liability in excess of unamortized prior service cost, net of deferred income tax expense (benefit) of $245, $(2,081), and $2,427, respectively (455) 3,864 (4,507) - ---------------------------------------------------------------------------------------------------------------------- Total $(2,005) $29,877 $(8,103) - ----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements 41
21ST CENTURY INSURANCE GROUP CONSOLIDATED STATEMENTS OF CASH FLOWS AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA Years Ended December 31, 2003 2002 2001 - ------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ 53,575 $ (12,256) $ (27,568) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 23,962 20,341 21,031 Write-off of software - 37,177 - Amortization of restricted stock grants 346 506 695 Provision (benefit) for deferred income taxes 13,406 (5,370) (19,418) Realized gains on sale of investments (13,177) (10,391) (5,001) Changes in assets and liabilities: Reinsurance balances 12,953 17,542 11,797 Federal income taxes (2,825) 4,670 5,759 Other assets (25,562) (38,068) (5,264) Unpaid losses and loss adjustment expenses 54,314 34,720 50,854 Unearned premiums 45,777 30,004 (46) Claims and other outstanding checks payable 5,453 3,198 123 Other liabilities 19,293 (5,781) 19,572 - ------------------------------------------------------------------------------------------- Net cash provided by operating activities 187,515 76,292 52,534 - ------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Fixed maturities available-for-sale Purchases (641,433) (625,690) (461,578) Calls or maturities 38,592 41,850 15,783 Sales 314,648 564,398 502,254 Net purchases of property and equipment (23,355) (19,140) (61,247) - ------------------------------------------------------------------------------------------- Net cash used in investing activities (311,548) (38,582) (4,788) - ------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of debt 99,871 60,000 - Repayment of debt (10,185) - - Payment of debt issuance costs (650) - - Dividends paid (per share: $0.08; $0.26; and $0.32) (6,835) (22,210) (27,310) Proceeds from the exercise of stock options - 1,488 1,233 - ------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 82,201 39,278 (26,077) - ------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (41,832) 76,988 21,669 Cash and cash equivalents, beginning of year 105,897 28,909 7,240 - ------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 64,065 $ 105,897 $ 28,909 - ------------------------------------------------------------------------------------------- SUPPLEMENTAL INFORMATION Income taxes paid (refunded) $ - $ (12,920) $ (11,435) Interest paid 2,975 - -
See accompanying Notes to Consolidated Financial Statements. 42 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NOTE 1. DESCRIPTION OF BUSINESS - -------------------------------- 21st Century Insurance Group is an insurance holding company founded in 1958, which until recently was incorporated in California. Effective December 4, 2003, the Company was incorporated under the laws of the State of Delaware. The term "Company," unless the context requires otherwise, refers to 21st Century Insurance Group and its consolidated subsidiaries, all of which are wholly owned: 21st Century Insurance Company, 21st Century Casualty Company, 21st Century Insurance Company of Arizona(1) ("21st of Arizona"), 20th Century Insurance Services, Inc., and i21 Insurance Services. The latter two companies are not property and casualty insurance subsidiaries, and their results are immaterial. The common stock of the Company is traded on the New York Stock Exchange under the trading symbol "TW." Through several of its subsidiaries, American International Group, Inc. ("AIG") currently owns approximately 63% of the Company's outstanding common stock. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- BASIS OF CONSOLIDATION AND PRESENTATION The accompanying consolidated financial statements include the accounts and operations of the Company. All material intercompany accounts and transactions have been eliminated. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from these estimates. On October 16, 2003, the board of directors voted to change 21st Century Insurance Group's state of incorporation from California to Delaware. There was no change in the location of Company operations, location of employees, or in the way the Company does business. The reincorporation was accomplished through the merger of the 21st Century Insurance Group with and into a newly formed and wholly-owned Delaware subsidiary. Shareholders holding a majority of the voting power approved the reincorporation by written consent on October 17, 2003. The reincorporation became effective December 4, 2003. 21ST CENTURY INSURANCE COMPANY OF ARIZONA Prior to 2002, 21st of Arizona was a joint venture between the Company and AIG. On January 1, 2002, the Company acquired AIG's 51% interest in 21st of Arizona for $4.4 million. The Company's equity in the net loss of this venture amounted to $1.0 million in 2001, and is included in other income in the Consolidated Statements of Operations (see Note 19 of the Notes to Consolidated Financial Statements). - ------------ 1 21st of Arizona was incorporated in Arizona in 1995 as a joint venture owned 49% by the Company and 51% by AIG; the Company acquired AIG's interest on January 1, 2002. 43 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA INVESTMENTS The Company classifies its investment portfolio as available-for-sale and carries it at fair value. Fair values for fixed maturity and equity securities are based on quoted market prices, broker quotes and other valuation techniques. The cost of investment securities sold is determined by the specific identification method. Unrealized investment gains and losses, net of any tax effect, are included as an element of accumulated other comprehensive income (loss), which is classified as a separate component of stockholders' equity. Impairment losses for declines in value of fixed maturity investments below cost are recognized when attributable to issuer-specific events based upon all relevant facts and circumstances in accordance with Staff Accounting Bulletin ("SAB") 59, Noncurrent Marketable Equity Securities, Emerging Issues Task Force ("EITF") No. 99-20, Recognition of Interest Income and Impairment of Certain Investments, EITF No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, and related guidance, which is evolving. For fixed-maturity investments with unrealized losses due to market conditions or industry-related events, where the Company has the positive intent and ability to hold the investment for a period of time sufficient to allow a market recovery or to maturity, declines in value below cost are not assumed to be other than temporary. Where declines in values of securities below cost or amortized cost are considered to be other than temporary, a charge is reflected in income for the difference between cost or amortized cost and fair value. No such charges were recorded in 2003, 2002 or 2001. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash, demand deposits and short-term investments in money market mutual funds having a maturity of three months or less at the date of purchase. RECOGNITION OF REVENUES Insurance premiums and reinsurance ceding commissions are recognized pro rata over the terms of the policies. The unearned portion of premiums is included in the consolidated balance sheets as a liability for unearned premiums. Installment and other fees for services are recognized in the periods the services are rendered. DEFERRED POLICY ACQUISITION COSTS Deferred policy acquisition costs ("DPAC") include premium taxes and other variable costs incurred in connection with writing business. These costs are deferred and amortized over the 6-month policy period in which the related premiums are earned. The Company does not consider anticipated investment income in determining the recoverability of these costs. Based on current indications, management believes that these costs will be fully recoverable and, accordingly, no reduction in DPAC has been recognized. LEASED PROPERTY UNDER CAPITAL LEASE Leased property under capital lease is recorded as a capital asset and amortized on a straight-line basis over the estimated useful lives of the property, which range from 3 to 10 years. The related lease obligation, which is included in debt, is disclosed on the balance sheet. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost and depreciated on a straight-line basis. The estimated useful lives used for depreciation purposes are: furniture and leasehold improvements - 7 years; equipment - 3 to 5 years; automobiles - 5 years; software currently in service - 3 to 10 years. 44 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA Management assesses the Company's property and equipment, including software development projects in progress, for impairment in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The assessment of impairment involves a two-step process prescribed in SFAS No. 144, whereby an initial assessment for potential impairment is performed, by comparing the carrying value and cost to complete, if any, to estimates of future undiscounted cash flows from operations at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If future undiscounted cash flows are insufficient, an impairment write down is recorded for the difference between the carrying value and estimated fair value of the asset group. LOSSES AND LOSS ADJUSTMENT EXPENSES The estimated liabilities for losses and loss adjustment expenses ("LAE") include the accumulation of estimates of losses for claims reported prior to the balance sheet dates, estimates (based upon actuarial analysis of historical data) of losses for claims incurred but not reported, the development of case reserves to ultimate values, and estimates of expenses for investigating, adjusting and settling all incurred claims. Amounts reported are estimates of the ultimate costs of settlement, net of estimated salvage and subrogation. These estimated liabilities are necessarily subject to the outcome of future events, such as changes in medical and repair costs as well as economic and social conditions that impact the settlement of claims. Management believes that the aggregate reserves are adequate and represent our best estimate based on the information currently available. The methods of making such estimates and for establishing the resulting reserves are reviewed and updated as applicable, and any adjustments resulting therefrom are reflected in current operations. A necessarily more subjective process is used to estimate earthquake losses arising out of California Senate Bill 1899 ("SB 1899") because most of the remaining earthquake claims are in litigation. See Note 16 of the Notes to Consolidated Financial Statements for a discussion of the factors considered by management in establishing those liabilities. REINSURANCE In the normal course of business, the Company seeks to reduce its exposure to losses that may arise from catastrophes and to reduce its overall risk levels by obtaining reinsurance from other insurance enterprises or reinsurers. Reinsurance premiums and reserves on reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Reinsurance contracts do not relieve the Company from its obligations to policyholders. The Company periodically reviews the financial condition of its reinsurers to minimize its exposure to losses from reinsurer insolvencies. It is the Company's policy to hold collateral under related reinsurance agreements in the form of letters of credit for unpaid losses for all reinsurers not licensed to do business in the Company's state of domicile. Reinsurance assets include balances due from other insurance companies under the terms of reinsurance agreements. Amounts applicable to ceded unearned premiums, ceded loss payments and ceded claim liabilities are reported as assets in the accompanying balance sheets. The Company believes the fair value of its reinsurance recoverables approximates their carrying amounts. INCOME TAXES Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years the differences are expected to be recovered or settled. The Company reviews its deferred tax assets and liabilities for recoverability. 45 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA STOCK-BASED COMPENSATION SFAS No. 123, Accounting for Stock-based Compensation, encourages, but does not require, companies to account for stock options using the fair value method, which generally results in compensation expense recognition. As also permitted by SFAS No. 123, the Company accounts for its fixed stock options using the intrinsic-value method, prescribed in Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, which generally does not result in compensation expense recognition. Under the intrinsic value method, compensation cost for stock options is measured at the date of grant as the excess, if any, of the quoted market price of our stock over the exercise price of the options. In addition to stock options, we also grant restricted stock awards to certain officers and employees. Upon issuance of grants under the plan, unearned compensation equivalent to the market value on the date of grant is charged to paid-in capital and subsequently amortized over the vesting period of the grant. The Company becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released. Restricted shares are forfeited if officers and employees terminate prior to the lapsing of restrictions. We record forfeitures of restricted stock as treasury share repurchases and any compensation cost previously recognized is reversed in the period of forfeiture. This accounting treatment results in compensation expense being recorded in a manner consistent with that required under SFAS No. 123, and, therefore, pro forma net income and earnings per share amounts for the Restricted Share Plan would be unchanged from those reported in the financial statements. Had compensation cost for our plans been determined based on the estimated fair value at the grant dates of options consistent with the method defined in SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts indicated below for the years ended December 31 (amounts in thousands, except per share data):
Years Ended December 31, 2003 2002 2001 - ---------------------------------------------------------------------------------------- NET INCOME (LOSS), AS REPORTED $53,575 $(12,256) $(27,568) Add: Stock-based employee compensation expense 346 329 243 included in reported net income (loss), net of related tax effects Deduct: Total stock-based employee compensation (6,812) (5,637) (3,413) expense determined under fair value based method for all awards, net of related tax effects ------------------------------ NET INCOME (LOSS), PRO FORMA $47,109 $(17,564) $(30,738) ============================== BASIC AND DILUTED EARNINGS (LOSS) PER SHARE As reported $ 0.63 $ (0.14) $ (0.32) Pro forma $ 0.55 $ (0.21) $ (0.36)
EARNINGS PER SHARE ("EPS") Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted from issuance of common stock that then shared in the earnings of the Company. 46 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NEW ACCOUNTING PRONOUNCEMENTS In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS No. 150 in the third quarter of 2003 did not have an impact on the Company's results of operation or financial position. In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51 ("FIN 46"), and amended it in December 2003. An entity is subject to the consolidation rules of FIN 46 and is referred to as a variable interest entity ("VIE") if it lacks sufficient equity to finance its activities without additional financial support from other parties or if its equity holders lack adequate decision making ability based on criteria set forth in the interpretation. On August 29, 2003, the Company funded a revolving loan agreement with Impact C.I.L., LLC ("Impact C.I.L."), a VIE. At present the Company has contributed $2.4 million to be used to purchase mortgage loans in economically disadvantaged areas. The Company is not the primary beneficiary of the VIE and participates at an 11.11% level in the entity's funding activities. Potential losses are limited to the amount invested as well as associated operating fees. The Company's maximum commitment is for up to 11.11% ($24 million) of $216 million of participation. The mortgages purchased with these funds may be securitized. Otherwise, the loan will be liquidated in 10 years from the initial date of the agreement. Impact C.I.L. is a subsidiary of Impact Community Capital, LLC ("Impact"), whose charter is to provide real estate loans in economically disadvantaged areas. At present, the Company has a $2.0 million note receivable from Impact in addition to the $2.4 million investment noted above. The Company has voting rights and ownership of Impact in proportion to its investment (approximately 10%). The Company does not have any material VIEs that it needs, or will need, to consolidate or disclose. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 3. EARNINGS (LOSS) PER COMMON SHARE - ----------------------------------------- For each of the three years in the period ended December 31, 2003, the numerator for the calculation of both basic and diluted earnings (loss) per common share is equal to net income (loss) reported for that year. The denominator for the computation of basic earnings (loss) per share was 85,432,838 shares, 85,414,076 shares and 85,340,461 shares for 2003, 2002 and 2001, respectively. The denominator for diluted earnings (loss) per share was 85,637,672 shares, 85,414,076 shares and 85,340,461 shares for 2003, 2002 and 2001, respectively. The difference between basic and diluted earnings (loss) per share denominators is due to dilutive stock options. Options to purchase an aggregate of 5,121,446 shares, 5,010,411 shares and 3,122,081 shares of common stock were considered anti-dilutive during 2003, 2002 and 2001, respectively, and were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common stock for each respective period. These options expire through June 2013 (see Note 14 of the Notes to Consolidated Financial Statements). 47 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NOTE 4. INVESTMENTS - -------------------- A summary of net investment income follows:
Years Ended December 31, 2003 2002 2001 - ----------------------------------------------------------------------------------------- Interest on fixed maturities $45,668 $45,777 $44,722 Interest on cash equivalents 857 922 1,602 Investment expense (692) (354) (394) - ----------------------------------------------------------------------------------------- Net investment income $45,833 $46,345 $45,930 - -----------------------------------------------------------------------------------------
A summary of realized investment gains (losses) follows:
Years Ended December 31, 2003 2002 2001 - ----------------------------------------------------------------------------------------- Realized losses on sales of fixed maturity securities $ (382) $(2,183) $(1,111) Realized gains on sales of fixed maturity securities 13,715 13,053 5,912 Realized (loss) gain on disposal of property and equipment (156) (479) 200 - ----------------------------------------------------------------------------------------- Total realized investment gains (losses) $13,177 $10,391 $ 5,001 - -----------------------------------------------------------------------------------------
A summary of fixed maturity investments follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- DECEMBER 31, 2003 U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 192,936 $ 2,312 $ (970) $ 194,278 Obligations of states and political subdivisions 834,058 32,679 (1,392) 865,345 Corporate securities 156,532 4,575 (1,054) 160,053 - --------------------------------------------------------------------------------------------------- Total fixed maturity investments $1,183,526 $ 39,566 $ (3,416) $1,219,676 - --------------------------------------------------------------------------------------------------- December 31, 2002 U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 95,268 $ 4,764 $ - $ 100,032 Obligations of states and political subdivisions 548,919 26,053 (207) 574,765 Corporate securities 241,860 10,384 (2,460) 249,784 - --------------------------------------------------------------------------------------------------- Total fixed maturity investments $ 886,047 $ 41,201 $ (2,667) $ 924,581 - ---------------------------------------------------------------------------------------------------
The Company has no non-interest bearing investments, non-accrued investment income or any individual securities in excess of 10% of equity. Fixed maturities available-for-sale at December 31, 2003, are summarized by contractual maturity year as follows:
Amortized Fair Cost Value - --------------------------------------------- Fixed maturities due: 2004 $ 21,277 $ 22,471 2005-2008 267,883 276,094 2009-2013 807,898 832,050 2014 and thereafter 86,468 89,061 - --------------------------------------------- Total $1,183,526 $1,219,676 - ---------------------------------------------
48 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA Expected maturities of the Company's investments may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. The following table summarizes the Company's gross unrealized losses and estimated fair values on investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003.
Less than 12 Months 12 Months or More Total ---------------------------------------------------------------------------- Unrealized Unrealized Unrealized December 31, 2003 Fair Value Losses Fair Value Losses Fair Value Losses - ------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 103,816 $ 970 $ - $ - $ 103,816 $ 970 Obligations of states and political subdivisions 90,425 1,352 2,118 40 92,543 1,392 Corporate securities 41,828 1,054 - - 41,828 1,054 - ------------------------------------------------------------------------------------------------------------------------------ Total fixed maturity investments $ 236,069 $ 3,376 $ 2,118 $ 40 $ 238,187 $ 3,416 - ------------------------------------------------------------------------------------------------------------------------------
The Company held 89 investment positions with unrealized losses as of December 31, 2003. As all of these investments are investment grade, none of the unrealized losses are considered to be credit related. In addition, at December 31, 2003, the Company had two investments that were in an unrealized loss position for 12 months or more. Cash and securities with carrying values of $6.7 million and $6.8 million as of December 31, 2003 and 2002 were on deposit with state regulatory authorities in accordance with the related statutory insurance requirements. NOTE 5. INCOME TAXES - ----------------------------- Income tax expense (benefit) consists of:
Years Ended December 31, 2003 2002 2001 - ------------------------------------------------------------- Current tax expense (benefit) $ 4,166 $ (8,200) $ (5,089) Deferred tax expense (benefit) 13,406 (5,370) (19,418) - ------------------------------------------------------------- $17,572 $(13,570) $(24,507) - -------------------------------------------------------------
A reconciliation of income tax computed at the federal statutory tax rate of 35% to total income tax expense (benefit) follows:
Years Ended December 31, 2003 2002 2001 - --------------------------------------------------------------------------------------- Federal income tax expense (benefit) at statutory rate $24,902 $ (9,039) $(18,227) Tax-exempt income, net (8,581) (9,377) (11,067) State and local taxes, net of federal benefit 560 5,151 4,706 Research and experimentation tax credit (374) (1,040) - Nondeductible political contributions 135 766 81 Effect on prior years of settlement of tax dispute 949 - - Other - net (19) (31) - - --------------------------------------------------------------------------------------- Income tax expense (benefit) $17,572 $(13,570) $(24,507) - ---------------------------------------------------------------------------------------
49 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA There were no income tax payments required for the years ended December 31, 2003, 2002 and 2001. As of December 31, 2003, the Company's federal income tax refund receivable was $9.6 million. The Company's net deferred tax asset is comprised of:
December 31, 2003 2002 - ---------------------------------------------------------------- Deferred tax assets: Net operating loss carryforward $105,317 $128,581 Alternative minimum tax credit 10,717 9,451 Unearned premiums 22,377 19,156 Unpaid losses and loss adjustment expenses 8,107 6,793 Other 2,621 - - ---------------------------------------------------------------- 149,139 163,981 - ---------------------------------------------------------------- Deferred tax liabilities: EDP software development costs 40,729 36,262 Deferred policy acquisition costs 18,578 16,166 Unrealized investment gains 11,605 12,685 Employee benefits 1,616 1,276 Other - 8,653 - ---------------------------------------------------------------- 72,528 75,042 - ---------------------------------------------------------------- Net deferred tax asset $ 76,611 $ 88,939 - ----------------------------------------------------------------
During 2002, the Company had a tax net operating loss of approximately $37.0 million. As of December 31, 2003, the Company has a tax net operating loss carryforward of approximately $300.9 million for regular tax purposes of which approximately $37.9 million expires in the year 2009 and $263.0 million expires on or after 2011; and an alternative minimum tax credit carryforward of $10.7 million. Alternative minimum tax credits may be carried forward indefinitely to offset future regular tax liabilities. The Company is required to establish a "valuation allowance" for any portion of the deferred tax asset that management believes will not be realized. The Company believes that because of tax planning strategies available, it is more likely than not that the Company will realize the full benefit of its deferred tax assets. Accordingly, no valuation allowance has been established. NOTE 6. DEFERRED POLICY ACQUISITION COSTS - ----------------------------------------- Following is a summary of policy acquisition costs deferred for amortization against future income and the related amortization charged to income from operations (policy acquisition costs are amortized over the 6-month policy period):
Years Ended December 31, 2003 2002 2001 - ---------------------------------------------------------------------------------------- Deferred policy acquisition costs, beginning of year $ 46,190 $ 30,631 $ 25,228 Acquisition costs deferred 209,078 139,201 107,961 Acquisition costs amortized and charged to income during the year (202,189) (123,642) (102,558) - ---------------------------------------------------------------------------------------- Deferred policy acquisition costs, end of year $ 53,079 $ 46,190 $ 30,631 - ----------------------------------------------------------------------------------------
Total advertising costs included in acquisition costs deferred during 2003, 2002 and 2001 were $53.9 million, $43.3 million and $16.9 million, respectively. 50 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NOTE 7. PROPERTY AND EQUIPMENT - ------------------------------- A summary of property and equipment follows:
December 31, 2003 2002 - ----------------------------------------------------------------------------------- Furniture and equipment $ 37,666 $ 34,936 Automobiles 1,505 2,855 Leasehold improvements 11,890 9,716 Software currently in service 34,136 25,144 Software development projects in progress 76,110 66,748 - ----------------------------------------------------------------------------------- Subtotal 161,307 139,399 Less accumulated depreciation, including $19,057 and $14,927 for software currently in service (60,070) (52,125) - ----------------------------------------------------------------------------------- $101,237 $ 87,274 - -----------------------------------------------------------------------------------
Depreciation expense on software currently in service was $4.2 million, $9.6 million and $10.4 million in 2003, 2002 and 2001, respectively. In the third quarter of 2002, we recorded a one-time pre-tax charge to write-off $37.2 million of previously capitalized software costs for abandoned portions of an advanced personal lines processing system. Substantially all software development projects in progress, which primarily relate to the advanced personal lines processing system, are expected to be completed by 2005. NOTE 8. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES - --------------------------------------------------- Accounting for losses and LAE is highly subjective because these costs must be estimated, often weeks, months or even years in advance of when the payments actually are made to claimants, attorneys, claims personnel and others involved in the claims settlement process. At the time of sale of an auto policy, for example, the number of claims that will happen is unknown, and so is the ultimate amount it will take to settle them. Accounting principles require insurers to record estimates for loss and LAE in the periods in which the insured events, such as automobile accidents, occur. This estimation process requires the Company to estimate both the number of accidents that may have occurred (called "frequency") and the ultimate amount of loss and LAE (called "severity") related to each accident. The Company employs actuaries who are professionally trained and certified in the process of establishing estimates for frequency and severity. From time to time, external actuarial experts are engaged from consulting firms to review the work of the Company's actuaries. Management believes that the Company's reserves are adequate. However, because reserve estimates are necessarily subject to the outcome of future events, changes in estimates are unavoidable in the property and casualty insurance business. These changes sometimes are referred to as "loss development" or "reserve development." 51 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The following analysis provides a reconciliation of the activity in the reserve for unpaid losses and loss adjustment expenses:
Years Ended December 31, 2003 2002 2001 - ----------------------------------------------------------------------------------- At beginning of year: Reserve for losses and LAE, gross of reinsurance $384,009 $349,290 $298,436 Reinsurance recoverable (20,351) (23,512) (31,483) Acquisition of 21st of Arizona - 6,749 - - ----------------------------------------------------------------------------------- Reserve for losses and LAE, net of reinsurance 363,658 332,527 266,953 - ----------------------------------------------------------------------------------- Losses and LAE incurred, net of reinsurance: Current year 911,104 754,299 718,229 Prior years 51,207 72,358 118,007 - ----------------------------------------------------------------------------------- Total 962,311 826,657 836,236 - ----------------------------------------------------------------------------------- Losses and LAE paid, net of reinsurance: Current year 590,678 513,738 506,294 Prior years 305,932 281,788 271,117 - ----------------------------------------------------------------------------------- Total 896,610 795,526 777,411 - ----------------------------------------------------------------------------------- At end of year: Reserve for losses and LAE, net of reinsurance 429,359 363,658 325,778 Reinsurance recoverable 8,964 20,351 23,512 - ----------------------------------------------------------------------------------- Reserve for losses and LAE, gross of reinsurance $438,323 $384,009 $349,290 - -----------------------------------------------------------------------------------
The provision for losses and LAE recorded in 2003, 2002 and 2001 for insured events of prior years primarily resulted from the Company's recognition of earthquake losses under SB 1899, as discussed in Note 16 of the Notes to Consolidated Financial Statements, and from adverse development in personal auto loss severity. For the personal auto lines, the Company's actuaries prepare a monthly evaluation of loss and LAE indications by accident year, and the Company assesses whether there is a need to adjust reserve estimates pertaining to previous accounting periods. Our actuaries evaluate the homeowners reserve requirement on a quarterly basis, while personnel in our legal and claims areas prepare monthly evaluations of the earthquake reserves. As claims are reported and settled and as other new information becomes available, changes in estimates are made and are included in earnings of the period of the change. The increases in prior accident year estimates recorded in each of the past three years, net of applicable reinsurance, are summarized below:
Years ended December 31, 2003 2002 2001 - ------------------------------------------------------- Personal auto $11,159 $16,200 $ 45,742 Homeowner and Earthquake(1) 40,048 56,158 72,265 $51,207 $72,358 $118,007
- ----------- 1 The Company no longer has any California homeowners policies in force. The Company ceased writing earthquake coverage in 1994, but has remaining loss reserves from the 1994 Northridge Earthquake that are subject to upward development. 52 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The following table shows unpaid losses and LAE on a gross and net basis:
2003 2002 ------------------ ------------------ December 31, GROSS NET Gross Net - ------------------------------------------------------------------ Unpaid Losses and LAE Personal auto lines $419,913 $413,348 $333,113 $320,032 Homeowner and earthquake 18,410 16,011 50,896 43,626 - ------------------------------------------------------------------ Total $438,323 $429,359 $384,009 $363,658 - ------------------------------------------------------------------
The $86.8 million increase in the gross auto reserves for the year ended December 31, 2003, is comprised of growth in reserves attributable to the higher number of insured automobiles of approximately $57.9 million, approximately $17.7 million relating to the effects of higher average loss costs and approximately $11.2 million for strengthening of prior accident year reserves. NOTE 9. DEBT - ------------- Debt at December 31 consisted of:
2003 2002 - ------------------------------------------------------------------------------- Senior Notes (5.9%; maturing in 2013) $ 99,872 $ - Obligation under capital lease (5.7%; maturing through 2008) 49,814 60,000 - ------------------------------------------------------------------------------- Total debt $149,686 $60,000 - -------------------------------------------------------------------------------
In December 2003, the Company completed a private offering of $100 million principal amount of 5.9 percent Senior Notes due in December 2013 at a discount of $0.8 million. The effective interest rate on the Senior Notes, when all offering costs are taken into account and amortized over the term of the Senior Notes, is approximately 6 percent per annum. Of the $99.2 million in net proceeds from the Senior Notes, $85 million was used to increase the statutory surplus of 21st Century Insurance Company, a wholly-owned subsidiary of the Company, and the balance was retained by the holding company. The Senior Notes are redeemable at the Company's option, at any time in whole, or from time to time in part, prior to maturity at a redemption price equal to the greater of (A) 100% of the principal amount of the notes and (B) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued through the date of redemption) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate, plus 25 basis points (plus in each case, accrued interest thereon to the date of redemption). Under a registration rights agreement executed in connection with the offering, the Company has agreed to, among other things: (i) file a registration statement on or before April 7, 2004 enabling holders to exchange the notes for publicly registered notes; (ii) use reasonable best efforts to cause the registration statement relating to the exchange offer to become or be declared effective on or before June 6, 2004; (iii) use reasonable best efforts to consummate the exchange offer within 45 days after the effective date of the registration statement. In the event such registration statement does not become effective by June 6, 2004, the interest rate on the Senior Notes will increase by 0.25%. Interest on the Senior Notes and capital lease obligation is payable semiannually and monthly, respectively. The first interest payment on the Senior Notes of approximately $3.0 million will be paid on June 15, 2004, of which $0.4 million was accrued at December 31, 2003. The capital lease obligation called for an interest-only payment on February 14, 2003, of $0.3 million and, commencing 53 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA at the same date, 59 monthly payments of approximately $1.2 million with a bargain purchase option at the end of the term. On December 31, 2002, the Company entered into a sale-leaseback transaction for $15.8 million of equipment and leasehold improvements and $44.2 million of software. The transaction is accounted for as a capital lease under SFAS No. 13, Accounting for Leases, as amended by SFAS No. 28, Accounting for Sales with Leasebacks. The lease includes a covenant that if AIG ceases to have a majority interest in the Company, or if statutory surplus falls below $300.0 million, or if the net premiums written to surplus ratio is greater than 3.8:1, or if claims paying ratings fall below BBB+ (as rated by Standard & Poor's), Baa1 (as rated by Moody's) or B++ (as rated by A.M. Best) the Company will either deliver a letter of credit to the lessor or pay the lessor the then outstanding balance, including a prepayment penalty of up to 3%. The lessor has been granted a security interest in the property and equipment subject to the sale-leaseback. See Note 12 of the Notes to Consolidated Financial Statements for the related contractual commitment schedule. Depreciation expense for leased property under capital lease for 2003 was $12.4 million. There was no depreciation expense on leased property under capital lease for 2002. NOTE 10. REINSURANCE - --------------------- Effective January 1, 2003, the 90% quota share reinsurance treaty covering the Company's Personal Umbrella Policies ("PUP") was amended so that the reinsurers are as follows: The TOA Reinsurance Company of America - 25%, Swiss RE Underwriters - 45%, Hannover Ruckversicherungs - 20%. In the third quarter of 2002, the Company entered into a catastrophe reinsurance agreement on its auto lines with AIG subsidiaries, Folksamerica Reinsurance Company and Transatlantic Reinsurance Company (a majority owned AIG subsidiary), which reinsures any covered events up to $30.0 million in excess of $15.0 million ($45.0 million in excess of $20.0 million effective January 1, 2004). Effective September 1, 2002, the Company entered into an agreement to cancel future cessions under its quota share reinsurance treaty with AIG subsidiaries resulting in a pre-tax charge of $0.9 million. The treaty would have ceded 4% of premiums to AIG subsidiaries in the remainder of 2002 and 2% in 2003. 54 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The following summarizes the approximate percentage of business retained and ceded under various reinsurance programs with AIG subsidiaries and unrelated insurers. Most programs provide for ceding commissions that approximate the Company's direct policy acquisition costs and other operating expenses.
Contracts Incepting During ---------------------------- 2003 2002 2001 - ----------------------------------------------------------------------- AUTO POLICIES Retained 100% 97% 94% Ceded - 3% 6% Catastrophe cover excess $15 million $30,000 $30,000 - HOMEOWNER POLICIES(1) Retained - - 94% Ceded 100% 100% 6% Catastrophe cover excess $10 million(2) - - $75,000 PUP POLICIES Retained 10% 10% 16% Ceded 90% 90% 84%
Reinsurance coverages related to historical earthquake losses have been exhausted. The effect of reinsurance on premiums written and earned is as follows:
2003 2002 2001 - ---------------------------------------------------------------------------------------------- Years Ended December 31, WRITTEN EARNED Written Earned Written Earned - ---------------------------------------------------------------------------------------------- Gross $1,223,484 $1,177,705 $998,248 $971,059 $929,315 $929,361 Ceded (4,854) (5,028) (32,949) (46,500) (60,360) (65,216) - ---------------------------------------------------------------------------------------------- Net $1,218,630 $1,172,677 $965,299 $924,559 $868,955 $864,145 - ----------------------------------------------------------------------------------------------
Gross losses and loss adjustment expenses have been reduced by reinsurance ceded as follows:
Years Ended December 31, 2003 2002 2001 - ----------------------------------------------------------------------------------- Gross losses and loss adjustment expenses incurred $966,512 $870,402 $893,139 Ceded losses and loss adjustment expenses incurred (4,201) (43,745) (56,903) - ----------------------------------------------------------------------------------- Net losses and loss adjustment expenses incurred $962,311 $826,657 $836,236 - -----------------------------------------------------------------------------------
At December 31, 2003 and 2002, the Company's reinsurance recoverables, net of payables, from AIG subsidiaries were $5.8 million and $18.4 million, respectively. The Company ceded $0.9 million, $29.1 million, and $60.3 million in net premiums earned to AIG subsidiaries in 2003, 2002 and 2001, respectively. Losses and loss adjustment expenses incurred of $1.6 million, $28.4 million and $55.6 million were ceded to AIG subsidiaries in 2003, 2002 and 2001, respectively. - ------------ 1 The Company's homeowner policies did not include any earthquake coverage. 2 This catastrophe coverage provided protection from the potential for fire following an earthquake and other catastrophes. 55 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NOTE 11. EMPLOYEE BENEFIT PLANS - -------------------------------- The Company sponsors a contributory savings and security plan for eligible employees. The Company provides matching contributions equal to 75% of the lesser of 6% of an employee's compensation or the amount contributed by the employee up to the maximum allowable under IRS regulations. Contributions charged against operations were $4.4 million, $4.2 million and $4.0 million in 2003, 2002 and 2001, respectively. The plan offers a variety of investment types among which employees exercise complete discretion as to choice and investment duration, including any amounts the employee elects to invest in Company common stock. The Company has both funded and unfunded non-contributory defined benefit pension plans, which together cover essentially all employees who have completed at least one year of service. For certain key employees designated by the Board of Directors, the Company sponsors an unfunded nonqualified supplemental executive retirement plan. The supplemental plan benefits are based on years of service and compensation during the three highest of the last ten years of employment prior to retirement and are reduced by the benefit payable from the pension plan and 50% of the social security benefit. For other eligible employees, the pension benefits are based on employees' compensation during all years of service. The Company's funding policy is to make annual contributions as required by applicable regulations. In 2003 and 2002, the Company made additional contributions to fully fund the accumulated benefit obligation of its qualified plan. Other information regarding the Company's defined benefit pension plans follows:
Years Ended December 31, 2003 2002 - ------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $ 78,684 $ 68,943 Service cost 4,607 3,788 Interest cost 5,627 5,008 Plan amendments 85 553 Actuarial loss 14,161 2,523 Benefits paid (2,230) (2,131) - ------------------------------------------------------------------------- Benefit obligation at end of year $100,934 $ 78,684 - ------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year $ 58,276 $ 45,544 Actual return on plan assets net of expenses 14,053 (6,661) Employer contributions 7,000 21,524 Benefits paid (2,230) (2,131) - ------------------------------------------------------------------------- Fair value of plan assets at end of year $ 77,099 $ 58,276 - ------------------------------------------------------------------------- Reconciliation of funded status: Funded status $(23,835) $(20,408) Unrecognized net loss 36,026 33,074 Unrecognized prior service cost 788 807 - ------------------------------------------------------------------------- Net pension asset recognized at year end $ 12,979 $ 13,473 - ------------------------------------------------------------------------- Amounts recognized in the balance sheet consist of: Prepaid pension cost - qualified plan $ 19,849 $ 18,449 Accrued benefit liability - nonqualified plan (6,870) (4,976) Additional minimum liability - nonqualified plan (3,742) (3,058) Intangible asset 750 766 Accumulated other comprehensive income, pre-tax 2,992 2,292 - ------------------------------------------------------------------------- Net pension asset recognized at year end $ 12,979 $ 13,473 - -------------------------------------------------------------------------
56 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The accumulated benefit obligation for all defined benefit pension plans was $83,433 and $63,422 at December 31, 2003 and 2002, respectively. Information for the unfunded supplemental executive retirement plan, which has an accumulated benefit obligation in excess of plan assets, is as follows:
Years Ended December 31, 2003 2002 - -------------------------------------------------- Projected benefit obligation $16,552 $11,967 Accumulated benefit obligation 11,586 9,907 Fair value of plan assets 974 1,873 - --------------------------------------------------
Net pension costs for all plans were comprised of the following:
Years Ended December 31, 2003 2002 2001 - -------------------------------------------------------------------------------- Service cost $ 4,607 $ 3,788 $ 3,509 Interest cost 5,627 5,008 4,554 Expected return on plan assets (4,857) (4,193) (3,737) Amortization of unrecognized transition obligation - 181 181 Amortization of prior service cost 105 105 233 Amortization of net loss 2,012 1,012 394 - -------------------------------------------------------------------------------- $ 7,494 $ 5,901 $ 5,134 - --------------------------------------------------------------------------------
ADDITIONAL INFORMATION The increase (decrease) in minimum liability included in other comprehensive income for the years ended December 31, 2003 and 2002 was $0.7 million and $(6.3) million, respectively. ASSUMPTIONS
December 31, 2003 2002 - ---------------------------------------------------------------- Weighted-average assumptions used to determine the benefit obligations: Discount rate 6.10% 6.75% Rate of compensation increase 4.60% 5.60% - ---------------------------------------------------------------- Years Ended December 31, 2003 2002 - ---------------------------------------------------------------- Weighted-average assumptions used to determine the net cost: Discount rate 6.75% 7.00% Expected return on plan assets 8.50% 8.50% Rate of compensation increase 5.60% 5.60% - ----------------------------------------------------------------
The overall expected long-term rate of return on assets is a weighted-average expectation for the return on plan assets. The Company considers historical performance and current benchmarks to arrive at expected long-term rates of return in each asset category. The Company assumed that 75% of its portfolio would be invested in equity securities, with the remainder invested in debt securities. 57 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA PLAN ASSETS The Company's pension plan weighted-average asset allocations at December 31, 2003 and 2002, by asset category are as follows:
December 31, 2003 2002 - ------------------------------- Equity Securities 72% 59% Debt Securities 19% 20% Other 9% 21% - ------------------------------- Total 100% 100% - -------------------------------
The Company's pension plan assets are managed by outside investment managers. The Company's investment strategy is to maximize return on investments while minimizing risk. The Company believes the best way to accomplish this goal is to take a conservative approach to its investment strategy by investing in high-grade equity and debt securities. Policy requires that equity securities comprise between 66% and 84% of the total portfolio, and that 22% to 28% be invested in debt securities. CASH FLOWS The Company does not currently expect to be required to contribute to its qualified plan in 2004. NOTE 12. COMMITMENTS AND CONTINGENCIES - --------------------------------------- CONTRACTUAL COMMITMENTS The Company leases office space in Woodland Hills, California. The lease for the Company's corporate office expires in February 2015 and may be renewed for two consecutive five-year periods. The Company also leases automobiles and office equipment as well as office space in several other locations throughout California, primarily for claims services. The Company also has service agreements with terms greater than one year. Minimum commitments under the Company's noncancelable commitments at December 31, 2003 are as follows:
Operating Capital Leases(1) ease ---------- -------- 2004 $ 19,847 $ 13,962 2005 19,256 13,962 2006 16,691 13,962 2007 14,539 13,962 2008 14,429 - Thereafter 90,411 - - ------------------------------------------------------------- $ 175,173 55,848 Less: amount representing interest 6,034 - ------------------------------------------------------------- Present value of minimum lease payments $ 49,814 - -------------------------------------------------------------
Total rental expense charged to operations for the years ended December 31, 2003, 2002 and 2001 was $17.5 million, $16.4 million and $15.6 million, respectively. - ------------ 1 Includes amounts due under long-term software license agreements of approximately $15.1 million. 58 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The Company owns an 11.11% interest in Impact, an entity whose purpose is to provide real estate loans in economically disadvantaged areas. Through one of its subsidiaries, Impact C.I.L., the Company has a commitment to fund up to $24 million in loans over the next ten years. LEGAL PROCEEDINGS In the normal course of business, the Company is named as a defendant in lawsuits related to claims and insurance policy issues, both on individual policy files and by class actions seeking to attack the Company's business practices. Many suits seek unspecified extracontractual and punitive damages as well as contractual damages under the Company's insurance policies in excess of the Company's estimates of its obligations under such policies. The Company cannot estimate the amount or range of loss that could result from an unfavorable outcome on these suits and it denies liability for any such alleged damages. The Company has not established reserves for potential extracontractual or punitive damages, or for contractual damages in excess of estimates the Company believes are correct and reasonable under its insurance policies. Nevertheless, extracontractual and punitive damages, if assessed against the Company, could be material in an individual case or in the aggregate. The Company may choose to settle litigated cases for amounts in excess of its own estimate of contractual damages to avoid the expense and/or risk of litigation. Other than possibly for the contingencies discussed below, the Company does not believe the ultimate outcome of these matters will be material to its results of operations, financial condition or cash flows. A range of potential losses in the event of a negative outcome is discussed where known. The Company has recorded its best estimate of liability for these matters. Dana Poss v. 21st Century Insurance Company was filed on June 13, 2003, in Los - ------------------------------------------- Angeles Superior Court. The Complaint requests injunctive and restitutionary relief under Business and Professions Code ("B&P") Sec.17200 for alleged unfair business practices in violation of California Insurance Code ("CIC") Sec.1861.02(c) relating to company rating practices. The Company is vigorously defending the action. 21st Century Insurance Group, 21st Century Casualty Company and 21st Century - ---------------------------------------------------------------------------- Insurance Company v. Kai Insurance Marketing, Inc. was filed on January 31, - -------------------------------------------------- 2003, in United States District Court, Central District of California, Western Division. The Company alleges Kai violated the Lanham Act, infringed upon and diluted trademarks, made a false designation of origin and engaged in unfair competition. Kai has filed a Counterclaim, as amended, against 21st Century Insurance Group, and 21st Century Insurance Company; the remaining allegations under the Counterclaim are infringement and unfair competition under B&P Sec.17200. Cecelia Encarnacion, individually and as the Guardian Ad Litem for Nubia Cecelia - -------------------------------------------------------------------------------- Gonzalez, a Minor, Hilda Cecelia Gonzalez, a Minor, and Ramon Aguilera v. 20th - ------------------------------------------------------------------------------ Century Insurance was filed on July 3, 1997, in Los Angeles Superior Court. - ----------------- Plaintiffs allege bad faith, emotional distress, and estoppel involving 20th Century's handling of a homeowner's claim. Ramon Aguilera shot Mr. Gonzalez (the minor children's father) and was sued by Ms. Encarnacion for wrongful death. On August 30, 1996, judgment was entered against Ramon Aguilera for $5.6 million. The Company paid for Aguilera's defense costs through the civil trial; however, the homeowner's policy did not provide indemnity coverage for the shooting incident, and the Company refused to pay the judgment. After the trial, Aguilera assigned a portion of his action against the Company to Encarnacion and the minor children. Aguilera and the Encarnacion family then sued the Company alleging that 20th Century had promised to pay its bodily injury policy limit if Aguilera pled guilty to involuntary manslaughter. In August 2003, the trial court held a bench trial on the limited issues of promissory and equitable estoppel, and policy forfeiture. On September 26, 2003, the trial court issued a ruling that 20th Century cannot invoke any policy exclusions as a defense to coverage. Plaintiffs contend that as a result of the ruling, 20th Century owes the full amount of the wrongful death judgment, plus interest and attorneys' 59 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA fees. 20th Century contends that the court should not award damages to Aguilera as a result of his own inequitable conduct. A jury trial on the remaining issues is set for June 1, 2004. Bryan Speck, individually, and on behalf of others similarly situated v. 21st - ----------------------------------------------------------------------------- Century Insurance Company, 21st Century Casualty Company, and 21st Century - -------------------------------------------------------------------------- Insurance Group, was filed on June 20, 2002 in Los Angeles Superior Court. - --------------- Plaintiff seeks national class action certification, injunctive relief, and unspecified actual and punitive damages. The complaint contends that 21st Century uses "biased" software in determining the value of total-loss automobiles. Plaintiff alleges that database providers use improper methodology to establish comparable auto values and populate their databases with biased figures and that the Company and other carriers allegedly subscribe to the programs to unfairly reduce claim costs. This case is consolidated with similar actions against other insurers for discovery and pre-trial motions. The Company intends to vigorously defend the suit with other defendants in the coordinated proceedings. Thomas Theis, on his own behalf and on behalf of all others similarly situated - ------------------------------------------------------------------------------ v. 21st Century Insurance, was filed on June 17, 2002, in Los Angeles - ------------------------- SuperiorCourt. Plaintiff seeks national class action certification, injunctive relief and unspecified actual and punitive damages. The complaint contends that after insureds receive medical treatment, the Company uses a medical-review program to adjust expenses to reasonable and necessary amounts for a given geographic area. Plaintiff alleges that the adjusted amount is "predetermined" and "biased," creating an unfair pretext for reducing claim costs. This case is consolidated with similar actions against other insurers for discovery and pre-trial motions. The Company intends to vigorously defend the suit with other defendants in the coordinated proceedings. On October 10, 2002, a Los Angeles Superior Court granted the Company's motion for summary judgment in the matter of 21st Century Insurance Company vs. People ----------------------------------------- of the State of California ex rel.Bill Lockyer, Attorney General et al. The - ---------------------------------------------------------------------- court determined that the Company's April 21, 1999, settlement with the California Department of Insurance ("CDI") with respect to regulatory actions arising out of the 1994 Northridge Earthquake was fully valid and enforceable. The Court denied the Attorney General's motion seeking to have the settlement declared void and unenforceable, a result that may have allowed the CDI to reinstitute regulatory proceedings with respect to the Company's handling of claims arising out of the 1994 Northridge Earthquake. The CDI has appealed the ruling. SB 1899, effective from January 1, 2001, to December 31, 2001, allowed the re-opening of previously closed earthquake claims arising out of the 1994 Northridge Earthquake. The Company's first constitutional challenge to SB 1899 came to an unsuccessful result on April 29, 2002, when the United States Supreme Court declined to hear the Company's case. A subsidiary of the Company, 21st Century Casualty Company, filed a new challenge to the constitutionality of SB 1899 on February 13, 2003. During the first quarter of 2003, a 9th Circuit Court of Appeals decision in Noah et al v. Allstate Insurance Company again found SB ---------------------------------------- 1899 (California Code of Civil Procedure 340.9) to be constitutional. As a result of the 9th Circuit's decision, the Company's subsidiary, 21st Century Casualty Company, voluntarily dismissed the action it initiated on February 13, 2003, seeking to have SB 1899 declared unconstitutional. Allstate's petition to the United States Supreme Court for review of the Noah decision has been denied. ---- The Company currently has lawsuits pending against it in connection with claims under SB 1899; some of these lawsuits have multiple plaintiffs or are seeking class action status. Possible future judgments for damages in excess of the Company's reasonable estimates for these claims could be material individually or in the aggregate. 60 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The Company has filed a civil complaint against California-based Unlimited Adjusting Company ("Unlimited") and its principal Jung Ho Park ("John Park"). The complaint was filed on December 16, 2002, in Superior Court of California, County of Orange and transferred to Superior Court of California, County of Los Angeles on April 15, 2003. The suit alleges Unlimited and John Park illegally induced insureds into filing additional unnecessary and fraudulent claims with the Company stemming from the 1994 Northridge Earthquake. The Company is ultimately seeking up to $10 million in compensatory damages. The defendant has filed a cross complaint against the Company alleging fraud, negligent misrepresentation, interference with contractual relations, and unfair competition under Section 17200 of the California Business and Professions Code. In a December 21, 2000 court ruling, Ceridian Corporation v. Franchise Tax ------------------------------------- Board, a California statute that allowed a tax deduction for the dividends - ------ received from wholly owned insurance subsidiaries was held unconstitutional on the grounds that it discriminated against out-of-state insurance holding companies. Subsequent to the court ruling, the staff of the California Franchise Tax Board ("FTB") took the position that the discriminatory sections of the statute are not severable and the entire statute is invalid. As a result, the FTB is disallowing dividend-received deductions for all insurance holding companies, regardless of domicile, for open tax years ending on or after December 1, 1997. Although the FTB has not made a formal assessment for tax years 1997 through 2000, the Company anticipates a retroactive disallowance that would result in additional tax assessments. The amount of any such possible assessments and the ultimate amounts, if any, that the Company may be required to pay, are subject to a wide range of estimates because so many long-settled aspects of California tax law have been thrown into disarray and uncertainty by the action of the courts. In the absence of legislative relief, years of future litigation may be required to determine the ultimate outcome. The possible losses, net of federal tax benefit, range from close to zero to approximately $22.0 million depending on which position future courts may decide to uphold or on whether the California legislature may decide to enact corrective legislation. The Company believes it has adequately provided for this contingency. NOTE 13. CAPITAL STOCK - ----------------------- Effective December 4, 2003, the Company changed its state of incorporation from California to Delaware. In connection with the change, the Company's stock was assigned a par value of $0.001 per share, resulting in a transfer of $419.2 million from common stock to additional paid-in capital. There was no impact to the Company's financial condition or results of operations as a result of the reincorporation. The Company is authorized to issue up to 500,000 shares of preferred stock, $1 par value, and 376,126 shares of Series A convertible preferred stock, $1 par value, none of which were outstanding at December 31, 2003 or 2002. Shares of common stock issued pursuant to the exercise of employee stock options and restricted stock grants were 4,000 in 2003, 69,657 in 2002 and 39,893 in 2001. No shares were repurchased in 2003 or 2002. 61 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NOTE 14. STOCK-BASED COMPENSATION - ---------------------------------- A summary of securities issuable and issued for both the 1995 Stock Option Plan and the Restricted Shares Plan at December 31, 2003, follows:
1995 Stock Restricted AMOUNTS IN THOUSANDS Option Plan Shares Plan - ---------------------------------------------------------------------------------- Total securities authorized 10,000 1,422 Number of securities issued (476) (1,049) Number of securities issuable upon the exercise of all outstanding options and rights (6,744) - Number of securities forfeited (1,436) - Number of securities forfeited and returned to plan 1,436 156 - ---------------------------------------------------------------------------------- Number of securities remaining available for future grants under each plan 2,780 529 - ----------------------------------------------------------------------------------
1995 STOCK OPTION PLAN The aggregate number of common shares authorized under the plan currently is limited to 10,000,000. At December 31, 2003, 2,780,214 common shares remain available for future grants. The plan has been approved by the Company's stockholders, and all options granted have ten-year terms. As a consequence of AIG's acquiring a controlling interest in the Company, vesting was accelerated for all options previously granted through July 27, 1998. Options granted after July 27, 1998, vest over various future periods. A summary of the Company's stock option activity and related information follows:
Weighted- Number of Average Options Exercise Price - ------------------------------------------------------------------ Options outstanding January 1, 2001 2,846,724 $ 20.88 Granted in 2001 1,854,079 18.09 Exercised in 2001 (79,901) 15.60 Forfeited in 2001 (620,964) 20.51 - ------------------------------------------------------------------ Options outstanding December 31, 2001 3,999,938 $ 19.75 Granted in 2002 1,523,708 16.09 Exercised in 2002 (86,881) 16.46 Forfeited in 2002 (294,865) 18.93 - ------------------------------------------------------------------ Options outstanding December 31, 2002 5,141,900 $ 18.77 Granted in 2003 1,801,556 12.03 Exercised in 2003 - - Forfeited in 2003 (199,538) 17.07 - ------------------------------------------------------------------ Options outstanding December 31, 2003 6,743,918 $ 17.05 - ------------------------------------------------------------------
62 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The following table summarizes information about stock options outstanding at December 31, 2003:
Outstanding Exercisable ------------------------------------- --------------------- Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Number of Exercise Range of Exercise Prices Options Contractual Life Price Options Price - ------------------------- --------- ---------------- --------- --------- --------- $11.68 - $15.48 1,822,856 9.1 Years $ 12.07 119,841 $ 12.32 16.03 - 17.81 2,129,890 7.2 Years 16.53 1,319,863 16.83 17.90 - 18.15 1,417,340 7.4 Years 18.15 1,057,586 18.15 18.19 - 24.19 993,082 4.9 Years 21.08 983,083 21.10 28.75 - 29.25 380,750 4.2 Years 29.22 380,750 29.22 - ------------------------- --------- ---------------- --------- --------- --------- $11.68 - $29.25 6,743,918 7.2 Years $ 17.05 3,861,123 $ 19.36
Options exercisable at the end of 2002 and 2001 numbered 2,574,577 and 1,803,917, respectively. The weighted average fair value for options granted during 2003, 2002 and 2001 was $4.80, $6.33 and $6.36, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Years Ended December 31, 2003 2002 2001 - ---------------------------------------------------------------------------- Risk-free interest rate: Minimum 2.65% 3.75% 4.73% Maximum 3.75% 4.79% 5.28% Dividend yield 0.67% 2.49% 2.50% Volatility factor of the expected market price Of the Company's common stock: Minimum 0.38 0.35 0.33 Maximum 0.40 0.38 0.34 Weighted-average expected life of the options 6 YEARS 8 years 8 years
RESTRICTED SHARES PLAN The Restricted Shares Plan, which was approved by the Company's stockholders, currently provides for grants of up to 1,421,920 shares of common stock to be made available to key employees. In general, twenty percent of the number of shares granted vest on the anniversary date of each of the five years following the year of grant. Total amortization expense relating to the Restricted Shares Plan was $0.4 million, $0.5 million and $0.7 million in 2003, 2002 and 2001, respectively. Unamortized restricted stock grants totaled $0.7 million, $1.0 million and $1.8 million at the end of 2003, 2002 and 2001, respectively. 63 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA A summary of activity under the plan from 2001 through 2003 follows:
Common Market Price Per Shares Share on Date of Grant - ----------------------------------------------------------------- Outstanding, January 1, 2001 176,138 Granted in 2001 - $ - Vested and distributed in 2001 (33,039) Canceled or forfeited (40,008) - ---------------------------------------- Outstanding, December 31, 2001 103,091 Granted in 2002 - - Vested and distributed in 2002 (25,629) Canceled or forfeited (17,224) - ---------------------------------------- Outstanding, December 31, 2002 60,238 Granted in 2003 4,000 14.45 Vested and distributed in 2003 (19,345) Canceled or forfeited - - ---------------------------------------- Outstanding, December 31, 2003 44,893 - ----------------------------------------
NOTE 15. STATUTORY FINANCIAL DATA - ---------------------------------- Statutory surplus and statutory net income (loss) for the Company's insurance subsidiaries were as follows:
Years Ended December 31, 2003 2002 2001 - ----------------------------------------------------------- Statutory surplus $531,658 $397,381 $393,119 Statutory net income (loss) 76,063 (39,771) (53,157)
The Company's insurance subsidiaries file financial statements prepared in accordance with Statutory Accounting Principles ("SAP") prescribed or permitted by domestic insurance regulatory agencies. The Company's SAP-basis financial statements differ from those prepared in accordance with GAAP primarily because certain assets recognized under GAAP are treated as nonadmitted assets under SAP, such as deferred policy acquisition costs, most of the Company's property and equipment and a portion of deferred income taxes. Differences also exist in the accounting treatment of sale-leaseback transactions. Further, under SAP, all bonds are carried at amortized cost and unpaid losses, loss adjustment expenses and unearned premium reserves are presented net of reinsurance. The following table reconciles consolidated GAAP net income (loss) to statutory net income (loss).
Years Ended December 31, 2003 2002 2001 - ------------------------------------------------------------------------------ Net income (loss) - GAAP basis $53,575 $(12,256) $(27,568) Deferred federal income tax expense (benefit) 24,323 (10,816) (19,418) Change in deferred policy acquisition costs (6,889) (19,032) (1,816) Net loss (income) from non-insurance entities 2,369 4,319 (4,355) Other, net 2,685 (1,986) - - ------------------------------------------------------------------------------ Net income (loss) - SAP basis $76,063 $(39,771) $(53,157) - ------------------------------------------------------------------------------
64 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA The following table reconciles consolidated GAAP stockholders' equity to statutory surplus.
December 31, 2003 2002 - ---------------------------------------------------------------------------------------------- Stockholders' equity - GAAP $700,690 $ 655,608 Assets/gains (liabilities/losses) recognized under GAAP but not under SAP: Net book value of fixed assets under sale-leaseback transaction (47,231) (60,000) Deferred gain under sale-leaseback transaction (305) - Capital lease obligation 49,814 60,000 Non admitted net deferred tax assets (93,656) (125,088) Deferred tax liabilities relating to items nonadmitted under SAP 55,030 55,483 Intercompany receivables 214 (13,500) Fixed assets (12,162) (16,797) Deferred policy acquisition costs (53,079) (46,190) Prepaid pension costs and intangible pension asset (22,781) (19,215) Unrealized gains on bonds (35,690) (38,582) Other prepaid expenses (9,612) (7,478) Equity in non-insurance entities 1,680 (45,117) Salvage and subrogation receivable - (1,030) Other, net (1,254) (713) - ---------------------------------------------------------------------------------------------- Statutory Surplus $531,658 $ 397,381 - ----------------------------------------------------------------------------------------------
The Company is also regulated by the provisions of the California Insurance Holding Company System Regulatory Act (the "Holding Company Act"). Many transactions that are defined to be of an "extraordinary" nature may not be effected without the prior approval of the CDI. In addition, there are limits on the insurance subsidiaries' dividend paying capacity. In 2004, the Company estimates that its insurance subsidiaries have capacity to pay approximately $75.1 million in dividends to their parent without prior approval of the CDI. NOTE 16. NORTHRIDGE EARTHQUAKE - ------------------------------- SB 1899, effective from January 1, 2001, to December 31, 2001, allowed the re-opening of previously closed earthquake claims arising out of the 1994 Northridge earthquake. During the first quarter of 2003, the Company increased its 1994 Northridge earthquake/SB 1899 reserves by $37.0 million, resulting in an after-tax charge of $24.1 million. Also during the first quarter, a decision by the 9th Circuit Court of Appeals involving Allstate Insurance Company, again found SB 1899 (California Code of Civil Procedure 340.9) to be constitutional. As a result of the 9th Circuit's decision in Noah et al v. Allstate Insurance Company, the Company's subsidiary, 21st Century Casualty Company, voluntarily dismissed the action it initiated on February 13, 2003, seeking to have SB 1899 declared unconstitutional. Allstate's petition to the United States Supreme Court for review of the Noah decision has been denied. ---- Most of the Company's remaining 1994 Earthquake claims are in litigation, including two seeking class action status. While the reserves now held are the Company's current best estimate of the cost of resolving its 1994 Earthquake claims, the reserves for this legislatively created event continue to be highly uncertain. The estimate currently recorded by the Company assumes that relatively few of the remaining cases will require a full trial to resolve, that any trial costs will approximate those encountered by the Company in the past, that most cases will be settled without need for extensive 65 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA pre-trial preparation, and that no cases seeking class action status will be certified as a class action. While a substantial majority of the claims and litigation brought against the Company related to the Northridge Earthquake have now been settled, trials for most of the cases not settled have been scheduled beginning in June 2004 and thereafter. Current reserves contain no provisions for extracontractual or punitive damages, bad faith judgments or similar unpredictable hazards of litigation that possibly could result in the event an adverse verdict were to be sustained against the Company. To the extent those and other underlying assumptions prove to be incorrect, the ultimate amount to resolve these claims could exceed the Company's current reserves, possibly by a material amount. The Company continues to seek reasonable settlements of claims brought under SB 1899 and other Northridge earthquake related theories, but will vigorously defend itself against excessive demands and fraudulent claims. The Company may, however, settle cases in excess of its assessment of its contractual obligations in order to reduce the future cost of litigation. The Company has received some Northridge Earthquake claims reported after the closing of the window established by SB 1899 which are based upon alternative legal theories. The Company is contesting these claims and has only nominal reserves for them. Should the courts determine that these claims, or additional claims brought in the future, are not barred by the applicable statute of limitations and the provisions of SB 1899, additional reserves may be needed to resolve these claims. NOTE 17. UNAUDITED QUARTERLY RESULTS OF OPERATIONS - --------------------------------------------------- The summarized unaudited quarterly results of operations were as follows:
Quarters Ended March 31, June 30, September 30, December 31, - ------------------------------------------------------------------------------------------- 2003 Net premiums earned $ 271,441 $ 287,231 $ 303,675 $ 310,330 Net investment income 11,637 11,673 11,350 11,173 Realized investment gains 4,580 7,700 836 61 Net income (loss) (6,711) 29,151 12,709 18,426 Earnings (loss) per common share(1) $ (0.08) $ 0.34 $ 0.15 $ 0.22 2002 Net premiums earned $ 215,111 $ 220,191 $ 234,666 $ 254,591 Net investment income 11,265 11,384 11,729 11,967 Realized investment gains 1,663 2,635 3,045 3,048 Net income (loss) 8,323 9,859 (45,235) 14,797 Earnings (loss) per common share(1) $ 0.10 $ 0.11 $ (0.53) $ 0.17
First quarter 2003 and third quarter 2002 results were impacted by adverse development related to 1994 SB 1899 reserves of $37.0 million and $46.9 million, respectively. Second quarter 2003 results include nonrecurring, nonoperational items of $9.3 million resulting from the settlement of litigation and interest income of $4.8 million relating to a favorable settlement with the Internal Revenue Service ("IRS"). In addition, the third quarter of 2002 included a charge of $37.2 million for the write-off of software development costs. - ------------ 1 Basic and diluted amounts are the same for all periods presented. 66 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NOTE 18. RESULTS OF OPERATIONS BY LINE OF BUSINESS - --------------------------------------------------- The following table presents premium revenue and underwriting profit (loss) for the Company's insurance lines on a GAAP basis for the years ended December 31.
Homeowner and Personal Earthquake 2003 Auto Lines Lines in Runoff Total - ------------------------------------------------------------------------ Direct premiums written $ 1,223,377 $ 106 $1,223,484 Net premiums earned 1,172,679 (2) 1,172,677 Underwriting profit (loss) 41,006 (40,175) 831 Loss and LAE ratio 78.6% N/M(1) 82.0% Underwriting ratio 17.9% N/M(1) 17.9% Combined ratio 96.5% N/M(1) 99.9% 2002 - ------------------------------------------------------------------------ Direct premiums written $ 995,794 $ 2,454 $ 998,248 Net premiums earned 924,559 - 924,559 Underwriting profit (loss) 13,383 (58,768) (45,385) Loss and LAE ratio 82.9% N/M(1) 89.4% Underwriting ratio 15.6% N/M(1) 15.5% Combined ratio 98.5% N/M(1) 104.9% 2001 - ------------------------------------------------------------------------ Direct premiums written $ 898,862 $ 30,453 $ 929,315 Net premiums earned 838,489 25,656 864,145 Underwriting loss (24,410) (77,598) (102,008) Loss and LAE ratio 88.1% 381.6% 96.7% Underwriting ratio 14.9% 20.9% 15.0% Combined ratio 103.0% 402.5% 111.7%
Personal Auto Lines. The underwriting gain for the personal auto lines in 2003 and 2002 was due to an increase in the number of insured vehicles, rate increases and the favorable impact on claim frequency of drought conditions that have largely prevailed in Southern California during the past year. The underwriting loss for the personal auto lines in 2001 resulted from the effects of adverse development on prior accident year loss reserves. Homeowner and Earthquake Lines in Runoff. The underwriting loss for the homeowner and earthquake lines decreased by $18.6 million in 2003 compared to 2002 and $18.8 million in 2002 compared to 2001, respectively due to losses and loss adjustment expenses related to SB 1899. See Notes 8 and 16 of the Notes to Consolidated Financial Statements. - ----------- 1 The ratio cannot be calculated, as the denominator is zero. 67 21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2003 AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA NOTE 19. 21STCENTURY INSURANCE COMPANY OF ARIZONA - -------------------------------------------------- Effective January 1, 2002, the Company acquired AIG's 51% interest in 21st of Arizona. The Company previously held a 49% interest in 21st of Arizona, which writes personal auto exclusively in Arizona. The Company's primary purpose in acquiring 21st of Arizona was to provide an additional entity to facilitate the Company's planned expansion into other states. The purchase price was $4.4 million, which approximated 51% of 21st of Arizona's GAAP book value. No research and development assets were acquired, and no goodwill was recorded. The purchase agreement included a one-year contingency for subsequent loss and LAE reserve development for 2001 and prior accident years. Under its terms, at December 31, 2002, 33% of any additional loss and LAE development would be reimbursed to the Company by AIG, while a reduction in the loss and LAE development would be paid to AIG. Based on the 2002 year-end results, the amount receivable from AIG at December 31, 2001 was $.05 million. The following table summarizes actual results of the Company and pro forma results as if 21st of Arizona had been consolidated with the Company for the year ended December 31, 2001.
Consolidated Results Year Ended December 31, 2001 As Reported Pro Forma - -------------------------------------------------------- Revenue $ 914,078 $ 929,576 Net loss (27,568) (28,607) Loss per share (0.32) (0.34)
68 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company's financial reports and to other members of senior management and the Board of Directors. Based on their evaluation as of December 31, 2003, the Chief Executive Officer and Chief Financial Officer of 21st Century Insurance Group have concluded that 21st Century Insurance Group's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by 21st Century Insurance Group in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to their evaluation. The Company intends to review and evaluate the design and effectiveness of its disclosure controls and procedures on an ongoing basis and to improve its controls and procedures over time and to correct any deficiencies that may be discovered in the future in order to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While management believes that the present design of the Company's disclosure controls and procedures is effective to achieve these results, future events affecting the Company's business may cause management to modify its disclosure controls and procedures. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information related to directors, executive officers, and beneficial ownership required in Item 10 is incorporated by reference from the Company's definitive proxy statement to be filed in connection with the Company's 2004 Annual Meeting of Stockholders pursuant to Instruction G(3) of Form 10-K. In the wake of well-publicized corporate scandals, the Securities and Exchange Commission and the New York Stock Exchange have issued multiple regulations that require the implementation of policies and procedures in the corporate governance area. The Company has adopted Corporate Governance Guidelines and charters for its Audit Committee, Nominating and Corporate Governance Committee, and other Committees of its Board of Directors. It has also adopted a Code of Business Conduct covering all Employees and a Code of Ethics for the Chief Executive Officer, Chief Financial Officer, and Financial Managers. Each of these documents are available on the Company's website, www.21st.com, and a copy will be mailed upon request from the Company's Investor Relations Department (6301 Owensmouth Avenue, Woodland Hills, California 91367, phone 818-701-3595). The Company intends to disclose any amendments to, or waivers of, the Code of Ethics on behalf of the Company's Chief Executive Officer, Chief Financial Officer, Controller, and persons performing similar functions on the Company's website, at www.21st.com under the "About Us" caption, promptly following the date of such amendment or waiver. 69 ITEM 11. EXECUTIVE COMPENSATION Information in response to Item 11 is incorporated by reference from the Company's definitive proxy statement to be filed in connection with the Company's 2004 Annual Meeting of Stockholders pursuant to Instruction G(3) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to Item 12 is incorporated by reference from the Company's definitive proxy statement to be filed in connection with the Company's 2004 Annual Meeting of Stockholders pursuant to Instruction G(3) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Certain Information in response to Item 13 is incorporated by reference from the Company's definitive proxy statement to be filed in connection with the Company's 2004 Annual Meeting of Stockholders pursuant to Instruction G(3) of Form 10-K. All related party transactions, which require disclosure, are included in the Management's Discussion and Analysis or the Notes to Consolidated Financial Statements. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information in response to Item 14 is incorporated by reference from the Company's definitive proxy statement to be filed in connection with the Company's 2004 Annual Meeting of Stockholders pursuant to Instruction G(3) of Form 10-K. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED WITH THIS REPORT (1) FINANCIAL STATEMENTS The following consolidated financial statements of the Company are filed as a part of this report:
PAGE (i) Report of independent auditors 38 (iii) Consolidated balance sheets - December 31, 2003 and 2002; 39 (iv) Consolidated statements of operations - Years ended December 31, 2003, 2002 and 2001; 40 (v) Consolidated statements of stockholders' equity - Years ended December 31, 2003, 2002 and 2001; 41 (vi) Consolidated statements of cash flows - Years ended December 31, 2003, 2002 and 2001; 42 (vii) Notes to consolidated financial statements 43
70 (2) SCHEDULES The following financial statement schedule required to be filed by Item 8 and by paragraph (d) of Item 15 of Form 10-K is submitted as a separate section of this report. Schedule II - Condensed Financial Information of Registrant 74 Schedules I, III, IV, V and VI have been omitted as all required data is included in the Notes to Consolidated Financial Statements. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (b) REPORTS ON FORM 8-K. During the quarter ended December 31, 2003, the Company filed the following Reports on Form 8-K: (1) Current report on Form 8-K filed on October 24, 2003, setting forth the press release that announced that the Board of Directors approved the reincorporation of 21st Century Insurance Group, changing its state of incorporation from California to Delaware. (2) Current report on Form 8-K filed on November 6, 2003, setting forth the earnings release for the quarter ended September 30, 2003. (3) Current report on Form 8-K filed on December 5, 2003, setting forth the press release that announced that the Company intends, subject to market and other customary conditions, to privately offer up to $100 million principal amount of senior notes due 2013. (4) Current report on Form 8-K filed on December 9, 2003, setting forth the press release that announced that the reincorporation that changed the Company's state of incorporation from California to Delaware became effective on December 4, 2003. 71 (c) EXHIBITS REQUIRED The following exhibits required by Item 601 of Regulation S-K and by paragraph (c) of Item 15 of Form 10-K are listed by number corresponding to the Exhibit Table of Item 601 of Regulation S-K and are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference:
3(i) Certificate of Incorporation incorporated herein by reference to Appendix B from the Registrant's Information Statement on Form DEF 14C filed on November 13, 2003. 3(ii) By-laws incorporated herein by reference to Appendix C from the Registrant's Information Statement on Form DEF 14C dated November 13, 2003. 4.1 Indenture, dated December 9, 2003, between 21st Century Insurance Group and The Bank of New York, as trustee. 4.2 Exchange and Registration Rights Agreement, dated December 9, 2003. 10(a) Amendment to Registrant's Restricted Shares Plan incorporated herein by reference from the Registrant's Form 10-K for year ended December 31, 2001. 10(b) Split Dollar Insurance Agreement between Registrant and Stanley M. Burke, as trustee of the 1983 Foster Insurance Trust incorporated herein by reference from the Registrant's Form 10-K for year ended December 31, 2001. 10(c) Registrant's Supplemental Executive Retirement Plan as amended incorporated herein by reference from the Registrant's Form 10-K for year ended December 31, 2001. 10(d) Registrant's Pension Plan, 1994 Amendment and Restatement, incorporated herein by reference from the Registrant's Form 10-K for year ended December 31, 2001. 10(e) Investment and Strategic Alliance Agreement incorporated herein by reference from the Registrant's Form 10-K for year ended December 31, 2001. 10(f) Amendment to the Investment and Strategic Alliance Agreement incorporated herein by reference from the Registrant's Form 10-K for year ended December 31, 2001. 10(g) Registrant's 1995 Stock Option Plan incorporated herein by reference from the Registrant's Form S-8 dated July 26, 1995. 10(h) Amendment to Registrant's 1995 Stock Option Plan incorporated herein by reference from the Registrant's DEF 14A dated April 18, 1997. 10(i) 2003 Short Term Incentive Plan. 10(j) Amendment to Registrant's 1995 Stock Option Plan incorporated herein by reference from the Registrant's DEF 14A dated April 30, 2001. 10(k) Registrant's Savings and Security Plan incorporated herein by reference from the Registrant's Form 10-K for year ended December 31, 2001. 10(l) Lease Agreements for Registrant's Principal Offices substantially in the form of this Exhibit. 10(m) Forms of Amended and Restated Stock Option Agreements. 10(n) Form of Restricted Shares Agreement. 10(o) Retention Agreements substantially in the form of this Exhibit for executives Richard A. Andre, Michael J. Cassanego, G. Edward Combs, Carmelo Spinella and Dean E. Stark. 10(p) Sale and Leaseback Agreement between 21st Century Insurance Company and General Electric Capital Corporation, for itself, and as agent for Certain Participants, as amended, dated December 31, 2002. 14 Code of Ethics. 72 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 31.1 Certification of President and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a). 31.2 Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a). 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
73
SCHEDULE II 21ST CENTURY INSURANCE GROUP (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS AMOUNTS IN THOUSANDS December 31, 2003 2002 - -------------------------------------------------------------------------------------------------- ASSETS Cash $ 24,361 $ 5,946 Fixed maturities available-for-sale, at fair value - 1,031 Accounts receivable from subsidiaries 242 225 Unamortized debt issuance costs 1,274 - Investment in unconsolidated insurance subsidiaries and affiliates, at equity 702,580 610,703 Property and equipment at cost less accumulated depreciation of $19,430 in 2003 and $16,257 in 2002, including software leased to a subsidiary of $84,242 in 2003 (net of accumulated depreciation of $18,591) 84,361 64,107 Other assets 5 34 - -------------------------------------------------------------------------------------------------- Total assets $812,823 $682,046 - -------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Debt $ 99,871 $ - Dividends payable 1,709 1,708 Accounts payable and accrued expenses 10,324 10,412 Deferred tax liabilities 229 818 Accounts payable to subsidiaries - 13,500 - -------------------------------------------------------------------------------------------------- Total liabilities 112,133 26,438 - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Common stockholders' equity 700,690 655,608 - -------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $812,823 $682,046 - --------------------------------------------------------------------------------------------------
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SCHEDULE II 21ST CENTURY INSURANCE GROUP (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS AMOUNTS IN THOUSANDS Years Ended December 31, 2003 2002 2001 - ----------------------------------------------------------------------------------------- REVENUES Dividends received from subsidiaries $ - $ - $ 3,076 Realized investment gains - 289 706 Interest and other income 792 1,100 4,644 - ----------------------------------------------------------------------------------------- Total revenues 792 1,389 8,426 - ----------------------------------------------------------------------------------------- EXPENSES Loan interest and fees 378 - - General and administrative 3,198 72 10 - ----------------------------------------------------------------------------------------- Total expenses 3,576 72 10 - ----------------------------------------------------------------------------------------- (Loss) income before provision for income taxes (2,784) 1,317 8,416 Provision for income taxes (415) (5,436) (529) - ----------------------------------------------------------------------------------------- Net income (loss) before equity in undistributed loss of Subsidiaries (3,199) (4,119) 7,887 Equity in undistributed income (loss) of subsidiaries 56,774 (8,137) (35,455) - ----------------------------------------------------------------------------------------- Net income (loss) $53,575 $(12,256) $(27,568) - -----------------------------------------------------------------------------------------
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SCHEDULE II 21ST CENTURY INSURANCE GROUP (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS AMOUNTS IN THOUSANDS Years Ended December 31, 2003 2002 2001 - ---------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ 53,575 $(12,256) $(27,568) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Realized gains on sale of investments - (289) (706) Provision (benefit) for deferred income taxes 415 5,436 529 Equity in undistributed income of subsidiaries (56,774) 8,137 35,455 Other (128) (2,304) 3,001 - ---------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (2,912) (1,276) 10,711 - ---------------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital contributed to subsidiaries (37,917) (1,000) - Advance from subsidiary 9,300 - - Repayment of advance from subsidiary (47,083) (2,688) 0 Net proceeds from investments available for sale 1,000 23,726 18,531 Net purchases of property and equipment 3,641 (236) 5,073 - ---------------------------------------------------------------------------------------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (71,059) 19,802 23,604 - ---------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from exercise of options - 1,488 1,233 Proceeds from issuance of debt 99,871 - - Payment of debt issuance costs (650) - - Dividends paid (6,835) (22,210) (27,310) - ---------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 92,386 (20,722) (26,077) - ---------------------------------------------------------------------------------------- Net increase (decrease) in cash 18,415 (2,196) 8,238 Cash and cash equivalents, beginning of year 5,946 8,142 (96) - ---------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 24,361 $ 5,946 $ 8,142 - ----------------------------------------------------------------------------------------
76 SCHEDULE II 21ST CENTURY INSURANCE GROUP (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT DECEMBER 31, 2003 The accompanying condensed financial statements of 21st Century Insurance Group (the "Registrant") should be read in conjunction with the consolidated financial statements and notes thereto of 21st Century Insurance Group and subsidiaries included in the Registrant's 2003 Annual Report. Debt - Debt at December 31, 2003 consisted of 5.9% senior notes maturing in December 2013. Debt includes amounts the Registrant has borrowed and contributed to the capital of its insurance subsidiaries or borrowed for other long-term purposes. The entire principal amount is due at maturity. 77 SIGNATURES OF OFFICERS AND BOARD OF DIRECTORS 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. Date: February 10, 2004 21ST CENTURY INSURANCE GROUP (Registrant) By: /s/ Bruce W. Marlow ----------------------- Bruce W. Marlow President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated on the 10th of February, 2004.
SIGNATURE TITLE /s/ Bruce W. Marlow - ----------------------------------- Bruce W. Marlow President and Chief Executive Officer and Director (Principal Executive Officer) /s/ Carmelo Spinella - ----------------------------------- Carmelo Spinella Sr. Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Robert M. Sandler - ----------------------------------- Robert M. Sandler Chairman of the Board /s/ John B. De Nault, III - ----------------------------------- John B. De Nault, III Director /s/ R. Scott Foster, M.D. - ----------------------------------- R. Scott Foster, M.D. Director /s/ Roxani M. Gillespie - ----------------------------------- Roxani M. Gillespie Director /s/ Jeffrey L. Hayman - ----------------------------------- Jeffrey L. Hayman Director /s/ Fred J. Martin, Jr. - ----------------------------------- Fred J. Martin, Jr. Director /s/ James P. Miscoll - ----------------------------------- James P. Miscoll Director /s/ Keith W.Renken - ----------------------------------- Keith W. Renken Director 78 /s/ Gregory M. Shepard - ----------------------------------- Gregory M. Shepard Director /s/ Howard I. Smith - ----------------------------------- Howard I. Smith Director
79 EX-4.1 3 doc2.txt EXHIBIT 4.1 INDENTURE ================================================================================ 21ST CENTURY INSURANCE GROUP, as Issuer and THE BANK OF NEW YORK, as Trustee 5.90% Senior Notes due 2013 ______________________________ INDENTURE Dated as of December 9, 2003 ______________________________ ================================================================================ CROSS-REFERENCE TABLE Certain Sections of this Indenture relating to Sections 310 through 318, inclusive, of the Trust Indenture Act of 1939: Trust Indenture Act Indenture Section Section - ------------------- --------- 310(a)(1) . . . . . . . . . . 7.9; 7.10 (a)(2) . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . N.A. (b) . . . . . . . . . . 7.8; 7.10 (c) . . . . . . . . . . N.A. 311(a) . . . . . . . . . . 7.11 (b) . . . . . . . . . . 7.11 (c) . . . . . . . . . . N.A. 312(a) . . . . . . . . . . 2.5 (b) . . . . . . . . . . 10.3 (c) . . . . . . . . . . 10.3 313(a) . . . . . . . . . . 7.6 (b)(1) . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . 7.6 (c) . . . . . . . . . . 7.6 (d) . . . . . . . . . . 7.6 314(a) . . . . . . . . . . 4.7 . . . . . . . . . . 4.4; 10.2 (b) . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . 10.4 (c)(2) . . . . . . . . . . 10.4 (c)(3) . . . . . . . . . . N.A. (d) . . . . . . . . . . N.A. (e) . . . . . . . . . . 10.5 (f) . . . . . . . . . . 4.4 315(a) . . . . . . . . . . 7.1 (b) . . . . . . . . . . 7.5 (c) . . . . . . . . . . 7.1 (d) . . . . . . . . . . 7.1 (e) . . . . . . . . . . 6.11 316(a)(last sentence) . . . . . . . . 10.6 (a)(1)(A) . . . . . . . . . . 6.5 (a)(1)(B) . . . . . . . . . . 6.4 (a)(2) . . . . . . . . . . . N.A. (b) . . . . . . . . . . 6.7 317(a)(1) . . . . . . . . . . 6.8 (a)(2) . . . . . . . . . . 6.9 (b) . . . . . . . . . . 2.4 318(a) . . . . . . . . . . 10.1 N.A. means Not Applicable. ______________ Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of this Indenture. TABLE OF CONTENTS PAGE ARTICLE I Definitions and Incorporation by Reference 1 SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Other Definitions. . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.3. Incorporation by Reference of Trust Indenture Act . . . . . 5 SECTION 1.4. Rules of Construction. . . . . . . . . . . . . . . . . . . . 5 ARTICLE II The Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.1. Form and Dating. . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 2.2. Execution and Authentication . . . . . . . . . . . . . . . .10 SECTION 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . .11 SECTION 2.4. Paying Agent To Hold Money in Trust. . . . . . . . . . . . .11 SECTION 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . .12 SECTION 2.6. Transfer and Exchange. . . . . . . . . . . . . . . . . . . .12 SECTION 2.7. Form of Certificates to be Delivered in Connection With Transfers Pursuant to Rule 144A . . . . . . . . . . . .14 SECTION 2.8. Business Days. . . . . . . . . . . . . . . . . . . . . . . .14 SECTION 2.9. Replacement Securities . . . . . . . . . . . . . . . . . . .14 SECTION 2.10. Outstanding Securities . . . . . . . . . . . . . . . . . .15 SECTION 2.11. Temporary Securities. . . . . . . . . . . . . . . . . . . .15 SECTION 2.12. Cancellation. . . . . . . . . . . . . . . . . . . . . . . .15 SECTION 2.13. Defaulted Interest. . . . . . . . . . . . . . . . . . . . .16 SECTION 2.14. CUSIP Numbers, etc. . . . . . . . . . . . . . . . . . . . .16 SECTION 2.15. Issuance of Additional Securities . . . . . . . . . . . . .16 SECTION 2.16. One Class of Securities . . . . . . . . . . . . . . . . . .17 ARTICLE III Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 SECTION 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . .17 SECTION 3.2. Selection of Securities to be Redeemed . . . . . . . . . . .17 SECTION 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . .18 SECTION 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . .18 SECTION 3.5. Deposit of Redemption Price. . . . . . . . . . . . . . . . .19 SECTION 3.6. Securities Redeemed in Part. . . . . . . . . . . . . . . . .19 ARTICLE IV Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 SECTION 4.1. Payment of Securities. . . . . . . . . . . . . . . . . . . .19 SECTION 4.2. Limitations on Liens . . . . . . . . . . . . . . . . . . . .19 SECTION 4.3. Limitations on Sales of Our Significant Subsidiaries . . . .20 SECTION 4.4. Compliance Certificate . . . . . . . . . . . . . . . . . . .20 SECTION 4.5. Maintenance of Office or Agency. . . . . . . . . . . . . . .20 SECTION 4.6. Existence. . . . . . . . . . . . . . . . . . . . . . . . . .21 SECTION 4.7. SEC Reports. . . . . . . . . . . . . . . . . . . . . . . . .21 -i- SECTION 4.8. Further Instruments and Acts . . . . . . . . . . . . . . . .21 ARTICLE V Consolidation, Merger and Sale of Assets . . . . . . . . . . . . . .21 SECTION 5.1. Company May Merge or Transfer Assets Only on Certain Terms .21 SECTION 5.2. Successor Corporation Substituted . . . . . . . . . . . . .21 ARTICLE VI Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . . .22 SECTION 6.1. Events of Default. . . . . . . . . . . . . . . . . . . . . .22 SECTION 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . .23 SECTION 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . .24 SECTION 6.4. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . .24 SECTION 6.5. Control by Majority. . . . . . . . . . . . . . . . . . . . .24 SECTION 6.6. Limitation on Suits. . . . . . . . . . . . . . . . . . . . .24 SECTION 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . .25 SECTION 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . .25 SECTION 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . .25 SECTION 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . .25 SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . .26 SECTION 6.12. Waiver of Stay or Extension Laws . . . . . . . . . . . . .26 ARTICLE VII Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 SECTION 7.1. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . .26 SECTION 7.2. Rights of Trustee. . . . . . . . . . . . . . . . . . . . . .28 SECTION 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . .29 SECTION 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . .29 SECTION 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . . . . .29 SECTION 7.6. Reports by Trustee to Holders. . . . . . . . . . . . . . . .29 SECTION 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . .29 SECTION 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . .30 SECTION 7.9. Successor Trustee by Merger. . . . . . . . . . . . . . . . .31 SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . .31 SECTION 7.11. Preferential Collection of Claims Against the Company . . .32 ARTICLE VIII Discharge of Indenture; Defeasance. . . . . . . . . . . . . . . .32 SECTION 8.1. Discharge of Liability on Securities; Defeasance . . . . . .32 SECTION 8.2. Conditions to Defeasance . . . . . . . . . . . . . . . . . .33 SECTION 8.3. Application of Trust Money . . . . . . . . . . . . . . . . .34 SECTION 8.4. Repayment to the Company . . . . . . . . . . . . . . . . . .34 SECTION 8.5. Indemnity for Government Obligations . . . . . . . . . . . .34 SECTION 8.6. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . .35 ARTICLE IX Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 SECTION 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . .35 SECTION 9.2. With Consent of Holders. . . . . . . . . . . . . . . . . . .36 -ii- SECTION 9.3. Compliance with Trust Indenture Act. . . . . . . . . . . . .37 SECTION 9.4. Revocation and Effect of Consents and Waivers. . . . . . . .37 SECTION 9.5. Notation on or Exchange of Securities. . . . . . . . . . . .37 SECTION 9.6. Trustee To Sign Amendments . . . . . . . . . . . . . . . . .37 ARTICLE X Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . .38 SECTION 10.1. Trust Indenture Act Controls. . . . . . . . . . . . . . . .38 SECTION 10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . .38 SECTION 10.3. Communication by Holders with other Holders . . . . . . . .39 SECTION 10.4. Certificate and Opinion as to Conditions Precedent. . . . .39 SECTION 10.5. Statements Required in Certificate or Opinion . . . . . . .39 SECTION 10.6. When Securities Disregarded . . . . . . . . . . . . . . . .39 SECTION 10.7. Rules by Trustee, Paying Agent and Registrar. . . . . . . .40 SECTION 10.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . .40 SECTION 10.9. No Recourse Against Others. . . . . . . . . . . . . . . . .40 SECTION 10.10. Successors . . . . . . . . . . . . . . . . . . . . . . . .40 SECTION 10.11. Multiple Originals . . . . . . . . . . . . . . . . . . . .40 SECTION 10.12. Variable Provisions. . . . . . . . . . . . . . . . . . . .40 SECTION 10.13. Qualification of Indenture . . . . . . . . . . . . . . . .40 SECTION 10.14. Table of Contents; Headings. . . . . . . . . . . . . . . .40 Exhibit A - Form of Initial Security Exhibit B - Form of Exchange Security Exhibit C - Form of Certificate (transfers pursuant to Rule 144A) -iii- INDENTURE, dated as of December 9, 2003, between 21st Century Insurance Group, a Delaware corporation (the "Company"), and The Bank of New ------- York, a New York banking corporation, as trustee (the "Trustee"). ------- Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of Holders of the Company's 5.90% Senior Notes due 2013 (the "Initial Securities") and, if and when issued in exchange for ------------------ Initial Securities as provided in the Registration Rights Agreement, the Company's 5.90% Senior Notes due 2013 (the "Exchange Securities" and, together ------------------- with the Initial Securities and any Additional Securities, the "Securities"): ---------- ARTICLE I Definitions and Incorporation by Reference ------------------------------------------ SECTION 1.1. Definitions. ----------- "Additional Interest" shall have the meaning assigned to such term in ------------------- the Registration Rights Agreement. "Additional Securities" means 5.90% Senior Notes due 2013 issued from --------------------- time to time after the Issue Date under the terms of this Indenture (other than pursuant to Sections 2.6, 2.9, 2.11, 3.6 and 9.5 of this Indenture, in the case of Securities that are not already Additional Securities, and other than Exchange Securities issued pursuant to an exchange offer for the other Securities outstanding under this Indenture). "Board of Directors" or "Board" means, with respect to any Person, the ------------------ ----- Board of Directors of such Person or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means a day which is not, in New York City or any other ------------ place of payment, a Saturday, Sunday or other day on which banking institutions or trust companies are authorized or required by law, resolution or executive order to close. "Code" means the U.S. Internal Revenue Code of 1986, as amended. ---- "Company" means the Person named as the "Company" in the first ------- paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter, "Company" shall mean such successor corporation. "Corporate Trust Office" means the office of the Trustee at which, at ---------------------- any particular time, its corporate trust business shall be principally administered; which office at the date of the execution of this Indenture is located at 101 Barclay Street, Floor 8W, New York, New York 10286, Attention: Corporate Trust Administration or at any other time at such other address as the Trustee may designate from time to time by notice to the Holders. 2 "Default" means any event which is, or after notice or passage of time ------- or both would be, an Event of Default. "DTC" means The Depository Trust Company, its nominees and their --- respective successors and assigns. "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "GAAP" means generally accepted accounting principles in the United ---- States as in effect from time to time. "Holder" or "Securityholder" means the Person in whose name a Security ------ -------------- is registered on the Registrar's books. "Incur" means create, issue, assume, incur or guarantee. ----- "Indenture" means this Indenture, as amended or supplemented from time --------- to time. "Indebtedness" means, with respect to any Person, every obligation of ------------ such Person for money borrowed or evidenced by bonds, debentures, notes or other similar instruments, whether or not for money borrowed or given in connection with the acquisition of any business, properties or assets, including securities. "Initial Purchasers" means Banc of America Securities LLC and Lehman ------------------ Brothers Inc. "Insurance Business" means the sale and underwriting of personal ------------------ automobile insurance policies and any services related to the foregoing. "Issue Date" means December 9, 2003. ---------- "Lien" means, with respect to any property or assets, any mortgage, ---- pledge, security interest, lien, conditional sale or other title retention agreement or other similar encumbrance. "Officer" means the Chairman of the Board, the Chief Executive ------- Officer, the President, the Vice Chairman, any Vice President, the Treasurer, the Assistant Treasurer, the Chief Financial Officer, the Secretary or the Assistant Secretary of the Company, as applicable. "Officers' Certificate" means a certificate signed by any two Officers --------------------- of the Company. "Opinion of Counsel" means a written opinion from legal counsel to the ------------------ Company who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company. 3 "Person" means any individual, corporation, partnership, limited ------ liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Principal" means the principal of the Security plus the premium, if --------- any, payable on the Security which is due or overdue or is to become due at the relevant time; provided, however, that for purposes of calculating any such -------- ------- premium, the term "principal" shall not include the premium with respect to which such calculation is being made. "Purchase Agreement" means the Purchase Agreement dated December 4, ------------------ 2003 between the Company and the Initial Purchasers. "Registered Exchange Offer" means the offer by the Company, pursuant ------------------------- to the Registration Rights Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights ----------------------------- Agreement, dated as of December 9, 2003, between the Company and the Initial Purchasers, and with respect to any Additional Securities, one or more substantially similar registration rights agreements between the Company and the other parties thereto, as such agreement(s) may be amended, from time to time. "Responsible Officer" shall mean, when used with respect to the ------------------- Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Restrictive Securities Legend" means the Restrictive Legend set forth ----------------------------- in Section 2.1(c). "SEC" means the U.S. Securities and Exchange Commission, or any --- successor agency. "Securities Act" means the U.S. Securities Act of 1933, as amended. -------------- "Securities Custodian" means the custodian with respect to a Global -------------------- Security (as appointed by DTC), or any successor person thereto and shall initially be the Trustee. "Significant Subsidiary" means a Subsidiary, including its ---------------------- Subsidiaries, that meets any of the conditions set forth under Rule 405 under the Securities Act. "Stated Maturity" means, with respect to any security, the date --------------- specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision 4 providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the Company unless such contingency has occurred). "Subsidiary" means a corporation, company (including any limited ---------- liability company), association, partnership, joint venture, trust or other business entity in which the Company and/or one or more of its other Subsidiaries owns at least 50% of the Voting Stock. "Trust Indenture Act" means the U.S. Trust Indenture Act of 1939, as ------------------- amended (15 U.S.C. Sec.Sec. 77aaa-77bbbb) as in effect on the date of this ------ Indenture; provided, however, that in the event the Trust Indenture Act of 1939 -------- ------- is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendments, the U.S. Trust Indenture Act of 1939, as so amended. "Trustee" means the party named as such in this Indenture until a ------- successor replaces it and, thereafter, means such successor. "Uniform Commercial Code" means the New York Uniform Commercial Code ----------------------- as in effect from time to time. "U.S. Government Obligations" means direct obligations (or --------------------------- certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the Company's option. "Voting Stock" means all classes of stock or other interests ------------ (including partnership interests) outstanding of a Significant Subsidiary that are normally entitled to vote in elections of directors, managers or trustees thereof or any securities convertible into or exercisable or exchangeable for such stock or interests of any Significant Subsidiary or warrants, rights or options to subscribe for or purchase shares of such stock or interests of any Significant Subsidiary. SECTION 1.2. Other Definitions. ----------------- Defined in Term Section ---- ----------- "Affiliate" . . . . . . . . . . . . . . . . . . . . 10.6 "Agent Members" . . . . . . . . . . . . . . . . . . 2.1(d) "Applicable Procedures" . . . . . . . . . . . . . . 2.6(a) "Authenticating Agent". . . . . . . . . . . . . . . 2.2 "Bankruptcy Law". . . . . . . . . . . . . . . . . . 6.1 "Company Order" . . . . . . . . . . . . . . . . . . 2.2 "covenant defeasance option". . . . . . . . . . . . 8.1(b) "Custodian" . . . . . . . . . . . . . . . . . . . . 6.1 "Definitive Securities" . . . . . . . . . . . . . . 2.1(e) 5 "Event of Default". . . . . . . . . . . . . . . . . 6.1 "Exchange Global Security". . . . . . . . . . . . . 2.1 "Exchange Securities" . . . . . . . . . . . . . . . Preamble "Global Securities" . . . . . . . . . . . . . . . . 2.1(a) "Initial Securities". . . . . . . . . . . . . . . . Preamble "legal defeasance option" . . . . . . . . . . . . . 8.1(b) "Paying Agent". . . . . . . . . . . . . . . . . . . 2.3 "QIBs". . . . . . . . . . . . . . . . . . . . . . . 2.1(a) "Registrar" . . . . . . . . . . . . . . . . . . . . 2.3 "Resale Restriction Termination Date" . . . . . . . 2.6 "Restrictive Legend". . . . . . . . . . . . . . . . 2.1(c) "Rule 144A" . . . . . . . . . . . . . . . . . . . . 2.1(a) "Rule 144A Certificate" . . . . . . . . . . . . . . 2.6(b) "Rule 144A Global Security" . . . . . . . . . . . . 2.1 "Rule 144A Security". . . . . . . . . . . . . . . . 2.1 "Securities". . . . . . . . . . . . . . . . . . . . Preamble "Successor" . . . . . . . . . . . . . . . . . . . . 5.1 SECTION 1.3. Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- This Indenture is subject to the mandatory provisions of the Trust Indenture Act which are incorporated by reference in and made a part of this Indenture. The following terms in the Trust Indenture Act have the following meanings: "Commission" means the SEC. ---------- "indenturesecurities" means the Securities. ------------------- "indenture security holder" means a Holder. ------------------------- "indenture to be qualified" means this Indenture. ------------------------- "indenture trustee" or "institutional trustee" means the Trustee. ----------------- --------------------- "obligor" on the indenture securities means the Company and any other ------- obligor on the indenture securities. All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.4. Rules of Construction. Unless the context otherwise --------------------- requires: (1) a term has the meaning assigned to it; 6 (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) all references to (a) Initial Securities shall refer also to any Additional Securities issued in the form of Initial Securities and (b) Exchange Securities shall refer also to any Additional Securities issued in the form of Exchange Securities, in each case, pursuant to Section 2.15; and (7) all references to the date the Securities were originally issued shall refer to the Issue Date or the date any Additional Securities were originally issued, as the case may be. ARTICLE II The Securities -------------- SECTION 2.1.Form and Dating. The Initial Securities are being offered --------------- and sold by the Company to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Securities will be resold initially by the Initial Purchasers only to qualified institutional buyers (as defined in Rule 144A under the Securities Act ("Rule 144A")) in reliance on Rule 144A ("QIBs"). The --------- Initial Securities may thereafter be transferred only to QIBs for the period specified herein or in accordance with the procedure described herein. The Initial Securities will be offered and sold to qualified institutional buyers in reliance on Rule 144A (each, a "Rule 144A Security" and ------------------ collectively, the "Rule 144A Securities") in the form of a permanent global -------------------- Security, without interest coupons, substantially in the form of Exhibit A, --------- which is incorporated by reference and made a part of this Indenture, including appropriate legends as set forth in Section 2.1(c) (the "Rule 144A Global ---------------- Security"), deposited with the Trustee, as custodian for DTC, duly executed by - -------- the Company and authenticated by the Trustee as hereinafter provided. The Rule 144A Global Security may be represented by more than one certificate, if so required by DTC's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Rule 144A Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC or its nominee, as hereinafter provided. Exchange Securities exchanged for interests in the Rule 144A Security will be issued in the form of a permanent global Security substantially in the form of Exhibit B hereto, which is hereby incorporated by reference and made a --------- part of this Indenture, deposited with the Trustee as hereinafter provided, including the appropriate legend set forth in Section 2.1(c) (the "Exchange -------- Global Security"). The Exchange Global Security may be represented by more than - --------------- 7 one certificate, if so required by DTC's rules regarding the maximum principal amount to be represented by a single certificate. The Rule 144A Global Security and the Exchange Global Security are sometimes collectively herein referred to as the "Global Securities." ----------------- The Principal of and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose pursuant to Section 2.3; provided, however, that at the option -------- ------- of the Company, each installment of interest may be paid by (i) check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register or (ii) wire transfer to an account located in the United States maintained by the payee. Payments in respect of Securities represented by a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by DTC. (b) Denominations. The Securities shall be issuable only in fully ------------- registered form, without coupons, and only in denominations of $1,000 and any integral multiple thereof. (c) Restrictive Legends. Unless and until (i) an Initial Security ------------------- is sold under an effective registration statement pursuant to the Registration Rights Agreement or a similar agreement, (ii) an Initial Security is exchanged for an Exchange Security in connection with an effective registration statement pursuant to the Registration Rights Agreement or a similar agreement or (iii) the Resale Restriction Termination Date (as defined below), the Rule 144A Global Security shall bear the following legend (the "Restrictive Legend") on the face ------------------ thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY OR A SUBSIDIARY OF THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER 8 THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE." (B) The Global Securities, whether or not an Initial Security, shall bear the following legend on the face thereof: "THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (d) Book-Entry Provisions. This Section 2.1(d) shall apply only to --------------------- Global Securities deposited with the Trustee, as custodian for DTC. (ii) Each Global Security initially shall (x) be registered in the name of DTC for such Global Security or the nominee of DTC, (y) be delivered to the Trustee as custodian for DTC and (z) bear legends as set forth in Section 2.1(c). 9 (iii) Members of, or participants in, DTC ("Agent Members") shall ------------- have no rights under this Indenture with respect to any Global Security held on their behalf by DTC or by the Trustee as the custodian of DTC or under such Global Security, and DTC may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (iv) In connection with any transfer of a portion of the beneficial interest in a Global Security pursuant to subsection (e) of this Section 2.1 to beneficial owners who are required to hold Definitive Securities, the Securities Custodian shall reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Definitive Securities of like tenor and amount. (v) In connection with the transfer of an entire Global Security to beneficial owners pursuant to subsection (e) of this Section 2.1, such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. (vi) The registered holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (e) Definitive Securities. Except as provided below, owners of --------------------- beneficial interests in Global Securities will not be entitled to receive certificated Securities ("Definitive Securities"). If required to do so --------------------- pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Securities in exchange for their beneficial interests in a Global Security upon written request in accordance with DTC's and the Registrar's procedures. In addition, Definitive Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (a) DTC notifies the Company that it is unwilling or unable to continue as depositary for such Global Security or DTC ceases to be a clearing agency registered under applicable law and a successor depositary is not appointed by the Company within 90 days of such notice, (b) the Company executes and delivers to the Trustee an Officers' Certificate stating that such Global Security shall be so exchangeable or (c) an Event of Default has occurred and is continuing and the Registrar has received a request from DTC. (ii) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(d)(iv) or (v) shall bear the legend regarding transfer restrictions applicable to the Definitive Security set forth in Section 2.1(c). 10 SECTION 2.2.Execution and Authentication. An Officer of the Company ---------------------------- shall sign the Securities for the Company by manual or facsimile signature and may be imprinted or otherwise reproduced. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee authenticates the Security by manual or facsimile signature. The signature of the Trustee on a Security shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. A Security shall be dated the date of its authentication. At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery: (1) Initial Securities for original issue on the Issue Date in an aggregate principal amount of $100.0 million, (the "Original Securities"), (2) any ------------------- Additional Securities for original issue from time to time after the Issue Date as set forth in Section 2.15 and (3) any Exchange Securities for issue only in exchange for a like principal amount of Initial Securities, in each case upon a written order of the Company signed by two Officers of the Company (a "Company ------- Order"). Such Company Order shall specify the amount of the Securities to be - ----- authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Additional Securities or Exchange Securities. The aggregate principal amount of Initial Securities which may be authenticated and delivered under this Indenture is limited to $100.0 million. Additionally, the Company may from time to time, without notice to or consent of the Holders, issue such additional principal amounts of Additional Securities as may be issued and authenticated pursuant to clause (2) of this paragraph, and Securities authenticated and delivered upon registration or transfer of, or in exchange for, or in lieu of, other Securities of the same class pursuant to Section 2.6, Section 2.9, Section 2.10, Section 3.6, Section 9.5 and except for transactions similar to the Registered Exchange Offer. The Trustee may appoint an agent (the "Authenticating Agent") -------------------- reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. In case the Company, pursuant to Article V, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto (if not otherwise a party to the Indenture) with the Trustee pursuant to Article V, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such 11 exchange and of like principal amount; and the Trustee, upon Company Order of the successor Person, shall authenticate and deliver Securities as specified in such order for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person (if other than the Company) pursuant to this Section 2.2 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person (if other than the Company), at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time outstanding for Securities authenticated and delivered in such new name. SECTION 2.3.Registrar and Paying Agent. The Company shall maintain an -------------------------- office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more additional paying agents. The term "Paying Agent" includes any such additional paying agent. In the event the Company shall retain any Person not a party to this Indenture as an agent hereunder, the Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture, which shall incorporate the terms of the Trust Indenture Act. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of each such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.7. The Company shall be responsible for the fees and compensations of all agents appointed or approved by it. Either the Company or any of its domestically incorporated wholly owned Subsidiaries may act as Paying Agent. The Company initially appoints the Trustee as Registrar and Paying Agent for the Securities. SECTION 2.4.Paying Agent To Hold Money in Trust. By no later than ----------------------------------- 11:00 a.m. (New York City time) on the date on which any Principal or interest (including any Additional Interest) on any Security is due and payable, the Company shall deposit with the Paying Agent a sum sufficient to pay such Principal or interest (including any Additional Interest) when due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by such Paying Agent for the payment of Principal of or interest (including any Additional Interest) on the Securities and shall notify the Trustee in writing of any default by the Company in making any such payment. If either of the Company or any of its Subsidiaries acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section 2.4, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money delivered to the Trustee. Upon any bankruptcy, reorganization or similar proceeding with respect to the Company, the Trustee shall serve as Paying Agent for the Securities. 12 SECTION 2.5.Securityholder Lists. The Trustee shall preserve in as -------------------- current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall cause the Registrar to furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.6. Transfer and Exchange. --------------------- With respect to any proposed registration of transfer of a Global Security prior to the date which is two years after the later of the date of its original issue and the last date on which the Company or any Affiliate of the Company was the owner of such Security (or any predecessor thereto) (the "Resale ------ Restriction Termination Date"), a registration of transfer shall be made upon - ---------------------------- the representation of the transferee in the form as set forth on the reverse of the Security that it is purchasing for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the foregoing representations in order to claim the exemption from registration provided by Rule 144A. (a) Restrictive Securities Legend. Upon the transfer, exchange or ----------------------------- replacement of Securities not bearing a Restrictive Securities Legend, the Registrar shall deliver Securities that do not bear a Restrictive Securities Legend. Upon the transfer, exchange or replacement of Securities bearing a Restrictive Securities Legend, the Registrar shall deliver only Securities that bear a Restrictive Securities Legend unless there is delivered to the Registrar an Opinion of Counsel to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (b) The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.1 or this Section 2.6. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. (c) Obligations with Respect to Transfers and Exchanges of ------------------------------------------------------ Securities. - ---------- (i) To permit registrations of transfers and exchanges, the Company shall, subject to the other terms and conditions of this Article II, execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's or co-registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Sections 3.6 or 9.5). 13 (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of any Security for a period beginning (1) 15 days before the mailing of a notice of an offer to repurchase or redeem Securities and ending at the close of business on the day of such mailing or (2) 15 days before an interest payment date and ending on such interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of Principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(d) shall bear the legend regarding transfer restrictions applicable to the Definitive Security set forth in Section 2.1(c). (vi) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall be the valid and legally binding obligation of the Company, shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (vii) All certificates, certifications and opinions of counsel required to be submitted to the Registrar or any co-registrar pursuant to this Section 2.6 to effect any transfer or exchange may be submitted by facsimile transmission, with the original to follow by first class mail or hand delivery. (d) No Obligation of the Trustee. The Trustee shall have no ---------------------------- responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in, DTC or other Person in respect of any aspect of the records, or for maintaining, supervising or reviewing any records, relating to beneficial ownership interests of a Global Security, with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice (including any notice of redemption) or the payment of any amount or delivery of any Securities (or other security or property) under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Securities shall be given or made only to or upon the order of the registered Holders (which shall be DTC or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through DTC subject to the applicable rules and procedures of DTC. The Trustee and the Company may conclusively rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under 14 applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Agent Members or beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. (e) Transfer and Exchange of Global Securities. A Global Security ------------------------------------------ may not be transferred as a whole except by DTC to a nominee of DTC, by a nominee of DTC to DTC or to another nominee of DTC, or by the DTC or any such nominee to a successor depositary or to a nominee of such successor depositary. (f) Accrual of Interest on the Exchange Security; Exchange of --------------------------------------------------------- Exchange Securities. - ------------------- (i) Interest on any Exchange Security shall accrue from the dates provided in Exhibit B. (ii) Subject to Section 2.1(e), upon the occurrence of the exchange offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2, the Trustee shall authenticate one or more Exchange Global Securities in an aggregate principal amount equal to the principal amount of the beneficial interests in the Initial Securities or Additional Securities tendered for acceptance by Persons that certify in the applicable letters of transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Securities and (z) they are not affiliates (as defined in Rule 144 under the Securities Act) of the Company, and accepted for exchange in the exchange offer. Concurrently with the issuance of such Securities, the Trustee shall cause the aggregate principal amount of the applicable Initial Securities in the form of Global Securities and/or Additional Securities in the form of Global Securities to be reduced accordingly. SECTION 2.7. Form of Certificates to be Delivered in Connection with ------------------------------------------------------- Transfers Pursuant to Rule 144A. - ------------------------------- Attached hereto as Exhibit C is the certificate to be delivered in --------- connection with transfers pursuant to Rule 144A. SECTION 2.8. Business Days. If a payment date is on a date that is ------------- not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue on such payment for the intervening period. If a regular record date is on a day that is not a Business Day, the record date shall not be affected. SECTION 2.9. Replacement Securities. If a mutilated Security is ---------------------- surrendered to the Registrar or if the Holder of a Security shall provide the Company and the Trustee with evidence to their satisfaction that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the 15 requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. In addition, such Holder shall furnish an indemnity or surety bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent and the Registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION 2.10. Outstanding Securities. Securities outstanding at any ---------------------- time are all Securities authenticated by the Trustee except for those canceled, those delivered for cancellation and those described in this Section 2.10 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.9, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all Principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.11. Temporary Securities. Until definitive Securities are -------------------- ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency maintained by the Company for that purpose and such exchange shall be without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and deliver in exchange therefor, one or more definitive Securities representing an equal principal amount of Securities. Until so exchanged, the Holder of temporary Securities shall in all respects be entitled to the same benefits under this Indenture as a Holder of definitive Securities. SECTION 2.12. Cancellation. The Company at any time may deliver ------------ Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee for cancellation any Securities surrendered to them for registration of transfer or exchange or payment. The Trustee and no one else shall cancel (subject to the record retention requirements of the Exchange Act) all Securities surrendered for registration of transfer or exchange, payment or cancellation and, upon the request of the Company, deliver a certificate of such cancellation to the Company. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation, which shall not prohibit the Company from issuing any Additional Securities, or any Exchange Securities in exchange for Initial Securities. 16 All cancelled Securities held by the Trustee may be disposed of by the Trustee in accordance with its then customary practices and procedures, unless the Company directs otherwise. SECTION 2.13. Defaulted Interest. If the Company defaults in a ------------------ payment of interest on the Securities, the Company shall pay defaulted interest plus interest on such defaulted interest to the extent lawful at the rate specified therefor in the Securities in any lawful manner. The Company may pay the defaulted interest to the Persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Trustee which specified record date shall not be less than 10 days prior to the payment date for such defaulted interest and shall promptly mail or cause to be mailed to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest to be paid. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when so deposited to be held in trust for the benefit of the Person entitled to such defaulted interest as provided in this Section 2.13. SECTION 2.14. CUSIP Numbers, etc. The Company in issuing the ------------------ Securities may use "CUSIP" or "ISIN" numbers and/or other similar numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" and/or "ISIN" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers and/or other similar numbers. SECTION 2.15. Issuance of Additional Securities. The Company shall --------------------------------- be entitled to issue, from time to time, Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date or the Exchange Securities exchanged therefor (in each case, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto), as the case may be. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. With respect to any Additional Securities, the Company shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each shall be delivered to the Trustee, the following information: (i) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture; 17 (ii) the issue price, the issue date and the "CUSIP" and "ISIN" number of any such Additional Securities and the amount of interest payable on the first payment date applicable thereto; (iii) whether such Additional Securities shall be transfer restricted securities and issued in the form of Initial Securities as set forth in Exhibit A to this Indenture or shall be issued in the form of Exchange Securities as set forth in Exhibit B to this Indenture; and (iv) if applicable, the Resale Restriction Termination for such Additional Securities. SECTION 2.16. One Class of Securities. The Initial Securities, any ----------------------- Additional Securities and the Exchange Securities shall vote and consent together on all matters as one class; and none of the Initial Securities, any Additional Securities and the Exchange Securities shall have the right to vote or consent as a separate class on any matter. The Initial Securities, any Additional Securities and the Exchange Securities shall together be deemed to be a single series under this Indenture. ARTICLE III Redemption ---------- SECTION 3.1. Notices to Trustee. If the Company elects to redeem ------------------ Securities pursuant to Section 5 of the Securities, it shall notify the Trustee in writing of the redemption date and the principal amount of Securities to be redeemed. The Company shall give each notice to the Trustee provided for in this Section 3.1 at least 60 days (45 days in the case of redemption of all the Securities) before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate from the Company to the effect that such redemption will comply with the conditions herein. The record date relating to such redemption shall be selected by the Company and set forth in the related notice given to the Trustee, which record date shall be not less than 15 days prior to the date selected for redemption by the Company. SECTION 3.2. Selection of Securities to be Redeemed. If fewer than -------------------------------------- all the Securities then outstanding are to be redeemed, the Trustee shall select the Securities to be redeemed by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers, in its discretion, to be fair and appropriate in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the Principal of Securities that have denominations larger than $1,000. Securities and portions of them that the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company of the Securities or portions of Securities to be redeemed. 18 SECTION 3.3. Notice of Redemption. At least 30 days but not more -------------------- than 60 days before a date for redemption of Securities, notice of redemption shall be mailed by first-class mail to each Holder of Securities to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price (or the method of calculating such price) and the amount of accrued interest to be paid, if any; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price plus accrued and unpaid interest, if any; (5) if fewer than all the outstanding Securities are to be redeemed, the Bond No. (if certificated) and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the CUSIP number, or any similar number, if any, printed on the Securities being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, or any similar number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the name of the Company and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section 3.3. SECTION 3.4. Effect of Notice of Redemption. Once notice of ------------------------------ redemption is mailed in accordance with Section 3.3, Securities called for redemption shall become due and payable on the redemption date and at the redemption price as stated in the notice. Upon surrender to the Paying Agent on or after the redemption date, such Securities shall be paid at the redemption price stated in the notice, plus accrued and unpaid interest to the redemption date; provided, that the Company shall have deposited the redemption price with the Paying Agent or the Trustee on or before 11:00 a.m. (New York City time) on the date of redemption; provided further that if the redemption date is after a regular record date and on or prior to the interest payment date, the accrued and unpaid interest shall be payable to the Securityholder of the redeemed Securities entitled to the redemption price. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. 19 SECTION 3.5. Deposit of Redemption Price. By no later than 11:00 --------------------------- a.m. (New York City time) on the date of redemption, the Company shall deposit with the Paying Agent (or, if the Company or any of its Subsidiaries is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which are owned by the Company or a Subsidiary and have been delivered by the Company or such Subsidiary to the Trustee for cancellation. Unless the Company defaults in the payment of such redemption price, interest on the Securities to be redeemed will cease to accrue on and after the applicable redemption date, whether or not such Securities are presented for payment. SECTION 3.6. Securities Redeemed in Part. Upon surrender of a --------------------------- Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder thereof (at the Company's expense) a new Security, equal in a principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV Covenants --------- SECTION 4.1. Payment of Securities. The Company covenants and --------------------- agrees that it will promptly pay the Principal of and interest (including Additional Interest) on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest (including Additional Interest) shall be considered paid on the date due if, on or before 11:00 a.m. (New York City time) on such date, the Trustee or the Paying Agent (or, if the Company or any of its Subsidiaries is the Paying Agent, the segregated account or separate trust fund maintained by the Company or such Subsidiary pursuant to Section 2.4) holds in accordance with this Indenture money sufficient to pay all Principal and interest (including Additional Interest) then due. If any Additional Interest is due, the Company shall deliver an Officers' Certificate to the Trustee setting forth the Additional Interest per $1,000 aggregate principal amount of Securities. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful as provided in Section 2.13. Notwithstanding anything to the contrary contained in this Indenture, the Company or the Paying Agent may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America or other domestic or foreign taxing authorities from Principal or interest payments hereunder. SECTION 4.2. Limitations on Liens. The Company will not and will -------------------- not permit any of its Significant Subsidiaries to Incur any Indebtedness secured by a Lien on any Voting Stock of a Significant Subsidiary unless the Company secures or causes such Significant Subsidiary to secure the Securities equally and ratably with (or prior to) the Indebtedness so 20 secured for so long as such Indebtedness is so secured; provided, however, that the foregoing restrictions shall not apply to: (1) Liens on Voting Stock of a Significant Subsidiary existing at the time such entity becomes a Significant Subsidiary; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such entity becoming a Significant Subsidiary; (2) Liens on Voting Stock of a Significant Subsidiary to the Company or another Significant Subsidiary; or (3) Any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of Liens referred to clauses (1) or (2) of this Section 4.2; provided that any such -------- extension, renewal or replacement Lien shall be incurred within six months of repaying the Indebtedness secured by the Lien referred to in clauses (1) or (2) of this Section 4.2 and limited to the property covered by the Lien extended, renewed or replaced, and the Indebtedness secured by such new Lien shall not be greater in amount than the Indebtedness secured by the Lien extended, renewed or replaced. SECTION 4.3. Limitations on Sales of Our Significant Subsidiaries. ---------------------------------------------------- So long as any Securities remain outstanding, the Company will not and will not permit of any of its Significant Subsidiaries to (x) issue, sell, transfer or otherwise dispose of any Voting Stock of any Significant Subsidiary (other than to the Company or any wholly-owned Subsidiary) or (y) sell, lease, assign or transfer all or substantially all of the assets of any Significant Subsidiary (other than to the Company or any wholly-owned Subsidiary), unless such issuance, sale, transfer, lease, assignment or other disposition is for at least fair value (as determined by our board of directors acting in good faith) and, after giving effect to the use of proceeds therefrom, the Company and its Subsidiaries, considered as a whole, would continue to be principally engaged in the Insurance Business. SECTION 4.4. Compliance Certificate. The Company shall deliver to ---------------------- the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate signed by its principal executive officer, the principal financial officer or the principal accounting officer stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, the certificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with Section 314(a)(4) of the Trust Indenture Act. SECTION 4.5. Maintenance of Office or Agency. The Company shall ------------------------------- maintain the office or agency required under Section 2.3. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 10.2. 21 SECTION 4.6. Existence. Except as otherwise permitted by Article V, --------- the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a corporation or other Person. SECTION 4.7. SEC Reports. The Company will comply with all the ----------- applicable provisions of Section 314(a) of the Trust Indenture Act. Delivery of such information, documents or reports to the Trustee pursuant to such provisions is for informational purposes only, and the Trustee's receipt thereof shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of the covenants hereunder (as to which the Trustee is entitled to rely exclusively on the Officers' Certificate). SECTION 4.8. Further Instruments and Acts. Upon reasonable request ---------------------------- of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE V Consolidation, Merger and Sale of Assets ---------------------------------------- SECTION 5.1. Company May Merge or Transfer Assets Only on Certain ---------------------------------------------------- Terms. The Company will not consolidate with or sell, lease, transfer or convey - ----- all or substantially all of its assets to, or merge with or into, in one transaction or a series of related transactions, any other Person, unless: (i) the Company shall be the continuing entity, or the resulting, surviving or transferee Person (the "Successor") shall be a --------- Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor (if not the Company) shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) if requested, the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 5.2. Successor Corporation Substituted. The Successor will --------------------------------- succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a lease of all or substantially all of the Company's assets will not be released from the obligation to pay the Principal of and interest on the Securities. 22 ARTICLE VI Defaults and Remedies --------------------- SECTION 6.1. Events of Default. An "Event of Default" occurs with ----------------- ---------------- respect to the Securities if: (1) the Company defaults in the payment of the Principal (or premium, if any) of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon declaration or otherwise; (2) the Company defaults in any payment of interest (including Additional Interest) on any Security when the same becomes due and payable, and such default continues for a period of 30 days; (3) the Company fails to comply with any of its covenants and agreements in the Securities or this Indenture (other than those referred to in (1) or (2) above) and such failure continues for 60 days after the notice specified below; (4) the Company fails to pay when due at maturity, or defaults with respect to other Indebtedness of the Company or any Significant Subsidiary (which default results in the acceleration of Indebtedness), in an aggregate amount of $10,000,000 or more without such failure or acceleration having ceased or been rescinded, stayed or annulled within 30 days after written notice specified below; (5) the Company or any Significant Subsidiary, pursuant to or within the meaning of the Bankruptcy Law: (A) commences a voluntary case or proceeding; (B) consents to the entry of an order for relief against it in an involuntary case or proceeding in which it is the debtor; (C) consents to the appointment of a Custodian of it or for all or substantially all of its property; (D) makes a general assignment for the benefit of its creditors; (E) files a petition in bankruptcy or answer or consent seeking reorganization or relief; (F) consents to the filing of such petition or the appointment of or taking possession by a Custodian; or (G) takes any comparable action under any foreign laws relating to insolvency; or 23 (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case, or adjudicates the Company or a Significant Subsidiary insolvent or bankrupt; (B) appoints a Custodian of the Company or a Significant Subsidiary or for all or substantially all of the Company's or any Significant Subsidiary's property; or (C) orders the winding-up or liquidation of the Company or a Significant Subsidiary (or any similar relief is granted under any foreign laws) and the order or decree remains unstayed and in effect for 60 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar federal or state or foreign law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. If any failure, default or acceleration referred to in clause (4) above shall cease or be rescinded, stayed or annulled, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon cured. A Default with respect to Securities under clauses (3) or (4) of this Section 6.1 is not an Event of Default until the Trustee (by notice to the Company) or the Holders of at least 25% in aggregate principal amount of the outstanding Securities (by notice to the Company and the Trustee) gives notice of the Default and the Company does not cure such Default within the time specified in said clause (3) or (4) after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any event which with the giving of notice or the lapse of time would become an Event of Default under clause (3) or (4) of this Section 6.1, its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.2. Acceleration. If an Event of Default with respect to ------------ the Securities (other than an Event of Default specified in Section 6.1(5) or (6)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the outstanding Securities by notice to the Company and the Trustee, may 24 declare the Principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such Principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.1(5) or (6) occurs and is continuing, the Principal of and accrued interest on all the Securities shallipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in aggregate principal amount of the outstanding Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree (other than a judgment or decree for the payment of Principal or interest or monies due on the Securities) and if all existing Events of Default have been cured or waived except nonpayment of Principal or interest that has become due solely because of such acceleration and the Trustee has been paid all amounts due to it pursuant to Section 7.7. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.3. Other Remedies. If an Event of Default with respect to -------------- the Securities occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of Principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are, to the extent permitted by law, cumulative. SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in ----------------------- aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive any past or existing Default and its consequences except (i) a Default in the payment of the Principal of, or premium, or interest on a Security or (ii) a Default in respect of a provision that under Section 9.2 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, and any Event of Default arising therefrom shall be deemed to have been cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.5. Control by Majority. Upon provision of security or ------------------- indemnity reasonably satisfactory to the Trustee, the Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to the Securities or of exercising any trust or power conferred on the Trustee. However, the Trustee, which may rely on opinions of counsel, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by - -------- ------- the Trustee that is not inconsistent with such direction. SECTION 6.6. Limitation on Suits. A Holder of Securities may not ------------------- pursue any remedy with respect to this Indenture or the Securities unless: 25 (i) the Holder gives to the Trustee previous written notice stating that an Event of Default has occurred and is continuing; (ii) the Holders of at least 25% in aggregate principal amount of the Securities then outstanding make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer to the Trustee reasonable indemnity satisfactory to it against any costs, liabilities or expenses; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (v) the Holders of a majority in aggregate principal amount of the Securities then outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.7. Rights of Holders To Receive Payment. Notwithstanding ------------------------------------ any other provision of this Indenture, the right of any Holder to receive payment of Principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.8. Collection Suit by Trustee. If an Event of Default -------------------------- specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.7. SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file -------------------------------- such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to an Company, its creditors or any other obligor upon the Securities, or any of their creditors or the property of the Company or such other obligor or their creditors and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.7. SECTION 6.10. Priorities. Any money or other property collected by ---------- the Trustee pursuant to Article VI hereof, or any money or other property otherwise distributable in 26 respect of the Company's obligations under this Indenture, shall be applied in the following order: FIRST: to the Trustee (including any predecessor Trustee) for amounts due under Section 7.7; SECOND: to Securityholders for amounts due and unpaid on the Securities for Principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for Principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. Undertaking for Costs. In any suit for the --------------------- enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more than 10% in aggregate principal amount of the outstanding Securities. SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the -------------------------------- extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VII Trustee ------- SECTION 7.1. Duties of Trustee. If an Event of Default has occurred ----------------- and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: 27 (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon Officers' Certificates and Opinions of Counsel furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such Officers' Certificates and Opinions of Counsel which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such Officers' Certificates and Opinions of Counsel to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) this subsection does not limit the effect of subsections (b) or (f) of this Section 7.1; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to subsections (a), (b), (c) and (f) of this Section 7.1. (e) The Trustee shall not be liable for interest on any money or other property received by it or for holding moneys or other property uninvested, in either case, except as otherwise agreed between the Company and the Trustee. Money and other property held in trust by the Trustee need not be segregated from other money or property except to the extent required by law. (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 7.1 and to the provisions of the Trust Indenture Act, where applicable. 28 SECTION 7.2. Rights of Trustee. The Trustee may conclusively rely ----------------- on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may execute any of the trusts or powers or perform any duties hereunder either directly through attorneys and agents, respectively, and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care by it hereunder. (d) The Trustee shall not be liable for any action it takes, suffers to exist or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does -------- ------- not constitute willful misconduct or negligence. (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in reliance thereon. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Securities unless either (1) a Responsible Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to a Responsible Officer of the Trustee at the Corporate Trust Office by the Company or any other obligor on the Securities or by any Holder of the Securities. Any such notice shall reference this Indenture and the Securities. (h) The rights, privileges, protections, immunities and benefits given to the Trustee pursuant to this Indenture, including its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities as Registrar and Paying Agent, as the case may be, hereunder. (i) The Trustee may request that the Issuer deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. 29 SECTION 7.3. Individual Rights of Trustee. The Trustee in its ---------------------------- individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be -------------------- responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities or any offering document, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.5. Notice of Defaults. If a Default or an Event of ------------------ Default occurs with respect to the Securities and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it is known to a Responsible Officer or written notice of it is received by a Responsible Officer of the Trustee. Except in the case of a Default in payment of Principal of or interest on any Security, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is not opposed to the interests of Securityholders. SECTION 7.6. Reports by Trustee to Holders. As promptly as ----------------------------- practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with Section 313(a) of the Trust Indenture Act. The Trustee also shall comply with Section 313(b) of the Trust Indenture Act. The Trustee shall promptly deliver to the Company a copy of any report it delivers to Holders pursuant to this Section 7.6. A copy of each report at the time of its mailing to Securityholders shall be filed by the Trustee with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.7. Compensation and Indemnity. The Company covenants and -------------------------- agrees to pay to the Trustee (and any predecessor Trustee) from time to time such compensation for its services as the Company and the Trustee shall from time to time agree in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses (including attorneys' fees and expenses), disbursements and advances incurred or made by it in accordance with the provisions of this Indenture, including costs of collection, in addition to such compensation for its services, except any such expense, disbursement or advance as may arise from its negligence, willful misconduct or bad faith. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents and counsel. The Trustee shall provide the Company reasonable notice of any expenditure not in the ordinary course of business; provided that prior approval by the Company of any such expenditure shall not be a requirement for the making of such expenditure nor for reimbursement by the Company thereof. The Company shall indemnify each of the 30 Trustee, its officers, directors, employees and any predecessor Trustees against any and all loss, damage, claim, liability or expense (including reasonable attorneys' fees and expenses), including taxes (other than taxes applicable to the Trustee's compensation hereunder) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee so to notify the Company shall not relieve the Company of its obligations hereunder, except to the extent that the Company has been prejudiced by such failure. The Company shall defend the claim and the Trustee shall cooperate, to the extent reasonable, in the defense of any such claim, and, if (in the opinion of counsel to the Trustee) the facts and/or issues surrounding the claim are reasonably likely to create a conflict with the Company, the Company shall pay the reasonable fees and expenses of separate counsel to the Trustee. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own willful misconduct, negligence or bad faith. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld or delayed. To secure the Company's payment obligations in this Section 7.7, the Trustee (including any predecessor trustee) shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay Principal of and interest on particular Securities. The Company's payment obligations pursuant to this Section 7.7 shall survive the satisfaction, discharge and termination of this Indenture, the resignation or removal of the Trustee and any discharge of this Indenture including any discharge under any bankruptcy law. In addition to and without prejudice to the rights provided to the Trustee under any of the provisions of this Indenture, when the Trustee incurs expenses or renders services after the occurrence of a Default specified in Section 6.1(6) or (7) with respect to the Company, the expenses and the compensation for the services are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.8. Replacement of Trustee. The Trustee may resign at any ---------------------- time with 30 days notice to the Company. The Holders of a majority in principal amount of the Securities then outstanding, may remove the Trustee with 30 days notice to the Trustee and may appoint a successor Trustee, which successor Trustee shall be reasonably acceptable to the Company. The Company shall remove the Trustee if: (i) the Trustee fails to comply with Section 7.10; (ii) the Trustee is adjudged bankrupt or insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a 31 successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company and the Company shall pay all amounts due and owing to the Trustee under Section 7.7 of the Indenture. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders affected by such resignation or removal. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.7. If a successor Trustee does not take office with respect to the Securities within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction at the expense of the Issuer for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. SECTION 7.9. Successor Trustee by Merger. If the Trustee --------------------------- consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee; provided that such corporation shall be eligible under this Article Seven and Section 310(a) of the Trust Indenture Act. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at ----------------------------- all times satisfy the requirements of Section 310(a) of the Trust Indenture Act. The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Section 310(b) of the Trust Indenture Act; provided, however, -------- ------- that there shall be excluded from the operation of Section 310(b)(1) of the Trust Indenture Act and any indenture or indentures under which other securities Or 32 certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in Section 310(b)(1) of the Trust Indenture Act are met. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act. SECTION 7.11. Preferential Collection of Claims Against the Company. ----------------------------------------------------- The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated. ARTICLE VIII Discharge of Indenture; Defeasance ---------------------------------- SECTION 8.1. Discharge of Liability on Securities; Defeasance. With ------------------------------------------------ respect to the Securities, when (i) the Company delivers to the Trustee all outstanding Securities for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof or the Securities will become due and payable at their Stated Maturity within one year, or the Securities are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and, in each case of this clause (ii), the Company irrevocably deposits or causes to be deposited with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date, and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.1(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate from the Company and an Opinion of Counsel from the Company that all conditions precedent provided herein for relating to satisfaction and discharge of this Indenture have been complied with and at the cost and expense of the Company. (b) Subject to Sections 8.1(c) and 8.2, the Company at any time may terminate (i) all of its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Section 4.2 and ---------------------- Section 4.3 and the operation of Section 6.1(4) ("covenant defeasance option"). --- -------------------------- The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option with respect to the Securities, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Section 6.1(4). 33 Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.9, 4.1, 4.5, 4.8, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the Securities have been paid in full. Thereafter, the Company's and the Trustee's obligations in Sections 7.7, 8.4 and 8.5 shall survive. SECTION 8.2. Conditions to Defeasance. The Company may exercise its ------------------------ legal defeasance option or its covenant defeasance option with respect to the Securities only if: (i) the Company irrevocably deposits or causes to be deposited in trust with the Trustee money or U.S. Government Obligations which through the scheduled payment of Principal and interest in respect thereof in accordance with their terms will provide cash at such times and in such amounts as will be sufficient to pay Principal and interest and any other payments when due on all outstanding Securities (except Securities replaced pursuant to Section 2.9) to maturity or redemption, as the case may be as evidenced by a certificate from a nationally recognized firm of independent accountants delivered to the Trustee expressing their opinion that the payments of Principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay Principal and interest when due on all outstanding Securities (except Securities replaced pursuant to Section 2.9) to maturity or redemption, as the case may be; (ii) No Default or Event of Default with respect to such Securities shall have occurred and be continuing on the date of such deposit or, insofar as Sections 6.1(5) or 6.1(6) are concerned, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (iii) the deposit does not constitute a default under any other material agreement binding on the Company; (iv) the Company delivers to the Trustee an Opinion of Counsel to the effect that either (i) as a result of the deposit, registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit or by the Trustee for such trust funds or (ii) all necessary registrations under said Act have been effected; (v) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for federal 34 income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (vi) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and (vii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION 8.3. Application of Trust Money. The Trustee shall hold in -------------------------- trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations either directly or through the Paying Agent as the Trustee may determine and in accordance with this Indenture to the payment of Principal of and interest on the Securities. SECTION 8.4. Repayment to the Company. The Trustee and the Paying ------------------------ Agent shall promptly turn over to the Company upon request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of Principal or interest that remains unclaimed for two years after the date of payment of such Principal and interest, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. Anything in this Section 8.4 to the contrary notwithstanding, in the absence of a written request from the Company to return unclaimed funds to the Company, the Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Trustee in its sole discretion, in accordance with the customary practices and procedures of the Trustee. Any unclaimed funds held by the Trustee pursuant to this Section 8.4 shall be held uninvested and without any liability for interest. SECTION 8.5. Indemnity for Government Obligations. The Company ------------------------------------ shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations other than any such tax, fee or other charge which by law is for the account of the Holders of the defeased Securities; provided that the Trustee shall be entitled to charge any such tax, fee or other charge to such Holder's account. 35 SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is ------------- unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that (a) if the Company has made any payment of interest on or Principal of any Securities following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent and (b) unless otherwise required by any legal proceeding or any order or judgment of any court or governmental authority, the Trustee or Paying Agent shall return all such money and U.S. Government Obligations to the Company promptly after receiving a written request therefor at any time, if such reinstatement of the Company's obligations has occurred and continues to be in effect. ARTICLE IX Amendments ---------- SECTION 9.1. Without Consent of Holders. The Company and the -------------------------- Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to comply with Article 5; (iii) to add any additional Events of Default; (iv) to add to the covenants of the Company for the benefit of the Holders of all the Securities or to surrender any right or power herein conferred upon the Company; (v) to add one or more guarantees for the benefit of holders of the Securities; (vi) to secure the Securities pursuant to the terms of this Indenture; (vii) to add or appoint a successor or separate Trustee or other agent; (viii) to comply with any requirements in connection with qualifying this Indenture under the Trust Indenture Act; (ix) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the -------- ------- uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are as described in Section 163(f)(2)(B) of the Code; 36 (x) to provide for the issuance of the Exchange Securities, which will have terms substantially identical in all material respects to the Initial Securities (except that the transfer restrictions contained in the Initial Securities will be modified or eliminated, as appropriate); (xi) to provide for the issuance of any Additional Securities, which will have terms substantially identical in all material respects to the Initial Securities or the Exchange Securities (in each case, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto), as the case may be, and which will be treated, together with any outstanding Initial Securities and any Additional Securities, as a single issue of securities; and (xii) to change any other provision if the change does not adversely affect the interests of any Securityholder. After an amendment under this Section 9.1 becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.1. SECTION 9.2. With Consent of Holders. The Company and the Trustee ----------------------- may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for Securities). However, without the consent of each Securityholder affected, an amendment may not: (i) change the Stated Maturity of the Principal of, or installment of interest on, any Security; (ii) reduce the principal amount of, or premium, if any, or the rate of interest on, or any other amounts due on any Securities (including amounts due upon optional redemption or otherwise); (iii) reduce the principal amount of any Security that would be due and payable upon a declaration of acceleration of the Stated Maturity thereof; (iv) change the place of payment or the coin or currency in which the Principal of or interest on any Security is payable; (v) impair the right of any Holder to institute suit for the enforcement of any payment on or after the Stated Maturity of any Security; (vi) reduce the percentage in principal amount of the outstanding Securities, the consent of whose Holders is required in order to modify or amend the Indenture; (vii) modify any of the provisions of this Indenture regarding the waiver of past defaults and the waiver of certain covenants by Holders except to increase any 37 percentage vote required or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the holder of each security affected thereby; or (viii) modify any of the above provisions of this Section 9.2. It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section 9.2 becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section 9.2. SECTION 9.3. Compliance with Trust Indenture Act. Every amendment ----------------------------------- to this Indenture or the Securities shall comply with the Trust Indenture Act as then in effect. SECTION 9.4. Revocation and Effect of Consents and Waivers. A --------------------------------------------- consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. After an amendment or waiver becomes effective with respect to the Securities, it shall bind every Securityholder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. SECTION 9.5. Notation on or Exchange of Securities. If an amendment ------------------------------------- changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Company shall provide in writing to the Trustee an appropriate notation to be placed on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determine, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any -------------------------- amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall be fully protected in relying 38 upon, in addition to the documents required by Section 10.4, an Officers' Certificate of the Company and an Opinion of Counsel stating that such amendment complies with the provisions of this Article 9 and that such supplemental indenture constitutes the legal valid and binding obligation of the Company in accordance with its terms subject to customary exceptions. ARTICLE X Miscellaneous ------------- SECTION 10.1. Trust Indenture Act Controls. If any provision of ---------------------------- this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision included or which is required to be included in this Indenture by the Trust Indenture Act, the duty or provision required by the Trust Indenture Act shall control. SECTION 10.2. Notices. Any notice or communication shall be in ------- writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company: 21st Century Insurance Group 6301 Owensmouth Avenue, 11th Floor Woodland Hills, California 91367 Facsimile Number: 818-704-3737 Attention: General Counsel if to the Trustee: The Bank of New York 101 Barclay Street, Floor 8W New York, New York 10286 Facsimile Number: 212-815-5707 Attention: Corporate Trust Administration Any notices between the Company and the Trustee may be by facsimile or certified first class mail, receipt confirmed and the original to follow by guaranteed overnight courier. The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or 39 communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 10.3. Communication by Holders with other Holders. ------------------------------------------- Securityholders may communicate pursuant to Section 312(b) of the Trust Indenture Act with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of Section 312(c) of the Trust Indenture Act. SECTION 10.4. Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (i) an Officers' Certificate of the Company in form reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel of the Company in form reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Notwithstanding the foregoing no such Opinion of Counsel shall be given with respect to the authentication and delivery of any Initial Securities. SECTION 10.5. Statements Required in Certificate or Opinion. The --------------------------------------------- certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (i) a statement that the individual making such certificate or opinion has read such covenant or condition; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (iii) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 10.6. When Securities Disregarded. In determining whether --------------------------- the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company (an "Affiliate") shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining 40 whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which a Responsible Officer of the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 10.7. Rules by Trustee, Paying Agent and Registrar. The -------------------------------------------- Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 10.8. Governing Law. This Indenture and the Securities ------------- shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 10.9. No Recourse Against Others. A director, officer, -------------------------- employee or stockholder (other than the Company), as such, of the Company shall not have any liability for any obligations of the Company under the Securities, this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. SECTION 10.10. Successors. All agreements of the Company in this ---------- Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 10.11. Multiple Originals. The parties may sign any number ------------------ of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 10.12. Variable Provisions. The Company initially appoints ------------------- the Trustee as Paying Agent and Registrar and custodian with respect to any Global Securities (as defined in the Appendix hereto). SECTION 10.13. Qualification of Indenture. The Company shall -------------------------- qualify this Indenture under the Trust Indenture Act in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees for the Company, the Trustee and the Holders) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the Trust Indenture Act. SECTION 10.14. Table of Contents; Headings. The table of contents, --------------------------- cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. 21ST CENTURY INSURANCE GROUP By______________________________ Name: Title: THE BANK OF NEW YORK, as Trustee By______________________________ Name: Title: EXHIBIT A [FORM OF FACE OF INITIAL SECURITY] 21ST CENTURY INSURANCE GROUP 5.90% SENIOR NOTES DUE 2013 No. __ Principal Amount $______________, (subject to adjustment as reflected in the Schedule of Increases and Decreases in Global Security attached hereto) CUSIP NO. _________ ISIN NO. __________ 21st Century Insurance Group, a Delaware corporation, for value received, promises to pay to _____________, or registered assigns, the principal sum of ____________ Dollars, subject to adjustment as reflected in the Schedule of Increases and Decreases in Global Security attached hereto, on December 15, 2013. Interest Payment Dates: June 15 and December 15 of each year, commencing on June 15, 2004 [first interest payment date relating to any Additional Securities]. Record Dates: June 1 and December 1 of each year. Additional provisions of this Security are set forth on the other side of this Security. 21ST CENTURY INSURANCE GROUP By ----------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. The Bank of New York, as Trustee By_____________________________ Authorized Signatory Dated: _______ __, 20__ A-1 [FORM OF REVERSE SIDE OF INITIAL SECURITY] [Reverse of Security] 5.90% Senior Notes due 2013 1. Interest -------- 21st Century Insurance Group, a Delaware corporation (together with its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above; provided, however, that if a -------- ------- Registration Default (as defined in the Registration Rights Agreement) occurs, additional interest will accrue on this Security at a rate of 0.25% per annum. If a Registration Default occurs and is continuing for a period more than 90 days, then the amount of additional interest the Company is required to pay on this Security will increase, effective from and after the 91st day in that period, by an additional 0.25% per annum until all Registration Defaults have been cured. However, in no event will the rate of additional interest exceed 0.50% per annum. Such additional interest is payable in addition to any other interest payable from time to time with respect to this Security. The Trustee will not be deemed to have notice of a Registration Default until a Responsible Officer shall have received actual notice of such Registration Default. The Company will pay interest semiannually on June 15 and December 15 of each year (each such date, an "Interest Payment Date"), commencing on [June 15, 2004] [first interest payment date relating to any Additional Securities]. Interest on the Securities will accrue from [December 9, 2003] [date of issuance of any Additional Securities], or from the most recent date to which interest has been paid on the Securities. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment ----------------- By no later than 11:00 a.m. (New York City time) on the date on which any Principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such Principal and/or interest. The Company will pay interest (except defaulted interest and interest on Securities redeemed after a record date and on or prior to the corresponding interest payment date) to the Persons who are registered Holders of Securities at the close of business on the June 1 or December 1 next preceding the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company may make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof or by wire transfer to an account located in the United States maintained by the payee. A-2 3. Paying Agent and Registrar -------------------------- Initially, The Bank of New York, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice to any Securityholder. The Company or any of its domestically organized wholly owned Subsidiaries may act as Paying Agent. 4. Indenture --------- The Company issued the Securities under an Indenture dated as of December 9, 2003 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sec.Sec. 77aaa-77bbbb) as in effect on the date of the Indenture (the ------ "Trust Indenture Act"). Capitalized terms used herein and not defined herein ------------------- have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Trust Indenture Act for a statement of those terms. The Securities are senior obligations of the Company. The Security is one of the Initial Securities referred to in the Indenture. The Securities include the Initial Securities issued on the Issue Date, any Additional Securities issued in accordance with Section 2.15 of the Indenture and the Exchange Securities issued in exchange for the Initial Securities or Additional Securities pursuant to the Indenture. The Initial Securities, any Additional Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Significant Subsidiaries to create Liens, sell Voting Stock of Significant Subsidiaries and enter into mergers and consolidations. 5. Optional Redemption ------------------- The Securities are redeemable, in whole or in part, at any time and from time to time, at the option of the Company, at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus accrued interest thereon to the date of redemption. "Treasury Rate" means, with respect to any redemption date for the ------------- Securities, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security ------------------------- or securities selected by an Independent Investment Banker as having an actual or interpolated maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing A-3 new issues of corporate debt securities of comparable maturity to the remaining term of the Securities to be redeemed. "Comparable Treasury Price" means, with respect to any redemption date ------------------------- for the Securities, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (b) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. "Independent Investment Banker" means one of the Reference Treasury ----------------------------- Dealers appointed by the Trustee after consultation with the Company. "Reference Treasury Dealer" means (x) each of Banc of America ------------------------- Securities LLC and Lehman Brothers Inc. or their respective affiliates; provided, however, that if any of the foregoing shall cease to be a primary U.S. government securities dealer in New York City (a "Primary Treasury Dealer"), the Company will substitute therefor another Primary Treasury Dealer and (y) two other Primary Treasury Dealers selected by the Company. "Reference Treasury Dealer Quotations" means, with respect to each ------------------------------------ Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer as of 3:30 p.m., New York City time, on the third Business Day preceding such redemption date. Except as set forth above, the Securities will not be redeemable by the Company prior to maturity. The Securities will not be entitled to the benefit of any sinking fund. 6. Notice of Redemption -------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date by first-class mail to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before 11:00 a.m. (New York City time) on the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Registration Rights ------------------- The Company is party to a Registration Rights Agreement, dated as of December 9, 2003, between the Company and Banc of America Securities LLC and Lehman Brothers Inc., pursuant to which the Company is obligated to pay Additional Interest (as defined therein) upon the occurrence of certain Registration Defaults (as defined therein). A-4 8. Denominations; Transfer; Exchange --------------------------------- The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may register, transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 9. Persons Deemed Owners --------------------- The registered holder of this Security may be treated as the owner of it for all purposes. 10. Unclaimed Money --------------- If money for the payment of Principal or interest remains unclaimed for two years after the date of payment of Principal and interest, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. Anything in this Section 10 to the contrary notwithstanding, in the absence of a written request from the Company to return unclaimed funds to the Company, the Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Trustee in its sole discretion, in accordance with the customary practices and procedures of the Trustee. 11. Defeasance ---------- Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of Principal of and interest on the Securities to redemption or maturity, as the case may be. 12. Amendment, Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities and (ii) any default or noncompliance with any provision of the Indenture or the Securities may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities. However, the Indenture requires the consent of each Securityholder that would be affected for certain specified amendments or modifications of the Indenture and the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to, among other things, cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to add any A-5 additional Events of Default, or to add additional covenants of or surrender rights and powers conferred on the Company, or to add or appoint a successor or separate trustee or other agent, or to comply with any requirements in connection with qualifying the Indenture under the Trust Indenture Act, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to change any other provision if the change does not adversely affect the interests of any Securityholder. 13. Defaults and Remedies --------------------- Under the Indenture, Events of Default include (i) default in payment of Principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon declaration or otherwise; (ii) default for 30 days in payment of interest on the Securities; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities for sixty days after notice; (iv) failure to pay when due or certain accelerations of other indebtedness of the Company or any Significant Subsidiary in an aggregate amount of $10,000,000 or more, subject to notice and (v) certain events of bankruptcy or insolvency involving the Company or any Significant Subsidiary. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of Principal or interest) if it in good faith determines that withholding notice is not opposed to their interest. 14. Trustee Dealings with the Company --------------------------------- Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company and may otherwise deal with the Company with the same rights it would have if it were not Trustee. 15. No Recourse Against Others -------------------------- A director, officer, employee or stockholder (other than the Company), as such, of the Company shall not have any liability for any obligations of the Company under the Securities, the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. A-6 16. Authentication -------------- This Security shall not be valid until an authorized officer of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 17. Abbreviations ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (tenants in common), TEN ENT (tenants by the entirety), JT TEN (joint tenants with rights of survivorship and not as tenants in common), CUST (custodian) and U/G/M/A (Uniform Gift to Minors Act). 18. CUSIP and ISIN Numbers ---------------------- The Company has caused CUSIP and ISIN numbers and/or other similar numbers to be printed on the Securities and has directed the Trustee to use CUSIP and ISIN numbers and/or other similar numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 19. Governing Law ------------- THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. A-7 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ____________________ Your Signature: ___________________ Signature Guarantee: ______________________________ (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) Sign exactly as your name appears on the other side of this Security. In connection with any transfer or exchange of any of the certificated Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred: CHECK ONE BOX BELOW: (1)[ ] to the Company or any of its Subsidiaries; or (2)[ ] for so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act, to a person it reasonably believes is a "Qualified Institutional Buyer" as defined in Rule 144A under the Securities Act that purchases for its own account or for the account of a Qualified Institutional Buyer to whom notice is given that the transfer is being made in reliance on Rule 144A; or (3)[ ] pursuant to Rule 144 under the Securities Act or any other available exemption from the registration requirements of the Securities Act; or (4)[ ] pursuant to a registration statement that has been declared effective under the Securities Act. Unless one of the boxes is checked, the Trustee may refuse to register any of the certificated Securities evidenced by this certificate in the name of any Person other than the registered holder thereof; provided, however, that if box -------- ------- (3) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being A-8 made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. _____________________________________ Signature Signature Guarantee: _______________________________ _____________________________________ Signature (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) _______________________________________________________________________ A-9 TO BE COMPLETED BY PURCHASER IF BOX (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this certificated Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:___________________ _____________________________________ NOTICE: To be executed by an executive officer Signature Guarantee: _______________________________ _____________________________________ Signature (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) __________________________________________________________________ A-10
[TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made: Principal Amount of this Global Date of Amount of decrease in Principal Amount of increase in Principal Security following such Exchange Amount of this Global Security Amount of this Global Security decrease or increase ________ _______________________________ _______________________________ _______________________________ Signature of authorized officer Date of of Trustee or Securities Exchange Custodian ________ _______________________________
A-11 EXHIBIT B [FORM OF FACE OF EXCHANGE SECURITY] 21ST CENTURY INSURANCE GROUP 5.90% SENIOR NOTES DUE 2013 No. __ Principal Amount $______________, (subject to adjustment as reflected in the Schedule of Increases and Decreases in Global Security attached hereto) CUSIP NO. _________ ISIN NO. __________ 21st Century Insurance Group, a Delaware corporation, for value received, promises to pay to _______________, or registered assigns, the principal sum of _____________ Dollars on 15, 2013. Interest Payment Dates: June 15 and December 15 of each year, commencing on June 15, 2004 [first interest payment date relating to any Additional Securities]. Record Dates: June 1 and December 1 of each year. Additional provisions of this Security are set forth on the other side of this Security. 21st CENTURY INSURANCE GROUP By ----------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. The Bank of New York, By_____________________________ Authorized Officer Dated:________ ___, 20___ B-1 [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 5.90% Senior Notes due 2013 1. Interest -------- 21st Century Insurance Group, a Delaware corporation (together with its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on June 15 and December 15 of each year (each such date, an "Interest Payment Date"), commencing on [June 15, 2004] [first interest payment date relating to any Additional Securities]. Interest on the Securities will accrue from December 9, 2003 [date of issuance of any Additional Securities], or from the most recent date to which interest has been paid on the Securities. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment ----------------- By no later than 11:00 a.m. (New York City time) on the date on which any Principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such Principal and/or interest. The Company will pay interest (except defaulted interest and interest on Securities redeemed after a record date and or prior to the corresponding interest payment date) to the Persons who are registered Holders of Securities at the close of business on the June 1 or December 1 next preceding the Interest Payment Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay Principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities represented by a Global Security (including principal, premium, if any, and interest) will be made by the transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company may make all payments in respect of a Definitive Security (including principal, premium, if any, and interest) by mailing a check to the registered address of each Holder thereof or by wire transfer to an account located in the United States maintained by the payee. 3. Paying Agent and Registrar -------------------------- Initially, The Bank of New York, a New York banking corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice to any Securityholder. The Company or any of its domestically organized wholly owned Subsidiaries may act as Paying Agent. 4. Indenture --------- The Company issued the Securities under an Indenture dated as of December 9, 2003 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the Securities B-2 include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sec.Sec. 77aaa-77bbbb) as in effect on the date of the Indenture (the "Trust Indenture Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Trust Indenture Act for a statement of those terms. The Securities are senior obligations of the Company. The Security is one of the Exchange Securities referred to in the Indenture. The Securities include the Initial Securities issued on the Issue Date, any Additional Securities issued in accordance with Section 2.15 of the Indenture and any Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The Initial Securities, any Additional Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the ability of the Company and its Significant Subsidiaries to create Liens, sell Voting Stock of Significant Subsidiaries and enter into mergers and consolidations. 5. Optional Redemption ------------------- The Securities are redeemable, in whole or in part, at any time and from time to time, at the option of the Company, at a redemption price equal to the greater of (i) 100% of the principal amount of such Securities and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus accrued interest thereon to the date of redemption. "Treasury Rate" means, with respect to any redemption date for the Securities, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated (on a day count basis) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security or securities selected by an Independent Investment Banker as having an actual or interpolated maturity comparable to the remaining term of the Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities to be redeemed. "Comparable Treasury Price" means, with respect to any redemption date for the Securities, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (b) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Quotations. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. B-3 "Reference Treasury Dealer" means (x) each of Banc of America Securities LLC and Lehman Brothers Inc. or their respective affiliates; provided, however, that if any of the foregoing shall cease to be a primary U.S. government securities dealer in New York City (a "Primary Treasury Dealer"), the Company will substitute therefor another Primary Treasury Dealer and (y) two other Primary Treasury Dealers selected by the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer as of 3:30 p.m., New York City time, on the third Business Day preceding such redemption date. Except as set forth above, the Securities will not be redeemable by the Company prior to maturity. The Securities will not be entitled to the benefit of any sinking fund. 6. Notice of Redemption -------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date by first-class mail to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before 11:00 a.m. (New York City time) on the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Denominations; Transfer; Exchange --------------------------------- The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may register transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) for a period beginning 15 days before a selection of Securities to be redeemed and ending on the date of such selection. 8. Persons Deemed Owners --------------------- The registered holder of this Security may be treated as the owner of it for all purposes. 9. Unclaimed Money --------------- If money for the payment of Principal or interest remains unclaimed for two years after the date of payment of Principal and interest, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another B-4 Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. Anything in this Section 9 to the contrary notwithstanding, in the absence of a written request from the Company to return unclaimed funds to the Company, the Trustee shall from time to time deliver all unclaimed funds to or as directed by applicable escheat authorities, as determined by the Trustee in its sole discretion, in accordance with the customary practices and procedures of the Trustee. 10. Defeasance ---------- Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of Principal of and interest on the Securities to redemption or maturity, as the case may be. 11. Amendment, Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities and (ii) any default or noncompliance with any provision of the Indenture or the Securities may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities. However, the Indenture requires the consent of each Securityholder that would be affected for certain specified amendments or modifications of the Indenture and the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to, among other things, cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to add any additional Events of Default, or to add additional covenants of or surrender rights and powers conferred on the Company, or to add or appoint a successor or separate trustee or other agent, or to comply with any requirements in connection with qualifying the Indenture under the Trust Indenture Act, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to change any other provision if the change does not adversely affect the interests of any Securityholder. 12. Defaults and Remedies --------------------- Under the Indenture, Events of Default include (i) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon declaration or otherwise; (ii) default for 30 days in payment of interest on the Securities; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities for sixty days after notice; (iv) failure to pay when due or certain accelerations of other indebtedness of the Company or any Significant Subsidiary in an aggregate amount of $10,000,000 or more, subject to notice and (v) certain events of bankruptcy or insolvency involving the Company or any Significant Subsidiary. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default B-5 which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives indemnity or security reasonably satisfactory to it. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of Principal or interest) if it in good faith determines that withholding notice is not opposed to their interest. 13. Trustee Dealings with the Company --------------------------------- Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company and may otherwise deal with the Company with the same rights it would have if it were not Trustee. 14. No Recourse Against Others -------------------------- A director, officer, employee or stockholder (other than the Company), as such, of the Company shall not have any liability for any obligations of the Company or under the Securities, the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. 15. Authentication -------------- This Security shall not be valid until an authorized officer of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 16. Abbreviations ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (tenants in common), TEN ENT (tenants by the entirety), JT TEN (joint tenants with rights of survivorship and not as tenants in common), CUST (custodian) and U/G/M/A (Uniform Gift to Minors Act). 17. CUSIP and ISIN Numbers ---------------------- The Company has caused CUSIP and ISIN numbers and/or other similar numbers to be printed on the Securities and has directed the Trustee to use CUSIP and ISIN numbers and/or other similar numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. B-6 18. Governing Law ------------- THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. B-7 ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ____________________ Your Signature: ______________________ Signature Guarantee: ______________________________ (Signature must be guaranteed by a participant in a recognized Signature Guarantee Medallion Program or other signature guarantor program reasonably acceptable to the Trustee) ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. B-8 EXHIBIT C - Form of Rule 144A Certificate RULE 144A CERTIFICATE (For transfers pursuant to Sections 2.6(b), (c), (d) and (e) of the Indenture) To: The Bank of New York, as Trustee Re: 5.90% Senior Notes due 2013 of 21st Century Insurance Group (the "Securities") ------------------------------------------------ Reference is made to the Indenture, dated as of December 9, 2003, (the "Indenture"), between 21st Century Insurance Group (the "Company") and The Bank --------- ------- of New York, as Trustee. Terms used herein and defined in the Indenture or in Rule 144 under the U.S. Securities Act of 1933, as amended (the "Securities ---------- Act") are used herein as so defined. This certificate relates to U.S.$________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified --------- Securities"): - ---------- CUSIP No(s). __________________________ CERTIFICATE No(s). ____________________ The person in whose name this certificate is executed below (the "undersigned") ----------- hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through DTC or an Agent Member in the name of the undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Rule 144A ---------- Security. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, it is being effected in accordance with Rule 144A or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as: 1. Rule 144A Transfers. If the transfer is being effected in ------------------- accordance with Rule 144A: (a) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and C-1 (b) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner is relying on Rule 144A in connection with the transfer; and 2. Rule 144 Transfers. If the transfer is being effected pursuant ------------------ to Rule 144: (a) the transfer is occurring after December 9, 2004 and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (b) the transfer is occurring after December 9, 2005 and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchasers. Dated: ________________________________________________ (Print the name of the undersigned, as such term is defined in the second paragraph of this certificate) By:_____________________________________________ Name: Title: (If the undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the undersigned must be stated) C-2 EX-4.2 4 doc3.txt EXHIBIT 4.2 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of December 9, 2003 (the "Exchange and Registration Rights Agreement"). WHEREAS, 21st Century Insurance Group, a Delaware corporation (the "Company"), proposes to issue and sell to Banc of America Securities LLC and Lehman Brothers Inc. ("the Initial Purchasers"), upon the terms set forth in the purchase agreement, dated December 4, 2003 (the "Purchase Agreement"), $100.0 million aggregate principal amount of the Company's 5.90% Senior Notes Due 2013 (the "Securities"). WHEREAS, it is a condition to the Initial Purchasers' obligation to purchase the Securities that the Company enter into this Agreement; NOW THEREFORE, the Company hereby undertakes as follows: ARTICLE XICertain Definitions. For purposes of this Exchange and Registration Rights Agreement, the following terms shall have the following respective meanings: "Additional Interest" shall have the meaning assigned thereto in Section 2(c) hereof. "Base Interest" shall mean the interest that would otherwise accrue on the Securities under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement. The term "broker-dealer" shall mean any broker or dealer registered with the Commission under the Exchange Act. "Closing Date" shall mean the date on which the Securities are initially issued. "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. "Effective Time," in the case of (i) an Exchange Registration, shall mean the time and date as of which the Commission declares the Exchange Registration Statement effective or as of which the Exchange Registration Statement otherwise becomes effective and (ii) a Shelf Registration, shall mean the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor thereto, as the same shall be amended from time to time. "Exchange Offer" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Registration" shall have the meaning assigned thereto in Section 3(c) hereof. "Exchange Registration Statement" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Securities" shall have the meaning assigned thereto in Section 2(a) hereof. The term "holder" shall mean the Initial Purchasers and other persons who acquire Registrable Securities from time to time (including any successors or assigns), in each case for so long as such person is a record or beneficial owner of any Registrable Securities. "Indenture" shall mean the Indenture, dated as of December 9, 2003, between the Company and The Bank of New York, as trustee (the "Trustee"), as the same shall be amended from time to time. "Majority Holders" shall mean the holders of a majority of the aggregate principal amount of Registrable Securities outstanding; provided, however, that whenever the consent or approval of holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its affiliates (as such term is defined in Rule 405 under the Securities Act) shall be disregarded in determining whether such consent or approval was given by the holders of such required percentage. "Notice and Questionnaire" means a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto. "Outstanding" has the meaning specified in the Indenture. The term "person" shall mean a corporation, association, partnership, organization, business trust, individual, government or political subdivision thereof or governmental agency. -2- "Private Exchange Securities" shall have the meaning set forth in Section 2(a) hereof. "Registrable Securities" shall mean the Securities other than any Exchange Securities issued in an Exchange Offer as contemplated in Section 2(a) hereof (unless such Exchange Securities are held by broker-dealers who have exchanged their Registrable Securities for Exchange Securities for the resale of such Exchange Securities, in which case such Exchange Securities will be deemed to be Registrable Securities until the resale of such Registrable Securities within the 60-day period referred to in the second paragraph of Section 2(a)); provided, however, that a Security shall cease to be a Registrable Security when (i) in the circumstances contemplated by Section 2(b) hereof, a Shelf Registration Statement registering such Security under the Securities Act has been declared or becomes effective and such Security has been sold or otherwise transferred by the holder thereof pursuant to and in a manner contemplated by such effective Shelf Registration Statement; (ii) such Security is sold pursuant to Rule 144 under circumstances in which any legend borne by such Security relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture; (iii) such Security is eligible to be sold pursuant to paragraph (k) of Rule 144; (iv) such Securities shall have been exchanged for Private Exchange Securities pursuant to this Agreement, in which case such Private Exchange Securities will be deemed to be Registrable Securities until such time as such Private Exchange Securities are sold to a purchaser in whose hands such Private Exchange Securities are freely tradeable without any limitations or restrictions under the Securities Act; or (v) such Security shall cease to be outstanding. "Registration Default" shall have the meaning assigned thereto in Section 2(c) hereof. "Registration Expenses" shall have the meaning assigned thereto in Section 4 hereof. "Resale Period" shall have the meaning assigned thereto in Section 2(a) hereof. "Restricted Holder" shall mean (i) a holder that is an affiliate of the Company within the meaning of Rule 405, (ii) a holder who acquires Exchange Securities outside the ordinary course of such holder's business, (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange -3- Securities and (iv) a holder that is a broker-dealer who has exchanged its Registrable Securities for Exchange Securities for the resale of such Exchange Securities. "Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time. "Securities Act" shall mean the Securities Act of 1933, as amended, or any successor thereto, as the same shall be amended from time to time. "Shelf Registration" shall mean a registration covering the resale of Securities or Private Exchange Securities (if any) effected pursuant to Section 2(b) hereof. "Shelf Registration Statement" shall mean a registration statement of the Company on Form S-3 filed pursuant to Rule 415(a)(1)(i) under the Securities Act covering the Shelf Registration, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated or deemed to be incorporated by reference therein. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Exchange and Registration Rights Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Exchange and Registration Rights Agreement as a whole and not to any particular Section or other subdivision. ARTICLE XII Registration Under the Securities Act. -------------------------------------- SECTION 12.1. Except as set forth in Section 2(b) below, the Company ---------------------------------------------------------------------- agrees to file under the Securities Act, no later than 120 days after the - ------------------------------------------------------------------------- Closing Date, one or more registration statements relating to an offer to - ------------------------------------------------------------------------- exchange (each such registration statement, an "Exchange Registration - --------------------------------------------------------------------- Statement", and each such offer, an "Exchange Offer") any and all of the - ------------------------------------------------------------------------ Securities for a like aggregate principal amount of debt securities issued by - ----------------------------------------------------------------------------- the Company, which debt securities are substantially identical to the Securities - -------------------------------------------------------------------------------- (and are entitled to the benefits of a trust indenture which is substantially - ----------------------------------------------------------------------------- identical to the Indenture or is the Indenture and which has been qualified - --------------------------------------------------------------------------- under the Trust Indenture Act), except that they have - ------------------------------------------------------ -4- been registered pursuant to an effective registration statement under the - ------------------------------------------------------------------------- Securities Act and do not contain provisions for the additional interest - ------------------------------------------------------------------------ contemplated in Section 2(c) below (any such new debt securities hereinafter - ---------------------------------------------------------------------------- called "Exchange Securities"). The Company agrees to use reasonable best efforts - -------------------------------------------------------------------------------- to cause an Exchange Registration Statement to become effective under the - ------------------------------------------------------------------------- Securities Act no later than 180 days after the Closing Date. The Exchange - -------------------------------------------------------------------------- Offers will be registered under the Securities Act on the appropriate form and - ------------------------------------------------------------------------------ will comply, in all material respects, with all applicable tender offer rules - ----------------------------------------------------------------------------- and regulations under the Exchange Act. The Company further agrees to use - ------------------------------------------------------------------------- reasonable best efforts to commence and complete each Exchange Offer promptly, - ------------------------------------------------------------------------------ but no later than 45 days after such registration statement has become effective - -------------------------------------------------------------------------------- and exchange Exchange Securities for all Registrable Securities that have been - ------------------------------------------------------------------------------ properly tendered and not withdrawn on or prior to the expiration of such - ------------------------------------------------------------------------- Exchange Offer. - --------------- An Exchange Offer will be deemed to have been "completed" only if the debt securities received by holders other than Restricted Holders in such Exchange Offer for Registrable Securities are, upon receipt, transferable by each such holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America. An Exchange Offer shall be deemed to have been completed upon the earlier to occur of (i) the Company having exchanged Exchange Securities for all outstanding Registrable Securities pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant to such Exchange Offer, Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn before the expiration of such Exchange Offer, which shall be on a date that is at least 20 business days following the commencement of such Exchange Offer. The Company agrees (x) to include in an Exchange Registration Statement a prospectus for use in any resales by any holder of Registrable Securities that is a broker-dealer and (y) to keep such Exchange Registration Statement effective for a period (the "Resale Period") beginning when Exchange Securities are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 60th day after such Exchange Offer has been completed or such time as such broker-dealers no longer -5- own any Registrable Securities. With respect to such Exchange Registration Statement, such holders shall have the benefit of the rights of indemnification and contribution set forth in Sections 6(a), (c) and (d) hereof. In the event the Company for any reason does not complete the Exchange Offer as contemplated in this Section 2(a), the Company shall have no further obligations under this Exchange and Registration Rights Agreement except for the payment of "Additional Interest" as provided in Section 2(c) below. If, at or prior to the consummation of the Exchange Offer, any Initial Purchaser holds any Securities acquired by it and having the status of an unsold allotment in the initial offering and sale of Securities pursuant to the Purchase Agreement, the Company shall, upon the request of such Initial Purchaser, simultaneously with the delivery of the Exchange Securities in the Exchange Offer to other holders, issue and deliver to such Initial Purchaser in exchange for such Securities a like principal amount of debt securities of the Company ("Private Exchange Securities") to be issued under the Indenture with terms identical to the Exchange Securities, except that such debt securities shall be subject to transfer restrictions and minimum purchase requirements, shall bear a legend relating to restrictions on ownership and transfer identical to those applicable to the Securities as a result of the issuance thereof without registration under the Securities Act and shall provide for the payment of Additional Interest. The Company shall use its reasonable best efforts to have the Private Exchange Securities bear the same CUSIP number as the Exchange Securities and, if unable to do so, the Company will, at such time as any Private Exchange Security ceases to be a "restricted security" within the meaning of Rule 144 under the Securities Act, permit any such Private Exchange Security to be exchanged for a like principal amount of Exchange Securities. -6- SECTION 12.2. (i) If, because of any change in law or applicable ------------------------------------------------------------------ interpretations thereof by the staff of the Commission, the Company is not - --------------------------------------------------------------------------- permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof, - ------------------------------------------------------------------------------ or (ii) if for any other reason (A) the Exchange Registration Statement is not - ------------------------------------------------------------------------------ declared effective within 180 days following the Closing Date or (B) the - ------------------------------------------------------------------------ Exchange Offer is not consummated within 45 days after effectiveness of the - --------------------------------------------------------------------------- Exchange Registration Statement (provided that if the Exchange Offer - -------------------------------------------------------------------- Registration Statement shall be declared effective after such 180-day period or - ------------------------------------------------------------------------------- if the Exchange Offer shall be consummated after such 45-day period, then the - ----------------------------------------------------------------------------- Company's obligations under this clause (ii) arising from the failure of the - ---------------------------------------------------------------------------- Exchange Registration Statement to be declared effective within such 180-day - ---------------------------------------------------------------------------- period or the failure of the Exchange Offer to be consummated within such 45-day - -------------------------------------------------------------------------------- period, respectively, shall terminate), or (iii) if any holder (other than an - ----------------------------------------------------------------------------- Initial Purchaser holding Securities acquired directly from the Company as part - ------------------------------------------------------------------------------- of the offering and sale of Securities pursuant to the Purchase Agreement) is - ----------------------------------------------------------------------------- not eligible to participate in the Exchange Offer or elects to participate in - ----------------------------------------------------------------------------- the Exchange Offer but does not receive Exchange Securities which are freely - ---------------------------------------------------------------------------- tradeable without any limitations or restrictions under the Securities Act or - ----------------------------------------------------------------------------- (iv) upon the request of any Initial Purchaser (provided that, in the case of - ----------------------------------------------------------------------------- this clause (iv), such Initial Purchaser shall hold Registrable Securities - -------------------------------------------------------------------------- (including, without limitation, Private Exchange Securities) that it acquired - ----------------------------------------------------------------------------- directly from the Company as part of the offering and sale of Securities - ------------------------------------------------------------------------ pursuant to the Purchase Agreement), the Company shall, at its cost: - -------------------------------------------------------------------- (A) as promptly as practicable, but no later than 45 days after so required or requested pursuant to Section 2(b), file with the Commission a Shelf Registration Statement relating to the resale of the Registrable Securities by the holders from time to time in accordance with the methods of distribution elected by the Majority Holders of such Registrable Securities and set forth in such Shelf Registration Statement; provided, however, that the Company shall not be required to file any Shelf Registration Statement earlier than 120 days after the Closing Date; (B) use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the Commission as promptly as practicable, but in no event later than 60 days after the date on which the Company files such Shelf Registration Statement. The Company agrees to use its reasonable best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required, for a period ending on the earlier of the first date that Securities continuously held by a non-affiliate become eligible to be sold pursuant to paragraph (k) of Rule 144 or such time as there are no longer any Registrable Securities outstanding, provided, however, that no holder shall be entitled to be named as a selling securityholder in such Shelf Registration Statement or to -7- use the prospectus forming a part thereof for resales of such Registrable Securities unless such holder agrees to be bound by all of the provisions of this Agreement applicable to such holder. The Company further agrees to supplement or make amendments to such Shelf Registration Statement, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or rules and regulations thereunder for shelf registration. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement if reasonably requested by the Majority Holders with respect to information relating to the holders and otherwise as required by Section 3(c)(ii) below, to use its reasonable best efforts to cause any such amendment to become effective and such Shelf Registration Statement to become usable as soon as practicable thereafter and to furnish to the holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the Commission. SECTION 12.3. In the event that: (i) the Exchange Registration Statement -------------------------------------------------------------------------- is not filed with the Commission on or prior to the 120 days following the - -------------------------------------------------------------------------- Closing Date, or (ii) the Exchange Registration Statement is not declared - ------------------------------------------------------------------------- effective by the Commission on or prior to 180 days following the Closing Date, - ------------------------------------------------------------------------------- or (iii) the Exchange Offer is not consummated on or prior to 45 days following - ------------------------------------------------------------------------------- the effective date of the Exchange Registration Statement, or (iv) if required, - ------------------------------------------------------------------------------- a Shelf Registration Statement is not filed with the Commission on or prior to - ------------------------------------------------------------------------------ 45 days after the filing obligation arises, or (v) if required, a Shelf - ----------------------------------------------------------------------- Registration Statement is not declared effective on or prior to the 60 days - --------------------------------------------------------------------------- after the date on which the Company files such Shelf Registration Statement, or - ------------------------------------------------------------------------------- (vi) a Shelf Registration Statement is declared effective by the Commission but - ------------------------------------------------------------------------------- such Shelf Registration Statement ceases to be effective or such Shelf - ---------------------------------------------------------------------- Registration Statement or the Prospectus included therein ceases to be usable in - -------------------------------------------------------------------------------- connection with resales of Registrable Securities for any reason (each such - --------------------------------------------------------------------------- event referred to in clauses (i) through (vi), a "Registration Default" and each - -------------------------------------------------------------------------------- period during which a Registration Default has occurred and is continuing until - ------------------------------------------------------------------------------- the earlier of such time as no Registration Default is in effect or the first - ----------------------------------------------------------------------------- date the Securities become eligible to be sold pursuant to paragraph (k) of Rule - -------------------------------------------------------------------------------- 144, a "Registration Default Period"), then, the Company hereby agrees to pay to - -------------------------------------------------------------------------------- each holder of Registrable Securities affected thereby, additional interest - --------------------------------------------------------------------------- ("Additional Interest"), in addition to the Base Interest, which shall accrue at - -------------------------------------------------------------------------------- a per annum rate of 0.25% for the first 90-day period immediately following the - ------------------------------------------------------------------------------- Registration Default and at a per annum rate of 0.50% for each subsequent 90-day - -------------------------------------------------------------------------------- period, provided that the Company shall in no event be required to pay - ---------------------------------------------------------------------- Additional Interest for more than one Registration Default at any given time; - ----------------------------------------------------------------------------- -8- provided, however, that, if one or more Registration Defaults shall again occur, - -------------------------------------------------------------------------------- the interest rate shall again be increased pursuant to the foregoing provisions. - -------------------------------------------------------------------------------- The Company shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the holders of Registrable Securities, on or before the applicable seminannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each such interest payment date to the record holder of Registrable Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. SECTION 12.4. Without limiting the remedies available to the Initial ------------------------------------------------------ Purchasers and the holders, the Company acknowledges that any failure by the ------------------------------------------------------------------------ Company to comply with its obligations under Sections 2(a) through 2(c) hereof --------------------------------------------------------------------------- may result in material irreparable injury to the Initial Purchasers or the ------------------------------------------------------------------------- holders for which there is no adequate remedy at law, that it will not be ------------------------------------------------------------------------ possible to measure damages for such injuries precisely and that, in the event ----------------------------------------------------------------------------- of any such failure, the Initial Purchasers and any holder may obtain such ------------------------------------------------------------------------- relief as may be required to specifically enforce the Company's obligations -------------------------------------------------------------------------- under Sections 2(a) through 2(c) hereof. --------------------------------------- SECTION 12.5. The Company shall take all actions reasonably necessary or ---------------------------------------------------------- advisable to be taken by it to ensure that the transactions contemplated herein - ------------------------------------------------------------------------------- are effected as so contemplated. - -------------------------------- SECTION 12.6. Any reference herein to a registration statement as of any ---------------------------------------------------------- time shall be deemed to include any document incorporated, or deemed to be - -------------------------------------------------------------------------- incorporated, therein by reference as of such time and any reference herein to - ------------------------------------------------------------------------------ any post-effective amendment to a registration statement as of any time shall be - -------------------------------------------------------------------------------- deemed to include any document incorporated, or deemed to be incorporated, - -------------------------------------------------------------------------- therein by reference as of such time. - ------------------------------------- ARTICLE XIII Registration Procedures. ----------------------- If the Company files a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply: -9- SECTION 13.1. At or before the Effective Time of any Exchange - -------------------------------------------------------------------- Registration Statement or any Shelf Registration Statement, as the case may be, - ------------------------------------------------------------------------------- the Company shall qualify the Indenture under the Trust Indenture Act. - ---------------------------------------------------------------------- SECTION 13.2. In the event that such qualification would require the ---------------------------------------------------------------------- appointment of a new trustee under the Indenture, the Company shall appoint a - ----------------------------------------------------------------------------- new trustee thereunder pursuant to the applicable provisions of the Indenture. - ------------------------------------------------------------------------------ SECTION 13.3. In connection with the Company's obligations with respect ------------------------------------------------------------------------- to any registration of Exchange Securities as contemplated by Section 2(a) (an - ------------------------------------------------------------------------------ "Exchange Registration"), if applicable, the Company shall: - ----------------------------------------------------------- (a) use reasonable best efforts to prepare and file with the Commission no later than 120 days after the Closing Date, an Exchange Registration Statement on any form which may be utilized by the Company and which shall permit such Exchange Offer and resales of Exchange Securities by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use reasonable best efforts to cause such Exchange Registration Statement to become effective no later than 180 days after the Closing Date; (b) use reasonable best efforts to prepare and file with the Commission such amendments and supplements to such Exchange Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Exchange Registration Statement for the periods and purposes contemplated in Section 2(a) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Registration Statement, and promptly provide without cost, each broker-dealer holding Exchange Securities with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of such Exchange Securities; (c) promptly notify each broker-dealer that has requested or received copies of the prospectus included in such registration statement (A) when such Exchange Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Registration Statement or any post-effective amendment, when the same has become effective, (B) of any request by the Commission for amendments or supplements to such Exchange Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Exchange Registration Statement under the Securities Act or the initiation of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Exchange Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, or (F) at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does -10- not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (d) in the event that the Company would be required, pursuant to Section 3(c)(iii)(F) above, to notify any broker-dealers holding Exchange Securities, promptly prepare and furnish to each such holder a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of such Exchange Securities during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (e) use reasonable best efforts to obtain the withdrawal or lifting of any order suspending the effectiveness of such Exchange Registration Statement or any post-effective amendment thereto at the earliest practicable date; (f) use reasonable best efforts to (A) register or qualify the Exchange Securities under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of an Exchange Offer, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period and (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Securities to consummate the disposition thereof in such jurisdictions; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(vi), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (g) use reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required in order for the Company to effect such Exchange Registration and such Exchange Offer; (h) provide a CUSIP number for all such Exchange Securities, not later than the applicable Effective Time; (i) use reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). SECTION 13.4. In connection with the Company's obligations with respect --------------------------------------------------------- to any Shelf Registration, if applicable, the Company shall: - ------------------------------------------------------------ -11- (a) use reasonable best efforts to prepare and file with the Commission, within the time periods specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and which shall register all of the Registrable Securities for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by the Majority Holders included in such offering and use reasonable best efforts to cause such Shelf Registration Statement to become effective within the time periods specified in Section 2(b); (b) in the case of a Shelf Registration, (i) notify each holder of Registrable Securities, at least ten business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such holders that the distribution of Registrable Securities will be made in accordance with the method elected by the Majority Holders; (c) The Company may require each holder of Securities to be sold pursuant to any Shelf Registration Statement to furnish to the Company the information regarding the holder and the distribution of such securities as set forth in the Notice and Questionnaire in the form of Exhibit A hereto or such other information as the Company may from time to time reasonably require for inclusion in such Registration Statement. The Company may exclude from such Shelf Registration Statement the Securities of any holder that unreasonably fails to furnish such information within 30 calendar days after receiving such request; (d) use reasonable best efforts to prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Shelf Registration Statement; (e) use reasonable best efforts to comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Majority Holders included in such Shelf Registration Statement; (f) provide (A) the holders selling Registrable Securities pursuant to any Shelf Registration Statement, (B) the underwriters (which term, for purposes of this Exchange and Registration Rights Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act), if any, thereof, (C) any sales or placement agent therefor, (D) counsel for any such underwriter or agent and (E) not more than one counsel for all the holders selling Registrable Securities pursuant to any Shelf Registration Statement the opportunity to make any changes in any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus a reasonable time prior to filing any of the foregoing; (g) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available at reasonable times at the Company's principal place of business or another reasonable place for inspection by -12- the persons referred to in Section 3(d)(vi), who shall certify to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration, such financial and other information and books and records of the Company, and cause the officers and employees of the Company to respond to such inquiries, as shall be reasonably necessary, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required to so disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement), or (C) such information is required to be set forth in such Shelf Registration Statement or the prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such prospectus in order that such Shelf Registration Statement, prospectus, amendment or supplement, as the case may be, complies with applicable requirements of the federal securities laws and the rules and regulations of the Commission and does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (h) advise each holder selling Registrable Securities pursuant to a Shelf Registration Statement, any sales or placement agent therefor and any underwriter thereof (which notification may be made through any managing underwriter that is a representative of such underwriter for such purpose) (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of any request by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement under the Securities Act or the initiation of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, or (F) if at any time when a prospectus is required to be delivered under the Securities Act, that such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and without limitation to any other provisions of this Agreement, the Company agrees that this Section 3(d)(viii) shall also be applicable, mutatis mutandis, with respect to the Exchange Registration Statement and the prospectus included therein to the extent that such prospectus is being used by broker-dealers who have exchanged their Registrable Securities for Exchange Securities for the resale of such Exchange Securities as contemplated by Section 2(a); -13- (i) use reasonable best efforts to obtain the withdrawal or lifting of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (j) if requested by any managing underwriter or underwriters, any placement or sales agent or any holder selling Registrable Securities pursuant to a Shelf Registration Statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including information with respect to the principal amount of such Registrable Securities being sold by such holder or agent or to any underwriters, the name and description of such holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such holder or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (k) furnish to each holder, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and their respective counsel a copy of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of such holder of Registrable Securities, upon request) and documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such holder, agent or underwriter, as the case may be) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, and such other documents, as such holder, agent, if any, and underwriter, if any, may reasonably request in order to facilitate the offering and disposition of the Registrable Securities owned by such holder, offered or sold by such agent or underwritten by such underwriter and to permit such holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such holder and by any such agent and underwriter, in each case in the form most recently provided to such person by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (l) use reasonable best efforts to (A) register or qualify the Registrable Securities to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions within the United States as any holder shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period such Shelf Registration is required to remain effective under Section 2(b) above and for so long as may be necessary to enable any such holder, agent or underwriter to complete its distribution of -14- Securities pursuant to such Shelf Registration Statement and (C) take any and all other actions as may be reasonably necessary or advisable to enable each such holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (m) use reasonable best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required by the Company in order to effect such Shelf Registration or the offering or sale contemplated thereby; (n) provide a CUSIP number for all such Registrable Securities, not later than the applicable Effective Time; (o) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, including customary provisions relating to indemnification and contribution, and take such other actions in connection therewith that the Majority Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (p) use reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). SECTION 13.5. In the event that the Company would be required, pursuant ------------------------------------------------------------------------- to Section 3(d)(viii)(F) above, to notify the holders selling Registrable - ------------------------------------------------------------------------- Securities pursuant to a Shelf Registration Statement, the placement or sales - ----------------------------------------------------------------------------- agent, if any, therefor and the managing underwriters, if any, thereof, the - --------------------------------------------------------------------------- Company shall prepare and furnish to each such holder, to each placement or - --------------------------------------------------------------------------- sales agent, if any, and to each such underwriter, if any, a reasonable number - ------------------------------------------------------------------------------ of copies of a prospectus supplemented or amended so that, as thereafter - ------------------------------------------------------------------------ delivered to purchasers of such Registrable Securities, such prospectus shall - ----------------------------------------------------------------------------- conform in all material respects to the applicable requirements of the - ---------------------------------------------------------------------- Securities Act and the Trust Indenture Act and the rules and regulations of the - ------------------------------------------------------------------------------- Commission thereunder and shall not contain an untrue statement of a material - ----------------------------------------------------------------------------- fact or omit to state a material fact required to be stated therein or necessary - -------------------------------------------------------------------------------- to make the statements therein, in the light of the circumstances under which - ----------------------------------------------------------------------------- they were made, not misleading. Each such holder agrees that upon receipt of any - -------------------------------------------------------------------------------- notice from the Company pursuant to Section 3(d)(viii)(F) hereof, such holder - ----------------------------------------------------------------------------- shall forthwith discontinue the disposition of the Registrable Securities - ------------------------------------------------------------------------- pursuant to the Shelf Registration Statement applicable to such Registrable - --------------------------------------------------------------------------- Securities until such holder shall have received copies of such amended or - -------------------------------------------------------------------------- supplemented prospectus; and if so directed by the Company, such holder shall - ----------------------------------------------------------------------------- deliver to the Company (at the Company's expense) all copies, other than - ------------------------------------------------------------------------ permanent file copies, of the prospectus covering such Registrable Securities in - -------------------------------------------------------------------------------- such holder's possession at the time of receipt of such notice. - --------------------------------------------------------------- -15- SECTION 13.6. In the event the Company is required to file a Shelf -------------------------------------------------------------------- Registration Statement pursuant to Section 2(b), in addition to the information - ------------------------------------------------------------------------------- required to be provided in its Notice and Questionnaire by each holder selling - ------------------------------------------------------------------------------ Registrable Securities pursuant to such Shelf Registration Statement, the - ------------------------------------------------------------------------- Company may require such holder to furnish to the Company such additional - ------------------------------------------------------------------------- information regarding such holder's intended method of distribution of the - -------------------------------------------------------------------------- Registrable Securities if required in order to comply with the Securities Act. - ------------------------------------------------------------------------------ Each such holder agrees to notify the Company as promptly as practicable of any - ------------------------------------------------------------------------------- inaccuracy or change in information previously furnished by such holder to the - ------------------------------------------------------------------------------ Company or of the occurrence of any event in either case as a result of which - ----------------------------------------------------------------------------- any prospectus relating to such Shelf Registration contains or would contain an - ------------------------------------------------------------------------------- untrue statement of a material fact regarding such holder or such holder's - -------------------------------------------------------------------------- intended method of disposition of such Registrable Securities or omits to state - ------------------------------------------------------------------------------- any material fact regarding such holder or such holder's intended method of - --------------------------------------------------------------------------- disposition of such Registrable Securities required to be stated therein or - --------------------------------------------------------------------------- necessary to make the statements therein, in the light of the circumstances - --------------------------------------------------------------------------- under which they were made, not misleading, and promptly to furnish to the - -------------------------------------------------------------------------- Company any additional information required to correct and update any previously - -------------------------------------------------------------------------------- furnished information or required so that such prospectus shall not contain, - ---------------------------------------------------------------------------- with respect to such holder or the disposition of such Registrable Securities, - ------------------------------------------------------------------------------ an untrue statement of a material fact or omit to state a material fact required - -------------------------------------------------------------------------------- to be stated therein or necessary to make the statements therein, in the light - ------------------------------------------------------------------------------ of the circumstances under which they were made, not misleading. - ---------------------------------------------------------------- SECTION 13.7. Until the expiration of two years after the Closing Date, ------------------------------------------------------------------------- the Company will not, and will not permit any of its "affiliates" (as defined in ------------------------------------------------------------------------------- Rule 144) to, resell any of the Securities that have been reacquired by any of - ------------------------------------------------------------------------------ them except pursuant to an effective registration statement under the Securities - -------------------------------------------------------------------------------- Act. - ---- ARTICLE XIV Registration Expenses. ---------------------- The Company agrees to bear and to pay or cause to be paid all expenses incident to the Company's performance of or compliance with this Exchange and Registration Rights Agreement, including (a) all Commission, stock exchange or NASD registration, filing and review fees and expenses including fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such registration, filing and review, (b) all fees and expenses in connection with the qualification of the Securities for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) hereof and determination of their eligibility for investment under the laws of such jurisdictions as any managing underwriters or the holders may designate, including any fees and disbursements of counsel for the holders or underwriters in connection with such qualification and determination, (c) all expenses relating to -16- the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Securities for delivery and the expenses of printing or producing any underwriting agreements, agreements among underwriters, selling agreements and blue sky or legal investment memoranda and all other documents in connection with the offering, sale or delivery of Securities to be disposed of (including certificates representing the Securities), (d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of the Securities and the preparation of documents referred in clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any agent of the Trustee and of any collateral agent or custodian, (f) internal expenses (including all salaries and expenses of the Company's officers and employees performing legal or accounting duties), (g) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), (h) reasonably incurred fees, disbursements and expenses of one counsel for the holders retained in connection with a Shelf Registration, as selected by the Majority Holders (which counsel shall be satisfactory to the Company), (i) any fees charged by securities rating services for rating the Securities, (j) in the case of an underwritten offering, any fees and disbursements of the underwriters customarily paid by issuers or sellers of securities but excluding fees of counsel to the underwriters or the holders of Registrable Securities (except as provided in clause (h) above), underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities and (k) fees, expenses and disbursements of any other persons, including special experts, retained by the Company in connection with such registration (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Securities or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or -17- paid after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Registrable Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Registrable Securities and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above. ARTICLE XV Representations and Warranties. ------------------------------- The Company represents and warrants to, and agrees with, the Initial Purchasers and each of the holders from time to time of Registrable Securities that: SECTION 15.1. Each registration statement covering Registrable Securities ----------------------------------------------------------- and each prospectus (including any preliminary or summary prospectus) contained - ------------------------------------------------------------------------------- therein or furnished pursuant to Section 3(c) or Section 3(d) hereof and any - ---------------------------------------------------------------------------- further amendments or supplements to any such registration statement or - ----------------------------------------------------------------------- prospectus, when it becomes effective or is filed with the Commission, as the - ----------------------------------------------------------------------------- case may be, and, in the case of an underwritten offering of Registrable - ------------------------------------------------------------------------ Securities, at the time of the closing under the underwriting agreement relating - -------------------------------------------------------------------------------- thereto, will conform in all material respects to the requirements of the - ------------------------------------------------------------------------- Securities Act and the Trust Indenture Act and will not contain an untrue - ------------------------------------------------------------------------- statement of a material fact or omit to state a material fact required to be - ---------------------------------------------------------------------------- stated therein or necessary to make the statements therein in the light of the - ------------------------------------------------------------------------------ circumstances then existing not misleading; and at all times subsequent to the - ------------------------------------------------------------------------------ Effective Time when a prospectus would be required to be delivered under the - ---------------------------------------------------------------------------- Securities Act, other than from (i) such time as a notice has been given to - --------------------------------------------------------------------------- holders of Registrable Securities pursuant to Section 3(c)(iii)(F) or Section - ----------------------------------------------------------------------------- 3(d)(viii)(F) hereof until (ii) such time as the Company furnishes an amended or - -------------------------------------------------------------------------------- supplemented prospectus pursuant to Section 3(c)(iv) or Section 3(e) hereof, - ---------------------------------------------------------------------------- each such registration statement, and each prospectus (including any summary - ---------------------------------------------------------------------------- prospectus) contained therein or furnished pursuant to Section 3(c) or Section - ------------------------------------------------------------------------------ 3(d) hereof, as then amended or supplemented, will conform in all material - -------------------------------------------------------------------------- respects to the requirements of the Securities Act and the Trust Indenture Act - ------------------------------------------------------------------------------ and will not contain an untrue statement of a material fact or omit to state a - ------------------------------------------------------------------------------ material fact required to be stated therein or necessary to make the statements - ------------------------------------------------------------------------------- therein, in the light of the circumstances under which they were made, not - -------------------------------------------------------------------------- misleading; provided, however, that this representation and warranty shall not - ------------------------------------------------------------------------------ apply to (i) statements or omissions in the registration statement or the - ------------------------------------------------------------------------- prospectus made in reliance upon and in conformity with information furnished in - -------------------------------------------------------------------------------- writing by a holder of Registrable Securities expressly for use therein and (ii) - -------------------------------------------------------------------------------- that part of the registration -18- statement which constitutes the Statement of Eligibility under the Trust - ------------------------------------------------------------------------ Indenture Act of the Trustee. - ----------------------------- SECTION 15.2. The documents to be incorporated by reference in the ---------------------------------------------------- prospectus, when they were filed with the Commission, conformed in all material -------------------------------------------------------------------------- respects to the requirements of the Exchange Act, and none of such documents - ---------------------------------------------------------------------------- contained an untrue statement of a material fact or omitted to state a material - ------------------------------------------------------------------------------- fact necessary to make the statements therein, in the light of the circumstances - -------------------------------------------------------------------------------- under which they are made, not misleading; and any further documents so filed - ----------------------------------------------------------------------------- and incorporated by reference, when they are filed with the Commission, will - ---------------------------------------------------------------------------- conform in all material respects to the requirements of the Exchange Act and - ---------------------------------------------------------------------------- will not contain an untrue statement of a material fact or omit to state a - -------------------------------------------------------------------------- material fact necessary to make the statements therein, in the light of the - --------------------------------------------------------------------------- circumstances under which they are made, not misleading. - -------------------------------------------------------- SECTION 15.3. The compliance by the Company with all of the provisions of ----------------------------------------------------------- this Exchange and Registration Rights Agreement and the consummation of the - --------------------------------------------------------------------------- transactions herein contemplated will not result in a breach or violation of any - -------------------------------------------------------------------------------- of the terms or provisions of, or constitute a default under (i) any indenture, - ------------------------------------------------------------------------------- mortgage, deed of trust, loan agreement or other agreement or instrument to - --------------------------------------------------------------------------- which the Company or any of its subsidiaries is a party or by which the Company - ------------------------------------------------------------------------------- or any of its subsidiaries is bound or to which any of the property or assets of - -------------------------------------------------------------------------------- the Company or any of its subsidiaries is subject, (ii) the charter or the - -------------------------------------------------------------------------- by-laws of the Company or any of its subsidiaries, or (iii) any law, statute or - ------------------------------------------------------------------------------- any order, rule or regulation of any court or governmental agency or body having - -------------------------------------------------------------------------------- jurisdiction over the Company or any of its subsidiaries or any of its or their - ------------------------------------------------------------------------------- properties, except, in the case of clauses of (i) and (iii), for such breaches, - ------------------------------------------------------------------------------- defaults and violations that would not result in a material adverse change, in - ------------------------------------------------------------------------------ the condition, financial or otherwise, or in the earnings, business, operations - ------------------------------------------------------------------------------- or prospects, whether or not arising from transactions in the ordinary course of - -------------------------------------------------------------------------------- business, of the Company and its subsidiaries, considered as one entity (any - ---------------------------------------------------------------------------- such change is called a "Material Adverse Change"); and no consent, approval, - ----------------------------------------------------------------------------- authorization, order, registration or qualification of or with any court or any - ------------------------------------------------------------------------------- such regulatory authority or other governmental agency or body is required for - ------------------------------------------------------------------------------ the consummation by the Company of the other transactions contemplated by this - ------------------------------------------------------------------------------ Exchange and Registration Rights Agreement, except for the registration of the - ------------------------------------------------------------------------------ Securities under the Act, and the qualification of an indenture under the Trust - ------------------------------------------------------------------------------- Indenture Act, as contemplated by this Exchange and Registration Rights - ----------------------------------------------------------------------- Agreement, and such consents, approvals, authorizations, registrations or - ------------------------------------------------------------------------- qualifications the failure to obtain or make would not result in a Material - --------------------------------------------------------------------------- Adverse Change or affect the validity of the Securities and as may be required - ------------------------------------------------------------------------------ under state securities or blue sky or insurance securities laws in connection - ----------------------------------------------------------------------------- with the offering and distribution of the Securities. - ----------------------------------------------------- ARTICLE XVI Indemnification. ---------------- SECTION 16.1. Indemnification by the Company. The Company will indemnify ---------------------------------------------------------- and hold harmless each of the holders of Registrable Securities included in an - ------------------------------------------------------------------------------ Exchange Registration Statement or the, Shelf Registration Statement and each - ----------------------------------------------------------------------------- person who participates as a placement or sales agent or as an underwriter and - ------------------------------------------------------------------------------ each person, if any, who controls such placement or sales agent or underwriter - ------------------------------------------------------------------------------ within the meaning of the Act in any offering or sale of such Registrable - ------------------------------------------------------------------------- Securities (i) against any losses, claims, damages or liabilities, joint or - --------------------------------------------------------------------------- -19- several, to which such holder, agent, underwriter or control person may become - ------------------------------------------------------------------------------ subject under the Securities Act, the Exchange Act or other federal or state - ---------------------------------------------------------------------------- statutory law or regulation, or at common law or otherwise (including in - ------------------------------------------------------------------------ settlement of any litigation, if such settlement is effected with the written - ----------------------------------------------------------------------------- consent of the Company), insofar as such losses, claims, damages or liabilities - ------------------------------------------------------------------------------- (or actions in respect thereof) arise out of or are based upon an untrue - ------------------------------------------------------------------------ statement or alleged untrue statement of a material fact contained in any - ------------------------------------------------------------------------- Exchange Registration Statement or Shelf Registration Statement, as the case may - -------------------------------------------------------------------------------- be, under which such Registrable Securities were registered under the Securities - -------------------------------------------------------------------------------- Act, or any preliminary, final or summary prospectus contained therein or - ------------------------------------------------------------------------- furnished by the Company to any such holder, agent or underwriter, or any - ------------------------------------------------------------------------- amendment or supplement thereto, or arise out of or are based upon the omission - ------------------------------------------------------------------------------- or alleged omission to state therein a material fact required to be stated - -------------------------------------------------------------------------- therein or necessary to make the statements therein not misleading, and will - ---------------------------------------------------------------------------- reimburse such holder, such agent, such underwriter and such control person for - ------------------------------------------------------------------------------- any legal or other expenses reasonably incurred by them in connection with - -------------------------------------------------------------------------- investigating or defending any such loss, claim, damage, liability or action; - ----------------------------------------------------------------------------- provided, however, that the Company shall not be liable in any such case to the - ------------------------------------------------------------------------------- extent that any such loss, claim, damage or liability arises out of or is based - ------------------------------------------------------------------------------- upon an untrue statement or alleged untrue statement or omission or alleged - --------------------------------------------------------------------------- omission made in any of such documents in reliance upon and in conformity with - ------------------------------------------------------------------------------ written information furnished to the Company by such person expressly for use - ----------------------------------------------------------------------------- therein. - -------- SECTION 16.2. Indemnification by the Holders and any Agents and ------------------------------------------------- Underwriters. The Company may require, as a condition to including any - ---------------------------------------------------------------------- Registrable Securities in any registration statement filed pursuant to Section - ------------------------------------------------------------------------------ 2(b) hereof and to entering into any underwriting agreement with respect - ------------------------------------------------------------------------ thereto, that the Company shall have received an undertaking reasonably - ----------------------------------------------------------------------- satisfactory to it from the holder of such Registrable Securities and from each - ------------------------------------------------------------------------------- underwriter named in any such underwriting agreement, severally and not jointly, - -------------------------------------------------------------------------------- to (i) indemnify and hold harmless the Company, each of its directors, each of - ------------------------------------------------------------------------------ its officers who have signed any Shelf Registration Statement and each person, - ------------------------------------------------------------------------------ if any, who controls the Company within the meaning of the Securities Act and - ----------------------------------------------------------------------------- all other holders of Registrable Securities, against any losses, claims, damages - -------------------------------------------------------------------------------- or liabilities to which the Company or any such director, officer, controlling - ------------------------------------------------------------------------------ person or such other holders of Registrable Securities may become subject, under - -------------------------------------------------------------------------------- the Securities Act, the Exchange Act or other federal or state statutory law or - ------------------------------------------------------------------------------- regulation, or at common law or otherwise (including in settlement of any - ------------------------------------------------------------------------- litigation, if such settlement is effected with the written consent of such - --------------------------------------------------------------------------- holder, agent or underwriter), insofar as such losses, claims, damages or - ------------------------------------------------------------------------- liabilities (or actions in respect thereof) arise out of or are based upon an - ----------------------------------------------------------------------------- untrue statement or alleged untrue statement of a material fact contained in - ---------------------------------------------------------------------------- such registration statement, or any preliminary, final or summary prospectus - ---------------------------------------------------------------------------- contained therein or furnished by the Company to any such holder, agent or - -------------------------------------------------------------------------- underwriter, or any amendment or supplement thereto, or arise out of or are - --------------------------------------------------------------------------- based upon the omission or alleged omission to state therein a material fact - ---------------------------------------------------------------------------- required to be stated therein or necessary to make the statements therein not - ----------------------------------------------------------------------------- misleading, in each case to the extent, but only to the extent, that such untrue - -------------------------------------------------------------------------------- statement or alleged untrue statement or omission or alleged omission was made - ------------------------------------------------------------------------------ in reliance upon and in conformity with written information furnished to the - ---------------------------------------------------------------------------- Company by such holder or underwriter expressly for use therein; and will - ------------------------------------------------------------------------- reimburse the Company, any director, officer or controlling person for any legal - -------------------------------------------------------------------------------- or other expenses reasonably incurred by the Company or any such director, - -------------------------------------------------------------------------- officer or controlling person in connection with investigating or defending any - ------------------------------------------------------------------------------- such loss, claim, damage, liability or action. - ---------------------------------------------- -20- SECTION 16.3. Notices of Claims, Etc. Promptly after receipt by an ---------------------------------------------------- indemnified party under subsection (a) or (b) above of notice in writing of the - ------------------------------------------------------------------------------- commencement of any action, such indemnified party shall, if a claim in respect - ------------------------------------------------------------------------------- thereof is to be made against an indemnifying party pursuant to the - ------------------------------------------------------------------- indemnification provisions under this Section 6, notify such indemnifying party - ------------------------------------------------------------------------------- of the commencement of such action; but the omission to so notify the - --------------------------------------------------------------------- indemnifying party shall not relieve it from any liability which it may have to - ------------------------------------------------------------------------------- any indemnified party otherwise than under the indemnification provisions of - ---------------------------------------------------------------------------- Section 6(a) or Section 6(b) hereof. In case any such action shall be brought - ----------------------------------------------------------------------------- against any indemnified party and it shall notify an indemnifying party of the - ------------------------------------------------------------------------------ commencement thereof, such indemnifying party shall be entitled to participate - ------------------------------------------------------------------------------ therein and, to the extent that it may wish, jointly with any other indemnifying - -------------------------------------------------------------------------------- party similarly notified, to assume the defense thereof, with counsel reasonably - -------------------------------------------------------------------------------- satisfactory to such indemnified party (who shall not, except with the consent - ------------------------------------------------------------------------------ of the indemnified party, be counsel to the indemnifying party), and, after - --------------------------------------------------------------------------- notice from the indemnifying party to such indemnified party of its election so - ------------------------------------------------------------------------------- to assume the defense thereof, such indemnifying party shall not be liable to - ----------------------------------------------------------------------------- such indemnified party for any legal (other than local counsel) or other - ------------------------------------------------------------------------ expenses, in each case subsequently incurred by such indemnified party, in - -------------------------------------------------------------------------- connection with the defense thereof other than reasonable costs of - ------------------------------------------------------------------ investigation. Notwithstanding the indemnifying party's election to appoint - ---------------------------------------------------------------------------- counsel to represent the indemnified party in an action, the indemnified party - ------------------------------------------------------------------------------ shall have the right to employ separate counsel (including local counsel), and - ------------------------------------------------------------------------------ the indemnifying party shall bear the reasonable fees, costs and expenses of - ---------------------------------------------------------------------------- such separate counsel only if (i) the use of counsel chosen by the indemnifying - ------------------------------------------------------------------------------- party to represent the indemnified party would present such counsel with a - -------------------------------------------------------------------------- conflict of interest; (ii) the actual or potential defendants in, or targets of, - -------------------------------------------------------------------------------- any such action include both the indemnified party and the indemnifying party - ----------------------------------------------------------------------------- and the indemnified party shall have reasonably concluded that there may be - --------------------------------------------------------------------------- legal defenses available to it and/or other indemnified parties which are - ------------------------------------------------------------------------- different from or additional to those available to the indemnifying party; (iii) - -------------------------------------------------------------------------------- the indemnifying party shall not have employed counsel reasonably satisfactory - ------------------------------------------------------------------------------ to the indemnified party to represent the indemnified party within a reasonable - ------------------------------------------------------------------------------- time after notice of the institution of such action; or (iv) the indemnifying - ----------------------------------------------------------------------------- party shall authorize the indemnified party to employ separate counsel at the - ----------------------------------------------------------------------------- expense of the indemnifying party. An indemnifying party will not, without the - ------------------------------------------------------------------------------- prior written consent of the indemnified parties, settle or compromise or - ------------------------------------------------------------------------- consent to the entry of any judgment with respect to any pending or threatened - ------------------------------------------------------------------------------ claim, action, suit or proceeding in respect of which indemnification or - ------------------------------------------------------------------------ contribution may be sought hereunder (whether or not the indemnified parties are - -------------------------------------------------------------------------------- actual or potential parties to such claim or action) unless such settlement, - ---------------------------------------------------------------------------- compromise or consent (i) includes an unconditional release of each indemnified - ------------------------------------------------------------------------------- party from all liability arising out of such claim, action, suit or proceeding - ------------------------------------------------------------------------------ and (ii) does not include a statement as to or an admission of fault, - --------------------------------------------------------------------- culpability or failure to act by or on behalf of any indemnified party. An - --------------------------------------------------------------------------- indemnifying party shall not be liable under this Section 6 to any indemnified - ------------------------------------------------------------------------------ party regarding any settlement or compromise or consent to the entry of any - --------------------------------------------------------------------------- judgment with respect to any pending or threatened claim, action, suit or - ------------------------------------------------------------------------- proceeding in respect of which indemnification or contribution may be sought - ---------------------------------------------------------------------------- hereunder (whether or not the indemnified parties are actual or potential - ------------------------------------------------------------------------- parties to such claim or action) unless such settlement, compromise or consent - ------------------------------------------------------------------------------ is consented to by such indemnifying party, which consent shall not be - ---------------------------------------------------------------------- unreasonably withheld. - ---------------------- -21- SECTION 16.4. Contribution. If for any reason the indemnification --------------------------------------------------- provisions contemplated by Section 6(a) or Section 6(b) hereof are unavailable - ------------------------------------------------------------------------------ to or insufficient to hold harmless an indemnified party in respect of any - -------------------------------------------------------------------------- losses, claims, damages or liabilities (or actions in respect thereof) referred - ------------------------------------------------------------------------------- to therein, then each indemnifying party shall contribute to the amount paid or - ------------------------------------------------------------------------------- payable by such indemnified party as a result of such losses, claims, damages or - -------------------------------------------------------------------------------- liabilities (or actions in respect thereof) in such proportion as is appropriate - -------------------------------------------------------------------------------- to reflect the relative fault of the indemnifying party and the indemnified - --------------------------------------------------------------------------- party in connection with the statements or omissions which resulted in such - --------------------------------------------------------------------------- losses, claims, damages or liabilities (or actions in respect thereof), as well - ------------------------------------------------------------------------------- as any other relevant equitable considerations. The relative fault of such - -------------------------------------------------------------------------- indemnifying party and indemnified party shall be determined by reference to, - ----------------------------------------------------------------------------- among other things, whether the untrue or alleged untrue statement of a material - -------------------------------------------------------------------------------- fact or omission or alleged omission to state a material fact relates to - ------------------------------------------------------------------------ information supplied by such indemnifying party or by such indemnified party, - ----------------------------------------------------------------------------- and the parties' relative intent, knowledge, access to information and - ---------------------------------------------------------------------- opportunity to correct or prevent such statement or omission. The parties hereto - -------------------------------------------------------------------------------- agree that it would not be just and equitable if contributions pursuant to this - ------------------------------------------------------------------------------- Section 6(d) were determined by pro rata allocation (even if the holders or any - ------------------------------------------------------------------------------- agents or underwriters or all of them were treated as one entity for such - ------------------------------------------------------------------------- purpose) or by any other method of allocation which does not take account of the - -------------------------------------------------------------------------------- equitable considerations referred to in this Section 6(d). The amount paid or - ----------------------------------------------------------------------------- payable by an indemnified party as a result of the losses, claims, damages or - ----------------------------------------------------------------------------- liabilities (or actions in respect thereof) referred to above in this subsection - -------------------------------------------------------------------------------- (d) shall be deemed to include any legal or other expenses reasonably incurred - ------------------------------------------------------------------------------ by such indemnified party in connection with investigating or defending any such - -------------------------------------------------------------------------------- action or claim. Notwithstanding the provisions of this subsection (d), no - -------------------------------------------------------------------------- holder shall be required to contribute any amount in excess of the amount by - ---------------------------------------------------------------------------- which the total price at which Registrable Securities sold by it were offered - ----------------------------------------------------------------------------- exceeds the amount of damages that such holder has otherwise been required to - ----------------------------------------------------------------------------- pay by reason of any untrue or alleged untrue statement or omission or alleged - ------------------------------------------------------------------------------ omission. - --------- ARTICLE XVII Underwritten Offerings. ----------------------- SECTION 17.1. Selection of Underwriters. If any of the Registrable ---------------------------------------------------- Securities covered by a Shelf Registration are to be sold pursuant to an - ------------------------------------------------------------------------ underwritten offering, the managing underwriter or underwriters thereof shall be - -------------------------------------------------------------------------------- designated by Majority Holders of such Registrable Securities included in such - ------------------------------------------------------------------------------ offering, provided that such designated managing underwriter or underwriters is - ------------------------------------------------------------------------------- or are reasonably acceptable to the Company, such acceptance not to be - ---------------------------------------------------------------------- unreasonably withheld. - ---------------------- SECTION 17.2. Participation by Holders. Each holder of Registrable ---------------------------------------------------- Securities hereby agrees with each other such holder that no such holder may - ---------------------------------------------------------------------------- participate in any underwritten offering hereunder unless such holder (i) agrees - -------------------------------------------------------------------------------- to sell such holder's Registrable Securities on the basis provided in any - ------------------------------------------------------------------------- underwriting arrangements approved by the persons entitled hereunder to approve - ------------------------------------------------------------------------------- such arrangements and (ii) completes and executes all questionnaires, powers of - ------------------------------------------------------------------------------- attorney, indemnities, underwriting agreements and other documents reasonably - ----------------------------------------------------------------------------- required under the terms of such underwriting arrangements. - ----------------------------------------------------------- -22- ARTICLE XVIII Rule 144. --------- The Company covenants to the holders of Registrable Securities that to the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities in connection with that holder's sale pursuant to Rule 144, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. ARTICLE XIX Miscellaneous. -------------- SECTION 19.1. Notices. All notices, requests, claims, demands, waivers --------------------------------------------------------- and other communications hereunder shall be in writing and shall be deemed to - ----------------------------------------------------------------------------- have been duly given when delivered by hand, if delivered personally or by - -------------------------------------------------------------------------- courier, or three days after being deposited in the mail (registered or - ----------------------------------------------------------------------- certified mail, postage prepaid, return receipt requested) as follows: If to the - -------------------------------------------------------------------------------- Company, to it at 6301 Owensmouth Avenue, 11th Floor, Woodland Hills, California - -------------------------------------------------------------------------------- 91367, Facsimile: 818-704-3737, Attention: Secretary, and if to a holder, to - ----------------------------------------------------------------------------- the address of such holder set forth in the security register or other records - ------------------------------------------------------------------------------ of the Company, or to such other address as the Company or any such holder may - ------------------------------------------------------------------------------ have furnished to the other in writing in accordance herewith, except that - -------------------------------------------------------------------------- notices of change of address shall be effective only upon receipt. - ------------------------------------------------------------------ SECTION 19.2. Parties in Interest. All the terms and provisions of this ---------------------------------------------------------- Exchange and Registration Rights Agreement shall be binding upon, shall inure to - -------------------------------------------------------------------------------- the benefit of and shall be enforceable by the parties hereto and the holders - ----------------------------------------------------------------------------- from time to time of the Registrable Securities and the respective successors - ----------------------------------------------------------------------------- and assigns of the parties hereto and such holders and the directors, officers - ------------------------------------------------------------------------------ and controlling persons referred to in Section 6 hereof. In the event that any - ------------------------------------------------------------------------------ -23- transferee of any holder of Registrable Securities shall acquire Registrable - ---------------------------------------------------------------------------- Securities, in any manner, whether by gift, bequest, purchase, operation of law - ------------------------------------------------------------------------------- or otherwise, such transferee shall, without any further writing or action of - ----------------------------------------------------------------------------- any kind, be deemed a beneficiary hereof for all purposes and such Registrable - ------------------------------------------------------------------------------ Securities shall be held subject to all of the terms of this Exchange and - ------------------------------------------------------------------------- Registration Rights Agreement, and by taking and holding such Registrable - ------------------------------------------------------------------------- Securities such transferee shall be entitled to receive the benefits of, and be - ------------------------------------------------------------------------------- conclusively deemed to have agreed to be bound by all of the applicable terms - ----------------------------------------------------------------------------- and provisions of this Exchange and Registration Rights Agreement. If the - ------------------------------------------------------------------------- Company shall so request, any such successor, assign or transferee shall agree - ------------------------------------------------------------------------------ in writing to acquire and hold the Registrable Securities subject to all of the - ------------------------------------------------------------------------------- applicable terms hereof. - ------------------------ SECTION 19.3. Survival. The respective indemnities, agreements, -------------------------------------------------- representations, warranties and each other provision set forth in this Exchange - ------------------------------------------------------------------------------- and Registration Rights Agreement or made pursuant hereto shall remain in full - ------------------------------------------------------------------------------ force and effect regardless of any investigation (or statement as to the results - -------------------------------------------------------------------------------- thereof) made by or on behalf of any holder of Registrable Securities, any - -------------------------------------------------------------------------- director, officer or partner of such holder, any agent or underwriter or any - ---------------------------------------------------------------------------- director, officer or partner thereof, or any controlling person of any of the - ----------------------------------------------------------------------------- foregoing, and shall survive delivery of and payment for the Registrable - ------------------------------------------------------------------------ Securities pursuant to the Purchase Agreement and the transfer and registration - ------------------------------------------------------------------------------- of Registrable Securities by such holder and the consummation of an Exchange - ---------------------------------------------------------------------------- Offer. - ------ SECTION 19.4. GOVERNING LAW. THIS EXCHANGE AND REGISTRATION RIGHTS ----------------------------------------------------- AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE - ------------------------------------------------------------------------------- STATE OF NEW YORK. - ------------------ SECTION 19.5. Headings. The descriptive headings of the several Sections ----------------------------------------------------------- and paragraphs of this Exchange and Registration Rights Agreement are inserted - ------------------------------------------------------------------------------ for convenience only, do not constitute a part of this Exchange and Registration - -------------------------------------------------------------------------------- Rights Agreement and shall not affect in any way the meaning or interpretation - ------------------------------------------------------------------------------ of this Exchange and Registration Rights Agreement. - --------------------------------------------------- SECTION 19.6. Entire Agreement; Amendments. This Exchange and ------------------------------------------------ Registration Rights Agreement and the other writings referred to herein - ----------------------------------------------------------------------- (including the Indenture and the forms of Securities) or delivered pursuant - --------------------------------------------------------------------------- hereto which form a part hereof contain the entire understanding of the parties - ------------------------------------------------------------------------------- with respect to its subject matter. This Exchange and Registration Rights - ------------------------------------------------------------------------- Agreement supersedes all prior agreements and understandings between the parties - -------------------------------------------------------------------------------- with respect to its subject matter. This Exchange and Registration Rights - ------------------------------------------------------------------------- Agreement may be amended and the observance of any term of this Exchange and - ---------------------------------------------------------------------------- Registration Rights Agreement may be waived (either generally or in a particular - -------------------------------------------------------------------------------- instance and either retroactively or prospectively) only by a written instrument - -------------------------------------------------------------------------------- duly executed by the Company. Each holder of any Registrable Securities at the - ------------------------------------------------------------------------------ time or thereafter outstanding shall be bound by any amendment or waiver - ------------------------------------------------------------------------ effected pursuant to this Section 9(f), whether or not any notice, writing or - ----------------------------------------------------------------------------- marking indicating such amendment or waiver appears on such Registrable - ----------------------------------------------------------------------- Securities or is delivered to such holder. Any such amendment may be retroactive - -------------------------------------------------------------------------------- so long as such amendment does not adversely affect the rights of any holder of - ------------------------------------------------------------------------------- Registrable Securities in any material respect. In the case of any amendment - ---------------------------------------------------------------------------- that materially and adversely affects the rights of a holder of Registrable - --------------------------------------------------------------------------- Securities, such amendment must -24- be approved by the holders of Registrable Securities of not less than a majority - -------------------------------------------------------------------------------- of the Registrable Securities held by the materially and adversely affected - --------------------------------------------------------------------------- holders of Registrable Securities. - ---------------------------------- SECTION 19.7. Counterparts. This agreement may be executed by the -------------------------------------------------------------------- parties in counterparts, each of which shall be deemed to be an original, but - ----------------------------------------------------------------------------- all such respective counterparts shall together constitute one and the same - --------------------------------------------------------------------------- instrument. - ----------- -25- If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon the acceptance hereof by you, this letter and such acceptance hereof shall constitute a binding agreement between the Initial Purchasers and the Company. Very truly yours, 21st CENTURY INSURANCE GROUP By ------------------------------------- Name: Title: Accepted as of the date hereof: BANC OF AMERICA SECURITIES LLC By: ----------------------------------- Name: Title: LEHMAN BROTHERS INC. ----------------------------------------- Name: Title: -26- EXHIBIT A 21ST CENTURY INSURANCE GROUP INSTRUCTION TO DTC PARTICIPANTS ------------------------------- (Date of Mailing) URGENT - IMMEDIATE ATTENTION REQUESTED DEADLINE FOR RESPONSE: [DATE] ------------------------------ The Depository Trust Company ("DTC") has identified you as a DTC Participant through which beneficial interests in 21st Century Insurance Group (the "Company") 5.90% Senior Notes Due 2013 (the "Securities") are held. The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire. It is important that beneficial owners of the Securities receive a copy of the - -------------------------------------------------------------------------------- enclosed materials as soon as possible as their rights to have the Securities - ----------------------------------------- included in the registration statement depend upon their returning the Notice and Questionnaire by [DEADLINE FOR RESPONSE]. Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact 21st Century Insurance Group, 6301 Owensmouth Avenue, 11th Floor, Woodland Hills, California 91367, Attention: Secretary, Facsimile: 818-704-3737. A-1 21ST CENTURY INSURANCE GROUP Notice of Registration Statement and Selling Securityholder Questionnaire ------------------------------------ (Date) Reference is hereby made to the Exchange and Registration Rights Agreement (the "Exchange and Registration Rights Agreement") between 21st Century Insurance Group (the "Company") and the Initial Purchasers named therein. Pursuant to the Exchange and Registration Rights Agreement, the Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 5.90% Senior Notes Due 2013 (the "Securities"). A copy of the Exchange and Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Exchange and Registration Rights Agreement. Each beneficial owner of Registrable Securities (as defined below) is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire") must be completed, executed and delivered to the Company's counsel at the address set forth herein for receipt ON OR BEFORE [DEADLINE FOR RESPONSE]. Beneficial owners of Registrable Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the prospectus forming a part thereof for resales of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related prospectus. The term "Registrable Securities" is defined in the Exchange and Registration ----------------------- Rights Agreement. A-2 ELECTION The undersigned holder (the "Selling Securityholder") of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Exchange and Registration Rights Agreement, including, without limitation, Section 6 of the Exchange and Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto. Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: A-3 QUESTIONNAIRE (1) (a) Full Legal Name of Selling Securityholder: (b) Full Legal Name of Registered Holder (if not the same as in (a) above) of Registrable Securities Listed in Item (3) below: (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Registrable Securities Listed in Item (3) below are Held: (2) Address for Notices to Selling Securityholder: _____________ _____________ _____________ Telephone: ___________________ Fax: ___________________ Contact Person: ___________________ (3) Beneficial Ownership of Securities: Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities. (a) Principal amount of Registrable Securities beneficially owned: $ ------ CUSIP No(s). of such Registrable Securities: No(s). --------------------- (b) Principal amount of Securities other than Registrable Securities beneficially owned: $ -------------------------- CUSIP No(s). of such other Securities: No(s). --------------------------- (c) Principal amount of Registrable Securities which the undersigned wishes to be included in the Shelf Registration Statement: $ -------------------------- CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement: No(s). ---------------------------- (4) Beneficial Ownership of Other Securities of the Company: Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3). State any exceptions here: A-4 (5) Relationships with the Company: Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: (6) Plan of Distribution: Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M. In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Exchange and Registration Rights Agreement. A-5 By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related Prospectus. In accordance with the Selling Securityholder's obligation under Section 3(d) of the Exchange and Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows: (i) To the Company: 21st Century Insurance Group 6301 Owensmouth Avenue, 11th Floor Woodland Hills, California 91367 Facsimile: 818-704-3737 Attention: Secretary (ii) With a copy to: Gibson, Dunn & Crutcher, LLP 333 South Grand Avenue Los Angeles, California 90071-3197 Facsimile: 213-229-7520 Attention: Peter Ziegler Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company's counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above. This Exchange and Registration Rights Agreement shall be governed in all respects by the laws of the State of New York. A-6 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated:_____________________ ___________________________________________________________________ Selling Securityholder (Print/type full legal name of beneficial owner of Registrable Securities) By: _______________________________________________________________ Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT: Gibson, Dunn & Crutcher, LLP 333 South Grand Avenue Los Angeles, California 90071-3197 Facsimile: 213-229-7520 Attention: Peter Ziegler A-7 EXHIBIT B NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT The Bank of New York 101 Barclay Street, Floor 8W New York, New York 10286 Attention: Corporate Trust Administration Re: 21st Century Insurance Group (the "Company") 5.90% Senior Notes Due 2013 Dear Sirs: Please be advised that ________________________ has transferred $__________ aggregate principal amount of the 5.90% Senior Notes Due 2013 pursuant to an effective Registration Statement on Form (File No. 333-___) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the 5.90% Senior Notes Due 2013 (individually and collectively known as the "Notes") is named as a "Selling Holder" in the Prospectus dated [DATE] or in supplements thereto, and that the aggregate principal amount of the Notes transferred are the Notes listed in such Prospectus opposite such owner's name. Dated: Very truly yours, ____________________ (Name) By: _______________________ (Authorized Signature) EX-10.(I) 5 doc9.txt EXHIBIT 10(i) 2003 SHORT TERM INCENTIVE (STI) PLAN PURPOSE: to focus management on business challenges and opportunities within their control in the current year. While current year results should be maximized, it should be done in context with the steady, long term development of the company and its franchise with consumers. COMPOSITION: 1. The Short Term Incentive score is created by weighting the performance of the Core Business (as defined below) at 75% and Net Income (as defined below) for the entire organization at 25%, both as externally reported to shareholders. 2. An STI "pool" is created by multiplying the STI performance factor by the STI target percentage for each position and the paid salary of the individual. Management will recommend to the Compensation Committee any variances from the calculated amounts for each manager in the Plan based on that individual's performance and contributions for the year. 3. After approval of the Plan and communication of the Plan to management, the "pool amount" result of this Plan may not be subsequently modified without the affirmative vote of 2/3 of the full Compensation Committee and 2/3 of the full Board. 4. Any revisions to this STI Plan, such as to the Core Business matrix for a subsequent year, are to be completed and approved by the Compensation Committee and the Board by September 30th of the year prior to the change taking effect. 5. Bonus accruals are included in underwriting results. CORE BUSINESS COMPONENT: 1. Core Business is defined as the ongoing Personal Lines business, as defined by the current "Exhibit A" in the company's earnings release. a. Any reorganization of companies, agencies, reinsurance transaction, etc. will be reconstituted to measure DWP and GAAP CR for the Core Business as currently defined. b. "Cross Sell" products will generally be recorded on an income or expense reduction basis, not as Gross Revenue. 2. Results will be on a Calendar Year GAAP basis as externally reported to shareholders. 3. Specifically excluded from results: a. Investment income, financing costs, taxes, etc. b. SB1899, Northridge and similar pre 2003 earthquakes and Homeowners Insurance c. One time adjustments in Capitalized assets, such as for IT. d. Impact of CDI fines and other regulatory actions exceeding $1 million. 4. Specifically includes the impact of new earthquakes, fire, flood and other natural disasters affecting the personal auto/core business. 5. Results will be placed against the attached matrix to produce a Core Business STI Performance Score. Results falling between the listed points will be interpolated on a linear basis. NET INCOME FACTOR 1. Includes the total result for the corporation defined as "Exhibit B - All Lines" in the earnings release. 2. Results on for GAAP Net Income, calendar year basis as externally reported to shareholders. 3. Specifically includes: a. Investment income, financing costs, taxes, etc. b. SB1899, Northridge and similar pre 2003 earthquakes and Homeowners Insurance. c. All adjustments to capitalized assets. a. Impact of all CDI fines and other regulatory actions. 4. Performance Score calculated as Net Income as a % of Net Earned Premium adjusted for any new, significant reinsurance transaction. 5. Results will be placed against the table listed below to produce a Net Income STI Performance Score. Results falling between the listed points will be interpolated on a linear basis. 6. Net Income STI Performance table: - -------------------------------------- --------- NET INCOME AS % OF NET EARNED PREMIUM. | STI SCORE - -------------------------------------- --------- Negative | zero - -------------------------------------- --------- 1% | 50 - -------------------------------------- --------- 2% | 70 - -------------------------------------- --------- 3% | 90 - -------------------------------------- --------- 4% | 110 - -------------------------------------- --------- 5% | 130 - -------------------------------------- --------- 6% | 150 - -------------------------------------- --------- 7% | 170 - -------------------------------------- --------- 8% | 180 - -------------------------------------- --------- 9% | 190 - -------------------------------------- --------- 10% | 200 - -------------------------------------- --------- TARGET STI AS A PERCENTAGE OF BASE SALARY ----------------------------------------- CEO 100% ----------------------------------------- SVP's 75% ----------------------------------------- VP's 50% ----------------------------------------- MGR's 25% ----------------------------------------- 2003 CORE BUSINESS STI MATRIX: CALENDAR YEAR GAAP COMBINED RATIO: 94 95 96 97 98 99 100 101 102 % GROWTH IN DWP 30% 200 185 | 170 145 120 100 85 50 0 25% 180 165 | 150 130 100 85 50 0 0 20% 165 150 | 125 110 75 50 0 0 0 15% 145 125 | 100 75 50 25 0 0 0 10% 130 105 | 85 65 35 20 0 0 0 ---------------|--------------------------------- 5% 105 90 | 70 55 25 15 0 0 0 0% 75 65 | 50 40 20 10 0 0 0 -5% 40 30 | 25 0 0 0 0 0 0 - Numbers in tables represent % of target bonus to be paid. - Actual results are interpolated between chart values. EX-10.(L) 6 doc4.txt LEASE AGREEMENTS FOR REGISTRANTS PRINCIPLE OFFICES SUBSTANTIALLY IN THE FORM OF THIS EXHIBIT EXHIBIT 10(l) OFFICE LEASE This Office Lease, which includes the preceding Summary of Basic Lease Information (the "SUMMARY") attached hereto and incorporated herein by this reference (the Office Lease and Summary are collectively referred to herein as the "LEASE"), dated as of the date set forth in SECTION 1 of the Summary is made --------- by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD"), and 20TH CENTURY INDUSTRIES, a California corporation ("TENANT"). ARTICLE 1 PREMISES, BUILDING, PROJECT AND COMMON AREAS 1.1 The Premises. The "Premises" consists of all of the occupiable ------------- area in the "Building" as that term is defined in SECTION 1.2, below, with the ----------- exception of the space located on the first (ground) floor of the Building and indicated on Exhibit A, attached hereto, as the "Retail Areas" or "Management ----------- Office", and not including any basement storage areas (which are to be leased by Tenant pursuant to the terms of Article 4). The number of rentable square feet --------- of each floor of the Premises is as provided below. Floor Rentable Square Feet ----- -------------------- 1 11,140 2 21,550 3 21,550 4 21,550 5 21,550 6 21,550 7 21,550 8 21,550 9 21,550 10 21,913 11 22,200 PREMISES TOTAL 227,653 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises. An outline of each floor of the Premises is set forth in EXHIBIT A attached hereto. - ---------- 1.2 The Building and The Project. The Premises are a part of the -------------------------------- building set forth in SECTION 4.1 of the Summary (the "BUILDING"). The Building ----------- is part of an office project to be known as 20th Century Plaza, consisting of the Building and the additional office building to be constructed by Landlord and located at 6303 Owensmouth Avenue, Woodland Hills, California 91367 (the "ADJACENT BUILDING"). The term "Project," as used in this Lease, shall mean (i) the Building, the Adjacent Building and the "Common Areas," as that term is defined in SECTION 1.3 below, including the parking structure and parking areas ----------- to be constructed on the land containing the Project (the "PARKING STRUCTURE"), (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building, the Adjacent Building and the Common Areas are located, and (iii) at Landlord's discretion, any additional improvements added thereto pursuant to the terms of SECTION 1.4 of this Lease. ----------- Notwithstanding the foregoing, in those areas of this Lease where Tenant is granted a right or privilege, or Landlord or Tenant undertakes an obligation, contingent on Tenant's occupying "all of the Project", "the entire Project", or "100% of the Project" (or such other phrase indicating the entirety of the Project), Tenant shall be deemed to have achieved such occupancy level notwithstanding the fact that Tenant does not lease those areas on the ground floor of the Building which are currently leased to certain retail tenants other than Tenant. The Project, as initially designated by Landlord, is approximately set forth on EXHIBIT B, attached hereto. In the event that, during any Option --------- Term, Tenant no longer leases the Adjacent Building, Landlord shall have the right to change the name of the Project. Tenant acknowledges that the Parking Structure is to be constructed by Landlord in accordance with the terms of the Adjacent Building Lease, and is not anticipated to be fully completed until the last quarter of 1998. 1.3 Common Areas. Tenant shall have the non-exclusive right to use ------------- in common with other tenants in the Project, and subject to the rules and regulations referred to in ARTICLE 5 of this Lease, those portions of the ---------- Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the "COMMON AREAS"). The Common Areas shall consist of the "Project Common Areas" and the "Building Common Areas." The term "Project Common Areas," as used in this Lease, shall mean the portion of the Project designated as such by Landlord, and may include, without limitation, any fixtures, systems, signs, facilities, parking facilities and areas (including the Parking Structure), gardens, parks or other landscaping contained, maintained or used in connection with the Project, and may include any city sidewalks adjacent to the Project, pedestrian walkway system, whether above or below grade, park or other facilities open to the general public and roadways, sidewalks, walkways, parkways, driveways and landscape areas appurtenant to the Project. The term "Building Common Areas," as used in this Lease, shall mean the Common Areas, to the extent located within the Building, designated as such by Landlord, and may include, without limitation, the common entrances, lobbies, atrium areas, restrooms, elevators, stairways and accessways, loading docks, ramps, drives, platforms, passageways, serviceways, common pipes, conduits, wires, equipment, loading and unloading areas, parking facilities and trash areas servicing the Building. -2- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1.4 Landlord's Use and Operation of the Building, Project, and Common ------------------------------------------------------------------- Areas. Landlord reserves the right from time to time (i) to close temporarily - ----- any of the Common Areas; (ii) to make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of street entrances, driveways, ramps, entrances, exits, passages, stairways and other ingress and egress, direction of traffic, landscaped areas, loading and unloading areas, and walkways; (iii) to add additional improvements to the Common Areas; (iv) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or to any adjacent land, or any portion thereof; and (v) to do and perform such other acts and make such other changes in, to or with respect to the Project as Landlord may, in the exercise of reasonable discretion, deem to be appropriate. Notwithstanding the foregoing, except with respect to Landlord's initial construction of Adjacent Building, Parking Structure and Common Areas, if any of the foregoing actions by Landlord is reasonably considered by Tenant as likely to have a material and adverse affect on Tenant's use of or access to the Premises or the "Storage Area", as that term defined in SECTION 4.1, or the Common Areas, including the ----------- Parking Structure, or the Adjacent Building, Landlord's right to take any such action shall be subject to the prior written consent of Tenant, which consent shall not unreasonably be withheld, conditioned or delayed. Moreover, Landlord may take the foregoing actions without the prior consent of Tenant in the event of an emergency, in connection with Landlord's actions pursuant to the terms of ARTICLES 6, 8, 13 and 19 of this Lease, or in order to comply with "Laws", as - --------------------------- that term is defined in SECTION 19.27, below. Landlord shall use commercially ------------- reasonably efforts to minimize any interruption of Tenant's use of or access to the Premises, the Storage Area or the Common Areas, including the Parking Structure, and, if parking spaces would otherwise be lost, albeit temporarily, shall use commercially reasonable efforts to provide to Tenant alternative parking within or in close proximity to the Project, with reasonably adequate security and, when appropriate, shuttle service to and from such alternative parking area so as to minimize the inconvenience to Tenant resulting from such interruption of Tenant's use of or access to the Premises or the Parking Structure. 1.5 Rentable Square Footage of Premises and Building. For purposes of ------------------------------------------------- this Lease, "rentable square feet" contained in the Premises and Building shall be deemed to be as set forth in SECTION 4.2 of the Summary, and shall not be subject to remeasurement during the Lease Term. ARTICLE 2 LEASE TERM 2.1 Initial Term. The terms and provisions of this Lease shall be ------------- effective as of the date of this Lease, except as otherwise set forth herein. The term of this Lease (the "LEASE TERM") shall be as set forth in SECTION 5.1 ----------- of the Summary, shall commence on the date set forth in SECTION 5.2 of the ----------- Summary (the "LEASE COMMENCEMENT DATE"), and shall expire on the date determined as provided in SECTION 5.3 of the Summary (the "LEASE EXPIRATION DATE") unless ----------- the Lease Term is sooner terminated or extended as hereinafter provided. For -3- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month period during the Lease Term for the initial Premises; provided, however, that the first Lease Year shall commence on the Lease Commencement Date and end on the last day of the eleventh calendar month thereafter and the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and further provided that the last Lease Year shall end on the Lease Expiration Date. Landlord shall, within ninety (90) days after the commencement of the Adjacent Building Lease, deliver to Tenant a supplemental agreement in the form as set forth in EXHIBIT D, attached hereto, which Tenant --------- shall execute and return to Landlord within ten (10) days of receipt thereof. 2.2 Intentionally Omitted. ---------------------- 2.3 Renewal Option Terms. --------------------- 2.3.1 Renewal Option Right. Landlord hereby grants to Tenant two --------------------- (2) options to extend the initial Lease Term (each of which is deemed a "RENEWAL OPTION RIGHT") for a period of five (5) years each (each such term to be known as a "RENEWAL OPTION TERM"), which Renewal Option Rights shall be exercisable only by notice delivered by Tenant to Landlord as provided below. Upon the exercise of any such Renewal Option Right, the then-current Lease Term, as it applies to the entire Premises then leased by Tenant, shall, in accordance with Section 2.3.3, be extended for the Renewal Option Term. The Renewal Option Rights contained in this SECTION 2.3 shall be exercised only by the original ----------- Tenant named in the Summary (the "ORIGINAL TENANT") and any assignee of the Original Tenant's interest in this Lease to which the Original Tenant transfers such rights, provided that such assignment is permitted pursuant to the terms of ARTICLE 11 of this Lease. The terms and conditions applicable during the - ----------- Renewal Option Terms shall be the same terms and conditions that apply during the initial Lease Term, except that (i) the Rent and certain other terms applicable during the Renewal Option Term shall be as set forth in SECTION 2.3.2 ------------- below, and (ii) Tenant may not extend the Lease Term beyond the expiration of second Renewal Option Term. Tenant shall have the Renewal Option Right for the second Renewal Option Term only if Tenant has previously extended the initial Lease Term for the first Renewal Option Term. Tenant shall not have the right to exercise any Renewal Option Right hereunder if, as of the date of such attempted exercise, Tenant is in default with respect to its obligation to pay Base Rent under this Lease, after expiration of any applicable cure period. 2.3.2 Option Rent. The Rent ("OPTION RENT") payable by Tenant ------------ during the first Renewal Option Term or second Renewal Option Term, as the case may be, shall be equal to ninety-five percent (95%) of the "Fair Market Rental Rate" for the Premises. The term "Fair Market Rental Rate" shall mean the annual amount per rentable square foot that a willing, non-equity, non-sublease, non-encumbered, non-expansion, comparable third-party tenant, represented by a commercial real estate broker, would pay and a willing, comparable landlord would accept, at arm's length, for unencumbered space (specifically not including transactions in which one or more components of the terms and conditions of the same are pre-determined on a fixed basis in executed lease documentation or in which the terms and conditions are calculated using a formula which involves the discounting of one or more components of the terms and conditions to the benefit of a tenant) comparable to the Premises in "Comparable Buildings," as that term is defined in this SECTION 2.3.2 below, ------------- giving appropriate consideration to concessions including the following (collectively, the "RENEWAL CONCESSIONS"): (i) rental abatement concessions, if -4- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] any, being granted such tenants in connection with such comparable space; and (ii) tenant improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same can be utilized by Tenant; and (iii) other typical monetary concessions being granted such comparable third-party tenants in connection with such comparable space. In calculating the Fair Market Rental Rate, no consideration shall be given to (Y) the fact that Landlord is or is not required to pay the real estate brokerage commission in connection with Tenant's exercise of its right to lease the Premises during the Renewal Option Term, or the fact that comparable landlords are or are not paying real estate brokerage commissions in connection with such comparable space, or (Z) any period of rental abatement, if any, granted to comparable third-party tenants in comparable transactions in connection with the design, permitting and construction of tenant improvements in such comparable space. Consideration shall be given, however, to the creditworthiness of Tenant as compared to that of the tenants involved in the comparable transactions and the effect that the lack of creditworthiness of Tenant, if any, should have on rental rates and/or security requirements. Such Fair Market Rental Rate shall be increased to take into account the value of the free parking (based on prevailing rates in the Comparable Buildings) granted to Tenant during any Renewal Option Term pursuant to the terms of ARTICLE 18 of this Lease. The ---------- Annual Direct Expense Allowance applicable during each Option Term shall be adjusted to be the amount of Direct Expenses for the Building attributable to the twelve (12) month period which has most recently ended prior to the first day of the Renewal Option Term; provided, however, that the Fair Market Rental Rate shall take into consideration that the Annual Direct Expense Allowance applicable during the Renewal Option Term shall be as set forth in this sentence. If in determining the Option Rent, Tenant is entitled to any Renewal Concessions, Landlord may, at Landlord's sole option, elect any or a portion of the following: (X) to grant the Renewal Concessions to Tenant in the form as described above (e.g., as free rent and/or an improvement allowance), and/or (Y) to grant Tenant the amount, of any or all of the Renewal Concessions in the form of free rent or reduced "face" or "stated" rental rate during the applicable Option Term or lease of First Offer Space, which reduction in rental shall be made in equal monthly installments and shall be calculated, except as otherwise provided below, over all or a portion of the Option Term or lease of First Offer Space, as determined by Landlord, and in equal monthly installments commencing as of the first day of the applicable Option Term or lease of First Offer Space (in which case the Renewal Concession or Renewal Concessions converted into free rent shall not be granted to Tenant). The term "Comparable Buildings" shall mean the Adjacent Building and other office buildings completed after the calendar year 1985 and containing at least 200,000 rentable square feet, which are otherwise comparable to the Building in terms of quality of construction, level of services, amenities and appearance, and are located in Woodland Hills, California and within the area bounded by the 101 Freeway, DeSoto Avenue, Topanga Boulevard, and Vanowen Street ("WARNER CENTER"). 2.3.3 Exercise of Renewal Option Rights. Landlord shall deliver --------------------------------- to Tenant a notice ("EXTENSION OPTION REMINDER NOTICE") not more than thirty-six (36) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable, which Extension Option Reminder Notice shall specifically state that: "If Tenant wishes to exercise a Renewal Option Right -5- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] pursuant to SECTION 2.3.1 of Tenant's Office Lease at 6301 Owensmouth Avenue, -------------- Woodland Hills, California, Tenant must deliver the 'Exercise Notice,' as that term is defined therein, on or before the 'Lapse Date,' as that term is defined in such Office Lease." If Tenant wishes to exercise a Renewal Option right described in this SECTION 2.3.3, Tenant shall exercise the Renewal Option Right ------------- by delivering notice ("EXERCISE NOTICE") thereof to Landlord. The Exercise Notice must be delivered, if at all, after the date which is thirty-five (35) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable, and prior to the date ("LAPSE DATE") which is the later of (a) the date which is thirty (30) days after the date of Tenant's receipt of the Extension Option Reminder Notice, or (b) the date which is twenty-four (24) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable. 2.3.4 Determination of Option Rent. If Tenant timely delivers the ---------------------------- Exercise Notice, Landlord shall deliver notice (the "OPTION RENT NOTICE") to Tenant on or before the later of (i) the date which is thirty (30) days after Landlord's receipt of the Exercise Notice, or (ii) the date which is twenty-three (23) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable, which Option Rent Notice shall set forth Landlord's initial determination of the "Option Rent," as that term is defined in SECTION 2.3.2 above, and which shall be applicable to this Lease -------------- during the Renewal Option Term. Tenant shall have thirty (30) days ("TENANT'S DETERMINATION PERIOD") after receipt of Landlord's Option Rent Notice within which to accept Landlord's initial determination of the Option Rent or to object thereto in writing to Landlord. If Tenant fails to so object to Landlord's initial determination of the Option Rent within Tenant's Determination Period, the Option Rent shall be as set forth in the Option Rent Notice. If, however, Tenant timely objects in writing to the Option Rent initially determined by Landlord, Landlord and Tenant shall attempt to agree upon the Option Rent using their good-faith efforts. If Landlord and Tenant fail to reach agreement within sixty (60) days following Tenant's objection to the Option Rent (the "OUTSIDE AGREEMENT DATE"), then each party shall submit to the other party a separate written determination of the Option Rent within ten (10) business days after the Outside Agreement Date, and such determinations shall be submitted to arbitration in accordance with SECTIONS 2.3.4.1 through 2.3.4.7 below. Failure ---------------- ------- of Tenant or Landlord to submit a written determination of the Option Rent within such ten (10) business day period shall conclusively be deemed to be the non-determining party's approval of the Option Rent submitted within such ten (10) business day period by the other party. 2.3.4.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be an independent real estate attorney and/or broker, as either party shall, in its sole discretion elect, who is then active and have then been active over the ten (10) year period ending on the date of such appointment in the leasing of comparable office properties in Los Angeles County, provided that such individual shall not have been engaged or employed by the party appointing the same within the five (5) year period preceding the date of such appointment. The determination of the arbitrators shall be limited solely to the issue of whether Landlord's or Tenant's submitted determination of Option Rent is the closest to the actual Option Rent as determined by the arbitrators, taking into account the requirements of SECTION 2.3.2 of this ------------- Lease. Each such arbitrator shall be appointed within fifteen (15) business days after the Outside Agreement Date. -6- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 2.3.4.2 The two (2) arbitrators so appointed shall within ten (10) business days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators. 2.3.4.3 The three (3) arbitrators shall within thirty (30) days after the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord's or Tenant's submitted determination of Option Rent and shall notify Landlord and Tenant thereof. 2.3.4.4 The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant. 2.3.4.5 If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) business days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant. 2.3.4.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator within the time period provided in SECTION 2.3.4.2 --------------- above, then the parties shall mutually select the third arbitrator. If Landlord and Tenant are unable to agree upon the third arbitrator within ten (10) days after the expiration of the time period provided in SECTION 2.3.4.2 above, then --------------- either party may, upon at least five (5) days prior notice to the other party, request the Presiding Judge of the Los Angeles County Superior Court to appoint the third arbitrator. Following the appointment of the third arbitrator, the panel of arbitrators shall within thirty (30) days thereafter reach a decision as to whether Landlord's or Tenant's submitted Option Rent shall be used and shall notify Landlord and Tenant thereof. 2.3.4.7 Each party shall pay the fees of the arbitrator appointed by such party and the fees of the third (3rd) arbitrator and any other costs of such arbitration shall be split between Landlord and Tenant equally. 2.3.5 Rent Payable Pending Determination. In the event that a ----------------------------------- final determination of Option Rent has not been reached prior to the commencement of a Renewal Option Term pursuant to the provisions of this SECTION ------- 2.3, the Base Rent and Additional Rent payable by Tenant as of the first day of - --- such Renewal Option Term shall be as set forth in Landlord's written determination of the Option Rent submitted to arbitration in accordance with SECTION 2.3.4 above. If Landlord's determination of Option Rent is not selected - ------------- in such arbitration proceedings, then within thirty (30) days after the determination of the arbitrators, Landlord shall pay to Tenant the difference between the amount of Base Rent and Additional Rent paid by Tenant for the Premises during such Renewal Option Term to the date of such payment by Landlord, less the amount of Base Rent and Additional Rent for the Premises for such Renewal Option Term which Tenant was required to pay as determined in arbitration. -7- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE 3 RENT 3.1 Base Rent. Tenant shall pay, without prior notice or demand, to ---------- Landlord or Landlord's agent at the management office of the Project, or, at Landlord's option, at such other place as Landlord may from time to time designate by notice to Tenant, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent ("BASE RENT") as set forth in SECTION 6 of the --------- Summary, payable in monthly installments in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction, except as specifically provided in this Lease. Landlord agrees that, with respect to each of the months of January, 1998, and January, 1999, Tenant shall receive a credit against Base Rent in the amount of $300,000.00. If any "Rent," as that term is defined in SECTION 3.2, below, payment date (including ----------- the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall be prorated on the basis of the number of days in that calendar month. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis. 3.2 Additional Rent. In addition to paying the Base Rent specified in ---------------- SECTION 3.1 of this Lease, Tenant shall pay "Tenant's Share" of the annual - ------------ "Direct Expenses," as those terms are defined in SECTIONS 3.3.7 and 3.3.2 of -------------- ----- this Lease, respectively, to the extent such Direct Expenses are in excess of the amount of the "Annual Direct Expense Allowance" as that term is defined in SECTION 3.3.1 of this Lease multiplied by the number of rentable square feet in - -------------- the Premises. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the "Additional Rent", and the Base Rent and the Additional Rent are herein collectively referred to as "Rent." All amounts due under this ARTICLE 3 as Additional Rent shall be payable for the --------- same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this ARTICLE 3 --------- shall survive the expiration of the Lease Term. If Tenant's Share of the Direct Expenses (as defined in SECTION 3.3.2) incurred during the twelve (12) month ------------- period commencing on the "Lease Commencement Date" as defined in the Adjacent Building Lease (the "STOP YEAR"), on a per rentable square foot basis, exceeds the Annual Direct Expense Allowance, Landlord shall elect, which election shall be subject to the approval of the entities, if any, holding trust deed liens on the Building (collectively, the "Lien Holders"), to either (A) permanently increase the Annual Direct Expense Allowance to be equal to the amount of Tenant's Share of Direct Expenses incurred during the Stop Year, or (B) grant Tenant a one-time credit from Landlord against the next installments of Base Rent, estimated Additional Rent and parking charges coming due, in an amount equal to the net present value of the annuity stream which consists of monthly payments in the amount of one-twelfth (1/12) of said excess of Tenant's Share of the Direct Expenses on a per rentable square foot basis over the Annual Direct Expense Allowance which monthly payments would have continued over the remaining fourteen (14) years of the Lease Term, calculated utilizing the discount rate of -8- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] the Federal Reserve Bank of San Francisco plus 1% at the time of payment. Alternatively, if Tenant's Share of the Direct Expenses, on a per rentable square foot basis, incurred during the Stop Year are actually less than the Annual Direct Expense Allowance, the Annual Direct Expense Allowance shall be permanently reduced for the entire Lease Term to the amount of the Direct Expenses per rentable square foot actually incurred during the first Stop Year. For example, if the Direct Expenses on a per rentable square foot basis for the Stop Year are Eight Dollars and seventy-two cents ($8.72) and if the discount rate of the Federal Reserve Bank of San Francisco is 5%, then, Tenant shall be entitled to either (i) a permanent increase in the Annual Direct Expense Allowance to $8.72, or (ii) a one-time credit as aforesaid equal to Six Dollars and eighty cents ($6.80) per square foot of rentable area in the Premises. If the Direct Expenses on a per rentable square foot basis for the Stop Year are Seven Dollars and eighty cents ($7.80), then the Annual Direct Expense Allowance shall be reduced to Seven Dollars and eighty cents ($7.80) for the balance of the initial Lease Term. 3.3 Definitions of Key Terms Relating to Additional Rent. As used in ------------------------------------------------------ this ARTICLE 3, the following terms shall have the meanings hereinafter set ---------- forth. 3.3.1 The "Annual Direct Expense Allowance" shall be the amount set forth in SECTION 7.2 of the Summary. ------------ 3.3.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax Expenses". 3.3.3 "Expense Year" shall mean each calendar year in which any portion of the Lease Term falls through and including the calendar year in which the Lease Term expires; provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period. In the event of any such change, Tenant's Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change. 3.3.4 "Operating Expenses" shall mean all expenses, costs and amounts of every kind and nature which Landlord pays during any Expense Year because of or in connection with the ownership, management, maintenance, repair or operation of the Project, except as is hereinafter expressly provided. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, maintaining, repairing, renovating, complying with conservation measures in connection with, and managing the utility systems, mechanical systems, sanitary and storm drainage systems, and elevator systems, and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections (not due to Landlord's negligence or willful misconduct in the management of the Project) and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with the implementation and operation of a transportation system management program or a municipal, private or public shuttle service or parking program; (iii) the cost of all insurance carried by Landlord in connection with the Project, or any portion thereof; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking structure and parking -9- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] area repair, restoration, and maintenance including, but not limited to, resurfacing, repainting, restriping, and cleaning; (vi) fees, charges and other costs, including consulting fees, legal fees and accounting and professional fees, of all contractors and consultants engaged by Landlord or reasonably incurred by Landlord in connection with the management, operation, maintenance and repair of the Project, or any portion thereof; (vii) payments under any equipment rental agreements or management agreements (including the cost of any management fee and the fair rental value of any office space provided thereunder, or, if Landlord manages the Project or Building itself, without a third party manager, an imputed management fee); (viii) wages, salaries and other compensation and benefits of all persons engaged in the operation, maintenance or security of the Project, or any portion thereof, including employer's Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; provided, that if any employees of Landlord provide services for more than one project of Landlord, then a prorated portion of such employees' wages, benefits and taxes shall be included in Operating Expenses based on the portion of their working time devoted to the Project, or any portion thereof; (ix) payments, fees or charges under any easement, license, operating agreement, declaration, covenants, conditions, or restrictions or instrument pertaining to the sharing of costs by the Building or Project, or any portion thereof; (x) operation, repair and maintenance of all "Systems and Equipment," as that term is defined in SECTION 3.3.5 of this Lease, and components thereof; (xi) the cost of -------------- janitorial services, alarm and security service, window cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements, or repairs to the Project, or other costs incurred in connection with the Project which are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Project, or any portion thereof, to the extent of cost savings reasonably anticipated by Landlord, or made to the Project, or any portion thereof, after the Lease Commencement Date that are required under any governmental law or regulation that was not a requirement for the Project on the date this Lease was fully executed and delivered; provided, however, that each such permitted capital expenditure, as well as those permitted pursuant to SECTIONS 6.1.1 or 19.27, -------------- ----- below (but not including any "Premises Obligations" or "Compliance Obligations," as those terms are defined in such Sections), shall be amortized (including interest on the unamortized cost at Landlord's actual cost of funds) over its useful life as reasonably determined by Landlord; and (xiv) costs, fees, charges or assessments imposed by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute "Tax Expenses" as that term is defined in SECTION 3.3.6, below. ------------- If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not at least one hundred percent (100%) occupied during all or a portion of any Expense Year, including the Stop Year, Landlord shall make an appropriate adjustment -10- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ("GROSS-UP ADJUSTMENT") to the variable components of Operating Expenses for such year employing sound real estate accounting and management principles as now or hereafter accepted, to determine the amount of Operating Expenses that would have been paid had the Project been one hundred percent (100%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Notwithstanding the terms of this SECTION ------- 3.3, Operating Expenses shall not include: - --- (A) costs associated with the operation of the business of the ownership or entity which constitutes Landlord, as distinguished from the costs of Building and Project operations, including, but not limited to, partnership, corporation or limited liability company accounting and legal matters, costs of defending any lawsuits with any mortgagee or ground lessor (except as the actions of Tenant may be at issue), costs of selling, syndicating, financing or refinancing, mortgaging or hypothecating any of Landlord's interest in the Building or Project, costs of any disputes between Landlord and its employees (if any) not engaged directly in Building and Project operations, disputes of Landlord with Building management or outside fees paid in connection with disputes with other individual tenants; (B) costs incurred in connection with the original construction of the Building or Project (including the Parking Structure), or in connection with the addition or deletion of floors or construction of additional buildings or parking structures; (C) depreciation, interest and principal payments on mortgages or other debt costs, if any, except as otherwise provided in this SECTION 3.3.4; -------------- (D) costs of correcting defects or deficiencies in the initial design or construction of the Common Areas or Parking Structure, which defects or deficiencies are discovered during the first two (2) Lease Years, or costs of correction resulting from the failure to comply with laws, codes and regulations in effect prior to the date of completion, as applicable, of the Parking Structure or relevant portion of the Common Areas; (E) expenses directly resulting from the gross negligence or willful misconduct of Landlord, its agents, contractors or employees; (F) legal fees, space planner fees, real estate broker leasing commissions and advertising expenses incurred in connection with this Lease or future leasing of the Building or Project; (G) costs resulting from the occurrence of actual losses against which Landlord is required to carry property damage insurance pursuant to this Lease to the extent Landlord is actually reimbursed by its insurance carrier or Tenant's or any other insurance carrier for such costs or, if Landlord elects to self-insure such costs (as permitted pursuant to SECTION 7.2.3.2), to the extent Landlord would have --------------- been entitled to reimbursement by its insurance carrier had Landlord actually obtained the property damage insurance required to be carried by Landlord pursuant to SECTION 7.2 hereof; ------------ -11- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (H) costs of restoration of, or repair to, the Building or improvements in the Project as a result of the condemnation thereof for which an award has been made to Landlord; (I) any bad debt loss, rent loss or reserves for bad debt loss or rent loss; (J) the cost of services not included in Standard Tenant Services provided to other tenants in the Building or Project and not provided to Tenant; (K) the salaries of executives and employees of Landlord or any Affiliate above the level of property manager (other than the Building's engineers), except to the extent they may be engaged in directly providing management and building operation services described in this SECTION 3.3.4; --------------- (L) fees (including legal and accounting fees), wages, salaries and other compensation to the extent allocable to services not rendered in connection with the management, operation, security, repair or maintenance of the Building or the Project; (M) fines and penalties, except to the extent incurred as a consequence of Tenant's failure to perform any of its obligations hereunder; (N) amounts paid by Landlord pursuant to any ground lease, if any; (O) costs of new types of insurance coverage obtained during the Lease Term and not included within the types of insurance required to be carried by Landlord pursuant to the terms of SECTION 7.2, ------------ below, unless (a) Landlord has or will have retroactively grossed-up the Annual Direct Expense Allowance by the amount which would have been incurred by Landlord during the Stop Year or the first twelve (12) months of the Lease Term had such costs actually then been incurred, (b) such insurance coverage is a new type of insurance which was not required to be carried by Landlord hereunder as of the Lease Commencement Date but which is then customarily being carried by landlords of the Comparable Buildings, or (c) if such new insurance coverage replaces or supersedes insurance coverage previously carried pursuant to the terms of SECTION 7.2, below, ----------- then the costs for such coverage shall be excluded from Operating Expenses only to the extent the cost of such new insurance exceeds the cost of the original insurance; (P) costs of decreasing the amount of the "deductible" (or otherwise increasing the amount of coverage, not including any increase based on an inflationary increase in the replacement cost of the Project, against which Landlord is protected by insurance) after the first twelve (12) months of the Lease Term, under the types of insurance required to be carried by Landlord pursuant to SECTION 7.2, below, unless Landlord has or ----------- will have retroactively grossed-up the Annual Direct Expense Allowance by the amount which would have been incurred by the Landlord during the first -12- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] twelve (12) months of the Lease Term had the amount of the deductible been so decreased or the amount of coverage been so increased at that time; (Q) any Operating Expenses incurred in connection with space in the Building or Project devoted to retail use except to the extent such space is included in the denominator when calculating Tenant's Share; (R) costs of Alterations or tenant improvements to the Premises or the premises of other existing tenants except as otherwise provided in this SECTION 3.3.4; -------------- (S) costs incurred by Landlord with respect to goods and services (including utilities sold and supplied to tenants and occupants of the Building) to the extent that Landlord is reimbursed for such costs other than through Operating Expense pass throughs; (T) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Building or the Project except as otherwise provided in this SECTION 3.3.4, or incurred in renovating or otherwise -------------- improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building or the Project; (U) costs incurred by Landlord for improvements which are considered capital expenditures under generally accepted accounting principles, consistently applied, except those set forth in SECTIONS 3.3.4 -------------- (XII) or (XIII) above or SECTION 6.1.1 or 19.27 below; ----- ---- ------------- ----- (V) costs of the initial construction or costs directly related to the initial construction of the Building or Adjacent Building, the Tenant Improvements, or Parking Structure and/or, during the two (2) year period following the "Lease Commencement Date" of the Adjacent Building Lease, for correcting structural or latent defects in construction of the Parking Structure or Common Areas; (W) expenses in connection with Standard Tenant Services or other benefits which are not provided to Tenant or for which Tenant is charged directly but which are provided to another tenant or occupant of the Building or Project without direct charge; (X) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord (excluding parking); (Y) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be part of the original construction of the Building or Project, except equipment not affixed to the Building which is used in providing janitorial, landscaping or similar services or except as otherwise expressly provided in item (T) above; -13- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (Z) electric power costs to the extent any tenant directly contracts with the local public service company; (AA) advertising and promotion expenditures, and costs of signs in or on the Project identifying the owner of the Project or other tenants' signs, except for building directories or building standard signage; (BB) any recalculation of or additional Operating Expenses which were ostensibly incurred more than three (3) years prior to the Lease Year in which Landlord proposes that such costs be included in Operating Expenses; (CC) the costs for any repairs or replacements of machinery or equipment in the Building or Project, if such costs would not have been necessary had Landlord properly maintained such machinery or equipment or had maintained service and/or maintenance contracts after the Lease Commencement Date with respect to such machinery or equipment, and such service and/or maintenance contracts would typically have been carried by landlords of Comparable Buildings; provided that this exclusion shall only apply to the extent that the costs so expended on repairs or replacements after the first 12 months of the Lease Term actually and materially exceed the amount which Landlord would have paid for the service and/or maintenance contract which Landlord failed to maintain; (DD) costs for maintenance and/or service contracts for Systems and Equipment, as that term is defined in SECTION 3.3.5, in the ------------- Building or the Project, unless (i) the cost of such maintenance or service contracts was included in the calculation of Direct Expenses for the first twelve (12) months of the Lease Term, (ii) Landlord has or will have retroactively grossed-up the amount of the Annual Direct Expense Allowance by the amount which would have been incurred by Landlord during the first twelve (12) months of the Lease Term had such maintenance and/or service contract then been maintained, (iii) such maintenance and/or service contracts are for new equipment or systems that replaced previous equipment or systems, where the amortized cost of such replacement equipment is includable in Operating Expenses pursuant to SECTION 3.3.4(XIII) above, ------------------ (iv) such maintenance and/or service contract improves the level of services being provided to Tenant (provided that Tenant gives it prior written consent thereto, which consent shall not be unreasonably withheld), or (v) such maintenance and/or service contract is first typically carried by landlords of Comparable Buildings after (and not before) the expiration of the first twelve (12) months of the Lease Term; and (EE) management fees (actual or imputed) in excess of three and one-half percent (3-1/2%) of the annual gross revenues for the Building and Real Property (including parking revenues) adjusted to reflect a one hundred percent (100%) occupancy of the Building with all tenants paying rent. Operating Expenses shall be net of all cash, trade or quantity discounts received by Landlord or Landlord's managing agent in the purchase of any goods, utilities or services in connection with the operation of the -14- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Building or Project. Landlord shall use reasonable efforts to make payments for goods, utilities and services in a timely manner to avoid any late payment penalties. In the calculation of Operating Expenses, no expense shall be charged more than once, and all payments from tenants made to Landlord for goods and services provided, the cost of which are included in Operating Expenses, shall be treated as an offset. 3.3.5 "Systems and Equipment" shall mean any plant, machinery, transformers, duct work, conduit, pipe, bus duct, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity, elevators or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Project in whole or in part (but not including such items to the extent they form a part of the Tenant Improvements). 3.3.6 "Tax Expenses" shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project. 3.3.6.1 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or 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 ("PROPOSITION 13") 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 and, in further recognition of the decrease in the level and quality of -15- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for the purposes of this Lease; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any gross income tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) 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. 3.3.6.2 With respect to any assessment that may be levied against, upon, or in connection with the Project, or any portion thereof, and may be evidenced by improvement or other bonds, or may be paid in annual installments, there shall be included within the definition of Tax Expenses with respect to any tax fiscal year only the amount currently payable on such bonds, including interest, for such tax fiscal year, or the current annual installment for such tax fiscal year. 3.3.6.3 If the method of taxation of real estate prevailing at the time of execution hereof shall be, or has been, altered so as to cause the whole or any part of the taxes now, hereafter or heretofore levied, assessed or imposed on real estate to be levied, assessed or imposed upon the owner or owners of the Project, wholly or partially, as a capital levy or otherwise, or on or measured by the rents received therefrom, then such new or altered taxes attributable to the Project, or any portion thereof, shall be included within the term "Tax Expenses" except that the same shall not include any enhancement of said tax attributable to income other than from the Property. 3.3.6.4 Any expenses reasonably incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. 3.3.6.5 Tax refunds shall be deducted from Tax Expenses in the Expense Year to which such refunds apply. 3.3.6.6 If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant's Share of any such increased Tax Expenses included by Landlord as Tax Expenses pursuant to the terms of this Lease. Correspondingly, if Tax Expenses for any period during the Lease Term or any extension thereof are decreased after payment thereof for any reason including, without limitation, error or reassessment by -16- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] applicable governmental or municipal authorities, and Landlord receives a refund of same, Landlord shall forthwith refund to Tenant Tenant's Share of any such refund. The provisions of this SECTION 3.3.6.6 shall survive the expiration or --------------- earlier termination of the Lease Term. 3.3.6.7 Notwithstanding anything to the contrary contained in this SECTION 3.3.6 (except as set forth in SECTIONS 3.3.6.1 and 3.3.6.3, above), ------------- ---------------- ------- there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, (iii) penalties or interest for late payment of Tax Expenses (unless due to Tenant's failure to timely pay such amounts to Landlord under this Lease), (iv) Tax Expenses allocable to any capital improvement to the Building made by Landlord, if the cost of such capital improvement is excluded from Operating Expenses pursuant to SECTION 3.3.4, and ------------- (v) any items paid by Tenant under ARTICLE 9 of this Lease. ---------- 3.3.7 "Tenant's Share" shall have the meaning set forth in SECTION 7 of the Summary. To the extent the number of rentable square feet of - ---------- the Premises changes throughout the Lease Term, Tenant's Share shall be appropriately adjusted and, as to the Expense Year in which such change occurs, Tenant's Share for such Expense Year shall be determined on the basis of the number of days during such Expense Year that each such Tenant's Share was in effect. 3.4 Allocation of Direct Expenses. Direct Expenses are determined -------------------------------- annually for the Project as a whole. Since the Building is only one of the buildings which constitute the Project, Direct Expenses shall be allocated by Landlord, as provided below, to both the tenants of the Building and to the tenants of the Adjacent Building. The portion of Direct Expenses allocated to the tenants of the Building shall consist of (i) all Direct Expenses attributable solely to the Building and (ii) an equitable portion (based upon the ratio of the number of rentable square feet in the Building to the total number of rentable square feet in the Project) of Direct Expenses attributable to the Project as a whole after subtracting the Direct Expenses attributable solely to the Building and the Adjacent Building. 3.5 Calculation and Payment of Additional Rent. Tenant shall pay to --------------------------------------------- Landlord, in the manner set forth in SECTION 3.5.1, below, as Additional Rent, ------------- an amount equal to the amount by which Tenant's Share of Direct Expenses for each Expense Year exceeds Tenant's Share of the Annual Direct Expense Allowance. 3.5.1 Statement of Actual Direct Expenses and Payment by Tenant. ----------------------------------------------------------- Landlord shall endeavor to give to Tenant on or before the first day of April following the end of each Expense Year, a statement (the "STATEMENT") which shall state the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant's Share of such Direct Expenses in excess of Tenant's Share of the Annual Direct Expense Allowance. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, the full amount of Tenant's Share of Direct Expenses for such Expense Year in -17- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] excess of Tenant's Share of the Annual Direct Expense Allowance, less the amounts, if any, paid during such Expense Year as "Estimated Additional Rent," as that term is defined in SECTION 3.5.2, below. If the first or last Lease ------------- Year does not coincide with an Expense Year, Direct Expenses and the Annual Direct Expense Allowance shall be appropriately prorated based upon the actual number of days of the Lease Term in such Expense Year. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this ARTICLE 3. Even though --------- the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall pay to Landlord any unpaid amounts described herein within thirty (30) days of invoice. The provisions of this SECTION 3.5.1 shall survive the expiration or earlier termination of the Lease - -------------- Term. 3.5.2 Statement of Estimated Direct Expenses. In addition, as ------------------------------------------ soon as possible after the start of each Expense Year, but no later than concurrently with the delivery of the Statement, Landlord shall furnish Tenant with a yearly expense estimate statement (the "ESTIMATE STATEMENT") which shall set forth Landlord's reasonable estimate (the "Estimate") of what the total amount of Direct Expenses for the then-current Expense Year will be and the estimated amount of Tenant's Share of Direct Expenses for the then-current Expense Year in excess of Tenant's Share of the Annual Direct Expense Allowance (the "ESTIMATED ADDITIONAL RENT"). Landlord shall have the right to adjust the Estimate Statement from time to time during any Expense Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Additional Rent under this ARTICLE 3. Thereafter, Tenant shall pay, with its next ---------- installment of Base Rent due, a fraction of the Estimated Additional Rent for the then-current Expense Year (reduced by any amounts paid pursuant to the penultimate sentence of this SECTION 3.5.2). Such fraction shall have as its ------------- numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Additional Rent set forth in the previous Estimate Statement delivered by Landlord to Tenant. 3.6 Landlord's Books and Records. Landlord shall utilize or cause to ------------------------------ be utilized accounting records and procedures for each Expense Year conforming to sound real estate accounting principles consistently applied with respect to all of the Direct Expenses for each Expense Year including, without limitation, all payments of Direct Expenses. In the event that any other tenant in the Project performs an audit of Landlord's books and records and an adjustment to Direct Expenses is made, the results of such audit shall be sent to Tenant, promptly, to allow Tenant to determine whether Tenant is entitled to a corresponding adjustment, irrespective of the expiration of the Review Period (as hereinafter defined) for the particular Expense Year for which the adjustment was made. For a period of ninety (90) days after receipt by Tenant of a Statement (the "REVIEW PERIOD"), Tenant shall have the right to dispute the amount of Additional Rent due from Tenant as set forth in the Statement, by giving written notice to Landlord, whereupon Tenant's employees or an independent certified public accountant (which accountant is a member of a nationally recognized accounting firm) designated by Tenant, shall have the -18- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] right during normal business hours, to inspect and/or audit Landlord's books and records with respect to both the Statement most recently received by Tenant, as well as with respect to the Statement applicable to the previous Expense Year, at Landlord's or the Building Managers office. However, Tenant's right to inspect and/or audit Landlord's books and records, as aforesaid, shall be subject to the following: (i) Tenant is not then in default of the payment of Base Rent after expiration of any applicable cure period, and (ii) Tenant is not then in default of the payment of Tenant's Share of Direct Expenses after expiration of any applicable cure period, provided that for purposes of this item (ii), only, Tenant shall not be deemed to be in default of the payment of Tenant's Share of Direct Expenses if Tenant is disputing, and withholding, a portion of Tenant's Share of Direct Expenses reasonably and in good faith, by notice delivered to Landlord on or prior to the due date of such Direct Expenses, and the amount of Direct Expenses withheld by Tenant does not exceed an amount equal to the amount of Additional Rent set forth in the most recent Statement received by Tenant minus the amount of Additional Rent set forth in the Statement for the immediately preceding Expense Year. Landlord shall be obligated to keep such books and records for all Expense Years until three (3) years following the expiration of the Review Period, or such longer period as may reasonably be required in order to conduct an audit or arbitration, should Tenant become entitled to same, pursuant to the provisions of this SECTION 3.6 ----------- or SECTION 19.41. Tenant and such accountant shall use their commercially -------------- reasonable efforts to cause their respective agents and employees to maintain all information contained in Landlord's records in strict confidence, and such accountant shall agree, in writing, that it will not represent any other tenants or occupants of the Project in connection with any review of the Building Operating Expenses. Landlord shall cooperate with Tenant during the course of such inspection or audit, and Landlord agrees, during normal Building hours, to make those of its personnel available to Tenant as are reasonably necessary to conduct such inspection or audit, in which event no inspection or audit shall last more than ten (10) business days (or, provided Tenant is conducting such inspection or audit with due diligence, such longer period as may reasonably be required) in duration for any Expense Year audited. Tenant's representatives shall be entitled to make photostatic copies of such records at Landlord's or the Building manager's office , provided Tenant bears the expense of such copying. If, after such inspection, Tenant still disputes such Additional Rent, Landlord and Tenant shall submit such dispute to arbitration pursuant to the terms of SECTION 19.41, below, at Tenant's sole cost and expense; provided that ------------- if the determination of such arbitration is that the Direct Expenses set forth in the Statement were overstated by more than three percent (3%), then, the cost of such arbitration and of Tenant's audit or inspection of Landlord's books and records shall be paid for by Landlord. Promptly following the parties receipt of such determination, the parties shall make such appropriate payments or reimbursements, as the case may be, to each other, as are determined to be owing pursuant to such certification, with interest at the Interest Rate from the date due until paid, in the case of payments by Tenant to Landlord, or with interest at the Interest Rate from the date paid until reimbursed, in the case of reimbursements by Landlord to Tenant. The payment by Tenant of any Additional Rent pursuant to this ARTICLE 3 shall not preclude Tenant from questioning the --------- correctness of any Statement delivered by Landlord, provided that the failure of Tenant to object thereto prior to the expiration of the -19- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] applicable Review Period shall be conclusively deemed Tenant's approval of all Statements no longer subject to inspection and/or audit by Tenant, as provided above, except in the case of fraud by Landlord or its employees or agents. Once Tenant invokes the rights set forth in this SECTION 3.6 pursuant to the terms of ----------- this SECTION 3.6, Landlord and Tenant agree that this SECTION 3.6 shall be the ------------ ----------- sole method to be used by them to dispute the amount of any Direct Expenses payable or not payable by Tenant pursuant to the terms of this Lease, and Landlord and Tenant hereby waive any right at law or in equity or as otherwise provided by this Lease relating to any such subject matter. ARTICLE 4 STORAGE SPACE 4.1 Storage Area. Commencing as of the Lease Commencement Date and ------------- continuing throughout the initial Lease Term and the Renewal Option Terms (if applicable), Tenant shall lease from Landlord and Landlord shall lease to Tenant certain storage area located in the basement level of the Building ("STORAGE AREA") shown as cross hatched on EXHIBIT G attached hereto. The parties hereby --------- stipulate that the Storage Area consists of a total of approximately 6,645 square feet. Up to 1,781 square feet of the Storage Area may be used by Tenant for "human occupancy". The Storage Area shall be delivered by Landlord to Tenant in its "as-is" condition. Any use of the Storage Area for "human occupancy" shall be in compliance with applicable law, which compliance shall be at Tenant's sole cost and expense. 4.2 Annual Storage Rent. The annual rental rate for the Storage Area --------------------- ("ANNUAL STORAGE RENT") shall be as set forth in SECTION 12 of the Summary ---------- during the initial Lease Term, and shall be determined as a separate component of the Option Rent during any Renewal Option Terms. Such Annual Storage Rent shall be payable in twelve (12) equal monthly installments on the first day of each month in advance during the Lease Term at the same time and in the same manner as Base Rent for the Premises. In the event the Annual Storage Rent is not paid when due, Landlord shall have the same rights as provided in ARTICLE 12 ---------- of this Lease for unpaid Rent. Tenant's Share shall not be increased as a result of Tenant's leasing of the Storage Area. 4.3 Indemnification. Except to the extent any loss, costs, damage, --------------- expense or liability is caused by (i) any default by Landlord in the observance or performance of any of the terms, covenants or conditions to be observed or performed by Landlord under this Lease, or (ii) the negligence or willful misconduct of Landlord or any of its agents, employees, contractors, or licensees, Tenant hereby indemnifies, defends, protects and holds Landlord harmless from any and all loss, cost, damage, expense and liability, whether foreseeable or not, from any cause whatsoever, that Tenant may suffer to its personal property located anywhere in the Storage Area or that it or its agents, employees, principals, invitees, or licensees may suffer as a direct or indirect consequence of Tenant's lease of or use of the Storage Area or access areas to the Storage Area. In addition, Tenant hereby agrees to indemnify, defend, protect and hold Landlord harmless from and against any loss, cost, damage, liability, expense, claim, action or cause of action of any third party, whether foreseeable or not, resulting as a direct or indirect consequence of Tenant's lease or use of the Storage Area or access areas to the Storage Area. -20- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4.4 Use of Storage Area. Except as herein expressly provided, Tenant --------------------- agrees not to store any flammable or highly combustible materials in the Storage Area. Tenant also agrees not to store excess or highly concentrated waste in the Storage Area; it shall be Tenant's responsibility to obtain from Landlord the tolerable limits thereof. Tenant agrees to use the Dead Storage Area solely for storage purposes (e.g., files, clerical supplies, business forms) and not as office space. Tenant agrees that Landlord and its agents may enter and inspect the Storage Area and any goods stored therein during regular business hours upon giving twenty-four (24) hours prior notice to Tenant and so long as accompanied by a representative of Tenant. Tenant shall, at its sole cost and expense, deliver to Landlord a key for any locks installed by Tenant for Landlord's emergency entrance purposes. Except as the provisions of ARTICLE 10 may be ---------- applicable to the use of the Storage Area, Landlord shall have no obligation to maintain or repair the Storage Area. Tenant shall have the right to use that portion of the Storage Area identified as permitting "human occupancy" for any lawful purpose, provided that Tenant fully complies with all laws, rules, regulations, ordinances and the recommendations of Insurance Service Offices, and provided that Tenant performs such alterations and improvements, (i) in such "human occupancy" Storage Area as may be required by the Building Department of the City of Los Angeles and (ii) in such other portions of the Storage Area as may be required by the City for hallways, restrooms, shafts, ducts, machine and equipment rooms and all other purposes collateral to or in support of human occupancy of such portion of Tenant's Storage Area. Landlord agrees to provide its regular building HVAC and electrical services at Tenant's expense as Additional Rent. Subject to the foregoing, Tenant shall have the right at any time during the Lease Term, to change any portion of the Storage Area from "dead storage" to "human occupancy" storage or from "human occupancy storage" to "dead storage"; provided that before doing so Tenant shall give Landlord at least sixty (60) days written notice of such intended change. Whenever that occurs, Landlord and Tenant shall execute an amendment to this Lease modifying EXHIBIT G --------- and ARTICLE 12 of the Lease Summary, accordingly. Tenant agrees not to permit ----------- any odors, fumes or gases to escape from any portion of the Storage Area or in to the Building HVAC system, nor shall Tenant permit any vibrations or noise to emanate from said Storage Area if that would impact other tenants in the Building. 4.5 Assignment and Sublease. The Storage Area may not be separately ------------------------- assigned or subleased by Tenant or otherwise transferred by Tenant, except in connection with any transfer permissible pursuant to the terms of ARTICLE 11 of ---------- this Lease. 4.6 Incorporation of Lease Provisions. The provisions of this Lease ------------------------------------ with regard to the Premises, to the extent applicable and not inconsistent with the provisions of this ARTICLE 4, shall be deemed to apply to the Storage Area --------- as though the Storage Area is part of the Premises, and as though the Annual Storage Rent is part of the Base Rent. ARTICLE 5 USE OF PREMISES 5.1 Permitted Use. Tenant shall use the Premises solely for general -------------- office purposes as herein provided and, also, for any other legally permitted use which is consistent with the character of the Project (i.e., as a first-class office building project), and Tenant shall not use or -21- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] permit the Premises to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which consent Landlord may withhold in its sole discretion. Except when and where Tenant's right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Premises, Storage Area, all Building Common Area and all Project Common Area, including the Parking Structure, twenty-four (24) hours per day, seven (7) days per week, during the Lease Term. Tenant shall have the right to use the ground floor of the Premises to service drive-in claims. Landlord hereby agrees that, (i) during the Lease Term, as required by and subject to the terms of SECTION 19.27, below, Landlord shall comply with all laws, statutes, ordinances, - ------------- building codes and governmental regulations, all covenants and restrictions of record applicable to the Project, and (ii) during the Lease Term, and any Renewal Term, all requirements of Landlord's insurance carriers covering the Project will permit Tenant to use and occupy the Premises for general office purposes. 5.2 Prohibited Uses. Tenant further covenants and agrees that Tenant ---------------- shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in EXHIBIT E, attached hereto, or in violation of the --------- laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local, municipal or county governing body or other lawful authorities or quasi-governmental agencies having jurisdiction over the Project, including, without limitation, any such laws, ordinances, regulations or requirements relating to "Hazardous Material", as that term is defined in SECTION 19.25.4 below. Landlord agrees that, with ---------------- respect to the space on the ground floor of the Building currently used by retail tenants, Landlord shall use commercially reasonable efforts to keep such space occupied by tenants in similar retail businesses during the Lease Term and any Renewal Option Term. 5.3 CC&Rs. Tenant agrees to subordinate this Lease to the terms of ------ that certain "Declaration and Agreement Establishing Covenants, Conditions and Restrictions and Grants of Easements" (as and to the extent amended from time to time, the "CC&RS") attached hereto as EXHIBIT P, which CC&Rs may be recorded on --------- the Property after the date hereof. To evidence Tenant's subordination of this Lease to the CC&Rs, Tenant shall execute and deliver to Landlord, concurrently herewith, a "Subordination Agreement" in the form attached hereto as EXHIBIT Q. --------- Landlord covenants and agrees that the provisions of the CC&Rs and Tenant's subordination thereto under the terms of the Subordination Agreement referred to below, may never be construed in a manner that would materially impair (i) Tenant's use of the Premises or (ii) the exercise by Tenant of the rights conferred upon Tenant pursuant to the terms of this Lease, or that would include in Operating Expenses pursuant to Section 3.3.4(ix) any "costs, expenses and amounts" falling within the definition of "Common Expenses" in the CC&Rs (including administrative fees), that would otherwise not be included in (or would be expressly excluded from) Operating Expenses under the provisions of Section 3.3 hereof. Tenant agrees that Landlord may, without Tenant's prior consent, modify the terms of the CC&Rs without affecting Tenant's agreement to subordinate this Lease thereto, so long as such modifications do not materially and adversely affect Tenant's rights or obligations under this Lease. Except as aforesaid, Landlord may modify the CC&Rs only with Tenant's prior written consent, which shall not be unreasonably withheld, conditioned or delayed and which shall be deemed to have been given by Tenant to Landlord if Tenant does not respond to Landlord's request for consent within fifteen (15) business days after Landlord's delivery of such request to Tenant. -22- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE 6 MAINTENANCE, REPAIRS, ADDITIONS AND ALTERATIONS 6.1 Repairs. ------- 6.1.1 Duties to Repair. The construction of the tenant ------------------ improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this ARTICLE 6. Except as provided in ARTICLES 8, --------- ----------- 13 AND 19, Landlord shall maintain and repair the Building, the Common Areas, - ----------- and the "Parking Structure," as that term is defined in SECTION 1.2. All costs ----------- incurred by Landlord in performing such maintenance and repairs pursuant to the terms of this SECTION 6.1.1 (but not including the "Premises Obligations") as ------------- that term is defined below) shall be included in Operating Expenses to the extent permitted under the terms of ARTICLE 3 of this Lease. Landlord shall --------- also maintain and repair the Tenant Improvements (as that term is defined in SECTION 2.1 of the Tenant Work Letter) and the Alterations (as that term is - ------------ defined in SECTION 6.2 hereof) (the maintenance and repair of the Tenant ------------ Improvements and the Alterations being collectively referred to as the "PREMISES OBLIGATIONS"). Costs incurred by Landlord in connection with the Premises Obligations shall not be included in Operating Expenses, but shall be billed directly to Tenant as Additional Rent, and paid by Tenant to Landlord concurrent with the next payment of Base Rent due hereunder. Landlord may enter the Premises at all reasonable times to perform its Premises Obligations, and when reasonably required, to perform maintenance and repairs to other parts of the Project or to any equipment located in the Project, as Landlord shall desire or deem necessary, or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree; provided that, in any event, Landlord shall use commercially reasonable efforts to perform any such work other than during "Building Hours," as that term is defined below in SECTION 10.1.1. Subject to SECTION 6.1.2, Tenant hereby waives and releases its -------- ------------- right to make repairs at Landlord's expense under SECTIONS 1941 and 1942 of the ------------- ---- California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect. 6.1.2 Tenant's Right to Make Repairs. ---------------------------------- 6.1.2.1 Tenant's Actions. If Tenant provides notice to ----------------- Landlord of an event or circumstance which requires the action of Landlord with respect to an obligation of Landlord under the terms of SECTION 6.1.1 or 10.1 of ------------- ---- this Lease, and Landlord fails, within a reasonable time period, to provide or commence to provide such action as required by the terms of this Lease, then, Tenant may proceed to take the required action upon delivery of an additional ten (10) business days notice to Landlord and any beneficiary of a trust deed or other similar instrument encumbering the Building or ground lessor under a ground lease encumbering the Building (collectively, the "LENDER") (provided that Tenant has been given the name and address of any such Lender) specifying that Tenant is taking such required action, and if such action was required under the terms of SECTION 6.1.1 or 10.1 of this Lease to be taken by Landlord ------------- ---- (and if such action does not relate to the Premises Obligations), then, notwithstanding the provisions of SECTION 7.1, Tenant shall be entitled to ------------ prompt reimbursement by Landlord of Tenant's reasonable costs and expenses in taking such action, and such costs and expenses actually reimbursed by Landlord shall, notwithstanding anything to the contrary set forth in this Lease, be -23- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] included in Operating Expenses. If such action relates to the Premises Obligations, Tenant shall, notwithstanding anything to the contrary set forth in this Lease, not be entitled to reimbursement by Landlord of Tenant's reasonable costs and expenses in taking such action, but such costs and expenses shall not be included in Operating Expenses. Notwithstanding the foregoing, in the event of an "Emergency Condition," as that term is defined below in this SECTION ------- 6.1.2.1, Tenant shall immediately notify Landlord and Lender, either in writing - ------- or orally with an immediate follow-up notice in writing, that an Emergency Condition exists. If an Emergency Condition exists and Tenant has so notified Landlord, but Landlord fails to initiate the required remedial action within a reasonable period of time and fails to continuously work to correct or commence to correct the Emergency Condition, then Tenant shall have the right, but not the obligation, to initiate such remedial action itself. In the event Tenant takes such action, whether or not an Emergency Condition, and such work will affect the Systems and Equipment, structure of the Building or exterior appearance of the Building, Tenant shall use only those contractors used by Landlord in the Building for such work unless such contractors are unwilling or unable to perform such work, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in the Comparable Buildings. The term "Emergency Condition" shall mean a condition or circumstance, the repair of which is Landlord's responsibility under SECTION 6.1.1 or 10.1 of this Lease, and the correction of which would not ------------- ---- require governmental approval or permits and which, if not repaired immediately, would either (i) cause an imminent risk of personal injury to Tenant's employees or customers, or (ii) result in significant damage to Tenant's property. 6.1.2.2 Payment of Costs. 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 for which Tenant is entitled to be reimbursed by Landlord under SECTION 6.1.2.1, above, and 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, notwithstanding the provisions of SECTION 7.1, Tenant shall be entitled to deduct from Rent ------------ payable by Tenant under this Lease the amount set forth in such invoice, provided that the total amount of such credit shall be amortized over the remaining Lease Term, with interest on the unamortized portion of such amount accruing at the Interest Rate. 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 (i) such action did not have to be taken by Landlord pursuant to the terms of this Lease, (ii) Tenant is not entitled to reimbursement under SECTION 6.1.2.1, or (iii) the charges are excessive (in ---------------- which case Landlord shall pay the amount it contends would not have been excessive), then Tenant shall not be entitled to such deduction from Rent (and shall repay to Landlord any such amounts previously deducted), but as Tenant's sole remedy, Tenant may proceed to institute arbitration proceedings against Landlord pursuant to SECTION 19.41 of this Lease to collect the amount set forth ------------- in the subject invoice. To the extent Tenant appropriately deducts any sums from Rent under this SECTION 6.1.2, and if such sums, had the same been expended ------------- by Landlord, been includable in Operating Expenses pursuant to the terms of this Lease (the "INCLUDABLE DEDUCTED SUMS"), then the amount of such Includable Deducted Sums shall be included in Operating Expenses. -24- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 6.1.3 Telecommunications Risers. Upon the expiration or earlier -------------------------- termination of the Lease Term, provided the same is requested by Landlord prior to Tenant having vacated the Premises, Tenant shall, at Tenant's sole cost and expense, remove the telecommunications cabling located and installed by Tenant or its agents on the floors of Tenant's Premises and in the riser closets of the Building (collectively, the "RISER AREAS") and shall repair any damage to the Premises, Building and/or the systems of the Building, at Tenant's sole cost and expense, resulting from such removal by Tenant. Landlord shall, as an Operating Expense for the Building or the Project, as the case may be, maintain and repair the Riser Areas and the conduit (excluding the lines or cabling located therein) installed in the Riser Areas and the Project Common Area by Landlord, and Landlord shall have access to the Riser Areas in order to satisfy such maintenance and repair responsibilities and to provide telecommunications service (including roof top telecommunications services) to other tenants of the Building or third parties. 6.2 Alterations and Additions. Tenant may make alterations and --------------------------- additions to the Premises (collectively, "ALTERATIONS") that will not materially or adversely affect the Building structure, appearance of the Building or the Building Systems and Equipment or other systems or equipment in the Premises without Landlord's consent. Tenant shall give Landlord at least five (5) business days prior notice of such Alterations which do not require Landlord's consent, which notice shall be accompanied by reasonably adequate evidence that such changes meet the criteria as set forth above in this SECTION 6.2. Any ----------- Alterations which will materially or adversely affect the Building structure, appearance of the Building or the Building Systems and Equipment or other systems and equipment in the Premises shall require the prior written consent of Landlord, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld or delayed. 6.3 Manner of Construction. When Landlord's consent to Alterations is ----------------------- required as provided in SECTION 6.2, Landlord may impose, as a condition of its ----------- consent to any and all Alterations to the Premises or repairs to the Premises, such reasonable requirements as Landlord in its sole discretion may deem desirable, including, but not limited to the requirements (which may be imposed, if at all, only at the time of Landlord's consent to the Alterations) (i) that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen reasonably approved by Landlord, or (ii) that Tenant shall, at Tenant's expense, remove any and all Alterations upon the expiration or any early termination of the Lease Term. In any event, any contractor performing mechanical, electrical, plumbing, lifesafety, sprinkler or structural work, shall be approved in advance by Landlord, which approval shall not be unreasonably withheld. Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, all in conformance with Landlord's construction rules and regulations. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Tenant shall have the -25- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] work performed in such manner so as not to obstruct access to the Project or any portion thereof by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project, or interfere with the labor force working in the Project. In addition to Tenant's obligations under SECTION 19.18 of this Lease, upon completion of any Alterations, Tenant agrees - -------------- to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with SECTION 3093 of the Civil Code of ------------ the State of California or any successor statute, and Tenant shall deliver to the Project management office copies of all applicable permits, lien releases, and appropriate architectural certifications, as well as a reproducible copy of the "as built" drawings of the Alterations. 6.4 Payment for Alterations. In the event Tenant orders any ------------------------- Alterations directly from Landlord, the charges for such work shall be deemed Additional Rent under this Lease, payable within ten (10) business days of billing therefor, either periodically during construction or upon the substantial completion of such work, at Landlord's option. If payment for Alterations is made by Tenant directly to contractors, Tenant shall comply with Landlord's requirements for final lien releases and waivers in connection with Tenant's payment for work to such contractors. If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord a fee in the amount of fifteen percent (15%) of the cost of such Alterations to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord's involvement with such work. With respect to all Alterations performed by Tenant requiring the prior written consent of Landlord, Tenant agrees to reimburse Landlord for Landlord's reasonable out-of-pocket expenses incurred in connection with Landlord's review and approval of such work, provided that in no event shall such expenses exceed seven and one-half percent (7 1/2%) of the total cost of such work. 6.5 Construction Insurance. In addition to the requirements of ARTICLE ---------------------- ------- 7 of this Lease, in the event that any "Transferee," as that term is defined in ARTICLE 11 of this Lease (but not the originally-named Tenant or any Affiliate) - ----------- makes any Alterations, prior to the commencement of such Alterations, such Transferee shall provide Landlord with evidence that it carries "Builder's All Risk" insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Landlord pursuant to SECTION 7.2.1 of this Lease. If Tenant ------------- does not carry such insurance, Tenant shall be deemed to have self-insured for all of the risks covered by such insurance, which self-insurance shall be governed by the terms of SECTION 7.3.5, below. In addition, Landlord may, in ------------ its discretion, require such Transferee to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. 6.6 Landlord's Property. All Alterations or improvements which may be -------------------- installed or placed in or about the Premises, and all signs installed in, on or about the Premises, from time to time, shall be at the sole cost of Tenant and, upon the expiration or sooner termination of the Lease Term, shall be and become the property of Landlord. Notwithstanding the foregoing, upon the expiration or earlier termination of the Lease, Tenant may remove all of its personal property, including, without limitation, the items listed on SCHEDULE 5 to ---------- EXHIBIT C, and, additionally, any Alterations, improvements or signs which - --------- Tenant can reasonably -26- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] substantiate to Landlord were not paid for with any tenant improvement allowance funds provided to Tenant by Landlord, and provided Tenant repairs any damage to the Premises and Building caused by such removal. Furthermore, if Landlord, as a condition to Landlord's consent to any Alteration, required that Tenant, at Landlord's election, remove any Alteration upon the expiration or earlier termination of the Lease Term, and with respect to any "Tenant Improvement Removal Items," as that term is defined in SECTION 2.1 of the Tenant Work ----------- Letter, Landlord may, by written notice to Tenant at least thirty (30) days prior to the end of the Lease Term, or given concurrently with any earlier notice of termination of this Lease, require Tenant, at Tenant's expense, to remove such Alterations or Tenant Improvement Removal Items and to repair any damage to the Premises and Building caused by such removal. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations, Landlord may do so and may charge the cost thereof to Tenant. 6.7 Additional Costs. To the extent that, as a result of any ----------------- Alterations, the real estate taxes payable with respect to the Building, or the net cost of insurance (required to be carried by Landlord pursuant to the terms of this Lease), are increased, Tenant shall pay to Landlord as Additional Rent one hundred percent (100%) of any such increase in cost; provided, that if Tenant rejects Landlord's assertion, as Landlord's sole remedy, Landlord may proceed to institute arbitration proceedings against Tenant pursuant to SECTION ------- 19.41 of this Lease to collect the amount of such claimed increase in Landlord's - ----- cost of real estate taxes and/or insurance. ARTICLE 7 INSURANCE 7.1 Indemnification and Waiver. To the extent not prohibited by law, ---------------------------- Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, "LANDLORD PARTIES") shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant due to the Project (including claims for worker's compensation of Tenant's employees) or any part thereof or any appurtenances thereof needing repair (including any improvements, materials, or equipment relating to telephone or telecommunication systems), or due to the occurrence of any accident or event in or about the Project, or due to any act or neglect of any tenant or occupant of the Project, including the Premises, or of any other person. The provisions of this SECTION 7.1 shall apply particularly, but not ----------- exclusively, to damage caused by gas, electricity, steam, sewage, sewer gas or odors, fire, water or by the bursting or leaking of pipes, faucets, sprinklers, plumbing fixtures and windows, and shall apply without distinction as to the person whose act or neglect was responsible for the damage and whether the damage was due to any of the causes specifically enumerated above or to some other cause of an entirely different nature. Tenant further agrees that all personal property upon the Project shall be at the risk of Tenant only, and that Landlord shall not be liable for any loss or damage thereto or theft thereof. Except as hereinafter provided, Tenant shall indemnify, defend, protect, and hold harmless Landlord and the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) incurred in connection with or arising from any cause in the Premises, including, without limiting the generality of the foregoing: (i) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed; (ii) the use or occupancy of the Premises by Tenant, its partners, subpartners and their respective officers, -27- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] agents, servants, employees, and independent contractors, or any person claiming by, through or under Tenant (collectively, "TENANT PARTIES"); (iii) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever; (iv) any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person, in, on or about the Premises or the Project, either prior to, during, or after the expiration of the Lease Term; (v) Tenant's installation, maintenance or operation of its own security system for the Premises (which Tenant shall be entitled to install subject to the terms of SECTION 10.1.7) and/or for Tenant's -------------- "tie-in" of the security system for the Premises into the Building's security system; and (vi) Tenant's maintenance and repairs performed pursuant to SECTION ------- 6.1.2 of this Lease, except as therein is expressly provided. Notwithstanding - ----- the foregoing, Tenant shall not be required to indemnify and hold Landlord and/or the Landlord Parties harmless from any loss, cost, liability, damage or expense, including, but not limited to, penalties, fines, attorneys' fees or costs (collectively, "CLAIMS"): (i) to any person, property or entity resulting from the negligence or willful misconduct of Landlord or its agents, servants, employees or licensees, in connection with Landlord's activities in the Building (except for damage to the Tenant Improvements and Tenant's personal property, fixtures, furniture and equipment in the Premises), or the Project, or (ii) resulting from damage to the structure of the Building or to the Systems and Equipment which damage is covered by the insurance policies carried by Landlord or required to be carried by Landlord with respect to the Project (and not within the amount of any deductible permitted pursuant to SECTION 7.2.1 and ------------- required to be paid under any such policy), or (iii) results from any default by Landlord in the observance or performance of any of the terms, covenants or conditions of this Lease on Landlord's part to be observed or performed; and Landlord hereby so indemnifies and holds Tenant harmless from any such Claims; provided further that because Landlord is required to maintain insurance on the Building and Tenant compensates Landlord for such insurance as part of Tenant's Share of Direct Expenses and because of the existence of waivers of subrogation set forth in SECTION 7.4 of this Lease, Landlord hereby indemnifies and holds ----------- Tenant harmless from any Claims to any property outside of the Premises or the Common Areas (including the Parking Structure) to the extent such Claims are covered by insurance required to be carried by Landlord, even if resulting from the negligent acts, omissions or willful misconduct of Tenant or those of its agents, contractors, servants, employees or licensees. Similarly, since Tenant must carry insurance pursuant to this ARTICLE 7 to cover its personal property --------- within the Premises, Tenant hereby indemnifies and holds Landlord harmless from any Claims with respect to property within the Premises, to the extent such Claims are required to be covered by such insurance, even if resulting from the negligent acts, omissions or willful misconduct of Landlord or those of its agents, contractors, servants, employees or licensees. The provisions of this SECTION 7.1 shall survive the expiration or sooner termination of this Lease - ------------ with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Tenant or Landlord to be responsible or liable for, and each hereby releases the other from, all liability for consequential damages other than those consequential damages incurred by Landlord in connection with (i) a holdover of the Premises by Tenant after the expiration or earlier termination of this Lease, as more particularly provided in SECTION 19.7 of this ------ Lease, (ii) Tenant's use or storage of "Hazardous Materials," as that term is defined in SECTION 19.25.4, below, (iii) Tenant's use of the rights set --------------- forth in SECTION 6.1.2, above; or (iv) Tenant's breach of the terms of SECTIONS ------------- -------- 19.1 or 19.11 of this Lease. - ---- ----- -28- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 7.2 Landlord's Insurance. From and after the Lease Commencement Date --------------------- and throughout the Lease Term, Landlord shall maintain in full force and effect the policies of insurance set forth below in SECTIONS 7.2.1 THROUGH 7.2.3. ---------------------------- 7.2.1 Landlord's Fire and Casualty Insurance. Property damage ------------------------------------------ insurance covering the Building (including the Systems and Equipment and the Building telecommunications riser system), the Parking Structure, the Tenant Improvements and the Alterations (but excluding Tenant's personal property) and all other improvements in and about the Common Areas in which Landlord may have an insurable interest, providing protection against all risks of physical loss, inclusive of standard fire and extended coverage insurance, including endorsements against vandalism, malicious mischief and other perils, but excluding, except as set forth below in SECTION 7.2.3, endorsements against ------------- earthquake, all in amounts not less than one hundred percent (100%) of their full replacement cost valuation from time to time during the Lease Term with deductible amounts which shall not be in excess of the commercially reasonable deductibles under insurance policies as are carried, generally, by prudent landlords of Comparable Buildings. Landlord's obligation to insure the Alterations shall commence only after thirty (30) days prior notice from Tenant setting forth a list of the Alterations to be insured. Landlord's policy shall contain at least twelve (12) months of "rental income loss" coverage payable in instances in which Tenant is entitled to Rent abatement hereunder, and shall include (i) an "extended coverage" endorsement, (ii) a "building laws" and/or "law and ordinance" coverage endorsement (which endorsement may, notwithstanding the foregoing provisions of this SECTION 7.2.1, contain a commercially -------------- reasonable sublimit) that covers "costs of demolition," "increased costs of construction" due to changes in building codes and "contingent liability" with respect to undamaged portions of the Building, and (iii) an "earthquake sprinkler leakage" endorsement, with each such endorsement to be of a kind required by Landlord or by Lender to assist Landlord in funding its obligations under this Lease to repair and restore the Building (including the Systems and Equipment), the Parking Structure, the Tenant Improvements, the Alterations and the Common Areas. Such policy shall also contain a "stipulated value" endorsement deleting any co-insurance provisions. In addition, Landlord shall maintain "boiler machinery" coverage (and a joint loss agreement if the boiler machinery coverage is issued by a different insurance company than the basic property insurance). 7.2.2 General Liability Insurance. Comprehensive general ----------------------------- liability insurance for bodily injury and property damage, adequate to protect Landlord and all additional insureds against liability for (i) the actions of Landlord and Landlord's agents, employees and contractors and (ii) injury to or death of any one or more persons in an occurrence, and for damage to property, arising in connection with the (a) construction or alteration of the Building, the Parking Structure and all improvements in and about the Building Common Areas, (b) the use, operation or condition of the Common Areas, or (c) the condition of the Premises unrelated to Tenant's use. Such insurance shall be in an amount of not less than Ten Million Dollars ($10,000,000.00) Combined Single Limit, which amount shall be increased throughout the Lease Term to the extent of such coverage customarily carried by landlords of Comparable Buildings, and which shall insure against any and all liability of the insured as aforesaid. 7.2.3 Earthquake Coverage. -------------------- -29- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 7.2.3.1 Landlord Required Earthquake Insurance. Subject to the --------------------------------------- terms of SECTION 7.2.3.3, below, Landlord shall, at all times during the Lease --------------- Term, maintain difference in conditions insurance providing earthquake coverage in an amount at least equal to the "Minimum Coverage Amount," as that term is defined below in this SECTION 7.2.3.1, which insurance (the "EARTHQUAKE ----------------- INSURANCE") (i) is in a coverage amount equal to at least thirty percent (30%) of the "Replacement Cost", as that term is defined below, and which covers the Building and the Tenant Improvements (but excluding Tenant's personal property) (the aggregate estimated replacement cost of the Building and Tenant Improvements shall be known as the "REPLACEMENT COST"), and (ii) has a deductible equal the lessor of (A) ten percent (10.0%) (the "DEDUCTIBLE PERCENTAGE") of the Replacement Cost, or (B) $2,000,000.00. The requirements set forth in items (i) and (ii), above, are referred to herein as the "Minimum Coverage Amount." Notwithstanding anything to the contrary set forth in this Section 7.2.3, the Minimum Coverage Amount may be satisfied by Landlord carrying a single building policy wherein Replacement Cost, for purposes of calculating the coverage amount and deductible, only relates to the Building, or a blanket policy, wherein Replacement Cost, for purposes of calculating the coverage amount and deductible, relates to all of the structures covered by such policy. 7.2.3.2 Self-Insurance. At such times during the Lease Term -------------- that Landlord satisfies the "Net Worth Amount" and "Liquidity Amount," as those terms are defined in Section 7.3.5.2, below, (collectively, the "FINANCIAL ---------------- REQUIREMENTS")Landlord shall have the right to self-insure the requirement of this SECTION 7.2.3 (the "EARTHQUAKE SELF-INSURANCE"). -------------- 7.2.3.3 Self-Insurance Gross-Up. In any Expense Year during ------------------------ which Landlord elects the Earthquake Self-Insurance, as set forth in SECTION ------- 7.2.3.2, above, at Landlord's election, Direct Expenses for such Expense Year - ------ shall be deemed to be increased by an amount equal to what a Minimum Coverage Amount earthquake policy would have cost Landlord during the first Lease Year (even in the event Landlord carried Earthquake Insurance in a greater coverage amount than the Minimum Coverage Amount during such first Lease Year) (the "SELF-INSURANCE GROSS-UP"). If Landlord elects the Earthquake Self-Insurance during only a portion of a particular Expense Year, the Self-Insurance Gross-Up for such Expense Year shall be prorated based on the portion of such Expense Year that Landlord elected the Earthquake Self-Insurance. By way of example only, which example in no way modifies the foregoing if, but for the Self-Insurance Gross-Up, Direct Expenses in the fifth Lease Year would be $9.00 per square foot; if the annual Direct Expense Allowance is $8.00; and if during that Lease Year the Landlord incurred no costs for Earthquake Insurance because it was entitled to self-insure the same; and if the premium paid by Landlord for the Minimum Coverage Amount during the first Lease Year was $.25 per square foot, then, Tenant's Share of the Annual Direct Expenses that year would be grossed-up to $1.25 per square foot. 7.2.4 Availability of Landlord's Insurance. Notwithstanding --------------------------------------- anything to the contrary set forth in this Lease, Landlord shall not be required to maintain all or any portion of any insurance coverage required under this SECTION 7.2, including any endorsements thereto and/or the "Best's Rating," as - ------------ that term is defined in SECTION 7.3.5 below (all or any portion of the items ------------- described above to be known as a "COVERAGE ITEM") to the extent the Coverage Item is not commercially available, or is not available at a commercially reasonable cost; provided that a Coverage Item shall be deemed to be not commercially available, or not available at a commercially reasonable cost, only if most of the landlords of the Comparable Buildings are not carrying such Coverage Item. -30- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 7.2.5 Other Terms. Additionally, at the option of Landlord, ------------ Landlord's insurance policies may include one or more loss payee endorsements in favor of the Lender. Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant hereby agree that the premiums for all insurance maintained by Landlord from and after the Lease Commencement Date in connection with the terms of SECTION 7.2.1 THROUGH 7.2.2, above shall be deemed to be ----------------------------- Operating Expenses under this Lease. Upon inquiry by Tenant, from time to time, Landlord shall inform Tenant of such coverage carried by Landlord. The minimum limits of policies of insurance required of Landlord under the Lease shall limit the liability of Landlord under this Lease with respect to claims covered by such insurance. The insurance obtained by Landlord pursuant to this SECTION 7.2 ----------- shall: (i) specifically cover the indemnification liability of Landlord under SECTION 7.1 of this Lease; (ii) be issued by an insurance company (in the case - ------------ of the Earthquake Insurance, only the lead insurance company) having a rating of not less than A-X in Best's Insurance Guide (the "BEST'S RATING") or which is otherwise reasonably acceptable to Tenant and licensed to do business in the State of California; (iii) be primary insurance (with respect to the insurance described in SECTION 7.2.1 and 7.2.3 above) as to all claims thereunder and -------------- ----- provide that any such insurance carried by Tenant is excess and is non-contributing with any such insurance requirement of Landlord; and (iv) provide that said insurance shall not be canceled or coverage materially reduced unless thirty (30) days' prior notice shall have been given to Tenant. With respect to the insurance described in SECTION 7.2.2, Tenant shall be named as an ------------- additional insured. With respect to the insurance described in SECTION 7.2.1, ------------- Tenant shall be named as an additional insured as its interests pertain to solely any improvement or betterment to the physical realty. Tenant shall neither use the Premises nor permit the Premises to be used or acts to be done therein which will (a) increase the premium of any insurance described in this SECTION 7.2; (b) cause a cancellation of or be in conflict with any such - ------------ insurance policies; or (c) result in a refusal by insurance companies of good standing to insure the Building in amounts reasonably satisfactory to Landlord, provided, however, that Tenant shall at all times be permitted to use the Premises for the uses permitted by ARTICLE 5 of this Lease without being ---------- required to pay any insurance premiums for Landlord's insurance attributable to such use. Tenant shall, at Tenant's expense, comply with all insurance company requirements pertaining to the use of the Premises which uses are not inconsistent with the uses permitted by Article 5. If Tenant's conduct or use of the Premises causes any increase in the premium for Landlord's insurance policies and such conduct or use is not permitted by the terms of this Lease, then Tenant shall reimburse Landlord for any such increase. 7.3 Tenant's Insurance. Tenant shall maintain the following coverages ------------------- in the following amounts. 7.3.1 General Liability Insurance. Comprehensive General ----------------------------- Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Premises, including a Broad Form Comprehensive General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in SECTION 7.1 of ----------- -31- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] this Lease, for limits of liability not less than: Bodily Injury and $10,000,000 each occurrence Property Damage Liability $10,000,000 annual aggregate $10,000,000 each occurrence Personal Injury Liability $10,000,000 annual aggregate 0% Insured's participation The annual aggregate amounts set forth above shall apply solely to the Premises. 7.3.2 Property Damage Insurance. Physical Damage Insurance --------------------------- covering all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant's property on the Premises installed by, for, or at the expense of Tenant, including "boiler machinery coverage" as necessary to cover any applicable property of Tenant. Such insurance shall be written on an "all risks" of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage. 7.3.3 Workers' Compensation Insurance. Workers' compensation and -------------------------------- employer's liability insurance as required by law. 7.3.4 Business Property Insurance. Business Property Insurance in --------------------------- the amount of $1,000,000 covering additional expense necessarily incurred to continue normal operations as a result of damage to or destruction of the Premises or Tenant's personal property therein by perils required to be insured against by Tenant hereunder. 7.3.5 Self-Insurance By Tenant. -------------------------- 7.3.5.1 The Financial Requirement. The Tenant or an assignee ------------------------- of Tenant's interest in this Lease which is permitted pursuant to ARTICLE 11 ---------- (each such entity or individual to be known as a "SELF-INSURING PARTY") shall be entitled to self-insure its insurance requirements set forth under SECTIONS -------- 7.3.1, 7.3.2 AND 7.3.4 of this Lease, but only so long as the Self-Insuring - ------------------------- Party meets the "Financial Requirement," as that term is defined in SECTION ------- 7.3.5.2, below. Any such self-insurance shall be deemed to contain all of the - ------- terms and conditions applicable to such insurance as required pursuant to the terms of this -32- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SECTION 7.3, including, without limitation, (i) a full waiver of subrogation, - ------------ and (ii) formal claims adjustment, investigation and legal defense programs. Any such self-insurance shall additionally be deemed to provide "first-dollar" legal defense. 7.3.5.2 Satisfaction of the Financial Requirement. In order ------------------------------------------ to satisfy the "Financial Requirement," the Self-Insuring Party shall, concurrently with a notice (the "SELF-INSURANCE NOTICE") to Landlord electing to self-insure, provide Landlord with a consolidated balance sheet for the Self-Insuring Party and the subsidiaries of the Self-Insuring Party that are "controlled" (as that term is defined in SECTION 11.5 of this Lease) by the ------------ Self-Insuring Party, as set forth in the Self-Insuring Party's publicly available annual report for the Self-Insuring Party's fiscal year most recently ended prior to the date of the Self-Insurance Notice to Landlord, and as set forth in the Self-Insuring Party's publicly available quarterly report for the quarter of the Self-Insuring Party's fiscal year most recently ended prior to the date of the Self-Insuring Party's delivery of the Self-Insurance Notice to Landlord, which provides that the Self-Insuring Party's "stockholder's equity" is at least $100,000,000 (the "NET WORTH AMOUNT"), and that the value of cash, ------------------ cash equivalents and marketable securities held by the Self-Insuring Party is at least $50,000,000 (the "LIQUIDITY AMOUNT"). If the Self-Insuring Party at any ---------------- time does not satisfy the Financial Requirement, it shall immediately notify Landlord of the same. Furthermore, if the Self-Insuring Party fails to meet the Financial Requirements, it shall immediately supply Landlord with the insurance policies required under SECTIONS 7.3.1 AND 7.3.2 of this Lease in compliance ------------------------- with the terms of this ARTICLE 7. ---------- 7.3.6 Form of Policies. The minimum limits of policies of ------------------ insurance required of Tenant under this Lease shall limit the liability of Tenant under this Lease with respect to claims covered by such insurance. Tenant's insurance required under this Lease shall (i) name Landlord, and any other party it so specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under SECTION 7.1 of this Lease; (iii) be issued by an ------------ insurance company having a rating of not less than A-X in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance (with respect to the insurance described in SECTION 7.3.1 above) as to all claims thereunder and provide that ------------- any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; and (v) provide that said insurance shall not be canceled or coverage materially reduced unless thirty (30) days' prior written notice shall have been given to Landlord and any mortgagee of Landlord. Tenant shall deliver said policy or policies or certificates thereof, along with proof of payment of premium, or an indication that Tenant elects to self-insure pursuant to SECTION 7.3.5 above to Landlord on or before the Lease Commencement ------------- Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor. 7.3.7 Additional Insurance Obligations. Tenant shall carry and ---------------------------------- maintain during the entire Lease Term, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this ARTICLE 7, and such other reasonable types of ---------- -33- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] insurance coverage and in such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord, provided that Landlord may only make such request at least ninety (90) days prior to the date such increased amount of insurance or other type of insurance coverage shall become effective and shall only be entitled to make such request if such increased coverage is customarily required of multi-floor office tenants in the Comparable Buildings. 7.4 Subrogation. Landlord and Tenant intend that their respective ----------- property loss risks shall be borne by insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder, or, if coverage is carried that exceeds what is agreed to be provided hereunder, then, to the extent of the coverage actually carried. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waivers of subrogation shall not affect the right of the insured to recover thereunder. The parties agree that their respective insurance policies shall be endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor. If Landlord or Tenant fails to carry the amounts and types of insurance required to be carried pursuant to ARTICLE 7, in addition to any --------- remedies Landlord or Tenant may have under this Lease, such failure shall be deemed to be a covenant and agreement by the parties failing to carry such insurance to self-insure with respect to the type and amount of insurance such party so failed to carry, with full waiver of subrogation with respect thereto. ARTICLE 8 DAMAGE AND DESTRUCTION 8.1 Repair of Damage to Premises by Landlord. ---------------------------------------------- 8.1.1 Landlord Repair Obligations. The terms and provisions of ----------------------------- this ARTICLE 8 shall become applicable only after the "substantial completion of --------- the Tenant Improvements," as that term is defined in SECTION 5.3 of the Tenant ----------- Work Letter, for the Initial Premises has occurred. The terms of SECTIONS 6.1, ------------- 10.3.2 AND 19.27 of this Lease shall not apply to a "Casualty," as that term is - ----------------- defined below in this ARTICLE 8. Tenant shall use reasonable efforts to ---------- promptly notify Landlord of any damage to the Premises resulting from fire, flood, earthquake, windstorm, or any other acts of God or similar casualty (collectively, the "CASUALTY"). If the Building, the Parking Structure or any Common Areas serving or providing access to the Premises shall be damaged by Casualty ("DAMAGED AREA"), subject to Landlord's and Tenant's rights to terminate this Lease or a portion of the Premises as expressly provided in this ARTICLE 8, Landlord shall be required, promptly and diligently, subject to - ---------- reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this ARTICLE 8, to restore --------- the Building, the Parking Structure, the Common Areas, the Tenant Improvements and those Alterations of which Tenant has notified Landlord pursuant to SECTION ------- 7.2.1 (but excluding any personal property of Tenant). The restoration of the - ----- Building, the Parking Structure, the Common Areas, the Tenant Improvements and Alterations shall be to substantially the same condition as they were in prior to the Casualty, except for modifications required by zoning, building codes and other laws (the "USABLE CONDITION"). In connection with such repairs and replacements, Landlord shall, prior to the commencement of construction, promptly submit to Tenant, for Tenant's review and approval, which approval shall not unreasonably be withheld or delayed, plans, specifications and working drawings relating to the Tenant Improvements and Alterations, and Landlord shall select the contractors, subject to Tenant's reasonable approval, to perform such tenant improvement work. -34- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 8.1.2 Tenant's Rent Abatement Rights. Landlord shall not be --------------------------------- liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such Casualty or repair thereof; provided, however, that if such Casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy of the Premises, or shall have resulted in the inaccessibility of the Premises, Landlord shall allow Tenant a proportionate abatement of Base Rent and of Additional Rent, notwithstanding the terms of SECTION 6.1 of this Lease to the contrary, during the time and to the ----------- extent (i) the Premises are unfit for occupancy for Tenant's normal business use as a result of the Casualty, (ii) such portion of the Premises is not occupied by Tenant (or is inaccessible to Tenant) as a result thereof, (iii) Landlord is reimbursed or is entitled to be reimbursed under Landlord's rental interruption insurance policy for such rent abatement (or would have been entitled to be reimbursed had it been carrying the rental interruption insurance required of it), and (iv) Tenant has not been relocated from the damaged area pursuant to SECTION 8.4.2 below; provided, further, that if a part of the Premises are - -------------- damaged such that the remaining portion thereof is not sufficient to enable Tenant to conduct its business operations from such remaining portion and Tenant does not conduct its business operations therefrom, Landlord shall allow Tenant a total abatement of Base Rent and Additional Rent during the time and to the extent (A) the Premises are unsuitable for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result of the subject damage, (B) Tenant has not been relocated from the Damaged Area pursuant to SECTION ------- 8.4.2 below, and (C) Landlord is reimbursed or is entitled to be reimbursed - ----- under its rental interruption insurance policy for such rent abatement (or would have been entitled to be reimbursed had it been carrying the rental interruption insurance required of it). 8.2 Repair Certificate. Landlord shall, within sixty (60) days after ------------------- the date of any Casualty affecting Tenant's use of the Premises, deliver a certificate ("REPAIR CERTIFICATE") to Tenant issued by a general contractor retained by Landlord and approved by Tenant, which approval shall not be unreasonably withheld or conditioned and shall be given or reasonably withheld by Tenant within ten (10) days after Tenant's receipt of Landlord's notice setting forth the name and address of Landlord's proposed general contractor. The Repair Certificate shall describe with reasonable specificity the scope of the restoration and repair obligations and estimate the date upon which Landlord's restoration and repair obligations are expected to be sufficiently completed to achieve a Usable Condition of the Premises (the "ESTIMATED COMPLETION DATE"). 8.3 Total Destruction and End of Term Damage. ---------------------------------------------- 8.3.1 Total Destruction of the Building. If the Building is ------------------------------------- damaged or destroyed by a Casualty and such Casualty requires demolition and reconstruction of the entire Building (whether or not including foundations as described in the Repair Certificate) and the Estimated Completion Date will require longer than fifteen (15) months from the date of the Casualty, Landlord and Tenant shall each have the right to terminate this Lease by notice to the other delivered within thirty (30) days of the date of the receipt of the Repair Certificate. 8.3.2 Damage Near End of Term. In the event that the Premises or ------------------------ the Building is destroyed or damaged by a Casualty during the last thirty-six (36) months of the Lease Term, and if (i) the Estimated Completion Date is greater than one hundred twenty (120) days after the date of the Casualty, and -35- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (ii) Tenant has not previously exercised, or does not, within sixty (60) days after the date of such Casualty, exercise, any remaining extension options pursuant to SECTION 2.2.2 of this Lease at the time of the Casualty, then, -------------- notwithstanding anything contained in this ARTICLE 8, Landlord and Tenant shall --------- each have the option to terminate this Lease by giving notice to the other of the exercise of such option within (a) thirty (30) days after Landlord's delivery to Tenant of the Repair Certificate, or (b) if Tenant is considering whether to exercise a Renewal Option, within sixty (60) days after the date of the Casualty, in which event this Lease shall cease and terminate as of the date set forth in such notice (which date shall not be greater than one hundred eighty (180) days after the date of the Casualty), Tenant shall, subject to the terms of SECTION 8.1.2 above, pay the Base Rent and Additional Rent, properly -------------- apportioned up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term. 8.4 Tenant's Partial and Total Termination Rights. -------------------------------------------------- 8.4.1 Tenant's Initial Termination Rights. -------------------------------------- 8.4.1.1 Repair of Damage. Subject to the termination ------------------ rights described in this ARTICLE 8, in the event of a Casualty, Landlord shall --------- repair damage to the Damaged Area as indicated in SECTION 8.1.1. -------------- 8.4.1.2 Less Than Or Equal to Three (3) Floors of the ------------------------------------------------ Premises Damaged. If less than or equal to three (3) full floors of the - ----------------- Premises are included in the Damaged Area, and the Estimated Completion Date will not occur within twelve (12) months after the date of the Casualty (the "12-MONTH PERIOD"), Tenant may terminate this Lease as to the portion of the Premises included in the Damaged Area by providing a notice of termination to Landlord (the "TENANT TERMINATION NOTICE") within thirty (30) days after the date of the Repair Certificate, which termination shall be effective as of the date of such Casualty, and this Lease, including the provisions with respect to Rent, shall be amended to appropriately reflect that the portion of the Premises included in the Damaged Area is no longer included within the Premises. 8.4.1.3 More Than Three (3) Floors of the Premises ------------------------------------------------ Damaged. If more than three (3) full floors of the Premises are included in the - ------- Damaged Area, and the Estimated Completion Date will not occur within the 12-Month Period, then, Tenant may elect to terminate this Lease as to either the portion of the Premises included in the Damaged Area (in which case this Lease, including the provisions with respect to Rent, shall be amended to appropriately reflect that the portion of the Premises included in the Damaged Area is no longer included within the Premises), or as to the entire Premises, by providing the Tenant Termination Notice within sixty (60) days after the date of Tenant's receipt of the Repair Certificate. In the case of a termination of only the portion of the Premises included in the Damaged Area, such termination shall be effective as of the date of the Casualty and, in the case of a termination of this Lease, such termination shall be effective as of a date specified in the Tenant Termination Notice as determined by Tenant in its sole and absolute discretion, but in no event may such date exceed the date occurring two (2) years after the date of the Tenant Termination Notice. -36- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 8.4.2 Landlord Relocation Right. Notwithstanding the foregoing --------------------------- provisions of this SECTION 8.4, Landlord shall have the right, at Landlord's ------------ sole cost and expense (except for the payment of rent which shall be payable as provided in this SECTION 8.4.2 below), to relocate Tenant (provided, thereafter, ------------- Landlord repairs the Damaged Area in accordance with provisions of this ARTICLE ------- 8) from the portion of the Premises included in the Damaged Area to comparable - - space at least equal in size to the portion of the Premises included in the Damaged Area ("RELOCATED SPACE") in the area known as the "West San Fernando Valley" (provided that such Relocated Space need not be high-or mid-rise space), by (i) providing notice thereof to Tenant on or before Landlord's delivery of the Repair Certificate to Tenant, and (ii) providing the Relocated Space in a condition ready for Tenant's move-in within sixty (60) days after the Casualty, in which case Tenant shall not have a right to terminate this Lease in its entirety or as to a portion of the Premises, as the case may be, as set forth in SECTIONS 8.4.1.2 or 8.4.1.3, above; provided that Landlord's right to relocate - ----------------- ------- Tenant and thereby eliminate Tenant's termination right shall only apply if the Estimated Completion Date will occur, and the relocation of Tenant's personnel back into the Premises from the Relocated Space will occur, within fifteen (15) months after the Casualty (the "15-MONTH PERIOD"), as reasonably determined by the Repair Contractor. Landlord shall have the obligation for payment of any rent in connection with the Relocated Space during any period in which Tenant is relocated from the portion of the Premises included in the Damaged Area to the Relocated Space; provided, however, that Tenant shall pay to Landlord the Base Rent or the rent Landlord is actually paying for the Relocated Space, whichever is less, and Tenant's Share of Direct Expenses (which Tenant's Share of Direct Expenses shall be calculated using the amount of Tenant's Share of Direct Expenses that Tenant was paying for the month prior to the month in which the Casualty occurred) for the portion of the Premises included in the Damaged Area as Tenant's contribution toward rent for the Relocated Space during the term of such relocation and, because the payment described previously in this sentence shall be a contribution from Tenant toward rent for the Relocated Space (and shall not constitute Rent for the portion of the Premises included in the Damaged Area), Tenant's obligation to pay Base Rent and Additional Rent shall abate with respect to the portion of the Premises included in the Damaged Area as provided in SECTION 8.1.2 above during the period of such relocation. All ------------- expenses reasonably incurred by Tenant for moving from and returning to the Premises, including but not limited to costs of stationery and business cards (if applicable), and equipment installations in connection with such relocation shall be funded by Landlord within thirty (30) days of invoice. -37- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 8.4.3 Tenant Repair Option. If this Lease is not terminated as ---------------------- provided in SECTION 8.4.1, above, and Tenant has not been relocated as provided ------------- in SECTION 8.4.2, above, and the repairs are not actually completed within one -------------- (1) year after the Damage Date (or, if the Repair Certificate delivered by Landlord indicates a repair period over one (1) year, then within the repair period indicated in the Repair Certificate), which period shall not be subject to extension as a result of any Force Majeure, below, then Tenant shall have the right, on written notice to Landlord (the "Repair Failure Notice") delivered after the occurrence of the event described above, to either (a) cause Landlord to assign to Tenant any contracts relating to the repairs, or (b) terminate the contractor then engaged to complete the repairs and commence to complete the repairs itself. After Tenant's election of either option (a) or (b), above, any insurance proceeds received by Landlord or to be received by Landlord in connection with such repairs (not including any rental interruption insurance proceeds), shall be assigned to Lien Holder, and held by Lien Holder in a construction escrow account for the benefit of Tenant. Prior to the commencement of the repairs, and from time to time prior to the completion of the repairs as Lien Holder shall reasonably require, Tenant shall deposit into the construction escrow the amount of any short-fall between the cost of such repairs and the available insurance proceeds. Thereafter Tenant shall supervise the completion of the repairs and/or complete the same itself, as soon as reasonably possible in accordance with plans and specifications approved by Lien Holder (the "TENANT REPAIR OPTION"). In the event that Tenant elects the Tenant Repair Option, Tenant shall have the right to deliver to Landlord and Lien Holder from time to time invoices for the costs of construction, which invoices shall contain a reasonably particularized breakdown of such costs. To the extent neither Landlord nor Lender delivers a detailed written objection to Tenant within ten (10) business days after receipt of such invoice, then, subject to a reasonable procedure established by Lien Holder, Tenant shall be entitled to disbursements from the construction escrow of the amounts set forth in such invoices, provided that upon completion of the repairs, Tenant shall be entitled to deduct from Rent becoming payable by Tenant under this Lease, that amount which represents the difference between (i) amounts expended by Tenant in connection with the completion of the repairs as set forth in such invoices, less (ii) the amount of insurance proceeds paid to Tenant in connection with the completion of the repairs, provided that the total amount of such credit shall be amortized over the remaining Lease Term, with interest on the unamortized portion of such amount accruing at the Interest Rate. If, however, Landlord or Lien Holder in good faith delivers to Tenant, within ten (10) business 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 the charges are excessive (in which case, concurrently with its delivery of such written objection, Landlord shall pay from its own funds or Lien Holder shall pay from the construction escrow, as the case may be, the amount it contends would not have been excessive), then Tenant shall not be entitled to include in its calculation of amounts expended in connection with the repairs either (i) the entire amount of such invoice if payment is made by Landlord, or (ii) the amount of such invoice not paid by Lender if partial payment is made by Lien Holder from the construction escrow; but Tenant may proceed to institute arbitration proceedings against Landlord pursuant to the terms of SECTION 19.41, below, to determine that portion, if any, of the amounts ------------- so incurred by Tenant which Landlord or Lien Holder is required to reimburse Tenant under this SECTION 8.4.3. Tenant may deduct the amount of any final, -------------- non-appealable arbitration award from Rent as it becomes payable under this Lease, provided that the total amount of such -38- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] credit shall be amortized over the remaining Lease Term not including any Renewal Option Term unless Tenant has already exercised a Renewal Option Right, with interest on the unamortized portion of such amount accruing at the Interest Rate. Notwithstanding the foregoing, if Tenant delivers a Repair Failure Notice to Landlord, then Landlord shall have the right, which may only be exercised once with respect to any specific event of damage or destruction, to suspend the occurrence of the Tenant Repair Option for a period ending thirty (30) days after Landlord's receipt of the Repair Failure Notice by delivering to Tenant, within five (5) business days of Landlord's receipt of the Repair Failure Notice, a certificate of Landlord's contractor responsible for the repair of the damage certifying that it is such contractor's good faith judgment that the repairs to the Tenant Improvements shall be completed within thirty (30) days after the date of Landlord's receipt of the Repair Failure Notice. If repairs shall be completed prior to the expiration of such thirty-day period, then the Repair Failure Notice shall be of no force or effect, but if the repairs shall not be completed within such thirty-day period, then upon the expiration of such thirty-day period, the Tenant Repair Option shall become effective. At any time, and from time to time, after the date occurring thirty (30) days after the Damage Date, Tenant may request that Landlord provide Tenant with a certificate from Landlord's architect or contractor described above setting forth such architect's or contractor's reasonable opinion of the date of completion of the repairs to the Tenant Improvements and Landlord shall respond to such request within five (5) business days. 8.5 Landlord's Rights to Terminate - Insured and Uninsured Casualty. ------------------------------------------------------------------ 8.5.1 Uninsured Casualties. --------------------- 8.5.1.1 Termination Rights. In addition to the ------------------- termination rights set forth in SECTION 8.3 above, and SECTION 8.5.2, below, if ----------- ------------- the cost to repair (the "REPAIR COST") the Damaged Area (including the Tenant Improvements and Alterations therein) that is not covered by insurance (with deductible amounts considered to be not covered by insurance) required to be maintained by Landlord hereunder and any additional insurance actually maintained by Landlord, is greater than the "Maximum Amount" as that term is defined in this SECTION 8.5.1 (the amount which is not so covered by insurance ------------- and which is in excess of the Maximum Amount may be referred to as the "UNINSURED SHORTFALL"), the following shall apply (and Landlord shall notify Tenant of its election on or before the date which is sixty (60) days after Landlord's delivery of the Repair Certificate to Tenant): (i) Landlord may elect to repair the Damaged Area in accordance with the terms of this ARTICLE 8 --------- and without affecting Tenant's rights of termination, if any, or (ii) Landlord may elect not to restore the Damaged Area if Tenant declines to pay the Uninsured Shortfall as described in this SECTION 8.5.1.1 below. If Landlord --------------- elects not to restore the Damaged Area, then, within thirty (30) days after Landlord notifies Tenant it does not intend to repair the "Damaged Area," as defined in SECTION 8.1.2, above, Tenant may elect to exercise a termination -------------- right or to pay the Uninsured Shortfall, as follows: (A) Tenant may elect to terminate this Lease as to either (x) any portion of the Premises included in the Damaged Area (in which case this Lease shall be amended to appropriately reflect that the portion of the Premises included in the Damaged Area is no longer included within the Premises and to provide a corresponding reduction of the Rent), or (y) as to the entire Premises, by providing a termination notice (the "NOTICE OF TERMINATION"), which termination shall be effective as of a date specified by Tenant in the Notice of Termination, but which shall not exceed two (2) years after the date of the Notice of Termination, or (B) provided that Tenant meets the Financial Requirement, Tenant may elect to pay the Uninsured Shortfall and, thereafter, Landlord shall be obligated to proceed to repair the damage, provided Tenant funds the Uninsured Shortfall, and this Lease shall not terminate. If Landlord fails to timely make an election under items (i) or (ii) of this SECTION 8.5.1.1; then, Landlord shall be deemed to have elected item ---------------- (ii), and if Tenant has an elective right, and Tenant fails to timely make an election under item (A) or (B) of this SECTION 8.5.1.1; then, Tenant shall be ------- ------- deemed to have elected item (A)(x). The provisions of SECTION 8.1.2 relative to ------------- the design and construction of any Tenant Improvements or Alterations shall be applicable with respect to any repair or restoration of Tenant Improvements or Alterations described in this SECTION 8.5.1. The term "Maximum Amount" shall ------------- mean an amount equal to the greater of (i) ten percent (10%) of the Replacement -39- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Cost of the Building and Tenant Improvements, or (ii) One Million Six Hundred Thousand and No/100 Dollars ($1,600,000.00). 8.5.1.2 Landlord's Failure to Fund Uninsured Amounts. ----------------------------------------------- If Landlord fails to timely fulfill its obligation to fund any of its repair obligations under SECTION 8.1.1 of this Lease (which funding obligations are -------------- those of Landlord and not of Tenant or any insurer), Tenant shall be entitled to deliver notice (the "FUNDING NOTICE") thereof to Landlord and to any Lender. If Landlord still fails to fulfill any such obligation within twenty (20) business days after Landlord's receipt of the Funding Notice from Tenant, and if Landlord fails to deliver notice to Tenant within such twenty (20) business day period explaining the reasons why Landlord believes that the amounts described in Tenant's funding notice are not due from Landlord (the "FUNDING REFUSAL NOTICE"), Tenant shall be entitled to advance such amounts (the "Funding Amount") to Landlord through a construction control escrow for Landlord's use in complying with its repair obligations under SECTION 8.1.1 of this Lease. Tenant ------------- may then offset the amount so provided to Landlord, against Tenant's next succeeding monthly installments of Base Rent which become due, provided that the total amount of such credit so provided shall be amortized over the then remaining Lease Term not including any Renewal Option Term unless Tenant has exercised a Renewal Option Right, with interest on the unamortized portion of such amount accruing at the Interest Rate. However, if Tenant is in default pursuant to SECTION 12.1.1 of this Lease (after expiration of any applicable --------------- cure period) at the time that such offset would otherwise be applicable, Tenant shall not be entitled to such offset until such default is cured. If Landlord delivers a Funding Refusal Notice, and if Landlord and Tenant are not able to agree on the amounts to be so funded by Landlord, if any, within ten (10) days after Tenant's receipt of a Funding Refusal Notice, Tenant may submit such dispute to arbitration in accordance with SECTION 19.41 of this Lease and Tenant ------------- shall not be entitled to deliver the Funding Amount nor shall Tenant be entitled to such offset from Base Rent unless the Arbitrator determines that Tenant is entitled to do so pursuant to this SECTION 8.5.1.2. If Tenant prevails in any --------------- such arbitration, the award by the Arbitrator shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of Landlord's payment of such award or, if Landlord and Tenant then agree that Tenant shall be entitled to apply such award as a credit against Tenant's obligations to pay Base Rent, the award shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of Tenant's application of such amounts as a credit against Base Rent. 8.5.2 Retirement of Debt with Insurance Proceeds. In addition to ------------------------------------------- any other rights to terminate this Lease set forth in this SECTION 8.5, if (i) ----------- the Lien Holder shall, in accordance with the terms of its loan contract with Landlord, be entitled to require that the insurance proceeds or any portion thereof be used to retire the then-existing debt, and (ii) the cost of repair of -40- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] the Damaged Area not covered (the "INSURANCE SHORTFALL") by available insurance proceeds (provided that "available" insurance proceeds shall not include those used to retire debt as set forth in this SECTION 8.5.2, above, but shall include ------------- insurance proceeds which would have been available but for Landlord's failure to maintain the insurance required under SECTION 7.2.1 of this Lease) exceeds the ------------- Maximum Amount, then Tenant shall be notified of such matters within fifteen (15) days following the later of (a) Landlord's receipt of notice from the Lien Holder with respect to item (i) above, and (b) Landlord's determination of those matters set forth in item (ii) above, and the following shall apply: Landlord may terminate this Lease within thirty (30) days after Tenant has been notified that the circumstances in items (i) and (ii), above, apply ("LANDLORD'S TERMINATION PERIOD"), and the effective date of such termination as scheduled by Landlord shall take into account Tenant's orderly relocation, but shall in no event be in excess of two (2) years from the date of Landlord's election to terminate. If Tenant (or Tenant and an Affiliate of Tenant that joins Tenant in giving a notice as hereinafter provided and agrees to be bound by the obligations under this SECTION 8.5.2) meets the Financial Requirement, then, ------------- Landlord shall not have the right to terminate this Lease, even if Landlord has elected to do so, if within sixty (60) days after receipt of Landlord's notice electing to terminate this Lease, Tenant and/or an Affiliate of Tenant, as the case may be, agree(s) by notice to Landlord to advance the Insurance Shortfall, in an amount not greater than the amount of insurance proceeds used to retire the then-existing debt, to Landlord. Tenant and/or Tenant's Affiliate shall deposit such amount of the Insurance Shortfall in an escrow account pursuant to escrow instructions and with an escrow company, that are both reasonably approved by Landlord and Tenant. In the alternative, during Landlord's Termination Period, Landlord may elect not to terminate this Lease in connection with the terms of this SECTION 8.5.2 and either proceed to fund such portion of ------------- the Insurance Shortfall and repair the damage to the Premises, or not proceed to repair the Damaged Area. If Landlord does so elect not to repair the Damaged Area, Tenant may, in its sole and absolute discretion and upon notice given to Landlord within sixty (60) days following the expiration of Landlord's Termination Period, either (A) agree to advance such amount of the Insurance Shortfall, in which case, subject to the terms of this ARTICLE 8 and without --------- affecting Tenant's rights of termination, if any, Landlord shall proceed to repair the damage to the Damaged Area, to the extent covered by insurance proceeds and amounts paid by Tenant, or (B) elect to terminate this Lease as to any portion of the Premises included in the Damaged Area (in which case this Lease shall be amended to appropriately reflect that the portion of the Premises included in the Damaged Area is no longer included within the Premises and to provide a corresponding reduction of the Rent). Landlord hereby agrees to proceed with reasonable good faith efforts and reasonable diligence to cause any Lien Holder not to retire the mortgage debt and, if unsuccessful, upon the occurrence of damage to the Building which would give Landlord the right to terminate this Lease pursuant to this SECTION 8.5.2, to use reasonable good ------------- faith efforts and reasonable diligence to refinance the first mortgage debt on the Building. Upon completion of any repairs to the Damaged Area in accordance with the terms of this SECTION 8.5.2, Tenant shall be entitled to ------------- deduct from Rent (the "RENT DEDUCTION") payable by Tenant under this Lease the amount of the Insurance -41- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Shortfall paid by Tenant in connection with such repairs under this SECTION ------- 8.5.2, provided that the total amount of such credit shall be amortized over the - ----- remaining Lease Term (not including any Renewal Option Term, unless Tenant has already exercised a Renewal Option Right), with interest on the unamortized portion of such amount accruing at the Interest Rate. Landlord may, at any time during the Lease Term, pre-pay the Rent Deduction amount to Tenant by paying the principal amount thereof together with all accrued interest thereon. 8.6 Waiver of Statutory Provisions. The provisions of this Lease, --------------------------------- including this ARTICLE 8, constitute an express agreement between Landlord and --------- Tenant with respect to any and all damage resulting from a Casualty to all or any part of the Premises, the Building, or the Project, and any statute or regulation of the State of California, including, without limitation, SECTIONS -------- 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or - ------- ------- obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage resulting from a Casualty to all or any part of the Premises, the Building, or the Project. 8.7 Disposition of Insurance Proceeds. If this Lease is terminated by ---------------------------------- reason of damage resulting from a Casualty, each party shall be entitled to retain the insurance proceeds awarded to such party by that party's property insurer free and clear of claims by the other party. If this Lease is not terminated by reason of any damage resulting from a Casualty, then, all insurance proceeds payable by reason thereof shall be disbursed for use in reconstruction thereof, as applicable. Upon completion of the repairs or reconstruction, each party shall be entitled to retain any remaining proceeds awarded to such party by that party's insurer. Subject to the terms of SECTIONS -------- 8.3 and 8.5 hereof, any cost of repair or reconstruction in excess of the - --- --- insurance proceeds made available under the policies of insurance that Landlord is required to maintain under this Lease shall be borne by Landlord. The terms of this ARTICLE 8 shall apply in connection with any damage to the Premises or --------- Building and shall supersede the terms of SECTIONS 6.1.2, 10.3.2 and 19.27 of -------------- ------ ----- this Lease. ARTICLE 9 PERSONAL PROPERTY TAX Tenant shall reimburse Landlord upon demand for any and all taxes required to be paid by Landlord (except to the extent included in Tax Expenses by Landlord), excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when: (i) such taxes are measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds an amount equal to thirty-five dollars ($35.00) per rentable square foot of the Premises, regardless of whether title to such improvements shall be vested in Tenant or Landlord; (ii) such taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project's parking structure and other parking areas; or (iii) such taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. ARTICLE 10 SERVICES AND UTILITIES 10.1 Standard Tenant Services. Landlord shall provide the following -------------------------- services ("STANDARD TENANT SERVICES") on all days (unless otherwise stated below) during the Lease Term, as extended pursuant to SECTION 2.3: ------------ -42- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 10.1.1 Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning ("HVAC") and shall operate the HVAC system when necessary in order to provide normal comfort for normal office use in the Premises, during the period ("BUILDING HOURS") Monday through Friday, from 7:30 A.M. to 5:30 P.M. and on Saturday during the period from 9:00 A.M. to 1:00 P.M., except for the date of observation of New Year's Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord's discretion, other locally or nationally recognized holidays (collectively, the "HOLIDAYS"). Landlord shall use reasonable efforts to operate the HVAC System in a manner consistent with its designed capacity. During such time as Tenant occupies the entire Project, Tenant shall have the right, after the first (1st) Lease Year, exercisable upon at least ninety (90) days prior written notice, to modify the Building Hours so long as (i) the Building Hours are the same in both the Building and Adjacent Building and (ii) the total of the Building Hours in any one week will not exceed fifty-four (54) hours. For example, if Tenant should adopt a four-day work week for its employees, Tenant would have the flexibility to modify the Building Hours to accommodate that work schedule. 10.1.2 Subject to the terms of SECTION 10.2 of this Lease, ------------- Landlord shall provide adequate electrical wiring and facilities for connection to Tenant's lighting fixtures and Tenant's office equipment, provided that (i) the connected electrical load of Tenant's office equipment does not exceed an average of three and one-half (3 1/2) watts per usable square foot of the Premises during Building Hours on a monthly basis, and the electricity so furnished for office equipment will be at a nominal one hundred twenty (120) volts and Tenant will be granted permission to install, at Tenant's expense, circuits containing one hundred twenty/two hundred eight (120/208) voltage, and (ii) the connected electrical load of Tenant's lighting fixtures does not exceed an average of one (1) watt per usable square foot of the Premises during Building Hours on a monthly basis, and the electricity so furnished for Tenant's lighting will be at a nominal two hundred and seventy-seven/one hundred twenty (277/120 volts); provided, however, that to the extent such electrical usage exceeds either the amount allowed under item (i) or (ii), above, such excess consumption shall be subject to the terms of SECTION 10.2, below. Landlord ------------ shall furnish replacement of Building standard lamps (including lamps classified as Building standard when first installed), starters and ballasts, the costs of which shall be included in Operating Expenses. 10.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes, including hot water in lavatories. 10.1.4 Landlord shall provide janitorial services, Monday through Friday except the date of observation of Holidays, in and about the Premises in accordance with the specifications attached hereto as EXHIBIT I and made a part --------- hereof; provided, however, that Landlord may make modifications to such janitorial specifications from time to time during the Lease Term, which modifications shall be subject to Tenant's prior written approval which approval shall not unreasonably be withheld or delayed so long as janitorial service to the Premises is not thereby diminished and such janitorial specifications continue to be reasonably consistent with services provided to multi-floor tenants of a similar usage in Comparable Buildings. Any additional cleaning requested by Tenant shall be subject to SECTION 10.4 below. ------------- -43- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 10.1.5 Landlord shall provide nonexclusive automatic passenger and freight elevator service during Building Hours, and shall have at least one elevator available at all times, but no fewer elevators shall be available than are reasonably required adequately to service the Premises during Building Hours. 10.1.6 Landlord and/or the owner of the Adjacent Building shall provide at least one (1) on-site Project manager, one (1) on-site engineer, and one (1) on-site day-porter for the Project. The primary responsibility of such management, engineering and day-porter personnel shall be the supervision and operation of the Project. Landlord shall operate its Project management office in the Building or in the Adjacent Building, but Tenant acknowledges that, if Landlord ever no longer owns both the Building and Adjacent Building, a separate management office may operate in each building; provided, however, that in such event Operating Expenses for the Building shall not include rental for such management offices to the extent that the aggregate size of such management offices is in excess of what would be included were there a single management office for the Project, considering the Building's pro-rata percentage of the Project. 10.1.7 Landlord shall provide twenty-four (24) hours per day, seven (7) days per week, access control systems and personnel for the Building. Landlord shall furnish at least one (1) twenty-four (24) hour security guard at the Building, and either Landlord or the landlord of the Adjacent Building shall provide one (1) additional security guard for the Project, Monday through Friday (not including Holidays) from 7:00 a.m. to 9:00 p.m., and Saturdays from 8:00 a.m. to 7:00 p.m. The duties of the security guard shall include monitoring video feed from security cameras, alarm panels, fire/life safety systems, water and heat alarms. The Project security guard shall be provided with a suitable vehicle to use in performing his or her principal responsibility for patrolling the Project Common Areas. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall be permitted, at Tenant's sole discretion and at Tenant's sole cost, to install a security system for the Premises (which may include, without limitation, card readers, video cameras and video recorders) which does not interfere with the operation of the Systems and Equipment nor with the operation of the Building's access control system. Tenant shall be solely responsible for the monitoring and operation of Tenant's security system. The installation, operation and maintenance of such system shall be coordinated with Landlord. Landlord further grants Tenant the right to "tie into" the Building's access control system, provided that such tie-in does not alter materially the effectiveness or usage of the Building's access control system or the access control services to be provided to other tenants' premises, and Tenant shall be responsible for any additional incremental expense for additional equipment or personnel necessitated because of such tie-in. -44- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 10.1.8 Landlord shall cause the exterior windows of the Building to be washed at least once every four (4) months during the Lease Term. 10.2 Overstandard Tenant Use. Tenant shall not, without Landlord's ------------------------- prior written consent, change its use of the Premises, from general office purposes as provided in SECTION 5.1 to a different use, or (after completion of ----------- their initial installation as initially approved by Landlord) add machines, or equipment or lighting to the Premises, which change or addition would materially affect the temperature designed to be maintained by the HVAC system or materially increase the quantity of water normally required to be furnished for the Premises by Landlord pursuant to the terms of SECTION 10.1 of this Lease. ------------ If such consent is given, Landlord shall have the right to install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the reasonable cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord subject to reasonable verification of all such costs. If Tenant uses water, electricity, heat, ventilation or air conditioning in excess of that required to be supplied by Landlord pursuant to SECTION 10.1 of this Lease, Tenant shall pay to Landlord, upon billing, the cost - ------------ of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is required to be installed during the Lease Term in order to supply such excess consumption, and the cost of the increased wear and tear on existing or new equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and, in such event, Tenant shall pay the increased cost directly to Landlord, on demand, including the cost of installing and maintaining such additional metering devices. If Tenant desires to use heat, ventilation or air conditioning other than during Building Hours, Tenant shall give Landlord at least one (1) business day prior notice of Tenant's desired use of such utilities. Tenant acknowledges that Landlord charges a fee per hour (the "HOURLY CHARGE") equal to $153.00 for after-hours heat or air-conditioning and $60.00 for ventilation only (the "AFTER-HOURS HVAC"). Landlord agrees that increases in the Hourly Charge will in no event exceed increases in Landlord's "Actual Cost" of providing the After-Hours HVAC. Likewise, Landlord agrees that in the event of any decrease in the Actual Cost of providing the After-Hours HVAC (e.g., resulting from an upgrade to a more efficient HVAC system, or a material decrease in electrical utility rates), Landlord shall correspondingly reduce the Hourly Charge. "Actual Cost" shall be equal to Landlord's direct cost of providing such service, which direct cost shall be determined by calculating the total kilowatt minimum load multiplied by average electricity cost during those hours (to the extent reasonably determinable) plus any cost incurred for equipment maintenance for such after-hours usage. By way of example, if the utility company provides rate schedules for peak and off-peak demand hours, the electricity costs for After-Hours HVAC should reflect rates actually charged for the time of day to which the hourly charge is applicable. Equipment maintenance cost for such after hours usage shall not exceed the annual operating hourly maintenance cost derived by dividing the total annual equipment maintenance cost by the total annual equipment operating hours, without a profit or overhead charge to Landlord, but including a reasonable administrative charge and, unless the system is automated, an amount reasonably calculated by Landlord to reimburse Landlord for the hourly engineers' salary and fringe benefits. -45- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 10.3 Interruption of Use. --------------------- 10.3.1 No Liability for Damages. Except as provided in SECTION --------------------------- ------- 10.3.2 below, Tenant agrees that Landlord shall not be liable for damages, by - ------ abatement of Rent or otherwise, for failure to furnish or delay in furnishing any Standard Tenant Services (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by necessary repairs, replacements or improvements (provided that Landlord agrees to use commercially reasonable efforts to schedule any such work outside of Building Hours), by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, or interference with, Tenant's business including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the Tenant Standard Services as set forth in this ARTICLE 10. If any governmental ---------- or quasi-governmental entity promulgates or revises any statute, ordinance, building code, fire code or other code or imposes mandatory or voluntary controls or guidelines on Landlord or the Project or any portion thereof, relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions, or the provision of any other utility or service provided with respect to this Lease, or if Landlord is required to make alterations to the Project or any portion thereof in order to comply with such mandatory or voluntary controls or guidelines, then, Landlord may, in its sole discretion, comply with such mandatory or voluntary controls or guidelines or make such alterations to the Project related thereto without creating any liability of Landlord to Tenant under this Lease (except as provided in SECTION 10.3.2 below), provided that the Premises are not thereby --------------- rendered untenantable, and further provided that Landlord will not voluntarily reduce the level of services provided to the Premises consistent with the first class character of the Project. 10.3.2 Tenant's Remedy. Except as otherwise provided in ARTICLES ---------------- -------- 8 AND 13 of this Lease, in the event that (A) Tenant is denied access to, or is - --------- unable to conduct Tenant's normal business operations in, the Premises or any portion thereof, and Tenant does not use the Premises or such portion thereof, and (B) such non-use of the Premises is as a result of (i) any repair, maintenance or alteration performed by Landlord, or which Landlord failed to perform, after the Lease Commencement Date and which was required by this Lease, which is not necessitated by the negligence of Tenant or its employees, agents, contractors or invitees, (ii) the presence of Hazardous Material in or about the Premises or the Building which was in violation of Hazardous Materials Laws then in effect when brought upon or used in or about the Premises or the Building and was not brought upon or used in or about the Premises or Building by Tenant or its employees, agents, contractors, or invitees, or (iii) the interruption or substantial reduction in one or more of the following Standard Tenant Services required to be provided by Landlord pursuant to this Lease (whether or not such interruption or reduction is due to Landlord's fault or within Landlord's control, so long as it is not due to the fault or neglect of Tenant, its agents, employees, contractors or invitees): heating, ventilating and air conditioning, janitorial service, electrical service, passenger elevator service or water, or (iv) Landlord's failure to supply Tenant with all of the parking passes to which -46- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant is entitled pursuant to ARTICLE 18 below, where Landlord is unable to ---------- provide alternative parking within Warner Center for such unusable parking passes (each such set of circumstances as set forth in item (A) and then in either (i), (ii), (iii) or (iv) of item (B), above, to be known as an "Abatement Event"), then, Tenant shall give Landlord and Lender notice ("Abatement Event Notice") of such Abatement Event, and if such Abatement Event continues for five (5) consecutive business days after Landlord's and Lender's receipt of any such notice or ten (10) consecutive or nonconsecutive days after Landlord's and Lender's receipt of any such notices for each such day in any twelve (12) month period (the "Eligibility Period"), then, the Base Rent and Tenant's Share of Direct Expenses shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that the Abatement Event continues, in the proportion that the rentable area of the portion of the Premises that is the subject of the Abatement Event, bears to the total rentable area of the Premises (in the case of the circumstances set forth in items (i), (ii) and (iii) above) or in the proportion that the number of parking passes which Tenant is unable to utilize bears to the total number of parking passes to which Tenant is entitled pursuant to ARTICLE 18 below (in the case of the circumstance set forth in item ---------- (iv) above); provided, however, in the event that the Abatement Event applies to a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then, for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant's Share of Direct Expenses for the entire Premises shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant reoccupies any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. Notwithstanding the foregoing, in no event shall the amount of Rent abated hereunder exceed the amount of proceeds Landlord is entitled to receive under the terms of the rental interruption insurance policies Landlord is required to carry hereunder. Such rights to abate Base Rent and Tenant's Share of Direct Expenses shall be Tenant's sole and exclusive remedy at law or in equity for an Abatement Event; provided, however, that, except as otherwise provided in Article 8 and 13 of this Lease, ---------------- if Landlord has not cured such Abatement Event within one (1) year after Landlord's receipt of the Abatement Event Notice, and if Landlord does not elect to relocate Tenant as provided in SECTION 10.3.3 below, Tenant shall have the -------------- right to terminate this Lease during the first five (5) business days of each calendar month following the end of such one (1) year period until such time as Landlord has cured the Abatement Event, which right may be exercised only by delivery of notice to Landlord and Lender (the "Abatement Event Termination Notice") during such five (5) business-day period, and shall be effective as of a date set forth in the Abatement Event Termination Notice (the "Abatement Event Termination Date"), which Abatement Event Termination Date shall not be less than ten (10) business days, and not more than two (2) years, following the delivery of the Abatement Event Termination Notice. Notwithstanding the foregoing, Tenant shall not have the right to terminate this Lease pursuant to the terms of this SECTION 10.3.2, if, as of the date of delivery by Tenant of -------------- the Abatement Event Termination Notice, (A) the Lender has recorded a notice of default on the Building or filed a notice evidencing a legal action by the Lender against Landlord on the Building, or (B) the Lender has agreed that, -47- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] immediately upon recovery of possession of the Building, the Lender will take measures to cure such Abatement Event, and thereafter, the Lender diligently proceeds to gain possession of the Premises and, to the extent the Lender does gain possession of the Premises, the Lender diligently proceeds to cure such Abatement Event. 10.3.3 Abatement Event Relocation Right. Notwithstanding anything -------------------------------- to the contrary set forth in SECTION 10.3.2 above, Landlord shall have the -------------- right, at Landlord's sole cost and expense (except for the payment of rent, which shall be payable as provided in this SECTION 10.3.3), to relocate Tenant -------------- (provided, thereafter, Landlord cures the Abatement Event) from that portion of the Premises which is affected by the Abatement Event to comparable space at least equal in size to the affected portion of the Premises ("COMPARABLE RELOCATION SPACE") (which Comparable Relocation Space need not be high-rise or mid-rise space) in the West San Fernando Valley by (i) providing notice thereof to Tenant on or before the date which is ten (10) business days after expiration of the Eligibility Period, and (ii) providing the Comparable Relocation Space in a condition ready for Tenant's move-in within sixty (60) days after such notice from Landlord to Tenant, in which case Tenant shall not have a right to terminate this Lease as set forth in SECTION 10.3.2 above; provided that --------------- Landlord's right to relocate Tenant and thereby eliminate Tenant's termination right shall only apply if Landlord reasonably, and in good faith, certifies to Tenant that the Abatement Event will be cured, and the relocation of Tenant's personnel back into the affected portion of the Premises will occur, within fifteen (15) months after Landlord's receipt of the Abatement Event Notice. Landlord shall have the obligation for payment of any rent in connection with such Comparable Relocation Space, during any period in which Tenant is relocated from an affected portion of the Premises to such Comparable Relocation Space; provided, however, that Tenant shall pay to Landlord the Base Rent or the rent Landlord is actually paying for the Relocated Space, whichever is less, and Tenant's Share of Direct Expenses (which Tenant's Share of Direct Expenses shall be calculated using the amount of Tenant's Share of Direct Expenses that Tenant was paying for the month prior to Tenant's delivery of the Abatement Event Notice) for the affected portion of the Premises as Tenant's contribution toward rent for the Comparable Relocation Space during the term of such relocation and, because the payment described previously in this sentence shall be a contribution from Tenant toward rent for the Comparable Relocation Space (and shall not constitute Rent for the affected portion of the Premises), Tenant's obligation to pay Base Rent and Additional Rent shall abate with respect to the affected portion of the Premises as provided in SECTION 10.3.2 above during the -------------- term of such relocation. All expenses reasonably incurred by Tenant for moving from and returning to the affected portion of the Premises, including but not limited to costs of stationery and business cards (to the extent applicable), and equipment installations in connection with such relocation shall be funded by Landlord within thirty (30) days of invoice. 10.4 Additional Services. Landlord shall also have the exclusive -------------------- right, but not the obligation, to provide any services in addition to the Standard Tenant Services which may be required by Tenant, including, without limitation, locksmithing, additional janitorial service, and additional repairs and maintenance, provided that Tenant shall pay to Landlord upon billing, the sum of all costs to Landlord of such additional services plus an administrative fee at a rate equal to ten percent (10%) of the cost of such service. Charges for any service for which Tenant is required to pay from time to time hereunder shall be deemed Additional Rent hereunder and shall be billed on a monthly basis. -48- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 10.5 Year Round Access. Landlord hereby represents and covenants that, ----------------- subject to Force Majeure, Tenant shall have access to the Premises and the Building Common Areas, twenty-four (24) hours per day, seven (7) days per week. Tenant shall be furnished with a master key for the Building, which shall not be duplicated by Tenant and which shall only be used by Tenant's Vice President for Operations (or such other person as may be designated by Tenant in writing, from time to time), that will access all doors in the Premises (the "ACCESS AREAS"). Tenant shall indemnify, defend, protect, and hold Landlord harmless from any and all loss, cost, damage, expense and liability (including, without limitation, court costs and reasonable attorneys fees) incurred in connection with or arising from Tenant's access to such areas of the Building as a result of Tenants' having such master key. Tenant shall be responsible to pay all costs and expenses incurred in connection with such master key. Tenant shall be entitled to access any Access Areas only for inspection purposes and shall not be entitled to utilize such master key for any other purpose including, without limitation, storage purposes. In the event of any material violation of this provision Landlord shall be entitled to change the locks on all such areas and/or require the delivery of the master key by Tenant to Landlord, and Tenant's rights under this SECTION 10.5 shall terminate and be of no further ------------ force or effect. 10.6 Restricted Access. Tenant may designate certain areas in the ------------------ Premises as restricted areas and at its sole cost and expense secure such areas with additional locks to which only Tenant and Building management will have a key; provided, however, that Building management shall only utilize such key in the case of a perceived emergency. Tenant acknowledges that in order for Landlord to provide services as specified in this Lease to such restricted areas, Tenant must provide Landlord or Landlord's agents, employees or contractors access thereto. If Tenant fails to timely provide such access, Landlord shall have no obligation to provide services to such areas during the period access is denied. 10.7 Emergency Generator. Landlord acknowledges that Tenant may be -------------------- installing an emergency generator in the basement of the Building (the "EMERGENCY GENERATOR"). Subject to Landlord's prior approval of all plans and specifications, which approval shall not be unreasonably withheld, and at Tenant's sole cost and expense, Landlord shall permit Tenant to install and maintain the Emergency Generator and related fuel storage tank (without the obligation to pay Rent on the space so occupied), and connections between the Emergency Generator and Landlord's electrical systems in the Building and in the Adjacent Building and, all in compliance with all applicable law. Such Emergency Generator shall be used by Tenant only during (i) testing and regular maintenance, and (ii) the period of any electrical power outage in the Project. Tenant shall be entitled to operate the Emergency Generator and such connections to the Adjacent Building for testing and regular maintenance only upon notice to Landlord and at times reasonably approved by Landlord. Tenant shall submit the specifications for design, operation, installation and maintenance of the connections to the Emergency Generator and facilities related thereto to Landlord for Landlord's consent, which consent will not be unreasonably withheld or delayed and may be conditioned on Tenant complying with such reasonable requirements imposed by Landlord, based on the advice of Landlord's engineers, so that the Building's Systems and Equipment are not materially and adversely -49- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] affected by the installation and operation of the Emergency Generator. The cost of design (including engineering costs) and installation of the Emergency Generator and the costs of the Emergency Generator itself shall be Tenant's sole responsibility, but may, at Tenant's option, be a charge to the Tenant Improvement Allowance. All repairs and maintenance of the Emergency Generator shall be the sole responsibility of Tenant, and Landlord makes no representation or warranty with respect to such Emergency Generator. At Landlord's option, Landlord may require that Tenant remove the Emergency Generator and all related facilities upon the expiration or earlier termination of this Lease and the Adjacent Building Lease and repair all damage to the Project resulting from such removal, at Tenant's sole cost and expense. Notwithstanding the foregoing, at such time as this Lease is no longer in effect, but Tenant continues to lease the Adjacent Building, Tenant shall continue to have the right to maintain the Emergency Generator in the Building, provided that, during such time Tenant shall pay rent to the space dedicated to the Emergency Generator at a rate equal to the "Dead Storage Annual Rental Rate", as that term is defined in the Adjacent Building Lease. The terms of the preceding sentence shall survive the termination or earlier expiration of this Lease. The Emergency Generator shall be deemed to be a part of the Premises for purposes of the indemnification and insurance provisions of this Lease, and Tenant shall maintain, at Tenant's cost, industry standard "boiler and machinery" insurance coverage with respect thereto. ARTICLE 11 ASSIGNMENT AND SUBLETTING 11.1 Transfers. Tenant shall not, without the prior written consent of --------- Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as "Transfers" and any entity to whom any Transfer -50- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] is made or sought to be made is hereinafter sometimes referred to as a "TRANSFEREE"). Any sublease of the Premises shall be for a term which does not exceed the remaining term of this Lease. If Tenant desires Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the "TRANSFER NOTICE") shall include (i) the proposed effective date of the Transfer, which shall not be less than forty-five (45) days nor more than one hundred eighty (180) days (or one (1) year, for any proposed assignment of all of Tenant's interest in this Lease or a sublease of substantially all of the Premises for substantially all of the remainder of the Lease Term) after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the "SUBJECT SPACE"), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the "Transfer Premium", as that term is defined in SECTION 11.3 below, in ------------ connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, and any other information required by Landlord, which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space, and such other information as Landlord may reasonably require. Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant. Tenant shall pay Landlord's reasonable legal fees incurred by Landlord in connection with any proposed Transfer within thirty (30) days after the execution of the relevant documents evidencing the Transfer. 11.2 Landlord's Consent. Landlord shall not unreasonably withhold its ------------------- consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Landlord shall grant or deny its consent to any proposed assignment of Tenant's interest in this Lease or any sublease of substantially all of the Premises for substantially all of the remainder of the Lease Term (collectively, an "ASSIGNMENT") within thirty (30) days of Landlord's receipt of the Transfer Notice, and Landlord shall grant or deny its consent to any other Transfer within fifteen (15) days after Landlord's receipt of the Transfer Notice. If Landlord fails to grant or deny its consent within such time periods, Landlord shall be deemed to have given its consent to such Transfer. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: 11.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project, or would be a significantly less prestigious occupant of the Building than Tenant; 11.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease; 11.2.3 The Transferee is either a governmental agency or instrumentality thereof (i) which is that of a foreign country, (ii) which is of a character or reputation, is engaged in a business, or is of, or is associated with, a political orientation or faction, which is materially inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of a Comparable Building if such Transferee occupied space in such landlord's building, (iii) which is capable of exercising the power of eminent domain or condemnation, or (iv) which would significantly increase the human traffic in the Premises or Building; 11.2.4 The Transfer will result in more than a reasonable and safe number of occupants per floor within the Subject Space; 11.2.5 If the Transfer is an Assignment, or if upon the completion of the proposed Transfer more than one hundred twenty-five thousand (125,000) rentable square feet of the Premises will be subject to Transfers or not otherwise occupied by Tenant or an Affiliate of Tenant, and the Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the portion of the Lease subject to the assignment or sublease on the date consent is requested; or -51- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 11.2.6 The proposed Transfer would cause a violation of another lease for space in the Building, which violation relates to an exclusive retail, stock brokerage or banking use. If Landlord consents to any Transfer pursuant to the terms of this SECTION ------- 11.2 Tenant may, within six (6) months after Landlord's consent but not later - ---- than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to SECTION 11.1 of this Lease; provided that if there are any changes in the terms - ------------- and conditions from those specified in the Transfer Notice such that Landlord would initially have been entitled to refuse its consent to such Transfer under this SECTION 11.2, Tenant shall again submit the Transfer to Landlord for its ------------- approval and other action under this ARTICLE 11. Notwithstanding any contrary ---------- provision of this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent to a proposed Transfer or otherwise has breached its obligations under this ARTICLE 11, Tenant's and ---------- such Transferee's only remedies shall be to seek a declaratory judgment and/or injunctive relief by arbitration pursuant to SECTION 19.41.3, and Tenant, on --------------- behalf of itself and, to the extent permitted by law, such proposed Transferee, waives all other remedies against Landlord, including without limitation, the right to seek monetary damages or to terminate this Lease. 11.3 Transfer Premium. ----------------- 11.3.1 Definition of Transfer Premium. If Landlord consents to a ------------------------------- Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined in this SECTION 11.3, received by Tenant from such ------------- Transferee. "Transfer Premium" shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer (on a per rentable square foot basis if less than all of the Premises is transferred) after deducting the -52- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any brokerage commissions in connection with the Transfer, (iii) any costs to buy-out or take over the previous lease of a Transferee, (iv) reasonable legal fees incurred in connection with the Transfer, (v) the amount of any Base Rent and Additional Rent paid by Tenant to Landlord with respect to the Subject Space during the period commencing on the later of (a) the date Tenant has contracted with a reputable broker to market the Subject Space, and (b) the date Tenant gives Landlord notice that Tenant has vacated the Subject Space, until the commencement of the term of the Transfer, and (vi) any other "out-of-pocket" monetary concessions reasonably provided in connection with the Transfer including, but not limited to, tenant improvement or decorating allowances (collectively, the "TRANSFER COSTS"). "Transfer Premium" shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. If part of the Transfer Premium shall be payable by the Transferee other than in cash, Landlord's share of such non-cash consideration shall be in such form as is reasonably satisfactory to Landlord. 11.3.2 Payment of Transfer Premium. The determination of the ------------------------------ amount of Landlord's applicable share of the Transfer Premium shall be made on an annual basis in accordance with the terms of this SECTION 11.3.2, but an -------------- estimate of the amount of Landlord's applicable share of the Transfer Premium shall be made each year and one-twelfth of such estimated annual amount shall be paid to Landlord promptly, but in no event later than the next date for payment of Base Rent hereunder, subject to an annual reconciliation on each anniversary date of the Transfer. If the payments to Landlord under this SECTION 11.3.2 -------------- during the twelve (12) months preceding each annual reconciliation exceed the amount of Landlord's applicable share of Transfer Premium determined on an annual basis, then Landlord shall credit the overpayment against Tenant's future obligations under this SECTION 11.3.2 or, if the overpayment occurs during the -------------- last year of the Transfer in question, refund the excess to Tenant. If Tenant has underpaid Landlord's applicable share of the Transfer Premium, as determined by such annual reconciliation, Tenant shall pay the amount of such deficiency to Landlord, promptly, but in no event later than the next date for payment of Basic Rent hereunder. For purposes of calculating the Transfer Premium on an annual basis, Tenant's Transfer Costs shall be deemed to be offset against the first rent, additional rent or other consideration payable by the Transferee, until such Transfer Costs are exhausted. 11.3.3 Calculations of Rent. In the calculation of the Rent (as ---------------------- it relates to the Transfer Premium calculated under SECTION 11.3.1 of this -------------- Lease), the Rent paid during each annual period for the Subject Space by Tenant shall be computed after adjusting such rent to the actual effective rent to be paid, taking into consideration any and all leasehold concessions granted in connection therewith, including, but not limited to, any rent credit and tenant improvement allowance. For purposes of calculating any such effective rent all such concessions shall be amortized on a straight-line basis over the relevant term. 11.4 Effect of Transfer. If Landlord consents to a Transfer, (i) the -------------------- terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall -53- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (iv) Tenant shall furnish upon Landlord's request a complete statement, certified by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer. No Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and, if understated by more than two percent (2%), Landlord's costs of such audit. 11.5 Non-Transfers. Notwithstanding anything to the contrary contained ------------- in this ARTICLE 11, an assignment or subletting of all or a portion of the ----------- Premises to an "Affiliate" of Tenant shall not be deemed a Transfer under this ARTICLE 11, provided that (i) Tenant notifies Landlord of any such assignment or - ---------- sublease within thirty (30) days after its effective date and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such assignment or sublease or such Affiliate, and (ii) such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease. The term "Affiliate" of Tenant shall mean an entity which is controlled by, controls, or is under common control with Tenant or a corporation which merges with Tenant, whether by statutory merger or an exchange of stock or transfer of assets. The term "control," or "controlled" as used in this SECTION ------- 11.5, shall mean the ownership, directly or indirectly, of more than fifty - ---- percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of more than fifty percent (50%) of the voting interest in, an entity. 11.6 Miscellaneous Transfer Provisions. ----------------------------------- 11.6.1 Estoppel Certificate. Upon Tenant's request, Landlord --------------------- shall provide to any proposed Transferee of Tenant's interest in the Subject Space, an estoppel certificate substantially in the form of EXHIBIT F, attached --------- hereto, with contextual modifications due to the fact that such certificate is being provided by Landlord to a Transferee rather than by Tenant to a prospective purchaser or lender of the Building. 11.6.2 Landlord's Recognition of Transfers Upon Lease Termination. ---------------------------------------------------------- Tenant may request, as part of its Transfer Notice under SECTION 11.1, above, ------------ that a sublessee leasing all of the Premises receive a recognition agreement ("RECOGNITION AGREEMENT") from Landlord which provides that in the event this Lease is terminated, Landlord shall recognize the Transfer as a direct lease between Landlord and such subtenant, provided that Landlord shall only be obligated to execute a Recognition Agreement with such sublessee under the following conditions (which conditions must be reflected in the Recognition Agreement): (i) Landlord shall not be bound by any terms or conditions of the Transfer which are inconsistent with the terms and conditions of this Lease, and if the economic terms of such Transfer (as between Tenant and such sublessee and on a per rentable square foot basis) are less favorable to -54- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant (as the sublessor) than those economic terms set forth in this Lease, the Recognition Agreement shall provide that upon termination of this Lease, as between Landlord and the sublessee, the economic terms shall be adjusted to those set forth in this Lease (on a per rentable square foot basis); provided, however, that if the economic terms of such Transfer (as between Tenant and the sublessee on a per rentable square foot basis) are equal to or more favorable than those set forth in this Lease, such more favorable economic terms shall continue to apply upon the date that this Lease is terminated and Landlord recognizes the Transfer as a direct lease between Landlord and such sublessee; (ii) the terms and provisions of SECTION 2.3 shall not be applicable to such ----------- sublessee unless the sublessee is leasing the entire Premises for the entire remainder of the Lease Term (in which case such sublessee may exercise any remaining Renewal Option Right(s) set forth in SECTION 2.3 above, (iii) Landlord ----------- shall not be liable for any act or omission of Tenant, (iv) Landlord shall not be subject to any offsets or defenses which the sublessee might have as to Tenant or to any claims for damages against Tenant, (v) Landlord shall not be required or obligated to credit the sublessee with any rent or additional rent paid by the sublessee to Tenant, (vi) Landlord shall be responsible for performance of only those covenants and obligations of Tenant pursuant to the Transfer accruing after the termination of this Lease, (vii) the sublessee shall, upon termination of this Lease, agree to make full and complete attornment to Landlord, as lessor, pursuant to a written agreement executed by Landlord and the sublessee, so as to establish direct privity of contract between Landlord and the sublessee with the same force and effect as though the Transfer was originally made directly between Landlord and the sublessee, and (viii) as a condition to Landlord's obligation to enter into the Recognition Agreement, in addition to Landlord's rights set forth under SECTION 11.2, above, ------------ Landlord shall have the right to reasonably approve the creditworthiness and financial strength of the sublessee, which reasonable approval shall be based upon the creditworthiness and financial strength then generally required by Landlord and landlords of the Comparable Buildings of new tenants leasing space of a rentable area comparable to the rentable area of the Subject Space for a term equal to the remaining Lease Term and at a rental rate equal to the Base Rent rental rate under this Lease. Upon Landlord's written request given at any time after the termination of this Lease, the sublessee shall execute a new lease for the Subject Space upon the same terms and conditions as set forth in the Recognition Agreement. ARTICLE 12 DEFAULTS; REMEDIES 12.1 Events of Default. Subject to the terms of SECTION 19.41, below, ------------------ ------------- the occurrence of any of the following shall constitute a default of this Lease by Tenant: 12.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, where such failure continues for ten (10) days after written notice from Landlord to Tenant that such amount is due; provided that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure SECTION 1161 or any similar or successor law; or - ------------- 12.1.2 Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues -55- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] for thirty (30) days after written notice thereof from Landlord to Tenant; provided that (i) any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure SECTION 1161 or any ------------ similar or successor law; (ii) if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default, as soon as possible; and (iii) the cure period specified in this SECTION 12.1.2 -------------- shall not be applicable to Tenant's obligations under SECTIONS 5.3,19.1 and ----------------- 19.11 of this Lease; i.e., Tenant's failure to comply with any provision, covenant or condition described in such sections and/or articles within the time periods specified in such SECTIONS 5.3,19.1 and 19.11 shall constitute a default ----------------- ----- under this SECTION 12.1.2; or --------------- 12.1.3 Any of the following: (i) if Tenant makes a general assignment or general arrangement for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Tenant and is not dismissed within ninety (90) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant's assets located in the Premises or of Tenant's interest in this Lease and possession is not restored to Tenant within ninety (90) days; or (iv) if substantially all of Tenant's assets located in the Premises or of Tenant's interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within ninety (90) days; or 12.1.4 A default by Tenant, after expiration of any applicable cure periods, under the Adjacent Building Lease. 12.2 Remedies Upon Default. Upon the occurrence of any event of ----------------------- default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever. 12.2.1 Terminate Tenant's right to possession by any lawful means, in which event this Lease and the term hereof shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord may recover from Tenant the following: (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 rental 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 Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been 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 -56- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and (v) At Landlord's election, but subject to the provisions of this Lease, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The term "Rent" as used in this SECTION 12.2 shall be deemed to be and to ------------ mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Paragraphs 12.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by allowing interest at the rate set forth in SECTION 19.28 of this Lease, but in ------------- no case greater than the maximum amount of such interest permitted by law. As used in Paragraph 12.2.1(iii) above, the "worth at the time of award" shall be 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%). If Landlord terminates this Lease or Tenant's right to possession, Landlord shall use reasonable efforts to mitigate Landlord's damages, subject to any Recognition Agreement entered into pursuant to SECTION 11.6.2, above, and Tenant shall be -------------- entitled to submit proof of such failure to mitigate as a defense to Landlord's claims hereunder, if mitigation of damages by Landlord is required by applicable law. 12.2.2 Landlord shall have the remedy described in California Civil Code SECTION 1951.4 (lessor may continue lease in effect after lessee's --------------- breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due. 12.3 Sublessees of Tenant. If Landlord elects to terminate this Lease --------------------- on account of any default by Tenant as set forth in this ARTICLE 12, absent any ---------- contrary agreement between Landlord and such subtenant, licensee or concessionaire, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of termination of this Lease, have no further right to or interest in the rent or other consideration receivable thereunder. 12.4 Form of Payment After Default. Following the occurrence of an --------------------------------- event of default by any Transferee (but not as to the originally-named Tenant or any Affiliate assignee), Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the default in question or otherwise, be paid in the form of wire transfer of immediate funds, cash, money order, cashier's or certified check drawn on an -57- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] institution acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form. 12.5 Efforts to Relet. For the purposes of this ARTICLE 12, Tenant's ------------------ ---------- right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord's interests hereunder. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant's right to possession. 12.6 No Waiver of Redemption by Tenant. Nothing herein shall be deemed --------------------------------- to constitute a waiver of Tenant's right to redeem, by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease. 12.7 Landlord's Default. ------------------- 12.7.1 General. Landlord shall not be deemed to be in default in ------- the performance of any obligation required to be performed by Landlord under this Lease if (i) in the event of failure by Landlord with respect to the payment of money, Landlord pays any unpaid amount within ten (10) days of written notice from Tenant that the same was not paid when due, or (ii) unless and until it has failed to perform such obligation for thirty (30) days after written notice by Tenant to Landlord specifying wherein Landlord has failed to perform such obligation; provided however, that if the nature of Landlord's obligation is such that more than thirty (30) days are reasonably required for its performance, then Landlord shall not be deemed to be in default if it shall commence such performance within such thirty (30) day period and, thereafter, diligently prosecutes the same to completion. If Landlord disagrees with Tenant that Landlord is in default, then, Landlord may submit the dispute to arbitration pursuant to the provisions of SECTION 19.41 hereof. Upon any default ------------- committed by Landlord, after giving effect to any applicable cure period, Tenant may, except as specifically provided in this Lease to the contrary, exercise any of its rights provided in law or in equity. 12.7.2 Lender's Right to Cure and Notice. No failure of Landlord ---------------------------------- to make any payment required to be made by Landlord hereunder, or to observe or perform any covenant, condition or provision of this Lease, shall entitle Tenant to declare a default under this Lease unless (i) Tenant shall have given written notice to Lender of (A) such failure of Landlord, which notice shall have been given concurrently with Tenant's giving of notice of such failure to Landlord and (B) of Landlord's failure to cure within any applicable cure period, and (ii) such Lender has been given ninety (90) days to cure such default after the expiration of Landlord's cure period set forth in SECTION ------- 12.7.1, above; provided however, except as set forth in the Nondisturbance Agreement to the contrary, in the absence of such Lender's express written consent, Lender shall not be deemed to have assumed Landlord's obligations under this Lease and Landlord shall remain solely liable for the performance of all terms, covenants and conditions of this Lease both prior and subsequent to such Lender's exercise of any right to cure; and, provided further, however, if the default by Landlord is of such a nature that it may not be cured by such Lender without the Lender becoming the owner of the Building, Tenant shall not exercise any remedy if such Lender (A) commences a non-judicial foreclosure of Landlord's -58- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] interest in the Building within sixty (60) days of the expiration of Landlord's cure period, (B) thereafter uses reasonable efforts to complete the foreclosure of Landlord's interest in the Building and (C) cures such default within thirty (30) days after the completion of such foreclosure or, if the cure cannot reasonably be effected within thirty (30) days, commences the cure within such thirty (30) day period and thereafter diligently pursues it to completion. Such Lender shall have the right to perform all obligations of Landlord under this Lease on behalf of Landlord, but such Lender shall have no obligation to cure any default under this Lease unless it becomes an owner of the Building. If Lender effectuates a cure pursuant to this SECTION 12.7.2, then Landlord shall -------------- not be in default of this Lease with respect to the item so cured. ARTICLE 13 CONDEMNATION 13.1 Building and Premises. If twenty percent (20%) or more of the ----------------------- number of rentable square feet of the Premises shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation (any of such events may be referred to herein as a "TAKING"), Landlord and Tenant shall each have the option to terminate this Lease upon ninety (90) days' prior written notice to the other, provided such notice is given no later than one hundred eighty (180) days after the date of such Taking. 13.2 Parking Structure. If a portion of the Parking Structure and/or ------------------ reasonable access thereto is taken and, thereafter, a substantial portion of Tenant's parking rights under this Lease are terminated, unless Landlord can provide permanent replacement parking for Tenant's terminated rights within the area bounded by Victory Boulevard, Canoga Avenue, Oxnard Street, and Topanga Canyon Boulevard, Tenant shall have the right to terminate this Lease upon ninety (90) days' prior written notice to Landlord (provided such notice is given no later than ninety (90) days after receipt of notice from Landlord that it cannot provide such permanent replacement parking), or to delete such full floors of the Building from the Premises as appropriate in Tenant's reasonable judgment to compensate for the consequent loss of parking. If Tenant elects to delete such full floors from the Premises, then all obligations measured by the number of rentable square feet of the Premises (such as Rent, the number of Tenant's parking passes, and Tenant's Share) shall be adjusted accordingly. Notwithstanding the foregoing, Tenant's right to reduce the size of the Premises to compensate for the consequent loss of parking, as aforesaid, shall be limited to one thousand (1,000) rentable square feet of the Premises for every three and thirty-four one-hundredths (3.34) parking privileges lost as a result of a partial Taking of the Parking Structure or reasonable access thereto. Moreover, if such reduction would result in a portion of the Premises consisting of a partial floor of the Building, such partial floor shall be rounded-off either up or down (whichever is closest) to a full floor and Tenant shall only be entitled to delete full floors. 13.3 Award. Landlord shall be entitled to the entire award or payment ----- in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by -59- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for goodwill and moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. 13.4 Miscellaneous. All Rent shall be apportioned as of the date of ------------- such termination, or the date of such Taking, whichever shall first occur. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to SECTION 1265.130 of The ---------------- California Code of Civil Procedure. ARTICLE 14 BROKERS Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in SECTION 11 of the Summary (the "BROKERS"), and that they know of no other real - ----------- estate broker or agent who is entitled to a commission in connection with this Lease. Landlord shall pay the brokerage commissions owing to the Brokers in connection with the transaction contemplated by this Lease pursuant to the terms of agreements between Landlord and the Brokers, and Landlord shall defend and indemnify Tenant against any claim for brokerage commissions by the Brokers arising out of this transaction, including reasonable attorneys fees and disbursements. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. ARTICLE 15 LANDLORD'S LIABILITY It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord hereunder (including any successor Landlord hereunder) and any recourse by Tenant against Landlord shall be limited solely and exclusively to the interest of Landlord (as opposed to its general or limited partners) in and to the Building and the Project (including the rental income from the same and the proceeds of sale of the same), and neither Landlord, nor any of its constituent partners or subpartners, shall have any personal liability therefor, and Tenant, on behalf of itself and all persons claiming by, through or under Tenant, hereby expressly waives and releases Landlord and such partners from such personal liability. -60- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE 16 REASONABLENESS AND GOOD FAITH Except as specifically provided to the contrary in this Lease, and except for matters which could affect (i) the Systems and Equipment of the Building, (ii) the structural aspects of the Building, or (iii) the exterior appearance of the Building, in which case Landlord shall have the right to act in its sole and absolute discretion (but at all times in good faith), any time the consent or approval of Landlord or Tenant is required under this Lease, such consent or approval shall not be unreasonably withheld, conditioned or delayed. The fact that, in various places in the text of this Lease, the foregoing standard limiting discretion to withhold consent or approval is expressly stated only in part or is not expressly stated, at all, shall not be construed as an intended departure from the applicability of said standard in all instances where consent or approval is required other than those instances excepted in the immediately preceding sentence. Likewise, except as provided in the first sentence of this ARTICLE 16, whenever the Lease grants Landlord or Tenant the right to take - ----------- action, exercise discretion, establish rules and regulations, or make a designation, allocation or other determination, Landlord and Tenant shall act reasonably and in good faith. If either Landlord or Tenant withholds any consent or approval requested by the other party, the withholding party shall, on written request, deliver to the other party a written statement specifying in detail the reasons such consent or approval was withheld. ARTICLE 17 INTENTIONALLY OMITTED ARTICLE 18 TENANT PARKING 18.1 Number of Parking Passes. Tenant shall be provided during the --------------------------- Lease Term, free of charge, the number of parking passes set forth in SECTION 9 --------- of the Summary (the "BASIC NUMBER"), which parking passes shall pertain to the Project's Parking Structure and parking areas. In addition to the Basic Number, fifteen (15) additional parking passes (subject to the maximum number of spaces available in the Project parking areas) shall be allocated to Tenant at no additional cost to Tenant (the "BONUS PASSES"). Except as provided in SECTION ------- 18.3 below, such parking passes shall be unreserved parking passes. - ---- Notwithstanding the foregoing, Tenant acknowledges and agrees that, during the construction of the Parking Structure and Adjacent Building (the "CONSTRUCTION PERIOD"), Landlord may not be able to provide all of such spaces in the parking areas within the Project. Notwithstanding the foregoing, Landlord agrees that, to the extent parking spaces in the Project are displaced during the Construction Period, Landlord will provide, pursuant to the terms of that certain Temporary Parking License Agreement entered into between Landlord and West Valley Partnership in connection with the construction of the Adjacent Building, Common Areas and Parking Structure as contemplated by this Lease and the Adjacent Building Lease, temporary replacement parking spaces in the paved portion of the property to the West of the Project bordering Topanga Boulevard. -61- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 18.2 Parking Rate. Prior to December 1, 1999, Tenant shall pay for ------------- sixty-three (63) parking spaces at the rate of $70.00 per space per month. During the remainder of the Lease Term, including any Renewal Option Term, Tenant shall not be obligated to pay for the use of parking passes or spaces up to the Basic Number since Tenant's parking charges are included in the amount of Base Rent. To the extent Tenant uses parking passes, from time to time, as allowed by Landlord, in excess of the sum of the Basic Number and Bonus Passes, Tenant shall pay to Landlord for Tenant's parking passes, at the same time and in the same manner as Base Rent at rates not exceeding the prevailing rates in Comparable Buildings. 18.3 Parking Spaces. Tenant shall have the right to utilize the Bonus --------------- Passes in connection with designated spaces in the Project parking areas to be initially selected by Tenant and, thereafter, moved only with Landlord's approval. Tenant may use such spaces for customer parking or other specified uses, in Tenant's discretion. In addition, Tenant may request Landlord to designate a limited number of specific parking spaces or areas for the use of Tenant for its pool cars or vans, executive parking, manager parking, claims parking, as well as other specified uses, in each instance subject to Landlord's right to reject any such designation when, and to the extent that, it would materially and adversely affect the efficient operation of the Project parking areas for the benefit of all of the tenants in the Project. In making such designations, Landlord and Tenant shall take into consideration the relative level of occupancy and use of the Project by Tenant in relation to the other tenants in the Adjacent Building. Moreover, if, when and so long as, Tenant leases one hundred percent (100%) of the occupancy space in the Project, Landlord waives its right to reject any such designation. If specific areas of the parking structure are designated for use by particular tenants in the Project, Tenant shall be entitled to priority over all other tenants in the selection of such specific areas. There shall be no tandem parking permitted. 18.4 Visitor Parking. Certain areas of the Project Common Area, ---------------- including the Parking Structure may be set aside by Landlord for visitor parking. Visitor parking shall be at a charge to visitors at the rate established by Landlord from time to time. Tenant may purchase validations for visitor parking from Landlord or Landlord's parking operator and may elect to validate such parking for its visitors. Visitor parking rates and the price for validations shall not exceed the rates and prices typically charged in Comparable Buildings. Notwithstanding the foregoing, Landlord agrees that Tenant's "claims" customers (i.e., customers having insurance claims adjusted) shall have the right to use the parking areas free of charge. 18.5 Passenger Drop-Off and Pick-Up. Landlord agrees that, following -------------------------------- construction of the Adjacent Building and Parking Structure, Landlord shall provide free drop-off and pick-up at the Project for Tenant's employees, either through the creation of a special passenger loading and unloading area which does not require entry into the main Project parking areas, or by establishing a "grace period" equal to ten (10) minutes in the mornings and fifteen (15) minutes in the evenings during which visitors can enter and exit the Project parking areas without charge. 18.6 Miscellaneous Parking Provisions. Tenant shall abide by all rules -------------------------------- and regulations which are prescribed from time to time for the orderly operation and use of the Project's parking facilities, and Tenant shall use its good faith efforts to cause its employees and visitors to comply with such rules and regulations. Landlord may refuse to permit any person who violates the rules and regulations of the Project's parking facilities from parking therein, and any violation of such -62- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] rules shall subject such person's vehicle to removal. Subject to Tenant's prior written approval (except when required by law), which approval shall not be unreasonably withheld or delayed, Landlord shall have the right to change the size of parking spaces, configuration, design, layout and all other aspects of the Project's parking facilities. Subject to Tenant's prior written approval, Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, temporarily close-off or restrict access to the Project's parking facilities for purposes of permitting or facilitating any such construction, alteration or improvements. However, Landlord shall use commercially reasonable efforts to minimize such restrictions upon access and shall use commercially reasonable efforts to provide to Tenant alternative parking during such periods, which shall be within or in close proximity to the Project, and shall provide reasonably adequate security and, when appropriate, shuttle services, to and from such alternative parking area to minimize any inconvenience to Tenant resulting from such temporary closure or restricted access. Landlord may delegate its responsibilities hereunder to a parking operator, in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes provided to Tenant pursuant to this ARTICLE 18 are provided to Tenant solely for use by ----------- Tenant's own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord's prior approval; provided, however, Tenant may transfer a portion of the parking passes rented by Tenant pursuant to this ARTICLE 18 to a Transferee permitted pursuant to ARTICLE ---------- ------- 11 of this Lease. Such portion shall be based upon the number of rentable - -- square feet of the Premises subject to the applicable Transfer in relation to the total number of rentable square feet contained within the Premises. ARTICLE 19 MISCELLANEOUS PROVISIONS 19.1 Estoppel Certificates. Within fifteen (15) business days ---------------------- following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate which, as submitted by Landlord, shall be substantially in the form of EXHIBIT F, attached hereto (or such other form as --------- may reasonably be required by any prospective mortgagee or purchaser of the Project, or any portion thereof, in which event Tenant shall have no less than twenty (20) business days in which to execute and deliver the same), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord's mortgagee or prospective mortgagee. Tenant shall execute and deliver whatever other instruments may be reasonably required of a tenant for such purposes. Failure of Tenant to timely execute and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. 19.2 Partial Invalidity. If any term, provision or condition contained ------------------ in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law. -63- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.3 Time of Essence. Time is of the essence of this Lease and each of --------------- its provisions. 19.4 Captions. The captions of Articles and Sections are for -------- convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections. 19.5 Notices. All notices, demands, statements, designations, ------- approvals or other communications (collectively, "NOTICES") given or required to be given by either party to the other hereunder shall be in writing (regardless of whether or not such notice is described as "written" notice), shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, or delivered personally (i) to Tenant and its attorneys at the appropriate addresses set forth in SECTION 10 of the Summary, ---------- or to such other places or such other attorneys as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the following addresses, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant: TISHMAN WARNER CENTER VENTURE, LLC 6301 Owensmouth Avenue Woodland Hills, California 91367 Attn: Building Manager and TISHMAN WARNER CENTER VENTURE, LLC 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 Attention: Asset Manager With a copy to: Tishman International Companies 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 Attention: Chairman And with another copy to: Allen, Matkins, Leck, Gamble & Mallory 1999 Avenue of the Stars, Suite 1800 Los Angeles, California 90071 Attn: Anton N. Natsis, Esq. Any Notice will be deemed given on the date which is two (2) business days after the date it is mailed as provided in this SECTION 19.5 or, if sooner, upon ------------ the date personal delivery is made. 19.6 Nonwaiver. No provision of this Lease shall be deemed waived by --------- either party hereto unless expressly waived in a writing signed thereby. The waiver of either party hereto of -64- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] any breach of any term, covenant or condition herein contained, shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. Additionally, no express waiver shall affect any provision other than the one specified in such waiver and then only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment. Tenant's payment of any Rent hereunder shall not constitute a waiver by Tenant of any breach or default by Landlord under this Lease. 19.7 Holding Over. If Tenant holds over after the expiration of the ------------- Lease Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to the product of (i) the Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) one hundred twenty-five percent (125%) during the first three (3) months of such holdover, one hundred thirty-seven point five percent (137.5%) during the next three (3) months of such holdover, and one hundred fifty percent (150%) thereafter. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this SECTION 19.7 shall be construed as consent by Landlord to any holding over ------------ by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this SECTION 19.7 shall not be deemed to limit or constitute a waiver of any other - ------------- rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises within thirty (30) days following (i) the effective date of the termination or (ii) the expiration date of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom. 19.8 Intentionally Omitted. ---------------------- 19.9 Binding Effect. Subject to all other provisions of this Lease, --------------- each of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of ARTICLE 11 of this ---------- Lease. 19.10 Governing Law. This Lease shall be construed and enforced in -------------- accordance with the laws of the State of California. -65- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.11 Subordination. Subject to Tenant's receipt of an appropriate ------------- "Nondisturbance Agreement" as set forth below, this Lease shall be subject and subordinate to all future ground or underlying leases of the Building or Project and to the lien of any future mortgage or trust deed hereafter recorded against the Building or Project, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. In consideration of, and as a condition precedent to, Tenant's agreement to permit its interest pursuant to this Lease to be subordinated to any particular future ground or underlying lease or to the lien of any particular future Mortgage or deed of trust encumbering the Building or the Project, Landlord shall deliver to Tenant, for Tenant's signature, a commercially reasonable "subordination, non-disturbance and attornment agreement" (the "NONDISTURBANCE AGREEMENT") which shall be executed by the landlord under such ground lease or underlying lease or the holder of such mortgage or trust deed. Tenant and Landlord acknowledge that the Subordination, Nondisturbance and Attornment Agreement attached hereto as EXHIBIT J is a commercially reasonable ---------- Nondisturbance Agreement. In connection with any Nondisturbance Agreement with any construction lender, Tenant shall not be required to waive any Landlord obligation under this Lease, other than as expressly provided in EXHIBIT. If ------- the holder of such mortgage or trust deed is a depository institution insured by the Federal Deposit Insurance Corporation, as a further condition of delivery of such Nondisturbance Agreement, Tenant shall be entitled to evidence (in the form of a corporate secretary's certificate or its equivalent) that the Nondisturbance Agreement has been approved by the board of directors or loan committee of the depository institution and such approval is reflected in its minutes. Such certificate (or its equivalent) shall include an agreement by such mortgage or trust deed holder to maintain the Nondisturbance Agreement as an official record of the depository institution during the term of the loan. Tenant covenants and agrees that in the event any proceedings are brought for the foreclosure of any such mortgage or Landlord records a deed in lieu thereof, to attorn, to the purchaser or any successors thereto upon any such foreclosure sale or transfer by deed in lieu thereof if so requested to do so by such purchaser, and to recognize such purchaser as the lessor under this Lease. Tenant shall, within fifteen (15) business days of request by Landlord, execute such instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. 19.12 Waiver of Jury Trial; Attorneys' Fees. EACH PARTY HEREBY WAIVES -------------------------------------- ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR THE BREACH HEREOF, OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER. If either party commences litigation against the other for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the prevailing party shall be entitled to recover from the other party such costs and reasonable attorneys' fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment. 19.13 Entry by Landlord. Landlord reserves the right at all reasonable ----------------- times, and upon reasonable notice to Tenant (except in the case of an emergency), to enter the Premises to (i) -66- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] inspect them; (ii) show the Premises to prospective tenants (but only during the last twenty-four (24) months of the Lease Term or any Option Term where Tenant has not previously exercised an available extension option), purchasers, mortgagees, or ground or underlying lessors; (iii) post notices of nonresponsibility; (iv) subject to SECTIONS 8.1.2 and 10.3.2, to alter, improve -------------- ------ or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building; provided that Landlord agrees to use commercially reasonable efforts to schedule any such work outside of Building Hours, or (v) to exercise, in compliance with the terms of this Lease, rights and obligations of Landlord under this Lease. Subject to the foregoing, Landlord may make any such entries without the abatement of Rent, may take such reasonable steps as required to accomplish the stated purposes, and Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. 19.14 Authority. Each individual executing this Lease on behalf of --------- Tenant hereby represents and warrants that Tenant is a duly formed and existing corporation qualified to do business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. Tenant agrees to deliver reasonable evidence to Landlord evidencing such authorization concurrently with Tenant's execution of this Lease. 19.15 Surrender of Premises; Ownership and Removal of Trade Fixtures. --------------------------------------------------------------- 19.15.1 Surrender of Premises. No act or thing done by Landlord ----------------------- or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises. 19.15.2 Removal of Tenant Property by Tenant. Upon the expiration ------------------------------------ of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this SECTION 19.15, quit and surrender possession ------------- of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or -67- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant, reasonable wear and tear, loss by Casualty and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal, and restore the Building to its initial condition, as aforesaid. 19.16 Entire Agreement. This Lease, the exhibits and schedules ----------------- attached hereto, and any side letter or separate agreements entered into by Landlord and Tenant in connection with this Lease and dated of even date herewith (for the purposes, solely, of this SECTION 19.16, the foregoing are ------------- referred to collectively, as "this Lease") supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease. This Lease contains all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises and shall be considered to be the only agreement between the parties hereto and their representatives and agents. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties, and all reliance with respect to representations is based totally upon the representations and agreements contained in this Lease. 19.17 Signs. ----- 19.17.1 Interior of Premises. Tenant, at its sole cost and ---------------------- expense, may install identification signage anywhere in the Premises including in the elevator lobbies of the Premises, provided that such signs must not be visible from the exterior of the Building. Tenant may not install any signs on the exterior or roof of the Project (except as provided in SECTION 19.17.2 --------------- below) or the Common Areas, except that Tenant shall have the exclusive right to signage in the ground floor lobby of the Building. Such lobby signage and any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion. 19.17.2 Exterior Signage. ----------------- 19.17.2.1 Description. Tenant shall be entitled to maintain, ----------- during the Lease Term and any Renewal Term, the existing signage identifying Tenant at the Building, in their existing locations, as well as one (1) sign identifying Tenant on an exclusive monument sign in the Project Common Area outside the Building (the "MONUMENT SIGNAGE") (collectively, the "TENANT'S SIGNAGE"). The location of Tenant's Monument Signage shall be subject to -68- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Landlord's prior written approval, which approval shall not be unreasonably withheld. The graphics, materials, color, design, lettering, lighting, size, and specifications of Tenant's Monument Signage, and any changes to the existing Tenant's Signage (collectively, the "SPECIFICATIONS") shall be subject to the prior written approval of Landlord. All such signage shall be subject to Tenant's receipt and maintenance of all required governmental permits and approvals and shall be subject to all applicable governmental laws and ordinances including, without limitation, the Warner Center Specific Plan (as amended or modified by variance) and subject to the CC&Rs. Landlord shall use commercially reasonable efforts to assist Tenant in obtaining all necessary governmental permits and approvals for such signage. Tenant hereby acknowledges that, notwithstanding Landlord's approval of Tenant's Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant's Signage. In the event Tenant does not receive the necessary governmental approvals and permits for any of Tenant's Signage, Tenant's and Landlord's rights and obligations under the remaining provisions of this Lease shall be unaffected. All costs associated with Tenant's Signage, including, without limitation, utility charges, hook-up fees, permits, maintenance, repair and insurance, shall be the sole responsibility of Tenant. Tenant further acknowledges that any repairs necessitated as a result of window washing equipment cabling passing over the Tenant Signage in the normal course of cleaning the exterior windows of the Building shall be the sole responsibility of Tenant. 19.17.2.2 Transferability. The rights to the signage --------------- described in SECTION 19.17.2.1, above, may not be transferred by Tenant or ------------------ changed once such signage is initially installed by Tenant except as set forth in this SECTION 19.17.2.2. In connection with an Assignment, which Assignment ----------------- is permitted pursuant to the provisions of ARTICLE 11 of this Lease, Tenant's ---------- rights with respect to Tenant's Signage shall be deemed transferred to the Transferee (the "PERMITTED USER") so long as (i) such Transferee is not a governmental agency or instrumentality thereof, (ii) the consolidated balance sheet for the Transferee and any subsidiaries of the Transferee "controlled," as that term is defined in SECTION 11.5 of this Lease, by the Transferee, as set ------------ forth in the Transferee's publicly available annual report for the Transferee's fiscal year most recently ended prior to the date of the Assignment and as set forth in the Transferee's publicly available quarterly report for the quarter of the Transferee's fiscal year most recently ended prior to the date of the Assignment, provides that (A) Transferee's Net Worth Amount is at least One Hundred Million Dollars ($100,000,000), and (B) Transferee's Liquidity Amount is at least Fifty Million Dollars ($50,000,000), and (iii) the name of the assignee or sublessee is not an "Objectionable Name," as that term is defined below. Should the name of Tenant be legally changed to another name (the "SUCCESSOR ENTITY"), Tenant shall be entitled to modify, at Tenant's sole cost and expense, Tenant's Signage to reflect Tenant's new name, but only if Tenant's new name is not an "Objectionable Name." The term "Objectionable Name" shall mean any name which relates to an entity which is of a character or reputation, or is associated with a political orientation or faction, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend Landlord or a landlord of a Comparable Building or neighbors taking into consideration the level and visibility of signage rights inherent in Tenant's Signage. -69- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.17.2.3 Maintenance. Should the Tenant's Signage require ----------- maintenance or repairs, within two (2) business days of Landlord becoming aware of the need for such maintenance or repairs, Landlord shall provide written notice thereof to Tenant, and Tenant shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such notice from Landlord (or, in the event of an immediately visible problem with the Tenant Signage, as expeditiously as reasonably possible after receipt of such notice), at Tenant's sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than thirty (30) days to perform, Tenant shall commence such repairs and/or maintenance within such thirty (30) day period and shall diligently prosecute such repairs and maintenance to completion. Should Tenant fail to perform such maintenance and repairs within the periods described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant as Additional Rent for the costs of such work plus interest at the Interest Rate from the date of Landlord's payment of such costs to the date of Tenant's reimbursement to Landlord. During the Lease Term Tenant shall maintain an industry standard maintenance and repair contract with a reputable contractor, and shall maintain an industry standard insurance policy with respect thereto. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, cause the Tenant's Signage to be removed from the exterior of the Building and shall cause the exterior of the Building to be restored to the condition existing prior to the placement of such signage. If Tenant fails to remove such signage or to restore the exterior of the Building as provided in the immediately preceding sentence within ninety (90) days following the expiration or earlier termination of this Lease, then Landlord may perform such work, and all costs and expenses incurred by Landlord in so performing plus interest at the Interest Rate from the date of Landlord's payment of such costs to the date of Tenant's reimbursement to Landlord shall be reimbursed by Tenant to Landlord within ten (10) days after Tenant's receipt of invoice therefor. The immediately preceding sentence shall survive the expiration or earlier termination of this Lease. 19.18 Covenant Against Liens. Tenant has no authority or power to ------------------------ cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Project or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant's interest only. Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Project, the Building or the Premises, or any portion thereof, with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be immediately released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, in the event that such lien is not released and removed on or before the date occurring twenty (20) days after notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys' fees and costs, incurred by Landlord in connection with such lien shall be -70- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] deemed Additional Rent under this Lease and shall be due and payable by Tenant within thirty (30) days of invoice. 19.19 Terms. The necessary grammatical changes required to make the ----- provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. 19.20 Prohibition Against Recording. Except as hereafter provided in ------------------------------- this SECTION 19.20, neither this Lease, nor any memorandum, affidavit or other -------------- writing with respect thereto, shall be recorded by Tenant or Landlord or by anyone acting through, under or on behalf of Tenant or Landlord. Notwithstanding the foregoing, Landlord agrees to execute a short form of lease in the form attached hereto as EXHIBIT M concurrently with the mutual execution --------- and delivery of this Lease, which short form of lease Tenant may record at its sole cost and expense. Upon the Lease Expiration Date or earlier termination of this Lease, Tenant shall execute and have acknowledged and then deliver to Landlord, a termination of the Lease as set forth on EXHIBIT N attached hereto. --------- 19.21 Confidentiality. Landlord and Tenant each hereby acknowledge --------------- that the contents of this Lease and any related documents are confidential information. Until any such information enters the public domain, both parties shall use reasonable efforts to keep, and instruct their respective agents to keep, such information strictly confidential and shall use reasonable efforts not to disclose such confidential information to any person or entity other than such party's financial, legal, and space planning consultants, except as may be legally required by law or in connection with arbitration of a dispute or litigation hereunder, or in connection with any financing or sale. 19.22 Quiet Enjoyment. Landlord covenants that Tenant, on paying the ---------------- Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied. 19.23 Improvement of the Premises. Except as specifically set forth in --------------------------- this Lease and in the Tenant Work Letter, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that Landlord has made no representation or warranty regarding the condition of the Premises or the Project except as specifically set forth in this Lease and the Tenant Work Letter. 19.24 Force Majeure. Any actual prevention, delay or stoppage due to -------------- strikes, lockouts or other labor or industrial disturbance, whether or not on the part of employees of either party hereto; civil disturbance; future order of any government, court or regulatory body claiming jurisdiction; acts of the public enemy, war, riot, sabotage, blockade or embargo; inability to secure customary or required materials, supplies or labor through ordinary sources by reason of shortages, regulations or orders of any government or regulatory body; lightning, earthquake, fire, -71- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] storm, hurricane, tornado, flood, washout or explosion; court actions; or any similar cause beyond the reasonable control of the party from whom performance is required or any of their contractors or other representatives (collectively, a "FORCE MAJEURE"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure; provided, however, that nothing contained herein or elsewhere in this Lease shall obligate either party to settle a strike or other labor dispute when it does not wish to do so and Force Majeure shall not include any delays due to a party's inability or failure to make any monetary payments required under this Lease such as, by way of example, the payment of Rent by Tenant. This SECTION 19.24 shall not, however, apply to the construction of Tenant -------------- Improvements in the Premises, as SECTION 5 of the Tenant Work Letter shall ---------- control in such instance. 19.25 Hazardous Materials Provisions. -------------------------------- 19.25.1 Landlord's Covenant. Landlord agrees that Landlord shall -------------------- not, during the course of construction of the Parking Structure or thereafter, cause any "Hazardous Material," as that term is defined in Section 19.25.4, below, to be brought upon or used in or about the Project, by Landlord, its agents or employees in violation of any Hazardous Materials Laws in effect at such time. 19.25.2 Tenant's Representations and Warranties. Tenant hereby ------------------------------------------ represents and warrants to Landlord that neither Tenant nor Tenant's Transferees, agents, employees or contractors shall, at any time during the Lease Term, utilize, store or possess in or about the Premises or the Building, any Hazardous Materials except for ordinary office supplies in commercially reasonable amounts and except for equipment customarily used in offices, all of which shall be utilized strictly in accordance with Hazardous Materials laws in effect at such time. Tenant shall indemnify, defend, protect and hold Landlord harmless from any and all loss, cost, damage, expense and liability (including, without limitation, reasonable attorneys' fees) incurred by Landlord in connection with or arising from the breach by Tenant of the representation and warranty set forth in the immediately preceding sentence. 19.25.3 Landlord Remediation Obligations. If at any time during the --------------------------------- Lease Term, any Hazardous Material is discovered in the Project in violation of any Hazardous Materials laws, and such Hazardous Material was not created or brought upon the Project by any Tenant Parties, then Landlord shall, as an Operating Expense only to the extent permitted under ARTICLE 3, take the action --------- which Landlord is mandated to take by applicable governmental authorities to bring the Project into compliance with all Hazardous Materials laws, provided that Landlord shall be required to take such action only to the extent that the failure to do so would (i) unreasonably endanger the health or safety of Tenant's employees, or (ii) result in a material interference with Tenant's permitted use of the Premises. Notwithstanding the foregoing portions of this SECTION 19.25.3, however, Operating Expenses shall not include any costs for the -------------- removal or remediation of (A) asbestos or any other Hazardous Material which is introduced to the Project in violation of the terms of SECTION 19.25.1, or (B) --------------- subsurface or groundwater -72- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] contamination, except to the extent any cost of (A) or (B) is a result of the actions of any Tenant Parties. 19.25.4 Definition. As used herein, the term "Hazardous Material" ---------- means any hazardous or toxic substance, material or waste which is or becomes regulated by, or is dealt with in, any local governmental authority, the State of California or the United States Government. Accordingly, the term "Hazardous Material" includes, without limitation, any material or substance which is (i) defined as a "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste" under SECTIONS 25115, 25117 or 25122.7, or listed pursuant to -------------- ----- ------- SECTION 25140 of the California Health and Safety Code, Division 20, Chapter 6.5 ------------ (Hazardous Waste Control Law), (ii) defined as a "hazardous substance" under SECTION 25316 of the California Health and Safety Code, Division 20, Chapter - -------------- 6.95 (Hazardous Materials Release Response Plans and Inventory), (iii) defined as a "hazardous substance" under SECTION 25281 of the California Health and ------------- Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (iv) petroleum, (v) asbestos, (vi) listed under ARTICLE 9 or --------- defined as hazardous or extremely hazardous pursuant to ARTICLE 11 of Title 22 ---------- of the California Administrative Code, Division 4, Chapter 20, (vii) designated as a "hazardous substance" pursuant to SECTION 311 of the Federal Water ------------ Pollution Control Act (33 U.S.C. 1317), (viii) defined as a "hazardous waste" pursuant to SECTION 1004 of the Federal Resource Conservation and Recovery Act, ------------ 42 U.S.C. Sec. 6902 et seq. (42 U.S.C. Sec. 6903), or (ix) defined as a "hazardous substance" pursuant to SECTION 101 of the Compensation and Liability ----------- Act, 42 U.S.C. Sec. 9601 et seq. (42 U.S.C. Sec. 9601). 19.26 Transportation Management. Tenant shall fully comply with -------------------------- all present or future programs intended to manage parking, transportation or traffic in and around the Project or Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities. Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Project, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work shifts for employees. 19.27 Compliance With Law. Tenant shall not do anything or suffer --------------------- anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or other governmental or quasi-governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated ("LAWS"). Landlord shall be responsible, at Landlord's sole cost and expense (except to the extent such costs may be included as part of Operating Expenses under ARTICLE 3) for making all alterations required by Laws --------- to the structural portions of the Building and the Common Areas (including the Parking Structure), except to the extent such alterations are triggered by any Alterations in the Premises, in which event such alterations shall be at Tenant's sole cost and expense. Additionally, Landlord shall also make all alterations to the Tenant Improvements and Alterations within the Premises and the Storage Area required by Laws (the "COMPLIANCE OBLIGATIONS"). However, the cost of making such Compliance Alterations shall not be included in Operating Expenses, but -73- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] shall be billed directly to Tenant as Additional Rent, and paid by Tenant to Landlord concurrent with the next payment of Base Rent hereunder. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then, Landlord or Tenant, as the case may be, agrees, at its sole cost and expense, to comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of Landlord or Tenant in any judicial action, regardless of whether the other party is a party thereto, that they have violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. 19.28 Late Charges. If any installment of Base Rent or that portion of ------------ any Additional Rent which is not the subject of a good-faith dispute by Tenant, disputed and withheld in accordance with the terms of SECTION 3.6, above, as set ----------- forth in a written notice delivered by Tenant to Landlord on or before the payment of such Additional Rent is due, shall not be received by Landlord or Landlord's designee within ten (10) days after Tenant receives written notice that said amount is due, Tenant shall pay to Landlord a late charge equal to (i) with respect to the first such overdue amount in any 12-month period, Two Thousand Five Hundred Dollars ($2,500), or (ii) with respect to any further overdue payments, four percent (4%) of the overdue amount, as a one-time late charge applying to such particular amount overdue. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at a rate ("INTEREST RATE") per annum equal to the lesser of (i) the rate per annum announced from time to time by Citibank N.A. as its prime rate (or, if such bank fails to exist or to announce such a rate, then the prime rate announced by the largest state chartered bank operating in the State of California) plus two and one-half percent (2 %), and (ii) the highest rate permitted by applicable law. 19.29 Landlord's Right to Cure Default; Payments by Tenant. ----------------------------------------------------------- 19.29.1 Landlord's Cure. All covenants and agreements to be kept or ---------------- performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent. If Tenant shall fail to perform any of its obligations under this Lease within a reasonable time after such performance is required by the terms of this Lease, Landlord may, but shall not be obligated to, after reasonable prior notice to Tenant (except in the case of an emergency), make any such payment or perform any such act on Tenant's part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder. 19.29.2 Tenant's Reimbursement. Except as may be specifically ----------------------- provided to the contrary in this Lease, Tenant shall pay to Landlord, within thirty (30) days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant's -74- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] defaults pursuant to the provisions of SECTION 19.29.1; (ii) sums equal to all --------------- losses, costs, liabilities, damages and expenses referred to in ARTICLE 7 of --------- this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant's obligations under this SECTION 19.29 shall survive the ------------- expiration or sooner termination of the Lease Term. 19.30 No Air Rights. No rights to any view or to light or air over any ------------- property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease. 19.31 Intentionally Omitted. ---------------------- 19.32 Transfer of Landlord's Interest. Tenant acknowledges that ---------------------------------- Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease not accrued as of the date of this transfer, and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer subject to the express written agreement by such transferee to fully assume and be liable for all obligations of this Lease to be performed by Landlord which first accrue or arise after the date of the conveyance, and Tenant shall attorn to such transferee. Tenant further acknowledges that Landlord may assign its interest in this Lease to the holder of any mortgage or deed of trust as additional security, but such an assignment shall not release Landlord from its obligations hereunder and Tenant shall continue to look to Landlord for the performance of its obligations hereunder. 19.33 Landlord's Title. Landlord's title is and always shall be ----------------- paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord. 19.34 Relationship of Parties. Nothing contained in this Lease shall ------------------------- be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant. 19.35 Application of Payments. Unless Tenant specifies the particular ------------------------ purpose of any payment to Landlord, Landlord shall have the right to apply payments received from Tenant pursuant to this Lease to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect. -75- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.36 No Warranty. In executing and delivering this Lease, Tenant has ------------ not relied on any representations including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits and schedules attached hereto, or in any side letter or separate agreement between Landlord and Tenant in connection with this Lease and dated of even date herewith. 19.37 Intentionally Omitted. ----------------------- 19.38 Intentionally Omitted. ---------------------- 19.39 Independent Covenants. This Lease shall be construed as though ---------------------- the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, except as expressly set forth in this Lease, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building or Project or any portion thereof, whose address has theretofore been given to Tenant, in accordance with the provisions of SECTION 12.7. ------------- 19.40 Office and Communications Services. ------------------------------------- 19.40.1 Provider. Landlord shall advise Tenant if, as and when, -------- office and communications services will be offered to tenants of the Building by a concessionaire under contract to Landlord ("PROVIDER"). Tenant shall be permitted to contract with Provider for the provision of any or all of such services on such terms and conditions as Tenant and Provider may agree. The foregoing, notwithstanding, Tenant shall have the right to install its own, exclusive office and communications services in the Building subject, of course, to the terms of ARTICLE 6 and EXHIBIT C. ---------- ---------- 19.40.2 Other Terms. Tenant acknowledges and agrees that: (i) ------------ Landlord has made no warranty or representation to Tenant with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider is not acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease, the obligations of Tenant hereunder, and the rights of Landlord hereunder and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any -76- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of rent or additional rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord. 19.41 Arbitration. ----------- 19.41.1 General Submittals to Arbitration. The submittal of all ------------------------------------ matters to arbitration in accordance with the terms of this SECTION 19.41 shall ------------- be the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Lease, except for (i) determination of Option Rent, which shall be determined in accordance with SECTION 2.3.4 above, (ii) all claims by either party which (A) seek anything - -------------- other than enforcement of rights under this Lease, or (B) are primarily founded upon matters of fraud, willful misconduct, bad faith or any other allegations of intentional tortious action, and seek the award of punitive or exemplary damages, and (iii) claims (not elsewhere herein expressly agreed to be submitted to arbitration) relating to the payment of Rent by Tenant, and Landlord's exercise of any unlawful detainer rights pursuant to California law or rights or remedies used by Landlord to gain possession of the Premises or terminate Tenant's right of possession to the Premises in connection therewith. The parties hereby irrevocably waive any and all rights to the contrary and shall at all times conduct themselves in strict, full, complete and timely accordance with the terms of this SECTION 19.41 and all attempts to circumvent the terms of ------------- this SECTION 19.41 shall be absolutely null and void and of no force or effect -------------- whatsoever. As to any matter submitted to arbitration (except with respect to the payment of money) to determine whether a matter would, with the passage of time, constitute a default, such passage of time shall not commence to run until any such affirmative arbitrated determination, as long as it is simultaneously determined in such arbitration that the challenge of such matter as a potential default was made in good faith. As to any matter submitted to arbitration with respect to the payment of money, to determine whether a matter would, with the passage of time, constitute a default, such passage of time shall not commence to run in the event that the party which is obligated to make the payment does in fact make the payment to the other party. Such payment can be made "under protest," which shall occur when such payment is accompanied by a good faith notice stating the reasons that the party has elected to make a payment under protest. Such protest will be deemed waived unless the subject matter identified in the protest is submitted to arbitration as set forth in this SECTION 19.41. - -------------- 19.41.2 JAMS. Any dispute to be arbitrated pursuant to the ---- provisions of this SECTION 19.41 shall be determined by binding arbitration -------------- before a retired judge of the Superior Court of the State of California (the "ARBITRATOR") under the auspices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"). Such arbitration shall be initiated by the parties, or either of them, within ten (10) days after either party sends written notice (the "ARBITRATION NOTICE") of a demand to arbitrate by registered or certified mail to the other party and to JAMS. The Arbitration Notice shall contain a description of the subject matter of the arbitration, the dispute with respect thereto, the amount involved, if any, and the remedy or determination sought. The parties shall then agree on a retired judge from the JAMS panel. If they are unable to promptly agree, JAMS will provide a list of three (3) available judges and each party may strike one (1). The remaining judge (or if -77- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] there are two (2), the one selected by JAMS) will serve as the Arbitrator. In the event that JAMS shall no longer exist or if JAMS fails or refuses to accept submission of such dispute, then the dispute shall be resolved by binding arbitration before the American Arbitration Association ("AAA") under the AAA's commercial arbitration rules then in effect. 19.41.3 Arbitration Procedure. ---------------------- 19.41.3.1 Pre-Decision Actions. The Arbitrator shall --------------------- schedule a pre-hearing conference to resolve procedural matters, arrange for the exchange of information, obtain stipulations, and narrow the issues. The parties will submit proposed discovery schedules to the Arbitrator at the pre-hearing conference. The scope and duration of discovery will be within the sole discretion of the Arbitrator. The Arbitrator shall have the discretion to order a pre-hearing exchange of information by the parties, including, without limitation, production or requested documents, exchange of summaries of testimony of proposed witnesses, and examination by deposition of parties and third-party witnesses. This discretion shall be exercised in favor of discovery reasonable under the circumstances. 19.41.3.2 The Decision. The arbitration shall be conducted ------------- in Los Angeles, California. Any party may be represented by counsel or other authorized representative. In rendering a decision(s), the Arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural laws of California and the terms and provisions of this Lease. The Arbitrator's decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The Arbitrator may make any determination, and/or grant any remedy or relief that is just and equitable. The decision must be based on, and accompanied by, a written statement of decision explaining the factual and legal basis for the decision as to each of the principal controverted issues. The decision shall be conclusive and binding, and it may thereafter be confirmed as a judgment by the Superior Court of the State of California, subject only to challenge on the grounds set forth in California Code of Civil Procedure SECTION 1286.2 (or any -------------- successor statute). The validity and enforceability of the Arbitrator's decision is to be determined exclusively by the California courts pursuant to the provisions of this Lease. The Arbitrator may award costs, including, without limitation, attorneys' fees and expert and witness costs, to the prevailing party, if any, as determined by the Arbitrator in its discretion. The Arbitrator's fees and costs shall be paid by the non-prevailing party as determined by the Arbitrator in its discretion. A party shall be determined to be the prevailing party if its proposal for the resolution of the dispute is the closest to that adopted by the Arbitrator. 19.42 Prior Lease. Upon the Lease Commencement Date, that certain ----------- Office Lease, dated January 11, 1979, between Landlord and Tenant, as amended, together with all of the relevant additional leases and/or amendments respecting Tenant's occupancy of the Premises prior to the date of this Lease (collectively, the "PRIOR LEASE"), relating to the Premises, shall automatically terminate and be of no further force or effect and Landlord and Tenant shall be relieved of their respective obligations under the Prior Lease, except those obligations of Tenant set forth in the Prior Lease which specifically survive the expiration or earlier termination of the Prior Lease, including, without limitation, the payment by Tenant of all amounts owed by Tenant under the Prior Lease. -78- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.43 Termination of Adjacent Building Lease. Notwithstanding the ------------------------------------------ terms of Section 19.42, above, in the event that the Adjacent Building Lease is legally terminated by Tenant and/or Landlord prior to the "Lease Commencement Date," as that term is defined in the Adjacent Building Lease, including pursuant to the terms of Section 19.42 of the Adjacent Building Lease, this Lease shall likewise terminate, and the Prior Lease shall thereupon be reinstated to be in full force and effect; provided that Landlord and Tenant agree that the dates therein which relate to either (i) the exercise of any renewal or extension option, or (ii) the expiration of the term of the Prior Lease, shall all be deemed to have been extended by the amount of time between the full execution and delivery of this Lease and the termination of this Lease and reinstatement of the Prior Lease. IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written. "Landlord": TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a California corporation, Its Manager By: ----------------------------- Alan D. Levy, Chief Executive Officer "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: ----------------------------- William L. Mellick, President and Chief Executive Officer By: ----------------------------- William G. Crain, Vice President -79- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A --------- 20TH CENTURY PLAZA OUTLINE OF EACH FLOOR OF THE PREMISES EXHIBIT A - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 7 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 8 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 9 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 10 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 11 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT B ---------- 20TH CENTURY PLAZA OUTLINE OF PROJECT EXHIBIT B - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT B - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT C ---------- 20TH CENTURY PLAZA ------------------- TENANT WORK LETTER ------------------- This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the Tenant Improvements in the Premises and the Storage Area. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the planning and construction of the Tenant Improvements, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of "this Lease" shall mean the relevant portions of ARTICLES 1 THROUGH 20 of the Lease to which this Tenant Work Letter is attached - ---------------------- as EXHIBIT C, and all references in this Tenant Work Letter to Sections of "this --------- Tenant Work Letter" shall mean the relevant portions of SECTIONS 1 THROUGH 6 of -------------------- this Tenant Work Letter. SECTION 1 --------- DELIVERY OF THE PREMISES AND BASE BUILDING ------------------------------------------ Tenant acknowledges that Tenant has been occupying the Premises pursuant to the Prior Lease and therefore hereby accepts, the base, shell, and core of the Building (i.e., that portion of the Building not constructed for the benefit of Tenant or any prior tenant or occupant of the Building, collectively, the "BASE, SHELL AND CORE") in its currently existing, "as-is" condition. Landlord hereby grants Tenant an improvement allowance equal to One Million and No/100 Dollars ($1,000,000.00) for improvements by Tenant to the Building ground floor lobby, existing elevator systems, and/or the Building HVAC System (including any related structural changes, but not including any non-Base, Shell, and Core HVAC System) (the "Base Building Allowance"). Tenant shall have the right to use such Base Building Allowance for improvements to or renovations of the Building lobby, existing elevator system, structure and/or HVAC System (the "Tenant Base Building Work"). The disbursements of the Base Building Allowance, and the design and construction of the Tenant Base Building Work shall be in accordance with the terms of this Tenant Work Letter, as if the Base Building Allowance were a part of the Tenant Improvement Allowance, and as if the Tenant Base Building Work were a part of the Tenant Improvements SECTION 2 ---------- TENANT IMPROVEMENTS -------------------- 2.1 Tenant Improvement Allowance. Tenant shall be entitled to a ------------------------------ tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount of Twenty-Five and 50/100 Dollars ($25.50) per rentable square foot of the Premises. Landlord shall have no other responsibility for the costs relating to the design and construction of Tenant's improvements to be constructed in such space (the "TENANT IMPROVEMENTS"). In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Base Building Allowance and the Tenant Improvement Allowance. EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] With the exception of the items listed on SCHEDULE 5 hereto, all Tenant ----------- Improvements which are permanently affixed to the Premises for which the Tenant Improvement Allowance has been made available shall be deemed Landlord's property and shall be governed by the same restrictions as are set forth in SECTION 6.6 of the Lease with respect to Alterations, except that Tenant shall - ------------ have no obligation to remove Tenant Improvements upon the expiration or sooner termination of the Lease Term (unless, in connection with Landlord's approval of the Final Working Drawings, Landlord notifies Tenant of particular, non-general office improvements which Landlord may require to be removed (the "TENANT IMPROVEMENT REMOVAL ITEMS")). 2.2 Disbursement of Tenant Improvement Allowance. ------------------------------------------------ 2.2.1 Tenant Improvement Allowance Items. Except as otherwise set ------------------------------------- forth in this Lease and this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord's disbursement process) for the following items and costs (collectively, the "TENANT IMPROVEMENT ALLOWANCE ITEMS"): 2.2.1.1 Payment of the fees of the "Architect" and the "Engineers," as those terms are defined in Section 3.1 of this Tenant Work Letter, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord's and Tenant's consultants in connection with the preparation and review of the "Construction Drawings," as that term is defined in Section 3.1 of this Tenant Work Letter (provided, however, that the Tenant Improvement Allowance shall only be charged for fees and costs of Landlord's construction consultants incurred subsequent to the date hereof, and the total amount of such fees and costs shall not exceed Ten Thousand Dollars ($10,000)); 2.2.1.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements; 2.2.1.3 The cost of any voice and data wiring for the Premises, any security system installed by Tenant within the Project (which Tenant shall have the right to install as a Tenant Improvement provided that the same does not interfere with the operation of the Building's security system), any signage costs incurred by Tenant pursuant to SECTION 19.17 of the Lease, any built-in ------------- and/or movable furniture purchased by Tenant for the Premises; 2.2.1.4 The cost of construction consultants (including, without limitation, structural engineering consultants, consultant coordinator, construction manager and other similar professional consultants) and attorneys retained by Tenant relating to any aspect of this Lease transaction and the Project. 2.2.1.5 The cost of construction of the Tenant Improvements, including, without limitation, the cost of window coverings, ceiling hanger wires, testing and inspection costs and contractors' fees and general conditions (provided that, if Landlord conducts separate tests or inspections, such tests or inspections shall be at Landlord's sole cost and expense unless such tests or inspections reveal faulty workmanship which must be corrected or such tests or inspections are not conducted by Tenant and are reasonable and customary tests conducted in EXHIBIT C - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] connection with Tenant Improvement construction, in which case the costs of such tests or inspections shall be a Tenant Improvement Allowance Item); 2.2.1.6 The cost of any changes to the Base, Shell and Core when such changes are required by the Construction Drawings, such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith; 2.2.1.7 The cost of furniture, fixtures and equipment to be installed in the Project; 2.2.1.8 The net cost of all changes to the Construction Drawings or Tenant Improvements required by Code; 2.2.1.9 Sales and use taxes and Title 24 fees; 2.2.1.10 The "Landlord Coordination Fee", as that term is defined in SECTION 2.4 of this Tenant Work Letter; and ------------ 2.2.1.11 Costs, if any, incurred pursuant to the terms of SECTION 6.6 of this Tenant Work Letter. - ------------ If Tenant does not utilize all of the Tenant Improvement Allowance for Tenant Improvement Items in the Building, Tenant shall be entitled to use such excess amounts (i) as a credit against Tenant's first obligations to pay Base Rent under the Lease after exhaustion of any other initial credits to which Tenant is entitled, or (ii) towards defraying costs for improvements comparable to the Tenant Improvement Allowance Items that Tenant may incur in the Adjacent Building. 2.2.2 Disbursement Procedures for Tenant Improvement Allowance. ---------------------------------------------------------- Landlord shall make monthly disbursements of the Tenant Improvement Allowance for Tenant Improvement Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of, Tenant as follows: 2.2.2.1 Monthly Disbursements. On or before the earlier of (a) ---------------------- the date which is ninety (90) days after the full execution and delivery of this Lease, and any related documents and (b) the date which is thirty (30) days after recordation of Landlord's construction loan (provided that, in any event, Landlord shall not be required to make any payments until the date which is thirty (30) days after Landlord's receipt of the "Payment Request," as that term is defined below), Landlord shall deliver to Tenant payment for up to $235,000.00 (in the aggregate for this Lease and the Adjacent Building Lease) for "soft costs" expended by Tenant in connection with the Tenant Improvements (the "EARLY SOFT COST PAYMENT"). Notwithstanding the foregoing, Landlord agrees that Landlord shall disburse $115,000.00 (in the aggregate for this Lease and the Adjacent Building Lease) of the Tenant Improvement Allowance (the "INITIAL PAYMENT") concurrently with the full execution and delivery of this Lease, which Initial Payment shall be a part of, and deducted from, the Early Soft Cost Payment. Thereafter, commencing on the date which is thirty (30) days after the recordation of Landlord's construciton loan, and continuing to and including December 31, 1998 (the "Soft-Cost Reimbursement Period"), Tenant EXHIBIT C - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] may make Payment Requests of up to $100,000.00 per month, in the aggregate between the Building and the Adjacent Building, for additional "soft costs." If Landlord commences construction of the Project prior to June 1, 1998, Landlord shall disburse to Tenant, in accordance with the terms of this SECTION 2.2.2.1, --------------- on or before December 1, 1998, the aggregate of all such amounts for which Landlord received a Payment Request prior to November 5, 1998. If Landlord has not commenced construction of the Project prior to June 1, 1998, Landlord shall disburse to Tenant the amounts set forth in such Payment Requests on a monthly basis in accordance with the terms of this SECTION 2.2.2.1. Following the --------------- Soft-Cost Reimbursement Period, Landlord shall commence to disburse the remaining Tenant Improvement Allowance for all Tenant Improvement Allowance Items, both "Land" and "Soft" costs, pursuant to the terms of this Section 2.2.2. On or before the 10th day of each calendar month, or such other date as designated by Landlord (the "SUBMITTAL DATE"), 1998, Tenant shall deliver to Landlord: (i) a request for payment of the "Contractor," as that term is defined in SECTION 4.1 of this Tenant Work Letter, approved by Tenant, ------------ countersigned by the Architect in substantially the form of AIA Document G702 (which countersignature shall, to the extent Architect should make the certification required by AIA Document G702, be the obligation of Tenant to obtain), showing the approved schedule of values, broken down by trade, indicating the percentage of completion of the Tenant Improvements in the Premises and the Storage Area, detailing the portion of the work completed and the portion not completed; (ii) invoices from all of "Tenant's Agents," as that term is defined in SECTION 4.1.2 of this Tenant Work Letter, for labor rendered ------------- and materials delivered to the Premises; (iii) executed mechanic's lien releases from all of Tenant's Agents which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California Civil Code SECTION 3262(D); --------------- and (iv) all other information reasonably requested by Landlord (items (i) through (iv), above, the "Payment Request"). Tenant's request for payment shall be deemed Tenant's acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenant's payment request. Thereafter, within twenty-five (25) days after the Submittal Date, Landlord shall deliver checks to Tenant made payable jointly to Tenant and its construction consultants and to Tenant and its Contractor/Tenant's Agents in payment of the lesser of (A) the amounts so requested by Tenant, as set forth in this SECTION 2.2.2.1, above, --------------- less a ten percent (10%) retention (the aggregate amount of such retention to be known as the "FINAL RETENTION"), provided that such retention shall not apply to invoices from the Architect or Tenant's construction consultants, and (B) the balance of any remaining available portion of the Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the "Approved Working Drawings," as that term is defined in SECTION 3.4 below, or due to any ----------- substandard work. Landlord's payment of such amounts shall not be deemed Landlord's approval or acceptance of the work furnished or materials supplied as set forth in Tenant's payment request. 2.2.2.2 Final Retention. Subject to the provisions of this ---------------- Tenant Work Letter, a check or checks for the Final Retention payable to the Contractor/Tenant's Agents shall be delivered by Landlord to Tenant following the completion of construction of the Premises, provided that (i) Tenant delivers to Landlord copies of properly executed mechanics lien releases in compliance with both California Civil Code SECTION 3262(D)(2) and either SECTION ------------------ ------- 3262(D)(3) or SECTION 3262(D)(4), (ii) Landlord has determined that no - ---------- ------------------- substandard work exists which EXHIBIT C - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the construction of the Tenant Improvements in the Premises and the Storage Area has been substantially completed, and (iv) all of the other items set forth on the "Close-Out List" attached hereto as SCHEDULE 2 ---------- have been delivered to Landlord. 2.2.3 Failure to Disburse Tenant Improvement Allowance. If ----------------------------------------------------- Landlord fails to timely fulfill its obligation to fund any portion of the Tenant Improvement Allowance, Tenant shall be entitled to deliver written notice ("PAYMENT NOTICE") thereof to Landlord and to any mortgage or trust deed holder of the Building whose identity and address have been previously disclosed to Tenant. If Landlord still fails to fulfill any such obligation within twenty (20) business days after Landlord's receipt of the Payment Notice from Tenant, and if Landlord fails to deliver written notice to Tenant within such twenty (20) business day period explaining Landlord's reasons that Landlord believes that the amounts described in Tenant's Payment Notice are not due and payable by Landlord ("REFUSAL NOTICE"), Tenant shall be entitled to fund such portion of the Tenant Improvement Allowance and to offset the amount so funded, together with interest at the Interest Rate from the date of funding until the date of offset, against Tenant's next obligations to pay Base Rent. If Landlord delivers a Refusal Notice, and if Landlord and Tenant are not able to agree on the amounts to be so paid by Landlord, if any, within ten (10) days after Tenant's receipt of a Refusal Notice, Tenant may submit such dispute to arbitration in accordance with SECTION 19.41 of this Lease. If Tenant prevails ------------- in any such arbitration, the award by the arbitrator shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of Landlord's payment of such award. Similarly, if Tenant prevails in any such arbitration, and if Landlord and Tenant then agree that Tenant shall be entitled to apply such award as a credit against Tenant's obligations to pay Rent, the award shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of application of such amount as a credit against Rent. 2.3 Standard Tenant Improvement Package. Landlord has established ----------------------------------- specifications (the "SPECIFICATIONS") for the Building standard components to be used in the construction of the Tenant Improvements (collectively, the "STANDARD IMPROVEMENT PACKAGE"), which Specifications are set forth on SCHEDULE 3 attached ---------- hereto and made a part hereof. The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Specifications, provided that any window coverings shall be consistent throughout the Building. 2.4 Landlord Coordination Fee. The Tenant Improvement Allowance Items -------------------------- shall include a coordination fee (the "LANDLORD COORDINATION FEE") for Landlord's services relating to the coordination of the construction of the Tenant Improvements in the amount of $0.30 per usable square foot of the Premises. EXHIBIT C - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SECTION 3 --------- CONSTRUCTION DRAWINGS --------------------- 3.1 Selection of Architect/Construction Drawings. Tenant shall ----------------------------------------------- retain Cole Martinez & Curtis (the "ARCHITECT") to prepare the "Construction Drawings," as that term is defined in this SECTION 3.1. Landlord shall, at ----------- Landlord's sole cost and expense, supply Tenant with either (i) one (1) set of all Building plans and specifications in Landlord's possession and one (1) reproducible set of same, or (ii) one set of such plans and specifications together with a CADD diskette containing the same. Tenant shall retain engineering consultants subject to Landlord's prior approval, which approval shall not unreasonably be withheld or delayed, to prepare all plans and engineering working drawings relating to the structural, mechanical (including plumbing and HVAC and lifesafety work in the Premises and the Storage Area, which work is not part of the Base, Shell and Core. In addition, Tenant shall retain engineering consultants reasonably approved by Landlord to prepare all plans and engineering working drawings relating to the electrical and sprinkler work in the Premises, which work is not part of the Base, Shell and Core. All of the engineering consultants retained by Tenant shall, unless otherwise noted, be collectively referred to herein as the "ENGINEERS." The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the "CONSTRUCTION DRAWINGS." All Construction Drawings shall comply with the drawing format and specifications reasonably approved by Landlord, and shall be subject to Landlord's approval. Tenant and Architect shall be entitled to verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, except that Tenant and Architect shall have no responsibility for Landlord's compliance with its obligations in relation to any aspect of the construction of the Base, Shell and Core. Landlord's review of the Construction Drawings as set forth in this SECTION 3, shall be for --------- Landlord's sole purpose, and shall not imply Landlord's review of the same for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its project manager, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's project manager, architect, engineers, and consultants, Landlord shall have no liability whatsoever for any omissions or errors contained in the Construction Drawings, unless actually caused by Landlord or its project manager, architect, engineers or consultants. 3.2 Final Space Plan. Tenant shall supply Landlord with one (1) copy ------------------ with all pages signed by Tenant, and three (3) copies with only the cover page signed by Tenant, of Tenant's final space plan for the Tenant Improvements before any architectural working drawings or engineering drawings for the space outlined in such final space plan have been commenced. The final space plan (the "FINAL SPACE PLAN") shall include a layout and designation of all of the areas in the Premises to be affected by the tenant improvement work to be contained therein. Landlord shall, within ten (10) business days of the receipt of the Final Space Plan for any portion of the Premises, either (i) approve the Final Space Plan, (ii) approve the Final Space Plan subject to specified conditions to be complied with when the "Final Working Drawings," as that term is defined in SECTION 3.3, below, are submitted by Tenant to Landlord, or (iii) ----------- disapprove the Final Space Plan and return the same to Tenant with requested revisions; provided, however, that Landlord shall only disapprove the Final Space Plan for these exclusive reasons: (a) an EXHIBIT C - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] adverse effect on the structural integrity of the Building; (b) non-compliance with Code (c) an adverse effect on the Building's Systems and Equipment; (d) failure to comply with SECTION 2.3 of this Tenant Work Letter, or (e) a material ----------- and adverse effect on the exterior appearance of the Building (individually or collectively, a "DESIGN PROBLEM"). The foregoing procedure shall be repeated until the Final Space Plan for all portions of the Premises and Storage Area is ultimately approved by Landlord. The Final Space Plan may be submitted to Landlord for approval at one or more times and in one or more parts. 3.3 Final Working Drawings. After the Final Space Plan has been ------------------------ approved by Landlord, Tenant shall supply the Engineers with a listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements for the Premises, in sufficient detail to enable the Engineers and the Architect to complete the "Final Working Drawings" (as that term is defined below) in the manner as set forth below. Upon the approval of the Final Space Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Tenant Improvements, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the "FINAL WORKING DRAWINGS") and shall submit the same to Landlord for Landlord's approval. Tenant shall supply Landlord with one (1) copy of such Final Working Drawings with all pages signed by Tenant, and either (i) three (3) additional copies with only the cover page signed by Tenant, or (ii) a CADD diskette containing the same. Landlord shall, within fifteen (15) business days of the receipt of the Final Working Drawings for any portion of the Premises, either (i) approve the Final Working Drawings, (ii) approve the Final Working Drawings subject to specified conditions to be satisfied by Tenant prior to submitting the Approved Working Drawings for permits as set forth in SECTION 3.4, below, or ----------- (iii) disapprove and return the Final Working Drawings to Tenant with requested revisions if the Final Working Drawings do not reasonably comply with the Final Space Plan or contain a Design Problem. The foregoing procedure shall be repeated until the Final Working Drawings for all portions of the Premises are ultimately approved by Landlord. The Final Working Drawings may be submitted to Landlord for approval at one or more times and in one or more parts. 3.4 Approved Working Drawings. The Final Working Drawings for each --------------------------- full floor of the Premises shall be approved by Landlord (the "APPROVED WORKING DRAWINGS") prior to the commencement of construction of the Tenant Improvements on such floor by Tenant. Notwithstanding the foregoing, if Tenant elects to submit the Final Working Drawings for any full floor to the appropriate authorities for all applicable building permits prior to, or concurrently with, its submission of the Final Working Drawings to Landlord for Landlord's consent, and Tenant receives the requested building permits prior to Landlord's approval of the Final Working Drawings, then, at Tenant's sole risk and expense, Tenant may commence the construction of the Tenant Improvements on that floor of the Premises. Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant's responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications EXHIBIT C - Page 7 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent may not unreasonably be withheld, conditioned or delayed. SECTION 4 --------- CONSTRUCTION OF THE TENANT IMPROVEMENTS --------------------------------------- 4.1 Tenant's Selection of Contractors. ------------------------------------ 4.1.1 The Contractor. A general contractor (the "CONTRACTOR") --------------- shall be retained by Tenant to construct the Tenant Improvements. The Contractor shall be selected pursuant to a competitive bidding process wherein Landlord shall have the right to reasonably pre-approve all bidders and Tenant agrees that Landlord's base building general contractor and/or interior contractor shall be entitled to be bidders. Tenant shall deliver to Landlord notice of its selection of the Contractor upon such selection. 4.1.2 Tenant's Agents. All subcontractors, laborers, materialmen, --------------- and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as "TENANT'S AGENTS") must be approved in writing by Landlord, which approval shall not be unreasonably, withheld or delayed; provided that Tenant must contract with Landlord's base building subcontractors for any hook-up of the systems and equipment located in the Premises to the lifesafety system which is part of the Base, Shell and Core. Tenant's Agents shall all comply with the construction rules for the Building, as set forth in SCHEDULE 4 attached hereto. Tenant ---------- shall indemnify and hold Landlord harmless from any action of any Tenant's Agent which voids, modifies or otherwise interferes with any warranty or guaranty of Landlord with respect to the base building. If Landlord reasonably disapproves any of Tenant's proposed subcontractors, laborers, materialmen or suppliers for reasonable reasons, Tenant shall submit other proposed subcontractors, laborers, materialmen or suppliers for Landlord's written approval. 4.2 Construction of Tenant Improvements by Tenant's Agents. ------------------------------------------------------------ 4.2.1 Tenant's Agents. ---------------- 4.2.1.1 Landlord's General Conditions for Tenant's Agents and -------------------------------------------------------- Tenant Improvement Work. Tenant's and Tenant's Agents' construction of the - ------------------------- Tenant Improvements shall comply with the following: (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant's Agents shall submit schedules of all work relating to the Tenant's Improvements to Contractor and Landlord and Contractor and Tenant shall, within five (5) business days of receipt thereof, inform Landlord and Tenant's Agents of any changes which are necessary thereto, and Tenant's Agents shall adhere to such corrected schedule; and (iii) Tenant shall abide by all reasonable rules made by Landlord's Building manager with respect to the use of freight, loading dock and any service and/or passenger elevators, storage of materials, coordination of work with the contractors of other EXHIBIT C - Page 8 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] tenants, and any other matter in connection with this Tenant Work Letter, including, without limitation, the construction of the Tenant Improvements. However, Tenant and Landlord shall use commercially reasonable efforts to coordinate the work of their respective contractors in order to minimize any interference with the performance of one another's work. 4.2.1.2 Indemnity. Tenant's indemnity of Landlord and --------- Landlord's indemnity of Tenant as set forth in SECTION 7.1 of this Lease shall ----------- also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant's Agents, or of Landlord or Landlord's employees, agents or contractors, as the case may be, or anyone directly or indirectly employed by any of them, or in connection with Landlord's or Tenant's non-payment of any amount arising out of the Tenant Improvements and/or Tenant's disapproval of all or any portion of any request for payment. Such indemnity by Tenant, as set forth in SECTION 7.1 of ----------- this Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord's performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Premises. 4.2.1.3 Requirements of Tenant's Agents. Each of Tenant's ---------------------------------- Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of the Tenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Tenant's Agents shall be responsible for the replacement or repair, without additional charge to Tenant or Landlord, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) the Lease Commencement Date. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Tenant Improvements, and/or the Building and/or Common Areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Tenant Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement. 4.2.1.4 Insurance Requirements. ----------------------- 4.2.1.4.1 General Coverages. All of Tenant's Agents shall ------------------ carry worker's compensation insurance covering all of their respective employees, and shall also carry reasonable amounts of public liability insurance, including property damage, all with limits, in form and with companies as are reasonably approved by Landlord. Landlord will provide, upon Tenant's request, a schedule showing the types and amounts of insurance, broken down by trade, that are deemed by Landlord to be the reasonable types and amounts of insurance required of each of Tenant's Agents. EXHIBIT C - Page 9 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4.2.1.4.2 Special Coverages. In addition to the insurance ------------------ requirements set forth in ARTICLE 7 of this Lease, Tenant or the Contractor ---------- shall also carry full replacement value "Builder's All Risk" insurance approved by Landlord covering the construction of the Tenant Improvements, and such other insurance as Landlord may require so long as any such insurance is being required of comparable tenants in Comparable Buildings for tenant improvement work comparable to the Tenant Improvements. Such insurance shall be in amounts' and shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that all of Tenant's Agents shall carry excess liability and Products and Completed Operation Coverage insurance, each in amounts not less than $500,000 per incident, $1,000,000 in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in ARTICLE 7 of this Lease, so --------- long as any such insurance is being required of comparable tenants in Comparable Buildings for tenant improvement work comparable to the Tenant Improvements. 4.2.1.4.3 General Terms. Certificates on an ISO form for -------------- all insurance carried pursuant to this SECTION 4.2.1.4 shall be delivered to --------------- Landlord before the commencement of construction of the Tenant Improvements and before the Contractor's equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Landlord at least thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. In the event that the Tenant Improvements are damaged by any cause, except for the negligence or willful misconduct of Landlord (in which case Landlord shall be responsible to the extent not covered by the insurance required to be carried by Tenant pursuant to SECTION 4.2.1.4.1 or 4.2.1.4.2 ----------------- above), during the course of the construction thereof, Tenant shall immediately repair the same at Tenant's sole cost and expense. Tenant's Agents shall maintain all of the foregoing insurance coverage in force until the Tenant Improvements are fully completed and accepted by Landlord. All policies carried under this SECTION 4.2.1.4 shall insure Landlord and Tenant, as their interests --------------- may appear, as well as Contractor and Tenant's Agents, and shall name Landlord as an additional named insured. All insurance, except Workers' Compensation, maintained by Tenant's Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects Landlord and that any other insurance maintained by Landlord is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under SECTION 4.2.1.2 of --------------- this Tenant Work Letter. 4.2.2 Governmental Compliance. The Tenant Improvements shall ------------------------ comply in all respects with the following: (i) applicable building codes and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person (collectively, "Code"); (ii) applicable standards of the ISO and/or the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer's specifications and industry standards. 4.2.3 Inspection by Landlord. Landlord shall have the right to ------------------------ inspect the Tenant Improvements at all reasonable times and upon reasonable notice; provided, however, EXHIBIT C - Page 10 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] that Landlord's failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord's rights hereunder nor shall Landlord's inspection of the Tenant Improvements constitute Landlord's approval of the same. Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved; provided, however, that Landlord shall not disapprove of any portion of the Tenant Improvements which have been constructed in accordance with the Approved Working Drawings. Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord; provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Building, the structure or appearance of the Building or any other tenant's use of such other tenant's leased premises, Landlord may take such action as Landlord deems necessary, at Tenant's expense (paid as Additional Rent) and without incurring any liability on Landlord's part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord's satisfaction. 4.2.4 Meetings. Commencing upon execution of this Lease, Tenant -------- shall hold periodic meetings, at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Tenant Improvements (which meetings shall be held at a location mutually agreeable to Landlord and Tenant), and Landlord and/or its agents shall receive prior notice of and shall have the right to attend all such meetings. In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Landlord. One such meeting each month shall include the review of Contractor's current request for payment. Tenant shall be notified in advance of all scheduled meetings which will have a material affect on the construction of the Tenant Improvements, and Tenant and/or its agents shall be permitted to attend such meetings. 4.3 Construction Contract; Cost Budget. Prior to Tenant's ------------------------------------- execution of the construction contract with the Contractor, Tenant shall submit the construction contract to Landlord for its approval, which approval shall not unreasonably be withheld or delayed. Prior to the commencement of the construction of the Tenant Improvements on each floor, and in each instance after Tenant has accepted all bids for the Tenant Improvements for a floor of the Premises, Tenant shall provide Landlord with a detailed breakdown, by trade, of the final costs to be incurred or which have been incurred in connection with the design and construction of the Tenant Improvements, which may, at Tenant's election, be on a floor-by-floor basis (the "FINAL COSTS"). The term "OVER-ALLOWANCE AMOUNT" shall mean the difference between (i) the Final Costs for the Premises, and (ii) the amount of the Tenant Improvement Allowance. Tenant shall be required to pay the Over-Allowance Amount on a pro rata basis throughout the course of construction of the Tenant Improvements. By way of example only, and not as a limitation upon the foregoing, if the total cost of the Tenant Improvement Allowance Items equals Thirty and 60/100 Dollars ($30.60) per rentable square foot of the Premises, the Over-Allowance Amount shall be Five and 10/100 Dollars ($5.10) per rentable square foot (i.e., the Final Costs less the Twenty-Five and 50/100 Dollars ($25.50) per rentable square foot Tenant Improvement EXHIBIT C - Page 11 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Allowance), and Tenant shall pay one-fifth (1/5ths) of the amount of each invoice net of retention. In the event that after the Final Costs are determined, and if such Final Costs exceed the amount of the Tenant Improvement Allowance allocated to such space as described above, any revisions, changes or substitutions shall be made to the Construction Drawings or the Tenant Improvements pursuant to the provisions of this Tenant Work Letter, any additional costs (net of retention) reasonably attributable to such revisions, changes or substitutions shall be paid by Tenant. 4.4 Notice of Completion; Copy of Record Set of Plans. Within ten (10) ------------------------------------------------- business days after completion of construction of each full-floor phase of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with SECTION 3093 of the Civil Code of the State of California or any successor - ------------- statute, and shall furnish a copy thereof to Landlord upon such recordation; provided, however, that if Tenant does not cause a timely Notice of Completion to be recorded, Tenant shall not be in breach hereunder, but Tenant shall protect, defend, indemnify and hold Landlord harmless from any loss, cost, damage, claim or expense incurred by Landlord as a consequence of Tenant's failure to record the Notice of Completion. If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense. At the conclusion of each phase of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all material changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the "record-set" of as-built drawings and specifications are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set of drawings within ninety (90) days following the completion of the construction of the Tenant Improvements, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises, as applicable, as well as all other items set forth on the Close-Out List. SECTION 5 --------- INTENTIONALLY OMITTED --------------------- SECTION 6 --------- MISCELLANEOUS ------------- 6.1 Tenant's Representative. Tenant has designated Bernard F. Landgraf ----------------------- as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority to act on behalf of the Tenant as required in this Tenant Work Letter, and responsibility for Tenant's compliance with its provisions. 6.2 Landlord's Representative. Landlord has designated James Newell as ------------------------- its Project Manager and sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority to act on behalf of Landlord as EXHIBIT C - Page 12 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] required in this Tenant Work Letter, and responsibility for landlord's compliance with its provisions. 6.3 Time of the Essence in This Tenant Work Letter. Unless otherwise ------------------------------------------------ indicated, all references herein to a "number of days" shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord. 6.4 Tenant's Lease Default. Notwithstanding any provision to the ------------------------ contrary contained in this Lease, if an event of default as described in SECTION ------- 12.1 of this Lease or in this Tenant Work Letter has occurred (after expiration - ---- of applicable cure periods) at any time on or before the substantial completion of the Tenant Improvements, then all obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of this Lease. 6.5 Additional Miscellaneous. During the period of construction of the ------------------------ Tenant Improvements and/or Tenant's move into the Building, Landlord shall continue to provide standard services as required pursuant to the terms of the Lease. 6.6 Notices. All notices hereunder shall be delivered as set forth in ------- the Lease, and shall be in writing, regardless of whether or not specified herein to be "written notice" or "in writing." 6.7 Labor Harmony. All of Tenant's Agents shall, if requested by -------------- Landlord, all be union labor in compliance with the master labor agreements existing between trade unions and the Southern California Chapter of the Associated General Contractors of America; provided that Tenant shall be permitted to retain non-union subcontractors and laborers for painting, millwork, carpeting, and other finish work in connection with the construction of the Tenant Improvements. All of Tenant's Agents shall conduct their activities in and around the Premises, Building and Project in a harmonious relationship with all other subcontractors, laborers, materialmen and suppliers at the Building and Project, and, if necessary, Tenant shall employ union labor to achieve such harmonious relations. EXHIBIT C - Page 13 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 1 TO EXHIBIT C ------------------------ INTENTIONALLY OMITTED SCHEDULE 1 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 2 TO EXHIBIT C ------------------------ CLOSE-OUT LIST Following the completion of the Tenant Improvements, Tenant or Contractor shall deliver to Landlord the following items: - - Building Permit Card signed by the appropriate City Inspectors, and, if applicable, issuance of certificate of occupancy or its legal equivalent allowing occupancy of the Premises. - - Punch List signed by the appropriate Tenant Representative or Architect, indicating that all punch-list items have been corrected and that the Contract is fully complete. - - Issuance of the Certificate of Substantial Completion by the Architect and/or Engineers - - Subcontractor List with contact names and telephone numbers. - - Finish Schedule from the General Contractor indicating the manufacturer or supplier and specification number for all finishes installed. - - One year warranty letters from the General Contractor and all subcontractors (from the date of construction completion). - - Any manufacturer's warranties, equipment manuals, etc., for any equipment installed (e.g., package A/C units, etc.) - - Unconditional Mechanic's Lien Releases from all of Tenant's Agents - - As-Built Drawings covering the Tenant Improvements constructed pursuant to this Tenant Work Letter and any portions of the Base, Shell and Core affected by such construction, with each sheet stamped "AS-BUILT" and signed by the appropriate contractor (one to be sepia): - Electrical - HVAC - Plumbing - Fire Sprinkler - Architectural - - List of "Spare Parts" or "Attic Stock" remaining from Tenant Improvement construction, if not previously receipted by Landlord - - Consent of sureties to release of retention and final payments, if required SCHEDULE 2 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 3 TO EXHIBIT C ------------------------ BUILDING STANDARDS 1. Air Conditioning ----------------- A. Building standard air conditioning system including zones, thermostats, distribution, and diffusers. B. Allowance -- One (1) zone per 1,000 square feet. 2. Partitions ---------- A. Building standard interior partitions 2 " metal studs with a layer of 5/8" gypsum board each side, floor to ceiling. B. Allowance - One (1) linear foot for each 12 square feet. C. Demising Partitions: Same a "A" above with insulation between studs and insulquilt blankets from ceiling to slab above. 3. Door Frames ------------ A. Building standard hollow metal frame 3'0" x 8'3 3/4" oak veneer door. 4. Doors ----- A. Building standard interior solid core doors 3'0" x 8'3 3/4" plastic laminated doors. B. Allowance - One (1) door per 30 linear feet of partition. C. Building standard entry solid core 3'0" x 8'# 3/4" oak veneer door. 5. Hardware -------- A. Interior Doors: 1. Latchset Russwin, Lustra US10B. 2. Butts, Sloss 4 " x 4" x 10B. 3. Doorstep, floor, quality x 10B. B. Entry Doors: 1. Lockset Russwin 5025 Lustra WS10B (left or right) 2. Two (2) pair butts - Sloss 4 " x 4" x 10B. 3. Closers Norton 7703 4. Doorstop - Floor, quality x 10B. 6. Ceiling ------- A. 2" x 2" acoustic tile with exposed grid system. SCHEDULE 3 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 7. Light Fixtures --------------- A. 2' x 4' recessed fluorescent light fixtures with three tubes, surface of light fixture flush with ceiling with injection molded prismatic acrylic frameless lens. B. Allowances - One (1) per 100 square feet. 8. Electrical and Telephone Outlets ----------------------------------- A. One wall telephone with 3/4" conduit or one electrical outlet per 100 square feet. 9. Carpeting --------- A. Walter's "Signature #2" throughout, including padding and installation. B. Color to be selected from Landlord's standard samples. 10. Base ---- A. 4" black or brown cover rubber base. B. To be selected from building standard samples. 11. Paint ----- A. Sinclair - Two (2) coats of flat acrylic or as necessary to cover. B. To be selected from building standard samples. 12. Draperies --------- A. Fabric - Shall be full height 68% Verel Modacrylic, 28% Rayon and 4% Nylon fabric. B. Allowance - All exterior windows. 13. Standards --------- A. The above name brands are to be "or equal" as determined by Landlord. 14. Consultants ----------- A. Normal preparation of space studies and working drawings for all of the above. SCHEDULE 3 TO EXHIBIT C - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 4 TO EXHIBIT C ------------------------ BUILDING CONSTRUCTION RULES TENANT CONTRACTOR RULES, REGULATIONS AND SUPPLEMENTARY CONDITIONS FOR CONSTRUCTION 1. INTRODUCTION. ------------- These "Construction Parameters" outline for all general contractors, sub-contractors and vendors the basic guidelines for construction activities within the building at 6303 Owensmouth Avenue (the "Building"). Any work performed in the Building, whether it is constructed or supervised by the Landlord, the general contractor or the Tenant directly, must be done in accordance with the Construction Parameters set forth herein. Violation of these rules and regulations may be the cause for the Landlord to stop work from continuing. As used herein, the term "Contractor" shall mean any general contractor, subcontractor, vendor, employee or agent employed directly or indirectly by the Tenant, Landlord, or general contractor. The term "Project Manager" shall mean the agent of Tenant overseeing any particular work of construction. In the event of any inconsistency between the terms of this Schedule 4 and the terms of the Tenant Work Letter, the terms of the Tenant Work Letter shall control. 2. REQUIREMENTS PRIOR TO BEGINNING WORK. ----------------------------------------- Construction work will not be permitted to commence until the lease between the Landlord and the Tenant is fully executed, the Landlord has reviewed and approved all construction documents, the Tenant has deposited with the Landlord any monies required to be deposited under the lease and the Contractor has received a written Notice to Proceed. In addition, prior to the commencement of any construction, the following documents must be fully executed and on record with the Landlord: a. In the event the Tenant and its Contractor enter into an agreement not contracted directly with the Landlord, the Managing Agent will post a Notice of Non-Responsibility at the site and will file it with the County Recorder. It is the responsibility of the Tenant to administer the contract in such a manner as to keep the Building lien free. b. Copies of all permits required by any governmental agencies for completion of the work (see item 4c). c. An original "stamped" set of City approved construction documents must be posted at the site. d. Certificates of insurance, together with a waiver of Landlord's liability (see item 5k). e. A letter for indemnification (see item 7). SCHEDULE 4 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] f. A letter from the Contractor providing a deficiencies "punch list" of the existing project site. This punch list shall be verified by Landlord and include any and all items found damaged in the work space prior to work being done. The Contractor shall be held responsible for repair of any damage found after the completion of its work which is not noted on this listing. g. A letter from the Contractor with a copy of the projected work schedule for the project, a listing of contact names for each vendor/sub-contractor involved with the work, along with normal business and emergency after hours phone numbers. All subcontractors, laborers, materialmen, and suppliers used by the Contractor must be approved in writing by the Landlord. If the Landlord does not approve of any subcontractors, laborers, materialmen, and suppliers used by the Contractor, the Contractor shall submit other proposed subcontractors, laborers, materialmen, and suppliers for Landlord's written approval. 3. CONTRACTOR'S DUTIES AND STATUS. ---------------------------------- The Contractor accepts the relationship of trust and confidence established between him and the Tenant and the Landlord. He covenants with the Tenant and the Landlord to furnish his best skill and judgment and to cooperate with the Architect in furthering the interests of the Tenant and the Landlord. Contractor agrees to furnish efficient business administration and to use his best efforts to furnish at all times an adequate supply of workmen and materials, and to perform the Work in the best way and in the most expeditious and economical manner consistent with good workmanship, sound business practice and the best interests of the Tenant and Landlord. Except as expressly authorized in the Contract Documents, the Contractor has no right or authority of any kind to act as the representative of or on behalf of the Tenant and Landlord. Contractor is an independent contractor and not an agent of the Tenant or Landlord. 4. WORKING HOURS -------------- Contractors are to notify the Managing Agent at 6301 Owensmouth Avenue, Suite 105 prior to starting any work. All jobs must be scheduled by the responsible party of the Contractor or vendor, to be appointed by Contractor prior to project commencement. a. All work is to be performed between the hours of 6:30 a.m. and 6:00 p.m. Monday through Friday, excluding holidays, Saturdays, and Sundays, unless prior permission is granted by Landlord or Landlord's designated managing agent ("Managing Agent"), to deviate from this work schedule. Additionally, some work processes are restricted because of disturbances to surrounding tenants as listed below. b. Whenever Contractor will use construction methods which will result in prolonged loud noise (such as, but not limited to, tack stripping, coring or jack hammering) such activities will be limited to a time agreed to by the Managing Agent and Project Manager. These activities may by conducted at hours other than these only by permission of the Managing Agent. SCHEDULE 4 TO EXHIBIT C - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] c. The use of combustible glues, lacquers and paints or any odor producing products on weekdays between the hours of 6:00 a.m. and 6:00 p.m. must be coordinated in advance with the Managing Agent; in occupied office spaces, such use is limited to after 6:00 p.m. or on weekends. d. Tenant or Tenant's Agents must receive written authorization ("PASSDOWNS") to enter the building by contacting the Managing Agent at 818/704-0500 each time you plan to do work outside of the hours of 6:00 A.M. and 6:00 P.M. 5. GENERAL CONDITION ISSUES -------------------------- a. Supervision and Construction Procedures The Contractor shall supervise and direct the work using its best skill and attention. The Contractor shall be solely responsible for all construction means, methods, techniques, sequences and procedures and for coordinating all portions of the work under the contract. b. Rules and Regulations The Contractor shall issue copies of the Rules and Regulations to all sub-contractors with bid requests. In addition, a copy shall be posted at all times during construction at permit locations. c. Labor and Materials Unless otherwise specifically agreed to in writing, the Contractor shall provide and pay for all labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation, and other facilities and services necessary for the proper execution and completion of the work. d. Permits, Fees, and Notices The contractor shall secure and pay for all permits, governmental fees and licenses necessary for the proper execution and completion of the work, which are applicable at the time work begins. The Contractor shall give all notices and comply with all laws, ordinances, rules, regulations and orders of any public authority bearing on the performance of the work. The Contractor shall arrange for Life Safety test with the proper governmental authorities prior to tenant move-in. e. Superintendent The Contractor shall employ a competent superintendent and necessary assistants who shall be in attendance at the project site during the progress of the work. The superintendent shall be satisfactory to the Landlord and Tenant, and shall not be changed SCHEDULE 4 TO EXHIBIT C - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] except with the consent of the Landlord and Tenant, unless the superintendent proves to be unsatisfactory to the Contractor and ceases to be in its employ. f. Closed Suite Environment Suite entrance doors are to remain closed at all times, except when stocking. g. Protection of Persons and Property The Contractor shall comply with all applicable laws, ordinances, rules, regulations and lawful orders of any public authority having jurisdiction for the safety of persons or property or to protect them from damage, injury or loss. Contractor shall erect and maintain, as required by existing conditions and progress of the work, all reasonable safeguards for safety and protection, including posting danger signs and other warnings against hazards and promulgating safety regulations. The Contractor shall be responsible for initiating, maintaining and supervising all safety precautions and programs in connection with the work. 1) The Contractor shall take all reasonable precautions for the safety of, and shall provide all reasonable protection to prevent damage, injury or loss to: a) all employees on the project and all other persons who may be affected thereby; b) all the work and all materials and equipment to be incorporated therein, whether in storage on or off the site, under the care, custody or control of the Contractor or any of its vendors, sub-contractors, or sub-subcontractors; c) other property at the site or adjacent thereto, including trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction. 2) The Contractor shall be responsible for providing adequate protection of existing building services, and/or tenant furnishings during construction. Plastic must be taped down first, from wall to wall, followed by tempered Masonite (4 x 8-1/4 inch panel) taped to the floors and adjoining areas. Protect all corners, edges and joints to have adequate anchoring to provide safe and "trip free" transitions. Material to be extra heavy-duty and installed from freight elevator to the suite during construction. Plywood will not be accepted in lieu of Masonite. Materials used for protection will not bear signage, graffiti, or advertising. SCHEDULE 4 TO EXHIBIT C - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] h. Contractor's Liability Insurance The Contractor shall purchase and maintain such insurance as will protect the Contractor from claims set forth below which may arise out of or result from the Contractor's operations under the contract, whether such operations be by the Contractor or by any sub-contractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable: 1) claims under workmen's compensation, disability benefits and other similar employee benefit acts; 2) claims for damages because of bodily injury, occupational sickness or disease, or death of its employees; 3) claims for damages because of bodily injury, sickness or disease, or death of any person other than its employees; 4) claims for damages insured by usual personal injury liability coverage which are sustained (a) by any person as a result of an offense directly or indirectly related to the employment of such person by the Contractor, or (b) by any other person; and 5) claims for damages because of injury to or destruction of tangible property, including loss of use resulting therefrom. The insurance required above for bodily injury liability and property damage (including automobile insurance) shall be written for no less than a combined single limit of $2,000,000 or as required by law, whichever is greater. Such insurance shall name Landlord, Landlord's lender and Landlord's designated Managing Agent, as Additional Named Insured. Certificates of Insurance acceptable to the Landlord shall be filed with the Landlord prior to commencement of the work. These Certificates shall contain a provision that coverage afforded under the policies will not be canceled until at least thirty (30) days prior written notice has been given to the Landlord. Contractor must wave all rights against Landlord, Landlord's lender and Landlord's designated Managing Agent. Managing Agent, for damages caused by perils required to be covered by the foregoing insurance, and Contractor shall require similar waivers from any and all sub-contractors. i. Documents and Samples at the Site The Contractor shall maintain at the site for the Landlord one record copy of all Drawings, Specifications, Addenda, Change Orders and other Modifications, in good order and marked currently to record all changes made during construction, and approved Shop Drawings, Product Data and Samples. SCHEDULE 4 TO EXHIBIT C - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] These shall be available to the Landlord, the Architect, the Tenant and Project Manager and shall be delivered to the Landlord upon completion of the work. All original documents and plans which have received final approval by the City must be submitted to Landlord prior to payment of general contractor retention invoice. j. Responsibility for Damage 1) Should the Contractor wrongfully cause damage to the work or property of the Landlord or the Tenant, or to other work on the site, the Contractor shall promptly remedy such damage as directed by the Landlord. 2) Should the Contractor cause damage to the work or property of any sub-contractor, sub-subcontractor or separate contractor, the Contractor shall, upon due notice, promptly attempt to settle such matter or otherwise to resolve the dispute. If such sub-contractor, sub-subcontractor or separate contractor sues the Landlord or the Tenant on account of any such damage alleged to have been caused by the Contractor, the Landlord or the Tenant shall notify the Contractor who shall defend such proceedings at the Contractor's expense, and if any judgment or award against the Landlord or the Tenant arises therefrom, the Contractor shall pay or satisfy it and shall reimburse the Landlord or the Tenant for all attorney's fees and court costs which the Landlord or the Tenant has incurred. 6. CONSTRUCTION REQUIREMENTS -------------------------- a. Demolition The Contractor shall disconnect all electrical, HVAC and plumbing (if any) prior to demolition and provide temporary construction lighting if necessary. The work shall be done by licensed electrical, HVAC and plumbing sub-contractors. All abandoned phone lines, plumbing supply and waste lines, air conditioning duct work, electrical conduits, etc. are to be removed. Coordination with Building Engineers is required prior to the disconnection of services or work relating to Building Systems. b. Life Safety System All Life/Safety and applicable Building Codes will be strictly enforced. Coordination with the Chief Engineer is required. Requests for disablement of the fire alarm system must be received 48 hours prior to date required. SCHEDULE 4 TO EXHIBIT C - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Contractor is to verify with the Managing Agent the designated Life Safety contractor for the Building. The Life Safety system, electrical or mechanical systems may not be modified in any way, or made inoperative by Contractor or any of Contractor's sub-contractors. If Contractor has any reason to interface with these systems or if damage occurs during construction, contact Managing Agent for direction immediately. c. Electrical The Contractor shall ensure that the following requirements are adhered to: 1) Electric panel schedules must be brought up to date, identifying all new circuits added. 2) All electrical outlets and lighting circuits are to be properly identified. 3) All electrical and phone closets being used must have panels replaced and doors shut at the end of each work day. Any electrical closet that is opened with the panel exposed must have a workperson present. 4) All electricians, telephone personnel, etc. will, upon completion of their respective projects, pick-up and discard all their trash, and leave their work areas in broom-clean condition. If debris is not removed, clean-up will be conducted by the Building janitorial staff and will be backcharged. 7. INDEMNIFICATION --------------- Contractor must indemnify and agree to hold Landlord, Landlord's lender and Landlord's designated Managing Agent, Managing Agent, and their respective agents, officers and employees, harmless from all loss, cost, liability, damage or expense by reason of damage to the property of others or personal injury, including death, which may arise from the Contractor's operations in the building, whether by the Contractor or any sub-contractor, or anyone directly or indirectly employed by either of them. 8. RECORD DRAWINGS ---------------- The Contractor is required to provide Landlord or its Managing Agent with reproducible "As Built" record drawings including electrical, mechanical, plumbing, and sprinkler drawings and air balancing reports for all work permanently in place at the completion of each project. Provisions shall be made in the Contractor's agreement to allow for the creation of these documents. Additionally, copies of all City "signed off" inspection cards from all appropriate and required government agencies shall be submitted to Landlord or its Managing Agent as part of the record drawing set. SCHEDULE 4 TO EXHIBIT C - Page 7 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 9. TRADE JURISDICTION ------------------- The Contractor shall properly assign the work to be performed to appropriate personnel so as to properly execute the work in accordance with local jurisdictions. In the event of conflict due to jurisdictional dispute, the Contractor shall take immediate and appropriate action to see that there is no work stoppage due to the conflict of jurisdiction. Should conflict interfere with other building operations, the Landlord reserves the right to stop the Contractor's work until such problems are resolved. 10. HARMONIOUS RELATIONS --------------------- The Contractor and all subcontractors, laborers, materialmen and suppliers shall conduct their activities in and around the Premises, Building and Project in a harmonious relationship with all other subcontractors, laborers, materialmen and suppliers at the Building and Project. 11. SALVAGEABLE MATERIALS ---------------------- The Contractor shall return to the Project Manager or Landlord all attic stock, spare parts and salvageable materials removed from any existing permanent work. These items are to be stored by the Contractor at a location determined by the Project Manager and/or Landlord. Additionally, reusable carpet excess should be rolled and tagged and submitted to the Project Manager or Landlord for storage and potential reuse during remodeling years. 12. PROVISION OF TEMPORARY UTILITIES ----------------------------------- a. Power and Lighting The Landlord shall provide, at its expense, power at the main electrical panel on each floor. The Contractor shall be responsible for providing at its expense, cable extensions and for making connections to the floor electrical panels for temporary power. Contractor shall also be responsible for supplying, at its expense, any temporary or special lighting required for its work. b. Water Landlord shall provide water at the janitor's closet on each floor and at future tenant hookup locations. The Contractor shall be responsible for providing, at its expense, hose connections and for making connections to the outlets provided. Contractor is also responsible to ensure that no water damage is done to existing finishes and to ensure that no leakage occurs onto other floors. c. Heating, Ventilation and Air Cooling The Landlord shall furnish heating, ventilation or air cooling to the work space during normal construction hours. Upon request from Contractor, Landlord shall operate SCHEDULE 4 TO EXHIBIT C - Page 8 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] the ventilation system for the Building as may be reasonably required during the construction, including those periods during and after application of finishes, which services shall not be charged to the Contractor during normal construction hours, but shall be backcharged during other hours. d. Telephones The Landlord has no obligation to provide telephone service to the Contractor other than the pay phone services designed for public use located in the Building. The Contractor shall not disturb the Managing Agent or other tenant offices for use of their telephone. e. Fire Protection The Contractor shall be responsible for seeing that portable fire extinguishers are provided in sufficient quantity to satisfy the requirements of the City fire inspector. Additionally, the Contractor shall provide a fire watch during any welding, burning or other activity involving open flame or arc flame. Lastly, the Contractor shall specifically note that the general fire protection systems within the Building are active and must remain active during tenant buildout. Before starting any sprinkler system rework, Contractor must contact Landlord or Managing Agent to make arrangements for shut down and draining of the individual floor systems where work is to be performed. The actual cost for the floor work for draining and refilling the system will be paid by the Contractor. 13. ELEVATORING, HOISTING AND DELIVERIES --------------------------------------- a. General Use All Contractor materials and workmen shall be transported using the service elevator. Under no circumstances will the general elevator systems be used for material or workmen movement. During the hours of 8:00 a.m. to 6:00 p.m., Monday through Friday, excluding holidays, Saturdays, and Sundays, the service elevator shall be restricted to use for the movement of workmen, tools and light materials only. During this time period, stocking of major materials will not be allowed. Use of the service elevator will be shared with other Contractors and other service vendors working in the building. b. Stocking and Material Movement Stocking and material movement shall be accomplished after hours only (before 8:00 a.m. and after 6:00 p.m., Monday through Friday and all day Saturdays, Sundays, and holidays). The service elevator must be reserved through the Managing Agent, and reservations shall be allocated on a first come first serve basis. If it should become necessary to provide an operator for the elevator, the cost of such operator will be invoiced to Contractor or Tenant. In addition, should the Contractor reserve the service SCHEDULE 4 TO EXHIBIT C - Page 9 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] elevator and fail to use its services, the Contractor or Tenant shall nevertheless be charged for the elevator operator. Should Contractor wish to cancel its reservation, it must do so 24 hours in advance. 14. DELIVERIES AND ON SITE STORAGE ---------------------------------- a. General The Contractor shall deliver materials to the job site in order to provide for the proper execution of its work in a continuous fashion. Contractor shall be responsible to provide adequate protection as required for public property, private property, utilities and materials and shall be responsible for the safety of workmen in accordance with the applicable codes, laws and regulations of governing agencies having jurisdiction. Any damages caused by the Contractor's negligence shall be corrected by the Contractor in a manner approved by the Landlord and/or the ruling government agency at the Contractor's expense. b. Staging The Contractor may stockpile material only in areas approved by Landlord or the Managing Agent. If materials are stockpiled in unapproved areas which create interference or obstruction with the work of others, or if overloading of the rated capacity of the structural slab occurs, such materials must be relocated by the Contractor at its expense. The use of "staging areas" outside of the demised area of the Tenant's space shall be allowed only with prior approval of Landlord or Managing Agent and shall be restricted to that zone and that time period authorized by Landlord or Managing Agent in writing. These areas must be vacated and left in "like new" condition at the end of such period. 15. CLEANUP AND RUBBISH REMOVAL ------------------------------ The Contractor shall at all times keep the project free from accumulation of waste material or rubbish caused by its employees or its sub-contractors. Cleanup and rubbish removal shall occur on a daily basis to the satisfaction of the Landlord. Contractor is responsible for providing its own means of trash disposal and shall not be allowed to use the building's trash compactors, bins and/or dumpster system. The Managing Agent assumes no responsibility for the bins. Bins must be delivered and -- maintained in good condition and free of graffiti. All core elements, including the restrooms, elevator lobbies and public corridors, shall be kept clean at all times. When Contractor requires the use of these areas, provisions must be made for the proper protection of existing services to prevent damage or excessive wear. Final cleaning will include cleaning of all window mullions, light diffusers, cleaning of cabinets and sinks, vacuuming of carpet, cleaning of VCT. SCHEDULE 4 TO EXHIBIT C - Page 10 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 16. RESTROOMS --------- The Contractor shall be allowed to use the restroom facilities on the floors on which it is working unless otherwise specified by Landlord. The Contractor must include these restroom facilities on its punch list of deficiency items as it will be charged for any damage to these areas found during or after the completion of its work. Further, Contractor shall maintain these restroom facilities and protect them until such time as its work is complete. Absolutely no disposal of paint, drywall compound or cement will be allowed in restrooms or janitor sinks. 17. PARKING ------- To the extent available on-site, parking will be provided free of charge to the Contractor, employees of the Contractor, sub-contractors and vendors, who shall comply with such parking rules and regulations as the Landlord may establish. 18. MISCELLANEOUS ------------- a. The Contractor shall at all times enforce strict discipline and good order among its employees and shall not employ any unfit person or anyone not skilled in the task assigned to the Contractor. The Contractor shall restrict access of its personnel to the areas of its work within the building. Workers are not to be permitted on floors not involved in the work, and at no time shall workers be allowed on other occupied floors or --------------------------------------------------------------- the main lobby areas of the buildings. ------------------------------------------- b. Radios, tape decks or other amplified sound equipment are not allowed. c. Anyone found defacing any portion of the Project in any manner will be subject to immediate dismissal from the Project. d. Use of Tenant lounges or kitchen areas is strictly prohibited. Construction personnel are to refrain from using building common area or exterior seating for breaks. Food and related lunch debris is not to be left in the suite under construction. e. A shirt must be worn at all times while on the project site. Offensive T-shirts or tank tops are prohibited. f. Alcohol and drugs are strictly prohibited. 19. TELEPHONE/DATA CABLING ----------------------- The Tenant's cabling vendor is responsible for pulling the telephone and/or data cable. The Tenant's vendor must obtain a permit from the appropriate government authority. All cable must be plenum approved and secured per the City Building Codes. The SCHEDULE 4 TO EXHIBIT C - Page 11 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant's cabling vendor is responsible for calling for any inspections required under this permit. In all plenum environments, the cable installed is to be a "fire protected" cable or "plenum rated" cable. In any space where the conduits are home run rather than stubbed out into the plenum, a standard cable is acceptable. Standard cable is also acceptable in the conduited home run from the Tenant's backboard, in their suite, to the telephone/communications closet/room in the core of the building on each floor. The Tenant's cabling vendor must suspend all cabling from the deck above by wires independent of all other trades. In no instance should any cable be tied off to any other trade including but not limited to the following: sprinkler heads or pipe, electrical conduit or the wires used to suspend the conduit, HVAC ducting, or ceiling grid wires. All wiring to be held 12" above ceiling and supported every 48". In no instance should cable be left laying on the duct work or on the ceiling grid. The Tenant's cabling vendor is responsible for the correction of any deficient situations within 24 hours of notification that the installation does not meet the above requirements. THE RULES AND REGULATIONS WILL BE STRICTLY ENFORCED. THE MANAGING AGENT AND ENGINEERING DEPARTMENT WILL ASSIST TO MAKE YOUR JOB EASIER. HOWEVER, CONTRACTORS WHO DO NOT OBSERVE THE RULES AND REGULATIONS WILL NOT BE ALLOWED TO PERFORM WORK WITHIN THIS PROJECT. ACCEPTED: TENANT: CONTRACTOR: 20TH CENTURY INSURANCE COMPANY [NAME OF COMPANY] - --------------------------------- --------------------------------- Bernard F. Landgraf Signature Date: Date: SCHEDULE 4 TO EXHIBIT C - Page 12 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 5 TO EXHIBIT C ----------------------- The following articles of personal property may be removed from the Building by Tenant at any time during the Lease Term, regardless of whether such articles of personal property are characterized under the Lease as (i) "Landlord's property" in whole or in part for tax, insurance or any other purpose, (ii) "Tenant Improvements," or (iii) "Alterations:" Moveable Partitions Security Equipment (Card Key, Video Cameras, etc.) Telephone, Communication, and Telecommunication Equipment (including Microwave and Infrared Antennas) Special Air-Conditioning Equipment Chandeliers and Special Light Fixtures Kitchen Equipment (Freezers, Refrigerators, Microwaves, Dishwashers, Dish Warmers, etc.) Exercise Equipment and Lockers Artwork Emergency Generators Raised Flooring Systems Special Electrical Panels, Power Conditioning Equipment and UPS Systems Office Furniture and Furnishings, including Modular Furniture Systems, Shelving Systems, and Custom Built-Ins Detachable Custom Millwork All Millwork and Built-Ins in the Offices of Tenant's Chief Executive Officer and President Duplicating/Reproduction Machines Computers, Terminals and Computer Equipment Audiovisual Equipment Vending Machines Signage (whether in the Premises or the Project Common Areas) Window Coverings (Excluding Building Standard Coverings) Appliances Vaults and Safes Mailroom Equipment SCHEDULE 5 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT D ---------- 20TH CENTURY PLAZA NOTICE OF LEASE TERM DATES _______________, 19__ To: ----------------------- ----------------------- ----------------------- ----------------------- Re: Office Lease dated _______________, 19__ between _______________, a _______________ ("Landlord"), and _________________, a _______________ ("Tenant") concerning Suite ______ on floor(s) ___________ of the office building located at _______________, Los Angeles, California. Gentlemen: In accordance with the referenced Office Lease (the "Lease"), we wish to advise you and/or confirm as follows: 1. The Lease Term shall commence on or has commenced on _______________ for a term of _______________ ending on _______________. 2. Rent commenced to accrue on ______________, in the amount of _______________ 3. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease. 4. Your rent checks should be made payable to _______________ at _______________. 5. The exact number of rentable square feet within the Premises is _______________ square feet, and the number of parking passes to which Tenant is entitled is _________. 6. Tenant's Share as adjusted based upon the exact number of rentable square feet within the Premises is __________%. "Landlord": , ------------------------------- a ------------------------------- EXHIBIT D - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] By: ----------------------------- Its: -------------------------- Agreed to and Accepted as of _______________, 19__ "Tenant": - ------------------------- , a ------------------------ By: ----------------------- Its: --------------------- EXHIBIT D - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT E ---------- 20TH CENTURY PLAZA RULES AND REGULATIONS Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. 1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord's prior written consent, which shall not unreasonably be withheld. Tenant shall bear the cost of any lock changes or repairs required by Tenant unless necessitated due to loss of misuse of keys by Landlord or its agents. Four (4) keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. All locks, other than those to Tenant's restricted areas previously approved by Landlord, must remain on Landlord's master key system. 2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises. 3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the greater Los Angeles area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. The Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property. 4. No bulky furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord reasonably designates. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Except to the extent resulting from the negligence or willful misconduct of Landlord, any damage EXHIBIT E - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant. 5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators (except as reasonably established by Landlord and provided that Landlord's standard shall be consistent with those standards established by landlords of Comparable Buildings), except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord. 6. The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord. 7. Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same. 8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it. 9. Tenant shall not overload the floors of the Premises. 10. Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord. 11. Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline or other inflammable or combustible fluid or material, except as provided in SECTION 19.25.2 of the Lease. ---------------- 12. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord. 13. Tenant shall not permit or allow the Premises to be occupied or used in a manner offensive or reasonably determined by Landlord to be objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therein. 14. Tenant shall not bring into or keep within the Project, the Building or the Premises any bicycles or other vehicles, nor bring into or keep within the Project any animals (except seeing eye dogs accompanied by their masters), birds or fish except as provided in ARTICLE 18 of the Office Lease. ---------- EXHIBIT E - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 15. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing, Underwriters' Laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 16. Landlord will approve where and how telephone and telegraph wires are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Landlord. All such wires, borings and/or cuttings in connection with the construction and installation of the Tenant Improvements and as shown on the Approved Working Drawings (as such term is defined in the Tenant Work Letter) are hereby consented to by Landlord. 17. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations. 18. Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, halls, stairways, elevators, or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises. 19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building's heating and air conditioning system. 20. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in Woodland Hills, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. 21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations reasonably established by Landlord or any governmental agency. 22. Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, not to be unreasonably withheld. No non-Building standard curtains, blinds, shades or screens which may be visible from the exterior of the Premises shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. All electrical ceiling fixtures hung in offices or EXHIBIT E - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] spaces along the perimeter of the Building must be of a quality, type, design and bulb color reasonably approved by Landlord. 24. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills. 25. Tenant shall comply with any non-smoking ordinance adopted by the City of Los Angeles or any other applicable governmental authority. Landlord reserves the right at any time to reasonably change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's judgment may from time to time be reasonably necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein; provided, however, that no such change, rescission, addition or amendment shall prevent Tenant's use of the Premises in accordance with SECTION ------- 5.1 of the Lease. Landlord shall not be obligated to enforce any of these Rules - --- and Regulations against any tenant; however, Landlord shall not discriminate against Tenant in the enforcement of these Rules and Regulations (as compared to other tenants of the Building). Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises. EXHIBIT E - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT F ---------- 20TH CENTURY PLAZA ESTOPPEL CERTIFICATE The undersigned as Tenant under that certain Office Lease (the "Lease") made and entered into as of _______________, 199__ by and between _______________ as Landlord, and the undersigned as Tenant, for Premises on the _______________ floor(s) of the office building located at _______________, Los Angeles, California _______________, certifies as follows: Attached hereto as EXHIBIT A is a true and correct copy of the Lease and --------- all amendments and modifications thereto. The documents contained in EXHIBIT A --------- represent the entire agreement between the parties as to the Premises. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on _______________, and the Lease Term expires on _______________, and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project. Base Rent became payable on _______________. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in EXHIBIT A. ---------- Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows: All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through . The current monthly installment of Base Rent is $_______________. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease. As of the date hereof, there are no existing defenses or offsets, to the undersigned's knowledge, claims or any basis for a claim, that the undersigned has against Landlord. Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so. EXHIBIT F - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state. Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises. To the undersigned's knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full. The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property. Executed at _______________ on the ___ day of _______________, 19__ "Tenant": , ------------------------------- a ------------------------------- By: ----------------------------- Its: -------------------------- By: ----------------------------- Its: -------------------------- EXHIBIT F - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] [ATTACH LEASE AND AMENDMENTS TO THIS CERTIFICATE] EXHIBIT F - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT G ---------- 20TH CENTURY PLAZA BASEMENT STORAGE AREA EXHIBIT G - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT H ---------- 20TH CENTURY PLAZA INTENTIONALLY OMITTED --------------------- EXHIBIT H - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT I ---------- 20TH CENTURY PLAZA JANITORIAL SPECIFICATIONS [TO BE PROVIDED] EXHIBIT I - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT J ---------- 20TH CENTURY PLAZA SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT [TO BE PROVIDED] EXHIBIT J - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT K ---------- 20TH CENTURY PLAZA INTENTIONALLY OMITTED --------------------- EXHIBIT K - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT L ---------- 20TH CENTURY PLAZA INTENTIONALLY OMITTED --------------------- EXHIBIT M - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT M ---------- 20TH CENTURY PLAZA SHORT FORM OF LEASE RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP 1999 Avenue Of The Stars, Suite 1800 Los Angeles, California 90067-6050 Attention Anton N. Natsis, Esq. ================================================================================ (Space Above For Recorder's Use) SHORT FORM OF LEASE THIS SHORT FORM OF LEASE is entered into as of the ________ day of ____, 1997, by and between TISHMAN WARNER CENTER LIMITED PARTNERSHIP, LLC, a California limited liability company ("Landlord"), and 20TH CENTURY INDUSTRIES, a California corporation ("Tenant"), who agree as follows. 1. TERMS AND PREMISES. Landlord leases to Tenant, and Tenant leases -------------------- from Landlord, certain premises (the "Premises") to be located at the address 6301 Owensmouth Avenue on the real property (the "Property") legally described on EXHIBIT A attached hereto and incorporated herein by this reference in and ---------- for the term and on the provisions of that certain Office Lease between the parties hereto, dated of even date (the "Lease"). The provisions of the Lease are incorporated herein. The parties hereby state that the term of the Lease, including any extension options contained therein, is less than thirty-five (35) years. 2. PROVISIONS BINDING ON PARTIES. The provisions of the Lease to be -------------------------------- performed by Landlord or Tenant, whether affirmative or negative in nature, are intended to and shall bind or benefit the respective parties and their assigns or successors, as applicable, at all times. 3. PURPOSE OF LEASE. This Short Form of Lease is prepared solely for ------------------ purposes of recordation, and in no way modifies the provisions of the Lease. EXHIBIT L - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] "Landlord" TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a corporation, Manager By: ----------------------------- Alan D. Levy Chief Executive Officer "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: ---------------------------------- William L. Mellick, President and Chief Executive Officer By: --------------------------------- William G. Crain, Vice President EXHIBIT M - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] STATE OF __________________ ) ) ss. COUNTY OF _________________ ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State STATE OF __________________ ) ) ss. COUNTY OF _________________ ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State EXHIBIT M - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A TO EXHIBIT M ---------------------- LEGAL DESCRIPTION OF THE PROPERTY EXHIBIT A TO EXHIBIT M - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT N ---------- 20TH CENTURY PLAZA TERMINATION OF LEASE RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP 1999 Avenue Of The Stars, Suite 1800 Los Angeles, California 90067-6050 Attention Anton N. Natsis, Esq. ================================================================================ (Space Above For Recorder's Use) TERMINATION OF LEASE This Termination Of Lease is entered into as of the _____ day of _____ by and between ___________________________________, a California limited partnership ("Landlord"), and 20TH CENTURY INDUSTRIES, a California corporation ("Tenant"), who agree as follows. 1. Term and Premises. Landlord has leased to Tenant, and Tenant has leased from Landlord, certain premises (the "Premises") located on the real property (the "Property") legally described on EXHIBIT A attached hereto and --------- incorporated herein by this reference in and for the term and on the provisions of that certain Office Lease between the Parties hereto, dated _________, 1997 (the "Lease"). 2. Termination of Lease. The Lease terminated as of ________, in accordance with its terms. The parties hereto acknowledge that the Lease is of no further force and effect, and Tenant hereby relinquishes all of its right, title, and interest as tenant in and to the Premises. That certain Short Form of Lease by and between Landlord and Tenant dated as of _____________, 1997, and recorded on ___________, 1997 in the Official Records of Los Angeles County, California, as Instrument No. _______ is hereby terminated and shall be of no further force or effect. 3. Provisions Binding on Parties. This Termination of Lease shall inure to the benefit of and be binding upon the parties hereto, their successors and assigns. EXHIBIT N - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4. Purpose of Termination of Lease. This Termination of Lease is prepared solely for purposes of recordation, and in no way modifies any agreements between the parties hereto with respect to their rights and obligations upon the termination of the Lease. "Landlord" , ------------------------------- a ------------------------------- By: ----------------------------- Its: -------------------------- "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: ----------------------------- Its: -------------------------- By: ----------------------------- Its: -------------------------- EXHIBIT N - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] STATE OF __________________ ) ) ss. COUNTY OF _________________ ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State STATE OF __________________ ) ) ss. COUNTY OF _________________ ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A TO EXHIBIT N ---------------------- LEGAL DESCRIPTION OF PROPERTY EXHIBIT A TO EXHIBIT N - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT O ---------- 20TH CENTURY PLAZA INTENTIONALLY OMITTED EXHIBIT O - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT P ---------- FORM OF CC&R'S RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Allen, Matkins, Leck, Gamble & Mallory 1999 Avenue of the Stars, Suite 1800 Los Angeles, California 90067 Attn: Anton N. Natsis, Esq. DECLARATION OF LEASEHOLD COVENANTS, CONDITIONS AND RESTRICTIONS FOR 20TH CENTURY PLAZA EXHIBIT P - Page - 1- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] DECLARATION OF LEASEHOLD COVENANTS, CONDITIONS AND RESTRICTIONS FOR 20TH CENTURY PLAZA THIS DECLARATION OF LEASEHOLD COVENANTS, CONDITIONS AND RESTRICTIONS ("Declaration") is made this ___ day of October, 1997, by TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("Declarant"). NOTE THAT THIS DECLARATION ENCUMBERS ONLY DECLARANT'S LEASEHOLD INTEREST AS GROUND LESSEE UNDER THE GROUND LEASE, AND NOT ANY FEE INTEREST HELD BY GROUND LESSOR. R E C I T A L S : ----------------- A. As of the date hereof, Declarant, as ground lessee, leases from West Valley Partnership, a California limited partnership, as ground lessor (collectively, "Ground Lessor"), pursuant to the terms of that certain Ground Lease dated August 24, 1979, as amended (the "Ground Lease"), that certain real property located in the City of Los Angeles, County of Los Angeles, State of California, commonly known as 20th Century Plaza, and more particularly described in Exhibit "A" attached hereto and made a part hereof. Any terms used ----------- in these Recitals, but not otherwise defined in these Recitals, shall have the meanings as set forth in this Declaration. B. As of the date hereof, the "Project" consists of the "Existing Building" located at 6301 Owensmouth Avenue, Los Angeles, California, land which is improved with a surface area "Existing Parking Area," landscaping and other improvements, and development sites for the "Additional Building" and the "Parking Structure," respectively. C. Declarant intends to develop the Project further by construction of the "Additional Building" and the "Parking Structure," and by development of additional improvements to the "Common Areas." D. The site plan attached hereto as Exhibit "B" and made a part hereof ----------- (the "Site Plan") sets forth approximately the proposed location of the current and planned improvements to the Project, including, without limitation, the Buildings and the parking areas, as well as the intended boundaries of the three (3) separate "Parcels" of the Project. E. Declarant wishes to subject the Project, in accordance with a common plan, to certain covenants, conditions and restrictions for the benefit of Declarant and any and all future owners of the Project or of a Parcel in the Project. The purpose of the Declaration is to ensure proper development and use of the Project, to protect the owner of each Parcel against any improper or uncomplimentary development and use of surrounding Parcels which might depreciate the value of said Parcel, to provide for a Common Area and the maintenance and preservation thereof, to provide for the establishment and maintenance of common services and EXHIBIT P - Page - 2- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] amenities for the Project, to prevent haphazard and inharmonious improvements, to enhance and protect the value, desirability and attractiveness of all the Project, and in general to provide adequately for a high type and quality of improvement of the Project in accordance with a uniform plan of development. F. Upon the recordation of this Declaration, all the Parcels will be held, conveyed, hypothecated, encumbered, leased, used, occupied and improved, subject to the following covenants, conditions and restrictions, all of which are declared and agreed to be equitable servitudes in furtherance of a plan for Parcel subdivision, improvement, and sale, and are established and agreed upon for the purpose of enhancing and protecting the value, desirability and attractiveness of the Project. All the covenants, conditions and restrictions shall run with all of the Parcels, and shall be binding upon, and shall benefit the Declarant and each "Owner" and their respective heirs, successors and assigns. All of the covenants, conditions and restrictions described herein are made for the direct, mutual and reciprocal benefit of each Parcel and shall create reciprocal rights and obligations and privity of contract and estate between the Owners and their heirs, successors and assigns. With respect to the rights, duties and obligations between Declarant and "Occupants" under leases of all or any portion of any Parcels, and, in the event that the fee interest or lease interest in one or more Parcels are conveyed by Declarant to another Person (such Person thereby becoming an "Owner"), then with respect to the rights, duties and obligations between such other Owner(s) on the one hand and Occupants under leases on the other hand, Declarant intends that the provisions of this Declaration are made pursuant to Sections 1469 and 1470 of the California Civil Code. In the event that the fee interest or lease interest in one or more Parcels are conveyed by Declarant to another Person (such Person thereby becoming an "Owner"), then with respect to the rights, duties and obligations among such other Owner(s) and Declarant, or, in the event Declarant has conveyed all of the Parcels, then with respect to the rights, duties and obligations among the Owners of said Parcels, Declarant intends that the provisions of this Declaration will be restrictive covenants made pursuant to Section 1468 of the California Civil Code. A G R E E M E N T: - - - - - - - - - ARTICLE I DEFINITIONS The terms defined in this Article I shall, for all purposes of this Declaration, have the meanings herein specified (and any capitalized terms set forth in the following definitions shall have the meaning set forth in this Declaration). 1.1 "Additional Building" shall mean and refer to that certain --------------------- Building to be constructed by Declarant on Parcel 2 as set forth on the Site Plan and located at 6303 Owensmouth Avenue, Woodland Hills, California 91367. EXHIBIT P - Page - 3- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1.2 "Agent" shall mean and refer to any Person acting on the behalf of, ------- and with authority from, the Declarant. 1.3 "Arbitration Notice" shall mean and refer to the notice one --------------------- Owner provides to another in the event it elects to arbitrate a dispute pursuant to Article 13 below. 1.4 "Building" shall mean and refer to any occupiable structure ---------- constructed on any Parcel. 1.5 "Project" shall mean and refer to that certain property described --------- on Exhibit "A" attached hereto which is more commonly referred to as 20th ------------ Century Plaza and is also shown on the Site Plan. 1.6 "City" shall mean and refer to the City of Los Angeles, located in ------ the State of California. 1.7 "Claim" shall mean and refer to all loss, cost, damage, liability, ------- claims, costs and expenses, including without limitation, reasonable attorneys' fees, further described in Section 3. 1.8 "Common Area" shall mean and refer to all real and personal -------------- property owned or leased by Declarant and designated by Declarant from time to time in Declarant's sole discretion for the common use and enjoyment of the Owners, including, as of the date hereof, all structures and construction of any kind upon the real property depicted as Parcel 3 on the Site Plan (whether permanent or temporary, and whether above or below the land surface), including, without limitation, buildings, improvements, water and electrical lines, paved areas, pathways, fences, walls, plantings, planted trees or shrubs, irrigation and drainage pipes and fixtures, lighting fixtures, monuments and signs. Notwithstanding the foregoing, Declarant, at its option, may (i) develop the Project further by construction from time to time of one or more additional Buildings upon the Common Area, and (ii) create from time to time one or more additional Parcels. 1.9 "Common Expenses" shall mean and refer to all expenses, costs ------------------ and amounts, of every kind and nature which are incurred by Declarant during any Fiscal Year because of or in connection with the ownership, management, maintenance, repair, replacement restoration or operation of the Common Area or any portion thereof. Without limiting the generality foregoing, Common Expenses shall specifically include any and all of the following: 1.9.1 The cost of maintenance, management, operation, repair and replacement of the Common Area, including, but not limited to, the cost of parts and supplies, utilities, landscaping, cleaning, pest control, and hiring of any outside contractor services; 1.9.2 The cost of repair, improvement, restoration and maintenance of the Parking Areas, including, but not limited to, resurfacing, repainting, restriping and cleaning; 1.9.3 The cost of management and administration of the Common Area, including, but not limited to, compensation paid by Declarant to managers, accountants, outside auditors, attorneys, consultants and employees, including employer's Social Security taxes, EXHIBIT P - Page - 4- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] unemployment taxes or insurance, and any other taxes which may be levied on such compensation.; 1.9.4 The cost of casualty, liability, workers' compensation, fidelity and directors' and officers' liability insurance and any other insurance obtained by Declarant in accordance with the terms and conditions of this Declaration; 1.9.5 Reasonable reserves as provided herein and as deemed appropriate by Declarant; 1.9.6 The cost of bonding of any professional managing agent; 1.9.7 All federal, state, county or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Common Area, or any portion thereof), which shall be paid during any Fiscal Year (without regard to any different Fiscal Year use by such governmental or municipal authority) because of or in connection with the Common Area or any portion thereof; 1.9.8 Amounts paid by Declarant for discharging a lien or encumbrance levied against the Common Area or any portion thereof; 1.9.9 The cost of licenses, certificates, permits and inspections and the cost of contesting the validity or applicability of any governmental enactments which may affect Common Expenses; 1.9.10 Amounts paid for developing, coordinating, monitoring, and enforcing any transportation demand management programs as may be implemented by Declarant from time to time with respect to the Project; 1.9.11 Costs incurred in contracting with an outside agency or organization for the provision of a security force to patrol and protect the Common Area and such other portions of the Project as Declarant may, in its sole discretion, designate; 1.9.12 An administrative fee payable to Declarant or its agent to manage and conduct the business of the Project, which administrative fee shall not exceed fifteen percent (15%) of Common Expenses in any Fiscal Year; 1.9.13 Payments under any equipment rental agreements; 1.9.14 Amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Common Area, or any portion thereof; EXHIBIT P - Page - 5- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1.9.15 Payments, fees or charges under any easement, license, operating agreement, declaration, covenants, conditions or restrictions or instrument pertaining to the sharing of costs by the Project, or any portion thereof, including this Declaration and payments under the Ground Lease; 1.9.16 The cost of janitorial services, alarm and security service, (window cleaning,) trash removal, maintenance and replacement of curbs and walkways, incurred by Declarant in connection with the Common Area; 1.9.17 The cost of capital improvements, or repairs to the Project, or other costs incurred in connection with the Project which are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Project, or any portion thereof, to the extent of cost savings reasonably anticipated by Declarant, or made to the Project, or any portion thereof, that are required under any governmental law or regulation that was not a requirement for the Project on the date this Declaration was executed and recorded; provided, however, that each such permitted capital expenditure shall be amortized (including interest on the unamortized cost at Declarant's actual cost of funds) over its useful life as reasonably determined by Declarant; 1.9.18 Costs, fees, charges or assessments imposed by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute taxes; 1.9.19 The cost of construction, repairs, improvement, restoration and maintenance of that certain road as set forth in that certain Declaration of Easement and Maintenance Agreement dated August 24, 1979, by and between West Valley Partnership, a California limited partnership, and Tishman Warner Center Venture, a California general partnership, predecessor-in-interest to Declarant, and recorded on August 24, 1979, as Instrument No. 79-942217 in the Official Records of Los Angeles, County, California (the "West Valley Declaration"); and 1.9.20 Other expenses incurred (i) by Declarant for any reason whatsoever in connection with the Project, the Common Area or in connection with any other item or items designated by the Controlling Documents, or (ii) in the discharge of any duties or powers of Declarant under this Declaration. 1.10 "Controlling Documents" shall mean and refer to this ------------------------ Declaration, the Rules, the Maintenance Standards and any other documents controlling or governing the use of the Parcels or the Common Area, or the maintenance and repair of the Parcels and as from time to time amended, modified or supplemented. Each Owner and each Occupant shall fully and faithfully comply with and conform to the Controlling Documents. 1.11 "Declarant" shall mean and refer to Tishman Warner Center Venture, ----------- LLC, a California limited liability company, and its successors and assigns in its sole and absolute discretion, so long as Declarant owns or leases one or more Parcels. In the event that Declarant ceases to own or lease one or more Parcels and has failed to name an Owner as its successor or EXHIBIT P - Page - 6- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] assign, then "Declarant" shall mean and refer to the Owner designated as Declarant by the vote or written consent of Owners who own a majority of the Parcel Area. Any Owner succeeding to Tishman Warner Center Venture, LLC as Declarant hereunder shall promptly substitute its name for that of Tishman Warner Center Venture, LLC as Declarant under this Agreement and shall relinquish any and all right to the Tishman name. 1.12 "Declaration" shall mean and refer to this Declaration of ------------- Covenants, Conditions and Restrictions for the Project as it may from time to time be amended, modified or supplemented. Such amendments, modifications and supplements are hereby incorporated herein and made a part hereof. 1.13 "Entitlements" shall mean and refer to all governmental, special -------------- district and public utility approvals, decisions, resolutions, ordinances, permits, agreements, conditions, requirements, exactions, entitlements, reports, maps, plans and orders, at any time adopted, amended or supplemented, governing, affecting or relating to the organization, zoning, use, development, improvement, operation or ownership of the Project, or any portion thereof. Declarant and each other Owner and Occupant shall comply with and conform to the Entitlements. 1.14 "Existing Building" shall mean and refer to that certain Building -------------------- existing as of the date of this Declaration, constructed on Parcel 1 as set forth on the Site Plan, and located at 6301 Owensmouth Avenue, Los Angeles, California. 1.15 "Existing Parking Area" shall mean and refer to that certain ------------------------- surface parking area existing as of the date of this Declaration, located on Parcel 3 adjacent to Parcel 1 as set forth on the Site Plan. 1.16 "Fiscal Year" shall mean and refer to the fiscal year of -------------- Declarant, which shall be the calendar year; provided, however, that the Fiscal Year is subject to change from time to time as Declarant may determine. 1.17 "Governmental Requirements" shall mean and refer to all local, ---------------------------- state and federal governmental, special district and public utility approvals, agreements, conditions, demands, entitlements, exactions, maps, laws, statutes, rules and regulations, building codes, ordinances (zoning or otherwise), permits, plans, orders and resolutions, which are, or will be, adopted, amended, modified or supplemented, and which govern, affect or relate to the organization, zoning, use, development, improvement, operation or ownership of the Project, or any portion thereof, including, without limitation, the Entitlements and the Specific Plan which are or may be in effect, and as amended from time to time, in accordance with provisions therein. 1.18 "Improvements" shall mean and refer to all structures and -------------- construction of any kind on any Parcel, whether above or below the land surface, whether permanent or temporary, including but not limited to, Buildings, utility lines, driveways, paved parking areas, pathways, fences, retaining walls, plantings, irrigation and drainage pipes and fixtures, lighting fixtures and signs. EXHIBIT P - Page - 7- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1.19 "Indemnitee" shall mean and refer to, Declarant and its respective ------------ officers, directors, employees, agents, partners, members, heirs, successors and assigns. 1.20 "Indemnitor" shall mean and refer to each Owner, by its acceptance ------------ of a deed or an assignment of a leasehold interest or by its execution of a sublease with respect to its Parcel, as the case may be. 1.21 "Maintenance Standards" shall mean and refer to those maintenance ------------------------ standards, if any, created by Declarant for the maintenance and repair of the exterior of the Buildings and other Improvements on any Parcel, as they may from time to time be amended, modified or supplemented. The Maintenance Standards are hereby incorporated herein and made a part hereof. 1.22 "Mortgage" shall mean and refer to a fee or leasehold deed of ---------- trust or mortgage recorded against any Parcel or Parcels. 1.23 "Mortgagee" shall mean and refer to a beneficiary or mortgagee ----------- under a Mortgage recorded against any Parcel or Parcels. 1.24 "Occupant" shall mean and refer to the Owner and any other Person ---------- or Persons entitled, by ownership, leasehold interest or other legal relationship, to the exclusive right to occupy all or any portion of any Parcel or Building. 1.25 "Owner" shall mean and refer to the Person or Persons holding ------- record fee title to a Parcel (including, as applicable, Declarant), but excluding any Mortgagee or Person holding such interest merely as security for the performance of an obligation, or, in the alternative, the Person or Persons (including, as applicable, Declarant) leasing or subleasing a Parcel, and their respective heirs, successors and assigns. 1.26 "Parcel" shall mean and refer to each of Parcels 1 through 3 as -------- further set forth on the Site Plan, and such additional parcels as may be designated from time to time by Declarant. 1.27 "Parcel Area" shall mean and refer to the square footage of a -------------- Parcel as shown on the Site Plan or as designated from time to time by Declarant in the event that Declarant shall create one or more additional Parcels. 1.28 "Parking Areas" shall mean and refer to the Existing Parking Area, --------------- the Parking Structure and any additional parking spaces as may be constructed on Parcel 3 from time to time in accordance with Section 5.6.1.2. 1.29 "Parking Structure" shall mean and refer to the Parking Structure -------------------- to be constructed on Parcel 3. 1.30 "Permittees" shall mean and refer to all Occupants and all ------------ customers, patrons, employees, concessionaires and other business invitees of the Occupants. EXHIBIT P - Page - 8- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1.31 "Person" shall mean and refer to any individual, partnership, -------- corporation, trust, estate or other legal entity. 1.32 "Record" or "Recordation" shall mean, with respect to any --------------------------- document, the recordation thereof, and with respect to any map, the filing thereof, in the office of the County Recorder of Los Angeles County, State of California. 1.33 "Rules" shall mean and refer to the rules and regulations, if any, ------- adopted by Declarant for the operation and use of the Common Area, as they may from time to time be amended, modified or supplemented. The Rules are hereby incorporated herein and made a part hereof. 1.34 "Site Plan" shall mean and refer to the Site Plan attached to this ----------- Declaration as Exhibit "B". ------------ 1.35 "State" shall mean and refer to the State of California. ------- 1.36 "Utility Easements" shall mean and refer to certain electric, -------------------- telephone, cable, television, water, gas, sanitary sewer lines, drainage facilities and other similar types of easements. ARTICLE II IMPROVEMENTS As of the date hereof, the Project contains the Existing Building constructed on Parcel 1 and the Existing Parking Area located on Parcel 3 and adjacent to Parcel 1. The Project will be improved further to contain the Additional Building to be constructed on Parcel 2 and the Parking Structure to be constructed on Parcel 3. The Buildings, the Parking Areas and the landscaping of the Project relate to one another through careful site planning and site development, resulting in continuity for the entire Project. The Improvements, Common Area and landscaping will have been constructed and shall be maintained pursuant to, among other things, the material requirements of the Governmental Requirements. Owners shall comply with the Governmental Requirements and other criteria imposed by Declarant as provided herein. All improvements to the Project, except the construction of the Additional Building and the Parking Structure, shall be constructed in accordance with the reasonable construction rules and regulations and insurance requirements determined by Declarant. ARTICLE III REGULATION OF OPERATIONS AND USES 3.1 Certain Nuisances. 3.1.1 No nuisance shall be permitted to exist or operate upon any Parcel or any portion thereof so as to be offensive or detrimental to any Person or activity on any other Parcel or on any public street. EXHIBIT P - Page - 9- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 3.1.2 No rubbish, trash, waste, residue, brush, weeds or undergrowth (except brush, weeds and undergrowth growing naturally on any Parcel prior to development) or debris of any kind or character shall ever be placed or permitted to accumulate upon any portion of any Parcel, so as to render said premises a fire hazard, unsanitary, unsightly, offensive, or detrimental to any Person or activity on any other Parcel or on any public street. 3.1.3 No Improvement shall be permitted to fall into disrepair and all Improvements shall at all times be kept in good condition and repair (including, without limitation, free of the presence of wood-destroying pests and organisms) and adequately painted or otherwise finished. Any and all exterior repairs, redecorations, modifications or additions shall be made in accordance with this Declaration, and shall be subject to, the Controlling Documents, the Governmental Requirements, and shall be approved in writing by Declarant. 3.1.4 No condition shall be permitted to exist upon any Parcel which shall induce, breed or harbor infectious plant diseases, rodents, or noxious insects. 3.1.5 No structure of a temporary character, trailer, tent, shack, barn or other outbuilding shall be used by any Person other than Declarant on any portion of the Project at any time, either temporarily or permanently, unless such structure is being used in connection with the construction and leasing of an Improvement or unless such structure is approved by Declarant. 3.1.6 No Owner shall permit the construction or installation of any Improvement of any kind upon the Common Area without the prior written consent of Declarant. 3.1.7 No Owner shall permit anything to be done or kept on its Parcel that violates any of the Governmental Requirements. 3.2 Indemnification by Parties. Each Indemnitor shall indemnify, defend and hold harmless all other Indemnitees (except to the extent the same is the obligation of another party under this Declaration) against any loss, cost, damage, liability, claims, costs and expenses, including without limitation, reasonable attorneys' fees (collectively, "Claims") arising out of or connected with any accident, occurrence, injury, loss or damage whatsoever caused to any Person or to the property of any Persons as shall occur in or on the Indemnitor's Parcel(s) during the period from the date this Declaration is Recorded to and including the termination of the term of this Declaration, as set forth in Article 11 hereof, to the extent such Claims arise from the acts or omissions of the Indemnitor, or the Indemnitor's employees, agents or contractors, unless caused in whole or in part by Indemnitee. Indemnitee shall give Indemnitor notice of any suit or proceedings entitling Indemnitee to indemnification pursuant to this Section 3.2 and this Declaration, and Indemnitor shall have the right and obligation to defend Indemnitee in said suit or proceeding with counsel reasonably satisfactory to Indemnitee. EXHIBIT P - Page - 10- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE IV APPROVAL OF PLANS 4.1 Approval Required. Each Improvement to be erected in the Project from the date of this Declaration, and any (i) reconstruction; (ii) exterior remodeling; (iii) exterior alteration; or (iv) interior remodeling or interior alteration involving or affecting the exterior of any Improvement within the Project, shall be of first quality construction and shall not be commenced without the prior written consent of Declarant. 4.2 Completion of Construction. The approval of the erection, construction, refinishing, installation, placement, or alteration of any Improvement shall be deemed conditional upon the commencement of said work within ninety (90) days after approval of same by Declarant or within such other period as shall have been specified by Declarant at the time of its approval. The work thereon must thereafter be prosecuted diligently to completion within a reasonable time, and in any event, before the expiration of such period specified by Declarant. Declarant in its sole, absolute and unfettered discretion, and in writing, may extend the period for completion of any such erection, construction, refinishing, installation, placement or alteration. During said construction period, the area shall be kept clear of debris and refuse to the greatest extent possible. In the event the work is not commenced within said ninety (90) days, unless such time condition is waived in writing by Declarant in its sole, absolute and unfettered discretion, all proceedings shall terminate, and the work shall be conditional on the obtaining of Declarant's consent in accordance with this Article IV. 4.3 Inspection of Work. Upon the completion of any construction, reconstruction, or the alteration or refinishing of the exterior of any Improvement, or upon the completion of any other work for which approved plans are required under this Article IV, Declarant, or its duly authorized representative, may inspect such Improvement to determine whether it was constructed, reconstructed, altered or refinished in substantial compliance with Declarant's approval. If Declarant finds that such construction, reconstruction, alteration or refinishing was not done in substantial compliance with Declarant's approval, then Owner shall remedy such non-compliance within thirty (30) days from the date of written notice by Declarant of such noncompliance. If Owner fails to remedy such non-compliance, then Declarant, at its option, may enter the Parcel and the Improvement and perform, or cause to be performed, such work or other acts as may be required to remove the non-complying Improvement or remedy the non-compliance, and the Owner of the Parcel or Improvement shall promptly pay all costs and expenses incurred by Declarant in connection therewith upon presentation to Owner of invoices thereof. EXHIBIT P - Page - 11- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4.4 Unauthorized Improvements. If any Improvement is made without first obtaining approval of Declarant, then Declarant may give written notice to the Owner of its violation of this Declaration. Within thirty (30) days of said notice, the Owner shall either (a) remove the Improvement at its own expense and restore the Parcel or Improvement to its condition prior to commencement of construction of the Improvement, or (b) request approval from Declarant in accordance with this Article IV. If the Owner has failed to take such action within the thirty (30) day period, then Declarant, at its sole option, may enter the Parcel and the Improvement and perform or cause to be performed such work or other acts as may be required to remove the non-complying Improvement or remedy the non-compliance, and the Owner of the Improvement shall promptly pay all costs and expenses incurred by Declarant in connection therewith upon presentation to Owner of invoices therefor. If the Owner elects option (b) described in this Section 4.4 and Declarant thereafter disapproves the Improvement, then the Improvement shall be removed by Owner. 4.5 Presumption of Compliance. Notwithstanding anything to the contrary herein contained, after the City's issuance of a Certificate of Occupancy for any Improvement, said Improvement shall, in favor of purchasers and encumbrancers in good faith and for value, be deemed to be completed and in compliance with all provisions of this Article 4, unless actual notice of such noncompletion or noncompliance, executed by Declarant or a designated representative thereof, shall have been Recorded or unless legal proceedings shall have been instituted to enforce such completion or compliance. 4.6 Fee. In connection with its review and approval or disapproval of the erection, construction, refinishing, installation, placement or alteration of an Improvement in accordance with this Article IV, Declarant may charge the Owner an architectural review fee. The amount of such fee shall not exceed the cost incurred by Declarant (i) in hiring outside consultants to review such plans, (ii) for the staff time and out-of-pocket costs of Declarant incurred in reviewing such plans, and (iii) any other reasonable expenses incurred by Declarant in connection with its review, analysis and approval of such plans. Such fees shall be paid at such times and in such manner as Declarant may determine. If the plans are disapproved as not conforming with the provisions of this Declaration, the Governmental Requirements, or any criteria reasonably imposed by Declarant, then the subsequent submittal of new or revised plans shall be deemed to be an entirely new submittal, which shall again be subject to the foregoing fee. 4.7 Governmental Action. If plans approved by Declarant are subsequently modified by the City or by a governmental agency with jurisdiction over the Project, then such modification must be reviewed and approved by Declarant. In any event, one complete set of final plans shall be furnished to Declarant upon approval by the City or by a governmental agency with jurisdiction over the Project, and such plans shall be kept on file in the records of Declarant to ensure that the EXHIBIT P - Page - 12- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Improvements are constructed in compliance therewith. When construction is completed, one complete set of final "as-built" plans and specifications, together with a CAD diskette, shall be furnished to and kept on file in the records of Declarant. ARTICLE V GRANT OF EASEMENTS 5.1 Easements for the Benefit of Governmental Agencies and Public Utilities. Certain easements (in perpetuity or otherwise) have been and may in the future be granted by Declarant to certain local governmental agencies, including the City and public utilities, which may include, without limitation, easements for Vehicle/Pedestrian Areas, open space, drainage, sewer, and water lines, which easements may affect some or all of the Parcels. Declarant shall be entitled, without the consent of the Owners, to grant any such future easements which it determines are in the best interests of the Project. Each Owner shall fully and faithfully comply with all requirements of the governmental agencies and public utilities in connection with the easements granted pursuant to this Section 5.1. 5.2 Easements for the Benefit of Owners and Occupants. Except as otherwise stated, the following non-exclusive easements are hereby established in perpetuity, for the benefit of all Owners and Occupants: 5.2.1 a non-exclusive easement over those certain roadway(s) for ingress and egress as designated from time to time by Declarant, including, without limitation, over that certain road constructed and maintained in accordance with the West Valley Declaration, if any, until such time as the ownership of such ingress and egress easement is transferred to another entity, including, without limitation, by deed to a local governmental or public entity; and 5.2.2 a non-exclusive easement over certain driveways as designated from time to time by Declarant. 5.3 Easements for the Benefit of Declarant. In addition to the rights of entry and any other rights given to Declarant in this Declaration, there are hereby established the following non-exclusive easements in perpetuity for the benefit of Declarant, its agents, employees and contractors: 5.3.1 Easements in gross on, over, under or across all portions of the Project for the purposes shown as existing or proposed or for purposes deemed necessary or convenient by Declarant for (i) the installation, placement and maintenance of electric, telephone, cable television, water, gas, sanitary sewer lines, drainage facilities or any other utilities, together with the right to enter upon the affected Parcel (without unreasonably interfering with Owner's and Occupants' reasonable use and enjoyment thereof) to service, maintain, repair, reconstruct, relocate or replace any of such lines or facilities, (ii) ingress and egress over any public or private EXHIBIT P - Page - 13- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Vehicle/Pedestrian Area or other specific designated use areas, and (iii) any other matter required or mandated by any governmental authority with jurisdiction over the Project. 5.3.2 An easement over, upon, across and under all the Parcels to inspect and/or ascertain whether such Parcel, the Improvement(s) thereon and the uses thereof are in compliance with the provisions of the Controlling Documents or Governmental Requirements; and to abate and remove any thing or condition that may exist thereon contrary to the intent and meaning of the Controlling Documents or the Governmental Requirements. 5.3.3 An easement over, upon, across and under all property designated from time to time by Declarant hereunder to perform Declarant's obligations under this Declaration with respect to the maintenance and repair of the Common Area and any Improvement thereon, including, without limitation, for access to slopes and drainageways when such access is necessary for the maintenance or stabilization of slopes or drainage, or both, on the Common Area. 5.3.4 With respect to the easements established pursuant to Sections 5.3.1 through 5.3.3 above, Declarant shall have the right and power at all times to enter and re-enter the property thereby encumbered, with or without vehicles or on foot, and to come upon said property as often as it deems reasonably necessary to effectuate the purpose of such easements. 5.3.5 An easement over, upon, across and under each of the Parcels for (i) planting, replacing and maintaining any such landscaping strips as shall reasonably be designated by Declarant, and (ii) installing, repairing, replacing and maintaining any drainage and/or irrigation systems (including, without limitation, landscape wiring and conduits) upon any such Parcel as shall reasonably be designated by Declarant in connection with such landscaping strips or in connection with landscaping strips on the Common Area or on other Parcels. 5.3.6 A non-exclusive easement over, upon, across and under the Common Area for the purpose of completing the Common Area and any construction thereon, or for the purpose of completing the construction of any Improvement on any Parcel which are then owned by Declarant. 5.4 No Merger. Notwithstanding the union of (a) the fee simple title to any of the Parcels, or any portion thereof, or any other real property of Declarant with (b) any right, title or interest in the easements granted by or reserved to Declarant pursuant to this Declaration, it is the intention of Declarant that the separation of such fee simple estate and such right, title or interest in such easements shall be maintained, and that a merger shall not take place without the express prior written consent of Declarant. 5.5 No Abandonment. Notwithstanding Section 811 of the California Civil Code or any other applicable law, it is the intent of Declarant that no easement granted or reserved hereunder be deemed abandoned or terminated merely by disuse or incompatible acts; rather, the easements granted hereunder EXHIBIT P - Page - 14- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] shall continue in full force and effect unless (a) terminated by a written agreement, executed by the Person or Persons entitled to the benefit thereof, and duly Recorded, or (b) in the case of the Owners, terminated by approval of the Owners and certified in a written agreement executed and Recorded by all of the Owners. 5.6 Parking Easements. 5.6.1 Parking Areas -------------- Subject to the terms and provisions of this Article V, Declarant expressly reserves for the use and benefit of each Parcel, and each Owner and Occupant, and their respective Permittees, which shall be appurtenant to and for the benefit of each Parcel, in common with others entitled to use the same, a non-exclusive easement for the parking of motor vehicles (excluding recreational and other oversized vehicles), motorcycles and bicycles within the Parking Areas and upon other portions of the Common Areas specifically designated for use as parking, and as such areas may be changed from time to time for use as parking in accordance with the terms of this Declaration. Notwithstanding the foregoing, Declarant shall have the right to reserve certain parking spaces in the Parking Areas for the exclusive use of certain Owners or Occupants, or their respective Permittees, and to enforce the reservation of such reserved parking spaces. 5.6.2 Parking Charges. ---------------- Notwithstanding anything to the contrary contained in this Declaration, commencing on the later of (i) the date of this Declaration, or (ii) the date on which a Certificate of Occupancy is issued for any Improvements on the Parcel of such Owner, each Owner shall have the obligation to rent from Declarant on an annual basis the amount of parking passes corresponding to the number of parking spaces as may be designated by Declarant from time to time. Each Owner shall pay to Declarant for parking passes on an annual basis the prevailing rate charged from time to time at the location of such parking passes. In addition, each Owner shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by such Owner or the use of the Parking Areas by such Owner and its Occupants. Each Owner's continued right to use the parking passes is conditioned upon such Owner abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the Parking Areas where the parking passes are located, including any sticker or other identification system established by Declarant, such Owner's cooperation in seeing that Owner's Occupants and their respective Permittees also comply with such rules and regulations and such Owner not being in default under this Declaration. In the event an Owner fails to pay any amount due under this Article V, then such amount shall be a lien against the interest of such Owner in its Parcel(s) in accordance with Section 7.3 below. 5.6.3 Visitor Parking. ---------------- Each Owner and Occupant may validate visitor parking in those portions of the Parking Areas designated by Declarant for visitor parking from time to time by such method or EXHIBIT P - Page - 15- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] methods as Declarant may establish from time to time, at the validation rate from time to time generally applicable to such visitor parking. 5.6.4 Control of Parking Structures. -------------------------------- Declarant shall at all times have the sole and exclusive control of the Parking Areas and may from time to time prescribe reasonable rules and regulations to regulate the use of the Parking Areas, subject to the rights granted to each Owner, its Occupants and Permittees, to use the Parking Areas as provided herein. Such rules and regulations may include limitations on use by trucks, trailers, vans, campers, heavy equipment or other vehicles, including the regulation of the times during which use by such vehicles shall be permitted. The rules and regulations may also regulate the location of use of the Parking Areas by any oversize vehicles. Declarant may retain personnel or a parking manager to implement a system of operation and security for regulating the use of the Parking Areas, the cost of which shall be a Common Expense. 5.7 Grant of Power of Attorney and Future Grants of Easements Over Common Areas. Each of the Owners hereby grants to Declarant the right to grant or convey any future easements, licenses or rights-of-way in, on or over the Common Areas for purposes not inconsistent with the intended use of the Project, and hereby appoints Declarant as its attorney-in-fact to execute any and all necessary documents on behalf of each Owner to grant or convey any such easements, licenses or rights-of-way. Such future easements may include non-exclusive easements for the purpose of installing, maintaining and repairing utilities to service one or more Parcels, including, but not limited to, the Utility Easements. Such grants for Utility Easements shall require that all costs and expense connected with the installation, repair and maintenance of the Utility Easements, including any liability resulting from personal injury or property damage or claims for labor and materials attributable to such repairs and maintenance, shall be the sole obligation of the Owner or Owners for whose benefit the particular Utility Easements are being maintained and repaired and such Owner or Owners shall agree to indemnify and hold Declarant and all other Owners free and harmless from any and all claims for such costs and expenses, including attorneys' fees. The Utility Easements shall be located along roadways in the Common Areas to the extent possible and shall be underground or concealed to the extent possible. All permanent utility appurtenances located in the Common Areas as required by the City or by a governmental agency with jurisdiction over the Project shall be architecturally treated and screened from view with enclosures such as landscaping, architecturally designed screening or finish materials. 5.8 Use of Common Areas by Owners and Occupants. 5.8.1 Except as otherwise specifically provided in this Declaration, the use of the Common Areas by the Owners and Occupants, and their respective Permittees, shall be in common with all other Owners and Occupants, and their respective Permittees. Each Owner shall keep the Common Areas free and clear of any obstructions created or permitted by such Owner or resulting from such Owner's or its Occupant's or their respective Permittees' operation of its business so as not to unreasonably interfere with the use and enjoyment by the other Owners and Occupants, and their respective Permittees, of the Common Areas. EXHIBIT P - Page - 16- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 5.8.2 Except for the Parking Structure and other portions of the Common Areas specifically designated as Parking Areas, no parking shall be allowed anywhere in the Common Areas and Declarant shall have the right to enforce this "no parking" restriction by (i) posting signs at various points in the Common Areas which restrict both parking and stopping of vehicles, and (ii) removing any vehicles in violation thereof in accordance with the provisions of Section 22658 of the California Vehicle Code, or other applicable Governmental Requirement. 5.9 Restoration. After any use by an Owner of any easement provided in this Article V, such Owner shall restore the Common Area to the condition it was in immediately prior to the commencement of such use. 5.10 Prohibition Against Granting Easements. No Owner shall grant an easement or easements in, to, over, under or across such Owner's Parcel or the Common Area for the benefit of any Parcel or property, either within or outside the Project, without the express written consent of Declarant. ARTICLE VI TRANSFERS 6.1 Documents to be Provided to Purchaser. An Owner shall, as soon as practicable before transfer of a fee or leasehold title to a Parcel, provide to the prospective purchaser copies of the Controlling Documents. 6.2 Notification to Declarant. Concurrently with the consummation of any Parcel sale, or within five (5) days thereafter, the transferee shall notify Declarant in writing of such transfer. Such notification shall set forth (i) the names of the transferee, its Mortgagees and the transferor, (ii) the address of the purchased Parcel , (iii) the transferee's and the Mortgagees' mailing addresses, and (iv) the date of transfer. Before the receipt of such notification, any and all communications required or permitted to be given by Declarant shall be deemed to be duly made and given to the transferee if duly and timely made and given to the transferee's transferor. 6.3 Validity of Transfers. Nothing in this Section 6.3 shall be construed as affecting the validity of title to any Parcel transferred in violation of this Section 6.3. EXHIBIT P - Page - 17- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE VII PAYMENT OF COMMON EXPENSES 7.1 Billing. Commencing as to all Parcels upon the Recordation of this Declaration, Declarant shall periodically, but no more frequently than monthly, bill the Owners for their respective proportionate shares (as defined in Section 7.2 below) based on either (i) the Common Expenses paid by Declarant for the operation, maintenance and insurance of the Common Area during the preceding billing period, or (ii) equal periodic installments which have been estimated in advance based on a budget prepared by Declarant for a particular Fiscal Year. In addition, Declarant, at any time and from time to time, may bill any Owners for any amounts due under this Declaration which amounts do not constitute Common Expenses. In the event during any Fiscal Year the Owners have paid periodic installments based on Declarant's estimates, Declarant shall, after the end of such Fiscal Year, notify each Owner of any adjustment in the estimated expenses to reflect the actual expenses paid by Declarant during such Fiscal Year, and shall deliver an accounting in reasonable detail showing the actual costs and expenses paid by Declarant for the operation, maintenance and insurance of the Common Area during the preceding Fiscal Year. Within ten (10) days after delivery of such notice, each Owner shall pay to Declarant its share of the amount of any expenses actually incurred by Declarant for which Declarant was not paid by such periodic installments, or Declarant shall credit each Owner its respective share of the amount of any overpayment against such Owner's next periodic installment due, as the case may be. In the event a billing statement is based on actual costs and expenses paid by Declarant, it shall set forth in reasonable detail all such expenses paid by Declarant and shall be accompanied by such evidence of payment as may be reasonably requested by the Owners, or any of them, billed therefor. Within fifteen (15) days after receipt of Declarant's billing statement given in accordance with the terms of this Section 7.1, each Owner shall pay or cause to be paid the amount set forth in such billing statement. 7.2 Proportionate Shares. Except as provided otherwise in this Section 7.2, each Owner's proportionate share of Common Expenses shall be based on a fraction, the numerator of which is the rentable square feet of the Building(s) located on such Owner's Parcel(s), and the denominator of which is the total rentable square feet of all of the Buildings located in the Project; provided, however, both the numerator and the denominator of such fraction shall be proportionately adjusted in the event more than five percent (5%) of the rentable square feet of the Buildings(s) located on any Parcel is taken by eminent domain. 7.3 Liens for Delinquent Payments. 7.3.1 If, after receipt of such billing statement given in the manner provided in Section 7.1 (including such evidence of payment as theretofore may have been reasonably requested), any Owner fails to pay when due the amount specified in such statement, Declarant shall deliver to such non-paying Owner, in the manner specified in Section 14.4, a second copy EXHIBIT P - Page - 18- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] of such billing statement, together with a written notice stating that the billing amount is unpaid, that a late charge has been imposed and the amount thereof (which late charge shall not exceed ten percent (10%) of the unpaid amount or Fifty Dollars ($50.00), whichever is greater), and that interest (as provided below) will begin to accrue unless payment is made immediately after the effective date of such written notice. If the billing amount or any portion thereof remains unpaid, Declarant shall be entitled to interest on such unpaid amount at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law until paid, commencing on the date of the original billing statement, and such unpaid amount, together with interest and late charge as aforesaid, shall be a lien against the interest of the defaulting Owner in its Parcel(s), which lien shall attach and be enforced as provided in Section 7.4 below. 7.3.2 Subject to Section 12.1 below, the lien for delinquent payments, costs of collection, late charges and interest provided in Section 7.3 shall be prior and superior to all other liens except taxes, bonds, governmental assessments and other levies which, by law, would be superior thereto. The sale or transfer of any Parcel shall not affect or extinguish the lien against such Parcel; provided, however, that the sale or transfer of any Parcel through foreclosure, trustee's sale or deed in lieu of foreclosure shall extinguish such lien as to payments which became due prior to such transfer, as provided in Section 12.1 hereof. In no event shall any sale or transfer (whether by foreclosure or otherwise) relieve any Parcel from lien rights in Declarant for any payments of Common Expenses thereafter becoming due. 7.4 Enforcement of Obligation. Declarant may enforce delinquent payments by suing the Owner directly on the debt established by such delinquent payment, or by recording a lien against the Owner's Parcel as provided in Section 7.3 above and foreclosing the lien through either judicial or nonjudicial proceedings. Declarant may commence and maintain a lawsuit directly on the debt without waiving its right to establish a lien against the Owner's Lot for the delinquent payment. Any lien created pursuant to Section 7.3 above may be enforced in any manner permitted by law, including sale by a court, sale by the trustee designated in the notice of delinquent payment, or sale by a trustee substituted pursuant to Section 2934(a) of the California Civil Code, and to that end a power of sale with respect to the Parcels is hereby conferred upon Declarant. Any sale by a trustee shall be conducted in accordance with the provisions of Section 2924 et seq. of the -- ---- California Civil Code applicable to the exercise of powers of sale. Declarant shall have the power to bid for the Parcel at a foreclosure sale, and to acquire and hold, lease, mortgage and convey the same. Nothing herein contained shall prohibit Declarant from taking a deed in lieu of foreclosure of a lien created pursuant to Section 7.3 above. In any action instituted by Declarant to collect delinquent payments, accompanying costs, late charges or interest, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees as set forth in Section 13.3 below. 7.5 Assignment of Leases and Rents Each Owner hereby absolutely and unconditionally assigns and transfers to Declarant all the leases (including all security deposits, guarantees and other security at any time given as security for the performance of the obligations of the tenants thereunder), income, rents, issues, EXHIBIT P - Page - 19- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] deposits, profits and proceeds of such Owner's Parcel to which such Owner may be entitled, whether now due, past due or to become due, and hereby gives to and confers upon Declarant the right, power and authority to collect such income, rents, issues, deposits, profits and proceeds. This assignment of the leases, income, rents, issues, deposits, profits and proceeds constitutes an irrevocable direction and authorization of all tenants under the leases to pay all rent, income and profits to Declarant upon demand and without further consent or other action by such Owner. This is an absolute assignment, not an assignment for security only, and Declarant's right to rents, issues and profits is not contingent on Declarant's possession of all or any portion of such Owner's Parcel. Each Owner irrevocably appoints Declarant its true and lawful attorney, at the option of Declarant at any time, to demand, receive and enforce payment, to give receipts, releases and satisfactions, and to sue, either in the name of such Owner or in the name of Declarant, for all such income, rents, issues, deposits, profits and proceeds and apply the same to the obligations hereunder. It is understood and agreed that neither the foregoing assignment of leases, income, rents, issues, deposits, profits and proceeds to Declarant nor the exercise by Declarant of any of its rights or remedies under this Section 7.5 shall be deemed to make Declarant a "mortgagee-in-possession" or otherwise obligated, responsible or liable in any manner with respect to such Owner's Parcel or the use, occupancy, enjoyment or operation of all or any portion thereof. Notwithstanding anything to the contrary contained herein, so long as an Owner shall not be delinquent in its performance of its obligations under this Declaration (including, without limitation, payment to Declarant of any sums due hereunder), such Owner shall have a license to collect all income, rents, issues, profits and proceeds from such Owner's Parcel as trustee for the benefit of Declarant and such Owner shall apply the funds so collected first to the payment or performance of its obligations under this Declaration in such manner as Declarant elects and thereafter to the account of such Owner. Upon such Owner becoming delinquent in its performance of its obligations under this Declaration, such license shall be deemed revoked and any rents received thereafter by such Owner shall be delivered in kind to Declarant. In such event, such Owner agrees to deliver the original copies of all leases to Declarant. Each Owner hereby irrevocably constitutes and appoints Declarant its true and lawful attorney-in-fact to enforce in such Owner's name or in Declarant's name or otherwise all rights of such Owner in the instruments, including without limitation checks and money orders, tendered as payments of rents and to do any and all things necessary and proper to carry out the purposes hereof. 7.6 Appointment of Receiver In the event that an Owner shall be delinquent in its performance of its obligations under this Declaration (including, without limitation, payment to Declarant of any sums due hereunder), Declarant, as a matter of right and without notice to such Owner or anyone claiming under it, and without regard to the then value of such Owner's Parcel or the interest of such Owner therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of such Owner's Parcel or any portion thereof, and such Owner hereby irrevocably consents to such appointment and waives notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases and all the powers and duties of Declarant in case of entry as provided herein and shall continue as such and exercise all such powers until the date of confirmation of sale of such Owner's Parcel unless such receivership is sooner terminated. EXHIBIT P - Page - 20- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 7.7 No Offsets. All Common Expenses shall be payable in the amount specified in the bill therefor and no offsets against such amount shall be permitted for any reason. ARTICLE VIII POWERS AND DUTIES OF DECLARANT In addition to the other powers and duties of Declarant provided in this Declaration, Declarant shall specifically have the right and power to accomplish those matters described in this Article VIII. 8.1 Employ Manager. Declarant shall have the power but not the duty to contract with a professional management and/or asset management agent for the performance of maintenance and repair of the Project and for conducting other activities on behalf of Declarant. Any such contract shall be on terms acceptable to Declarant, and shall be terminable by Declarant at any time (i) for cause upon thirty (30) days' written notice thereof, and (ii) without cause upon payment of a termination fee and upon ninety (90) days' written notice. The fee, cost and/or expense of such contract shall be a Common Expense. 8.2 Insurance. Declarant shall have the power and the duty to obtain and maintain in force such other insurance as Declarant shall deem necessary or expedient to carry out the functions of Declarant as set forth in this Declaration. Every policy of insurance obtained by Declarant, whether or not required to be obtained pursuant to the provisions of this Declaration, shall expressly waive any and all rights of subrogation against Declarant, its representatives and employees and all Owners if permitted under the terms of such policy. The premiums for the insurance policies obtained and maintained by Declarant shall be a part of the Common Expenses. Declarant is appointed attorney-in-fact by each Owner to negotiate and agree on the value and extent of any loss under any policy carried by Declarant under this Section 8.2. Declarant is granted full right and authority to compromise and settle any claim or endorse any claim by legal action or otherwise and to execute releases in favor of any insurer. 8.3 Utilities. Declarant shall have the power and the duty to pay all charges for utility services for the Common Area which charges shall be included in Common Expenses. 8.4 Common Area. Declarant shall have the power and the duty to manage, operate, maintain, repair, restore, add to and replace the Common Area and all Improvements located thereon (including, without limitation, the express obligation at all times to preserve, plant, install, repair and maintain the EXHIBIT P - Page - 21- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Common Area as set forth in this Declaration), and all other property (whether real or personal) owned by Declarant. 8.5 Enforcement. Declarant shall have the power and the duty to enforce the provisions of the Controlling Documents; provided, however, that at no time shall Declarant, with respect to amounts owed to Declarant (including, without limitation, amounts owed for Common Expenses), impose a rate of interest in excess of the rate of interest then permitted by law to be charged. 8.6 Square Footage/Total Entitlement Monitoring. Declarant shall have the power and the duty to track and monitor the square footage of the Project to ensure that it does not exceed the maximum square footage allowed under the Governmental Requirements. 8.7 Contract and Make Payments. Declarant shall have the power and the duty to contract and pay for Common Expenses. 8.8 Employment of Agents. Declarant shall have the power but not the duty to employ the services of any Person or Persons to manage and conduct the business of Declarant hereunder, and upon such conditions as are deemed advisable by Declarant, to delegate to such Person or Persons any of its powers. 8.9 Taxes. Declarant shall have the power and the duty to pay any taxes and governmental assessments which are or could become a lien on the Common Area or any portion thereof which taxes and governmental assessments shall be included in Common Expenses. 8.10 Delegation of Powers. Declarant shall have the power but not the duty to delegate any of its powers hereunder to other Persons, including, without limitation, committees, officers and employees. 8.11 Security. Declarant shall have the power but not the duty to provide, through an outside agency, a security force to patrol and protect the Common Areas the cost of which shall be included in Common Expenses. 8.12 Rules. Declarant shall have the power but not the duty to adopt, amend, supplement and repeal the Rules. The Rules may restrict and govern the use of the Common Area by any Owner; provided, however, that the Rules may not discriminate between the various Owners, Occupants EXHIBIT P - Page - 22- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] and Permittees. A copy of the Rules shall be given to each Owner not less than ten (10) business days before said Rules (or, as applicable, an amendment thereto) may be deemed to be in full force and effect. The Rules shall have the same force and effect as if set forth herein and made a part of this Declaration. 8.13 Maintenance Standards. Declarant shall have the power but not the duty to adopt, amend, supplement and repeal the Maintenance Standards; provided, however, that at no time shall the standards set forth therein for repair and maintenance be lower than the minimum standards set forth in this Declaration or required by the Governmental Requirements, and provided further that the Maintenance Standards may impose higher standards of maintenance for areas within the Project visible from main public streets and/or the Common Area than from those areas within the Project not so visible. Whether or not Maintenance Standards have been adopted, nothing in this Section 8.13 shall be construed as relieving any Owner from the obligation to at all times comply with the minimum standards for repair and maintenance set forth in this Declaration. A copy of the Maintenance Standards shall be given to each Owner not less than ten (10) business days before the same may be deemed to be in full force and effect. The Maintenance Standards shall have the same force and effect as if set forth herein and made a part of this Declaration. 8.14 Right to Grant Easements. 8.14.1 Declarant shall have the power and the duty to grant utility and other easements, through, over, under, across and on the Common Area, which are reasonably necessary or appropriate in connection with the operation or activities of Declarant or to the ongoing development of lands held by Declarant or an affiliate of Declarant in the vicinity of the Project. 8.14.2 Declarant shall have the power and the duty to relocate easements for ingress and egress through, over, under, across and on the Common Area; provided, however, that Declarant shall use reasonable criteria in deciding which easements are to be relocated and to what location. 8.14.3 Declarant shall have the power but not the duty to institute any other services for the benefit of the Owners deemed advisable by Declarant. 8.15 Limitation on Liability of Declarant; Indemnification. 8.15.1 Declarant (or any Agent of Declarant when acting in such capacity), shall not be liable to any Owner or Occupant or any other Person for any damage, loss, or prejudice suffered or claimed on account of any act, omission, error or negligence of Declarant (or such Agent) if Declarant (or such Agent) has acted in good faith. 8.15.2 Each Owner, by accepting its deed or assignment of lease or be executing a sublease, as the case may be, agrees personally and for all its Occupants and Permittees to indemnify Declarant (or any Agent of Declarant when acting in such capacity), and to defend such Declarant (or such Agent) against any liability for any damage, loss or prejudice suffered or EXHIBIT P - Page - 23- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] claimed on account of any act, omission, error or negligence of Declarant (or such Agent) if Declarant (or such Agent) has acted in good faith. 8.15.3 In addition to the foregoing Section 8.15.2, Declarant hereby agrees to indemnify such Agent and to defend such Agent against any liability for any damage, loss or prejudice suffered or claimed on account of any act, omission, error or negligence by such Agent in performing his duties on behalf of Declarant. 8.15.4 In addition to the foregoing in Section 8.15.3, Declarant hereby agrees to indemnify any director, officer, member or employee of Declarant against any liability for any damage, loss or prejudice suffered or claimed on account of any act, omission, error or negligence by such director, officer or employee in representing Declarant in Declarant's dealings with Declarant, the Owners or the Project. 8.15.5 The indemnities set forth in Sections 8.15.3 and 8.15.4 above shall continue only for so long as Declarant or any affiliate of Declarant owns any Parcel. ARTICLE IX COMMON AREA 9.1 Easement of Enjoyment. All Owners and Occupants shall have a right and easement of enjoyment in and to portions of the Common Area as set forth in Section 5.2 above, which right and easement shall be appurtenant to and shall pass with the title to each such Parcel; provided, however, that such right and easement shall be subject to the following: 9.1.1 The right of Declarant to transfer all or substantially all of its assets, including all or any part of the Common Area; and 9.1.2 The right of Declarant to adopt, amend, supplement and enforce the Rules. 9.2 Use of Common Areas by Owners and Occupants. Except as otherwise specifically provided in this Declaration, the use of the Common Areas by each Owner and Occupant, and their respective Permittees, shall be in common with all other Owners and Occupants, and their respective Permittees. Each Owner shall keep the Common Areas free and clear of any obstructions created or permitted by such Owner or resulting from such Owner's or its Occupant's or their Permittees' operation of its business so as not to unreasonably interfere with the use and enjoyment by the other Owner and Occupants, and their respective Permittees, of the Common Areas. Unless otherwise stated herein, the Common Area shall be used by the Owners and Occupants, and their respective Permittees, in accordance with the Rules. EXHIBIT P - Page - 24- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 9.3 Building Exterior Maintenance Standards. All Building exteriors shall be maintained at all times in a neat, orderly and weatherproof manner, including, without limitation, periodic painting or cleaning if either is customary with respect to the exterior construction materials employed for such Building. 9.4 Expansion of Common Area. At any time, Declarant may, but need not, by purchase, lease, acceptance of gift or other transaction (and without the consent of the other Owners) obtain or acquire, any lands, personal property or rights therein, and thereby increase and expand the Common Area, whereupon the maintenance of such additional Common Area shall become the obligation of Declarant and shall be included in Common Expenses. 9.5 Covenant Against Partition. Each Owner shall be deemed to covenant and agree for itself and its heirs, personal representatives, successors and assigns, that there shall be no judicial partition of the Common Area and the same shall remain undivided, nor shall Declarant or any Person acquiring any interest in the Project or any part thereof, seek any such judicial partition unless the structures in the Project are totally or partially destroyed and the Owners elect not to rebuild as hereinabove provided. Each Person acquiring any interest in the Project shall by such acquisition be deemed to have waived any right to partition of any Parcel or the Common Area, except as herein provided. Notwithstanding the foregoing, if any Parcel shall be owned by two or more tenants-in-common or joint tenants, nothing herein contained shall be deemed to prevent a partition by sale of such Parcel (exclusive of any portion of any Parcel which is part of the Common Area) as between such tenants-in-common or joint tenants. No Owner may sell or convey all or part of its undivided interest in any of the Common Area, except in conjunction with the sale of its Parcel, nor may it encumber any part or all of its undivided interest in the Common Area except in conjunction with an encumbrance of its Parcel. ARTICLE X ENFORCEMENT 10.1 Abatement and Suit. 10.1.1 Subject to the restrictions set forth in this Declaration and those imposed by law, the violation or breach of any covenant, condition, restriction or provision contained in the Controlling Documents shall give Declarant and its agents, employees, representatives and contractors the right to enter upon such portion of the Project upon or as to which said violation or breach exists and to summarily abate and remove, at the expense of the Owner thereof, any structure, thing or condition that may be or exist thereon contrary to the intent and meaning of the Controlling Documents. 10.1.2 Declarant and any aggrieved Owner shall have the right to prosecute a proceeding at law or in equity, or initiate arbitration proceedings pursuant to Article XIII below, EXHIBIT P - Page - 25- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] against any Owner or Occupant or any other Person or Persons who have violated or who have attempted to violate any of the provisions, covenants, conditions, and restrictions set forth in the Controlling Documents, to enjoin or prevent them from doing so, to cause said violation or breach to be remedied or to recover damages for said violation; provided, however, that nothing herein contained shall be deemed to impose upon Declarant or any aggrieved Owner any liability for the failure to correct or prosecute a violation or breach of the Controlling Documents. 10.1.3 Each Person comprising an Owner shall be jointly and severally liable with each other Person comprising such Owner for the violation or breach of any covenant, condition, restriction or provision contained in the Controlling Documents (i) existing upon the Parcel or Parcels owned by such Owner, or (ii) caused or committed by such Owner or any Occupant or their respective Permittees. 10.2 Deemed to Constitute a Nuisance. The result of every action or omission whereby any covenant, condition, restriction or provision herein contained is violated in whole or in part is hereby declared to be and constitute a nuisance, and every remedy allowed by law or equity against anyone causing a nuisance shall be applicable against the Owner, Occupant or any other Person responsible for such action or omission, and may be exercised by Declarant and/or any aggrieved Owner. 10.3 Inspection. Declarant and its representatives may, from time to time at any reasonable hour or hours and without notice to any Owner or Occupant, enter and inspect any Parcel to ascertain whether such Parcel, the Improvements thereon and the uses thereof are in compliance with the Controlling Documents. In such event, no entering Person (nor Declarant itself) shall thereby be deemed guilty of, or become liable for, any manner of trespass or unlawful entrance in connection with such entry and inspection. 10.4 Failure to Enforce Not a Waiver of Rights. The failure of Declarant or any aggrieved Owner to enforce any covenant, condition, restriction or provision herein contained shall in no event be deemed to be a waiver of the right to thereafter do so nor of the right to enforce any other covenant, condition, restriction or provision set forth in this Declaration. 10.5 Enforcing Violations. The violation of any Governmental Requirement shall constitute a violation of this Declaration and shall be enforceable in accordance with the provisions of this Article X. 10.6 Termination. Notwithstanding anything contained or implied in this Declaration to the contrary, in no event shall the remedies available hereunder for a breach of the provisions hereof include termination of this Declaration. Instead, it is Declarant's express intention that this Declaration EXHIBIT P - Page - 26- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] be terminable only upon the agreement of all the Owners. Each Owner hereby waives any right under law, equity or otherwise, to terminate this Declaration under any circumstance other than as set forth in this Section 10.6 and in Article XI hereof. 10.7 Remedy. Notwithstanding the foregoing, no Owner may exercise any remedy hereunder unless, after the failure of a defaulting Owner to cure a breach within the applicable cure period, such non-defaulting Owner delivers notice of the breach to each Mortgagee of the defaulting Owner of which the non-defaulting Owner has received notice under Section 12.2 below, and provides such Mortgagee with the opportunity to cure such breach within an additional cure period; provided, however, that nothing herein shall entitle such Mortgagee to arbitrate a breach that has already been arbitrated hereunder. 10.8 Force Majeure. Except as otherwise provided in this Article X or elsewhere in this Declaration, each Owner shall be excused from performing any obligation or undertaking provided in this Declaration, except any obligation to pay any money (unless such payment is conditioned upon performance of an obligation or undertaking excused by this Article X), in the event but only so long as the performance of any such obligation is prevented or delayed, retarded or hindered by (i) act of God, fire, earthquake, flood, explosion, action of the elements, war, invasion, insurrection, riot, mob violence, sabotage, inability to procure or general shortage of labor, equipment, facilities, materials or supplies in the ordinary course on the open market; (ii) failure of normal transportation, strike, lockout, action of labor unions; (iii) condemnation, requisition, law, order of governmental or civil or military authorities; (iv) the inability to obtain governmental approvals or permits despite the exercise of due diligence and good faith efforts; or (v) any other cause, whether similar or dissimilar to the foregoing, not within the reasonable control of such Owner (financial ability or negligence excepted). Each Owner shall give notice of any such delay to the other Owner within thirty (30) days of such Owner's actual knowledge of the occurrence of the event with respect to which such Owner intends to claim a permitted delay hereunder. 10.9 Correction of Site Descriptions, Descriptions of Easements. By reason of inadvertent construction errors, the Buildings may not be precisely constructed within their respective Parcels. As soon as reasonably possible after completion of the construction of each Building, the Owner thereof, at its expense, shall cause an "as-built" survey to be made of its Parcel. If such survey discloses that the Building causing such survey to be made has not been constructed precisely within such Owner's Parcel, then, upon request of the constructing Owner, the other Owner shall grant to the constructing Owner an easement over that portion of the Common Area as is required to allow the location of such Building as shown on the survey and the constructing Owner shall grant to the other Owner an easement over that portion of its Parcel upon which the Building is not located for use as a portion of the Common Area. Any such easements shall remain in existence so long as such Building shall be in existence. Nothing herein contained shall be deemed to relieve or excuse either Owner from EXHIBIT P - Page - 27- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] exercising all due diligence to construct its Building within its Parcel. All of the costs and expenses of granting such easements, including without limitation, any attorneys' fees incurred in connection therewith by the other Owner, and of improving the portion of the constructing Owner's Parcel which is to be used as a portion of the Common Area so as to integrate such portion into the Common Area shall be borne solely by the constructing Owner. ARTICLE XI TERMINATION AND AMENDMENT 11.1 Duration. This Declaration shall be effective as of the date of Recordation and shall continue in full force and effect for ninety-nine (99) years or until the expiration or earlier termination of the Ground Lease, whichever is earlier. Thereafter, this Declaration shall be automatically extended for successive periods of ten (10) years each, unless an instrument signed by all then Owners of the Parcels, and consented to by their Mortgagees, is duly Recorded, which Recordation shall occur at least one (l) year prior to the end of any such period for the purpose of terminating or amending this Declaration in whole or in part, or with respect to the application of this Declaration to any Parcel existing at that time. Upon termination of this Declaration, all rights and privileges derived from, and all duties and obligations created and imposed by, the provisions of this Declaration, shall terminate and have no further force or effect; provided, however, that the termination of this Declaration shall not limit or affect any remedy at law or in equity of any Owner against any other Owner with respect to any liability or obligation arising or to be performed under this Declaration prior to the date of such termination. 11.2 Amendments. The provisions of this Declaration may be modified or amended only upon the agreement of Owners (including, as applicable, Declarant) who own a majority of the Parcel Area. Notwithstanding the foregoing, any modification or amendment to this Declaration shall comply with the following: (1) any such modification or amendment must be within the general spirit and overall intention of this Declaration, (2) prior to any such modification or amendment Declarant shall obtain the approval of any governmental agency to such modification or amendment where such approval is required by such governmental agency, (3) any modification or amendment shall not provide for any type of Improvements or use presently specifically prohibited by this Declaration, (4) such modification or amendment shall not materially adversely affect any Owner (or the Declarant), or its rights, duties and privileges specified in this Declaration, without the written consent of such Owner and any Mortgagee of such Owner, and (5) any such modification or amendment shall not increase an Owner's pro-rata share of the Common Expenses without the written consent of such Owner and any Mortgagee of such Owner. No such modification or amendment shall be effective until the Owners have been given thirty (30) days prior written notice of the proposed change and a proper instrument in writing has been executed, acknowledged, and Recorded. Notwithstanding the foregoing, any such amendment or modification, to be effective, must also be approved in writing by (a) the affected Mortgagees if such amendment or modification would either (i) affect the protection and rights of such EXHIBIT P - Page - 28- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Mortgagees as set forth in Article XII below, (ii) change the method of calculating Owner's respective proportionate shares of Common Expenses, or (iii) affect the validity of such Mortgagee's security. 11.3 Termination of Declarant's Interest. Declarant's right to enforce the provisions of this Declaration shall continue for so long as Declarant owns any Parcel; provided, however, that Declarant shall be entitled, at any earlier time, by an instrument in writing executed and acknowledged and Recorded, to terminate in whole or in part its right to enforce the provisions of this Declaration. ARTICLE XII RIGHTS OF LENDERS 12.1 Priority of Lien of Mortgage. This Declaration shall be and remain senior in priority to all Mortgages hereafter executed upon the Project, any Parcel or any portion thereof; provided, however, that no breach of the covenants, conditions or restrictions herein contained or foreclosure of any lien herein created for Common Expenses shall affect, impair, defeat or render invalid the lien, charge or priority of any Mortgage made in good faith and for value encumbering any Parcel. Any Mortgagee or other Owner whose title to a Parcel is derived through foreclosure, trustee's sale or deed in lieu of foreclosure, shall take title to such Parcel subject to, and shall be bound by, all the covenants, conditions and restrictions set forth in this Declaration. 12.2 Notice of Default. Each Mortgagee, upon filing a written request for such notification with Declarant, is entitled to written notification from Declarant of any default by the Owner of such Parcel or Building in the performance of the applicable Owner's obligations under this Declaration, which default is not cured within thirty (30) days after Declarant gives written notice thereof to such Owner. 12.3 Request for Notice. No Mortgagee shall be entitled to receive any notice which this Declaration requires Declarant to give to such Mortgagee unless and until such Mortgagee has delivered to Declarant a written request for such notice. Such request for notice shall state which Parcel or Improvement is encumbered by its mortgage or subject to a ground lease. Notwithstanding the foregoing or anything contained in this Declaration, any Mortgagee where Declarant is mortgagor shall automatically be entitled to receive any notice or other information or material which this Declaration requires to be given to Declarant, without a written request for such notice, so long as the mortgage includes a notice provision for the Mortgagee. A Mortgagee's rights pursuant to this Declaration, including, without limitation, the priority of the lien of its mortgage over the lien for Common Expenses levied by Declarant hereunder shall not be affected by the failure to request such notice. Any request for notice delivered to Declarant and the automatic notice EXHIBIT P - Page - 29- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] provisions hereof shall remain effective without any further action by the requesting Person for so long as the requesting Person continues to be the Mortgagee, with respect to the Parcel or Improvement for which the request for notice was given. 12.4 Curing Defaults. A Mortgagee or the immediate transferee of such Mortgagee, who acquires title by judicial foreclosure, a deed in lieu of foreclosure or trustee sale, or otherwise, shall not be obligated to cure any breach of the provisions of this Declaration which occurred before such Mortgagee or transferee acquired the title to a Parcel if (a) such breach is noncurable or of a type which is not practical or feasible to cure, and (b) such Mortgagee did not have notice of such a breach at the time it acquired a lien or security interest in the Parcel. 12.5 Availability of Documents. Declarant shall make available to Owners and Mortgagees current copies of the Controlling Documents. "Available" means available for inspection, upon request, during normal business hours or under other reasonable circumstances. 12.6 Conflicts. In the event of any conflict between any of the provisions of this Article XII and any of the other provisions of this Declaration, the provisions of this Article XII shall control. ARTICLE XIII WAIVER OF JURY TRIAL, ARBITRATION, LITIGATION EXPENSES 13.1 WAIVER OF TRIAL BY JURY. ANY LITIGATION COMMENCED BY ANY OWNER AGAINST ANY OTHER OWNER RESULTING FROM ANY BREACH OR ALLEGED BREACH OF THE TERMS OF THIS DECLARATION SHALL BE TRIED WITHOUT A JURY AND ANY SUCH OWNER SHALL BE DEEMED TO HAVE WAIVED ANY RIGHT TO A TRIAL BY JURY. 13.2 Arbitration. 13.2.1. General Submittals to Arbitration. Notwithstanding ------------------------------------ anything to the contrary contained in this Declaration, the submittal of all matters to arbitration in accordance with the terms of this Section 13.2 is the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Declaration, except for claims which (A) seek anything other than enforcement of rights under this Declaration, or (B) which are primarily founded upon matters of fraud, willful misconduct, bad faith or any other allegations of tortious action, and seek the award of punitive or exemplary damages, which disputes shall be resolved by suit filed in the Superior Court of Los Angeles County, California, the decision of which court shall be subject to appeal pursuant to applicable law. EXHIBIT P - Page - 30- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 13.2.2. JAMS. Any dispute to be arbitrated pursuant to the ---- provisions of this Section 13.2 shall be determined by binding arbitration before a retired judge of the Superior Court of the State of California (the "Arbitrator") under the auspices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"). Such arbitration shall be initiated by the parties, or either of them, within ten (10) days after either party sends written notice (the "Arbitration Notice") of a demand to arbitrate by registered or certified mail to the other party and to JAMS. The Arbitration Notice shall contain a description of the subject matter of the arbitration, the dispute with respect thereto, the amount involved, if any, and the remedy or determination sought. The parties may agree on a retired judge from the JAMS panel. If they are unable to promptly agree, JAMS will provide a list of three available judges and each party may strike one. The remaining judge (or if there are two, the one selected by JAMS) will serve as the Arbitrator. In the event that JAMS shall no longer exist or if JAMS fails or refuses to accept submission of such dispute, then the dispute shall be resolved by binding arbitration before the American Arbitration Association ("AAA") under the AAA's commercial arbitration rules then in effect. 13.2.3. Arbitration Procedure. ---------------------- 13.2.3.1 Pre-Decision Actions. The Arbitrator shall --------------------- schedule a pre-hearing conference to resolve procedural matters, arrange for the exchange of information, obtain stipulations, and narrow the issues. The parties will submit proposed discovery schedules to the Arbitrator at the pre-hearing conference. The scope and duration of discovery will be within the sole discretion of the Arbitrator. The Arbitrator shall have the discretion to order a pre-hearing exchange of information by the parties, including, without limitation, production of requested documents, exchange of summaries of testimony of proposed witnesses, and examination by deposition of parties and third-party witnesses. This discretion shall be exercised in favor of discovery reasonable under the circumstances. 13.2.3.2 The Decision. The arbitration shall be conducted ------------- in Los Angeles, California. Any party may be represented by counsel or other authorized representative. In rendering a decision(s), the Arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural laws of the State of California and the terms and provisions of this Declaration. The Arbitrator's decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The Arbitrator may make any determination, and/or grant any remedy or relief that is just and equitable. The decision must be based on, and accompanied by, a written statement of decision explaining the factual and legal basis for the decision as to each of the principal controverted issues. The decision shall be conclusive and binding, and it may thereafter be confirmed as a judgment by the Superior Court of the State of California, subject only to challenge on the grounds set forth in the California Code of Civil Procedure Section 1286.2. The validity and enforceability of the Arbitrator's decision is to be determined exclusively by the California courts pursuant to the provisions of this Declaration. The Arbitrator may award costs, including without limitation attorneys' fees, and expert and witness costs, to the prevailing party, if any, as determined by the Arbitrator in his discretion. The Arbitrator's fees and costs shall be paid by the non-prevailing party as determined by the Arbitrator in his discretion. A party shall be determined by the Arbitrator to be the prevailing party if its proposal for the resolution of dispute is the closer to that adopted by the Arbitrator. EXHIBIT P - Page - 31- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 13.3 Attorney's Fees and Costs. If any Owner, Occupant or Declarant brings an action against any other Owner, Occupant or Declarant by reason of a breach or alleged violation of any covenant, term or obligation of this Declaration, or for the enforcement of any provision of this Declaration or otherwise arising out of this Declaration, the prevailing party in such action shall be entitled to its cost of suit and reasonable attorneys' fees, which shall be made part of any judgment rendered in such action. For the purposes of this Declaration, the term "attorneys' fees" shall mean the fees and expenses of counsel to the parties hereto, which may include post-judgment motions, contempt proceedings, garnishment, levy and debtor and third-party examinations, discovery, bankruptcy, litigation, printing, photostating, duplicating and other expenses, air freight charges and fees billed for law clerks, paralegals and other persons not admitted to the bar but performing services under the supervision of an attorney, all of which shall be deemed to have accrued upon the commencement of such action. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 Constructive Notice and Acceptance. Every Person who now or hereafter owns or acquires any right, title or interest in or to any portion of the Project or any Parcel is and shall be conclusively deemed to have consented and agreed to every covenant, condition, restriction and provision contained in this Declaration, whether or not any reference to this Declaration is contained in the instrument by which such Person acquired an interest in the Project. 14.2 Declarant's Rights Under Other Documents. Nothing herein contained shall prejudice or diminish in any way Declarant's rights under any other documents which may be subsequently Recorded against all or any portions of the Project. 14.3 Land Use Matters. Declarant shall retain the right, in its sole discretion, for the benefit of the Parcels of which Declarant or an affiliate of Declarant then retains ownership or for the benefit of all or any other portion of the Project, to apply for, obtain, prepare, change, amend, supplement, modify or terminate any Governmental Requirement or any Controlling Document. Each Owner, by accepting its deed or assignment of lease or by executing a sublease, as the case may be, and each Occupant, by accepting the right to occupy a Parcel, agrees to support the general plan of improvement and development of the Project, as from time to time conceived, determined, amended, modified or supplemented by Declarant and affiliates of Declarant, and further agrees that it will cooperate with, take all steps required of it to accomplish the foregoing and not EXHIBIT P - Page - 32- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] oppose or interfere in any fashion (including, without limitation, by speaking out at public hearings) with Declarant's (or such affiliate of Declarant's) efforts to complete development of the Project (including, without limitation, ingress and egress through lands immediately adjacent to the Project). 14.4 Notices. 14.4.1 Except as otherwise expressly provided in this Declaration or required by law, all notices, consents, requests, demands, approvals, authorizations and other communications (each a "Notice") provided for herein shall be in writing and shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested ("Mail"); (B) transmitted by telecopy, if such telecopy is promptly followed by a Notice sent by Mail; (C) delivered by a nationally recognized overnight courier, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to the intended party at its last known address. For purposes of this Section 14.4, "last known address" with respect to any Owner shall mean such Owner's address supplied by such Owner to Declarant. If no address is supplied, then such Owner's address shall be deemed to be the address of any Parcel owned by such Owner. If personally delivered, then such Notice shall be effective upon delivery. If sent by telex or fax transmission or other form of electronic transmission, then such Notice shall be effective upon transmission (if prior to 6:00 p.m. in the recipient's time zone; but if after 6:00 p.m., then such Notice shall be effective at 9:00 a.m. on the next business day after such transmission). If mailed, then such Notice shall be deemed given on the third day after it is deposited in the mail in accordance with the foregoing. Any correctly addressed Notice that is refused, unclaimed or undelivered because of an act or omission of the party to be notified shall be considered to be effective as of the first date that such Notice was refused, unclaimed or considered undeliverable by the postal authorities, messenger, officer of the law or overnight delivery service. 14.4.2 With respect to (i) any such notice, consent, request, demand, approval, authorization or communication, and (ii) any document or instrument (whether a Controlling Document or otherwise) given or made available to any Owner hereunder or under any of the other Controlling Documents and which might concern an Occupant of such Owner's Parcel, it shall be the sole responsibility of such Owner to make a copy thereof available in a timely manner to such Occupant. 14.5 Liberal Construction. The provisions of this Declaration shall be liberally construed to effectuate its purpose. The failure to enforce any provision of this Declaration shall not constitute a waiver of the right to thereafter enforce such provision or the right to enforce any other provision hereof. 14.6 Singular Includes Plural. Whenever the context of this Declaration requires, the singular shall include the plural, and vice versa, and the masculine shall include the feminine ---------- and vice versa. ----------- EXHIBIT P - Page - 33- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 14.7 Headings. Section and Article headings, where used in this Declaration, are inserted for convenience only and are not intended to be a part hereof or in any way to define, limit or describe the scope and intent of the particular provisions to which they refer. 14.8 Effect of Invalidation. Each covenant, condition and restriction of this Declaration is intended to be, and shall be construed as, independent and severable from each other covenant, condition and restriction. If any covenant, condition or restriction of this Declaration is held to be invalid by any court, the invalidity of such covenant, condition or restriction shall not affect the validity of the remaining covenants, conditions and restrictions hereof. 14.9 Cumulative Remedies. Each remedy provided for in this Declaration and/or in the Controlling Documents shall be cumulative and not exclusive. The failure to exercise any remedy provided for in this Declaration or any other Controlling Document shall not constitute a waiver of such remedy or of any other remedy provided herein or therein. 14.10 Conflicting Provisions. In the case of any conflict between this Declaration or any of the other Controlling Documents, this Declaration shall control. EXHIBIT P - Page - 34- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 14.11 Approvals. Any reference in the Declaration to an approval by the Declarant, shall, unless set forth otherwise, be deemed to be in Declarant's sole and absolute discretion. IN WITNESS WHEREOF, Declarant has hereunto affixed the following signatures as of the date first above written. "Landlord": TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a California corporation, Its manager By: . . . . . . . . . . . . ----------------------------- Alan D. Levy, Chief Executive Officer EXHIBIT P - Page - 35- STATE OF __________________ ) ) ss. COUNTY OF _________________ ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT "A" TO EXHIBIT P ------------------------ LEGAL DESCRIPTION OF -------------------- THE CENTER ---------- (To be provided) EXHIBIT "A" TO EXHIBIT P - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT "B" TO EXHIBIT P ------------------------- SITE PLAN ---------- (To be provided) EXHIBIT "B" TO EXHIBIT P - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT Q ---------- 20TH CENTURY PLAZA FORM OF RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP 1999 Avenue Of The Stars, Suite 1800 Los Angeles, California 90067-6050 Attention: Anton N. Natsis, Esq. ================================================================================ (Space Above For Recorder's Use) RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS This Recognition of Covenants, Conditions, And Restrictions (this "Agreement") is entered into as of the ____ day of ___________ , 19____, by and between ("Landlord"), and ("Tenant"), with reference to the following facts: A. Landlord and Tenant entered into that certain Office Lease Agreement dated ______________ (the "Lease"). Pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord space (the "Premises") located in an office building on certain real property described in EXHIBIT A attached hereto --------- and incorporated herein by this reference (the "Property"). B. The Premises are located in an office building located on real property which is part of an area owned by Landlord containing approximately ____ (_) acres of real property (the "Project"), as more particularly described in EXHIBIT B attached hereto and incorporated herein by this reference. ---------- C. Landlord, as declarant, has previously recorded, or proposes to record concurrently with the recordation of this Agreement, a Declaration of Covenants, Conditions, and Restrictions (the "Declaration"), dated __________ , 19__, in connection with the Project. D. Tenant is agreeing to recognize and be bound by the terms of the Declaration, and the parties hereto desire to set forth their agreements concerning the same. NOW, THEREFORE, in consideration of (a) the foregoing recitals and the mutual agreements hereinafter set forth, and (b) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows, EXHIBIT Q - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1. Tenant's Recognition of Declaration. Notwithstanding that the Lease ----------------------------------- has been executed prior to the recordation of the Declaration, Tenant agrees to recognize and by bound by all of the terms and conditions of the Declaration. 2. Miscellaneous. ------------- 2.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, estates, personal representatives, successors, and assigns. 2.2 This Agreement is made in, and shall be governed, enforced and construed under the laws of, the State of California. 2.3 This Agreement constitutes the entire understanding and agreements of the parties with respect to the subject matter hereof, and shall supersede and replace all prior understandings and agreements, whether verbal or in writing. The parties confirm and acknowledge that except as set forth in the Lease (the provisions of which, notwithstanding, may not be construed to waive or modify in any respect Tenant's obligations under this Agreement) there are no other promises, covenants, understandings, agreements, representations, or warranties with respect to the subject matter of this Agreement except as expressly set forth herein. 2.4 This Agreement is not to be modified, terminated, or amended in any respect, except pursuant to any instrument in writing duly executed by both of the parties hereto. 2.5 In the event that either party hereto shall bring any legal action or other proceeding with respect to the breach, interpretation, or enforcement of this Agreement, or with respect to any dispute relating to any transaction covered by this Agreement, the losing party in such action or proceeding shall reimburse the prevailing party therein for all reasonable costs of litigation, including reasonable attorneys' fees, in such amount as may be determine by the court of other tribunal having jurisdiction, including matters on appeal. 2.6 All captions and heading herein are for convenience and ease of reference only, and shall not be used or referred to In any way in connection with the interpretation or enforcement of this Agreement. 2.7 If any provision of this Agreement, as applied to any party of to any circumstance, shall be adjudged by a court of competent jurisdictions to be void or unenforceable for any reason, the same shall not affect any other provision of this Agreement, the application of such provision under circumstances different form those adjudged by the court, or the validity or enforceability of this Agreement as a whole. 2.8 Time is of the essence of this Agreement. 2.9 The Parties agree to execute any further documents, and take any further actions, as may be reasonable and appropriate in order to carry out the purpose and intent of this Agreement. EXHIBIT Q - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 2.10 As used herein, the masculine, feminine or neuter gender, and the singular and plural numbers, shall each be deemed to include the others whenever and whatever the context so indicates. EXHIBIT Q - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SIGNATURE PAGE OF RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "Landlord" , ------------------------------- a ------------------------------- By: ----------------------------- Its: -------------------------- "Tenant": , ------------------------------- a ------------------------------- By: ----------------------------- Its: -------------------------- STATE OF __________________ ) ) ss. COUNTY OF _________________ ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State STATE OF __________________ ) ) ss. COUNTY OF _________________ ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 20TH CENTURY PLAZA OFFICE LEASE 6301 OWENSMOUTH AVENUE - -------------------------------------------------------------------------------- NOTE: TENANT IS NOT REQUIRED TO NOTIFY LANDLORD THAT TENANT ELECTS TO EXERCISE ITS EXTENSION OPTION(S) UNTIL THIRTY (30) DAYS AFTER TENANT'S RECEIPT OF AN "EXTENSION REMINDER NOTICE" FROM LANDLORD (SEE SECTION 2.3.3). -------------- - -------------------------------------------------------------------------------- TISHMAN WARNER CENTER VENTURE, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, as Landlord, and 20TH CENTURY INDUSTRIES, A CALIFORNIA CORPORATION, as Tenant. TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 20TH CENTURY PLAZA SUMMARY OF BASIC LEASE INFORMATION The undersigned hereby agree to the following terms of this Summary of Basic Lease Information (the "Summary"). This Summary is hereby incorporated into and made a part of the attached Office Lease (the "Office Lease") which pertains to the "Project," as that term is defined in the Office Lease, to be known as "20TH CENTURY PLAZA" located in Woodland Hills, California. This Summary and the Office Lease are collectively referred to herein as the "LEASE". Each reference in the Office Lease to any term of this Summary shall have the meaning set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Office Lease.
TERMS OF LEASE (References are to the Office Lease) DESCRIPTION - ------------------------------------------ ------------------------------------- 1. Date: April 8, 1998. 2. Landlord: TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company 3. Tenant: 20TH CENTURY INDUSTRIES, a California corporation. 4. Premises (ARTICLE 1). --------- 4.1 Building Address 6301 Owensmouth Avenue, Woodland Hills, California 91367 4.2 Premises: A total of 227,653 rentable square feet of space in the Building as described in SECTION 1.1 of the Office ----------- Lease. 5. Lease Term (ARTICLES 1 and 2). 5.1 Length of Term: Approximately sixteen (16) years, eight (8) months (which length of term will be adjusted to the extent the Lease Expiration Date actually occurs on a date other than the anticipated Lease Expiration Date). 5.2 Lease Commencement Date: The date set forth in Section 1 of this Summary. 5.3 Lease Expiration Date: Concurrent with the "Lease Expiration Date", as defined in that certain lease (the "Adjacent Building Lease") between Tenant and Landlord, dated of even date herewith, with respect to the "Adjacent Building", as that term is defined in Section 1.2 of this Lease (which Lease Expiration Date is anticipated to be November 30, 2014). 6. Base Rent (ARTICLE 3): ---------- Annual Annual Rental Rate per Rentable Square Foot Date of Lease Term Base Rent of the Premises - ----------------------------- --------------------- ---------------- Lease Commencement Date $ 4,712,417.00 $ 20.70 through the "Lease Commencement Date," as defined in the Adjacent Building Lease "Lease Commencement Date," $ 4,951,452.75 $ 21.75 as defined in the Adjacent Building Lease through the date which is ten (10) years after the "Lease Commencement Date" as defined in the Adjacent Building Lease The date which is ten (10) $ 5,884,830.05 $ 25.85 years after the "Lease Commencement Date" as defined in the Adjacent Building Lease through the Lease Expiration Date -2- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (Note that Tenant is to receive a credit against Base Rent in the amount of $300,000.00 with respect to the month of January, 1999.) 7. Additional Rent (ARTICLE 3). ---------- 7.1 Tenant's Share: 98.9%. 7.2 Annual Direct Expense Allowance: $8.00 per rentable square foot of the Building. 8. Security Deposit: None. 9. Parking Pass Ratio (ARTICLE 18): Seven Hundred and Sixty (760) parking ---------- passes, subject to the terms of ARTICLE 18 of the Office Lease. ---------- 10. Address of Tenant (SECTION 19.5): 20th Century Industries 6301 Owensmouth Avenue, #730 Woodland Hills, California 91367 Attention: Administrative Services with a copy to: Ervin, Cohen & Jessup 9401 Wilshire Boulevard, 9th Floor Beverly Hills, California 90212 Attention: David P. Kassoy, Esq. (Prior to and After Lease Commencement Date) 11. Broker(s) (ARTICLE 14): Tishman International Companies ----------- 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 and Travers Realty Corporation 550 South Hope Street, Suite 2600 Los Angeles, California 90071 -3- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 12. Storage Area (ARTICLE 4) ---------- Dead Storage Annual Date of Lease Term Rental Rate ------------------ ----------- Lease Commencement Date $10.38 through the "Lease Commencement Date," as defined in the Adjacent Building Lease "Lease Commencement Date," $12.00 as defined in the Adjacent Building Lease through the date which is ten (10) years after the "Lease Commencement Date" as defined in the Adjacent Building Lease The date which is ten (10) $15.00 years after the "Lease Commencement Date" as defined in the Adjacent Building Lease through Lease Expiration Date
-4- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant. "Landlord" TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a corporation, Manager By: ----------------------------- Alan D. Levy Chief Executive Officer "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: ---------------------------------- William L. Mellick, President and Chief Executive Officer By: --------------------------------- William G. Crain, Vice President -5- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth]
TABLE OF CONTENTS ARTICLE SUBJECT MATTER PAGE ------- -------------- ---- ARTICLE 1. PREMISES, BUILDING, PROJECT AND COMMON AREAS. . . . . . . . . . . . . . . . . . . .1 ARTICLE 2. LEASE TERM . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 3. RENT . . . . . . . . . . . . . . . . . . . . . . .10 ARTICLE 4. STORAGE SPACE . . . . . . . . . . . . . . . . . . 10 ARTICLE 5. USE OF PREMISES . . . . . . . . . . . . . . . . . 10 ARTICLE 6. MAINTENANCE, REPAIRS, ADDITIONS AND ALTERATIONS. . . . . . . . . . . . . . . . . .10 ARTICLE 7. INSURANCE . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 8. DAMAGE AND DESTRUCTION . . . . . . . . . . . . . .10 ARTICLE 9. PERSONAL PROPERTY TAX . . . . . . . . . . . . . . 10 ARTICLE 10 SERVICES AND UTILITIES . . . . . . . . . . . . . .10 ARTICLE 11 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . 10 ARTICLE 12 DEFAULTS; REMEDIES . . . . . . . . . . . . . . . .10 ARTICLE 13 CONDEMNATION . . . . . . . . . . . . . . . . . . .10 ARTICLE 14 BROKERS . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 15 LANDLORD'S LIABILITY . . . . . . . . . . . . . . .10 ARTICLE 16 REASONABLENESS AND GOOD FAITH . . . . . . . . . . 10 ARTICLE 17 INTENTIONALLY OMITTED . . . . . . . . . . . . . . 10 ARTICLE 18 TENANT PARKING . . . . . . . . . . . . . . . . . .10 ARTICLE 19 MISCELLANEOUS PROVISIONS . . . . . . . . . . . . .10 EXHIBITS - -------- A . . . . . . . . . . . . . . . OUTLINE OF FLOORS OF THE PREMISES B . . . . . . . . . . . . . . . . . . . . . . .OUTLINE OF PROJECT C . . . . . . . . . . . . . . . . . . . . . . .TENANT WORK LETTER D . . . . . . . . . . . . . . . . . . .NOTICE OF LEASE TERM DATES E . . . . . . . . . . . . . . . . . . . . . RULES AND REGULATIONS F . . . . . . . . . . . . . . . . . . . . . .ESTOPPEL CERTIFICATE G . . . . . . . . . . . . . . . . . . . .OUTLINE OF STORAGE AREAS H . . . . . . . . . . . . . . . . . . . . . INTENTIONALLY OMITTED I . . . . . . . . . . . . . . . . . . . JANITORIAL SPECIFICATIONS J . . . . .SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT K . . . . . . . . . . . . . . . . . . . . . INTENTIONALLY OMITTED L . . . . . . . . . . . . . . . . . . . . . INTENTIONALLY OMITTED M . . . . . . . . . . . . . . . . . . . . . . SHORT FORM OF LEASE N . . . . . . . . . . . . . . . . . . . . . .TERMINATION OF LEASE O . . . . . . . . . . . . . . . . . . . . . . . .TENANT'S SIGNAGE P . . . . . . . . . . . . . . . . . . . . . . . . .FORM OF CC&R'S Q . . . . . . . . . . . . . . . . . FORM OF RECOGNITION OF CC&R'S -6- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] INDEX OF MAJOR DEFINED TERMS DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . .PAGE - ------------- ---- 12-Month Period . . . . . . . . . . . . . . . . . . . . . . . .36 15-Month Period . . . . . . . . . . . . . . . . . . . . . . . .37 AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77, 31 Access Areas . . . . . . . . . . . . . . . . . . . . . . . . . 48 Actual Cost . . . . . . . . . . . . . . . . . . . . . . . . . .45 Adjacent Building . . . . . . . . . . . . . . . . . . . . . . . 1 After-Hours HVAC . . . . . . . . . . . . . . . . . . . . . . . 45 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . .24 Annual Storage Rent . . . . . . . . . . . . . . . . . . . . . .20 Arbitration Notice . . . . . . . . . . . . . . . . . . . . . . 76, 31 Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . 76, 31 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Basic Number . . . . . . . . . . . . . . . . . . . . . . . . . 60 Best's Rating . . . . . . . . . . . . . . . . . . . . . . . . .30 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Building . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Building Hours . . . . . . . . . . . . . . . . . . . . . . . . 42 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 CC&Rs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . .2 Comparable Relocation Space . . . . . . . . . . . . . . . . . .47 Compliance Obligations . . . . . . . . . . . . . . . . . . . . 73 Construction Period . . . . . . . . . . . . . . . . . . . . . .60 Coverage Item . . . . . . . . . . . . . . . . . . . . . . . . .30 Damaged Area . . . . . . . . . . . . . . . . . . . . . . . . . 34 Deductible Percentage . . . . . . . . . . . . . . . . . . . . .29 Earthquake Insurance . . . . . . . . . . . . . . . . . . . . . 29 Earthquake Self-Insurance . . . . . . . . . . . . . . . . . . .30 Emergency Generator . . . . . . . . . . . . . . . . . . . . . .49 Estimate Statement . . . . . . . . . . . . . . . . . . . . . . 17 Estimated Additional Rent . . . . . . . . . . . . . . . . . . .18 Estimated Completion Date . . . . . . . . . . . . . . . . . . .35 Exercise Notice . . . . . . . . . . . . . . . . . . . . . . . . 5 Extension Option Reminder Notice . . . . . . . . . . . . . . . .5 Financial Requirements . . . . . . . . . . . . . . . . . . . . 30 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . .71 Funding Notice . . . . . . . . . . . . . . . . . . . . . . . . 39 Funding Refusal Notice . . . . . . . . . . . . . . . . . . . . 39 -7- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Gross-Up Adjustment . . . . . . . . . . . . . . . . . . . . . .10 Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Hourly Charge . . . . . . . . . . . . . . . . . . . . . . . . .45 HVAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Includable Deducted Sums . . . . . . . . . . . . . . . . . . . 24 Insurance Shortfall . . . . . . . . . . . . . . . . . . . . . .40 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . .73 JAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76, 31 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Landlord Parties . . . . . . . . . . . . . . . . . . . . . . . 27 Landlord's Termination Period . . . . . . . . . . . . . . . . .40 Lapse Date . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Lease Commencement Date . . . . . . . . . . . . . . . . . . . . 3 Lease Expiration Date . . . . . . . . . . . . . . . . . . . . . 3 Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Monument Signage . . . . . . . . . . . . . . . . . . . . . . . 68 Nondisturbance Agreement . . . . . . . . . . . . . . . . . . . 65 Notice of Termination . . . . . . . . . . . . . . . . . . . . .39 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Option Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Option Rent Notice . . . . . . . . . . . . . . . . . . . . . . .6 Original Tenant . . . . . . . . . . . . . . . . . . . . . . . . 4 Outside Agreement Date . . . . . . . . . . . . . . . . . . . . .6 Parking Structure . . . . . . . . . . . . . . . . . . . . . . . 2 Permitted User . . . . . . . . . . . . . . . . . . . . . . . . 68 Premises Obligations . . . . . . . . . . . . . . . . . . . . . 22 Prior Lease . . . . . . . . . . . . . . . . . . . . . . . . . .77 Proposition 13 . . . . . . . . . . . . . . . . . . . . . . . . 15 Provider . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Recognition Agreement . . . . . . . . . . . . . . . . . . . . .54 Relocated Space . . . . . . . . . . . . . . . . . . . . . . . .36 Renewal Concessions . . . . . . . . . . . . . . . . . . . . . . 4 Renewal Option Right . . . . . . . . . . . . . . . . . . . . . .4 Renewal Option Term . . . . . . . . . . . . . . . . . . . . . . 4 Repair Certificate . . . . . . . . . . . . . . . . . . . . . . 35 Repair Cost . . . . . . . . . . . . . . . . . . . . . . . . . .38 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . 29 Review Period . . . . . . . . . . . . . . . . . . . . . . . . .18 Riser Areas . . . . . . . . . . . . . . . . . . . . . . . . . .24 Self-Insurance Gross-Up . . . . . . . . . . . . . . . . . . . .30 Self-Insurance Notice . . . . . . . . . . . . . . . . . . . . .32 Self-Insuring Party . . . . . . . . . . . . . . . . . . . . . .32 -8- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Specifications . . . . . . . . . . . . . . . . . . . . . . . . 68 Standard Tenant Services . . . . . . . . . . . . . . . . . . . 42 Statement . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Stop Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Storage Area . . . . . . . . . . . . . . . . . . . . . . . . . 19 Subject Space . . . . . . . . . . . . . . . . . . . . . . . . .50 Submittal Date . . . . . . . . . . . . . . . . . . . . . . . . .4 Successor Entity . . . . . . . . . . . . . . . . . . . . . . . 68 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Tenant Parties . . . . . . . . . . . . . . . . . . . . . . . . 27 Tenant Repair Option . . . . . . . . . . . . . . . . . . . . . 37 Tenant Termination Notice . . . . . . . . . . . . . . . . . . .36 Tenant's Determination Period . . . . . . . . . . . . . . . . . 6 Tenant's Signage . . . . . . . . . . . . . . . . . . . . . . . 68 Transfer Costs . . . . . . . . . . . . . . . . . . . . . . . . 52 Transfer Notice . . . . . . . . . . . . . . . . . . . . . . . .50 Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Uninsured Shortfall . . . . . . . . . . . . . . . . . . . . . .39 Usable Condition . . . . . . . . . . . . . . . . . . . . . . . 34 Warner Center . . . . . . . . . . . . . . . . . . . . . . . . . 5
OFFICE LEASE This Office Lease, which includes the preceding Summary of Basic Lease Information (the "SUMMARY") attached hereto and incorporated herein by this reference (the Office Lease and Summary are collectively referred to herein as the "LEASE"), dated as of the date set forth in SECTION 1 of the Summary is made --------- by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD"), and 20TH CENTURY INDUSTRIES, a California corporation ("TENANT"). ARTICLE 1 PREMISES, BUILDING, PROJECT AND COMMON AREAS 1.1 The Premises. The "Premises" consists of the entirety of each of ------------- the second (2nd) through seventh (7th) floors of the "Building" as that term is defined in SECTION 1.2, below, and all of the occupiable area of the first (1st) ----------- (ground) floor of the Building, for a total of seven (7) full floors. The number of rentable square feet and usable square feet of each floor of the Premises and for each floor of the entire Building is as provided below. -9- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth]
Floor Rentable Square Feet ----- -------------------- 1 22,382 2 23,452 3 25,236 4 25,331 5 25,331 6 25,394 7 25,394 8 25,458 9 25,458 10 25,521 11 24,925 INITIAL PREMISES TOTAL 172,520 BUILDING TOTAL 273,882
Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises. The most current outline of each floor of the Premises is set forth in EXHIBIT A attached hereto. ---------- 1.2 The Building and The Project. The Premises are a part of the -------------------------------- building set forth in SECTION 4.1 of the Summary (the "BUILDING"). The Building ----------- shall be constructed by Landlord in accordance with the terms of the Tenant Work Letter, and shall be part of an office project to be known as 20th Century Plaza, consisting of the Building and the additional existing office building located at 6301 Owensmouth Avenue, Woodland Hills, California 91367 (the "ADJACENT BUILDING"). The term "Project," as used in this Lease, shall mean (i) the Building, the Adjacent Building and the "Common Areas," as that term is defined in SECTION 1.3 below, (ii) the land (which is improved with landscaping, ----------- parking facilities and other improvements) upon which the Building, the Adjacent Building and the Common Areas are located, and (iii) at Landlord's discretion, any additional improvements added thereto pursuant to the terms of SECTION 1.4 ----------- of this Lease. Notwithstanding the foregoing, in those areas of this Lease where Tenant is granted a right or privilege, or Landlord or Tenant undertakes an obligation, contingent on Tenant's occupying "all of the Project", "the entire Project", or "100% of the Project" (or such other phrase indicating the entirety of the Project), Tenant shall be deemed to have achieved such occupancy level notwithstanding the fact that Tenant does not lease those areas on the ground floor of the Adjacent Building which are currently leased to certain retail tenants other than Tenant. The Project, as initially designated by Landlord, is approximately set forth on EXHIBIT B, attached hereto. In the --------- event that, during any Option Term, Tenant no longer leases the Adjacent Building, Landlord shall have the right to change the name of the Project. 1.3 Common Areas. Tenant shall have the non-exclusive right to use in ------------- common with other tenants in the Project, and subject to the rules and regulations referred to in ARTICLE 5 of this Lease, those portions of the ---------- Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the "COMMON AREAS"). The Common Areas shall consist of the "Project Common Areas" and the "Building Common Areas." The term "Project Common Areas," as used in this Lease, shall mean the portion of the Project designated as such by Landlord, and may include, without limitation, any fixtures, systems, signs, facilities, parking -10- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] facilities and areas (including the "Parking Structure," as that term is defined in SECTION 18.1 of this Lease), gardens, parks or other landscaping contained, ------------- maintained or used in connection with the Project, and may include any city sidewalks adjacent to the Project, pedestrian walkway system, whether above or below grade, park or other facilities open to the general public and roadways, sidewalks, walkways, parkways, driveways and landscape areas appurtenant to the Project. The term "Building Common Areas," as used in this Lease, shall mean the Common Areas, to the extent located within the Building, designated as such by Landlord, and may include, without limitation, the common entrances, lobbies, atrium areas, restrooms, elevators, stairways and accessways, loading docks, ramps, drives, platforms, passageways, serviceways, common pipes, conduits, wires, equipment, loading and unloading areas, parking facilities and trash areas servicing the Building. 1.4 Landlord's Use and Operation of the Building, Project, and Common ------------------------------------------------------------------- Areas. Landlord reserves the right from time to time (i) to close temporarily - ----- any of the Common Areas; (ii) to make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of street entrances, driveways, ramps, entrances, exits, passages, stairways and other ingress and egress, direction of traffic, landscaped areas, loading and unloading areas, and walkways; (iii) to add additional improvements to the Common Areas; (iv) to use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or to any adjacent land, or any portion thereof; and (v) to do and perform such other acts and make such other changes in, to or with respect to the Project as Landlord may, in the exercise of reasonable discretion, deem to be appropriate. Notwithstanding the foregoing, except with respect to Landlord's initial construction of Building, Parking Structure and Common Areas, if any of the foregoing actions by Landlord is reasonably considered by Tenant as likely to have a material and adverse affect on Tenant's use of or access to the Premises or the "Storage Area", as that term defined in SECTION 4.1, or the Common Areas, including the Parking ----------- Structure, Landlord's right to take any such action shall be subject to the prior written consent of Tenant, which consent shall not unreasonably be withheld, conditioned or delayed. Moreover, Landlord may take the foregoing actions without the prior consent of Tenant in the event of an emergency, in connection with Landlord's actions pursuant to the terms of ARTICLES 6, 8, 13 ----------------- and 19 of this Lease, or in order to comply with "Laws", as that term is defined - ----- in SECTION 19.27, below. Landlord shall use commercially reasonably efforts to ------------- minimize any interruption of Tenant's use of or access to the Premises, the Storage Area or the Common Areas, including the Parking Structure, and, if parking spaces would otherwise be lost, albeit temporarily, shall use commercially reasonable efforts to provide to Tenant alternative parking within or in close proximity to the Project, with reasonably adequate security and, when appropriate, shuttle service to and from such alternative parking area so as to minimize the inconvenience to Tenant resulting from such interruption of Tenant's use of or access to the Premises or the Parking Structure. 1.5 Verification of Rentable Square Footage of Premises and Building. ------------------------------------------------------------------ For purposes of this Lease, "rentable square feet" shall be calculated pursuant to the Standard Method for Measuring Office Buildings, ANSI Z65.1-1996 ("BOMA"). On or before the date occurring thirty (30) days after the Lease Commencement Date (the "MEASUREMENT PERIOD"), Landlord -11- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] and Tenant shall each have the right, at their sole cost and expense, to measure the square footage of the Premises and Building and inform the other by written notice of a change in the actual rentable square footage of the Premises and the Building from the amounts set forth in SECTIONS 4.2 and 7.1 of the Summary, and ------------ --- SECTION 1.1 of this Lease (collectively, the "STIPULATED NUMBERS"), as - ------------ calculated by Landlord's or Tenant's architect in accordance with BOMA. If the non-measuring party disputes the measurement of the Building or Premises, either as set forth in this Lease or as restated by the measuring party as set forth, above, the non-measuring party shall so notify the measuring party within thirty (30) days after receipt of written notice made by the measuring party pursuant to the terms set forth above in this SECTION 1.5. If Landlord or Tenant fails ----------- to dispute any such measurement of the Building or Premises in a timely manner, the rentable square footage of the Building or Premises, as the case may be, shall be deemed to be as set forth in this Lease, or as otherwise determined by the measuring party pursuant to this SECTION 1.5. If the non-measuring party ----------- disputes any such measurement, or if Landlord and Tenant cannot thereafter agree on the correct measurement of the Building or Premises, as the case may be, within ten (10) days after the measuring party's notice, then either party shall have the right to submit the issue to arbitration in accordance with the terms of SECTION 19.41 of this Lease. After any determination by the measuring party, ------------- or as a result of a determination pursuant to such arbitration, that the rentable square footage of the Premises or Building differs from the Stipulated Numbers, all amounts, percentages and figures appearing or referred to in this Lease based upon such rentable area (including, without limitation, the amount of "Base Rent" and "Tenant's Share", as those terms are defined in SECTIONS 3.1 ------------ and 3.3.7, below, respectively) shall be appropriately adjusted. ----- ARTICLE 2 LEASE TERM 2.1 Initial Term. The terms and provisions of this Lease shall be ------------- effective as of the date of this Lease, except as otherwise set forth herein. The term of this Lease (the "LEASE TERM") shall be as set forth in SECTION 5.1 ----------- of the Summary, shall commence on the date determined as provided in SECTION 5.2 ----------- of the Summary (the "LEASE COMMENCEMENT DATE"), and shall expire on the date determined as provided in SECTION 5.3 of the Summary (the "LEASE EXPIRATION ------------ DATE") unless the Lease Term is sooner terminated or extended as hereinafter provided. For purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month period during the Lease Term for the initial Premises; provided, however, that the first Lease Year shall commence on the Lease Commencement Date and end on the last day of the eleventh calendar month thereafter and the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and further provided that the last Lease Year shall end on the Lease Expiration Date. Tenant shall have the right to commence business operations from any portion of the Premises and to make use of manned or unmanned Storage Area in connection therewith prior to the occurrence of the Lease Commencement Date ("PRE-OCCUPANCY SPACE"), provided that (i) Tenant must give Landlord at least ten (10) days prior written notice of any such use of Pre-Occupancy Space, (ii) a certificate of occupancy or its equivalent must have been issued by the appropriate governmental authorities that covers the -12- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Pre-Occupancy Space, and (iii) pending the Lease Commencement Date, Tenant reimburses Landlord on a monthly basis for the Operating Expenses actually incurred by Landlord allocable to the portion of the Premises and/or Storage Area in which such business operations by Tenant have commenced. For the purposes of the foregoing, the term "commences business operations" shall mean the date when Tenant has substantially staffed, moved substantially all of its furnishings and equipment into and activated its telephone service on a particular floor of the Initial Premises. To the extent practical and feasible in such circumstances, Landlord shall furnish Tenant with all "Standard Tenant Services", as that term is defined in SECTION 10.1, below. Within ninety (90) ------------ days after the Lease Commencement Date, Landlord shall deliver to Tenant a supplemental agreement in the form as set forth in EXHIBIT D, attached hereto, --------- which Tenant shall execute and return to Landlord within ten (10) days of receipt thereof. Landlord agrees that it shall deliver portions of the Premises to Tenant on a floor by floor basis in accordance with the following scheduled dates (each a "Delivery Date").
Floor Delivery Date ----- ------------- 3rd Floor The date such floor is "Ready for Construction," as that term is defined in SECTION 1 of EXHIBIT C (the --------- --------- "INITIAL FLOOR DELIVERY DATE"). 7th Floor Seven (7) days after the Initial Floor Delivery Date 5th Floor Fourteen (14) days after the Initial Floor Delivery Date 6th Floor Twenty-One (21) days after the Initial Floor Delivery Date 4th Floor Twenty-Eight (28) days after the Initial Floor Delivery Date 2nd Floor Thirty-Five (35) days after the Initial Floor Delivery Date 1st Floor and Basement Seventy (70) days after the Initial Floor Delivery Date
2.2 Credit for Holdover Rent. Tenant currently leases and occupies --------------------------- office space at 21900 Burbank Boulevard and 20750 Ventura Boulevard (collectively, the "HOLDOVER SPACE"). Tenant intends to vacate the Holdover Space effective November 30, 1999, when its leases of such Holdover Space expire. As it is contemplated that the business being conducted by Tenant's employees at those two locations (the "HOLDOVER PERSONNEL") will be relocated into the Building on or before November 30, 1999, if the relocation is delayed, Tenant may become liable to Holdover Space landlords for increases in Monthly Base Rent at the rate of $19,904.92 per month at 21900 Burbank Boulevard, and at the rate of $5,139 per month at 20750 Ventura Boulevard (collectively, the "HOLDOVER RENT") for the duration of the holdover period. Tenant's current plan is to relocate the Holdover Personnel onto portions of three (3) floors of the Building (the "HOLDOVER FLOORS"), which Holdover Floors Tenant has currently designated as the third, fifth and seventh floors of the Premises. Until -13- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] November 30, 1998, Tenant shall have the right (by written notice to Landlord) to alter such plan and make changes in the order in which the floors of the Premises are to be delivered by Landlord on the Delivery Dates described in Section 2.1, above (other than the first floor and basement) in order to conform with such altered plan, provided that the first three (3) floors designated by Tenant to be delivered by Landlord to Tenant shall in all cases be deemed to be the Holdover Floors. If (i) the Initial Floor Delivery Date (i.e., the date of delivery of the first of the Holdover Floors) does not occur on or before July 5, 1999, and/or, thereafter, the next two (2) Holdover Floors are not timely delivered by Landlord in consecutive seven (7) day intervals, or (ii) the Project (not including the floors of the Building which are not Holdover Floors) is not substantially completed by Landlord as of November 15, 1999 (as all of such dates may be extended due to any delay caused by Tenant's failure to comply with its obligations under this Lease, including under the Tenant Work Letter), and to the extent such delays by Landlord precludes the occupancy by the Holdover Personnel of the Holdover Floors on or before November 30, 1999 (the "Landlord Caused Holdover"), Tenant shall give notice to Landlord of the amount of Holdover Space Tenant has been required to occupy because of the Landlord Caused Holdover, and the portion of the Holdover Rent Tenant is required to pay in connection therewith (in an amount which does not exceed the total Holdover Rent) and if Landlord does not reimburse Tenant for such amount paid, Tenant shall be entitled to a credit against Base Rent next coming due in the Adjacent Building to the extent of any such Holdover Rent actually paid by Tenant for the Holdover Space. Notwithstanding the foregoing, Tenant agrees to use commercially reasonable efforts to avoid paying any Holdover Rent with its existing landlords. 2.3 Renewal Option Terms. ---------------------- 2.3.1 Renewal Option Right. Landlord hereby grants to Tenant two --------------------- (2) options to extend the initial Lease Term (each of which is deemed a "RENEWAL OPTION RIGHT") for a period of five (5) years each (each such term to be known as a "RENEWAL OPTION TERM"), which Renewal Option Rights shall be exercisable only by notice delivered by Tenant to Landlord as provided below. Upon the exercise of any such Renewal Option Right in accordance with SECTION 2.3.3, the ------------- then-current Lease Term, as it applies to the entire Premises then leased by Tenant, shall be extended for the Renewal Option Term. The Renewal Option Rights contained in this SECTION 2.3 shall be exercised only by the original ----------- Tenant named in the Summary (the "ORIGINAL TENANT") and any assignee of the Original Tenant's interest in this Lease to which the Original Tenant transfers such rights, provided that such assignment is permitted pursuant to the terms of ARTICLE 11 of this Lease. The terms and conditions applicable during the - ----------- Renewal Option Terms shall be the same terms and conditions that apply during the initial Lease Term, except that (i) the Rent and certain other terms applicable during the Renewal Option Term shall be as set forth in SECTION 2.3.2 below, and (ii) Tenant may not extend the Lease Term beyond the expiration of second Renewal Option Term. Tenant shall have the Renewal Option Right for the second Renewal Option Term only if Tenant has previously extended the initial Lease Term for the first Renewal Option Term. Tenant shall not have the right to exercise any Renewal Option Right hereunder if, as of the date of such attempted exercise, Tenant is in default with respect to its obligation to pay Base Rent under this Lease, after expiration of any applicable cure period. -14- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 2.3.2 Option Rent. The Rent ("OPTION RENT") payable by Tenant ------------ during the first Renewal Option Term or second Renewal Option Term, as the case may be, shall be equal to ninety-five percent (95%) of the Fair Market Rental Rate for the Premises. The term "Fair Market Rental Rate" shall mean the annual amount per rentable square foot that a willing, non-equity, non-sublease, non-encumbered, non-expansion, comparable third-party tenant, represented by a commercial real estate broker, would pay and a willing, comparable landlord would accept, at arm's length, for unencumbered space (specifically not including transactions in which one or more components of the terms and conditions of the same are pre-determined on a fixed basis in executed lease documentation or in which the terms and conditions are calculated using a formula which involves the discounting of one or more components of the terms and conditions to the benefit of a tenant) comparable to the Premises or "First Offer Space", as that term is defined in SECTION 20.1, below, as applicable, in ------------ "Comparable Buildings," as that term is defined in this SECTION 2.3.2 below, ------------- giving appropriate consideration to concessions including the following (collectively, the "RENEWAL CONCESSIONS"): (i) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; and (ii) tenant improvements or allowances provided or to be provided for such comparable space, taking into account, and deducting the value of, the existing improvements in the Premises, such value to be based upon the age, quality and layout of the improvements and the extent to which the same can be utilized by Tenant; and (iii) other typical monetary concessions being granted such comparable third-party tenants in connection with such comparable space. In calculating the Fair Market Rental Rate, no consideration shall be given to (Y) the fact that Landlord is or is not required to pay the real estate brokerage commission in connection with Tenant's exercise of its right to lease the Premises during the Renewal Option Term, or the fact that comparable landlords are or are not paying real estate brokerage commissions in connection with such comparable space, or (Z) any period of rental abatement, if any, granted to comparable third-party tenants in comparable transactions in connection with the design, permitting and construction of tenant improvements in such comparable space. Consideration shall be given, however, to the creditworthiness of Tenant as compared to that of the tenants involved in the comparable transactions and the effect that the lack of creditworthiness of Tenant, if any, should have on rental rates and/or security requirements. Such Fair Market Rental Rate shall be increased to take into account the value of the free parking (based on prevailing rates in the Comparable Buildings) granted to Tenant during any Renewal Option Term pursuant to the terms of ARTICLE 18 of this Lease, or with ---------- respect to any First Offer Space. The Annual Direct Expense Allowance applicable during each Option Term shall be adjusted to be the amount of Direct Expenses for the Building attributable to the twelve (12) month period which has most recently ended prior to the first day of the Renewal Option Term; provided, however, that the Fair Market Rental Rate shall take into consideration that the Annual Direct Expense Allowance applicable during the Renewal Option Term shall be as set forth in this sentence. If in determining the Option Rent or First Offer Rent, -15- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant is entitled to any Renewal Concessions, Landlord may, at Landlord's sole option, elect any or a portion of the following: (X) to grant the Renewal Concessions to Tenant in the form as described above (e.g., as free rent and/or an improvement allowance), and/or (Y) to grant Tenant the amount, of any or all of the Renewal Concessions in the form of free rent or reduced "face" or "stated" rental rate during the applicable Option Term or lease of First Offer Space, which reduction in rental shall be made in equal monthly installments and shall be calculated, except as otherwise provided below, over all or a portion of the Option Term or lease of First Offer Space, as determined by Landlord, and in equal monthly installments commencing as of the first day of the applicable Option Term or lease of First Offer Space (in which case the Renewal Concession or Renewal Concessions converted into free rent shall not be granted to Tenant). The term "Comparable Buildings" shall mean the Adjacent Building and other office buildings completed after the calendar year 1985 and containing at least 200,000 rentable square feet, which are otherwise comparable to the Building in terms of quality of construction, level of services, amenities and appearance, and are located in Woodland Hills, California and within the area bounded by the 101 Freeway, DeSoto Avenue, Topanga Boulevard, and Vanowen Street ("WARNER CENTER"). 2.3.3 Exercise of Renewal Option Rights. Landlord shall deliver --------------------------------- to Tenant a notice ("EXTENSION OPTION REMINDER NOTICE") not more than thirty-six (36) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable, which Extension Option Reminder Notice shall specifically state that: "If Tenant wishes to exercise a Renewal Option Right pursuant to SECTION 2.3.1 of Tenant's Office Lease at 6303 Owensmouth Avenue, -------------- Woodland Hills, California, Tenant must deliver the 'Exercise Notice,' as that term is defined therein, on or before the 'Lapse Date,' as that term is defined in such Office Lease." If Tenant wishes to exercise a Renewal Option right described in this SECTION 2.3.3, Tenant shall exercise the Renewal Option Right ------------- by delivering notice ("EXERCISE NOTICE") thereof to Landlord. The Exercise Notice must be delivered, if at all, after the date which is thirty-five (35) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable, and prior to the date ("LAPSE DATE") which is the later of (a) the date which is thirty (30) days after the date of Tenant's receipt of the Extension Option Reminder Notice, or (b) the date which is twenty-four (24) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable. 2.3.4 Determination of Option Rent. If Tenant timely delivers the ---------------------------- Exercise Notice, Landlord shall deliver notice (the "OPTION RENT NOTICE") to Tenant on or before the later of (i) the date which is thirty (30) days after Landlord's receipt of the Exercise Notice, or (ii) the date which is twenty-three (23) months prior to the expiration of the initial Lease Term or first Renewal Option Term, as applicable, which Option Rent Notice shall set forth Landlord's initial determination of the "Option Rent," as that term is defined in SECTION 2.3.2 above, and which shall be applicable to this Lease -------------- during the Renewal Option Term. Tenant shall have thirty (30) days ("TENANT'S DETERMINATION PERIOD") after receipt of Landlord's Option Rent Notice within which to accept Landlord's initial determination of the Option Rent or to object thereto in writing to Landlord. If Tenant fails to so object to Landlord's initial determination of the Option Rent within Tenant's Determination Period, the Option Rent shall be as set forth in the Option Rent -16- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Notice. If, however, Tenant timely objects in writing to the Option Rent initially determined by Landlord, Landlord and Tenant shall attempt to agree upon the Option Rent using their good-faith efforts. If Landlord and Tenant fail to reach agreement within sixty (60) days following Tenant's objection to the Option Rent (the "OUTSIDE AGREEMENT DATE"), then each party shall submit to the other party a separate written determination of the Option Rent within ten (10) business days after the Outside Agreement Date, and such determinations shall be submitted to arbitration in accordance with SECTIONS 2.3.4.1 through ---------------- 2.3.4.7 below. Failure of Tenant or Landlord to submit a written determination - ------- of the Option Rent within such ten (10) business day period shall conclusively be deemed to be the non-determining party's approval of the Option Rent submitted within such ten (10) business day period by the other party. 2.3.4.1 Landlord and Tenant shall each appoint one arbitrator who shall by profession be an independent real estate attorney and/or broker, as either party shall, in its sole discretion elect, who is then active and have then been active over the ten (10) year period ending on the date of such appointment in the leasing of comparable office properties in Los Angeles County, provided that such individual shall not have been engaged or employed by the party appointing the same within the five (5) year period preceding the date of such appointment. The determination of the arbitrators shall be limited solely to the issue of whether Landlord's or Tenant's submitted determination of Option Rent is the closest to the actual Option Rent as determined by the arbitrators, taking into account the requirements of SECTION 2.3.2 of this ------------- Lease. Each such arbitrator shall be appointed within fifteen (15) business days after the Outside Agreement Date. 2.3.4.2 The two (2) arbitrators so appointed shall within ten (10) business days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators. 2.3.4.3 The three (3) arbitrators shall within thirty (30) days after the appointment of the third arbitrator reach a decision as to whether the parties shall use Landlord's or Tenant's submitted determination of Option Rent and shall notify Landlord and Tenant thereof. 2.3.4.4 The decision of the majority of the three (3) arbitrators shall be binding upon Landlord and Tenant. 2.3.4.5 If either Landlord or Tenant fails to appoint an arbitrator within fifteen (15) business days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such arbitrator's decision shall be binding upon Landlord and Tenant. 2.3.4.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator within the time period provided in SECTION 2.3.4.2 --------------- above, then the parties shall mutually select the third arbitrator. If Landlord and Tenant are unable to agree upon the third arbitrator within ten (10) days after the expiration of the time period provided in SECTION 2.3.4.2 above, then --------------- either party may, upon at least five (5) days prior notice to the other party, request the Presiding Judge of the Los Angeles County Superior Court to appoint the third arbitrator. Following the appointment of the third arbitrator, the panel of arbitrators shall within thirty (30) days thereafter reach a decision as to whether Landlord's or Tenant's submitted Option Rent shall be used and shall notify Landlord and Tenant thereof. 2.3.4.7 Each party shall pay the fees of the arbitrator appointed by such party and the fees of the third (3rd) arbitrator and any other costs of such arbitration shall be split between Landlord and Tenant equally. -17- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 2.3.5 Rent Payable Pending Determination. In the event that a ------------------------------------- final determination of Option Rent has not been reached prior to the commencement of a Renewal Option Term pursuant to the provisions of this SECTION ------- 2.3, the Base Rent and Additional Rent payable by Tenant as of the first day of - --- such Renewal Option Term shall be as set forth in Landlord's written determination of the Option Rent submitted to arbitration in accordance with SECTION 2.3.4 above. If Landlord's determination of Option Rent is not selected - ------------- in such arbitration proceedings, then within thirty (30) days after the determination of the arbitrators, Landlord shall pay to Tenant the difference between the amount of Base Rent and Additional Rent paid by Tenant for the Premises during such Renewal Option Term to the date of such payment by Landlord, less the amount of Base Rent and Additional Rent for the Premises for such Renewal Option Term which Tenant was required to pay as determined in arbitration. ARTICLE 3 RENT 3.1 Base Rent. Tenant shall pay, without prior notice or demand, to ---------- Landlord or Landlord's agent at the management office of the Project, or, at Landlord's option, at such other place as Landlord may from time to time designate by notice to Tenant, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent ("BASE RENT") as set forth in SECTION 6 of the --------- Summary, payable in monthly installments in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction, except as specifically provided in this Lease. The Base Rent for the first full month of the Lease Term shall be paid by Tenant to Landlord on or before the Lease Commencement Date. If any "Rent," as that term is defined in SECTION 3.2, below, payment date (including the Lease Commencement Date) falls - ------------ on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall be prorated on the basis of the number of days in that calendar month. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis. 3.2 Additional Rent. In addition to paying the Base Rent specified in ---------------- SECTION 3.1 of this Lease, Tenant shall pay "Tenant's Share" of the annual - ------------ "Direct Expenses," as those terms are defined in SECTIONS 3.3.7 and 3.3.2 of -------------- ----- this Lease, respectively, to the extent such Direct Expenses are in excess of the amount of the "Annual Direct Expense Allowance" as that term is defined in SECTION 3.3.1 of this Lease multiplied by the number of -------------- rentable square feet in the Premises. Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the "Additional Rent", and the Base Rent and the Additional Rent are herein collectively referred to as "Rent." All amounts due under this ARTICLE 3 as Additional Rent shall be ---------- payable for the same periods and in the same manner as the Base Rent. Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this ARTICLE 3 shall survive the expiration of the Lease Term. If Tenant's ---------- Share of the Direct Expenses (as defined in SECTION 3.3.2) incurred during the ------------- first twelve (12) months of the Lease Term, on a per rentable square foot basis, exceeds the Annual Direct Expense Allowance, Landlord shall elect, which -18- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] election shall be subject to the approval of the entities, if any, holding trust deed liens on the Building (collectively, the "Lien Holders"), to either (A) permanently increase the Annual Direct Expense Allowance to be equal to the amount of Tenant's Share of Direct Expenses incurred during the first twelve (12) months of Lease Term, or (B) grant Tenant a one-time credit from Landlord against the next installments of Base Rent, estimated Additional Rent and parking charges coming due, in an amount equal to the net present value of the annuity stream which consists of monthly payments in the amount of one-twelfth (1/12) of said excess of Tenant's Share of the Direct Expenses on a per rentable square foot basis over the Annual Direct Expense Allowance (multiplied by the number of rentable square feet in the Premises) which monthly payments would have continued over the remaining fourteen (14) years of the Lease Term, calculated utilizing the discount rate of the Federal Reserve Bank of San Francisco plus 1% at the time of payment. Alternatively, if Tenant's Share of the Direct Expenses, on a per rentable square foot basis, incurred during the first twelve (12) months of the Lease Term are actually less than the Annual Direct Expense Allowance, the Annual Direct Expense Allowance shall be permanently reduced for the entire Lease Term to the amount of the Direct Expenses per rentable square foot actually incurred during the first twelve (12) months of the Lease Term. For example, if the Direct Expenses on a per rentable square foot basis for the first twelve (12) months of the Lease Term are Eight Dollars and seventy-two cents ($8.72) and if the discount rate of the Federal Reserve Bank of San Francisco is 5%, then, Tenant shall be entitled to a one-time credit as aforesaid equal to Six Dollars and eighty cents ($6.80) per square foot of rentable area in the Premises. If the Direct Expenses on a per rentable square foot basis for the first twelve (12) months of the Lease Term are Seven Dollars and eighty cents ($7.80), then the Annual Direct Expense Allowance shall be reduced to Seven Dollars and eighty cents ($7.80) for the balance of the initial Lease Term. 3.3 Definitions of Key Terms Relating to Additional Rent. As used in ------------------------------------------------------ this ARTICLE 3, the following terms shall have the meanings hereinafter set ---------- forth. 3.3.1 The "Annual Direct Expense Allowance" shall be the amount set forth in SECTION 7.2 of the Summary. ------------ 3.3.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax Expenses". 3.3.3 "Expense Year" shall mean each calendar year in which any portion of the Lease Term falls through and including the calendar year in which the Lease Term expires; provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change. 3.3.4 "Operating Expenses" shall mean all expenses, costs and amounts of every kind and nature which Landlord pays during any Expense Year because of or in connection with the ownership, management, maintenance, repair or operation of the Project, except as is hereinafter expressly provided. Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, maintaining, repairing, renovating, -19- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] complying with conservation measures in connection with, and managing the utility systems, mechanical systems, sanitary and storm drainage systems, and elevator systems, and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections (not due to Landlord's negligence or willful misconduct in the management of the Project) and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with the implementation and operation of a transportation system management program or a municipal, private or public shuttle service or parking program; (iii) the cost of all insurance carried by Landlord in connection with the Project, or any portion thereof; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking structure and parking area repair, restoration, and maintenance including, but not limited to, resurfacing, repainting, restriping, and cleaning; (vi) fees, charges and other costs, including consulting fees, legal fees and accounting and professional fees, of all contractors and consultants engaged by Landlord or reasonably incurred by Landlord in connection with the management, operation, maintenance and repair of the Project, or any portion thereof; (vii) payments under any equipment rental agreements or management agreements (including the cost of any management fee and the fair rental value of any office space provided thereunder or, if Landlord manages the Project or Building itself, without a third party manager, an imputed management fee); (viii) wages, salaries and other compensation and benefits of all persons engaged in the operation, maintenance or security of the Project, or any portion thereof, including employer's Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits; provided, that if any employees of Landlord provide services for more than one project of Landlord, then a prorated portion of such employees' wages, benefits and taxes shall be included in Operating Expenses based on the portion of their working time devoted to the Project, or any portion thereof; (ix) payments, fees or charges under any easement, license, operating agreement, declaration, covenants, conditions, or restrictions or instrument pertaining to the sharing of costs by the Building or Project, or any portion thereof; (x) operation, repair and maintenance of all "Systems and Equipment," as that term is defined in SECTION 3.3.5 of this Lease, and components thereof; (xi) the cost of -------------- janitorial services, alarm and security service, window cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (xii) amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements, or repairs to the Project, or other costs incurred in connection with the Project which are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Project, or any portion thereof, to the extent of cost savings reasonably anticipated by Landlord, or made to the Project, or any portion thereof, after the Lease Commencement Date that are required under any governmental law or regulation that was not a requirement for the Project prior to the date which is (a) with respect to work on a particular floor of the Building, the date of delivery to Tenant of the particular floor of the initial Premises on which such work is required, and (b) with respect to work within the Project not on a particular floor of the Building, the date of delivery of the final floor of the initial -20- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Premises; provided, however, that each such permitted capital expenditure, as well as those permitted pursuant to SECTIONS 6.1.1 or 19.27, below (but not -------------- ----- including any "Premises Obligations" or "Compliance Obligations," as those terms are defined in such Sections), shall be amortized (including interest on the unamortized cost at Landlord's actual cost of funds) over its useful life as reasonably determined by Landlord; and (xiv) costs, fees, charges or assessments imposed by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute "Tax Expenses" as that term is defined in SECTION 3.3.6, below. If ------------- Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Project is not at least one hundred percent (100%) occupied during all or a portion of any Expense Year (including the first twelve (12) months of the Lease Term for purposes of the calculations required pursuant to Section 3.2), Landlord shall make an ------------ appropriate adjustment ("GROSS-UP ADJUSTMENT") to the variable components of Operating Expenses for such year employing sound real estate accounting and management principles as now or hereafter accepted, to determine the amount of Operating Expenses that would have been paid had the Project been one hundred percent (100%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year. Notwithstanding the terms of this SECTION 3.3, Operating Expenses shall not include: ------------ (A) costs associated with the operation of the business of the ownership or entity which constitutes Landlord, as distinguished from the costs of Building and Project operations, including, but not limited to, partnership, corporation or limited liability company accounting and legal matters, costs of defending any lawsuits with any mortgagee or ground lessor (except as the actions of Tenant may be at issue), costs of selling, syndicating, financing or refinancing, mortgaging or hypothecating any of Landlord's interest in the Building or Project, costs of any disputes between Landlord and its employees (if any) not engaged directly in Building and Project operations, disputes of Landlord with Building management or outside fees paid in connection with disputes with other individual tenants; (B) costs incurred in connection with the original construction of the Building or Project (including the Parking Structure), or in connection with the addition or deletion of floors or construction of additional buildings or parking structures; (C) depreciation, interest and principal payments on mortgages or other debt costs, if any, except as otherwise provided in this SECTION 3.3.4; - -------------- (D) costs of correcting defects or deficiencies in the initial design or construction of the Building or Project, which defects or deficiencies are discovered during the first two (2) Lease Years, or costs of correction resulting from the failure to comply with laws, codes and regulations, in effect prior to the date which is (a) with respect to work on a particular floor of the Building, the date of delivery to Tenant of the particular floor of the initial Premises on which such work is required, and (b) with respect to work within the Project not on a particular floor of the Building, the date of delivery of the final floor of the initial Premises; -21- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (E) expenses directly resulting from the gross negligence or willful misconduct of Landlord, its agents, contractors or employees; (F) legal fees, space planner fees, real estate broker leasing commissions and advertising expenses incurred in connection with this Lease or future leasing of the Building or Project; (G) costs resulting from the occurrence of actual losses against which Landlord is required to carry property damage insurance pursuant to this Lease to the extent Landlord is actually reimbursed by its insurance carrier or Tenant's or any other insurance carrier for such costs or, if Landlord elects to self-insure such costs (as permitted pursuant to SECTION ------- 7.2.3.2), to the extent Landlord would have been entitled to reimbursement by - ------- its insurance carrier had Landlord actually obtained the property damage insurance required to be carried by Landlord pursuant to SECTION 7.2 hereof; ----------- (H) costs of restoration of, or repair to, the Building or improvements in the Project as a result of the condemnation thereof for which an award has been made to Landlord; (I) any bad debt loss, rent loss or reserves for bad debt loss or rent loss; (J) the cost of services not included in Standard Tenant Services provided to other tenants in the Building or Project and not provided to Tenant; (K) the salaries of executives and employees of Landlord or any Affiliate above the level of property manager (other than the Building's engineers), except to the extent they may be engaged in directly providing management and building operation services described in this SECTION 3.3.4; ------------- (L) fees (including legal and accounting fees), wages, salaries and other compensation to the extent allocable to services not rendered in connection with the management, operation, security, repair or maintenance of the Building or the Project; (M) fines and penalties, except to the extent incurred as a consequence of Tenant's failure to perform any of its obligations hereunder; (N) amounts paid by Landlord, pursuant to any ground lease, if any; (O) costs of new types of insurance coverage obtained during the Lease Term and not included within the types of insurance required to be carried by Landlord pursuant to the terms of SECTION 7.2, below, unless (a) ----------- Landlord has or will have retroactively grossed-up the Annual Direct Expense Allowance by the amount which would have been incurred by Landlord during the first twelve (12) months of the Lease Term had such costs actually then been incurred, (b) such insurance coverage is a new type of insurance which was not -22- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] required to be carried by Landlord hereunder as of the Lease Commencement Date but which is then customarily being carried by landlords of the Comparable Buildings, or (c) if such new insurance coverage replaces or supersedes insurance coverage previously carried pursuant to the terms of SECTION 7.2, ----------- below, then the costs for such coverage shall be excluded from Operating Expenses only to the extent the cost of such new insurance exceeds the cost of the original insurance; (P) Costs of decreasing the amount of the "deductible" (or otherwise increasing the amount of coverage, not including any increase based on an inflationary increase in the replacement cost of the Project, against which Landlord is protected by insurance) after the first twelve (12) months of the Lease Term, under the types of insurance required to be carried by Landlord pursuant to the terms of Section 7.2, below, unless Landlord has or will have retroactively grossed-up the Annual Direct Expense Allowance by the amount which would have been incurred by Landlord during the first twelve (12) months of the Lease Term had the amount of the deductible been so decreased or the amount of coverage been so increased at that time; (Q) any Operating Expenses incurred in connection with space in the Building or Project devoted to retail use except to the extent such space is included in the denominator when calculating Tenant's Share; (R) costs of Alterations or tenant improvements to the Premises or the premises of other existing tenants except as otherwise provided in this SECTION 3.3.4; -------------- (S) costs incurred by Landlord with respect to goods and services (including utilities sold and supplied to tenants and occupants of the Building) to the extent that Landlord is reimbursed for such costs other than through Operating Expense pass throughs; (T) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Building or the Project except as otherwise provided in this SECTION 3.3.4, or incurred in renovating or otherwise improving, decorating, - -------------- painting or redecorating vacant space for tenants or other occupants of the Building or the Project; (U) costs incurred by Landlord for improvements which are considered capital expenditures under generally accepted accounting principles, consistently applied, except those set forth in SECTIONS 3.3.4 (XII) or (XIII) -------------------- ------ above or SECTION 6.1.1 or 19.27 below; -------------- ----- (V) costs of the initial construction or costs directly related to the initial construction of the Building, the Tenant Improvements, the Parking Structure and/or, during the first two (2) Lease Years, for correcting structural or latent defects in construction of any of the foregoing; -23- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (W) expenses in connection with Standard Tenant Services or other benefits which are not provided to Tenant or for which Tenant is charged directly but which are provided to another tenant or occupant of the Building or Project without direct charge; (X) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord (excluding parking); (Y) rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be part of the original construction of the Building or Project, except equipment not affixed to the Building which is used in providing janitorial, landscaping or similar services or except as otherwise expressly provided in item (T) above; (Z) electric power costs to the extent any tenant directly contracts with the local public service company; (AA) advertising and promotion expenditures, and costs of signs in or on the Project identifying the owner of the Project or other tenants' signs, except for building directories or building standard signage; (BB) any recalculation of or additional Operating Expenses which were ostensibly incurred more than three (3) years prior to the Lease Year in which Landlord proposes that such costs be included in Operating Expenses; (CC) the costs for any repairs or replacements of machinery or equipment in the Building or Project, if such costs would not have been necessary had Landlord properly maintained such machinery or equipment or had maintained service and/or maintenance contracts after the Lease Commencement Date with respect to such machinery or equipment, and such service and/or maintenance contracts would typically have been carried by landlords of Comparable Buildings; provided that this exclusion shall only apply to the extent that the costs so expended on repairs or replacements after the first twelve (12) months of the Lease Term actually and materially exceed the amount which Landlord would have paid for the service and/or maintenance contract which Landlord failed to maintain; (DD) costs for maintenance and/or service contracts for Systems and Equipment, as that term is defined in SECTION 3.3.5, in the Building ------------- or the Project, unless (i) the cost of such maintenance or service contracts was included in the calculation of Direct Expenses for the first twelve (12) months of the Lease Term, (ii) Landlord has or will have retroactively grossed-up the amount of the Annual Direct Expense Allowance by the amount which would have been incurred by Landlord during the first twelve (12) months of the Lease Term had such maintenance and/or service contract then been maintained, (iii) such maintenance and/or service contracts are for new equipment or systems that replaced previous equipment or systems, where the amortized cost of such -24- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] replacement equipment is includable in Operating Expenses pursuant to SECTION ------- 3.3.4(XIII) above, (iv) such maintenance and/or service contract improves the - ----------- level of services being provided to Tenant (provided that Tenant gives it prior written consent thereto, which consent shall not be unreasonably withheld), or (v) such maintenance and/or service contract is first typically carried by landlords of Comparable Buildings after (and not before) the expiration of the first twelve (12) months of the Lease Term; and (EE) management fees (actual or imputed) in excess of three and one-half percent (3-1/2%) of the annual gross revenues for the Building and Real Property (including parking revenues) adjusted to reflect a one hundred percent (100%) occupancy of the Building with all tenants paying rent. Operating Expenses shall be net of all cash, trade or quantity discounts received by Landlord or Landlord's managing agent in the purchase of any goods, utilities or services in connection with the operation of the Building or Project. Landlord shall use reasonable efforts to make payments for goods, utilities and services in a timely manner to avoid any late payment penalties. In the calculation of Operating Expenses, no expense shall be charged more than once, and all payments from tenants made to Landlord for goods and services provided, the cost of which are included in Operating Expenses, shall be treated as an offset. 3.3.5 "Systems and Equipment" shall mean any plant, machinery, transformers, duct work, conduit, pipe, bus duct, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity, elevators or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Project in whole or in part (but not including such items to the extent they form a part of the Tenant Improvements). 3.3.6 "Tax Expenses" shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project. 3.3.6.1 Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; -25- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (ii) Any assessment, tax, fee, levy or charge in addition to, or 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 ("PROPOSITION 13") 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 and, in further recognition of the decrease in the level and quality of governmental services and amenities as a result of Proposition 13, Tax Expenses shall also include any governmental or private assessments or the Project's contribution towards a governmental or private cost-sharing agreement for the purpose of augmenting or improving the quality of services and amenities normally provided by governmental agencies. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for the purposes of this Lease; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any gross income tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) 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. 3.3.6.2 With respect to any assessment that may be levied against, upon, or in connection with the Project, or any portion thereof, and may be evidenced by improvement or other bonds, or may be paid in annual installments, there shall be included within the definition of Tax Expenses with respect to any tax fiscal year only the amount currently payable on such bonds, including interest, for such tax fiscal year, or the current annual installment for such tax fiscal year. 3.3.6.3 If the method of taxation of real estate prevailing at the time of execution hereof shall be, or has been, altered so as to cause the whole or any part of the taxes now, hereafter or heretofore levied, assessed or imposed on real estate to be levied, assessed or imposed upon the owner or owners of the Project, wholly or partially, as a capital levy or otherwise, or on or measured by the rents received therefrom, then such new or altered taxes attributable to the Project, or any portion thereof, shall be included within the term "Tax Expenses" except that the same shall not include any enhancement of said tax attributable to income other than from the Property. -26- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 3.3.6.4 Any expenses reasonably incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are paid. 3.3.6.5 Tax refunds shall be deducted from Tax Expenses in the Expense Year to which such refunds apply. 3.3.6.6 If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant's Share of any such increased Tax Expenses included by Landlord as Tax Expenses pursuant to the terms of this Lease. Correspondingly, if Tax Expenses for any period during the Lease Term or any extension thereof are decreased after payment thereof for any reason including, without limitation, error or reassessment by applicable governmental or municipal authorities, and Landlord receives a refund of same, Landlord shall forthwith refund to Tenant Tenant's Share of any such refund. The provisions of this SECTION 3.3.6.6 shall survive the expiration or --------------- earlier termination of the Lease Term. 3.3.6.7 Notwithstanding anything to the contrary contained in this SECTION 3.3.6 (except as set forth in SECTIONS 3.3.6.1 and 3.3.6.3, above), ------------- ---------------- ------- there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord's general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, (iii) penalties or interest for late payment of Tax Expenses (unless due to Tenant's failure to timely pay such amounts to Landlord under this Lease), (iv) Tax Expenses allocable to any capital improvement to the Building made by Landlord, if the cost of such capital improvement is excluded from Operating Expenses pursuant to SECTION 3.3.4, and ------------- (v) any items paid by Tenant under ARTICLE 9 of this Lease. ---------- 3.3.7 "Tenant's Share" shall have the meaning set forth in SECTION 7 of the Summary. To the extent the number of rentable square feet of - ---------- the Premises changes throughout the Lease Term, Tenant's Share shall be appropriately adjusted, and, as to the Expense Year in which such change occurs, Tenant's Share for such Expense Year shall be determined on the basis of the number of days during such Expense Year that each such Tenant's Share was in effect. 3.4 Allocation of Direct Expenses. Direct Expenses are determined -------------------------------- annually for the Project as a whole. Since the Building is only one of the buildings which constitute the Project, Direct Expenses shall be allocated by Landlord, as provided below, to both the tenants of the Building and to the tenants of the Adjacent Building. The portion of Direct Expenses allocated to the tenants of the Building shall consist of (i) all Direct Expenses attributable solely to the Building and (ii) an equitable portion (based upon the ratio of the number of rentable square feet in the Building to the total number of rentable square feet in the Project) of Direct Expenses attributable to the Project as a whole after subtracting the Direct Expenses attributable solely to the Building and the Adjacent Building. -27- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 3.5 Calculation and Payment of Additional Rent. Tenant shall pay to --------------------------------------------- Landlord, in the manner set forth in SECTION 3.5.1, below, as Additional Rent, ------------- an amount equal to the amount by which Tenant's Share of Direct Expenses for each Expense Year exceeds Tenant's Share of the Annual Direct Expense Allowance. 3.5.1 Statement of Actual Direct Expenses and Payment by Tenant. ----------------------------------------------------------- Landlord shall endeavor to give to Tenant on or before the first day of April following the end of each Expense Year, a statement (the "STATEMENT") which shall state the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant's Share of such Direct Expenses in excess of Tenant's Share of the Annual Direct Expense Allowance. Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, the full amount of Tenant's Share of Direct Expenses for such Expense Year in excess of Tenant's Share of the Annual Direct Expense Allowance, less the amounts, if any, paid during such Expense Year as "Estimated Additional Rent," as that term is defined in SECTION 3.5.2, below. If the first or last Lease ------------- Year does not coincide with an Expense Year, Direct Expenses and the Annual Direct Expense Allowance shall be appropriately prorated based upon the actual number of days of the Lease Term in such Expense Year. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this ARTICLE 3. Even though --------- the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Share of Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall pay to Landlord any unpaid amounts described herein within thirty (30) days of invoice. The provisions of this SECTION 3.5.1 shall survive the expiration or earlier termination of the Lease - -------------- Term. 3.5.2 Statement of Estimated Direct Expenses. In addition, as ------------------------------------------ soon as possible after the start of each Expense Year, but no later than concurrently with the delivery of the Statement, Landlord shall furnish Tenant with a yearly expense estimate statement (the "ESTIMATE STATEMENT") which shall set forth Landlord's reasonable estimate (the "Estimate") of what the total amount of Direct Expenses for the then-current Expense Year will be and the estimated amount of Tenant's Share of Direct Expenses for the then-current Expense Year in excess of Tenant's Share of the Annual Direct Expense Allowance (the "ESTIMATED ADDITIONAL RENT"). Landlord shall have the right to adjust the Estimate Statement from time to time during any Expense Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Additional Rent under this ARTICLE 3. Thereafter, Tenant shall pay, with its next ---------- installment of Base Rent due, a fraction of the Estimated Additional Rent for the then-current Expense Year (reduced by any amounts paid pursuant to the penultimate sentence of this SECTION 3.5.2). Such fraction shall have as its ------------- numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator. Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Additional Rent set forth in the previous Estimate Statement delivered by Landlord to Tenant. -28- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Notwithstanding the foregoing content of this SECTION 3.5.2, Tenant shall not be ------------- obligated to pay any Estimated Additional Rent during any Expense Year prior to the expiration of the first twelve (12) months of the Lease Term. 3.6 Landlord's Books and Records. Landlord shall utilize or cause to ------------------------------ be utilized accounting records and procedures for each Expense Year conforming to sound real estate accounting principles consistently applied with respect to all of the Direct Expenses for each Expense Year including, without limitation, all payments of Direct Expenses. In the event that any other tenant in the Building performs an audit of Landlord's books and records and an adjustment to Direct Expenses is made, the results of such audit shall be sent to Tenant, promptly, to allow Tenant to determine whether Tenant is entitled to a corresponding adjustment, irrespective of the expiration of the Review Period (as hereinafter defined) for the particular Expense Year for which the adjustment was made. For a period of ninety (90) days after receipt by Tenant of a Statement (the "REVIEW PERIOD"), Tenant shall have the right to dispute the amount of Additional Rent due from Tenant as set forth in the Statement, by giving written notice to Landlord, whereupon Tenant's employees or an independent certified public accountant (which accountant is a member of a nationally recognized accounting firm) designated by Tenant, shall have the right during normal business hours, to inspect and/or audit Landlord's books and records with respect to both the Statement most recently received by Tenant, as well as with respect to the Statement applicable to the previous Expense Year, at Landlord's or the Building Managers office. However, Tenant's right to inspect and/or audit Landlord's books and records, as aforesaid, shall be subject to the following: (i) Tenant is not then in default of the payment of Base Rent after expiration of any applicable cure period, and (ii) Tenant is not then in default of the payment of Tenant's Share of Direct Expenses after expiration of any applicable cure period, provided that for purposes of this item (ii), only, Tenant shall not be deemed to be in default of the payment of Tenant's Share of Direct Expenses if Tenant is disputing, and withholding, a portion of Tenant's Share of Direct Expenses reasonably and in good faith, by notice delivered to Landlord on or prior to the due date of such Direct Expenses, and the amount of Direct Expenses withheld by Tenant does not exceed an amount equal to the amount of Additional Rent set forth in the most recent Statement received by Tenant minus the amount of Additional Rent set forth in the Statement for the immediately preceding Expense Year. Landlord shall be obligated to keep such books and records for all Expense Years until three (3) years following the expiration of the Review Period for the previous Expense Year, or such longer period as may reasonably be required in order to conduct an audit or arbitration, should Tenant become entitled to same, pursuant to the provisions of this SECTION 3.6 or SECTION 19.41. Tenant and such accountant ------------ ------------- shall use their commercially reasonable efforts to cause their respective agents and employees to maintain all information contained in Landlord's records in strict confidence, and such accountant shall agree, in writing, that it will not represent any other tenants or occupants of the Project in connection with any review of the Building Operating Expenses. Landlord shall cooperate with Tenant during the course of such inspection or audit, and Landlord agrees, during normal Building hours, to make those of its personnel available to Tenant as are reasonably necessary to conduct such inspection or audit, in which event no inspection or audit shall last more than ten (10) business days (or, provided Tenant is conducting such inspection or audit with due diligence, such longer period as may reasonably be required) in duration for any Expense Year audited. Tenant's representatives shall be entitled to make photostatic copies of such records at Landlord's or the Building manager's office , provided Tenant bears the expense of such copying. If, after such inspection, Tenant still disputes -29- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] such Additional Rent, Landlord and Tenant shall submit such dispute to arbitration pursuant to the terms of SECTION 19.41, below, at Tenant's sole cost ------------- and expense; provided that if the determination of such arbitration is that the Direct Expenses set forth in the Statement were overstated by more than three percent (3%), then, the cost of such arbitration and of Tenant's audit or inspection of Landlord's books and records shall be paid for by Landlord. Promptly following the parties receipt of such determination, the parties shall make such appropriate payments or reimbursements, as the case may be, to each other, as are determined to be owing pursuant to such certification, with interest at the Interest Rate from the date due until paid, in the case of payments by Tenant to Landlord, or with interest at the Interest Rate from the date paid until reimbursed, in the case of reimbursements by Landlord to Tenant. The payment by Tenant of any Additional Rent pursuant to this ARTICLE 3 shall --------- not preclude Tenant from questioning the correctness of any Statement delivered by Landlord, provided that the failure of Tenant to object thereto prior to the expiration of the applicable Review Period shall be conclusively deemed Tenant's approval of all Statements no longer subject to inspection and/or audit by Tenant, as provided above, except in the case of fraud by Landlord or its employees or agents. Once Tenant invokes the rights set forth in this SECTION ------- 3.6 pursuant to the terms of this SECTION 3.6, Landlord and Tenant agree that - --- ----------- this SECTION 3.6 shall be the sole method to be used by them to dispute the ------------ amount of any Direct Expenses payable or not payable by Tenant pursuant to the terms of this Lease, and Landlord and Tenant hereby waive any right at law or in equity or as otherwise provided by this Lease relating to any such subject matter. ARTICLE 4 STORAGE SPACE 4.1 Storage Area. Commencing as of the Lease Commencement Date and ------------- continuing throughout the initial Lease Term and the Renewal Option Terms (if applicable), Tenant shall lease from Landlord and Landlord shall lease to Tenant that certain storage area, containing 8,062 rentable square feet of space, located in the basement level of the Building and shown on Exhibit G attached --------- hereto ("STORAGE AREA"). Prior to commencing construction of any tenant improvements in the Storage Area (which construction shall in no event be commenced before it is legally permissible to do so), Tenant shall identify which portions of the Storage Area, if any, shall be designated as permitting "human occupancy" and such tenant improvements shall be constructed by Tenant in accordance with the terms of the Tenant Work Letter. The Storage Area shall be delivered by Landlord to Tenant in its "as-is" condition, but shall include, at a minimum, adequate electrical service and ventilation. 4.2 Annual Storage Rent. The annual rental rate for the Storage Area --------------------- ("ANNUAL STORAGE RENT") shall be as set forth in SECTION 12 of the Summary ---------- during the initial fifteen (15) year Lease Term and shall be determined as a separate component of the Option Rent during any Renewal Option Terms. Such Annual Storage Rent shall be payable in twelve (12) equal monthly installments on the first day of each month in advance during the Lease Term at the same time and in the same manner as Base Rent for the Premises. In the event the Annual Storage Rent is not paid when due, Landlord shall have the same rights as provided in ARTICLE 12 of this Lease for unpaid Rent. Tenant's Share shall not ---------- be increased as a result of Tenant's leasing of the Storage Area. -30- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4.3 Indemnification. Except to the extent any loss, costs, damage, --------------- expense or liability is caused by (i) any default by Landlord in the observance or performance of any of the terms, covenants or conditions to be observed or performed by Landlord under this Lease, or (ii) the negligence or willful misconduct of Landlord or any of its agents, employees, contractors, or licensees, Tenant hereby indemnifies, defends, protects and holds Landlord harmless from any and all loss, cost, damage, expense and liability, whether foreseeable or not, from any cause whatsoever, that Tenant may suffer to its personal property located anywhere in the Storage Area or that it or its agents, employees, principals, invitees, or licensees may suffer as a direct or indirect consequence of Tenant's lease of or use of the Storage Area or access areas to the Storage Area. In addition, Tenant hereby agrees to indemnify, defend, protect and hold Landlord harmless from and against any loss, cost, damage, liability, expense, claim, action or cause of action of any third party, whether foreseeable or not, resulting as a direct or indirect consequence of Tenant's lease or use of the Storage Area or access areas to the Storage Area. 4.4 Use of Storage Area. Except as herein expressly provided, Tenant --------------------- agrees not to store any flammable or highly combustible materials in the Storage Area. Tenant also agrees not to store excess or highly concentrated waste in the Storage Area; it shall be Tenant's responsibility to obtain from Landlord the tolerable limits thereof. Tenant agrees to use the Dead Storage Area solely for storage purposes (e.g., files, clerical supplies, business forms) and not as office space. Tenant agrees that Landlord and its agents may enter and inspect the Storage Area and any goods stored therein during regular business hours upon giving twenty-four (24) hours prior notice to Tenant and so long as accompanied by a representative of Tenant. Tenant shall, at its sole cost and expense, deliver to Landlord a key for any locks installed by Tenant for Landlord's emergency entrance purposes. Except as the provisions of ARTICLE 10 may be ---------- applicable to the use of the Storage Area, Landlord shall have no obligation to maintain or repair the Storage Area. Tenant shall have the right to use that portion of the Storage Area identified as permitting "human occupancy" for any lawful purpose, provided that Tenant fully complies with all laws, rules, regulations, ordinances and the recommendations of Insurance Service Offices, and provided that Tenant performs such alterations and improvements, (i) in such "human occupancy" Storage Area as may be required by the Building Department of the City of Los Angeles and (ii) in such other portions of the Storage Area as may be required by the City for hallways, restrooms, shafts, ducts, machine and equipment rooms and all other purposes collateral to or in support of human occupancy of such portion of Tenant's Storage Area. Landlord agrees to provide its regular building HVAC and electrical services at Tenant's expense as Additional Rent. Subject to the foregoing, Tenant shall have the right at any time during the Lease Term, to change any portion of the Storage Area from "dead storage" to "human occupancy" storage or from "human occupancy storage" to "dead storage"; provided that before doing so Tenant shall give Landlord at least sixty (60) days written notice of such intended change. Whenever that occurs, Landlord and -31- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant shall execute an amendment to this Lease modifying EXHIBIT G and ARTICLE --------- ------- 12 of the Lease Summary, accordingly. Tenant agrees not to permit any odors, - -- fumes or gases to escape from any portion of the Storage Area or in to the Building HVAC system, nor shall Tenant permit any vibrations or noise to emanate from said Storage Area if that would impact other tenants in the Building. 4.5 Assignment and Sublease. The Storage Area may not be separately ------------------------- assigned or subleased by Tenant or otherwise transferred by Tenant, except in connection with any transfer permissible pursuant to the terms of ARTICLE 11 of ---------- this Lease. 4.6 Incorporation of Lease Provisions. The provisions of this Lease ------------------------------------ with regard to the Premises, to the extent applicable and not inconsistent with the provisions of this ARTICLE 4, shall be deemed to apply to the Storage Area --------- as though the Storage Area is part of the Premises, and as though the Annual Storage Rent is part of the Base Rent. ARTICLE 5 USE OF PREMISES 5.1 Permitted Use. Tenant shall use the Premises solely for general -------------- office purposes as herein provided and, also, for any other legally permitted use which is consistent with the character of the Project (i.e., as a first-class office building project), and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which consent Landlord may withhold in its sole discretion. Except when and where Tenant's right of access is specifically excluded in this Lease, Tenant shall have the right of access to the Premises, Storage Area, all Building Common Area and all Project Common Area, including the Parking Structure, twenty-four (24) hours per day, seven (7) days per week, during the Lease Term. Tenant shall have the right to use the ground floor of the Premises to service drive-in claims. Landlord hereby agrees that, (i) during the Lease Term, as required by and subject to the terms of SECTION 19.27, ------------- below, Landlord shall comply with all laws, statutes, ordinances, building codes and governmental regulations, all covenants and restrictions of record applicable to the Project, (ii) during the Lease Term, all requirements of Landlord's insurance carriers covering the Project will permit Tenant to use and occupy the Premises for general office purposes, and (iii) there will be no legal requirements which are the responsibility of Landlord under this Lease and/or physical impediments relating to the manner of construction of the Building as required of Landlord under this Lease that would as of the Lease Commencement Date (or to the best of Landlord's knowledge would thereafter) have the effect of materially impairing or prohibiting Tenant's permitted use of the Storage Area, all Building Common Area, or all Project Common Area, including the Parking Structure. 5.2 Prohibited Uses. Tenant further covenants and agrees that Tenant ---------------- shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in EXHIBIT E, attached hereto, or in violation of the --------- laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local, municipal or county governing body or other lawful authorities or quasi-governmental agencies having jurisdiction over the Project, including, without limitation, any such laws, ordinances, regulations or requirements relating to "Hazardous Material", as that term is defined in SECTION 19.25.4 below. Notwithstanding the provisions --------------- of Rule 15 of the Rules and Regulations attached hereto as EXHIBIT E, Tenant --------- shall have the right to utilize portions of the Premises located on the ground floor of the Building for the operation of a kitchen/dining room or cafeteria exclusively for use of Tenant's employees and business invitees, provided that such use is not otherwise in violation of the aforesaid federal, state, county -32- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] and city laws, codes, ordinances, and governmental rules and regulations thereunder. 5.3 CC&Rs. Tenant agrees to subordinate this Lease to the terms of ------ that certain "Declaration and Agreement Establishing Covenants, Conditions and Restrictions and Grants of Easements" (as and to the extent amended from time to time, the "CC&RS") attached hereto as EXHIBIT P, which CC&Rs may be recorded on --------- the Property after the date hereof. To evidence Tenant's subordination of this Lease to the CC&Rs, Tenant shall execute and deliver to Landlord, concurrently herewith, a "Subordination Agreement" in the form attached hereto as EXHIBIT Q. --------- Landlord covenants and agrees that the provisions of the CC&Rs and Tenant's subordination thereto under the terms of the Subordination Agreement referred to below, may never be construed in a manner that would materially impair (i) Tenant's use of the Premises or (ii) the exercise by Tenant of the rights conferred upon Tenant pursuant to the terms of this Lease, or that would include in Operating Expenses pursuant to Section 3.3.4(ix) any "costs, expenses and amounts" falling within the definition of "Common Expenses" in the CC&Rs (including administrative fees), that would otherwise not be included in (or would be expressly excluded from) Operating Expenses under the provisions of Section 3.3 hereof. Tenant agrees that Landlord may, without Tenant's prior consent, modify the terms of the CC&Rs without affecting Tenant's agreement to subordinate this Lease thereto, so long as such modifications do not materially and adversely affect Tenant's rights or obligations under this Lease. Except as aforesaid, Landlord may modify the CC&Rs only with Tenant's prior written consent, which shall not be unreasonably withheld, conditioned or delayed and which shall be deemed to have been given by Tenant to Landlord if Tenant does not respond to Landlord's request for consent within fifteen (15) business days after Landlord's delivery of such request to Tenant. ARTICLE 6 MAINTENANCE, REPAIRS, ADDITIONS AND ALTERATIONS 6.1 Repairs. ------- 6.1.1 Duties to Repair. The construction of the tenant ------------------ improvements to the Premises shall be governed by the terms of the Tenant Work Letter and not the terms of this ARTICLE 6. Except as provided in ARTICLES 8, --------- ----------- 13 AND 19, Landlord shall maintain and repair the Building, the Common Areas, - ----------- and the "Parking Structure," as that term is defined in SECTION 18.1. All costs ------------ incurred by Landlord in performing such maintenance and repairs pursuant to the terms of this SECTION 6.1.1 (but not including the "Premises Obligations") as ------------- that term is defined below) shall be included in Operating Expenses to the extent permitted under the terms of ARTICLE 3 of this Lease. Landlord shall --------- also maintain and repair the Tenant Improvements (as that term is defined in SECTION 2.1 of the Tenant Work Letter) and the Alterations (as that term is - ------------ defined in SECTION 6.2 hereof) (the maintenance and repair of the Tenant ------------ Improvements and the Alterations being collectively referred to as the "PREMISES OBLIGATIONS"). Costs incurred by Landlord in connection with the Premises Obligations shall not be included in Operating Expenses, but shall be billed directly to Tenant as Additional Rent, and paid by Tenant to Landlord concurrent with the next payment of Base Rent due hereunder. Landlord may enter the Premises at all reasonable times to perform its Premises Obligations, and, when reasonably required, to perform maintenance and repairs to other parts of the Project or to any equipment located in the Project, as Landlord shall desire or -33- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] deem necessary, or as Landlord may be required to do by governmental or quasi-governmental authority or court order or decree; provided that, in any event, Landlord shall use commercially reasonable efforts to perform any such work other than during "Building Hours," as that term is defined below in SECTION 10.1.1. Subject to SECTION 6.1.2, Tenant hereby waives and releases its -------- ------------- right to make repairs at Landlord's expense under SECTIONS 1941 and 1942 of the ------------- ---- California Civil Code or under any similar law, statute, or ordinance now or hereafter in effect. 6.1.2 Tenant's Right to Make Repairs. ---------------------------------- 6.1.2.1 Tenant's Actions. If Tenant provides notice to ----------------- Landlord of an event or circumstance which requires the action of Landlord with respect to an obligation of Landlord under the terms of SECTION 6.1.1 or 10.1 of ------------- ---- this Lease, and Landlord fails, within a reasonable time period, to provide or commence to provide such action as required by the terms of this Lease, then, Tenant may proceed to take the required action upon delivery of an additional ten (10) business days notice to Landlord and any beneficiary of a trust deed or other similar instrument encumbering the Building or ground lessor under a ground lease encumbering the Building (collectively, the "LENDER") (provided that Tenant has been given the name and address of any such Lender) specifying that Tenant is taking such required action, and if such action was required under the terms of SECTION 6.1.1 or 10.1 of this Lease to be taken by Landlord ------------- ---- (and if such action does not relate to the Premises Obligations), then, notwithstanding the provisions of SECTION 7.1, Tenant shall be entitled to ------------ prompt reimbursement by Landlord of Tenant's reasonable costs and expenses in taking such action, and such costs and expenses actually reimbursed by Landlord shall, notwithstanding anything to the contrary set forth in this Lease, be included in Operating Expenses. If such action relates to the Premises Obligations, Tenant shall, notwithstanding anything to the contrary set forth in this Lease, not be entitled to reimbursement by Landlord of Tenant's reasonable costs and expenses in taking such action, but such costs and expenses shall not be included in Operating Expenses. Notwithstanding the foregoing, in the event of an "Emergency Condition," as that term is defined below in this SECTION 6.1.2.1, Tenant shall immediately notify Landlord and Lender, either in - ---------------- writing or orally with an immediate follow-up notice in writing, that an Emergency Condition exists. If an Emergency Condition exists and Tenant has so notified Landlord, but Landlord fails to initiate the required remedial action within a reasonable period of time and fails to continuously work to correct or commence to correct the Emergency Condition, then Tenant shall have the right, but not the obligation, to initiate such remedial action itself. In the event Tenant takes such action, whether or not an Emergency Condition, and such work will affect the Systems and Equipment, structure of the Building or exterior appearance of the Building, Tenant shall use only those contractors used by Landlord in the Building for such work unless such contractors are unwilling or unable to perform such work, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in the Comparable Buildings. The term "Emergency Condition" shall mean a condition or circumstance, the repair of which is Landlord's responsibility under SECTION 6.1.1 or 10.1 of this Lease, and the correction of which would not ------------- ---- require governmental approval or permits and which, if not repaired immediately, -34- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] would either (i) cause an imminent risk of personal injury to Tenant's employees or customers, or (ii) result in significant damage to Tenant's property. 6.1.2.2 Payment of Costs. 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 for which Tenant is entitled to be reimbursed by Landlord under SECTION 6.1.2.1, above, and 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, notwithstanding the provisions of SECTION 7.1, Tenant shall be entitled to deduct from Rent ------------ payable by Tenant under this Lease the amount set forth in such invoice, provided that the total amount of such credit shall be amortized over the remaining Lease Term, with interest on the unamortized portion of such amount accruing at the Interest Rate. 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 (i) such action did not have to be taken by Landlord pursuant to the terms of this Lease, (ii) Tenant is not entitled to reimbursement under SECTION 6.1.2.1, or (iii) the charges are excessive (in ---------------- which case Landlord shall pay the amount it contends would not have been excessive), then Tenant shall not be entitled to such deduction from Rent (and shall repay to Landlord any such amounts previously deducted), but as Tenant's sole remedy, Tenant may proceed to institute arbitration proceedings against Landlord pursuant to SECTION 19.41 of this Lease to collect the amount set forth ------------- in the subject invoice. To the extent Tenant appropriately deducts any sums from Rent under this SECTION 6.1.2, and if such sums, had the same been expended ------------- by Landlord, been includable in Operating Expenses pursuant to the terms of this Lease (the "INCLUDABLE DEDUCTED SUMS"), then the amount of such Includable Deducted Sums shall be included in Operating Expenses. 6.1.3 Telecommunications Risers. Upon the expiration or earlier -------------------------- termination of the Lease Term, provided the same is requested by Landlord prior to Tenant having vacated the Premises, Tenant shall, at Tenant's sole cost and expense, remove the telecommunications cabling located and installed by Tenant or its agents on the floors of Tenant's Premises and in the riser closets of the Building (collectively, the "RISER AREAS") and shall repair any damage to the Premises, Building and/or the systems of the Building, at Tenant's sole cost and expense, resulting from such removal by Tenant. Landlord shall, as an Operating Expense for the Building or the Project, as the case may be, maintain and repair the Riser Areas and the conduit (excluding the lines or cabling located therein) installed in the Riser Areas and the Project Common Area by Landlord, and Landlord shall have access to the Riser Areas in order to satisfy such maintenance and repair responsibilities and to provide telecommunications service (including roof top telecommunications services) to other tenants of the Building or third parties. 6.2 Alterations and Additions. Tenant may make alterations and --------------------------- additions to the Premises (collectively, "ALTERATIONS") that will not materially or adversely affect the Building structure, appearance of the Building or the Building Systems and Equipment or other systems or equipment in the Premises without Landlord's consent. Tenant shall give Landlord at least five (5) business days prior notice of such Alterations which do not require Landlord's consent, which notice shall be accompanied by reasonably adequate evidence that such changes meet the criteria as set forth above in this SECTION 6.2. Any ----------- Alterations which will materially or adversely affect the Building structure, -35- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] appearance of the Building or the Building Systems and Equipment or other systems and equipment in the Premises shall require the prior written consent of Landlord, which consent shall be requested by Tenant not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld or delayed. 6.3 Manner of Construction. When Landlord's consent to Alterations is ----------------------- required as provided in SECTION 6.2, Landlord may impose, as a condition of its ----------- consent to any and all Alterations to the Premises or repairs to the Premises, such reasonable requirements as Landlord in its sole discretion may deem desirable, including, but not limited to the requirements (which may be imposed, if at all, only at the time of Landlord's consent to the Alterations) (i) that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen reasonably approved by Landlord, or (ii) that Tenant shall, at Tenant's expense, remove any and all Alterations upon the expiration or any early termination of the Lease Term. In any event, any contractor performing mechanical, electrical, plumbing, lifesafety, sprinkler or structural work, shall be approved in advance by Landlord, which approval shall not be unreasonably withheld. Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, all in conformance with Landlord's construction rules and regulations. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Tenant shall have the work performed in such manner so as not to obstruct access to the Project or any portion thereof by any other tenant of the Project, and so as not to obstruct the business of Landlord or other tenants in the Project, or interfere with the labor force working in the Project. In addition to Tenant's obligations under SECTION 19.18 of this ------------- Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with SECTION 3093 of the Civil Code of the State of ------------- California or any successor statute, and Tenant shall deliver to the Project management office copies of all applicable permits, lien releases, and appropriate architectural certifications, as well as a reproducible copy of the "as built" drawings of the Alterations. 6.4 Payment for Alterations. In the event Tenant orders any ------------------------- Alterations directly from Landlord, the charges for such work shall be deemed Additional Rent under this Lease, payable within ten (10) business days of billing therefor, either periodically during construction or upon the substantial completion of such work, at Landlord's option. If payment for Alterations is made by Tenant directly to contractors, Tenant shall comply with Landlord's requirements for final lien releases and waivers in connection with Tenant's payment for work to such contractors. If Tenant orders any Alterations directly from Landlord, Tenant shall pay to Landlord a fee in the amount of fifteen percent (15%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord's involvement with such work. With respect to all Alterations performed by Tenant requiring the prior written consent of Landlord, Tenant agrees to reimburse Landlord for Landlord's reasonable out-of-pocket expenses incurred in connection with Landlord's review and approval of such work, provided that in no event shall such expenses exceed seven and one-half percent (7 1/2%) of the total cost of such work. -36- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 6.5 Construction Insurance. In addition to the requirements of ARTICLE ---------------------- ------- 7 of this Lease, in the event that any "Transferee," as that term is defined in ARTICLE 11 of this Lease (but not the originally-named Tenant or any Affiliate) - ----------- makes any Alterations, prior to the commencement of such Alterations, such Transferee shall provide Landlord with evidence that it carries "Builder's All Risk" insurance in an amount reasonably approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Landlord pursuant to SECTION 7.2.1 of this Lease. If Tenant ------------- does not carry such insurance, Tenant shall be deemed to have self-insured for all of the risks covered by such insurance, which self-insurance shall be governed by the terms of SECTION 7.3.5, below. In addition, Landlord may, in ------------ its discretion, require such Transferee to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. 6.6 Landlord's Property. All Alterations or improvements which may be -------------------- installed or placed in or about the Premises, and all signs installed in, on or about the Premises, from time to time, shall be at the sole cost of Tenant and, upon the expiration or sooner termination of the Lease Term, shall be and become the property of Landlord. Notwithstanding the foregoing, upon the expiration or earlier termination of the Lease, Tenant may remove all of its personal property, including, without limitation, the items listed on SCHEDULE 5 to ---------- EXHIBIT C, and, additionally, any Alterations, improvements or signs which - --------- Tenant can reasonably substantiate to Landlord were not paid for with any tenant improvement allowance funds provided to Tenant by Landlord, and provided Tenant repairs any damage to the Premises and Building caused by such removal. Furthermore, if Landlord, as a condition to Landlord's consent to any Alteration, required that Tenant, at Landlord's election, remove any Alteration upon the expiration or earlier termination of the Lease Term, and with respect to any "Tenant Improvement Removal Items," as that term is defined in SECTION ------- 2.1 of the Tenant Work Letter, Landlord may, by written notice to Tenant at - --- least thirty (30) days prior to the end of the Lease Term, or given concurrently with any earlier notice of termination of this Lease, require Tenant, at Tenant's expense, to remove such Alterations or Tenant Improvement Removal Items and to repair any damage to the Premises and Building caused by such removal. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations, Landlord may do so and may charge the cost thereof to Tenant. 6.7 Additional Costs. To the extent that, as a result of any ----------------- Alterations, the real estate taxes payable with respect to the Building, or the net cost of insurance (required to be carried by Landlord pursuant to the terms of this Lease), are increased, Tenant shall pay to Landlord as Additional Rent one hundred percent (100%) of any such increase in cost; provided, that if Tenant rejects Landlord's assertion, as Landlord's sole remedy, Landlord may proceed to institute arbitration proceedings against Tenant pursuant to SECTION ------- 19.41 of this Lease to collect the amount of such claimed increase in Landlord's - ----- cost of real estate taxes and/or insurance. -37- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE 7 INSURANCE 7.1 Indemnification and Waiver. To the extent not prohibited by law, ---------------------------- Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, "LANDLORD PARTIES") shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant due to the Project (including claims for worker's compensation of Tenant's employees) or any part thereof or any appurtenances thereof needing repair (including any improvements, materials, or equipment relating to telephone or telecommunication systems), or due to the occurrence of any accident or event in or about the Project, or due to any act or neglect of any tenant or occupant of the Project, including the Premises, or of any other person. The provisions of this SECTION 7.1 shall apply particularly, but not ----------- exclusively, to damage caused by gas, electricity, steam, sewage, sewer gas or odors, fire, water or by the bursting or leaking of pipes, faucets, sprinklers, plumbing fixtures and windows, and shall apply without distinction as to the person whose act or neglect was responsible for the damage and whether the damage was due to any of the causes specifically enumerated above or to some other cause of an entirely different nature. Tenant further agrees that all personal property upon the Project shall be at the risk of Tenant only, and that Landlord shall not be liable for any loss or damage thereto or theft thereof. Except as hereinafter provided, Tenant shall indemnify, defend, protect, and hold harmless Landlord and the Landlord Parties from any and all loss, cost, damage, expense and liability (including without limitation court costs and reasonable attorneys' fees) incurred in connection with or arising from any cause in the Premises, including, without limiting the generality of the foregoing: (i) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed; (ii) the use or occupancy of the Premises by Tenant, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors, or any person claiming by, through or under Tenant (collectively, "TENANT PARTIES"); (iii) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever; (iv) any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person, in, on or about the Premises or the Project, either prior to, during, or after the expiration of the Lease Term; (v) Tenant's installation, maintenance or operation of its own security system for the Premises (which Tenant shall be entitled to install subject to the terms of SECTION 10.1.7) and/or for Tenant's "tie-in" of the security system for the - --------------- Premises into the Building's security system; and (vi) Tenant's maintenance and repairs performed pursuant to SECTION 6.1.2 of this Lease, except as therein is ------------- expressly provided. Notwithstanding the foregoing, Tenant shall not be required to indemnify and hold Landlord and/or the Landlord Parties harmless from any loss, cost, liability, damage or expense, including, but not limited to, penalties, fines, attorneys' fees or costs (collectively, "CLAIMS"): (i) to any person, property or entity resulting from the negligence or willful misconduct of Landlord or its agents, servants, employees or licensees, in connection with Landlord's activities in the Building (except for damage to the Tenant Improvements and Tenant's personal property, fixtures, furniture and equipment -38- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] in the Premises), or the Project, or (ii) resulting from damage to the structure of the Building or to the Systems and Equipment which damage is covered by the insurance policies carried by Landlord or required to be carried by Landlord with respect to the Project (and not within the amount of any deductible permitted pursuant to SECTION 7.2.1 and required to be paid under any such -------------- policy), or (iii) results from any default by Landlord in the observance or performance of any of the terms, covenants or conditions of this Lease on Landlord's part to be observed or performed; and Landlord hereby so indemnifies and holds Tenant harmless from any such Claims; provided further that because Landlord is required to maintain insurance on the Building and Tenant compensates Landlord for such insurance as part of Tenant's Share of Direct Expenses and because of the existence of waivers of subrogation set forth in SECTION 7.4 of this Lease, Landlord hereby indemnifies and holds Tenant harmless - ----------- from any Claims to any property outside of the Premises or the Common Areas (including the Parking Structure) to the extent such Claims are covered by insurance required to be carried by Landlord, even if resulting from the negligent acts, omissions or willful misconduct of Tenant or those of its agents, contractors, servants, employees or licensees. Similarly, since Tenant must carry insurance pursuant to this ARTICLE 7 to cover its personal property --------- within the Premises, Tenant hereby indemnifies and holds Landlord harmless from any Claims with respect to property within the Premises, to the extent such Claims are required to be covered by such insurance, even if resulting from the negligent acts, omissions or willful misconduct of Landlord or those of its agents, contractors, servants, employees or licensees. The provisions of this SECTION 7.1 shall survive the expiration or sooner termination of this Lease - ------------ with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination. Notwithstanding anything to the contrary contained in this Lease, nothing in this Lease shall impose any obligations on Tenant or Landlord to be responsible or liable for, and each hereby releases the other from, all liability for consequential damages other than those consequential damages incurred by Landlord in connection with (i) a holdover of the Premises by Tenant after the expiration or earlier termination of this Lease, as more particularly provided in SECTION 19.7 of this Lease, (ii) ------------ Tenant's use or storage of "Hazardous Materials," as that term is defined in SECTION 19.25.4, below, (iii) Tenant's use of the rights set forth in SECTION - ---------------- ------- 6.1.2, above; or (iv) Tenant's breach of the terms of SECTIONS 19.1 or 19.11 ------------- ----- of this Lease. 7.2 Landlord's Insurance. From and after the Lease Commencement Date --------------------- and throughout the Lease Term, Landlord shall maintain in full force and effect the policies of insurance set forth below in SECTIONS 7.2.1 THROUGH 7.2.3. ---------------------------- 7.2.1 Landlord's Fire and Casualty Insurance. Property damage ------------------------------------------ insurance covering the Building (including the Systems and Equipment and the Building telecommunications riser system), the Parking Structure, the Tenant Improvements and the Alterations (but excluding Tenant's personal property) and all other improvements in and about the Common Areas in which Landlord may have an insurable interest, providing protection against all risks of physical loss, inclusive of standard fire and extended coverage insurance, including endorsements against vandalism, malicious mischief and other perils, but excluding, except as set forth below in SECTION 7.2.3, endorsements against ------------- earthquake, all in amounts not less than one hundred percent (100%) of their full replacement cost valuation from time to time during the Lease Term with deductible amounts which shall not be in excess of the commercially reasonable -39- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] deductibles under insurance policies as are carried, generally, by prudent landlords of Comparable Buildings. Landlord's obligation to insure the Alterations shall commence only after thirty (30) days prior notice from Tenant setting forth a list of the Alterations to be insured. Landlord's policy shall contain at least twelve (12) months of "rental income loss" coverage payable in instances in which Tenant is entitled to Rent abatement hereunder, and shall include (i) an "extended coverage" endorsement, (ii) a "building laws" and/or "law and ordinance" coverage endorsement (which endorsement may, notwithstanding the foregoing provisions of this SECTION 7.2.1, contain a commercially -------------- reasonable sublimit) that covers "costs of demolition," "increased costs of construction" due to changes in building codes and "contingent liability" with respect to undamaged portions of the Building, and (iii) an "earthquake sprinkler leakage" endorsement, with each such endorsement to be of a kind required by Landlord or by Lender to assist Landlord in funding its obligations under this Lease to repair and restore the Building (including the Systems and Equipment), the Parking Structure, the Tenant Improvements, the Alterations and the Common Areas. Such policy shall also contain a "stipulated value" endorsement deleting any co-insurance provisions. In addition, Landlord shall maintain "boiler machinery" coverage (and a joint loss agreement if the boiler machinery coverage is issued by a different insurance company than the basic property insurance). 7.2.2 General Liability Insurance. Comprehensive general ----------------------------- liability insurance for bodily injury and property damage, adequate to protect Landlord and all additional insureds against liability for (i) the actions of Landlord and Landlord's agents, employees and contractors and (ii) injury to or death of any one or more persons in an occurrence, and for damage to property, arising in connection with the (a) construction or alteration of the Building, the Parking Structure and all improvements in and about the Building Common Areas, (b) the use, operation or condition of the Common Areas, or (c) the condition of the Premises unrelated to Tenant's use. Such insurance shall be in an amount of not less than Ten Million Dollars ($10,000,000.00) Combined Single Limit, which amount shall be increased throughout the Lease Term to the extent of such coverage customarily carried by landlords of Comparable Buildings, and which shall insure against any and all liability of the insured as aforesaid. 7.2.3 Earthquake Coverage. -------------------- 7.2.3.1 Landlord Required Earthquake Insurance. Subject to the --------------------------------------- terms of SECTION 7.2.3.3, below, Landlord shall, at all times during the Lease --------------- Term, maintain difference in conditions, property damage insurance providing earthquake coverage in an amount at least equal to the "Minimum Coverage Amount," as that term is defined below in this SECTION 7.2.3.1, which insurance ---------------- (the "EARTHQUAKE INSURANCE") (i) is in a coverage amount equal to at least thirty percent (30%) of the "Replacement Cost", as that term is defined below, and which covers the Building and the Tenant Improvements (but excluding Tenant's personal property) (the aggregate estimated replacement cost of the Building and Tenant Improvements shall be known as the "REPLACEMENT COST"), and (ii) has a deductible equal the lesser of (A) ten percent (10.0%) (the "DEDUCTIBLE PERCENTAGE") of the Replacement Cost, or (B) $2,000,000.00. The requirements set forth in items (i) and (ii), above, are referred to herein as the "MINIMUM COVERAGE AMOUNT." Notwithstanding anything to the contrary set forth in this Section 7.2.3, the Minimum Coverage Amount may be satisfied by Landlord carrying a single building policy wherein Replacement Cost, for purposes of calculating the coverage amount and deductible, relates only to the -40- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Building, or a blanket policy, wherein Replacement Cost, for purposes of calculating the coverage amount and deductible, relates to all of the structures covered by such policy. 7.2.3.2 Self-Insurance. At such times during the Lease Term -------------- that Landlord satisfies the "Net Worth Amount" and "Liquidity Amount," as those terms are defined in SECTION 7.3.5.2, below (collectively, the "FINANCIAL ---------------- REQUIREMENTS"), Landlord shall have the right to self-insure the requirement of this SECTION 7.2.3 (the "EARTHQUAKE SELF-INSURANCE"). -------------- 7.2.3.3 Self-Insurance Gross-Up. In any Expense Year during ------------------------ which Landlord elects the Earthquake Self-Insurance, as set forth in SECTION ------- 7.2.3.2, above, at Landlord's election, Direct Expenses for such Expense Year - ------- shall be deemed to be increased by an amount equal to what a Minimum Coverage Amount earthquake policy would have cost Landlord during the first Lease Year (even in the event Landlord carried Earthquake Insurance in a greater coverage amount than the Minimum Coverage Amount during such first Lease Year) (the "SELF-INSURANCE GROSS-UP"). If Landlord elects the Earthquake Self-Insurance during only a portion of a particular Expense Year, the Self-Insurance Gross-Up for such Expense Year shall be prorated based on the portion of such Expense Year that Landlord elected the Earthquake Self-Insurance. By way of example only, which example in no way modifies the foregoing, if, but for the Self-Insurance Gross-Up, Direct Expenses in the fifth Lease Year would be $9.00 per square foot; if the annual Direct Expense Allowance is $8.00; and if during that Lease Year the Landlord incurred no costs for Earthquake Insurance because it was entitled to self-insure the same; and if the premium paid by Landlord for the Minimum Coverage Amount during the first Lease Year was $.25 per square foot, then, Tenant's Share of the Annual Direct Expenses that year would be grossed-up to $1.25 per square foot. 7.2.4 Availability of Landlord's Insurance. Notwithstanding --------------------------------------- anything to the contrary set forth in this Lease, Landlord shall not be required to maintain all or any portion of any insurance coverage required under this SECTION 7.2, including any endorsements thereto and/or the "Best's Rating," as - ------------ that term is defined in SECTION 7.3.5 below (all or any portion of the items ------------- described above to be known as a "COVERAGE ITEM") to the extent the Coverage Item is not commercially available, or is not available at a commercially reasonable cost; provided that a Coverage Item shall be deemed to be not commercially available, or not available at a commercially reasonable cost, only if most of the landlords of the Comparable Buildings are not carrying such Coverage Item. 7.2.5 Other Terms. Additionally, at the option of Landlord, ------------ Landlord's insurance policies may include one or more loss payee endorsements in favor of the Lender. Notwithstanding anything to the contrary contained in this Lease, Landlord and Tenant hereby agree that, subject to the terms of Section ------- 3.3.4, the premiums for all insurance maintained by Landlord from and after the - ----- Lease Commencement Date in connection with the terms of SECTION 7.2.1 THROUGH --------------------- 7.2.2, above shall be deemed to be Operating Expenses under this Lease. Upon - ----- inquiry by Tenant, from time to time, Landlord shall inform Tenant of such coverage carried by Landlord. The minimum limits of policies of insurance -41- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] required of Landlord under the Lease shall limit the liability of Landlord under this Lease with respect to claims covered by such insurance. The insurance obtained by Landlord pursuant to this SECTION 7.2 shall: (i) specifically cover ----------- the indemnification liability of Landlord under SECTION 7.1 of this Lease; (ii) ----------- be issued by an insurance company (in the case of the Earthquake Insurance, only the lead insurance company) having a rating of not less than A-X in Best's Insurance Guide (the "BEST'S RATING") or which is otherwise reasonably acceptable to Tenant and licensed to do business in the State of California; (iii) be primary insurance (with respect to the insurance described in SECTION ------- 7.2.1 and 7.2.3 above) as to all claims thereunder and provide that any such - ----- ----- insurance carried by Tenant is excess and is non-contributing with any such insurance requirement of Landlord; and (iv) provide that said insurance shall not be canceled or coverage materially reduced unless thirty (30) days' prior notice shall have been given to Tenant. With respect to the insurance described in SECTION 7.2.2, Tenant shall be named as an additional insured. With respect ------------- to the insurance described in SECTION 7.2.1, Tenant shall be named as an -------------- additional insured as its interests pertain to solely any improvement or betterment to the physical realty. Tenant shall neither use the Premises nor permit the Premises to be used or acts to be done therein which will (a) increase the premium of any insurance described in this SECTION 7.2; (b) cause a ----------- cancellation of or be in conflict with any such insurance policies; or (c) result in a refusal by insurance companies of good standing to insure the Building in amounts reasonably satisfactory to Landlord, provided, however, that Tenant shall at all times be permitted to use the Premises for the uses permitted by ARTICLE 5 of this Lease without being required to pay any insurance --------- premiums for Landlord's insurance attributable to such use. Tenant shall, at Tenant's expense, comply with all insurance company requirements pertaining to the use of the Premises which uses are not inconsistent with the uses permitted by ARTICLE 5. If Tenant's conduct or use of the Premises causes any increase in --------- the premium for Landlord's insurance policies and such conduct or use is not permitted by the terms of this Lease, then Tenant shall reimburse Landlord for any such increase. 7.3 Tenant's Insurance. Tenant shall maintain the following coverages ------------------ in the following amounts. 7.3.1 General Liability Insurance. Comprehensive General ----------------------------- Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Premises, including a Broad Form Comprehensive General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in SECTION 7.1 of ----------- this Lease, for limits of liability not less than: Bodily Injury and $10,000,000 each occurrence Property Damage Liability $10,000,000 annual aggregate Personal Injury Liability $10,000,000 each occurrence $10,000,000 annual aggregate 0% Insured's participation The annual aggregate amounts set forth above shall apply solely to the Premises. 7.3.2 Property Damage Insurance. Physical Damage Insurance --------------------------- covering all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant's property on the Premises installed by, for, or at -42- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] the expense of Tenant, including "boiler machinery coverage" as necessary to cover any applicable property of Tenant. Such insurance shall be written on an "all risks" of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage. 7.3.3 Workers' Compensation Insurance. Workers' compensation and -------------------------------- employer's liability insurance as required by law. 7.3.4 Business Property Insurance. Business Property Insurance in --------------------------- the amount of $1,000,000 covering additional expense necessarily incurred to continue normal operations as a result of damage to or destruction of the Premises or Tenant's personal property therein by perils required to be insured against by Tenant hereunder. 7.3.5 Self-Insurance By Tenant. -------------------------- 7.3.5.1 The Financial Requirement. The Tenant or an --------------------------- assignee of Tenant's interest in this Lease which is permitted pursuant to ARTICLE 11 (each such entity or individual to be known as a "SELF-INSURING - ----------- PARTY") shall be entitled to self-insure its insurance requirements set forth under SECTIONS 7.3.1, 7.3.2 AND 7.3.4 of this Lease, but only so long as the ---------------------------------- Self-Insuring Party meets the "Financial Requirement," as that term is defined in SECTION 7.3.5.2, below. Any such self-insurance shall be deemed to contain ---------------- all of the terms and conditions applicable to such insurance as required pursuant to the terms of this SECTION 7.3, including, without limitation, (i) a ----------- full waiver of subrogation, and (ii) formal claims adjustment, investigation and legal defense programs. Any such self-insurance shall additionally be deemed to provide "first-dollar" legal defense. 7.3.5.2 Satisfaction of the Financial Requirement. In ------------------------------------------- order to satisfy the "Financial Requirement," the Self-Insuring Party shall, concurrently with a notice (the "SELF-INSURANCE NOTICE") to Landlord electing to self-insure, provide Landlord with a consolidated balance sheet for the Self-Insuring Party and the subsidiaries of the Self-Insuring Party that are "controlled" (as that term is defined in SECTION 11.5 of this Lease) by the ------------ Self-Insuring Party, as set forth in the Self-Insuring Party's publicly available annual report for the Self-Insuring Party's fiscal year most recently ended prior to the date of the Self-Insurance Notice to Landlord, and as set forth in the Self-Insuring Party's publicly available quarterly report for the quarter of the Self-Insuring Party's fiscal year most recently ended prior to the date of the Self-Insuring Party's delivery of the Self-Insurance Notice to Landlord, which provides that the Self-Insuring Party's "stockholder's equity" is at least $100,000,000 (the "NET WORTH AMOUNT"), and that the value of cash, ------------------ cash equivalents and marketable securities held by the Self-Insuring Party is at least $50,000,000 (the "LIQUIDITY AMOUNT"). If the Self-Insuring Party at any ---------------- time does not satisfy the Financial Requirement, it shall immediately notify Landlord of the same. Furthermore, if the Self-Insuring Party fails to meet the Financial Requirements, it shall immediately supply Landlord with the insurance policies required under SECTIONS 7.3.1 AND 7.3.2 of this Lease in compliance ------------------------- with the terms of this ARTICLE 7. ---------- -43- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 7.3.6 Form of Policies. The minimum limits of policies of ------------------ insurance required of Tenant under this Lease shall limit the liability of Tenant under this Lease with respect to claims covered by such insurance. Tenant's insurance required under this Lease shall (i) name Landlord, and any other party it so specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant's obligations under SECTION 7.1 of this Lease; (iii) be issued by an ------------ insurance company having a rating of not less than A-X in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance (with respect to the insurance described in SECTION 7.3.1 above) as to all claims thereunder and provide that ------------- any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; and (v) provide that said insurance shall not be canceled or coverage materially reduced unless thirty (30) days' prior written notice shall have been given to Landlord and any mortgagee of Landlord. Tenant shall deliver said policy or policies or certificates thereof, along with proof of payment of premium, or an indication that Tenant elects to self-insure pursuant to SECTION 7.3.5 above to Landlord on or before the Lease Commencement ------------- Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor. 7.3.7 Additional Insurance Obligations. Tenant shall carry and ---------------------------------- maintain during the entire Lease Term, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this ARTICLE 7, and such other reasonable types of insurance coverage and in ---------- such reasonable amounts covering the Premises and Tenant's operations therein, as may be reasonably requested by Landlord, provided that Landlord may only make such request at least ninety (90) days prior to the date such increased amount of insurance or other type of insurance coverage shall become effective and shall only be entitled to make such request if such increased coverage is customarily required of multi-floor office tenants in the Comparable Buildings. 7.4 Subrogation. Landlord and Tenant intend that their respective ----------- property loss risks shall be borne by insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder, or, if coverage is carried that exceeds what is agreed to be provided hereunder, then to the extent of the coverage actually carried. The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers, provided such waivers of subrogation shall not affect the right of the insured to recover thereunder. The parties agree that their respective insurance policies shall be endorsed such that the waiver of subrogation shall not affect the right of the insured to recover thereunder, so long as no material additional premium is charged therefor. If Landlord or Tenant fails to carry the amounts and types of insurance required to be carried pursuant to ARTICLE 7, in addition to any --------- remedies Landlord or Tenant may have under this Lease, such failure shall be deemed to be a covenant and agreement by the parties failing to carry such insurance to self-insure with respect to the type and amount of insurance such party so failed to carry, with full waiver of subrogation with respect thereto. -44- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE 8 DAMAGE AND DESTRUCTION 8.1 Repair of Damage to Premises by Landlord. ---------------------------------------------- 8.1.1 Landlord Repair Obligations. The terms and provisions of ----------------------------- this ARTICLE 8 shall become applicable only after the "substantial completion of --------- the Tenant Improvements," as that term is defined in SECTION 5.3 of the Tenant ----------- Work Letter, for the Initial Premises has occurred. The terms of SECTIONS 6.1, ------------- 10.3.2 AND 19.27 of this Lease shall not apply to a "Casualty," as that term is - ----------------- defined below in this ARTICLE 8. Tenant shall use reasonable efforts to ---------- promptly notify Landlord of any damage to the Premises resulting from fire, flood, earthquake, windstorm, or any other acts of God or similar casualty (collectively, the "CASUALT"). If the Building, the Parking Structure or any Common Areas serving or providing access to the Premises shall be damaged by Casualty (the "Damaged Area"), subject to Landlord's and Tenant's rights to terminate this Lease or a portion of the Premises as expressly provided in this ARTICLE 8, Landlord shall be required, promptly and diligently, subject to - ---------- reasonable delays for insurance adjustment or other matters beyond Landlord's reasonable control, and subject to all other terms of this ARTICLE 8, to restore --------- the Building, the Parking Structure, the Common Areas, the Tenant Improvements and those Alterations of which Tenant has notified Landlord pursuant to SECTION ------- 7.2.1 (but excluding any personal property of Tenant). The restoration of the - ----- Building, the Parking Structure, the Common Areas, the Tenant Improvements and Alterations shall be to substantially the same condition as they were in prior to the Casualty, except for modifications required by zoning, building codes and other laws (the "USABLE CONDITION"). In connection with such repairs and replacements, Landlord shall, prior to the commencement of construction, promptly submit to Tenant, for Tenant's review and approval, which approval shall not unreasonably be withheld or delayed, plans, specifications and working drawings relating to the Tenant Improvements and Alterations, and Landlord shall select the contractors, subject to Tenant's reasonable approval, to perform such tenant improvement work. 8.1.2 Tenant's Rent Abatement Rights. Landlord shall not be --------------------------------- liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's business resulting in any way from such Casualty or repair thereof; provided, however, that if such Casualty shall have damaged the Premises or Common Areas necessary to Tenant's occupancy of the Premises, or shall have resulted in the inaccessibility of the Premises, Landlord shall allow Tenant a proportionate abatement of Base Rent and of Additional Rent, notwithstanding the terms of SECTION 6.1 of this Lease to the contrary, during the time and to the ----------- extent (i) the Premises are unfit for occupancy for Tenant's normal business use as a result of the Casualty, (ii) such portion of the Premises is not occupied by Tenant (or is inaccessible to Tenant) as a result thereof, (iii) Landlord is reimbursed or is entitled to be reimbursed under Landlord's rental interruption insurance policy for such rent abatement (or would have been entitled to be reimbursed had it been carrying the rental interruption insurance required of it), and (iv) Tenant has not been relocated from the damaged area pursuant to SECTION 8.4.2 below; provided, further, that if a part of the Premises are - -------------- damaged such that the remaining portion thereof is not sufficient to enable -45- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant to conduct its business operations from such remaining portion and Tenant does not conduct its business operations therefrom, Landlord shall allow Tenant a total abatement of Base Rent and Additional Rent during the time and to the extent (A) the Premises are unsuitable for occupancy for the purposes permitted under this Lease, and not occupied by Tenant as a result of the subject damage, (B) Tenant has not been relocated from the Damaged Area pursuant to SECTION ------- 8.4.2 below, and (C) Landlord is reimbursed or is entitled to be reimbursed - ----- under its rental interruption insurance policy for such rent abatement (or would have been entitled to be reimbursed had it been carrying the rental interruption insurance required of it). 8.2 Repair Certificate. Landlord shall, within sixty (60) days after ------------------- the date of any Casualty affecting Tenant's use of the Premises, deliver a certificate ("REPAIR CERTIFICATE") to Tenant issued by a general contractor retained by Landlord and approved by Tenant, which approval shall not be unreasonably withheld or conditioned and shall be given or reasonably withheld by Tenant within ten (10) days after Tenant's receipt of Landlord's notice setting forth the name and address of Landlord's proposed general contractor. The Repair Certificate shall describe with reasonable specificity the scope of the restoration and repair obligations and estimate the date upon which Landlord's restoration and repair obligations are expected to be sufficiently completed to achieve a Usable Condition of the Premises (the "ESTIMATED COMPLETION DATE"). 8.3 Total Destruction and End of Term Damage. ---------------------------------------------- 8.3.1 Total Destruction of the Building. If the Building is ------------------------------------- damaged or destroyed by a Casualty and such Casualty requires demolition and reconstruction of the entire Building (whether or not including foundations as described in the Repair Certificate) and the Estimated Completion Date will require longer than fifteen (15) months from the date of the Casualty, Landlord and Tenant shall each have the right to terminate this Lease by notice to the other delivered within thirty (30) days of the date of the receipt of the Repair Certificate. 8.3.2 Damage Near End of Term. In the event that the Premises or ------------------------ the Building is destroyed or damaged by a Casualty during the last thirty-six (36) months of the Lease Term, and if (i) the Estimated Completion Date is greater than one hundred twenty (120) days after the date of the Casualty, and (ii) Tenant has not previously exercised, or does not, within sixty (60) days after the date of such Casualty, exercise, any remaining extension options pursuant to SECTION 2.2.2 of this Lease at the time of the Casualty, then, -------------- notwithstanding anything contained in this ARTICLE 8, Landlord and Tenant shall --------- each have the option to terminate this Lease by giving notice to the other of the exercise of such option within (a) thirty (30) days after Landlord's delivery to Tenant of the Repair Certificate, or (b) if Tenant is considering whether to exercise a Renewal Option, within sixty (60) days after the date of the Casualty, in which event this Lease shall cease and terminate as of the date set forth in such notice (which date shall not be greater than one hundred eighty (180) days after the date of the Casualty), Tenant shall, subject to the terms of SECTION 8.1.2 above, pay the Base Rent and Additional Rent, properly -------------- apportioned up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term. -46- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 8.4 Tenant's Partial and Total Termination Rights. -------------------------------------------------- 8.4.1 Tenant's Initial Termination Rights. -------------------------------------- 8.4.1.1 Repair of Damage. Subject to the termination ------------------ rights described in this ARTICLE 8, in the event of a Casualty, Landlord shall --------- repair damage to the Damaged Area as indicated in SECTION 8.1.1. -------------- 8.4.1.2 Less Than Or Equal to Three (3) Floors of the ------------------------------------------------ Premises Damaged. If less than or equal to three (3) full floors of the - ----------------- Premises are included in the Damaged Area, and the Estimated Completion Date will not occur within twelve (12) months after the date of the Casualty (the "12-MONTH PERIOD"), Tenant may terminate this Lease as to the portion of the Premises included in the Damaged Area by providing a notice of termination to Landlord (the "TENANT TERMINATION NOTICE") within thirty (30) days after the date of the Repair Certificate, which termination shall be effective as of the date of such Casualty, and this Lease, including the provisions with respect to Rent, shall be amended to appropriately reflect that the portion of the Premises included in the Damaged Area is no longer included within the Premises. 8.4.1.3 More Than Three (3) Floors of the Premises ------------------------------------------------ Damaged. If more than three (3) full floors of the Premises are included in the - ------- Damaged Area, and the Estimated Completion Date will not occur within the 12-Month Period, then, Tenant may elect to terminate this Lease as to either the portion of the Premises included in the Damaged Area (in which case this Lease, including the provisions with respect to Rent, shall be amended to appropriately reflect that the portion of the Premises included in the Damaged Area is no longer included within the Premises), or as to the entire Premises, by providing the Tenant Termination Notice within sixty (60) days after the date of Tenant's receipt of the Repair Certificate. In the case of a termination of only the portion of the Premises included in the Damaged Area, such termination shall be effective as of the date of the Casualty and, in the case of a termination of this Lease, such termination shall be effective as of a date specified in the Tenant Termination Notice as determined by Tenant in its sole and absolute discretion, but in no event may such date exceed the date occurring two (2) years after the date of the Tenant Termination Notice. 8.4.2 Landlord Relocation Right. Notwithstanding the foregoing --------------------------- provisions of this SECTION 8.4, Landlord shall have the right, at Landlord's ------------ sole cost and expense (except for the payment of rent which shall be payable as provided in this SECTION 8.4.2 below), to relocate Tenant (provided, thereafter, ------------- Landlord repairs the Damaged Area in accordance with provisions of this ARTICLE ------- 8) from the portion of the Premises included in the Damaged Area to comparable space at least equal in size to the portion of the Premises included in the Damaged Area ("RELOCATED SPACE") in the area known as the "West San Fernando Valley" (provided that such Relocated Space need not be high-or mid-rise space), by (i) providing notice thereof to Tenant on or before Landlord's delivery of the Repair Certificate to Tenant, and (ii) providing the Relocated Space in a condition ready for Tenant's move-in within sixty (60) days after the Casualty, in which case Tenant shall not have a right to terminate this Lease in its entirety or as to a portion of the Premises, as the case may be, as set forth in SECTIONS 8.4.1.2 or 8.4.1.3, above; provided that Landlord's right to relocate - ----------------- ------- Tenant and thereby eliminate Tenant's termination right shall only apply if the Estimated Completion Date will occur, and the relocation of Tenant's personnel -47- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] back into the Premises from the Relocated Space will occur, within fifteen (15) months after the Casualty (the "15-MONTH PERIOD"), as reasonably determined by the Repair Contractor. Landlord shall have the obligation for payment of any rent in connection with the Relocated Space during any period in which Tenant is relocated from the portion of the Premises included in the Damaged Area to the Relocated Space; provided, however, that Tenant shall pay to Landlord the Base Rent or the rent Landlord is actually paying for the Relocated Space, whichever is less, and Tenant's Share of Direct Expenses (which Tenant's Share of Direct Expenses shall be calculated using the amount of Tenant's Share of Direct Expenses that Tenant was paying for the month prior to the month in which the Casualty occurred) for the portion of the Premises included in the Damaged Area as Tenant's contribution toward rent for the Relocated Space during the term of such relocation and, because the payment described previously in this sentence shall be a contribution from Tenant toward rent for the Relocated Space (and shall not constitute Rent for the portion of the Premises included in the Damaged Area), Tenant's obligation to pay Base Rent and Additional Rent shall abate with respect to the portion of the Premises included in the Damaged Area as provided in SECTION 8.1.2 above during the period of such relocation. All ------------- expenses reasonably incurred by Tenant for moving from and returning to the Premises, including but not limited to costs of stationery and business cards (if applicable), and equipment installations in connection with such relocation shall be funded by Landlord within thirty (30) days of invoice. 8.4.3 Tenant Repair Option. If this Lease is not terminated as ---------------------- provided in SECTION 8.4.1, above, and Tenant has not been relocated as provided ------------- in SECTION 8.4.2, above, and the repairs are not actually completed within one -------------- (1) year after the Damage Date (or, if the Repair Certificate delivered by Landlord indicates a repair period over one (1) year, then within the repair period indicated in the Repair Certificate), which period shall not be subject to extension as a result of any Force Majeure, below, then Tenant shall have the right, on written notice to Landlord (the "Repair Failure Notice") delivered after the occurrence of the event described above, to either (a) cause Landlord to assign to Tenant any contracts relating to the repairs, or (b) terminate the contractor then engaged to complete the repairs and commence to complete the repairs itself. After Tenant's election of either option (a) or (b), above, any insurance proceeds received by Landlord or to be received by Landlord in connection with such repairs (not including any rental interruption insurance proceeds), shall be assigned to Lien Holder, and held by Lien Holder in a construction escrow account for the benefit of Tenant. Prior to the commencement of the repairs, and from time to time prior to the completion of the repairs as Lien Holder shall reasonably require, Tenant shall deposit into the construction escrow the amount of any short-fall between the cost of such repairs and the available insurance proceeds. Thereafter Tenant shall supervise the completion of the repairs and/or complete the same itself, as soon as reasonably possible in accordance with plans and specifications approved by Lien Holder (the "TENANT REPAIR OPTION"). In the event that Tenant elects the Tenant Repair Option, Tenant shall have the right to deliver to Landlord and Lien Holder from time to time invoices for the costs of construction, which invoices shall contain a reasonably particularized breakdown of such costs. To the extent neither Landlord nor Lien Holder delivers a detailed written objection to Tenant within ten (10) business days after receipt of such invoice, then, subject to a reasonable procedure established by Lien Holder, Tenant shall be entitled to disbursements from the construction escrow of the amounts set forth in such invoices, provided that upon completion of the repairs, Tenant shall be entitled to deduct from Rent becoming payable by Tenant under this Lease, that -48- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] amount which represents the difference between (i) amounts expended by Tenant in connection with the completion of the repairs as set forth in such invoices, less (ii) the amount of insurance proceeds paid to Tenant in connection with the completion of the repairs, provided that the total amount of such credit shall be amortized over the remaining Lease Term, with interest on the unamortized portion of such amount accruing at the Interest Rate. If, however, Landlord or Lien Holder in good faith delivers to Tenant, within ten (10) business days after receipt of Tenant's invoice, a written objection to the payment of such invoice, setting forth with reasonable particularity its reasons for its claim that the charges are excessive (in which case, concurrently with its delivery of such written objection, Landlord shall pay from its own funds or Lien Holder shall pay from the construction escrow, as the case may be, the amount it contends would not have been excessive), then Tenant shall not be entitled to include in its calculation of amounts expended in connection with the repairs either (i) the entire amount of such invoice if payment is made by Landlord, or (ii) the amount of such invoice not paid by Lien Holder if partial payment is made by Lender from the construction escrow; but Tenant may proceed to institute arbitration proceedings against Landlord pursuant to the terms of SECTION 19.41, ------------- below, to determine that portion, if any, of the amounts so incurred by Tenant which Landlord or Lien Holder is required to reimburse Tenant under this SECTION ------- 8.4.3. Tenant may deduct the amount of any final, non-appealable arbitration - ----- award from Rent as it becomes payable under this Lease, provided that the total amount of such credit shall be amortized over the remaining Lease Term, not including any Renewal Option Term unless Tenant has already exercised a Renewal Option Right, with interest on the unamortized portion of such amount accruing at the Interest Rate. Notwithstanding the foregoing, if Tenant delivers a Repair Failure Notice to Landlord, then Landlord shall have the right, which may only be exercised once with respect to any specific event of damage or destruction, to suspend the occurrence of the Tenant Repair Option for a period ending thirty (30) days after Landlord's receipt of the Repair Failure Notice by delivering to Tenant, within five (5) business days of Landlord's receipt of the Repair Failure Notice, a certificate of Landlord's contractor responsible for the repair of the damage certifying that it is such contractor's good faith judgment that the repairs to the Tenant Improvements shall be completed within thirty (30) days after the date of Landlord's receipt of the Repair Failure Notice. If repairs shall be completed prior to the expiration of such thirty-day period, then the Repair Failure Notice shall be of no force or effect, but if the repairs shall not be completed within such thirty-day period, then upon the expiration of such thirty-day period, the Tenant Repair Option shall become effective. At any time, and from time to time, after the date occurring thirty (30) days after the Damage Date, Tenant may request that Landlord provide Tenant with a certificate from Landlord's architect or contractor described above setting forth such architect's or contractor's reasonable opinion of the date of completion of the repairs to the Tenant Improvements and Landlord shall respond to such request within five (5) business days. 8.5 Landlord's Rights to Terminate - Insured and Uninsured Casualty. ------------------------------------------------------------------ 8.5.1 Uninsured Casualties. --------------------- 8.5.1.1 Termination Rights. In addition to the ------------------- termination rights set forth in SECTION 8.3 above, and SECTION 8.5.2, below, if ----------- ------------- the cost to repair (the "REPAIR COST") the Damaged Area (including the Tenant -49- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Improvements and Alterations therein) that is not covered by insurance (with deductible amounts considered to be not covered by insurance) required to be maintained by Landlord hereunder and any additional insurance actually maintained by Landlord, is greater than the "Maximum Amount" as that term is defined in this SECTION 8.5.1 (the amount which is not so covered by insurance ------------- and which is in excess of the Maximum Amount may be referred to as the "UNINSURED SHORTFALL"), the following shall apply (and Landlord shall notify Tenant of its election on or before the date which is sixty (60) days after Landlord's delivery of the Repair Certificate to Tenant): (i) Landlord may elect to repair the Damaged Area in accordance with the terms of this ARTICLE 8 --------- and without affecting Tenant's rights of termination, if any, or (ii) Landlord may elect not to restore the Damaged Area if Tenant declines to pay the Uninsured Shortfall as described in this SECTION 8.5.1.1 below. If Landlord --------------- elects not to restore the Damaged Area, then, within thirty (30) days after Landlord notifies Tenant it does not intend to repair the "Damaged Area," as defined in SECTION 8.1.2, above, Tenant may elect to exercise a termination -------------- right or to pay the Uninsured Shortfall, as follows: (A) Tenant may elect to terminate this Lease as to either (x) any portion of the Premises included in the Damaged Area (in which case this Lease shall be amended to appropriately reflect that the portion of the Premises included in the Damaged Area is no longer included within the Premises and to provide a corresponding reduction of the Rent), or (y) as to the entire Premises, by providing a termination notice (the "NOTICE OF TERMINATION"), which termination shall be effective as of a date specified by Tenant in the Notice of Termination, but which shall not exceed two (2) years after the date of the Notice of Termination, or (B) provided that Tenant meets the Financial Requirement, Tenant may elect to pay the Uninsured Shortfall and, thereafter, Landlord shall be obligated to proceed to repair the damage, provided Tenant funds the Uninsured Shortfall, and this Lease shall not terminate. If Landlord fails to timely make an election under items (i) or (ii) of this SECTION 8.5.1.1; then, Landlord shall be deemed to have elected --------------- item (ii), and if Tenant has an elective right, and Tenant fails to timely make an election under item (A) or (B) of this SECTION 8.5.1.1; then, --------------- Tenant shall be deemed to have elected item (A)(x). The provisions of SECTION ------- 8.1.2 relative to the design and construction of any Tenant Improvements or - ----- Alterations shall be applicable with respect to any repair or restoration of Tenant Improvements or Alterations described in this SECTION 8.5.1. The term ------------- "Maximum Amount" shall mean an amount equal to the greater of (i) ten percent (10%) of the Replacement Cost of the Building and Tenant Improvements, or (ii) Two Million and No/100 Dollars ($2,000,000.00). 8.5.1.2 Landlord's Failure to Fund Uninsured Amounts. If ------------------------------------------------ Landlord fails to timely fulfill its obligation to fund any of its repair obligations under SECTION 8.1.1 of this Lease (which funding obligations are -------------- those of Landlord and not of Tenant or any insurer), Tenant shall be entitled to deliver notice (the "FUNDING NOTICE") thereof to Landlord and to any Lender. If Landlord still fails to fulfill any such obligation within twenty (20) business days after Landlord's receipt of the Funding Notice from Tenant, and if Landlord fails to deliver notice to Tenant within such twenty (20) business day period explaining the reasons why Landlord believes that the amounts described in Tenant's funding notice are not due from Landlord (the "FUNDING REFUSAL NOTICE"), Tenant shall be entitled to advance such amounts (the "Funding Amount") to Landlord through a construction control escrow for Landlord's use in complying with its repair obligations under SECTION 8.1.1 of this Lease. Tenant ------------- may then offset the amount so provided to Landlord, against Tenant's next succeeding monthly installments of Base Rent which become due, provided that the total amount of such credit so provided shall be amortized over the then -50- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] remaining Lease Term, not including any Renewal Option Term unless Tenant has exercised a Renewal Option Right, with interest on the unamortized portion of such amount accruing at the Interest Rate. However, if Tenant is in default pursuant to SECTION 12.1.1 of this Lease (after expiration of any applicable --------------- cure period) at the time that such offset would otherwise be applicable, Tenant shall not be entitled to such offset until such default is cured. If Landlord delivers a Funding Refusal Notice, and if Landlord and Tenant are not able to agree on the amounts to be so funded by Landlord, if any, within ten (10) days after Tenant's receipt of a Funding Refusal Notice, Tenant may submit such dispute to arbitration in accordance with SECTION 19.41 of this Lease and Tenant ------------- shall not be entitled to deliver the Funding Amount nor shall Tenant be entitled to such offset from Base Rent unless the Arbitrator determines that Tenant is entitled to do so pursuant to this SECTION 8.5.1.2. If Tenant prevails in any --------------- such arbitration, the award by the Arbitrator shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of Landlord's payment of such award or, if Landlord and Tenant then agree that Tenant shall be entitled to apply such award as a credit against Tenant's obligations to pay Base Rent, the award shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of Tenant's application of such amounts as a credit against Base Rent. 8.5.2 Retirement of Debt with Insurance Proceeds. In addition to ------------------------------------------- any other rights to terminate this Lease set forth in this SECTION 8.5, if (i) ----------- the Lien Holder shall, in accordance with the terms of its loan contract with Landlord, be entitled to require that the insurance proceeds or any portion thereof be used to retire the then-existing debt, and (ii) the cost of repair of the Damaged Area not covered (the "INSURANCE SHORTFALL") by available insurance proceeds (provided that "available" insurance proceeds shall not include those used to retire debt as set forth in this SECTION 8.5.2, above, ------------- but shall include insurance proceeds which would have been available but for Landlord's failure to maintain the insurance required under SECTION 7.2.1 of ------------- this Lease) exceeds the Maximum Amount, then Tenant shall be notified of such matters within fifteen (15) days following the later of (a) Landlord's receipt of notice from the Lien Holder with respect to item (i) above, and (b) Landlord's determination of those matters set forth in item (ii) above, and the following shall apply: Landlord may terminate this Lease within thirty (30) days after Tenant has been notified that the circumstances in items (i) and (ii), above, apply ("LANDLORD'S TERMINATION PERIOD"), and the effective date of such termination as scheduled by Landlord shall take into account Tenant's orderly relocation, but shall in no event be in excess of two (2) years from the date of Landlord's election to terminate. If Tenant (or Tenant and an Affiliate of Tenant that joins Tenant in giving a notice as hereinafter provided and agrees to be bound by the obligations under this SECTION 8.5.2) meets the ------------- Financial Requirement, then, Landlord shall not have the right to terminate this Lease, even if Landlord has elected to do so, if within sixty (60) days after receipt of Landlord's notice electing to terminate this Lease, Tenant and/or an Affiliate of Tenant, as the case may be, agree(s) by notice to Landlord to advance the Insurance Shortfall, in an amount not greater than the amount of insurance proceeds used to retire the then-existing debt, to Landlord. Tenant and/or Tenant's Affiliate shall deposit such amount of the Insurance Shortfall in an escrow account pursuant to escrow instructions and with an escrow company, that are both reasonably approved by Landlord and Tenant. In the alternative, -51- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] during Landlord's Termination Period, Landlord may elect not to terminate this Lease in connection with the terms of this SECTION 8.5.2 and either proceed to ------------- fund such portion of the Insurance Shortfall and repair the damage to the Premises, or not proceed to repair the Damaged Area. If Landlord does so elect not to repair the "Damaged Area," as that term is defined in Section 8.1.2, above, Tenant may, in its sole and absolute discretion and upon notice given to Landlord within sixty (60) days following the expiration of Landlord's Termination Period, either (A) agree to advance such amount of the Insurance Shortfall, in which case, subject to the terms of this ARTICLE 8 and without --------- affecting Tenant's rights of termination, if any, Landlord shall proceed to repair the damage to the portion of the Premises included in the Damaged Area, to the extent covered by insurance proceeds and amounts paid by Tenant, or (B) elect to terminate this Lease as to any portion of the Premises included in the Damaged Area (in which case this Lease shall be amended to appropriately reflect that the Damaged Area is no longer included within the Premises and to provide a corresponding reduction of the Rent). Landlord hereby agrees to proceed with reasonable good faith efforts and reasonable diligence to cause any Lien Holder not to retire the mortgage debt and, if unsuccessful, upon the occurrence of damage to the Building which would give Landlord the right to terminate this Lease pursuant to this SECTION 8.5.2, to use reasonable good faith efforts and ------------- reasonable diligence to refinance the first mortgage debt on the Building. Upon completion of any repairs to the Damaged Area in accordance with the terms of this SECTION 8.5.2, Tenant shall be entitled to deduct from Rent (the "RENT -------------- DEDUCTION") payable by Tenant under this Lease the amount of the Insurance Shortfall paid by Tenant in connection with such repairs under this SECTION ------- 8.5.8, provided that the total amount of such credit shall be amortized over the - ----- remaining Lease Term (not including any Renewal Option Term, unless Tenant has already exercised a Renewal Option Right), with interest on the unamortized portion of such amount accruing at the Interest Rate. Landlord may, at any time during the Lease Term, pre-pay the Rent Deduction amount to Tenant by paying the principal amount thereof together with all accrued interest thereon. 8.6 Waiver of Statutory Provisions. The provisions of this Lease, --------------------------------- including this ARTICLE 8, constitute an express agreement between Landlord and --------- Tenant with respect to any and all damage resulting from Casualty to all or any part of the Premises, the Building, or the Project, and any statute or regulation of the State of California, including, without limitation, SECTIONS -------- 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or ------ ------- obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage resulting from Casualty to all or any part of the Premises, the Building, or the Project. 8.7 Disposition of Insurance Proceeds. If this Lease is terminated by ---------------------------------- reason of damage resulting from Casualty, each party shall be entitled to retain the insurance proceeds awarded to such party by that party's property insurer free and clear of claims by the other party. If this Lease is not terminated by reason of any damage resulting from Casualty, then, all insurance proceeds payable by reason thereof shall be disbursed for use in reconstruction thereof, as applicable. Upon completion of the repairs or reconstruction, each party shall be entitled to retain any remaining proceeds awarded to such party by that party's insurer. Subject to the terms of SECTIONS 8.3 and 8.5 hereof, any cost ------------ --- of repair or reconstruction in excess of the insurance proceeds made available under the policies of insurance that Landlord is required to maintain under this -52- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Lease shall be borne by Landlord. The terms of this ARTICLE 8 shall apply in --------- connection with any damage to the Premises or Building and shall supersede the terms of SECTIONS 6.1.2, 10.3.2 and 19.27 of this Lease. --------------- ------ ----- ARTICLE 9 PERSONAL PROPERTY TAX Tenant shall reimburse Landlord upon demand for any and all taxes required to be paid by Landlord (except to the extent included in Tax Expenses by Landlord), excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when: (i) such taxes are measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds an amount equal to thirty-five dollars ($35.00) per rentable square foot of the Premises, regardless of whether title to such improvements shall be vested in Tenant or Landlord; (ii) such taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Project, including the Project's parking structure and other parking areas; or (iii) such taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. ARTICLE 10 SERVICES AND UTILITIES 10.1 Standard Tenant Services. Landlord shall provide the following -------------------------- services ("STANDARD TENANT SERVICES") on all days (unless otherwise stated below) during the Lease Term, as such Lease Term may be extended pursuant to SECTION 2.3: - ------------ 10.1.1 Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning ("HVAC") and shall operate the HVAC System whenever necessary in order to provide normal comfort for normal office use in the Premises, during the period ("BUILDING HOURS") Monday through Friday, from 7:30 A.M. to 5:30 P.M. and on Saturday during the period from 9:00 A.M. to 1:00 P.M., except for the date of observation of New Year's Day, Independence Day, Labor Day, Memorial Day, Thanksgiving Day, Christmas Day and, at Landlord's discretion, other locally or nationally recognized holidays (collectively, the "HOLIDAYS"). The HVAC system servicing the Premises shall be designed to meet, and Landlord shall use reasonable efforts to operate the HVAC System in accordance with, the HVAC Design Specifications referred to in EXHIBIT H, attached hereto and made a part --------- hereof. Should Tenant's Premises ever include all of the rentable square feet of space in the Project, Tenant shall have the right, after the first (1st) Lease Year, exercisable upon at least ninety (90) days prior written notice, to modify the Building Hours so long as (i) such Building Hours are the same in both the Building and Adjacent Building and (ii) the total of the Building Hours -53- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] in any one week will not exceed fifty-four (54) hours. For example, if Tenant should adopt a four-day work week for its employees, Tenant would have the flexibility to modify the Building Hours to accommodate that weeks' schedule. 10.1.2 Subject to the terms of SECTION 10.2 of this Lease, ------------- Landlord shall provide adequate electrical wiring and facilities for connection to Tenant's lighting fixtures and Tenant's office equipment, provided that (i) the connected electrical load of Tenant's office equipment does not exceed an average of three and one-half (3 1/2) watts per usable square foot of the Premises during Building Hours on a monthly basis, and (ii) the connected electrical load of Tenant's lighting fixtures does not exceed an average of one (1) watt per usable square foot of the Premises during Building Hours on a monthly basis, provided, however, that to the extent such electrical usage exceeds either the amount allowed under item (i) or (ii), above, such excess consumption shall be subject to the terms of SECTION 10.2, below. The ------------- electricity so furnished for office equipment will be at a nominal one hundred twenty (120) volts and Tenant will be granted permission to install, at Tenant's expense, circuits containing one hundred twenty/two hundred eight (120/208) voltage, and the electricity so furnished for Tenant's lighting will be at a nominal two hundred and seventy-seven/one hundred twenty (277/120) volts. Landlord shall furnish replacement of Building standard lamps (including lamps classified as Building standard when first installed), starters and ballasts, the costs of which shall be included in Operating Expenses. 10.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory and toilet purposes, including hot water in lavatories. 10.1.4 Landlord shall provide janitorial services, Monday through Friday except the date of observation of Holidays, in and about the Premises in accordance with the specifications attached hereto as EXHIBIT I and made a part --------- hereof; provided, however, that Landlord may make modifications to such janitorial specifications from time to time during the Lease Term, which modifications shall be subject to Tenant's prior written approval which approval shall not unreasonably be withheld or delayed so long as janitorial service to the Premises is not thereby diminished and such janitorial specifications continue to be reasonably consistent with services provided to multi-floor tenants of a similar usage in Comparable Buildings. Any additional cleaning requested by Tenant shall be subject to SECTION 10.4 below. ------------- 10.1.5 Landlord shall provide nonexclusive automatic passenger and freight elevator service during Building Hours, and shall have at least one elevator available at all times, but no fewer elevators shall be available than are reasonably required adequately to service the Premises during Building Hours. 10.1.6 Landlord and/or the owner of the Adjacent Building shall provide at least one (1) on-site Project manager, one (1) on-site engineer, and one (1) on-site day-porter for the Project. The primary responsibility of such management, engineering and day-porter personnel shall be the supervision and operation of the Project. Landlord shall operate its Project management office in the Building or in the Adjacent Building, but Tenant acknowledges that, if Landlord ever no longer owns both the Building and Adjacent Building, a separate management office may operate in each building, provided; however, that in such event Operating Expenses for the Building shall not include rental for such -54- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] management offices to the extent that the aggregate size of such management offices is in excess of what would be included were there a single management office for the Project, considering the Building's pro-rata percentage of the Project. 10.1.7 Landlord shall provide twenty-four (24) hours per day, seven (7) days per week, access control systems and personnel for the Building in accordance with specifications to be mutually agreed upon by Landlord and Tenant as respects the building exterior access control system and the number and location of security cameras and monitors to be located within the Building and Project. Landlord and Tenant agree that such system shall, in the event Landlord and Tenant are otherwise unable to agree, be comparable to similar systems contained in the Comparable Buildings. Landlord shall furnish at least one (1) twenty-four (24) hour security guard at the Building, and either Landlord or the landlord of the Adjacent Building shall provide one (1) additional security guard for the Project, Monday through Friday (not including Holidays) from 7:00 am to 9:00 p.m., and Saturdays from 8:00 am to 7:00 p.m. The duties of the security guard in each building shall include monitoring video feed from security cameras, alarm panels, fire/life safety systems, water and heat alarms. The Project security guard shall be provided with a suitable vehicle to use in performing his or her principal responsibility for patrolling the Project Common Areas. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof. Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences. Tenant shall be permitted, at Tenant's sole discretion and at Tenant's sole cost, to install a security system for the Premises (which may include, without limitation, card readers, video cameras and video recorders) which does not interfere with the operation of the Systems and Equipment nor with the operation of the Building's access control system. Tenant shall be solely responsible for the monitoring and operation of Tenant's security system. The installation, operation and maintenance of such system shall be coordinated with Landlord. Landlord further grants Tenant the right to "tie into" the Building's access control system, provided that such tie-in does not alter materially the effectiveness or usage of the Building's access control system or the access control services to be provided to other tenants' premises, and Tenant shall be responsible for any additional incremental expense for additional equipment or personnel necessitated because of such tie-in. 10.1.8 Landlord shall cause the exterior windows of the Building to be washed at least once every four (4) months during the Lease Term. 10.2 Overstandard Tenant Use. Tenant shall not, without ------------------------- Landlord's prior written consent, change its use of the Premises, from general office purposes as provided in SECTION 5.1 to a different use, or (after ------------ completion of their initial installation as initially approved by Landlord -55- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] pursuant to the terms of the Tenant Work Letter) add machines, or equipment or lighting to the Premises, which change or addition would materially affect the temperature designed to be maintained by the HVAC system or materially increase the quantity of water normally required to be furnished for the Premises by Landlord pursuant to the terms of SECTION 10.1 of this Lease. If such consent ------------ is given, Landlord shall have the right to install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the reasonable cost thereof, including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Tenant to Landlord upon billing by Landlord subject to reasonable verification of all such costs. If Tenant uses water, electricity, heat, ventilation or air conditioning in excess of that required to be supplied by Landlord pursuant to SECTION 10.1 ------------ of this Lease, Tenant shall pay to Landlord, upon billing, the cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is required to be installed during the Lease Term in order to supply such excess consumption, and the cost of the increased wear and tear on existing or new equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and, in such event, Tenant shall pay the increased cost directly to Landlord, on demand, including the cost of installing and maintaining such additional metering devices. If Tenant desires to use heat, ventilation or air conditioning other than during Building Hours, Tenant shall give Landlord at least one (1) business day prior notice of Tenant's desired use of such utilities. Tenant acknowledges that Landlord proposes to charge a fee per hour (the "HOURLY CHARGE") for after-hours heat or air-conditioning (the "AFTER-HOURS HVAC"). Landlord agrees that the Hourly Charge will in no event exceed Landlord's "Actual Cost" of providing the After-Hours HVAC. "Actual Cost" shall be equal to Landlord's direct cost of providing such service, which direct cost shall be determined by calculating the total kilowatt minimum load multiplied by average electricity cost during those hours (to the extent reasonably determinable) plus any cost incurred for equipment maintenance for such after-hours usage. By way of example, if the utility company provides rate schedules for peak and off-peak demand hours, the electricity cost for After-Hours HVAC should reflect rates actually charged for the time of day to which the hourly charge is applicable. Equipment maintenance cost for such after hours usage shall not exceed the annual operating hourly maintenance cost derived by dividing the total annual equipment maintenance cost by the total annual equipment operating hours, without a profit or overhead charge to Landlord, but including a reasonable administrative charge and, unless the system is automated, an amount reasonably calculated by Landlord to reimburse Landlord for the hourly engineers' salary and fringe benefits. Amounts payable by Tenant to Landlord for such use of additional utilities shall be deemed Additional Rent hereunder and shall be billed on a monthly basis. 10.3 Interruption of Use. --------------------- 10.3.1 No Liability for Damages. Except as provided in SECTION --------------------------- ------- 10.3.2 below, Tenant agrees that Landlord shall not be liable for damages, by - ------ abatement of Rent or otherwise, for failure to furnish or delay in furnishing any Standard Tenant Services (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such -56- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] failure or delay or diminution is occasioned, in whole or in part, by necessary repairs, replacements or improvements (provided that Landlord agrees to use commercially reasonable efforts to schedule any such work outside of Building Hours), by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord's reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, or interference with, Tenant's business including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the Tenant Standard Services as set forth in this ARTICLE 10. If any governmental ---------- or quasi-governmental entity promulgates or revises any statute, ordinance, building code, fire code or other code or imposes mandatory or voluntary controls or guidelines on Landlord or the Project or any portion thereof, relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions, or the provision of any other utility or service provided with respect to this Lease, or if Landlord is required to make alterations to the Project or any portion thereof in order to comply with such mandatory or voluntary controls or guidelines, then, Landlord may, in its sole discretion, comply with such mandatory or voluntary controls or guidelines or make such alterations to the Project related thereto without creating any liability of Landlord to Tenant under this Lease (except as provided in SECTION 10.3.2 below), provided that the Premises are not thereby --------------- rendered untenantable, and further provided that Landlord will not voluntarily reduce the level of services provided to the Premises consistent with the first class character of the Project. 10.3.2 Tenant's Remedy. Except as otherwise provided in ARTICLES ---------------- -------- 8 AND 13 of this Lease, in the event that (A) Tenant is denied access to, or is - --------- unable to conduct Tenant's normal business operations in, the Premises or any portion thereof, and Tenant does not use the Premises or such portion thereof, and (B) such non-use of the Premises is as a result of (i) any repair, maintenance or alteration performed by Landlord, or which Landlord failed to perform, after the Lease Commencement Date and which was required by this Lease, which is not necessitated by the negligence of Tenant or its employees, agents, contractors or invitees, (ii) the presence of Hazardous Material in or about the Premises or the Building which was in violation of Hazardous Materials Laws then in effect when brought upon or used in or about the Premises or the Building and was not brought upon or used in or about the Premises or Building by Tenant or its employees, agents, contractors, or invitees, or (iii) the interruption or substantial reduction in one or more of the following Standard Tenant Services required to be provided by Landlord pursuant to this Lease (whether or not such interruption or reduction is due to Landlord's fault or within Landlord's control, so long as it is not due to the fault or neglect of Tenant, its agents, employees, contractors or invitees): heating, ventilating and air conditioning, janitorial service, electrical service, passenger elevator service or water, or (iv) Landlord's failure to supply Tenant with all of the parking passes to which Tenant is entitled pursuant to ARTICLE 18 below, where Landlord is unable to ---------- provide alternative parking within Warner Center for such unusable parking passes (each such set of circumstances as set forth in item (A) and then in either (i), (ii), (iii) or (iv) of item (B), above, to be known as an "Abatement Event"), then, Tenant shall give Landlord and Lender notice ("Abatement Event -57- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Notice") of such Abatement Event, and if such Abatement Event continues for five (5) consecutive business days after Landlord's and Lender's receipt of any such notice or ten (10) consecutive or nonconsecutive days after Landlord's and Lender's receipt of any such notices for each such day in any twelve (12) month period (the "Eligibility Period"), then, the Base Rent and Tenant's Share of Direct Expenses shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that the Abatement Event continues, in the proportion that the rentable area of the portion of the Premises that is the subject of the Abatement Event, bears to the total rentable area of the Premises (in the case of the circumstances set forth in items (i), (ii) and (iii) above) or in the proportion that the number of parking passes which Tenant is unable to utilize bears to the total number of parking passes to which Tenant is entitled pursuant to ARTICLE 18 below (in the case of the circumstance set forth in item ---------- (iv) above); provided, however, in the event that the Abatement Event applies to a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then, for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant's Share of Direct Expenses for the entire Premises shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant reoccupies any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises. Notwithstanding the foregoing, in no event shall the amount of Rent abated hereunder exceed the amount of proceeds Landlord is entitled to receive under the terms of the rental interruption insurance policies Landlord is required to carry hereunder. Such rights to abate Base Rent and Tenant's Share of Direct Expenses shall be Tenant's sole and exclusive remedy at law or in equity for an Abatement Event; provided, however, that, except as otherwise provided in ARTICLES 8 AND 13 of this Lease, if Landlord has not cured such Abatement Event within one (1) year after Landlord's receipt of the Abatement Event Notice, and if Landlord does not elect to relocate Tenant as provided in SECTION 10.3.3 below, Tenant shall have the right -------------- to terminate this Lease during the first five (5) business days of each calendar month following the end of such one (1) year period until such time as Landlord has cured the Abatement Event, which right may be exercised only by delivery of notice to Landlord and Lender (the "Abatement Event Termination Notice") during such five (5) business-day period, and shall be effective as of a date set forth in the Abatement Event Termination Notice (the "Abatement Event Termination Date"), which Abatement Event Termination Date shall not be less than ten (10) business days, and not more than two (2) years, following the delivery of the Abatement Event Termination Notice. Notwithstanding the foregoing, Tenant shall not have the right to terminate this Lease pursuant to the terms of this SECTION ------- 10.3.2, if, as of the date of delivery by Tenant of the Abatement Event - ------ Termination Notice, (A) the Lender has recorded a notice of default on the Building or filed a notice evidencing a legal action by the Lender against Landlord on the Building, or (B) the Lender has agreed that, immediately upon recovery of possession of the Building, the Lender will take measures to cure such Abatement Event, and thereafter, the Lender diligently proceeds to gain possession of the Premises and, to the extent the Lender does gain possession of the Premises, the Lender diligently proceeds to cure such Abatement Event. -58- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 10.3.3 Abatement Event Relocation Right. Notwithstanding anything -------------------------------- to the contrary set forth in SECTION 10.3.2 above, Landlord shall have the -------------- right, at Landlord's sole cost and expense (except for the payment of rent, which shall be payable as provided in this SECTION 10.3.3), to relocate Tenant -------------- (provided, thereafter, Landlord cures the Abatement Event) from that portion of the Premises which is affected by the Abatement Event to comparable space at least equal in size to the affected portion of the Premises ("COMPARABLE RELOCATION SPACE") (which Comparable Relocation Space need not be high-rise or mid-rise space) in the West San Fernando Valley by (i) providing notice thereof to Tenant on or before the date which is ten (10) business days after expiration of the Eligibility Period, and (ii) providing the Comparable Relocation Space in a condition ready for Tenant's move-in within sixty (60) days after such notice from Landlord to Tenant, in which case Tenant shall not have a right to terminate this Lease as set forth in SECTION 10.3.2 above; provided that --------------- Landlord's right to relocate Tenant and thereby eliminate Tenant's termination right shall only apply if Landlord reasonably, and in good faith, certifies to Tenant that the Abatement Event will be cured, and the relocation of Tenant's personnel back into the affected portion of the Premises will occur, within fifteen (15) months after Landlord's receipt of the Abatement Event Notice. Landlord shall have the obligation for payment of any rent in connection with such Comparable Relocation Space, during any period in which Tenant is relocated from an affected portion of the Premises to such Comparable Relocation Space; provided, however, that Tenant shall pay to Landlord the Base Rent or the rent Landlord is actually paying for the Relocated Space, whichever is less, and Tenant's Share of Direct Expenses (which Tenant's Share of Direct Expenses shall be calculated using the amount of Tenant's Share of Direct Expenses that Tenant was paying for the month prior to Tenant's delivery of the Abatement Event Notice) for the affected portion of the Premises as Tenant's contribution toward rent for the Comparable Relocation Space during the term of such relocation and, because the payment described previously in this sentence shall be a contribution from Tenant toward rent for the Comparable Relocation Space (and shall not constitute Rent for the affected portion of the Premises), Tenant's obligation to pay Base Rent and Additional Rent shall abate with respect to the affected portion of the Premises as provided in SECTION 10.3.2 above during the -------------- term of such relocation. All expenses reasonably incurred by Tenant for moving from and returning to the affected portion of the Premises, including but not limited to costs of stationery and business cards (to the extent applicable), and equipment installations in connection with such relocation shall be funded by Landlord within thirty (30) days of invoice. 10.4 Additional Services. Landlord shall also have the exclusive -------------------- right, but not the obligation, to provide any services in addition to the Standard Tenant Services which may be required by Tenant, including, without limitation, locksmithing additional janitorial service, and additional repairs and maintenance, provided that Tenant shall pay to Landlord upon billing, the sum of all costs to Landlord of such additional services plus an administrative fee at a rate equal to ten percent (10%) of the cost of such service. Charges for any service for which Tenant is required to pay from time to time hereunder shall be deemed Additional Rent hereunder and shall be billed on a monthly basis. 10.5 Year Round Access. Landlord hereby represents and covenants that, ----------------- subject to Force Majeure, Tenant shall have access to the Premises and the Building Common Areas, twenty-four (24) hours per day, seven (7) days per week. -59- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Tenant shall be furnished with a master key for the Building, which shall not be duplicated by Tenant and which shall only be used by Tenant's Vice President for Operations (or such other person as may be designated by Tenant in writing, from time to time), that will access all doors in the Premises (the "ACCESS AREAS"). Tenant shall indemnify, defend, protect, and hold Landlord harmless from any and all loss, cost, damage, expense and liability (including, without limitation, court costs and reasonable attorneys fees) incurred in connection with or arising from Tenant's access to such areas of the Building as a result of Tenants' having such master key. Tenant shall be responsible to pay all costs and expenses incurred in connection with such master key. Tenant shall be entitled to access any Access Areas only for inspection purposes and shall not be entitled to utilize such master key for any other purpose including, without limitation, storage purposes. In the event of any material violation of this provision Landlord shall be entitled to change the locks on all such areas and/or require the delivery of the master key by Tenant to Landlord, and Tenant's rights under this SECTION 10.5 shall terminate and be of no further ------------ force or effect. 10.6 Restricted Access. Tenant may designate certain areas in the ------------------ Premises as restricted areas and at its sole cost and expense secure such areas with additional locks to which only Tenant and Building management will have a key; provided, however, that Building management shall only utilize such key in the case of a perceived emergency. Tenant acknowledges that in order for Landlord to provide services as specified in this Lease to such restricted areas, Tenant must provide Landlord or Landlord's agents, employees or contractors access thereto. If Tenant fails to timely provide such access, Landlord shall have no obligation to provide services to such areas during the period access is denied. 10.7 Emergency Generator. Landlord acknowledges that Tenant may be -------------------- installing an emergency generator in the basement of the Adjacent Building (the "EMERGENCY GENERATOR"). Subject to Landlord's prior approval of all plans and specifications, which approval shall not be unreasonably withheld, and at Tenant's sole cost and expense, Landlord shall permit Tenant to install and maintain connections between Landlord's electrical systems in the Building and the Emergency Generator. Any such installations shall at all times be installed and maintained in accordance with applicable law. Landlord shall cause the Building, at Landlord's expense, to be designed to accept such connections from the Emergency Generator. Such connections to the emergency generator shall be used by Tenant only during (i) testing and regular maintenance, and (ii) the period of any electrical power outage in the Project. Tenant shall be entitled to operate the Emergency Generator and such connections to the Building for testing and regular maintenance only upon notice to Landlord and at times reasonably approved by Landlord. Tenant shall submit the specifications for design, operation, installation and maintenance of the connections to the Emergency Generator and facilities related thereto to Landlord for Landlord's consent, which consent will not be unreasonably withheld or delayed and may be conditioned on Tenant complying with such reasonable requirements imposed by Landlord, based on the advice of Landlord's engineers, so that the Building's Systems and Equipment are not materially and adversely affected by the installation and operation of the Emergency Generator. All repairs and maintenance of the Emergency Generator and connections thereto shall be the sole responsibility of Tenant, and Landlord makes no representation or warranty with respect to such Emergency Generator. At Landlord's option, upon the termination of this Lease and the Adjacent Building Lease, Landlord may require that Tenant remove the Emergency Generator and all related facilities and repair all damage -60- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] to the Project resulting from such removal, at Tenant's sole cost and expense. Notwithstanding the foregoing, during any Option Term when Tenant no longer leases the Adjacent Building, Tenant shall continue to have the right to maintain the Emergency Generator in the Adjacent Building, provided that during such time Tenant shall pay rent on the space dedicated to the Emergency Generator at a rate equal to the Dead Storage Annual Rental Rate. During such time, the Emergency Generator shall be deemed to be a part of the Premises for purposes of the indemnification and insurance provisions of this Lease, and Tenant shall maintain, at Tenant's cost, industry standard "boiler and machinery" insurance coverage with respect thereto. ARTICLE 11 ASSIGNMENT AND SUBLETTING 11.1 Transfers. Tenant shall not, without the prior written consent of --------- Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as "Transfers" and any entity to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a "TRANSFEREE"). Any sublease of the Premises shall be for a term which does not exceed the remaining term of this Lease. If Tenant desires Landlord's consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the "TRANSFER NOTICE") shall include (i) the proposed effective date of the Transfer, which shall not be less than forty-five (45) days nor more than one hundred eighty (180) days (or one (1) year, for any proposed assignment of all of Tenant's interest in this Lease or a sublease of substantially all of the Premises for substantially all of the remainder of the Lease Term) after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the "SUBJECT SPACE"), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the "Transfer Premium", as that term is defined in SECTION 11.3 below, in connection with such Transfer, the name ------------- and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, and any other information required by Landlord, which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space, and such other information as Landlord may reasonably require. Any Transfer made without Landlord's prior written consent shall, at Landlord's option, be null, void and of no effect, and shall, at Landlord's option, constitute a default by Tenant. Tenant shall pay Landlord's reasonable legal fees incurred by Landlord in connection with any proposed Transfer within thirty (30) days after the execution of the relevant documents evidencing the Transfer. 11.2 Landlord's Consent. Landlord shall not unreasonably withhold its ------------------- consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Landlord shall grant or deny its -61- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] consent to any proposed assignment of Tenant's interest in this Lease or any sublease of substantially all of the Premises for substantially all of the remainder of the Lease Term (collectively, an "ASSIGNMENT") within thirty (30) days of Landlord's receipt of the Transfer Notice, and Landlord shall grant or deny its consent to any other Transfer within fifteen (15) days after Landlord's receipt of the Transfer Notice. If Landlord fails to grant or deny its consent within such time periods, Landlord shall be deemed to have given its consent to such Transfer. Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply: 11.2.1 The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project, or would be a significantly less prestigious occupant of the Building than Tenant; 11.2.2 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease; 11.2.3 The Transferee is either a governmental agency or instrumentality thereof (i) which is that of a foreign country, (ii) which is of a character or reputation, is engaged in a business, or is of, or is associated with, a political orientation or faction, which is materially inconsistent with the quality of the Project, or which would otherwise reasonably offend a landlord of a Comparable Building if such Transferee occupied space in such landlord's building, (iii) which is capable of exercising the power of eminent domain or condemnation, or (iv) which would significantly increase the human traffic in the Premises or Building; 11.2.4 The Transfer will result in more than a reasonable and safe number of occupants per floor within the Subject Space; 11.2.5 If the Transfer is an Assignment, or if upon the completion of the proposed Transfer more than one hundred twenty-five thousand (125,000) rentable square feet of the Premises will be subject to Transfers or not otherwise occupied by Tenant or an Affiliate of Tenant, and the Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the portion of the Lease subject to the assignment or sublease on the date consent is requested; or 11.2.6 The proposed Transfer would cause a violation of another lease for space in the Building, which violation relates to an exclusive retail, stock brokerage or banking use. If Landlord consents to any Transfer pursuant to the terms of this SECTION 11.2 Tenant may, within six (6) months after Landlord's consent but not - ------------- later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to SECTION 11.1 of this Lease; provided that if there are any ------------ changes in the terms and conditions from those specified in the Transfer Notice such that Landlord would initially have been entitled to refuse its consent to such Transfer under this SECTION 11.2, Tenant shall again submit the Transfer to ------------ Landlord for its approval and other action under this ARTICLE 11. ----------- -62- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Notwithstanding any contrary provision of this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent to a proposed Transfer or otherwise has breached its obligations under this ARTICLE 11, Tenant's and such Transferee's only remedies shall be to seek a - ----------- declaratory judgment and/or injunctive relief by arbitration pursuant to SECTION ------- 19.41.3, and Tenant, on behalf of itself and, to the extent permitted by law, - ------- such proposed Transferee, waives all other remedies against Landlord, including without limitation, the right to seek monetary damages or to terminate this Lease. 11.3 Transfer Premium. ----------------- 11.3.1 Definition of Transfer Premium. If Landlord consents to a ------------------------------- Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any "Transfer Premium," as that term is defined in this SECTION 11.3, received by Tenant from such ------------- Transferee. "Transfer Premium" shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer (on a per rentable square foot basis if less than all of the Premises is transferred), after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any brokerage commissions in connection with the Transfer, (iii) any costs to buy-out or take over the previous lease of a Transferee, (iv) reasonable legal fees incurred in connection with the Transfer, (v) the amount of any Base Rent and Additional Rent paid by Tenant to Landlord with respect to the Subject Space during the period commencing on the later of (a) the date Tenant has contracted with a reputable broker to market the Subject Space, and (b) the date Tenant gives Landlord notice that Tenant has vacated the Subject Space, until the commencement of the term of the Transfer, and (vi) any other "out-of-pocket" monetary concessions reasonably provided in connection with the Transfer including, but not limited to, tenant improvement or decorating allowances (collectively, the "TRANSFER COSTS"). "Transfer Premium" shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer. If part of the Transfer Premium shall be payable by the Transferee other than in cash, Landlord's share of such non-cash consideration shall be in such form as is reasonably satisfactory to Landlord. 11.3.2 Payment of Transfer Premium. The determination of the ------------------------------ amount of Landlord's applicable share of the Transfer Premium shall be made on an annual basis in accordance with the terms of this SECTION 11.3.2, but an -------------- estimate of the amount of Landlord's applicable share of the Transfer Premium shall be made each year and one-twelfth of such estimated annual amount shall be paid to Landlord promptly, but in no event later than the next date for payment of Base Rent hereunder, subject to an annual reconciliation on each anniversary date of the Transfer. If the payments to Landlord under this SECTION 11.3.2 -------------- during the twelve (12) months preceding each annual reconciliation exceed the amount of Landlord's applicable share of Transfer Premium determined on an annual basis, then Landlord shall credit the overpayment against Tenant's future obligations under this SECTION 11.3.2 or, if the overpayment occurs during the -------------- last year of the Transfer in question, refund the excess to Tenant. If Tenant -63- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] has underpaid Landlord's applicable share of the Transfer Premium, as determined by such annual reconciliation, Tenant shall pay the amount of such deficiency to Landlord, promptly, but in no event later than the next date for payment of Basic Rent hereunder. For purposes of calculating the Transfer Premium on an annual basis, Tenant's Transfer Costs shall be deemed to be offset against the first rent, additional rent or other consideration payable by the Transferee, until such Transfer Costs are exhausted. 11.3.3 Calculations of Rent. In the calculation of the Rent (as ---------------------- it relates to the Transfer Premium calculated under SECTION 11.3.1 of this -------------- Lease), the Rent paid during each annual period for the Subject Space by Tenant shall be computed after adjusting such rent to the actual effective rent to be paid, taking into consideration any and all leasehold concessions granted in connection therewith, including, but not limited to, any rent credit and tenant improvement allowance. For purposes of calculating any such effective rent all such concessions shall be amortized on a straight-line basis over the relevant term. 11.4 Effect of Transfer. If Landlord consents to a Transfer, (i) the -------------------- terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (iv) Tenant shall furnish upon Landlord's request a complete statement, certified by an independent certified public accountant, or Tenant's chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer. No Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord's consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and, if understated by more than two percent (2%), Landlord's costs of such audit. 11.5 Non-Transfers. Notwithstanding anything to the contrary contained ------------- in this ARTICLE 11, an assignment or subletting of all or a portion of the ----------- Premises to an "Affiliate" of Tenant shall not be deemed a Transfer under this ARTICLE 11, provided that (i) Tenant notifies Landlord of any such assignment or - ---------- sublease within thirty (30) days after its effective date and promptly supplies Landlord with any documents or information reasonably requested by Landlord regarding such assignment or sublease or such Affiliate, and (ii) such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease. The term "Affiliate" of Tenant shall mean an entity which is controlled by, controls, or is under common control with Tenant or a corporation which merges with Tenant, whether by statutory merger or an exchange of stock or transfer of assets. The term "control," or "controlled" as used in this SECTION ------- 11.5, shall mean the ownership, directly or indirectly, of more than fifty - ---- percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of more than fifty percent (50%) of the voting interest in, an entity. 11.6 Miscellaneous Transfer Provisions. ----------------------------------- -64- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 11.6.1 Estoppel Certificate. Upon Tenant's request, Landlord --------------------- shall provide to any proposed Transferee of Tenant's interest in the Subject Space, an estoppel certificate substantially in the form of EXHIBIT F, attached --------- hereto, with contextual modifications due to the fact that such certificate is being provided by Landlord to a Transferee rather than by Tenant to a prospective purchaser or lender of the Building. 11.6.2 Landlord's Recognition of Transfers Upon Lease Termination. ---------------------------------------------------------- Tenant may request, as part of its Transfer Notice under SECTION 11.1, above, ------------ that a sublessee leasing all of the Premises receive a recognition agreement ("RECOGNITION AGREEMENT") from Landlord which provides that in the event this Lease is terminated, Landlord shall recognize the Transfer as a direct lease between Landlord and such subtenant, provided that Landlord shall only be obligated to execute a Recognition Agreement with such sublessee under the following conditions (which conditions must be reflected in the Recognition Agreement): (i) Landlord shall not be bound by any terms or conditions of the Transfer which are inconsistent with the terms and conditions of this Lease, and if the economic terms of such Transfer (as between Tenant and such sublessee and on a per rentable square foot basis) are less favorable to Tenant (as the sublessor) than those economic terms set forth in this Lease, the Recognition Agreement shall provide that upon termination of this Lease, as between Landlord and the sublessee, the economic terms shall be adjusted to those set forth in this Lease (on a per rentable square foot basis); provided, however, that if the economic terms of such Transfer (as between Tenant and the sublessee on a per rentable square foot basis) are equal to or more favorable than those set forth in this Lease, such more favorable economic terms shall continue to apply upon the date that this Lease is terminated and Landlord recognizes the Transfer as a direct lease between Landlord and such sublessee; (ii) the terms and provisions of SECTION 2.3 shall not be applicable to such sublessee unless the sublessee is ---------- leasing the entire Premises for the entire remainder of the Lease Term (in which case such sublessee may exercise any remaining Renewal Option Right(s) set forth in SECTION 2.3 above, (iii) Landlord shall not be liable for any act or omission ----------- of Tenant, (iv) Landlord shall not be subject to any offsets or defenses which the sublessee might have as to Tenant or to any claims for damages against Tenant, (v) Landlord shall not be required or obligated to credit the sublessee with any rent or additional rent paid by the sublessee to Tenant, (vi) Landlord shall be responsible for performance of only those covenants and obligations of Tenant pursuant to the Transfer accruing after the termination of this Lease, (vii) the sublessee shall, upon termination of this Lease, agree to make full and complete attornment to Landlord, as lessor, pursuant to a written agreement executed by Landlord and the sublessee, so as to establish direct privity of contract between Landlord and the sublessee with the same force and effect as though the Transfer was originally made directly between Landlord and the sublessee, and (viii) as a condition to Landlord's obligation to enter into the Recognition Agreement, in addition to Landlord's rights set forth under SECTION ------- 11.2, above, Landlord shall have the right to reasonably approve the - ---- creditworthiness and financial strength of the sublessee, which reasonable approval shall be based upon the creditworthiness and financial strength then generally required by Landlord and landlords of the Comparable Buildings of new tenants leasing space of a rentable area comparable to the rentable area of the Subject Space for a term equal to the remaining Lease Term and at a rental rate equal to the Base Rent rental rate under this Lease. Upon Landlord's written request given at any time after the termination of this Lease, the sublessee shall execute a new lease for the Subject Space upon the same terms and conditions as set forth in the Recognition Agreement. -65- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE 12 DEFAULTS; REMEDIES 12.1 Events of Default. Subject to the terms of Section 19.41, below, ------------------ the occurrence of any of the following shall constitute a default of this Lease by Tenant: 12.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, where such failure continues for ten (10) days after written notice from Landlord to Tenant that such amount is due; provided that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure SECTION 1161 or any similar or successor law; or - ------------- 12.1.2 Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that (i) any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure SECTION 1161 or any similar or successor law; (ii) if the ------------- nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default, as soon as possible; and (iii) the cure period specified in this SECTION 12.1.2 shall not be applicable to Tenant's -------------- obligations under SECTIONS 5.3,19.1 and 19.11 of this Lease; i.e., Tenant's ------------------ ----- failure to comply with any provision, covenant or condition described in such sections and/or articles within the time periods specified in such SECTIONS -------- 5.3,19.1 and 19.11 shall constitute a default under this SECTION 12.1.2; or - -------- ----- -------------- 12.1.3 Any of the following: (i) if Tenant makes a general assignment or general arrangement for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Tenant and is not dismissed within ninety (90) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant's assets located in the Premises or of Tenant's interest in this Lease and possession is not restored to Tenant within ninety (90) days; or (iv) if substantially all of Tenant's assets located in the Premises or of Tenant's interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within ninety (90) days, or 12.1.4 A default by Tenant, after expiration of any applicable cure periods, under Tenant's lease of the Adjacent Building. 12.2 Remedies Upon Default. Upon the occurrence of any event of ----------------------- default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever. -66- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 12.2.1 Terminate Tenant's right to possession by any lawful means, in which event this Lease and the term hereof shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord may recover from Tenant the following: (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 rental 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 Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been 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 would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and (v) At Landlord's election, but subject to the provisions of this Lease, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The term "Rent" as used in this SECTION 12.2 shall be deemed to be and ------------ to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Paragraphs 12.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by allowing interest at the rate set forth in SECTION 19.28 of this Lease, but in ------------- no case greater than the maximum amount of such interest permitted by law. As used in Paragraph 12.2.1(iii) above, the "worth at the time of award" shall be 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%). If Landlord terminates this Lease or Tenant's right to possession, Landlord shall use reasonable efforts to mitigate Landlord's damages, subject to any Recognition Agreement entered into pursuant to SECTION 11.6.2, above, and Tenant shall be -------------- entitled to submit proof of such failure to mitigate as a defense to Landlord's claims hereunder, if mitigation of damages by Landlord is required by applicable law. 12.2.2 Landlord shall have the remedy described in California Civil Code SECTION 1951.4 (lessor may continue lease in effect after lessee's --------------- breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due. -67- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 12.3 Sublessees of Tenant. If Landlord elects to terminate this Lease --------------------- on account of any default by Tenant as set forth in this ARTICLE 12, ---------- absent any contrary agreement between Landlord and such subtenant, licensee or concessionaire, Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed to Tenant's interest in such subleases, licenses, concessions or arrangements. In the event of Landlord's election to succeed to Tenant's interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of termination of this Lease, have no further right to or interest in the rent or other consideration receivable thereunder. 12.4 Form of Payment After Default. Following the occurrence of an --------------------------------- event of default by any Transferee (but not as to the originally-named Tenant or any Affiliate assignee), Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the default in question or otherwise, be paid in the form of wire transfer of immediate funds, cash, money order, cashier's or certified check drawn on an institution acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form. 12.5 Efforts to Relet. For the purposes of this ARTICLE 12, Tenant's ------------------ ---------- right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord's interests hereunder. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant's right to possession. 12.6 No Waiver of Redemption by Tenant. Nothing herein shall be deemed --------------------------------- to constitute a waiver of Tenant's right to redeem, by order or judgment of any court or by any legal process or writ, Tenant's right of occupancy of the Premises after any termination of this Lease. 12.7 Landlord's Default. ------------------- 12.7.1 General. Landlord shall not be deemed to be in default in ------- the performance of any obligation required to be performed by Landlord under this Lease if (i) in the event of failure by Landlord with respect to the payment of money, Landlord pays any unpaid amount within ten (10) days of written notice from Tenant that the same was not paid when due, or (ii) unless and until it has failed to perform such obligation for thirty (30) days after written notice by Tenant to Landlord specifying wherein Landlord has failed to perform such obligation; provided however, that if the nature of Landlord's obligation is such that more than thirty (30) days are reasonably required for its performance, then Landlord shall not be deemed to be in default if it shall commence such performance within such thirty (30) day period and, thereafter, diligently prosecutes the same to completion. If Landlord disagrees with Tenant that Landlord is in default, then, Landlord may submit the dispute to arbitration pursuant to the provisions of SECTION 19.41 hereof. Upon any default ------------- committed by Landlord, after giving effect to any applicable cure period, Tenant -68- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] may, except as specifically provided in this Lease to the contrary, exercise any of its rights provided in law or in equity. 12.7.2 Lender's Right to Cure and Notice. No failure of Landlord ---------------------------------- to make any payment required to be made by Landlord hereunder, or to observe or perform any covenant, condition or provision of this Lease, shall entitle Tenant to declare a default under this Lease unless (i) Tenant shall have given written notice to Lender of (A) such failure of Landlord, which notice shall have been given concurrently with Tenant's giving of notice of such failure to Landlord, and (B) of Landlord's failure to cure within any applicable cure period, and (ii) such Lender has been given ninety (90) days to cure such default after the expiration of Landlord's cure period set forth in SECTION ------- 12.7.1, above; provided however, except as set forth in the Nondisturbance - ------ Agreement to the contrary, in the absence of such Lender's express written consent, Lender shall not be deemed to have assumed Landlord's obligations under this Lease and Landlord shall remain solely liable for the performance of all terms, covenants and conditions of this Lease both prior and subsequent to such Lender's exercise of any right to cure; and, provided further, however, if the default by Landlord is of such a nature that it may not be cured by such Lender without the Lender becoming the owner of the Building, Tenant shall not exercise any remedy if such Lender (A) commences a non-judicial foreclosure of Landlord's interest in the Building within sixty (60) days of the expiration of Landlord's cure period, (B) thereafter uses reasonable efforts to complete the foreclosure of Landlord's interest in the Building and (C) cures such default within thirty (30) days after the completion of such foreclosure or, if the cure cannot reasonably be effected within thirty (30) days, commences the cure within such thirty (30) day period and thereafter diligently pursues it to completion. Such Lender shall have the right to perform all obligations of Landlord under this Lease on behalf of Landlord, but such Lender shall have no obligation to cure any default under this Lease unless it becomes an owner of the Building. If Lender effectuates a cure pursuant to this Section 12.7.2, then Landlord shall not be in default of this Lease with respect to the item so cured. ARTICLE 13 CONDEMNATION 13.1 Building and Premises. If twenty percent (20%) or more of the ----------------------- number of rentable square feet of the Premises shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation (any of such events may be referred to herein as a "TAKING"), Landlord and Tenant shall each have the option to terminate this Lease upon ninety (90) days' prior written notice to the other, provided such notice is given no later than one hundred eighty (180) days after the date of such Taking. 13.2 Parking Structure. If a portion of the Parking Structure and/or ------------------ reasonable access thereto is taken and, thereafter, a substantial portion of Tenant's parking rights under this Lease are terminated, unless Landlord can provide permanent replacement parking for Tenant's terminated rights within the area bounded by Victory Boulevard, Canoga Avenue, Oxnard Street, and Topanga Canyon Boulevard, Tenant shall have the right to terminate this Lease upon ninety (90) days' prior written notice to Landlord (provided such notice is -69- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] given no later than ninety (90) days after receipt of notice from Landlord that it cannot provide such permanent replacement parking), or to delete such full floors of the Building from the Premises as appropriate in Tenant's reasonable judgment to compensate for the consequent loss of parking. If Tenant elects to delete such full floors from the Premises, then all obligations measured by the number of rentable square feet of the Premises (such as Rent, the number of Tenant's parking passes, and Tenant's Share) shall be adjusted accordingly. Notwithstanding the foregoing, Tenant's right to reduce the size of the Premises to compensate for the consequent loss of parking, as aforesaid, shall be limited to one thousand (1,000) rentable square feet of the Premises for every three and thirty-nine one-hundredths (3.39) parking privileges (as such ratio may be adjusted pursuant to Section 9 of the Summary) lost as a result of a partial Taking of the Parking Structure or reasonable access thereto. Moreover, if such reduction would result in a portion of the Premises consisting of a partial floor of the Building, such partial floor shall be rounded-off either up or down (whichever is closest) to a full floor and Tenant shall only be entitled to delete full floors. 13.3 Award. Landlord shall be entitled to the entire award or payment ----- in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant's personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for goodwill and moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant. 13.4 Miscellaneous. All Rent shall be apportioned as of the date ------------- of such termination, or the date of such Taking, whichever shall first occur. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Tenant hereby waives any and all rights it might otherwise have pursuant to SECTION 1265.130 of The ---------------- California Code of Civil Procedure. ARTICLE 14 BROKERS Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in SECTION 11 of the Summary (the "BROKERS"), and that they know of no other real - ----------- estate broker or agent who is entitled to a commission in connection with this Lease. Landlord shall pay the brokerage commissions owing to the Brokers in connection with the transaction contemplated by this Lease pursuant to the terms of agreements between Landlord and the Brokers, and Landlord shall defend and indemnify Tenant against any claim for brokerage commissions by the Brokers arising out of this transaction, including reasonable attorneys fees and disbursements. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party. -70- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] ARTICLE 15 LANDLORD'S LIABILITY It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord hereunder (including any successor Landlord hereunder) and any recourse by Tenant against Landlord shall be limited solely and exclusively to the interest of Landlord (as opposed to its general or limited partners) in and to the Building and the Project (including the rental income from the same and the proceeds of sale of the same), and neither Landlord, nor any of its constituent partners or subpartners, shall have any personal liability therefor, and Tenant, on behalf of itself and all persons claiming by, through or under Tenant, hereby expressly waives and releases Landlord and such partners from such personal liability. ARTICLE 16 REASONABLENESS AND GOOD FAITH Except as specifically provided to the contrary in this Lease, and except for matters which could affect (i) the Systems and Equipment of the Building, (ii) the structural aspects of the Building, or (iii) the exterior appearance of the Building, in which case Landlord shall have the right to act in its sole and absolute discretion (but at all times in good faith), any time the consent or approval of Landlord or Tenant is required under this Lease, such consent or approval shall not be unreasonably withheld, conditioned or delayed. The fact that, in various places in the text of this Lease, the foregoing standard limiting discretion to withhold consent or approval is expressly stated only in part or is not expressly stated, at all, shall not be construed as an intended departure from the applicability of said standard in all instances where consent or approval is required other than those instances excepted in the immediately preceding sentence. Likewise, except as provided in the first sentence of this ARTICLE 16, whenever the Lease grants Landlord or Tenant the right to take - ----------- action, exercise discretion, establish rules and regulations, or make a designation, allocation or other determination, Landlord and Tenant shall act reasonably and in good faith. If either Landlord or Tenant withholds any consent or approval requested by the other party, the withholding party shall, on written request, deliver to the other party a written statement specifying in detail the reasons such consent or approval was withheld. ARTICLE 17 INTENTIONALLY OMITTED ARTICLE 18 TENANT PARKING 18.1 Number of Parking Passes. Tenant shall be provided during the --------------------------- Lease Term, free of charge, the number of parking passes set forth in SECTION 9 --------- of the Summary (the "BASIC NUMBER") , which parking passes shall pertain to the -71- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Project's parking structure, as described in Section 1.2 of Schedule 1 to the Tenant Work Letter, and parking areas (collectively, the "PARKING STRUCTURE"). In addition to the Basic Number, fifteen (15) additional parking passes (subject to the maximum number of spaces available in the Project parking areas) shall be allocated to Tenant at no additional cost to Tenant (the "BONUS PASSES"). Except as provided in SECTION 18.3 below, such parking passes shall be ------------- unreserved parking passes. 18.2 Parking Rate. Tenant shall not be obligated to pay, during the ------------- Lease Term and any applicable Renewal Option Terms, for the use of parking passes or spaces up to the Maximum Number since Tenant's parking charges are included in the amount of Base Rent. To the extent Tenant uses parking passes, from time to time, as allowed by Landlord, in excess of the sum of the Basic Number and Bonus Passes, Tenant shall pay to Landlord for Tenant's parking passes, at the same time and in the same manner as Base Rent at rates not exceeding the prevailing rates in Comparable Buildings. 18.3 Allocation of Parking Spaces. Tenant shall have the right to ------------------------------- utilize the Bonus Passes in connection with designated spaces in the Project parking areas to be initially selected by Tenant and, thereafter, moved only with Landlord's approval. Tenant may use such spaces for customer parking or other specified uses, in Tenant's discretion. In addition, Tenant may request Landlord to designate a limited number of specific parking spaces or areas for the use of Tenant for its pool cars or vans, executive parking, manager parking, claims parking, as well as other specified uses, in each instance subject to Landlord's right to reject any such designation when, and to the extent that, it would materially and adversely affect the efficient operation of the Project parking areas for the benefit of all of the tenants in the Project. In making such designations, Landlord and Tenant shall take into consideration the relative level of occupancy and use of the Project by Tenant in relation to the other tenants in the Building. Moreover, if, when and so long as, Tenant leases one hundred percent (100%) of the occupancy space in the Project, Landlord waives its right to reject any such designation. If specific areas of the parking structure are designated for use by particular tenants in the Project, Tenant shall be entitled to priority over all other tenants in the selection of such specific areas. There shall be no tandem parking permitted. 18.4 Visitor Parking. Certain areas of the Project Common Area, ---------------- including the Parking Structure may be set aside by Landlord for visitor parking. Visitor parking shall be at a charge to visitors at the rate established by Landlord from time to time. Tenant may purchase validations for visitor parking from Landlord or Landlord's parking operator and may elect to validate such parking for its visitors. Visitor parking rates and the price for validations shall not exceed the rates and prices typically charged in Comparable Buildings. Notwithstanding the foregoing, Landlord agrees that Tenant's "claims" customers (i.e., customers having insurance claims adjusted) shall have the right to use the parking areas free of charge. 18.5 Passenger Drop-Off and Pick-Up. Landlord agrees that it shall --------------------------------- provide free employee drop-off and pick-up at the Project, either through the creation of a special passenger loading and unloading area which does not require entry into the main Project parking areas, or by establishing a "grace period" of not less than ten (10) minutes in the mornings and fifteen (15) minutes in the evenings during which visitors can enter and exit the Project parking areas without charge. -72- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 18.6 Miscellaneous Parking Provisions. Tenant shall abide by all rules -------------------------------- and regulations which are prescribed from time to time for the orderly operation and use of the Project's parking facilities, and Tenant shall use its good faith efforts to cause its employees and visitors to comply with such rules and regulations. Landlord may refuse to permit any person who violates the rules and regulations of the Project's parking facilities from parking therein, and any violation of such rules shall subject such person's vehicle to removal. Subject to Tenant's prior written approval (except when required by law), which approval shall not be unreasonably withheld or delayed, Landlord shall have the right to change the size of parking spaces, configuration, design, layout and all other aspects of the Project's parking facilities. Subject to Tenant's prior written approval, Landlord may, without incurring any liability to Tenant and without any abatement of Rent under this Lease, from time to time, temporarily close-off or restrict access to the Project's parking facilities for purposes of permitting or facilitating any such construction, alteration or improvements. However, Landlord shall use commercially reasonable efforts to minimize such restrictions upon access and shall use commercially reasonable efforts to provide to Tenant alternative parking during such periods, which shall be within or in close proximity to the Project, and shall provide reasonably adequate security and, when appropriate, shuttle services, to and from such alternative parking area to minimize any inconvenience to Tenant resulting from such temporary closure or restricted access. Landlord may delegate its responsibilities hereunder to a parking operator, in which case such parking operator shall have all the rights of control attributed hereby to the Landlord. The parking passes provided to Tenant pursuant to this ARTICLE 18 ---------- are provided to Tenant solely for use by Tenant's own personnel and such passes may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord's prior approval; provided, however, Tenant may transfer a portion of the parking passes rented by Tenant pursuant to this ARTICLE 18 to a ---------- Transferee permitted pursuant to ARTICLE 11 of this Lease. Such portion shall be ----------- based upon the number of rentable square feet of the Premises subject to the applicable Transfer in relation to the total number of rentable square feet contained within the Premises. ARTICLE 19 MISCELLANEOUS PROVISIONS 19.1 Estoppel Certificates. Within fifteen (15) business days ---------------------- following a request in writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel certificate which, as submitted by Landlord, shall be substantially in the form of EXHIBIT F, attached hereto (or such other form as --------- may reasonably be required by any prospective mortgagee or purchaser of the Project, or any portion thereof, in which event Tenant shall have no less than twenty (20) business days in which to execute and deliver the same), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord's mortgagee or prospective mortgagee. Tenant shall execute and deliver whatever other instruments may be reasonably required of a tenant for such purposes. Failure of Tenant to timely execute and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception. -73- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.2 Partial Invalidity. If any term, provision or condition contained ------------------ in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law. 19.3 Time of Essence. Time is of the essence of this Lease and each of --------------- its provisions. 19.4 Captions. The captions of Articles and Sections are for -------- convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections. 19.5 Notices. All notices, demands, statements, designations, ------- approvals or other communications (collectively, "NOTICES") given or required to be given by either party to the other hereunder shall be in writing (regardless of whether or not such notice is described as "written" notice), shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, or delivered personally (i) to Tenant and its attorneys at the appropriate addresses set forth in SECTION 10 of the Summary, or to such other ---------- places or other such attorneys as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the following addresses, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant: TISHMAN WARNER CENTER VENTURE, LLC 6301 Owensmouth Avenue Woodland Hills, California 91367 Attn: Building Manager and TISHMAN WARNER CENTER VENTURE 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 Attention: Asset Manager With a copy to: Tishman International Companies 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 Attention: Chairman And with another copy to: Allen, Matkins, Leck, Gamble & Mallory 1999 Avenue of the Stars, Suite 1800 Los Angeles, California 90071 Attn: Anton N. Natsis, Esq. -74- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Any Notice will be deemed given on the date which is two (2) business days after the date it is mailed as provided in this SECTION 19.5 or, if sooner, upon ------------ the date personal delivery is made. 19.6 Nonwaiver. No provision of this Lease shall be deemed waived by --------- either party hereto unless expressly waived in a writing signed thereby. The waiver of either party hereto of any breach of any term, covenant or condition herein contained, shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained. Additionally, no express waiver shall affect any provision other than the one specified in such waiver and then only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant's right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment. Tenant's payment of any Rent hereunder shall not constitute a waiver by Tenant of any breach or default by Landlord under this Lease. 19.7 Holding Over. If Tenant holds over after the expiration of the ------------- Lease Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to the product of (i) the Rent applicable during the last rental period of the Lease Term under this Lease, and (ii) one hundred twenty-five percent (125%) during the first three (3) months of such holdover, one hundred thirty-seven point five percent (137.5%) during the next three (3) months of such holdover, and one hundred fifty percent (150%) thereafter. Such month-to-month tenancy shall be subject to every other applicable term, covenant and agreement contained herein. Nothing contained in this SECTION 19.7 shall be construed as consent by Landlord to any holding over ------------ by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this SECTION 19.7 shall not be deemed to limit or constitute a waiver of any other - ------------- rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises within thirty (30) days following (i) the effective date of the termination or (ii) the expiration date of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom. 19.8 Intentionally Omitted. ---------------------- 19.9 Binding Effect. Subject to all other provisions of this Lease, --------------- each of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but -75- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of ARTICLE 11 of this ---------- Lease. 19.10 Governing Law. This Lease shall be construed and enforced in -------------- accordance with the laws of the State of California. 19.11 Subordination. Subject to Tenant's receipt of an appropriate ------------- "Nondisturbance Agreement" as set forth below, this Lease shall be subject and subordinate to all future ground or underlying leases of the Building or Project and to the lien of any future mortgage or trust deed hereafter recorded against the Building or Project, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. In consideration of, and as a condition precedent to, Tenant's agreement to permit its interest pursuant to this Lease to be subordinated to any particular future ground or underlying lease or to the lien of any particular future Mortgage or deed of trust encumbering the Building or the Project, Landlord shall deliver to Tenant, for Tenant's signature, a commercially reasonable "subordination, non-disturbance and attornment agreement" (the "NONDISTURBANCE AGREEMENT") which shall be executed by the landlord under such ground lease or underlying lease or the holder of such mortgage or trust deed. Tenant and Landlord acknowledge that the Subordination, Nondisturbance and Attornment Agreement attached hereto as EXHIBIT J is a --------- commercially reasonable Nondisturbance Agreement. In connection with any Nondisturbance Agreement with any construction lender, Tenant shall not be required to waive any Landlord obligation under this Lease, other than as expressly provided in EXHIBIT J. If the holder of such mortgage or trust deed --------- is a depository institution insured by the Federal Deposit Insurance Corporation, as a further condition of delivery of such Nondisturbance Agreement, Tenant shall be entitled to evidence (in the form of a corporate secretary's certificate or its equivalent) that the Nondisturbance Agreement has been approved by the board of directors or loan committee of the depository institution and such approval is reflected in its minutes. Such certificate (or its equivalent) shall include an agreement by such mortgage or trust deed holder to maintain the Nondisturbance Agreement as an official record of the depository institution during the term of the loan. Tenant covenants and agrees that in the event any proceedings are brought for the foreclosure of any such mortgage or Landlord records a deed in lieu thereof, to attorn to the purchaser or any successors thereto upon any such foreclosure sale or transfer by deed in lieu thereof if so requested to do so by such purchaser, and to recognize such purchaser as the lessor under this Lease. Tenant shall, within fifteen (15) business days of request by Landlord, execute such instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. 19.12 Waiver of Jury Trial; Attorneys' Fees. EACH PARTY HEREBY WAIVES -------------------------------------- ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE THE SPECIFIC PERFORMANCE OF THIS LEASE, FOR DAMAGES FOR THE BREACH HEREOF, OR OTHERWISE FOR ENFORCEMENT OF ANY REMEDY HEREUNDER. If either party commences litigation against the other for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder, the prevailing party shall be -76- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] entitled to recover from the other party such costs and reasonable attorneys' fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment. 19.13 Entry by Landlord. Landlord reserves the right at all reasonable ----------------- times, and upon reasonable notice to Tenant (except in the case of an emergency), to enter the Premises to (i) inspect them; (ii) show the Premises to prospective tenants (but only during the last twenty-four (24) months of the Lease Term or any Option Term where Tenant has not previously exercised an available extension option), purchasers, mortgagees, or ground or underlying lessors; (iii) post notices of nonresponsibility; (iv) subject to SECTIONS 8.1.2 -------------- and 10.3.2, to alter, improve or repair the Premises or the Building if ------ necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building; provided that Landlord agrees to use commercially reasonable efforts to schedule any such work outside of Building Hours; or (v) to exercise, in compliance with the terms of this Lease, rights and obligations of Landlord under this Lease. Subject to the foregoing, Landlord may make any such entries without the abatement of Rent, may take such reasonable steps as required to accomplish the stated purposes, and Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with Tenant's business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant's vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. 19.14 Authority. Each individual executing this Lease on behalf of --------- Tenant hereby represents and warrants that Tenant is a duly formed and existing corporation qualified to do business in California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. Tenant agrees to deliver reasonable evidence to Landlord evidencing such authorization concurrently with Tenant's execution of this Lease. 19.15 Surrender of Premises; Ownership and Removal of Trade Fixtures. --------------------------------------------------------------- 19.15.1 Surrender of Premises. No act or thing done by Landlord ----------------------- or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether -77- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] accepted by Landlord or not, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises. 19.15.2 Removal of Tenant Property by Tenant. Upon the expiration ------------------------------------ of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this SECTION 19.15, quit and surrender possession ------------- of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear, loss by Casualty and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal, and restore the Building to its initial condition. 19.16 Entire Agreement. This Lease, the exhibits and schedules ----------------- attached hereto, and any side letter or separate agreements entered into by Landlord and Tenant in connection with this Lease and dated of even date herewith (for the purposes, solely, of this Section 19.16, the foregoing are ------------- referred to collectively, as "this Lease") supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease. This Lease contains all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises and shall be considered to be the only agreement between the parties hereto and their representatives and agents. None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties, and all reliance with respect to representations is based totally upon the representations and agreements contained in this Lease. 19.17 Signs. ----- 19.17.1 Interior of Premises. Tenant, at its sole cost and ---------------------- expense, may install identification signage anywhere in the Premises including in the elevator lobbies of the Premises, provided that such signs must not be visible from the exterior of the Building. If other tenants occupy space on a floor on which the Premises is located, Tenant's identifying signage shall be provided by Landlord, at Tenant's cost, and shall comply with Landlord's Building standard signage. Tenant may not install any signs on the exterior or roof of the Project (except as provided in SECTION 19.17.2 below) or the Common --------------- Areas, except that Tenant shall have the exclusive right to signage (not including the Building directory board) in the ground floor lobby of the Building. Such lobby signage and any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the -78- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion. 19.17.2 Exterior Signage. ----------------- 19.17.2.1 Description. Tenant shall be entitled to install ----------- (i) up to four (4) signs identifying Tenant either on the parapet at the top of the Building or at some "belt-line" on the Building, with such signs to be located one on each side of the Building (the "BUILDING TOP SIGNAGE"), (ii) up to two (2) signs identifying Tenant on exclusive monument signs in the Project Common Area outside the Building (collectively, the "MONUMENT SIGNAGE"), and (iii) one (1) sign at, on or in, the atrium entry on the south side of the Building (collectively, the "Tenant's Signage"). The location of Tenant's Signage shall be subject to Landlord's prior written approval, which approval shall not be unreasonably withheld. The graphics, materials, color, design, lettering, lighting, size, and specifications of Tenant's Signage (collectively, the "SPECIFICATIONS") shall be subject to the prior written approval of Landlord. In addition, all such signage shall be subject to Tenant's receipt of all required governmental permits and approvals and shall be subject to all applicable governmental laws and ordinances including, without limitation, the Warner Center Specific Plan (as amended or modified by variance) and subject to the CC&Rs. Landlord shall use commercially reasonable efforts to assist Tenant in obtaining all necessary governmental permits and approvals for such signage. Tenant hereby acknowledges that, notwithstanding Landlord's approval of Tenant's Signage, Landlord has made no representation or warranty to Tenant with respect to the probability of obtaining all necessary governmental approvals and permits for Tenant's Signage. In the event Tenant does not receive the necessary governmental approvals and permits for any of Tenant's Signage, Tenant's and Landlord's rights and obligations under the remaining provisions of this Lease shall be unaffected. Landlord shall be entitled to install one additional monument sign in the Project Common Area outside the Building displaying the names of other tenants of the Building, provided (i) that such monument sign is of a quality consistent with the Monument Signage, and (ii) provided the amount of signage otherwise permitted by governmental authority to Tenant is not adversely affected thereby. The cost of installation of Tenant's Signage, as well as all costs of design and construction of such signage and all other costs associated with such signage including, without limitation, utility charges, hook-up fees, permits, maintenance and repair and insurance shall be the sole responsibility of Tenant. Tenant further acknowledges that any repairs necessitated as a result of window washing equipment cabling passing over the Building Top Signage in the normal course of cleaning the exterior windows of the Building shall be the sole responsibility of Tenant. 19.17.2.2 Transferability. The rights to the signage --------------- described in SECTION 19.17.2.1, above, may not be transferred by Tenant or ------------------ changed once such signage is initially installed by Tenant except as set forth in this SECTION 19.17.2.2. In connection with an Assignment, which Assignment ----------------- is permitted pursuant to the provisions of ARTICLE 11 of this Lease, Tenant's ---------- rights with respect to Tenant's Signage shall be deemed transferred to the Transferee (the "PERMITTED USER") so long as (i) such Transferee is not a governmental agency or instrumentality thereof, (ii) the consolidated balance sheet for the Transferee and any subsidiaries of the Transferee "controlled," as that term is defined in SECTION 11.5 of this Lease, by the Transferee, as set ------------ forth in the Transferee's publicly available annual report for the Transferee's -79- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] fiscal year most recently ended prior to the date of the Assignment and as set forth in the Transferee's publicly available quarterly report for the quarter of the Transferee's fiscal year most recently ended prior to the date of the Assignment, provides that (A) Transferee's Net Worth Amount is at least One Hundred Million Dollars ($100,000,000), and (B) Transferee's Liquidity Amount is at least Fifty Million Dollars ($50,000,000), and (iii) the name of the assignee or sublessee is not an "Objectionable Name," as that term is defined below. Should the name of Tenant be legally changed to another name (the "SUCCESSOR ENTITY"), Tenant shall be entitled to modify, at Tenant's sole cost and expense, Tenant's Signage to reflect Tenant's new name, but only if Tenant's new name is not an "Objectionable Name." The term "Objectionable Name" shall mean any name which relates to an entity which is of a character or reputation, or is associated with a political orientation or faction, which is inconsistent with the quality of the Project, or which would otherwise reasonably offend Landlord or a landlord of a Comparable Building or neighbors taking into consideration the level and visibility of signage rights inherent in Tenant's Signage. 19.17.2.3 Maintenance. Should the Tenant's Signage require ----------- maintenance or repairs, within two (2) business days of Landlord becoming aware of the need for such maintenance or repairs, Landlord shall provide written notice thereof to Tenant, and Tenant shall cause such repairs and/or maintenance to be performed within thirty (30) days after receipt of such notice from Landlord (or, in the event of an immediately visible problem with the Tenant Signage, as expeditiously as reasonably possible after receipt of such notice), at Tenant's sole cost and expense; provided, however, if such repairs and/or maintenance are reasonably expected to require longer than thirty (30) days to perform, Tenant shall commence such repairs and/or maintenance within such thirty (30) day period and shall diligently prosecute such repairs and maintenance to completion. Should Tenant fail to perform such maintenance and repairs within the periods described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant as Additional Rent for the costs of such work plus interest at the Interest Rate from the date of Landlord's payment of such costs to the date of Tenant's reimbursement to Landlord. During the Lease Term Tenant shall maintain an industry standard maintenance and repair contract with a reputable contractor, and shall maintain an industry standard insurance policy with respect thereto. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant's sole cost and expense, cause the Tenant's Signage to be removed from the exterior of the Building and shall cause the exterior of the Building to be restored to the condition existing prior to the placement of such signage and shall cause Tenant's sign to be removed from the Monument Signage. If Tenant fails to remove such signage or to restore the exterior of the Building as provided in the immediately preceding sentence within ninety (90) days following the expiration or earlier termination of this Lease, then Landlord may perform such work, and all costs and expenses incurred by Landlord in so performing plus interest at the Interest Rate from the date of Landlord's payment of such costs to the date of Tenant's reimbursement to Landlord shall be reimbursed by Tenant to Landlord within ten (10) days after Tenant's receipt of invoice therefor. The immediately preceding sentence shall survive the expiration or earlier termination of this Lease. 19.18 Covenant Against Liens. Tenant has no authority or power to ---------------------- cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon -80- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] the Project or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant's interest only. Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Project, the Building or the Premises, or any portion thereof, with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises, and, in case of any such lien attaching or notice of any lien, Tenant covenants and agrees to cause it to be immediately released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, in the event that such lien is not released and removed on or before the date occurring twenty (20) days after notice of such lien is delivered by Landlord to Tenant, Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys' fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall be due and payable by Tenant within thirty (30) days of invoice. 19.19 Terms. The necessary grammatical changes required to make the ----- provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. 19.20 Prohibition Against Recording. Except as hereafter provided in ------------------------------- this SECTION 19.20, neither this Lease, nor any memorandum, affidavit or other -------------- writing with respect thereto, shall be recorded by Tenant or Landlord or by anyone acting through, under or on behalf of Tenant or Landlord. Notwithstanding the foregoing, Landlord agrees to execute a short form of lease in the form attached hereto as EXHIBIT M concurrently with the mutual execution --------- and delivery of this Lease, which short form of lease Tenant may record at its sole cost and expense. Upon the Lease Expiration Date or earlier termination of this Lease, Tenant shall execute and have acknowledged and then deliver to Landlord, a termination of the Lease as set forth on EXHIBIT N attached hereto. --------- 19.21 Confidentiality. Landlord and Tenant each hereby acknowledge --------------- that the contents of this Lease and any related documents are confidential information. Until any such information enters the public domain, both parties shall use reasonable efforts to keep, and instruct their respective agents to keep, such information strictly confidential and shall use reasonable efforts not to disclose such confidential information to any person or entity other than such party's financial, legal, and space planning consultants, except as may be legally required by law or in connection with arbitration of a dispute or litigation hereunder, or in connection with any financing or sale. 19.22 Quiet Enjoyment. Landlord covenants that Tenant, on paying the ---------------- Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied. -81- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.23 Improvement of the Premises. Except as specifically set forth in --------------------------- this Lease and in the Tenant Work Letter, Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Tenant also acknowledges that Landlord has made no representation or warranty regarding the condition of the Premises or the Project except as specifically set forth in this Lease and the Tenant Work Letter. 19.24 Force Majeure. Any actual prevention, delay or stoppage due to -------------- strikes, lockouts or other labor or industrial disturbance, whether or not on the part of employees of either party hereto; civil disturbance; future order of any government, court or regulatory body claiming jurisdiction; acts of the public enemy, war, riot, sabotage, blockade or embargo; inability to secure customary or required materials, supplies or labor through ordinary sources by reason of shortages, regulations or orders of any government or regulatory body; lightning, earthquake, fire, storm, hurricane, tornado, flood, washout or explosion; court actions; or any similar cause beyond the reasonable control of the party from whom performance is required or any of their contractors or other representatives (collectively, a "FORCE MAJEURE"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure; provided, however, that nothing contained herein or elsewhere in this Lease shall obligate either party to settle a strike or other labor dispute when it does not wish to do so and Force Majeure shall not include any delays due to a party's inability or failure to make any monetary payments required under this Lease such as, by way of example, the payment of Rent by Tenant. This SECTION 19.24 shall not, however, apply to ------------- the construction of Tenant Improvements in the Premises, as SECTION 5 of the --------- Tenant Work Letter shall control in such instance. 19.25 Hazardous Materials Provisions. 19.25.1 Landlord's Covenant. Landlord agrees that Landlord shall -------------------- not, during the course of construction or thereafter, cause any "Hazardous Material," as that term is defined in Section 19.25.4, below, to be brought upon or used in or about the Project, by Landlord, its agents or employees in violation of any Hazardous Materials Laws in effect at such time. 19.25.2 Tenant's Representations and Warranties. Tenant hereby ------------------------------------------ represents and warrants to Landlord that neither Tenant nor Tenant's Transferees, agents, employees or contractors shall, at any time during the Lease Term, utilize, store or possess in or about the Premises or the Building, any Hazardous Materials except for ordinary office supplies in commercially reasonable amounts and except for equipment customarily used in offices, all of which shall be utilized strictly in accordance with Hazardous Materials laws in effect at such time. Tenant shall indemnify, defend, protect and hold Landlord harmless from any and all loss, cost, damage, expense and liability (including, without limitation, reasonable attorneys' fees) incurred by Landlord in connection with or arising from the breach by Tenant of the representation and warranty set forth in the immediately preceding sentence. 19.25.3 Landlord Remediation Obligations. If at any time during the --------------------------------- Lease Term, any Hazardous Material is discovered in the Project in violation of -82- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] any Hazardous Materials laws, and such Hazardous Material was not created or brought upon the Project by any Tenant Parties, then Landlord shall, as an Operating Expense only to the extent permitted under ARTICLE 3, take the action --------- which Landlord is mandated to take by applicable governmental authorities to bring the Project into compliance with all Hazardous Materials laws, provided that Landlord shall be required to take such action only to the extent that the failure to do so would (i) unreasonably endanger the health or safety of Tenant's employees, or (ii) result in a material interference with Tenant's permitted use of the Premises. Notwithstanding the foregoing portions of this SECTION 19.25.3, however, Operating Expenses shall not include any costs for the - --------------- removal or remediation of (A) asbestos or any other Hazardous Material which is introduced to the Project in violation of the terms of SECTION 19.25.1, or (B) --------------- subsurface or groundwater contamination, except to the extent any cost of (A) or (B) is a result of the actions of any Tenant Parties. 19.25.4 Definition. As used herein, the term "Hazardous ---------- Material" means any hazardous or toxic substance, material or waste which is or becomes regulated by, or is dealt with in, any local governmental authority, the State of California or the United States Government. Accordingly, the term "Hazardous Material" includes, without limitation, any material or substance which is (i) defined as a "hazardous waste," "extremely hazardous waste" or "restricted hazardous waste" under SECTIONS 25115, 25117 or 25122.7, or listed -------------- ----- ------- pursuant to SECTION 25140 of the California Health and Safety Code, Division 20, ------------- Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a "hazardous substance" under SECTION 25316 of the California Health and Safety Code, -------------- Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and Inventory), (iii) defined as a "hazardous substance" under SECTION 25281 of the ------------- California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage of Hazardous Substances), (iv) petroleum, (v) asbestos, (vi) listed under ARTICLE 9 or defined as hazardous or extremely hazardous pursuant to ARTICLE 11 - ---------- ---------- of Title 22 of the California Administrative Code, Division 4, Chapter 20, (vii) designated as a "hazardous substance" pursuant to SECTION 311 of the Federal ----------- Water Pollution Control Act (33 U.S.C. 1317), (viii) defined as a "hazardous waste" pursuant to SECTION 1004 of the Federal Resource Conservation and ------------- Recovery Act, 42 U.S.C. Sec. 6902 et seq. (42 U.S.C. Sec. 6903), or (ix) defined as a "hazardous substance" pursuant to SECTION 101 of the Compensation and ----------- Liability Act, 42 U.S.C. Sec. 9601 et seq. (42 U.S.C. Sec. 9601). 19.26 Transportation Management. Tenant shall fully comply with -------------------------- all present or future programs intended to manage parking, transportation or traffic in and around the Project or Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities. Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Project, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work shifts for employees. 19.27 Compliance With Law. Tenant shall not do anything or suffer --------------------- anything to be done in or about the Premises which will in any way conflict with -83- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] any law, statute, ordinance or other governmental or quasi-governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated ("LAWS"). Landlord shall be responsible, at Landlord's sole cost and expense (except to the extent such costs may be included as part of Operating Expenses (under ARTICLE 3) for making all alterations required by Laws --------- to the structural portions of the Building and the Common Areas (including the Parking Structure), except to the extent such alterations are triggered by any Alterations in the Premises, in which event such alterations shall be at Tenant's sole cost and expense. Additionally, Landlord shall also make all alterations to the Tenant Improvements and Alterations within the Premises and the Storage Area required by Laws (the "COMPLIANCE OBLIGATIONS"). However, the cost of making such Compliance Alterations shall not be included in Operating Expenses, but shall be billed directly to Tenant as Additional Rent, and paid by Tenant to Landlord concurrent with the next payment of Base Rent hereunder. Should any standard or regulation now or hereafter be imposed on Landlord or Tenant by a state, federal or local governmental body charged with the establishment, regulation and enforcement of occupational, health or safety standards for employers, employees, landlords or tenants, then, Landlord or Tenant, as the case may be, agrees, at its sole cost and expense, to comply promptly with such standards or regulations. The judgment of any court of competent jurisdiction or the admission of Landlord or Tenant in any judicial action, regardless of whether the other party is a party thereto, that they have violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant. 19.28 Late Charges. If any installment of Base Rent or that portion of ------------ any Additional Rent which is not the subject of a good-faith dispute by Tenant, disputed and withheld in accordance with the terms of SECTION 3.6, above, as set ----------- forth in a written notice delivered by Tenant to Landlord on or before the payment of such Additional Rent is due, shall not be received by Landlord or Landlord's designee within ten (10) days after Tenant receives written notice that said amount is due, Tenant shall pay to Landlord a late charge equal to (i) with respect to the first such overdue amount in any 12-month period, Two Thousand Five Hundred Dollars ($2,500), or (ii) with respect to any further overdue payments, four percent (4%) of the overdue amount, as a one-time late charge applying to such particular amount overdue. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at a rate ("INTEREST RATE") per annum equal to the lesser of (i) the rate per annum announced from time to time by Citibank N.A. as its prime rate (or, if such bank fails to exist or to announce such a rate, then the prime rate announced by the largest state chartered bank operating in the State of California) plus two and one-half percent (2 %), and (ii) the highest rate permitted by applicable law. 19.29 Landlord's Right to Cure Default; Payments by Tenant. ----------------------------------------------------------- 19.29.1 Landlord's Cure. All covenants and agreements to be kept or ---------------- performed by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any reduction of Rent. If Tenant shall fail to perform any of its obligations under this Lease within a reasonable time -84- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] after such performance is required by the terms of this Lease, Landlord may, but shall not be obligated to, after reasonable prior notice to Tenant (except in the case of an emergency), make any such payment or perform any such act on Tenant's part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder. 19.29.2 Tenant's Reimbursement. Except as may be specifically ----------------------- provided to the contrary in this Lease, Tenant shall pay to Landlord, within thirty (30) days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant's defaults pursuant to the provisions of SECTION 19.29.1; (ii) sums equal to all --------------- losses, costs, liabilities, damages and expenses referred to in ARTICLE 7 of --------- this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant's obligations under this SECTION 19.29 shall survive the ------------- expiration or sooner termination of the Lease Term. 19.30 No Air Rights. No rights to any view or to light or air over any ------------- property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease. If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant's obligations under this Lease. 19.31 Intentionally Omitted. ---------------------- 19.32 Transfer of Landlord's Interest. Tenant acknowledges that ---------------------------------- Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease not accrued as of the date of this transfer, and Tenant agrees to look solely to such transferee for the performance of Landlord's obligations hereunder after the date of transfer subject to the express written agreement by such transferee to fully assume and be liable for all obligations of this Lease to be performed by Landlord which first accrue or arise after the date of the conveyance, and Tenant shall attorn to such transferee. Tenant further acknowledges that Landlord may assign its interest in this Lease to the holder of any mortgage or deed of trust as additional security, but such an assignment shall not release Landlord from its obligations hereunder and Tenant shall continue to look to Landlord for the performance of its obligations hereunder. 19.33 Landlord's Title. Landlord's title is and always shall be ----------------- paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord. 19.34 Relationship of Parties. Nothing contained in this Lease shall ------------------------- be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant, it being expressly understood and -85- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] agreed that neither the method of computation of Rent nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant. 19.35 Application of Payments. Unless Tenant specifies the particular ------------------------ purpose of any payment to Landlord, Landlord shall have the right to apply payments received from Tenant pursuant to this Lease to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect. 19.36 No Warranty. In executing and delivering this Lease, Tenant has ------------ not relied on any representations including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto. 19.37 Landlord's Right to Lease Other Space. Landlord reserves the ----------------------------------------- absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall or shall not, during the Lease Term, occupy any space in the Building or Project. Notwithstanding the foregoing, Landlord agrees that at no time during the Lease Term, including any Renewal Option Term, will Landlord lease space in the Building to any insurance company or agency which is a direct competitor of Tenant. Additionally, during the Lease Term, including any Renewal Option Term, Landlord agrees not to lease space in the Building to any insurance company or agency whether or not it is a direct competitor of Tenant, except in the case where Landlord has been unable to initially lease space in the Building for a period of one (1) year after the Lease Commencement Date, in which event Landlord shall have the one-time right to lease such previously un-leased space to an insurance company or agency which is not a direct competitor of Tenant, and to renew any such lease, whether through the granting of options or otherwise. In the event that, during any Option Term Tenant no longer is leasing the Adjacent Building, the leasing restrictions contained in the prior two (2) sentences shall apply only to one-half of any space in the Building not leased by Tenant at such time. 19.38 Intentionally Omitted. ---------------------- 19.39 Independent Covenants. This Lease shall be construed as though ---------------------- the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, except as expressly set forth in this Lease, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord's expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building or Project or any portion thereof, whose address has theretofore been given to Tenant, in accordance with the provisions of SECTION 12.7. ------------- -86- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 19.40 Office and Communications Services. ------------------------------------- 19.40.1 Provider. Landlord shall advise Tenant if, as and when, -------- office and communications services will be offered to tenants of the Building by a concessionaire under contract to Landlord ("PROVIDER"). Tenant shall be permitted to contract with Provider for the provision of any or all of such services on such terms and conditions as Tenant and Provider may agree. The foregoing, notwithstanding, Tenant shall have the right to install its own, exclusive office and communications services in the Building subject, of course, to the terms of ARTICLE 6 and EXHIBIT C. ---------- ---------- 19.40.2 Other Terms. Tenant acknowledges and agrees that: (i) ------------ Landlord has made no warranty or representation to Tenant with respect to the availability of any such services, or the quality, reliability or suitability thereof; (ii) the Provider is not acting as the agent or representative of Landlord in the provision of such services, and Landlord shall have no liability or responsibility for any failure or inadequacy of such services, or any equipment or facilities used in the furnishing thereof, or any act or omission of Provider, or its agents, employees, representatives, officers or contractors; (iii) Landlord shall have no responsibility or liability for the installation, alteration, repair, maintenance, furnishing, operation, adjustment or removal of any such services, equipment or facilities; and (iv) any contract or other agreement between Tenant and Provider shall be independent of this Lease, the obligations of Tenant hereunder and the rights of Landlord hereunder, and, without limiting the foregoing, no default or failure of Provider with respect to any such services, equipment or facilities, or under any contract or agreement relating thereto, shall have any effect on this Lease or give to Tenant any offset or defense to the full and timely performance of its obligations hereunder, or entitle Tenant to any abatement of rent or additional rent or any other payment required to be made by Tenant hereunder, or constitute any accrual or constructive eviction of Tenant, or otherwise give rise to any other claim of any nature against Landlord. 19.41 Arbitration. 19.41.1 General Submittals to Arbitration. The submittal of all ------------------------------------ matters to arbitration in accordance with the terms of this SECTION 19.41 shall ------------- be the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Lease, except for (i) determination of Option Rent, which shall be determined in accordance with SECTION 2.3.4 above, (ii) all claims by either party which (A) seek anything - -------------- other than enforcement of rights under this Lease, or (B) are primarily founded upon matters of fraud, willful misconduct, bad faith or any other allegations of intentional tortious action, and seek the award of punitive or exemplary damages, and (iii) claims (not elsewhere herein expressly agreed to be submitted to arbitration) relating to the payment of Rent by Tenant, and Landlord's exercise of any unlawful detainer rights pursuant to California law or rights or remedies used by Landlord to gain possession of the Premises or terminate Tenant's right of possession to the Premises in connection therewith. The parties hereby irrevocably waive any and all rights to the contrary and shall at all times conduct themselves in strict, full, complete and timely accordance with the terms of this SECTION 19.41 and all attempts to circumvent the terms of ------------- this SECTION 19.41 shall be absolutely null and void and of no force or effect -------------- whatsoever. As to any matter submitted to arbitration (except with respect to -87- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] the payment of money) to determine whether a matter would, with the passage of time, constitute a default, such passage of time shall not commence to run until any such affirmative arbitrated determination, as long as it is simultaneously determined in such arbitration that the challenge of such matter as a potential default was made in good faith. As to any matter submitted to arbitration with respect to the payment of money, to determine whether a matter would, with the passage of time, constitute a default, such passage of time shall not commence to run in the event that the party which is obligated to make the payment does in fact make the payment to the other party. Such payment can be made "under protest," which shall occur when such payment is accompanied by a good faith notice stating the reasons that the party has elected to make a payment under protest. Such protest will be deemed waived unless the subject matter identified in the protest is submitted to arbitration as set forth in this SECTION 19.41. ------------- 19.41.2 JAMS. Any dispute to be arbitrated pursuant to the ---- provisions of this SECTION 19.41 shall be determined by binding arbitration -------------- before a retired judge of the Superior Court of the State of California (the "ARBITRATOR") under the auspices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"). Such arbitration shall be initiated by the parties, or either of them, within ten (10) days after either party sends written notice (the "ARBITRATION NOTICE") of a demand to arbitrate by registered or certified mail to the other party and to JAMS. The Arbitration Notice shall contain a description of the subject matter of the arbitration, the dispute with respect thereto, the amount involved, if any, and the remedy or determination sought. The parties shall then agree on a retired judge from the JAMS panel. If they are unable to promptly agree, JAMS will provide a list of three (3) available judges and each party may strike one (1). The remaining judge (or if there are two (2), the one selected by JAMS) will serve as the Arbitrator. In the event that JAMS shall no longer exist or if JAMS fails or refuses to accept submission of such dispute, then the dispute shall be resolved by binding arbitration before the American Arbitration Association ("AAA") under the AAA's commercial arbitration rules then in effect. 19.41.3 Arbitration Procedure. 19.41.3.1 Pre-Decision Actions. The Arbitrator shall --------------------- schedule a pre-hearing conference to resolve procedural matters, arrange for the exchange of information, obtain stipulations, and narrow the issues. The parties will submit proposed discovery schedules to the Arbitrator at the pre-hearing conference. The scope and duration of discovery will be within the sole discretion of the Arbitrator. The Arbitrator shall have the discretion to order a pre-hearing exchange of information by the parties, including, without limitation, production or requested documents, exchange of summaries of testimony of proposed witnesses, and examination by deposition of parties and third-party witnesses. This discretion shall be exercised in favor of discovery reasonable under the circumstances. 19.41.3.2 The Decision. The arbitration shall be conducted ------------- in Los Angeles, California. Any party may be represented by counsel or other authorized representative. In rendering a decision(s), the Arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural laws of California and the terms and provisions of this Lease. The Arbitrator's decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The -88- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Arbitrator may make any determination, and/or grant any remedy or relief that is just and equitable. The decision must be based on, and accompanied by, a written statement of decision explaining the factual and legal basis for the decision as to each of the principal controverted issues. The decision shall be conclusive and binding, and it may thereafter be confirmed as a judgment by the Superior Court of the State of California, subject only to challenge on the grounds set forth in California Code of Civil Procedure SECTION 1286.2 (or any -------------- successor statute). The validity and enforceability of the Arbitrator's decision is to be determined exclusively by the California courts pursuant to the provisions of this Lease. The Arbitrator may award costs, including, without limitation, attorneys' fees and expert and witness costs, to the prevailing party, if any, as determined by the Arbitrator in its discretion. The Arbitrator's fees and costs shall be paid by the non-prevailing party as determined by the Arbitrator in its discretion. A party shall be determined to be the prevailing party if its proposal for the resolution of the dispute is the closest to that adopted by the Arbitrator. 19.42 Early Termination Based upon Landlord's Factual Inability to ----------------------------------------------------------------- Commence Construction of the Building. Tenant can elect to terminate this Lease - ------------------------------------- by giving notice ("CONSTRUCTION FAILURE TERMINATION NOTICE") to Landlord on or before July 15, 1998, if Landlord has not, on or before July 1, 1998, recorded a deed of trust against the Project evidencing a loan for the construction of the Building. ARTICLE 20 HOLD SPACE; RIGHT OF FIRST OFFER; EXPANSION SPACE 20.1 Hold Space Period. During the period commencing as of the date ------------------- hereof and continuing thereafter until eighteen (18) months after the first vertical steel is erected by Landlord above the first floor of the Building, Tenant shall be entitled, upon written notice to Landlord to expand the Premises to include all or any portion of the eighth floor of the Building and, if Tenant takes the entirety of the eighth floor, then Tenant may take also all or any portion of the ninth floor of the Building, upon the same terms and conditions as are already contained in this Lease. Likewise, during the period commencing as of the date hereof and continuing thereafter until twelve (12) months after the first vertical steel is erected by Landlord above the first floor of the Building (the foregoing eighteen (18) month and twelve (12) month period hereinafter referred to as "HOLD SPACE PERIODS"), and provided that Tenant has elected to take the eighth and ninth floors of the Building in their entirety, Tenant shall be entitled, upon written notice to Landlord to expand the Premises to include all or any portion of the tenth floor and, if Tenant takes the entirety of the tenth floor, then Tenant may also take all or any portion of the eleventh floor of the Building, upon the same terms and conditions as are already contained in this Lease. In the event Tenant so elects to expand the Premises, Landlord and Tenant shall, within fifteen (15) days after such election, amend this Lease to add such additional space to the Premises, and to make appropriate adjustments in the Base Rent, Tenant's Share of Additional Rent and the number of Parking Passes, and other provisions of this Lease as necessary to reflect the additional rentable square footage so added to the Premises. Tenant shall commence to pay Base Rent for any such additional space added to the Premises on the date which is the later of (i) the Lease Commencement Date, and (ii) the date which is one hundred twenty (120) days after the date as of which such additional space is delivered to Tenant Ready for Construction. Notwithstanding the foregoing, if in any instance during the Hold Space Periods Tenant elects to expand the Premises by two (2) or more floors, then, Tenant shall commence to pay Base Rent with respect to such additional space in the Building on the date which is the later of (i) the Lease Commencement Date and (ii) the date which is one hundred eighty (180) days after the date as of which all of said space has been delivered to Tenant Ready for Construction. -89- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 20.2 Right of First Offer. After expiration of the Hold Space Period ---------------------- in each instance and continuing thereafter through the end of the Lease Term (subject to the terms of SECTION 20.2.6, below), Landlord hereby grants to --------------- Tenant a Right of First Offer (the "RIGHT OF FIRST OFFER") with respect to any space not then included in the Premises whether or not a full floor space (the "FIRST OFFER SPACE"). Tenant's Right of First Offer shall be on the terms and conditions set forth in this SECTION 20.2. ------------- 20.2.1 Procedure for Offer. Landlord shall notify Tenant (the "FIRST ------------------- OFFER NOTICE") from time to time when the First Offer Space or any portion thereof becomes available for lease to third parties; but, unless the First Offer Space is already vacant, the First Offer Notice shall be given no earlier than nine (9) months before the First Offer Space is expected to be vacated. Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant the then available First Offer Space on the same terms and conditions as are contained in this Lease (except as otherwise set forth in this SECTION 20.2). ------------ 20.2.2 Procedure for Acceptance. If Tenant wishes to exercise -------------------------- Tenant's Right of First Offer with respect to the space described in the First Offer Notice, then, within fifteen (15) business days of delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant's intention to exercise its Right of First Offer with respect to the entire space described in the First Offer Notice on the terms contained in such First Offer Notice. If Tenant does not so notify Landlord within the fifteen (15) business day period, then, subject to the terms of SECTION 19.37, above, and Section ------------- 20.3, below, for a period of two hundred twenty-five (225) days Landlord shall be free to lease the space described in the First Offer Notice to anyone to whom Landlord desires on any terms Landlord desires, provided that, prior to leasing a portion of the First Offer Space which is less than the portion offered to Tenant pursuant to the First Offer Notice, Landlord shall offer such reduced portion of the First Offer Space to Tenant as set forth in SECTION 20.2.1, -------------- above. Notwithstanding anything to the contrary contained herein, Tenant must elect to exercise its Right of First Offer, if at all, with respect to all of the space offered by Landlord to Tenant at any particular time, and Tenant may not elect to lease only a portion thereof. 20.2.3 First Offer Space Rent. The Rent payable by Tenant for the ------------------------- First Offer Space (the "FIRST OFFER RENT") shall be equal to (i) in the case where Tenant exercises such Right of First Offer prior to the Lease Commencement Date, the same rate at which Rent is payable by Tenant under this Lease as of the "First Offer Commencement Date," as that term is defined in SECTION 20.2.5 -------------- below, which Rent shall include all applicable escalations to the Rent made or to be made during the Lease Term, and which shall include the same Annual Direct Expense Allowance as is applicable to the initial Premises, or (ii) in the case where Tenant exercises such Right of First Offer on or after the Lease Commencement Date, the "Fair Market Rental Rate", as that term is defined in SECTION 2.2.2, for such space. - -------------- -90- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 20.2.4 Construction In First Offer Space. Tenant shall construct the --------------------------------- initial improvements in the First Offer Space in accordance with the terms of the Tenant Work Letter, provided that, with respect to the First Offer Space leased by Tenant, to the extent the First Offer Rent is calculated pursuant to the terms of SECTION 20.2.3(I), above, the tenant improvement allowance granted ----------------- to Tenant shall be equal to (A) the product of (i) $35.00 per rentable square foot of the First Offer Space leased by Tenant, and (ii) a fraction, the numerator of which is the number of months remaining in the initial Lease Term as of the First Offer Commencement Date, and the denominator or which is 180 (which is the number of months in the entire initial Lease Term), less (B) the ---- value of any tenant improvements paid for by Landlord then existing in such Expansion Space, such value to be determined based upon the age, quality and layout of the tenant improvements and the extent to which the same can still be utilized for general office use, less Tenant's actual, commercially reasonable, demolition costs (the "Tenant Improvement Credit"). The Tenant Improvement Credit shall be determined based upon the age, quality and layout of the tenant improvements and (i) in the case where Tenant has previously occupied any space on such floor the extent to which the same can still be utilized by a general office user (less any demolition costs required to be expended by Tenant with respect to such improvements), or (ii) where Tenant has not previously occupied space on such floor, the extent to which the same are actually used by Tenant, less Tenant's actual, commercially reasonable, demolition costs. 20.2.5 Amendment to Lease. If Tenant timely exercises Tenant's right ------------------ to lease the First Offer Space as set forth herein, Landlord and Tenant shall within fifteen (15) days thereafter execute an amendment to this Lease adding such First Offer Space to the Premises upon the terms and conditions as set forth in the First Offer Notice and this SECTION 20.2.5. Tenant shall commence -------------- payment of Rent for the First Offer Space, and the term of the First Offer Space shall commence upon the date (the "FIRST OFFER COMMENCEMENT DATE") which is the earlier of (i) the date on which Tenant commences business operations (as that term is defined in SECTION 2.1) in the First Offer Space, and (ii) the date ------------ which is one hundred eighty (180) days after the date of delivery of the First Offer Space to Tenant "Ready for Construction," as that term is defined in Section 1 of the Tenant Work Letter, and shall terminate on the Lease Expiration - --------- Date. 20.2.6 Termination After the Lease Commencement Date. The Rights of ---------------------------------------------- First Offer contained in this SECTION 20.2 may only be exercised if Tenant ------------- occupies the entire Premises. For the purposes hereof, Tenant shall be deemed to be in occupancy of any portion of the Premises occupied by an Affiliate of Tenant. The Right of First Offer granted herein shall terminate (i) as to particular First Offer Space if actually leased to a tenant within two hundred twenty-five (225) days of the failure by Tenant to exercise its Right of First Offer with respect to such First Offer Space as offered by Landlord, and (ii) as to any First Offer Space which is subject to Tenant's expansion right set forth in SECTION 20.3, below, upon Tenant's failure to exercise its expansion right ------------- with respect to such space. Tenant shall not have the right to lease First Offer Space, as provided in this SECTION 20.2, if, as of the date of the ------------- attempted exercise of any Right of First Offer by Tenant, or as of the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in default with respect to the payment of Base Rent or Additional Rent under this Lease after expiration of any applicable cure periods; provided, that Tenant shall not be deemed to be in default with respect to the payment of Additional Rent if Tenant -91- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] is withholding a portion of Tenant's Share of Direct Expenses reasonably and in good faith, by notice delivered to Landlord on or prior to the due date of such Direct Expenses, and the amount of Direct Expenses withheld by Tenant does not exceed an amount equal to the amount of Additional Rent set forth in the most recent Statement received by Tenant minus the amount of Additional Rent set forth in the Statement for the immediately preceding Expense Year. 20.3 Expansion Space. Landlord hereby grants to Tenant the right to ---------------- lease floors eight (8) and nine (9) of the Building (collectively, the "FIRST EXPANSION SPACE"), and floors ten (10) and eleven (11) (collectively, the "Second Expansion Space"), upon the terms and conditions set forth in this SECTION 20.3 and this Lease, to the extent such First Expansion Space and Second - ------------ Expansion Space is not already part of the Premises. The First Expansion Space and Second Expansion Space are sometimes collectively referred to in this SECTION 20.3 as the "Expansion Space". - ------------- 20.3.1 Method of Exercise. In the event that Tenant desires to Lease ------------------ the First Expansion Space or Second Expansion Space, Tenant shall deliver to Landlord written notice, which notice, in the case of Tenant's desire to lease any portion of the First Expansion Space, shall be delivered on or before the first (1st) day of the fifth (5th) Lease Year, and in the case of the Second Expansion Space, shall be delivered on or before the first (1st) day of the tenth (10th) Lease Year, which notice shall contain Tenant's irrevocable exercise of its option to lease the First Expansion Space or Second Expansion Space, as applicable. Tenant agrees that Tenant shall have no right to lease less than all of the First Expansion Space or Second Expansion Space, as the case may be. 20.3.2 Delivery of the First Expansion Space. In the event Tenant ---------------------------------------- properly exercises its right to lease the First Expansion Space, Landlord shall deliver the First Expansion Space to Tenant either (i) within the period which commences nine (9) months prior to the first day of the sixth (6th) Lease Year and ends nine (9) months after the first day of the sixth (6th) Lease Year, or (ii) on a date which is within thirty (30) days after the expiration of any initial lease of any portion of the First Expansion Space by Landlord (and Landlord hereby agrees that any such initial lease shall not exceed five (5) years) (either such period, as applicable, the "FIRST EXPANSION DELIVERY PERIOD"). 20.3.3 Delivery of the Second Expansion Space. In the event Tenant ---------------------------------------- properly exercises its right to lease the Second Expansion Space, Landlord shall deliver the Second Expansion Space to Tenant either (i) within the period which commences nine (9) months prior to the first day of the eleventh (11th) Lease Year and ends nine (9) months after the first day of the eleventh (11th) Lease Year, or (ii) on a date which is within thirty (30) days after the expiration of any initial lease of any portion of the Second Expansion Space by Landlord (and Landlord hereby agrees that any such initial lease shall not exceed a period of ten (10) years) (either such period, as applicable, "SECOND EXPANSION DELIVERY PERIOD"). 20.3.4 Expansion Rent. The Rent payable by Tenant for Expansion --------------- Space leased by Tenant (the "EXPANSION RENT") shall be the same rate at which Rent is then payable by Tenant under this Lease as of the applicable "Expansion Space Commencement Date," as that term is defined in SECTION 20.3.7 of this -------------- Lease, which Expansion Rent shall include all applicable escalations to the Rent -92- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] made and to be made during the Lease Term, and shall include the same Annual Direct Expense Allowance as is applicable to the initial Premises. 20.3.5 Construction of Expansion Space. Tenant shall construct the ---------------------------------- initial improvements in the Expansion Space in accordance with the terms of the Tenant Work Letter, provided that the Tenant Improvement Allowance granted to Tenant in connection with any such Expansion Space shall be equal to (A) the product of (i) $35.00 per rentable square foot of the First Expansion Space or Second Expansion Space, as applicable, and (ii) a fraction, the numerator of which is the number of months remaining in the initial Lease Term as of the First Expansion Commencement Date or Second Expansion Commencement Date, as applicable, and the denominator of which is 180 (which is the number of months in the entire initial Lease Term), less (B) the amount of the Tenant Improvement ---- Credit. 20.3.6 Amendment to Lease. If Tenant timely exercises Tenant's right ------------------- to lease the First Expansion Space or Second Expansion Space as set forth herein, Landlord and Tenant shall within thirty (30) days thereafter execute an amendment evidencing such addition. Such Expansion Space shall automatically be added to the Premises upon the same terms and conditions as the initial Premises, except as otherwise set forth in this SECTION 20.3, and Tenant shall ------------ commence payment of Rent for the First Expansion Space or Second Expansion Space, as applicable, and the term of the First Expansion Space or Second Expansion Space, as applicable, shall commence upon the date which is the earlier of (i) the date Tenant commences business in such space, and (ii) one hundred eighty (180) days after the date of delivery of the applicable Expansion Space to Tenant Ready for Construction (the "First Expansion Space Commencement Date" or "Second Expansion Commencement Date", as applicable). The lease term of any Expansion Space leased by Tenant shall expire on the Lease Expiration Date. 20.3.7 No Defaults. The rights contained in this SECTION 20.3 may ------------ ------------ only be exercised by Tenant if Tenant occupies the entire Premises. For the purposes hereof, Tenant shall be deemed to be in occupancy of any portion of the Premises occupied with or by an Affiliate of Tenant. Tenant shall not have the right to lease any Expansion Space as provided in this SECTION 20.3, if, as of ------------ the date of the attempted exercise of any expansion option by Tenant, or as of the scheduled date of delivery of any such Expansion Space to Tenant, Tenant is in default with respect to the payment of Base Rent or Additional Rent under this Lease after expiration of any applicable cure periods; provided, that Tenant shall not be deemed to be in default with respect to the payment of Additional Rent if Tenant is withholding a portion of Tenant's Share of Direct Expenses reasonably and in good faith, by notice delivered to Landlord on or prior to the due date of such Direct Expenses, and the amount of Direct Expenses withheld by Tenant does not exceed an amount equal to the amount of Additional Rent set forth in the most recent Statement received by Tenant minus the amount of Additional Rent set forth in the Statement for the immediately preceding Expense Year. -93- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written. "Landlord" TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a corporation, Manager By: ----------------------------- Alan D. Levy Chief Executive Officer "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: ---------------------------------- William L. Mellick, President and Chief Executive Officer By: --------------------------------- William G. Crain, Vice President -94- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A --------- 20TH CENTURY PLAZA OUTLINE OF EACH FLOOR OF THE PREMISES EXHIBIT A - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT B ---------- 20TH CENTURY PLAZA OUTLINE OF PROJECT [TO BE PROVIDED] EXHIBIT B - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT C ---------- 20TH CENTURY PLAZA ------------------- TENANT WORK LETTER ------------------- This Tenant Work Letter shall set forth the terms and conditions relating to the construction of the Tenant Improvements in the Premises and the Storage Area. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the planning and construction of the Tenant Improvements, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Tenant Work Letter to Articles or Sections of "this Lease" shall mean the relevant portions of ARTICLES 1 THROUGH 20 of the Lease to which this Tenant Work Letter is attached --------------- as EXHIBIT C, and all references in this Tenant Work Letter to Sections of "this --------- Tenant Work Letter" shall mean the relevant portions of SECTIONS 1 THROUGH 6 of -------------------- this Tenant Work Letter. SECTION 1 ---------- DELIVERY OF THE PREMISES AND BASE BUILDING ------------------------------------------- Landlord shall construct, at its sole cost and expense, the base, shell, and core of the Building (collectively, the "BASE, SHELL AND CORE") in accordance with that certain Preliminary Base, Shell and Core Description and October 17, 1997 Progress Prints contained or referenced in SCHEDULE 1 attached ---------- hereto (the "BASE, SHELL AND CORE DESCRIPTION") and the HVAC Specifications contained in Exhibit H attached hereto. Subject to Tenant's disapproval rights as hereinafter provided, Landlord hereby reserves the right to modify the Base, Shell and Core Description, provided that such modifications (A) are required to comply with applicable law, or (B) will not materially and adversely affect Tenant's permitted use of the Premises and the Project. Notwithstanding the foregoing, the final architectural and engineering working drawings and specifications for the Base, Shell and Core of the Project (the "FINAL BASE, SHELL, AND CORE DRAWINGS") (in which any changes made by Landlord as aforesaid shall be reflected) shall be subject to Tenant's prior written approval, which consent shall not unreasonably be withheld or delayed. Without limiting the generality of the foregoing, Landlord acknowledges that Tenant shall have the right to disapprove (i) a reduction in the quantity of elevators included in final Base Shell and Core Description, (ii) design and performance criteria of the HVAC System which do not meet Title 24 requirements or Code (as that term is defined in SECTION 4.2.2 of this Tenant Work Letter), (iii) clear ceiling heights that are less than 9'0" from finished floor (top of concrete floor) to underside of finished building standard ceiling, and that do not allow for a building standard 6" total depth fully recessed light fixture with parabolic lens (except in certain limited areas where the location of overhead piping, conduit or other Systems or Equipment precludes the same); (iv) material inadequacies in the design of the curtain wall system, which inadequacies would cause such item(s) to be materially inconsistent with a first-class office project, (v) material inadequacies in the performance criteria of the Building's EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] electrical system, which inadequacies would cause such item(s) to be materially inconsistent with a first-class office project; (vi) material inadequacies in the design and/or performance criteria of the Building's energy management and control systems, which inadequacies would cause such item(s) to be materially inconsistent with a first-class office project; (vii) material inadequacies in the finishes of Project and Building Common Areas, which inadequacies would cause such item(s) to be materially inconsistent with a first-class office project; (viii) material inadequacies in the design of the Project's parking structure, which inadequacies would cause such item(s) to be materially inconsistent with a first-class office project; (ix) material inadequacies in the design and/or performance criteria of the structural and foundation systems of the Building or the Project's parking structure, which inadequacies would cause such item(s) to be materially inconsistent with a first-class office project; (x) acoustical criteria in those areas of the Building to be used as occupied office space materially above NC40 or sound pressure exceeding 75 DB; and (xi) reductions in the quality of the materials to be used in the Building. Further changes, subsequent to Tenant's written approval of the Final Base, Shell and Core Drawings, shall not be permitted without Tenant's prior written approval which shall not unreasonably be withheld or delayed. Tenant shall, within fifteen (15) business days of receipt of the Final Base, Shell and Core Drawings, either (i) approve the same, (ii) approve the same subject to specified revisions and conditions to be incorporated and satisfied by Landlord prior to submitting the Final Base, Shell and Core Drawings to the appropriate authorities for building permits, or (iii) disapprove the same. Landlord's only remedy in the event Tenant timely disapproves of the Final Base, Shell and Core Drawings and the parties are unable to agree upon revisions to same, shall be to submit such dispute to binding arbitration pursuant to the terms of SECTION ------- 19.41 of this Lease. Upon such submittal of a dispute to arbitration, Landlord - ---- may, at Landlord's option, either (1) continue to construct the Base, Shell and Core in accordance with Landlord's position with respect to the Final Base, Shell and Core Drawings (provided that Landlord shall be required to comply with any award or decision made in any such arbitration, including repairing, removing or reconstructing any items not constructed in compliance with the Final Base, Shell and Core Drawings as determined by such arbitration), or (2) discontinue work on the Base, Shell and Core until such arbitration has rendered a decision (provided that, in the event Landlord so discontinues work on the Base, Shell and Core, and is nonetheless the prevailing party under the arbitration, the period of time during which Landlord discontinued work on the Base, Shell and Core until the date of the arbitration decision shall be deemed to be a delay by Tenant, and each floor of the Premises shall be deemed to be Ready for Construction on the date such floor of the Premises would have been Ready for Construction had such delay not occurred). Notwithstanding the foregoing, Tenant shall not be entitled to demand revision to or disapprove of the Final Base, Shell and Core Drawings when such revisions or disapprovals relate to matters already specifically agreed upon in the Base, Shell and Core Description contained in SCHEDULE 1 attached hereto. Landlord shall deliver the ---------- Base, Shell and Core of the Premises to Tenant on a floor by floor basis, as each floor of the Premises is made "Ready for Construction", as that term is defined below. Landlord shall make a good faith effort to deliver to Tenant each floor of the Premises on or before the date set forth in SECTION 2.1 of the ----------- Lease as the "Anticipated Delivery Date" for such floor (as such dates may be modified by Tenant pursuant to the terms of SECTION 2.2of the Lease). As used ----------- herein, the term "READY FOR CONSTRUCTION" shall mean (i) that the particular floor shall contain a poured and cured floor with a trowel finish tolerance of five- EXHIBIT C - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] sixteenths (5/16) of an inch in ten (10) feet, installed and sealed exterior cladding and windows, and a poured and cured floor slab on the floor above the floor being deemed Ready for Construction, and (ii) that the particular floor has usable exit stairs or other means of vertical transportation which comply with union work rules (to which Tenant's Contractor, as that term is defined in SECTION 4.1 of this Tenant Work Letter, is subject) and Code, usable and - ------------ available material hoisting equipment (such as freight elevators or a materials hoist), temporary power, trunk HVAC duct, core and duct shaft walls, sprinkler mains, wall insulation, fireproofing, electric and telephone risers and busses, and (iii) that the particular floor is legally accessible to Tenant for the purpose of constructing the "Tenant Improvements," as that term is defined in SECTION 2.1, below. Subject to the provisions of SECTION 3 hereof, and all - ------------ --------- required governmental approvals, Tenant shall have the right (albeit, not the obligation) to start construction of Tenant Improvements on a floor by floor basis as the same are delivered to Tenant by Landlord Ready for Construction. SECTION 2 ---------- TENANT IMPROVEMENTS -------------------- 2.1 Tenant Improvement Allowance. Tenant shall be entitled to a ------------------------------ tenant improvement allowance (the "TENANT IMPROVEMENT ALLOWANCE") in the amount of Thirty-Five Dollars ($35.00) per rentable square foot of the Premises. Landlord shall have no other responsibility for the costs relating to the initial design and construction of Tenant's improvements to be constructed in such space (the "TENANT IMPROVEMENTS"). In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. With the exception of the items listed on SCHEDULE 5 hereto, all Tenant Improvements which are permanently ----------- affixed to the Premises for which the Tenant Improvement Allowance has been made available shall be deemed Landlord's property and shall be governed by the same restrictions as are set forth in SECTION 6.6 of the Lease with respect to ------------ Alterations, except that Tenant shall have no obligation to remove Tenant Improvements upon the expiration or sooner termination of the Lease Term (unless, in connection with Landlord's approval of the Final Working Drawings, Landlord notifies Tenant of particular, non-general office improvements which Landlord may require to be removed (the "TENANT IMPROVEMENT REMOVAL ITEMS")). In no event shall the Tenant Improvement Allowance be charged for any improvements included within the description of the Base, Shell and Core. 2.2 Disbursement of Tenant Improvement Allowance. ------------------------------------------------ 2.2.1 Tenant Improvement Allowance Items. Except as otherwise set ------------------------------------- forth in this Lease and this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursements shall be made pursuant to Landlord's disbursement process) for the following items and costs (collectively, the "TENANT IMPROVEMENT ALLOWANCE ITEMS"): 2.2.1.1 Payment of the fees of the "Architect" and the "Engineers," as those terms are defined in Section 3.1 of this Tenant Work Letter, and payment of the fees EXHIBIT C - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] incurred by, and the cost of documents and materials supplied by, Landlord's and Tenant's consultants in connection with the preparation and review of the "Construction Drawings," as that term is defined in Section 3.1 of this Tenant Work Letter (provided, however, that the Tenant Improvement Allowance shall only be charged for fees and costs of Landlord's construction consultants incurred subsequent to the date hereof, and the total amount of such fees and costs shall not exceed Ten Thousand Dollars ($10,000)); 2.2.1.2 The payment of plan check, permit and license fees relating to construction of the Tenant Improvements; 2.2.1.3 The cost of any voice and data wiring for the Premises, any security system installed by Tenant within the Project (which Tenant shall have the right to install as a Tenant Improvement provided that the same does not interfere with the operation of the Building's security system), any signage costs incurred by Tenant pursuant to SECTION 19.17 of the Lease, any built-in ------------- and/or movable furniture purchased by Tenant for the Premises; 2.2.1.4 The cost of construction consultants (including, without limitation, structural engineering consultants, consultant coordinator, construction manager and other similar professional consultants) and attorneys retained by Tenant relating to any aspect of this Lease transaction and the Project. 2.2.1.5 The cost of construction of the Tenant Improvements, including, without limitation, the cost of window coverings, ceiling hanger wires, testing and inspection costs and contractors' fees and general conditions (provided that, if Landlord conducts separate tests or inspections, such tests or inspections shall be at Landlord's sole cost and expense unless such tests or inspections reveal faulty workmanship which must be corrected or such tests or inspections are not conducted by Tenant and are reasonable and customary tests conducted in connection with Tenant Improvement construction, in which case the costs of such tests or inspections shall be a Tenant Improvement Allowance Item); 2.2.1.6 The cost of any changes in the Base, Shell and Core Work when such changes are required by the Construction Drawings, such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith; 2.2.1.7 The cost of furniture, fixtures and equipment to be installed in the Project; 2.2.1.8 The net cost of all changes to the Construction Drawings or Tenant Improvements required by Code (provided, however, that the fees incurred in making any changes to the Construction Drawings and the resulting increase in Tenant improvement costs, to the extent such changes are necessitated by the failure of the Base, Shell and Core to comply with applicable laws as of the date permits for the Base, Shell and Core were applied for, on an unoccupied basis, shall be borne solely by Landlord and shall not be a charge to the Tenant Improvement Allowance); 2.2.1.9 Sales and use taxes and Title 24 fees; EXHIBIT C - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 2.2.1.10 The "Landlord Coordination Fee", that term is defined in SECTION 2.4 of this Tenant Work Letter; and ------------ 2.2.1.11 Costs, if any, incurred pursuant to the terms of SECTION 6.6 of this Tenant Work Letter. - ------------ If Tenant does not utilize all of the Tenant Improvement Allowance for Tenant Improvement Items in the Building, Tenant shall be entitled to use such excess amounts (i) as a credit against Tenant's first obligations to pay Base Rent under the Lease after exhaustion of any other initial credits to which Tenant is entitled, or (ii) towards defraying costs for improvements comparable to the Tenant Improvement Allowance Items or the Base Building Work that Tenant may incur in the Adjacent Building. 2.2.2 Disbursement Procedures for Tenant Improvement Allowance. ---------------------------------------------------------- Landlord shall make monthly disbursements of the Tenant Improvement Allowance for Tenant Improvement Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of, Tenant as follows: 2.2.2.1 Monthly Disbursements. Concurrently with the full ---------------------- execution and delivery of this Lease, Landlord will deliver to Tenant payment in the amount of $115,000.00 (in the aggregate for this Lease and the Adjacent Building Lease) for "soft costs" expended by Tenant in connection with the Tenant Improvements. Thereafter, on or before the earlier of (a) the date which is ninety (90) days after the full execution and delivery of this Lease, and any related documents and (b) the date which is thirty (30) days after the recordation of Landlord's construction loan (provided that, in any event, Landlord shall not be required to make any payments until the date which is thirty (30) days after Landlord's receipt of the "Payment Request," as that term is defined below), Landlord shall deliver to Tenant payment for up to $235,000.00 (in the aggregate for this Lease and the Adjacent Building Lease) for "soft costs" expended by Tenant in connection with the Tenant Improvements. Thereafter, commencing on the date which is thirty (30) days after the recordation of Landlord's construction loan, and continuing to and including December 1, 1998 (the "Soft-Cost Reimbursement Period"), Tenant may make Payment Requests of up to $100,000.00 per month, in the aggregate between the Building and the Adjacent Building, for additional "soft costs." ." If Landlord commences construction of the Project prior to June 1, 1998, Landlord shall disburse to Tenant, in accordance with the terms of this SECTION 2.2.2.1, on or --------------- before December 1, 1998, the aggregate of all such amounts for which Landlord received a Payment Request prior to November 5, 1998. If Landlord has not commenced construction of the Project prior to June 1, 1998, Landlord shall disburse to Tenant the amounts set forth in such Payment Requests on a monthly basis in accordance with the terms of this SECTION 2.2.2.1. Following the --------------- Soft-Cost Reimbursement Period, Landlord shall commence to disburse the remaining Tenant Improvement Allowance for all Tenant Improvement Allowance Items, both "hard" and "soft" costs, pursuant to the terms of this Section 2.2.2. On or before the 10th day of each calendar month, or such other date as designated by Landlord (the "SUBMITTAL DATE"), Tenant shall deliver to Landlord: (i) a request for payment of the "Contractor," as that term is defined in SECTION 4.1 of this Tenant Work Letter, approved by Tenant, countersigned by the - ----------- Architect in substantially the form of AIA Document G702 (which countersignature shall, to the extent Architect should make the EXHIBIT C - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] certification required by AIA Document G702, be the obligation of Tenant to obtain), showing the approved schedule of values, broken down by trade, indicating the percentage of completion of the Tenant Improvements in the Premises and the Storage Area, detailing the portion of the work completed and the portion not completed; (ii) invoices from all of "Tenant's Agents," as that term is defined in SECTION 4.1.2 of this Tenant Work Letter, for labor rendered ------------- and materials delivered to the Premises; (iii) executed mechanic's lien releases from all of Tenant's Agents which shall comply with the appropriate provisions, as reasonably determined by Landlord, of California Civil Code SECTION 3262(D); --------------- and (iv) all other information reasonably requested by Landlord (items (i) through (iv), above, the "Payment Request"). Tenant's request for payment shall be deemed Tenant's acceptance and approval of the work furnished and/or the materials supplied as set forth in Tenant's payment request. Thereafter, within twenty-five (25) days after the Submittal Date, Landlord shall deliver checks to Tenant made payable jointly to Tenant and its construction consultants and to Tenant and its Contractor/Tenant's Agents in payment of the lesser of (A) the amounts so requested by Tenant, as set forth in this SECTION 2.2.2.1, above, --------------- less a ten percent (10%) retention (the aggregate amount of such retention to be known as the "FINAL RETENTION"), provided that such retention shall not apply to invoices from the Architect or Tenant's construction consultants, and (B) the balance of any remaining available portion of the Tenant Improvement Allowance (not including the Final Retention), provided that Landlord does not dispute any request for payment based on non-compliance of any work with the "Approved Working Drawings," as that term is defined in SECTION 3.4 below, or due to any ----------- substandard work. Landlord's payment of such amounts shall not be deemed Landlord's approval or acceptance of the work furnished or materials supplied as set forth in Tenant's payment request. 2.2.2.2 Final Retention. Subject to the provisions of this ---------------- Tenant Work Letter, a check or checks for the Final Retention payable to the Contractor/Tenant's Agents shall be delivered by Landlord to Tenant following the completion of construction of the Premises, provided that (i) Tenant delivers to Landlord copies of properly executed mechanics lien releases in compliance with both California Civil Code SECTION 3262(D)(2) and either SECTION ------------------ ------- 3262(D)(3) or SECTION 3262(D)(4), (ii) Landlord has determined that no - ---------- ------------------- substandard work exists which adversely affects the mechanical, electrical, plumbing, heating, ventilating and air conditioning, life-safety or other systems of the Building, the curtain wall of the Building, the structure or exterior appearance of the Building, (iii) Architect delivers to Landlord a certificate, in a form reasonably acceptable to Landlord, certifying that the construction of the Tenant Improvements in the Premises and the Storage Area has been substantially completed, and (iv) all of the other items set forth on the "Close-Out List" attached hereto as SCHEDULE 2 have been delivered to Landlord. ---------- 2.2.3 Failure to Disburse Tenant Improvement Allowance. If ----------------------------------------------------- Landlord fails to timely fulfill its obligation to fund any portion of the Tenant Improvement Allowance, Tenant shall be entitled to deliver written notice ("PAYMENT NOTICE") thereof to Landlord and to any mortgage or trust deed holder of the Building whose identity and address have been previously disclosed to Tenant. If Landlord still fails to fulfill any such obligation within twenty (20) business days after Landlord's receipt of the Payment Notice from Tenant, and if Landlord fails to deliver written notice to Tenant within such twenty (20) business day period explaining Landlord's reasons that Landlord believes that the amounts described in Tenant's Payment Notice EXHIBIT C - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] are not due and payable by Landlord ("REFUSAL NOTICE"), Tenant shall be entitled to fund such portion of the Tenant Improvement Allowance and to offset the amount so funded, together with interest at the Interest Rate from the date of funding until the date of offset, against Tenant's next obligations to pay Base Rent. If Landlord delivers a Refusal Notice, and if Landlord and Tenant are not able to agree on the amounts to be so paid by Landlord, if any, within ten (10) days after Tenant's receipt of a Refusal Notice, Tenant may submit such dispute to arbitration in accordance with SECTION 19.44 of this Lease. If Tenant -------------- prevails in any such arbitration, the award by the arbitrator shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of Landlord's payment of such award. Similarly, if Tenant prevails in any such arbitration, and if Landlord and Tenant then agree that Tenant shall be entitled to apply such award as a credit against Tenant's obligations to pay Rent, the award shall include interest at the Interest Rate calculated from the date of funding by Tenant, if any, until the date of application of such amount as a credit against Rent. 2.3 Standard Tenant Improvement Package. Landlord has established -------------------------------------- specifications (the "SPECIFICATIONS") for the Building standard components to be used in the construction of the Tenant Improvements (collectively, the "STANDARD IMPROVEMENT PACKAGE"), which Specifications are set forth on SCHEDULE 3 attached ---------- hereto and made a part hereof. The quality of Tenant Improvements shall be equal to or of greater quality than the quality of the Specifications, provided that any window coverings shall be a mini-blind system and consistent throughout the Building. 2.4 Landlord Coordination Fee. The Tenant Improvement Allowance Items -------------------------- shall include a coordination fee (the "LANDLORD COORDINATION FEE") for Landlord's services relating to the coordination of the construction of the Tenant Improvements in the amount of $0.30 per usable square foot of the Premises. SECTION 3 --------- CONSTRUCTION DRAWINGS --------------------- 3.1 Selection of Architect/Construction Drawings. Tenant shall retain --------------------------------------------- Cole Martinez & Curtis (the "ARCHITECT") to prepare the "Construction Drawings," as that term is defined in this SECTION 3.1. Landlord shall, at Landlord's sole ----------- cost and expense, supply Tenant with either (i) one (1) set of all Building plans and specifications in Landlord's possession and one (1) reproducible set of same, or (ii) one set of such plans and specifications together with a CADD diskette containing the same. Tenant shall retain engineering consultants subject to Landlord's prior approval, which approval shall not unreasonably be withheld or delayed, to prepare all plans and engineering working drawings relating to the structural, mechanical (including plumbing and HVAC and lifesafety work) in the Premises and the Storage Area, which work is not part of the Base, Shell and Core. In addition, Tenant shall retain engineering consultants reasonably approved by Landlord to prepare all plans and engineering working drawings relating to the electrical and sprinkler work in the Premises, which work is not part of the Base, Shell and Core. All of the engineering consultants retained by Tenant shall, unless otherwise noted, be collectively referred to herein as the "ENGINEERS." The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the "CONSTRUCTION EXHIBIT C - Page 7 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] DRAWINGS." All Construction Drawings shall comply with the drawing format and specifications reasonably approved by Landlord, and shall be subject to Landlord's approval. Tenant and Architect shall be entitled to verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, except that Tenant and Architect shall have no responsibility for Landlord's compliance with its obligations in relation to any aspect of the construction of the Base, Shell and Core. Landlord's review of the Construction Drawings as set forth in this SECTION 3, shall be for ---------- Landlord's sole purpose, and shall not imply Landlord's review of the same for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its project manager, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord's project manager, architect, engineers, and consultants, Landlord shall have no liability whatsoever for any omissions or errors contained in the Construction Drawings, unless actually caused by Landlord or its project manager, architect, engineers or consultants. 3.2 Final Space Plan. Tenant shall supply Landlord with one (1) copy ------------------ with all pages signed by Tenant, and three (3) copies with only the cover page signed by Tenant, of Tenant's final space plan for the Tenant Improvements before any architectural working drawings or engineering drawings for the space outlined in such final space plan have been commenced. The final space plan (the "FINAL SPACE PLAN") shall include a layout and designation of all of the areas in the Premises to be affected by the tenant improvement work to be contained therein. Landlord shall, within ten (10) business days of the receipt of the Final Space Plan for any portion of the Premises, either (i) approve the Final Space Plan, (ii) approve the Final Space Plan subject to specified conditions to be complied with when the "Final Working Drawings," as that term is defined in SECTION 3.3, below, are submitted by Tenant to Landlord, or (iii) ----------- disapprove the Final Space Plan and return the same to Tenant with requested revisions; provided, however, that Landlord shall only disapprove the Final Space Plan for these exclusive reasons: (a) an adverse effect on the structural integrity of the Building; (b) non-compliance with Code (c) an adverse effect on the Building's Systems and Equipment; (d) failure to comply with SECTION 2.3 of ----------- this Tenant Work Letter, or (e) a material and adverse effect on the exterior appearance of the Building (individually or collectively, a "DESIGN PROBLEM"). The foregoing procedure shall be repeated until the Final Space Plan for all portions of the Premises and Storage Area is ultimately approved by Landlord. The Final Space Plan may be submitted to Landlord for approval at one or more times and in one or more parts. 3.3 Final Working Drawings. After the Final Space Plan has been ------------------------ approved by Landlord, Tenant shall supply the Engineers with a listing of standard and non-standard equipment and specifications, including, without limitation, B.T.U. calculations, electrical requirements and special electrical receptacle requirements for the Premises, in sufficient detail to enable the Engineers and the Architect to complete the "Final Working Drawings" (as that term is defined below) in the manner as set forth below. Upon the approval of the Final Space Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Tenant Improvements, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the EXHIBIT C - Page 8 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] work and to obtain all applicable permits (collectively, the "FINAL WORKING DRAWINGS") and shall submit the same to Landlord for Landlord's approval. Tenant shall supply Landlord with one (1) copy of such Final Working Drawings with all pages signed by Tenant, and either (i) three (3) additional copies with only the cover page signed by Tenant, or (ii) a CADD diskette containing the same. Landlord shall, within fifteen (15) business days of the receipt of the Final Working Drawings for any portion of the Premises, either (i) approve the Final Working Drawings, (ii) approve the Final Working Drawings subject to specified conditions to be satisfied by Tenant prior to submitting the Approved Working Drawings for permits as set forth in SECTION 3.4, below, or (iii) ----------- disapprove and return the Final Working Drawings to Tenant with requested revisions if the Final Working Drawings do not reasonably comply with the Final Space Plan or contain a Design Problem. The foregoing procedure shall be repeated until the Final Working Drawings for all portions of the Premises are ultimately approved by Landlord. The Final Working Drawings may be submitted to Landlord for approval at one or more times and in one or more parts. 3.4 Approved Working Drawings. The Final Working Drawings for each --------------------------- full floor of the Premises shall be approved by Landlord (the "APPROVED WORKING DRAWINGS") prior to the commencement of construction of the Tenant Improvements on such floor by Tenant. Notwithstanding the foregoing, if Tenant elects to submit the Final Working Drawings for any full floor to the appropriate authorities for all applicable building permits prior to, or concurrently with, its submission of the Final Working Drawings to Landlord for Landlord's consent, and Tenant receives the requested building permits prior to Landlord's approval of the Final Working Drawings, then, at Tenant's sole risk and expense, Tenant may commence the construction of the Tenant Improvements on that floor of the Premises. Tenant hereby agrees that neither Landlord nor Landlord's consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Tenant's responsibility; provided, however, that Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord, which consent may not unreasonably be withheld, conditioned or delayed. SECTION 4 --------- CONSTRUCTION OF THE TENANT IMPROVEMENTS --------------------------------------- 4.1 Tenant's Selection of Contractors. ------------------------------------ 4.1.1 The Contractor. A general contractor (the "CONTRACTOR") --------------- shall be retained by Tenant to construct the Tenant Improvements. The Contractor shall be selected pursuant to a competitive bidding process wherein Landlord shall have the right to reasonably pre-approve all bidders and Tenant agrees that Landlord's base building general contractor and/or interior contractor shall be entitled to be bidders. Tenant shall deliver to Landlord notice of its selection of the Contractor upon such selection. EXHIBIT C - Page 9 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4.1.2 Tenant's Agents. All subcontractors, laborers, materialmen, --------------- and suppliers used by Tenant (such subcontractors, laborers, materialmen, and suppliers, and the Contractor to be known collectively as "TENANT'S AGENTS") must be approved in writing by Landlord, which approval shall not be unreasonably, withheld or delayed; provided that Tenant must contract with Landlord's base building subcontractors for any hook-up of the systems and equipment located in the Premises to the lifesafety system which is part of the Base, Shell and Core. Tenant's Agents shall all comply with the construction rules for the Building, as set forth in SCHEDULE 4 attached hereto. Tenant ---------- shall indemnify and hold Landlord harmless from any action of any Tenant's Agent which voids, modifies or otherwise interferes with any warranty or guaranty of Landlord with respect to the base building. If Landlord reasonably disapproves any of Tenant's proposed subcontractors, laborers, materialmen or suppliers for reasonable reasons, Tenant shall submit other proposed subcontractors, laborers, materialmen or suppliers for Landlord's written approval. 4.2 Construction of Tenant Improvements by Tenant's Agents. ------------------------------------------------------------ 4.2.1 Tenant's Agents. ---------------- 4.2.1.1 Landlord's General Conditions for Tenant's Agents and -------------------------------------------------------- Tenant Improvement Work. Tenant's and Tenant's Agents' construction of the - ------------------------- Tenant Improvements shall comply with the following: (i) the Tenant Improvements shall be constructed in strict accordance with the Approved Working Drawings; (ii) Tenant's Agents shall submit schedules of all work relating to the Tenant's Improvements to Contractor and Landlord and Contractor and Tenant shall, within five (5) business days of receipt thereof, inform Landlord and Tenant's Agents of any changes which are necessary thereto, and Tenant's Agents shall adhere to such corrected schedule; (iii) Tenant shall abide by all reasonable rules made by Landlord's Building manager with respect to the use of freight, loading dock and any service and/or passenger elevators, storage of materials, coordination of work with the contractors of other tenants, and any other matter in connection with this Tenant Work Letter, including, without limitation, the construction of the Tenant Improvements; and (iv) Tenant and Tenant's Agents shall not, in any way, interfere with, obstruct, or delay, the work of Landlord's base building contractor and subcontractors with respect to the Base, Shell and Core, or any other work in the Building. However, Tenant and Landlord shall use commercially reasonable efforts to coordinate the work of their respective contractors in order to minimize any interference with the performance of one another's work. 4.2.1.2 Indemnity. Tenant's indemnity of Landlord and --------- Landlord's indemnity of Tenant as set forth in SECTION 7.1 of this Lease shall ----------- also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Tenant or Tenant's Agents, or of Landlord or Landlord's employees, agents or contractors, as the case may be, or anyone directly or indirectly employed by any of them, or in connection with Landlord's or Tenant's non-payment of any amount arising out of the Tenant Improvements and/or Tenant's disapproval of all or any portion of any request for payment. Such indemnity by Tenant, as set forth in SECTION 7.1 of ----------- this Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Landlord's performance of any ministerial acts reasonably necessary (i) to permit Tenant to complete the Tenant Improvements, EXHIBIT C - Page 10 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] and (ii) to enable Tenant to obtain any building permit or certificate of occupancy for the Premises. 4.2.1.3 Requirements of Tenant's Agents. Each of Tenant's ---------------------------------- Agents shall guarantee to Tenant and for the benefit of Landlord that the portion of the Tenant Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Tenant's Agents shall be responsible for the replacement or repair, without additional charge to Tenant or Landlord, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the later to occur of (i) completion of the work performed by such contractor or subcontractors and (ii) the Lease Commencement Date. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Tenant Improvements, and/or the Building and/or Common Areas that may be damaged or disturbed thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Tenant Improvements shall be contained in the Contract or subcontract and shall be written such that such guarantees or warranties shall inure to the benefit of both Landlord and Tenant, as their respective interests may appear, and can be directly enforced by either. Tenant covenants to give to Landlord any assignment or other assurances which may be necessary to effect such right of direct enforcement. 4.2.1.4 Insurance Requirements. ----------------------- 4.2.1.4.1 General Coverages. All of Tenant's Agents shall ------------------ carry worker's compensation insurance covering all of their respective employees, and shall also carry reasonable amounts of public liability insurance, including property damage, all with limits, in form and with companies as are reasonably approved by Landlord. Landlord will provide, upon Tenant's request, a schedule showing the types and amounts of insurance, broken down by trade, that are deemed by Landlord to be the reasonable types and amounts of insurance required of each of Tenant's Agents. 4.2.1.4.2 Special Coverages. In addition to the insurance ------------------ requirements set forth in ARTICLE 7 of this Lease, Tenant or the Contractor ---------- shall also carry full replacement value "Builder's All Risk" insurance approved by Landlord covering the construction of the Tenant Improvements, and such other insurance as Landlord may require so long as any such insurance is being required of comparable tenants in Comparable Buildings for tenant improvement work comparable to the Tenant Improvements. Such insurance shall be in amounts' and shall include such extended coverage endorsements as may be reasonably required by Landlord including, but not limited to, the requirement that all of Tenant's Agents shall carry excess liability and Products and Completed Operation Coverage insurance, each in amounts not less than $500,000 per incident, $1,000,000 in aggregate, and in form and with companies as are required to be carried by Tenant as set forth in ARTICLE 7 of this Lease, so --------- long as any such insurance is being required of comparable tenants in Comparable Buildings for tenant improvement work comparable to the Tenant Improvements. EXHIBIT C - Page 11 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4.2.1.4.3 General Terms. Certificates on an ISO form for -------------- all insurance carried pursuant to this SECTION 4.2.1.4 shall be delivered to --------------- Landlord before the commencement of construction of the Tenant Improvements and before the Contractor's equipment is moved onto the site. All such policies of insurance must contain a provision that the company writing said policy will give Landlord at least thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. In the event that the Tenant Improvements are damaged by any cause, except for the negligence or willful misconduct of Landlord (in which case Landlord shall be responsible to the extent not covered by the insurance required to be carried by Tenant pursuant to SECTION 4.2.1.4.1 or 4.2.1.4.2 ----------------- above), during the course of the construction thereof, Tenant shall immediately repair the same at Tenant's sole cost and expense. Tenant's Agents shall maintain all of the foregoing insurance coverage in force until the Tenant Improvements are fully completed and accepted by Landlord. All policies carried under this SECTION 4.2.1.4 shall insure Landlord and Tenant, as their interests --------------- may appear, as well as Contractor and Tenant's Agents, and shall name Landlord as an additional named insured. All insurance, except Workers' Compensation, maintained by Tenant's Agents shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects Landlord and that any other insurance maintained by Landlord is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Landlord by Tenant under SECTION 4.2.1.2 of --------------- this Tenant Work Letter. 4.2.2 Governmental Compliance. The Tenant Improvements shall ------------------------ comply in all respects with the following: (i) applicable building codes and other state, federal, city or quasigovernmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the controlling public official, agent or other person (collectively, "Code"); (ii) applicable standards of the ISO and/or the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer's specifications and industry standards. 4.2.3 Inspection by Landlord. Landlord shall have the right to ------------------------ inspect the Tenant Improvements at all reasonable times and upon reasonable notice; provided, however, that Landlord's failure to inspect the Tenant Improvements shall in no event constitute a waiver of any of Landlord's rights hereunder nor shall Landlord's inspection of the Tenant Improvements constitute Landlord's approval of the same. Should Landlord disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant in writing of such disapproval and shall specify the items disapproved; provided, however, that Landlord shall not disapprove of any portion of the Tenant Improvements which have been constructed in accordance with the Approved Working Drawings. Any defects or deviations in, and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by Tenant at no expense to Landlord; provided however, that in the event Landlord determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Tenant Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air conditioning or life-safety systems of the Building, the structure or appearance of the Building or any other tenant's use of such other tenant's leased premises, Landlord may take such action as EXHIBIT C - Page 12 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Landlord deems necessary, at Tenant's expense (paid as Additional Rent) and without incurring any liability on Landlord's part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Tenant Improvements until such time as the defect, deviation and/or matter is corrected to Landlord's satisfaction. 4.2.4 Meetings. Commencing upon execution of this Lease, Tenant -------- shall hold periodic meetings, at a reasonable time, with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Tenant Improvements (which meetings shall be held at a location mutually agreeable to Landlord and Tenant), and Landlord and/or its agents shall receive prior notice of and shall have the right to attend all such meetings. In addition, minutes shall be taken at all such meetings, a copy of which minutes shall be promptly delivered to Landlord. One such meeting each month shall include the review of Contractor's current request for payment. Tenant shall be notified in advance of all scheduled Base, Shell and Core construction meetings that have a material effect on the construction of the Tenant Improvements, and Tenant and/or its agents shall be permitted to attend such meetings. 4.3 Construction Contract; Cost Budget. Prior to Tenant's ------------------------------------- execution of the construction contract with the Contractor, Tenant shall submit the construction contract to Landlord for its approval, which approval shall not unreasonably be withheld or delayed. Prior to the commencement of the construction of the Tenant Improvements on each floor, and in each instance after Tenant has accepted all bids for the Tenant Improvements for a floor of the Premises, Tenant shall provide Landlord with a detailed breakdown, by trade, of the final costs to be incurred or which have been incurred in connection with the design and construction therein of the Tenant Improvements (the "FINAL COSTS"). The term "OVER-ALLOWANCE AMOUNT" shall mean the difference between (i) the Final Costs for the Premises, and (ii) the amount of the Tenant Improvement Allowance. Tenant shall be required to pay the Over-Allowance Amount on a pro rata basis throughout the course of construction of the Tenant Improvements. By way of example only, and not as a limitation upon the foregoing, if the total cost of the Tenant Improvement Allowance Items equals Fifty Dollars ($50.00) per rentable square foot of the Premises, the Over-Allowance Amount shall be Fifteen Dollars ($15.00) per rentable square foot (i.e., the Final Costs less the Thirty-Five Dollar ($35.00) per rentable square foot Tenant Improvement Allowance), and Tenant shall pay fifteen fiftieths (15/50ths) of the amount of each invoice net of retention. In the event that after the Final Costs are determined, and if such Final Costs exceed the amount of the Tenant Improvement Allowance allocated to such space as described above, any revisions, changes or substitutions shall be made to the Construction Drawings or the Tenant Improvements pursuant to the provisions of this Tenant Work Letter, any additional costs net of retention reasonably attributable to such revisions, changes or substitutions shall be paid by Tenant. 4.4 Notice of Completion; Copy of Record Set of Plans. Within ten (10) ------------------------------------------------- business days after completion of construction of each full-floor phase of the Tenant Improvements, Tenant shall cause a Notice of Completion to be recorded in the office of the Recorder of the County of Los Angeles in accordance with SECTION 3093 of the Civil Code of the State of California or any successor - ------------ statute, and shall furnish a copy thereof to Landlord upon such EXHIBIT C - Page 13 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] recordation; provided, however, that if Tenant does not cause a timely Notice of Completion to be recorded, Tenant shall not be in breach hereunder, but Tenant shall protect, defend, indemnify and hold Landlord harmless from any loss, cost, damage, claim or expense incurred by Landlord as a consequence of Tenant's failure to record the Notice of Completion. If Tenant fails to do so, Landlord may execute and file the same on behalf of Tenant as Tenant's agent for such purpose, at Tenant's sole cost and expense. At the conclusion of each phase of construction, (i) Tenant shall cause the Architect and Contractor (A) to update the Approved Working Drawings as necessary to reflect all material changes made to the Approved Working Drawings during the course of construction, (B) to certify to the best of their knowledge that the "record-set" of as-built drawings and specifications are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record set of drawings within ninety (90) days following the completion of the construction of the Tenant Improvements, and (ii) Tenant shall deliver to Landlord a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises, as applicable, as well as all other items set forth on the Close-Out List. SECTION 5 --------- DELAY OF LEASE COMMENCEMENT DATE -------------------------------- 5.1 Lease Commencement Date Delays. The Lease Commencement Date for -------------------------------- the Initial Premises shall occur as provided in SECTION 5.2 of the Summary, ----------- provided that it shall be delayed by one (1) day for each day of delay of the "substantial completion of the Tenant Improvements," as that term is defined below in SECTION 5.3, to the extent caused by a "Lease Commencement Date Delay." ----------- As used herein, the term "LEASE COMMENCEMENT DATE DELAY" shall mean only a "Force Majeure Delay" or a "Landlord Caused Delay," as those terms are defined below in this SECTION 5.1. As used herein, the term "FORCE MAJEURE DELAY" shall ----------- mean only an actual delay in the substantial completion of the Tenant Improvements to the extent resulting from "Force Majeure" (as defined in SECTION ------- 19.24 of the Lease). Notwithstanding the foregoing, a Force Majeure Delay shall - ----- not include governmental acts which specifically relate to the construction of the Tenant Improvements and which would not objectively delay construction of other general office improvements in the Project by any person. As used in this Tenant Work Letter, "LANDLORD CAUSED DELAY" shall mean, notwithstanding anything to the contrary set forth in this Tenant Work Letter, only those actual delays in the substantial completion of the Tenant Improvements to the extent resulting from the acts or omissions of Landlord or Landlord Parties including, but not limited to: (i) failure to timely approve or disapprove any Construction Drawings; (ii) material interference with the completion of the Tenant Improvements which objectively precludes construction of Tenant Improvements in the Project by any person, which interference relates to access to, or use of, by Tenant, its agents and contractors, the Building, Building facilities (including loading docks and freight elevators) or services (including temporary power and parking areas as provided herein) and Project Common Areas during normal construction hours; (iii) delays with respect to payment of the Tenant Improvement Allowance and/or any cessation of work upon the Tenant Improvements as a result thereof; (iv) the failure to remediate Hazardous Materials discovered in the Building or the Project which are in violation of current laws, and which were not introduced into the Project by Tenant or its EXHIBIT C - Page 14 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] agents; (v) the failure of the Base, Shell and Core to comply with Code on an unoccupied basis; (vi) delays in designing and constructing the Tenant Improvements due to material inaccuracies in the Base Building Plans provided to Tenant by Landlord (except to the extent such delays would have been avoided had Tenant reasonably verified such Base Building Plans as required pursuant to this Tenant Work Letter); (vii) delay in obtaining a Temporary Certificate of Occupancy (or its equivalent) for the Building on an unoccupied basis by the appropriate governmental authorities; (viii) failure to provide Tenant with access to the Premises for purposes of installing the Tenant Improvements and Tenant's other fixtures, furnishings and equipment, after Tenant has received applicable building permits and other governmental approvals; (ix) failure to cause a particular floor of the Premises to be delivered to Tenant Ready for Construction on or before the Delivery Date for such floor as set forth in SECTION 2.1 of the Lease (provided that the aggregate amount of Landlord Caused - ---------- Delay calculated under this item (ix) shall not exceed the largest amount of delay in failing to meet any particular Delivery Date); and (x) any other causes which are defined as a Landlord Caused Delay elsewhere in this Tenant Work Letter. 5.2 Determination of Lease Commencement Date Delay. If Tenant contends ---------------------------------------------- that a Lease Commencement Date Delay has occurred, Tenant shall notify Landlord in writing of (i) the event which constitutes such Lease Commencement Date Delay and (ii) the date upon which such Lease Commencement Date Delay is anticipated to end. If such actions, inaction or circumstances described in the notice set forth in clause (i) above (the "DELAY NOTICE") are not cured by Landlord within one (1) business day of Landlord's receipt of the Delay Notice, and if such actions, inaction or circumstances otherwise qualify as a Lease Commencement Date Delay, then, a Lease Commencement Date Delay shall be deemed to have occurred commencing as of the date of Landlord's receipt of the Delay Notice and ending as of the date such delay ends. 5.3 Definition of Substantial Completion of the Tenant Improvements. ------------------------------------------------------------------ For purposes of this SECTION 5, "substantial completion of the Tenant ---------- Improvements" shall mean completion of construction of the Tenant Improvements in the Premises pursuant to the Approved Working Drawings, with the exception of any punch list items, any furniture, fixtures, work-stations, built in furniture or equipment, and any tenant improvement finish items and materials which are selected by Tenant but which are not available within a reasonable time (given the anticipated date of the Lease Commencement Date). SECTION 6 --------- MISCELLANEOUS ------------- 6.1 Tenant's Representative. Tenant has designated Bernard F. Landgraf ----------------------- as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority to act on behalf of the Tenant as required in this Tenant Work Letter, and responsibility for Tenant's compliance with its provisions. 6.2 Landlord's Representative. Landlord has designated James Newell as ------------------------- its Project Manager and sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority to act on behalf of Landlord as required in this Tenant Work Letter, and responsibility for landlord's compliance with its provisions. 6.3 Time of the Essence in This Tenant Work Letter. Unless ----------------------------------------------------- otherwise indicated, all references herein to a "number of days" shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Landlord, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Landlord. EXHIBIT C - Page 15 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 6.4 Tenant's Lease Default. Notwithstanding any provision to the ------------------------ contrary contained in this Lease, if an event of default as described in SECTION ------- 12.1 of this Lease or in this Tenant Work Letter has occurred (after expiration - ---- of applicable cure periods) at any time on or before the substantial completion of the Tenant Improvements, then (i) in addition to all other rights and remedies granted to Landlord pursuant to this Lease, Landlord may cause Contractor to cease the construction of the Tenant Improvements (in which case, Tenant shall be responsible for any delay in the substantial completion of the Tenant Improvements caused by such work stoppage and such delay shall not be deemed a Lease Commencement Date Delay), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of this Lease (in which case, Tenant shall be responsible for any delay in the substantial completion of the Premises caused by such inaction by Landlord and such delay shall not be deemed a Lease Commencement Date Delay). 6.5 Cleanup. Upon Tenant's move into the Premises and upon written ------- notice from Tenant to Landlord, and provided that Contractor has left the Premises in broom-clean condition, Landlord shall, at its sole cost, provide one-time janitorial services to the Premises in accordance with EXHIBIT I. The --------- cost of such one-time janitorial services shall not be included in Operating Expenses. 6.6 Additional Miscellaneous. During the period of construction of the ------------------------ Tenant Improvements and/or Tenant's move into the Building, Tenant or Tenant's Agents shall not be charged for, directly or indirectly, parking, use of restrooms or HVAC usage during normal construction hours, electricity, water, elevator usage during normal construction hours, loading dock access, or security (although Landlord shall have no obligation to provide security beyond that provided to the Building on an unoccupied basis). Upon request from Tenant, following the full installation and required testing of the same, and determination by Landlord that the same is available for use, Landlord shall operate the ventilation system for the Building as may be reasonably required during the construction of the Tenant Improvements, including those periods during and after application of finishes, which services shall not be charged to Tenant Improvement Allowance during normal construction hours, but shall be charged to the Tenant Improvement Allowance during other hours. 6.7 Notices. All notices hereunder shall be delivered as set forth in ------- the Lease, and shall be in writing, regardless of whether or not specified herein to be "written notice" or "in writing." 6.8 Labor Harmony. All of Tenant's Agents shall, if requested by -------------- Landlord, all be union labor in compliance with the master labor agreements existing between trade unions and the Southern California Chapter of the Associated General Contractors of America; provided that Tenant shall be permitted to retain non-union subcontractors and laborers for painting, millwork, carpeting, and other finish work in connection with the construction of the Tenant Improvements. All of Tenant's Agents shall conduct their activities in and around the Premises, Building and Project in a harmonious relationship with all other subcontractors, laborers, materialmen and suppliers at the Building and Project, and, if necessary, Tenant shall employ union labor to achieve such harmonious relations. EXHIBIT C - Page 16 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 1 TO EXHIBIT C ------------------------ PRELIMINARY BASE, SHELL, & CORE DESCRIPTION -------------------------------------------- TO BE USED IN CONJUNCTION WITH THOSE CERTAIN TISHMAN WARNER CENTER EXPANSION - NEW 11-STORY NORTH TOWER BUILDING AND PLAZA PROGRESS PLANS PREPARED BY JOHNSON FAIN PARTNERS, DATED OCTOBER 17, 1997, AND REFERENCED AS PROJECT NO. 9656.00. 20TH CENTURY PLAZA--NEW OFFICE BUILDING & PARKING STRUCTURE WOODLAND HILLS, CALIFORNIA April 3, l997 (Revised August 14, 1997) 0 TABLE OF CONTENTS 01 General Information 07 Roofing 02 Sitework 08 Interior Construction 03 Foundations 09 Specialties 04 Substructure 10 Conveying Systems 05 Superstructure 11 Mechanical 06 Exterior Closure 12 Electrical - -------------------------------------------------------------------------------- 1. GENERAL INFORMATION 1.1 Project Description: New 11-story office building with full basement and an elevator/mechanical roof penthouse. New multi-level parking structure. 1.2 Parking Structure: .1 Reinforced concrete parking structure with approximately 1425 spaces. Surface parking of approximately 265 spaces for a total of approximately 1690 parking spaces. .2 Type I construction, cast in-place and post-tensioned concrete slabs and beams with shear wall and ductile frame seismic systems. Architectural precast or painted, formed concrete spandrels at north and east elevations. .3 Ground level clearance of minimum 8'- 2" to allow for High Occupancy Vehicles and high-top accessible vans. Ground level handicap accessible parking along east side of structure. .4 Over-size executive parking spaces at ground level. SCHEDULE 1 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .5 Full size and compact spaces. Compact spaces in accordance with code. All stalls to be individually parked and freely accessible. .6 New and re-used automatic gate arm controls on-site for vehicles using either parking structure or surface parking. Parking Equipment will include attendants' booth, vehicle detectors and card control stations. .7 Security fencing or grillage on west and south elevations. Camera surveillance security at interior/ exterior locations. .8 Interior lighting with average maintained lighting level of 5 to 7 foot candles; fluorescent lighting throughout. .9 Roof deck average lighting level at 5 to 7 foot candles unless prohibited by code. .10 Two Bay double helix park ramps plus one level ramp facing offices. 2-way traffic aisles with 90 degree parking. .11 Exit stairs: Painted steel, welded or bolted, with concrete-filled steel pan treads and landings. .12 Parking garage elevators: .a Type: Electric traction. .b Quantity: 3 passenger elevators. .c Number of Stops: 6 .d 3500 pound capacity, 350 F.P.M. speed 1.3 Office Building Total Square Footage: Approximately 273,882 rentable square feet. Typical office floor proposed to have approximately 27,100 gross square feet; of that approximately 25,400 is rentable, and approximately 23,500 is usable area. 1.4 Floor Plan and Section: Four minimum corner offices per floor, and office planning module is at 5 ft. Floor to ceiling height at 9'- 0" plus at least 6 inch clear for standard fluorescent light fixtures at typical upper floors, and 12'- 0" floor to ceiling height for first floor. Core to inside of window for 40 ft. typical, with a window sill height of 32" typical. 1.5 Core Design: .1 Elevators: 12 ft. clear proposed lobby space with a total of six (6) passenger cars in two (2) banks of three (3) elevators each. One (1) dedicated freight elevator will be at a separate vestibule location. .2 Toilet Rooms: Men's fixture count proposed for (3) water closets, (2) urinals, and (3) lavatories. Women's fixture count proposed for (7) water closets and (4) lavatories. Hot water at all lavatories. SCHEDULE 1 TO EXHIBIT C - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .3 Janitor Closets: One (1) for every office floor. .4 Electrical Rooms: One (1) main room and (1) combined telephone/electrical satellite closet for each floor (if required). .5 Telephone Rooms: One (1) main room area, with a minimum interior clear dimension of 7'8" by 11'9", and (1) combined telephone/electrical satellite closet for each floor (if required) at no less dimensions than shown on Schematic drawings. .6 Two (2) pressurized exit stairs risers sized for upper floor office loads. .7 Drinking Fountains: One (1) for each floor. 2. SITEWORK 2.1 Paving and Curbs: .1 Asphalt Paving: City standards for heavy duty at driveways and service areas. .2 Concrete Paving: At loading docks and sidewalks. .3 Specialty Paving: Cast-in-place scored and colored concrete with various abraded finishes. .4 Curbs: Cast-in-place concrete. 2.2 Landscaping/Irrigation: .1 Plant Materials: Deciduous and evergreen flowering trees, shrubs, groundcover, vines, topsoil, and mulch. .2 Sod: Lawn areas. .3 Irrigation System: Below-grade irrigation and sprinkler system with pop-up heads and automatic low-voltage controller with timer, schedule 40 class 315 pressure pipe, and schedule 40 non-pressure pipe. 2.3 Site Improvements: .1 Perimeter Fencing (East Side Of Central Plaza): Painted steel picket fencing and pilasters. .2 Tables & Benches: Steel, fiberglass, pre-cast, or cast-in-place concrete with market type umbrellas in Outdoor Patio Area, as well as other decorative benches, walls, and planters throughout plaza area . .3 Flagpoles: (3) aluminum tapered poles. .4 Site Lighting: Pedestrian and surface parking area lighting and accent lighting. SCHEDULE 1 TO EXHIBIT C - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .5 Canopies/Pergolas: Site pergolas of metal or wood with architectural finishes. .6 Water Feature: To Be Determined .7 Seat Walls: Cast-in-place concrete with architectural finishes. .8 Conduit Between Building: Four -- 4 inch conduits with necessary pull boxes. 3. FOUNDATIONS 3.1 Foundations/Footings: fc = 4,000 psi. 3.2 Prestressed Precast Piles: fc = 6,000 psi. 3.3. Parking Garage: Reinforced concrete. 4. SUBSTRUCTURE 4.1 Slab-On-Grade: Reinforced concrete and accommodations for the mechanical plant. Superstructure columns will extend to the foundation level. 4.2 Concrete Basement Walls: fc = 4,000 psi. 4.3 Foundation Drainage System: As required by Geotechnical Engineer. 5. SUPERSTRUCTURE 5.1 Building Frame: Structural steel framing supporting metal deck slab typically. The lateral load resisting system is planned as a combination of eccentric braced frames and moment frames. 5.2 Floor Framing System: Metal deck with semi-lightweight concrete in metal deck pan spanning between steel beams. The live loads are planned as 80 pounds per square foot, in addition to the Code required 20 pounds per square foot for partition load at office areas, with 100 p.s.f. at exit corridor/stairs, and 125 p.s.f. at storage (light) areas. Additional reinforcement for increased floor loading will be part of Tenant Improvements Allowance. 5.3 Roof Structure: Metal deck with concrete, which is the same as the typical floors, but sloped for primary drainage. Thicker slabs as necessary for the mechanical areas of the penthouse. 5.4 Stair Systems: Painted, welded steel construction, with metal pans filled with concrete. 5.5 Fireproofing: Sprayed cementitious, as required by Code. SCHEDULE 1 TO EXHIBIT C - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 5.6 Firesafing: As required by Code. 6. EXTERIOR CLOSURE 6.1 Exterior Wall: .1 Curtainwall: Painted aluminum framing and energy efficient bronze glass window wall system with architectural precast concrete spandrel panels. .2 Soffits: Lath and Portland cement plaster. 6.2 Exterior Wall Back-Up: Metal stud framing at sills and soffits. Gypsum Board to be installed as part of Tenant Improvements Work. 6.3 Exterior Wall Insulation: Blanket insulation as required by Code. 6.4 Exterior Specialties: Rooftop visual screening of mechanical equipment at roof (as per Code requirements). 6.5 Exterior Single Pane Glass Types: .1 Tinted and Clear: At ground floor and second floor. .2 Bronze (H.P.) Tinted: Typical glazing at upper floor window wall. 6.6 Exterior Doors and Hardware: .1 Aluminum Entrances: Glazed and aluminum .2 Hardware: As required by Code. 7. ROOFING 7.1 Roof System: Bituminous 4 - ply built up roof system including cap sheet or 60 mil. Reinforced PVC single ply fully adhered over rigid insulation or 60 mil. fully adhered elastomeric coating over cured structural concrete; if elastomeric, insulate under-side of roof structure. 8. INTERIOR CONSTRUCTION 8.1 Interior Partitions (@ Core or Building Utility/Service Areas Only): .1 Metal Stud and Gypsum Board Partitions: As required by Code. .2 Shaftwall Partitions: As required for mechanical, elevator, and electrical equipment enclosures. .3 Glazed Partitions: Interior storefront system using painted aluminum and glass. 8.2 Interior Doors, Frames and Hardware: SCHEDULE 1 TO EXHIBIT C - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .1 Aluminum Doors: Glazed aluminum storefront type in glazed partitions. .2 Wood Doors: Full height, solid core wood veneer with transparent finish. Approved UL labels where required. .3 Access Doors: As needed for access to piping, etc. .4 Door Frames: Painted hollow metal. .5 Door Hardware: As required by Code. 8.3 Interior Floor Finishes: .1 Ceramic Tile: Toilet Rooms. .2 Masonry/Tile/Stone Flooring: Natural stone, tile or brick pavers at Main Lobby. .3 Resilient Tile Flooring: Utility Rooms, Freight Elevator Vestibule, Mail Room . .4 Carpeting: a portion of 1st Floor Elevator Lobby and Passenger Elevator Cab flooring. .5 Wall Base at Flooring: Resilient, tile and stone as applicable. .6 Upper Floor Elevator Lobbies & Corridors: Part of Tenant Improvements Work. .7 Leased Areas: Exposed concrete with smooth, hard trowel finish. 8.4 Interior Wall Finishes: .1 Gypsum Board: Painted finish or fire taped only (Mech./Elec./Tel. Rms). Stairs finished complete. .2 Wallcoverings: At Main Lobby and Toilet Vestibules. .3 Ceramic Tile: Toilet Rooms -- As required by Code with full height on walls. .4 Paneling: Stone, masonry, wood or glass paneling with metal accents at Main Lobby. .5 Upper Floor Elevator Lobbies: Part of Tenant Improvements Work, except on multiple tenant floors. .6 Full height Plywood Backboards at Telephone Rooms. 8.5 Interior Ceiling Finishes: .1 Acoustical Ceilings, Concealed or Exposed Grid Suspension including Donn "Fineline" with fissured lay-in 24"x 24" mineral fiberboard --Mail Room, Freight Vestibule. .2 Gypsum Board: Painted drywall ceilings and soffits at Toilets and where specified. .3 Special Design Ceilings: Main Lobby. 8.6 Interior Millwork: Main Lobby custom security console using wood, stone, metal, or plastic laminates. 9. SPECIALTIES 9.1 Building Specialties: SCHEDULE 1 TO EXHIBIT C - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .1 Toilet Partitions: Ceiling hung painted metal partitions and wall hung urinal screens. .2 Signage and Graphics: Within Public Areas, as required by Code. Tenant's Building or Monument signage shall be furnished and installed by Tenant, including signage within Tenant's leased spaces. Signage shall include all bases, bracing, hangers, attachments, and electrical work. .3 Fire Extinguisher Cabinets: As required by Code for Public Areas. Extinguishers within leased areas to be provided as part of the Tenant Improvements Work. .4 Toilet Accessories: Stainless steel. 9.2 Equipment: Window washing equipment -- sockets and davits with rigging for permanent swing stage. 10. CONVEYING SYSTEMS 10.1 Electric Elevators: .1 Type: Electric traction. .2 Quantity: 6 passenger elevators, 1 freight/service elevator. .3 Capacity: 3500 pounds for passenger elevators, and 4500 pounds for service elevator. .4 Speed: 450 to 500 F.P.M. for passenger elevators, and 350 F.P.M. for service elevator. .5 Number of Stops: 11 stops and openings in line, except for one passenger elevator (serving the basement also) with 12 stops and openings in line, and freight elevator with 12 stops and openings in line. .6 Platform Size: 7'- 6" wide by 6'- 0" deep for passenger elevators, 6"- 0" wide by 9'- 8" deep for service elevator. .7 Entrance Size: 4 ft. wide for passenger elevators, and 4' -6" wide for service elevator. .8 Materials in Cabs: Architectural finishes upgraded for passenger cabs, and standard manufacturer's finishes for freight cab, including rubberized flooring. .9 Doors and Frames: At upper floors, to be primed, ready for Tenant finish. 11. MECHANICAL 11.1 Fire Protection: .1 Fire Protection System Overview: .a Automatic sprinkler system and fire standpipe system as required by Codes. .b System will be fed by a single electrical motor driven fire pump, taking suction from a 45,000 gallon secondary water storage tank. .c Fire pump. SCHEDULE 1 TO EXHIBIT C - Page 7 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] d Hydraulically calculated sprinkler system and pressure reducing type control valves with a waterflow switch at every floor. .2 Building Smoke Control System: The general HVAC exhaust/relief system will be used for smoke exhaust. .a Building air handler units will be arranged for smoke control make-up air duty. .b The general exhaust/smoke exhaust fan will be used for smoke exhaust on a floor-by-floor smoke control scheme. .c The final design will comply with City of Los Angeles requirements, and will be tested for compliance with Code. 11.2 Plumbing Systems: .1 Storm Water Drainage System: .a Roofs will be drained by gravity through roof drains and inside downspouts, and connect to the site storm water drainage system. .b A separate overflow drainage system will be provided that will spill to grade, or through curb faces, as required. .2 Sanitary Drainage System: .a Plumbing fixtures above grade will be drained by gravity through soil waste stacks and house drains to street sewers. .b Plugged waste and vent outlets will be provided at the toilet cores for future tenant improvements. .c Toilet Room floor drains will be provided. .3 Domestic Water Supply System: .a Building will be fed by a metered water service from street main. .b The City water street pressure is not adequate to feed the entire building. A constant pressure domestic water pumping system will feed the building. .c Pressure reducing valves will be provided at tower floors to limit the pressure to a maximum of 80 psi. Valved outlets will be provided at the toilet cores for future tenant improvements. .d Domestic hot water will be provided by individual electric water heaters on every other floor to service the restrooms. .4 Materials: .a Domestic Water Piping Inside Building: Seamless copper, Type L, ASTM B.88 with wrought copper or brass castings and 95.5 solder joints. .b Domestic Water Piping Outside Building Underground: Shall be coated, seal-coated, cement-lined ductile iron bell and spigot water pipe and Class 250 cast iron fittings with neoprene gasket or mechanical joints. SCHEDULE 1 TO EXHIBIT C - Page 8 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .c Soil, Waste, Vent and Storm Water Piping Inside Building Below Ground: Standard weight, cast iron, hub and spigot with compression type neoprene gasket joints. .d Soil, Waste, Vent and Storm Water Piping Inside Building Above Ground: Standard weight, no-hub cast iron with neoprene gasket and stainless steel bands. Piping 1 1/2" and smaller; Schedule 40 galvanized steel with galvanized cast iron threaded fittings. .e Fire Protection Inside Building: Standard weight (Schedule 40) seamless or welded steel, ASTM A-120 or A-53. Galvanized pipe for drain and test piping, between Siamese and check valve, pump suction and test relief piping. Fittings; Standard weight, cast iron or malleable iron threaded or Victaulic. .f Fuel Oil Piping: Standard weight steel pipe, ASTM A-120 or A-53 with standard weight steel welding fittings. Schedule 80 piping for horizontal runs. 11.3 Heating, Ventilation and Air Conditioning Systems: .1 Basis of Design: Uniform Building Code and Mechanical Code as amended by the City of Los Angeles, City of Los Angeles Fire Code, California Title 24 Energy Conservation Code for new non-residential buildings and industrial safety orders. .2 Design Conditions: Summer: Outside Dry Bulb:104 F Outside Wet Bulb:71 F Inside Dry Bulb:75 F Inside Relative Humidity:30% - 60% Mean Daily Range: 38 F Winter: Outside Dry Bulb:30 F Inside Dry Bulb:70 F Inside Relative Humidity30% - 60% .3 Cooling Tower Design: Wet bulb 77 F .4 Minimum Ventilation: Per ASHRAE Standard 62-1989 or 20.0 CFM/100 s.f., whichever is higher. .5 Minimum Air Supply: Minimum average air supply rate of 1.0 CFM/s.f. of conditioned space. .6 Basis of Design Conditions: Outdoor summer and winter conditions are for Canoga Park from climatic data for Region X, as published by Golden Gate and Southern California Chapters of ASHRAE, Fifth Edition, May 1982. Summer outdoor design temperatures are coincident 0.1% design dry bulb and wet bulb SCHEDULE 1 TO EXHIBIT C - Page 9 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] temperatures. Winter outdoor design temperature is 0.2% design dry bulb temperature. Indoor summer and winter conditions are recommended comfort zone temperatures per ASHRAE Handbook, 1993 Fundamentals, Chapter 8. Cooling tower design wet bulb temperature is 0.1% summer design wet bulb temperature plus 3 F safety factor for recirculation and wind effect. .7 Interior Loads: .a Lights: Average 1.5 watts/square foot maximum. .b Equipment in General Office Space: Maximum continuous heat output equal to 2.0 watts/square foot (6.8 BTU/square foot of conditioned space). (Approximately 4.5 to 5.5 watts/square foot connected load.) .c People: 100 square feet/person .8 Performance Requirements: .a HVAC Systems: Cooling shall be provided for the entire occupied building, except loading docks, mechanical equipment, utility, basement, and trash room areas. Heating and ventilating shall be provided for the entire building. .9 Air Handling Systems: The basic building, including public and leased areas, shall be air conditioned by a central system. Any building areas that require special air conditioning systems, or have extended hours of operation, shall be part of the Tenant Improvements Work. .a General: The following type of Central Station air handling system will be provided: .01 Two central station built-up air handler systems with two supply fans and two return fans in each station. Systems will be variable volume type, with chilled water cooling coil, hot water pre-heat coil/warm-up coil, filters, etc. The system will be arranged for 100% outdoor air economizer cycle for free-cooling during mild climate. Trunk duct shall be provided installed on each floor. Reheat shall be electrical. .b Central Station Air Handler System: .01 System shall be of the central station built-up type within the basement. Each station shall be approximately 50% of total capacity. Two air handler stations shall be provided for the building. .02 System shall be of the single duct variable volume type, with cooling by chilled water and pre-heat by hot water. 100% outdoor air economizers shall be provided. SCHEDULE 1 TO EXHIBIT C - Page 10 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .03 System shall be draw through arrangement with multiple (minimum 2) supply fans in parallel, chilled water cooling coils, stainless steel drain pan, 30% efficiency pre-filters, 85% efficiency final filters, economizer mixing section, outdoor and return economizer dampers, minimum outdoor air preheat coil and two position minimum outdoor air dampers. .04 Return fans shall be arranged for series arrangement with the supply fans. The return fans shall be sized equal to supply fans. Minimum outdoor ventilation shall be ensured by true fan tracking using supply and return flow measuring stations and tracking controls. .05 Careful consideration shall be given to the acoustics. Supply and return air duct silencers, acoustical plenums, acoustical ductwork, duct lining, etc., shall be included in the design as required. The supply and return fans will be housed within an acoustic enclosure, including floor vibration isolation or floating floors if required. .06 Variable volume control shall be achieved by electronic variable speed drives. Inlet vanes or other mechanical means of volume control will not be used. .07 All fans shall be fitted with two position isolation dampers with damper motors and end switches for both open and closed positions. Strategies for fan staging and damper operation shall be incorporated to ensure the safe loading of dampers and to prevent backspinning of fans. .08 Air flow measuring devices in the minimum outdoor air will be provided for monitoring the minimum ventilation air flow as required by T-24. .09 Preheat coils will be sized to preheat the outdoor air up to 70 F. .10 Cooling supply air temperature shall be selected at no more than 18 F. temperature and differential between supply air outlet air temperature and room temperature or as required to ensure 1 cfm/square foot minimum average air supply rate under design load conditions. .11 Automatic Controls: Direct digital type, and in addition to the required controls and devices, to include all system and equipment monitoring input devices. SCHEDULE 1 TO EXHIBIT C - Page 11 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .a Supply and return chilled water stub-outs on each floor, capped for future connections to tenant fan coil units. Stub-out will be located at the chilled water riser on each floor. .b Supply and return condenser water stub-outs on each floor, capped for future connections to tenant equipment. Closed circuit cooling tower on the roof with supply and return risers, pumps, etc. .c After hours call system controlled to 1/4 floor. .12 Toilet Exhaust System: Sized to provide a minimum of 2CFM/square foot exhaust rate in the toilets. One exhaust fan with variable frequency drive will be provided on the roof. Toilet exhaust will be ducted to the fans with low pressure ductwork. Constant volume regulators will be provided at each floor to regulate the exhaust volume from each floor. A static pressure controller will be provided to maintain required minimum negative pressure in the exhaust duct by adjusting the fan speed. .13 Elevator Hoistway Ventilation System: Gravity vented directly to the outside on the roof. Minimum 3 square feet of vent area/car. .14 General Exhaust System: A general Exhaust/relief system will be provided, which will also be the smoke exhaust system for the building. 1500 cfm general exhaust and relief capability per floor. The system will include an exhaust riser with stub ducts and fire/smoke dampers on each floor. The fan will be located on the roof. Under future tenant work, tenants will connect into the general exhaust system as required. .15 Ventilation Systems: Miscellaneous ventilation systems will be provided as follows: .a Engineers Office: Air-to-Air heat pump with electric supplementary heat, or chilled water fan coil unit with electric heat. .b Elevator Machine Rooms: Packaged rooftop units or chilled water fan coil units. The units will be arranged to operate on economizer mode during mild climate. An exhaust fan will be provided for exhaust relief, during economizer mode operation. .c Security Room, Fire Control Room, etc.: These spaces and other 24-hour operating areas will be conditioned by chilled water fan coil units or split-system air-cooled direct expansion units as required to meet the program requirements. SCHEDULE 1 TO EXHIBIT C - Page 12 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .d Stairwell Pressurization System. 11.3 .10 Major Equipment Sizes: Two (2) 350 ton chillers; (1) 100 ton chiller; (1) 700 ton cooling tower, dual cell. 12. ELECTRICAL 12.1 Electrical Systems and Specialties: .1 Power Service: 480/277 volt, three phase, 4 - wire. Transformers will be located in a vault in the basement. Main service circuit breakers will be sized for approximately 15 VA per square foot to supply all lighting and power loads. .2 Power Distribution: 480/277 volt bus duct risers to feed four panelboards on each floor, elevators and air conditioning equipment. 480-208/120 volt dry type transformers located on selected floors to supply 120/208 volt loads in tenant areas. .3 Emergency Power System: Diesel engine driven generator to supply the following loads: .a Egress lighting and exit signs. .b Power for one elevator at a time in each bank. .c Power for stair pressurization and smoke evacuation systems. .d Power for fire alarm and security systems. .e Power for sump pumps and sewage ejectors. .4 Telephone Raceway System: Incoming service conduits from the Utility Company to the main termination room in the basement. Conduits or cable tray from main terminal room to the building riser location. Slots in closet floors up through the building for riser cables. .5 Lighting Control System: Microprocessor based system with stand alone control panels for programming lighting operating hours; telephone interface for tenant override and operator terminal for programming. 12.2 Fire Alarm System: Microprocessor based, addressable point system, fully supervised, with the following features: .1 Fireman's Control Panel incorporating the following: .a Graphic annunciator for all alarms. .b Provisions for selective zone paging. .c Fireman's telephone system. .d Control for elevators. .e Controls for fan systems. SCHEDULE 1 TO EXHIBIT C - Page 13 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] .f Control for smoke evacuation system. .g Status indication for emergency generator and fire pumps. .h Control for unlocking stair doors. .2 Waterflow alarms and valve supervision. .3 Manual pull stations. .4 Smoke detection in elevator lobbies, mechanical and electrical equipment rooms and in fan systems. .5 Fireman's telephone system .6 Evacuation paging system. .7 Controls for air conditioning, smoke evacuation and stair pressurization system. .8 Operator terminal with CRT, keyboard and printer. END OF BASE, SHELL & CORE DESCRIPTION SCHEDULE 1 TO EXHIBIT C - Page 14 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 2 TO EXHIBIT C ------------------------ CLOSE-OUT LIST Following the completion of the Tenant Improvements, Tenant or Contractor shall deliver to Landlord the following items: - - Building Permit Card signed by the appropriate City Inspectors, and, if applicable, issuance of certificate of occupancy or its legal equivalent allowing occupancy of the Premises. - - Punch List signed by the appropriate Tenant Representative or Architect, indicating that all punch-list items have been corrected and that the Contract is fully complete. - - Issuance of the Certificate of Substantial Completion by the Architect and/or Engineers - - Subcontractor List with contact names and telephone numbers. - - Finish Schedule from the General Contractor indicating the manufacturer or supplier and specification number for all finishes installed. - - One year warranty letters from the General Contractor and all subcontractors (from the date of construction completion). - - Any manufacturer's warranties, equipment operating and instruction manuals, etc., for any equipment installed (e.g., package A/C units, etc.) - - Unconditional Mechanic's Lien Releases from all of Tenant's Agents - - As-Built Drawings covering the Tenant Improvements constructed pursuant to this Tenant Work Letter and any portions of the Base Building affected by such construction, with each sheet stamped "AS-BUILT" and signed by the appropriate contractor (one to be sepia): - Electrical - HVAC - Plumbing - Fire Sprinkler - Architectural - - List of "Spare Parts" or "Attic Stock" remaining from Tenant Improvement construction, if not previously receipted by Landlord. - - Consent of sureties to release of retention and final payments if required. SCHEDULE 2 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 3 TO EXHIBIT C ------------------------ BUILDING STANDARDS 20TH CENTURY BUILDING STANDARDS I. BUILDING STANDARDS FOR ALL PREMISES. The components used in the construction of the Tenant Improvements shall have the following specifications. The following are minimum quality standards. Any reduction of quality requires Landlord's prior approval. 1. Interior Partitions -------------------- Ceiling height partition with 25 gauge, 2- metal studs, spaced 24" on center. One layer 5/8" thick, type "X" gypsum board each side. Height of partition extending from floor slab to underside of ceiling grid at 9'- 0" above finish floor at perimeter floor areas. Partition to be finish taped and sanded smooth to receive paint or wallcovering. Diagonal bracing per Code. 2. Demising/Acoustical Partition (1-Hour Rated) ----------------------------------------------- Full height partition from floor slab to underside of slab above with 25 gauge, 2- metal studs, 24" on center. One layer, 5/8" thick, type "X" gypsum board each side. Partition to be finish taped and sanded smooth to receive paint or wallcovering. Batt insulation (R-11) in cavity, if demising or acoustical. Sound boot installed in partition between tenants. 3. Exterior Window Mullion Connection ------------------------------------- 2"x 3/4" black closed cell, Durometer 40 +/- Neoprene tape with pressure sensitive adhesive and peel-off cover compressed to 3/8" thick, floor to ceiling height in one piece. 4. Acoustical Ceilings -------------------- 2'x 2' "Donn Fineline" 9/16" suspended grid system, 9'- 0" A.F.F. at perimeter floor areas, seismic bracing per Code. 2'x 2' USG Acoustone "Frost Shadowline" tile with factory tegular edge, with 5/16" shoulder flush with face of grid. Interior spaces and the 1st floor Mail Room not visible from exterior through use of building standard window covering, may utilize drywall and/or alternate ceiling systems. 5. Hardware/Hardware Finish ------------------------- Sargent 8100 Series, LNH trim. No. 630 satin dull stainless steel lever. Keyway to match Building Master Keying System. SCHEDULE 3 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 6. Water Heater ------------- If a dishwasher is used: 20 gallon electric tank hot water heater, 3kw, 277 volt, 1 phase, 60 hertz. Model No. DSE20, as manufactured by A.O. Smith (or equivalent). Pipe water heater drain and pressure relief line to floor drain (drop and condensate funnel by J.R. Smith, or equivalent). 7. Lighted Exit Sign ------------------- Lithonia Precise Series, #F2RP (ELN Series) 2-lamp F8T5 (or Code approved equivalent), 8 watt recessed architectural edge lit exit sign: single or double face, two (2) circuit 277 volt. Housing trim with white finish. Green letters and directional arrows. 8. Fire Speakers -------------- Wheelock E-9070 (or Code approved equivalent). Cover to be selected from Manufacturer's standards. All Life/Safety components shall be furnished and installed by the Building Life/Safety Contractor. 9. Smoke Detectors ---------------- Pyrotronics Type "ID60" ionization (or Code approved equivalent). All Life/Safety components shall be furnished and installed by the Building Life/Safety Contractor. 10. Fire Extinguisher ------------------ Semi-recessed Potter Roemer #7000 Alta Series, Model #7063F-VAB (stainless steel) or equivalent. 11. Fire Sprinkler --------------- Semi-recessed sprinkler heads with white escutcheon cover plates. 12. Heating and Air Conditioning ------------------------------- Interior Zone (Cooling Only): single duct variable air volume boxes as manufactured by Titus, Krueger, Anemostat, or equal. Use Building Standard controller. Exterior Zone: single duct variable air volume boxes with electric duct heater as manufactured by Titus, Krueger, Anemostat, or equal. Use Building Standard controller. Perforated face air diffusers, registers, and return air grilles: 24"x 24" as manufactured by Titus, Krueger, Anemostat, or equal Fire dampers in all ducts penetrating fire rated walls. Separate zones for high occupancy rooms (e.g. -- SCHEDULE 3 TO EXHIBIT C - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] large conference or training rooms). Rigid ductwork except last (7) feet in flex duct. Thermostats: Johnson (or equivalent), one per zone; mounted at 48" A.F.F., next to light switch. 13. 2'x 4' or 2'x 2' Fluorescent Light Fixtures -------------------------------------------------- 18 or 9-cell 3" parabolic low iridescent louver fluorescent lighting fixture with two (2) GE BIAX F40BX/SPX35/RS or two (2) F32T8RS 3500K lamps, (factory installed) with energy saving ballasts. Mid-range lamp color. Maximum fixture depth 6" and soft wire cables for 277 volt operation. (Lithonia 2PM3-32-16LD or 2PM5-CR40-9LD or equal). 14. Perimeter Column Paint ------------------------ For the side of the perimeter columns facing the glassline, the paint color shall be Benjamin Moore GN-46. 15. Interior Door Assembly ------------------------ Door: 3'- 0" x full height, solid core, 5-ply with 3/4" deep solid edge inserts. Door Frame: 3'- 0" x full height, extruded aluminum. Bronze anodized aluminum finish to match door hardware. Snap-in trim section at head and jamb. 16. Painted Surfaces - Partitions -------------------------------- Two coats satin or flat finish, washable latex paint by Frazee, or approved equal. 17. Vinyl Composition Tile ------------------------ 12"x 12"x 1/8" vinyl floor tiles, commercial grade, Armstrong Excelon, or equal. Colors to be selected from manufacturers standards. 18. Resilient Base --------------- 2- " straight or curved base by Burke. Colors to be selected from manufacturer's standards. 19. Recessed Downlight/Wall Washer -------------------------------- Recessed low voltage 30 degree adjustable accent light, with an MR16 lamp. (20, 42, or 50 watt), white finish, installed with self-contained transformer. (Halo 2450 or equal). Open reflector fluorescent 277 volt downlight, 277 volt, 2-lamp #PL (13 watt) high power factor ballasts. SCHEDULE 3 TO EXHIBIT C - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Spread lens fluorescent 277 volt wallwasher, 277 volt, 2-lamp #PL (13 watt) high power factor ballasts. 20. Windows ------- 1" Horizontal mini-blinds--"Levelor". Color by 20th Century, subject to landlords approval. 21. Electrical ---------- Standard ivory receptacles and switch plates. All telephone/data cabling not in conduit to be plenum rated. II. ADDITIONAL STANDARDS FOR PORTIONS OF PREMISES LOCATED ON MULTI-TENANT FLOORS ONLY. If a portion of the Premises is leased as a multi-tenanted floor, rather than a full floor, of the Building, the components used in the construction of the Tenant Improvements located in such portion of the Premises shall have the following specifications. 1. Corridor Entrance Door Assembly, Single ------------------------------------------- For tenants of less than 3,000 rentable square feet that are not located opposite the elevator lobby doors, a single entry door, U.L. rated 20 minute assembly, must be used. Door: 3'- 0" x full height, solid core, 5-ply with 3/4" deep solid edge inserts. Door Frame: 3'- 0" x full height, extruded aluminum. Bronze anodized aluminum finish. Snap-in trim section at head and jamb. One (1) head and two (2) jamb seals. Hardware Finish: Sargent 8100 Series, LNH trim. No. 630 satin dull stainless steel lever. 2 pair butts 1 lock set (with 2 each lever handles) 1 door closer 1 door stop 1 threshold 1 door sweep 2. Corridor Entrance Door Assembly, Pair ----------------------------------------- For tenants of 3,000 rentable square feet or more and for tenants located opposite the elevator lobby doors, double entry doors, U.L. rated 20 minute assembly, must be used. SCHEDULE 3 TO EXHIBIT C - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Door: (2) 3'- 0" panels x full height, solid core, 5-ply with 3/4" deep solid edge inserts. Door Frame: 3'- 0" x full height, extruded aluminum. Bronze anodized aluminum finish to match door hardware. Snap-in trim section at head and jamb. One (1) head and two (2) jamb seals. Hardware Finish: Sargent 8100 Series, LNH trim. No. 630 satin dull stainless steel lever. 4 pair butts 1 lock set (with 2 each lever handles) 1 dummy lever (with inactive strike) 1 set automatic flush bolts 2 door closers 2 door stops 1 threshold 2 door sweeps 1 coordinator 1 rabbeted door SCHEDULE 3 TO EXHIBIT C - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 4 TO EXHIBIT C ------------------------ BUILDING CONSTRUCTION RULES TENANT CONTRACTOR RULES, REGULATIONS AND SUPPLEMENTARY CONDITIONS FOR CONSTRUCTION 1. INTRODUCTION. ------------ These "Construction Parameters" outline for all general contractors, sub-contractors and vendors the basic guidelines for construction activities within the building at 6303 Owensmouth Avenue (the "Building"). Any work performed in the Building, whether it is constructed or supervised by the Landlord, the general contractor or the Tenant directly, must be done in accordance with the Construction Parameters set forth herein. Violation of these rules and regulations may be the cause for the Landlord to stop work from continuing. As used herein, the term "Contractor" shall mean any general contractor, subcontractor, vendor, employee or agent employed directly or indirectly by the Tenant, Landlord, or general contractor. The term "Project Manager" shall mean the agent of Tenant overseeing any particular work of construction. In the event of any inconsistency between the terms of this Schedule 4 and the terms of the Tenant Work Letter to which this Schedule 4 is attached, the terms of the Tenant Work Letter shall control. 2. REQUIREMENTS PRIOR TO BEGINNING WORK. ---------------------------------------- Construction work will not be permitted to commence until the lease between the Landlord and the Tenant is fully executed, the Landlord has reviewed and approved all construction documents, the Tenant has deposited with the Landlord any monies required to be deposited under the lease and the Contractor has received a written Notice to Proceed. In addition, prior to the commencement of any construction, the following documents must be fully executed and on record with the Landlord: A. In the event the Tenant and its Contractor enter into an agreement not contracted directly with the Landlord, the Managing Agent will post a Notice of Non-Responsibility at the site and will file it with the County Recorder. It is the responsibility of the Tenant to administer the contract in such a manner as to keep the Building lien free. B. Copies of all permits required by any governmental agencies for completion of the work (see item 4c). C. An original "stamped" set of City approved construction documents must be posted at the site. D. Certificates of insurance, together with a waiver of Landlord's liability (see item 5k). E. A letter for indemnification (see item 7). SCHEDULE 4 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] F. A letter from the Contractor with a copy of the projected work schedule for the project, a listing of contact names for each vendor/sub-contractor involved with the work, along with normal business and emergency after hours phone numbers. All subcontractors, laborers, materialmen, and suppliers used by the Contractor must be approved in writing by the Landlord. If the Landlord does not approve of any subcontractors, laborers, materialmen, and suppliers used by the Contractor, the Contractor shall submit other proposed subcontractors, laborers, materialmen, and suppliers for Landlord's written approval. 3. CONTRACTOR'S DUTIES AND STATUS. --------------------------------- The Contractor accepts the relationship of trust and confidence established between him and the Tenant and the Landlord. He covenants with the Tenant and the Landlord to furnish his best skill and judgment and to cooperate with the Architect in furthering the interests of the Tenant and the Landlord. Contractor agrees to furnish efficient business administration and to use his best efforts to furnish at all times an adequate supply of workmen and materials, and to perform the Work in the best way and in the most expeditious and economical manner consistent with good workmanship, sound business practice and the best interests of the Landlord. Except as expressly authorized in the Contract Documents, the Contractor has no right or authority of any kind to act as the representative of or on behalf of the Landlord. Contractor is an independent contractor and not an agent of the Landlord. 4. WORKING HOURS -------------- Contractors are to notify the Managing Agent at 6301 Owensmouth Avenue, Suite 105 prior to starting any work. All jobs must be scheduled by the responsible party of the Contractor or vendor, to be appointed by Contractor prior to project commencement. A. All work is to be performed between the hours of 6:30 a.m. and 3:30 p.m. Monday through Friday, excluding holidays, Saturdays, and Sundays, unless prior permission is granted by the Landlord or Landlord's designated managing agent ("Managing Agent"), to deviate from this work schedule. Additionally, some work processes are restricted because of disturbances to surrounding tenants as listed below. B. Whenever Contractor will use construction methods which will result in prolonged loud noise (such as, but not limited to, tack stripping, coring or jack hammering) such activities will be limited to a time agreed to by the Managing Agent and Tenant. These activities may by conducted at hours other than these only by permission of the Managing Agent. C. The use of combustible glues, lacquers and paints or any odor producing products on weekdays between the hours of 6:30 a.m. and 3:30 p.m. must be coordinated in advance with Managing Agent; in occupied office spaces, such use is limited to after 6:00 p.m. or on weekends. SCHEDULE 4 TO EXHIBIT C - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] D. Tenant or Tenant's Agents must receive written authorization ("PASSDOWNS") to enter the building by contacting the Managing Agent at 818/704-0500 each time you plan to do work outside of the hours of 6:00 A.M. and 6:00 P.M. 5. GENERAL CONDITION ISSUES -------------------------- A. Supervision and Construction Procedures The Contractor shall supervise and direct the work using its best skill and attention. The Contractor shall be solely responsible for all construction means, methods, techniques, sequences and procedures and for coordinating all portions of the work under the contract. B. Rules and Regulations The Contractor shall issue copies of the Rules and Regulations to all sub-contractors with bid requests. In addition, a copy shall be posted at all times during construction at permit locations. C. Labor and Materials Unless otherwise specifically agreed to in writing, the Contractor shall provide and pay for all labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation, and other facilities and services necessary for the proper execution and completion of the work. D. Permits, Fees, and Notices The contractor shall secure and pay for all permits, governmental fees and licenses necessary for the proper execution and completion of the work, which are applicable at the time work begins. The Contractor shall give all notices and comply with all laws, ordinances, rules, regulations and orders of any public authority bearing on the performance of the work. The Contractor shall arrange for Life Safety test with the proper governmental authorities prior to tenant move-in. E. Superintendent The Contractor shall employ a competent superintendent and necessary assistants who shall be in attendance at the project site during the progress of the work. The superintendent shall be satisfactory to the Landlord and Tenant, and shall not be changed except with the consent of the Landlord and Tenant, unless the superintendent proves to be unsatisfactory to the Contractor and ceases to be in its employ. F. Closed Suite Environment SCHEDULE 4 TO EXHIBIT C - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Suite entrance doors are to remain closed at all times, except when stocking. G. Protection of Persons and Property The Contractor shall comply with all applicable laws, ordinances, rules, regulations and lawful orders of any public authority having jurisdiction for the safety of persons or property or to protect them from damage, injury or loss. Contractor shall erect and maintain, as required by existing conditions and progress of the work, all reasonable safeguards for safety and protection, including posting danger signs and other warnings against hazards and promulgating safety regulations. The Contractor shall be responsible for initiating, maintaining and supervising all safety precautions and programs in connection with the work. 1) The Contractor shall take all reasonable precautions for the safety of, and shall provide all reasonable protection to prevent damage, injury or loss to: a) all employees on the project and all other persons who may be affected thereby; b) all the work and all materials and equipment to be incorporated therein, whether in storage on or off the site, under the care, custody or control of the Contractor or any of its vendors, sub-contractors, or sub-subcontractors; c) other property at the site or adjacent thereto, including trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction. 2) The Contractor shall be responsible for providing adequate protection of existing building services, and/or tenant furnishings during construction. Plastic must be taped down first, from wall to wall, followed by tempered Masonite (4 x 8-1/4 inch panel) taped to the floors and adjoining areas. Protect all corners, edges and joints to have adequate anchoring to provide safe and "trip free" transitions. Material to be extra heavy-duty and installed from freight elevator to the suite during construction. Plywood will not be accepted in lieu of Masonite. Materials used for protection will not bear signage, graffiti, or advertising. H. Contractor's Liability Insurance The Contractor shall purchase and maintain such insurance as will protect the Contractor from claims set forth below which may arise out of or result from the Contractor's operations under the contract, whether such operations be by the Contractor or by any sub-contractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable: SCHEDULE 4 TO EXHIBIT C - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1) claims under workmen's compensation, disability benefits and other similar employee benefit acts; 2) claims for damages because of bodily injury, occupational sickness or disease, or death of its employees; 3) claims for damages because of bodily injury, sickness or disease, or death of any person other than its employees; 4) claims for damages insured by usual personal injury liability coverage which are sustained (a) by any person as a result of an offense directly or indirectly related to the employment of such person by the Contractor, or (b) by any other person; and 5) claims for damages because of injury to or destruction of tangible property, including loss of use resulting therefrom. The insurance required above for bodily injury liability and property damage (including automobile insurance) shall be written for no less than a combined single limit of $2,000,000 or as required by law, whichever is greater. Such insurance shall name Landlord, Landlord's lender and Landlord's designated Managing Agent, as Additional Named Insured. Certificates of Insurance acceptable to the Landlord shall be filed with the Landlord prior to commencement of the work. These Certificates shall contain a provision that coverage afforded under the policies will not be canceled until at least thirty (30) days prior written notice has been given to the Landlord. Contractor must wave all rights against Landlord, Landlord's lender and Landlord's designated Managing Agent, for damages caused by perils required to be covered by the foregoing insurance, and Contractor shall require similar waivers from any and all sub-contractors. i. Documents and Samples at the Site The Contractor shall maintain at the site for the Landlord one record copy of all Drawings, Specifications, Addenda, Change Orders and other Modifications, in good order and marked currently to record all changes made during construction, and approved Shop Drawings, Product Data and Samples. These shall be available to the Landlord, the Architect, the Tenant and Project Manager and shall be delivered to the Landlord upon completion of the work. All original documents and plans which have received final approval by the City must be submitted to Landlord prior to payment of general contractor retention invoice. j. Responsibility for Damage SCHEDULE 4 TO EXHIBIT C - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 1) Should the Contractor wrongfully cause damage to the work or property of the Landlord or the Tenant, or to other work on the site, the Contractor shall promptly remedy such damage as directed by the Landlord. 2) Should the Contractor cause damage to the work or property of any sub-contractor, sub-subcontractor or separate contractor, the Contractor shall, upon due notice, promptly attempt to settle such matter or otherwise to resolve the dispute. If such sub-contractor, sub-subcontractor or separate contractor sues the Landlord or the Tenant on account of any such damage alleged to have been caused by the Contractor, the Landlord or the Tenant shall notify the Contractor who shall defend such proceedings at the Contractor's expense, and if any judgment or award against the Landlord or the Tenant arises therefrom, the Contractor shall pay or satisfy it and shall reimburse the Landlord or the Tenant for all attorney's fees and court costs which the Landlord or the Tenant has incurred. 6. CONSTRUCTION REQUIREMENTS -------------------------- a. Demolition The Contractor shall disconnect all electrical, HVAC and plumbing (if any) prior to demolition and provide temporary construction lighting if necessary. The work shall be done by licensed electrical, HVAC and plumbing sub-contractors. All abandoned phone lines, plumbing supply and waste lines, air conditioning duct work, electrical conduits, etc. are to be removed. Coordination with Building Engineers is required prior to the disconnection of services or work relating to Building Systems. b. Life Safety System All Life/Safety and applicable Building Codes will be strictly enforced. Coordination with the Chief Engineer is required. Requests for disablement of the fire alarm system must be received 48 hours prior to date required. Contractor is to verify with the Managing Agent the designated Life Safety contractor for the Building. The Life Safety system, electrical or mechanical systems may not be modified in any way, or made inoperative by Contractor or any of Contractor's sub-contractors. If Contractor has any reason to interface with these systems or if damage occurs during construction, contact the Managing Agent", for direction immediately. c. Electrical SCHEDULE 4 TO EXHIBIT C - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] The Contractor shall ensure that the following requirements are adhered to: 1) Electric panel schedules must be brought up to date, identifying all new circuits added. 2) All electrical outlets and lighting circuits are to be properly identified. 3) All electrical and phone closets being used must have panels replaced and doors shut at the end of each work day. Any electrical closet that is opened with the panel exposed must have a workperson present. 4) All electricians, telephone personnel, etc. will, upon completion of their respective projects, pick-up and discard all their trash, and leave their work areas in broom-clean condition. If debris is not removed, clean-up will be conducted by the Building janitorial staff and will be backcharged. 7. INDEMNIFICATION --------------- Contractor must indemnify and agree to hold Landlord, Landlord's lender and Landlord's designated Managing Agent, and their respective agents, officers and employees, harmless from all loss, cost, liability, damage or expense by reason of damage to the property of others or personal injury, including death, which may arise from the Contractor's operations in the building, whether by the Contractor or any sub-contractor, or anyone directly or indirectly employed by either of them. 8. RECORD DRAWINGS ---------------- The Contractor is required to provide Landlord with reproducible "As Built" record drawings including electrical, mechanical, plumbing, and sprinkler drawings and air balancing reports for all work permanently in place at the completion of each project. Provisions shall be made in the Contractor's agreement to allow for the creation of these documents. Additionally, copies of all City "signed off" inspection cards from all appropriate and required government agencies shall be submitted to Landlord as part of the record drawing set. 9. TRADE JURISDICTION ------------------- The Contractor shall properly assign the work to be performed to appropriate personnel so as to properly execute the work in accordance with local jurisdictions. In the event of conflict due to jurisdictional dispute, the Contractor shall take immediate and appropriate action to see that there is no work stoppage due to the conflict of jurisdiction. Should conflict interfere with other building operations, the Landlord reserves the right to stop the Contractor's work until such problems are resolved. SCHEDULE 4 TO EXHIBIT C - Page 7 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 10. HARMONIOUS RELATIONS --------------------- The Contractor and all subcontractors, laborers, materialmen and suppliers shall conduct their activities in and around the Premises, Building and Project in a harmonious relationship with all other subcontractors, laborers, materialmen and suppliers at the Building and Project. 11. SALVAGEABLE MATERIALS ---------------------- The Contractor shall return to the Project Manager or Landlord all attic stock, spare parts and salvageable materials removed from any existing permanent work. These items are to be stored by the Contractor at a location determined by the Project Manager and/or Landlord. Additionally, reusable carpet excess should be rolled and tagged and submitted to the Project Manager for storage and potential reuse during remodeling years. 12. PROVISION OF TEMPORARY UTILITIES ----------------------------------- a. Power and Lighting The Landlord shall provide, at its expense, power at the main electrical panel on each floor. The Contractor shall be responsible for providing at its expense, cable extensions and for making connections to the floor electrical panels for temporary power. Contractor shall also be responsible for supplying, at its expense, any temporary or special lighting required for its work. b. Water Landlord shall provide water at the janitor's closet on each floor and at future tenant hookup locations. The Contractor shall be responsible for providing, at its expense, hose connections and for making connections to the outlets provided. Contractor is also responsible to ensure that no water damage is done to existing finishes and to ensure that no leakage occurs onto other floors. c. Heating, Ventilation and Air Cooling The Landlord shall furnish heating, ventilation or air cooling to the work space during normal construction hours. Upon request from Contractor, Landlord shall operate the ventilation system for the Building as may be reasonably required during the construction, including those periods during and after application of finishes, which services shall not be charged to the Contractor during normal construction hours, but shall be backcharged during other hours. SCHEDULE 4 TO EXHIBIT C - Page 8 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] d. Telephones The Landlord has no obligation to provide telephone service to the Contractor other than the pay phone services designed for public use located in the Building. The Contractor shall not disturb the Managing Agent or other tenant offices for use of their telephone. e. Fire Protection The Contractor shall be responsible for seeing that portable fire extinguishers are provided in sufficient quantity to satisfy the requirements of the City fire inspector. Additionally, the Contractor shall provide a fire watch during any welding, burning or other activity involving open flame or arc flame. Lastly, the Contractor shall specifically note that the general fire protection systems within the Building are active and must remain active during tenant buildout. Before starting any sprinkler system rework, Contractor must contact Landlord or the Managing Agent to make arrangements for shut down and draining of the individual floor systems where work is to be performed. The actual cost for the floor work for draining and refilling the system will be paid by the Contractor. 13. ELEVATORING, HOISTING AND DELIVERIES --------------------------------------- a. General Use All Contractor materials and workmen shall be transported using the service elevator. Under no circumstances will the general elevator systems be used for material or workmen movement. During the hours of 8:00 a.m. to 3:30 p.m., Monday through Friday, excluding holidays, Saturdays, and Sundays, the service elevator shall be restricted to use for the movement of workmen, tools and light materials only. During this time period, stocking of major materials will not be allowed. Use of the service elevator will be shared with other Contractors and other service vendors working in the building. b. Stocking and Material Movement Stocking and material movement shall be accomplished after hours only (before 8:00 a.m. and after 3:30 p.m., Monday through Friday and all day Saturdays, Sundays, and holidays). The service elevator must be reserved through the Managing Agent, and reservations shall be allocated on a first come first serve basis. If it should become necessary to provide an operator for the elevator, the cost of such operator will be invoiced to Contractor or Tenant. In addition, should the Contractor reserve the service elevator and fail to use its services, the Contractor or Tenant shall nevertheless be charged for the elevator operator. Should Contractor wish to cancel its reservation, it must do so 24 hours in advance. SCHEDULE 4 TO EXHIBIT C - Page 9 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 14. DELIVERIES AND ON SITE STORAGE ---------------------------------- a. General The Contractor shall deliver materials to the job site in order to provide for the proper execution of its work in a continuous fashion. Contractor shall be responsible to provide adequate protection as required for public property, private property, utilities and materials and shall be responsible for the safety of workmen in accordance with the applicable codes, laws and regulations of governing agencies having jurisdiction. Any damages caused by the Contractor's negligence shall be corrected by the Contractor in a manner approved by the Landlord and/or the ruling government agency at the Contractor's expense. b. Staging The Contractor may stockpile material only in areas approved by the Landlord or the Managing Agent. If materials are stockpiled in unapproved areas which create interference or obstruction with the work of others, or if overloading of the rated capacity of the structural slab occurs, such materials must be relocated by the Contractor at its expense. The use of "staging areas" outside of the demised area of the Tenant's space shall be allowed only with prior approval of the Landlord or the Managing Agent and shall be restricted to that zone and that time period authorized by the Landlord or the Managing Agent in writing. These areas must be vacated and left in "like new" condition at the end of such period. 15. CLEANUP AND RUBBISH REMOVAL ------------------------------ The Contractor shall at all times keep the project free from accumulation of waste material or rubbish caused by its employees or its sub-contractors. Cleanup and rubbish removal shall occur on a daily basis to the satisfaction of the Landlord. Contractor is responsible for providing its own means of trash disposal and shall not be allowed to use the building's trash compactors, bins and/or dumpster system. The Managing Agent assumes no responsibility for the -- bins. Bins must be delivered and maintained in good condition and free of graffiti. All core elements, including the restrooms, elevator lobbies and public corridors, shall be kept clean at all times. When Contractor requires the use of these areas, provisions must be made for the proper protection of existing services to prevent damage or excessive wear. Final cleaning will include cleaning of all window mullions, light diffusers, cleaning of cabinets and sinks, vacuuming of carpet, cleaning of VCT. 16. RESTROOMS --------- The Contractor shall be allowed to use the restroom facilities on the floors on which it is working unless otherwise specified by Landlord. The Contractor must include these SCHEDULE 4 TO EXHIBIT C - Page 10 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] restroom facilities on its punch list of deficiency items as it will be charged for any damage to these areas found during or after the completion of its work. Further, Contractor shall maintain these restroom facilities and protect them until such time as its work is complete. Absolutely no disposal of paint, drywall compound or cement will be allowed in restrooms or janitor sinks. 17. PARKING ------- To the extent available on-site, parking will be provided free of charge to the Contractor, employees of the Contractor, sub-contractors and vendors, who shall comply with such parking rules and regulations as the Landlord may establish. 18. MISCELLANEOUS ------------- a. The Contractor shall at all times enforce strict discipline and good order among its employees and shall not employ any unfit person or anyone not skilled in the task assigned to the Contractor. The Contractor shall restrict access of its personnel to the areas of its work within the building. Workers are not to be permitted on floors not involved in the work, and at no time shall workers be allowed on other occupied floors or the main lobby areas of the buildings. b. Radios, tape decks or other amplified sound equipment are not allowed. c. Anyone found defacing any portion of the Project in any manner will be subject to immediate dismissal from the Project. d. Use of Tenant lounges or kitchen areas is strictly prohibited. Construction personnel are to refrain from using building common area or exterior seating for breaks. Food and related lunch debris is not to be left in the suite under construction. e. A shirt must be worn at all times while on the project site. Offensive T-shirts or tank tops are prohibited. f. Alcohol and drugs are strictly prohibited. 19. TELEPHONE/DATA CABLING ----------------------- The Tenant's cabling vendor is responsible for pulling the telephone and/or data cable. The Tenant's vendor must obtain a permit from the appropriate government authority. All cable must be plenum approved and secured per the City Building Codes. The Tenant's cabling vendor is responsible for calling for any inspections required under this permit. In all plenum environments, the cable installed is to be a "fire protected" cable or "plenum rated" cable. In any space where the conduits are home run rather than stubbed SCHEDULE 4 TO EXHIBIT C - Page 11 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] out into the plenum, a standard cable is acceptable. Standard cable is also acceptable in the conduited home run from the Tenant's backboard, in their suite, to the telephone/communications closet/room in the core of the building on each floor. The Tenant's cabling vendor must suspend all cabling from the deck above by wires independent of all other trades. In no instance should any cable be tied off to any other trade including but not limited to the following: sprinkler heads or pipe, electrical conduit or the wires used to suspend the conduit, HVAC ducting, or ceiling grid wires. All wiring to be held 12" above ceiling and supported every 48". In no instance should cable be left laying on the duct work or on the ceiling grid. The Tenant's cabling vendor is responsible for the correction of any deficient situations within 24 hours of notification that the installation does not meet the above requirements. THE RULES AND REGULATIONS WILL BE STRICTLY ENFORCED. THE MANAGING AGENT AND ENGINEERING DEPARTMENT WILL ASSIST TO MAKE YOUR JOB EASIER. HOWEVER, CONTRACTORS WHO DO NOT OBSERVE THE RULES AND REGULATIONS WILL NOT BE ALLOWED TO PERFORM WORK WITHIN THIS PROJECT. ACCEPTED: TENANT: CONTRACTOR: 20TH CENTURY INSURANCE COMPANY [NAME OF COMPANY] - -------------------------------- ------------------------------ Bernard F. Landgraf Signature Date: Date: SCHEDULE 4 TO EXHIBIT C - Page 12 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] SCHEDULE 5 TO EXHIBIT C ------------------------ The following articles of personal property may be removed from the Building by Tenant at any time during the Lease Term, regardless of whether such articles of personal property are characterized under the Lease as (i) "Landlord's property" in whole or in part for tax, insurance or any other purpose, (ii) "Tenant Improvements," or (iii) "Alterations:" Moveable Partitions Security Equipment (Card Key, Video Cameras, etc.) Telephone, Communication, and Telecommunication Equipment (including Microwave and Infrared Antennas) Special Air-Conditioning Equipment Chandeliers and Special Light Fixtures Kitchen Equipment (Freezers, Refrigerators, Microwaves, Dishwashers, Dish Warmers, etc.) Exercise Equipment and Lockers Artwork Emergency Generators Raised Flooring Systems Special Electrical Panels, Power Conditioning Equipment and UPS Systems Office Furniture and Furnishings, including Modular Furniture Systems, Shelving Systems, and Custom Built-Ins Detachable Custom Millwork All Millwork and Built-Ins in the Offices of Tenant's Chief Executive Officer and President Duplicating/Reproduction Machines Computers, Terminals and Computer Equipment Audiovisual Equipment Vending Machines Signage (whether in the Premises or the Project Common Areas) Window Coverings (Excluding Building Standard Coverings) Appliances Vaults and Safes Mailroom Equipment SCHEDULE 5 TO EXHIBIT C - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT D ---------- 20TH CENTURY PLAZA SUPPLEMENTAL AGREEMENT RE: LEASE TERM DATES , 19 --------------- -- To: ----------------------- ----------------------- ----------------------- ----------------------- Re: Office Lease dated _______________, 19__ between _______________, a _______________ ("Landlord"), and _________________, a _______________ ("Tenant") concerning Suite ______ on floor(s) ___________ of the office building located at _______________, Los Angeles, California. Gentlemen: In accordance with the referenced Office Lease (the "Lease"), we wish to advise you and/or confirm as follows: 1. The Lease Term shall commence on or has commenced on _______________ for a term of _______________ ending on _______________. 2. Rent commenced to accrue on ______________, in the amount of _______________ 3. If the Lease Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease. 4. Your rent checks should be made payable to _______________ at _______________. 5. The exact number of rentable square feet within the Premises is _______________ square feet, and the number of parking passes to which Tenant is entitled is ___________________. 6. Tenant's Share as adjusted based upon the exact number of rentable square feet within the Premises is __________%. "Landlord": ---------------------------, EXHIBIT D - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] a --------------------------- By: --------------------------- Its: --------------------------- Agreed to and Accepted as of , 19 ---------------- -- "Tenant": - -----------------------------, a ---------------------------- By: -------------------------- Its: ------------------------- EXHIBIT D - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT E ---------- 20TH CENTURY PLAZA RULES AND REGULATIONS Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project. 1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord's prior written consent, which shall not unreasonably be withheld. Tenant shall bear the cost of any lock changes or repairs required by Tenant unless necessitated due to loss or misuse of keys by Landlord or its agents. Four (4) keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord. All locks, other than those to Tenant's restricted areas previously approved by Landlord, must remain on Landlord's master key system. 2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises. 3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the greater Los Angeles area. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. The Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property. 4. No bulky furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord. All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord reasonably designates. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. Except to the extent resulting from the negligence or wilful misconduct of Landlord, any damage to EXHIBIT E - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant. 5. No furniture, packages, supplies, equipment or merchandise will be received in the Building or carried up or down in the elevators (except as reasonably established by Landlord and provided that Landlord's standard shall be consistent with those standards established by landlords of Comparable Buildings), except between such hours, in such specific elevator and by such personnel as shall be designated by Landlord. 6. The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord. 7. Tenant shall not disturb, solicit, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same. 8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or agents, shall have caused it. 9. Tenant shall not overload the floors of the Premises. 10. Except for vending machines intended for the sole use of Tenant's employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord. 11. Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline or other inflammable or combustible fluid or material, except as provided in SECTION 19.25.2 of the Lease. ---------------- 12. Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord. 13. Tenant shall not permit or allow the Premises to be occupied or used in a manner offensive or reasonably determined by Landlord to be objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therein. 14. Tenant shall not bring into or keep within, the Building or the Premises bicycles or other vehicles, nor bring into or keep within the Project any animals (except seeing eye dogs accompanied by their masters), birds or fish, except as provided in ARTICLE 18 of the Office Lease. ----------- 15. No cooking shall be done or permitted on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral EXHIBIT E - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] purposes. Notwithstanding the foregoing, Underwriters' Laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 16. Landlord will approve where and how telephone and telegraph wires are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Landlord. All such wires, borings and/or cuttings in connection with the construction and installation of the Tenant Improvements and as shown on the Approved Working Drawings (as such term is defined in the Tenant Work Letter) are hereby consented to by Landlord. 17. Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations. 18. Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, halls, stairways, elevators, or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises. 19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building's heating and air conditioning system. 20. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in Woodland Hills, California without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate. 21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations reasonably established by Landlord or any governmental agency. 22. Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, not to be unreasonably withheld. No non-Building standard curtains, blinds, shades or screens which may be visible from the exterior of the Premises shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be of a quality, type, design and bulb color reasonably approved by Landlord. EXHIBIT E - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 24. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills. 25. Tenant shall comply with any non-smoking ordinance adopted by the City of Los Angeles or any other applicable governmental authority. Landlord reserves the right at any time to reasonably change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord's judgment may from time to time be reasonably necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein; provided, however, that no such change, rescission, addition or amendment shall prevent Tenant's use of the Premises in accordance with SECTION ------- 5.1 of the Lease. Landlord shall not be obligated to enforce any of these Rules - --- and Regulations against any tenant; however, Landlord shall not discriminate against Tenant in the enforcement of these Rules and Regulations (as compared to other tenants of the Building). Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises. EXHIBIT E - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT F ---------- 20TH CENTURY PLAZA ESTOPPEL CERTIFICATE The undersigned as Tenant under that certain Office Lease (the "Lease") made and entered into as of _______________, _____ by and between _______________ as Landlord, and the undersigned as Tenant, for Premises on the _______________ floor(s) of the office building located at _______________, Los Angeles, California _______________, certifies as follows: Attached hereto as EXHIBIT A is a true and correct copy of the Lease and --------- all amendments and modifications thereto. The documents contained in EXHIBIT A --------- represent the entire agreement between the parties as to the Premises. The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on _______________, and the Lease Term expires on _______________, and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project. Base Rent became payable on _______________. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in EXHIBIT A. ---------- Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows: All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through . The current monthly installment of Base Rent is $_______________. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder. In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder. No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease. As of the date hereof, there are no existing defenses or offsets, to the undersigned's knowledge, claims or any basis for a claim, that the undersigned has against Landlord. Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so. EXHIBIT F - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state. Other than in compliance with all applicable laws and incidental to the ordinary course of the use of the Premises, the undersigned has not used or stored any hazardous substances in the Premises. To the undersigned's knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement work have been paid in full. The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property. Executed at _______________ on the ___ day of _______________, ______ "Tenant": -----------------------------, a ---------------------------- By: -------------------------- Its: ------------------------ By: -------------------------- Its: ------------------------ EXHIBIT F - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] [ATTACH LEASE AND AMENDMENTS TO THIS CERTIFICATE] EXHIBIT F - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT G ---------- 20TH CENTURY PLAZA BASEMENT STORAGE AREAS EXHIBIT G - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT H ---------- 20TH CENTURY PLAZA HVAC DESIGN SPECIFICATIONS 1. System Description Summary. The Heating, Ventilation and Air Conditioning ("HVAC") system design is based on American Society of Heating, Refrigerating and Air Conditioning Engineers ("ASHRAE") standards. The summer outdoor design temperature is 104 F (0.1% design condition); the indoor design temperature is +-75 F. The design interior power load is 2.0 watts/square foot (6.8 BTU/square foot) continuous heat-out (corresponding to approximately 4.5 to 5.5 watts/square foot connected load). Outside air for ventilation is designed to be supplied at a minimum of 20 CFM per person as per ASHRAE Standard 62-1989. Design occupant density and ventilation rate are to be based on an occupant density of 100 square feet/person. Supplementary cooling is based on 10 tons/floor, excluding the Ground Floor, consisting of closed circuit industrial cooler water, available 24 hours per day, year-round, at guaranteed maximum temperatures of 85 F +- 2 F for industrial cooler water, delivered at a designated location on each floor at adequate pressures for Tenant's Premises without the need for additional booster pumping, heat exchanges or other comparable devices. Two air handling stations are provided in the basement for the entire building. Each unit has two supply and two return fans. The air handling system incorporates 100% outside air economizers for free-cooling during cool weather. Three chillers are provided for the building cooling, two at 300 tons and one at 100 tons. Filter efficiency in the HVAC system is to be 85%, and the filter change cycle will be maintained in accordance with the manufacturer's recommendation, but not less than one filter change per twelve (12) month period throughout the Lease Term, or filter to be changed when the dirty filter pressure drop is equal to three (3) times the clean filter pressure drop. Tenant supplementary cooling is provided by a closed circuit cooling tower rated at +-100 tons. The rooftop equipment platform and the pipe risers will be sized to accommodate the equivalent of a future 200 ton cooling tower. Controls are 100% direct digital including VAV terminal units. During off-hours, it is possible to air condition as little as 1/4 of a floor at a time. During off-hours operation only, one supply and one return fan will operate at reduced speed. The small 100 ton chiller will operate, unless the off-hours load exceeds 100 tons (approximately 1.5 to 2 occupied floors). It is also possible to activate individual zones in the building that are scattered throughout the building. The control system will automatically adjust the system operation by activating additional zones if necessary so that the total system operation is stable. Off-Hours Control: The following are the control options available to the building tenants. Primary control will be by the Owners pre-programmed, automated, energy management EXHIBIT H - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] system. Tenants may, at their option and cost, provide individual floor control hardware and software for: A. Via card access system-Individual zone or 1/4 of a floor B. Via voice prompted telephone system-Individual zone or 1/4 of a floor C. Via key switches- 1/4 floor minimum 2. Indoor Air Quality Standard. The Building's HVAC system is designed to provided air quality for the Building Common Areas and the Premises to meet, at least, the standards set forth in ASHRAE Standard 62-1989 for non-smoking buildings ("Ventilation for Acceptable Indoor Air Quality"), including the maintenance requirements, recommendations and guidelines contained therein, and laws, ordinances, rules or regulations in effect at the time of permitting of the Building's shell and core by any governmental authority having jurisdiction over the Building or relating to office building indoor air quality (collectively, the "Indoor Air Quality Standard"). Landlord agrees that a breach by Landlord of this Section 4 shall be a breach of the Lease. 3. System Upgrades. Tenant may, at Tenant's sole option, and at Tenant's sole cost and expense (which may be charged to the Tenant Improvement Allowance as indicated in Exhibit C, install upgrades to the Building's HVAC system to provide indoor air quality of the Building Common Areas and the Premises for, at least, the standard set forth in ASHRAE Standard 62-1989 and ASHRAE Standard 55 and/or outside ventilation capability outside of normal business hours subject to the provisions set forth in Section 10.2 for Tenant supplementary air conditioning systems at a rate of 25 CFM/1000 square feet of Usable Area. Plans, drawings and specifications for such upgrade shall be prepared by the Architect and the Engineer, at Tenant's sole cost and expense, and shall be submitted to Landlord for Landlord's approval in the manner described in Section 3.3 of the Tenant Work Letter, and at the Landlord's option, all or a portion of the remaining terms of the Tenant Work Letter shall apply to such upgrade as though the upgrade constituted a portion of the Tenant Improvements. Any such work shall be coordinated by Tenant's Contractor so as not to disrupt HVAC service to any other tenants of the Building. At Landlord's sole option, any additional maintenance and repair costs associated with any such system upgrade shall, notwithstanding anything to the contrary contained in the Lease, be paid by Tenant to Landlord, as Additional Rent, within thirty (30) days after Tenant's receipt of invoice therefor, and shall be excluded from Operating Expenses. EXHIBIT H - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT I ---------- 20TH CENTURY PLAZA JANITORIAL SPECIFICATIONS [TO BE PROVIDED] EXHIBIT I - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT J ---------- 20TH CENTURY PLAZA SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: ERVIN COHEN & JESSUP 9401 Wilshire Boulevard Ninth Floor Beverly Hills, California 90212 Attention: David P. Kassoy, Esq. ================================================================================ (Space Above For Recorder's Use) SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ------------------------------------------------------- NOTICE: THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT RESULTS IN TENANT'S LEASEHOLD ESTATE IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT. THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ("Agreement") is entered into this ____ day of _____________, 1997, by and among 20TH CENTURY INDUSTRIES, a California corporation ("Tenant") TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("Landlord"), and LEHMAN BROTHERS HOLDINGS, INC., a Delaware corporation, doing business as Lehman Capital, a division of Lehman Brothers Holdings, Inc. ("Lender"). W I T N E S S E T H: ------------------- WHEREAS, Tenant has entered into that certain 20th Century Plaza Office Lease dated ____________, 1997 (the "Lease") with Landlord, leasing certain premises (the "Premises") described in the Lease, which Premises constitute a portion of that certain real property located at 6301 Owensmouth Avenue, Woodland Hills, California, and more particularly described in Exhibit A --------- attached hereto (the "Property"); and WHEREAS, Lender has made or will make a loan to Landlord in the amount of $________ (the "Loan"), which Loan shall be evidenced by that certain Promissory Note in the amount of $________ from Landlord (which, together with any amendments, modifications or additional notes evidencing additional indebtedness, shall collectively be referred to as the "Note"), which Note is or shall be secured by that certain Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents and Agreements dated ________, 1997, and recorded, ________, 1997, in the Official Records of Los Angeles County, California (the "Official EXHIBIT J - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] Records"), as Instrument No. ______ (which, together with all amendments, and modifications, shall be referred to as the "Deed of Trust"); and WHEREAS, Lender is also the Assignee under that certain Assignment of Lessor's Interest in Leases and Seller's Interest in Contracts of Sale dated ________, 1997, executed by Landlord, recorded in the Official Records on ______________, 1997, as Instrument No._______ (which, together with all amendments, and modifications, shall be referred to as the "Assignment"); and WHEREAS, the Deed of Trust and the Assignment are collectively referred to herein as the "Security Documents"; and WHEREAS, Tenant and Lender desire to set forth their agreement as provided herein; NOW, THEREFORE, in consideration of their mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Subordination. Notwithstanding anything to the contrary set forth ------------- in the Lease, the Lease and the leasehold estate created thereby and all of Tenant's rights thereunder shall be, at the option of Lender (to be exercised in Lender's sole and absolute discretion), either (i) subject, subordinate and inferior to, or (ii) superior to, to the extent and in the manner hereinafter set forth, the Security Documents and all rights of Lender thereunder and to any and all renewals, modifications, consolidations, replacements ad extensions thereof. 2. Acknowledgment and Agreement by Tenant. Tenant acknowledges and ------------------------------------------ agrees that: (a) Lender would not make the Loan without this Agreement; (b) Lender, in making any disbursement to Landlord, is under no obligation or duty to oversee or direct the application of the proceeds of such disbursements, and such proceeds may be used by Landlord for purposes other than improvement of the Property; (c) Tenant has notice that the Lease and any rent and all other sums due thereunder have been assigned. or are to be assigned. to Lender as security for the Loan. If Lender notifies Tenant in writing of a default under the Deed of Trust and demands that Tenant pay its rent and all other sums due under the Lease to Lender, then, pursuant to Landlord's acknowledgment and agreement set forth in item (c) of Section 11, below, Tenant shall honor such demand and pay its rent and all other sums due under the Lease directly to Lender or as otherwise required pursuant to such notice; and (d) Tenant has no right or option of any nature whatsoever, whether pursuant to the Lease or otherwise, to purchase the Premises or the Property, or any portion thereof or any interest therein, and, to the extent that Tenant has had or hereafter acquires any such right or option, the same is hereby acknowledged to be subject and subordinate to the lien of the Deed of Trust and is hereby waived and released as against Lender. EXHIBIT J - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (e) Tenant shall send a copy of any notice or statement required under the Lease (including, without limitation, any notice or statement pertaining to, among other things, any default by Landlord or any offset, credit or rent abatement by Tenant) to Lender at the same time such notice or statement is sent to Landlord. 3. Foreclosure and Sale. In the event that Landlord shall be in ---------------------- default under any of the Security Documents beyond any applicable grace or cure period therein and, through or in lieu of the exercise by Lender of any of its remedies pursuant to the Security Documents or otherwise (the "Remedies"), title to the Property shall transfer to Lender or any other person, (i) if Lender elects to make the Lease subordinate to the Security Documents pursuant to item (i) of Section 1, above, then, although Lender may join Tenant in any such summary or foreclosure proceedings and/or otherwise extinguish Tenant's interest under the Lease, Lender shall not disturb Tenant's use or occupancy of the Premises unless the Lease shall have been previously terminated at the time of such transfer or, thereafter, as provided under the Lease, or (ii) if Lender elects to make the Lease superior to the Security Documents pursuant to item (ii) of Section 1, above, then Lender shall not join Tenant in any such summary or foreclosure proceedings unless the Lease shall have been previously terminated at the time of such transfer or, thereafter, as provided under the Lease. 4. Nondisturbance by Lender. Notwithstanding anything to the contrary -------------------------- contained in Section 3, above, if, through or in lieu of the exercise by Lender of any of its Remedies, title to the Property shall transfer to Lender or any other person, then, unless the Lease shall have been previously terminated at the time of such transfer, the Lease and the rights of Tenant thereunder shall continue with the same force and effect as if Lender or such other transferee had entered into a lease with the same provisions as those contained in the Lease, and the Lease and the rights of Tenant thereunder shall not be terminated, disturbed or adversely affected by virtue of such transfer, except in accordance with the terms of the Lease. Tenant hereby waives the provisions of any statute or rule of law now or hereafter in effect which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect the Lease and the obligations of the Tenant thereunder by reason of the exercise of such Remedies. 5. Attornment by Tenant. Upon the effective date of a transfer of ---------------------- title to the Property through or in lieu of the exercise by Lender of any of its Remedies and after receipt of written notice of such transfer, Tenant shall: (i) attorn to Lender or any other successor to Landlord's interest in the Property and their successors and assigns; (ii) perform, and be bound under, all of the terms, covenants and conditions of the Lease for the balance of the term thereof remaining, including any renewal options which are exercised in accordance with the terms of the Lease; and (iii) recognize Lender or such other successor as Landlord under the Lease. Tenant agrees to execute and deliver to Lender and such successor such further assurance and other documents, including a new lease upon the same terms and conditions as those contained in the Lease (except for any technical changes which may be necessary because of the substitution of Lender or such other successor in place of Landlord), confirming the foregoing, as Lender or such successor may reasonably request. EXHIBIT J - Page 3 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 6. No Merger. The interests acquired by Lender through or in lieu of ---------- the exercise of any of its Remedies shall not merge with any other interests of Lender in the Property or the Premises if such merger would result in the termination of the Lease. 7. Conditions of Lender's Recognition of Tenant. Lender or such other ------------------------------------------------ successor to Landlord's interest in the Property shall recognize Tenant's rights under the Lease in accordance with the terms of this Agreement; provided, however that Lender or such other successor shall not be (i) liable for any act or omission of Landlord or any predecessor in interest to Lender or such successor which occurred prior to the date title to the Property was transferred to Lender or such successor, except with respect to (a) Tenant's right to deduct from rents and parking charges next due under the Lease any remaining credit of Base Rent, Additional Rent or Direct Expenses, as specifically set forth in Sections 2.2, 3.2, 6.1.2, 8.1.2, 8.4.3, 8.5.2 and 10.3 of the Lease, (b) unpaid Tenant Improvement Allowance, as specifically set forth in Section 2 of Exhibit C to the Lease, (c) any unpaid arbitration or court award, in connection with a claim by Tenant under any Section of the Lease expressly enumerated in item (i)(a), above; (ii) liable for (x) any security deposit paid by Tenant to Landlord or its predecessor-in-interest, unless and until Lender or such successor actually has been credited with or has received for its own account as landlord the amount of such security deposit or any portion thereof (in which event the liability of Lender or such successor shall be limited to the amount actually credited or received), or (y) payment of rent or additional rent made by Tenant to Landlord or its predecessor-in-interest for more than one (1) month in advance of the applicable due date thereunder; (iii) subject, except as provided in item (i), above, to the contrary, to offsets, counterclaims or defenses which Tenant may have against Landlord or any predecessor-in-interest thereof to the extent the same arise prior to the date title to the Property was transferred to Lender or such successor; or (iv) bound, except as to amendments required under the terms of the Lease, by any agreement purporting to cancel, surrender, amend or modify the Lease, without the express written consent of Lender or its successor in interest, which consent shall not be unreasonably withheld. Lender shall also be relieved of any obligation of Landlord under the Lease accruing after an assignment by Lender of its interest in the Property and/or the Premises, provided that any successor-in-interest to Lender shall assume the responsibilities of Lender as Landlord under the Lease; Lender shall be relieved of any obligation of Landlord under the Lease accruing prior to an assignment by Lender of its interest in the Property and/or the Premises only if Lender's successor-in-interest is creditworthy and shall assume the responsibilities of Lender as Landlord under the Lease, including obligations of Lender as Landlord under the Lease accruing prior to such assignment. 8. Insurance and Condemnation. Lender agrees that the terms and ---------------------------- provisions of the Lease shall control the disposition of insurance proceeds and condemnation awards with respect to the Premises and/or the Property or any portion thereof; provided, however, that notwithstanding anything to the contrary contained in the Lease: (i) Lender shall hold in a construction escrow account all condemnation and/or insurance proceeds received by Landlord (or received by Tenant and assignable to Landlord) under the Lease, and shall control disbursement of such proceeds (subject to reasonable procedures established by Lender) in connection with any repairs to the Premises and/or the Property necessitated by condemnation and/or damage and destruction pursuant to the terms of the Lease; (ii) all repairs to the Premises and/or the Property conducted pursuant to the terms of the Lease shall be completed in accordance with plans and specifications approved by Lender; (iii) Landlord shall not be EXHIBIT J - Page 4 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] permitted to terminate the Leases during the last thirty-six (36) months of the Lease Term without Lender's prior written consent; (iv) in the event of a "Taking," as that term is defined in Section 13.1 of the Lease, Tenant shall be entitled to file a separate claim in accordance with Section 13.3 of the Lease, provided that Tenant shall only be entitled to an award to the extent that such award shall be separate from (and not included in) any award available to Landlord or Lender; and (v) in the event of a Taking, if an award is otherwise unallocated, then such award shall be used first to pay the Loan. 9. Notice. All communications and notices required or permitted ------ hereunder shall be dispatched by United States registered or certified mail, with return receipt requested, postage prepaid, addressed to the other parties as follows, or to such other addresses as any party may from time to time designate in writing to the other parties hereto: To Tenant: ---------- 20TH CENTURY INDUSTRIES 6301 Owensmouth Avenue, Suite 730 Woodland Hills, California 91367 Attention: Administrative Services with a copy to: Ervin, Cohen & Jessup 9401 Wilshire Boulevard, 9th Floor Beverly Hills, California 90212 Attention: David P. Kassoy, Esq. To Lender: ---------- LEHMAN BROTHERS HOLDINGS, INC. c/o Gate Capital, LLC One Embarcadero Center Suite 2929 San Francisco, California 94111 Attention: Douglas Morss, Chief Financial Officer To Landlord: ------------ TISHMAN WARNER CENTER VENTURE, LLC 6301 Owensmouth Avenue, Suite 730 Woodland Hills, California 91367 Attention: Building Manager and TISHMAN WARNER CENTER VENTURE, LLC 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 Attention: Asset Manager EXHIBIT J - Page 5 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] With a copy to: Tishman International Companies 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 Attention: Chairman With a copy to: Allen, Matkins, Leck, Gamble & Mallory 1999 Avenue of the Stars, 18th Floor Los Angeles, California 90067 Attention: Anton N. Natsis, Esq. 10. Tenant Estoppel. Tenant shall, upon the execution of this ---------------- agreement and thereafter within ten (10) business days following a request in writing by Lender, provide Lender or its successors and assigns with a tenant estoppel certificate in such commercially reasonable form and substance as may be satisfactory to Lender. which tenant estoppel shall contain the following information as of the date thereof: (i) whether the Lease is in full force and effect and has been modified, supplemented, altered or superseded in any way; (ii) whether Landlord is in default in any respect under the provisions of the Lease; (iii) whether Tenant has prepaid any rent under the Lease in excess of rent for one (1) month; and (iv) whether Tenant has any existing offsets or credits against rentals (including, without limitation, any offset pursuant to the terms of Section 2.2.3 of the Tenant Work Letter attached to each of the Leases as Exhibit C thereto for Landlord's failure to timely fund any portion of --------- the "Tenant Improvement Allowance," as that term is defined in such Tenant Work Letter) which have accrued or which may thereafter accrue under the Lease or against the enforcement of the Lease by Landlord. 11. Acknowledgment and Agreement by Landlord. Landlord, as Landlord -------------------------------------------- under the Lease and Trustor under the Deed of Trust, acknowledges and agrees for itself and its heirs, successors and assigns, that: (a) This Agreement does not: (i) constitute a waiver by Lender of any of its rights under the Deed of Trust; and/or (ii) in any way release Landlord from its obligations to comply with the terms, provisions, conditions, covenants agreements and clauses of the Deed of Trust; (b) The provisions of the Deed of Trust remain in full force and effect and must be complied with by Landlord; (c) In the event of a default under the Deed of Trust, Tenant shall pay all rent and all other sums due under the Lease to Lender as provided in the Assignment and this Agreement; and EXHIBIT J - Page 6 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] (d) Lender has no obligations nor shall incur any liability with respect to any warranties of any nature whatsoever, whether pursuant to the Lease or otherwise, including, but not limited to, any warranties respecting use, compliance with zoning, Landlord's title, Landlord's authority, habitability, fitness for purpose or possession. 12. Inconsistent Lease Provisions. Except as herein expressly ------------------------------- provided, this Agreement does not supersede any inconsistent provision of the Lease. 13. Amendments. This Agreement shall not be canceled, modified or ---------- amended orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors or assigns. 14. Successors. This Agreement shall be binding upon and inure to the ---------- benefit of the parties hereto and their respective successors and assigns; provided however, that in the event of the assignment or transfer of Lender's interest, except as provided in Section 7, above, all obligations and liabilities shall be the responsibility of Lender's successor in interest; and provided further that, subject to Section 11.5 of the Lease, Tenant's interest under this Agreement may not be assigned or transferred without Lender's prior written consent, which consent shall not be unreasonably withheld. 15. Governing Law. This Agreement shall be governed by, and construed ------------- in accordance with, the laws of the State of California. 16. Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which, together, shall constitute but one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above set forth. NOTICE: THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT CONTAINS PROVISIONS WHICH ALLOW THE PERSON OBLIGATED ON THE LEASE TO OBTAIN A LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR PURPOSES OTHER THAN IMPROVEMENT OF THE PROPERTY. TENANT: ------ 20TH CENTURY INDUSTRIES, a California corporation By: ------------------------------------------- William L. Mellick, President and Chief Executive Officer By: ------------------------------------------- William G. Crain, Vice President EXHIBIT J - Page 7 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] LANDLORD: -------- TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a California corporation, Its manager By: ------------------------------------------- Alan D. Levy, Chief Executive Officer LENDER: ------ LEHMAN BROTHERS HOLDINGS, INC. a Delaware corporation By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- EXHIBIT J - Page 8 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT K ---------- 20TH CENTURY PLAZA INTENTIONALLY OMITTED EXHIBIT K - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT L ---------- 20TH CENTURY PLAZA INTENTIONALLY OMITTED EXHIBIT L - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT M ---------- 20TH CENTURY PLAZA SHORT FORM OF LEASE RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP 1999 Avenue Of The Stars, Suite 1800 Los Angeles, California 90067-6050 Attention Anton N. Natsis, Esq. ================================================================================ (Space Above For Recorder's Use) SHORT FORM OF LEASE THIS SHORT FORM OF LEASE is entered into as of the day of __________, 1997, by and between TISHMAN WARNER CENTER LIMITED PARTNERSHIP, LLC, a California limited liability company ("Landlord"), and 20TH CENTURY INDUSTRIES, a California corporation ("Tenant"), who agree as follows. 1. TERMS AND PREMISES. Landlord leases to Tenant, and Tenant leases -------------------- from Landlord, certain premises (the "Premises") to be located at the address 6303 Owensmouth Avenue on the real property (the "Property") legally described on EXHIBIT A attached hereto and incorporated herein by this reference in and ---------- for the term and on the provisions of that certain Office Lease between the parties hereto, dated of even date (the "Lease"). The provisions of the Lease are incorporated herein. The parties hereby state that the term of the Lease, including any extension options contained therein, is less than thirty-five (35) years. 2. LEASING RESTRICTIONS. The Lease contains certain restrictions on --------------------- Landlord's ability to lease space to insurance companies or agencies. 3. PROVISIONS BINDING ON PARTIES. The provisions of the Lease to be -------------------------------- performed by Landlord or Tenant, whether affirmative or negative in nature, are intended to and shall bind or benefit the respective parties and their assigns or successors, as applicable, at all times. EXHIBIT M - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4. PURPOSE OF LEASE. This Short Form of Lease is prepared solely for ------------------ purposes of recordation, and in no way modifies the provisions of the Lease. "Landlord" TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a corporation, Manager By: ------------------------------------ Alan D. Levy Chief Executive Officer "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: ------------------------------------ William L. Mellick, President and Chief Executive Officer By: ------------------------------------ William G. Crain, Vice President EXHIBIT M - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] STATE OF ) --------------------- ) ss. COUNTY OF ) --------------------- On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF ) --------------------- ) ss. COUNTY OF ) --------------------- On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A TO EXHIBIT M ---------------------- LEGAL DESCRIPTION OF THE PROPERTY EXHIBIT A TO EXHIBIT M - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT N ---------- 20TH CENTURY PLAZA TERMINATION OF LEASE RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP 1999 Avenue Of The Stars, Suite 1800 Los Angeles, California 90067-6050 Attention Anton N. Natsis, Esq. ================================================================================ (Space Above For Recorder's Use) TERMINATION OF LEASE This Termination Of Lease is entered into as of the _____ day of _____ by and between ___________________________________, a California limited partnership ("Landlord"), and 20TH CENTURY INDUSTRIES, a California corporation ("Tenant"), who agree as follows. 1. Term and Premises. Landlord has leased to Tenant, and Tenant has leased from Landlord, certain premises (the "Premises") located on the real property (the "Property") legally described on EXHIBIT A attached hereto and --------- incorporated herein by this reference in and for the term and on the provisions of that certain Office Lease between the Parties hereto, dated _________, 1997 (the "Lease"). 2. Termination of Lease. The Lease terminated as of _____________, in accordance with its terms. The parties hereto acknowledge that the Lease is of no further force and effect, and Tenant hereby relinquishes all of its right, title, and interest as tenant in and to the Premises. That certain Short Form of Lease by and between Landlord and Tenant dated as of _____________, 1997, and recorded on ___________, 1997 in the Official Records of Los Angeles County, California, as Instrument No. _______ is hereby terminated and shall be of no further force or effect. 3. Provisions Binding on Parties. This Termination of Lease shall inure to the benefit of and be binding upon the parties hereto, their successors and assigns. EXHIBIT N - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 4. Purpose of Termination of Lease. This Termination of Lease is prepared solely for purposes of recordation, and in no way modifies any agreements between the parties hereto with respect to their rights and obligations upon the termination of the Lease. "Landlord" -------------------------------- a ------------------------------- By: ----------------------------- Its: --------------------------- "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: ----------------------------- Its: --------------------------- By: ----------------------------- Its: --------------------------- EXHIBIT N - Page 2 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] STATE OF ) --------------------- ) ss. COUNTY OF ) --------------------- On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State STATE OF ) --------------------- ) ss. COUNTY OF ) --------------------- On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for said State TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT A TO EXHIBIT N ---------------------- LEGAL DESCRIPTION OF PROPERTY EXHIBIT A TO EXHIBIT N - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT O ---------- 20TH CENTURY PLAZA INTENTIONALLY OMITTED EXHIBIT O - Page 1 TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] EXHIBIT P ---------- FORM OF CC&R'S RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Allen, Matkins, Leck, Gamble & Mallory 1999 Avenue of the Stars, Suite 1800 Los Angeles, California 90067 Attn: Anton N. Natsis, Esq. DECLARATION OF LEASEHOLD COVENANTS, CONDITIONS AND RESTRICTIONS FOR 20TH CENTURY PLAZA EXHIBIT P - Page-1- CC&Rs [20th Century Plaza] DECLARATION OF LEASEHOLD COVENANTS, CONDITIONS AND RESTRICTIONS FOR 20TH CENTURY PLAZA THIS DECLARATION OF LEASEHOLD COVENANTS, CONDITIONS AND RESTRICTIONS ("Declaration") is made this ___ day of March, 1998, by TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("Declarant"). NOTE THAT THIS DECLARATION ENCUMBERS ONLY DECLARANT'S LEASEHOLD INTEREST AS GROUND LESSEE, AND NOT ANY FEE INTEREST HELD BY GROUND LESSOR. R E C I T A L S : ----------------- A. As of the date hereof, Declarant, as ground lessee, leases from West Valley Partnership, a California limited partnership, as ground lessor (collectively, "Ground Lessor"), pursuant to the terms of that certain Ground Lease dated August 24, 1979, as amended (the "Ground Lease"), that certain real property located in the City of Los Angeles, County of Los Angeles, State of California, commonly known as 20th Century Plaza, and more particularly described in Exhibit "A" attached hereto and made a part hereof. Any terms used ----------- in these Recitals, but not otherwise defined in these Recitals, shall have the meanings as set forth in this Declaration. B. As of the date hereof, the "Project" consists of the "Existing Building" located at 6301 Owensmouth Avenue, Los Angeles, California, land which is improved with a surface area "Existing Parking Area," landscaping and other improvements, and development sites for the "Additional Building" and the "Parking Structure," respectively. C. Declarant intends to develop the Project further by construction of the "Additional Building" and the "Parking Structure," and by development of additional improvements to the "Common Areas." D. The site plan attached hereto as Exhibit "B" and made a part hereof ----------- (the "Site Plan") sets forth approximately the proposed location of the current and planned improvements to the Project, including, without limitation, the Buildings and the parking areas, as well as the intended boundaries of the three (3) separate "Parcels" of the Project. E. Declarant wishes to subject the Project, in accordance with a common plan, to certain covenants, conditions and restrictions for the benefit of Declarant and any and all future owners of the Project or of a Parcel in the Project. The purpose of the Declaration is to ensure proper development and use of the Project, to protect the owner of each Parcel against any improper or uncomplimentary development and use of surrounding Parcels which might depreciate the value of said Parcel, to provide for a Common Area and the maintenance and preservation thereof, to provide for the establishment and maintenance of common services and EXHIBIT P - Page-2- CC&Rs [20th Century Plaza] amenities for the Project, to prevent haphazard and inharmonious improvements, to enhance and protect the value, desirability and attractiveness of all the Project, and in general to provide adequately for a high type and quality of improvement of the Project in accordance with a uniform plan of development. F. Upon the recordation of this Declaration, all the Parcels will be held, conveyed, hypothecated, encumbered, leased, used, occupied and improved, subject to the following covenants, conditions and restrictions, all of which are declared and agreed to be equitable servitudes in furtherance of a plan for Parcel subdivision, improvement, and sale, and are established and agreed upon for the purpose of enhancing and protecting the value, desirability and attractiveness of the Project. All the covenants, conditions and restrictions shall run with all of the Parcels, and shall be binding upon, and shall benefit the Declarant and each "Owner" and their respective heirs, successors and assigns. All of the covenants, conditions and restrictions described herein are made for the direct, mutual and reciprocal benefit of each Parcel and shall create reciprocal rights and obligations and privity of contract and estate between the Owners and their heirs, successors and assigns. With respect to the rights, duties and obligations between Declarant and "Occupants" under leases of all or any portion of any Parcels, and, in the event that the fee interest or lease interest in one or more Parcels are conveyed by Declarant to another Person (such Person thereby becoming an "Owner"), then with respect to the rights, duties and obligations between such other Owner(s) on the one hand and Occupants under leases on the other hand, Declarant intends that the provisions of this Declaration are made pursuant to Sections 1469 and 1470 of the California Civil Code. In the event that the fee interest or lease interest in one or more Parcels are conveyed by Declarant to another Person (such Person thereby becoming an "Owner"), then with respect to the rights, duties and obligations among such other Owner(s) and Declarant, or, in the event Declarant has conveyed all of the Parcels, then with respect to the rights, duties and obligations among the Owners of said Parcels, Declarant intends that the provisions of this Declaration will be restrictive covenants made pursuant to Section 1468 of the California Civil Code. A G R E E M E N T: ----------------- ARTICLE I DEFINITIONS The terms defined in this Article I shall, for all purposes of this Declaration, have the meanings herein specified (and any capitalized terms set forth in the following definitions shall have the meaning set forth in this Declaration). 1.1 "Additional Building" shall mean and refer to that certain -------------------- Building to be constructed by Declarant on Parcel 2 as set forth on the Site Plan and located at 6303 Owensmouth Avenue, Woodland Hills, California 91367. EXHIBIT P - Page-3- CC&Rs [20th Century Plaza] 1.2 "Agent" shall mean and refer to any Person acting on the behalf of, ----- and with authority from, the Declarant. 1.3 "Arbitration Notice" shall mean and refer to the notice one ------------------- Owner provides to another in the event it elects to arbitrate a dispute pursuant to Article 13 below. 1.4 "Building" shall mean and refer to any occupiable structure -------- constructed on any Parcel. 1.5 "Project" shall mean and refer to that certain property described ------- on Exhibit "A" attached hereto which is more commonly referred to as 20th ------------ Century Plaza and is also shown on the Site Plan. 1.6 "City" shall mean and refer to the City of Los Angeles, located in ---- the State of California. 1.7 "Claim" shall mean and refer to all loss, cost, damage, liability, ----- claims, costs and expenses, including without limitation, reasonable attorneys' fees, further described in Section 3. 1.8 "Common Area" shall mean and refer to all real and personal ------------ property owned or leased by Declarant and designated by Declarant from time to time in Declarant's sole discretion for the common use and enjoyment of the Owners, including, as of the date hereof, all structures and construction of any kind upon the real property depicted as Parcel 3 on the Site Plan (whether permanent or temporary, and whether above or below the land surface), including, without limitation, buildings, improvements, water and electrical lines, paved areas, pathways, fences, walls, plantings, planted trees or shrubs, irrigation and drainage pipes and fixtures, lighting fixtures, monuments and signs. Notwithstanding the foregoing, Declarant, at its option, may (i) develop the Project further by construction from time to time of one or more additional Buildings upon the Common Area, and (ii) create from time to time one or more additional Parcels. 1.9 "Common Expenses" shall mean and refer to all expenses, costs ---------------- and amounts, of every kind and nature which are incurred by Declarant during any Fiscal Year because of or in connection with the ownership, management, maintenance, repair, replacement restoration or operation of the Common Area or any portion thereof. Without limiting the generality foregoing, Common Expenses shall specifically include any and all of the following: 1.9.1 The cost of maintenance, management, operation, repair and replacement of the Common Area, including, but not limited to, the cost of parts and supplies, utilities, landscaping, cleaning, pest control, and hiring of any outside contractor services; 1.9.2 The cost of repair, improvement, restoration and maintenance of the Parking Areas, including, but not limited to, resurfacing, repainting, restriping and cleaning; 1.9.3 The cost of management and administration of the Common Area, including, but not limited to, compensation paid by Declarant to managers, accountants, outside auditors, attorneys, consultants and employees, including employer's Social Security taxes, EXHIBIT P - Page-4- CC&Rs [20th Century Plaza] unemployment taxes or insurance, and any other taxes which may be levied on such compensation.; 1.9.4 The cost of casualty, liability, workers' compensation, fidelity and directors' and officers' liability insurance and any other insurance obtained by Declarant in accordance with the terms and conditions of this Declaration; 1.9.5 Reasonable reserves as provided herein and as deemed appropriate by Declarant; 1.9.6 The cost of bonding of any professional managing agent; 1.9.7 All federal, state, county or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Common Area, or any portion thereof), which shall be paid during any Fiscal Year (without regard to any different Fiscal Year use by such governmental or municipal authority) because of or in connection with the Common Area or any portion thereof; 1.9.8 Amounts paid by Declarant for discharging a lien or encumbrance levied against the Common Area or any portion thereof; 1.9.9 The cost of licenses, certificates, permits and inspections and the cost of contesting the validity or applicability of any governmental enactments which may affect Common Expenses; 1.9.10 Amounts paid for developing, coordinating, monitoring, and enforcing any transportation demand management programs as may be implemented by Declarant from time to time with respect to the Project; 1.9.11 Costs incurred in contracting with an outside agency or organization for the provision of a security force to patrol and protect the Common Area and such other portions of the Project as Declarant may, in its sole discretion, designate; 1.9.12 An administrative fee payable to Declarant or its agent to manage and conduct the business of the Project, which administrative fee shall not exceed fifteen percent (15%) of Common Expenses in any Fiscal Year; 1.9.13 Payments under any equipment rental agreements; 1.9.14 Amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Common Area, or any portion thereof; EXHIBIT P - Page-5- CC&Rs [20th Century Plaza] 1.9.15 Payments, fees or charges under any easement, license, operating agreement, declaration, covenants, conditions or restrictions or instrument pertaining to the sharing of costs by the Project, or any portion thereof, including this Declaration and payments under the Ground Lease; 1.9.16 The cost of janitorial services, alarm and security service, (window cleaning,) trash removal, maintenance and replacement of curbs and walkways, incurred by Declarant in connection with the Common Area; 1.9.17 The cost of capital improvements, or repairs to the Project, or other costs incurred in connection with the Project which are intended as a labor-saving device or to effect other economies in the operation or maintenance of the Project, or any portion thereof, to the extent of cost savings reasonably anticipated by Declarant, or made to the Project, or any portion thereof, that are required under any governmental law or regulation that was not a requirement for the Project on the date this Declaration was executed and recorded; provided, however, that each such permitted capital expenditure shall be amortized (including interest on the unamortized cost at Declarant's actual cost of funds) over its useful life as reasonably determined by Declarant; 1.9.18 Costs, fees, charges or assessments imposed by any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute taxes; 1.9.19 The cost of construction, repairs, improvement, restoration and maintenance of that certain road as set forth in that certain Declaration of Easement and Maintenance Agreement dated August 24, 1979, by and between West Valley Partnership, a California limited partnership, and Tishman Warner Center Venture, a California general partnership, predecessor-in-interest to Declarant, and recorded on August 24, 1979, as Instrument No. 79-942217 in the Official Records of Los Angeles, County, California (the "West Valley Declaration"); and 1.9.20 Other expenses incurred (i) by Declarant for any reason whatsoever in connection with the Project, the Common Area or in connection with any other item or items designated by the Controlling Documents, or (ii) in the discharge of any duties or powers of Declarant under this Declaration. 1.10 "Controlling Documents" shall mean and refer to this ---------------------- Declaration, the Rules, the Maintenance Standards and any other documents controlling or governing the use of the Parcels or the Common Area, or the maintenance and repair of the Parcels and as from time to time amended, modified or supplemented. Each Owner and each Occupant shall fully and faithfully comply with and conform to the Controlling Documents. 1.11 "Declarant" shall mean and refer to Tishman Warner Center Venture, ----------- LLC, a California limited liability company, and its successors and assigns in its sole and absolute discretion, so long as Declarant owns or leases one or more Parcels. In the event that Declarant ceases to own or lease one or more Parcels and has failed to name an Owner as its successor or EXHIBIT P - Page-6- CC&Rs [20th Century Plaza] assign, then "Declarant" shall mean and refer to the Owner designated as Declarant by the vote or written consent of Owners who own a majority of the Parcel Area. Any Owner succeeding to Tishman Warner Center Venture, LLC as Declarant hereunder shall promptly substitute its name for that of Tishman Warner Center Venture, LLC as Declarant under this Agreement and shall relinquish any and all right to the Tishman name. 1.12 "Declaration" shall mean and refer to this Declaration of ----------- Covenants, Conditions and Restrictions for the Project as it may from time to time be amended, modified or supplemented. Such amendments, modifications and supplements are hereby incorporated herein and made a part hereof. 1.13 "Entitlements" shall mean and refer to all governmental, special -------------- district and public utility approvals, decisions, resolutions, ordinances, permits, agreements, conditions, requirements, exactions, entitlements, reports, maps, plans and orders, at any time adopted, amended or supplemented, governing, affecting or relating to the organization, zoning, use, development, improvement, operation or ownership of the Project, or any portion thereof. Declarant and each other Owner and Occupant shall comply with and conform to the Entitlements. 1.14 "Existing Building" shall mean and refer to that certain Building -------------------- existing as of the date of this Declaration, constructed on Parcel 1 as set forth on the Site Plan, and located at 6301 Owensmouth Avenue, Los Angeles, California. 1.15 "Existing Parking Area" shall mean and refer to that certain ------------------------- surface parking area existing as of the date of this Declaration, located on Parcel 3 adjacent to Parcel 1 as set forth on the Site Plan. 1.16 "Fiscal Year" shall mean and refer to the fiscal year of -------------- Declarant, which shall be the calendar year; provided, however, that the Fiscal Year is subject to change from time to time as Declarant may determine. 1.17 "Governmental Requirements" shall mean and refer to all local, ---------------------------- state and federal governmental, special district and public utility approvals, agreements, conditions, demands, entitlements, exactions, maps, laws, statutes, rules and regulations, building codes, ordinances (zoning or otherwise), permits, plans, orders and resolutions, which are, or will be, adopted, amended, modified or supplemented, and which govern, affect or relate to the organization, zoning, use, development, improvement, operation or ownership of the Project, or any portion thereof, including, without limitation, the Entitlements and the Specific Plan which are or may be in effect, and as amended from time to time, in accordance with provisions therein. 1.18 "Improvements" shall mean and refer to all structures and -------------- construction of any kind on any Parcel, whether above or below the land surface, whether permanent or temporary, including but not limited to, Buildings, utility lines, driveways, paved parking areas, pathways, fences, retaining walls, plantings, irrigation and drainage pipes and fixtures, lighting fixtures and signs. EXHIBIT P - Page-7- CC&Rs [20th Century Plaza] 1.19 "Indemnitee" shall mean and refer to, Declarant and its respective ------------ officers, directors, employees, agents, partners, members, heirs, successors and assigns. 1.20 "Indemnitor" shall mean and refer to each Owner, by its acceptance ------------ of a deed or an assignment of a leasehold interest or by its execution of a sublease with respect to its Parcel, as the case may be. 1.21 "Maintenance Standards" shall mean and refer to those maintenance ------------------------ standards, if any, created by Declarant for the maintenance and repair of the exterior of the Buildings and other Improvements on any Parcel, as they may from time to time be amended, modified or supplemented. The Maintenance Standards are hereby incorporated herein and made a part hereof. 1.22 "Mortgage" shall mean and refer to a fee or leasehold deed of ---------- trust or mortgage recorded against any Parcel or Parcels. 1.23 "Mortgagee" shall mean and refer to a beneficiary or mortgagee ----------- under a Mortgage recorded against any Parcel or Parcels. 1.24 "Occupant" shall mean and refer to the Owner and any other Person ---------- or Persons entitled, by ownership, leasehold interest or other legal relationship, to the exclusive right to occupy all or any portion of any Parcel or Building. 1.25 "Owner" shall mean and refer to the Person or Persons holding ------- record fee title to a Parcel (including, as applicable, Declarant), but excluding any Mortgagee or Person holding such interest merely as security for the performance of an obligation, or, in the alternative, the Person or Persons (including, as applicable, Declarant) leasing or subleasing a Parcel, and their respective heirs, successors and assigns. 1.26 "Parcel" shall mean and refer to each of Parcels 1 through 3 as -------- further set forth on the Site Plan, and such additional parcels as may be designated from time to time by Declarant. 1.27 "Parcel Area" shall mean and refer to the square footage of a -------------- Parcel as shown on the Site Plan or as designated from time to time by Declarant in the event that Declarant shall create one or more additional Parcels. 1.28 "Parking Areas" shall mean and refer to the Existing Parking Area, --------------- the Parking Structure and any additional parking spaces as may be constructed on Parcel 3 from time to time in accordance with Section 5.6.1.2. 1.29 "Parking Structure" shall mean and refer to the Parking Structure -------------------- to be constructed on Parcel 3. 1.30 "Permittees" shall mean and refer to all Occupants and all ------------ customers, patrons, employees, concessionaires and other business invitees of the Occupants. EXHIBIT P - Page-8- CC&Rs [20th Century Plaza] 1.31 "Person" shall mean and refer to any individual, partnership, -------- corporation, trust, estate or other legal entity. 1.32 "Record" or "Recordation" shall mean, with respect to any --------------------------- document, the recordation thereof, and with respect to any map, the filing thereof, in the office of the County Recorder of Los Angeles County, State of California. 1.33 "Rules" shall mean and refer to the rules and regulations, if any, ------- adopted by Declarant for the operation and use of the Common Area, as they may from time to time be amended, modified or supplemented. The Rules are hereby incorporated herein and made a part hereof. 1.34 "Site Plan" shall mean and refer to the Site Plan attached to this ----------- Declaration as Exhibit "B". ------------ 1.35 "State" shall mean and refer to the State of California. ------- 1.36 "Utility Easements" shall mean and refer to certain electric, -------------------- telephone, cable, television, water, gas, sanitary sewer lines, drainage facilities and other similar types of easements. ARTICLE II IMPROVEMENTS As of the date hereof, the Project contains the Existing Building constructed on Parcel 1 and the Existing Parking Area located on Parcel 3 and adjacent to Parcel 1. The Project will be improved further to contain the Additional Building to be constructed on Parcel 2 and the Parking Structure to be constructed on Parcel 3. The Buildings, the Parking Areas and the landscaping of the Project relate to one another through careful site planning and site development, resulting in continuity for the entire Project. The Improvements, Common Area and landscaping will have been constructed and shall be maintained pursuant to, among other things, the material requirements of the Governmental Requirements. Owners shall comply with the Governmental Requirements and other criteria imposed by Declarant as provided herein. All improvements to the Project, except the construction of the Additional Building and the Parking Structure, shall be constructed in accordance with the reasonable construction rules and regulations and insurance requirements determined by Declarant. ARTICLE III REGULATION OF OPERATIONS AND USES 3.1 Certain Nuisances. 3.1.1 No nuisance shall be permitted to exist or operate upon any Parcel or any portion thereof so as to be offensive or detrimental to any Person or activity on any other Parcel or on any public street. EXHIBIT P - Page-9- CC&Rs [20th Century Plaza] 3.1.2 No rubbish, trash, waste, residue, brush, weeds or undergrowth (except brush, weeds and undergrowth growing naturally on any Parcel prior to development) or debris of any kind or character shall ever be placed or permitted to accumulate upon any portion of any Parcel, so as to render said premises a fire hazard, unsanitary, unsightly, offensive, or detrimental to any Person or activity on any other Parcel or on any public street. 3.1.3 No Improvement shall be permitted to fall into disrepair and all Improvements shall at all times be kept in good condition and repair (including, without limitation, free of the presence of wood-destroying pests and organisms) and adequately painted or otherwise finished. Any and all exterior repairs, redecorations, modifications or additions shall be made in accordance with this Declaration, and shall be subject to, the Controlling Documents, the Governmental Requirements, and shall be approved in writing by Declarant. 3.1.4 No condition shall be permitted to exist upon any Parcel which shall induce, breed or harbor infectious plant diseases, rodents, or noxious insects. 3.1.5 No structure of a temporary character, trailer, tent, shack, barn or other outbuilding shall be used by any Person other than Declarant on any portion of the Project at any time, either temporarily or permanently, unless such structure is being used in connection with the construction and leasing of an Improvement or unless such structure is approved by Declarant. 3.1.6 No Owner shall permit the construction or installation of any Improvement of any kind upon the Common Area without the prior written consent of Declarant. 3.1.7 No Owner shall permit anything to be done or kept on its Parcel that violates any of the Governmental Requirements. 3.2 Indemnification by Parties. Each Indemnitor shall indemnify, defend and hold harmless all other Indemnitees (except to the extent the same is the obligation of another party under this Declaration) against any loss, cost, damage, liability, claims, costs and expenses, including without limitation, reasonable attorneys' fees (collectively, "Claims") arising out of or connected with any accident, occurrence, injury, loss or damage whatsoever caused to any Person or to the property of any Persons as shall occur in or on the Indemnitor's Parcel(s) during the period from the date this Declaration is Recorded to and including the termination of the term of this Declaration, as set forth in Article 11 hereof, to the extent such Claims arise from the acts or omissions of the Indemnitor, or the Indemnitor's employees, agents or contractors, unless caused in whole or in part by Indemnitee. Indemnitee shall give Indemnitor notice of any suit or proceedings entitling Indemnitee to indemnification pursuant to this Section 3.2 and this Declaration, and Indemnitor shall have the right and obligation to defend Indemnitee in said suit or proceeding with counsel reasonably satisfactory to Indemnitee. EXHIBIT P - Page-10- CC&Rs [20th Century Plaza] ARTICLE IV APPROVAL OF PLANS 4.1 Approval Required. Each Improvement to be erected in the Project from the date of this Declaration, and any (i) reconstruction; (ii) exterior remodeling; (iii) exterior alteration; or (iv) interior remodeling or interior alteration involving or affecting the exterior of any Improvement within the Project, shall be of first quality construction and shall not be commenced without the prior written consent of Declarant. 4.2 Completion of Construction. The approval of the erection, construction, refinishing, installation, placement, or alteration of any Improvement shall be deemed conditional upon the commencement of said work within ninety (90) days after approval of same by Declarant or within such other period as shall have been specified by Declarant at the time of its approval. The work thereon must thereafter be prosecuted diligently to completion within a reasonable time, and in any event, before the expiration of such period specified by Declarant. Declarant in its sole, absolute and unfettered discretion, and in writing, may extend the period for completion of any such erection, construction, refinishing, installation, placement or alteration. During said construction period, the area shall be kept clear of debris and refuse to the greatest extent possible. In the event the work is not commenced within said ninety (90) days, unless such time condition is waived in writing by Declarant in its sole, absolute and unfettered discretion, all proceedings shall terminate, and the work shall be conditional on the obtaining of Declarant's consent in accordance with this Article IV. 4.3 Inspection of Work. Upon the completion of any construction, reconstruction, or the alteration or refinishing of the exterior of any Improvement, or upon the completion of any other work for which approved plans are required under this Article IV, Declarant, or its duly authorized representative, may inspect such Improvement to determine whether it was constructed, reconstructed, altered or refinished in substantial compliance with Declarant's approval. If Declarant finds that such construction, reconstruction, alteration or refinishing was not done in substantial compliance with Declarant's approval, then Owner shall remedy such non-compliance within thirty (30) days from the date of written notice by Declarant of such noncompliance. If Owner fails to remedy such non-compliance, then Declarant, at its option, may enter the Parcel and the Improvement and perform, or cause to be performed, such work or other acts as may be required to remove the non-complying Improvement or remedy the non-compliance, and the Owner of the Parcel or Improvement shall promptly pay all costs and expenses incurred by Declarant in connection therewith upon presentation to Owner of invoices thereof. EXHIBIT P - Page-11- CC&Rs [20th Century Plaza] 4.4 Unauthorized Improvements. If any Improvement is made without first obtaining approval of Declarant, then Declarant may give written notice to the Owner of its violation of this Declaration. Within thirty (30) days of said notice, the Owner shall either (a) remove the Improvement at its own expense and restore the Parcel or Improvement to its condition prior to commencement of construction of the Improvement, or (b) request approval from Declarant in accordance with this Article IV. If the Owner has failed to take such action within the thirty (30) day period, then Declarant, at its sole option, may enter the Parcel and the Improvement and perform or cause to be performed such work or other acts as may be required to remove the non-complying Improvement or remedy the non-compliance, and the Owner of the Improvement shall promptly pay all costs and expenses incurred by Declarant in connection therewith upon presentation to Owner of invoices therefor. If the Owner elects option (b) described in this Section 4.4 and Declarant thereafter disapproves the Improvement, then the Improvement shall be removed by Owner. 4.5 Presumption of Compliance. Notwithstanding anything to the contrary herein contained, after the City's issuance of a Certificate of Occupancy for any Improvement, said Improvement shall, in favor of purchasers and encumbrancers in good faith and for value, be deemed to be completed and in compliance with all provisions of this Article 4, unless actual notice of such noncompletion or noncompliance, executed by Declarant or a designated representative thereof, shall have been Recorded or unless legal proceedings shall have been instituted to enforce such completion or compliance. 4.6 Fee. In connection with its review and approval or disapproval of the erection, construction, refinishing, installation, placement or alteration of an Improvement in accordance with this Article IV, Declarant may charge the Owner an architectural review fee. The amount of such fee shall not exceed the cost incurred by Declarant (i) in hiring outside consultants to review such plans, (ii) for the staff time and out-of-pocket costs of Declarant incurred in reviewing such plans, and (iii) any other reasonable expenses incurred by Declarant in connection with its review, analysis and approval of such plans. Such fees shall be paid at such times and in such manner as Declarant may determine. If the plans are disapproved as not conforming with the provisions of this Declaration, the Governmental Requirements, or any criteria reasonably imposed by Declarant, then the subsequent submittal of new or revised plans shall be deemed to be an entirely new submittal, which shall again be subject to the foregoing fee. 4.7 Governmental Action. If plans approved by Declarant are subsequently modified by the City or by a governmental agency with jurisdiction over the Project, then such modification must be reviewed and approved by Declarant. In any event, one complete set of final plans shall be furnished to Declarant upon approval by the City or by a governmental agency with jurisdiction over the Project, and such plans shall be kept on file in the records of Declarant to ensure that the EXHIBIT P - Page-12- CC&Rs [20th Century Plaza] Improvements are constructed in compliance therewith. When construction is completed, one complete set of final "as-built" plans and specifications, together with a CAD diskette, shall be furnished to and kept on file in the records of Declarant. ARTICLE V GRANT OF EASEMENTS 5.1 Easements for the Benefit of Governmental Agencies and Public Utilities. Certain easements (in perpetuity or otherwise) have been and may in the future be granted by Declarant to certain local governmental agencies, including the City and public utilities, which may include, without limitation, easements for Vehicle/Pedestrian Areas, open space, drainage, sewer, and water lines, which easements may affect some or all of the Parcels. Declarant shall be entitled, without the consent of the Owners, to grant any such future easements which it determines are in the best interests of the Project. Each Owner shall fully and faithfully comply with all requirements of the governmental agencies and public utilities in connection with the easements granted pursuant to this Section 5.1. 5.2 Easements for the Benefit of Owners and Occupants. Except as otherwise stated, the following non-exclusive easements are hereby established in perpetuity, for the benefit of all Owners and Occupants: 5.2.1 a non-exclusive easement over those certain roadway(s) for ingress and egress as designated from time to time by Declarant, including, without limitation, over that certain road constructed and maintained in accordance with the West Valley Declaration, if any, until such time as the ownership of such ingress and egress easement is transferred to another entity, including, without limitation, by deed to a local governmental or public entity; and 5.2.2 a non-exclusive easement over certain driveways as designated from time to time by Declarant. 5.3 Easements for the Benefit of Declarant. In addition to the rights of entry and any other rights given to Declarant in this Declaration, there are hereby established the following non-exclusive easements in perpetuity for the benefit of Declarant, its agents, employees and contractors: 5.3.1 Easements in gross on, over, under or across all portions of the Project for the purposes shown as existing or proposed or for purposes deemed necessary or convenient by Declarant for (i) the installation, placement and maintenance of electric, telephone, cable television, water, gas, sanitary sewer lines, drainage facilities or any other utilities, together with the right to enter upon the affected Parcel (without unreasonably interfering with Owner's and Occupants' reasonable use and enjoyment thereof) to service, maintain, repair, reconstruct, relocate or replace any of such lines or facilities, (ii) ingress and egress over any public or private EXHIBIT P - Page-13- CC&Rs [20th Century Plaza] Vehicle/Pedestrian Area or other specific designated use areas, and (iii) any other matter required or mandated by any governmental authority with jurisdiction over the Project. 5.3.2 An easement over, upon, across and under all the Parcels to inspect and/or ascertain whether such Parcel, the Improvement(s) thereon and the uses thereof are in compliance with the provisions of the Controlling Documents or Governmental Requirements; and to abate and remove any thing or condition that may exist thereon contrary to the intent and meaning of the Controlling Documents or the Governmental Requirements. 5.3.3 An easement over, upon, across and under all property designated from time to time by Declarant hereunder to perform Declarant's obligations under this Declaration with respect to the maintenance and repair of the Common Area and any Improvement thereon, including, without limitation, for access to slopes and drainageways when such access is necessary for the maintenance or stabilization of slopes or drainage, or both, on the Common Area. 5.3.4 With respect to the easements established pursuant to Sections 5.3.1 through 5.3.3 above, Declarant shall have the right and power at all times to enter and re-enter the property thereby encumbered, with or without vehicles or on foot, and to come upon said property as often as it deems reasonably necessary to effectuate the purpose of such easements. 5.3.5 An easement over, upon, across and under each of the Parcels for (i) planting, replacing and maintaining any such landscaping strips as shall reasonably be designated by Declarant, and (ii) installing, repairing, replacing and maintaining any drainage and/or irrigation systems (including, without limitation, landscape wiring and conduits) upon any such Parcel as shall reasonably be designated by Declarant in connection with such landscaping strips or in connection with landscaping strips on the Common Area or on other Parcels. 5.3.6 A non-exclusive easement over, upon, across and under the Common Area for the purpose of completing the Common Area and any construction thereon, or for the purpose of completing the construction of any Improvement on any Parcel which are then owned by Declarant. 5.4 No Merger. Notwithstanding the union of (a) the fee simple title to any of the Parcels, or any portion thereof, or any other real property of Declarant with (b) any right, title or interest in the easements granted by or reserved to Declarant pursuant to this Declaration, it is the intention of Declarant that the separation of such fee simple estate and such right, title or interest in such easements shall be maintained, and that a merger shall not take place without the express prior written consent of Declarant. 5.5 No Abandonment. Notwithstanding Section 811 of the California Civil Code or any other applicable law, it is the intent of Declarant that no easement granted or reserved hereunder be deemed abandoned or terminated merely by disuse or incompatible acts; rather, the easements granted hereunder EXHIBIT P - Page-14- CC&Rs [20th Century Plaza] shall continue in full force and effect unless (a) terminated by a written agreement, executed by the Person or Persons entitled to the benefit thereof, and duly Recorded, or (b) in the case of the Owners, terminated by approval of the Owners and certified in a written agreement executed and Recorded by all of the Owners. 5.6 Parking Easements. 5.6.1 Parking Areas -------------- Subject to the terms and provisions of this Article V, Declarant expressly reserves for the use and benefit of each Parcel, and each Owner and Occupant, and their respective Permittees, which shall be appurtenant to and for the benefit of each Parcel, in common with others entitled to use the same, a non-exclusive easement for the parking of motor vehicles (excluding recreational and other oversized vehicles), motorcycles and bicycles within the Parking Areas and upon other portions of the Common Areas specifically designated for use as parking, and as such areas may be changed from time to time for use as parking in accordance with the terms of this Declaration. Notwithstanding the foregoing, Declarant shall have the right to reserve certain parking spaces in the Parking Areas for the exclusive use of certain Owners or Occupants, or their respective Permittees, and to enforce the reservation of such reserved parking spaces. 5.6.2 Parking Charges. ---------------- Notwithstanding anything to the contrary contained in this Declaration, commencing on the later of (i) the date of this Declaration, or (ii) the date on which a Certificate of Occupancy is issued for any Improvements on the Parcel of such Owner, each Owner shall have the obligation to rent from Declarant on an annual basis the amount of parking passes corresponding to the number of parking spaces as may be designated by Declarant from time to time. Each Owner shall pay to Declarant for parking passes on an annual basis the prevailing rate charged from time to time at the location of such parking passes. In addition, each Owner shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking passes by such Owner or the use of the Parking Areas by such Owner and its Occupants. Each Owner's continued right to use the parking passes is conditioned upon such Owner abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the Parking Areas where the parking passes are located, including any sticker or other identification system established by Declarant, such Owner's cooperation in seeing that Owner's Occupants and their respective Permittees also comply with such rules and regulations and such Owner not being in default under this Declaration. In the event an Owner fails to pay any amount due under this Article V, then such amount shall be a lien against the interest of such Owner in its Parcel(s) in accordance with Section 7.3 below. 5.6.3 Visitor Parking. ---------------- Each Owner and Occupant may validate visitor parking in those portions of the Parking Areas designated by Declarant for visitor parking from time to time by such method or EXHIBIT P - Page-15- CC&Rs [20th Century Plaza] methods as Declarant may establish from time to time, at the validation rate from time to time generally applicable to such visitor parking. 5.6.4 Control of Parking Structures. -------------------------------- Declarant shall at all times have the sole and exclusive control of the Parking Areas and may from time to time prescribe reasonable rules and regulations to regulate the use of the Parking Areas, subject to the rights granted to each Owner, its Occupants and Permittees, to use the Parking Areas as provided herein. Such rules and regulations may include limitations on use by trucks, trailers, vans, campers, heavy equipment or other vehicles, including the regulation of the times during which use by such vehicles shall be permitted. The rules and regulations may also regulate the location of use of the Parking Areas by any oversize vehicles. Declarant may retain personnel or a parking manager to implement a system of operation and security for regulating the use of the Parking Areas, the cost of which shall be a Common Expense. 5.7 Grant of Power of Attorney and Future Grants of Easements Over Common Areas. Each of the Owners hereby grants to Declarant the right to grant or convey any future easements, licenses or rights-of-way in, on or over the Common Areas for purposes not inconsistent with the intended use of the Project, and hereby appoints Declarant as its attorney-in-fact to execute any and all necessary documents on behalf of each Owner to grant or convey any such easements, licenses or rights-of-way. Such future easements may include non-exclusive easements for the purpose of installing, maintaining and repairing utilities to service one or more Parcels, including, but not limited to, the Utility Easements. Such grants for Utility Easements shall require that all costs and expense connected with the installation, repair and maintenance of the Utility Easements, including any liability resulting from personal injury or property damage or claims for labor and materials attributable to such repairs and maintenance, shall be the sole obligation of the Owner or Owners for whose benefit the particular Utility Easements are being maintained and repaired and such Owner or Owners shall agree to indemnify and hold Declarant and all other Owners free and harmless from any and all claims for such costs and expenses, including attorneys' fees. The Utility Easements shall be located along roadways in the Common Areas to the extent possible and shall be underground or concealed to the extent possible. All permanent utility appurtenances located in the Common Areas as required by the City or by a governmental agency with jurisdiction over the Project shall be architecturally treated and screened from view with enclosures such as landscaping, architecturally designed screening or finish materials. 5.8 Use of Common Areas by Owners and Occupants. 5.8.1 Except as otherwise specifically provided in this Declaration, the use of the Common Areas by the Owners and Occupants, and their respective Permittees, shall be in common with all other Owners and Occupants, and their respective Permittees. Each Owner shall keep the Common Areas free and clear of any obstructions created or permitted by such Owner or resulting from such Owner's or its Occupant's or their respective Permittees' operation of its business so as not to unreasonably interfere with the use and enjoyment by the other Owners and Occupants, and their respective Permittees, of the Common Areas. EXHIBIT P - Page-16- CC&Rs [20th Century Plaza] 5.8.2 Except for the Parking Structure and other portions of the Common Areas specifically designated as Parking Areas, no parking shall be allowed anywhere in the Common Areas and Declarant shall have the right to enforce this "no parking" restriction by (i) posting signs at various points in the Common Areas which restrict both parking and stopping of vehicles, and (ii) removing any vehicles in violation thereof in accordance with the provisions of Section 22658 of the California Vehicle Code, or other applicable Governmental Requirement. 5.9 Restoration. After any use by an Owner of any easement provided in this Article V, such Owner shall restore the Common Area to the condition it was in immediately prior to the commencement of such use. 5.10 Prohibition Against Granting Easements. No Owner shall grant an easement or easements in, to, over, under or across such Owner's Parcel or the Common Area for the benefit of any Parcel or property, either within or outside the Project, without the express written consent of Declarant. ARTICLE VI TRANSFERS 6.1 Documents to be Provided to Purchaser. An Owner shall, as soon as practicable before transfer of a fee or leasehold title to a Parcel, provide to the prospective purchaser copies of the Controlling Documents. 6.2 Notification to Declarant. Concurrently with the consummation of any Parcel sale, or within five (5) days thereafter, the transferee shall notify Declarant in writing of such transfer. Such notification shall set forth (i) the names of the transferee, its Mortgagees and the transferor, (ii) the address of the purchased Parcel , (iii) the transferee's and the Mortgagees' mailing addresses, and (iv) the date of transfer. Before the receipt of such notification, any and all communications required or permitted to be given by Declarant shall be deemed to be duly made and given to the transferee if duly and timely made and given to the transferee's transferor. 6.3 Validity of Transfers. Nothing in this Section 6.3 shall be construed as affecting the validity of title to any Parcel transferred in violation of this Section 6.3. EXHIBIT P - Page-17- CC&Rs [20th Century Plaza] ARTICLE VII PAYMENT OF COMMON EXPENSES 7.1 Billing. Commencing as to all Parcels upon the Recordation of this Declaration, Declarant shall periodically, but no more frequently than monthly, bill the Owners for their respective proportionate shares (as defined in Section 7.2 below) based on either (i) the Common Expenses paid by Declarant for the operation, maintenance and insurance of the Common Area during the preceding billing period, or (ii) equal periodic installments which have been estimated in advance based on a budget prepared by Declarant for a particular Fiscal Year. In addition, Declarant, at any time and from time to time, may bill any Owners for any amounts due under this Declaration which amounts do not constitute Common Expenses. In the event during any Fiscal Year the Owners have paid periodic installments based on Declarant's estimates, Declarant shall, after the end of such Fiscal Year, notify each Owner of any adjustment in the estimated expenses to reflect the actual expenses paid by Declarant during such Fiscal Year, and shall deliver an accounting in reasonable detail showing the actual costs and expenses paid by Declarant for the operation, maintenance and insurance of the Common Area during the preceding Fiscal Year. Within ten (10) days after delivery of such notice, each Owner shall pay to Declarant its share of the amount of any expenses actually incurred by Declarant for which Declarant was not paid by such periodic installments, or Declarant shall credit each Owner its respective share of the amount of any overpayment against such Owner's next periodic installment due, as the case may be. In the event a billing statement is based on actual costs and expenses paid by Declarant, it shall set forth in reasonable detail all such expenses paid by Declarant and shall be accompanied by such evidence of payment as may be reasonably requested by the Owners, or any of them, billed therefor. Within fifteen (15) days after receipt of Declarant's billing statement given in accordance with the terms of this Section 7.1, each Owner shall pay or cause to be paid the amount set forth in such billing statement. 7.2 Proportionate Shares. Except as provided otherwise in this Section 7.2, each Owner's proportionate share of Common Expenses shall be based on a fraction, the numerator of which is the rentable square feet of the Building(s) located on such Owner's Parcel(s), and the denominator of which is the total rentable square feet of all of the Buildings located in the Project; provided, however, both the numerator and the denominator of such fraction shall be proportionately adjusted in the event more than five percent (5%) of the rentable square feet of the Buildings(s) located on any Parcel is taken by eminent domain. 7.3 Liens for Delinquent Payments. 7.3.1 If, after receipt of such billing statement given in the manner provided in Section 7.1 (including such evidence of payment as theretofore may have been reasonably requested), any Owner fails to pay when due the amount specified in such statement, Declarant shall deliver to such non-paying Owner, in the manner specified in Section 14.4, a second copy EXHIBIT P - Page - 18- CC&Rs [20th Century Plaza] of such billing statement, together with a written notice stating that the billing amount is unpaid, that a late charge has been imposed and the amount thereof (which late charge shall not exceed ten percent (10%) of the unpaid amount or Fifty Dollars ($50.00), whichever is greater), and that interest (as provided below) will begin to accrue unless payment is made immediately after the effective date of such written notice. If the billing amount or any portion thereof remains unpaid, Declarant shall be entitled to interest on such unpaid amount at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law until paid, commencing on the date of the original billing statement, and such unpaid amount, together with interest and late charge as aforesaid, shall be a lien against the interest of the defaulting Owner in its Parcel(s), which lien shall attach and be enforced as provided in Section 7.4 below. 7.3.2 Subject to Section 12.1 below, the lien for delinquent payments, costs of collection, late charges and interest provided in Section 7.3 shall be prior and superior to all other liens except taxes, bonds, governmental assessments and other levies which, by law, would be superior thereto. The sale or transfer of any Parcel shall not affect or extinguish the lien against such Parcel; provided, however, that the sale or transfer of any Parcel through foreclosure, trustee's sale or deed in lieu of foreclosure shall extinguish such lien as to payments which became due prior to such transfer, as provided in Section 12.1 hereof. In no event shall any sale or transfer (whether by foreclosure or otherwise) relieve any Parcel from lien rights in Declarant for any payments of Common Expenses thereafter becoming due. 7.4 Enforcement of Obligation. Declarant may enforce delinquent payments by suing the Owner directly on the debt established by such delinquent payment, or by recording a lien against the Owner's Parcel as provided in Section 7.3 above and foreclosing the lien through either judicial or nonjudicial proceedings. Declarant may commence and maintain a lawsuit directly on the debt without waiving its right to establish a lien against the Owner's Lot for the delinquent payment. Any lien created pursuant to Section 7.3 above may be enforced in any manner permitted by law, including sale by a court, sale by the trustee designated in the notice of delinquent payment, or sale by a trustee substituted pursuant to Section 2934(a) of the California Civil Code, and to that end a power of sale with respect to the Parcels is hereby conferred upon Declarant. Any sale by a trustee shall be conducted in accordance with the provisions of Section 2924 et seq. of the -- ---- California Civil Code applicable to the exercise of powers of sale. Declarant shall have the power to bid for the Parcel at a foreclosure sale, and to acquire and hold, lease, mortgage and convey the same. Nothing herein contained shall prohibit Declarant from taking a deed in lieu of foreclosure of a lien created pursuant to Section 7.3 above. In any action instituted by Declarant to collect delinquent payments, accompanying costs, late charges or interest, the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees as set forth in Section 13.3 below. 7.5 Assignment of Leases and Rents Each Owner hereby absolutely and unconditionally assigns and transfers to Declarant all the leases (including all security deposits, guarantees and other security at any time given as security for the performance of the obligations of the tenants thereunder), income, rents, issues, deposits, profits and proceeds of such Owner's Parcel to which such Owner may be entitled, EXHIBIT P - Page-19- CC&Rs [20th Century Plaza] whether now due, past due or to become due, and hereby gives to and confers upon Declarant the right, power and authority to collect such income, rents, issues, deposits, profits and proceeds. This assignment of the leases, income, rents, issues, deposits, profits and proceeds constitutes an irrevocable direction and authorization of all tenants under the leases to pay all rent, income and profits to Declarant upon demand and without further consent or other action by such Owner. This is an absolute assignment, not an assignment for security only, and Declarant's right to rents, issues and profits is not contingent on Declarant's possession of all or any portion of such Owner's Parcel. Each Owner irrevocably appoints Declarant its true and lawful attorney, at the option of Declarant at any time, to demand, receive and enforce payment, to give receipts, releases and satisfactions, and to sue, either in the name of such Owner or in the name of Declarant, for all such income, rents, issues, deposits, profits and proceeds and apply the same to the obligations hereunder. It is understood and agreed that neither the foregoing assignment of leases, income, rents, issues, deposits, profits and proceeds to Declarant nor the exercise by Declarant of any of its rights or remedies under this Section 7.5 shall be deemed to make Declarant a "mortgagee-in-possession" or otherwise obligated, responsible or liable in any manner with respect to such Owner's Parcel or the use, occupancy, enjoyment or operation of all or any portion thereof. Notwithstanding anything to the contrary contained herein, so long as an Owner shall not be delinquent in its performance of its obligations under this Declaration (including, without limitation, payment to Declarant of any sums due hereunder), such Owner shall have a license to collect all income, rents, issues, profits and proceeds from such Owner's Parcel as trustee for the benefit of Declarant and such Owner shall apply the funds so collected first to the payment or performance of its obligations under this Declaration in such manner as Declarant elects and thereafter to the account of such Owner. Upon such Owner becoming delinquent in its performance of its obligations under this Declaration, such license shall be deemed revoked and any rents received thereafter by such Owner shall be delivered in kind to Declarant. In such event, such Owner agrees to deliver the original copies of all leases to Declarant. Each Owner hereby irrevocably constitutes and appoints Declarant its true and lawful attorney-in-fact to enforce in such Owner's name or in Declarant's name or otherwise all rights of such Owner in the instruments, including without limitation checks and money orders, tendered as payments of rents and to do any and all things necessary and proper to carry out the purposes hereof. 7.6 Appointment of Receiver In the event that an Owner shall be delinquent in its performance of its obligations under this Declaration (including, without limitation, payment to Declarant of any sums due hereunder), Declarant, as a matter of right and without notice to such Owner or anyone claiming under it, and without regard to the then value of such Owner's Parcel or the interest of such Owner therein, shall have the right to apply to any court having jurisdiction to appoint a receiver or receivers of such Owner's Parcel or any portion thereof, and such Owner hereby irrevocably consents to such appointment and waives notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases and all the powers and duties of Declarant in case of entry as provided herein and shall continue as such and exercise all such powers until the date of confirmation of sale of such Owner's Parcel unless such receivership is sooner terminated. EXHIBIT P - Page-20- CC&Rs [20th Century Plaza] 7.7 No Offsets. All Common Expenses shall be payable in the amount specified in the bill therefor and no offsets against such amount shall be permitted for any reason. ARTICLE VIII POWERS AND DUTIES OF DECLARANT In addition to the other powers and duties of Declarant provided in this Declaration, Declarant shall specifically have the right and power to accomplish those matters described in this Article VIII. 8.1 Employ Manager. Declarant shall have the power but not the duty to contract with a professional management and/or asset management agent for the performance of maintenance and repair of the Project and for conducting other activities on behalf of Declarant. Any such contract shall be on terms acceptable to Declarant, and shall be terminable by Declarant at any time (i) for cause upon thirty (30) days' written notice thereof, and (ii) without cause upon payment of a termination fee and upon ninety (90) days' written notice. The fee, cost and/or expense of such contract shall be a Common Expense. 8.2 Insurance. Declarant shall have the power and the duty to obtain and maintain in force such other insurance as Declarant shall deem necessary or expedient to carry out the functions of Declarant as set forth in this Declaration. Every policy of insurance obtained by Declarant, whether or not required to be obtained pursuant to the provisions of this Declaration, shall expressly waive any and all rights of subrogation against Declarant, its representatives and employees and all Owners if permitted under the terms of such policy. The premiums for the insurance policies obtained and maintained by Declarant shall be a part of the Common Expenses. Declarant is appointed attorney-in-fact by each Owner to negotiate and agree on the value and extent of any loss under any policy carried by Declarant under this Section 8.2. Declarant is granted full right and authority to compromise and settle any claim or endorse any claim by legal action or otherwise and to execute releases in favor of any insurer. 8.3 Utilities. Declarant shall have the power and the duty to pay all charges for utility services for the Common Area which charges shall be included in Common Expenses. 8.4 Common Area. Declarant shall have the power and the duty to manage, operate, maintain, repair, restore, add to and replace the Common Area and all Improvements located thereon (including, without limitation, the express obligation at all times to preserve, plant, install, repair and maintain the EXHIBIT P - Page-21- CC&Rs [20th Century Plaza] Common Area as set forth in this Declaration), and all other property (whether real or personal) owned by Declarant. 8.5 Enforcement. Declarant shall have the power and the duty to enforce the provisions of the Controlling Documents; provided, however, that at no time shall Declarant, with respect to amounts owed to Declarant (including, without limitation, amounts owed for Common Expenses), impose a rate of interest in excess of the rate of interest then permitted by law to be charged. 8.6 Square Footage/Total Entitlement Monitoring. Declarant shall have the power and the duty to track and monitor the square footage of the Project to ensure that it does not exceed the maximum square footage allowed under the Governmental Requirements. 8.7 Contract and Make Payments. Declarant shall have the power and the duty to contract and pay for Common Expenses. 8.8 Employment of Agents. Declarant shall have the power but not the duty to employ the services of any Person or Persons to manage and conduct the business of Declarant hereunder, and upon such conditions as are deemed advisable by Declarant, to delegate to such Person or Persons any of its powers. 8.9 Taxes. Declarant shall have the power and the duty to pay any taxes and governmental assessments which are or could become a lien on the Common Area or any portion thereof which taxes and governmental assessments shall be included in Common Expenses. 8.10 Delegation of Powers. Declarant shall have the power but not the duty to delegate any of its powers hereunder to other Persons, including, without limitation, committees, officers and employees. 8.11 Security. Declarant shall have the power but not the duty to provide, through an outside agency, a security force to patrol and protect the Common Areas the cost of which shall be included in Common Expenses. 8.12 Rules. Declarant shall have the power but not the duty to adopt, amend, supplement and repeal the Rules. The Rules may restrict and govern the use of the Common Area by any Owner; provided, however, that the Rules may not discriminate between the various Owners, Occupants EXHIBIT P - Page-22- CC&Rs [20th Century Plaza] and Permittees. A copy of the Rules shall be given to each Owner not less than ten (10) business days before said Rules (or, as applicable, an amendment thereto) may be deemed to be in full force and effect. The Rules shall have the same force and effect as if set forth herein and made a part of this Declaration. 8.13 Maintenance Standards. Declarant shall have the power but not the duty to adopt, amend, supplement and repeal the Maintenance Standards; provided, however, that at no time shall the standards set forth therein for repair and maintenance be lower than the minimum standards set forth in this Declaration or required by the Governmental Requirements, and provided further that the Maintenance Standards may impose higher standards of maintenance for areas within the Project visible from main public streets and/or the Common Area than from those areas within the Project not so visible. Whether or not Maintenance Standards have been adopted, nothing in this Section 8.13 shall be construed as relieving any Owner from the obligation to at all times comply with the minimum standards for repair and maintenance set forth in this Declaration. A copy of the Maintenance Standards shall be given to each Owner not less than ten (10) business days before the same may be deemed to be in full force and effect. The Maintenance Standards shall have the same force and effect as if set forth herein and made a part of this Declaration. 8.14 Right to Grant Easements. 8.3 Utilities. Declarant shall have the power and the duty to pay all charges for utility services for the Common Area which charges shall be included in Common Expenses. 8.4 Common Area. Declarant shall have the power and the duty to manage, operate, maintain, repair, restore, add to and replace the Common Area and all Improvements located thereon (including, without limitation, the express obligation at all times to preserve, plant, install, repair and maintain the EXHIBIT P - Page-23- CC&Rs [20th Century Plaza] Common Area as set forth in this Declaration), and all other property (whether real or personal) owned by Declarant. 8.5 Enforcement. 8.14.1 Declarant shall have the power and the duty to grant utility and other easements, through, over, under, across and on the Common Area, which are reasonably necessary or appropriate in connection with the operation or activities of Declarant or to the ongoing development of lands held by Declarant or an affiliate of Declarant in the vicinity of the Project. 8.14.2 Declarant shall have the power and the duty to relocate easements for ingress and egress through, over, under, across and on the Common Area; provided, however, that Declarant shall use reasonable criteria in deciding which easements are to be relocated and to what location. 8.14.3 Declarant shall have the power but not the duty to institute any other services for the benefit of the Owners deemed advisable by Declarant. 8.15 Limitation on Liability of Declarant; Indemnification. 8.15.1 Declarant (or any Agent of Declarant when acting in such capacity), shall not be liable to any Owner or Occupant or any other Person for any damage, loss, or prejudice suffered or claimed on account of any act, omission, error or negligence of Declarant (or such Agent) if Declarant (or such Agent) has acted in good faith. 8.15.2 Each Owner, by accepting its deed or assignment of lease or by executing a sublease, as the case may be, agrees personally and for all its Occupants and Permittees to indemnify Declarant (or any Agent of Declarant when acting in such capacity), and to defend such Declarant (or such Agent) against any liability for any damage, loss or prejudice suffered or EXHIBIT P - Page-24- CC&Rs [20th Century Plaza] claimed on account of any act, omission, error or negligence of Declarant (or such Agent) if Declarant (or such Agent) has acted in good faith. 8.15.3 In addition to the foregoing Section 8.15.2, Declarant hereby agrees to indemnify such Agent and to defend such Agent against any liability for any damage, loss or prejudice suffered or claimed on account of any act, omission, error or negligence by such Agent in performing his duties on behalf of Declarant. 8.15.4 In addition to the foregoing in Section 8.15.3, Declarant hereby agrees to indemnify any director, officer, member or employee of Declarant against any liability for any damage, loss or prejudice suffered or claimed on account of any act, omission, error or negligence by such director, officer or employee in representing Declarant in Declarant's dealings with Declarant, the Owners or the Project. 8.15.5 The indemnities set forth in Sections 8.15.3 and 8.15.4 above shall continue only for so long as Declarant or any affiliate of Declarant owns any Parcel. ARTICLE IX COMMON AREA 9.1 Easement of Enjoyment. All Owners and Occupants shall have a right and easement of enjoyment in and to portions of the Common Area as set forth in Section 5.2 above, which right and easement shall be appurtenant to and shall pass with the title to each such Parcel; provided, however, that such right and easement shall be subject to the following: 9.1.1 The right of Declarant to transfer all or substantially all of its assets, including all or any part of the Common Area; and 9.1.2 The right of Declarant to adopt, amend, supplement and enforce the Rules. 9.2 Use of Common Areas by Owners and Occupants. Except as otherwise specifically provided in this Declaration, the use of the Common Areas by each Owner and Occupant, and their respective Permittees, shall be in common with all other Owners and Occupants, and their respective Permittees. Each Owner shall keep the Common Areas free and clear of any obstructions created or permitted by such Owner or resulting from such Owner's or its Occupant's or their Permittees' operation of its business so as not to unreasonably interfere with the use and enjoyment by the other Owner and Occupants, and their respective Permittees, of the Common Areas. Unless otherwise stated herein, the Common Area shall be used by the Owners and Occupants, and their respective Permittees, in accordance with the Rules. EXHIBIT P - Page-24- CC&Rs [20th Century Plaza] 9.3 Building Exterior Maintenance Standards. All Building exteriors shall be maintained at all times in a neat, orderly and weatherproof manner, including, without limitation, periodic painting or cleaning if either is customary with respect to the exterior construction materials employed for such Building. 9.4 Expansion of Common Area. At any time, Declarant may, but need not, by purchase, lease, acceptance of gift or other transaction (and without the consent of the other Owners) obtain or acquire, any lands, personal property or rights therein, and thereby increase and expand the Common Area, whereupon the maintenance of such additional Common Area shall become the obligation of Declarant and shall be included in Common Expenses. 9.5 Covenant Against Partition. Each Owner shall be deemed to covenant and agree for itself and its heirs, personal representatives, successors and assigns, that there shall be no judicial partition of the Common Area and the same shall remain undivided, nor shall Declarant or any Person acquiring any interest in the Project or any part thereof, seek any such judicial partition unless the structures in the Project are totally or partially destroyed and the Owners elect not to rebuild as hereinabove provided. Each Person acquiring any interest in the Project shall by such acquisition be deemed to have waived any right to partition of any Parcel or the Common Area, except as herein provided. Notwithstanding the foregoing, if any Parcel shall be owned by two or more tenants-in-common or joint tenants, nothing herein contained shall be deemed to prevent a partition by sale of such Parcel (exclusive of any portion of any Parcel which is part of the Common Area) as between such tenants-in-common or joint tenants. No Owner may sell or convey all or part of its undivided interest in any of the Common Area, except in conjunction with the sale of its Parcel, nor may it encumber any part or all of its undivided interest in the Common Area except in conjunction with an encumbrance of its Parcel. ARTICLE X ENFORCEMENT 10.1 Abatement and Suit. 10.1.1 Subject to the restrictions set forth in this Declaration and those imposed by law, the violation or breach of any covenant, condition, restriction or provision contained in the Controlling Documents shall give Declarant and its agents, employees, representatives and contractors the right to enter upon such portion of the Project upon or as to which said violation or breach exists and to summarily abate and remove, at the expense of the Owner thereof, any structure, thing or condition that may be or exist thereon contrary to the intent and meaning of the Controlling Documents. 10.1.2 Declarant and any aggrieved Owner shall have the right to prosecute a proceeding at law or in equity, or initiate arbitration proceedings pursuant to Article XIII below, EXHIBIT P - Page -25- CCR&Rs [20th Century Plaza] against any Owner or Occupant or any other Person or Persons who have violated or who have attempted to violate any of the provisions, covenants, conditions, and restrictions set forth in the Controlling Documents, to enjoin or prevent them from doing so, to cause said violation or breach to be remedied or to recover damages for said violation; provided, however, that nothing herein contained shall be deemed to impose upon Declarant or any aggrieved Owner any liability for the failure to correct or prosecute a violation or breach of the Controlling Documents. 10.1.3 Each Person comprising an Owner shall be jointly and severally liable with each other Person comprising such Owner for the violation or breach of any covenant, condition, restriction or provision contained in the Controlling Documents (i) existing upon the Parcel or Parcels owned by such Owner, or (ii) caused or committed by such Owner or any Occupant or their respective Permittees. 10.2 Deemed to Constitute a Nuisance. The result of every action or omission whereby any covenant, condition, restriction or provision herein contained is violated in whole or in part is hereby declared to be and constitute a nuisance, and every remedy allowed by law or equity against anyone causing a nuisance shall be applicable against the Owner, Occupant or any other Person responsible for such action or omission, and may be exercised by Declarant and/or any aggrieved Owner. 10.3 Inspection. Declarant and its representatives may, from time to time at any reasonable hour or hours and without notice to any Owner or Occupant, enter and inspect any Parcel to ascertain whether such Parcel, the Improvements thereon and the uses thereof are in compliance with the Controlling Documents. In such event, no entering Person (nor Declarant itself) shall thereby be deemed guilty of, or become liable for, any manner of trespass or unlawful entrance in connection with such entry and inspection. 10.4 Failure to Enforce Not a Waiver of Rights. The failure of Declarant or any aggrieved Owner to enforce any covenant, condition, restriction or provision herein contained shall in no event be deemed to be a waiver of the right to thereafter do so nor of the right to enforce any other covenant, condition, restriction or provision set forth in this Declaration. 10.5 Enforcing Violations. The violation of any Governmental Requirement shall constitute a violation of this Declaration and shall be enforceable in accordance with the provisions of this Article X. 10.6 Termination. Notwithstanding anything contained or implied in this Declaration to the contrary, in no event shall the remedies available hereunder for a breach of the provisions hereof include termination of this Declaration. Instead, it is Declarant's express intention that this Declaration EXHIBIT P - Page -26- CCR&Rs [20th Century Plaza] be terminable only upon the agreement of all the Owners. Each Owner hereby waives any right under law, equity or otherwise, to terminate this Declaration under any circumstance other than as set forth in this Section 10.6 and in Article XI hereof. 10.7 Remedy. Notwithstanding the foregoing, no Owner may exercise any remedy hereunder unless, after the failure of a defaulting Owner to cure a breach within the applicable cure period, such non-defaulting Owner delivers notice of the breach to each Mortgagee of the defaulting Owner of which the non-defaulting Owner has received notice under Section 12.2 below, and provides such Mortgagee with the opportunity to cure such breach within an additional cure period; provided, however, that nothing herein shall entitle such Mortgagee to arbitrate a breach that has already been arbitrated hereunder. 10.8 Force Majeure. Except as otherwise provided in this Article X or elsewhere in this Declaration, each Owner shall be excused from performing any obligation or undertaking provided in this Declaration, except any obligation to pay any money (unless such payment is conditioned upon performance of an obligation or undertaking excused by this Article X), in the event but only so long as the performance of any such obligation is prevented or delayed, retarded or hindered by (i) act of God, fire, earthquake, flood, explosion, action of the elements, war, invasion, insurrection, riot, mob violence, sabotage, inability to procure or general shortage of labor, equipment, facilities, materials or supplies in the ordinary course on the open market; (ii) failure of normal transportation, strike, lockout, action of labor unions; (iii) condemnation, requisition, law, order of governmental or civil or military authorities; (iv) the inability to obtain governmental approvals or permits despite the exercise of due diligence and good faith efforts; or (v) any other cause, whether similar or dissimilar to the foregoing, not within the reasonable control of such Owner (financial ability or negligence excepted). Each Owner shall give notice of any such delay to the other Owner within thirty (30) days of such Owner's actual knowledge of the occurrence of the event with respect to which such Owner intends to claim a permitted delay hereunder. 10.9 Correction of Site Descriptions, Descriptions of Easements. By reason of inadvertent construction errors, the Buildings may not be precisely constructed within their respective Parcels. As soon as reasonably possible after completion of the construction of each Building, the Owner thereof, at its expense, shall cause an "as-built" survey to be made of its Parcel. If such survey discloses that the Building causing such survey to be made has not been constructed precisely within such Owner's Parcel, then, upon request of the constructing Owner, the other Owner shall grant to the constructing Owner an easement over that portion of the Common Area as is required to allow the location of such Building as shown on the survey and the constructing Owner shall grant to the other Owner an easement over that portion of its Parcel upon which the Building is not located for use as a portion of the Common Area. Any such easements shall remain in existence so long as such Building shall be in existence. Nothing herein contained shall be deemed to relieve or excuse either Owner from EXHIBIT P - Page -27- CCR&Rs [20th Century Plaza] exercising all due diligence to construct its Building within its Parcel. All of the costs and expenses of granting such easements, including without limitation, any attorneys' fees incurred in connection therewith by the other Owner, and of improving the portion of the constructing Owner's Parcel which is to be used as a portion of the Common Area so as to integrate such portion into the Common Area shall be borne solely by the constructing Owner. ARTICLE XI TERMINATION AND AMENDMENT 11.1 Duration. This Declaration shall be effective as of the date of Recordation and shall continue in full force and effect for ninety-nine (99) years or until the expiration or earlier termination of the Ground Lease, whichever is earlier. Thereafter, this Declaration shall be automatically extended for successive periods of ten (10) years each, unless an instrument signed by all then Owners of the Parcels, and consented to by their Mortgagees, is duly Recorded, which Recordation shall occur at least one (l) year prior to the end of any such period for the purpose of terminating or amending this Declaration in whole or in part, or with respect to the application of this Declaration to any Parcel existing at that time. Upon termination of this Declaration, all rights and privileges derived from, and all duties and obligations created and imposed by, the provisions of this Declaration, shall terminate and have no further force or effect; provided, however, that the termination of this Declaration shall not limit or affect any remedy at law or in equity of any Owner against any other Owner with respect to any liability or obligation arising or to be performed under this Declaration prior to the date of such termination. 11.2 Amendments. The provisions of this Declaration may be modified or amended only upon the agreement of Owners (including, as applicable, Declarant) who own a majority of the Parcel Area. Notwithstanding the foregoing, any modification or amendment to this Declaration shall comply with the following: (1) any such modification or amendment must be within the general spirit and overall intention of this Declaration, (2) prior to any such modification or amendment Declarant shall obtain the approval of any governmental agency to such modification or amendment where such approval is required by such governmental agency, (3) any modification or amendment shall not provide for any type of Improvements or use presently specifically prohibited by this Declaration, (4) such modification or amendment shall not materially adversely affect any Owner (or the Declarant), or its rights, duties and privileges specified in this Declaration, without the written consent of such Owner and any Mortgagee of such Owner, and (5) any such modification or amendment shall not increase an Owner's pro-rata share of the Common Expenses without the written consent of such Owner and any Mortgagee of such Owner. No such modification or amendment shall be effective until the Owners have been given thirty (30) days prior written notice of the proposed change and a proper instrument in writing has been executed, acknowledged, and Recorded. Notwithstanding the foregoing, any such amendment or modification, to be effective, must also be approved in writing by (a) the affected Mortgagees if such amendment or modification would either (i) affect the protection and rights of such EXHIBIT P - Page -28- CCR&Rs [20th Century Plaza] Mortgagees as set forth in Article XII below, (ii) change the method of calculating Owner's respective proportionate shares of Common Expenses, or (iii) affect the validity of such Mortgagee's security. 11.3 Termination of Declarant's Interest. Declarant's right to enforce the provisions of this Declaration shall continue for so long as Declarant owns any Parcel; provided, however, that Declarant shall be entitled, at any earlier time, by an instrument in writing executed and acknowledged and Recorded, to terminate in whole or in part its right to enforce the provisions of this Declaration. ARTICLE XII RIGHTS OF LENDERS 12.1 Priority of Lien of Mortgage. This Declaration shall be and remain senior in priority to all Mortgages hereafter executed upon the Project, any Parcel or any portion thereof; provided, however, that no breach of the covenants, conditions or restrictions herein contained or foreclosure of any lien herein created for Common Expenses shall affect, impair, defeat or render invalid the lien, charge or priority of any Mortgage made in good faith and for value encumbering any Parcel. Any Mortgagee or other Owner whose title to a Parcel is derived through foreclosure, trustee's sale or deed in lieu of foreclosure, shall take title to such Parcel subject to, and shall be bound by, all the covenants, conditions and restrictions set forth in this Declaration. 12.2 Notice of Default. Each Mortgagee, upon filing a written request for such notification with Declarant, is entitled to written notification from Declarant of any default by the Owner of such Parcel or Building in the performance of the applicable Owner's obligations under this Declaration, which default is not cured within thirty (30) days after Declarant gives written notice thereof to such Owner. 12.3 Request for Notice. No Mortgagee shall be entitled to receive any notice which this Declaration requires Declarant to give to such Mortgagee unless and until such Mortgagee has delivered to Declarant a written request for such notice. Such request for notice shall state which Parcel or Improvement is encumbered by its mortgage or subject to a ground lease. Notwithstanding the foregoing or anything contained in this Declaration, any Mortgagee where Declarant is mortgagor shall automatically be entitled to receive any notice or other information or material which this Declaration requires to be given to Declarant, without a written request for such notice, so long as the mortgage includes a notice provision for the Mortgagee. A Mortgagee's rights pursuant to this Declaration, including, without limitation, the priority of the lien of its mortgage over the lien for Common Expenses levied by Declarant hereunder shall not be affected by the failure to request such notice. Any request for notice delivered to Declarant and the automatic notice EXHIBIT P - Page -29- CCR&Rs [20th Century Plaza] provisions hereof shall remain effective without any further action by the requesting Person for so long as the requesting Person continues to be the Mortgagee, with respect to the Parcel or Improvement for which the request for notice was given. 12.4 Curing Defaults. A Mortgagee or the immediate transferee of such Mortgagee, who acquires title by judicial foreclosure, a deed in lieu of foreclosure or trustee sale, or otherwise, shall not be obligated to cure any breach of the provisions of this Declaration which occurred before such Mortgagee or transferee acquired the title to a Parcel if (a) such breach is noncurable or of a type which is not practical or feasible to cure, and (b) such Mortgagee did not have notice of such a breach at the time it acquired a lien or security interest in the Parcel. 12.5 Availability of Documents. Declarant shall make available to Owners and Mortgagees current copies of the Controlling Documents. "Available" means available for inspection, upon request, during normal business hours or under other reasonable circumstances. 12.6 Conflicts. In the event of any conflict between any of the provisions of this Article XII and any of the other provisions of this Declaration, the provisions of this Article XII shall control. ARTICLE XIII WAIVER OF JURY TRIAL, ARBITRATION, LITIGATION EXPENSES 13.1 WAIVER OF TRIAL BY JURY. ANY LITIGATION COMMENCED BY ANY OWNER AGAINST ANY OTHER OWNER RESULTING FROM ANY BREACH OR ALLEGED BREACH OF THE TERMS OF THIS DECLARATION SHALL BE TRIED WITHOUT A JURY AND ANY SUCH OWNER SHALL BE DEEMED TO HAVE WAIVED ANY RIGHT TO A TRIAL BY JURY. 13.2 Arbitration. 13.2.1. General Submittals to Arbitration. Notwithstanding ------------------------------------ anything to the contrary contained in this Declaration, the submittal of all matters to arbitration in accordance with the terms of this Section 13.2 is the sole and exclusive method, means and procedure to resolve any and all claims, disputes or disagreements arising under this Declaration, except for claims which (A) seek anything other than enforcement of rights under this Declaration, or (B) which are primarily founded upon matters of fraud, willful misconduct, bad faith or any other allegations of tortious action, and seek the award of punitive or exemplary damages, which disputes shall be resolved by suit filed in the Superior Court of Los Angeles County, California, the decision of which court shall be subject to appeal pursuant to applicable law. EXHIBIT P - Page -30- CCR&Rs [20th Century Plaza] 13.2.2. JAMS. Any dispute to be arbitrated pursuant to the ---- provisions of this Section 13.2 shall be determined by binding arbitration before a retired judge of the Superior Court of the State of California (the "Arbitrator") under the auspices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"). Such arbitration shall be initiated by the parties, or either of them, within ten (10) days after either party sends written notice (the "Arbitration Notice") of a demand to arbitrate by registered or certified mail to the other party and to JAMS. The Arbitration Notice shall contain a description of the subject matter of the arbitration, the dispute with respect thereto, the amount involved, if any, and the remedy or determination sought. The parties may agree on a retired judge from the JAMS panel. If they are unable to promptly agree, JAMS will provide a list of three available judges and each party may strike one. The remaining judge (or if there are two, the one selected by JAMS) will serve as the Arbitrator. In the event that JAMS shall no longer exist or if JAMS fails or refuses to accept submission of such dispute, then the dispute shall be resolved by binding arbitration before the American Arbitration Association ("AAA") under the AAA's commercial arbitration rules then in effect. 13.2.3. Arbitration Procedure. ---------------------- 13.2.3.1 Pre-Decision Actions. The Arbitrator shall --------------------- schedule a pre-hearing conference to resolve procedural matters, arrange for the exchange of information, obtain stipulations, and narrow the issues. The parties will submit proposed discovery schedules to the Arbitrator at the pre-hearing conference. The scope and duration of discovery will be within the sole discretion of the Arbitrator. The Arbitrator shall have the discretion to order a pre-hearing exchange of information by the parties, including, without limitation, production of requested documents, exchange of summaries of testimony of proposed witnesses, and examination by deposition of parties and third-party witnesses. This discretion shall be exercised in favor of discovery reasonable under the circumstances. 13.2.3.2 The Decision. The arbitration shall be conducted ------------- in Los Angeles, California. Any party may be represented by counsel or other authorized representative. In rendering a decision(s), the Arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural laws of the State of California and the terms and provisions of this Declaration. The Arbitrator's decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The Arbitrator may make any determination, and/or grant any remedy or relief that is just and equitable. The decision must be based on, and accompanied by, a written statement of decision explaining the factual and legal basis for the decision as to each of the principal controverted issues. The decision shall be conclusive and binding, and it may thereafter be confirmed as a judgment by the Superior Court of the State of California, subject only to challenge on the grounds set forth in the California Code of Civil Procedure Section 1286.2. The validity and enforceability of the Arbitrator's decision is to be determined exclusively by the California courts pursuant to the provisions of this Declaration. The Arbitrator may award costs, including without limitation attorneys' fees, and expert and witness costs, to the prevailing party, if any, as determined by the Arbitrator in his discretion. The Arbitrator's fees and costs shall be paid by the non-prevailing party as determined by the Arbitrator in his discretion. A party shall be EXHIBIT P - Page -31- CCR&Rs [20th Century Plaza] determined by the Arbitrator to be the prevailing party if its proposal for the resolution of dispute is the closer to that adopted by the Arbitrator. 13.3 Attorney's Fees and Costs. If any Owner, Occupant or Declarant brings an action against any other Owner, Occupant or Declarant by reason of a breach or alleged violation of any covenant, term or obligation of this Declaration, or for the enforcement of any provision of this Declaration or otherwise arising out of this Declaration, the prevailing party in such action shall be entitled to its cost of suit and reasonable attorneys' fees, which shall be made part of any judgment rendered in such action. For the purposes of this Declaration, the term "attorneys' fees" shall mean the fees and expenses of counsel to the parties hereto, which may include post-judgment motions, contempt proceedings, garnishment, levy and debtor and third-party examinations, discovery, bankruptcy, litigation, printing, photostating, duplicating and other expenses, air freight charges and fees billed for law clerks, paralegals and other persons not admitted to the bar but performing services under the supervision of an attorney, all of which shall be deemed to have accrued upon the commencement of such action. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 Constructive Notice and Acceptance. Every Person who now or hereafter owns or acquires any right, title or interest in or to any portion of the Project or any Parcel is and shall be conclusively deemed to have consented and agreed to every covenant, condition, restriction and provision contained in this Declaration, whether or not any reference to this Declaration is contained in the instrument by which such Person acquired an interest in the Project. 14.2 Declarant's Rights Under Other Documents. Nothing herein contained shall prejudice or diminish in any way Declarant's rights under any other documents which may be subsequently Recorded against all or any portions of the Project. 14.3 Land Use Matters. Declarant shall retain the right, in its sole discretion, for the benefit of the Parcels of which Declarant or an affiliate of Declarant then retains ownership or for the benefit of all or any other portion of the Project, to apply for, obtain, prepare, change, amend, supplement, modify or terminate any Governmental Requirement or any Controlling Document. Each Owner, by accepting its deed or assignment of lease or by executing a sublease, as the case may be, and each Occupant, by accepting the right to occupy a Parcel, agrees to support the general plan of improvement and development of the Project, as from time to time conceived, determined, amended, modified or supplemented by Declarant and affiliates of Declarant, and further agrees that it will cooperate with, take all steps required of it to accomplish the foregoing and not EXHIBIT P - Page -32- CCR&Rs [20th Century Plaza] oppose or interfere in any fashion (including, without limitation, by speaking out at public hearings) with Declarant's (or such affiliate of Declarant's) efforts to complete development of the Project (including, without limitation, ingress and egress through lands immediately adjacent to the Project). 14.4 Notices. 14.4.1 Except as otherwise expressly provided in this Declaration or required by law, all notices, consents, requests, demands, approvals, authorizations and other communications (each a "Notice") provided for herein shall be in writing and shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested ("Mail"); (B) transmitted by telecopy, if such telecopy is promptly followed by a Notice sent by Mail; (C) delivered by a nationally recognized overnight courier, or (D) delivered personally. Any Notice shall be sent, transmitted, or delivered, as the case may be, to the intended party at its last known address. For purposes of this Section 14.4, "last known address" with respect to any Owner shall mean such Owner's address supplied by such Owner to Declarant. If no address is supplied, then such Owner's address shall be deemed to be the address of any Parcel owned by such Owner. If personally delivered, then such Notice shall be effective upon delivery. If sent by telex or fax transmission or other form of electronic transmission, then such Notice shall be effective upon transmission (if prior to 6:00 p.m. in the recipient's time zone; but if after 6:00 p.m., then such Notice shall be effective at 9:00 a.m. on the next business day after such transmission). If mailed, then such Notice shall be deemed given on the third day after it is deposited in the mail in accordance with the foregoing. Any correctly addressed Notice that is refused, unclaimed or undelivered because of an act or omission of the party to be notified shall be considered to be effective as of the first date that such Notice was refused, unclaimed or considered undeliverable by the postal authorities, messenger, officer of the law or overnight delivery service. 14.4.2 With respect to (i) any such notice, consent, request, demand, approval, authorization or communication, and (ii) any document or instrument (whether a Controlling Document or otherwise) given or made available to any Owner hereunder or under any of the other Controlling Documents and which might concern an Occupant of such Owner's Parcel, it shall be the sole responsibility of such Owner to make a copy thereof available in a timely manner to such Occupant. 14.5 Liberal Construction. The provisions of this Declaration shall be liberally construed to effectuate its purpose. The failure to enforce any provision of this Declaration shall not constitute a waiver of the right to thereafter enforce such provision or the right to enforce any other provision hereof. 14.6 Singular Includes Plural. Whenever the context of this Declaration requires, the singular shall include the plural, and vice versa, and the masculine shall include the feminine ---------- and vice versa. ----------- EXHIBIT P - Page -33- CCR&Rs [20th Century Plaza] 14.7 Headings. Section and Article headings, where used in this Declaration, are inserted for convenience only and are not intended to be a part hereof or in any way to define, limit or describe the scope and intent of the particular provisions to which they refer. 14.8 Effect of Invalidation. Each covenant, condition and restriction of this Declaration is intended to be, and shall be construed as, independent and severable from each other covenant, condition and restriction. If any covenant, condition or restriction of this Declaration is held to be invalid by any court, the invalidity of such covenant, condition or restriction shall not affect the validity of the remaining covenants, conditions and restrictions hereof. 14.9 Cumulative Remedies. Each remedy provided for in this Declaration and/or in the Controlling Documents shall be cumulative and not exclusive. The failure to exercise any remedy provided for in this Declaration or any other Controlling Document shall not constitute a waiver of such remedy or of any other remedy provided herein or therein. 14.10 Conflicting Provisions. In the case of any conflict between this Declaration or any of the other Controlling Documents, this Declaration shall control. EXHIBIT P - Page -34- CCR&Rs [20th Century Plaza] 14.11 Approvals. Any reference in the Declaration to an approval by the Declarant, shall, unless set forth otherwise, be deemed to be in Declarant's sole and absolute discretion. IN WITNESS WHEREOF, Declarant has hereunto affixed the following signatures as of the date first above written. "Landlord": TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company By: TIW INVESTMENT CORPORATION, a California corporation, Its manager By: ---------------------------------- Alan D. Levy, Chief Executive Officer [20th Century Plaza] STATE OF ) ) ss. COUNTY OF ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State EXHIBIT P - Page -34- CCR&Rs [20th Century Plaza] EXHIBIT "A" TO EXHIBIT P ------------------------ LEGAL DESCRIPTION OF -------------------- THE CENTER ---------- EXHIBIT "A" TO EXHIBIT P - Page -1- CCR&Rs [20th Century Plaza] EXHIBIT "A" TO EXHIBIT P - Page -2- CCR&Rs [20th Century Plaza] EXHIBIT "A" TO EXHIBIT P - Page -3- CCR&Rs [20th Century Plaza] EXHIBIT "B" TO EXHIBIT P ------------------------- SITE PLAN ---------- EXHIBIT "B" TO EXHIBIT P - Page -3- CCR&Rs [20th Century Plaza] EXHIBIT Q ---------- 20TH CENTURY PLAZA FORM OF RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP 1999 Avenue Of The Stars, Suite 1800 Los Angeles, California 90067-6050 Attention: Anton N. Natsis, Esq. (Space Above For Recorder's Use) RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS This Recognition of Covenants, Conditions, And Restrictions (this "Agreement") is entered into as of the ____ day of ___________ , 19____, by and between ("Landlord"), and ("Tenant"), with reference to the following facts: A. Landlord and Tenant entered into that certain Office Lease Agreement dated ______________ (the "Lease"). Pursuant to the Lease, Landlord leased to Tenant and Tenant leased from Landlord space (the "Premises") located in an office building on certain real property described in EXHIBIT A attached hereto --------- and incorporated herein by this reference (the "Property"). B. The Premises are located in an office building located on real property which is part of an area owned by Landlord containing approximately ____ (_) acres of real property (the "Project"), as more particularly described in EXHIBIT B attached hereto and incorporated herein by this reference. ---------- C. Landlord, as declarant, has previously recorded, or proposes to record concurrently with the recordation of this Agreement, a Declaration of Covenants, Conditions, and Restrictions (the "Declaration"), dated __________ , 19__, in connection with the Project. D. Tenant is agreeing to recognize and be bound by the terms of the Declaration, and the parties hereto desire to set forth their agreements concerning the same. NOW, THEREFORE, in consideration of (a) the foregoing recitals and the mutual agreements hereinafter set forth, and (b) for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows, EXHIBIT Q - Page -1- CCR&Rs [20th Century Plaza] 1. Tenant's Recognition of Declaration. Notwithstanding that the Lease ----------------------------------- has been executed prior to the recordation of the Declaration, Tenant agrees to recognize and by bound by all of the terms and conditions of the Declaration. 2. Miscellaneous. ------------- 2.1 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, estates, personal representatives, successors, and assigns. 2.2 This Agreement is made in, and shall be governed, enforced and construed under the laws of, the State of California. 2.3 This Agreement constitutes the entire understanding and agreements of the parties with respect to the subject matter hereof, and shall supersede and replace all prior understandings and agreements, whether verbal or in writing. The parties confirm and acknowledge that, except as set forth in the Lease (the provisions of which, notwithstanding, may not be construed to waive or modify in any respect Tenant's obligations under this Agreement) there are no other promises, covenants, understandings, agreements, representations, or warranties with respect to the subject matter of this Agreement except as expressly set forth herein. 2.4 This Agreement is not to be modified, terminated, or amended in any respect, except pursuant to any instrument in writing duly executed by both of the parties hereto. 2.5 In the event that either party hereto shall bring any legal action or other proceeding with respect to the breach, interpretation, or enforcement of this Agreement, or with respect to any dispute relating to any transaction covered by this Agreement, the losing party in such action or proceeding shall reimburse the prevailing party therein for all reasonable costs of litigation, including reasonable attorneys' fees, in such amount as may be determine by the court of other tribunal having jurisdiction, including matters on appeal. 2.6 All captions and heading herein are for convenience and ease of reference only, and shall not be used or referred to In any way in connection with the interpretation or enforcement of this Agreement. 2.7 If any provision of this Agreement, as applied to any party of to any circumstance, shall be adjudged by a court of competent jurisdictions to be void or unenforceable for any reason, the same shall not affect any other provision of this Agreement, the application of such provision under circumstances different form those adjudged by the court, or the validity or enforceability of this Agreement as a whole. 2.8 Time is of the essence of this Agreement. 2.9 The Parties agree to execute any further documents, and take any further actions, as may be reasonable and appropriate in order to carry out the purpose and intent of this Agreement. EXHIBIT Q - Page -2- CCR&Rs [20th Century Plaza] 2.10 As used herein, the masculine, feminine or neuter gender, and the singular and plural numbers, shall each be deemed to include the others whenever and whatever the context so indicates. EXHIBIT Q - Page -3- CCR&Rs [20th Century Plaza] SIGNATURE PAGE OF RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written. "Landlord": --------------------------------, a ------------------------------ By: ------------------------------ Its: -------------------------- "Tenant": --------------------------------, a ------------------------------ By: ------------------------------ Its: -------------------------- TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] STATE OF ) ) ss. COUNTY OF ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State STATE OF ) ) ss. COUNTY OF ) On ________________________, before me, ________________________, a Notary Public in and for said state, personally appeared _______________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ____________________________________________ Notary Public in and for said State TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 20TH CENTURY PLAZA OFFICE LEASE 6303 OWENSMOUTH AVENUE NOTE: TENANT IS NOT REQUIRED TO NOTIFY LANDLORD THAT TENANT ELECTS TO EXERCISE ITS EXTENSION OPTION(S) UNTIL THIRTY (30) DAYS AFTER TENANT'S RECEIPT OF AN "EXTENSION REMINDER NOTICE" FROM LANDLORD (SEE SECTION 2.3.3). ------------- TISHMAN WARNER CENTER VENTURE, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, as Landlord, and 20TH CENTURY INDUSTRIES, A CALIFORNIA CORPORATION, as Tenant. TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6303 Owensmouth] 20TH CENTURY PLAZA SUMMARY OF BASIC LEASE INFORMATION The undersigned hereby agree to the following terms of this Summary of Basic Lease Information (the "Summary"). This Summary is hereby incorporated into and made a part of the attached Office Lease (the "Office Lease") which pertains to the "Project," as that term is defined in the Office Lease, to be known as "20TH CENTURY PLAZA" located in Woodland Hills, California. This Summary and the Office Lease are collectively referred to herein as the "LEASE". Each reference in the Office Lease to any term of this Summary shall have the meaning set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Office Lease.
TERMS OF LEASE (References are to the Office Lease) DESCRIPTION ------------------------------------ ----------- 1. Date: April 8, 1998. 2. Landlord: TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company 3. Tenant: 20TH CENTURY INDUSTRIES, a California corporation. 4. Premises (Article 1). 4.1 Building Address: 6303 Owensmouth Avenue, Woodland Hills, California 91367 4.2 Premises: A total of 172,520 rentable square feet of space in the Building as described in SECTION 1.1 of the Office Lease. ----------- 5. Lease Term (Articles 1 and 2). 5.1 Length of Term: Fifteen (15) years . (ii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] 5.2 Lease Commencement Date: The date which is one hundred twenty (120) days after the date as of which the last of the seven (7) floors constituting the Premises are delivered to Tenant "Ready for Construction," as that term is defined in SECTION 1 of the Tenant --------- Work Letter (which Lease Commencement Date is anticipated to be December 1, 1999). 5.3 Lease Expiration Date: On the fifteenth (15th) anniversary of the Lease Commencement Date (which Lease Expiration Date is anticipated to be November 30, 2014). 6. Base Rent (Article 3): Annual Rental Rate per Annual Rentable Square Foot Lease Year Base Rent of the Premises ------------- ------------- --------------------- 1 through 10 $5,520,640.00 $ 32.00 11 through 15 $5,779,420.00 $ 33.50 7. Additional Rent (Article 3). 7.1 Tenant's Share: A fraction, the numerator of which is the total number of rentable square feet contained within the Premises from time to time and the denominator of which is 273,882 which, subject to SECTION 1.5, is the total number of ----------- rentable square feet in the Building. 7.2 Annual Direct Expense Allowance: 8.00 per rentable square foot of the Building. 8. Security Deposit : None. (iii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] 9. Parking Pass Ratio (Article 18): Three and thirty-nine one hundredths (3.39) parking passes for every 1,000 rentable square feet in the Premises, from time to time, subject to the terms of ARTICLE 18 of the Office Lease (to be ----------- adjusted upon the final determination of the rentable square footage of the Building pursuant to Section 1.5, based on the 930 parking total spaces available for the Building). 10. Address of Tenant (Section 19.5 ): 20th Century Industries 6301 Owensmouth Avenue #730 Woodland Hills, California 91367 Attention: Administrative Services with a copy to: Ervin Cohen & Jessup 9401 Wilshire Boulevard 9th Floor Beverly Hills California 90212 Attention: David P. Kassoy, Esq. (Prior to and After Lease Commencement Date) 11. Broker(s) (Article 14): Tishman International Companies 10900 Wilshire Boulevard, Suite 510 Los Angeles, California 90024 and Travers Realty Corporation 550 South Hope Street, Suite 2600 Los Angeles, California 90071 12. Storage Area (Article 4): Dead Storage Annual Human Occupancy Storage Lease Year Rental Rate Annual Rental Rate ------------- -------------------- ------------------------ 1 through 10 $ 12.50 $ 19.20 11 through 15 $ 15.00 $ 21.00
(iv) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] The foregoing terms of this Summary are hereby agreed to by Landlord and Tenant. "Landlord": TISHMAN WARNER CENTER VENTURE, LLC a California limited liability company By: TIW INVESTMENT CORPORATION, a California corporation, Its manager By: -------------------------------- Alan D. Levy, Chief Executive Officer "Tenant": 20TH CENTURY INDUSTRIES, a California corporation By: -------------------------------- William L. Mellick, President and Chief Executive Officer By: -------------------------------- William G. Crain, Vice President (v) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue]
TABLE OF CONTENTS ARTICLE SUBJECT MATTER PAGE - --------------------------------------------------------------- ---- ARTICLE 1 PREMISES, BUILDING, PROJECT AND COMMON AREAS. . . . . . . . . . . . . . . . . . . 10 ARTICLE 2 LEASE TERM. . . . . . . . . . . . . . . . . . . . 10 ARTICLE 3 RENT. . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 4 STORAGE SPACE . . . . . . . . . . . . . . . . . . 10 ARTICLE 5 USE OF PREMISES . . . . . . . . . . . . . . . . . 10 ARTICLE 6 MAINTENANCE, REPAIRS, ADDITIONS AND ALTERATIONS . . . . . . . . . . . . . . . . . 10 ARTICLE 7 INSURANCE . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 8 DAMAGE AND DESTRUCTION. . . . . . . . . . . . . . 10 ARTICLE 9 PERSONAL PROPERTY TAX . . . . . . . . . . . . . . 10 ARTICLE 10 SERVICES AND UTILITIES. . . . . . . . . . . . . . 10 ARTICLE 11 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . 10 ARTICLE 12 DEFAULTS; REMEDIES. . . . . . . . . . . . . . . . 10 ARTICLE 13 CONDEMNATION. . . . . . . . . . . . . . . . . . . 10 ARTICLE 14 BROKERS . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 15 LANDLORD'S LIABILITY. . . . . . . . . . . . . . . 10 ARTICLE 16 REASONABLENESS AND GOOD FAITH . . . . . . . . . . 10 ARTICLE 17 INTENTIONALLY OMITTED . . . . . . . . . . . . . . 10 ARTICLE 18 TENANT PARKING. . . . . . . . . . . . . . . . . . 10 ARTICLE 19 MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . 10 ARTICLE 20 HOLD SPACE; RIGHT OF FIRST OFFER; EXPANSION SPACE . . . . . . . . . . . . . . . . . 10
EXHIBITS - -------- A. . . . . . . . . . . . . . OUTLINE OF FLOORS OF THE PREMISES B. . . . . . . . . . . . . . . . . . . . . . OUTLINE OF PROJECT C. . . . . . . . . . . . . . . . . . . . . . TENANT WORK LETTER D. . . . . . . . . . . . . . . . . . NOTICE OF LEASE TERM DATES E. . . . . . . . . . . . . . . . . . . . RULES AND REGULATIONS F. . . . . . . . . . . . . . . . . . . . . ESTOPPEL CERTIFICATE G. . . . . . . . . . . . . . . . . . . . . . . . . STORAGE AREA H. . . . . . . . . . . . . . . . HVAC DESIGN AND SPECIFICATIONS I. . . . . . . . . . . . . . . . . . JANITORIAL SPECIFICATIONS J. . . . SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT K. . . . . . . . . . . . . . . . . . . . INTENTIONALLY OMITTED L. . . . . . . . . . . . . . . . . . . . INTENTIONALLY OMITTED M. . . . . . . . . . . . . . . . . . . . . SHORT FORM OF LEASE N. . . . . . . . . . . . . . . . . . . . . TERMINATION OF LEASE O. . . . . . . . . . . . . . . . . . . . INTENTIONALLY OMITTED (vi) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] P. . . . . . . . . . . . . . . . . . . . . . . . FORM OF CC&R'S Q. . . . . . . . . . . . . . . . FORM OF RECOGNITION OF CC&R'S
(vii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue]
INDEX OF MAJOR DEFINED TERMS DEFINED TERMS PAGE - ------------- ------ 12-Month Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 38 15-Month Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 AAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79, 31 Access Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Actual Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Adjacent Building. . . . . . . . . . . . . . . . . . . . . . . . . . 1 After-Hours HVAC . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Annual Storage Rent. . . . . . . . . . . . . . . . . . . . . . . . . 22 Arbitration Notice . . . . . . . . . . . . . . . . . . . . . . . . . 79, 31 Arbitrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79, 31 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Base Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Basic Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Best's Rating. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 BOMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Building Hours . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Building Top Signage . . . . . . . . . . . . . . . . . . . . . . . . 70 Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 CC&Rs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Common Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Comparable Relocation Space. . . . . . . . . . . . . . . . . . . . . 50 Compliance Obligations . . . . . . . . . . . . . . . . . . . . . . . 75 Coverage Item. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Damaged Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Deductible Percentage. . . . . . . . . . . . . . . . . . . . . . . . 32 Earthquake Insurance . . . . . . . . . . . . . . . . . . . . . . . . 32 Earthquake Self-Insurance. . . . . . . . . . . . . . . . . . . . . . 32 Emergency Generator. . . . . . . . . . . . . . . . . . . . . . . . . 51 Estimate Statement . . . . . . . . . . . . . . . . . . . . . . . . . 20 Estimated Additional Rent. . . . . . . . . . . . . . . . . . . . . . 20 Estimated Completion Date. . . . . . . . . . . . . . . . . . . . . . 37 Exercise Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Expansion Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Extension Option Reminder Notice . . . . . . . . . . . . . . . . . . 7 Financial Requirements . . . . . . . . . . . . . . . . . . . . . . . 32 First Expansion Delivery Period. . . . . . . . . . . . . . . . . . . 83 (viii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] First Expansion Space. . . . . . . . . . . . . . . . . . . . . . . . 83 First Offer Commencement Date. . . . . . . . . . . . . . . . . . . . 82 First Offer Notice . . . . . . . . . . . . . . . . . . . . . . . . . 81 First Offer Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 82 First Offer Space. . . . . . . . . . . . . . . . . . . . . . . . . . 81 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Funding Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Funding Refusal Notice . . . . . . . . . . . . . . . . . . . . . . . 42 Gross-Up Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . 12 Hold Space Periods . . . . . . . . . . . . . . . . . . . . . . . . . 80 Holdover Floors. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Holdover Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Holdover Space . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Hourly Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 HVAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Includable Deducted Sums . . . . . . . . . . . . . . . . . . . . . . 27 Initial Floor Delivery Date. . . . . . . . . . . . . . . . . . . . . 4 Insurance Shortfall. . . . . . . . . . . . . . . . . . . . . . . . . 42 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 JAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79, 31 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Landlord Caused Holdover . . . . . . . . . . . . . . . . . . . . . . 5 Landlord Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Landlord's Termination Period. . . . . . . . . . . . . . . . . . . . 42 Lapse Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Lease Commencement Date. . . . . . . . . . . . . . . . . . . . . . . 4 Lease Expiration Date. . . . . . . . . . . . . . . . . . . . . . . . 4 Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Measurement Period . . . . . . . . . . . . . . . . . . . . . . . . . 3 Minimum Coverage Amount. . . . . . . . . . . . . . . . . . . . . . . 32 Monument Signage . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Nondisturbance Agreement . . . . . . . . . . . . . . . . . . . . . . 67 Notice of Termination. . . . . . . . . . . . . . . . . . . . . . . . 41 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Option Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Option Rent Notice . . . . . . . . . . . . . . . . . . . . . . . . . 8 Original Tenant. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Outside Agreement Date . . . . . . . . . . . . . . . . . . . . . . . 8 Parking Structure. . . . . . . . . . . . . . . . . . . . . . . . . . 63 Permitted User . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Premises Obligations . . . . . . . . . . . . . . . . . . . . . . . . 25 (ix) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] Pre-Occupancy Space. . . . . . . . . . . . . . . . . . . . . . . . . 4 Proposition 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Provider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Recognition Agreement. . . . . . . . . . . . . . . . . . . . . . . . 56 Relocated Space. . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Renewal Concessions. . . . . . . . . . . . . . . . . . . . . . . . . 6 Renewal Option Right . . . . . . . . . . . . . . . . . . . . . . . . 6 Repair Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 37 Repair Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Review Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . . 81 Riser Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Second Expansion Delivery Period . . . . . . . . . . . . . . . . . . 84 Self-Insurance Gross-Up. . . . . . . . . . . . . . . . . . . . . . . 32 Self-Insurance Notice. . . . . . . . . . . . . . . . . . . . . . . . 34 Self-Insuring Party. . . . . . . . . . . . . . . . . . . . . . . . . 34 Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Standard Tenant Services . . . . . . . . . . . . . . . . . . . . . . 44 Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Stipulated Numbers . . . . . . . . . . . . . . . . . . . . . . . . . 3 Storage Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Subject Space. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Successor Entity . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Tenant Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Tenant Repair Option . . . . . . . . . . . . . . . . . . . . . . . . 40 Tenant Termination Notice. . . . . . . . . . . . . . . . . . . . . . 38 Tenant's Determination Period. . . . . . . . . . . . . . . . . . . . 8 Transfer Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Transfer Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Transferee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Uninsured Shortfall. . . . . . . . . . . . . . . . . . . . . . . . . 41 Usable Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Warner Center. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ACKNOWLEDGMENT OF NAME CHANGE ----------------------------- This ACKNOWLEDGMENT OF NAME CHANGE ("ACKNOWLEDGMENT") is made and entered into as of the __ day of October, 1999, by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD") and 21ST CENTURY INSURANCE GROUP, a California corporation, formerly known as 20th Century Industries ("TENANT"). (x) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] RECITALS: -------- A. Landlord and Tenant entered into those certain Leases dated April 8, 1998 (the "LEASES"), whereby Tenant leased those certain premises consisting of a total of 227,653 rentable square feet of space of that certain building located at 6301 Owensmouth Avenue, Woodland Hills California (the "6301 OWENSMOUTH BUILDING"), and those certain premises consisting of a total of 172,520 rentable square feet of that certain building located at 6303 Owensmouth Avenue, Woodland Hills, California (the "6303 OWENSMOUTH BUILDING"), respectively. B. The 6301 Owensmouth Building and 6303 Owensmouth Building are part of a project known as "20th Century Plaza" (the "PROJECT"). C. Landlord desires to change the Project name, and Tenant desires to change Tenant's name. ACKNOWLEDGMENT: -------------- NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby acknowledge as follows: 1. CAPITALIZED TERMS. All capitalized terms when used herein shall have the ---------------- same meaning as is given such terms in the Lease unless expressly superseded by the terms of this Acknowledgment. 2. ACKNOWLEDGMENT OF PROJECT NAME CHANGE. Effective as of the date hereof, --------------------------------------- Landlord and Tenant acknowledge that the name of the Project shall be changed from "20th Century Plaza" to 21st Century Plaza." 3. ACKNOWLEDGMENT OF TENANT NAME CHANGE. Landlord and Tenant acknowledge -------------------------------------- that Tenant's name has been changed from "20th Century Industries" to "21st Century Insurance Group." 4. NO MODIFICATION. This Acknowledgment does not modify or affect any of the ---------------- terms and provisions of the Lease, all of which remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Acknowledgment has been executed as of the day and year first above written. "TENANT" "LANDLORD" 21st Century Insurance Group, TISHMAN WARNER CENTER VENTURE, LLC, a California Corporation a California limited liability (formerly known as 20th Century Industries) company By: /s/ Richard A. Dinon By: /s/ Alan D. Levy Its: Senior Vice President Its: Chairman By: /s/ Michael J. Cassanego Its: General Counsel (xi) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] Trammel Crow Company August 7, 2001 Mr. Bernard Landgraf 21st Century Insurance Group 6301 Owensmouth Avenue, Suite 730 Woodland Hills, CA 91367 Reference: Property Ownership Change 21st Century Plaza Dear Mr. Landgraf: Effective August 3, 2001, the ownership of 21st Century Plaza changed from Tishman Warner Center Venture, LLC to BFWV, LLC. Trammell Crow Company will continue with management of the facility. Please be advised that all certificates of insurance required pursuant to the lease agreement with 21st Century Insurance Group need to be reissued naming BFWV, LLC as ownership. Accordingly, all rental and other payments should be made out to BFWV, LLC and sent to the following address: BFWV, LLC c/o Trammell Crow Company 6301 Owensmouth Avenue, Suite 105 Woodland Hills, CA 91367 We look forward to a mutually beneficial working relationship with the new ownership. Should additional information be required, do not hesitate to contact me at 818/704-8500. TRAMMELL CROW COMPANY, Managing Agent BFWV, LLC /s/ Suzanne Clement Suzanne Clement, RPA Property Manager (xii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] FIRST AMENDMENT TO LEASE ------------------------ This FIRST AMENDMENT TO LEASE ("FIRST AMENDMENT") is made and entered into as of the 31st day of August, 2000, by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD") and 21ST CENTURY INSURANCE GROUP, a California corporation, formerly known as 20th Century Industries ("TENANT"). RECITALS: -------- A. Landlord and Tenant entered into that certain Lease dated April 8, 1998 (the "LEASE"), whereby Tenant leased those certain premises consisting of all the occupiable area of that certain building located at 6301 Owensmouth Avenue, Woodland Hills California (the "BUILDING"), with the exception of the space located on the first (ground) of the Building and indicated on Exhibit . to the Lease and not including any basement storage areas, all as more specifically described in the Lease (the "PREMISES"). B. Landlord and Tenant now desire to modify and amend the Lease as provided in this First Amendment to, among other things, memorialize the Lease Commencement Date for the Adjacent Building Lease and the Lease Expiration Date for the Lease and to modify the length of the term of the Lease and the Base Rent Schedule for the Premises set forth therein to reflect the determination of the Lease Commencement Date for the Adjacent Building Lease and the Lease Expiration Date for the Lease. AGREEMENT: --------- NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. CAPITALIZED TERMS. All capitalized terms when used herein shall have ------------------ the same meaning as is given such terms in the Lease unless expressly superseded by the terms of this First Amendment. 2. CONFIRMATION OF LEASE COMMENCEMENT DATE FOR ADJACENT BUILDING LEASE ------------------------------------------------------------------- AND LEASE EXPIRATION DATE. Landlord and Tenant each hereby agrees and -------------------------- acknowledges that the Lease Commencement Date with respect to the Adjacent Building Lease was February 15, 2000 and, accordingly, that the Lease Expiration Date for the Lease shall be February 28, 2015 3. MODIFICATIONS TO SUMMARY OF BASIC LEASE INFORMATION. Based on the -------------------------------------------------------- determination of the Lease Commencement Date for the Adjacent Building Lease and the Lease Expiration Date for the Lease set forth in Section 3 above, each of Sections 5.1, 5.3, 6 and 12 of the Summary is amended in its entirety to read as follows: (xiii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue]
- ------------------------------------- --------------------------- ------------------------------------------------------------ 5.1 Length of Term: Approximately sixteen (16) years, eleven (11) months." - ------------------------------------- --------------------------- ------------------------------------------------------------ 5.3 Lease Expiration Date: February 28, 2015 - ------------------------------------- --------------------------- ------------------------------------------------------------ 6 Base Rent (Article 3): - ------------------------------------- --------------------------- ------------------------------------------------------------ Date of Lease Term Annual Base Rent Annual Rental Rate per Rentable Square Foot of the Premises - ------------------------------------- --------------------------- ------------------------------------------------------------ April 8, 1998 - February 14, 2000 $ 4,712,417.00 $ 20.70 - ------------------------------------- --------------------------- ------------------------------------------------------------ February 15, 2000 - February 14, 2010 $ 4,951,452.75 $ 21.75 - ------------------------------------- --------------------------- ------------------------------------------------------------ February 15, 2010 - February 28, 2015 $ 5,884,830.05 $ 25.85 - ------------------------------------- --------------------------- ------------------------------------------------------------ (Note that Tenant did receive a credit against Base Rent in the amount of $300,000.00 with respect to the month of January, 1999.)" - ------------------------------------- --------------------------- ------------------------------------------------------------ 12 Storage Area (Article 4): - ------------------------------------- --------------------------- ------------------------------------------------------------ Date of Lease Term Annual Dead Storage Rental Dead Storage Annual Rental Rate - ------------------------------------- --------------------------- ------------------------------------------------------------ April 8, 1998 - February 14, 2000 $ 68,975.10 $ 10.38 - ------------------------------------- --------------------------- ------------------------------------------------------------ February 15, 2000 - February 14, 2010 $ 79,740.00 $ 12.00 - ------------------------------------- --------------------------- ------------------------------------------------------------ February 15, 2010 - February 28, 2015 $ 96,675.00 $ 15.00 - ------------------------------------- --------------------------- ------------------------------------------------------------
1. ADDITIONAL CHANGES TO LEASE. --------------------------- a. Section 3.2 (Additional Rent) of the Lease is hereby amended, retroactively effective as of February 15, 2000, to change the Stop Year to calendar year 2000 so that the measuring period for determining any adjustment to the Annual Direct Expense Allowance of $8.00 shall be calendar year 2000 (subject to a Gross-Up Adjustment for the variable components of Operating Expenses to determine the amount of Operating Expenses that would have been incurred had the Project been one hundred percent (100%) occupied for the entire calendar year 2000) and not the twelve (12) month period commencing on the "Lease Commencement Date," as such term is defined in the Adjacent Building Lease. b. The final notice address for Landlord set forth in Section 19.5 (Notices) of the Lease is hereby amended in its entirety to read as follows: "Pillsbury Madison & Sutro LLP 725 South Figueroa Street, Suite 1200 Los Angeles, California 90017 Attn: John J. Duffy, Esq." (xiv) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] c. Section 19.43 (Termination of Adjacent Building Lease) is hereby deleted in its entirety and is of no further force and effect. 1. ENTIRE AGREEMENT; AMENDMENT. The Lease, as amended by this First ----------------------------- Amendment, constitutes the full and complete agreement and understanding between the parties hereto and shall supersede all prior communications, representations, understandings or agreements, if any, whether oral or written, concerning the subject matter contained in the Lease, as so amended, and no provision of the Lease, as so amended, may be modified, amended, waived or discharged, in whole or in part, except by a written instrument executed by all the parties hereto. 2. AUTHORITY. Each person executing this First Amendment represents and --------- warrants that he or she is duly authorized and empowered to execute it, and does so as the act of and on behalf of the party indicated below. 3. FORCE AND EFFECT. Except as modified by this First Amendment, the ------------------ terms and provisions of the Lease are hereby ratified and confirmed and are and shall remain in full force and defect. Should any inconsistency arise between this First Amendment and the Lease as to the specific matters which are the subject of this First Amendment, the terms and conditions of this First Amendment shall control. This First Amendment shall be construed to be a part of the Lease and shall be deemed incorporated in the Lease by this reference. IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written. "TENANT" "LANDLORD" 21st Century Insurance Group, TISHMAN WARNER CENTER VENTURE, LLC, a California Corporation a California limited liability company By: /s/ Richard A. Andre By: /s/ Alan D. Levy Its: Vice President, Human Resources Its: Chairman FIRST AMENDMENT TO LEASE AGREEMENT ----------------------------------- This FIRST AMENDMENT TO LEASE AGREEMENT ("AMENDMENT") is made as of June 30, 1998 by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD") and 20TH CENTURY INDUSTRIES, a California corporation ("TENANT"). RECITALS: -------- A. Landlord and Tenant entered into that certain Lease Agreement dated April 8, 1998 (the "LEASE"), whereby Landlord leased to Tenant and Tenant leased from Landlord approximately 172,520 rentable square feet of space consisting of the entirety of each of (xv) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth Avenue] the first (1st) through seventh (7th) floors and all the occupiable area of the first (1st) (ground) floor (the "PREMISES") of that certain building located at 6303 Owensmouth Avenue, Woodland Hills California (the "BUILDING"). B. In a letter dated April 8, 1998 ("Parking Letter Agreement"), Landlord and Tenant agreed that Tenant would allow Landlord to relocate the Temporary Parking to a location designated by Landlord. C. Landlord and Tenant now desire to modify certain dates in the Lease. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. CAPITALIZED TERMS. All capitalized terms when used herein shall have ------------------ the same meaning as is given such terms in the Lease unless expressly superseded by the terms of this Amendment. 2. TENANT'S EARLY TERMINATION RIGHT. Section 19.42 of the Lease is hereby -------------------------------- ------------- modified as follows: the date by which Landlord must record a deed of trust is changed from July 1, 1998, to July 15, 1998, and the date on or before which Tenant must give Landlord a Construction Failure Termination Notice is changed from July 15, 1998, to July 31, 1998. 3. RELOCATED TEMPORARY PARKING AGREEMENT. The date by which Landlord must ------------------------------------- have commenced construction in order to be allowed to exercise its rights under the Parking Letter Agreement is hereby changed from July 1, 1998, to five (5) business days after recordation of a deed of trust against the Project evidencing a loan for the construction of the Building. 4. NO FURTHER MODIFICATION. Except as otherwise set forth in this ------------------------- Amendment, all of the terms and provisions of the Lease and the Parking Letter Agreement shall apply and shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment has been executed as of the day and year first above written. "TENANT" "LANDLORD" 21st Century Insurance Group, TISHMAN WARNER CENTER VENTURE, LLC, a a California Corporation California limited liability company By: TIW INVESTMENT CORPORATION, a California corporation Its Manager By: /s/ William L Mellick By: /s/ Alan D. Levy William L Mellick Alan D. Levy President and Chief Executive Officer Chief Executive Officer By: /s/ William G. Crain William G. Crain Vice President (xvi) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] SECOND AMENDMENT TO LEASE -------------------------- This SECOND AMENDMENT TO LEASE AGREEMENT ("AMENDMENT") is made as of July 13, 1998 by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD") and 20TH CENTURY INDUSTRIES, a California corporation ("TENANT"). RECITALS: -------- A. Landlord and Tenant entered into that certain Lease Agreement dated as of April 8, 1998 (the "LEASE"), whereby Landlord leased to Tenant and Tenant leased from Landlord approximately 172,520 rentable square feet of space consisting of the entirety of each of the first (1st) through seventh (7th) floors and all the occupiable area of the first (1st) (ground) floor (the "PREMISES") of that certain building located at 6303 Owensmouth Avenue, Woodland Hills California (the "BUILDING"). B. In a letter dated April 8, 1998 ("Parking Letter Agreement"), Landlord and Tenant agreed that Tenant would allow Landlord to relocate the Temporary Parking to a location designated by Landlord. C. By that certain First Amendment to Lease Agreement dated June 30, 1998, Landlord and Tenant modified certain dates in the Lease. D. Landlord and Tenant now desire to further modify certain dates in the Lease. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. CAPITALIZED TERMS. All capitalized terms when used herein shall have ------------------ the same meaning as is given such terms in the Lease unless expressly superseded by the terms of this Amendment. 2. TENANT'S EARLY TERMINATION RIGHT. Section 19.42 of the Lease is hereby -------------------------------- ------------- modified as follows: the date by which Landlord must record a deed of trust is changed to July 31, 1998, and the date on or before which Tenant must give Landlord a Construction Failure Termination Notice is changed to August 15, 1998. 3. NO FURTHER MODIFICATION. Except as otherwise set forth in this ------------------------- Amendment, all of the terms and provisions of the Lease and the Parking Letter Agreement shall apply and shall remain unmodified and in full force and effect. (xvii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] IN WITNESS WHEREOF, this Amendment has been executed as of the day and year first above written. "TENANT" "LANDLORD" 21st Century Insurance Group, TISHMAN WARNER CENTER VENTURE, LLC, a a California Corporation California limited liability company By: TIW INVESTMENT CORPORATION, a California corporation Its Manager By: /s/ William L Mellick By: /s/ Alan D. Levy William L Mellick Alan D. Levy President and Chief Executive Officer Chief Executive Officer By: /s/ William G. Crain William G. Crain Vice President THIRD AMENDMENT TO LEASE ------------------------- This THIRD AMENDMENT TO LEASE ("AMENDMENT") is made and entered into as of the 14th day of February, 2000, by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD") and 21ST CENTURY INSURANCE GROUP, a California corporation, formerly known as 20th Century Industries ("TENANT"). RECITALS: -------- A. Landlord and Tenant entered into that certain Lease dated April 8, 1998 (the "LEASE"), whereby Tenant leased those certain premises consisting a total of 172,520 rentable square feet of space and comprising the entirety of each of the second (2nd) through seventh (7th) floors and all the occupiable area of the first (1st) (ground) floor (the "INITIAL PREMISES") of that certain building located at 6303 Owensmouth Avenue, Woodland Hills California (the "BUILDING"). The Lease has previously been amended by the First Amendment to Lease dated as of June 30, 1998, and the Second Amendment to Lease dated as of July 13, 1998. B. Pursuant to Section 4.1 of the Lease, Tenant leased from Landlord that certain storage area, containing 8,062 rentable square feet of space, located in the basement level of the Building and indicated in hatch marks as set forth in Exhibit G attached to the Lease (the "ORIGINAL --------- STORAGE AREA"). C. Tenant desires to substitute a portion of the Original Storage Area with another storage area which is also located in the basement level of the Building. AGREEMENT: --------- (xviii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. CAPITALIZED TERMS. All capitalized terms when used herein shall have ----------------- the same meaning as is given such terms in the Lease unless expressly superseded by the terms of this Amendment. 2. AMENDMENT OF STORAGE AREA. Effective as of the date hereof, the ---------------------------- Original Storage Area shall be amended by substituting for that portion of the Original Storage Area indicated in square hatch marks as set forth in Exhibit "A" attached hereto, that storage area, consisting of 1,134 rentable (878) usable square feet, indicated in hatch marks as set forth in Exhibit "A" attached hereto (the SUBSTITUTION STORAGE AREA"). The "Storage Area," as that term is defined in the Lease, shall hereafter refer collectively to the remaining portion of the Original Storage Area and the Substitution Storage Area, containing approximately 8,062 rentable square feet of space in the aggregate. 3. NO FURTHER MODIFICATION. Except as set forth in this Amendment, all of ----------------------- the terms and provisions of the Lease and Side Letter shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment has been executed as of the day and year first above written. "TENANT" "LANDLORD" 21st Century Insurance Group, TISHMAN WARNER CENTER VENTURE, LLC, a a California Corporation California limited liability company By: /s/ Richard A. Dinon By: TISHMAN INTERNATIONAL COMPANIES Its: Senior Vice President Its: Agent By: /s/ Michael J. Cassanego By: /s/ Arlene C. Pepp Its: General Counsel Its: Vice President Arlene C. Pepp FOURTH AMENDMENT TO LEASE -------------------------- This FOURTH AMENDMENT TO LEASE AGREEMENT ("FOURTH AMENDMENT") is made by and entered into as of the 31st day of August, 2000, by and between TISHMAN WARNER CENTER VENTURE, LLC, a California limited liability company ("LANDLORD") and 21ST CENTURY INSURANCE GROUP, a California corporation, formerly known as 20th Century Industries ("TENANT"). RECITALS: -------- (xix) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] A. Landlord and Tenant entered into that certain Lease dated April 8, 1998 (the "ORIGINAL LEASE"), whereby Tenant leased those certain premises consisting of the entirety of each of the second (2nd) through seventh (7th) floors and all the occupiable area of the first (1st) (ground) floor (the "INITIAL PREMISES") of that certain building located at 6303 Owensmouth Avenue, Woodland Hills California (the "BUILDING"). The Original Lease has previously been amended by the First Amendment to Lease dated as of June 30, 1998, the Second Amendment to Lease dated as of July 13, 1998 and the Third Amendment to Lease dated as of February 14, 2000 and, as so amended, is hereinafter referred to as the "LEASE." B. Landlord and Tenant now desire to modify and amend the Lease as provided in this Fourth Amendment to, among other things, memorialize the Lease Commencement and Lease Expiration Dates and the recalculation of the rentable square footage in the Building and in the Premises. AGREEMENT: --------- NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. CAPITALIZED TERMS. All capitalized terms when used herein shall have ------------------ the same meaning as is given such terms in the Lease unless expressly superseded by the terms of this Fourth Amendment. 2. CONFIRMATION OF LEASE COMMENCEMENT DATE AND LEASE EXPIRATION DATE. --------------------------------------------------------------------- Landlord and Tenant each hereby agrees and acknowledges that the Lease Commencement Date with respect to the Initial Premises was February 15, 2000 and that the Lease Expiration Date for the Lease shall be February 28, 2015. 3. RENTABLE SQUARE FOOTAGE OF PREMISES AND BUILDING. The square footage -------------------------------------------------- of each of the Premises and of the Building may been recalculated by Landlord and by Tenant pursuant to BOMA in accordance with Section 1.5 of the Original Lease and the recalculated number of rentable square feet of each floor of the Premises and for each floor of the entire Building agreed to by Landlord and by Tenant is as provided below. Floor Rentable Square Feet 1 18,699 2 24,968 3 26,890 4 26,983 5 26,983 6 26,983 7 27,174 8 27,174 9 27,256 10 27,256 11 26,619 (xx) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] Accordingly, the recalculated total rentable square footage of the Initial Premises is 178,684 (in lieu of 172,520 as set forth in Section 4.2 of the Summary and Section 1.1 of the Original Lease) and the recalculated total rentable square footage of Floors 1 to 11, inclusive, of the Building is 286,985 (in lieu of 273,882 as set forth in Section 7.1 of the Summary and Section 1.1 of the Original Lease). The recalculation as set forth above is no longer subject to Tenant's right to remeasure pursuant to Section 1.5 of the Original Lease. 1. RENTABLE SQUARE FOOTAGE OF THE STORAGE AREA. Landlord and Tenant further ---------------------------------------------- agree that the Storage Area, as recalculated pursuant to BOMA, contains approximately 8,350 rentable square feet. 2. BASE RENT FOR INITIAL PREMISES. Based on the recalculation of the rentable ------------------------------- square footage of the Initial Premises set forth in Section 3 above, Section 6 of the Summary of the Original Lease is amended in its entirety to read as follows with respect to the Initial Premises:
6 Base Rent (Article 3): Lease Year Annual Base Rent Annual Rental Rate per Rentable Square Foot of the Premises - ---------- ----------------------- ------------------------------------------------------------ 1-10 $ 5,717,760.00 $ 32.00 - ---------- ----------------------- ------------------------------------------------------------ 11-15 $ 5,985,780.00 $ 33.50 - ---------- ----------------------- ------------------------------------------------------------
1. TENANT'S SHARE FOR INITIAL PREMISES. Based on the recalculation of the --------------------------------------- rentable square footage of the Initial Premises set forth in Section 3 above, Tenant's Share for the Initial Premises is 62.26%. 2. PARKING PASSES FOR INITIAL PREMISES. Based on the recalculation of the --------------------------------------- rentable square footage of the Initial Premises set forth in Section 3 above, the number of parking passes for the Initial Premises shall be 606. 3. ADDITIONAL CHANGES TO LEASE. ------------------------------ a. Each of the phrases "incurred during the first twelve (12) months of the Lease Term" and '`for the first twelve (12) months of the Lease Term" set forth in the fifth, sixth, seventh and eighth sentences of Section 3.2 (Additional Rent) of the Original Lease is hereby amended in its entirety to read, respectively, as follows: "incurred during the calendar year 2000" and "for the calendar year 2000" so that the measuring period for determining any adjustment to the Annual Direct Expense Allowance of $8.00 shall be calendar year 2000 (subject to a Gross-Up (xxi) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] Adjustment for the variable components of Operating Expenses to determine the amount of Operating Expenses that would have been incurred had the Project been one hundred percent (100%) occupied for the entire calendar year 2000) and not the first twelve (12) months of the Lease Term. b. The final notice address for Landlord set forth in Section 19.5 (Notices) of the Lease is hereby amended in its entirety to read as follows: "Pillsbury Madison & Sutro LLP 725 South Figueroa Street, Suite 1200 Los Angeles, California 90017 Attn: John J. Duffy, Esq." c. Section 19.42 (Early Termination Based upon Landlord's Factual Inability to Commence Construction of the Building) of the Original Lease is hereby deleted in its entirety and is of no further force and effect. d. Section 20.1 (Hold Space Period) of the Original Lease is hereby deleted in its entirety and is of no further force and effect. e. Section 20.2 (Right of First Offer) of the Original Lease is hereby amended in the following respects: i. The first sentence is amended in its entirety to read as follows: "After the initial leasing thereof in each instance and continuing thereafter through the end of the Lease Term (subject to the terms of Section 20.2.6, below), Landlord hereby grants to Tenant a Right of First Offer (the "Right of First Offer") with respect to any space not then included in the Premises whether or not a full floor space (the "First Offer Space")." ii. The Section referenced in the last line of Section 20.2.3 (First Offer Space Rent) is changed from Section 2.2.2 to Section 2.3.2. iii. Landlord shall provide Tenant with notice of the expiration date for each of the initial leases which Landlord enters into for any of the First Offer Space, it being agreed and understood that Landlord shall have no liability to Tenant if Landlord should for any reason fail to furnish Tenant with any such notice. In addition, upon the request of the Tenant, at any time during the Term of the Lease (but not more than twice in any 12-month period), Landlord shall furnish Tenant with a list setting forth the expected expiration dates for any leases then in effect with respect to any of the First Offer Space. Notwithstanding the foregoing, if, for any reason, Landlord fails to furnish Tenant with notice of the expiration date of an initial lease of any of the First Offer Space at least six (6) months prior to the scheduled expiration date of the term of such initial lease as set forth in such initial lease, then, Tenant shall be entitled to up to ninety (90) days (xxii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] (rather than only fifteen (15) business days, as provided in Section 20.2.2) in which to deliver notice to Landlord of Tenant's intention to exercise its right of First Offer with respect to the space described in a First Offer Notice. a. Section 20.3 (Expansion Space) is hereby amended in its entirety to read as follows: "20.3 Expansion Space. Landlord hereby grants to Tenant the right to ---------------- lease floors eight (8) and nine (9) of the Building (collectively, the "FIRST EXPANSION SPACE"), and Floors ten (10) and eleven (11) (collectively. the "SECOND EXPANSION SPACE"), upon the terms and conditions set forth in this Section 20.3 and in this Lease, to the ------------ extent such First Expansion Space and Second Expansion Space is not already part of the Premises. The First Expansion Space and Second Expansion Space are sometimes collectively referred to in this Section ------- 20.3 as the "EXPANSION SPACE". ---- 20.3.1 Method of Exercise. In the event that Tenant desires to Lease ------------------- the First Expansion Space or Second Expansion Space, Tenant shall deliver to Landlord written notice, which notice, in the case of Tenant's desire to lease any portion of the First Expansion Space, shall be delivered on or before February 1, 2004, and in the case of the Second Expansion Space, shall be delivered on or before December 31, 2009, which notice shall contain Tenant's irrevocable exercise of its option to lease the First Expansion Space or Second Expansion Space, as applicable, and shall indicate therein whether Tenant is leasing the two (2) floors or only one (1) floor of the applicable Expansion Space, and if only one (1) floor, which floor. Any such floor or floors so elected by Tenant must be contiguous with Tenant's then-existing Premises. Tenant's failure to make any choice in the notice shall be deemed Tenant's election to lease the two (2) floors. 20.3.2 Delivery of the First Expansion Space. In the event Tenant ---------------------------------------- properly exercises its right to lease the First Expansion Space, Landlord shall deliver the First Expansion Space to Tenant either (i) within the period which commences May 1, 2004 and ends October 31, 2005, or (ii) on a date which is within thirty (30) days after the expiration of any initial lease of any portion of the First Expansion Space by Landlord (and Landlord hereby agrees that any such initial lease shall not exceed five (5) years) (either such period, as applicable, the "FIRST EXPANSION DELIVERY PERIOD"). 20.3.3 Delivery of the Second Expansion Space. In the event Tenant ----------------------------------------- properly exercises its right to lease the Second Expansion Space, Landlord shall deliver the Second Expansion Space to Tenant within the period which commences July 1, 2010 and ends June 30, 2011 (such period, "SECOND EXPANSION DELIVERY PERIOD"). 20.3.4 Expansion Rent. The Rent payable by Tenant for the Expansion --------------- Space leased by Tenant (the "EXPANSION RENT") shall be the same rate at which Rent is then payable by Tenant under this Lease as of the applicable "Expansion Space Commencement Date," as that term is defined in Section 20.3.6 of this Lease, which --------------- (xxiii) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] Expansion Rent shall include all applicable escalations to the Rent made and to be made during the Lease Term, and shall include the same Annual Direct Expense Allowance as is applicable to the initial Premises. 20.3.5 Construction of Expansion Space. Tenant shall construct the ---------------------------------- initial improvements in the Expansion Space in accordance with the terms of the Tenant Work Letter as modified in Section 11, below, of this Fourth Amendment, provided that the Tenant Improvement Allowance granted to Tenant in connection with any such Expansion Space shall be equal to (A) the product of (i) $35.00 per rentable square foot of the First Expansion Space or the Second Expansion Space, as applicable, and (ii) a fraction, the numerator of which is the number of months remaining in the initial Lease Term as of the First Expansion Commencement Date or Second Expansion Commencement Date, as applicable, and the denominator of which is 180 (which is the number of months in the entire initial Lease Term), less (B) the amount of ---- the Tenant Improvement Credit. 20.3.6 Amendment to Lease. If Tenant timely exercises Tenant's right ------------------- to lease the First Expansion Space or Second Expansion Space, as applicable, as set forth herein, Landlord and Tenant shall, within thirty (30) days thereafter, execute an amendment evidencing such addition. Such Expansion Space shall automatically be added to the Premises upon the same terms and conditions as the initial Premises, except as otherwise set forth in this Section 20.3, and Tenant shall ------------ commence payment of Rent for the First Expansion Space or Second Expansion Space, as applicable, and the term of the First Expansion Space or Second Expansion Space, as applicable, shall commence upon the date which is the earlier of (i) the date Tenant commences business in such space, and (ii) one hundred eighty (180) days (plus one (1) day for each day of delay of the substantial completion of the Tenant Improvements to the extent caused by a Landlord Caused Delay, as that term is defined in Section 5.1 of the Tenant Work Letter) after the date of delivery of the applicable Expansion Space to Tenant Ready for Construction (the "FIRST EXPANSION SPACE COMMENCEMENT DATE" or "SECOND EXPANSION SPACE COMMENCEMENT DATE", as applicable). The lease term of any Expansion Space leased by Tenant shall expire on the Lease Expiration Date. 20.3.7 No Defaults. The rights contained in this Section 20.3 may only ----------- ------------ be exercised by Tenant if Tenant occupies the entire Premises. For the purposes hereof, Tenant shall be deemed to be in occupancy of any portion of the premises occupied with or by any Affiliate of Tenant. Tenant shall not have the right to lease any Expansion Space as provided in this Section 20.3 if, as of the date of the attempted ------------- exercise of any expansion option by Tenant, or as of the scheduled date of delivery of any such Expansion Space to Tenant, Tenant is in default with respect to the payment of Base Rent or any Additional Rent under this Lease after expiration of any applicable cure periods; provided that Tenant shall not be deemed to be in default with respect to the payment of Additional Rent if Tenant is withholding a portion of Tenant's Share of Direct Expenses reasonably and in good faith, by notice delivered to Landlord on or prior to the due date of such Direct Expenses, and the amount of (xxiv) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] Direct Expenses withheld by Tenant does not exceed an amount equal to the amount of Additional Rent set forth in the most recent Statement received by Tenant minus the amount of Additional Rent set forth in the Statement for the immediately preceding Expense Year." 1. WORK LETTER. The Work Letter shall he deemed modified in relation to ------------ Expansion Space and First Offer Space whenever any provision thereof would otherwise reasonably be deemed inappropriate or unintended for that purpose including, without limitation, the following instances: (i) Tenant may retain an Architect of its oven choosing to prepare the Construction Drawings, subject to Landlord's prior approval, which approval shall not unreasonably be withheld or delayed, notwithstanding the provisions of Section 3.1; (ii) competitive bidding shall not be required in connection with Tenant's retention of a Contractor to construct Tenant Improvements to Expansion Space or First Offer Space, notwithstanding the provisions of Section 4.1.1; and (iii) the Architect and Contractor shall not be required to hold periodic meetings with the Landlord and its agents regarding preparation of Construction Drawings and construction of the Tenant Improvements, notwithstanding the provisions of Section 4.2.4. 2. Entire Agreement; Amendment. The Lease, as amended by this Fourth ----------------------------- Amendment, constitutes the full and complete agreement and understanding between the parties hereto and shall supersede all prior communications, representations, understandings or agreements, if any, whether oral or written, concerning the subject matter contained in the Lease, as so amended, and no provision of the Lease, as so amended, may be modified, amended, waived or discharged, in whole or in part, except by a written instrument executed by all the parties hereto. 3. Authority. Each person executing this Fourth Amendment represents and --------- warrants that he or she is duly authorized and empowered to execute it, and does so as the act of and on behalf of the party indicated below. 4. Force and Effect. Except as modified by this Fourth Amendment, the ------------------ terms and provisions of the Lease are hereby ratified and confirmed and are and shall remain in full force and effect. Should any inconsistency arise between this Fourth Amendment and the Lease as to the specific matters which are the subject of this Fourth Amendment, the terms and conditions of this Fourth Amendment shall control. This Fourth Amendment shall be construed to be a part of the Lease and shall be deemed incorporated in the Lease by this reference. IN WITNESS WHEREOF, this Amendment has been executed as of the day and year first above written. "TENANT" "LANDLORD" 21st Century Insurance Group, TISHMAN WARNER CENTER VENTURE, LLC, a California Corporation a California limited liability company By: TISHMAN INTERNATIONAL COMPANIES Its Agent (xxv) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] By: /s/ Richard A. Andre By: /s/ Alan D. Levy Its: Vice President - Human Resources Its: Chairman (xxvi) TISHMAN WARNER CENTER VENTURE, LLC [20th Century Industries; 6301 Owensmouth] EX-10.(M) 7 doc5.txt FORMS OF AMENDED AND RESTATED STOCK OPTION AGREEMENTS EXHIBIT 10(m) AMENDED AND RESTATED INCENTIVE STOCK OPTION AGREEMENT PURSUANT TO THE 21ST CENTURY INSURANCE GROUP (FORMERLY 20TH CENTURY INDUSTRIES) 1995 STOCK OPTION PLAN This Amended and Restated Incentive Stock Option Agreement ("Option Agreement") is made and entered into as of the Date of Grant shown on the attached Notice of Grant of Stock Options and Option Agreement (The "Notice of Grant") by and between 21st Century Insurance Group, a California corporation, (the "Company") and the person named on the Notice of Grant (the "Optionee"). WHEREAS, Optionee is an employee of the Company and/or one or more of its "subsidiary corporations," as such term is defined in Section 424(f), of the Internal Revenue Code (the "Code"); WHEREAS, pursuant to the Company's 1995 Stock Option Plan (the "1995 Plan"), the committee of the Board of Directors of the Company administering the 1995 Plan (the "Committee") has approved the grant to Optionee of an option to purchase shares of the Common Stock of the Company (the "Common Shares"), on the terms and conditions set forth herein; and WHEREAS, the parties hereto desire to amend and restate the original Incentive Stock Option Agreement the parties entered into ( the "Original Agreement") in order to ensure it complies with the Section 402 of the Sarbanes-Oxley Act of 2002, which generally prohibits the Company from directly or indirectly extending or maintaining credit, arranging for the extension of credit or renewing an extension of credit in the form of a personal loan to or for its directors and executive officers. NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereby agree to amend and restate the Original Agreement as follows: 1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby ------------------------------------------------ grants to Optionee, and Optionee hereby accepts, as of the Date of Grant, an option (the "Option") to purchase the number of Common Shares indicated on the Notice of Grant (the "Option Shares") at the Exercise Price per share indicated on the Notice of Grant. The Option shall expire at 5:00 p.m., prevailing Pacific Time, on the Expiration Date indicated on the Notice of Grant and shall be subject to all of the terms and conditions set forth in the 1995 Plan and this Option Agreement. 2. INCENTIVE STOCK OPTION; INTERNAL REVENUE CODE REQUIREMENTS. The ---------------------------------------------------------------- Option is intended to qualify as an incentive stock option under Section 422 of the Code. 1 3. ACCELERATION AND TERMINATION OF OPTION. ------------------------------------------- (a) Termination of Employment. ---------------------------- (i) Retirement. In the event that Optionee shall cease to be an ----------- employee of the Company or any "subsidiary corporation" (as defined above) (such event shall be referred to herein as "Termination of Employment") by reason of retirement in accordance with the Company's then-current retirement practices, then the Option shall fully vest with respect to all Option Shares upon the date of such Termination of Employment and shall terminate no later than the Expiration Date. (ii) Death or Permanent Disability. If the Termination of --------------------------------- Employment occurs by reason of the death or Permanent Disability (as hereinafter defined) of Optionee, then the Option shall fully vest with respect to all Option Shares upon the date of such Termination of Employment, shall be exercisable by Optionee or, in the event of death, the person or persons to whom Optionee's rights under the Option shall have passed by will or by the applicable laws of descent or distribution, and shall terminate on the first anniversary of the date of such Termination of Employment. "Permanent Disability" shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. The Optionee shall not be deemed to have a Permanent Disability until proof of the existence thereof shall have been furnished to the Committee in such form and manner, and at such times, as the Committee may require. Any determination by the Committee that Optionee does or does not have a Permanent Disability shall be final and binding upon the Company and Optionee. (iii) Other Termination. If the Termination of Employment occurs ------------------ for any reason other than those enumerated in (i) through (ii) of this Section 3(a), then (A) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall terminate on such date and (B) the remaining vested portion of the Option shall terminate as of the Expiration Date or the three (3) month anniversary of the date of such Termination of Employment. (b) Death Following Termination of Employment. Notwithstanding ---------------------------------------------- anything to the contrary in this Option Agreement, if Optionee shall die at any time after the Termination of Employment and prior to the Expiration Date, then, unless the Termination of Employment had occurred for cause, the remaining vested but unexercised portion of the Option shall terminate on the earlier of the Expiration Date or the first anniversary of the date of such death. (c) Acceleration of Option. The Option shall become fully exercisable ----------------------- immediately prior to a Change in Control. A Change in Control shall be deemed to take place upon the occurrence of any of the following: (i) Any merger or consolidation of the Company with or into any other person, as the result of which the holders of the Company's Common Shares immediately prior to the transaction shall, on the basis of such holdings prior to such transaction, hold less than 50% of the total outstanding voting stock of the surviving corporation immediately upon completion of the transaction. 2 (ii) Any sale or exchange of all or substantially all of the property and assets of the Company. (iii) Any change in a majority of the Board of Directors of the Company occurring within a period of two years or less, such that a majority of the Board of Directors is comprised of individuals who are not "Continuing Directors". For purposes of the foregoing, a " Continuing Director" shall be a director (A) who was in office at the commencement of such period of two years or (B) was elected subsequent to the commencement of such period with the approval of not less than a majority of those directors referred to in clause (A) who are then in office. Any director meeting the qualifications of clause (B) of the previous sentence shall, with respect to further determinations after the date of such director's election, be deemed a director meeting the qualifications of clause (A) of the previous sentence. (iv) Any "person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becoming the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a majority of the Company's outstanding Common Stock. (v) the liquidation or dissolution of the Company. (vi) any other transaction or reorganization similar to the foregoing which in the opinion of the Committee constitutes a "change of control" of the nature described in subparagraphs (i) through (v) hereof. The parties agree this Section 3(c) hereof does not apply to any action taken by American International Group, Inc. and/or its subsidiaries ("AIG") to become the sole shareholder or shareholders of the Company; provided, however, that in the event of an offer by AIG to acquire all outstanding shares of the Company that it does not yet own (an "AIG Offer"), any Option subject to this Agreement which would vest within one year from the date of an AIG Offer shall immediately vest in favor of Employee. Any remaining Option(s) granted to the Employee shall be terminated as of the date of the AIG Offer. 4. ADJUSTMENTS. In the event that the Common Shares are increased, ------------ decreased or exchanged for or converted into cash, property or a different number or kind of securities, or if cash, property or securities are distributed in respect of such outstanding Common Shares, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, partial or complete liquidation, stock split, reverse stock split or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the Option then outstanding shall thereafter be exercisable (on substantially the same terms and subject to substantially the same conditions as were applicable under such Option) for the number of shares or other securities or cash or other property as the holder of such Option would have been entitled to receive pursuant to such transaction had such holder exercised such Option in 3 full immediately prior to such transaction. The Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may be acquired upon the exercise in full of the Option; provided, however, that any such adjustments in the Option shall be made without changing the aggregate Exercise Price of the then unexercised portion of the Option; provided further that no adjustment shall be made to the number of Common Shares that may be acquired to the extent such adjustment would result in the Option being treated as other than an Incentive Stock Option. 5. EXERCISE. --------- (a) In general. The Option shall be exercisable during Optionee's ------------ lifetime only by Optionee or by his or her guardian or legal representative, and after Optionee's death only by the person or entity entitled to do so under Optionee's last will and testament or applicable intestate law. The Option may only be exercised by the delivery to the Company of a written notice of such exercise pursuant to the notice procedures set forth in Section 7 hereof, which notice shall specify the number of Option Shares to be purchased, which for any single exercise may not be fewer than 100 Option Shares or, if smaller, the number of Option Shares then vested and exercisable, (the "Purchased Shares") and the aggregate Exercise Price for such shares (the "Exercise Price"), together with payment in full of such aggregate Exercise Price and any Withholding Liability (as hereinafter defined) in cash. (b) Limitation on Exercise. Notwithstanding any other provision of ------------------------- this Option Agreement, Optionee shall not be entitled to benefit from the Option granted hereunder and shall not be entitled to exercise any rights with respect to this Option if such grant or exercise would violate any provision of the charter of the Company. Pursuant to the 1995 Plan, the grant or exercise of an Option in violation of this Section 5(b) shall be void ab initio and shall not --------- be effective to convey any rights to Optionee. As a condition to exercise of this Option, Optionee will be required to certify to the Company that the acquisition of Common Shares pursuant to the exercise of this Option will not result in a violation of any provision of the charter of the Company. If this Option (or any portion thereof) is not exercisable by virtue of this Section 5(b), then such exercise shall be deferred until the earlier of such time, if any, that Optionee becomes entitled to exercise this Option or the Expiration Date. This Section 5(b) shall not result in an extension of the Expiration Date. (c) Payment. Notwithstanding any provision of this Option Agreement ------- to the contrary: (i) payment of the aggregate Exercise Price for such shares and the Optionee's tax withholding obligation, if any, with respect to such shares shall be due the date the shares of Common Shares underlying the Option are delivered; and (ii) in no event shall the Company issue or deliver the Option Shares before the Company receives payment for the Option Shares pursuant to this Section 5. 6. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated to -------------------------------- withhold an amount on account of any federal, state, or local income tax imposed as a result of the exercise of an option granted under this Plan (such amount will be referred to herein as the "Withholding 4 Liability"), the Optionee shall pay the Withholding Liability to the Company in full in cash on the date the shares of Common Shares underlying the Option are delivered, and the Company shall delay issuing the Common Shares pursuant to such exercise until it receives the Withholding Liability from the Optionee. 7. NOTICES. Any notice given to the Company shall be addressed to the -------- Company at 6301 Owensmouth Avenue, 11th Floor, Woodland Hills, California 91367, Attention: Corporate Secretary, or at such other address as the Company may hereafter designate in writing to Optionee. Any notice given to Optionee shall be sent to the address set forth below Optionee's signature hereto, or at such other address as Optionee may hereafter designate in writing to the Company. Any such notice shall be deemed duly given when made by hand delivery, sent by overnight courier, sent by prepaid certified or registered mail, or transmitted by facsimile. 8. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding anything ---------------------------------------------- to the contrary in this Option Agreement, no shares of stock purchased upon exercise of the Option, and no certificate representing all or any part of such shares, shall be issued or delivered if (a) such shares have not been admitted to listing upon official notice of issuance of each stock exchange upon which shares of that class are then listed or (b) in the opinion of counsel to the Company, such issuance or delivery would cause the Company to be in violation of or to incur liability under any federal, state or other securities law, or any requirement of any stock exchange listing agreement to which the Company is a party, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company. 9. NONTRANSFERABILITY. Neither the Option nor any interest therein may be ------------------- sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner other than by will or the laws of descent and distribution. 10. 1995 PLAN. THE OPTION IS GRANTED PURSUANT TO THE 1995 PLAN, AS IN ----------- EFFECT ON THE DATE OF GRANT, AND IS SUBJECT TO ALL THE TERMS AND CONDITIONS OF THE 1995 PLAN, AS THE SAME MAY BE AMENDED FROM TIME TO TIME; PROVIDED, HOWEVER, THAT NO SUCH AMENDMENT SHALL DEPRIVE OPTIONEE, WITHOUT HIS OR HER CONSENT, OF THE OPTION OR OF ANY OF OPTIONEE'S RIGHTS UNDER THIS OPTION AGREEMENT. THE INTERPRETATION AND CONSTRUCTION BY THE COMMITTEE OF THE 1995 PLAN, THIS OPTION AGREEMENT, THE OPTION AND SUCH RULES AND REGULATIONS AS MAY BE ADOPTED BY THE COMMITTEE FOR THE PURPOSE OF ADMINISTERING THE 1995 PLAN SHALL BE FINAL AND BINDING UPON OPTIONEE. UNTIL THE OPTION SHALL EXPIRE, TERMINATE OR BE EXERCISED IN FULL, THE COMPANY SHALL, UPON WRITTEN REQUEST, SEND A COPY OF THE 1995 PLAN, IN ITS THEN CURRENT FORM, TO OPTIONEE OR ANY OTHER PERSON OR ENTITY THEN ENTITLED TO EXERCISE THE OPTION. 11. FRACTIONAL SHARES. The Company shall not be required to issue a ------------------- fraction of a Common Share in connection with the exercise of the Option. In any case where the Optionee would be entitled to receive a fraction of a Common Share upon the exercise of the Option, the Company shall instead, upon the exercise of the Option, issue the largest whole number of Common Shares purchasable upon exercise of the Option, and pay to the Optionee in cash the Fair Market Value (as determined by the Committee) of such fraction of a Common Share at the time of exercise of the Option. 5 12. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote, -------------------- receive dividends or be deemed for any purpose the holder of any Option Shares until the Option shall have been duly exercised to purchase such Option Shares in accordance with the provisions of this Option Agreement. 13. EMPLOYMENT RIGHTS. No provision of this Option Agreement or of the ------------------- Option granted hereunder shall (a) confer upon Optionee any right to continue in the employ of the Company or any of its subsidiaries, (b) affect the right of the Company and each of its subsidiaries to terminate the employment of Optionee, with or without cause, or (c) confer upon Optionee any right to participate in any employee welfare or benefit plan or other program of the Company or any of its subsidiaries other than the 1995 Plan. 14. GOVERNING LAW. This Option Agreement and the Option granted hereunder --------------- shall be governed by and construed and enforced in accordance with the laws of the State of California. 15. ENTIRE AGREEMENT. This Option Agreement (including the Notice of ------------------ Grant, into which it is incorporated by reference) constitutes the entire agreement of the parties with respect to the matters covered herein and supersedes all prior written or oral agreements or understandings of the parties with respect to the matters covered herein. Optionee acknowledges that he or she has no right to receive any additional options unless and until such time, if any, that the Committee, in its sole discretion, may approve the grant thereof, and that the Company has not made any representation to the Optionee regarding future or additional option grants, or any other option related matters. The grant of any options must be in writing. 16. TAX CONSEQUENCES. The tax consequences of the Option granted under ------------------ this Option Agreement are complicated. THE OPTIONEE IS ADVISED TO CONSULT THE OPTIONEE'S PERSONAL TAX ADVISOR WITH REGARD TO ALL CONSEQUENCES ARISING FROM THE OPTION GRANTED UNDER THIS OPTION AGREEMENT AND THE EXERCISE THEREOF. 6 EX-10.(N) 8 doc6.txt FORMS OF RESTRICTED SHARES AGREEMENT EXHIBIT 10(n) RESTRICTED SHARES AGREEMENT BETWEEN 21ST CENTURY INSURANCE GROUP, A CALIFORNIA CORPORATION AND _________________, AN EMPLOYEE OF 21ST CENTURY INSURANCE GROUP This Agreement is made at Woodland Hills, California, as of the ____ day of _______________, by and between 21st Century Insurance Group, a California corporation (the "Company") and _______________________ (the "Employee"). RECITAL OF FACTS 1. The Board of Directors of 21st Century Insurance Group (formerly, 20th Century Industries) at its meeting held on February 23, 1982 adopted, subject to shareholder approval, the 20th Century Industries Restricted Shares Plan, now the 21st Century Insurance Group Restricted Shares Plan (the "Plan"). The shareholders of the Company at their meeting held on May 25, 1982 approved the Plan. 2. The Committee of the Board of Directors of 21st Century Insurance Group designated to administer the Plan (the "Committee") has awarded ______ shares to the Employee pursuant to the Plan. THEREFORE, it is agreed by and between the Company and the Employee, as follows: 3. The Company has granted to the Employee _______ of the shares of the Company without par value. The shares are evidenced by the following share certificate(s), the restriction with respect to which expires on the date indicated. Share Certificate # # of Shares Restriction Expiration Date ------------------- --------------------- --------------------------- ___________________ _____________________ ___________, 20____ ___________________ _____________________ ___________, 20____ Each of the share certificates will have attached the following restrictions. The shares evidenced by this certificate are "restricted" pursuant to the 21st Century Insurance Group Restricted Shares Plan and may not be transferred or reissued without the consent of the Company. Attached to each share certificate is a stock assignment signed in blank by the shareholder(s) and the signature of each shareholder is guaranteed by a bank or a member of a national securities exchange or an officer of the Company. Such guarantee is undated. 4. During the period of restriction and while subject to forfeiture, the share certificates shall remain in the possession and custody of the Company. If shares are forfeited, the Company may exercise the stock assignment(s) provided for above, but upon delivery to the Employee of a share certificate, the stock assignment pertaining thereto shall also be delivered to the Employee. 5. If the Employee has been continuously employed by the Company from the date hereof to the expiration of dates of the restrictions, the share certificate for which the restrictions expire shall be delivered to the Employee free of all restrictions other than those imposed, or made necessary by federal and state securities laws. If the employment is terminated for any reason, all shares not free of restrictions shall be forfeited in favor of the Company. 6. The Employee acknowledges that he or she has received from the Company the Annual Report to shareholders for the year 20___ of the Company, the Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") of the Company for the year 20___ and the report to shareholders for the ___ quarter of 20___. The Employee also acknowledges that there have been made available to him or her for inspection, and copying if he or she so desires, copies of prior reports to shareholders and filing with the SEC. Such right of inspection and copying shall terminate if and when the employment of the Employee terminates. 7. Attached hereto and made a part hereof, as though fully set forth hereto, is a copy of the 21st Century Insurance Group Restricted Shares Plan. In the event of any conflict between the terms and provisions of this Agreement and those of the Plan, the terms and provisions of the Plan, including without limitation, those with respect to powers of the Committee, shall prevail and be controlling. 8. If the Employee exercises the election provided for in Section 83(b) of the Internal Revenue Codes and Section 17122(b) of the Revenue and Taxation Code of California, he or she shall promptly notify the Company. 9. Neither the Plan, this Agreement, nor the award of Restricted Shares shall confer any right to continue in the employ of the Company or interfere in any way the right of the Company to terminate any employment at any time. 10. The Employee shall furnish to the Company all information requested at any time or from time to time by the Company to enable it to comply with any reporting or other requirement imposed upon the Company by or under any applicable statute or regulation. 11. No shares issued or transferred to an Employee, hereunder, so long as such shares are subject to a risk of forfeiture imposed hereunder, may be transferred, assigned, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) except shares upon forfeiture shall be transferred back to the Company or to another Employee upon being regranted. 12. Nothing in the Plan or in this Restricted Shares Agreement entered into pursuant to the Plan shall require the Company to issue or transfer any shares pursuant to an award if such issuance or transfer would, in the opinion of the Committee, constitute or result in a violation of any applicable statute or regulation of any jurisdiction relating to the disposition of the securities. 13. If the Committee shall determine, in its discretion, that the listing, registration or qualification of shares awarded hereunder upon any securities exchange or under any applicable statute or regulation of any jurisdiction relating to securities, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the issuance or transfer of such shares, nothing in this Restricted Shares Agreement shall require the Company to issue or transfer such shares unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 14. In connection with the shares awarded hereunder, it shall be a condition precedent to the Company's obligation to evidence the removal of any restrictions or transfer or lapse of any risk of forfeiture that the Employee make arrangements satisfactory to the Company to insure that the amount of any federal or other withholding tax required to be withheld with respect to such sale or transfer on such removal or lapse is made available to the Company for timely payment of such tax. 15. The Employee represents that he or she is having the shares issued to him or her for his or her own account and not with a view to or for sale in connection with any distribution of the shares. 16. Notwithstanding any other provision of this Agreement including, but not limited to, paragraphs 3, 4, and 5 hereof, all shares which have been granted pursuant to this Agreement which have not been delivered to the Employee because of the expiration date of the Restrictions shall vest in the Employee immediately before a "change of control" of the Company, as defined herein, free and clear of any restrictions, except the restrictions imposed by paragraphs 12 through 15 hereof. A "change in control" shall be deemed to take place upon the occurrence of any of the following: (i) Any merger or consolidation of the Company with or into any other person, as the result of which the holders of the Company's Common Shares immediately prior to the transaction shall, on the basis of such holding prior to such transaction, hold less than 50% of the total outstanding voting stock of the surviving corporation immediately upon completion of the transaction. (ii) Any sale or exchange of all or substantially all of the property and assets of the Company. (iii) Any change in a majority of the Board of Directors of the Company occurring within a period of two years or less, such that a majority of the Board of Directors is comprised of individuals who are not "Continuing Directors". For purposes of the foregoing, a "Continuing Director" shall be a director (a) who was in office at the commencement of such period of two years or (b) was elected subsequent to the commencement of such period with the approval of not less than a majority of those directors referred to in clause (a) who are then in office. Any director meeting the qualifications of clause (b) of the previous sentence shall, with respect to further determinations after the date of such director's election, be deemed a director meeting the qualifications of clause (a) of the previous sentence. (iv) Any "person" [as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")] shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of a majority of the Company's outstanding Common Stock. (v) The liquidation or dissolution of the Company. (vi) Any other transaction or reorganization similar to the foregoing which in the opinion of the Committee constitutes a "change in control" of the nature described in subparagraphs (i) through (v) hereof. 17. The parties agree that Paragraph 16 hereof does not apply to any action taken by American International Group, Inc. and/or its subsidiaries ("AIG") to become the sole shareholder or shareholders of the Company; provided, however, that in the event of an offer by AIG to acquire all outstanding shares of the Company that it does not yet own (an "AIG Offer"), any shares subject to this Agreement which would vest within one year from the date of an AIG Offer shall immediately vest in favor of Employee subject only to the provisions of Paragraphs 12 through 15 hereof. Any remaining shares granted to the Employee which are not free of the restrictions in paragraph 3, above, shall be forfeited in favor of the Company. Upon the shares vesting in the Employee pursuant to this paragraph, share certificate(s) shall be delivered to the Employee pursuant to the procedures set forth in paragraphs 4 and 5 hereof. Executed at the place and as of the date first above written. 21ST CENTURY INSURANCE GROUP By _____________________________________________ Bruce W. Marlow President and Chief Executive Officer By _____________________________________________ Michael J. Cassanego, Secretary EMPLOYEE ________________________________ XXXXXXXXXXXX EX-10.(O) 9 doc7.txt RETENTION AGREEMENTS SUBSTANTIALLY IN THE FORM OF THIS EXHIBIT FOR EXECUTIVES EXHIBIT 10(o) RETENTION AGREEMENT This Agreement between ____________________ ("you") and 21st Century Insurance Group and its subsidiary, 21st Century Insurance Company (hereinafter collectively referred to as the "Company") has been entered into as of April 1, 2003. This Agreement promises you severance benefits if you are terminated without Cause or resign for Good Reason during the Term of this Agreement. Capitalized terms are defined in the last section of this Agreement. 1. PURPOSE The Company considers a sound and vital management team to be essential. Management personnel who become concerned about the possibility that the Company may undergo substantial or adverse changes may terminate employment or become distracted. Accordingly, the Board has determined that appropriate steps should be taken to minimize the distraction or concerns executives may suffer from the possibility of such events or business conditions. One step is to enter into this Agreement with you. 2. EVENTS THAT TRIGGER SEVERANCE BENEFITS (a) Termination You will receive Severance Benefits under this Agreement if, during the Term of this Agreement, your employment is terminated by the Company without Cause or you resign for Good Reason. Your Severance Benefits under this Agreement will continue to apply if you are transferred to an affiliate of the Company and you are terminated by such affiliate without Cause or you resign from such affiliate for Good Reason. (b) Successor Fails to Assume This Agreement You also will receive Severance Benefits under this Agreement if, during the Term of this Agreement, a successor to the Company or affiliate to which you are transferred fails to assume this Agreement. 3. EVENTS THAT DO NOT TRIGGER SEVERANCE BENEFITS You will not be entitled to Severance Benefits if your employment ends because you are terminated for Cause or on account of Disability or because you resign without Good Reason, retire, or die. Except as provided in Section 2(b), you will not be entitled to Severance Benefits while you remain protected by this Agreement and remain employed by the Company, its affiliates, or their successors. 4. TERMINATION PROCEDURES If you are terminated by the Company during the Term of this Agreement, you will receive advance written notice of your termination ("Termination Notice"). This Termination Notice will be given to you at least 30 days in advance, unless you are being terminated for Cause. The Termination Notice will indicate why you are being terminated and will set forth in reasonable detail the facts and circumstances claimed to provide a basis for your termination. If you are being terminated for Cause, your Termination Notice will include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board (at a meeting of the Board called and held for the purpose of considering your termination and after reasonable notice to you and an opportunity for you and your counsel to be heard before the Board) finding that Cause for your termination exists and specifying the basis for that opinion in detail. If you are purportedly terminated without the Termination Notice required by this Section, your termination shall not be effective. 5. SEVERANCE BENEFITS (a) In General If you become entitled to Severance Benefits under this Agreement, you will receive all of the Severance Benefits described in this Section. Severance Benefits payable to you following your termination of employment will be paid only if you deliver to the Company (substantially in the form attached as Exhibit A and by the deadline it prescribes) your executed general and special release (The "Release") of all claims you may have against the Company, its affiliates and directors, officers, employees and others specified in the Release, relating to your termination of employment, other than claims for failure to fulfill obligations created by the Agreement, indemnification and defense cost adjustment rights, pension plan and supplemental executive retirement plans, 401(k) plans and supplemental 401(k) plans, stock option and restricted stock plans, or under any other employee benefit or vacation programs of the Company to which you are entitled. (b) Lump-Sum Payment in Lieu of Future Compensation In lieu of any further cash compensation for periods after your employment ends, you will be paid a cash lump sum equal to 2.5 times your annual base salary in effect immediately before any Notice of Termination or Good Reason event for which you terminate employment. (c) Vesting of Stock Options and Waiver of 90 Day Post-Termination Expiration Provision If you become entitled to Severance Benefits under this Agreement, the Company agrees that any unvested stock option grants outstanding shall become immediately vested on the date your employment ends and that the Company shall waive any requirement that vested options be exercised within 90 days of termination of employment and allow such options to be exercisable for their full remaining term, subject to a maximum of five years from the date of termination of your employment. (d) Group Insurance Benefit Continuation During the period that begins when you become entitled to Severance Benefits under this Agreement and ends on the last day of the 30th calendar month beginning thereafter, the Company shall provide, at no cost to you or your spouse or dependents, the life, disability, accident, and health insurance benefits (or substantially similar benefits) it was providing to you and your spouse and dependents immediately before you became entitled to Severance Benefits under this Agreement (or immediately before a benefit reduction that constitutes Good Reason, if you terminate employment for that Good Reason). These benefits shall be treated as satisfying the Company's COBRA obligations. After the benefit continuation under this subsection ends, you and your spouse and dependents will be entitled to any remaining COBRA rights. This benefit will terminate at such time as you become eligible for substantially similar benefits as a result of subsequent employment. 6. GOLDEN PARACHUTE LIMITATION Your aggregate payments and benefits under this Agreement and all other contracts, arrangements, or programs shall not exceed the maximum amount that may be paid without triggering golden parachute penalties under Section 280G and related provisions of the Internal Revenue Code, as determined in good faith by the Company's independent auditors. If your benefits must be cut back to avoid triggering such penalties, your benefits will be cut back in the priority order you designate or, if you fail to designate an order within a reasonable time specified by the Company, in the priority order designated by the Company. You and the Company agree to cooperate with each other reasonably in connection with any administrative or judicial proceedings concerning the existence or amount of golden parachute penalties on payments or benefits you receive. 7. TIME FOR PAYMENT You will be paid your cash Severance Benefits within 5 days after you become entitled to Severance Benefits under this Agreement (e.g., within 5 days following your termination of employment) or, if later, the date specified in the Separation Agreement and General and Special Release of Claims Agreement executed in connection with this Agreement. 8. PAYMENT EXPLANATION When payments are made to you, the Company will provide you with a written statement explaining how your payments were calculated and the basis for the calculations. This statement will include any opinions or other advice the Company has received from auditors or consultants as to the calculation of your benefits. 9. RELATION TO OTHER SEVERANCE PROGRAMS Your Severance Benefits under this Agreement are in lieu of and supercede any severance or similar benefits that may be payable to you under any other employment agreement or other arrangement, other than any benefits payable under the Executive Severance Plan as it exists on the date hereof (the "Executive Severance Plan") and the Supplemental Executive Retirement Plan which may be payable following a change in control of the Company. In the event you are terminated or resign after a change in control under circumstances which entitle you to benefits under the Executive Severance Plan, you shall be entitled to receive the benefits payable under the Executive Severance Plan (subject to all the terms and limitations thereof) and you shall not be entitled to any Severance Benefits under this Agreement if you in fact receive the severance benefits to which you are entitled under the Executive Severance Plan. Nothing in this Agreement shall be deemed to affect your entitlement to benefits payable under the Supplemental Executive Retirement Plan. Subject to the foregoing, this Agreement constitutes the entire agreement between you and the Company and its affiliates with respect to severance benefits. 10. AMENDMENTS This Agreement may be modified only by a written agreement executed by you and the chief executive officer or general counsel of the Company that is approved by the Board of Directors of the Company. 11. GOVERNING LAW This Agreement creates a "top hat" employee benefit plan subject to the Employee Retirement Income Security Act of 1974, and it shall be interpreted, administered, and enforced in accordance with that law; the Company is the "plan administrator." To the extent that state law is applicable, the statutes and common law of the State of California, excluding any that mandate the use of another jurisdiction's laws, shall apply. 12. CLAIMS (a) When Required; Attorneys' Fees You do not need to present a formal claim to receive benefits payable under this Agreement. However, if you believe that your rights under this Agreement are being violated, you must file a formal claim with the Company (for the purposes of this Section 12, 21st Century Insurance Group) in accordance with the procedures set forth in this Section. If the claim cannot be resolved under these administrative procedures, the Company will pay your reasonable attorneys' fees and related costs in enforcing your rights under this Agreement if you ultimately prevail. (b) Initial Claim Your claim must be presented to the Company in writing. Within 90 days after receiving the claim, a claims official appointed by the Company will consider your claim and issue his or her determination thereon in writing. The claims official may extend the determination period for up to an additional 90 days by giving you written notice. With your consent, the initial claim determination period can be extended further. If you can establish that the claims official failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official. (c) Claim Decision If your claim is granted, the benefits or relief you are seeking will be provided. If your claim is wholly or partially denied, the claims official shall, within 90 days (or a longer period, as described above), provide you with written notice of the denial, setting forth, in a manner calculated to be understood by you: (i) the specific reason or reasons for the denial; (ii) specific references to the provisions on which the denial is based; (iii) a description of any additional material or information necessary for you to perfect your claim, together with an explanation of why the material or information is necessary; and (iv) an explanation of the procedures for appealing denied claims. If you establish that the claims official has failed to respond to your claim in a timely manner, you may treat the claim as having been denied by the claims official. (d) Appeal of Denied Claims You may appeal the claims official's denial of your claim in writing to an appeals official designated by the Company (which may be a person, committee, or other entity) for a full and fair appeal. In connection with the appeals proceeding, you (or your duly authorized representative) may review pertinent documents and may submit issues and comments in writing. (e) Appeal Decision The decision by the appeals official will be made within 60 days after your appeal request, unless special circumstances require an extension of time, in which case the decision will be rendered as soon as possible, but not later than 120 days after your appeal request, unless you agree to a greater extension of that deadline. The appeal decision will be in writing, set forth in a manner calculated to be understood by you; it will include specific reasons for the decision, as well as specific references to the pertinent provisions of this Agreement on which the decision is based. If you do not receive the appeal decision by the date it is due, you may deem your appeal to have been denied. (f) Procedures The Company will adopt procedures by which initial claims and appeals will be considered and resolved; different procedures may be established for different claims. All procedures will be designed to afford you full and fair consideration of your claim. Notwithstanding anything in this Section 12 to the contrary, claims and appeals shall be resolved through procedures that comply with applicable Department of Labor regulations as then in effect. 13. LIMITATION ON EMPLOYEE RIGHTS This Agreement does not give you the right to be retained in the service of the Company. 14. VALIDITY The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 15. COUNTERPARTS This Agreement may be executed in several counterparts, each of which will be deemed an original, but all of which will constitute one and the same instrument. 16. GIVING NOTICE (a) To the Company All communications from you to the Company relating to this Agreement must be sent to the Company in writing, addressed as follows (or in any other manner the Company notifies you to use): If Mailed 21st Century Insurance Group Attention: Bruce W. Marlow, President and CEO 6301 Owensmouth Ave. Woodland Hills CA 91367 If Faxed 21st Century Insurance Group Attention: Bruce W. Marlow, President and CEO Fax: 818 715-6223 Tel.: 818 704-3393 (b) To You All communications from the Company to you relating to this Agreement must be sent to you in writing, addressed as indicated at the end of this Agreement. 17. DEFINITIONS (a) Agreement "Agreement" means this contract, as amended. (b) Board "Board" means the Board of Directors of the 21st Century Insurance Group. (c) Cause "Cause" means any of the following: (1) Willful Failure to Perform Duties. You continue willfully to fail to perform your duties for the Company after a written demand for performance has been delivered to you by the Board that specifically identifies how you have failed to perform. Your conduct will not be considered "willful" if a reasonable person would believe that you were acting in the best interests of the Company or if your failure to perform was caused by your physical or mental illness. You may not be terminated for Cause under this paragraph after you have properly notified the Company that you are resigning for Good Reason. (2) Willful Adverse Conduct. You willfully engage in conduct that is demonstrably and materially injurious to the Company or its affiliates, monetarily or otherwise. Your conduct will not be considered "willful" if you believed in good faith that you were acting in the best interests of the Company and such belief was reasonable. (3) Disability. (d) Company "Company" means 21st Century Insurance Group and 21st Century Insurance Company and any successor to the business or assets of either that (by operation of law, or otherwise) assumes and agrees to perform this Agreement. The liability of the each such Company hereunder shall be joint and several. (e) Disability "Disability" means that, due to physical or mental disability: (i) you have been absent from the full-time performance of your duties with the Company for substantially all of a period of 6 consecutive months; (ii) the Company has notified you that it intends to terminate your employment because of your inability to perform your job duties on account of Disability; and (iii) you do not resume the full-time performance of your duties within 30 days after receiving notice of your intended termination on account of your inability to perform your job duties on account of Disability. (f) Good Reason "Good Reason" means the occurrence of any of the following without your express written consent: (1) Breach of Promise. The Company has committed a material breach of its obligations under this Agreement. (2) Improper Termination. You are purportedly terminated, other than pursuant to a Termination Notice satisfying the requirements of Section 4. (3) Constructive Termination. You are constructively terminated by the Company, as reasonably determined by you in good faith, by reason of Company, Board or controlling shareholder actions that (i) reduce your base compensation or benefits by more than 5% in any 12 month period, or (ii) materially reduce your benefits under incentive plans without regard to either your performance or the Company's performance, or (iii) demote you or materially change the nature or location of your position, or (iv) materially interfere, in a manner inconsistent with the Company standards and rules of corporate governance, with your fulfillment of the responsibilities of your office and employment. However, an event that is or would constitute Good Reason shall cease to be Good Reason if: (a) you do not terminate employment within 45 days after the event occurs; or (b) you were a primary instigator of the Good Reason event and the circumstances make it inappropriate for you to receive benefits under this Agreement (e.g., you agree temporarily to relinquish your position on the occurrence of a merger transaction you negotiate). If you have Good Reason to terminate employment, you may do so even if you are on a leave of absence due to physical or mental illness or any other reason. (g) Severance Benefits "Severance Benefits" means your benefits under Section 5 of this Agreement. (h) Term of this Agreement "Term of this Agreement" means the period that commences on the date of this Agreement and ends on a date specified by the Board for expiration of this Agreement (at least 24 months' advance written notice of this date must be given to you before it is effective); provided, however, that in no event shall the Term of this Agreement be less than three years. 21st Century Insurance Group Date _________________________ _________________________________________ Bruce W. Marlow President and CEO 21st Century Insurance Group Date _________________________ _________________________________________ _________________________ _________________________ Company notices to you shall be addressed as follows (or in any other manner you notify the Company to use): If Mailed EXHIBIT A --------- SEPARATION AGREEMENT AND GENERAL AND SPECIAL RELEASE OF CLAIMS This Separation Agreement and General and Special Release of Claims is entered into by ____________________ ("Employee") and 21st Century Insurance Group and Subsidiaries (hereinafter collectively referred to as the "Company"). It is entered into to resolve amicably all matters between Employee and the Company concerning Employee's employment and the cessation of that employment. 1. Separation Benefits. Notwithstanding this Agreement, Employee shall ------------------- receive payment of all accrued and unpaid salary and vacation through Employee's last day of employment, subject to required and authorized deductions. In exchange for Employee's decision to enter into this Agreement as well as the Severance Agreement, the Company agrees to pay Employee the severance payments set forth in the Severance Agreement. The payments shall be made payable to Employee after expiration of the revocation period set forth in paragraph 7, provided that Employee has not exercised Employee's right of revocation. 2. Release. Employee (on behalf of Employee and Employee's agents, ------- heirs, successors, assigns, spouses, executors and/or administrators) does hereby and forever release and discharge the Company as well as the successors, predecessors, partnerships, partners, joint venturers, affiliated entities, parents, subsidiaries, officers, directors, shareholders, accountants, insurers, advisors, employees, attorneys, heirs, assigns, agents, spouses, executors and/or administrators and representatives of the Company, past or present, from any and all causes of action, actions, judgments, liens, debts, contracts, indebtedness, damages, losses, claims, liabilities, rights, interests and demands of whatsoever kind or character, known or unknown, suspected to exist or not suspected to exist, anticipated or not anticipated, whether or not heretofore brought before any state or federal court, which Employee has or may have against any released person or entity, by reason of any and all acts, omissions, events or facts occurring or existing prior to the date the Agreement is signed by Employee, including, without limitation, all claims attributable to the employment of Employee, all claims attributable to the cessation of that employment, and all claims arising under any federal, state or other governmental statute, regulation or ordinance or common law, such as, for example and without limitation, breach of contract, breach of implied covenant, breach of oral or written promise, allegedly unpaid compensation, wrongful termination, infliction of emotional distress, defamation, interference with contract relations or prospective economic advantage, negligence, misrepresentation or employment discrimination, violation of Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act, the Family and Medical Leave Act, the WARN Act, the Equal Pay Act, the Fair Labor Standards Act, ERISA, the California Unruh Act, the California Fair Employment and Housing Act, the California Labor Code (excepting any workers' compensation claim) and wrongful termination claims, excepting only those obligations expressly recited to be performed hereunder. Employee acknowledges that Employee is not presently suffering from any work-related injury and that Employee has fully recovered from any and all prior work-related injuries. In light of the intention of Employee (for Employee, Employee's agents, heirs, successors, assigns, executors, spouses, and/or administrators) that this release extend to any and all claims of whatsoever kind or character, known or unknown, Employee expressly waives any and all rights granted by California Civil Code Section 1542 (or any other analogous federal or state law or regulation). Section 1542 reads as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 3. No Admissions or Assignment. Nothing contained herein shall be ------------------------------ construed as an admission of wrongdoing or liability by either the Employee or the Company. Employee shall make no assignment of any matter released by this Agreement and Employee represents that no such assignment has been made. 4. Company Property and Confidential Information. All memoranda, ------------------------------------------------- notes, records and other documents made or compiled by Employee or made available to Employee during Employee's employment concerning or related to the Company or any if its clients, whether in hard copy or electronic form, are Company property. Employee agrees to deliver all Company property to the Company upon request by the Company, and if not requested, upon or before the cessation of Employee's employment with the Company. Employee agrees that any and all non-public information about the Company or any of its clients constitutes Confidential Information. Employee agrees not to disclose to any person, directly or indirectly, (including without limitation present or former employees of the Company), any Confidential Information excepting only (i) Employee's spouse, if any, (ii) Employee's attorneys and accountants, only as necessary, and (iii) under compulsion of law or court process. 5. Covenant Not To Sue. Employee covenants and represents that he ----------------------- shall have no right whatsoever to file any lawsuit or institute any other legal proceeding of any type whatsoever against the Company based upon or arising out of or during Employee's employment with the Company based upon facts, acts or omissions occurring prior to the date of the signing of this Separation Agreement and General and Special Release of Claims. 6. Entire Agreement/Modifications/Severability. This Agreement -------------------------------------------- constitutes a single integrated contract expressing the entire agreement of the parties with respect to the subject matter hereof, including without limitation all matters pertaining to or arising out of the Employee's employment or employment termination, and supersedes all prior and contemporaneous oral, written and implied agreements and discussions with respect to the subject matter hereof. There are no other agreements, written or oral, express or implied, between the parties hereto, concerning the subject matter hereof, except as set forth herein. This Agreement may be amended or modified only by an agreement in writing. Should any provision of this Agreement become or be held to be legally unenforceable, no other provision of this Agreement shall be affected, and this Agreement shall be construed to be enforceable or shall be construed as if the Agreement had never included the unenforceable provision. Any invalid or unenforceable provision of this Agreement shall be modified or reformed as permitted by law so that such provision is no longer invalid or unenforceable. 7. Waiting Period and Right of Revocation. EMPLOYEE ACKNOWLEDGES THAT --------------------------------------- EMPLOYEE IS AWARE THAT AND IS HEREBY ADVISED THAT EMPLOYEE HAS THE RIGHT TO CONSIDER THIS AGREEMENT FOR TWENTY-ONE DAYS FROM THE DATE OF DELIVERY OF THIS RELEASE FORM BEFORE SIGNING IT AND THAT IF EMPLOYEE SIGNS THIS AGREEMENT PRIOR TO THE EXPIRATION OF TWENTY-ONE DAYS, EMPLOYEE IS WAIVING THIS RIGHT FREELY AND VOLUNTARILY. EMPLOYEE ALSO ACKNOWLEDGES THAT EMPLOYEE IS AWARE OF AND IS HEREBY ADVISED OF EMPLOYEE'S RIGHT TO REVOKE THIS AGREEMENT FOR A PERIOD OF SEVEN DAYS FOLLOWING THE SIGNING OF THIS AGREEMENT AND THAT IT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED. TO REVOKE THIS AGREEMENT, EMPLOYEE MUST NOTIFY THE COMPANY, IN WRITING, WITHIN SEVEN DAYS OF SIGNING IT. 8. Attorney Advice. EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE IS AWARE OF ---------------- EMPLOYEE'S RIGHT TO CONSULT AN ATTORNEY, THAT EMPLOYEE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY, AND THAT EMPLOYEE HAS HAD THE OPPORTUNITY TO CONSULT WITH AN ATTORNEY, IF DESIRED, PRIOR TO SIGNING THIS AGREEMENT. 9. Understanding of Agreement. Employee states that Employee is ---------------------------- physically and mentally competent to enter into this Agreement, that Employee has carefully read this Agreement, that Employee has had sufficient time and opportunity to consider its terms and to obtain legal advice, if desired, that Employee fully understands its effect, that the only promises made to Employee to sign this Agreement are those stated above, and that Employee is signing this Agreement voluntarily and without any threat, duress, coercion or undue influence. Dated: _______________, 2003 By ___________________________ Employee Dated: _______________, 2003 21st Century Insurance Group and Subsidiaries By ____________________________ [name of Company official] [title] EX-10.(P) 10 doc8.txt EXHIBIT 10(p) SALE AND LEASEBACK AGREEMENT BETWEEN 21ST CENTURY INSURANCE COMPANY AND GENERAL ELECTRIC CAPITAL CORPORATION MASTER LEASE AGREEMENT dated as of December 31, 2002 ("AGREEMENT") THIS AGREEMENT, is between GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS ("LESSOR") and 21ST CENTURY INSURANCE COMPANY ("LESSEE"). Lessor has an office at 4 NORTH PARK DRIVE, SUITE 500, HUNT VALLEY, MD 21030. Lessee is a corporation organized and existing under the laws of the State of California. Lessee's mailing address and chief place of business is 6301 OWENSMOUTH AVENUE, WOODLAND HILLS, CA 91367. This Agreement contains the general terms that apply to the leasing of Equipment from Lessor to Lessee. Additional terms that apply to the Equipment (term, rent, options, etc.) shall be contained on a schedule ("SCHEDULE"). 1. LEASING: (a) Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment, software and other property (collectively, "EQUIPMENT") described in any Schedule signed by both parties. (b) Lessor shall purchase Equipment from the manufacturer or supplier ("SUPPLIER") and lease it to Lessee if on or before the Last Delivery Date (specified in the Schedule) Lessor receives (i) a Schedule for the Equipment, (ii) evidence of insurance which complies with the requirements of Section 8, and (iii) such other documents as Lessor may reasonably request. Each of the documents required above must be in form and substance satisfactory to Lessor. Lessor hereby appoints Lessee its agent for inspection and acceptance of the Equipment from the Supplier. Once the Schedule is signed, the Lessee may not cancel the Schedule. 2. TERM, RENT AND PAYMENT: (a) The rent payable for the Equipment and Lessee's right to use the Equipment shall begin on the earlier of (i) the date when the Lessee signs the Schedule and accepts the Equipment or (ii) when Lessee has accepted the Equipment under a Certificate of Acceptance ("LEASE COMMENCEMENT DATE"). The term of this Agreement shall be the period specified in the applicable Schedule. The word "term" shall include all basic and any renewal terms. (b) Lessee shall pay rent to Lessor at its address stated above, except as otherwise directed by Lessor. Rent payments shall be in the amount set forth in, and due as stated in the applicable Schedule. If any Advance Rent (as stated in the Schedule) is payable, it shall be due when the Lessee signs the Schedule. Advance Rent shall be applied to the first rent payment and the balance, if any, to the final rent payment(s) under such Schedule. In no event shall any Advance Rent or any other rent payments be refunded to Lessee. If rent is not paid within ten (10) days of its due date, Lessee agrees to pay a late charge of three cents ($.03) per dollar on, and in addition to, the amount of such rent but not exceeding the lawful maximum, if any. 3. TAXES: If permitted by law, Lessee shall report and pay promptly all taxes, fees and assessments due, imposed, assessed or levied against any Equipment (or purchase, ownership, delivery, leasing, possession, use or operation thereof), this Agreement (or any rents or receipts hereunder), any Schedule, Lessor or Lessee by any governmental entity or taxing authority during or related to the term of this Agreement, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (collectively "TAXES"). Lessee shall have no liability for Taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor. Lessee shall promptly reimburse Lessor (on an after tax basis) for any Taxes charged to or assessed against Lessor. Lessee shall send Lessor a copy of each report or return and evidence of Lessees payment of Taxes upon request. 4. REPORTS: (a) If any tax or other lien shall attach to any Equipment, Lessee will notify Lessor in writing, within ten (10) days after Lessee becomes aware of the tax or lien. The notice shall include the full particulars of the tax or lien and the location of such Equipment on the date of the notice. (b) (i) Lessee will deliver to Lessor Lessee's complete financial statements, certified by a recognized firm of certified public accountants, within ninety (90) days of the close of each fiscal year of Lessee. Lessee will deliver to Lessor copies of Lessee's quarterly financial report certified by the chief financial officer of Lessee, within ninety (90) days of the close of each fiscal quarter of Lessee. (ii) Lessee will deliver to Lessor all Forms 10-K and 10Q, if any, filed by Lessee or Guarantor with the Securities and Exchange Commission ("SEC") within thirty (30) days after the date on which they are filed. Lessee will deliver or otherwise furnish the following financial statements to Lessor within 15 days of the applicable statutory due dates thereof (timely availability of such financial statements on the Lessee's website [www.21st.com] with concurrent notice to Lessor that the same are available shall constitute delivery for purposes of this section): (A) annual and quarterly financial statements as filed by Lessee's parent, 21st Century Insurance Group, with the SEC on Forms 10-K and 10-Q, respectively, including such CFO and CEO certifications and opinions or reports of independent auditors as may be required by applicable securities law; and (B) such other financial statements as are required to be filed by Lessee with the California Department of Insurance or such other state insurance regulatory agency as may have primary regulatory jurisdiction regarding Lessee, including such officer certifications as may be required by applicable state insurance regulation or form required by the National Association of Insurance Commissioners. Lessor agrees that by furnishing all of these SEC Forms, financial statements and other information required under the preceding sentences of this paragraph (b)(ii), or making them publicly available in electronic form in accordance therewith, Lessee shall also be deemed to have satisfied the requirements of paragraph (b)(i). (c) Lessor may inspect any Equipment during normal business hours after giving Lessee reasonable prior notice, and Lessor will be responsible for any costs incurred by it in connection with such inspection so long as no default has occurred and is then continuing. (d) Lessee will keep the Equipment at the Equipment Location (specified in the applicable Schedule) and will give Lessor prior written notice of any relocation of Equipment. If Lessor requests, Lessee will promptly notify Lessor in writing of the location of any Equipment. (e) If any Equipment is lost or damaged (where the estimated repair costs would exceed the greater of ten percent (10%) of the original Equipment cost or ten thousand and 00/100 dollars ($10,000)), or is otherwise involved in an accident causing personal injury or property damage, Lessee will promptly and fully report the event to Lessor in writing. (f) Within thirty (30) days after any request by Lessor, Lessee will furnish a certificate of an authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, there exists no default or event which with notice or lapse of time (or both) would become such a default. (g) Lessee shall promptly notify Lessor of (i) any change in the name of Lessee or (ii) any change in the state of its incorporation or registration or type of its organization. (h) Lessee shall not register any of the Equipment with the U.S. Copyright Office or the U.S. Patent and Trademark Office unless (i) Lessee provides Lessor with written notice at least thirty (30) days prior to the effective date of any such registration and (ii) at Lessee's sole cost and expense, execute, deliver and file any documents or filings and take any other action requested by Lessor in order to perfect or preserve Lessor's security interest in the Equipment with the U.S. Copyright Office or the U.S. Patent and Trademark Office. 5. DELIVERY, USE AND OPERATION: (a) Lessee represents that it is in possession of all of the Equipment. (b) Lessee agrees that the Equipment will be used by Lessee solely in the conduct of its business and in a manner complying with all applicable laws, regulations and insurance policies, and Lessee shall not discontinue use of the Equipment. Notwithstanding the foregoing, Lessee may discontinue using an item of Equipment if Lessee replaces such discontinued Equipment by complying with all of the following to Lessor's satisfaction: (i) Lessor receives ten (10) Business Days' prior written notice thereof, (ii) on or before the date such item of Equipment is discontinued, Lessee duly conveys to Lessor title to, or a first priority, perfected security interest against, an item of Equipment of the same make and model number as the item of Equipment being discontinued, and (iii) Lessee complies with the other provisions of this Section 5(b). Such replacement Equipment shall be free and clear of all Liens, have a value, utility, and useful life at least equal to, and be in as good an operating condition as, the item of Equipment being replaced, assuming such item of Equipment was in the condition and repair required by the terms hereof immediately prior to its being discontinued. Lessee shall furnish to Lessor such documents to evidence such conveyance as Lessor shall request. Upon full compliance by Lessee with the terms of this paragraph, Lessor will transfer to Lessee all of Lessor's right, title and interest, if any, in and to such item of Equipment so replaced, which transfer shall be "AS-IS, WHERE-IS", AND WITHOUT RECOURSE OR WARRANTY OF ANY KIND WHATSOEVER. Each such replacement item of Equipment, shall, after such conveyance to Lessor, be deemed an item of "Equipment", as defined herein. --------- (c) Lessee will not move any Equipment from the location specified on the Schedule, without (i) the prior written consent of Lessor, if such relocation is to a location not identified on the Schedule, or (ii) prior written notice to Lessor, if the items of Equipment that are then being relocated have an aggregate Capitalized Lessor's Cost of at least $500,000. From time to time, but no more frequently that twice per calendar year (unless a default has occurred and is then continuing), Lessor may request that Lessee provide Lessor with a written report detailing the location of the Equipment as at the time of the report. Lessee will deliver any such report to Lessor within fifteen (15) Business Days of Lessor's request. (d) Lessee will keep the Equipment free and clear of all liens and encumbrances other than those which result from acts of Lessor and at all times during the term of this Agreement and any Schedule Lessor's interest in the Equipment shall be perfected and prior to the interest of any other party. (e) Lessor shall not disturb Lessee's quiet enjoyment of the Equipment during the term of the Agreement unless a default has occurred and is continuing under this Agreement. 6. MAINTENANCE: (a) Lessee will, at its sole expense, maintain each unit of Equipment in good operating order and repair, normal wear and tear excepted. The Lessee shall also maintain the Equipment in accordance with manufacturer's recommendations. Lessee shall make all alterations or modifications required to comply with any applicable law, rule or regulation during the term of this Agreement. If Lessor requests, Lessee shall affix plates, tags or other identifying labels showing ownership thereof by Lessee and Lessor's security interest therein. The tags or labels shall be placed in a prominent position on each unit of Equipment. (b) Lessee will not attach or install anything on the Equipment that will impair the originally intended function or use of such Equipment without the prior written consent of Lessor. All additions, parts, supplies, accessories, and equipment ("ADDITIONS") furnished or attached to any Equipment that are not readily removable shall become subject to the lien of Lessor. All Additions shall be made only in compliance with applicable law. Lessee will not attach or install any Equipment to or in any other personal or real property without the prior written consent of Lessor. 7. STIPULATED LOSS VALUE: If for any reason any unit of Equipment becomes worn out, lost, stolen, destroyed, irreparably damaged or unusable ("CASUALTY OCCURRENCES"), Lessee shall promptly and fully notify Lessor in writing. Lessee shall pay Lessor the sum of (i) the Stipulated Loss Value (see Schedule) of the affected unit determined as of the rent payment date prior to the Casualty Occurrence; and (ii) all rent and other amounts which are then due under this Agreement on the Payment Date (defined below) for the affected unit. The Payment Date shall be the next rent payment date after the Casualty Occurrence. Upon payment of all sums due hereunder, the term of this lease as to such unit shall terminate. 8. INSURANCE: (a) As between Lessee and Lessor, Lessee shall bear the entire risk of any loss, theft, damage to, or destruction of, any unit of Equipment from any cause whatsoever from the time the Equipment is shipped to Lessee. (b) Lessee agrees, at its own expense, to keep all Equipment insured for such amounts and against such hazards as Lessor may reasonably require. All such policies shall be with companies, and on terms, reasonably satisfactory to Lessor. The insurance shall include coverage for damage to or loss of the Equipment, liability for personal injuries, death or property damage. Lessor shall be named as additional insured with a loss payable clause in favor of Lessor, as its interest may appear, irrespective of any breach of warranty or other act or omission of Lessee. The insurance shall provide for liability coverage in an amount equal to at least ONE MILLION U.S. DOLLARS ($1,000,000.00) total liability per occurrence, unless otherwise stated in any Schedule. The casualty/property damage coverage shall be in an amount equal to the higher of the Stipulated Loss value or the full replacement cost of the Equipment. No insurance shall be subject to any co-insurance clause. The insurance policies shall provide that the insurance may not be altered or canceled by the insurer until after thirty (30) days written notice to Lessor. Lessee agrees to deliver to Lessor evidence of insurance reasonably satisfactory to Lessor. (c) Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of loss and claim for insurance, and to make adjustments with insurers and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments with respect to the Equipment. Lessor shall not act as Lessees attorney-in-fact unless Lessee is in default under this Agreement or any Schedule. Lessee shall pay any reasonable expenses of Lessor in adjusting or collecting insurance with respect to the transactions contemplated herein. Lessee will not make adjustments with insurers except with respect to claims for damage to any unit of Equipment where the repair costs are less than the lesser of ten percent (10%) of the original Equipment cost or ten thousand and 00/100 dollars ($10,000). Lessor may, at its option, apply proceeds of insurance, in whole or in part, to (i) repair or replace Equipment or any portion thereof, or (ii) satisfy any obligation of Lessee to Lessor under this Agreement. 9. RETURN OF EQUIPMENT: (a) At the expiration or termination of this Agreement or any Schedule, unless Lessee has exercised its purchase option pursuant to Sections 17 or 18 hereof, Lessee shall perform any testing and repairs required to place the units of Equipment in the same condition and appearance as when received by Lessee (reasonable wear and tear excepted) and in good working order for the original intended purpose of the Equipment. If required the units of Equipment shall be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is reasonably satisfactory to Lessor. Lessee shall remove installed markings that are not necessary for the operation, maintenance or repair of the Equipment. All Equipment will be cleaned, cosmetically acceptable, and in such condition (reasonable wear and tear excepted) as to permit its immediate installation into use in a similar environment for which the Equipment was originally intended to be used. All waste material and fluid must be removed from the Equipment and disposed of in accordance with then current waste disposal laws. Lessee shall return the units of Equipment to a location within the continental United States as Lessor shall direct. Lessee shall obtain and pay for a policy of transit insurance for the redelivery period in an amount equal to the replacement value of the Equipment. The transit insurance must name Lessor as the loss payee. The Lessee shall pay for all costs to comply with this section (a). (b) Until Lessee has fully complied with the requirements of Section 9(a) above, Lessee's rent payment obligation and all other obligations under this Agreement shall continue from month to month notwithstanding any expiration or termination of the lease term. After the expiration or termination of this Agreement or any Schedule, Lessor may terminate the Lessee's right to use the Equipment upon ten (10) days notice to Lessee. (c) Lessee shall provide to Lessor a detailed inventory of all components of the Equipment in such detail as Lessor may request provided such details are recorded in Lessee's asset management records. Lessee shall also provide an up-to-date copy of all other documentation pertaining to the Equipment within fifteen (15) Business Days of Lessor's request. All service manuals, blue prints, process flow diagrams, operating manuals, inventory and maintenance records shall be given to Lessor at least ninety (90) days and not more than one hundred twenty (120) days prior to lease termination, unless Lessee has exercised its purchase option pursuant to Sections 17 or 18 hereof. (d) Lessee shall make the Equipment available for on-site operational inspections by potential purchasers at least one hundred twenty (120) days prior to and continuing up to lease termination, unless Lessee has exercised its purchase option pursuant to Sections 17 or 18 hereof. Lessor shall provide Lessee with reasonable notice prior to any inspection. Lessee shall provide personnel, power and other requirements necessary to demonstrate electrical, hydraulic and mechanical systems for each item of Equipment. (e) At the expiration or termination of this Agreement or any Schedule, unless Lessee has exercised its purchase option pursuant to Sections 17 or 18 hereof, Lessee shall, at its expense, comply with the following on or before such expiration or termination: (i) upon the request of Lessor, immediately disable the Software and deliver to Lessor all media containing the Software, any related source codes and all related manuals (Lessee agrees that Lessor may enter Lessee's premises to confirm that Lessee has complied with the foregoing request), (ii) upon the request of Lessor revoking Lessee's right to use the Software, shall immediately cease using the Software (Lessee agrees that Lessor may enter Lessee's premises to confirm that Lessee has complied with the foregoing demand), (iii) upon the request of Lessor, cause the licensor or the original software consulting firm of any Software to deinstall the Software in a commercially reasonable manner in accordance with the vendor's recommendations and reinstall the Software for use by Lessor or in a third party's system in a commercially reasonable manner in accordance with the vendor's recommendations, (iv) execute and deliver to Lessor an assignment agreement assigning to Lessor all of Lessee's rights as licensee or otherwise under each Software License Agreement relating to Software, and (v) deliver to Lessor a consent from each licensor of Software whereby the licensor consents to the aforesaid assignment and the sublicense of the related Software to any third party selected by Lessor who agrees, in a written statement delivered to the licensor, that all Software shall remain the property of the licensor or its supplier, and that such third party's use of the Software shall be subject to, and that such third party shall abide by, all relevant license or other provisions applicable to the Software contained in the Software License Agreement. 10. DEFAULT AND REMEDIES: (a) Lessor may in writing declare this Agreement in default if: (i) Lessee breaches its obligation to pay rent or any other sum when due and fails to cure the breach within ten (10) days; (ii) Lessee breaches any of its insurance obligations under Section 8; (iii) Lessee breaches any of its other obligations and fails to cure that breach within thirty (30) days after written notice from Lessor; (iv) any representation or warranty made by Lessee in connection with this Agreement shall be false or misleading in any material respect; (v) Lessee or any guarantor or other obligor for the Lessee's obligations hereunder ("GUARANTOR") becomes insolvent or ceases to do business as a going concern; (vi) any Equipment is illegally used; (vii) a petition is filed by or against Lessee or any Guarantor under any bankruptcy or insolvency laws and in the event of an involuntary petition, the petition is not dismissed within forty-five (45) days of the filing date; (viii) there is a default in or a revocation or anticipatory repudiation of any Guarantor's obligations under any guaranty issued in connection with this Agreement; (ix) Lessee or any guarantor shall be in default under any obligation for borrowed money, for the deferred purchase price of property or any lease agreement and the applicable grace period with respect thereto shall have expired; (x) Lessee or any guarantor shall have terminated its existence, consolidated with, merged into or conveyed or leased substantially all of its assets as an entirety to any person (such actions being referred to as an "EVENT"), unless not less than sixty (60) days prior to such Event: (A) such person is organized and existing under the laws of the United States or any state, and executes and delivers to Lessor an agreement containing an effective assumption by such person of the due and punctual performance of this Lease or guaranty thereof, as the case may be, and (B) Lessor is reasonably satisfied as to the credit worthiness of such person; or (xi) there is a change in controlling ownership of the issued and outstanding capital stock of Lessee or any Guarantor at any time, including, by way of example, and not limitation, if American International Group Inc. fails to directly or indirectly own fifty percent (50%) or more, or have controlling ownership of, the issued and outstanding capital stock of Lessee or any Guarantor at any time. Any provision of this Agreement to the contrary notwithstanding, Lessor may exercise all rights and remedies hereunder independently with respect to each Schedule. (b) AFTER A DEFAULT HEREUNDER, AT THE REQUEST OF LESSOR, LESSEE SHALL COMPLY WITH THE PROVISIONS OF SECTION 9(A). LESSEE HEREBY AUTHORIZES LESSOR TO PEACEFULLY ENTER ANY PREMISES WHERE ANY EQUIPMENT MAY BE AND TAKE POSSESSION OF THE EQUIPMENT. LESSEE SHALL IMMEDIATELY PAY TO LESSOR WITHOUT FURTHER DEMAND AS LIQUIDATED DAMAGES FOR LOSS OF A BARGAIN AND NOT AS A PENALTY, THE STIPULATED LOSS VALUE OF THE EQUIPMENT (CALCULATED AS OF THE RENT PAYMENT DATE PRIOR TO THE DECLARATION OF DEFAULT), AND ALL RENTS AND OTHER SUMS THEN DUE UNDER THIS AGREEMENT AND ALL SCHEDULES. LESSOR MAY TERMINATE THIS AGREEMENT AS TO ANY OR ALL OF THE EQUIPMENT. A TERMINATION SHALL OCCUR ONLY UPON WRITTEN NOTICE BY LESSOR TO LESSEE AND ONLY AS TO THE UNITS OF EQUIPMENT SPECIFIED IN ANY SUCH NOTICE. LESSOR MAY, BUT SHALL NOT BE REQUIRED TO, SELL EQUIPMENT AT PRIVATE OR PUBLIC SALE, IN BULK OR IN PARCELS, WITH OR WITHOUT NOTICE, AND WITHOUT HAVING THE EQUIPMENT PRESENT AT THE PLACE OF SALE. LESSOR MAY ALSO, BUT SHALL NOT BE REQUIRED TO, LEASE, OTHERWISE DISPOSE OF OR KEEP IDLE ALL OR PART OF THE EQUIPMENT. LESSOR MAY USE LESSEE'S PREMISES FOR A REASONABLE PERIOD OF TIME FOR ANY OR ALL OF THE PURPOSES STATED ABOVE WITHOUT LIABILITY FOR RENT, COSTS, DAMAGES OR OTHERWISE. THE PROCEEDS OF SALE, LEASE OR OTHER DISPOSITION, IF ANY, SHALL BE APPLIED IN THE FOLLOWING ORDER OF PRIORITIES: (I) TO PAY ALL OF LESSOR'S COSTS, CHARGES AND EXPENSES INCURRED IN TAKING, REMOVING, HOLDING, REPAIRING AND SELLING, LEASING OR OTHERWISE DISPOSING OF EQUIPMENT; THEN, (II) TO THE EXTENT NOT PREVIOUSLY PAID BY LESSEE, TO PAY LESSOR ALL SUMS DUE FROM LESSEE UNDER THIS AGREEMENT; THEN (III) TO REIMBURSE TO LESSEE ANY SUMS PREVIOUSLY PAID BY LESSEE AS LIQUIDATED DAMAGES; AND THEN (IV) TO LESSEE, IF THERE EXISTS ANY SURPLUS. LESSEE SHALL IMMEDIATELY PAY ANY DEFICIENCY IN (I) AND (II) ABOVE. (c) In addition to the foregoing rights after a default hereunder or a default or a termination under any software license agreement relating to any Equipment consisting of software that is licensed by Lessee (a "Software License Agreement"), Lessee shall, at its own expense, (i) upon the request of Lessor, immediately disable any or all of the Equipment consisting of software ("Software") and deliver to Lessor all media containing the Software, any related source codes and all related manuals (Lessee agrees that Lessor may enter Lessee's premises to confirm that Lessee has complied with the foregoing request), (ii) upon the request of Lessor revoking Lessee's right to use the Software, shall immediately cease using the Software (Lessee agrees that Lessor may enter Lessee's premises to confirm that Lessee has complied with the foregoing demand), (iii) upon the request of Lessor, cause the licensor or the original software consulting firm of any Software to deinstall the Software in a commercially reasonable manner in accordance with the vendor's recommendations and reengineer the Software for use in a third party's system and provide consulting services to Lessor and such third party regarding the installation, engineering and use of the Software, and (iv) use its best efforts, subject to the applicable licensor's consent, to promptly take all actions and execute and deliver and cause to be executed and delivered all documents reasonably requested by Lessor to assign to Lessor all of Lessee's rights as licensee or otherwise under the applicable Software License Agreement. Upon such assignment, Lessee's rights with respect to such Software shall cease, and Lessee shall use its best efforts to cause the licensor of the Software to consent to such assignment and to consent to a sublicense of the related Software to a third party, in which case Lessee's rights with respect to such Software shall cease, provided: (i) Lessor notifies the licensor in writing and (ii) such third party agrees, in a written statement delivered to the licensor, that all Software shall remain the property of the licensor or its supplier, as applicable, and that such third party's use of the Software shall be subject to, and that such third party shall abide by, all relevant license or other provisions applicable to the Software contained in the Software License Agreement. (d) The foregoing remedies are cumulative, and any or all thereof may be exercised instead of or in addition to each other or any remedies at law, in equity, or under statute. Lessee waives notice of sale or other disposition (and the time and place thereof), and the manner and place of any advertising. Lessee shall pay Lessor's actual attorney's fees incurred in connection with the enforcement, assertion, defense or preservation of Lessor's rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Waiver of any default shall not be a waiver of any other or subsequent default. (e) Any default under the terms of this or any other agreement between Lessor and Lessee may be declared by Lessor a default under this and any such other agreement. 11. ASSIGNMENT: LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR SUBLET ANY EQUIPMENT OR THE INTEREST OF LESSEE IN THE EQUIPMENT, THIS AGREEMENT OR ANY SCHEDULE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Lessor may, without the consent of or notice to Lessee, assign this Agreement, any Schedule or the right to enter into a Schedule. Lessee agrees that if Lessee receives written notice of an assignment from Lessor, Lessee will pay all rent and all other amounts payable under any assigned Schedule to such assignee or as instructed by Lessor. Lessee also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by assignee. Lessee hereby waives and agrees not to assert against any such assignee any defense, set-off, recoupment claim or counterclaim that Lessee has or may at any time have against Lessor for any reason whatsoever. Lessee acknowledges that it has been advised that (i) General Electric Capital Corporation shall act hereunder and under certain Schedules executed pursuant hereto as agent for certain third party participants (each being herein referred to as a "PARTICIPANT" and, collectively, as the "PARTICIPANTS") and (ii) the interest of Lessor in this Agreement, the Schedules, related instruments and documents and/or the Equipment may be conveyed to, in whole or in part, and may be used as security for financing obtained from, one or more third parties or Participants without the consent of Lessee (the "SYNDICATION"). Lessee agrees reasonably to cooperate with Lessor in connection with the Syndication, including the execution and delivery of such other documents, instruments, notices, opinions, certificates and acknowledgements as reasonably may be required by Lessor or any such Participant; provided, however, in no event shall Lessee be required to consent to any change that would adversely affect any of the economic terms of the transactions contemplated herein. Subject always to the foregoing, this Agreement inures to the benefit of, and is binding upon, the successors and assigns of the parties hereto. 12. NET LEASE: Lessee is unconditionally obligated to pay all rent and other amounts due for the entire lease term no matter what happens, even if the Equipment is damaged or destroyed, if it is defective or if Lessee no longer can use it. Lessee is not entitled to reduce or set-off against rent or other amounts due to Lessor or to anyone to whom Lessor assigns this Agreement or any Schedule whether Lessee's claim arises out of this Agreement, any Schedule, any statement by Lessor, Lessor's liability or any manufacturer's liability, strict liability, negligence or otherwise. 13. INDEMNIFICATION: (a) Lessee hereby agrees to indemnify Lessor or any Participant or their respective agents, employees, successors and assigns (on an after tax basis) from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature arising out of or relating to the Equipment or this Agreement, except to the extent the losses, damages, penalties, injuries, claims, actions, suits or expenses result from Lessor's or such Participant's gross negligence or willful misconduct ("CLAIMS"). This indemnity shall include, but is not limited to, Lessor's strict liability in tort and Claims, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement or environmental damage) or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employees of Lessee. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing. (b) All of Lessor's and each Participant's rights, privileges and indemnities contained in this Section 13 shall survive the expiration or other termination of this Agreement. The rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor and each Participant and their successors and assigns. 14. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED UNDER THIS AGREEMENT OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following: (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Equipment, any inadequacy thereof, any deficiency or defect (latent or otherwise) of the Equipment, or any other circumstance in connection with the Equipment; (ii) the use, operation or performance of any Equipment or any risks relating to it; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Equipment. If, and so long as, no default exists under this Agreement, Lessee shall be, and hereby is, authorized during the term of this Agreement to assert and enforce, whatever claims and rights Lessor may have against any Supplier of the Equipment at Lessee's sole cost and expense, in the name of and for the account of Lessor and/or Lessee, as their interests may appear. 15. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee makes each of the following representations and warranties to Lessor on the date hereof and on the date of execution of each Schedule: (a) Lessee has adequate power and capacity to enter into, and perform under, this Agreement and all related documents (together, the "DOCUMENTS"). Lessee is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is or is to be located. (b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws. (c) No approval, consent or withholding of objections is required from any governmental authority or entity with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained. (d) The entry into and performance by Lessee of the Documents will not: (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or bylaws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Agreement) to which Lessee is a party. (e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which if decided against Lessee will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Agreement. (f) The Equipment accepted under any Certificate of Acceptance is and will remain tangible personal property (other than any software constituting Equipment). (g) Each financial statement delivered to Lessor has been prepared in accordance with generally accepted accounting principles consistently applied (or applicable statutory accounting principles, as the case may be). Since the date of the most recent financial statement, there has been no material adverse change. (h) Lessee's exact legal name is as set forth in the first sentence of this Agreement and Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Agreement). (h) The Equipment will at all times be used for commercial or business purposes. (j) None of the Software that is owned by Lessee and not licensed by Lessee from a third party has been registered with the U.S. Copyright Office or recorded with the U.S. Patent and Trademark Office. 16. OWNERSHIP FOR TAX PURPOSES; GRANT OF SECURITY INTEREST; USURY SAVINGS; SOFTWARE LICENSE AGREEMENTS: (a) For income tax purposes, the parties hereto agree that it is their mutual intention that Lessee shall be considered the owner of the Equipment. Accordingly, Lessor agrees (i) to treat Lessee as the owner of the Equipment on its federal income tax return, (ii) not to take actions or positions inconsistent with such treatment on or with respect to its federal income tax return, and (iii) not to claim any tax benefits available to an owner of the Equipment on or with respect to its federal income tax return. The foregoing undertakings by Lessor shall not be violated by Lessor's taking a tax position inconsistent with the foregoing sentence to the extent such a position is required by law or is taken through inadvertence so long as such inadvertent tax position is reversed by Lessor promptly upon its discovery. Lessor shall in no event be liable to Lessee if Lessee fails to secure any of the tax benefits available to the owner of the Equipment. (b) Lessee hereby grants to Lessor a first security interest in (i) the Equipment, together with all additions, attachments, accessions, accessories and accessions thereto whether or not furnished by the Supplier of the Equipment and any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds of the property in and against which a security interest is granted hereunder and (ii) Lessee's rights under any Software License Agreement relating to the Software, any upgrades of the Software and any rights to indemnification, warranty or guaranty payable to Lessee from time to time with respect to the foregoing and any insurance and other proceeds thereof. This security interest is given to secure the payment and performance of all debts, obligations and liabilities of any kind whatsoever of Lessee to Lessor, now existing or arising in the future under this Agreement or any Schedules attached hereto, and any renewals, extensions and modifications of such debts, obligations and liabilities. (c) It is the intention of the parties hereto to comply with any applicable usury laws to the extent that any Schedule is determined to be subject to such laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in any Schedule or this Agreement, in no event shall any Schedule require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under any Schedule or this Agreement, or in the event that all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under any Schedule or this Agreement shall exceed the maximum amount of interest permitted by applicable law, then in such event (i) the provisions of this paragraph shall govern and control, (ii) neither Lessee nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (iii) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Lessee, at the option of the Lessor, and (iv) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under any Schedule or this Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Lessee or otherwise by Lessor in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for Lessor to receive a greater interest per annum rate than is presently allowed, the Lessee agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. (d) Lessee hereby acknowledges and agrees that, notwithstanding the assignment of any Software License Agreement relating to any Software, (i) Lessee shall maintain its interest in such Software for the duration of the Software License Agreement; (ii) Lessee shall remain solely responsible under the Software License Agreement for the observance and the performance of all of the conditions and obligations to be observed and performed by Lessee thereunder, (iii) Lessee shall make all claims under the Software License Agreement solely against the software licensor; (iv) Lessee shall pay promptly when due all taxes, license fees, assessments and other charges levied or assessed on any of the Software; and (v) Lessor shall not have any duty, responsibility, obligation or liability under any Software License Agreement by reason of any assignment therein to Lessor. 17. EARLY PURCHASE OPTION: (a) Lessee may purchase on an AS IS BASIS all (but not less than all) of the Equipment on any Schedule on any Rent Payment Date after the First Termination Date specified in the applicable Schedule but prior to the last Rent Payment Date of such Schedule (the "EARLY PURCHASE DATE"), for a price equal to (i) the Termination Value (calculated as of the Early Purchase Date) for the Equipment, and (ii) all rent and other sums due and unpaid as of the Early Purchase Date (the "EARLY OPTION PRICE"), plus all applicable sales taxes. Lessee must notify Lessor of its intent to purchase the Equipment in writing at least thirty (30) days, but not more than two hundred seventy (270) days, prior to the Early Purchase Date. If Lessee is in default or if the Schedule or this Agreement has already been terminated, Lessee may not purchase the Equipment. (The purchase option granted by this subsection shall be referred to herein as the "EARLY PURCHASE OPTION"). (b) If Lessee exercises its Early Purchase Option, then on the Early Purchase Date, Lessee shall pay the Early Option Price, plus all applicable sales taxes, to Lessor in cash. 18. END OF LEASE PURCHASE OPTION: Lessee may, at lease expiration, purchase all (but not less than all) of the Equipment on any Schedule on an AS IS BASIS for cash equal to the amount indicated on such Schedule (the "OPTION PAYMENT"), plus all applicable sales taxes. The Option Payment, plus all applicable sales taxes, shall be due and payable in immediately available funds on the expiration date of such Schedule. Lessee must notify Lessor of its intent to purchase the Equipment in writing at least one hundred eighty (180) days prior to the expiration date of the Schedule. If Lessee is in default, or if the Schedule or this Agreement has already been terminated, Lessee may not purchase the Equipment. 19. MISCELLANEOUS: (a) LESSEE AND LESSOR UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. (b) All Equipment shall at all times remain personal property even though it may be attached to real property. The Equipment shall not become part of any other property by reason of any installation in, or attachment to, other real or personal property. (c) Time is of the essence of this Agreement. Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right at any other time to demand strict compliance with this Agreement. Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor pursuant to the Uniform Commercial Code, the U.S. Copyright Act or the U.S. patent and trademark laws. In addition, Lessee hereby authorizes Lessor to file a financing statement and amendments thereto describing the Equipment described in any and all Schedules now and hereafter executed pursuant hereto and adding any other collateral described therein and containing any other information required by the applicable Uniform Commercial Code. Lessee irrevocably grants to Lessor the power to sign Lessee's name, and on its behalf, to execute and file financing statements and other documents pertaining to any or all of the Equipment. All notices required to be given hereunder shall be deemed adequately given if sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have specified in writing. This Agreement and any Schedule and Annexes thereto constitute the entire agreement of the parties with respect to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO. (d) If Lessee does not comply with any provision of this Agreement, Lessor shall have the right, but shall not be obligated, to effect such compliance, in whole or in part. All reasonable amounts spent and obligations incurred or assumed by Lessor in effecting such compliance shall constitute additional rent due to Lessor. Lessee shall pay the additional rent within five business days after the date Lessee receives notice from Lessor requesting payment. Lessor's effecting such compliance shall not be a waiver of Lessee's default. (e) Any rent or other amount not paid to Lessor when due shall bear interest, from the due date until paid, at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law. Any provisions in this Agreement and any Schedule that are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. (f) Lessee hereby irrevocably authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no more than ten percent (10%) within each Schedule to account for equipment change orders, equipment returns, invoicing errors, and similar matters. Lessee acknowledges and agrees that the rent shall be adjusted as a result of the change in the Capitalized Lessor's Cost. Lessor shall send Lessee a written notice stating the final Lessors Cost, if it has changed. (g) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT. (h) Any cancellation or termination by Lessor, pursuant to the provisions of this Agreement, any Schedule, supplement or amendment hereto, of the lease of any Equipment hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder. (i) This Agreement, the Schedule and all of the other Documents may be executed in counterparts. To the extent that any Schedule would constitute chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest therein may be created through the transfer or possession of this Agreement in and of itself without the transfer or possession of the original of a Schedule executed pursuant to this Agreement and incorporating this Agreement by reference; and no security interest in this Agreement and a Schedule may be created by the transfer or possession of any counterpart of the Schedule other than the original thereof, which shall be identified as the document marked Original and all other counterparts shall be marked Duplicate. IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF 21ST CENTURY INSURANCE COMPANY AND AS AGENT FOR CERTAIN PARTICIPANTS By:_____________________________________ By:___________________________ Name:___________________________________ Name:_________________________ Title:____________________________________ Title:________________________ 001 (6/87) CORPORATE LESSEE'S BOARD OF DIRECTORS RESOLUTION The undersigned hereby certifies: (i) that she/he is the Secretary of 21ST CENTURY INSURANCE COMPANY (THE "CORPORATION"); (ii) that the following is a true and correct copy of resolutions duly adopted at a meeting of the Board of Directors of the Corporation duly held on the ____________________ day of ____________________, 2002; and (iii) that said resolutions have not been amended, rescinded, modified or revoked, and are in full force and effect: "RESOLVED, that each of the officers of this Corporation, whose name appears below: __________________________________ ______________________________ __________________________________ President Treasurer __________________________________ ______________________________ _____ Vice President Secretary or the duly elected or appointed successor in office of any or all of them, be, and hereby is, authorized and empowered in the name and on behalf of this Corporation to enter into, execute and deliver a master lease agreement with GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS (together with its successors and assigns, if any, "LESSOR") as Lessor, providing for the leasing to (or sale and leaseback by) this Corporation, from time to time, of certain equipment; and FURTHER RESOLVED, that each officer of this Corporation be, and hereby is, authorized and empowered in the name and on behalf of this Corporation to enter into, execute and deliver any documents and to do and perform all other acts and deeds which may be necessary or appropriate to effectuate the lease (or sale and leaseback) of equipment from Lessor and to secure and carry out the transactions contemplated thereby; and FURTHER RESOLVED, that the Lessor may rely upon the aforesaid resolutions until receipt by it of written notice of any change." IN WITNESS WHEREOF, I have set my hand and affixed the seal of the Corporation this ____________________ day of ____________________, 2002. _________________________________________ (CORPORATE SEAL) Secretary SECURITY AGREEMENT THIS SECURITY AGREEMENT, made as of December 31, 2002 ("AGREEMENT"), by and between General Electric Capital Corporation, for itself and as agent for certain Participants, with an address at 4 North Park Drive Suite 500, Hunt Valley, MD 21030 (together with its successors and assigns, if any, "SECURED PARTY"), and 21st Century Insurance Company, a corporation organized and existing under the laws of the state of California, with its chief executive offices located at 6301 Owensmouth Avenue, Woodland Hills, CA 91367 ("CUSTOMER"). In consideration of the promises herein contained and of certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Customer and Secured Party hereby agree as follows: 1. CREATION OF SECURITY INTEREST: Customer hereby gives, grants and assigns to Secured Party, its successors and assigns forever, a security interest in and against any and all equipment, software and other property listed on the collateral schedule annexed hereto or made a part hereof ("COLLATERAL SCHEDULE"), Customer's rights under any Software License Agreement relating to any of the Collateral that consists of software, any upgrades of the Collateral and any rights to indemnification, warranty or guaranty payable to Customer from time to time with respect to the foregoing, and in and against any and all additions, attachments, accessories and accessions thereto, any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds thereof (all of the foregoing being hereinafter individually and collectively referred to as the "COLLATERAL"). The foregoing security interest is given to secure the payment and performance of any and all installments of rent, other amounts, obligations and liabilities of any kind, nature or description whatsoever (whether due or to become due) of Customer to Secured Party under that certain Master Lease Agreement identified on the Collateral Schedule and the Schedules executed pursuant thereto (collectively, the "LEASE"), this Agreement, and/or any related documents (the Lease, this Agreement and all such related documents being hereinafter collectively referred to as the "TRANSACTION DOCUMENTS"), and any renewals, extensions and modifications of such debts, obligations and liabilities (all of the foregoing being hereinafter referred to as the "INDEBTEDNESS"). 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF CUSTOMER: Customer hereby represents, warrants and covenants that: (a) Customer is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the first paragraph of this Agreement, has its chief executive offices at the location set forth in such paragraph, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations; (b) Customer has adequate power and capacity to enter into, and to perform its obligations, under each of the Transaction Documents; (c) the Transaction Documents have been duly authorized, executed and delivered by Customer and constitute legal, valid and binding agreements enforceable under all applicable laws in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws; (d) no approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by, Customer of any of the Transaction Documents, except such as may have already been obtained; (e) the entry into and performance by Customer of the Transaction Documents will not (i) violate any of the organizational documents of Customer or any judgment, order, law or regulation applicable to Customer, or (ii) result in any breach of, constitute a default under, or result in the creation of any lien, claim or encumbrance on any of Customer's property (except for liens in favor of Secured Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Customer is a party; (f) there are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Customer which could, in the aggregate, have a material adverse effect on Customer, its business or operations, or its ability to perform its obligations under the Transaction Documents; (g) all financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change; (h) the Collateral is not, and will not be, used by Customer for personal, family or household purposes; (i) the Collateral is, and will remain, in good condition and repair and Customer will not be negligent in the care and use thereof; (j) Customer is, and will remain, the sole and lawful owner, and in 20 possession of, the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement; (k) the Collateral is, and will remain, free and clear of all liens, claims and encumbrances of every kind, nature and description (except for liens in favor of Secured Party); (l) Customer's exact legal name is as set forth in the first sentence of this Agreement; (m) none of the Collateral consisting of Software that is owned by Customer and not licensed by Customer from a third party has been registered with the U.S. Copyright Office or recorded with the U.S. Patent and Trademark Office; and (n) Customer shall not register any of the Collateral consisting of software that is owned by Customer and not licensed by Customer from a third party with the U.S. Copyright Office or the U.S. Patent and Trademark Office unless (i) Customer provides Secured Party with written notice at least thirty (30) days prior to the effective date of any such registration and (ii) at Customer's sole cost and expense, execute, deliver and file any documents or filings and take any other action requested by Secured Party in order to perfect or preserve Secured Party's security interest in the Equipment with the U.S. Copyright Office or the U.S. Patent and Trademark Office. 3. COLLATERAL: (a) Until the declaration of any default hereunder, Customer shall remain in possession of the Collateral; provided, however, that Secured Party shall have the right to possess (i) any chattel paper, document, certificate of title or instrument that constitutes a part of the Collateral or possession of which may be required to perfect Secured Party's interest in the Collateral, and (ii) any other Collateral which because of its nature may require that Secured Party's security interest therein be perfected by possession. Secured Party, its successors and assigns, and their respective agents, shall have the right to examine and inspect any of the Collateral at any time during normal business hours, and Secured Party will be responsible for any costs incurred by it in connection with such inspection so long as no default has occurred and is then continuing. Upon any request from Secured Party, Customer shall provide Secured Party with notice of the then current location of the Collateral. (b) Customer shall (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good condition and working order, (iii) use and maintain the Collateral only in compliance with all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for liens in favor of Secured Party). (c) Customer shall not, without the prior written consent of Secured Party, (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the continental United States, or (iii) sell, rent, lease, mortgage, grant a security interest in or otherwise transfer or encumber (except for liens in favor of Secured Party) any of the Collateral. (d) Customer shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on the use thereof, or on this Agreement or any of the other Transaction Documents. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral or to effect compliance with the terms of this Agreement or any of the other Transaction Documents. Customer shall reimburse Secured Party, on demand, for any and all costs and expenses incurred by Secured Party in connection therewith and agrees that such reimbursement obligation shall be secured hereby. (e) Customer shall, at all times, keep accurate and complete records of the Collateral, and Secured Party, its successors and assigns, and their respective agents, shall have the right to examine, inspect, and make extracts from all of Customer's books and records relating to the Collateral at any time during normal business hours, and such inspecting party will be responsible for any costs incurred by it in connection with such inspection so long as no default has occurred and is then continuing. (f) Any third person at any time and from time to time holding all or any portion of the Collateral shall be deemed to, and shall, hold the Collateral as the agent of, and as pledge holder for, Secured Party. At any time and from time to time, Secured Party may give notice to any third person holding all or any portion of the Collateral that such third person is holding the Collateral as the agent of, and as pledge holder for, the Secured Party. 4. INSURANCE: The Collateral shall at all times be held at Customer's risk, and Customer shall keep it insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral which are vehicles, for risk of loss by collision, and where reasonably requested by Secured Party, against other risks as required thereby, for the full replacement value thereof, with companies, in amounts and under policies reasonably acceptable to Secured Party. Customer shall, if Secured Party so requires, deliver to Secured Party policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Party as loss payee thereunder, shall provide for coverage to Secured Party regardless of the breach by Customer of any warranty or representation made therein, shall not be subject to co-insurance, and shall provide for thirty (30) days written notice to Secured Party of the cancellation or material modification thereof. Customer hereby appoints Secured Party as its attorney in fact to make 21 proof of loss, claim for insurance and adjustments with insurers, and to execute or endorse all documents, checks or drafts in connection with payments made as a result of any such insurance policies. Proceeds of insurance shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Indebtedness secured hereby. 5. REPORTS: (a) Customer shall promptly notify Secured Party in the event of (i) any change in the name of Customer or the type of organization of Customer, (ii) any relocation of its chief executive offices, (iii) any relocation of any of the Collateral, (iv) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or (v) any lien, claim or encumbrance attaching or being made against any of the Collateral (other than liens in favor of Secured Party). (b) Customer agrees to comply with Section 4(b) of the Lease. Secured Party may at any reasonable time examine the books and records of Customer and make copies thereof. 6. FURTHER ASSURANCES: (a) Customer shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and do such other acts and things, as Secured Party may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement, whether pursuant to the Uniform Commercial Code, the U.S. Copyright Act, the U.S. patent and trademark laws or otherwise. Without limiting the foregoing, Customer shall cooperate and do all acts deemed necessary or advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall obtain and furnish to Secured Party any subordinations, releases, landlord, lessor, or mortgagee waivers, and similar documents as may be from time to time requested by, and which are in form and substance reasonably satisfactory to, Secured Party. (b) Customer hereby grants to Secured Party the power to sign Customer's name and generally to act on behalf of Customer to execute and file applications for title, transfers of title, financing statements, notices of lien and other documents pertaining to any or all of the Collateral. Customer shall, if any certificate of title be required or permitted by law for any of the Collateral, obtain such certificate showing the lien hereof with respect to the Collateral and promptly deliver same to Secured Party. (c) Customer shall indemnify and defend the Secured Party, the Participants and their respective successors and assigns, and their respective directors, officers and employees, from and against any and all claims, actions and suits (including, without limitation, related attorneys' fees) of any kind, nature or description whatsoever arising, directly or indirectly, in connection with any of the Collateral. (d) Customer hereby authorizes Secured Party to file a financing statement and amendments thereto describing the Collateral and adding any other collateral described therein and containing any other information required by the applicable Uniform Commercial Code, U.S. Copyright Act or U.S. patent and trademark laws. 7. EVENTS OF DEFAULT: Customer shall be in default under this Agreement and each of the other Transaction Documents upon the occurrence of any of the following "EVENT(S) OF DEFAULT": (a) Customer fails to pay any installment or other amount due or coming due under any of the Transaction Documents within ten (10) days after its due date; (b) any attempt by Customer, without the prior written consent of Secured Party, to sell, rent, lease, mortgage, grant a security interest in, or otherwise transfer or encumber (except for liens in favor of Secured Party) any of the Collateral; (c) Customer fails to procure, or maintain in effect at all times, any of the insurance on the Collateral in accordance with Section 4 of this Agreement; (d) Customer breaches any of its other obligations under any of the Transaction Documents and fails to cure the same within thirty (30) days after written notice thereof; (e) any warranty, representation or statement made by Customer in any of the Transaction Documents or otherwise in connection with any of the Indebtedness shall be false or misleading in any material respect; (f) any of the Collateral being subjected to, or being threatened with, attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise; (g) any default by Customer under the Lease or any other Transaction Documents. 8. REMEDIES ON DEFAULT: 22 (a) Upon the occurrence of an Event of Default under this Agreement, the Secured Party, at its option, may declare any or all of the Indebtedness (including, without limitation, the Lease) to be immediately due and payable, without demand or notice to Customer or any Guarantor. The obligations and liabilities accelerated thereby shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law. (b) Upon such declaration of default, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify any customer of Customer or any obligor on any instrument which constitutes part of the Collateral to make payment to the Secured Party, (ii) with or without legal process, enter any premises where the Collateral may be and take possession and/or remove said Collateral from said premises, (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, and/or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds therefrom to the obligations then in default. If requested by Secured Party, Customer shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may also render any or all of the Collateral unusable at the Customer's premises and may dispose of such Collateral on such premises without liability for rent or costs. Any notice which Secured Party is required to give to Customer under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Customer at least five (5) days prior to such action. In addition to the foregoing rights after a default hereunder or a default or a termination under any software license agreement relating to any Collateral consisting of software that is licensed by Customer (a "Software License Agreement"), Customer shall, at its own expense, (i) upon the request of Secured Party, immediately disable any or all of the Equipment consisting of software ("Software") and deliver to Secured Party all media containing the Software and all related manuals (Customer agrees that Secured Party may enter Customer's premises to confirm that Customer has complied with the foregoing request), (ii) upon the request of Secured Party revoking Customer's right to use the Software, shall immediately cease using the Software (Customer agrees that Secured Party may enter Customer's premises to confirm that Customer has complied with the foregoing demand), (iii) upon the request of Secured Party, cause the licensor or the original software consulting firm of any Software to deinstall the Software in a commercially reasonable manner in accordance with the vendor's recommendations and reengineer the Software for use in a third party's system and provide consulting services to Secured Party and such third party regarding the installation, engineering and use of the Software, and (iv) use its best efforts, subject to the applicable licensor's consent, to promptly take all actions and execute and deliver and cause to be executed and delivered all documents reasonably requested by Secured Party to assign to Secured Party all of Customer's rights as licensee or otherwise under the applicable Software License Agreement. Upon such assignment, Customer's rights with respect to such Software shall cease, and Customer shall use its best efforts to cause the licensor of the Software to consent to such assignment and to consent to a sublicense of the related Software to a third party, in which case Customer's rights with respect to such Software shall cease, provided: (i) Secured Party notifies the licensor in writing and (ii) such third party agrees, in a written statement delivered to the licensor, that all Software shall remain the property of the licensor or its supplier, as applicable, and that such third party's use of the Software shall be subject to, and that such third party shall abide by, all relevant license or other provisions applicable to the Software contained in the Software License Agreement (c) Proceeds from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys', appraisers', and auctioneers' fees; second, to discharge the obligations then in default; third, to discharge any other Indebtedness of Customer to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral; and lastly, to Customer, if there exists any surplus. Customer shall remain fully liable for any deficiency. (d) In the event that any of the Transaction Documents are placed in the hands of an attorney for collection of money due or to become due or to obtain performance of any provision hereof, Customer agrees to pay all reasonable attorneys' fees incurred by Secured Party, and further agrees that payment of such fees is secured hereunder. Customer and Secured Party agree that such fees to the extent not in excess of twenty percent (20%) of subject amount owing after default (if permitted by law, or such lesser sum as may otherwise be permitted by law) shall be deemed reasonable. (e) Secured Party's rights and remedies hereunder or otherwise arising are cumulative and may be exercised singularly or concurrently. Neither the failure nor any delay on the part of the Secured Party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Secured Party shall not be deemed to have waived any of its rights hereunder or under any other agreement, instrument or paper signed by Customer unless such waiver be in writing and signed by Secured Party. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. (f) CUSTOMER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER TRANSACTION DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN CUSTOMER AND SECURED PARTY RELATING TO 23 THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN CUSTOMER AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 9. MISCELLANEOUS: (a) This Agreement, the Lease and/or any of the other Transaction Documents may be assigned, in whole or in part, by Secured Party without notice to Customer, and Customer hereby waives any defense, counterclaim or cross-complaint by Customer against any assignee, agreeing that Secured Party shall be solely responsible therefor. (b) All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth hereinabove (unless and until a different address may be specified in a written notice to the other party), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term "business day" shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed. (c) Secured Party may correct patent errors herein and fill in all blanks herein or in the Collateral Schedule consistent with the agreement of the parties. (d) Time is of the essence hereof. This Agreement shall be binding, jointly and severally, upon all parties described as the "CUSTOMER" and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns. (e) This Agreement and its Collateral Schedule constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior understandings (whether written, verbal or implied) with respect thereto. This Agreement and its Collateral Schedule shall not be changed or terminated orally or by course of conduct, but only by a writing signed by both parties hereto. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation hereof. (f) This Agreement shall continue in full force and effect until all of the Indebtedness has been indefeasibly paid in full to Secured Party. This Agreement shall automatically be reinstated in the event that Secured Party is ever required to return or restore the payment of all or any portion of the Indebtedness (all as though such payment had never been made). (g) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL. 24 IN WITNESS WHEREOF, Customer and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid. SECURED PARTY: CUSTOMER: GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF 21ST CENTURY INSURANCE COMPANY AND AS AGENT FOR CERTAIN PARTICIPANTS By:_____________________________________________ By:___________________________ Name:___________________________________________ Name:_________________________ Title:__________________________________________ Title:________________________ 25 SECURITY AGREEMENT THIS SECURITY AGREEMENT, made as of December 31, 2002 ("AGREEMENT"), by and between General Electric Capital Corporation, for itself and as agent for certain Participants, with an address at 4 North Park Drive Suite 500, Hunt Valley, MD 21030 (together with its successors and assigns, if any, "SECURED PARTY"), and 21st Century Insurance Group, a California corporation organized and existing under the laws of the state of California, with its chief executive offices located at 6301 Owensmouth Avenue, Woodland Hills, CA 91367 ("GUARANTOR"). In consideration of the promises herein contained and of certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor and Secured Party hereby agree as follows: 1. CREATION OF SECURITY INTEREST: Guarantor hereby gives, grants and assigns to Secured Party, its successors and assigns forever, a security interest in and against any and all equipment, software and other property listed on the collateral schedule annexed hereto or made a part hereof ("COLLATERAL SCHEDULE"), Guarantor's rights under any Software License Agreement relating to any of the Collateral that consists of software, any upgrades of the Collateral and any rights to indemnification, warranty or guaranty payable to Guarantor from time to time with respect to the foregoing, and in and against any and all additions, attachments, accessories and accessions thereto, any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds thereof (all of the foregoing being hereinafter individually and collectively referred to as the "COLLATERAL"). The foregoing security interest is given to secure the payment and performance of any and all installments of rent, other amounts, obligations and liabilities of any kind, nature or description whatsoever (whether due or to become due) of Guarantor to Secured Party under that certain Corporate Guaranty identified on the Collateral Schedule (the "GUARANTY"), this Agreement, and/or any related documents (the Guaranty, this Agreement and all such related documents being hereinafter collectively referred to as the "TRANSACTION DOCUMENTS"), and any renewals, extensions and modifications of such debts, obligations and liabilities (all of the foregoing being hereinafter referred to as the "INDEBTEDNESS"). 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF GUARANTOR: Guarantor hereby represents, warrants and covenants that: (a) Guarantor is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the first paragraph of this Agreement, has its chief executive offices at the location set forth in such paragraph, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations; (b) Guarantor has adequate power and capacity to enter into, and to perform its obligations, under each of the Transaction Documents; (c) the Transaction Documents have been duly authorized, executed and delivered by Guarantor and constitute legal, valid and binding agreements enforceable under all applicable laws in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws; (d) no approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by, Guarantor of any of the Transaction Documents, except such as may have already been obtained; (e) the entry into and performance by Guarantor of the Transaction Documents will not (i) violate any of the organizational documents of Guarantor or any judgment, order, law or regulation applicable to Guarantor, or (ii) result in any breach of, constitute a default under, or result in the creation of any lien, claim or encumbrance on any of Guarantor's property (except for liens in favor of Secured Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Guarantor is a party; (f) there are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Guarantor which could, in the aggregate, have a material adverse effect on Guarantor, its business or operations, or its ability to perform its obligations under the Transaction Documents; (g) all financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change; (h) the Collateral is not, and will not be, used by Guarantor for personal, family or household purposes; (i) the Collateral is, and will remain, in good condition and repair and 26 Guarantor will not be negligent in the care and use thereof; (j) Guarantor is, and will remain, the sole and lawful owner, and in possession of, the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement; (k) the Collateral is, and will remain, free and clear of all liens, claims and encumbrances of every kind, nature and description (except for liens in favor of Secured Party); (l) Guarantor's exact legal name is as set forth in the first sentence of this Agreement; (m) none of the Collateral consisting of Software that is owned by Guarantor and not licensed by Guarantor from a third party has been registered with the U.S. Copyright Office or recorded with the U.S. Patent and Trademark Office; and (n) Guarantor shall not register any of the Collateral consisting of software that is owned by Guarantor and not licensed by Guarantor from a third party with the U.S. Copyright Office or the U.S. Patent and Trademark Office unless (i) Guarantor provides Secured Party with written notice at least thirty (30) days prior to the effective date of any such registration and (ii) at Guarantor's sole cost and expense, execute, deliver and file any documents or filings and take any other action requested by Secured Party in order to perfect or preserve Secured Party's security interest in the Equipment with the U.S. Copyright Office or the U.S. Patent and Trademark Office. 3. COLLATERAL: (a) Until the declaration of any default hereunder, Guarantor shall remain in possession of the Collateral; provided, however, that Secured Party shall have the right to possess (i) any chattel paper, document, certificate of title or instrument that constitutes a part of the Collateral or possession of which may be required to perfect Secured Party's interest in the Collateral, and (ii) any other Collateral which because of its nature may require that Secured Party's security interest therein be perfected by possession. Secured Party, its successors and assigns, and their respective agents, shall have the right to examine and inspect any of the Collateral at any time during normal business hours, and Secured Party will be responsible for any costs incurred by it in connection with such inspection so long as no default has occurred and is then continuing. Upon any request from Secured Party, Guarantor shall provide Secured Party with notice of the then current location of the Collateral. (b) Guarantor shall (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good condition and working order, (iii) use and maintain the Collateral only in compliance with all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for liens in favor of Secured Party). (c) Guarantor shall not, without the prior written consent of Secured Party, (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the continental United States, or (iii) sell, rent, Guaranty, mortgage, grant a security interest in or otherwise transfer or encumber (except for liens in favor of Secured Party) any of the Collateral. (d) Guarantor shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on the use thereof, or on this Agreement or any of the other Transaction Documents. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral or to effect compliance with the terms of this Agreement or any of the other Transaction Documents. Guarantor shall reimburse Secured Party, on demand, for any and all costs and expenses incurred by Secured Party in connection therewith and agrees that such reimbursement obligation shall be secured hereby. (e) Guarantor shall, at all times, keep accurate and complete records of the Collateral, and Secured Party, its successors and assigns, and their respective agents, shall have the right to examine, inspect, and make extracts from all of Guarantor's books and records relating to the Collateral at any time during normal business hours, and such inspecting party will be responsible for any costs incurred by it in connection with such inspection so long as no default has occurred and is then continuing. (f) Any third person at any time and from time to time holding all or any portion of the Collateral shall be deemed to, and shall, hold the Collateral as the agent of, and as pledge holder for, Secured Party. At any time and from time to time, Secured Party may give notice to any third person holding all or any portion of the Collateral that such third person is holding the Collateral as the agent of, and as pledge holder for, the Secured Party. 4. INSURANCE: The Collateral shall at all times be held at Guarantor's risk, and Guarantor shall keep it insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral which are vehicles, for risk of loss by collision, and where reasonably requested by Secured Party, against other risks as required thereby, for the full replacement value thereof, with companies, in amounts and under policies reasonably acceptable to Secured Party. Guarantor shall, if Secured Party so requires, deliver to Secured Party policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Party as loss payee thereunder, shall provide for coverage to Secured Party regardless of the breach by Guarantor of any warranty or representation made therein, shall not be subject to co-insurance, and shall provide for thirty (30) days written notice to Secured 27 Party of the cancellation or material modification thereof. Guarantor hereby appoints Secured Party as its attorney in fact to make proof of loss, claim for insurance and adjustments with insurers, and to execute or endorse all documents, checks or drafts in connection with payments made as a result of any such insurance policies. Proceeds of insurance shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Indebtedness secured hereby. 5. REPORTS: (a) Guarantor shall promptly notify Secured Party in the event of (i) any change in the name of Guarantor or the type of organization of Guarantor, (ii) any relocation of its chief executive offices, (iii) any relocation of any of the Collateral, (iv) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or (v) any lien, claim or encumbrance attaching or being made against any of the Collateral (other than liens in favor of Secured Party). (b) Guarantor agrees to comply with Section 4(b) of the Guaranty. Secured Party may at any reasonable time examine the books and records of Guarantor and make copies thereof. 6. FURTHER ASSURANCES: (a) Guarantor shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and do such other acts and things, as Secured Party may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement, whether pursuant to the Uniform Commercial Code, the U.S. Copyright Act, the U.S. patent and trademark laws or otherwise. Without limiting the foregoing, Guarantor shall cooperate and do all acts deemed necessary or advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall obtain and furnish to Secured Party any subordinations, reGuarantys, landlord, lessor, or mortgagee waivers, and similar documents as may be from time to time requested by, and which are in form and substance reasonably satisfactory to, Secured Party. (b) Guarantor hereby grants to Secured Party the power to sign Guarantor's name and generally to act on behalf of Guarantor to execute and file applications for title, transfers of title, financing statements, notices of lien and other documents pertaining to any or all of the Collateral. Guarantor shall, if any certificate of title be required or permitted by law for any of the Collateral, obtain such certificate showing the lien hereof with respect to the Collateral and promptly deliver same to Secured Party. (c) Guarantor shall indemnify and defend the Secured Party, the Participants and their respective successors and assigns, and their respective directors, officers and employees, from and against any and all claims, actions and suits (including, without limitation, related attorneys' fees) of any kind, nature or description whatsoever arising, directly or indirectly, in connection with any of the Collateral. (d) Guarantor hereby authorizes Secured Party to file a financing statement and amendments thereto describing the Collateral and adding any other collateral described therein and containing any other information required by the applicable Uniform Commercial Code, U.S. Copyright Act or U.S. patent and trademark laws. 7. EVENTS OF DEFAULT: Guarantor shall be in default under this Agreement and each of the other Transaction Documents upon the occurrence of any of the following "EVENT(S) OF DEFAULT": (a) Guarantor fails to pay any amount due or coming due under any of the Transaction Documents within ten (10) days after its due date; (b) any attempt by Guarantor, without the prior written consent of Secured Party, to sell, rent, mortgage, grant a security interest in, or otherwise transfer or encumber (except for liens in favor of Secured Party) any of the Collateral; (c) Guarantor fails to procure, or maintain in effect at all times, any of the insurance on the Collateral in accordance with Section 4 of this Agreement; (d) Guarantor breaches any of its other obligations under any of the Transaction Documents and fails to cure the same within thirty (30) days after written notice thereof; (e) any warranty, representation or statement made by Guarantor in any of the Transaction Documents or otherwise in connection with any of the Indebtedness shall be false or misleading in any material respect; (f) any of the Collateral being subjected to, or being threatened with, attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise; (g) any default by Guarantor or 21st Century Insurance Company ("CUSTOMER") under the Guaranty or any other Transaction Documents. 8. REMEDIES ON DEFAULT: 28 (a) Upon the occurrence of an Event of Default under this Agreement, the Secured Party, at its option, may declare any or all of the Indebtedness (including, without limitation, the Guaranty) to be immediately due and payable, without demand or notice to Customer or Guarantor. The obligations and liabilities accelerated thereby shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law. (b) Upon such declaration of default, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify Guarantor, Customer or any obligor on any instrument which constitutes part of the Collateral to make payment to the Secured Party, (ii) with or without legal process, enter any premises where the Collateral may be and take possession and/or remove said Collateral from said premises, (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, and/or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds therefrom to the obligations then in default. If requested by Secured Party, Guarantor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may also render any or all of the Collateral unusable at the Guarantor's premises and may dispose of such Collateral on such premises without liability for rent or costs. Any notice which Secured Party is required to give to Guarantor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Guarantor at least five (5) days prior to such action. In addition to the foregoing rights after a default hereunder or a default or a termination under any software license agreement relating to any Collateral consisting of software that is licensed by Guarantor (a "SOFTWARE LICENSE AGREEMENT"), Guarantor shall, at its own expense, (i) upon the request of Secured Party, immediately disable any or all of the Equipment consisting of software ("SOFTWARE") and deliver to Secured Party all media containing the Software and all related manuals (Guarantor agrees that Secured Party may enter Guarantor's premises to confirm that Guarantor has complied with the foregoing request), (ii) upon the request of Secured Party revoking Guarantor's right to use the Software, shall immediately cease using the Software (Guarantor agrees that Secured Party may enter Guarantor's premises to confirm that Guarantor has complied with the foregoing demand), (iii) upon the request of Secured Party, cause the licensor or the original software consulting firm of any Software to deinstall the Software in a commercially reasonable manner in accordance with the vendor's recommendations and reengineer the Software for use in a third party's system and provide consulting services to Secured Party and such third party regarding the installation, engineering and use of the Software, and (iv) use its best efforts, subject to the applicable licensor's consent, to promptly take all actions and execute and deliver and cause to be executed and delivered all documents reasonably requested by Secured Party to assign to Secured Party all of Guarantor's rights as licensee or otherwise under the applicable Software License Agreement. Upon such assignment, Guarantor's rights with respect to such Software shall cease, and Guarantor shall use its best efforts to cause the licensor of the Software to consent to such assignment and to consent to a sublicense of the related Software to a third party, in which case Guarantor's rights with respect to such Software shall cease, provided: (i) Secured Party notifies the licensor in writing and (ii) such third party agrees, in a written statement delivered to the licensor, that all Software shall remain the property of the licensor or its supplier, as applicable, and that such third party's use of the Software shall be subject to, and that such third party shall abide by, all relevant license or other provisions applicable to the Software contained in the Software License Agreement. (c) Proceeds from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys', appraisers', and auctioneers' fees; second, to discharge the obligations then in default; third, to discharge any other Indebtedness of Guarantor to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral; and lastly, to Guarantor, if there exists any surplus. Guarantor shall remain fully liable for any deficiency. (d) In the event that any of the Transaction Documents are placed in the hands of an attorney for collection of money due or to become due or to obtain performance of any provision hereof, Guarantor agrees to pay all reasonable attorneys' fees incurred by Secured Party, and further agrees that payment of such fees is secured hereunder. Guarantor and Secured Party agree that such fees to the extent not in excess of twenty percent (20%) of subject amount owing after default (if permitted by law, or such lesser sum as may otherwise be permitted by law) shall be deemed reasonable. (e) Secured Party's rights and remedies hereunder or otherwise arising are cumulative and may be exercised singularly or concurrently. Neither the failure nor any delay on the part of the Secured Party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Secured Party shall not be deemed to have waived any of its rights hereunder or under any other agreement, instrument or paper signed by Guarantor unless such waiver be in writing and signed by Secured Party. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. (f) GUARANTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER TRANSACTION 29 DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN GUARANTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN GUARANTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 9. MISCELLANEOUS: (b) This Agreement, the Guaranty and/or any of the other Transaction Documents may be assigned, in whole or in part, by Secured Party without notice to Guarantor, and Guarantor hereby waives any defense, counterclaim or cross-complaint by Guarantor against any assignee, agreeing that Secured Party shall be solely responsible therefor. (b) All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth hereinabove (unless and until a different address may be specified in a written notice to the other party), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term "business day" shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed. (c) Secured Party may correct patent errors herein and fill in all blanks herein or in the Collateral Schedule consistent with the agreement of the parties. (d) Time is of the essence hereof. This Agreement shall be binding, jointly and severally, upon all parties described as the "GUARANTOR" and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns. (e) This Agreement and its Collateral Schedule constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior understandings (whether written, verbal or implied) with respect thereto. This Agreement and its Collateral Schedule shall not be changed or terminated orally or by course of conduct, but only by a writing signed by both parties hereto. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation hereof. (f) This Agreement shall continue in full force and effect until all of the Indebtedness has been indefeasibly paid in full to Secured Party. This Agreement shall automatically be reinstated in the event that Secured Party is ever required to return or restore the payment of all or any portion of the Indebtedness (all as though such payment had never been made). (g) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL. 30 IN WITNESS WHEREOF, Guarantor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid. SECURED PARTY: GUARANTOR: GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF 21ST CENTURY INSURANCE GROUP AND AS AGENT FOR CERTAIN PARTICIPANTS By:__________________________________ By:__________________________ Name:________________________________ Name:________________________ Title:_______________________________ Title:_______________________ 31 COLLATERAL SCHEDULE THIS COLLATERAL SCHEDULE is annexed to and made a part of that certain Security Agreement dated as of December 31, 2002, between GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS, together with its successors and assigns, if any, as Secured Party and 21ST CENTURY INSURANCE GROUP, as Guarantor and describes collateral in which Guarantor has granted Secured Party a security interest in connection with the Indebtedness (as defined in the Security Agreement) including without limitation that certain Corporate Guaranty dated December 31, 2002 entered into by Guarantor in favor of Secured Party. DESCRIPTION OF COLLATERAL: All software now and hereafter owned or licensed by Guarantor, including but not limited to the COGEN software system, Guarantor's rights under any Software License Agreement relating to any of the Collateral that consists of software, any upgrades of the Collateral and any rights to indemnification, warranty or guaranty payable to Guarantor from time to time with respect to the foregoing, and in and against any and all additions, attachments, accessories and accessions thereto, any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds thereof. SECURED PARTY: GUARANTOR: GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF 21ST CENTURY INSURANCE GROUP AND AS AGENT FOR CERTAIN PARTICIPANTS By:_____________________________________________ By:__________________________ Name:___________________________________________ Name:________________________ Title:__________________________________________ Title:_______________________ Date:___________________________________________ Date:________________________ 32 CORPORATE GUARANTY Date: December 31, 2002 General Electric Capital Corporation, for itself and as agent for certain participants 4 North Park Drive Suite 500 Hunt Valley, MD 21030 To induce you to enter into, purchase or otherwise acquire, now or at any time hereafter, any promissory notes, security agreements, chattel mortgages, pledge agreements, conditional sale contracts, lease agreements, and/or any other documents or instruments evidencing, or relating to, any lease, loan, extension of credit or other financial accommodation (collectively "ACCOUNT DOCUMENTS" and each an "ACCOUNT DOCUMENT") to 21ST CENTURY INSURANCE COMPANY, a corporation organized and existing under the laws of the State of California ("CUSTOMER"), but without in any way binding you to do so, the undersigned, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby guarantee to you, your successors and assigns, the due regular and punctual payment of any sum or sums of money which the Customer may owe to you now or at any time hereafter, whether evidenced by an Account Document, on open account or otherwise, and whether it represents principal, interest, rent, late charges, indemnities, an original balance, an accelerated balance, liquidated damages, a balance reduced by partial payment, a deficiency after sale or other disposition of any leased equipment, collateral or security, or any other type of sum of any kind whatsoever that the Customer may owe to you now or at any time hereafter, and does hereby further guarantee to you, your successors and assigns, the due, regular and punctual performance of any other duty or obligation of any kind or character whatsoever that the Customer may owe to you now or at any time hereafter (all such payment and performance obligations being collectively referred to as "OBLIGATIONS"). Undersigned does hereby further guarantee to pay upon demand all losses, costs, attorneys' fees and expenses which may be suffered by you by reason of Customer's default or default of the undersigned. This Guaranty is a guaranty of prompt payment and performance (and not merely a guaranty of collection). Nothing herein shall require you to first seek or exhaust any remedy against the Customer, its successors and assigns, or any other person obligated with respect to the Obligations, or to first foreclose, exhaust or otherwise proceed against any leased equipment, collateral or security which may be given in connection with the Obligations. It is agreed that you may, upon any breach or default of the Customer, or at any time thereafter, make demand upon the undersigned and receive payment and performance of the Obligations, with or without notice or demand for payment or performance by the Customer, its successors or assigns, or any other person. Suit may be brought and maintained against the undersigned, at your election, without joinder of the 33 Customer or any other person as parties thereto. The obligations of each signatory to this Guaranty shall be joint and several. The undersigned agrees that its obligations under this Guaranty shall be primary, absolute, continuing and unconditional, irrespective of and unaffected by any of the following actions or circumstances (regardless of any notice to or consent of the undersigned): (a) the genuineness, validity, regularity and enforceability of the Account Documents or any other document; (b) any extension, renewal, amendment, change, waiver or other modification of the Account Documents or any other document; (c) the absence of, or delay in, any action to enforce the Account Documents, this Guaranty or any other document; (d) your failure or delay in obtaining any other guaranty of the Obligations (including, without limitation, your failure to obtain the signature of any other guarantor hereunder); (e) the release of, extension of time for payment or performance by, or any other indulgence granted to the Customer or any other person with respect to the Obligations by operation of law or otherwise; (f) the existence, value, condition, loss, subordination or release (with or without substitution) of, or failure to have title to or perfect and maintain a security interest in, or the time, place and manner of any sale or other disposition of any leased equipment, collateral or security given in connection with the Obligations, or any other impairment (whether intentional or negligent, by operation of law or otherwise) of the rights of the undersigned; (g) the Customer's voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization, or similar proceedings affecting the Customer or any of its assets; or (h) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. This Guaranty, the Account Documents and the Obligations may be assigned by you, without the consent of the Undersigned. The Undersigned agrees that if it receives written notice of an assignment from you, the Undersigned will pay all amounts due hereunder to such assignee or as instructed by you. The Undersigned also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by assignee. The Undersigned hereby waives and agrees not to assert against any such assignee any of the defenses set forth in the immediate preceding paragraph. This Guaranty may be terminated upon delivery to you (at your address shown above) of a written termination notice from the undersigned. However, as to all Obligations (whether matured, unmatured, absolute, contingent or otherwise) incurred by the Customer prior to your receipt of such written termination notice (and regardless of any subsequent amendment, extension or other modification which may be made with respect to such Obligations), this Guaranty shall nevertheless continue and remain undischarged until all such Obligations are indefeasibly paid and performed in full. The undersigned agrees that this Guaranty shall remain in full force and effect or be reinstated (as the case may be) if at any time payment or performance of any of the Obligations (or any part thereof) is rescinded, reduced or must otherwise be restored or returned by you, all as though such payment or performance had not been made. If, by reason of any bankruptcy, insolvency or similar laws effecting the rights of creditors, you 34 shall be prohibited from exercising any of your rights or remedies against the Customer or any other person or against any property, then, as between you and the undersigned, such prohibition shall be of no force and effect, and you shall have the right to make demand upon, and receive payment from, the undersigned of all amounts and other sums that would be due to you upon a default with respect to the Obligations. The undersigned covenants and agrees that: (a) it will provide to you: (1) within ninety (90) days after the end of each of its fiscal years, its balance sheet and related statement of income and statement of cash flows of Guarantor, prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), all in reasonable detail and certified by independent certified public accountants of recognized standing selected by the undersigned; (2) within sixty (60) days after the end of each quarter of its fiscal year, its balance sheet and related statement of income and statement of cash flows for such quarter, internally prepared in accordance with GAAP and certified by its chief financial officer; and (3) within thirty (30) days after the date on which they are filed, all regular periodic reports, forms and other filings required to be made by the undersigned to the Securities and Exchange Commission, including (without limitation) Forms 8Q, 10K and 10Q; and (b) it will promptly execute and deliver to you such further documents, instruments and assurances and take such further action as you from time to time reasonably may request in order to carry out the intent and purpose of this Guaranty and to establish and protect the rights and remedies created or intended to be created in your favor hereunder. Notice of acceptance of this Guaranty and of any default by the Customer or any other person is hereby waived. Presentment, protest demand, and notice of protest, demand and dishonor of any of the Obligations, and the exercise of possessory, collection or other remedies for the Obligations, are hereby waived. The undersigned warrants that it has adequate means to obtain from the Customer on a continuing basis financial data and other information regarding the Customer and is not relying upon you to provide any such data or other information. Without limiting the foregoing, notice of adverse change in the Customer's financial condition or of any other fact which might materially increase the risk of the undersigned is also waived. All settlements, compromises, accounts stated and agreed balances made in good faith between the Customer, its successors or assigns, and you shall be binding upon and shall not affect the liability of the undersigned. Payment of all amounts now or hereafter owed to the undersigned by the Customer or any other obligor for any of the Obligations is hereby subordinated in right of payment to the indefeasible payment in full to you of all Obligations and is hereby assigned to you as a security therefor. The undersigned hereby irrevocably and unconditionally waives and relinquishes all statutory, contractual, common law, equitable and all other claims against the Customer, any other obligor for any of the Obligations, any collateral therefor, or any other assets of the Customer or any such other obligor, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect of sums paid or payable to you by the undersigned hereunder, and the undersigned hereby further irrevocably and unconditionally waives and relinquishes any and all other benefits which it might otherwise directly or indirectly receive or be entitled 35 to receive by reason of any amounts paid by, or collected or due from, it, the Customer or any other obligor for any of the Obligations, or realized from any of their respective assets. THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. As used in this Guaranty, the word "person" shall include any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or any government or any political subdivision thereof. This Guaranty is intended by the parties as a final expression of the guaranty of the undersigned and is also intended as a complete and exclusive statement of the terms thereof. No course of dealing, course of performance or trade usage, nor any paid evidence of any kind, shall be used to supplement or modify any of the terms hereof. Nor are there any conditions to the full effectiveness of this Guaranty. This Guaranty and each of its provisions may only be waived, modified, varied, released, terminated or surrendered, in whole or in part, by a duly authorized written instrument signed by you. No failure by you to exercise your rights hereunder shall give rise to any estoppel against you, or excuse the undersigned from performing hereunder. Your waiver of any right to demand performance hereunder shall not be a waiver of any subsequent or other right to demand performance hereunder. This Guaranty shall bind the undersigned's successors and assigns and the benefits thereof shall extend to and include your successors and assigns. In the event of default hereunder, you may at any time inspect undersigned's records, or at your option, undersigned shall furnish you with a current independent audit report. If any provisions of this Guaranty are in conflict with any applicable statute, rule or law, then such provisions shall be deemed null and void to the extent that they may conflict therewith, but without invalidating any other provisions hereof. 36 EACH SIGNATORY ON BEHALF OF A CORPORATE GUARANTOR WARRANTS THAT HE HAD AUTHORITY TO SIGN ON BEHALF OF SUCH CORPORATION AND BY SO SIGNING, TO BIND SAID GUARANTOR CORPORATION HEREUNDER. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERENED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF ANY COLLATERAL OR THE CUSTOMER OR GUARANTOR. IN WITNESS WHEREOF, this Guaranty is executed the day and year above written. 21ST CENTURY INSURANCE GROUP By: ___________________________________ (Signature) Title: ___________________________________ (Officer's Title) ATTEST: ___________________________________ Secretary/Assistant Secretary 37 CERTIFIED RESOLUTION The undersigned hereby certifies that he is Secretary of 21ST CENTURY INSURANCE GROUP, that the following resolution was passed at a meeting of the Board of Directors of said corporation held on _________________________, 2002 duly called, a quorum being present, that said resolution has not since been revoked or amended, and that the form of guaranty referred to therein is the form shown attached hereto: "RESOLVED that it is to the benefit of this corporation that (a) it execute (i) a guaranty of the obligations of 21ST CENTURY INSURANCE GROUP ("CUSTOMER") to GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS (collectively, "GE CAPITAL"), and (ii) a security agreement, in favor of GE Capital, securing such guaranty (collectively, the "GUARANTY DOCUMENTS"), (b) the benefit to be received by this corporation from such Guaranty Documents, is reasonably worth the obligations thereby guaranteed and secured, and (c) such Guaranty Documents shall be substantially in the forms annexed to these minutes, and further that the _________________________ and _________________________ (Title of Officers) of this corporation are authorized to execute such Guaranty Documents on the behalf of this corporation." WITNESS my hand and the seal of this corporation on this ___________ day of December, 2002. ___________________________________ [Seal] Secretary 38 CERTIFICATION AND REPRESENTATION BY SIGNING OFFICERS We, the undersigned, _________________________ and _________________________ being the _________________________ and _________________________ of 21ST CENTURY INSURANCE GROUP, the corporation which executed each of the guaranty and security agreement attached hereto (collectively, the "GUARANTY DOCUMENTS"), hereby jointly and severally certify and represent to GENERAL ELECTRIC CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS, that each of the undersigned executed the Guaranty Documents for and on behalf of said corporation and that in so executing the Guaranty Documents the undersigned were duly authorized to do so in their named capacity as officers and by so executing to hereby bind said guarantor corporation to the terms of the Guaranty Documents as therein set forth. ______________________________ (L.S.) ______________________________ (L.S.) Date: _______________________ Date:________________________________ 39 PLEDGE OF SECURITIES This Pledge of Securities ("AGREEMENT") is entered into as of 12:00:01 am PST this 1st day of January, 2003, by and between General Electric Capital Corporation ("GE CAPITAL") and 21st Century Insurance Company ("CUSTOMER"). WHEREAS, Customer and GE Capital have entered into or contemporaneously will enter into a lease agreement, security agreement, promissory note, and/or certain schedules and related documents and agreements dated as of December 31, 2002 (such instruments together with all other documents and instruments executed in connection therewith, including but not limited to this Agreement, are hereinafter referred to collectively as the "TRANSACTION DOCUMENTS"); WHEREAS, GE Capital requires that Customer provide, or cause to be provided to GE Capital, additional collateral to secure the performance of Customer under the Transaction Documents; WHEREAS, to satisfy the foregoing requirement, Customer proposes pledging to GE Capital, and granting GE Capital a security interest in, certain collateral; and NOW THEREFORE, in consideration of the foregoing, and other good and valuable consideration, the parties agree as follow: As additional security for Customer's performance under the Transaction Documents, Customer hereby pledges to GE Capital and grants GE Capital a security interest in all of the right, title and interest of Customer in and to those certain bonds described on Exhibit B, attached hereto and incorporated --------- herein by this reference, whether certificated or uncertificated, together with all interest, dividends, and distributions thereon, additions thereto, and replacements or substitutions therefor, other Financial Assets relating thereto, and all proceeds from the liquidation, exchange or other disposition thereof, and all other proceeds of the foregoing (all of the foregoing being hereinafter referred to collectively as the "ACCOUNT ASSETS"), held by BNY Western Trust Company ("AGENT") in the name of Customer, in account number 000366440. (Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in Article 8 of the Uniform Commercial Code). The security interest granted herein shall attach upon the execution of this Agreement by Customer as of the time and date first mentioned above; notwithstanding anything to the contrary hereinafter, the security interest granted herein and this Agreement shall, provided there exists no Default (as defined below), terminate in accordance with Section B. 6 of the Amendment to Schedule No. 1, dated as of December 31, 2002, between Customer and GE Capital. In connection with any such termination, provided there exists no Default (as 40 defined below), GE Capital shall deliver to Customer and Agent a written release of GE Capital's security interest in the remaining Account Assets as provided in Section 5 below. THE INTERESTS OF THE PARTIES HERETO IN THE ACCOUNT ASSETS ARE AND SHALL BE SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS: 1. Customer shall execute and cause Agent to execute and deliver directly to GE Capital a letter agreement in the form of Exhibit A hereto (the "CONTROL --------- AGREEMENT"). At any time after a breach or default by Customer of its obligations to GE Capital under the Transaction Documents (a "DEFAULT"), GE Capital may instruct Agent to liquidate, at the then-prevailing market price, any or all of the Account Assets and pay the proceeds of such liquidation along with all other Account Assets to GE Capital or its order. Such instruction shall be in writing and signed by an authorized manager of GE Capital. 2. Customer agrees that GE Capital shall have no liability of any kind or nature whatsoever with respect to any liquidation of the Account Assets other than to account to Customer for any surplus pursuant to Section 6 below. Customer agrees that any liquidation of the Account Assets pursuant to, and in accordance with the terms of, Section 1 above, in bulk or in parcels, shall constitute a commercially reasonable sale. After Default, upon the request of GE Capital, Customer shall take such further action and execute such further documents as GE Capital shall deem necessary to effect a liquidation of the Account Assets and the payment of the proceeds thereof to GE Capital. 3. CUSTOMER SHALL HAVE THE RIGHT TO RECEIVE ALL INTEREST AND DIVIDENDS PAID BY THE ISSUER(S) OF ANY ACCOUNT ASSETS UNTIL SUCH TIME AS AGENT RECEIVES GE CAPITAL'S INSTRUCTIONS TO LIQUIDATE THE ACCOUNT ASSETS AS PROVIDED HEREIN. ANY INTEREST AND DIVIDENDS RECEIVED BY AGENT AFTER AGENT RECEIVES GE CAPITAL'S INSTRUCTION TO LIQUIDATE BUT BEFORE THE ACCOUNT ASSETS ARE LIQUIDATED SHALL BE PAID TO GE CAPITAL. IF DURING THE TERM OF THIS AGREEMENT, ANY STOCK SPLIT IS DECLARED BY THE ISSUER OF ANY OF THE ACCOUNT ASSETS, ALL STOCK SUBJECT TO SUCH SPLIT AND/OR ISSUED IN CONNECTION THEREWITH SHALL BE DEEMED TO BE ACCOUNT ASSETS PLEDGED BY CUSTOMER TO GE CAPITAL UNDER THIS AGREEMENT AND SHALL BE SUBJECT TO ALL TERMS AND CONDITIONS OF THIS AGREEMENT. 4. [Intentionally omitted] 5. If GE Capital has not previously instructed Agent to sell the Account Assets, then within ten (10) business days after Customer has fully and completely performed its obligations to GE Capital under the Transaction Documents, GE Capital shall deliver to Customer and Agent a written release of GE Capital's security interest in the remaining Account Assets, which shall be 41 signed by an authorized manager of GE Capital, after which the terms of this Agreement shall be deemed to have been satisfied. 6. GE Capital shall apply any proceeds of the liquidation pursuant to this Agreement of the Account Assets, first to GE Capital's reasonable costs and expenses incurred as a result of a Default, then to Customer's unpaid obligations due under the Transaction Documents. Any surplus from such liquidation of the Account Assets remaining after all of Customer's obligations to GE Capital under the Transaction Documents are satisfied in full shall be paid to Customer. Any deficiency shall be paid by Customer within ten business days after receipt of notice from GE Capital to Customer of the existence of such deficiency. 7. WAIVERS AND ACKNOWLEDGMENTS. WITH RESPECT TO THIS AGREEMENT, CUSTOMER HEREBY WAIVES PRESENTMENT, DEMAND, PROTEST AND NOTICE OF PRESENTMENT, DEMAND, PROTEST AND DEFAULT. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS REQUIRING GE CAPITAL FIRST TO SEEK OR PURSUE ANY OTHER REMEDY AGAINST ANY GUARANTOR, CUSTOMER OR ANY OTHER PARTY OR FIRST TO FORECLOSE, EXHAUST OR OTHERWISE PROCEED AGAINST ANY EQUIPMENT, OTHER COLLATERAL OR SECURITY WHICH MAY BE GIVEN IN CONNECTION WITH THE TRANSACTION DOCUMENTS OR OTHERWISE. GE CAPITAL MAY, UPON ANY DEFAULT, OR AT ANY TIME THEREAFTER, EXERCISE ITS RIGHTS AND REMEDIES WITH RESPECT TO THE ACCOUNT ASSETS AND THIS AGREEMENT, WITH OR WITHOUT ANY NOTICE TO OR DEMAND UPON CUSTOMER, ANY GUARANTOR OR ANY OTHER PERSON. 8. REPRESENTATIONS AND WARRANTIES OF CUSTOMER. Customer represents, warrants and covenants to GE Capital that: (a) Customer is the legal and beneficial owner of the Account Assets, and except for the security interest granted to GE Capital herein Customer has, and will at all times during the term of this Agreement have, good and marketable title to the Account Assets, free and clear of any security interest, lien, pledge, encumbrance, option, claim or conditional sale contract, lease or other title retention agreement, and except as may be otherwise expressly permitted by this Agreement or required by applicable law or court order, Customer shall not pledge, borrow against or otherwise impair or diminish the value of the Account Assets or take or consent to any action which would impair, diminish or dilute the value of the Account Assets or attempt to take any such action and any attempt to do so shall constitute a material default under this Agreement and the Transaction Documents. (b) Upon execution of this Agreement by the parties hereto, the Agreement shall be a legal, valid and binding obligation of Customer enforceable against Customer according to its terms (subject only to the relief generally available to creditors under the United States Bankruptcy Code and other similar state legislation. 42 (c) Upon the execution and delivery of this Agreement by Customer and execution of the Control Agreement by Customer, GE Capital and Agent, and delivery of the same to GE Capital, GE Capital's security interest in the Account Assets conferred hereby will be a valid, perfected, first priority security interest for the term of this Agreement. (d) The execution, delivery and performance by Customer of this Agreement will not violate any provision of law, any order of any court or other agency of government, or any indenture agreement or other instrument to which Customer is a party or by which Customer, or any of Customer's property is bound, or be in conflict with, result in a breach of or constitute (with due notice or lapse of time, or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon the Account Assets or upon any of Customer's property or assets, except as contemplated by the provisions of this Agreement. No consent, approval, authorization, order, registration, or qualification of or with any court or regulatory authority or other governmental body having jurisdiction over Customer, or of or with any issuer of any of the Account Assets, the absence of which would adversely affect the legal and valid execution, delivery and performance by Customer of Customer's obligations under this Agreement, is required. There is no litigation, investigation or proceeding of or before any arbitrator or governmental authority pending or, to Customer's knowledge, threatened by or against Customer which, if adversely determined, would have a material adverse effect on the property of Customer, or the financial or other condition of Customer. (e) Customer shall cooperate with GE Capital and shall execute and deliver, or cause to be executed and delivered, to GE Capital all stock powers, proxies, assignments, financing statement, instruments, and other documents, and shall take all further action (all at no cost or expense to GE Capital) from time to time reasonably requested by GE Capital, in order to maintain a continuing, first-priority, perfected security interest in the Account Assets in favor of GE Capital, and to enable GE Capital to exercise and enforce its rights and remedies hereunder with respect to the Account Assets. (f) Customer has the right to pledge and grant a security interest in or otherwise transfer the Account Assets to GE Capital free of any encumbrance or right of third parties. (g) As of the date of this Agreement, the Account Assets consist of those described on Exhibit B hereto. ---------- (h) The Account Assets have not been redeemed in whole or in part by the issuer thereof. (i) There is no pending redemption of the Account Assets. 43 (j) The redemption value of the Account Assets as of the maturity date indicated therefor on the attached Exhibit B, is as described on the face of the Account Assets and the Account Assets represent a valid and enforceable obligation of the applicable issuer thereof. 9. A breach or default by Customer of any of its representations, warranties, covenants or agreements under this Agreement shall be deemed a Default. Without limiting the foregoing, GE Capital's receipt of notice from Agent that Agent is terminating the Control Agreement shall constitute a Default. In addition to any other rights described herein, upon any Default, GE Capital may in its sole discretion, without notice to or demand on Customer, sell or redeem any of the Account Assets pledged hereunder, at such asset's applicable maturity date, or sooner if same is permitted by the Account Asset or by agreement with the applicable issuer, and may (a) hold such Account Assets as cash security without obligation for interest thereon (and may commingle same with its other funds) for performance of obligations of Customer to GE Capital under the Transaction Documents; or (b) apply such Accounts Assets to the balance owed under the Transaction Documents in any manner permitted by such documents or instruments and applicable law. The enforcement by GE Capital of any rights and remedies hereunder shall not be deemed exclusive and shall be in addition to and not in lieu of any other remedies available to GE Capital at law, in equity or pursuant to the Transaction Documents or any other contract between GE Capital and Customer. 10. Notices, demands, written communications and payments required or permitted to be given hereunder shall be conclusively deemed to be properly given at time of delivery if delivered (i) personally, (ii) via commercial delivery service capable of providing documentary evidence of delivery or (iii) via United States certified mail, return receipt requested, properly addressed and postage prepaid, to the following addresses: If to GE Capital: If to Customer: GENERAL ELECTRIC CAPITAL CORPORATION 21st Century Insurance Company 2400 East Katella Avenue, Suite 800 6301 Owensmouth Avenue Anaheim, CA 92806 Woodland Hills, CA 91367 Attention: General Counsel 11. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED ACCORDING TO THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS. 12. The terms of this Agreement may not be changed, amended or waived except by a writing signed by the GE Capital, Customer and, if such change affects the rights or obligations of Agent, by the Agent. This Agreement, the 44 Transaction Documents and the Control Agreement contain the entire agreement among the parties relating to the subject matter thereof, and no prior agreements, understandings or offers shall be of any force or effect whatsoever. 13. CUSTOMER AND GE CAPITAL EACH HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN CUSTOMER AND GE CAPITAL OR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN CUSTOMER AND GE CAPITAL. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. CUSTOMER: GE CAPITAL 21st Century Insurance Company General Electric Capital Corporation By:_____________________________________ By:_____________________________________ Title:__________________________________ Title:__________________________________ 45 EXHIBIT A TO PLEDGE OF ACCOUNT ------------------------------- [ATTACH COPY OF BNY COLLATERAL AGREEMENT] ----------------------------------------- 46 EXHIBIT B TO PLEDGE AGREEMENT ----------------------------- [Description of Account Assets] 47 COLLATERAL AGREEMENT AGREEMENT, entered into as of 12:00:01 am PST this 1st day of January, 2003, among 21st Century Insurance Company ("Pledgor"), General Electric Capital Corporation ("Secured Party) and BNY Western Trust Company ("Custodian"). WHEREAS, Secured Party and Pledgor have entered into a Pledge of Securities ("Pledge Agreement") pursuant to which Pledgor has agreed to pledge Securities (as defined below) to Secured Party to secure Pledgor's obligations pursuant to the Pledge Agreement; and WHEREAS, Secured Party and Pledgor have requested Custodian to hold Securities and to perform certain other functions as more fully described herein; and WHEREAS, Custodian has agreed to act on behalf of Secured Party and Pledgor as custodian of Securities delivered to Custodian by Pledgor for the benefit of the Secured Party; NOW THEREFORE, in consideration of the mutual promises set forth hereafter, the parties hereto agree as follows: ARTICLE I DEFINITIONS Whenever used in this Agreement, the following words shall have the meanings set forth below: 1. "ACCOUNT" shall mean a custodial account established and maintained pursuant to this Agreement in which Securities shall be deposited by Pledgor and pledged to Secured Party and any demand deposit account established and maintained in connection therewith. 2. "AUTHORIZED PERSON" shall be any person, whether or not an officer or employee of Secured Party or Pledgor, duly authorized by Secured Party or Pledgor, respectively, to give Written Instructions on behalf of Secured Party or Pledgor, respectively, such persons to be designated in a Certificate of Authorized Persons which contains a specimen signature of such person. 3. "BOOK-ENTRY SYSTEM" shall mean the Treasury/Reserve Automated Debt Entry System maintained at The Federal Reserve Bank of New York ("FRBNY") for receiving and delivering securities, its successors and nominees. 4. "BNY AFFILIATE" shall mean any office, branch or subsidiary of The Bank of New York Company, Inc. 5. "CERTIFICATE" shall mean any notice, instruction, schedule or other instrument in writing, authorized or required by this Agreement to be given to Custodian, which is actually received by Custodian and signed by an Authorized Person or a person reasonably believed by Custodian to be an Authorized Person. 6. "DEPOSITORY" shall mean the Depository Trust Company and any other clearing corporation within the meaning of Section 8-102 of the UCC or otherwise authorized to act as a securities depository or clearing agency. 7. "ORAL INSTRUCTIONS" shall mean instructions received verbally by Custodian. 8. "SECURITIES" shall mean those certain securities described on Annex A hereto, incorporated herein, whether held in the Book-Entry System or at a Depository, common stock and other equity securities, bonds, debentures and other debt securities, notes, mortgages or other obligations, and any instruments representing rights to receive, purchase, or subscribe for the same, or representing any other rights or interests therein. 9. "UCC" shall mean the Uniform Commercial Code of the State of New York. 10. "WRITTEN INSTRUCTIONS" shall mean written communications actually received by Custodian by S.W.I.F.T., tested telex, letter, facsimile transmission, or other method or system specified by Custodian as available for use in connection with the services hereunder. ARTICLE II -2- APPOINTMENT OF CUSTODIAN; SECURITY INTEREST 1. Secured Party and Pledgor hereby appoint Custodian as Custodian of all Securities and cash at any time delivered to Custodian during the term of this Agreement, and authorize Custodian to hold Securities in registered form in its name or the name of its nominees. Custodian hereby accepts such appointment and agrees to establish and maintain the Account and appropriate records identifying the Securities in the Account as pledged by Pledgor to Secured Party. 2. Secured Party and Pledgor agree that it is intended that Custodian act as a "securities intermediary" as such term is defined in the UCC with respect to Securities pledged hereunder. In addition, the parties intend that all Securities in the Account shall be treated as "financial assets" as such term is defined in the UCC. 3. Custodian shall have no duty at any time to determine the market value of any Securities in the Account or whether such Securities constitute collateral acceptable to Secured Party under the Pledge Agreement. ARTICLE III CUSTODY OF SECURITIES 1. Secured Party and Pledgor hereby authorize Custodian to utilize the Book-Entry System and Depositories to the extent possible in connection with its performance hereunder. Where Securities eligible for deposit in the Book-Entry System or Depositories are transferred to the Account, Custodian shall identify on its records as belonging to Pledgor and pledged to Secured Party a quantity of Securities in a fungible bulk of securities shown on Custodian's account at the Book-Entry System or the appropriate Depository. Securities and cash deposited in the Book-Entry System or a Depository will be represented in accounts which include only assets held by Custodian for its customers. 2. The parties hereto acknowledge and agree that Pledgor shall have no authority to substitute other Securities for any Securities which are held in the Account. 3. Pledgor hereby authorizes Custodian to comply with all entitlement orders (as defined in the UCC) originated by Secured Party with respect to the Securities in the Account without further consent or direction from Pledgor or any other party. Custodian will not comply with any entitlement order of Pledgor concerning the Securities without Secured Party's prior written consent. 4. Custodian shall furnish Secured Party and Pledgor with a monthly summary of all transactions with respect to the Securities in the Account. Secured Party and Pledgor may each elect to receive advices, confirmations or statements electronically through the Internet to an email address specified by it for such purpose. By electing to use the Internet for this purpose, Secured Party and Pledgor each acknowledges that such transmissions are not encrypted and therefore are insecure. Secured Party and Pledgor each further acknowledges that there are other risks inherent in communicating through the Internet such as the possibility of virus contamination and disruptions in service, and agrees that Custodian shall not be responsible for any loss, damage or expense suffered or incurred by Secured Party or Pledgor, respectively, or any person claiming by or through Secured Party or Pledgor, respectively, as a result of the use of such methods. 5. With respect to all Securities held in the Account, Custodian shall, unless otherwise instructed to the contrary: (a) Receive all income and other distributions on the Securities and advise Pledgor as promptly as practicable of any such amounts due but not paid. Until such time that Custodian shall receive a Certificate from Secured Party certifying that Pledgor has defaulted in its obligations to Secured Party pursuant to the Pledge Agreement, Custodian shall credit to Pledgor the income and payments other than principal payments received by Custodian. After receipt of such Certificate from Secured Party, Custodian shall credit to the Account the income and all payments received by Custodian; (b) Present for payment and receive the amount paid upon all Securities which may mature and credit such amounts to the Account and advise Pledgor as promptly as practicable of any such amounts due but not paid; (c) Forward to Pledgor copies of all information or documents that it may receive from an issuer of Securities which, in the opinion of Custodian, are intended for the beneficial owner of Securities; (d) Execute, as agent, any certificates of ownership, affidavits, declarations or other certificates under any tax laws now or hereafter in effect in connection with the collection of bond and note coupons; -3- (e) Hold directly, or through the Book-Entry System or a Depository, all rights and similar Securities issued with respect to any Securities held by Custodian hereunder; and (f) Endorse for collection checks, drafts or other negotiable instruments. 6. Upon receipt of Written Instructions from the Secured Party, Custodian will exchange Securities held hereunder for other Securities and/or cash in connection with any conversion privilege, reorganization, recapitalization, redemption in kind, consolidation, tender offer or exchange offer, or any exercise or subscription, purchase or other similar rights represented by Securities. 7. Custodian is not at any time under any duty to supervise the investment of, or to advise or make any recommendation for the purchase, sale, retention or disposition of Securities. 8. In the event that Custodian receives a Certificate from Secured Party certifying that Pledgor has defaulted in its obligations to Secured Party pursuant to the Pledge Agreement, Custodian shall be authorized, without further inquiry, to act upon Written Instructions from Secured Party with respect to the disposition of all or any part of the Securities. 9. Custodian hereby represents that as of the effective date of this Agreement, Custodian has received no other notice indicating that a security interest has been granted in the Securities (or any part thereof) to any other party, and that Custodian will use reasonable efforts to notify Secured Party of Custodian's receipt of such notice as soon as practicable. 10. Custodian hereby represents that the security interest granted to Secured Party in the Securities shall be superior to any security interest, lien, right of set-off, or other interest which Custodian now has or may hereafter have in such Securities. 11. Custodian hereby confirms that Custodian will not extend credit to or make any margin or other loans to Pledgor secured by the Securities, or any portion thereof. ARTICLE IV CONCERNING CUSTODIAN 1. (a) Except as otherwise expressly provided herein, Custodian shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees (collectively, "Losses") incurred by or asserted against Pledgor or Secured Party, except those Losses arising out of the negligence or willful misconduct of Custodian. Custodian shall have no liability whatsoever for the action or inaction of the Book-Entry System or any Depository. In no event shall Custodian be liable for special, indirect or consequential damages, or lost profits or loss of business, arising in connection with this Agreement. (b) Custodian may enter into subcontracts, agreements and understandings with any BNY Affiliate whenever and on such terms and conditions as it deems necessary or appropriate to perform its services hereunder. No such subcontract, agreement or understanding shall discharge Custodian from its obligations hereunder. (c) Secured Party and Pledgor agree, jointly and severally, to indemnify Custodian and hold Custodian harmless from and against any and all Losses sustained or incurred by or asserted against Custodian by reason of or as a result of any action or inaction, or arising out of Custodian's performance hereunder, including reasonable fees and expenses of counsel incurred by Custodian in a successful defense of claims by Pledgor or Secured Party; provided, that Pledgor and Secured Party shall not indemnify Custodian for those Losses arising out of Custodian's negligence or willful misconduct. This indemnity shall be a continuing obligation of Pledgor and Secured Party, their respective successors and assigns, notwithstanding the termination of this Agreement. 2. Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire into, and shall not be liable for, any Losses incurred by Pledgor, Secured Party or any other person as a result of the receipt or acceptance of fraudulent, forged or invalid Securities, or Securities which are otherwise not freely transferable or deliverable without encumbrance in any relevant market, 3. Custodian may, with respect to questions of law, obtain the advice of counsel, at the expense of Pledgor, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice. -4- 4. Custodian shall be under no obligation to take action to collect any amount payable on Securities in default, or if payment is refused after due demand and presentment. 5. Pledgor agrees to pay to Custodian the fees set forth in Schedule I attached hereto or as may be agreed upon from time to time. Pledgor shall reimburse Custodian for all costs associated with the conversion of Securities hereunder and the transfer of Securities and records kept in connection with this Agreement. Pledgor shall also reimburse Custodian for out-of-pocket expenses which are a normal incident of the services provided hereunder. 6. Custodian shall be entitled to rely upon any Certificate or Written Instruction actually received by Custodian and reasonably believed by Custodian to be duly authorized and delivered. 7. Upon reasonable request and provided Custodian shall suffer no significant disruption of its normal activities, Secured Party or Pledgor shall have access to Custodian's books and records relating to the Account during Custodian's normal business hours. Upon reasonable request, copies of any such books and records shall be provided to Secured Party or Pledgor at its expense. 8. It is understood that Custodian is authorized to supply any information regarding the Account which is required by any law or governmental regulation now or hereafter in effect. 9. Custodian shall not be responsible or liable for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including without limitation, acts of God; earthquakes; fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots; interruptions, loss or malfunctions of utilities, computer (hardware or software) or communications service; accidents; labor disputes; acts of civil or military authority; governmental actions; inability to obtain labor, material, equipment or transportation. 10. Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against Custodian in connection with this Agreement. ARTICLE V DISTRIBUTION; TERMINATION 1. Except as otherwise provided herein, including, without limitation, the provisions of Article III, Paragraphs 3 and 8, Custodian shall transfer from the Account and distribute the Securities and cash held in the Account only upon receipt of Written Instructions to that effect from each of Secured Party and Pledgor. Such Written Instructions shall specify the Securities and cash to be distributed and the delivery instructions in connection therewith. 2. Either Custodian or Secured Party may terminate this Agreement by giving to the other parties a notice in writing specifying the date of such termination, which shall b not I-,-, than ninety (90) days after the date of giving of such notice. Such notice shall not affect or terminate Secured Party's security interest in the Securities. Upon termination hereof, Pledgor shall pay to Custodian such compensation as may be due to Custodian as of the date of such termination and Custodian shall follow such reasonable Written Instructions of Secured Party concerning the transfer of custody of Securities, cash, records and other items. Upon the date set forth in a termination notice this Agreement shall terminate and except as otherwise provided herein all obligations of the parties to each other hereunder shall cease. ARTICLE VI MISCELLANEOUS 1. Secured Party and Pledgor agree to furnish to Custodian a new Certificate of Authorized Persons in the event of any change in the then present Authorized Persons. Until such new Certificate is received, Custodian shall be fully protected in acting upon Written Instructions of such present Authorized Persons. 2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Custodian, shall be sufficiently given if addressed to Custodian and received by it at its offices at: Los Angeles Office: 700 South Flower Street, Suite 200, Los Angeles, California 90017-4104; San Francisco Office: 550 Kearny St., Suite 600, San Francisco, California 94108; Seattle Office: Two Union Square, 601 Union Street, Suite 520, Seattle, Washington 98101-2321, or at such other place as Custodian may from time to time designate in writing. -5- 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Secured Party shall be sufficiently given if addressed to Secured Party and received by it at its offices at ________________________________________________________________________, or at such other place as Secured Party may from time to tune designate in writing. 4. Any notice or other instrument in writing, authorized or required by this Agreement to be given to Pledgor shall be sufficiently given if addressed to Pledgor and received by it at its offices at ________________________________________________________________________, or at such other place as Pledgor may from time to time designate in writing. 5. Each and every right granted to Custodian hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of Custodian to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by Custodian of any right preclude any other or future exercise thereof or the exercise of any other right. 6. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by the parties hereto. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by any party without the written consent of the other parties. 7. This Agreement shall be construed in accordance with the substantive laws of the State of California, without regard to conflicts of laws principles thereof. Pledgor, Secured Party and Custodian hereby consent to the jurisdiction of a state or federal court situated in California in connection with any dispute arising hereunder. Pledgor, Secured Party and Custodian each hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Pledgor, Secured Party and Custodian each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. 8. In performing hereunder, Custodian is acting solely on behalf of Secured Party and Pledgor and no contractual or service relationship shall be deemed to be established hereby between Custodian and any other person. 9. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. -6- IN WITNESS WHEREOF, Secured Party, Pledgor and Custodian have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written. 21ST CENTURY INSURANCE COMPANY By: --------------------------------------- Title: GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Brett B. Haring --------------------------------------- Title: BNY WESTERN TRUST COMPANY By: --------------------------------------- Title:
Nominal Paydown Interest Rate Maturity Date Market Value - Base Cost - Base Quantity Quantity 5.0000% 1-Dec-14 1,072,570.00 1,026,540.00 1,000,000.00 1,000,000.00 5.2500% 1-Dec-17 2,136,440.00 2,087,830.00 2,000.000.00 2,000,000.00 5.4500% 1-Jan-03 1,020,600.00 1,018,180.00 1,000,000.00 1,000,000.00 5.0000% 1-Aug-13 1,089,850.00 1,096,620.00 1,000,000.00 1,000,000.00 5.5000% 1-Oct-16 1,088,870.00 1,089,900.00 1,000,000.00 1,000,000.00 5.3750% 1-Mar-15 1,090,900.00 1,049,530.00 1,000.000.00 1,000,000.00 5.0000% 1-Nov-17 2,089,980.00 1,999,612.00 2,000,000.00 2,000,000.00 5.2500% 1-Jul-16 1,113,850.00 1,068,680.00 1,000,000.00 1,000,000.00 5.5000% 15-Jun-17 1,091,330.00 1,049,420.00 1,000.000.00 1,000,000.00 5.6250% 1-Dec-16 1,102,000.00 1,112,090.00 1,000,000.00 1,000,000.00 5.6250% 1-Dec-15 1,099,760.00 1.061,1 30.00 1,000,000.00 1,000,000.00 5.0000% 1-Aug-17 1,047,110.00 1,024,860.00 1,000,000.00 1,000,000.00 5.3750% 1-Oct-18 1,082,570.00 1,030,440.00 1,000,000.00 1,000,000.00 5.0000% 1-Deo-15 1,045,780.00 1,018,526.66 1,000,000.00 1,000,000.00 5.2500% 15-May-16 1,082,090.00 1,019,530.00 1,000,000.00 1,000,000.00 5.0000% 1-Jul-17 1,052,130.00 1,026,310.00 1,000.000.00 1,000,000.00 5.0000% 1-Jun-17 1,051,400.00 1,002,195.00 1,000.000.00 1.000.000.00 5.0000% 1-Jun-18 1,044,180.00 1,010,960.00 1,000,000.00 1,000,000.00 5.0000% 1-Aug-17 2,100,080.00 2.003,750.00 2,000,000.00 2,000,000.00 5.3750% 1-May-17 2,166,720.00 2,162,190.00 2,000,000.00 2,000,000.00 5.3500% 1-Mar-13 1,088,160.00 1,000,000.00 1,000,000.00 1,000,000.00 5.4000% 1-Mar-14 1,085,550.00 999,750.00 1,000.000.00 1,000,000.00 5.2500% 1-Dec-IO 1,116,070.00 1,071,640.00 1,000,000.00 1,000,000.00 5.2500% 1-Mar-08 1,108,960.00 1,057,370.00 1,000,000.00 1,000,000.00 5.1250% 15-May-12 1,097,790.00 1,051,800.00 1,000.000.00 1,000,000.00 5.3750% 1-Jul-15 1,129.920.00 1,114,860.00 1,000,000.00 1,000,000,00 5.0000% 1-Oct-16 1,054,580.00 997,250.00 1,000,000.00 1,000,000.00 5.2500% 1-May-15 1,087,240.00 1,039,030.00 1,000,000.00 1,000,000.00 5.1250% 1-Oct-15 2,145,500.00 2,067,760.00 2,000,000.00 2,000,000.00 5.1250% 1-Oct-16 2,133,360.00 2,057,280.00 2,000,000,00 2,000,000.00 5.2500% 1-Feb-17 2,187,840.00 2,109,960.00 2,000,000,00 2,000,000.00 5.0000% 1-Nov-18 1,047,860.00 1,000,770.00 1,000,000.00 1,000,000.00 5.5000% 1-Dec-13 1,048,660.00 1,032,360.00 1,000,000.00 1,000,000.00 Nominal Paydown Interest Rate Maturity Date Market Value - Base Cost - Base Quantity Quantity 5.0000% 1-Jul-07 1,104,380.00 1,052,650.00 1,000,000.00 1,000,000.00 5.2500% 1-Jun-13 1,076,720.00 1,006,490.00 1,000,000.00 1,000,000.00 5.2500% 15-Jul-15 2,205,520.00 1,104,740.00 2,000,000.00 2,000,000.00 5.1250% 1-Dec-16 1,590,015.00 1,544,250.00 1,500,000.00 1,500,000.00 5.0000% 1-Feb-17 1,053,260.00 1,027,960.00 1,000,000.00 1,000,000.00 5.2500% 1-May-15 4,223,800.00 4,116,760.00 4,000,000.00 4,000,000.00 5.1250% 15-May-14 1,056,050.00 1,023,850.00 1,000,000.00 1,000,000.00 5.0000% 1-May-16 1,048,550.00 1,022,520.00 1,000,000.00 1,000,000.00 5.1250% 1-May-16 2,110,940.00 2,048,640.00 2,000,000.00 2,000,000.00 5.2500% 1-Sep-11 1,125,200.00 1,046,680.00 1,000,000.00 1,000,000.00 5.0000% 1-Jul-11 1,068,200.00 1,020,010.00 1,000,000.00 1,000,000.00 5.0000% 15-Jun-18 2,079,620.00 2,026,500.00 2,000,000.00 2,000,000.00 7.1000% 1-Mar-04 1,067,190.00 1,078,670.00 1,000,000.00 1,000,000.00 5.1250% 1-Oct-13 1,103,040.00 1,067,340.00 1,000,000.00 1,000,000.00 5.0000% 1-Oct-15 2,094,340.00 2,018,980.00 2,000,000.00 2,000,000.00 5.0000% 1-Oct-14 2,108,820.00 2,029,860.00 2,000,000.00 2,000,000.00 5.2000% 1-Dec-15 1,051,020.00 1,014,050.00 1,000,000.00 1,000,000.00 Nominal Interest Rate Asset Long Description - 1 CUSIP 5.0000% PITTSBURGH PA WTR & SWR AUTH WTR & SWR 725304LC1 5.2500% PENNSYLVANIA ST TPK COMMN OIL FRANCHISE 709221CC7 5.4500% SEATTLE WASH MUNICIPALITY MET SEATTLE 812659T26 5.0000% LIVERMORE-AMADOR VY WTR MGMT AGY CALIF 538152BE8 5.5000% SOUTH CAROLINA TRANSN INFRASTRUCTURE BK 837152BM8 5.3750% WESTERN CAROLINA REGL SWR AUTH S C SEW 957886CQ5 5.0000% CALLEGUAS-LAS VIRGENES CALIF PUB FING 131233BJ6 5.2500% PIMA CNTY ARIZ MET DOMESTIC WTR IMPT 72178HCC9 5.5000% WASHINGTON CNTY ORE SCH DIST NO 015 938361HL9 5.6250% PIERCE CNTY WASH SCH DIST NO 403 BETHEL 720611MS8 5.6250% PIERCE CNTY WASH SCH DIST NO 403 BETHEL 720611MR0 5.0000% KENTUCKY ST PPTY & BLDGS COMMN REVS 49151EAR4 5.3750% HILLSBOROUGH CNTY FLA SCH DIST SALES TAX 432337BJ1 5.0000% WHATCOM CNTY WASH SCH DIST NO 501 962506LY5 5.2500% SANTA CLARA CNTY CALIF FING AUTH LEASE 801577CY1 5.0000% MARICOPA CNTY ARIZ SCH DIST NO 006 567031NK1 5.0000% SANTA CLARA VY CALIF TRANSN AUTH SALES 80168NAR0 5.0000% SANTA CLARA VY CALIF TRANSN AUTH SALES 80168NAS8 5.0000% SAN JOSE CALIF UNI SCH DIST SANTA CLARA 798186RC8 5.3750% CALIFORNIA ST DEPT WTR RES PWR SUPPLY 13066YED7 5.3500% PROVO UTAH 744142FH8 5.4000% PROVO UTAH 744142FJ4 5.2500% YAKIMA CNTY WASH SCH DIST NO 7 YAKIMA 984368KP4 5.2500% PROVO UTAH 744142FC9 5.1250% SAN DIEGO CALIF PUB FAGS FINQ AUTH SWR 79730ADM7 5.3750% ELSINORE VALLEY CALIF MUN WTR DIST CTFS 290319CW0 5.0000% UNIVERSITY ALA UNIV REVS 914031CH0 5.2500% WISCONSIN ST 977056V23 5.1250% WASHINGTON CNTY ORE CLEAN WTR SVCS SEW 938240AP3 5.1250% WASHINGTON CNTY ORE CLEAN WTR SVCS SEW 938240AQ1 5.2500% CENTRAL PUGET SOUND WASH REGL TRAN AUTH 155048AX9 5.0000% PALOS VERDES PENINSULA CALIF UNI SCH 697634TQ6 5.5000% PALM BEACH CNTY FLA 696497LP9 Nominal Interest Rate Asset Long Description - 1 CUSIP 5.0000% UTAH ST 917542HS4 5.2500% WASATCH CNTY UTAH SCH DIST 936784DS3 5.2500% RICHMOND VA 76541VBQ9 5.1250% CALIFORNIA ST DEPT WTR RES CENT VY PROJ 13066KJM2 5.0000% CHARLESTON CNTY S C SCH DIST 160075QB6 5.2500% CALIFRONIA ST DEPT WTR RES PWR SUPPLY 13066YCF4 5.1250% VIRGINIA ST TRASN BRD TRANSN CONTRACT 928184HA1 5.0000% SAN DIEGO CNTY CALIF WTR AUTH WTR REV 797415DW3 5.1250% SAN DIEGO CNTY CALIF WTR AUTH WTR REV 797415EN2 5.2500% MILWAUKEE WIS 602364Z61 5.0000% MARICOPA CNTY ARIZ UNI SCH DIST NO 097 567438LN4 5.0000% NAPA CNTY CALIF FLOOD PROTN & WATERSHED 63035LAQ3 7.1000% TRAVIS CNTY TEX 89438VHR0 5.1250% PRINCE GEORGES CNTY MD 74170KA3 5.0000% DALLAS TEX WTRWKS & SWR SYS REV 235416PE8 5.0000% DALLAS TEX WTRWKS & SWR SYS REV 235416PD0 5.2000% KING CNTY WASH 494748W69
EXHIBIT A TO COLLATERAL SCHEDULE EQUIPMENT DESCRIPTION (AS FURTHER DESCRIBED IN ANNEX 1) APPRAISED VALUE ---------------------------------------- --------------- LEGACY SOFTWARE GROUPS Billings and Claims System Software (BUCS) $ 9,900,000.00 Auto Marketing Software System (CARS) $11,800,000.00 Underwriting $21,200,000.00 Claims $35,400,000.00 Commissions $ 600,000.00 Vendor $ 3,800,000.00 Bank Reconciliation $ 2,700,000.00 -------------- $85,400,000.00 CUSTOMER RELATIONSHIP MANAGEMENT SOFTWARE PROJECTS (CRM) Legacy Replacement System $ 292,967.00 -------------- $ 292,967.00 -------------- Total appraised items $85,692,967.00 Leasehold Improvements, at net book Value, equal to agreed fair value $ 2,566,360.00 Grand Total $88,259,327.00 ============== ASSETS LOCATED AT: 6301 OWENSMOUTH AVENUE, WOODLAND HILLS, LOS ANGELES COUNTY, CA 91367 Annex 1 to Exhibit A to Collateral Schedule No. 1 SOFTWARE SYSTEM DESCRIPTIONS BILLING AND CLAIMS (BUCS) BUCS is a legacy system handling all aspects of customer billing for California and Arizona. The billing functions include the processing of: Statements of Account, Billing Notices, Cancellation Letters, Return Premium Checks, and Installment Notices. The main billing file contains all the billing information history for that policy/module (1 term). The Coverage History file contains information that can be combined with data from the master policy to display the written premium amounts for each vehicle by coverage, create date, and transaction type. Other key features of this system include: 1) acceptance of both automatic and manual premium payments for all CA and AZ policies, 2) ability for user to enter premium adjustments and money transfers between policies, 3) establishment of policies for future installments, notices and non-pay cancels, 4) the update and control of both notice history and installment history, 5) the printing of installment notices, pre cancel notices and all cancel letters, 6) the creation and archiving of coverage history detail for each policy transaction, 7) the addition / reversal of fees for late payments, insured cancels and bounced checks, and 8) the reconstruction of billing schedules depending on amount of payment made on any installments. Recent significant system enhancements include Arizona State billing rules, Year 2000 changes, and adding new fees to the California book of business. The system's 341,000 lines of code are written in COBOL. BUCS was 100% developed in-house by a team of ten software developers over the course of one year and initially released for use in 1993. A team of two to three developers did maintenance and enhancement of the BUCS system over the software system's life. The With Cash / Suspense Assignment (WC/SA) is a subsystem to BUCS that: 1) provides a repository to store information on payments made with a policy application and 2) Holds the amount paid to be credited to the policy of the Insured when the application becomes a New Business Policy. With Cash is for the regular Auto policies in both CA and AZ. Suspense Assignment is for the Assigned Risk policies. Both function the same way but are separate systems for accounting purposes. The major features of the WC/SA subsystem are: 1) the acceptance of both automatic and manual application payments for Auto and Assigned Risk (CA and AZ policies), 2) enable users to enter cash adjustments, 3) verifies application for refund due and prints refund checks when application is rejected, 4) the transfers of money from application to policy when the New Business policy is created, 5) the reporting of receivables to General Ledger at month end. The WC component of WC/SA was completely developed in-house over the course of six months by three developers and was initially released for use in 1994 while the SA module was released in 1997. A team of one to two developers performs maintenance on the WC/SA subsystem. The major enhancements to the WC/SA system are the addition of Arizona State processing and Y2K changes. E-BUCS provides California and Arizona customers with account status information such as payment history, current amount due, future installments and payoff amount on the Internet utilizing jacada to retrieve information from the BUCS billing system. The reason behind this project was to reduce the amount of billing related calls to the call center and provide more convenience to customers. E-BUCS went live in October 2000. Page 1 of 9 AUTO MARKETING SYSTEM (CARS) Developed in 1990, CARS is a system that generates on-line customer quotes, printed quotations, statistical reports and letters. Marketing representatives collect necessary information from customers on-line to produce quotes. Quotes can be mailed to prospective customers to provide them with coverage options. Additionally, at the customer's request, CARS can fax a potential customer a quote. This system interfaces with the Underwriting Paperless System (UPS). The Auto Marketing department is the primary user of CARS. There are a number of batch production cycles for CARS. On a daily basis, information collected through the on-line screens and from telemarketing vendors is processed, quotes and letters are created and printed, statistics are calculated and updated, and reports are printed. On a weekly basis, re-quotes are processed and printed, statistics are calculated, updated, and reported, and files are purged of old data. On a monthly basis, customers that are selected for future re-quotes are cycled, statistics are calculated, updated, and reported, and statistical files are re-initialized. On a quarterly basis, system files are sorted, merged and purged. On an annual basis, the Activity file is processed to accurately reflect all applications accepted to become a policy. This annual activity feeds into the Community Service reporting for Department of Insurance. CARS also supports direct mail marketing campaigns. As part of this effort, CARS keeps track of people who do not wish to receive marketing. The on-line functions available in CARS allow the user to perform Entry, Display, and Update operations for all vital information necessary to prepare, review, or update quote information for the customer. This includes general applicant information, specific driver information, specific vehicle information, and rating coverage information. The system also has capabilities to generate faxed and remotely printed quotes. The system also has user maintenance capabilities such as Table Maintenance and Message Updates. There is also activity tracking through Production Activity Inquiry capabilities. CARS was originally developed in 1990 and the current code size is 350,000 lines. From the total code amount, about 30% is new when initially created and 70% is comprised of maintenance, which includes the increase in application functionality. UNDERWRITING Underwriting is supported by three sub-module applications: Underwriting Paperless System (UPS); Underwriter Information System (UWIN); and Policy Input Processing (PIP). UPS is an on-line system that processes auto applications from initial entry to final approval. It provides the capability to order MVR's (Motor Vehicle Records via third party software from each U.S. State DMV and Canada DMV), follow up on missing information, and determine status and review for approval. This system also provides on-line document handling and productivity/performance statistics. This system supports New Business Auto Underwriting and Data Entry. Underwriting Paperless System (UPS) Batch production consists of daily, weekly and monthly cycles. On a daily basis, information collected through the on-line screens and received from CLUE (Comprehensive Loss Underwriting Exchange) and MVR is processed to generate productivity/performance statistics reports, application closed/bypass reports, MVR reports, queue balancing and aging reports, worksheets, postcards and letters. In a weekly processing new business aging, weekly application decline, call type, balancing reports are printed, rep statistics files are initialized. On monthly basis the system produces approval status activity reports and rep statistics monthly files are initialized. Page 2 of 9 UWIN is a claim summary system that provides for on-line inquiry of losses for a given policy and allows for updating of accident information including driver, vehicle, and accident coding. The UWIN / Cash Out system allows the user to follow up on claim payments made to the Insured, and Proof of Repair requests. Total Loss provides update and closure capabilities for automobiles being salvaged or totaled. In addition, Management Reporting and Table Maintenance are covered under this umbrella. They include Rep tracking and evaluation, and table update and logging. The batch portion of the system is for Cash Out and Total Loss only. The Cash Out portion processes reversals, loss updates, duplicate removal, and exception reporting. Total Loss processes salvage extracts, updates, duplicates, letters, and vehicle removal. The Claim Summary batch portion is broken into UWIN / UW Review and UWIN / Surcharge. UWIN also has screens and reports that support Underwriting and Premium Accounting to reinstate Cancelled Policies. For in-force policy review, UWIN determines which policies require review. On a weekly basis, policies expiring in one and one half month are processed. The Underwriter Review system produces reports listing policies that fall within Underwriter Review criteria. The criteria consist of examining claims for a policy that meet specific conditions. PIP is a bridge between CARS, UPS, and PMS. Its main function is to maintain in-force policy files. Data is retrieved from the respective file and written to the Entry Pending Files (EPF) for further processing. On-line edits eliminate error at the point of entry. It is also used for rewrites such as split policies or changes in term dates. Data entry is the sole user of this system. In aggregate, the three sub-modules that comprise Underwriting consist of 650,000 lines of code written in COBOL. CLAIMS The Claims system is a large set of subsystems that handle all claims management at 21st Century Insurance. The major sub-systems include: Claims Administrative System (CAD); Loss Reporting; File Handling; Vehicle Inspection; Salvage Tracking; Communication; and Claims Vendor. Claims Financials System (CFS), Claims Summary, Comprehensive Loss Underwriting Exchange (CLUE), Catastrophe Reporting System, Forms & Letters (FLS), Reserve History, Loss Master Reporting, and Suit Tracking System are other subsystems that operate under Claims. The system has 1,100,000 lines of code written in COBOL. The CAD system is part of the menu driven Claim Management System (CMS or TCIC), which was developed, in the early 1990's. There are three main areas in the CAD system. The first component of the CAD system handles Menu Driver file maintenance. A generic menu driver program uses these files to provide flexible, table-driven control of menu displays and screen-to-screen navigation throughout CMS environment. CAD also provides centralized user registration and security/access checking via RACF. The second area of the CAD system is used for Claims table maintenance, which records and maintains various information files needed by other Claim subsystems. Page 3 of 9 The data includes Catastrophe Code, Claims Facilities, Facility Directions, Claims Organization Structure, Miscellaneous Codes, and Claim Territories by zip code. The third part of the CAD system is the print subsystem. This subsystem allows Loss Reports, Vehicle Inspection system and Salvage Tracking system documents, File Handling diaries and other standard documents used in claim handling to be printed on demand via PC-connected laser printers at remote Claim offices. Status of completed jobs is communicated back to the initiating application. The Loss Reporting System forms the basis for documenting claim information taken from an insured or claimant. The Loss Report is used by the Office Adjuster or Examiner to develop an investigative plan and to contact all parties involved in the incident. It may also be used to update, display, or print the Loss Report information, or to create a new version of the Loss Report. The File Handling System provides the tools for handling the claim from creation to closure. It provides claim-level administrative functions, diary facilities, assignment and classification capabilities, as well as overviews of relevant coverages and financial details. As the system, which integrates all components of the Claims Management System, File Handling provides links to the Loss Reporting, Policy Management System, Claims Summary, Vehicle Inspection, and Calendaring and Suspense systems. Both Loss Reporting and File Handling are capable of handling Auto, Motorcycle and Homeowner/Condominium losses. The Vehicle Inspection System (VIS) is a part of the CMS. This system is used to schedule all types of vehicle inspections and maintain a history of canceled, rescheduled, and reassigned inspections. Inspections may be made at a Drive-in (DRI), Direct Repair Program (DRP) facility, Vehicle Inspection Center (VIC), Stereo Direct Repair vendor (STR), Glass Inspection (GLS) facility, or through a Field Inspection (FLD). Inspections can also be Waved (WAV) or assigned to an Independent Adjuster (IND). CARCO inspections, mandatory auto inspections that are a result of the California Automobile Pre-Inspection Law, are also scheduled. CCC Information Services, Inc. (CCC), a Chicago based company is used for repair estimates. Through the mainframe, data are sent to CCC regarding a particular vehicle and the adjuster who is to do the estimate. CCC then sends the assignment to the adjuster's mailbox and using laptops connected to CCC do the estimate of repairs and sends it back to CCC. After processing, CCC sends the estimate results back to the 21st Century Insurance mainframe. VIS is also responsible for the maintenance and activation of Drive-in Locations to include their daily time of operations. Using the PMS vendors, Claims maintain a list of authorized vendors used for repairs. Page 4 of 9 Salvage Tracking is an on-line sub-application that keeps track of salvage records. It tracks vehicles belonging to 21st Century Insurance, for either theft or total loss cases. Total loss or salvage tracking is established right from the stage of "request for pickup of salvage" through" sale of salvage at auction". It helps adjusters maintain salvage pools, track daily cost for vehicles stored at various locations etc. The sub-system also generates a unique sequence-id for each salvage record for which there is a claim. Salvage Tracking extracts the claim number as its input. Salvage Tracking was initially released in October, 1991. Claim Communication System (CCS) - The Claims Department has always been posed with a challenge for a way to deliver timely and on-demand reports that will serve the needs of its staff that are mostly working in different locations far from the Home Office. In 1992, upon the Menu Driver platform, the Claim Communication System was developed. The Claim Communication System is also referred to as the Remote Printing System. It is useful in providing reports submitted by the different application programs using the Menu Driver as well as process jobs that have been submitted by batch programs. The printed output from CCS ranges from formatted reports such as Loss Reports, letters sent by claims adjusters to forms such as the Property Insurance Loss register. Even though most of the application systems may have different printed output, the procedure in using the CCS is still standard across these different application systems. Besides the on-demand and immediate access feature of documents printed using CCS, the end product printed using a personal computer is with merits. These documents may be designed using different fonts, style and formatting which simulate forms or letters that used to be individually hand or typewritten within the Claims department. The Claims Vendor System (CVS) is a part of the CMS. This system is used to create vendors that will be used by the claims department. Vendors must first be accredited PMS vendors before they can make claims vendors. There are several types of vendors from A01 to A52 and H01 to H05. This system is just concerned with types A01 to A06, which are being used by the Vehicle Inspection System. When VIS needs a vehicle to be inspected and assigned to a Direct Repair Program (DRP), a list is provided to select the vendor to be used. CVS is responsible for the maintenance of the list of authorized vendors used for repairs, activation to include their status of being active or inactive and removal. Claims Financials is the claims portion of the PMS purchased in 1979 from Policy Management System Corp. CFS provides for data entry and verification of transactions for opening and closing reserves, producing payment checks, and recording cash receipts. The software was initially released in 1979 and has been maintained by a staff of twenty people. Page 5 of 9 The primary function of the Claim Summary system is to capture and summarize loss data. This data is then used by the Underwriting department during policy renewal review processing. Additionally, this data may be used by claims whenever there is a need to access summarized claims data. There is a daily and a weekly batch production cycle. The daily batch processing applies daily losses to the Claim Summary file. Source of data applied to the Claim Summary file is from Policy Management System, specifically from daily PMS020 file. This file contains all policy modules updated during the daily PMS cycle. The weekly batch processing reorganizes the Claim Summary file. Additionally, there are G103 audit reports generated for Claims management. These reports notify Claims Management as to disposition of G103 "At Fault" letter processing. The on-line functions consist of a series of screen designed to allow the user to browse summarized loss data and assorted Policy In-force (PIF) segments. There is the capability for an Underwriter to add a comment, which is stored into the Claim Summary File. There is also capability to add and update Total Loss data via on-line screens. Claims Summary was initially released in 1980 and is maintained by a team of twenty-five developers. The CLUE service is used to exchange loss information with Choicepoint. On a monthly basis, loss related data for policyholders is sent to them via tape. It stores a five-year history and is used by the Underwriting Claims Departments. The initial date of release of CLUE was 1990. The Catastrophe Reporting System is a batch system designed to report homeowner and auto policy information for a specified catastrophe code. Reserve and payment data is extracted off the monthly loss master file, the weekly loss master file, and the daily PMS019 file and merged to create the daily reports. There are a series of three sets of reports created. This system was first utilized in 1994. The FLS is a Vendor Software Package that allows Claims users to view and select from On-line screens a list of letters. The users are able to build and edit the letters that they choose. The variable data is pulled from a Claims database behind the scenes. There are no Batch processing jobs involved in generating the letters. There are a few batch procedures that are used to back-up the data. This system was released in 1997. RESERVE HISTORY/CASELOAD tracks and reports reserve level changes, claim assignments and reassignments at the division and unit level. The system provides an audit trail of changes to reserve, claims assignments and reassignments. The LOSS MASTER REPORTING system is a batch system that captures claims losses from the Policy Management System. This system was developed by 21st Insurance as a vehicle to report claims losses in a variety of views as well as to maintain data for use by the Statistical and Insurance Office Service reporting systems. A small portion of the Loss Master System passes data to the General Ledger system. There are also many one time statistical runs against the Loss Master files for reporting Page 6 of 9 views that are not offered in the regular Loss Master reports. The Loss Master system reports losses exclusively or in various combinations by the following categories: coverage, accident date, company, policy type, loss type (reserves, payments, expenses, salvage, subrogation), examiner, adjuster, division, transaction date, reinsurance company, claim status (open, closed with pay, closed no pay). Suit Tracking System allows Users to access and view individual Suit records online. It tracks three types of lawsuits for 21st Century Insurance: 1) Third party suits - An outside party sues 21st Century Insurance insured for bodily injury and/or property damage liability, 2) First party suits - An insured sues 21st Century Insurance for damages under the Uninsured Motorist coverage on his policy, 3) Subrogation suits - 21st Century Insurance sues another party to recover damages paid by Company under any coverage. An accident can give rise to one or more suits. Each suit can have one or more claimants. If several suits are filed, they often are consolidated after filing. Assignment information could be different on suit associated with the same claims file, because different legal counsel must be assigned to avoid conflict of interest. The reserve remains open on claims lines in suit until final judgment. If 21st Century Insurance wins the case, the insured or claimant is awarded, 21st must pay the amount awarded plus allowable costs. A final payment will be issued, which closes the reserve. COMMISSIONS The Commissions custom system is an operational legacy system that is responsible for the processing for all agent commissions related to the 21st Century Casualty Company assigned risk policies. Daily, the PMS system sets up new business policies, renewals, and policy changes, and the Commission System calculates commissions according to the rules contained in Section 2462 of the California Insurance Plan. The commissions are then captured into the Commission master file. New vendors are added to the Vendor file as needed and an assignment record is created on the Assignment file to relate the PMS policy number to the vendor number. At midmonth the commission checks and offset statements are printed and the Commission master file is updated with the checks, minimum earned commission transactions, and offsets. The closeout and balancing are not done until month end. The midmonth cycle was added in July 1996, to satisfy the state requirement that insurance companies pay commissions to the agent within 30 days of receipt of the application. The Commission system is not designed to do closeout and balancing other than at month end because it does its calculations based on full months. In addition, Accounting wants the closeout and balancing done only once a month, at month end. At month end the closeout and balancing are done. The checks and all statements are printed and the Commission master file is updated with the checks, minimum earned Page 7 of 9 views that are not offered in the regular Loss Master reports. The Loss Master system reports losses exclusively or in various combinations by the following categories: coverage, accident date, company, policy type, loss type (reserves, payments, expenses, salvage, subrogation), examiner, adjuster, division, transaction date, reinsurance company, claim status (open, closed with pay, closed no pay). Suit Tracking System allows Users to access and view individual Suit records online. It tracks three types of lawsuits for 21st Century Insurance: 1) Third party suits - An outside party sues 21st Century Insurance insured for bodily injury and/or property damage liability, 2) First party suits - An insured sues 21st Century Insurance for damages under the Uninsured Motorist coverage on his policy, 3) Subrogation suits - 21st Century Insurance sues another party to recover damages paid by Company under any coverage. An accident can give rise to one or more suits. Each suit can have one or more claimants. If several suits are filed, they often are consolidated after filing. Assignment information could be different on suit associated with the same claims file, because different legal counsel must be assigned to avoid conflict of interest. The reserve remains open on claims lines in suit until final judgment. If 21st Century Insurance wins the case, the insured or claimant is awarded, 21st must pay the amount awarded plus allowable costs. A final payment will be issued, which closes the reserve. COMMISSIONS The Commissions custom system is an operational legacy system that is responsible for the processing for all agent commissions related to the 21st Century Casualty Company assigned risk policies. Daily, the PMS system sets up new business policies, renewals, and policy changes, and the Commission System calculates commissions according to the rules contained in Section 2462 of the California Insurance Plan. The commissions are then captured into the Commission master file. New vendors are added to the Vendor file as needed and an assignment record is created on the Assignment file to relate the PMS policy number to the vendor number. At midmonth the commission checks and offset statements are printed and the Commission master file is updated with the checks, minimum earned commission transactions, and offsets. The closeout and balancing are not done until month end. The midmonth cycle was added in July 1996, to satisfy the state requirement that insurance companies pay commissions to the agent within 30 days of receipt of the application. The Commission system is not designed to do closeout and balancing other than at month end because it does its calculations based on full months. In addition, Accounting wants the closeout and balancing done only once a month, at month end. At month end the closeout and balancing are done. The checks and all statements are printed and the Commission master file is updated with the checks, minimum earned commission transactions, offsets, and charge offs. The system's 20,000 lines of code are written in COBOL. Page 8 of 9 VENDOR The IRS requires 21st Century Insurance to report payments to vendors. The Vendor custom system is a legacy system for handling 1099 processing for all company vendors. The Internal Revenue Service requires 21 Century Insurance to report payments to vendors. The Vendor system is used to keep track of the payments made to vendors and is also used to create the 1099's. There are two main files. One is the Vendor Master file, which contains information such as name and address for each vendor, and the other is the Vendor accounting file that contains all the payments made to each vendor. New vendors are added to the master vendor file as needed. If a CDS vendor is created, modified or deleted, and ABC table accounting vendor record is created and processed by the ABC accounting system. This way the master vendor file and the ABC vendor accounting file contain the same vendor information. A PMS assignment record is created for new PMS policies, relating the PMS policy number to the vendor number. A CDS assignment record is created for new CDS accounting vendors, relating the CDS vendor number to the vendor number. CDS keeps its own set of vendor numbers. Daily the Vendor system extracts claims vendor payments from the PMS system and adds them to the Vendor Accounting file. Weekly the vendor system extracts vendor payments from the CDS accounting system and adds them to the Vendor accounting file. Weekly the Vendor system extracts commission payments from the Commission System and adds them to the Vendor accounting file. Monthly the Vendor system extracts commission and CDS accounting data that was not picked up by the weekly cycles (for the last few days of the month) and adds the data to the Vendor Accounting file. The Corporate Accounting department can make adjustments to the Vendor Accounting file by adding and offsetting data. Annually, vendor payments are reported to the IRS in accordance with the Department of Treasury Internal Revenue Service Publication 1220. The system's 146,000 lines of code are written in COBOL. BANK RECONCILIATION This is a bank accounting system that handles cash, premium refunds, claims, commissions, and proposition 103 checks. Each banking day, processed check status is sent via ftp transmission and updates the Check Master File on the mainframe and Peoplesoft. Claims stop pays are collected daily and sent through Bank of America's BAMTRAC system. PMS and Accounting systems are balanced against each other daily. Escheat processing is done annually at October month end. The system's 85,000 lines of code are written in COBOL. The Legacy Replacement initiative is the fifth among the CRM projects. Legacy Replacement refers to the migration to the Enterprise Billing system, which acts as a single billing, accounts receivable and payable system. This system is designed to support the future growth of 21st Century Insurance in terms of additional states and lines of business. This system is flexible to provide multi-channel billing/payment options and is designed using up-to-date system architecture. This system will replace BUCS and COGEN. Page 9 of 9 EX-14 11 doc10.txt CODE OF ETHICS EXHIBIT 14 CODE OF ETHICS FOR THE CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER, AND FINANCIAL MANAGERS 21st Century Insurance Group has a Code of Business Conduct applicable to all directors and employees of the Company and its subsidiaries. The Company's Chief Executive Officer (the "CEO"), Chief Financial Officer (the "CFO"), and all financial managers are bound by the provisions set forth therein relating to honest and ethical conduct, including the handling of conflicts of interest and compliance with applicable laws, rules and regulations. In addition to the Code of Business Conduct, the Company's CEO, CFO, and financial managers are subject to the following additional specific policies: 1. The CEO, CFO, and financial managers are responsible for maintaining the Company's accounting records in accordance with all applicable laws, and the accounting records are proper, supported, classified, and do not contain any false or misleading entries. 2. The CEO, CFO, and financial managers are responsible for the Company's system of internal financial controls and shall promptly bring to the attention of the Disclosure Committee and/or where deemed appropriate, directly to the Audit Committee, any information he or she may have concerning a) significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial data, and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's financial reporting, disclosures, or internal control over financial reporting. 3. The CEO, CFO and all financial managers are responsible for full, fair, accurate, timely and understandable disclosure in a) reports and documents that the Company files with or submits to the SEC, and b) the Company's other communications with the public, including both written and oral disclosures, statements and presentations. 4. The CEO, CFO and all financial managers are not permitted, directly or indirectly, to take any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified public accountant engaged in the performance of an audit or review of the financial statements of the Company that are required to be filed with the SEC if such person knew or was unreasonable in not knowing that such action could, if successful, result in rendering such financial statements materially misleading. For purposes of this Code of Ethics, actions that "could, if successful, result in rendering such financial statements materially misleading" include, but are not limited to, actions taken at any time with respect to the professional engagement period to fraudulently influence, coerce, manipulate, or mislead an auditor: a) to issue a report on the Company's financial statements that is not warranted in the circumstances (due to material violations of generally accepted accounting principles, generally accepted auditing standards, or other applicable standards); b) not to perform audit, review or other procedures required by generally accepted auditing standards or other applicable professional standards; c) not to withdraw an issued report; or d) Not to communicate matters to the Audit Committee. 5. In addition to their obligations under the Code of Business Conduct and Ethics, the CEO, CFO and each financial manager shall promptly bring to the attention of the General Counsel or, where he or she deems it appropriate, directly to the Audit Committee any information he or she may have concerning a) evidence of a material violation of the securities or other laws, rules or regulations applicable to the Company or its employees or agents, or b) any violation of this Code of Ethics. 6. The CEO, CFO, and financial managers shall not compete with the Company and may never let business dealings on behalf of the Company be influenced, or even appear to be influenced, by personal or family interests. The CEO, CFO and financial managers shall promptly bring to the attention of the General Counsel or the Chief Compliance Officer any information he or she may have concerning any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in the Company's financial reporting, disclosures or internal controls. 7. The Company is committed to complying with both the letter and the spirit of all applicable laws, rules and regulations. The Company intends to prevent the occurrence of conduct not in compliance with this Code of Ethics and to halt any such conduct that may occur as soon as reasonably possible after its discovery. Allegations of non-compliance will be investigated whenever necessary and evaluated at the proper level(s). Those found to be in violation of this Code of Ethics, including failures to report potential violations by others, are subject to appropriate disciplinary action, up to and including termination of employment. Criminal misconduct may be referred to the appropriate legal authorities for prosecution. 8. The Company will strive to keep confidential the identity of anyone reporting a possible violation. To facilitate the fullest compliance possible, and encourage employees to ask questions when presented with potential violations, the Company will not tolerate retaliation against any employee asking questions or making a good faith report in an attempt to comply with this Code. Open communication of issues and concerns by all employees without fear of retribution or retaliation is vital to the successful implementation of this Code. All employees are required to cooperate with internal investigations of misconduct and unethical behavior. 9. Any waiver of this Code of Ethics may be made only by the Audit Committee and will be promptly disclosed as required pursuant to federal securities laws, regulations and applicable listing standards. EX-21 12 doc11.txt EXHIBIT 21 SUBSIDIARIES OF REGISTRANT 21st Century Insurance Group (DE) (95-1935264) (Subsidiaries wholly owned) - 21st Century Insurance Company (CA) (95-2565072) - 21st Century Casualty Company (CA) (95-4136306) - 21st Century Insurance Company of Arizona (AZ) (86-0812982) - 20th Century Insurance Services, Inc. (NV) 95-4723863) - i21 Insurance Services (CA) (61-1420182) - dba 21st Century Online Insurance Services EX-23 13 doc12.txt EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333-94659, 033-80180, 333-64428, 033-61355, 333-31143, 333-31141, and 333-02261) of 21st Century Insurance Group of our report dated February 10, 2004, relating to the consolidated financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - -------------------------------- Los Angeles, California February 10, 2004 EX-31.1 14 doc13.txt EXHIBIT 31.1 CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER - ------------------------------------------------------ I, Bruce W. Marlow, certify that: 1. I have reviewed this annual report on Form 10-K of 21st Century Insurance Group: 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2004 /s/ Bruce W. Marlow ---------------------- --------------------------------------------- Bruce W. Marlow President and Chief Executive Officer EX-31.2 15 doc14.txt EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER - -------------------------------------------- I, Carmelo Spinella, certify that: 1. I have reviewed this annual report on Form 10-K of 21st Century Insurance Group: 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 11, 2004 /s/ Carmelo Spinella -------------------------------------------------- Carmelo Spinella Sr. Vice President and Chief Financial Officer EX-32.1 16 doc15.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Each of the undersigned hereby certifies, in his capacity as an officer of 21st Century Insurance Group (the "Company"), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge: - the Annual Report of the Company on Form 10-K for the period ended December 31, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and - the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: February 11, 2004 /s/ Bruce W. Marlow - ------------------------------------------ Bruce W. Marlow President and Chief Executive Officer /s/ Carmelo Spinella - ------------------------------------------ Carmelo Spinella Sr. Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to 21st Century Insurance Group and will be retained by 21st Century Insurance Group and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----