10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended: March 31, 2003
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	Commission File Number:  1-13485

AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland	33-0741174
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10421 Wateridge Circle, Suite 250 San Diego, California	92121
(Address of principal executive offices)	(Zip Code)
(858) 909-1200
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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.

ý   YES          o   NO

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock ($0.01) 7,863,437 as of April 16, 2003

INDEX

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PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

American Residential Investment Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

	(unaudited) March 31, 2003			December 31, 2002
ASSETS
Cash and cash equivalents	$	22,786		$	13,640
Cash and cash equivalents – restricted	1,750			1,132
Mortgage loans held for sale, net, pledged, (lower of cost or market)	488,007			390,125
Bond collateral, mortgage loans, net	230,804			259,851
Bond collateral, real estate owned	7,973			9,527
Accounts receivable – mortgage loans sold/funded	4,954			6,205
Derivative financial instruments	(1,126		)	(2,307		)
Accrued interest receivable	1,573			1,852
Deferred tax asset	6,679			—
Other assets	3,753			2,975
	$	767,153		$	683,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Short-term debt	$	477,445		$	378,553
Long-term debt, net	206,098			237,456
Accrued interest payable	488			582
Accrued expenses and other liabilities	11,362			6,811
Total liabilities	695,393			623,402
Minority interest	116			113
Stockholders’ Equity:
Preferred stock, par value $.01 per share; 1,000 shares authorized; no shares issued and outstanding				—
Common stock, par value $.01 per share; 25,000,000 shares authorized; 7,863,437 shares issued and outstanding at March 31, 2003 and 7,880,090 shares issued and outstanding at March 31, 2002	79			79
Additional paid-in-capital	108,762			108,760
Accumulated deficit	(37,197		)	(49,354		)
Total stockholders’ equity	71,644			59,485
	$	767,153		$	683,000

See accompanying notes to consolidated financial statements.

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American Residential Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss), unaudited

(in thousands, except per share data)

	For the Three Months Ended March 31, 2003			For the Three Months Ended March 31, 2002
Revenues
Gain on sales of loans	$	20,209		$	1,944
Derivative financial instruments and market adjustments	(2,211		)	(87		)
Interest on mortgage assets, net of premium amortization	9,246			6,920
Other income	215			470
Total revenue, net of derivative financial instruments and adjustments	27,459			9,247
Expenses
Employee compensation and benefits	9,484			2,946
Interest expense	4,213			3,828
Office and occupancy expense	566			363
Provision for loan losses	919			2,103
(Gain) loss on sale of real estate owned, net	(184		)	85
Professional Fees	1,405			764
Other operating expenses	3,753			1,060
Total expenses	20,156			11,149
Income (loss) before income taxes	7,303			(1,902		)
Income taxes	1,826			5
Income tax benefit from utilization of REIT net operating losses	(6,679		)	—
Net income (loss)	12,156			(1,907		)
Other comprehensive (loss) income
Unrealized gains on retained interest in securitization, net of tax	—			2
Total comprehensive income (loss)	$	12,156		$	(1,905	)
Net income (loss) per share of common stock basic – March  31, 2003 and 2002 weighted average shares 7,862,869 and 7,918,805 respectively	$	1.55		$	(0.24	)
Net income (loss) per share of common stock diluted – March 31, 2003 and 2002 weighted average shares 7,945,795 and 7,918,805 respectively	$	1.53		$	(0.24	)

See accompanying notes to consolidated financial statements

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American Residential Investment Trust, Inc. and Subsidiaries

Consolidated Statements of Cash Flows, unaudited

(in thousands)

	For theThree Months EndedMarch 31, 2003			For the Three Months EndedMarch 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	12,156		$	(1,907	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of mortgage assets premiums	994			3,100
Amortization of CMO capitalized costs	99			158
Provision for loan losses	919			2,103
Decrease on retained interest in securitization	—			85
Loss on sale of real estate owned	811			85
Mortgage loans held for sale, market adjustment	—			449
Proceeds from sale of mortgage loans held for sale	1,982,410			287,204
Mortgage loan originations	(2,080,293		)	(370,549		)
Decrease in accounts receivable–mortgage loans sold/funded	1,251			335
Decrease (increase) in restricted cash	1,797			(23		)
Increase in derivative financial instruments	(1,181		)	(4,533		)
Decrease in accrued interest receivable	279			224
Increase in deferred tax asset	(6,679		)	—
(Increase) in other assets	(778		)	(525		)
(Decrease) increase in accrued interest payable	(94		)	8
Increase in accrued and other expenses	2,137			92
Increase in minority interest	3			3
Net cash used in operating activities	(86,169		)	(83,691		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on bond collateral, mortgage loans, net	24,888			45,258
Proceeds from sale of real estate owned	2,989			3,976
Net cash provided by investing activities	27,877			49,234
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt	(31,456		)	(53,406		)
Increase (decrease) in net borrowings from short-term debt	98,892			85,279
Stock options exercised	2			—
Purchase treasury stock	—			(199		)
Net cash provided by financing activities	67,438			31,674
Net increase (decrease) in cash and cash equivalents	9,146			(2,783		)
Cash and cash equivalents at beginning of period	13,640			10,726
Cash and cash equivalents at end of period	22,786			$	7,943
Supplemental information–interest paid	$	4,202		$	3,820
Non-cash transactions:
Transfers from bond collateral, mortgage loans, net to real estate owned	$	2,245		$	856

See accompanying notes to consolidated financial statements.

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AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Summary of Significant Accounting Policies and Practices

Basis of Financial Statement Presentation

The interim financial statements included herein have been prepared by American Residential Investment Trust, Inc., (“AmRIT” or the “Company”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations.  These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s latest Annual Report.  In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the consolidated financial position of the Company with respect to the interim financial statements and the results of the operations for the interim period ended March 31, 2003, have been included.  Certain reclassifications may have been made to prior interim period amounts to conform to the current presentation.  The results of operations for interim periods are not necessarily indicative of results for the full year.

The Company reports segments in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” (SFAS 131).  SFAS 131 establishes standards for the way companies report information about operating segments in annual financial statements. Effective January 1, 2002, the Company began reporting in two segments: the Mortgage Banking Business and the Mortgage Asset Portfolio Business.

During the first half of 1998, AmRIT formed American Residential Holdings Inc. (“Holdings”), through which a portion of the Company’s non-conforming adjustable-rate and fixed-rate, single-family whole loans (collectively, “Mortgage Loans”), acquisition and finance activities are conducted. AmRIT owns all of the preferred stock of Holdings and has a non-voting 95% economic interest in Holdings. Because AmRIT does not have voting control of Holdings, its investment in Holdings was accounted for under the equity method prior to January 1, 2003. Under the equity method, original equity investments in Holdings were recorded at cost and adjusted by AmRIT’s share of earnings or losses and decreased by dividends received. In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities—an interpretation of ARB No. 51.” FIN 46 addresses consolidation by business enterprises of variable interest entities, which have one or both of the following characteristics: 1) the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity; and 2) the equity investors lack an essential characteristic of a controlling financial interest. The Company interprets FIN 46 to require the consolidation  of Holdings rather than accounting for Holdings under the equity method.  Prior period financial statements have been restated to include Holdings as a consolidated entity.

Stock Options

The Company elected to apply APB Opinion No. 25 in accounting for its equity compensation plans: the 1997 Stock Incentive Plan, 1997 Stock Option Plan, 1997 Employee Stock Purchase Plan and 1997 Outside Directors Stock Option Plan and, accordingly, no compensation cost has been recognized in the financial statements. SFAS 123 requires pro forma disclosures of loss computed as if the fair value based method had been applied for in financial statements of companies that continue to follow current practice in accounting for such arrangements under Opinion No. 25.

In December 2002 the Financial Accounting Standards Board (“FASB”) issued SFAS 148, Accounting For Stock Based Compensation Transition and Disclosure, which amends SFAS No. 123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which the Company elected to early adopt for the twelve month period ending December 31, 2002. The Company will continue to account for its stock based compensation according to the provisions of APB Opinion No. 25.

The Company does not recognize compensation cost of stock options, but had compensation cost for the Company’s stock options been recognized based upon the estimated fair value on the grant date under the fair value methodology prescribed by SFAS No. 123 as amended by SFAS No. 148, the Company’s net income and earnings per share would have been as follows (in thousands except earnings per share):

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Three Months Ended (unaudited)	March 31, 2003			March 31, 2002
Net earnings as reported	$	12,156		$	(1,907	)
Deduct: Total stock-based compensation expense determined under fair value based method net of tax effects	(518		)	(309		)
Pro forma net earnings (loss)	$	11,638		$	(2,216	)
Earnings per share
Basic as reported	$	1.55		$	(0.24	)
Basic pro forma	$	1.48		$	(0.28	)
Diluted as reported	$	1.53		$	(0.24	)
Diluted pro forma	$	1.46		$	(0.28	)

The assumptions used to calculate the fair value of options granted are evaluated and revised as necessary to reflect market conditions and the Company’s experience.

Note 2.  Concentration of Mortgage Loan Sales

Historically, the Company has sold a substantial portion of the mortgage loans it produces to one investor. The Company’s primary consideration in deciding where to sell loans is price.  The Company also considers speed of execution and loan product guidelines.  The Company believes that the majority of loans it sells currently could be sold to a number of investors with little price or execution degradation.

Note 3.  Income (Loss) Per Share

The following table illustrates the computation of basic and diluted loss per share (in thousands, except share and per share data):

	For the Three months ended March 31, 2003		For the Three months ended March 31, 2002
	(in thousands, except share data)
	(unaudited)
Numerator:
Numerator for basic income (loss)  per share	$	12,156	$	(1,907	)
Denominator:
Denominator for basic income (loss) per share - weighted average number of common shares outstanding during the period	7,862,869		7,918,805
Denominator for diluted income (loss) per share	7,945,795		7,918,805
Income (loss) per share - basic	$	1.55	$	(0.24	)
Income (loss) per share - diluted	$	1.53	$	(0.24	)

For the three months ended March 31, 2003 and 2002 there were 1,526,227 and 1,134,475 options, respectively, that were antidilutive and, therefore, not included in the calculations above.

Note 4.  Mortgage loans held for sale, net pledged

The AmRIT subsidiary American Mortgage Network, Inc. (“AmNet”) has pledged loans held for sale totaling approximately $482.2 million to secure credit lines (warehouse facilities) from three financial institutions. See Note 8, “Short-Term Debt.” Mortgage loans held for sale at March 31, 2003 consist of loans which have been committed for sale of approximately $259.2 million and loans available for sale at approximately $223.0 million, all of which are carried at the lower of cost or market.

Note 5.  Bond Collateral, Mortgage Loans, net

AmRIT has pledged mortgage loans as collateral in order to secure long-term-debt.  Mortgage loan bond collateral consists primarily

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of adjustable-rate, conventional, 30-year mortgage loans secured by first liens on one to four-family residential properties.  All such mortgage loan bond collateral is pledged to secure repayment of the related long-term-debt obligation.  All principal and interest (less

servicing and related fees) on this bond collateral is remitted to a trustee and is available for payment on the long-term-debt obligation.  The obligations under the long-term debt are payable solely from the bond collateral and are otherwise non-recourse to AmRIT. The components of this bond collateral at March 31, 2003 and December 31, 2002 are summarized as follows (dollars in thousands)(unaudited):

	CMO/REMIC 2000-2 Securitization			CMO/REMIC 1999-A Securitization			CMO 1999-2 Securitization			CMO 1999-1 Securitization			CMO/FASIT 1998-1 Securitization			TOTAL Bond Collateral
At March 31, 2003
Mortgage loans	$	13,027		$	56,985		$	85,974		$	41,382		$	29,974		$	227,342
Unamortized premium	546			1,297			3,010			1,171			291			6,315
Allowance for loan losses	(138		)	(891		)	(872		)	(474		)	(478		)	(2,853		)
	$	13,435		$	57,391		$	88,112		$	42,079		$	29,787		$	230,804
Weighted average net coupon	9.17		%	9.46		%	8.97		%	8.86		%	9.52		%	9.16		%
Unamortized premiums as a percent of Mortgage loans	4.19		%	2.28		%	3.50		%	2.83		%	0.97		%	2.78		%
At December 31, 2002
Mortgage loans	$	15,590		$	63,155		$	99,214		$	45,329		$	32,726		$	256,014
Unamortized premium	602			1,462			3,481			1,355			409			7,309
Allowance for loan losses	(116		)	(1,112		)	(771		)	(838		)	(635		)	(3,472		)
	$	16,076		$	63,505		$	101,924		$	45,846		$	32,500		$	259,851
Weighted average net coupon	9.17		%	9.50		%	8.99		%	8.86		%	9.71		%	9.20		%
Unamortized premiums as a percent of Mortgage loans	3.86		%	2.31		%	3.51		%	2.99		%	1.25		%	2.85		%

The Company maintains an allowance for losses on mortgage loan bond collateral at an amount which it believes is sufficient to provide adequate protection against losses in the mortgage loan portfolio.

Note 6.  Derivative Financial Instruments

The following is a summary of AmNet’s forward sales of mortgage backed securities (MBS) and options on mortgage backed securities (dollars in thousands)(unaudited):

Security	Notional Amount		Derivative	Short Long	Expiration
FNMA 15 – Year MBS	$	254,000	TBA	Short	May 19, 2003 – June 17, 2003
FNMA 30 – Year MBS	$	511,500	TBA	Short	April 14, 2003 – June 12, 2003
GNMA 30 – Year MBS	$	91,000	TBA	Short	May 21, 2003 – June 19, 2003
FNMA 30 – Options	$	135,000	Puts	Long	April 14, 2003 – June 12, 2003
GNMA 30 – Options	$	15,000	Puts	Long	April 23, 2003

These derivatives are accounted for as trading securities in the accompanying consolidated financial statements. The decrease in fair market value of derivative financial instruments is included in the Consolidated Statements of Operations and Comprehensive Loss.

The short and long positions noted in the schedule above represent forward sales or options to purchase or sell the underlying security.  Generally, long positions gain in value as market interest rates increase and short positions gain in value as market interest rates decrease.

The value of the mortgage loans that AmNet originates is at risk due to fluctuations in interest rates during two time periods: (1) the period beginning when AmNet has committed to funding the loan and ending when the loan closes, or funds; and (2) the time period beginning when the loan closes and ending when AmNet commits to sell or sells the loans to third-party purchasers. These loans are collectively referred to as the loan pipeline. AmNet uses derivative instruments, or “hedges” to mitigate the adverse impact interest rate fluctuations can have on the value of the loan pipeline. AmNet purchases derivative instruments in order to try and protect profit margins on locked loans and closed loans before they are committed for sale. Protection is needed as a result of changes in interest rates from the point loan lock is made until the loan is committed for sale. The derivative instruments used are forward commitments on

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mortgage backed securities (“TBA”) and options to purchase or sell mortgage backed securities. Changes in the price of these derivative instruments closely relate to changes in the sale price of loans held for sale. The Company cannot assure however, that AmNet’s use of derivative securities will offset the risk of changes in interest rates. In certain instances it may even increase this risk. See

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

At March 31, 2003 AmNet had committed for sale to specific investors approximately $259.2 Million in mortgage loans and had $223.0 million in funded loans that had not yet been committed for sale or sold.  These mortgages loans are for single family residences collateralized by first trust deeds.

In the Company’s mortgage banking business determinations of fair market value (“FMV”) are made for hedging instruments (derivatives), its pipeline and loans in which held for sale (lower of cost or market) are made based on consistently applied methods accepted within the regulatory climate in which the Company operates. Hedging instruments are marked to market according to similar or identical financial instruments available in the market place at the time of the mark. The loan pipeline mark is determined by recording market prices available for loan sales and deriving a value for those loans, less a factor for loans which will not close (loan fallout) based on Company's history of loan fallout. By accounting rules, the Company is not allowed to recognize any revenue from loan sales until a true sale has taken place. However if these loans are stated at a value less than could be obtained by sale in the marketplace, the lower value must be used. The Company adheres to this method of book valuation.

Note 7.  Bond Collateral, Real Estate Owned

The Company owned 134 properties and 148 properties as of March 31, 2003 and December 31, 2002, respectively.  Upon transfer of  loans to real estate owned (as a result of default or foreclosure), the Company records a corresponding charge against the allowance for loan losses to write-down the real estate owned to fair value less estimated cost of disposal.  As of March 31, 2003 and December 31, 2002, real estate owned totaled approximately $7.9 million and $9.5 million, respectively (including loss reserves).

Note 8.  Short-Term Debt

As of March 31, 2003, short-term debt consisted of revolving credit lines (warehouse facilities) used to fund the Company’s lending activities. As of March 31, 2003, mortgage loans held for sale were pledged as collateral for the warehouse facilities. The warehouse facilities consist of borrowings of $474.4 million with financial institutions for a maximum amount of borrowing capacity of $960 million as of March 31, 2003, with outstanding amounts maturing on various dates within one year secured by mortgage loans held for sale, generally bearing interest at LIBOR plus spread (2.75% per annum at March 31, 2003). The weighted-average interest rate was 2.73% per annum for the first quarter of 2003 and the facility fee was 0.25% per annum on the aggregate committed amount of the warehouse facilities. The warehouse facilities are repaid as principal payments on mortgage loans are received, or as the mortgage loans are sold. The agreements governing these facilities contain a number of covenants, including covenants based on tangible net worth, cash flows, net income, and liquidity of the Company. The Company is in compliance with these covenants at March 31, 2003.

In 2001, the Company also entered into a $5 million senior subordinated secured revolving loan agreement (Subordinated Loan Agreement). The Subordinated Loan Agreement bears interest at 12% and matured in December 2002, with provisions for extension of two additional one-year periods at the Company’s option. The Company extended the loan for one year. The Subordinated Loan Agreement contains a number of covenants, including covenants based on tangible net worth, cash flows, net income and liquidity of the Company. As of March 31, 2003, there was $3 million in borrowings on the Subordinated Loan Agreement.  The Company is in compliance with these covenants at March 31, 2003.

Note 9.  Long-Term Debt, Net

The components of the long-term-debt at March 31, 2003 and December 31, 2002, along with selected other information are summarized below (dollars in thousands)(unaudited):

	CMO/REMIC 2000-2 Securitization			CMO/REMIC 1999-A Securitization			CMO 1999-2 Securitization			CMO 1999-1 Securitization			CMO/FASIT 1998-1 Securitization			TOTAL Long-Term Debt
At March 31, 2003
Long-term debt	$	12,794		$	51,023		$	80,339		$	32,220		$	30,440		$	206,816
Capitalized costs on long-term debt	(49		)	(5		)	(389		)	(275		)	—			(718		)
Total long-term debt	$	12,745		$	51,018		$	79,950		$	31,945		$	30,440		$	206,098
Weighted average financing rates	2.11		%	1.51		%	3.11		%	2.04		%	2.39		%	2.38		%
At December 31, 2002
Long-term debt	$	15,520		$	58,369		$	94,411		$	36,855		$	33,116		$	238,271
Capitalized costs on long-term debt	(59		)	(5		)	(447		)	(304		)	—			(815		)
Total long-term debt	$	15,461		$	58,364		$	93,964		$	36,551		$	33,116		$	237,456
Weighted average financing rates	2.04		%	1.55		%	3.10		%	1.73		%	2.44		%	2.35		%

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Note 10. Stock Option Plans

As of March 31, 2003, shares of common stock were reserved for issuance under the Company’s option plans as follows (unaudited):

	1997 Stock Incentive Plan	1997 Stock Option Plan	1997 Employee Stock Purchase Plan	1997 Outside Director Stock OptionPlan	Total
Total Options Authorized at 1/1/2003	315,200	1,474,800	20,000	210,000	2,020,000
Total Options Issued	284,800	1,152,800		172,500	1,610,100
Options Reserved for Issuance	30,400	322,000	20,000	37,500	409,900

Stock option activity during the periods presented is as follows (unaudited):

	Number ofOptions		Weighted-Average Exercise Price
Balance at December 31, 2002	1,244,600		$	9.01
Granted	389,000		4.08
Forfeited	(23,500	)	(3.17		)
Balance at March 31, 2003	1,610,100		7.90

At March 31, 2003, the range of exercise prices for outstanding options was $1.75 to $15.00 and the weighted-average remaining contractual life of outstanding options was 6.88 years. The weighted average exercise price of exercisable outstanding options was $7.90.  At March 31, 2003, 1,112,091 of the outstanding options were exercisable.

The per share weighted-average fair value of stock options granted between January 1 and March 31, 2003 was $1.33 on the dates of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions (unaudited):

	March 31 2003
Expected dividend yield	0.00	%
Risk-free interest rate	2.78	%
Expected volatility	31.50	%
Expected life (years)	5

Note 11.  Commitments and Contingencies

The Company has used, and will continue to use, Forward Loan Sale Commitments  to help mitigate the loan pipeline exposure ($746 million at March 31, 2003) to market interest rate fluctuations (See Management’s Discussion and Analysis of

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Financial Condition and Results of Operations – Mortgage Banking Business).  These commitments provide that the Company agrees to sell an established volume of mortgage loans to a particular institution at a fixed price.  An established time frame, or settlement date is also agreed upon. The Company could incur a loss if the loan volume committed for sale is not delivered.

Note 12.  Business Segments

The Company reports its financial results in two segments: the Mortgage Banking Business and the Mortgage Asset Portfolio Business. The Mortgage Banking Business originates home mortgage loans through a network of mortgage loan brokers.  These

mortgage loans are subsequently sold to financial institutions. The Mortgage Asset Portfolio Business segment manages a portfolio of mortgage loans pledged as collateral for long-term debt.

The accounting policies of the segments are the same as described in Note 1, “Summary of Significant Accounting Policies and Practices.” The Company evaluates the performance of its business segments based on income before income taxes. Expenses under the direct control of each business segment and the expense of premises and equipment incurred to support business operations are allocated accordingly, by segment.

The table below reflects the first quarter statement of operations activity by segment.

American Residential Investment Trust, Inc. and Subsidiaries
Consolidated Statements of Operations by Business Segment, unaudited
(in thousands)

	For the Three Months Ended March 31, 2003 Mortgage Banking			For the Three Months Ended March 31, 2003 Mortgage Asset Portfolio			For the Three Months Ended March 31, 2003 Combined Segments
Revenues
Gain on sales of loans	$	20,209		$	—		$	20,209
Derivative financial instruments and market adjustments
Derivative financial instruments - forward commitments and options	(52		)	—			(52		)
Market adjustment on interest rate lock commitments	(2,159		)	—			(2,159		)
Total derivative financial instruments and market adjustments	(2,211		)	—			(2,211		)
Interest on mortgage assets, net of premium amortization	5,902			3,344			9,246
Other income	17			198			215
Total revenue	23,917			3,542			27,459
Expenses
Employee compensation and benefits	9,145			339			9,484
Interest expense	2,674			1,539			4,213
Office and occupancy expense	566			—			566
Provision for loan losses	—			919			919
Loss on sale of real estate owned, net	—			(184		)	(184		)
Professional fees	1,090			316			1,405
Other operating expenses	3,495			258			3,753
Total expenses	16,970			3,186			20,156
Income before income taxes	6,947			356			7,303
Income taxes	1,826			—			1,826
Income tax benefit from utilization of REIT net operating losses	(6,679		)	—			6,679
Net income	$	11,800		$	356		$	12,156

An income tax benefit from utilization of REIT net operating losses is expected for 2003 due to the taxable income generated by the mortgage banking business, and accordingly this benefit is attributable to the mortgage banking segment.

	For the Three Months Ended March 31, 2002 Mortgage Banking			For the Three Months Ended March 31, 2002 Mortgage Asset  Portfolio		For the Three Months Ended March 31, 2002 Combined Segments
Revenues
	$	1,944		$	—	$	1,944
Derivative financial instruments and market adjustments
Derivative financial instruments - Treasury futures	648			—		648
Market adjustment on interest rate lock commitments	(735		)	—		(735		)
Total derivative financial instruments and market adjustments	(87		)	—		(87		)
Interest on mortgage assets, net of premium amortization	1,461			5,459		6,920
Other income	4			466		470
Total revenue	3,322			5,925		9,247
Expenses
Employee compensation and benefits	2,929			17		2,946
Interest expense	695			3,133		3,828
Office and occupancy expense	363			—		363
Provision for loan losses	—			2,103		2,103
Loss on sale of real estate owned, net	—			85		85
Professional fees	448			316		764
Other operating expenses	865			195		1,060
Total expenses	5,300			5,849		11,149
Income before income taxes	(1,978		)	76		(1,902		)
Income taxes	—			5		5
Net income	$	(1,978	)	$	71	$	(1,907	)

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For the purpose of internal management reporting, the Company records inter-segment funds transfers and eliminates these transfers on a consolidated basis for GAAP reporting.  Inter-segment assets and liabilities eliminated for consolidation purposes were $35.9 million for the three month period ending March 31, 2003.

Note 13.  Subsequent Events

Subsequent to the period ending March 31, 2003, the Company secured additional warehouse line capacity of $200 million from UBS Warburg. The UBS Warburg additional capacity is to expire July 1, 2003.  As of the filing date of this report, the Company has $1.16 billion of warehouse loan capacity.

Note 14.  Income Taxes

During 1997, the Company elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended.  As a result of this election, the Company was not, with certain exceptions, taxed at the corporate level on the net income distributed to the Company’s shareholders.  On July 19, 2002, the shareholders of the Company approved two proposals that allowed the conversion of the Company from a REIT to a fully taxable entity, effective January 1, 2003.  On February 7, 2003, the Company filed a notice with the Internal Revenue Service of its decision to de-REIT, effective beginning January 1, 2003.  As a result of the  conversion to fully taxable status, an income tax benefit and related deferred tax asset of $6.7 million was recorded in January 2003.  The deferred tax asset will be reduced by realization of income tax provisions over time.  As a result of the above, the income tax expense recorded for the first quarter of 2003 was $1.8 million and the Company's effective tax rate was 25%.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward looking statements.  Such forward looking statements include those regarding our expectations, hopes, beliefs, intentions, or strategies regarding the future. Such statements use the words “expect,” “will,” “may,” “anticipate,” “goal,” “intend,” “seek,” “believe,” “plan,” “strategy” and derivatives of such words.  Forward looking statements in this report include those statements regarding:

•              our expectations surrounding the total size of the loan origination market, our ability to maintain average monthly loan fundings in a potentially declining market and our loan origination volume;

•              our expectation of maintaining quarter-over-quarter profitability in the Mortgage Banking Business;

•              our expectations surrounding our cash requirements, expenses, cash flow from operations, the sufficiency of our capital base, the sufficiency of our cash reserves and our sources of liquidity, including our intention to increase the size of our warehouse lending facilities and the factors we expect to affect our ability to do so;

•              the expected adequacy of our various reserves;

•              AmNet’s intention to expand operations in 2003 and the expected costs of doing so;

•              AmNet’s intent to continue to try and hedge against market fluctuations in interest rates, the instruments AmNet intends to use and the expected inverse relationship of gains on hedging to margins on loan sales;

•              our expectation of selling loans on a service-released basis within approximately 30 days from origination;

•              the expected correlation of our success to loan origination volume;

•              AmNet’s belief it will continue to qualify for correspondent lending programs and its ability to find alternative buyers for loans it originates;

•              the expected concentration of AmNet’s loans in California;

•              our expectation interest rates may rise and the anticipated effect on various aspects of our business from changes in interest rates, including increased per loan costs of loan generation;

•              our beliefs regarding future prepayment rates and their effect and anticipated prepayment penalties;

•              our expectation revenues and cash flow from our Mortgage Asset Portfolio Business will continue to decline;

•              our expected effective tax rates;

•              who we anticipate will be our competitors;

•              an expected increase in the level of our general and administrative expenses, including directors’ and professional fees;

•              the anticipated impact of changes in laws;

•              the expected affect of seasonality on our business;

•              our intent to hold mortgage loan bond collateral to maturity; and

•              our expected increasing reliance on information technology systems and the necessity of developing and upgrading such systems.

These forward looking statements are based on information available to us on the date hereof, and we assume no obligation to update any such forward looking statements. It is important to note that our actual results and timing of certain events could differ materially from those in such forward looking statements due to a number of factors, including but not limited to, general economic conditions, the world political climate, unexpected expense increases, overall interest rates, volatility in interest rates, the shape of the yield curve, reductions in the value of retained interests in securitizations, our ability to successfully grow AmNet, the ability to obtain the financing necessary to fund AmNet, changes in accounting rules or their application, changes in the margins gained on sale of originated loans, changes in the demand of mortgage brokers for AmNet’s loan products and services or of loan purchasers for originated loans, the availability of capital and our ability to qualify for such capital, increases in prepayment rates and default rates, the effect of terminating our status as a REIT, changes in the requirements of correspondent loan programs or our ability to meet such requirements and changes in AmNet’s and our anticipated cash requirements. Other risk factors that could cause actual results to differ materially are set forth in this item under the heading “Business Risk Factors.”

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Introduction

Our Company was founded in 1997 as an externally managed Real Estate Investment Trust. Until 2001, substantially all of our operations consisted of the acquisition of residential mortgages for investment purposes. In mid-2001, our Board of Directors and management determined that it was in the best interest of the stockholders to fundamentally shift the strategic direction of the Company to mortgage banking. We began implementation in 2001 by forming American Mortgage Network, Inc. (“AmNet”), a wholly owned subsidiary, to engage in mortgage banking activities. AmNet originates mortgage loans to prime credit quality borrowers secured by first trust deeds through a network of independent mortgage brokers. A concentration of our business is in California (35.3% of loans originated in the first quarter of 2003). We sell the loans that we originate to institutional purchasers on a servicing—released basis.

We generate revenue in our Mortgage Banking Business segment two principal ways:

•Interest income. From the time we originate a loan until the time we sell the loan, we earn interest on the loan, which is paid by the borrower. The interest that we earn is partially offset by the interest we pay under our warehouse credit facilities used to finance our mortgage originations.

•Gain on loan sales. We sell the whole loans that we originate to institutional purchasers, on a servicing released basis for cash. We record the difference between the sale price of loans that we have sold and our cost to originate the sold loans as gain on loan sales revenue. We recognize revenue at the time that we complete the loan sale, which is generally when we receive loan sale proceeds from the purchaser.  Gain on loan sales also includes fees we charge for loan origination such as, underwriting fees, loan document preparation fees and wiring fees. 

We continue to generate revenue from our Mortgage Asset Portfolio Business, although we expect that revenues from this segment of our business will continue to decline. We generate revenue on the interest we receive on the mortgage loans we hold for investment. Our primary expense is the interest we pay on borrowings used to fund our mortgage loan portfolio.

Our mortgage banking operations grew significantly in 2002 and represented 43.6% of our 2002 revenue and 84.1% of first quarter 2003 revenue. At the same time, the Mortgage Asset Portfolio Business has significantly declined as mortgage loans in our portfolio have prepaid over time and have not been replenished.

As a result of the change in focus of our Company’s strategic direction and the decision to emphasize taxable operating activities and retain earnings for growth, our shareholders, based upon a recommendation from our Board of Directors, approved two proposals that permit us to amend our charter documents to terminate our status as a REIT. In February of 2003 we notified the Internal Revenue Service of our decision to de-REIT, effective for the tax year beginning January 1, 2003.  As a REIT, we generally did not pay federal taxes at the corporate level on income we distributed to stockholders. We have not distributed income to our stockholders since January of 2001.

Effective January 1, 2003, we became an income tax paying entity and that electing to de-REIT, and as such we must recognize deferred tax assets that are largely a result of previous net operating losses and that provide a reduction in our effective income tax rate for 2003.  Our effective income tax rate for 2003 will be approximately 25%.

Upon termination of our REIT status, we were no longer eligible for listing on the New York Stock Exchange. As of January 31, 2003, we moved from the New York Stock Exchange to the American Stock Exchange. Our ticker symbol, INV, remains the same.

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Mortgage Banking Business

Summary

AmNet originates mortgage loans referred by mortgage brokers for subsequent sale on a servicing released basis to large investors.

AmNet utilizes a dedicated sales force to offer loan products to approved wholesale mortgage brokers, who refer their client’s loans to us for underwriting and funding. Loans meeting our underwriting criteria are approved and funded at our regional underwriting loan centers. Our headquarters office performs various functions through multiple departments including establishment of policy, risk management, secondary marketing, finance, accounting, administration, human resources, and information technology.

We funded $2.1 billion in home loans during the three month period ending March 31, 2003. For the twelve month period ending December 31, 2002, we funded $4.2 billion in home loans. As of  March 31, 2003, we had 398 loan production and loan operations employees. As of March 31, 2003, we operated fifteen regional centers and three satellite centers around the continental United States of America.

We borrow funds under our credit facilities to fund and accumulate loans prior to sale to correspondent investors on a servicing released basis. As of May 1, 2003 we have three warehouse facilities that enable us to borrow up to an aggregate of $1.16 billion. We are allowed to borrow from 98% to 99% of par balance, and must comply with various lender covenants restricting, among other things, the absolute level of leverage and minimum levels of cash reserves. We expect to increase our warehouse borrowing facilities to enable increased loan production. (See Note 12 “Subsequent Events” to financial statements).

We typically expect to sell all loans we fund on a servicing-released basis, usually within 30 days of funding.

Critical Accounting Policies

The following analysis of financial condition and results of operations are based upon our consolidated financial statements, and the notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable in the circumstances; however, actual results may differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods.

Our accounting policies relating to the basic procedures listed below have not changed in the three month period ending March 31, 2003:

•  Provision for loan losses

•  Derivative financial instruments

•  Premium amortization on bond collateral, mortgage loans

•  Gain on sale of loans

•  Income taxes

Please refer to the Company Form 10-K for the one-year period ending December 31, 2002, for a detailed discussion of these procedures except income taxes, which is discussed in this report (See notes to financial statements - Note 14 "Income Taxes").

Results of Operations

Three Month Results

Mortgage Banking Business

Gain on the sale of loans for the three-month period ending March 31, 2003, amounted to $20.2 million. For the comparable period ending March 31, 2002, there was a $1.9 million gain on the sale of loans. AmNet’s increase in net gains on the sale of loans is the result of the increase in its loan production volume. For the three month period ending March 31, 2003 and March 31, 2002, AmNet recorded loan sales volume of $2.0 billion and $287 million respectively. Gains on the sale of loans were offset by a loss on the Company’s derivative financial instruments totaling $2.2 million and $86.8 thousand for the same periods, respectively.

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For the three months ending March 31, 2003, AmNet’s gain on saleof loans of $20.2 million is a combination of various account categories.  This represents an $ 18.3 million increase over the same period ending March 31, 2002.  Loan premiums of approximately $45.7 million represent the price at which AmNet sells the loans to investors in excess of the principal balance of loans sold. Fee income of approximately $5.8 million represents various charges to brokers for services rendered, which are deferred and recognized as part of the gain on the sales of the loans. Gross gain and fee income are offset by capitalized (deferred) loan acquisition costs. The largest deferred cost associated with loan production is broker fees and yield spread premiums totaling approximately $25.0 million. Other deferred costs include (i) deferred origination costs, which are recognized at the time of loan sale, of approximately $2.5 million and (ii) loan premiums repaid to investors (“premium recapture”) and loan loss reserve costs aggregating approximately $1.5 million. Premium recapture expenses represent repayment of a portion of certain loan sale premiums to investors on previously sold loans which subsequently payoff within six months of loan sale.  Gain on the sale of loans of $20.2 million for the three-month period ending March 31, 2003 represents approximately 102 basis points (1.02%) on loan sales of $2.0 billion.  For the same period ending March 31, 2002, gain on the sale of loans was $1.9 million which represented approximately 68 basis points (0.68%) on loan sales of $287 million.

During the first three months of 2003, AmNet incurred net losses on its derivative financial instruments totaling $2.2 million.  For the same period ending March 31, 2002 net losses on derivative financial instruments totaled $87 thousand.  Derivative financial instruments are purchased to offset any loss from market interest rate movement which adversely affects gain on loan sales. During the first quarter of 2003, AmNet used forward sales of mortgage backed securities (TBA-MBS) as its primary hedging vehicle. During 2002, AmNet used treasury futures and options on treasury futures as prime hedging vehicles.  Due to declines in yields on mortgages during first quarter of 2003, AmNet recorded net losses on derivative financial instruments, but we expect offsetting higher gains on the sale of loans. In the first quarter of 2002, AmNet recorded net gains on derivative financial instruments but these gains were offset by lower than expected gains on the sale of loans.

AmNet recorded interest income of $5.9 million for the three months ended March 31, 2003 and $1.5 million for the same period ending March 31, 2002. AmNet earns interest on a loan from the date the loan is funded until final disposition. Accordingly, interest income is a function of the volume of loans funded, the interest rate on the loans and the length of time the loans are held prior to sale. To the extent AmNet funds loans with borrowings under its warehouse facilities, it records interest expense based on the same factors. Interest expense for the period was $2.7 million. The resulting net interest income earned on loan inventories was $3.2 million, representing 16 basis points (0.16%) on 2003 loan production of $2.1 billion.

Expenses incurred in the Mortgage Banking Business consist of employee compensation and benefits, office and occupancy expense and other operating expenses (in aggregate referred to as Operating Expenses). For the  three month period ending March 31, 2003, Operating Expenses totaled $17.0 million. For the comparable period ending March 31, 2002, there was approximately $5.3 million of expenses incurred. The increase was due to the establishment/expansion and ongoing overhead of AmNet’s mortgage banking operations, which are comprised of regional loan production offices and headquarter operations. For the three months ended March 31, 2003, estimated variable expenses were approximately $6.0 million which were approximately 29 basis points (0.29%) on $2.1 billion in funded loans. Operating Expenses that were not directly variable totaled $11.0 million, or approximately 53 basis points (0.53%) on $2.1 billion in funded loans for the first quarter of 2003.

Interest rate movements are difficult to predict but it is recognized that interest rates on residential mortgages were continuing from 2002 to be historically low throughout the first quarter of 2003. While rates have continued to remain at historical lows in 2003, rates are expected to increase  in the second half of 2003 and we expect that the total number of home purchase and refinancing transactions to decline, causing a significant overall contraction of the loan origination market. Our financial projections for 2003 assume a significant contraction in the size of the market by the fourth quarter of 2003, and total funded loan volume of $8.0 to $9.5 billion. During the first quarter of 2003, we generated an average monthly funded loan volume of $693 million. For the same period ending March 31, 2002 we generated an average monthly funded loan value of $123 million. Despite an assumed mortgage market contraction, we do not expect our monthly loan fundings to decline at a greater rate than the market in 2003 due to initiatives to increase sales coverage and broker penetration in existing markets and planned expansion into new markets. However, in formulating our financial projections and above noted earnings guidance, we do anticipate higher costs per loan and lower per loan revenues as a direct consequence of the expected market contraction. We expect continued quarterly profitability in our mortgage banking business.

There is a degree of seasonality to our business.  Summer and fall seasons are typically stronger home buying months than other parts of the year.  We may expect greater loan volume as a result of this seasonality.

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Mortgage Asset Portfolio Business

For the first quarters ended March 31, 2003 and 2002, we generated net income of approximately $338 thousand and  $72 thousand, respectively.  Although this is an increase in net income for 2003, all revenue and expense categories declined as a result of a decline of our mortgage asset portfolio from $397.1 million at March 31, 2002 to $230.8 million at March 31, 2003. Our decision to avoid portfolio acquisitions from 2000 to date has resulted in a continued decline in the size of Bond Collateral Mortgage Loan portfolio. This decline resulted in a decrease in net interest income from $5.4 million for the three month period ending March 31, 2002 to $2.8 million for the three month period ending March 31, 2003.

Net interest spread is the primary source of revenue in this segment of our business. The weighted average interest rate we receive from our bond collateral was 9.2% at March 31, 2003 and was 9.47% at March 31, 2002, while the weighted average interest rate we paid was 2.4% and 2.69% for the same periods, respectively. The difference is our gross interest spread earnings on the mortgage asset portfolio. As our portfolio balances continue to decline, we find that a key expense item continues to be premium amortization and credit losses. Our portfolio has been declining in size rapidly as a result of borrowers refinancing their mortgages which necessitates writing off our premium at accelerated rates. Credit losses on collateral are not decreasing in proportion to the decline in our portfolio balances. Less credit worthy borrowers have difficulty procuring refinancing terms while those more credit worthy are able to find lower interest rates available and opt to payoff their loans before they are due (prepayment). Therefore with less credit worthy borrowers remaining in our portfolio assets, events of default occur more frequently and necessitate a higher proportion of credit reserves.

Most of the intermediate adjustable rate mortgages in the CMO/FASIT, 1999-1, 1999-A, 1999-2 and 2000-2 segments of the Bond Collateral Mortgage Loans portfolio have reached their first contractual interest rate adjustment and prepayment penalties clauses on the underlying pool of loans have expired or declined, resulting in a higher probability of refinancing (principal prepayments). There can be no assurance that prepayment rates will not increase. Our financial condition and results of operations could be materially adversely affected if prepayment levels increase significantly.

During the first quarter of 2003, other income decreased approximately $268 thousand over the three month period  ended March 31, 2002 from $466 thousand to $198 thousand, primarily due to a decrease of approximately $274 thousand in prepayment penalty income.

For the three month period ended March 31, 2003, total expenses decreased approximately $4.7 million (from $8.9 million to $4.2 million) over the three month period ended March 31, 2002. During 2003, our Company incurred decreases in all of the major expense categories for this segment of our business as a result of the decrease of $166 million in bond collateral. The primary decreases included the following: interest expense decreased approximately $1.6 million; premium amortization decreased by approximately $2.1 million, and provision for loan losses decreased by approximately $1.2 million

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During 1997, the Company elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended.  As a result of this election, the Company was not, with certain exceptions, taxed at the corporate level on the net income distributed to the Company’s shareholders.  At our 2002 shareholders meeting, the shareholders of the Company approved two proposals that allowed the conversion of the Company from a REIT to a fully taxable entity, effective January 1, 2003.  On February 7, 2003, the Company filed a notice with the Internal Revenue Service of our decision to de-REIT, effective beginning January 1, 2003.  As a result of the conversion to fully taxable status, an income tax benefit and related deferred tax asset of $6.7 million was recorded in January 2003.  As a result of the above, the income tax expense recorded for the first quarter of 2003 was $1.8 million and our effective tax rate was 25%.

Liquidity and Capital Resources

General

Our current sources of liquidity primarily consist of the following:

•borrowings under our warehouse and other credit facilities;

•revenues generated by our mortgage banking operating activities including interest, branch fees and loan sale proceeds; and

•excess interest spread and over collateralization “step down” payments related to the mortgage asset portfolio business, net of repayments to servicers for past principal and interest advances on completed real estate owned dispositions.

Our primary cash requirements include:

•funding our mortgage loan originations;

•interest expense under our warehouse facilities;

•operating expenses, including commissions;

•repayment of our borrowings; and

•maintaining “restricted cash” accounts, which include amounts required to be held by certain of our warehouse lenders that may not be used in our operations, as well as amounts held in escrow for third parties.

As our mortgage banking operations have grown and our mortgage asset portfolio has declined, our cash flow from mortgage asset portfolio investment activities has continued to decline in amounts and materiality.

Cash Generated By and Used In Our Operations

During the three month period  ended March 31, 2003, on a consolidated basis we generated a net positive cash flow of $9.1 million. This net positive number can be better understood by explaining the major components:

Mortgage Banking Business:

•Cash reserves utilized to fund loan inventories and maintain cash collateral accounts in our Mortgage Banking Business were approximately $6.4 million.

Our warehouse line lending agreements allow us to borrow from 98% to 99% of par for each mortgage loan.  These agreements contain restrictive covenants.  As of March 31, 2003, we are in compliance with all covenants associated with these agreements. We pay an

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additional 1% to 2% of the loan principal amount in fees or yield spread premium to the mortgage brokers. Lastly, a small portion of our loan inventory is funded with equity capital. We typically have cash invested totaling between 2% to 4% of the principal amount of loans held for sale, which is recouped when the loans are purchased by investors. Should we increase the amount of loan inventory, either by holding loans for longer periods, or due to increased loan funding volume, the cash reserves necessary to carry loan inventories will increase in direct proportion to the inventory held.

•Cash receipts in excess of cash expenditures in the Mortgage Banking Business were approximately $9.5 million for the first quarter of 2003.

Our financial condition can be affected by turmoil in world markets, which could directly impact domestic liquidity. As stated earlier, we intend to renew existing financing facilities and seek new financing sources as the need arises. There can be no assurance that we will be able to secure new short or long-term financing or that financing will be available on favorable terms.

We anticipate our liquidity will be predominantly impacted by our Mortgage Banking Business. Specifically, we expect to continue to originate $500 million to $1 billion per month of new mortgage loans and fund these originations with equity capital and warehouse facility borrowings. We also expect to continue to engage in hedging transactions that may require cash investment to maintain or adjust hedged positions. Furthermore, we anticipate greater general and administrative costs associated with the operations of our Mortgage Banking Business. We intend to use cash reserves, borrowings under the warehouse facilities and the Subordinated Debt Facility and cash flow generated by the mortgage asset portfolio, as well as cash flow generated from the origination and sale of mortgage loans, to fund our operations. We are therefore dependent on significant and increasing levels of warehouse financing to help execute our mortgage banking strategy. Furthermore, we must originate a certain minimum level of loans to remain profitable. See Business Risk Factors.

Mortgage Asset Portfolio Business:

•Net cash flow from our mortgage asset portfolio was negative at approximately $367 thousand for the first quarter of 2003.

The Mortgage Asset Portfolio business generates cash from interest and principal received from bond collateral and proceeds from the sale of real estate owned bond collateral. The bond trustees (master servicer) offset this cash by paying interest and principal to bondholders, paying servicer and trustee fees, bond insurance premiums and reimbursing servicers for any advances made on real estate owned dispositions. Any excess cash flow is remitted to us from the bond trustees on a monthly basis. There are various factors that affect this flow, such as market interest rate changes. Additionally, our bond agreement provisions specify the requirements for over collateralization accounts. If overcollateralization accounts are deficient, this can restrict our receipt of excess cash flow and be used instead by the bond trustee to pay down long term debt (as was the case in the first quarter of 2003).

Cash flow from the mortgage asset portfolio is expected to decline in 2003 due to a decline in the size of the portfolio and potential increases in overcollateralization accounts.

•Administrative expenditures for our Mortgage Asset Portfolio Business aggregated approximately $913 thousand.

Administrative expenses allocated to our Mortgage Asset Portfolio Business included portfolio management payroll allocations of approximately $340 thousand, general legal expenses of approximately $235 thousand, professional and consulting fees of approximately $68 thousand, director fees of $34 thousand, stock exchange fees of $65 thousand and liability insurance of approximately $83 thousand. Stock exchange fees relate to our change from the New York Stock Exchange to the American Stock Exchange. We do expect director fees and general legal and professional expenses to increase due to the implementation of various new corporate governance measures required by the Sarbanes-Oxley Act of 2002.

Business Risk Factors

Risks Associated with Changing Our Business Strategy

We Have a Limited Operating History in the Mortgage Origination Industry, Which Makes it Difficult to Evaluate Our Current Business Performance and Future Prospects

Our Company was formed in 1997 and operated as a mortgage REIT (mortgage portfolio investment) until the fourth quarter of 2001, at which time we began originating and selling mortgages (mortgage banking). As a result, comparisons between financial

performance in current quarters and past quarters may not be helpful in evaluating our current performance or our future

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prospects.  We must originate increasing amounts of mortgages in the future to grow our business. While our executive officers have extensive mortgage origination and mortgage banking experience, and have hired experienced personnel in our mortgage banking subsidiary, there are a significant number of risks and uncertainties inherent in the mortgage origination industry, especially in light of our limited relevant operating history relative to our mortgage banking activities.

We Expect Our Operating Expenses to Increase, which May Adversely Affect Our Results of Operations

We had net income of approximately $12.2 million for the three month period ending March 31, 2003 which included a one-time income tax benefit of $6.7 million. We expect to incur additional costs and expenses related to the expansion of our sales force and the opening of new regional underwriting centers, as well as the expansion of our management team and establishment of the internal infrastructure necessary to support the growth of our mortgage banking business. If these expenses do not generate adequate revenues, our financial performance will suffer. In addition, these expenses will require the use of cash, which will reduce our ability to fund loans until such time as we generate additional revenues. See “Risks Associated with Our Mortgage Banking Business — Overhead Expenses May Not Be Covered by Sufficient Revenues to Sustain Profitable Operations.”

We May Not Be Able to Effectively Manage the Growth of Our Business

Recently, we have experienced rapid growth. In the beginning of 2001, we had approximately 20 employees. As of March 31, 2003, we had approximately 398 employees. Many of these employees have very limited experience with us and a limited understanding of our systems. Many of our financial, operational and managerial systems were designed for a small business and have only recently been adopted or replaced to support larger scale operations. At the same time, we will need to continue to upgrade and expand our financial, technological, operational and managerial systems and policies and procedures. If we fail to manage our growth effectively, our expenses could increase and management’s time and attention could be diverted. If we do not succeed in these efforts, we will be unable to effectively grow and manage the business, and our financial results could be negatively affected.

Risks Associated with Our Mortgage Banking Business

Failure to Renew and Obtain Adequate Financing May Adversely Affect Results Of Operations

As of March 31, 2003 we had warehouse borrowing facilities in place totaling $960 million. In April of 2003, we obtained an additional $200 million in warehouse borrowing facilities. In order to continue to increase loan origination volumes, we must obtain additional warehouse lines of credit, or reduce the time loans are held for sale (warehoused). There are a number of financial institutions which specialize in lending to mortgage banking companies and these types of secured borrowings. We expect to expand our current warehouse facilities with JP Morgan/Chase, UBS Warburg and Countrywide Warehouse Lending; however, there can be no assurances that we will expand our current warehouse facilities or obtain additional warehouse facilities. Failure to obtain additional facilities would limit our potential for growth and may adversely affect our financial results. Among the factors that will affect our ability to expand our warehouse line borrowings are financial market conditions and the value and performance of our company prior to the time of such financing. There can be no assurance that any such financing can be successfully completed at advantageous rates or at all. Our warehouse credit facilities contain extensive restrictions and covenants that, among other things, require us to satisfy specified financial, asset quality and loan performance tests. If we fail to meet or satisfy any of these covenants, we would be in default under these agreements and our lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable, enforce their interests against collateral pledged under such agreements and restrict our ability to make additional borrowings. These agreements also contain cross-default provisions, so that if a default occurs under one agreement, the lenders under our other agreements could also declare a default. Any default under our credit facilities would have an adverse effect on our financial results.

The covenants and restrictions in our warehouse credit facilities may restrict our ability to, among other things:

•incur additional debt by virtue of having warehouse loan covenants;

•make certain investments or acquisitions;

•repurchase or redeem capital stock;

•engage in mergers or consolidations;

•finance loans with certain attributes;

•reduce liquidity below certain levels; and

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•hold loans for longer than established time periods.

These restrictions may interfere with our ability to obtain financing or to engage in other business activities, which may

significantly harm our business financial condition, liquidity and results of operations. As of the date of filing this report, we are in compliance with all restrictions and covenants contained in our warehouse borrowing facilities.

Overhead Expenses May Not Be Covered By Sufficient Revenues To Sustain Profitable Operations

We made a number of fixed overhead commitments to establish the operational and administrative infrastructure necessary to support the loan origination business. At March 31, 2003, lease commitments for headquarter and regional offices totaled approximately 111,500 square feet. There were 398 salaried and hourly employees. In order to achieve profitability, our monthly originations must be in the $450 million to $500 million range, such that the expected revenues associated with this loan production exceed fixed and variable overhead costs. Since our revenues are tied directly to the level of loan production, it is imperative that we achieve a profitable level of originations, and the level of future profitability from mortgage banking will be in direct correlation to the level of loan origination volume. There can be no assurances that we will be able to maintain loan origination volumes sufficient to cover our fixed overhead costs, and should we incur significant operating losses, our capital base and cash reserves could be materially adversely impacted, precluding us from fully implementing our mortgage banking strategies.

Non-saleable or Repurchased Loans May Adversely Impact Results of Operations and Our Financial Position

In connection with the sale of loans to correspondent investors, we make a variety of representations and warranties regarding the loans, including those that are customary in the industry relating to, among other things, compliance with laws, regulations and investor program standards and the accuracy of information on the loan documents and loan file. In the event that an investor finds that a loan or group of loans violates our representations, the investor may require us to repurchase the loan or loan group and bear any potential related loss on the disposition of the loans, or provide an indemnification for any losses sustained by the investor on the loans. Additionally, we may originate a loan that does not meet investor underwriting criteria or has some other defect, requiring us to sell the loan at a significant discount. We have hired experienced personnel at all levels and have established significant controls to ensure that all loans are originated to our underwriting standards, and are maintained in compliance with all of the representations made by us in connection with our loan sale agreements. However, there can be no assurances that mistakes will not be made or that certain employees will not deliberately violate our lending policies and, accordingly, we are subject to repurchase risk and losses on unsaleable loans. Typically, with respect to any loan that might be repurchased or unsaleable, we would correct the flaws if possible and re-sell the loan in the market. We have created repurchase allowances to provide for this contingency on our financial statements, but there can be no assurances that loan losses associated with repurchased or unsaleable loans will not adversely impact our results of operations or our financial condition of our Company.

Volatility in Interest Rates May Adversely Affect Our Results of Operations and Our Financial Position

Our primary source of revenue is gains on sales of loans, net of gains or losses on derivative financial instruments. We set rates and pay broker premiums for loans we fund based on a pricing process designed to create a targeted profit margin on each loan. Appropriately pricing these loans can be complex, and we may not always successfully price our loans with adequate margin to compensate us for the risk of interest rate volatility.

The value of the mortgage loans that we originate is at risk due to fluctuations in interest rates during two time periods: (1) the period beginning when we have committed to funding the loan and ending when the loan closes, or funds; and (2) the time period beginning when the loan closes and ending when we commit to sell or sell the loans to third-party purchasers. These loans are collectively referred to as our loan pipeline. To manage the interest rate risk of our pipeline, we continuously project the percentage of the pipeline loans we expect to close. Because projecting a percentage of pipeline loans that will close is especially difficult during periods of volatile interest rates, we cannot assure that our projections will be accurate. On the basis of such projections, we use forward sale of mortgage loan securities (TBA-MBS), which are classified as derivative instruments. These “hedges” are designed to mitigate the adverse impact interest rate fluctuations on the value of the loan pipeline. Our use of hedges is driven by our estimates as to the percentage of loans that will close, and therefore we cannot assure you that our use of derivative securities will offset the risk of changes in interest rates.

If interest rates make an unanticipated change, the actual percentage of pipeline loans that close may differ from the projected percentage. A sudden increase in interest rates can cause a higher percentage of pipeline loans to close than projected. We may not have made forward sales commitments to sell these additional loans and consequently may incur significant losses upon their sale at current market prices, which may not be offset by gains in the value of derivative securities, adversely affecting results of operations. Likewise, if a lower percentage of pipeline loans closes than was projected, due to a sudden decrease in interest rates or otherwise, we have and may in the future adjust hedge positions or mandatory sales commitments at a significant cost, adversely affecting our results of operations. This risk is greater during times of volatile interest rates.

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Our Hedging Strategies May Not Be Successful in Mitigating Our Risks Associated With Interest Rate Changes

We use forward sale of mortgage loan securities (TBA-MBS), which are classified as derivative financial instruments, to provide a level of protection against interest rate risks. When rates change we expect to record a gain or loss on derivatives which would be offset by an inverse change in the value of our pipeline of rate lock commitments and loans not yet committed for sale. We cannot assure you, however, that our use of derivatives will offset all of our risk related to changes in interest rates. There have been periods, and it likely that there will be periods in the future, during which we will incur losses after accounting for our derivative financial instruments. The derivative financial instruments we select may not have the desired effect of reducing our interest rate risk. In addition, the nature and timing of hedging transactions may influence the effectiveness of these strategies. If we poorly design strategies or improperly execute transactions we could actually increase our exposure to interest rate risk and potential losses. In addition, hedging strategies involve transaction and other costs. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses.

Capital Shortages Could Impede the Ability to Execute Our Mortgage Banking Strategy

Our mortgage banking activities require a significant level of cash reserves and capital to support loan inventories and overhead exposure. Additionally, while we utilize warehouse credit facilities to fund our loan origination activity, we must invest cash equity in our loan inventories approximating 1% to 4% of the cost basis for these loans. We also maintain derivative financial instruments, potentially requiring cash payments as those instruments mature. While we believe our capital base, cash reserves and cash revenues from our mortgage asset portfolio business and mortgage banking revenues will be sufficient to cover overhead expenses, there can be no assurances that capital shortages will not occur, requiring us to raise additional debt or equity capital or decrease or cease our origination activities.

The Nationwide Scope of Our Operations Exposes Us to Risks of Noncompliance with an Increasing and Inconsistent Body of Complex Laws and Regulations at the Federal, State and Local Levels

We originate mortgage loans in many states. We must comply with the laws and regulations, as well as judicial and administrative decisions, of all of these jurisdictions, as well as an extensive body of federal laws and regulations. The volume of new or modified laws and regulations has increased in recent years, and, in addition, individual cities and counties have begun to enact laws that restrict loan origination activities in those cities and counties. The laws and regulations of each of these jurisdictions are different, complex and, in some cases, in direct conflict with each other. As our operations continue to grow, it may be more difficult to comprehensively identify, to accurately interpret and to properly program our technology systems and effectively train our personnel with respect to all of these laws and regulations, thereby potentially increasing our exposure to the risks of noncompliance with these laws and regulations.

Our failure to comply with these laws can lead to the following consequences, any of which could have an adverse effect on our ability to operate our business and our financial results:

•civil and criminal liability;

•loss of approved status within certain states;

•demands for indemnification or loan repurchases from purchasers of our loans;

•class action lawsuits;

•assignee liability, which may make our loans unsaleable; and

•administrative enforcement actions.

The Increasing Number of State and Local “Anti-predatory Lending” Laws May Restrict Our Ability to Originate or Increase Our Risk of Liability With Respect To Certain Mortgage Loans and Could Increase Our Cost of Doing Business

In recent years, several federal, state and local laws, rules and regulations have been adopted, or are under consideration, that are intended to eliminate so-called “predatory” lending practices. These laws, rules and regulations impose certain restrictions on loans on which certain points and fees or the annual percentage rate (“APR”) exceeds specified thresholds. Some of these restrictions expose a lender to risks of litigation and regulatory sanction no matter how carefully a loan is underwritten. In addition, an increasing number

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of these laws, rules and regulations seek to impose liability for violations on purchases of loans, regardless of whether a purchaser knew of or participated in the violation.

Although it is against our policy to engage in predatory lending practices, we have generally avoided originating loans that exceed the APR or “points and fees” thresholds of these laws, rules and regulations, because the companies that buy our loans and/or provide financing for our loan origination operations generally do not want to buy or finance such loans. The continued enactment of these laws, rules and regulations may prevent us from making certain loans and may cause us to reduce the APR or the points and fees on loans that we do make. In addition, the difficulty of managing the risks presented by these laws, rules and regulations may decrease the availability of warehouse financing and the overall demand for loans, making it difficult to fund, sell or securitize any of our loans. If we decide to relax our restrictions on loans subject to these laws, rules and regulations because the companies which buy our loans and/or provide financing for our loan origination operations relax their restrictions, we will be subject to greater risks for actual or perceived non-compliance with such laws, rules and regulations, including demands for indemnification or loan repurchases from our lenders and loan purchasers, class action lawsuits, increased defenses to foreclosure of individual loans in default, individual claims for significant monetary damages and administrative enforcement actions. The growing number of these laws, rules and regulations will likely increase our cost of doing business as we are required to develop systems and procedures to ensure that we do not violate any aspect of these new requirements. Any of the foregoing could materially and adversely affect our business, financial condition, liquidity and results of operations.

Competition In The Mortgage Banking Industry and Demand for Mortgages May Hinder Our Ability to Achieve or Sustain Profitable Origination Levels

Our success in the mortgage banking strategy will depend, in large part, on our ability to originate “A” paper loans in sufficient quantity such that the gain on sales of loans net of hedge costs are in excess of both fixed and variable overhead costs. There can be no assurance that we will be able to originate sufficient levels of mortgages to achieve and sustain profitability. In originating and selling A paper loans, we will compete with investment banking firms, savings and loan associations, banks, mortgage bankers and other entities originating A paper for residential 1-4 unit mortgages, many of which have greater financial resources than us. We will also face competition from companies already established in these markets. In addition to the level of home purchase activity, the origination market is directly tied to the general level of interest rates and refinance activity. The origination market exceeded $1.2 trillion in 2000 and $2 trillion in 2001, due to both strong home sales and low interest rates. While it is believed that the loan origination market was over a two trillion dollars in 2002 and will be over two trillion dollars in 2003 and beyond, the overall market size could contract if interest rates rise, increasing competitiveness in the mortgage markets and putting pressure on the market competitors to reduce revenues to sustain origination volumes and market share. We believe that the variety and competitiveness of our loan products and customer service levels will allow us to gain market share over the next several years, even if the overall demand for mortgages declines; however, there can be no assurance that we will be able to successfully compete.

We Must Attract and Retain Qualified Account Executives to Produce Our Desired Level of Revenues

We rely on commissioned account executives to generate loan referrals from professional mortgage brokers. These account executives typically have established relationships with our broker clients. Our overall loan fundings are in direct proportion to the number of account executives, and as such, our sustained loan production and market share growth are dependent on the successful retention and recruitment of our sales force. Due to this very competitive labor market, there can be no assurances we will be able to retain and recruit account executives.

We Are Subject To Losses Due To Fraudulent Acts On The Part Of Loan Applicants, Employees or Mortgage Brokers

Mortgage brokers who assist loan applicants in obtaining mortgage loans refer all of the mortgage loans originated by us. As such, the loan application, property appraisal, credit report and other supporting documentation are furnished by the mortgage broker and used by our underwriters to make approval or denial decisions. There could also be the potential of collusion between the broker and an employee to produce a fraudulent loan. Our employees usually have virtually no contact with applicants, and rely on the mortgage broker to obtain and furnish all of the documentation supporting the mortgage loan application. Mortgage brokers may make mistakes in completing the documentation for a loan, leading to an increased risk of our holding a non-saleable loan.

Further, in rare cases, the mortgage broker may knowingly or unknowingly submit an application wherein multiple parties to the transaction (borrower, appraiser, seller, or title insurer) work in collusion to inflate the property value and/or falsify other documentation in order to obtain a mortgage loan. These types of fraudulent mortgage loans will have a high risk of default, and will likely not be fully recoverable through disposition of the underlying property securing the mortgage loan.

Should material fraud be detected on a mortgage loan prior to sale to an investor, the mortgage loans may have to be sold

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at a significant discount or may not be saleable. Should material fraud or mistakes in loan documentation be detected after a mortgage loan is sold to a correspondent investor, we may be required to repurchase the loan or indemnify the investor. While the investor and/or we can initiate foreclosure proceedings on any loans deemed to be fraudulently obtained, we could incur significant losses on these fraudulent mortgage loans if principal or interest is not fully recovered through the foreclosure and disposition of the underlying property securing the mortgage loan.

We have established risk management and quality control committees to set policy and manage exposure to credit losses due to fraud, compliance errors or non-compliance with our underwriting standards. Regular quality control audits are done on representative samples of mortgage loans and all mortgage loans submitted by brokers who come under suspicion in the normal course business. Additionally, we have numerous controls and processes to ensure that all of the mortgage loan applications submitted through mortgage brokers are not based on fraudulent or intentionally misrepresented documentation. However, there can be no assurances that the broker and/or borrowers do not submit fraudulent or inaccurate documentation that is not detected by our personnel or by electronic fraud checks utilized by us. Should we originate significant numbers of fraudulent loans or loans based on inaccurate documentation, our results of operations and financial condition could be materially adversely affected.

We May be Subject to Fines or Other Penalties Based Upon the Conduct of Our Independent Brokers

The mortgage brokers from which we obtain loans have legal obligations to which they are subject. While these laws may not explicitly hold the originating lenders responsible for the legal violations of mortgage brokers, increasingly federal and state agencies have sought to impose such assignee liability. Recently, for example, the United States Federal Trade Commission (“FTC”) entered into a settlement agreement with a mortgage lender in which the FTC characterized a broker that had placed all of its loan production with a single lender as the “agent” of the lender, and the FTC imposed a fine on the lender in part because, as “principal,” the lender was legally responsible for the mortgage broker’s unfair and deceptive acts and practices. The United States Justice Department in the past has sought to hold a mortgage lender responsible for the pricing practices of its mortgage brokers, alleging that the mortgage lender was directly responsible for the total fees and charges paid by the borrower under the Fair Housing Act even if the lender neither dictated what the mortgage broker could charge nor kept the money for its own account. Accordingly, we may be subject to fines or other penalties based upon the conduct of our independent mortgage brokers.

We Are Subject to Counterparty Risks on Loan Sale Commitments and Hedging Transactions

In connection with our mortgage loan sales, which involve the sale of mortgage loans and mortgage-backed securities on a forward or other deferred delivery and payment basis, we may enter into hedging transactions which involve option purchases and sales.  We have credit risk exposure to the extent purchasers/sellers are unable to meet the terms of their forward purchase/sale contracts. As is customary in the marketplace, none of the forward payment obligations of any of our counterparties is currently secured or subject to margin requirements. We attempt to limit our credit exposure on forward sales arrangements on mortgage loans and mortgage-backed securities by entering into forward contracts only with institutions that we believe are acceptable credit risks, and which have substantial capital and an established track record in correspondent lending. However, there can be no assurances that counterparties will perform. If counterparties do not perform, our results of operations may be adversely affected.

We Sell a Substantial Portion of Loans We Originate to a Competitor

We have warehouse line facilities with Countrywide Home Loans, Inc. (Countrywide). We also sell a substantial portion of our loans to Countrywide. We may have to find other investors for loan sales or be forced to find other sources of warehouse line lending if Countrywide changes its policies and procedures. Either of these results may have an adverse effect on our results of operations.

Mortgage Banking Revenues Can Fluctuate From Period to Period Based on a Number of Factors

Our operating results have and may in the future fluctuate significantly from period to period as a result of a number of factors, including the volume of loan origination, interest rates and the level of unrealized gains/losses in unsold loans, pipeline loans or positions in derivative securities. Accordingly, the consolidated net income of our Company may fluctuate from period to period.

Dependency on Correspondent Investors, Secondary Markets

Our ability to generate gains on the sale of mortgages is largely dependent upon the continuation of correspondent lending programs offered by large correspondent lenders, as well as our continued eligibility to participate in such programs. Although we are in good standing with a number of large correspondent lenders and are not aware of any proposed discontinuation of, or significant reduction in, the operation of such programs, any such changes could have a material adverse effect our operations. We anticipate that we will continue to remain eligible to participate in such programs, but any significant impairment of such eligibility would materially

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adversely affect our operations.

Our Origination Activity Is Concentrated In California, Making Our Results Subject to Adverse Economic Conditions In California.

A large proportion of loans (35.3% of all loans closed for the three month period ending March 31, 2003) we fund are concentrated in California. Although we are expanding our operations in the East Coast of the United States in 2003, a significant portion of our loan origination volume is likely to be based in California for the foreseeable future. Consequently, our results of operations and financial condition are dependent upon general trends in the California economy and its residential real estate market. Residential real estate market declines may adversely affect the levels of new mortgages in California or the value paid by correspondent lenders for loans in California, potentially adversely affecting our results of operations and financial condition.

A Housing and Urban Development Department (“HUD”) Proposed Rule to Reform Real Estate Settlement Procedures (“RESPA”) May Adversely Affect the Way We Conduct Business with Mortgage Brokers

HUD is proposing to improve the manner in which mortgage broker fees are disclosed by requiring that yield spread premiums (“YSP”) (and other mortgage broker compensation) be reported as payments from the lender. The purpose of this would be to have the mortgage broker only receive direct compensation from borrowers and attempt to eliminate disputes regarding improper broker payments. This proposed rule may adversely affect our business by requiring changes in systems and procedures which may cause delays and re-work to meet regulatory requirements.

An Interruption In or Breach of Our Information Systems May Result In Lost Business

We rely heavily upon communications and information systems to conduct our business. As we implement our growth strategy and increase our volume of loan production, that reliance will increase. Any failure or interruption or breach in security of our information systems or the third-party information systems on which we rely could cause underwriting or other delays and could result in fewer loan applications being received, slower processing of applications and reduced efficiency in loan servicing. We utilize proprietary software for our main loan origination system, and this software is not fully documented and we have a limited number of employees who are knowledgeable about this program. We cannot assure you that systems failure or interruptions will not occur, or if they do occur that they will be adequately addressed by us or the third parties on which we rely. The occurrence of any failures or interruptions could significantly harm our business.

The Success and Growth of Our Business Will Depend Upon Our Ability to Adapt to and Implement Technological Changes

Our mortgage loan origination business is currently dependent upon our ability to effectively interface with our brokers, borrowers and other third parties and to efficiently process loan applications and closings. The origination process is becoming more dependent upon technological advancement, such as the ability to process applications over the Internet, accept electronic signatures, and provide process status updates instantly and other customer-expected conveniences that are cost-efficient to our process. Implementing this new technology and becoming proficient with it may also require significant capital expenditures. As these requirements increase in the future, we will have to fully develop these technological capabilities to remain competitive or our business will be significantly harmed.

If We Are Unable to Maintain and Expand Our Network of Independent Brokers, Our Loan Origination Business Will Decrease

All of our loan originations of mortgage loans come from independent brokers. Our brokers are not contractually obligated to do business with us. Further, our competitors also have relationships with our brokers and actively compete with us in our efforts to expand our broker networks. Accordingly, we cannot assure you that we will be successful in maintaining our existing relationships or expanding our broker networks, the failure of which would significantly harm our business, financial condition, liquidity and results of operations.

Our Financial Results Fluctuate As a Result of Seasonality and Other Timing Factors, Which Makes It Difficult To Predict Our Future Performance and May Affect the Price of Our Common Stock

Our business is generally subject to seasonal trends. These trends reflect the general pattern of housing sales, which typically peak during the spring and summer seasons. Our quarterly operating results have fluctuated in the past and are expected to fluctuate in the future, reflecting the seasonality of the industry. Further, if the closing of a sale of loans is postponed, the recognition of gain from the sale is also postponed. If such a delay causes us to recognize income in the next quarter, our results of operation for the previous quarter could be significantly depressed. If our results of operation do not meet the expectations of our stockholders, the price of our common stock may decrease.

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Risks Associated with Our Mortgage Asset Portfolio Business

High Levels of Bond Collateral Mortgage Loan Prepayments May Reduce Operating Income

The level of prepayments of Bond Collateral Mortgage Loans we purchased at a premium directly impacts the level of amortization of capitalized premiums. We use a calculation for determining the premium amortization which is based on the interest method. If prepayment levels exceed projections used for the premium amortization calculation, the potential exists for impairment write-downs as a result of under-amortized premiums.

Bond Collateral Mortgage Loans prepayment rates generally increase when market interest rates fall below the current interest rates on mortgage loans. Prepayment experience also may be affected by the expiration of prepayment penalty clauses, the ability of the borrower to obtain a more favorable mortgage loan, geographic location of the property securing the adjustable-rate mortgage loans, the assumability of a mortgage loan, conditions in the housing and financial markets and general economic conditions. The level of prepayments is also subject to the same seasonal influences as the residential real estate industry with prepayment rates generally being highest in the summer months and lowest in the winter months. We have experienced high levels of prepayments during 1999 through 2000 on the CMO/FASIT segment of our Bond Collateral Mortgage Loan portfolio, due principally to the fact that the underlying adjustable rate loans were subject to their first initial interest rate adjustment (after being fixed for the first two years), prepayment penalty clauses expired and borrowers were able to secure more favorable rates by refinancing. In 2001, the same phenomenon occurred in the 99-A and 1999-2 segments of our portfolio, as the loans in these portfolios reached the end of their 2-year fixed rate periods and prepayment penalty clauses expired. The overall rate of prepayments has decreased over the past three months, averaging 36.7%  in the first quarter of 2003, 37.57% in the fourth quarter of 2002, down from 38.53% in the third quarter of 2002 and 44.23% in the second quarter of 2002. We anticipate that overall prepayment rates are likely to remain in the 30% to 45% range in 2003. There can be no assurance that prepayment rates will not be higher or that prepayment penalty income will offset premium amortization expense. Accordingly, our financial condition and results of operations could be materially adversely affected.

As of March 31, 2003 approximately 17.1% of our Company’s Bond Collateral Mortgage Loan portfolio had prepayment penalty clauses, with a weighted average of thirteen months remaining before prepayment penalties expire.

Borrower Credit Defaults, Special Hazard Losses and National Recessions May Decrease Value Of Bond Collateral Mortgage Assets Held By Our Company

During the time we hold bond collateral mortgage assets or retained interests in securitizations, we are subject to credit risks, including risks of borrower defaults, bankruptcies and special hazard losses that are not covered by standard hazard insurance (such as those occurring from earthquakes or floods). In the event of a default on any mortgage loan we hold or mortgages underlying bond collateral, we will bear the risk of loss of principal to the extent of any deficiency between the value of the secured property and the amount owing on the mortgage loan, less any payments from an insurer or guarantor. Although we have established an allowance for loan losses, there can be no assurance that any allowance for loan losses which is established will be sufficient to offset losses on mortgage loans in the future.

Credit risks associated with non-conforming mortgage loans, especially sub-prime mortgage loans, will be greater than those associated with mortgage loans that conform to FNMA and FHLMC guidelines. The principal difference between sub-prime mortgage loans and conforming mortgage loans is that sub-prime mortgage loans typically include one or more of the following: worse credit and income histories of the mortgagors, higher loan-to-value ratios, reduced or alternative documentation required for approval of the mortgagors, different types of properties securing the mortgage loans, higher loan sizes and the mortgagor’s non-owner occupancy status with respect to the mortgaged property. As a result of these and other factors, the interest rates charged on non-conforming mortgage loans are often higher than those charged for conforming mortgage loans. The combination of different underwriting criteria and higher rates of interest may lead to higher delinquency rates and/or credit losses for non-conforming as compared to conforming mortgage loans and thus require high loan loss allowances. All of our Bond Collateral Mortgage Loans at March 31, 2003, were originated as sub-prime mortgage loans.

A down-turn in the national economy and the resultant adverse impact on employment rates could adversely affect mortgage loan defaults. Additional credit could become scarce in such an environment and therefore risk of loss through loan default and

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decreased property value could increase. Our allowances may be deemed inadequate should economic conditions worsen significantly, causing higher than expected defaults and property value decreases. We believe the allowances for loan losses are adequate as of March 31, 2003.

Even assuming that properties secured by the mortgage loans we hold provide adequate security for such mortgage loans, substantial delays could be encountered in connection with the foreclosure of defaulted mortgage loans, with corresponding delays in the receipt of related proceeds. State and local statutes and rules may delay or prevent our foreclosure on or sale of the mortgaged property and typically prevent us from receiving net proceeds sufficient to repay all amounts due on the related mortgage loan.

Requirements to Maintain Over-collateralization Accounts May Reduce Our Cash Flow and Inhibit Plans for Expansion of the Mortgage Banking Business

In connection with securing long term debt, virtually all of our Bond Collateral Mortgage Loans have been pledged as collateral to secure long term debt. Certain over collateralization accounts have been established representing the excess principal amount of these mortgages over the associated bond obligations. Various indenture agreements associated with these securitizations call for the over collateralization levels to be maintained on an ongoing basis depending on the amount of remaining bond obligations as well as the status of delinquency of the underlying bond collateral or the loan loss performance of bond collateral. Although long-term financing agreements are non-recourse, net interest income from some segments of our Bond Collateral Mortgage Loans has in the past, and could in the future, be “trapped” to pay down debt in order for us to achieve our over-collateralization requirements. While we believe that we have sufficient cash reserves and other liquidity to support our planned mortgage banking activities, there can be no assurance that we will not be required to reduce or cease our planned mortgage banking activities should we be required to divert cash flow to maintain over collateralization requirements.

Because Mortgage Assets Are Pledged to Secure Long-Term Debt, We May Not Be Able to Sell Such Assets and Therefore Our Liquidity and Capital Resources May Be Adversely Affected

All of our Company’s bond collateral mortgage assets at March 31, 2003 were pledged as bond collateral to secure Long-Term Debt. These assets are subject to the terms of the Long-Term Debt agreements and may not be separately sold or exchanged. While we may sell our interests in the bond collateral subject to the liens and other restrictions of the Long-Term Debt agreements, there is not a liquid market for such encumbered interests and a significant liquidity discount would be applied. As such, we would expect to receive less than our book value should we sell our interest in the bond collateral.

Increases In Short Term Interest Rates May Increase Our Cost of Borrowings, Which May Reduce Income From Operations

The majority of our Bond Collateral Mortgage Loans have a repricing frequency of six months or less, while substantially all of our borrowings have a repricing frequency of one month or less. Accordingly, the interest rates on these borrowings may be based on interest rate indices which are different from, and adjust more rapidly than, the interest rate indices of our related mortgage loans. Consequently, increases in (short-term) interest rates may significantly influence our net interest income. While increases in short-term interest rates will increase the yields on a portion of our adjustable-rate Bond Collateral Mortgage Loans, rising short term rates will also increase our cost of borrowings. To the extent such costs rise more than the yields on such Bond Collateral Mortgage Loans, our net interest income will be reduced or a net interest loss may result. We may mitigate this “gap” risk by purchasing interest rate hedges (referred to as “caps”), however potential income from these hedges may only partially offset the adverse impact of rising borrowing costs.

Loans Serviced by Third Parties May Result in Increased Delinquency Rates and Credit Losses, which May Adversely Affect Our Results of Operations and Financial Condition

All of our Bond Collateral Mortgage Loans are serviced by sub-servicers. We continually monitor the performance of the sub-servicers through performance reviews, comparable statistics for delinquencies and on-site visits. We have on occasion determined that sub-servicers have not followed standard collection and servicing practices related to our Bond Collateral Mortgage Loans, which we believe have led to increased delinquencies and higher loan losses on selected segments. We continue to monitor these servicers, have put these entities on notice of such deficiencies, and have instituted other mitigating processes. We have arranged for servicing with entities that have particular expertise in non-conforming mortgage loans. Although we have established these relationships and procedures, there can be no assurance that these sub-servicers will service our mortgage loans in such a way as to minimize delinquency rates and/or credit losses and not cause an adverse effect on our results of operations.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A primary market risk facing our Company is interest rate risk, which is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the control of our control. We attempt to manage this risk in our Mortgage Banking and Mortgage Asset Portfolio businesses.

Mortgage Banking Business

Interest Rate Risk

Rate lock commitments and mortgage loans held for sale (loan pipeline) are subject to market price fluctuation until committed for sale. These fluctuations are primarily tied to changes in market interest rates and the relationship of short term rates to long-term rates (yield curve). In order to mitigate this risk, a variety of financial derivative instruments (including forward mandatory mortgage security sale (TBA-MBS) and options on TBA-MBS sales) are utilized to hedge or mitigate market price fluctuations. These instruments are classified as derivative financial instruments on our financial statements. Our hedge positions are continually adjusted based on routine and ongoing quantification of our risk, but hedges may or may not be fully successful in complete risk mitigation. In particular, our capital markets personnel must make estimates of the percentage of rate lock commitments expected to close under different interest rate changes. Losses on the sale of mortgage loans not offset by corresponding gains on hedge positions, or hedging activity not offset by corresponding gains on the sale of mortgages, could adversely impact results of operations and our financial position.

Mortgage Asset Portfolio Business

Interest Rate Risk

Our operating results for this business segment will depend in large part on differences between the income from our assets (net of credit losses) and our borrowing costs. All of this business segment’s mortgage assets are pledged as collateral for long term debt (securitizations). In most cases, the income from assets will respond more slowly to interest rate fluctuations than the cost of borrowings, which creates a mismatch between asset yields and borrowing rates.  Consequently, changes in interest rates, particularly short-term interest rates, may influence the Mortgage Asset Portfolio Business net income. Long-term debt interest rates are tied to LIBOR.  Increases in these rates will tend to decrease net income. A significant increase in short term interest rates, where the one month LIBOR exceeded 12%, could result in interest expense exceeding interest income and would result in operating losses. In the past, we have attempted to mitigate interest rate gap risk through hedging instruments called Interest Rate Caps. The majority of mortgages held in the portfolio are adjustable rate mortgages (ARM’s) which adjust every six months. Consequently our gap risk is limited and at the present time we do not believe that the cost of hedging our gap risk is justified.  Currently we do not have any Interest Rate Caps in place.

Other Risks

The value of Mortgage Portfolio assets may be affected by prepayment rates on bond collateral mortgage loans.  Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control. Partial protection comes in the form of prepayment penalties, but since our portfolio is becoming more mature, most of the prepayment penalty clauses have expired.

Increases in delinquency rates and defaults by borrower on their mortgages can also negatively  impact the financial results of the Mortgage Asset Portfolio Business. We monitor delinquencies and defaults and adjust the loan loss provision and interest reserves accordingly.

Sensitivity Analyses

We have performed various sensitivity analyses that quantify the net financial impact of changes in interest rates on our interest rate-sensitive assets, liabilities and commitments. These analyses presume an instantaneous parallel shift of the yield curve. Various techniques are employed to value the underlying financial instruments, and these techniques rely upon a number of critical assumptions. The scenarios presented are illustrative. Actual experience may differ materially from the estimated amounts presented for each scenario. To the extent that yield curve shifts are non-parallel, and to the extent that actual variations in significant assumptions differ from those applied for purposes of the valuations, the resultant valuations can also be expected to vary. Such variances may prove material.

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							If Interest Rates Were To
	March 31, 2003						Increase		Decrease			Increase		Decrease
	Carrying Amount			Estimated Fair Value			50 Basis Points Estimated Fair Value					100 Basis Points Estimated Fair Value
Interest-earning assets:
Cash and cash equivalents	$	22,786		$	22,786		$	22,786	$	22,786		$	22,786	$	22,786
Mortgage loans held for sale, net, pledged, (lower of cost or market))	488,007			492,278			487,166		495,599			481,914		498,866
Bond collateral and real estate owned (net)	238,777			249,574			249,028		250,113			248,568		250,711
Derivatives	(1,126		)	(2,746		)	3,635		(4,245		)	8,760		(7,942		)
Total interest-earning assets	$	748,444		$	761,892		$	762,615	$	764,253		$	762,028	$	764,421
Interest-bearing liabilities:
Short-term debt	$	477,445		$	477,445		$	477,445	$	477,445		$	477,445	$	477,445
Long-term debt, net	206,098			206,098			206,098		206,098			206,098		206,098
Total interest-bearing liabilities	$	683,543		$	683,543		$	683,543	$	683,543		$	683,543	$	683,543
Effect on equity	$	64,901		$	78,349		$	79,072	$	80,710		$	78,485	$	80,878

					If Interest Rates Were To
	March 31, 2002				Increase		Decrease		Increase		Decrease
	Carrying Amount		Estimated Fair Value		50 Basis Points Estimated Fair Value				100 Basis Points Estimated Fair Value
Interest-earning assets:
Cash and cash equivalents	$	8,647	$	8,647	$	8,647	$	8,647	$	8,647	$	8,647
Mortgage loans held for sale, net, pledged, (lower of cost or market)	120,991		120,991		120,728		121,254		120,344		121,644
Bond collateral and real estate owned (net)	406,856		420,538		419,350		422,118		418,489		423,808
Derivatives	5,459		5,459		5,979		6,607		5,650		5,024
Total interest-earning assets	$	541,953	$	555,635	$	554,704	$	558,626	$	553,130	$	559,123
Interest-bearing liabilities:
Short-term debt	$	120,544	$	120,544	$	120,544	$	120,544	$	120,544	$	120,544
Long-term debt, net	369,101		369,101		369,101		369,101		369,101		369,101
Due to affiliate	1,871		1,871		1,871		1,871		1,871		1,871
Total interest-bearing liabilities	$	491,516	$	491,516	$	491,516	$	491,516	$	491,516	$	491,516
Effect on equity	$	50,437	$	64,119	$	63,188	$	67,110	$	61,614	$	67,607

The following describes the methods and assumptions used by the Company in estimating fair values.

Cash and Cash Equivalents

The carrying amount for cash and cash equivalents approximates fair value because these instruments are demand deposits and money market mutual funds and do not present unanticipated interest rate or credit concerns.

Mortgage Loans Held For Sale, net, pledged, (lower of cost or market)

The fair value is estimated based on quoted market prices from institutional investors for similar types of mortgage loans. A portion of mortgage loans held for sale are committed for sale under mandatory sale arrangements and as such are not re-valued due to subsequent changes in interest rates.

Bond Collateral and Real Estate Owned

The fair value of Bond Collateral is estimated based on quoted market prices from dealers and brokers for similar types of mortgage loans in the bulk mortgage market. Market prices reflect various assumptions as to prepayment rates, loan losses and

29

financing costs. However, due to the fact that our Bond Collateral are pledged to secure long term debt, there is not a liquid market for such encumbered interests. As such, a significant liquidity discount would be applied.  Since we intend to hold the bond collateral mortgage loans to maturity, such a liquidity discount has not been reflected in fair value.

Retained Interest in Securitization

This security is classified as available-for-sale and as such is carried at fair value.

Derivatives

Fair values of forward sales of mortgage backed securities and options on treasury futures are based on quoted market prices for these instruments. Fair values of our commitments to originate loans in the quoted market prices for the loans expected to close vary due to differences between current levels of interest rates and committed rates.

Short-Term Debt

The fair value of the warehouse line debt approximates the carrying amounts because of the short-term nature of the debt and interest on the debt fluctuates with market interest rates.

Long-Term Debt

The fair value of long-term debt is estimated based upon all long-term debt being at variable rates and therefore cost approximates fair market value.

Due to Affiliate

The fair value of due to affiliate approximates the carrying amount because of the short-term nature of the liability.

These analyses are limited by the fact that they are performed at a particular point in time and do not incorporate other factors that would impact our financial performance in each such scenario. Consequently, the preceding estimates should not be viewed as a forecast.

ITEM 4.  CONTROLS AND PROCEDURES

(a) Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended, within the 90 day period preceding the filing date of this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of that date.

(b) There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.

PART II.  OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS
	None
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS
	On January 23, 2003, we filed our Second Articles of Amendment and Restatement.  This filing implemented the changes to our Articles of Amendment and Restatement approved by our stockholders at our annual stockholders meeting in 2002. The rights of holders of our common stock ($0.01) were changed by removing certain prohibitions from our Articles of Amendment and Restatement intended to preserve our status as a REIT.  As a result of this filing on February 7, 2003, we were able to inform the Internal Revenue Service of our election to de-REIT, effective beginning January 1, 2003.
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
	Not applicable.
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	None

30

ITEM 5.	OTHER INFORMATION
	None
ITEM 6.	EXHIBITS AND REPORTS ON 8-K

(a)		Exhibits
	*	3.1	Second Articles of Amendment and Restatement of the Registrant
	**	3.2	Second Amended and Restated Bylaws of the Registrant
	***	4.1	Rights Plan dated February 2, 1999 by and between the Company and American Stock Transfer Company as Rights Agent
		10.20	Lease between American Residential Investment Trust, Inc. and Sorrento Wateridge Partners, L.P. dated November 30, 2001
		10.21	Executive Employment Agreement between American Mortgage Network, Inc. and Lisa Faulk dated March 31, 2003
		10.22	Amended and Restated Employment Agreement between American Mortgage Network, Inc. and John Robbins dated April 7, 2003
		10.23	Amended and Restated Employment Agreement between American Mortgage Network, Inc. and Judith Berry dated March 31, 2003
		10.24	Amended and Restated Employment Agreement between American Mortgage Network, Inc. and Jay Fuller dated March 31, 2003
		99.1	Certification of Chief Executive Officer
		99.2	Certification of Chief Financial Officer

	*		Incorporated by reference to our annual report on Form 10-K for the fiscal year ended December 31, 2002 filed March 31, 2003.
	**		Incorporated by reference to our quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2002 filed on August 14, 2002
	***		Incorporated by reference to Form 8-K filed on February 17, 1999.
(File No. 001-13485)
(b)		Reports on Form 8-K - None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
Dated:  May 14, 2003	By:	/s/ Judith A. Berry
		Judith A. Berry,
		Executive Vice President
		Chief Financial Officer

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CERTIFICATIONS

I, John M. Robbins, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Residential Investment Trust, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ John M. Robbins

John M. Robbins

Chief Executive Officer

32

CERTIFICATIONS

I, Judith A. Berry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American Residential Investment Trust, Inc.;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Judith A. Berry

Judith A. Berry

Chief Financial Officer

33

EX-10.20

EXHIBIT 10.20

LEASE

SORRENTO WATERIDGE PARTNERS, L.P.,

a California limited partnership

Landlord

AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.,

a Maryland corporation

Tenant

TABLE OF CONTENTS

ARTICLE I  TERM OF LEASE
1.1	Initial Term
1.2	Infogate Contingency.
1.3	Early Occupancy.
1.2	Option to Extend
ARTICLE II  PREMISES; CONDITION
2.1	Condition Upon Delivery
2.2	Condition of Premises
2.3	Square Foot Verification
2.4	Expansion Option
ARTICLE III  RENT
3.1	Base Rent
3.2	Base Rent During Option Term
3.3	Additional Rent
3.4	Delinquent Rental Payments
ARTICLE IV  USE OF DEMISED PREMISES
4.1	Permitted Use
4.2	Preservation of Demised Premises
4.3	Hazardous Substances
ARTICLE V  UTILITIES AND SERVICES
5.1	Standard Tenant Services
5.2	Overstandard Tenant Use
5.3	Interruption of Use
5.4	Additional Services
5.5	Utility Deregulation
5.5.1	Landlord Controls Selection
5.5.2	Tenant Shall Give Landlord Access
5.6	Interruption of Utilities
ARTICLE VI  OPERATING EXPENSES
6.1	Payment of Operating Expenses
6.2	Definition of Operating Expenses
6.3	Definition of Real Property Taxes and Assessments
6.4	Payment of Operating Expenses; Estimate Statement
6.5	Actual Statement
6.6	No Release
6.7	Tenant’s Percentage
6.8	Inspection of Operating Expenses
ARTICLE VII  INSURANCE
7.1	Tenant’s Insurance

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7.2	Landlord’s Insurance
7.3	Form of Policies
7.4	Waiver of Subrogation
7.5	Blanket Insurance Coverage
7.6	Indemnification and Waiver
ARTICLE VIII  ROOF RIGHTS
ARTICLE IX  REPAIRS
9.1	Landlord’s Repair Obligations
9.2	Tenant’s Repair Obligations
9.3	Prohibition Against Waste
ARTICLE X  COMPLIANCE WITH APPLICABLE LAWS AND RESTRICTIONS
10.1	Compliance with Applicable Laws and Restrictions
10.2	Tenant’s Right to Contest Laws and Ordinances
ARTICLE XI  MECHANIC’S LIENS AND OTHER LIENS
11.1	Mechanic’s Liens
11.2	Landlord’s Indemnification
11.3	Removal of Liens
11.4	Equipment and Trade Fixtures
ARTICLE XII  DEFAULTS OF TENANT
12.1	Events of Default
12.2	Landlord’s Remedies
12.3	Right to Collect Rent as Due
12.4	New Lease Following Termination
12.5	Cumulative Rights; No Waiver
12.6	Surrender of Demised Premises
12.7	Interest on Unpaid Amounts
ARTICLE XIII  DESTRUCTION AND RESTORATION
13.1	Repair of Damage to Demised Premises by Landlord
13.2	Landlord’s Option to Repair
13.3	Landlord’s or Tenant’s Option to Terminate
13.4	Waiver of Statutory Provisions
13.5	Damage Near End of Term
ARTICLE XIV  CONDEMNATION
14.1	Condemnation of Entire Demised Premises
14.2	Partial Condemnation/Termination of Lease
14.3	Partial Condemnation/Continuation of Lease
14.4	Continuance of Obligations
14.5	Adjustment of Rent

ii

ARTICLE XV  ASSIGNMENT, SUBLETTING, ETC.
15.1	Restriction on Transfer
15.2	Transfer to Affiliates; Sale or Merger
15.3	Restriction Against Further Assignment
15.4	Transfer Premium
	15.4.1	Definition of Transfer Premium
	15.4.2	Payment of Transfer Premiums
	15.4.3	Calculations of Rent
15.5	Landlord’s Recapture Option
15.6	Tenant’s Failure to Comply
ARTICLE XVI  SUBORDINATION, NONDISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT
16.1	Subordination by Tenant
16.2	Landlord’s Default
16.3	Attornment
ARTICLE XVII  SIGNS
17.1	General
17.2	Tenant’s Exterior Signage Rights
17.3	Tenant’s Interior Signage Rights
ARTICLE XVIII  FINANCIAL STATEMENTS OF TENANT
ARTICLE XIX  CHANGES AND ALTERATIONS
	(a)	Permits
	(b)	Compliance with Plans and Specifications
	(c)	Value Maintained
	(d)	Compliance with Laws
	(e)	Property of Landlord
	(f)	Removal of Improvements
	(g)	Reasonable Consent
	(h)	Notice to Landlord
ARTICLE XX  ATTORNEYS’ FEES
ARTICLE XXI  BROKERS
ARTICLE XXII  SECURITY DEPOSIT
ARTICLE XXIII  TENANT PARKING
ARTICLE XXIV  [INTENTIONALLY DELETED]
ARTICLE XXV  MISCELLANEOUS PROVISIONS
25.1	Entry by Landlord

iii

25.2	Exhibition of Demised Premises
25.3	Workout Facility
25.4	Notices
25.5	Quiet Enjoyment
25.6	Landlord’s Continuing Obligations
25.7	Estoppel
25.8	Delivery of Corporate Documents
25.9	Intentionally Omitted
25.10	Severability
25.11	Successors and Assigns
25.12	Captions
25.13	Relationship of Parties
25.14	Entire Agreement
25.15	No Merger
25.16	Possession and Use
25.17	Surrender of Demised Premises
25.18	Holding Over
25.19	Survival
25.20	Applicable Law
25.21	Counterparts

EXHIBITS
Exhibit “A”	-	Legal Description of Land
Exhibit “B”	-	Site Plan
Exhibit “C”	-	Proposed Space Plan
Exhibit “D”	-	Intentionally Omitted
Exhibit “E”	-	Tenant’s Signage Plans

iv

LEASE

THIS LEASE (“Lease”) is made this           day of November, 2001, by and between SORRENTO WATERIDGE PARTNERS, L.P., a California limited partnership (“Landlord”), and AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., a Maryland corporation (“Tenant”).

WITNESSETH:

“Land” means that certain real property located at the southeast corner of Lusk Boulevard and Wateridge Vista Drive, in San Diego, California, consisting of approximately 9.455 acres, and more particularly described in Exhibit ”A” attached hereto and made a part hereof.

“Project” means that certain project known as Wateridge Technology Center, with Project includes the Land and the buildings, improvements and facilities located on the Land from time to time, including, without limitation, the Buildings described below.

“Business Park” means Wateridge Business Park, of which the Project is a part.

“Buildings” mean, collectively, the “Northern Building” and the “Southern Building” as defined below.

“Northern Building” means that certain two-story office building containing approximately 64,148 “rentable square feet,” as generally depicted on the site plan attached hereto as Exhibit ”B” (“Site Plan”).

“Southern Building” means that certain two-story office building containing approximately 64,148 rentable square feet, as more particularly depicted on the Site Plan.  As more particularly provided below, the Demised Premises will be located in the Southern Building.

“usable area” or “usable square footage” means the usable area as determined in accordance with the Standard Method for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996 (the “BOMA” Standard).

“rentable area” or “rentable square footage” means the rentable area measured in accordance with the BOMA Standard.  The rentable square footage of the Demised Premises shall be calculated pursuant to BOMA Standards.

“Project Common Areas” mean those portions of the Project not leased or designated for lease to tenants that are provided for use in common by Landlord, Tenant and other tenants of the Project (or by the sublessees, agents, employees, customers, invitees, or licensees of any such party), whether or not those areas are open to the general public.  Project Common Areas include, without limitation, the Workout Facility described in Section 25.3 below, any fixtures, systems, decor, facilities and landscaping contained, maintained or used in connection with those areas, and shall be deemed to include any city sidewalks adjacent to the Project, any pedestrian walkway system, or other facilities located on the Project and open to the general public.

1

“Building Common Areas” mean the common areas other than the Project Common Areas appurtenant to the Southern Building including, without limitation, the (i) common entrances, lobbies, restrooms (whether on multi-tenant or single-tenant floors), elevators, stairways and accessways, loading docks, ramps, drives and platforms and any passageways or serviceways thereto to the extent not exclusively serving another tenant or contained within another tenant’s premises; and the common pipes, conduits, wires and appurtenant equipment serving the Demised Premises, and (ii) the parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas appurtenant to the Southern Building.

“Common Areas” mean, collectively, the Building Common Areas and Project Common Areas.

“Base Year” means the calendar year 2002.

“Demised Premises” means approximately 23,985 rentable square feet, plus Tenant’s non-exclusive rights to use the Common Areas, as more particularly provided below.  The Demised Premises are located on the second floor of the Southern Building.

“Space Plan” means that certain Space Plan and Specifications Sheet for the Demised Premises prepared by Smith Consulting Architects and dated August 12, 1999, a copy of which is attached hereto as Exhibit ”C.”  Landlord and Tenant have heretofore mutually approved the Space Plan.

“Improvements” mean the improvements which have been or will be constructed by Landlord pursuant to this Lease, including the Southern Building and the Demised Premises, as such terms are defined below.

Landlord, for and in consideration of the rents, covenants and agreements hereinafter reserved, mentioned and contained on the part of Tenant, its successors and assigns, to be paid, kept, observed and performed under this Lease, hereby leases, rents, lets and demises to Tenant, and upon and subject to the conditions and limitations expressed in this Lease, Tenant takes and hires from Landlord, the Demised Premises.

ARTICLE I

TERM OF LEASE

1.1Initial Term.  This Lease shall be effective and binding upon the parties hereto upon mutual execution hereof (the “Effective Date”).  The term of this Lease (the “Initial Term”) shall commence on the date (“Commencement Date”) upon which Landlord delivers possession of the Demised Premises to Tenant, but which shall be no sooner than December 1, 2001, and shall terminate on December 9, 2005, subject to extension pursuant to Section 1.2, below.  Notwithstanding any provision of this Lease to the contrary, if for any reason Landlord cannot deliver possession of the Demised Premises to Tenant by December 15, 2001, Tenant may terminate this Lease at Tenant’s election upon written notice to Landlord.  Landlord shall be deemed to have delivered possession of the Demised Premises to Tenant when Tenant is able to occupy the Premises, free of any occupancy or right of occupancy by the existing tenant

2

occupying the Demised Premises, Infogate, Inc. (“Infogate”), regardless of whether the Demising Wall (as defined below) or any improvements Tenant desires to construct in or to the Demised Premises have been completed, including, without limitation, the Demising Wall described in Section 2.1 of this Lease.

1.2Infogate Contingency.  The parties acknowledge and agree that the effectiveness of this Lease is contingent upon the execution of an amendment (“Amendment”) to that certain lease between Entrypoint, Inc., predecessor in interest to Infogate, Inc. (“Infogate”), and Landlord dated September 1999 (“Infogate Lease”) and the execution of an agreement between Tenant and Infogate (“Infogate Agreement”).  Notwithstanding anything herein, if the Amendment and the Infogate Agreement are not fully executed by November 30, 2001, Tenant may terminate this Lease at Tenant’s election upon written notice to Landlord.

1.3Early Occupancy.  Subject to the terms set forth herein, Tenant may arrange with Infogate, and Landlord shall allow, Tenant and Tenant’s agents, employees and contractors access to the Building prior to the Commencement Date, so that Tenant may move and install its furniture, trade fixtures, data and telecommunications wiring and equipment and other business equipment in to the Demised Premises (but not to commence business operations at the Demised Premises).  Tenant acknowledges that Section 20.3 below shall apply with respect to any and all claims which may arise as a result of the entry by Tenant, its agents, employees and contractors on the Demised Premises in accordance with this Section 1.3.  Tenant’s responsibilities under Section 7.1 of this Lease shall commence upon such early occupancy as opposed to the Commencement Date.

1.4Option to Extend.  Tenant shall have one (1) option to extend (the “Extension Options”) the Initial Term for a five (5) year period (the foregoing option term shall be referred to hereinafter sometimes as the “Option Term”), by delivering a binding written notice of exercise to Landlord (“Extension Notice”), so that Landlord receives the Extension Notice with respect to the Option Term at least one hundred eighty (180) days prior to the end of the Initial Term.  Tenant may exercise the Extension Option only if this Lease is in full force and effect and there is no Event of Default which remains uncured beyond the applicable cure period at the time of exercise of the right of renewal or at the time of the commencement of the Option Term, but Landlord shall have the right at its sole discretion to waive the non-default conditions herein.  The Initial Term, together with any Option Term, are referred to in this Lease as the “Term.”

ARTICLE II

DEMISED PREMISES; CONDITION

2.1Demising Wall.  Landlord shall, as expeditiously as reasonably possible, but in any event by December 31, 2001, construct, in a good and workmanlike manner, a demising wall for demising the Demised Premises from the Infogate Premises (the “Demising Wall”).  Such Demising Wall shall be constructed in conformance with plans prepared by Landlord, subject to the mutual approval of Tenant, such approval not to be unreasonably withheld or delayed, and shall be in compliance with all then applicable building laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments with jurisdictional authority over the development of the Land and the construction of the Improvements, including,

3

but not limited to, rules and regulations of the Board of Fire Underwriters and requirements under the Americans With Disabilities Act and Title 24 (the “Applicable Land Use Laws and Restrictions”).  Notwithstanding Section 9.1 of this Lease or anything herein to the contrary, if Landlord has failed to complete the Demising Wall by December 31, 2001, Tenant shall have the right, but not the obligation, as its sole and exclusive remedy, to incur any expense reasonably necessary to construct and/or complete the Demising Wall and deduct such expense from the Rent or other charges next becoming due.

2.2Condition of Demised Premises.  Landlord shall deliver the Demised Premises in the condition in which they are as of the date of this Lease, subject to the construction of the Demising Wall described above, which may or may not be complete as of the Commencement Date.  Other than the Demising Wall described above, Tenant shall be responsible for the construction of all tenant improvements.  Tenant’s Space Plan is attached hereto as Exhibit ”C.”  Landlord warrants that the Demised Premises (as of the Commencement Date) have been constructed in a good and workmanlike manner.  Landlord further warrants that the structural, interior and exterior portions of the Demised Premises, the roof, the plumbing, electrical, gas, the HVAC and other utilities servicing the Demised Premises are in good working condition and order on the date of this Lease and are in compliance with all existing laws, codes, regulations and ordinances of any governmental authorities.  Tenant shall have a period of thirty (30) days from the Commencement Date to provide Landlord with a list of any aspects in which the Demised Premises do not meet these standards of condition.  Landlord shall be obligated within a reasonable amount of time (not to exceed thirty (30) days, or the time reasonably needed to cure) to cure such Punchlist Items.

2.3Square Foot Verification.  Landlord and Tenant hereby acknowledge and agree that this Lease has been executed based on the assumption that the Demised Premises consist of twenty-three thousand nine hundred eighty-five (23,985) rentable square feet.  All such references to rentable square footage regarding the Demised Premises and the Buildings are based upon the Building Owners and Managers Association (“BOMA”) standard method of measurement.  Within ten (10) days after the construction of the Demising Wall, Landlord shall, at Landlord’s sole cost and expense, have the measurement of the Demised Premises verified by a licensed architect, using BOMA standard method of measurement, and, in the event that the rentable square footage or usable square footage of the Buildings or Demised Premises are different from those set forth in this Lease, all amounts, percentages and figures appearing or referred to in this Lease based upon such incorrect amount (including, without limitation, Base Rent, Tenant’s Percentage and parking rights) shall be modified in accordance with such determination.  Such measurement shall occur promptly following the completion of the construction of the Demising Wall, and promptly thereafter Landlord and Tenant shall execute an amendment to this Lease confirming the changed amounts of square footage, Base Rent, Security Deposit, Tenant’s Percentage and Tenant’s parking rights to the extent necessary.

2.4Expansion Option.  Tenant shall have the right to expand into and lease the Infogate Premises, upon at least one hundred thirty (130) days’ prior written notice to Landlord (“Expansion Notice”); provided, however, in no event shall Tenant have the right to commence occupying the Infogate Premises prior to September 1, 2002.  Landlord shall deliver the Infogate Premises to Tenant in a vacant, broom-clean condition, and thereupon, the Demised Premises, as so expanded, shall consist of approximately thirty-two thousand seventy-four (32,074) rentable

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square feet.  Within thirty (30) days after receipt of the Expansion Notice, Landlord shall prepare an amendment to this Lease to include the Infogate Premises as part of the Demised Premises, and the rentable square feet, Base Rent (based upon the same Base Rent per square foot then payable under the Infogate Lease, subject to increases as set forth herein), Tenant’s Percentage and Tenant’s parking rights shall be increased appropriately to reflect the Infogate Premises.  Landlord shall be responsible for causing Infogate to vacate the Infogate Premises within the one hundred thirty (130) day period set forth herein.

ARTICLE III

RENT

3.1Base Rent.  In consideration of the lease of the Demised Premises evidenced by this Lease, Tenant covenants to pay Landlord, without previous demand therefor and without any right of set-off or deduction whatsoever except as expressly provided in this Lease, at the office of Landlord at:

Sorrento Wateridge Partners, L.P.
c/o The Allen Group
6005 Hidden Valley Road, Suite 150
Carlsbad, California 92009
Attention:  Accounts Payable

or at such other place as Landlord may from time to time designate in writing, a rental for the Initial Term of this Lease as hereinafter set forth, payable monthly, in advance, in equal installments as hereinafter set forth, with the first payment due on the Commencement Date (the “Rent Commencement Date”), and continuing on the first day of each month thereafter for the succeeding months during the balance of the Term base rent (“Base Rent”) as provided hereinbelow.

Initial Base Rent payable hereunder shall equal $1.55 per rentable square foot of the Demised Premises.  Commencing with the 13^th month of the Term and every 12 months thereafter, the then applicable Base Rent shall be increased by a factor of three percent (3%).

In the event the Commencement Date or the commencement of Tenant’s obligation to pay Base Rent pursuant to clauses (ii) and/or (iii) above occurs on other than the first (1st) day of a month, the amount of the first and last monthly payment of Base Rent shall be apportioned to account for the fact that the last month of the Initial Term shall be less than a full calendar month.

3.2Base Rent During Option Term.  The initial Base Rent during the Option Term (“Option Term Base Rent”) shall be an amount equal to the greater of (i) the then fair market rental value of the Demised Premises (“Fair Market Rental Value”), as stated on a monthly basis and determined pursuant to this Section 3.2, or (ii) 103% of the Base Rent during the last month of the Initial Term.  The initial Option Term Base Rent payable during the Option Term shall thereafter be increased as of the first day of the 13^th month of the Option Term and every 12 months thereafter during the Option Term (i.e., as of the first day of the second, third, fourth and

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fifth years of the Option Term) by factor of three percent (3%).  Upon receipt by Landlord of Tenant’s Extension Notice under Section 1.2, above, Landlord and Tenant shall meet in an effort to negotiate, in good faith, the Option Term Base Rent which shall become effective as of the first day of the Option Term (“Option Term Commencement Date”).  If Landlord and Tenant have not agreed upon the Option Term Base Rent within thirty (30) days after the delivery of Tenant’s Extension Notice, the Option Term Base Rent shall be determined as follows:

(a)Landlord and Tenant shall attempt to agree in good faith upon a single appraiser not later than thirty-five (35) days after delivery of Tenant’s Extension Notice.  If Landlord and Tenant are unable to agree upon a single appraiser within such time period, then Landlord and Tenant shall each appoint one appraiser not later than five (5) days after the deadline for selecting a single appraiser.  Landlord and Tenant shall each give written notice to the other as to the name of the appraiser it has selected, as soon as the selection is made.  Within ten (10) days thereafter, the two appointed appraisers shall appoint a third appraiser.  All appraisers shall be independent from, and disinterested in, both Landlord and Tenant.

(b)The only task which the appraiser(s) shall perform shall be forming and reporting to Landlord and Tenant an opinion of the Fair Market Rental Value of the Demised Premises for use in determining the Option Term Base Rent.

(c)If either Landlord or Tenant fails to appoint its appraiser within the prescribed time period, the single appraiser appointed shall determine the Fair Market Rental Value of the Demised Premises.  If both parties fail to appoint appraisers within the prescribed time periods, then the first appraiser thereafter selected by a party shall determine the Fair Market Rental Value of the Demised Premises.

(d)Each party shall bear the cost of its own appraiser and the parties shall share equally the cost of any single or third appraiser, if applicable.  All appraisers so designated herein shall have at least five (5) years’ experience in the appraisal of commercial properties similar to the Demised Premises in San Diego County, California and shall be members of professional organizations such as MAI or its equivalent.

(e)For the purpose of such appraisal and this subsection (d), the term “Fair Market Rental Value” shall mean the price that a ready and willing single tenant would pay, as of the Option Term Commencement Date, as annual rent to a ready and willing landlord of a Comparable Property on the terms of this Lease, if such Comparable Property were exposed for lease on the open market for a reasonable period of time.  As used in this Lease, a “Comparable Property” or “Comparable Properties” shall mean two-story concrete tilt-up office buildings located in the Sorrento Mesa area of the City of San Diego, California (the “Market Area”), of comparable quality to the Buildings, with improvements similar in age and character to the Demised Premises, which has been improved with the tenant improvements comparable to those constructed in the Demised Premises; provided, however, that the appraisal shall disregard the value of Tenant’s and any other improvements paid for by Tenant.  The appraiser shall give appropriate consideration to all relevant factors, including, without limitation, (i) rental concessions and tenant improvement allowances generally being offered by landlords of comparable properties, (ii) the age of the Improvements, (iii) rental market conditions then in existence, (iv) whether Landlord will or will not be required to pay a real estate brokerage

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commission in connection with Tenant’s exercise of the Extension Option, and (v) the fact that the Tenant will be accepting the Demised Premises in an “As-Is” condition.

(f)If a single appraiser is chosen, then such appraiser shall determine the Fair Market Rental Value of the Demised Premises.  Otherwise, the Fair Market Rental Value of the Demised Premises shall be the arithmetic average of the two (2) appraisals which are closest in amount, and the third appraisal shall be disregarded.

(g)Landlord and Tenant shall instruct the appraiser(s), in writing, to complete their written determination of the Fair Market Rental Value not later than thirty (30) days after their selection.  If the Fair Market Rental Value has not been determined by such date, then the Fair Market Rental Value shall be determined thereafter, and if it has not been determined by the Option Term Commencement Date, then Tenant shall continue to pay Landlord monthly installments of Annual Rent in the amount applicable to the Demised Premises immediately prior to the Option Term Commencement Date until the Fair Market Rental Value is determined.  When the Fair Market Rental Value of the Demised Premises is determined, Landlord shall deliver notice thereof to Tenant, and Tenant shall pay to Landlord, within ten (10) days after receipt of such notice, the difference between the monthly installments of Base Rent actually paid by Tenant to Landlord subsequent to the Option Term Commencement Date and the new monthly installments of Base Rent which are determined to have been actually owing during such period in accordance with this Section 3.2.

3.3Additional Rent.  Any amounts referred to in this Lease as additional rent are referred to collectively as “Additional Rent.”  “Rent,” as used herein, means all Base Rent and Additional Rent.

3.4Delinquent Rental Payments.  All payments of Base Rent and Additional Rent shall be payable without previous demand therefor and without any right of set-off or deduction whatsoever (except as expressly provided in this Lease), and in case of nonpayment of any item of Additional Rent by Tenant when the same is due (subject to any applicable notice and cure period), Landlord shall have, in addition to all its other rights and remedies, all of the rights and remedies available to Landlord under the provisions of this Lease or by law in the case of nonpayment of Base Rent.  The performance and observance by Tenant of all the terms, covenants, conditions and agreements to be performed or observed by Tenant hereunder shall be performed and observed by Tenant at Tenant’s sole cost and expense.  Any installment of Base Rent or Additional Rent or any other charges payable by Tenant under the provisions hereof which shall not be paid within five (5) days after they are due shall, (i) be subject to a late charge of five percent (5%) of the amount due and not timely paid, and (ii) bear interest from and after the sixth (6^th) day after such payment was due at the lesser of (A) the default rate of interest under Landlord’s most senior debt obligation encumbering the Demised Premises, or (B) an annual rate of twelve percent (12%) per annum, but in no event in excess of the maximum lawful rate permitted to be charged by Landlord against Tenant.  Said rate of interest is sometimes hereinafter referred to as the “Maximum Rate of Interest.”  Notwithstanding the foregoing provisions of this Section 3.4, if any mortgagee under any mortgage, beneficiary under any deed of trust, or ground lessor under any ground lease, which encumbers the Land (a “Lender”), imposes fees, charges, penalties or interest on Landlord for late payments under such instrument which fees, charges, penalties or interest are less in amount than those described in this

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Section 3.4, Landlord will not impose any late payment charge or interest which is greater than the amounts charged by such Lender.

ARTICLE IV

USE OF DEMISED PREMISES

4.1Permitted Use.  Tenant shall use the Demised Premises for general office purposes, and incidental purposes thereto, and for no other purposes without first securing the prior written consent of Landlord, which consent shall not be unreasonably withheld.  Tenant shall not use or occupy the same, or knowingly permit them to be used or occupied, contrary to any statute, rule, order, ordinance, requirement or regulation applicable thereto, or in any manner which would violate any certificate of occupancy affecting the same, or which would make void or voidable any insurance then in force with respect thereto (provided Tenant has received a copy of the policy) or which would make it impossible to obtain fire or other insurance thereon required to be furnished hereunder by Tenant, or which would cause structural injury to the improvements, or which would constitute a public or private nuisance or waste, and Tenant agrees that it will promptly, upon discovery of any such use, take all necessary steps to compel the discontinuance of such use.  During the Term of this Lease, Tenant shall have the nonexclusive right to use in common with the other tenants of the Project, and subject to reasonable rules and regulations promulgated by Landlord from time to time, the Common Areas.  Landlord reserves the right from time to time to use any of the Common Areas and do any of the following, as long as such acts do not unreasonably interfere with Tenant’s use of or access to the Demised Premises or Tenant’s parking rights as set forth in Article XXIII:

(a)Make any changes, additions, improvements, repairs or replacements in or to the Project, the Land, the Common Areas and/or the Buildings, and the fixtures and equipment thereof, including, without limitation (i) maintenance, replacement and relocation of pipes, ducts, conduits, wires and meters and (ii) changes in the location, size, shape and number of driveways, entrances, stairways, elevators, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways and, subject to Article XXIII below, parking spaces and parking areas;

(b)Close temporarily any of the Common Areas while engaged in making repairs, improvements or alterations to the Project, Land and/or Buildings; and

(c)Perform such other acts and make such other changes with respect to the Project, Land, Common Areas and/or Buildings, as Landlord may, in the exercise of good faith business judgment, as deemed to be appropriate.

4.2Preservation of Demised Premises.  Tenant shall not use, or permit the Demised Premises, or any portion thereof, to be used by Tenant, any third party or the public in such manner as might reasonably tend to impair Landlord’s title to the Demised Premises, or any portion thereof, or in such manner as might reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or third persons, or of implied dedication of the Demised Premises, or any portion thereof.  Nothing contained in this Lease, and no action or inaction by Landlord, shall be deemed or construed to mean that Landlord has

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granted to Tenant any right, power or permission to do any act or make any agreement that may create, or give rise to or be the foundation for any right, title, interest, lien, charge or other encumbrance upon the estate of Landlord in the Demised Premises other than as expressly set forth in this Lease.

4.3Hazardous Substances.

(a)Except for any ordinary and general office supplies, such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute “Hazardous Materials” as defined in this Lease), Tenant agrees not to cause or permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Demised Premises, the Land, the Buildings, the Common Areas or any other portion of the Project by Tenant, its agents, employees, subtenants, assignees, licensees, contractors or invitees (collectively, “Tenant’s Parties”), without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion.  In the event of any release of Hazardous Materials caused or permitted by Tenant or any of Tenant’s Parties, Landlord shall have the right, but not the obligation, to cause Tenant to immediately take all steps Landlord deems necessary or appropriate to remediate such release and prevent any similar future release to the satisfaction of Landlord and Landlord’s mortgagee(s).  Subject to Section 4.3(e), Tenant shall at all times and in all respects comply with all federal, state and local laws, ordinances and regulations (“Hazardous Materials Laws”) relating to the industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any oil, flammable explosives, asbestos, urea formaldehyde, polychlorinated biphenyls, radioactive materials or waste, or other hazardous, toxic, contaminated or polluting materials, substances or wastes, including without limitation any “hazardous substances,” “hazardous wastes,” “hazardous materials” or toxic substances” under any such laws, ordinances or regulations (collectively, “Hazardous Materials”) at the Demised Premises.

(b)Subject to Section 4.3(e), Tenant shall at its own expense procure (other than a certificate of occupancy), maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Tenant’s use of the Demised Premises for any permitted uses other than general office purposes, including, without limitation, discharge of (appropriately treated) materials or waste into or through any sanitary sewer system serving the Demised Premises.  Tenant shall in all respects handle, treat, deal with and manage any and all Hazardous Materials in, on, under or about the Demised Premises in complete conformity with all applicable Hazardous Materials Laws and prudent industry practices regarding the management of such Hazardous Materials.  Upon expiration or earlier termination of this Lease and subject to Section 4.3(e), Tenant shall cause all Hazardous Materials (as defined in 22 CCR 66261.3) caused or permitted by Tenant or any of the Tenant Parties to be removed from the Demised Premises and transported for use, storage or disposal in accordance with and in complete compliance with all applicable Hazardous Materials Laws.  Tenant shall not take any remedial action in response to the presence of any Hazardous Materials in, on, about or under the Demised Premises or in any Improvements situated on the Land other than in the normal course of Tenant’s business operations as now contemplated in accordance with all Hazardous Materials Laws or as necessitated by emergency considerations in accordance with all applicable Hazardous Materials Laws, nor enter into any settlement agreement, consent

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decree or other compromise in respect to any claims relating to any Hazardous Materials in any way connected with the Demised Premises or the Improvements on the Land without first notifying Landlord of Tenant’s intention to do so and affording Landlord ample opportunity to appear, intervene or otherwise appropriately assert and protect Landlord’s interest with respect thereto. In addition, at Landlord’s request, at the expiration of the term of this Lease, Tenant shall remove all tanks or fixtures which were placed on the Demised Premises by Tenant or any of the Tenant Parties during the term of this Lease and which contain, have contained or are contaminated with Hazardous Materials.

(c)Tenant shall immediately notify Landlord in writing of (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened pursuant to any Hazardous Materials Laws of which Tenant has actual knowledge; (ii) any claim of which Tenant has actual knowledge made or threatened by any person against Landlord or the Demised Premises relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (iii) any non-routine reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or about the Demised Premises or with respect to any Hazardous Materials removed from the Demised Premises, including any complaints, notices, warnings, reports or asserted violations in connection therewith.  Tenant shall also provide to Landlord, as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations from any governmental agency of any Hazardous Materials Laws relating in any way to the Demised Premises or Tenant’s use thereof.  Upon written request of Landlord (to enable Landlord to defend itself from any claim or charge related to any Hazardous Materials Laws), Tenant shall promptly deliver to Landlord notices of hazardous waste manifests, if any, reflecting the legal and proper disposal of all such Hazardous Materials caused or permitted by Tenant or the Tenant Parties removed from the Demised Premises.  Subject to Section 4.3(e), all such manifests, if any, relating to Hazardous Materials caused or permitted by Tenant or any of the Tenant Parties shall list the Tenant or its agent as a responsible party and in no way shall attribute responsibility for any such Hazardous Materials caused or permitted by Tenant or the Tenant Parties to Landlord.

(d)Subject to Section 4.3(e), Tenant shall indemnify, defend (with counsel reasonably acceptable to Landlord), protect and hold Landlord and each of Landlord’s officers, directors, partners, shareholders, affiliates, employees, agents, attorneys, successors and assigns free and harmless from and against any and all claims, liabilities, damages, costs, penalties, forfeitures, losses or expenses (including attorneys’ fees) for death or injury to any person or damage to any property whatsoever (including water tables and atmosphere) to the extent arising or resulting from the presence or discharge of Hazardous Materials in, on, under, upon or from the Demised Premises or the Improvements located thereon or from the transportation or disposal of Hazardous Materials to or from the Demised Premises to the extent such Hazardous Materials are present as the result of acts of Tenant, its officers, agents or employees, contractors or subcontractors (whether or not they are negligent, intentional, willful or unlawful).  Subject to Section 4.3(e), Tenant’s obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repairs, clean-up or detoxification or decontamination of the Demised Premises or the Improvements, and the presence and implementation of any closure, remedial action or other required plans in

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connection therewith, and shall survive the expiration of or early termination of the term of this Lease.

(e)Landlord represents and warrants that as of the date of this Lease there are, and as of the Commencement Date there will be, no Hazardous Materials present on the Demised Premises other than an as required for the normal operation of the Demised Premises and in accordance with all Hazardous Materials Laws.  Landlord shall indemnify, defend (with counsel reasonably acceptable to Tenant), protect and hold Tenant and each of Tenant’s officers, directors, partners, shareholders, affiliates, employees, agents, attorneys, successors and assigns free and harmless from and against any and all claims, liabilities, damages, costs, penalties, forfeitures, losses or expenses (including attorneys’ fees) for death or injury to any person or damage to any property whatsoever (including water tables and atmosphere) arising or resulting in whole or in part, directly or indirectly, from the presence of Hazardous Materials in, on, under, upon or from the Demised Premises or the Project unless such Hazardous Materials are present as the result of the acts of Tenant, its officers, employees or agents.

For purposes of the indemnity provided herein, any act or omission of Landlord or its agents, employees, contractors or subcontractors (whether or not they are negligent, intentional, willful or unlawful) shall be strictly attributable to Landlord.  Landlord’s obligations hereunder shall include, without limitation, and whether foreseeable or unforeseeable, all costs of any required or necessary repairs, clean-up or detoxification or decontamination of the Demised Premises or the Project, and the presence and implementation of any closure, remedial action or other required plans in connection therewith, and shall survive the expiration of or early termination of the term of this Lease.

(f)The obligations of Landlord and Tenant under this Section 4.3 shall survive the expiration or earlier termination of this Lease.

ARTICLE V

UTILITIES AND SERVICES

5.1Standard Tenant Services.  Except as provided below, Landlord shall provide, to the Demised Premises (or portions thereof, as noted below), the following services on all days (unless otherwise stated below) during the Lease Term:

5.1.1Subject to all governmental rules, regulations and guidelines applicable thereto, Landlord shall provide heating, ventilation and air conditioning (“HVAC”) when necessary for normal comfort for normal office use in the Demised Premises from Monday through Friday, during the period from 7:00 A.M. to 7:00 P.M. and on Saturday during the period from 9:00 A.M. to 1:00 P.M. (the “Building Hours”), except for the date of observation of New Year’s Day, Presidents 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”).

5.1.2Notwithstanding anything to the contrary contained herein, Tenant shall be solely responsible for and shall promptly pay all charges for HVAC operations, gas, electricity or

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any other utility that is separately metered to the Demised Premises at the rates charged by supplying utility companies and/or Landlord.  Should Landlord elect to supply any or all of such utilities, Tenant agrees to purchase and pay for the same Additional Rent as is reasonably apportioned by Landlord.  The rate to be charged by Landlord to Tenant shall not exceed the rate charged to Landlord by any supplying utility.  Tenant shall, as Additional Rent, reimburse Landlord within fifteen (15) days of billing for any utility costs supplied by Landlord to the Demised Premises which are charged to Landlord by local utility companies.  This charge will increase or decrease with current charges being levied against Landlord, the Demised Premises or the Buildings by the local utility company, and will be due as Additional Rent.  Tenant shall pay the cost of maintenance and repair of separate meters to the Demised Premises.  Notwithstanding anything herein, if Tenant shares such separate meter with another tenant or other tenants of the Southern Building, and such other tenant(s) fails to pay utility charges shared under the separate meter with Tenant, Landlord shall be responsible for the payment of such charges to avoid the interruption of such utilities.  Tenant shall bear the cost of replacement of lamps, starters and ballasts for lighting fixtures within the Demised Premises.

5.1.3Landlord shall, as an Operating Expense, provide city water from the regular Building outlets for normal office drinking, lavatory and toilet purposes.

5.1.4Landlord shall, as an Operating Expense, provide janitorial service to the Southern Building and Project Common Areas and the Demised Premises five (5) days per week except the date of observation of the Holidays, and exterior window washing services in a manner consistent with other Comparable Properties.

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems (collectively, “Building Systems and Equipment”).  As more particularly provided in Section 9.1 below, Landlord shall maintain the Building Systems and Equipment (including, but not limited to, the HVAC system) as an Operating Expense.

5.2Overstandard Tenant Use.  Tenant shall not, without Landlord’s prior written consent, which shall not be unreasonably withheld or delayed, use machines other than normal office machines, or equipment or lighting other than Building standard lights in the Demised Premises.  If Tenant uses HVAC in the portion of the Demised Premises located in the Southern Building during hours other than those for which Landlord is obligated to supply such HVAC utilities pursuant to the terms of Section 5.1.1 of this Lease, Tenant shall pay to Landlord Landlord’s actual hourly cost to provide the same, as reasonably determined by Landlord (which shall include overhead and accounting costs).  Amounts payable by Tenant to Landlord for such use of additional use of HVAC shall be deemed Additional Rent hereunder and shall be paid in the manner provided in this Section 5.2 above.

5.3Interruption of Use.  Except as set forth in Section 5.6 below, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for 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 services or utilities as set forth in this Article V.

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5.4Additional Services.  Landlord shall provide to Tenant any additional services which may be reasonably requested by Tenant, including, without limitation, locksmithing, lamp replacement, additional janitorial service, and additional repairs and maintenance, provided that Tenant shall pay to Landlord within fifteen (15) days after receipt of written notice from Landlord upon billing, the sum of all costs to Landlord of such additional services plus a reasonable administration fee.  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.

5.5Utility Deregulation.

5.5.1Landlord Controls Selection  Landlord has advised Tenant that presently San Diego Gas & Electric (“Electric Service Provider”) is the utility company selected by Landlord to provide electricity service for the Project.  Notwithstanding the foregoing, if permitted by Law, Landlord shall have the right at any time and from time to time during the Lease Term to either contract for service from a different company or companies providing electricity service (each such company shall hereinafter be referred to as an “Alternate Service Provider”) or continue to contract for service from the Electric Service Provider.  In no event shall Landlord’s selection of an Alternate Service Provider result in Tenant paying a higher cost for such electricity than if Landlord elected to continue to contract for such service from the Electric Service Provider.

5.5.2Tenant Shall Give Landlord Access.  Tenant shall cooperate with Landlord, the Electric Service Provider, and any Alternate Service Provider during non-business hours (except in the event of an emergency) and, as reasonably necessary, shall allow Landlord, Electric Service Provider, and any Alternate Service Provider reasonable access to the Building’s electric lines, feeders, risers, wiring and any other machinery within the Premises, provided, that Landlord shall use Landlord’s commercially reasonable efforts to ensure that there shall be no interference with Tenant’s use and enjoyment of the Demised Premises.

5.6Interruption of Utilities.  Except in the case of an emergency, Landlord shall not intentionally interrupt any utilities to the Premises without five (5) business days’ prior written notice from Landlord to Tenant.  In the event that there is any interruption of the utilities due to the negligence or willful misconduct of Landlord or its authorized representatives and such interruption shall continue for more than two (2) consecutive days rendering any portion of the Premises unusable for Tenant’s normal business operations, then all Rent payable under this Lease shall be abated retroactively to the time of the interruption.  Further, if such interruption of utilities continues for more than thirty (30) consecutive days, Tenant shall have the right to terminate this Lease.

ARTICLE VI

OPERATING EXPENSES

6.1Payment of Operating Expenses.  In addition to the Base Rent required to be paid by Tenant pursuant to Section 3.1 above, commencing on January 1, 2003, and during each month thereafter during the Term of this Lease, Tenant shall pay for each Expense Year (as

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defined below) to Landlord “Tenant’s Percentage” of “Operating Expenses” (as such terms are defined in this Article VI below), which are in excess of the amount of Operating Expenses applicable to the Base Year, in the manner and at the times set forth in the following provisions of this Article VI.  Notwithstanding the foregoing, (i) in no event shall any decrease in any Operating Expenses for any Expense Year below Operating Expenses for the Base Year entitle Tenant to any decrease in any Base Rent or any credit against sums due under this Lease, or (ii) no increase in CCR Assessments (as defined in Section 6.2, below) exceeding three percent (3%) during any Expense Year shall be included in the calculation of Tenant’s Percentage of Operating Expenses for any Expense Year.  As used herein, “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.

6.2Definition of Operating Expenses.  As used in this Lease, the term “Operating Expenses” shall consist of all costs and expenses incurred or reasonably reserved (based on the reasonable practices of landlord’s of Comparable Properties) by or on behalf of Landlord in connection with the ownership, operation, maintenance, repair and replacement of the Southern Building and Common Areas as determined by standard accounting practices including the following costs by way of illustration but not limitation:  (a) Real Property Taxes and Assessments (as defined in Section 6.3 below) and any taxes or assessments imposed in lieu thereof; (b) any and all assessments imposed with respect to the Southern Building, Land Common Areas and/or Project pursuant to any covenants, conditions and restrictions (“CCR’s) affecting the Project, Common Areas or Southern Building including, but not limited to, the CCR’s for the Business Park (“CCR Assessments”); (c) water and sewer charges and the costs of electricity, HVAC and other utilities, excluding those which are furnished to the Demised Premises and other leased premises within the Southern Building which are separately metered and paid separately by the tenants, including Tenant (provided that Tenant’s Percentage thereof shall be reduced to reflect any portion of the Demised Premises that is separately metered); (d) utilities surcharges and any other costs, levies or assessments resulting from statutes or regulations promulgated by any government authority in connection with the use or occupancy of the Southern Building, Land or the Demised Premises or the parking facilities serving the Southern Building, Land or Demised Premises; (e) costs of insurance obtained by Landlord pursuant to Article VII of this Lease to the extent allocable to the Southern Building; (f) waste disposal and janitorial services; (g) security; (h) costs incurred in the management of the Southern Building, Land and Common Areas, including, without limitation:  (1) wages and salaries (and payroll taxes and similar governmental charges related thereto) of employees used in the operation and maintenance of the Southern Building, Land and Common Areas, and (2) a management/administrative fee not to exceed 2.5 percent (2.5%) of the annual base rent of the Southern Building; (i) supplies, materials, equipment and tools to the extent used with respect to the Project; (j) repair and maintenance of the elevators and any other Building Systems and Equipment installed or furnished by Landlord; (k) maintenance costs and upkeep of all Common Areas (including, but not limited to, the Workout Facility); (l) amortization on a straight-line basis over the actual useful life together with interest at ten percent (10%) per annum on the unamortized balance of all costs of a capital nature (including, without limitation, capital improvements, capital replacements, capital repairs, capital equipment and capital tools):  (l) reasonably intended to produce a reduction in Operating Expenses or energy consumption; or (2) required after the date of this Lease under any governmental law or regulation that was not applicable to the Southern Building at the time they were originally constructed; or (3) for repair

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or replacement of any equipment or improvements needed to operate and/or maintain the Southern Building, Land, and/or the Common Areas, provided, however, to the extent Landlord has previously reserved funds for any such capital item, Landlord shall first apply such reserved funds against the cost of such capital item; (m) maintenance of signs (other than signs of tenants of the Project); (n) personal property taxes levied on or attributable to personal property used in connection with the Southern Building, Land, and/or the Common Areas; and (o) costs and expenses of repairs, resurfacing, repairing, maintenance, painting, lighting, cleaning, refuse removal and similar items; provided, however, in no event shall Landlord include within Operating Expenses the cost for resurfacing or replacing the parking areas more than once every five (5) years (further provided, however, that such limitations shall not be deemed to include the cost of reslurring, patching and/or restriping of such parking areas as and when reasonably necessary).

Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

(a)costs, including legal fees, space planners’ fees, and brokerage fees incurred in connection with the original construction or development, or original or future leasing or marketing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any Common Areas of the Project or parking facilities);

(b)amount paid as ground rental for the Project by the Landlord;

(c)costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

(d)any bad debt loss, rent loss, or reserves for bad debts or rent loss;

(e)the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-à-vis time spent on matters unrelated to operating and managing the Project; provided, that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager or Project engineer;

(f)any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any “day porter” with respect to the Southern Building shall be includable as an Operating Expense;

(g)rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

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(h)all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

(i)any costs expressly excluded from Operating Expenses elsewhere in this Lease;

(j)costs incurred to comply with laws relating to the removal of Hazardous Materials except to the extent such costs are incurred by Landlord for the removal of Hazardous Materials which are present solely as the result of the acts of Tenant, its officers, employees or agents;

(k)costs arising from Landlord’s charitable or political contributions or marketing costs;

(l)depreciation, interest and principal payments on mortgages or other debt costs, if any, penalties and interest and, except as provided in the first paragraph of this Section 6.2 above, costs of capital repairs and alterations and costs of capital improvements and equipment;

(m)except for Landlord’s permitted management/administrative fee (as set forth in the first paragraph of this Section 6.2 above), Landlord’s general corporate overhead or other management or administrative costs, expenses or fees;

(n)costs incurred by Landlord in performing Landlord’s warranty and guaranty enforcement obligations pursuant to Sections 2.8 and 2.9 above and any costs covered by warranties or guarantees provided by any contractor, design professional or material provider;

(o)amounts paid to any affiliate of Landlord in excess of commercially reasonable market rates;

(p)costs reimbursed by the proceeds of any insurance maintained or required under this Lease to be maintained by Landlord;

(q)any costs associated with the operation, repair, maintenance or replacement of the Northern Building or the Common Areas exclusively serving the Northern Building;

(r)costs for any structural repair, maintenance, replacement or redesign of any structural elements (i.e., foundation, roof, walls and exterior portions of the Buildings); and

(s)assessments imposed pursuant to the CCR’s for which Landlord is entitled to be reimbursed or which would duplicate any costs, fees or expenses billed to Tenant as an Operating Expense pursuant to this Section 6.2.

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, then Operating Expenses

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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 ninety-five percent (95%) occupied during all or a portion of the Base Year or any Expense Year, Landlord shall make an appropriate adjustment to the components of Operating Expenses for such year to determine the amount of Operating Expenses that would have been paid had the Project been ninety-five percent (95%) occupied; and the amount reasonably so determined shall be deemed to have been the amount of Operating Expenses for such year.  Operating Expenses for the Base Year shall not include market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes, or utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages (unless such labor rate or utility rate increases remain in effect after the Base Year, in which event the Operating Expenses for the Base Year shall be adjusted when the labor rate increases or utility rate increases adjust following the cessation of the extraordinary circumstances causing such increases in the first place), or amortized costs relating to capital improvements.

If Landlord incurs Operating Expenses during any Expense Year for any expense category that was not incurred during the Base Year or expands the scope of any expense category beyond the scope during the Base Year, then the amount of Operating Expenses for the Base Year shall be adjusted to an amount equal to the Operating Expenses that would have been incurred during the Base Year if such new expense category or such additional scope of any expense category had been included in the Base Year.

6.3Definition of Real Property Taxes and Assessments.  As used in this Lease, the term “Real Property Taxes and Assessments” shall mean:  any form of assessment, license fee, license tax, business license fee, commercial rental tax, levy, charge, improvement bond, tax or similar imposition imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, drainage or other improvement or special assessment district thereof, as against any legal or equitable interest of Landlord in the Demised Premises, Buildings, Common Areas, Land or Project, including the following by way of illustration but not limitation:

(a)any tax on Landlord’s “right” to rent or “right” to other income from the Demises Premises or as against Landlord’s business of leasing the Demised Premises;

(b)any assessment, tax, fee, levy or charge in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants.  It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies and charges be included within the definition of “Real Property Taxes and Assessments” for the purposes of this Lease;

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(c)any assessment, tax, fee, levy or charge allocable to or measured by the area of the Demised Premises or other premises in the Buildings or the rent payable by Tenant hereunder or other tenants of the Buildings, including, without limitation, any gross receipts tax or excise tax levied by state, city or federal government, or any political subdivision thereof, with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Demised Premises, or any portion thereof but not on Landlord’s other operations;

(d)any assessment, tax, fee, levy or charge upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Demised Premises; and/or

(e)any assessment, tax, fee, levy or charge by any governmental agency related to any transportation plan, fund or system (including assessment districts) instituted within the geographic area of which the Buildings are a part.  In addition, if Landlord sells, contributes or otherwise transfers the Southern Building, the Project or any portion thereof to Kilroy Realty, L.P. or any of its affiliates or successors or assigns (“Kilroy”), then the amount of Real Property Taxes and Assessments for the Base Year shall be increased by an amount equal to the Real Property Taxes and Assessments that would have applied during the Base Year had such sale, contribution or other transfer to Kilroy occurred during the Base Year.

Notwithstanding the foregoing provisions of this Section 6.3 to the contrary, “Real Property Taxes and Assessments” shall not include Landlord’s federal or state income, franchise, inheritance or estate taxes.

If in any Expense Year subsequent to the Base Year (the “Adjustment Year”), the amount of Real Property Taxes and Assessments decreases below the amount of Real Property Taxes and Assessments for the Base Year, then, the Operating Expenses for the Base Year shall be decreased by an amount equal to such decrease in assessed value or direct assessments, as applicable in the Adjustment Year.  Such decrease in the Operating Expenses for the Base Year shall only apply for so long as, and only to the extent that, the decrease remains in effect and shall be increased for purposes of calculating the Excess for any Expense Year to the extent the decrease is no longer in effect.

6.4Payment of Operating Expenses; Estimate Statement.  If for any Expense Year during the Lease Term, Tenant’s Percentage of Operating Expenses for such Expense Year exceeds Tenant’s Percentage of Operating Expenses applicable to the Base Year, then Tenant shall pay Landlord, in the manner set forth in this Section 6.4 below, as Additional Rent, an amount equal to the excess (the “Excess”).  By the first day of April of each Lease Year during the Term of this Lease, Landlord shall endeavor to deliver to Tenant a statement (“Estimate Statement”) estimating the Operating Expenses for the current Lease Year and the estimated Excess (the “Estimated Excess”), as calculated by comparing the Operating Expenses for such Expense Year, which shall be based upon the estimate of the Estimate Statement, to the amount of Operating Expenses for the Base Year.  Landlord shall have the right no more than once during each Lease Year to deliver a revised Estimate Statement showing the Operating Expenses and Estimated Excess for such Lease Year if Landlord determines that the Operating Expenses are greater than those set forth in the original Estimate Statement (or previously delivered revised

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Estimate Statement) for such Lease Year.  The Estimated Excess shown on the Estimate Statement (or revised Estimate Statement, as applicable) shall be divided into twelve (12) equal monthly installments, and Tenant shall pay to Landlord, within thirty (30) days following the receipt of the Estimate Statement (or revised Estimate Statement, as applicable), an amount equal to one (1) monthly installment of such Estimated Excess multiplied by the number of months from January in the Lease Year in which such statement is submitted to the month of such payment, both months inclusive (less any amounts previously paid by Tenant with respect to any previously delivered Estimate Statement or revised Estimate Statement for such Lease Year).  Subsequent installments shall be paid concurrently with the regular monthly Base Rent payments for the balance of the Lease Year and shall continue until the next Lease Year’s Estimate Statement (or current Lease Year’s revised Estimate Statement) is received.  Each Estimate Statement and each Actual Statement (as defined below) will include a detailed breakdown of all Operating Expenses with a comparison on a line item basis to the Operating Expenses for the Base Year.  In addition, each Estimate Statement and each Actual Statement will include a reasonably detailed description of any significant increases in any line item of Operating Expenses.

6.5Actual Statement  By the first day of April of each succeeding Lease Year during the Term of this Lease, Landlord shall endeavor to deliver to Tenant a statement (“Actual Statement”) of the actual Operating Expenses for the immediately preceding Lease Year and which shall indicate the amount of the Excess.  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 IV.  Even though the Lease Term has expired and Tenant has vacated the Demised Premises, when the final determination is made of Tenant’s Percentage of Operating Expenses for the Expense Year in which this Lease terminates, is an Excess if present, Tenant shall pay to Landlord such amount within thirty (30) days, and if Tenant paid more as Estimated Excess than the actual Excess, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment. Upon receipt of the Actual Statement for each Expense Year commencing or ending during the Lease Term, if an Excess is present, Tenant shall pay, within thirty (30) days after Tenant’s receipt of such Actual Statement, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as Estimated Excess, and if Tenant paid more as Estimated Excess than the actual Excess, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease.  Such obligation will be a continuing one which will survive the expiration or earlier termination of this Lease.

6.6No Release.  Any delay or failure by Landlord in delivering any Estimate or Actual Statement pursuant to this Article VI shall not constitute a waiver of Landlord’s rights under this Article VI, except that Tenant shall not be obligated to make any payments based on such Estimate or Actual Statement until thirty (30) business days after receipt of such statement nor shall Landlord be permitted to require Tenant to pay any Operating Expenses for which Landlord has not included in an Estimate Statement or Actual Statement or otherwise billed Tenant on or before December 31 of the Lease Year next following the Lease Year in which such Operating Expense was incurred.

6.7Tenant’s Percentage.  As used herein, “Tenant’s Percentage” (i) with respect to Operating Expenses attributable to the Southern Building, including the Southern Building

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Common Areas, shall equal the percentage which the total rentable square footage of the Demised Premises bears to the total rentable square footage of the Southern Building and (ii) with respect to the Operating Expenses attributable to the Project Common Areas, shall equal the percentage which the total rentable square footage of the Demised Premises bears to the total rentable square footage of the Project.  Tenant’s Percentage shall be adjusted based on the actual rentable square footage of the Southern Building, the Project and Demised Premises located therein as confirmed by Landlord’s Architect promptly after Substantial Completion pursuant to Section 3.1 above.

6.8Inspection of Operating Expenses.  Within one (1) year after receipt of any Actual Statement by Tenant (“Review Period”), Tenant may, after reasonable notice to Landlord and during normal business hours, inspect at Landlord’s offices Landlord’s books and records that relate to Operating Expenses for the period represented by any such Actual Statement and Landlord’s books and records that relate to Operating Expenses for the Base Year, provided, that Tenant shall maintain all information contained in Landlord’s books and records in strict confidence.  If after such inspection, Tenant disputes such Additional Rent as set forth in such Actual Statement, a certification as to the proper amount shall be made, at Tenant’s expense (except as provided below), by an independent certified public accountant selected by Tenant and reasonably approved by Landlord.  Landlord shall cooperate with Tenant to provide Tenant with the information upon which the certification is based; provided that if such certification proves that the Operating Expenses set forth in any such Actual Statement were overstated by more than five percent (5%), then the reasonable cost of such certification shall be paid for by Landlord.  Promptly following the parties’ receipt of such certification, 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.  In the event Tenant has not challenged any Actual Statement within said one (1) year period, Tenant shall have no further right to inspect or challenge the accuracy of such Actual Statement.  Landlord shall be required to maintain records of all such Operating Expenses for a minimum of two (2) years following Landlord’s delivery to Tenant of each Actual Statement and shall be required to maintain records of all such Operating Expenses for the Base Year for a minimum of two (2) years following the expiration or earlier termination of the Lease Term.

ARTICLE VII

INSURANCE

7.1Tenant’s Insurance.  Tenant shall, at Tenant’s sole cost and expense, maintain the following coverages in the following amounts:

7.1.1Commercial 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 Demised Premises, including a Broad Form endorsement (if applicable) covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 7.6 of this Lease, for limits of liability not less than Two Million Dollars ($2,000,000) per occurrence and Five Million Dollars ($5,000,000) in the aggregate, naming Landlord as an additional insured.  Notwithstanding the foregoing, such

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required coverage may be maintained by Tenant pursuant to an “umbrella” policy covering the Demised Premises.

7.1.2Physical Damage Insurance covering (i) all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant’s property on the Demised Premises installed by, for, or at the expense of Tenant, and (ii) all other improvements, alterations and additions to the Demised Premises.  Such insurance shall be written on an “all risks” of physical loss or damage basis, for the full replacement cost value 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.

7.1.3Worker’s Compensation and Employer’s Liability Insurance, with a waiver of subrogation endorsement, in statutory amounts and limits.

7.1.4Business Interruption, loss of income and extra expense insurance in an amount not less than one (1) year of Base Rent to reimburse Tenant for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Demised Premises or to the Buildings as a result of such perils.

7.2Landlord’s Insurance.  At all times from and after the Commencement Date, Landlord shall, as an Operating Expense,  maintain in effect a policy or policies of insurance providing protection for the following liabilities and/or risks:  (a) public liability for bodily injury and property damage arising from Landlord’s ownership and/or operation of the Project with coverage limits at least equal to those Tenant is required to maintain in accordance with Section 7.1, (b) any peril, in Landlord’s reasonable discretion, insurable under an “all risks” policy covering the Buildings of which the Demised Premises are a part and the tenant improvements, exclusive of any items insured by Tenant pursuant to Section 7.1, in an amount equal to each Building’s and the Improvements’ full replacement cost (exclusive of the cost of excavations, foundation and footings) and (c) rent loss insurance in an amount equal to not more than twelve (12) months’ of the Building’s estimated gross receipts.  Landlord’s obligation to carry the “all risks” insurance provided for in this Section 7.2 may be satisfied by inclusion of said building within the coverage of any blanket policy or policies of insurance carried and maintained by Landlord, provided that the coverage afforded will not be reduced or diminished by reason of the use of such blanket policies of insurance.  Tenant shall neither use the Premises for other than general office purposes nor permit the Premises to be used or acts to be done therein to the extent such use or acts would (i) increase the premium of any insurance carried by Landlord with respect to the Project; (ii) cause a cancellation of or be in conflict with any such insurance policies; or (iii) result in a refusal by insurance companies of good standing to insure the Project in amounts reasonably satisfactory to Landlord.  Tenant shall, at Tenant’s expense, comply as to the Premises with all insurance company requirements pertaining to the use of the Premises.  If Tenant’s conduct or use of the Premises for other than general office purposes causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body to the extent applicable to Tenant’s use of the Premises.  As provided in Section 6.3 above, if Landlord obtains any insurance coverage or

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expanded scope of coverage that was not included in the insurance policies maintained during the Base Year, the Operating Expenses for the Base Year shall be adjusted to an amount equal to the Operating Expenses that would have been incurred had such coverage been maintained during the Base Year.

7.3Form of Policies.  The minimum limits of policies of insurance required of Landlord and Tenant under this Lease shall in no event limit the liability of Landlord and Tenant under this Lease.  All insurance shall (i) be issued by an insurance company having a rating of not less than A- VIII in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; and (ii) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days’ prior written notice shall have been given to the other party and any mortgagee or ground or underlying lessor of Landlord.  In addition, the insurance described in Section 7.3.1 above shall (a) name Landlord, and any other party specified by Landlord, as an additional insured; (b) 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; (c) be primary insurance as to all claims thereunder and provide that any insurance required by Landlord is excess and is non-contributing with any insurance requirement of Tenant; and (d) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord.  Tenant shall deliver said policy or policies or certificates thereof to Landlord upon execution of this Lease 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 certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the costs of it shall be paid to Landlord as Additional Rent within fifteen (15) days after delivery to Tenant of bills therefor.

7.4Waiver of Subrogation.  Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Demised Premises, or any part thereof, or any personal property therein from perils insured (or required to be insured) against under the insurance maintained hereunder for the benefit of the respective parties, and to the extent the proceeds of such insurance are actually recovered, and each shall use commercially reasonable efforts to assure that such insurance permits waiver of liability and contains a waiver of subrogation.

7.5Blanket Insurance Coverage.  Nothing in this Article VI shall prevent Tenant from taking out insurance of the kind and in the amount provided for under the preceding paragraphs of this Article VII under a blanket insurance policy or policies (and certificates thereof reasonably satisfactory to Landlord shall be delivered to Landlord) which may cover other properties owned, leased or operated by Tenant as well as the Demised Premises; provided, however, that any such policy of blanket insurance of the kind provided for shall not contain any clause which would result in the insured thereunder being required to carry any insurance with respect to the property covered thereby in an amount not less than any specific percentage of the Full Replacement Cost of such property in order to prevent the insured therein named from becoming a co-insurer of any loss with the insurer under such policy; and further provided, however, that such policies of blanket insurance shall, as respects the Demised Premises, contain the various provisions required of such an insurance policy by the foregoing provisions of this Article VII.

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7.6Indemnification and Waiver.  To the extent not prohibited by law, and except as otherwise provided in this Lease, Landlord, its partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, “Landlord Parties”) shall not be liable for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or the Tenant Parties.  Tenant shall indemnify, defend, protect, and hold harmless Landlord Parties from any and all loss, cost, damage, expense and liability, (including without limitation court costs and reasonable attorneys’ fees) (collectively, “Claims”) incurred in connection with or arising from any cause in, on or about the Demised Premises, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the negligence or willful misconduct of Landlord or its agents, contractors, servants, employees or licensees in connection with Landlord’s activities in the Project (except for damage to the Tenant’s personal property, fixtures, furniture and equipment in the Premises, to the extent Tenant is required to obtain the requisite insurance coverage pursuant to this Lease) and Landlord hereby agrees to indemnify, defend, protect and hold harmless Tenant and the Tenant Parties from any such Claims.  The provisions of this Section 7.6 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination.

ARTICLE VIII

ROOF RIGHTS

Subject to all governmental laws, rules and regulations, and compliance with the CCR’s, Tenant and Tenant’s contractors (which shall first be approved by Landlord) shall have the nonexclusive right and access, without further payment of Rent to Landlord, to install, repair, replace, remove, operate and maintain satellite dishes and/or microwave dishes, and other radio transmitting and receiving antennae, together with all necessary cable, wiring, conduits and related equipment (collectively, “Communication Equipment”), for the purpose of receiving and sending telephone and other communication signals, at a location on the roof of the Southern Building as reasonably requested by Tenant and reasonably approved by Landlord in writing.  Tenant’s installation and operation of the Communication Equipment shall be governed by the following terms and conditions:

(a)Tenant’s right to install, replace, repair, remove, operate and maintain the Communication Equipment shall be subject to all governmental laws, rules and regulations and Landlord makes no representations that such laws, rules and regulations permit such installation and operation.

(b)The exact size, quality, materials and aesthetics of, and any required screening for, the Communication Equipment shall be subject to Landlord’s prior written consent which shall not be unreasonably withheld or delayed.

(c)All costs of installation, operation and maintenance of the Communication Equipment and any necessary related equipment (including, without limitation, costs of obtaining any necessary permits and of connections to the Southern Building’s electrical system) shall be borne by Tenant.  All such Communication Equipment shall be screened to commercially reasonable standards and to prevent visual impairment.

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(d)Tenant shall use the Communication Equipment so as not to cause any unreasonable interference (i) with any other communications from or to the Project or (ii) to other existing tenants or occupants in the Project who may use the communication facilities located at the Project and/or related facilities.

(e)Landlord shall not have any obligations with respect to the Communication Equipment.  Landlord makes no representation that the Communication Equipment will be able to receive or transmit communication signals without interference or disturbance and Tenant agrees that Landlord shall not be liable to Tenant therefor.

(f)Tenant shall not be permitted to allow any third party (other than a Transferee permitted under Section 15.2 or a Transferee approved by Landlord) to use any portion of the Roof for Communication Equipment or otherwise without Landlord’s consent, which shall not be unreasonably withheld.

(g)Tenant shall (i) be solely responsible for any damage caused as a result of the Communication Equipment (including but not limited to the installation, maintenance, repair and/or removal thereof), (ii) promptly pay any tax, license or permit fees charged pursuant to any laws or regulations in connection with the installation, maintenance or use of the Communication Equipment and comply with all precautions and safeguards recommended by all governmental authorities, and (iii) pay for all necessary repairs, replacements to or maintenance of the Communication Equipment.

(h)The Communication Equipment shall remain the sole property of Tenant.  Tenant shall remove the Communication Equipment and related equipment at Tenant’s sole expense upon the expiration or sooner termination of this Lease with respect to the Southern Building or upon the imposition of any governmental law or regulation which may require removal, and shall repair the Southern Building upon such removal to the extent required by such work of removal.  If Tenant fails to remove the Communication Equipment and repair the Southern Building within thirty (30) days after the expiration or earlier termination of this Lease with respect to the Southern Building, Landlord may do so at Tenant’s expense.

Landlord reserves the right to use portions of the roof space on the Southern Building or lease roof space on the Southern Building to other parties; provided, however, any party to which Landlord leases such roof space shall be subject to similar restrictions as set forth in this Article XIII.

ARTICLE IX

REPAIRS

9.1Landlord’s Repair Obligations.  Subject to Articles XIII and XIV of this Lease, Landlord shall repair, maintain and replace, as necessary (a) at Landlord’s sole cost and expense, the structural portions of the Demised Premises and the Southern Building (including the structural elements of the roof, structural walls, underground utilities, concrete subflooring and foundations), (b) as part of the Operating Expenses (except to the extent otherwise excluded pursuant to Sections 6.2 and 6.8 above or this Section 9.1 below), (i) the Building Systems and

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Equipment (but not any above standard improvements installed in the Premises such as, for example, but by way of limitation, custom lighting, special or supplementary HVAC or plumbing systems or distribution extensions, special or supplemental electrical panels or distribution systems, or kitchen or restroom facilities and appliances to the extent such facilities and appliances are intended for the exclusive use of Tenant), (ii) the Building Common Areas with respect to the Southern Building and (iii) the Project Common Areas; provided, however, to the extent such maintenance, repairs or replacements are required as a result of any act, neglect, fault or omission of Tenant or any of the Tenant Parties, Tenant shall pay to Landlord, as Additional Rent, the cost of any such maintenance, repairs or replacements.  Landlord shall not be liable to Tenant for failure to perform any such maintenance, repairs or replacements, unless Landlord shall fail to make such maintenance, repairs or replacements and such failure shall continue for a reasonable time following written notice from Tenant to Landlord of the need therefor.  Without limiting the foregoing, Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereafter in effect (including the provisions of California Civil Code section 1942 and any successive sections or statutes of a similar nature).  Notwithstanding the foregoing or anything in this Lease to the contrary, the costs incurred by Landlord in maintaining the structural portions of the Southern Building (as described in Section 9.1(a) above) shall be at Landlord’s sole cost and expense and not be included in Operating Expenses.

9.2Tenant’s Repair Obligations.  Except for Landlord’s obligations specifically set forth in this Lease, Tenant shall at all times and at Tenant’s sole cost and expense, keep, maintain, clean, repair, preserve and replace, as necessary, the Demised Premises and all parts thereof including, without limitation, all Improvements, alterations, all special or supplemental HVAC systems, electrical systems, pipes and conduits located within the Demised Premises, all fixtures, furniture and equipment, Tenant’s signs, locks, closing devices, security devices, windows, window sashes, casements and frames, floors and floor coverings, shelving, kitchen facilities and appliances located within the Demised Premises to the extent such facilities and appliances are intended for the exclusive use of Tenant, custom lighting, and any alterations, additions and other property located within the Demised Premises, in first-class condition and repair, reasonable wear and tear excepted.  Tenant shall replace, at its expense, any and all glass in and about the Demised Premises which is damaged or broken from any cause whatsoever except due to the negligence or willful misconduct of Landlord, its agents or employees.  Such maintenance and repairs shall be performed with due diligence, lien-free and in a first-class and workmanlike manner, by licensed contractor(s) which are selected by Tenant and approved by Landlord, which approval Landlord shall not unreasonably withhold or delay.  Except as otherwise expressly provided in this Lease, Landlord shall have no obligation to alter, remodel, improve, repair, renovate, redecorate or paint all or any part of the Demised Premises.

9.3Prohibition Against Waste. Tenant shall not do or suffer any waste, damage, disfigurement or injury to the Demised Premises, or any improvements hereafter erected thereon, or to the fixtures or equipment therein, or permit or suffer any overloading of the floors or other use of the Improvements that would place an undue stress on the same or any portion thereof beyond that for which the same was designed.

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ARTICLE X

COMPLIANCE WITH APPLICABLE LAWS AND
RESTRICTIONS

10.1Compliance with Applicable Laws and Restrictions.  Subject to Landlord’s obligations under Article II, Section 9.1 and Article IV of this Lease, or as expressly provided under any other provision hereof, throughout the Term of this Lease, and at Tenant’s sole cost and expense (except as provided in Sections 2.8 and 9.1 above), Tenant shall promptly comply or cause compliance with or remove or cure any violation caused by Tenant of any and all present and future laws, rules and regulations applicable to the Demised Premises and the orders, rules and regulations of the Board of Fire Underwriters where the Demised Premises are situated (provided Tenant shall be required to make any alterations to the Demised Premises in connection therewith only if the non-compliance was the result of alterations made to the Premises by Tenant or at Tenant’s election or direction, including the alterations made to the Premises in preparation of Tenant’s occupancy hereunder, but excluding, however, any alterations required in connection with or as a result of the Demising Wall), or any other governmental body now or hereafter constituted exercising lawful or valid authority over the Demised Premises, or any portion thereof, or exercising authority (“Applicable Requirements”) solely to the extent such Applicable Requirements relate to Tenant’s specific use of, tenant improvements or alterations to, the Demised Premises.  Notwithstanding the foregoing or anything to the contrary contained in this Lease, Landlord hereby warrants to Tenant that each Building, as of the Commencement Date, shall be in compliance with the Americans With Disabilities Act (“ADA”) and all other laws in effect as of the Commencement Date and each Delivery Date.  Landlord will be fully responsible for making all alterations and repairs to each such Building, at Landlord’s cost (which shall not be included in Operating Expenses) resulting from or necessitated by the failure of Landlord or Landlord’s contractors to comply with the foregoing warranty.  All exterior areas of the Demised Premises, parking areas, walkways, ramps, exterior of the Buildings and ingress to and egress from the Demised Premises shall be constructed and maintained by Landlord at all times during the Term of this Lease and any renewal(s) in strict compliance with the ADA requirements.

10.2Tenant’s Right to Contest Laws and Ordinances.  After prior written notice to Landlord, Tenant, at its sole cost and expense and without cost or expense to Landlord, shall have the right to contest the validity or application of any law in the name of Tenant or Landlord, or both, by appropriate legal proceedings diligently conducted but only if compliance with the terms of any such law or ordinance pending the prosecution of any such proceeding, may legally be delayed without incurring of any lien, charge or liability of any kind against the Demised Premises, or any portion thereof, and without subjecting Landlord or Tenant to any liability, civil or criminal, for failure so to comply therewith until the final determination of such proceeding; provided, however, if any lien, charge or civil liability would be incurred by reason of any such delay, Tenant nevertheless, on the prior written consent of Landlord, which consent shall not be unreasonably withheld, may contest as aforesaid and delay as aforesaid, provided that such delay would not subject Tenant or Landlord to criminal liability and Tenant (a) furnishes Landlord security, reasonably satisfactory to Landlord, against any loss or injury by reason of any such contest or delay, (b) prosecutes the contest with due diligence and in good faith, and (c) agrees to indemnify, defend and hold harmless Landlord and the Demised Premises from any charge,

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liability or expense whatsoever.  The security furnished to Landlord by Tenant may be in the form of a cash deposit or a Certificate of Deposit (“CD”) issued by a national bank or federal savings and loan association payable to Landlord.  Landlord shall be entitled to apply such security against an uncured Event of Default hereunder and, if during the continuance of such proceedings, Landlord shall, from time to time, reasonably deem the amount deposited, as aforesaid, insufficient, Tenant shall upon demand of Landlord make additional deposits of such additional sums of money or such additional CD’s as Landlord may reasonably request.  If Tenant is required to make such additional deposits hereunder and Tenant fails to make same, the amount theretofore deposited may be applied by Landlord to the payment, removal or discharge of such liability, and the interest, fines and penalties in connection therewith, and any costs, fees (including attorneys’ fees) and other liability (including costs incurred by Landlord) accruing in any such proceedings.  Upon resolution of any such contest, Landlord shall return all amounts or CD’s previously deposited with Landlord with respect to the contest of such laws, less any amounts applied by Landlord as aforesaid.  During the time when any such CD is on deposit with Landlord, and prior to the time when the same is returned to Tenant or applied against the payment, removal or discharge of such liabilities, as above provided, Tenant shall be entitled to receive all interest paid thereon.  Cash deposits shall not bear interest.

If necessary or proper to permit Tenant so to contest the validity or application of any such law or ordinance, Landlord shall, at Tenant’s sole cost and expense, including reasonable attorneys’ fees incurred by Landlord, execute and deliver any appropriate papers or other documents; provided, however, that Landlord shall not be required to execute any document or consent to any proceeding which would result in the imposition of any cost, charge, expense or penalty on Landlord or the Demised Premises.

ARTICLE XI

MECHANIC’S LIENS AND OTHER LIENS

11.1Mechanic’s Liens.

(a)Tenant shall keep the Demised Premises free from any liens arising out of work performed, materials furnished and obligations incurred by Tenant.  Tenant covenants and agrees that any mechanic’s lien filed against the Demised Premises for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be discharged by Tenant, by bond or otherwise, within thirty (30) days after the filing thereof, at the sole cost and expense of Tenant.  This provision does not apply to any claim or lien arising out of the original construction of the Demised Premises by Landlord pursuant to this Lease.

(b)Tenant shall have the right to contest with due diligence the validity or amount of any lien or claimed lien created by Tenant if Tenant shall give to Landlord such security as Landlord may reasonably require to insure payment thereof and prevent any sale, foreclosure or forfeiture of the Demised Premises or any portion thereof by reason of such nonpayment.  On final determination of the lien or claim for lien, Tenant shall immediately pay any judgment rendered with all proper costs and charges and shall have the lien released or judgment satisfied at Tenant’s own expense, and if Tenant shall fail to do so, Landlord may at its option, pay any such final judgment and clear the Demised Premises therefrom. If Tenant shall

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fail to contest with due diligence the validity or amount of any such lien or claimed lien created by Tenant, or to give Landlord security as hereinabove provided, Landlord may, but shall not be required to, contest the validity or amount of any such lien or claimed lien or settle or compromise the same without inquiring into the validity of the claim or the reasonableness of the amount thereof.  Should any lien be filed against the Demised Premises or should any action of any character affecting the title thereto be commenced, Tenant shall give to Landlord written notice thereof as soon as notice of such lien or action comes to the knowledge of Tenant.

(c)Should Tenant fail to discharge any such lien, Landlord may, at Landlord’s election, pay such claim or post a bond or otherwise provide security to eliminate the lien as a claim against title, and the cost thereof shall be immediately due from Tenant as Additional Rent.  Tenant shall not suffer or permit any mechanic’s lien or other lien to be filed against the Demised Premises, or any portion thereof, by reason of work, labor, skill, services, equipment or materials supplied or claimed to have been supplied to the Demised Premises at the request of Tenant, or anyone holding the Demised Premises, or any portion thereof, through or under Tenant.

(d)All materialmen, contractors, artisans, mechanics, laborers and any other person now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to the Demised Premises, or any portion thereof, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for the same.  Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies, skill, machinery, fixtures or equipment furnished or to be furnished to Tenant upon credit, and that no mechanic’s lien or other lien for any such labor, services, materials, supplies, machinery, fixtures or equipment shall attach to or affect the estate or interest of Landlord in and to the Demised Premises or any portion thereof.

11.2Landlord’s Indemnification.  The provisions of Section 11.1 above shall not apply to any mechanic’s lien or other lien for labor, services, materials, supplies, machinery, fixtures or equipment furnished to the Demised Premises in the performance of Landlord’s obligations to construct the Improvements required by the provisions of Article II hereof or in the performance of Landlord’s other obligations under this Lease, and Landlord does hereby agree to indemnify and defend Tenant against and save Tenant and the Demised Premises and any portion thereof harmless from all losses, costs, damages, expenses, liabilities and obligations, including, without limitation, reasonable attorneys’ fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic’s lien or other lien.

11.3Removal of Liens.  Except as otherwise provided for in this Article XI, Tenant shall not create, permit or suffer, and shall promptly discharge and satisfy of record, any other lien, encumbrance, charge, security interest or other right or interest which shall be or become a lien, encumbrance, charge or security interest upon the Demised Premises, or any portion thereof, or the income therefrom, or on the interest of Landlord or Tenant in the Demised Premises, or any portion thereof, if such lien, encumbrance, charge, security interest or other right or interest shall result from the actions of Tenant or others acting on the behalf of or for Tenant (other than Landlord).

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11.4Equipment and Trade Fixtures.  Landlord expressly waives and disclaims any lien which it may have by statute or otherwise on the equipment and trade fixtures which Tenant brings to the Demised Premises.  In addition, Landlord acknowledges that Tenant may, from time to time, offer all or portions of such equipment and trade fixtures as collateral for obligations to lenders.  Landlord will promptly execute such reasonable documentation as Tenant may request in order to evidence to any such lender Landlord’s lack of any claim to such equipment and trade fixtures.

ARTICLE XII

DEFAULTS OF TENANT

12.1Events of Default.  Any one or more of the following events shall be an event of default by Tenant (“Event of Default”) under this Lease:

(a)Tenant fails to pay any Base Rent or Additional Rent or any other sum required by this Lease to be paid by Tenant, within five (5) days after notice from Landlord that such Rent is due;

(b)Tenant fails to perform or comply with any other term hereof, and such failure shall continue for more than thirty (30) days after notice thereof from Landlord, and Tenant shall not within such period commence with due diligence and thereafter dispatch the curing of such default, or, having so commenced, shall thereafter fail or neglect to prosecute or complete with due diligence and dispatch the curing of such default;

(c)Tenant makes a general assignment for the benefit of creditors or admits in writing its inability to pay its debts as they become due or files a petition in bankruptcy, or is adjudicated as bankrupt or insolvent, or files a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statutes, law or regulation, or files an answer admitting or fails to reasonably contest the material allegations of a petition filed against it in any such proceeding, or seeks or consents to or acquiesces in the appointment of any trustee, receiver or liquidator of Tenant or any material part of its properties (provided, however, that this Section 12.1(c) shall apply only to the extent it is enforceable under applicable law); or

(d)Within ninety (90) days after the commencement of any  proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding has not been dismissed, or if, within ninety (90) days after the appointment without the consent or acquiescence of Tenant of any trustee, receiver or liquidator of Tenant or of any material part of its properties, such appointment has not been vacated (provided, however, that this Section 12.1(d) shall apply only to the extent it is enforceable under applicable law); or

(e)Tenant permits the abandonment or nonoccupancy of the entire Demised Premises (except for temporary vacancies or portions thereof, or to the extent caused by damage, destruction or condemnation).

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12.2Landlord’s Remedies.  Upon the occurrence of an Event of Default, Landlord, at its option, without further notice or demand to Tenant, shall have, in addition to all other rights and remedies provided in this Lease, 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:

(a)Terminate this Lease, in which event Tenant shall immediately surrender the Demised Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in Base Rent or Additional Rent, enter upon and take possession of the Demised Premises and expel or remove Tenant and any other person who may be occupying the Demised Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

(i)The worth at the time of award of any unpaid Base Rent and Additional Rent which has been earned at the time of such termination; plus

(ii)The worth at the time of award of the amount by which the unpaid Base Rent and Additional 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 Base Rent and Additional 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; and

(v)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 subsections (i) and (ii), above, the “worth at the time of award” shall be computed at the Maximum Rate of Interest.  As used in subsection (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%).  Nothing herein shall be deemed to relieve Landlord of its obligation to mitigate its damages following an Event of Default.

12.3Right to Collect Rent as Due.  Landlord shall have the remedy described in California Civil Code Section 1951.4 (Landlord may continue lease in effect after Tenant’s breach and abandonment and recover rent as it becomes due, if Tenant 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,

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without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Base Rent and Additional Rent as they become due.

12.4New Lease Following Termination.  In the event Landlord elects to terminate this Lease and relet the Premises, it may execute any new lease in its own name.  Tenant hereunder shall have no right or authority whatsoever to collect any Base Rent, Additional Rent or other sums from such tenant.  The proceeds of any such reletting shall be applied as follows:

(a)First, to the payment of any indebtedness other than Base Rent or Additional Rent due hereunder from Tenant to Landlord, including but not limited to storage charges or brokerage commissions owing from Tenant to Landlord as the result of such reletting;

(b)Second, to the payment of the costs and expenses of reletting the Premises, including alterations and repairs which Landlord deems reasonably necessary and advisable, and reasonable attorneys’ fees incurred by Landlord in connection with the retaking of the Demised Premises and such reletting;

(c)Third, to the payment of Base Rent, Additional Rent and other charges due and unpaid hereunder; and

(d)Fourth, to the payment of future Base Rent, Additional Charges and other damages payable by Tenant under this Lease.

12.5Cumulative Rights; No Waiver.  All rights, options and remedies of Landlord contained in this Lease shall be construed and held to be non-exclusive and cumulative.  Landlord shall have the right to pursue any or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease.  No waiver of any Event of Default of Tenant hereunder shall be implied from the acceptance by Lender of any payments due hereunder (except with respect to the amount  so collected) or any omission by Landlord party to take any action on account of such Event of Default if such Event of Default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver.

12.6Surrender of Demised Premises.  Upon any expiration or termination of this Lease, Tenant shall quit and peaceably surrender the Demised Premises and all portions thereof to Landlord, and Landlord may, upon or at any time after any such expiration or termination and without further notice, enter upon and reenter the Demised Premises and all portions thereof and possess and repossess itself thereof by force, summary proceeding, ejectment or otherwise, and may dispossess Tenant and remove Tenant and all other persons and property from the Demised Premises and all portions thereof and may have, hold and enjoy the Demised Premises and the right to receive all rental and other income of and from the same.

12.7Interest on Unpaid Amounts.  If Tenant shall commit an Event of Default, Landlord may cure the same, but shall not be required to do so, as provided in, and subject to, Section 11.1 above, and in exercising any such right, may employ counsel and pay necessary and incidental costs and expenses, including reasonable attorneys’ fees.  All reasonable sums so paid by Landlord, and all reasonable and necessary costs and expenses, including reasonable attorneys’ fees, in connection with the performance of any such act by Landlord, together with interest thereon at the Maximum Rate of Interest from the date of making such expenditure by

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Landlord, shall be deemed Additional Rent hereunder and, except as is otherwise expressly provided herein, shall be payable to Landlord within ten (10) days after written demand, and Tenant covenants to pay any such sum or sums, with interest as aforesaid, and Landlord shall have, in addition to any other right or remedy of Landlord, the same rights and remedies in the event of nonpayment thereof by Tenant as in the case of default by Tenant in the payment of monthly Base Rent.  Landlord shall not be limited in the proof of any damages which Landlord may claim against Tenant arising out of or by reason of Tenant’s failure to provide and keep in force insurance as aforesaid, to the amount of the insurance premium or premiums not paid or not incurred by Tenant, and which would have been payable upon such insurance, but Landlord shall also be entitled to recover as damages for such breach the uninsured amount of any loss (to the extent of any deficiency between the dollar limits of insurance required by the provisions of this Lease and the dollar limits of the insurance actually carried by Tenant) and reasonable costs and expenses, including reasonable attorneys’ fees, suffered or incurred by reason thereof occurring during any period when Tenant shall have failed or neglected to provide insurance as aforesaid.

ARTICLE XIII

DESTRUCTION AND RESTORATION

13.1Repair of Damage to Demised Premises by Landlord.  Tenant shall promptly notify Landlord of any damage to the Demised Premises or other portion of the Project resulting from fire or any other casualty.  If Demised Premises or any Common Areas serving or providing access to the Demised Premises shall be damaged by fire or other casualty, Landlord shall 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 XIII, restore the Shell and Core Improvements of the Southern Building, the Improvements and such Common Areas and such restoration shall be to substantially the same condition of the Shell and Core Improvements, the Improvements and the Common Areas prior to the casualty and substantially in accordance with the Plans and Specifications, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on such the Buildings or Project. 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 damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Demised Premises or Common Areas necessary to Tenant’s use, access or occupancy, Landlord shall allow Tenant a proportionate abatement of Base Rent to the extent Landlord is reimbursed from the proceeds of rental interruption insurance purchased (or required to be purchased) by Landlord as part of Operating Expenses, during the time and to the extent the Demised Premises cannot be reasonably used (and is not used) for the operation of Tenant’s business, and not occupied by Tenant as a result thereof for the conduct of Tenant’s business.

13.2Landlord’s Option to Repair.  Notwithstanding the terms of Section 13.1 of this Lease, Landlord may elect not to rebuild and/or restore the Demised Premises, Southern Building and/or Project Common Areas; and instead terminate this Lease by notifying Tenant in writing of such termination within ninety (90) days after the date Landlord learns of the necessity for repairs as the result of damage, such notice to include a termination date giving Tenant ninety (90) days to vacate the Demised Premises, but Landlord may so elect only if (i) the Southern

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Building or Project Common Areas shall be damaged by fire or other casualty or cause, and the damage not fully covered, except for deductible amounts (which deductible amounts shall be an Operating Expense), by Landlord’s insurance policies carried or required to be carried by Lender under this Lease exceeds $50,000 (“Landlord’s Threshold”) and (ii) Tenant is not willing to fund Tenant’s Percentage of the amount of the shortfall in excess of Landlord’s Threshold. Notwithstanding the foregoing, if this Lease is terminated by Landlord pursuant to this Section 13.2, and Landlord shall thereafter elect, within six (6) months after the date of such termination, to rebuild the Southern Building, Tenant shall have the right to reinstate this Lease by written notice to Landlord within ten (10) days after Tenant’s receipt of notice from Landlord that Landlord has so elected to rebuild.  Tenant’s failure to so notify Landlord within such 10-day period shall be deemed to constitute Tenant’s waiver of the right to so reinstate this Lease.

13.3Landlord’s or Tenant’s Option to Terminate.  Notwithstanding the terms of Section 13.1 of this Lease, either Landlord or Tenant may elect to terminate this Lease by notifying the other in writing of such termination within ninety (90) days after the date Landlord learns of the necessity of repairs as a result of such damage in the case of Landlord or within thirty (30) days of the date Tenant receives Landlord’s written estimate of the time to complete such repairs in the case of Tenant, such notice to include a termination date giving Tenant ninety (90) days to vacate the Demised Premises, but Landlord or Tenant, whichever is the case, may so elect only if the Demised Premises shall be damaged by fire or other casualty or cause and the repairs cannot reasonably be substantially completed within one hundred eighty (180) days after the date Landlord learns of the necessity for repairs as a result of the damage (when such repairs are made without the payment of overtime or other premiums).  In addition, Tenant shall also have the right to terminate this Lease in the event Landlord does not, subject to Force Majeure,  commence such repairs within ninety (90) days after the date that Landlord learns of the necessity of repairs as a result of such damage or, subject to Force Majeure, Landlord does not substantially complete such repairs within one hundred eighty (180) days after the date Landlord learns of the necessity for repairs as a result of such damage, such termination to be effective if notice thereof is delivered in writing to Landlord at any time prior to the date Landlord has commenced or substantially completed (as the case may be) such repairs prior to receipt of Tenant’s termination notice.

13.4Waiver of Statutory Provisions.  The provisions of this Lease, including this Article XIII, constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Demised Premises, the Buildings 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 or destruction to all or any part of the Demised Premises, the Southern Building or the Project.

13.5Damage Near End of Term.  In the event that the Demised Premises, the Southern Building, or the Project Common Areas are destroyed or damaged to any substantial extent during the last twelve (12) months of the Lease Term, then notwithstanding anything contained in this Article XIII, Landlord shall have the option to terminate this Lease and, to the extent such

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damage or destruction was not caused as a result of the negligence or willful misconduct of Tenant or any of Tenant Parties, Tenant shall have the option to terminate this Lease by giving written termination notice to Landlord of the exercise of such option within thirty (30) days after Landlord learns of the necessity for repairs as the result of such damage or destruction or thirty (30) days after Tenant received notice from Landlord of the expected time to complete such repairs.  If either Landlord or Tenant exercises such option to terminate this Lease as provided above, (i) this Lease shall cease and terminate as of the date of such notice, (ii) Tenant shall pay the Base Rent and Additional Rent due, properly apportioned up to such date of termination, and (iii) 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.  Notwithstanding the foregoing, if Tenant exercises an Extension Option, Landlord shall not have any right to terminate this Lease under this Section 13.5.

ARTICLE XIV

CONDEMNATION

14.1Condemnation of Entire Demised Premises.  If, during the Initial Term of this Lease or any extension or renewal thereof, the entire Demised Premises shall be taken as the result of the exercise of the power of eminent domain (hereinafter referred to as the “Proceedings”), this Lease and all right, title and interest of Tenant hereunder shall cease and come to an end on the date of vesting of title pursuant to such Proceedings.

In any taking of the Demised Premises, or any portion thereof,  whether or not this Lease is terminated as in this Article provided, Tenant shall not be entitled to any portion of the award for the taking of the Demised Premises or damage to the Improvements, except as otherwise provided in Section 14.3 with respect to the restoration of the Improvements, and Tenant hereby waives any right it now has or may have under present or future law to receive any separate award of damages for its interest in the Demised Premises or any portion thereof, except that  Tenant shall have, nevertheless, the limited right to prove in the Proceedings and to receive any award which may be made for damages to or condemnation of Tenant’s movable trade fixtures and equipment, for goodwill and for Tenant’s relocation costs in connection therewith.

14.2Partial Condemnation/Termination of Lease.  If, during the Term of this Lease an amount less than the entire Demised Premises shall be taken in such Proceedings with the result that it will materially and adversely interfere with Tenant’s enjoyment and intended use (as described in Section 4.1, hereof), as reasonably determined by Tenant, Tenant may, at its option, terminate this Lease as to the remainder of the Demised Premises.  Tenant shall not have the right to terminate this Lease pursuant to the preceding sentence unless (a) the business of Tenant conducted in the portion of the Demised Premises taken cannot reasonably be carried on with substantially the same utility and efficiency in the remainder of the Demised Premises, and (b) Landlord does not construct or secure in the Project, within ninety (90) days after the vesting of title or possession in such Proceedings, substantially similar space to the space so taken and as a substantially integrated whole with the remaining portion of the Demised Premises.  Such termination as to the remainder of the Demised Premises shall be effected by notice in writing given not more than sixty (60) days after the date of vesting of title in such Proceedings, and

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shall specify a date no more than sixty (60) days after the giving of such notice as the date for such termination.  Upon the date specified in such notice, the Term of this Lease, and all right, title and interest of Tenant hereunder, shall cease and come to an end.  If this Lease is terminated as provided in this Section 14.2, Landlord shall be entitled to and shall receive the total award made in such Proceedings, Tenant hereby assigning any interest in such award, damages, and compensation to Landlord, and Tenant hereby waiving any right Tenant now has or may have under present or future law to receive any separate award of damages for its interest in the Demised Premises or any portion thereof or its interest in this Lease, except as otherwise provided in Section 14.1.  The right of Tenant to terminate this Lease as provided in this Section 14.2, shall not cure or otherwise release Tenant from any then existing breach of Tenant’s performance of any of the terms, covenants or conditions of this Lease on its part to be performed.  In the event that Tenant elects not to terminate this Lease as to the remainder of the Demised Premises, the rights and obligations of Landlord and Tenant shall be governed by the provisions of Section 14.3 hereof.

14.3Partial Condemnation/Continuation of Lease.  If this Lease is not terminated as provided in Section 14.2 hereof, then this Lease shall, upon vesting of title or possession in the Proceedings, terminate as to the parts so taken, and Tenant shall have no claim or interest in the award, damages, consequential damages and compensation, or any part thereof except as otherwise provided in Section 14.1, Tenant hereby waiving any right Tenant now has or may have under present or future law to receive any separate award of damages for its interest in the Demised Premises or any portion thereof or its interest in this Lease, except as otherwise provided in Section 14.1 and except that Tenant shall have the right to apply to Landlord for reimbursement as hereinafter provided from such funds as specified in this Section 14.3.  The net amount of the award (after deduction of all costs and expenses, including attorneys’ fees) shall be held by Landlord (or Landlord’s lender) and applied as hereinafter provided.  Landlord, in such case, covenants and agrees, at Landlord’s sole cost and expense promptly to restore that portion of the Improvements on the Demised Premises not so taken to a complete architectural and mechanical unit for the use and occupancy of Tenant as provided in this Lease.  In the event that the net amount of the award (after deduction of all costs and expenses, including attorneys’ fees) that may be received by Landlord in any such Proceedings for physical damage to the Improvements as a result of such taking, and held by Landlord (or Landlord’s lender) for restoration of the Demised Premises, is insufficient to pay all costs of such restoration work, Landlord shall pay the difference. Tenant shall not be liable for any additional sum.

14.4Continuance of Obligations.  In the event of any termination of this Lease or any part thereof as a result of any such Proceedings, Tenant shall pay to Landlord all Base Rent, all Additional Rent and other charges payable hereunder with respect to that portion of the Demised Premises so taken in such Proceedings with respect to which this Lease shall have terminated justly apportioned to the date of such termination.  From and after the date of vesting of possession in such Proceedings, Tenant shall continue to pay the Base Rent, Additional Rent and other charges payable hereunder as in this Lease provided to be paid by Tenant, subject to an abatement of a just and proportionate part of the Base Rent according to the extent and nature of such taking as provided for in Sections 14.3 and 14.5 hereof in respect to the Demised Premises remaining after such taking.

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14.5Adjustment of Rent.  In the event of a partial taking of the Demised Premises and/or Common Areas under Sections 14.2 or 14.3 hereof in which  case this Lease is not terminated, the Base Rent for the period from and after the date of vesting of title or possession in such Proceedings, until the termination of this Lease with respect to such portion of the Demised Premises, shall be reduced to a sum equal to the product of the Base Rent provided for herein multiplied by a fraction, the numerator of which is the value of the Demised Premises after such taking (and once any restoration is complete, the value after the same shall have been restored to a complete architectural unit), and the denominator of which is the value of the Demised Premises prior to such taking.

ARTICLE XV

ASSIGNMENT, SUBLETTING, ETC.

(a)Restriction on Transfer.  Tenant shall not sublet the Demised Premises or any portion thereof, nor assign, mortgage, pledge, transfer or otherwise encumber or dispose of this Lease or any interest therein, or in any manner assign, mortgage, pledge, transfer or otherwise encumber or dispose of its interest or estate in the Demised Premises or any portion thereof without obtaining Landlord’s prior written consent in each and every instance.  Landlord’s consent to an assignment or subletting under this Section 15.1 shall not be unreasonably withheld or delayed, provided at the time of any assignment or subletting and at the time Tenant requests Landlord’s written consent thereto, this Lease must be in full force and effect and Tenant shall not be in material default under this Lease beyond any applicable cure periods.

(b)Any such assignee shall assume, by written, recordable instrument, in form and content satisfactory to Landlord, the due performance of all of Tenant’s obligations under this Lease from and after the time of the effective date of the assignment, and such assumption agreement shall state that the same is made by the assignee for the express benefit of Landlord as a third party beneficiary thereof.  A copy of the assignment and assumption agreement, both in form and content satisfactory to Landlord, fully executed and acknowledged by assignee, together with a certified copy of a properly executed corporate resolution (if the assignee be a corporation) authorizing the execution and delivery of such assumption agreement, shall be sent to Landlord ten (10) days after the effective date of such assignment.

(c)In the case of a subletting, a copy of any sublease fully executed and acknowledged by Tenant and the sublessee shall be mailed to Landlord ten (10) days after to the effective date of such subletting, which sublease shall be in form and content acceptable to Landlord.

(d)Each sublease permitted under this Section 15.1 shall contain provisions to the effect that (i) such sublease is only for actual use and occupancy by the sublessee; (ii) such sublease is subject and subordinate to all of the terms, covenants and conditions of this Lease and to all of the rights of Landlord thereunder; and (iii) in the event this Lease shall terminate before the expiration of such sublease, the sublessee thereunder will, at Landlord’s option, attorn to Landlord and waive any rights the sublessee may have to terminate the sublease or to surrender possession thereunder as a result of the termination of this Lease.

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(e)Tenant agrees to pay on behalf of Landlord any and all reasonable costs of Landlord, including reasonable attorneys’ fees paid or payable to outside counsel, occasioned by such assignment or subletting, but not to exceed One Thousand Dollars ($1,000.00).

15.2Transfer to Affiliates; Sale or Merger.  Notwithstanding the foregoing provisions of Section 15.1, Tenant shall be permitted to assign or sublet the Demised Premises or Tenant’s rights under this Lease, without Landlord’s prior consent, in connection with (i) an initial public offering of Tenant’s stock, (ii) the sale or transfer of substantially all of the assets of Tenant or the merger or consolidation of Tenant into or with another entity, provided the buyer, transferee or merged entity has an owner’s equity which, as of the date of such sale or transfer, is at least as much as is Tenant’s as of the date of this Lease; or (iii) to an Affiliate (as defined below) of Tenant, provided, that in any such case Tenant shall be required to give Landlord written notice of that assignment or subletting within thirty (30) days thereafter, including written evidence of the identity of the assignee or sublessee (actual or deemed) and its affiliation with Tenant.  In no event shall such transfer be permitted under this Article XV be a subterfuge by Tenant to avoid its obligations under this Lease.  The term “Affiliate” means an entity that controls, is controlled by, or is under common control with Tenant and the term “control” shall mean the ownership, directly or indirectly, of at least fifty percent (50%) of the outstanding voting interests of an entity.

15.3Restriction Against Further Assignment.  Notwithstanding anything contained in this Lease to the contrary and notwithstanding any consent by Landlord to any sublease of the Demised Premises or any portion thereof or to any assignment of this Lease or of Tenant’s interest or estate in the Demised Premises, except as provided in Section 15.2 above, no sublessee shall assign its sublease nor further sublease the Demised Premises or any portion thereof, and no assignee shall further assign its interest in this Lease or its interest or estate in the Demised Premises or any portion thereof, nor sublease the Demised Premises or any portion thereof, without Landlord’s prior written consent in each and every instance, which consent shall not be unreasonably withheld or unduly delayed.  No such assignment or subleasing (including any such assignment or subletting permitted under Section 15.2 above) shall relieve Tenant from any of Tenant’s obligations contained in this Lease.

15.4Transfer Premium.

15.4.1Definition of Transfer Premium.  If Landlord consents (or is deemed to have consented) to an assignment, subletting, or other transfer by Tenant (collectively, “Transfer”), as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay, except as otherwise provided in this Article XV, pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 15.4, received by Tenant from any such transferee (“Transferee”).  This Section 15.4 shall not be applicable with respect to any transfer permitted under Section 15.2 above.  “Transfer Premium” shall mean all rent, additional rent or other consideration payable by such Transferee in excess of the Base Rent and Additional Rent payable by Tenant under this Lease on a per rentable square foot basis if less than all of the Demised Premises is transferred, after deducting the reasonable expenses incurred by Landlord or Tenant for (i) any changes, alterations and improvements to the Demised Premises in connection with the Transfer, and (ii) any brokerage commissions, reasonable attorneys’ and architectural fees, reasonable advertising costs and other reasonable costs incurred

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in connection with the Transfer (collectively, the “Subleasing Costs”).  “Transfer Premium” shall also include, but not be limited to, key money and bonus money 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.

15.4.2Payment of Transfer Premiums.  The determination of the amount of the Transfer Premium shall be made on an annual basis in accordance with the terms of this Section 15.4.2, but an estimate of the amount of the Transfer Premium shall be made each month and one-twelfth of such estimated 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 15.4.2 during the twelve (12) months preceding each annual reconciliation exceed the amount of Transfer Premium determined on an annual basis, then Landlord shall credit the overpayment against Tenant’s future obligations under this Section 15.4.2 or if the overpayment occurs during the last year of the Transfer in question, refund the excess to Tenant.  If Tenant has underpaid 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 Subleasing Costs shall be deemed to be offset against the first Base Rent, Additional Rent or other consideration payable by the Transferee, until such Subleasing Costs are exhausted.

15.4.3Calculations of Rent.  In the calculation of the Rent, as it relates to the Transfer Premium calculated under Section 15.4.1 above, 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.

15.5Landlord’s Recapture Option.  Notwithstanding anything to the contrary contained in this Article XV, in the event that, following any proposed Transfer, Tenant would not occupy at least fifty percent (50%) of the rentable square footage of the original Demised Premises, Landlord shall have the option, by giving written notice to Tenant within twenty (20) days after receipt of any Transfer notice, to recapture the space Tenant proposes to Transfer (“Subject Space”).  Such recapture shall cancel and terminate this Lease, with respect to the Subject Space as of the effective date of the proposed Transfer until the last day of the term of the Transfer as set forth in such Transfer notice.  This Section 15.5 shall not apply to any Transfer pursuant to Section 15.2.  In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Demised Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Demised Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same.  If Landlord declines, or fails to timely elect to recapture the Subject Space under this Section 15.4, then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to transfer the Subject Space to the proposed Transferee, subject to the provisions of this Article XV.  Notwithstanding the

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foregoing, in the event Landlord elects to recapture the Subject Space, Tenant shall have the right, by delivering written notice to Landlord within five (5) days after Tenant’s receipt of Landlord’s termination notice, to withdraw Tenant’s request for such Transfer in which event Tenant shall have no right to transfer the Subject Space to the proposed Transferee and Landlord’s termination rights under this Section 15.5 shall be of no further force and effect with respect to such proposed Transfer.

15.6Tenant’s Failure to Comply.  Tenant’s failure to comply  with all of the foregoing provisions and conditions of this Article XV shall, at Landlord’s option, render any purported assignment or subletting null and void and of no force and effect.

ARTICLE XVI

SUBORDINATION, NONDISTURBANCE, NOTICE TO
MORTGAGEE AND ATTORNMENT

16.1Subordination by Tenant.  This Lease and all rights of Tenant therein and all interest or estate of Tenant in the Demised Premises or any portion thereof shall be subject and subordinate to the lien of any mortgage, deed of trust, security instrument or other document of like nature (collectively, “Mortgage”), which at any time after the date of this Lease may be placed upon the Demised Premises or any portion thereof, and to each and every advance made under any such Mortgage.  Tenant agrees at any time hereafter, to execute and deliver to Landlord any instruments, releases or other documents that may be reasonably required for the purpose of subjecting and subordinating this Lease to the lien of any such Mortgage.  It is agreed, nevertheless, that so long as Tenant is not in material default under this Lease beyond any applicable cure periods, that such subordination agreement or other instrument, release or document shall not interfere with, hinder or molest Tenant’s right to quiet enjoyment under this Lease, shall not modify the terms of this Lease, nor the right of Tenant to continue to occupy the Demised Premises and all portions thereof, and to conduct its business thereon in accordance with the covenants, conditions, provisions, terms and agreements of this Lease.  The lien of any such Mortgage shall not cover Tenant’s trade fixtures or other personal property located in or on the Demised Premises.  Landlord shall deliver to Tenant a commercially reasonably nondisturbance agreement executed by all lenders having a lien on the Demised Premises within thirty (30) days after the date of this Lease as a condition precedent in Tenant’s favor, and from each future lender as a condition to Tenant’s subordination or attornment hereunder.

16.2Landlord’s Default.  In the event of any act or omission of Landlord constituting a default by Landlord, other than Landlord’s failure to have the Improvements substantially completed on a timely basis as provided in Article II and to make the same fully available to Tenant as therein provided, Tenant shall not exercise any remedy until Tenant has given Landlord and any mortgagee whose name and address have been previously provided to Tenant prior written notice of such act or omission and until a 30-day period of time to allow Landlord or the mortgagee to remedy such act or omission shall have elapsed following the giving of such notice; provided, however,  if such act or omission cannot with due diligence and in good faith be remedied within such 30-day period, Landlord and/or mortgagee shall be allowed such further period of time as may be reasonably necessary provided that it shall have commenced remedying the same with due diligence and in good faith within said 30-day period.  In the event any act or

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omission of Landlord which constitutes a Landlord’s default hereunder results in an immediate threat of bodily harm to Tenant’s employees, agents or invitees or damage to Tenant’s property, or exposes Tenant to criminal liability, Tenant may proceed to cure the default without prior notice to Landlord or its mortgagee; provided, however, in that event Tenant shall give written notice to Landlord and its mortgagee as soon as possible after commencement of such cure.  Nothing herein contained shall be construed or interpreted as requiring any mortgagee to remedy such act or omission.

16.3Attornment.  Subject to Section 16.1 above, if any mortgagee shall succeed to the rights of Landlord under this Lease or to ownership of the Demised Premises, whether through possession or foreclosure or the delivery of a deed to the Demised Premises, then, upon the written request of such mortgagee so succeeding to Landlord’s rights hereunder, Tenant shall attorn to and recognize such mortgagee as Tenant’s landlord under this Lease, and shall promptly execute and deliver any instrument that such mortgagee may reasonably request to evidence such attornment (whether before or after making of the mortgage).  In the event of any other transfer of Landlord’s interest hereunder, upon the written request of the transferee and Landlord, Tenant shall attorn to and recognize such transferee as Tenant’s landlord under this Lease and shall promptly execute and deliver any instrument that such transferee and Landlord may reasonably request to evidence such attornment.

ARTICLE XVII

SIGNS

17.1General.  Tenant shall have no right to install or maintain any Tenant identification signs (or any other signs, banners or other such displays) in any location on any Building or in the Project which may be visible from the exterior of any Building, unless such signs (i) shall have been expressly approved by Landlord (which approval shall not be unreasonably withheld or delayed) prior to the installation thereof, and (ii) are consistent and compatible with (a) all governmental regulations and requirements and (b) the signage criteria for the Business Park and Project (“Signage Criteria”) in the form attached to the Business Park CCR’s, and (c) the CCR’s for the Business Park.

17.2Tenant’s Exterior Signage Rights.  Provided the conditions set forth in Section 17.1 above have been satisfied, Tenant shall, at Tenant’s sole cost and expense, have the following rights during the Lease Term with respect to Tenant’s Signs:  (i) the right to install identity signage on the top of the front facade of the exterior of the Southern Building in the one (1) location depicted on Exhibit ”E” attached hereto and (ii) have the nonexclusive right to have its professional name displayed on the Southern Building monument sign in the location depicted on Exhibit ”E” attached hereto.  As used herein, “Tenant’s Signs” shall mean all signage rights granted to Tenant pursuant to this Article XVII.  The specifications, plans and elevations for Tenant’s Signs (including the graphics, materials, color, design, lettering, height, lighting, size and quality) shall be subject to Landlord’s approval, which shall not be unreasonably withheld or delayed and shall be consistent with the Signage Criteria for the Business Park and Project.  Tenant shall, at Tenant’s sole cost and expense, remove any existing exterior signage replaced by Tenant’s Signs placed on the exterior of the Southern Building.  Tenant’s Signs shall be installed under the supervision of Landlord by a contractor approved by Landlord and shall be installed in

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a lien-free manner in accordance with the provisions of the Lease.  Tenant’s Signs shall be maintained, at the sole cost and expense of Tenant, pursuant to a maintenance program approved and supervised by Landlord.  Tenant shall, at Tenant’s sole cost and expense (subject to Landlord’s supervision), cause Tenant’s Signs to be removed and the Southern Building and the Project to be restored to the condition existing prior to the placement of such Tenant’s Signs at the expiration or earlier termination of Tenant’s Lease (or such earlier time as Tenant elects or is required to remove any such Tenant Signs).  If Tenant fails to remove Tenant’s Signs and restore the Southern Building and the Project as provided above within thirty (30) days following Landlord’s demand therefor, then Landlord may perform such work and all costs and expenses incurred by Landlord in so performing such work shall be reimbursed by Tenant to Landlord within fifteen (15) days following Landlord’s delivery to Tenant of an invoice therefor.

17.3Tenant’s Interior Signage Rights.  Tenant shall have the nonexclusive right, at Tenant’s sole cost and expense, to have its identity displayed on the lobby directory or marquee of the Southern Building.  Tenant shall also have the right to install other signage identifying Tenant on the second floor of the Southern Building which interior signage shall be in compliance with the Signage Criteria.  Such second floor identifying signage shall be provided by Landlord, at Tenant’s cost, and such signage shall be comparable to that used by Landlord for other similar floors in the Buildings and shall comply with Landlord’s Building standard signage program.  Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant.  Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Demised Premises), or other items visible from the exterior of the Demised Premises or the Project, shall be subject to the prior approval of Landlord, in its reasonable discretion.

ARTICLE XVIII

FINANCIAL STATEMENTS OF TENANT

Not more often than once in any twelve (12) month period or at any time during the continuance of an Event of Default, at Landlord’s request, Tenant shall provide Landlord with Tenant’s most recent financial statements in form and content reasonably satisfactory to Landlord and Landlord’s lenders (which, if Tenant is an entity which files periodic financial disclosures to securities regulatory authorities, shall be those which are periodically filed with those authorities).  Landlord may provide copies of those financial statements to current and prospective lenders, investors and buyers, identified in writing to Tenant, for examination and review.  Landlord shall keep all such financial statements strictly confidential and may provide copies of such financial statements to such other parties only upon receiving in return a covenant from each recipient that such recipient shall keep the financial statements confidential except with the prior written consent of Tenant.

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ARTICLE XIX

CHANGES AND ALTERATIONS

Tenant shall have the right at any time, and from time to time during the Term of this Lease, to make such changes and alterations to the interior of the Demised Premises as Tenant shall deem necessary or desirable in connection with the requirements of its business, which changes and alterations (other than changes or alterations of Tenant’s movable trade fixtures and equipment) shall be made in all cases subject to the following conditions, which Tenant covenants to observe and perform:

(a)Permits.  No change or alteration shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all municipal, state and federal permits and authorizations of the various governmental bodies and departments having jurisdiction thereof, and Landlord agrees to join in the application for such permits or authorizations whenever such action is necessary, all at Tenant’s sole cost and expense, provided such applications do not cause Landlord to become liable for any cost, fees or expenses.

(b)Compliance with Plans and Specifications.  Before commencement of any change, alteration, restoration or construction (hereinafter sometimes referred to as “Work”) involving an estimated cost of more than Ten Thousand Dollars ($10,000.00), or which, (i) in Landlord’s reasonable judgment, would affect any Building Systems and Equipment, (ii) require structural changes to the Demised Premises or any portion of the Southern Building, (iii) are visible from the exterior of the Demised Premises or (iv) would, in Landlord’s reasonable judgment, materially increase the maintenance and repair obligations of Landlord hereunder, Tenant shall (i) furnish Landlord with detailed plans and specifications of the proposed change or alteration; (ii) obtain Landlord’s prior written approval of a licensed architect or licensed professional engineer selected and paid for by Tenant who shall approve any such work (hereinafter referred to as “Alterations Architect or Engineer”); and (iii) obtain Landlord’s prior written approval (which shall not be unreasonably withheld or delayed) of detailed plans and specifications prepared and approved in writing by said Alterations Architect or Engineer and of each amendment and change thereto.

(c)Value Maintained.  Any change or alteration shall, when completed, be of such character so as not to reduce the value of the Demised Premises or the Buildings to which such change or alteration is made below its value or utility to Landlord immediately before such change or alteration, nor shall such change or alteration reduce the area or cubic content of the Demised Premises or Buildings to use without Landlord’s express written consent.

(d)Compliance with Laws.  All Work done in connection with any change or alteration shall be done promptly and in a good and workmanlike manner and in compliance with all building and zoning laws of the place in which the Demised Premises are situated, and in compliance with all laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof, and in accordance with the orders, rules and regulations of the Board of Fire Underwriters where the Demised Premises are located or any other body exercising similar functions.  The cost of any such change or alteration shall be paid in cash so that the Demised

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Premises and all portions thereof shall at all times be free of liens for labor and materials supplied to the Demised Premises or any portion thereof.  The Work or any change or alteration shall be prosecuted with reasonable dispatch, delays due to strikes, lockouts, acts of God, inability to obtain labor or materials, governmental restrictions or similar causes beyond the control of Tenant excepted.  Tenant or Tenant’s contractor or subcontractor shall obtain and maintain at its sole cost and expense during the performance of the Work workers’ compensation insurance covering all persons employed in connection with the Work and with respect to which death or injury claims could be asserted against Landlord or Tenant or against the Demised Premises or any interest therein, together with comprehensive general liability insurance for the mutual benefit of Landlord and Tenant with limits of not less than One  Million Dollars ($1,000,000.00) in the event of injury to one person, One Million Dollars ($1,000,000.00) in respect to any one accident or occurrence, and Five Hundred Thousand Dollars ($500,000.00) for property damage, and the fire insurance with “extended coverage” endorsement required by Section 6.1 hereof shall be supplemented with “builder’s risk” insurance on a completed value form or other comparable coverage on the Work if the cost of such work will be in excess of Fifty Thousand Dollars ($50,000.00).  All such insurance shall be in a company or companies authorized to do business in the state in which the Demised Premises are located and reasonably satisfactory to Landlord, and all such policies of insurance or certificates of insurance shall be delivered to Landlord endorsed “Premium Paid” by the company or agency issuing the same, or with other evidence of payment of the premium satisfactory to Landlord.

(e)Property of Landlord.  All improvements and alterations (other than Tenant’s movable trade fixtures, furniture and equipment) made or installed by Tenant shall, immediately upon completion or installation thereof, become the property of Landlord without payment therefor by Landlord, and shall be surrendered to Landlord on the expiration of the Term of this Lease unless and to the extent Tenant is required or permitted to remove the same upon termination or expiration of the Term as provided in subsection (g), below, in which event they shall become the property of Tenant, provided that Tenant shall be required to restore the Demised Premises in accordance with Section 19(g), below.

(f)Removal of Improvements.  As a condition to granting approval for any changes or alterations, Landlord may require Tenant, by written notice to Tenant given at or prior to the time of granting such approval, to remove any improvements, additions or installations installed by Tenant in the Demised Premises at Tenant’s sole cost and expense at the end of the term of this Lease and repair and restore any damage caused by the installation and removal of such improvements, additions, or installations; provided, however, the only improvements, additions or installations which Tenant shall remove shall be those specified in such notice.  All improvements, additions or installations installed by Tenant which did not require Landlord’s prior approval shall be removed by Tenant as provided for in this Section 19(f), unless such improvements, additions or installations do not adversely affect Landlord’s ability to re-lease the Demised Premises.  Prior to making any improvements, additions or alterations that do not require Landlord’s approval, Tenant may request Landlord to specify whether Landlord considers such improvements, additions or installations to be of the type that would adversely affect Landlord’s ability to re-lease the Demised Premises if not removed by Tenant.  Notwithstanding anything to the contrary contained herein, Tenant shall have the right to remove any improvements, additions or alterations installed by Tenant and at its expense upon expiration or earlier termination of the Term so long as Tenant repairs any damage

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caused by such removal at its sole cost and expense and returns the applicable portion of the Demised Premises to its original condition prior to the installation of such improvement, addition or alteration.

(g)Reasonable Consent.  All consents required of Landlord under this Article XIX shall not be unreasonably withheld or delayed by Landlord.

(h)Notice to Landlord.  Regardless of whether Landlord’s consent is required to any change or alteration to the Demised Premises made or to be made by Tenant, such changes or alterations shall not be commenced until two (2) business days notice after Landlord has received notice from Tenant stating the date such changes or alterations are to commence so that Landlord can post and record an appropriate notice of nonresponsibility.

ARTICLE XX

ATTORNEYS’ FEES

In the event of any litigation, arbitration, mediation or any other action taken by either party to this Lease to enforce any provision of this Lease, enforce any remedy available upon default under this Lease, or seek a declaration of the rights of a party under this Lease, the prevailing party shall be entitled to recover in such action such attorneys’ fees and costs as may be reasonably incurred, including, without limitation, the costs of reasonable investigation, preparation and professional or expert consultation, travel expenses, costs on appeal, court reporter fees and expenses, incurred by reason of such litigation, arbitration or other action.  All other attorneys’ fees and cost relating to the negotiation and documentation of this Lease and the transactions described herein shall be borne by the party incurring the same.

ARTICLE XXI

BROKERS

Tenant and Landlord represent that they have dealt only with Colliers International, as broker, in connection with this Lease.  Landlord shall be responsible for paying the commissions owing to such broker under a separate written agreement between Landlord and such broker.  Tenant and Landlord will indemnify, defend and hold the other harmless from and against any loss, cost or expense, including, but not limited to, reasonable attorneys’ fees and court costs, resulting from any claim for a fee or commission by any other broker or finder resulting from their own actions.

ARTICLE XXII

SECURITY DEPOSIT

Concurrent with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “Security Deposit”) in the amount of One Hundred Eleven Thousand Five Hundred Thirty and 25/100 Dollars ($111,530.25).  Provided Tenant has not at any time during the Term of this Lease been delinquent in the payment of Rent for more than five (5) days after receipt of the written notice referenced in Section 12.1(a) hereof:  (a) Thirty-Seven Thousand

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One Hundred Seventy-Six and 75/100 Dollars ($37,176.75) of the Security Deposit shall be credited toward the payment of Rent for the thirteenth (13^th) month of the Initial Term and (b) an additional Thirty-Seven Thousand One Hundred Seventy-Six and 75/100 Dollars (37,176.75) of the Security Deposit shall be credited toward the payment of Base Rent for the twenty-fifth (25^th) month of the Initial Term. The Security Deposit shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants, and conditions of this Lease to be kept and performed by Tenant during the Lease Term.  If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, Landlord may, but shall not be required to, use, apply or retain all or any part of the Security Deposit for the payment of any Rent or any other sum in default, or for the payment of any amount that Landlord may spend or become obligated to spend by reason of Tenant’s default, or to compensate Landlord for any other loss or damage that Landlord may suffer by reason of Tenant’s default.  If any portion of the Security Deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount (as may be increased hereunder), and Tenant’s failure to do so shall be a default under this Lease.  If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit, or any balance thereof, shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within thirty (30) days following the expiration of the Lease Term.  Tenant shall not be entitled to any interest on the Security Deposit. Notwithstanding the foregoing, in lieu of cash, Tenant shall have the right at any time to deliver the Security Deposit in the form of either (a) an irrevocable letter of credit in favor of Landlord in the amount of the Security Deposit and issued by a financial institution and otherwise in a form and substance reasonably acceptable to Landlord or (b) a CD payable to Landlord issued by a national bank or federal savings and loan association in the amount of Security Deposit, in which case Landlord shall, within five (5) days thereafter, return to Tenant the amount of any cash Security Deposit previously delivered by Tenant.  In the event Tenant elects to deliver the Security Deposit in the form of a CD, any interest earned upon such CD shall belong to Tenant, so long as there is no uncured Event of Default by Tenant under this Lease.  Landlord may apply the CD as if it were cash in the manner described in this Article XII above.

ARTICLE XXIII

TENANT PARKING

Commencing on the Commencement Date, Tenant shall have the right, at no cost to Tenant during the Lease Term, to four (4) parking privileges for each 1,000 usable square feet of the Demised Premises, which parking privileges shall pertain to the Project parking facilities.  Such parking privileges shall permit Tenant and its employees to use, on a nonexclusive, as-available basis, together with other tenants and their respective employees, any undesignated, unreserved spaces available in such parking facility from time to time.  Tenant’s continued right to use the parking privileges is conditioned upon Tenant abiding by all reasonable, nondiscriminatory rules and regulations which are prescribed from time to time for the orderly operation and use of the Project parking facility and upon Tenant’s cooperation in seeing that Tenant’s employees and visitors also comply with such rules and regulations.  Such rules and regulations shall provide that Tenant shall pay Landlord’s then current charge for any replacement of any Tenant parking pass card, if any, which is lost, stolen, damaged or destroyed

45

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.  Tenant’s parking privileges under this Article XXIII are provided to Tenant solely for use by Tenant’s own personnel and its guests, customers and invitees and, except as provided in Section 15.2, such privileges may not be transferred, assigned, subleased or otherwise alienated by Tenant without Landlord’s prior approval.  The parking privileges allocated to Tenant are not for long term (i.e., more than 48 hours) storage of automobiles, or for short or long term storage of boats, trailers, recreational vehicles, motorcycles or other vehicles or equipment.

ARTICLE XXIV

[INTENTIONALLY DELETED]

ARTICLE XXV

MISCELLANEOUS PROVISIONS

25.1Entry by Landlord.  Tenant agrees to permit Landlord and  authorized representatives of Landlord to enter upon the Demised Premises at all reasonable times during ordinary business hours upon at least two (2) business day’s advance notice to Tenant for the purpose of inspecting the same and making any repairs required to be made thereto by Landlord under the terms of this Lease, or as required to be made thereto by Tenant under the terms of this Lease provided that Landlord shall have first given written notice to Tenant to make such repairs and Tenant shall have failed to make such repairs within thirty (30) days after notice; provided, however, Tenant shall be allowed such further period of time as may be provided in Section 12.1(b); and, provided further, that Landlord shall be allowed to enter upon the Demised Premises during an emergency.  Nothing herein contained shall imply any duty upon the part of Landlord to do any such work which, under any provision of this Lease, Tenant may be required to perform, and the performance thereof by Landlord shall not constitute a waiver of Tenant’s default in failing to perform the same.  Landlord may, during the progress of any work, keep and store upon the Demised Premises all necessary materials, tools and equipment in areas designated by Tenant.  Landlord shall not in any event be liable for inconvenience, annoyance, disturbance, loss of business or other damage to Tenant by reason of making such repairs or the performance of any such work in or about the Demised Premises or on account of bringing material, supplies and equipment into, upon or through the Demised Premises during the course thereof, and the obligations of Tenant under this Lease shall not be thereby affected in any manner whatsoever; except that Landlord shall use its best efforts to not unreasonably interfere with Tenant’s use of the Demised Premises, or any portion thereof, by reason of Landlord’s making such repairs or the performance of any such work in or about the Demised Premises or on account of bringing materials, supplies and equipment into, upon or through the Demised Premises during the course thereof.  Tenant may accompany Landlord on any inspection or entry by Landlord.  Notwithstanding anything to the contrary contained herein, Tenant shall have the right to have its representative accompany Landlord and any other party entering the Demised Premises at all times during any entry upon the Demised Premises permitted by this Section or any other provision of this Lease.  In addition, Landlord agrees that it will comply with any reasonable precautions required by Tenant to protect Tenant’s trade secrets, intellectual property

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and other confidential or proprietary documents and information during any such entry upon the Demised Premises.

25.2Exhibition of Demised Premises.  Landlord is hereby given the right during usual business hours upon at least two (2) business days’ advance notice to Tenant at any time during the Term of this Lease to enter upon the Demised Premises and to exhibit the same for the purpose of mortgaging or selling the same.  During the final year of the Term, Landlord shall be entitled (i) to display on the Demised Premises in such manner as to not unreasonably interfere with Tenant’s business, signs reasonably approved as to design and location by Tenant indicating that the Demised Premises are for rent and/or sale and suitably identifying Landlord or its agent, and (ii) upon at least two (2) business days’ advance notice to Tenant, to exhibit the Demised Premises to prospective tenants.

25.3Workout Facility.  The Shell and Core Improvements shall include a workout facility (“Workout Facility”), which Workout Facility will be located in the Southern Building.  Fifty percent (50%) of the square footage of the Workout Facility shall be allocated to and be included in the rentable square footage of the Southern Building and, as a result thereof, the Base Rent payable with respect to the Southern Building shall be increased to reflect the portion of the Demised Premises located in the Southern Building’s prorata share of such additional rentable square footage.  The cost of maintaining and repairing the Workout Facility (including, but not limited to, the maintenance, repair and replacement of all exercise machines and equipment) shall be an Operating Expense.  The Workout Facility shall be considered a Project Common Area available for use by Tenant and, at Landlord’s discretion, any other tenants of the Project.

25.4Notices.  All notices, demands and requests which may be or are required to be given, demanded or requested by either party to the other shall be in writing, and shall be sent by United States registered or certified mail, postage prepaid, by an independent overnight courier service marked for next business day delivery, or by telephonic facsimile transmission with automatic written time and date confirmation of delivery transmitted between the hours of 9:00 A.M. and 5:00 P.M. (time zone of recipient, but only if confirmed within two (2) business days by receipt of a mailed or personally delivered copy), and addressed as follows:

Sorrento Wateridge Partners, L.P.

c/o The Allen Group

6005 Hidden Valley Road, Suite 150

Carlsbad, California  92009

Attention:  Kevin A. Noell

Facsimile:  (760) 707-1909

To Tenant:

American Residential Investment Trust, Inc.

10421 Wateridge Circle

San Diego, CA  92121

Attention:  Ken Walker

Facsimile:  (858) 350-6484

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or at such other place as a party hereto may from time to time designate by written notice thereof to the other.  Notices, demands and requests which shall be served upon Landlord by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall be deemed received three (3) days after delivery to United States mail, one (1) business day after delivery to an overnight courier service, or at the time such notice, demand or request shall be transmitted by facsimile (if confirmed as written above).

25.5Quiet Enjoyment.  Landlord covenants and agrees that Tenant, upon paying the Base Rent and Additional Rent and upon observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept, observed and performed, shall lawfully and quietly hold, occupy and enjoy the Demised Premises (subject to the provisions of this Lease) during the Term of this Lease without hindrance or molestation by Landlord or by any person or persons claiming under Landlord.

25.6Landlord’s Continuing Obligations.  The term “Landlord,” as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee of the Demised Premises, and in the event of any transfer or transfers or conveyance, the then grantor shall be automatically freed and relieved from and after the date of such transfer or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in  this Lease thereafter to be performed, provided that any funds in the hands of such landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be turned over to the grantee, and any amount then due and payable to Tenant by Landlord or the then grantor under any provision of this Lease, shall be paid to Tenant, and further provided that the new Landlord expressly assumes in writing for the benefit of Tenant all obligations of Landlord under this Lease.  The covenants and obligations contained in this Lease on the part of Landlord shall, subject to the aforesaid, be binding on Landlord’s successors and assigns during and in respect of their respective successive periods of ownership.  Nothing herein contained shall be construed as relieving Landlord of its obligations under Article II of this Lease or releasing Landlord from any obligation to complete the cure of any breach by Landlord during the period of its ownership of the Demised Premises.  However, Tenant agrees to look solely to Landlord’s interest in the Land, the Buildings and the Improvements for the recovery of any judgment from Landlord, it being agreed that, if Landlord is a partnership, Landlord’s partners, whether general or limited, or if Landlord is a corporation, its directors, officers and shareholders, shall never be personally liable for any such judgments or damages.  Notwithstanding the foregoing, Landlord and its general partner shall be fully and personally liable for claims by Tenant relating to Landlord’s obligations under Sections 2.1 (the Improvements), 2.6 (Liquidated Damages for Delay in Substantial Completion), and 2.9 (Condition of Demised Premises; Limited Warranty), provided that such personal liability under Section 2.9 for defects in the Improvements for any Phase shall only apply with respect to defects of which Tenant gives Landlord notice within one (1) year after the Commencement Date or applicable Delivery Date for such Phase.

25.7Estoppel.  Either party shall, without charge at any time and from time to time, within ten (10) business days after written request by the other party, certify by written instrument, duly executed, acknowledged and delivered to any mortgagee, assignee of a

48

mortgagee, proposed mortgagee, purchaser or proposed purchaser, or any other person dealing with such other party:

(a)That this Lease (and all guaranties, if any) is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect, as modified and stating the modifications);

(b)The dates to which the Base Rent or Additional Rent have been paid in advance.

(c)Whether or not there are then existing any breaches or defaults by such party or the other party known by such party under any of the covenants, conditions, provisions, terms or agreements of this Lease, and specifying such breach or default, if any, or any set-offs or defenses against the enforcement of any covenant, condition, provision, term or agreement of this Lease upon the part of Landlord or Tenant, as the case may be, to be performed or complied with (and, if so, specifying the same and the steps being taken to remedy the same); and

(d)Such other statements or certificates as Landlord or any mortgagee may reasonably request.

It is the intention of the parties hereto that any statement delivered pursuant to this Section 25.7 may be relied upon by any of such parties dealing with Landlord or the Demised Premises.  Failure by Tenant to timely respond to such request shall be deemed Tenant’s certification of the accuracy of such matters.

25.8Delivery of Corporate Documents.  In the event that Tenant is a corporation or similar business entity (e.g., limited partnership, limited liability company or limited liability partnership), Tenant shall, without charge to Landlord, not more than once in any twelve (12) month period or any time during the continuance of an Event of Default, within ten (10) business days after written request by Landlord, deliver to Landlord, in connection with any proposed sale or mortgage of the Demised Premises, the following instruments and documents:

(a)Certificate of Good Standing in the state of incorporation of Tenant and in the state in which the Demised Premises are located issued by the appropriate state authority and bearing a current date;

(b)A copy of Tenant’s articles of incorporation and by-laws (or partnership or operating agreement, as the case may be) and any amendments or modifications thereof certified by the secretary or assistant secretary (or managing partner or member, as the case may be) of Tenant;

(c)A written and certified confirmation from the secretary or assistant secretary (or managing partner or member, as the case may be) that (i) this Lease has been duly authorized by all necessary corporate action and is a valid and binding agreement enforceable in accordance with its terms; and (ii) Tenant is a duly organized and validly existing corporation under the laws of its state of incorporation, is duly authorized to carry on its business, and is in good standing under the laws of the state in which the Demised Premises are located, if different from the state of incorporation.

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25.9Intentionally Omitted.

25.10Severability.  If any covenant, condition, provision, term or agreement of this Lease shall, to any extent, be held invalid or unenforceable, the remaining covenants, conditions, provisions, terms and agreements of this Lease shall not be affected thereby, but each covenant, condition, provisions, term or agreement of this Lease shall be valid and in force to the fullest extent permitted by law.

25.11Successors and Assigns.  The covenants and agreements herein contained shall bind and inure to the benefit of Landlord, its successors and assigns, and Tenant and its permitted successors and assigns.

25.12Captions.  The caption of each article of this Lease is for convenience and reference only, and in no way defines, limits or describes the scope or intent of such article or of this Lease.

25.13Relationship of Parties.  This Lease does not create the relationship of principal and agent, partnership, joint venture,  or any association or relationship between Landlord and Tenant, the sole relationship between Landlord and Tenant being that of landlord and tenant.

25.14Entire Agreement.  All preliminary and contemporaneous negotiations are merged into and incorporated in this Lease.  This Lease, together with the exhibits attached hereto, contains the entire agreement between the parties and shall not be modified or amended in any manner except by any instrument in writing executed by the parties hereto.

25.15No Merger.  There shall be no merger of this Lease or of the leasehold estate created by this Lease with any other estate or interest in the Demised Premises by reason of the fact that the same person, firm, corporation or other entity may acquire, hold or own, directly or indirectly, (a) this Lease or the leasehold interest created by this Lease or any interest therein, and (b) any such other estate or interest in the Demised Premises, or any portion thereof.  No such merger shall occur unless and until all persons, firms, corporations or other entities having an interest (including a security interest) in (1) this Lease or the leasehold estate created thereby, and (2) any such other estate or interest in the Demised Premises, or any portion thereof, shall join in a written instrument expressly affecting such merger and shall duly record the same.

25.16Possession and Use.  Tenant acknowledges that the Demised Premises are the property of Landlord and that Tenant has only the right to possession and use thereof upon the covenants, conditions, provisions, terms and agreements set forth in this Lease.

25.17Surrender of Demised Premises.  Subject to the other provisions of this Lease, at the expiration of the Term of this Lease, Tenant shall surrender the Demised Premises in the same condition as they were in upon delivery of possession thereto at the Commencement Date or applicable Delivery Date, reasonable wear and tear, casualty and condemnation excepted, and shall surrender all keys to the Demised Premises to Landlord at the place then fixed for the payment of Base Rent, and shall inform Landlord of all combinations on locks, safes and vaults, if any.  Tenant shall at such time remove all of its property therefrom and all alterations and improvements placed thereon by Tenant if so requested by Landlord, or otherwise allowed, subject to Sections 19(e) and (f).  Tenant shall repair any damage to the Demised Premises

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caused by such removal, and any and all such property not so removed shall, at Landlord’s option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant’s cost and expense, without further notice to or demand upon Tenant, subject to applicable law and Sections 19(e) and (f).

All property of Tenant not removed on or before the last day of  the Term of this Lease shall be deemed abandoned in accordance with, and subject to, applicable law.

25.18Holding Over.  In the event Tenant remains in possession of the Demised Premises after expiration of this Lease and without the execution of a new lease, it shall be deemed to be occupying the Demised Premises as a tenant from month-to-month, subject to all the provisions, conditions and obligations of this Lease insofar as the same can be applicable to a month-to-month tenancy, except that the Base Rent shall be escalated to one hundred and twenty five percent (125%) of the then current Base Rent for the Demised Premises for the first three (3) months of such tenancy and one hundred and fifty percent (150%) of such amount thereafter, and from and after such three (3) month period, Tenant shall indemnify, defend and hold Landlord harmless against loss or liability resulting from the delay by Tenant in so surrendering the Demised Premises, including without limitation any claim made by any succeeding occupant founded on such delay.  Tenant’s obligation to observe or perform this covenant shall survive the expiration or other termination of this Lease.

25.19Survival.  All obligations of either party (together with interest or money obligations at the Maximum Rate of Interest) accruing prior to expiration of the Term of this Lease shall survive the expiration or other termination of this Lease.

25.20Applicable Law.  This Lease shall be governed and interpreted in accordance with the laws of the State of California.

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25.21Counterparts.  This Lease may be executed in one or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute a single instrument.

IN WITNESS WHEREOF, each of the parties hereto have caused this Lease to be duly executed as of the day and year first above-written.

LANDLORD:
SORRENTO WATERIDGE PARTNERS, L.P.,
a California limited partnership
By:	Allen Development of Southern
	California, LLC, a Delaware limited
	liability company, General Partner
	By:			/s/ Richard S. Allen
					Richard S. Allen,
					Chief Executive Officer
	By:			/s/ Kevin A. Noell
					Kevin A. Noell,
					President
TENANT:
AMERICAN RESIDENTIAL INVESTMENT
TRUST, INC., a Maryland  corporation
By:	/s/ Jay M. Fuller
Name:			Jay M. Fuller
Title:		President
By:	/s/ Clay Strattmatter
Name:			Clay Strattmatter
Title:		V.P. Finance

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EXHIBIT “A”

LEGAL DESCRIPTION OF LAND

A-1

EXHIBIT “B”

SITE PLAN

[TO BE ATTACHED]

B-1

EXHIBIT “C”

PROPOSED SPACE PLAN

C-1

EXHIBIT “D”

INTENTIONALLY OMITTED

D-1

EXHIBIT “E”

TENANT’S SIGNAGE PLANS

E-1

SECOND AMENDMENT TO LEASE

This SECOND AMENDMENT TO LEASE (“Amendment”) is entered into as of December 4, 2002, by and between SORRENTO WATERIDGE PARTNERS, L.P., a California limited partnership (“Landlord”) and AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., a Maryland corporation (“Tenant”), with reference to the following facts:

R E C I T A L S :

A.Landlord and Tenant entered into that certain Lease dated September 2001 (the “Lease”), as amended by a First Amendment thereto dated November 29, 2001 (the “First Amendment”), for certain premises located with the project commonly known as “Wateridge Technology Center” (the “Demised Premises”), as more particularly described in the Lease. Capitalized terms used in this Amendment and not otherwise defined herein shall have meaning ascribed to them in the Lease.

B.In accordance with Section 2.4 of the Lease (as set forth in the First Amendment), Tenant has delivered the Expansion Notice relating to Tenant’s right to expand into and lease the Infogate Premises.  Landlord and Tenant now desire to amend the Lease to confirm and document the revisions thereto resulting from the Expansion Notice.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease as follows:

1.Expansion of Demised Premises.  Commencing on December 1, 2002 (the “Expanded Premises Commencement Date”), the Demised Premises shall be the 23,985 rentable square feet originally demised under the Lease, plus Suite 200 in the Southern Building, consisting of 8,089 rentable square feet (the “Expanded Premises”) (for a total of 32,074 rentable square feet), plus Tenant’s non-exclusive rights to use the Common Areas, as more particularly provided in the Lease.  Landlord shall be responsible for causing Infogate to vacate the Expanded Premises, and shall deliver the Expanded Premises to Tenant in a vacant, broom-clean condition on the Expanded Premises Commencement Date.

2.Base Rent.  The Base Rent for the Expanded Premises shall initially be $1,803 per rentable square foot.  On December 14, 2002, and every twelve (12) months thereafter during the Initial Term, the then-applicable Base Rent shall be increased by a factor of three percent (3%).  Base Rent for the Expanded Premises during the Option Term shall be as set forth in Section 3.2 of the Lease.

3.Operating Expenses; Tenant’s Parking.  As of the Expanded Premises Commencement Date, Tenant’s Percentage and Tenant’s parking privileges shall be recalculated to reflect the increased size of the Demised Premises.  The “Base Year” for the Expanded Premises shall be the calendar year 2002.

4.Commencement Date.  Landlord and Tenant hereby acknowledge that the Commencement Date of the Lease occurred on December 14, 2001.

5.Counterparts.  This Amendment may be executed in multiple counterparts, all of which together shall constitute one and the same Amendment.

6.Effect of Amendment.  This Amendment and all terms herein are effective as of the date hereof subject to the terms and conditions set forth herein.  Except as expressly amended hereby, all terms and conditions of the Lease shall continue in full force and effect throughout the Lease Term.  The Lease, as amended hereby and by the First Amendment, constitutes the entire agreement of the parties and no further modification of the Lease shall be binding or effective unless evidenced by an amendment in writing, signed by both Landlord and Tenant.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the date first written above.

“Landlord”	SORRENTO WATERIDGE PARTNERS, L.P., a California limited partnership
	By:	Allen Development of Southern California LLC, a Delaware limited liability company, its General Partner
		By:	/s/ Kevin A. Noell
		Name:  Kevin A. Noell
		Title:  President
“Tenant”	AMERICAN RESIDENTIAL INVESTMENT TRUST, INC., a Maryland corporation
	By:	/s/ Judith A. Berry
	Name:	Judith A. Berry
	Title:	Executive Vice President
	By:	/s/ Clay Strittmatter
	Name:	Clay Strittmatter
	Title:	SENIOR VICE PRESIDENT

2

EX-10.21

Exhibit 10.21

EXECUTIVE EMPLOYMENT AGREEMENT

This Executive Employment Agreement (“Agreement”) is made effective as of January 1, 2003 (“Effective Date”), by and between American Mortgage Network, Inc., a Delaware corporation, and a subsidiary of American Residential Investment Trust, Inc., a Maryland corporation (“Company”) and Lisa Faulk (“Executive”).

The parties agree as follows:

1.Employment.  Company hereby employs Executive, and Executive hereby accepts such employment, upon the terms and conditions set forth herein.

2.Duties.

2.1Position.  Executive is employed as Executive Vice President, Operations and shall have the duties and responsibilities assigned by Company both upon initial hire and as may be reasonably assigned from time to time.  Executive shall perform faithfully and diligently all duties assigned to Executive.  Company reserves the right to modify Executive’s position and duties at any time in its sole and absolute discretion, provided that the duties assigned are consistent with the position of a senior executive and that Executive continues to report to the Chief Executive Officer (“CEO”).

2.2Best Efforts/Full-time.  Executive will expend Executive’s best efforts on behalf of Company, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances.  Executive will act in the best interest of Company at all times.  Executive shall devote Executive’s full business time and efforts to the performance of Executive’s assigned duties for Company, unless Executive notifies the Company’s CEO in advance of Executive’s intent to engage in other paid work and receives the CEO’s express written consent to do so.

2.3Work Location.  Executive’s principal place of work shall be located at 12041 Wateridge Circle, San Diego, California, or such other location as the parties may agree upon from time to time.

3.Term.  The employment relationship pursuant to this Agreement shall be for a term commencing on the Effective Date set forth above and continuing for a period of one year following such date, unless sooner terminated in accordance with paragraph 7 below.

4.Compensation.

4.1Base Salary.  As compensation for Executive’s performance of Executive’s duties hereunder, Company shall pay to Executive an initial Base Salary of Two Hundred Thousand Seventy-Seven Dollars and Sixty-Seven Cents ($200,077.67) per year, payable in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions.  In the event Executive’s employment under this Agreement is terminated by either party, for any reason, Executive will earn the Base Salary prorated to the date of termination.

4.2Bonus.  Executive will be eligible to earn a bonus of up to 100 percent of Executive’s Base Salary based on achievement of targeted goals and objectives, including net

income, established by management and approved by the Company’s Board of Directors (“Board of Directors”).

4.3Performance and Salary Review.  Company will periodically review Executive’s performance.  Adjustments to salary or other compensation, if any, will be made by Company in its sole and absolute discretion.

5.Customary Fringe Benefits.  Executive will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company’s benefit plan documents.  In addition, Executive shall be eligible to accrue 27 days of Paid Time Off (“PTO”) per year and receive reimbursement of up to $2000 per year for a physical examination.  Company reserves the right to change or eliminate the fringe benefits on a prospective basis, at any time, effective upon notice to Executive.

6.Business Expenses.  Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of Executive’s duties on behalf of Company.  To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company’s policies.

7.Termination of Executive’s Employment.

7.1Termination for Cause by Company.  Although Company anticipates a mutually rewarding employment relationship with Executive, Company may terminate Executive’s employment immediately at any time for Cause.  For purposes of this Agreement, “Cause” is defined as: (i) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Executive with respect to Executive’s obligations or otherwise relating to the business of Company; (ii) Executive’s material breach of this Agreement or Company’s Confidentiality Agreement; (iii) Executive’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; (iv) Executive’s willful neglect of duties as determined in the sole and exclusive discretion of the Board of Directors; or (v) Executive’s chemical dependence, as certified by a licensed physician, resulting in impairment of Executive’s abilities to perform her duties hereunder or substantial damage to the reputation of Company.  Notwithstanding the foregoing, the termination of Executive’s employment shall not constitute termination for Cause unless Company first provides Executive with written notice of the breach and Executive fails to cure the breach (if possible) within 30 days of the notice.  During this 30 day notice period, Executive shall be afforded the opportunity to make a presentation to the Board of Directors regarding the matters referred to in the notice of breach.  In the event Executive’s employment is terminated in accordance with this subparagraph 7.1, Executive shall be entitled to receive only the Base Salary then in effect and any amounts payable pursuant to paragraphs 5 and 6, prorated to the date of termination (“Standard Entitlements”).  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 below.

7.2Termination Without Cause by Company/Severance.  Company may terminate Executive’s employment under this Agreement without Cause at any time on 30 days’advance written notice to Executive.  In the event of such termination, Executive will receive the Standard Entitlements and will be eligible to receive a “Severance Package” as described in subparagraph (a) below, provided Executive complies with all the conditions set forth in

2

subparagraph (b) below.  All other Company obligations to Executive will be automatically terminated and completely extinguished.

(a)Severance Package.  The Severance Package will consist of the following:

(i)Severance Payment.  Executive will receive a Severance Payment equivalent to one year of Executive’s Base Salary then in effect on the date of termination, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in accordance with Company’s regular payroll cycle.

(ii)Bonus Payment.  Executive will receive a Bonus Payment equivalent to the amount of Executive’s bonus for the immediately preceding year, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in a lump sum payment within three months of the date of termination.

(iii)Continuation of Group Health Benefits.  Executive will continue to receive group health insurance benefits on the same terms as during Executive’s employment for one year following the date of termination, provided Company’s insurance carrier allows for such benefits continuation.  In the eventCompany’s insurance carrier does not allow such coverage continuation,Companyagrees to pay the premiums required to continue Executive’s group health care coverage for the one-year period, under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), provided that Executive elects to continue and remains eligible for these benefits under COBRA, and does not obtain health coverage through another employer during this period.

(b)Conditions to Receive Severance Package.  Executive will be eligible for the Severance Package provided that Executive: (a) complies with all surviving provisions of this Agreement as specified in subparagraph 14.8 below; and (b) executes a full general release, releasing all claims, known or unknown, that Executive may have against Company arising out of or any way related to Executive’s employment or termination of employment with Company.  All other Company obligations to Executive will be automatically terminated and completely extinguished.

7.3Voluntary Resignation by Executive for Good Reason/Severance.  Executive may voluntarily resign Executive’s position with Company for Good Reason at any time on 30 days’advance written notice to Company.  Executive will be deemed to have resigned for Good Reason if resignation is made within six (6) months following the occurrence of any of the following circumstances:  (i) Company’s material breach of this Agreement; (ii) Executive’s Base Salary is reduced by more than 10% below Executive’s salary as provided for in this Agreement, unless the reduction is due to a voluntary change of Executive’s responsibilities; (iii) Executive’s position and/or duties are modified so that Executive’s duties are no longer consistent with the position of a senior executive or Executive no longer reports to the CEO; or (iv) Company relocates Executive’s principal place of work to a location more than thirty (30) miles from the location specified in subparagraph 2.3, without Executive’s prior written approval.  Notwithstanding the foregoing, the termination of Executive’s employment under this subparagraph 7.3 shall not constitute voluntary resignation for Good

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Reason unless Executive first provides Company with written notice of the breach and Company fails to cure the breach (if possible) within 30 days of the notice.  In the event of Executive’s resignation for Good Reason, Executive will be entitled to receive the Standard Entitlements and the Severance Package described in subparagraph 7.2(a) above, provided Executive complies with all of the conditions in subparagraph 7.2(b) above.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.

7.4Voluntary Resignation by Executive Without Good Reason.  Executive may voluntarily resign Executive’s position with Company Without Good Reason at any time on 30 days’ advance written notice.  In the event of Executive’s resignation Without Good Reason, Executive will be entitled to receive only the Standard Entitlements and no other amount.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  In addition, Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

7.5Termination Upon Death.  Executive’s employment will terminate immediately on Executive’s death.  In the event of such termination, Company shall provide a death benefit equal to: (i) Executive’s Base Salary then in effect, prorated for the current year to the date of Executive’s death; (ii) an amount equal to the bonus paid to Executive the previous year, prorated for the current year to the date of Executive’s death; and (iii) any amounts payable pursuant to paragraphs 5 and 6 that at the date of Executive’s death, are accrued but unpaid (collectively “Death Benefit”).  The Death Benefit shall be made in a lump sum payment within 90 days of Executive’s death to such person as Executive shall designate in a notice filed with Company or, if no such notice is filed, the Death Benefit shall be paid to Executive’s estate.

7.6Termination Upon Disability.  Executive’s employment may be terminated by Company as a result of Executive’s inability to perform the essential functions of Executive’s position, with or without reasonable accommodation, if required by law, due to a mental or physical disability.  In no event will Executive’s employment be terminated pursuant to this subparagraph 7.6 until 180 consecutive days of paid leave have elapsed and Company has provided 30 days’ written notice in advance of termination.  In the event of termination pursuant to this subparagraph 7.6, Executive shall be entitled to receive only the Standard Entitlements.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

7.7Termination Upon Expiration of Agreement.  If Executive’s employment is not terminated in accordance with subparagraphs 7.1-7.6, this Agreement will expire exactly one year from the Effective Date.  In the event of expiration of this Agreement, Executive shall be entitled to receive only the Standard Entitlements earned through the date of expiration.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

8.Consultant After Termination.  In the event Executive’s employment is terminated pursuant to subparagraphs 7.1, 7.4 or 7.7, Executive agrees to act as a consultant for Company, if requested to do so by Company.  Executive will be paid a fixed monthly fee equal to 25 percent of Executive’s monthly base salary in effect at the time of termination for up tosix (6) months following the termination of the employment relationship (“Consultant Payments”).  Consultant Payments shall be made in arrears on or before the last business day of each month during which Executive has acted as a consultant.  Company may elect, in its sole and absolute discretion, to terminate the Consultant Payments at any time upon 10 days’ advance written notice to Executive.

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9.No Conflict of Interest.  During the term of Executive’s employment with Company and during any period Executive is receiving payments from Company pursuant to this Agreement, Executive must not engage in any work, paid or unpaid, that creates an actual conflict of interest with Company.  Such work shall include, but is not limited to, directly competing with Company in any way, or acting as an officer, director, employee, consultant, stockholder, volunteer, lender, or agent of any business enterprise of the same nature as, or which is in direct competition with, the business in which Company is now engaged or in which Company becomes engaged during the term of Executive’s employment with Company, as may be determined by the Board of Directors in its sole discretion.  If the Board of Directors believes such a conflict exists during the term of this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or resign employment with Company.  If the Board of Directors believes such a conflict exists during any period in which Executive is receiving payments pursuant to this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or forego the remaining payments.  In addition, Executive agrees not to refer any client or potential client of Company to competitors of Company, without obtaining Company’s prior written consent, during the term of Executive’s employment and during any period in which Executive is receiving payments from Company pursuant to this Agreement.  Notwithstanding the foregoing, Executive may work or perform services for Company and its affiliates or a financial institution or similar entity that is involved in the mortgage business so long as such entity is not engaged primarily in managing real estate investment trusts or originating and/or selling mortgages, and Executive may own securities in any publicly held corporation, but only to the extent Executive does not own of record or beneficially more than 1 percent of the outstanding beneficial ownership of such corporation.

10.Confidentiality Agreement and Return of Company Property.  Executive agrees to read, sign and abide by Company’s Confidentiality Agreement, which is provided with this Agreement and incorporated herein by reference.  Executive further agrees that upon termination or expiration of Executive’s employment, Executive will return all Company property, including all confidential and proprietary information as described in the Confidentiality Agreement, all materials and documents containing trade secrets and copyrighted materials, all correspondence, management studies and any other materials or data relating to or connected with Executive’s employment, including all copies and excerpts of the same.

11.Indemnification.  Company agrees to defend and indemnify Executive to the fullest extent provided by California Labor Code section 2802 and/or Company’s Directors’ and Officers’ liability insurance policy.

12.Injunctive Relief.  Executive acknowledges that Executive’s breach of the covenants contained in paragraphs 9-7.2 (collectively “Covenants”) would cause irreparable injury to Company and agrees that in the event of any such breach, Company shall be entitled to seek temporary, preliminary and permanent injunctive relief without the necessity of proving actual damages or posting any bond or other security.

13.Agreement to Arbitrate.  To the fullest extent permitted by law, Executive and Company agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, the employment relationship between Company and Executive and any disputes upon termination of employment, including but not limited to breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law.  By executing this Agreement, Executive and Company are both waiving the right

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to a jury trial with respect to any such disputes.  For the purpose of this agreement to arbitrate, references to “Company” include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this agreement shall apply to them to the extent Executive’s claims arise out of or relate to their actions on behalf of Company.

13.1Consideration.  The mutual promise by Company and Executive to arbitrate any and all disputes between them rather than litigate them before the courts or other bodies, provides the consideration for this agreement to arbitrate.

13.2Initiation of Arbitration.  Either party may exercise the right to arbitrate by providing the other party with written notice of any and all claims forming the basis of such right in sufficient detail to inform the other party of the substance of such claims.  In no event shall the request for arbitration be made after the date when institution of legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations.

13.3Arbitration Procedure.  The arbitration will be conducted in San Diego, California by a single neutral arbitrator and in accordance with the then current rules for resolution of employment disputes of the American Arbitration Association (“AAA”).  The parties are entitled to representation by an attorney or other representative of their choosing.  The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California, and only such power, and shall follow the law.  The parties agree to abide by and perform any award rendered by the arbitrator.  The arbitrator shall issue the award in writing and therein state the essential findings and conclusions on which the award is based.  Judgment on the award may be entered in any court having jurisdiction thereof.

13.4Costs of Arbitration.  Company shall bear the costs of the arbitrator, forum and filing fees.

14.General Provisions.

14.1Successors and Assigns.  The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company.  Executive shall not be entitled to assign any of Executive’s rights or obligations under this Agreement.

14.2Waiver.  Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.

14.3Attorneys’ Fees.  Each side will bear its own attorneys’ fees in any dispute unless a statutory section at issue, if any, authorizes the award of attorneys’ fees to the prevailing party.

14.4Severability.  In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law.  If a deemed modification is not satisfactory in the judgment of such arbitrator

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or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

14.5Interpretation; Construction.  The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement.  This Agreement has been drafted by legal counsel representing Company, but Executive has participated in the negotiation of its terms.  Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

14.6Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California.  Each party consents to the jurisdiction and venue of the state or federal courts in San Diego,California, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement.

14.7Notices.  Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated:  (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt.  Notice shall be sent to the addresses set forth below, or such other address as either party may specify in writing.

14.8Survival.  Sections 9 (“No Conflict of Interest”), 7.2 (“Confidentiality Agreement”), 12 (“Injunctive Relief”), 13 (“Agreement to Arbitrate”), 13 (“General Provisions”) and 15 (“Entire Agreement”) of this Agreement shall survive Executive’s employment by Company.

THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK

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15.Entire Agreement.  This Agreement, including the Company’s Confidentiality Agreement incorporated herein by reference, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.  This Agreement may be amended or modified only with the written consent of Executive and the CEO of Company.  No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

		Lisa Faulk
Dated:	3/31/03	/s/ Lisa Faulk
		American Mortgage Network, Inc.
Dated:	3/31/03	By:	/s/ John Robbins
		John Robbins
		Chief Executive Officer
		10421 Wateridge Circle, Ste. 250
		San Diego, CA 92121

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EX-10.22

Exhibit 10.22

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”) is made effective as of January 1, 2003(“Effective Date”), by and between American Mortgage Network, Inc., a Delaware corporation, and a subsidiary of American Residential Investment Trust, Inc., a Maryland corporation (“Company”) and John Robbins (“Executive”).

WHEREAS Executive and Company entered into an Employment Agreement dated February 11, 2002 (the “Original Agreement”);

WHEREAS the Original Agreement expired on February 10, 2003; and

WHEREAS, Executive and Company each desire to amend and restate the Original Agreement as set forth below.

NOW, THEREFORE, in consideration of the promises and respective covenants and agreements of the parties herein contained, Executive and Company agree as follows:

1.Employment.  Company hereby employs Executive, and Executive hereby accepts such employment, upon the terms and conditions set forth herein.

2.Duties.

2.1Position.  Executive is employed as Chief Executive Officer and Chairman of the Board of Directors and shall have the duties and responsibilities assigned by Company’s Board of Directors (“Board of Directors”) both upon initial hire and as may be reasonably assigned from time to time.  Executive shall perform faithfully and diligently all duties assigned to Executive.  Company reserves the right to modify Executive’s position and duties at any time in its sole and absolute discretion, provided that the duties assigned are consistent with the position of a senior executive and that Executive continues to report to the Board of Directors.

2.2Best Efforts/Full-time.  Executive will expend Executive’s best efforts on behalf of Company, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances.  Executive will act in the best interest of Company at all times.  Executive shall devote Executive’s full business time and efforts to the performance of Executive’s assigned duties for Company, unless Executive notifies the Board of Directors in advance of Executive’s intent to engage in other paid work and receives the Board of Directors’ express written consent to do so.

2.3Work Location.  Executive’s principal place of work shall be located at 10421 Wateridge Circle, San Diego, California, or such other location as the parties may agree upon from time to time.

3.Term.     The employment relationship pursuant to this Agreement shall be for a term commencing on the Effective Date set forth above and continuing for a period of one year following such date, unless sooner terminated in accordance with paragraph 7 below.

4.Compensation.

4.1Base Salary.  As compensation for Executive’s performance of Executive’s duties hereunder, Company shall pay to Executive an initial Base Salary of Four Hundred Forty-

Six Thousand One Hundred Fifty-Six Dollars and Eighty Cents ($446,156.80) per year, payable in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions.  In the event Executive’s employment under this Agreement is terminated by either party, for any reason, Executive will earn the Base Salary prorated to the date of termination.

4.2Bonus.  Executive will be eligible to earn a bonus of up to 100 percent of Executive’s Base Salary based on achievement of targeted goals and objectives, including net income, established by management and approved by the Board of Directors.

4.3Performance and Salary Review.  The Board of Directors will periodically review Executive’s performance.  Adjustments to salary or other compensation, if any, will be made by the Board of Directors in its sole and absolute discretion.

5.Fringe Benefits.  Executive will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company’s benefit plan documents.  In addition, Executive shall be eligible to accrue 27 days of Paid Time Off (“PTO”) per year and receive reimbursement of up to $2000 per year for a physical examination.  Company reserves the right to change or eliminate the fringe benefits on a prospective basis, at any time, effective upon notice to Executive.

6.Business Expenses.  Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of Executive’s duties on behalf of Company.  To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company’s policies.

7.Termination of Executive’s Employment.

7.1Termination for Cause by Company.  Although Company anticipates a mutually rewarding employment relationship with Executive, Company may terminate Executive’s employment immediately at any time for Cause.  For purposes of this Agreement, “Cause” is defined as: (i) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Executive with respect to Executive’s obligations or otherwise relating to the business of Company; (ii) Executive’s material breach of this Agreement or Company’s Confidentiality Agreement; (iii) Executive’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; (iv) Executive’s willful neglect of duties as determined in the sole and exclusive discretion of the Board of Directors; or (v) Executive’s chemical dependence, as certified by a licensed physician, resulting in impairment of Executive’s abilities to perform his duties hereunder or substantial damage to the reputation of Company.  Notwithstanding the foregoing, the termination of Executive’s employment shall not constitute termination for Cause unless Company first provides Executive with written notice of the breach and Executive fails to cure the breach (if possible) within 30 days of the notice.  During this 30 day notice period, Executive shall be afforded the opportunity to make a presentation to the Board of Directors regarding the matters referred to in the notice of breach.In the event Executive’s employment is terminated in accordance with this subparagraph 7.1, Executive shall be entitled to receive only the Base Salary then in effect and any amounts payable pursuant to paragraphs 5 and 6, prorated to the date of termination (“Standard Entitlements”).  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 below.

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7.2Termination Without Cause by Company/Severance.  Company may terminate Executive’s employment under this Agreement without Cause at any time on 30 days’advance written notice to Executive.  In the event of such termination, Executive will receive the Standard Entitlements and will be eligible to receive a “Severance Package” as described in subparagraph (a) below, provided Executive complies with all the conditions set forth in subparagraph (b) below.  All other Company obligations to Executive will be automatically terminated and completely extinguished.

(a)Severance Package.  The Severance Package will consist of the following:

(i)Severance Payment.  Executive will receive a Severance Payment equivalent to one year of Executive’s Base Salary then in effect on the date of termination, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in accordance with Company’s regular payroll cycle.

(ii)Bonus Payment.  Executive will receive a Bonus Payment equivalent to the amount of Executive’s bonus for the immediately preceding year, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in a lump sum payment within three months of the date of termination.

(iii)Continuation of Group Health Benefits.  Executive will continue to receive group health insurance benefits on the same terms as during Executive’s employment for one year following the date of termination, provided Company’s insurance carrier allows for such benefits continuation.  In the eventCompany’s insurance carrier does not allow such coverage continuation,Companyagrees to pay the premiums required to continue Executive’s group health care coverage for the one-year period, under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), provided that Executive elects to continue and remains eligible for these benefits under COBRA, and does not obtain health coverage through another employer during this period.

(b)Conditions to Receive Severance Package.  Executive will be eligible for the Severance Package provided that Executive: (a) complies with all surviving provisions of this Agreement as specified in subparagraph 14.8 below; and (b) executes a full general release, releasing all claims, known or unknown, that Executive may have against Company arising out of or any way related to Executive’s employment or termination of employment with Company.  All other Company obligations to Executive will be automatically terminated and completely extinguished.

7.3Voluntary Resignation by Executive for Good Reason/Severance.  Executive may voluntarily resign Executive’s position with Company for Good Reason at any time on 30 days’advance written notice to Company.  Executive will be deemed to have resigned for Good Reason if resignation is made within six (6) months following the occurrence of any of the following circumstances:  (i) Company’s material breach of this Agreement; (ii) Executive’s Base Salary is reduced by more than 10% below Executive’s salary as provided for in this Agreement, unless the reduction is due to a voluntary change of Executive’s responsibilities; (iii) Executive’s position and/or duties are modified so that Executive’s duties are no longer consistent with the position of a senior executive or Executive no longer reports to the Board of Directors; or (iv) Company relocates Executive’s principal place of work to a location more than thirty (30) miles

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from the location specified in subparagraph 2.3, without Executive’s prior written approval.  Notwithstanding the foregoing, the termination of Executive’s employment under this subparagraph 7.3 shall not constitute voluntary resignation for Good Reason unless Executive first provides Company with written notice of the breach and Company fails to cure the breach (if possible) within 30 days of the notice.  In the event of Executive’s resignation for Good Reason, Executive will be entitled to receive the Standard Entitlements and the Severance Package described in subparagraph 7.2(a) above, provided Executive complies with all of the conditions in subparagraph 7.2(b) above.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.

7.4Voluntary Resignation by Executive Without Good Reason.  Executive may voluntarily resign Executive’s position with Company Without Good Reason at any time on 30 days’ advance written notice.  In the event of Executive’s resignation Without Good Reason, Executive will be entitled to receive only the Standard Entitlements and no other amount.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  In addition, Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

7.5Termination Upon Death.  Executive’s employment will terminate immediately on Executive’s death.  In the event of such termination, Company shall provide a death benefit equal to: (i) Executive’s Base Salary then in effect, prorated for the current year to the date of Executive’s death; (ii) an amount equal to the bonus paid to Executive the previous year, prorated for the current year to the date of Executive’s death; and (iii) any amounts payable pursuant to paragraphs 5 and 6 that at the date of Executive’s death, are accrued but unpaid (collectively “Death Benefit”).  The Death Benefit shall be made in a lump sum payment within 90 days of Executive’s death to such person as Executive shall designate in a notice filed with Company or, if no such notice is filed, the Death Benefit shall be paid to Executive’s estate.

7.6Termination Upon Disability.  Executive’s employment may be terminated by Company as a result of Executive’s inability to perform the essential functions of Executive’s position, with or without reasonable accommodation, if required by law, due to a mental or physical disability.  In no event will Executive’s employment be terminated pursuant to this subparagraph 7.6 until 180 consecutive days of paid leave have elapsed and Company has provided 30 days’ written notice in advance of termination.  In the event of termination pursuant to this subparagraph 7.6, Executive shall be entitled to receive only the Standard Entitlements.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

7.7Termination Upon Expiration of Agreement.  If Executive’s employment is not terminated in accordance with subparagraphs 7.1-7.6, this Agreement will expire exactly one year from the Effective Date.  In the event of expiration of this Agreement, Executive shall be entitled to receive only the Standard Entitlements earned through the date of expiration.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

8.Consultant After Termination.  In the event Executive’s employment is terminated pursuant to subparagraphs 7.1, 7.4 or 7.7, Executive agrees to act as a consultant for Company, if requested to do so by Company.  Executive will be paid a fixed monthly fee equal to 25 percent of Executive’s monthly base salary in effect at the time of termination for up tosix (6) months

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following the termination of the employment relationship (“Consultant Payments”).  Consultant Payments shall be made in arrears on or before the last business day of each month during which Executive has acted as a consultant.  Company may elect, in its sole and absolute discretion, to terminate the Consultant Payments at any time upon 10 days’ advance written notice to Executive.

9.No Conflict of Interest.  During the term of Executive’s employment with Company and during any period Executive is receiving payments from Company pursuant to this Agreement, Executive must not engage in any work, paid or unpaid, that creates an actual conflict of interest with Company.  Such work shall include, but is not limited to, directly competing with Company in any way, or acting as an officer, director, employee, consultant, stockholder, volunteer, lender, or agent of any business enterprise of the same nature as, or which is in direct competition with, the business in which Company is now engaged or in which Company becomes engaged during the term of Executive’s employment with Company, as may be determined by the Board of Directors in its sole discretion.  If the Board of Directors believes such a conflict exists during the term of this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or resign employment with Company.  If the Board of Directors believes such a conflict exists during any period in which Executive is receiving payments pursuant to this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or forego the remaining payments.  In addition, Executive agrees not to refer any client or potential client of Company to competitors of Company, without obtaining Company’s prior written consent, during the term of Executive’s employment and during any period in which Executive is receiving payments from Company pursuant to this Agreement.  Notwithstanding the foregoing, Executive may work or perform services for Company and its affiliates or a financial institution or similar entity that is involved in the mortgage business so long as such entity is not engaged primarily in managing real estate investment trusts or originating and/or selling mortgages, and Executive may own securities in any publicly held corporation, but only to the extent Executive does not own of record or beneficially more than 1 percent of the outstanding beneficial ownership of such corporation.

10.Confidentiality Agreement and Return of Company Property.  Executive agrees to abide by Company’s Confidentiality Agreement that Executive read and signed in connection with Executive’s employment by Company, which is incorporated herein by reference.  Executive further agrees that upon termination or expiration of Executive’s employment, Executive will return all Company property, including all confidential and proprietary information as described in the Confidentiality Agreement, all materials and documents containing trade secrets and copyrighted materials, all correspondence, management studies and any other materials or data relating to or connected with Executive’s employment, including all copies and excerpts of the same.

11.Indemnification.  Company agrees to defend and indemnify Executive to the fullest extent provided by California Labor Code section 2802 and/or Company’s Directors’ and Officers’ liability insurance policy.

12.Injunctive Relief.  Executive acknowledges that Executive’s breach of the covenants contained in paragraphs 9-10 (collectively “Covenants”) would cause irreparable injury to Company and agrees that in the event of any such breach, Company shall be entitled to seek temporary, preliminary and permanent injunctive relief without the necessity of proving actual damages or posting any bond or other security.

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13.Agreement to Arbitrate.  To the fullest extent permitted by law, Executive and Company agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, the employment relationship between Company and Executive and any disputes upon termination of employment, including but not limited to breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law.  By executing this Agreement, Executive and Company are both waiving the right to a jury trial with respect to any such disputes.  For the purpose of this agreement to arbitrate, references to “Company” include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this agreement shall apply to them to the extent Executive’s claims arise out of or relate to their actions on behalf of Company.

13.1Consideration.  The mutual promise by Company and Executive to arbitrate any and all disputes between them rather than litigate them before the courts or other bodies, provides the consideration for this agreement to arbitrate.

13.2Initiation of Arbitration.  Either party may exercise the right to arbitrate by providing the other party with written notice of any and all claims forming the basis of such right in sufficient detail to inform the other party of the substance of such claims.  In no event shall the request for arbitration be made after the date when institution of legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations.

13.3Arbitration Procedure.  The arbitration will be conducted in San Diego, California by a single neutral arbitrator and in accordance with the then current rules for resolution of employment disputes of the American Arbitration Association (“AAA”).  The parties are entitled to representation by an attorney or other representative of their choosing.  The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California, and only such power, and shall follow the law.  The parties agree to abide by and perform any award rendered by the arbitrator.  The arbitrator shall issue the award in writing and therein state the essential findings and conclusions on which the award is based.  Judgment on the award may be entered in any court having jurisdiction thereof.

13.4Costs of Arbitration.  Company shall bear the costs of the arbitrator, forum and filing fees.

14.General Provisions.

14.1Successors and Assigns.  The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company.  Executive shall not be entitled to assign any of Executive’s rights or obligations under this Agreement.

14.2Waiver.  Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.

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14.3Attorneys’ Fees.  Each side will bear its own attorneys’ fees in any dispute unless a statutory section at issue, if any, authorizes the award of attorneys’ fees to the prevailing party.

14.4Severability.  In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law.  If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

14.5Interpretation; Construction.  The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement.  This Agreement has been drafted by legal counsel representing Company, but Executive has participated in the negotiation of its terms.  Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

14.6Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California.  Each party consents to the jurisdiction and venue of the state or federal courts in San Diego,California, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement.

14.7Notices.  Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated:  (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt.  Notice shall be sent to the addresses set forth below, or such other address as either party may specify in writing.

14.8Survival.  Sections 9 (“No Conflict of Interest”), 10 (“Confidentiality Agreement”), 12 (“Injunctive Relief”), 13 (“Agreement to Arbitrate”), 14 (“General Provisions”) and 15 (“Entire Agreement”) of this Agreement shall survive Executive’s employment by Company.

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15.Entire Agreement.  This Agreement, including the Company’s Confidentiality Agreement incorporated herein by reference, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.  This Agreement may be amended or modified only with the written consent of Executive and the Board of Directors of Company.  No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

		John Robbins
Dated:	4/7/03	/s/ John Robbins
		American Mortgage Network, Inc.
Dated:	4/7/03	By:	/s/ Mark Riedy
		Mark Riedy
		Chairman, Compensation Committee
		10421 Wateridge Circle, Ste. 250
		San Diego, CA 92121

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EX-10.23

Exhibit 10.23

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”) is made effective as of January 1, 2003(“Effective Date”), by and between American Mortgage Network, Inc., a Delaware corporation, and a subsidiary of American Residential Investment Trust, Inc., a Maryland corporation (“Company”) and Judith Berry (“Executive”).

WHEREAS Executive and Company entered into an Employment Agreement dated December 14, 2001 (the “Original Agreement”);

WHEREAS the Original Agreement expired on December 13, 2002; and

WHEREAS, Executive and Company each desire to amend and restate the Original Agreement as set forth below.

NOW, THEREFORE, in consideration of the promises and respective covenants and agreements of the parties herein contained, Executive and Company agree as follows:

1.Employment.  Company hereby employs Executive, and Executive hereby accepts such employment, upon the terms and conditions set forth herein.

2.Duties.

2.1Position.  Executive is employed as Executive Vice President and Chief Financial Officer and shall have the duties and responsibilities assigned by Company both upon initial hire and as may be reasonably assigned from time to time.  Executive shall perform faithfully and diligently all duties assigned to Executive.  Company reserves the right to modify Executive’s position and duties at any time in its sole and absolute discretion, provided that the duties assigned are consistent with the position of a senior executive and that Executive continues to report to the Chief Executive Officer (“CEO”).

2.2Best Efforts/Full-time.  Executive will expend Executive’s best efforts on behalf of Company, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances.  Executive will act in the best interest of Company at all times.  Executive shall devote Executive’s full business time and efforts to the performance of Executive’s assigned duties for Company, unless Executive notifies the Company’s CEO in advance of Executive’s intent to engage in other paid work and receives the CEO’s express written consent to do so.

2.3Work Location.  Executive’s principal place of work shall be located at 12041 Wateridge Circle, San Diego, California, or such other location as the parties may agree upon from time to time.

3.Term.  The employment relationship pursuant to this Agreement shall be for a term commencing on the Effective Date set forth above and continuing for a period of one year following such date, unless sooner terminated in accordance with paragraph 7 below.

4.Compensation.

4.1Base Salary.  As compensation for Executive’s performance of Executive’s duties hereunder, Company shall pay to Executive an initial Base Salary of

Two Hundred Fifty-Five Thousand One Hundred Fifty Dollars ($255,150.00) per year, payable in accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions.  In the event Executive’s employment under this Agreement is terminated by either party, for any reason, Executive will earn the Base Salary prorated to the date of termination.

4.2Bonus.  Executive will be eligible to earn a bonus of up to 100 percent of Executive’s Base Salary based on achievement of targeted goals and objectives, including net income, established by management and approved by the Company’s Board of Directors (“Board of Directors”). 

4.3Performance and Salary Review.  Company will periodically review Executive’s performance.  Adjustments to salary or other compensation, if any, will be made by Company in its sole and absolute discretion.

5.Fringe Benefits.  Executive will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company’s benefit plan documents.  In addition, Executive shall be eligible to accrue 27 days of Paid Time Off (“PTO”) per year and receive reimbursement of up to $2000 per year for a physical examination.  Company reserves the right to change or eliminate the fringe benefits on a prospective basis, at any time, effective upon notice to Executive.

6.Business Expenses.  Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of Executive’s duties on behalf of Company.  To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company’s policies.

7.Termination of Executive’s Employment. 

7.1Termination for Cause by Company.  Although Company anticipates a mutually rewarding employment relationship with Executive, Company may terminate Executive’s employment immediately at any time for Cause.  For purposes of this Agreement, “Cause” is defined as: (i) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Executive with respect to Executive’s obligations or otherwise relating to the business of Company; (ii) Executive’s material breach of this Agreement or Company’s Confidentiality Agreement; (iii) Executive’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; (iv) Executive’s willful neglect of duties as determined in the sole and exclusive discretion of the Board of Directors; or (v) Executive’s chemical dependence, as certified by a licensed physician, resulting in impairment of Executive’s abilities to perform her duties hereunder or substantial damage to the reputation of Company.  Notwithstanding the foregoing, the termination of Executive’s employment shall not constitute termination for Cause unless Company first provides Executive with written notice of the breach and Executive fails to cure the breach (if possible) within 30 days of the notice.  During this 30 day notice period, Executive shall be afforded the opportunity to make a presentation to the Board of Directors regarding the matters referred to in the notice of breach.  In the event Executive’s employment is terminated in accordance with this subparagraph 7.1, Executive shall be entitled to receive only the Base Salary then in effect and any amounts payable pursuant to paragraphs 5 and 6, prorated to the date of termination (“Standard Entitlements”).  All other Company obligations to Executive pursuant to this Agreement

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will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 below.

7.2Termination Without Cause by Company/Severance.  Company may terminate Executive’s employment under this Agreement without Cause at any time on 30 days’advance written notice to Executive.  In the event of such termination, Executive will receive the Standard Entitlements and will be eligible to receive a “Severance Package” as described in subparagraph (a) below, provided Executive complies with all the conditions set forth in subparagraph (b) below.  All other Company obligations to Executive will be automatically terminated and completely extinguished. 

(a)Severance Package.  The Severance Package will consist of the following:

(i)Severance Payment.  Executive will receive a Severance Payment equivalent to one year of Executive’s Base Salary then in effect on the date of termination, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in accordance with Company’s regular payroll cycle.

(ii)Bonus Payment.  Executive will receive a Bonus Payment equivalent to the amount of Executive’s bonus for the immediately preceding year, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in a lump sum payment within three months of the date of termination.

(iii)Continuation of Group Health Benefits.  Executive will continue to receive group health insurance benefits on the same terms as during Executive’s employment for one year following the date of termination, provided Company’s insurance carrier allows for such benefits continuation.  In the eventCompany’s insurance carrier does not allow such coverage continuation,Companyagrees to pay the premiums required to continue Executive’s group health care coverage for the one-year period, under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), provided that Executive elects to continue and remains eligible for these benefits under COBRA, and does not obtain health coverage through another employer during this period. 

(b)Conditions to Receive Severance Package.  Executive will be eligible for the Severance Package provided that Executive: (a) complies with all surviving provisions of this Agreement as specified in subparagraph 14.8 below; and (b) executes a full general release, releasing all claims, known or unknown, that Executive may have against Company arising out of or any way related to Executive’s employment or termination of employment with Company.  All other Company obligations to Executive will be automatically terminated and completely extinguished.

7.3Voluntary Resignation by Executive for Good Reason/Severance.  Executive may voluntarily resign Executive’s position with Company for Good Reason at any time on 30 days’advance written notice to Company.  Executive will be deemed to have resigned for Good Reason if resignation is made within six (6) months following the occurrence of any of the following circumstances:  (i) Company’s material breach of this Agreement; (ii) Executive’s Base Salary is reduced by more than 10% below Executive’s salary as provided for in this Agreement, unless the reduction is due to a voluntary change of Executive’s responsibilities; (iii) Executive’s position and/or duties are

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modified so that Executive’s duties are no longer consistent with the position of a senior executive or Executive no longer reports to the CEO; or (iv) Company relocates Executive’s principal place of work to a location more than thirty (30) miles from the location specified in subparagraph 2.3, without Executive’s prior written approval.  Notwithstanding the foregoing, the termination of Executive’s employment under this subparagraph 7.3 shall not constitute voluntary resignation for Good Reason unless Executive first provides Company with written notice of the breach and Company fails to cure the breach (if possible) within 30 days of the notice.  In the event of Executive’s resignation for Good Reason, Executive will be entitled to receive the Standard Entitlements and the Severance Package described in subparagraph 7.2(a) above, provided Executive complies with all of the conditions in subparagraph 7.2(b) above.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.

7.4Voluntary Resignation by Executive Without Good Reason.  Executive may voluntarily resign Executive’s position with Company Without Good Reason at any time on 30 days’ advance written notice.  In the event of Executive’s resignation Without Good Reason, Executive will be entitled to receive only the Standard Entitlements and no other amount.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  In addition, Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

7.5Termination Upon Death.  Executive’s employment will terminate immediately on Executive’s death.  In the event of such termination, Company shall provide a death benefit equal to: (i) Executive’s Base Salary then in effect, prorated for the current year to the date of Executive’s death; (ii) an amount equal to the bonus paid to Executive the previous year, prorated for the current year to the date of Executive’s death; and (iii) any amounts payable pursuant to paragraphs 5 and 6 that at the date of Executive’s death, are accrued but unpaid (collectively “Death Benefit”).  The Death Benefit shall be made in a lump sum payment within 90 days of Executive’s death to such person as Executive shall designate in a notice filed with Company or, if no such notice is filed, the Death Benefit shall be paid to Executive’s estate.

7.6Termination Upon Disability.  Executive’s employment may be terminated by Company as a result of Executive’s inability to perform the essential functions of Executive’s position, with or without reasonable accommodation, if required by law, due to a mental or physical disability.  In no event will Executive’s employment be terminated pursuant to this subparagraph 7.6 until 180 consecutive days of paid leave have elapsed and Company has provided 30 days’ written notice in advance of termination.  In the event of termination pursuant to this subparagraph 7.6, Executive shall be entitled to receive only the Standard Entitlements.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above. 

7.7Termination Upon Expiration of Agreement.  If Executive’s employment is not terminated in accordance with subparagraphs 7.1-7.6, this Agreement will expire exactly one year from the Effective Date.  In the event of expiration of this Agreement, Executive shall be entitled to receive only the Standard Entitlements earned through the date of expiration.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.

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Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

8.Consultant After Termination.  In the event Executive’s employment is terminated pursuant to subparagraphs 7.1, 7.4 or 7.7, Executive agrees to act as a consultant for Company, if requested to do so by Company.  Executive will be paid a fixed monthly fee equal to 25 percent of Executive’s monthly base salary in effect at the time of termination for up tosix (6) months following the termination of the employment relationship (“Consultant Payments”).  Consultant Payments shall be made in arrears on or before the last business day of each month during which Executive has acted as a consultant.  Company may elect, in its sole and absolute discretion, to terminate the Consultant Payments at any time upon 10 days’ advance written notice to Executive.

9.No Conflict of Interest.  During the term of Executive’s employment with Company and during any period Executive is receiving payments from Company pursuant to this Agreement, Executive must not engage in any work, paid or unpaid, that creates an actual conflict of interest with Company.  Such work shall include, but is not limited to, directly competing with Company in any way, or acting as an officer, director, employee, consultant, stockholder, volunteer, lender, or agent of any business enterprise of the same nature as, or which is in direct competition with, the business in which Company is now engaged or in which Company becomes engaged during the term of Executive’s employment with Company, as may be determined by the Board of Directors in its sole discretion.  If the Board of Directors believes such a conflict exists during the term of this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or resign employment with Company.  If the Board of Directors believes such a conflict exists during any period in which Executive is receiving payments pursuant to this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or forego the remaining payments.  In addition, Executive agrees not to refer any client or potential client of Company to competitors of Company, without obtaining Company’s prior written consent, during the term of Executive’s employment and during any period in which Executive is receiving payments from Company pursuant to this Agreement.  Notwithstanding the foregoing, Executive may work or perform services for Company and its affiliates or a financial institution or similar entity that is involved in the mortgage business so long as such entity is not engaged primarily in managing real estate investment trusts or originating and/or selling mortgages, and Executive may own securities in any publicly held corporation, but only to the extent Executive does not own of record or beneficially more than 1 percent of the outstanding beneficial ownership of such corporation.

10.Confidentiality Agreement and Return of Company Property.  Executive agrees to abide by Company’s Confidentiality Agreement that Executive read and signed in connection with Executive’s employment by Company, which is incorporated herein by reference.  Executive further agrees that upon termination or expiration of Executive’s employment, Executive will return all Company property, including all confidential and proprietary information as described in the Confidentiality Agreement, all materials and documents containing trade secrets and copyrighted materials, all correspondence, management studies and any other materials or data relating to or connected with Executive’s employment, including all copies and excerpts of the same.

11.Indemnification.  Company agrees to defend and indemnify Executive to the fullest extent provided by California Labor Code section 2802 and/or Company’s Directors’ and Officers’ liability insurance policy.

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12.Injunctive Relief.  Executive acknowledges that Executive’s breach of the covenants contained in paragraphs 9-10 (collectively “Covenants”) would cause irreparable injury to Company and agrees that in the event of any such breach, Company shall be entitled to seek temporary, preliminary and permanent injunctive relief without the necessity of proving actual damages or posting any bond or other security.

13.Agreement to Arbitrate.  To the fullest extent permitted by law, Executive and Company agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, the employment relationship between Company and Executive and any disputes upon termination of employment, including but not limited to breach of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law.  By executing this Agreement, Executive and Company are both waiving the right to a jury trial with respect to any such disputes.  For the purpose of this agreement to arbitrate, references to “Company” include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this agreement shall apply to them to the extent Executive’s claims arise out of or relate to their actions on behalf of Company. 

13.1Consideration.  The mutual promise by Company and Executive to arbitrate any and all disputes between them rather than litigate them before the courts or other bodies, provides the consideration for this agreement to arbitrate.

13.2Initiation of Arbitration.  Either party may exercise the right to arbitrate by providing the other party with written notice of any and all claims forming the basis of such right in sufficient detail to inform the other party of the substance of such claims.  In no event shall the request for arbitration be made after the date when institution of legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations.

13.3Arbitration Procedure.  The arbitration will be conducted in San Diego, California by a single neutral arbitrator and in accordance with the then current rules for resolution of employment disputes of the American Arbitration Association (“AAA”).  The parties are entitled to representation by an attorney or other representative of their choosing.  The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California, and only such power, and shall follow the law.  The parties agree to abide by and perform any award rendered by the arbitrator.  The arbitrator shall issue the award in writing and therein state the essential findings and conclusions on which the award is based.  Judgment on the award may be entered in any court having jurisdiction thereof.

13.4Costs of Arbitration.  Company shall bear the costs of the arbitrator, forum and filing fees. 

14.General Provisions.

14.1Successors and Assigns.  The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company.  Executive shall not be entitled to assign any of Executive’s rights or obligations under this Agreement.

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14.2Waiver.  Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.

14.3Attorneys’ Fees.  Each side will bear its own attorneys’ fees in any dispute unless a statutory section at issue, if any, authorizes the award of attorneys’ fees to the prevailing party.

14.4Severability.  In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law.  If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

14.5Interpretation; Construction.  The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement.  This Agreement has been drafted by legal counsel representing Company, but Executive has participated in the negotiation of its terms.  Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

14.6Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California.  Each party consents to the jurisdiction and venue of the state or federal courts in San Diego,California, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement.

14.7Notices.  Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated:  (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt.  Notice shall be sent to the addresses set forth below, or such other address as either party may specify in writing.

14.8Survival.  Sections 9 (“No Conflict of Interest”), 10 (“Confidentiality Agreement”), 12 (“Injunctive Relief”), 13 (“Agreement to Arbitrate”), 7.2 (“General Provisions”) and 15 (“Entire Agreement”) of this Agreement shall survive Executive’s employment by Company.

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15.Entire Agreement.  This Agreement, including the Company’s Confidentiality Agreement incorporated herein by reference, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.  This Agreement may be amended or modified only with the written consent of Executive and the CEO of Company.  No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

		JUDITH BERRY
Dated:	3/31/03	/s/ Judith Berry
		American Mortgage Network, Inc.
Dated:	3/31/03	By:	/s/ John Robbins
		John Robbins
		Chief Executive Officer
		10421 Wateridge Circle, Ste. 250
		San Diego, CA 92121

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EX-10.24

Exhibit 10.24

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (“Agreement”) is made effective as of January 1, 2003 (“Effective Date”), by and between American Mortgage Network, Inc., a Delaware corporation, and a subsidiary of American Residential Investment Trust, Inc., a Maryland corporation (“Company”) and Jay Fuller (“Executive”).

WHEREAS Executive and Company entered into an Employment Agreement dated February 11, 2002 (the “Original Agreement”);

WHEREAS the Original Agreement expired on February 10, 2003; and

WHEREAS, Executive and Company each desire to amend and restate the Original Agreement as set forth below.

NOW, THEREFORE, in consideration of the promises and respective covenants and agreements of the parties herein contained, Executive and Company agree as follows:

1.Employment.  Company hereby employs Executive, and Executive hereby accepts such employment, upon the terms and conditions set forth herein.

2.Duties.

2.1Position.  Executive is employed as Executive Vice President, National Production and shall have the duties and responsibilities assigned by Company both upon initial hire and as may be reasonably assigned from time to time.  Executive shall perform faithfully and diligently all duties assigned to Executive.  Company reserves the right to modify Executive’s position and duties at any time in its sole and absolute discretion, provided that the duties assigned are consistent with the position of a senior executive and that Executive continues to report to the Chief Executive Officer (“CEO”).

2.2Best Efforts/Full-time.  Executive will expend Executive’s best efforts on behalf of Company, and will abide by all policies and decisions made by Company, as well as all applicable federal, state and local laws, regulations or ordinances.  Executive will act in the best interest of Company at all times.  Executive shall devote Executive’s full business time and efforts to the performance of Executive’s assigned duties for Company, unless Executive notifies the Company’s CEO in advance of Executive’s intent to engage in other paid work and receives the CEO’s express written consent to do so.

2.3Work Location.  Executive’s principal place of work shall be located at  10421 Wateridge Circle, San Diego, California, or such other location as the parties may agree upon from time to time.

3.Term.  The employment relationship pursuant to this Agreement shall be for a term commencing on the Effective Date set forth above and continuing for a period of one year following such date, unless sooner terminated in accordance with paragraph 7 below.

4.Compensation.

4.1Base Salary.  As compensation for Executive’s performance of Executive’s duties hereunder, Company shall pay to Executive an initial Base Salary of Three Hundred Eighteen Thousand Eight Hundred Sixteen Dollars ($318,816.00) per year, payable in

accordance with the normal payroll practices of Company, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions.  In the event Executive’s employment under this Agreement is terminated by either party, for any reason, Executive will earn the Base Salary prorated to the date of termination.

4.2Bonus.  Executive will be eligible to earn a bonus of up to 100 percent of Executive’s Base Salary based on achievement of targeted goals and objectives, including net income, established by management and approved by the Company’s Board of Directors (“Board of Directors”). 

4.3Performance and Salary Review.  Company will periodically review Executive’s performance.  Adjustments to salary or other compensation, if any, will be made by Company in its sole and absolute discretion.

5.Fringe Benefits.  Executive will be eligible for all customary and usual fringe benefits generally available to executives of Company subject to the terms and conditions of Company’s benefit plan documents.  In addition, Executive shall be eligible to accrue 27 days of Paid Time Off (“PTO”) per year and receive reimbursement of up to $2000 per year for a physical examination.  Company reserves the right to change or eliminate the fringe benefits on a prospective basis, at any time, effective upon notice to Executive.

6.Business Expenses.  Executive will be reimbursed for all reasonable, out-of-pocket business expenses incurred in the performance of Executive’s duties on behalf of Company.  To obtain reimbursement, expenses must be submitted promptly with appropriate supporting documentation in accordance with Company’s policies.

7.Termination of Executive’s Employment. 

7.1Termination for Cause by Company.  Although Company anticipates a mutually rewarding employment relationship with Executive, Company may terminate Executive’s employment immediately at any time for Cause.  For purposes of this Agreement, “Cause” is defined as: (i) acts or omissions constituting gross negligence, recklessness or willful misconduct on the part of Executive with respect to Executive’s obligations or otherwise relating to the business of Company; (ii) Executive’s material breach of this Agreement or Company’s Confidentiality Agreement; (iii) Executive’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude; (iv) Executive’s willful neglect of duties as determined in the sole and exclusive discretion of the Board of Directors; or (v) Executive’s chemical dependence, as certified by a licensed physician, resulting in impairment of Executive’s abilities to perform his duties hereunder or substantial damage to the reputation of Company.  Notwithstanding the foregoing, the termination of Executive’s employment shall not constitute termination for Cause unless Company first provides Executive with written notice of the breach and Executive fails to cure the breach (if possible) within 30 days of the notice.  During this 30 day notice period, Executive shall be afforded the opportunity to make a presentation to the Board of Directors regarding the matters referred to in the notice of breach.  In the event Executive’s employment is terminated in accordance with this subparagraph 7.1, Executive shall be entitled to receive only the Base Salary then in effect and any amounts payable pursuant to paragraphs 5 and 6, prorated to the date of termination (“Standard Entitlements”).  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 below.

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7.2Termination Without Cause by Company/Severance.  Company may terminate Executive’s employment under this Agreement without Cause at any time on 30 days’ advance written notice to Executive.  In the event of such termination, Executive will receive the Standard Entitlements and will be eligible to receive a “Severance Package” as described in subparagraph (a) below, provided Executive complies with all the conditions set forth in subparagraph (b) below.  All other Company obligations to Executive will be automatically terminated and completely extinguished. 

(a)Severance Package.  The Severance Package will consist of the following:

(i)Severance Payment.  Executive will receive a Severance Payment equivalent to one year of Executive’s Base Salary then in effect on the date of termination, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in accordance with Company’s regular payroll cycle.

(ii)Bonus Payment.  Executive will receive a Bonus Payment equivalent to the amount of Executive’s bonus for the immediately preceding year, less required deductions for state and federal withholding tax, social security and all other employment taxes and payroll deductions, payable in a lump sum payment within three months of the date of termination.

(iii)Continuation of Group Health Benefits.  Executive will continue to receive group health insurance benefits on the same terms as during Executive’s employment for one year following the date of termination, provided Company’s insurance carrier allows for such benefits continuation.  In the event Company’s insurance carrier does not allow such coverage continuation, Company agrees to pay the premiums required to continue Executive’s group health care coverage for the one-year period, under the applicable provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), provided that Executive elects to continue and remains eligible for these benefits under COBRA, and does not obtain health coverage through another employer during this period. 

(b)Conditions to Receive Severance Package.  Executive will be eligible for the Severance Package provided that Executive: (a) complies with all surviving provisions of this Agreement as specified in subparagraph 14.8 below; and (b) executes a full general release, releasing all claims, known or unknown, that Executive may have against Company arising out of or any way related to Executive’s employment or termination of employment with Company.  All other Company obligations to Executive will be automatically terminated and completely extinguished.

7.3Voluntary Resignation by Executive for Good Reason/Severance.  Executive may voluntarily resign Executive’s position with Company for Good Reason at any time on 30 days’ advance written notice to Company.  Executive will be deemed to have resigned for Good Reason if resignation is made within six (6) months following the occurrence of any of the following circumstances:  (i) Company’s material breach of this Agreement; (ii) Executive’s Base Salary is reduced by more than 10% below Executive’s salary as provided for in this Agreement, unless the reduction is due to a voluntary change of Executive’s responsibilities; (iii) Executive’s position and/or duties are modified so that Executive’s duties are no longer consistent with the position of a senior executive or Executive no longer reports to the CEO; or (iv) Company relocates Executive’s principal place of work to a location more than thirty (30) miles from the location specified in subparagraph 2.3, without Executive’s prior written

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approval.  Notwithstanding the foregoing, the termination of Executive’s employment under this subparagraph 7.3 shall not constitute voluntary resignation for Good Reason unless Executive first provides Company with written notice of the breach and Company fails to cure the breach (if possible) within 30 days of the notice.  In the event of Executive’s resignation for Good Reason, Executive will be entitled to receive the Standard Entitlements and the Severance Package described in subparagraph 7.2(a) above, provided Executive complies with all of the conditions in subparagraph 7.2(b) above.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.

7.4Voluntary Resignation by Executive Without Good Reason.  Executive may voluntarily resign Executive’s position with Company Without Good Reason at any time on 30 days’ advance written notice.  In the event of Executive’s resignation Without Good Reason, Executive will be entitled to receive only the Standard Entitlements and no other amount.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  In addition, Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

7.5Termination Upon Death.  Executive’s employment will terminate immediately on Executive’s death.  In the event of such termination, Company shall provide a death benefit equal to: (i) Executive’s Base Salary then in effect, prorated for the current year to the date of Executive’s death; (ii) an amount equal to the bonus paid to Executive the previous year, prorated for the current year to the date of Executive’s death; and (iii) any amounts payable pursuant to paragraphs 5 and 6 that at the date of Executive’s death, are accrued but unpaid (collectively “Death Benefit”).  The Death Benefit shall be made in a lump sum payment within 90 days of Executive’s death to such person as Executive shall designate in a notice filed with Company or, if no such notice is filed, the Death Benefit shall be paid to Executive’s estate.

7.6Termination Upon Disability.  Executive’s employment may be terminated by Company as a result of Executive’s inability to perform the essential functions of Executive’s position, with or without reasonable accommodation, if required by law, due to a mental or physical disability.  In no event will Executive’s employment be terminated pursuant to this subparagraph 7.6 until 180 consecutive days of paid leave have elapsed and Company has provided 30 days’ written notice in advance of termination.  In the event of termination pursuant to this subparagraph 7.6, Executive shall be entitled to receive only the Standard Entitlements.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above. 

7.7Termination Upon Expiration of Agreement.  If Executive’s employment is not terminated in accordance with subparagraphs 7.1-7.6, this Agreement will expire exactly one year from the Effective Date.  In the event of expiration of this Agreement, Executive shall be entitled to receive only the Standard Entitlements earned through the date of expiration.  All other Company obligations to Executive pursuant to this Agreement will become automatically terminated and completely extinguished.  Executive will not be entitled to receive the Severance Package described in subparagraph 7.2 above.

8.Consultant After Termination.  In the event Executive’s employment is terminated pursuant to subparagraphs 7.1, 7.4 or 7.7, Executive agrees to act as a consultant for Company, if requested to do so by Company.  Executive will be paid a fixed monthly fee equal to 25 percent of Executive’s monthly base salary in effect at the time of termination for up to six (6) months following the termination of the employment relationship (“Consultant Payments”).  Consultant Payments shall be made in arrears on or before the last business day

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of each month during which Executive has acted as a consultant.  Company may elect, in its sole and absolute discretion, to terminate the Consultant Payments at any time upon 10 days’ advance written notice to Executive.

9.No Conflict of Interest.  During the term of Executive’s employment with Company and during any period Executive is receiving payments from Company pursuant to this Agreement, Executive must not engage in any work, paid or unpaid, that creates an actual conflict of interest with Company.  Such work shall include, but is not limited to, directly competing with Company in any way, or acting as an officer, director, employee, consultant, stockholder, volunteer, lender, or agent of any business enterprise of the same nature as, or which is in direct competition with, the business in which Company is now engaged or in which Company becomes engaged during the term of Executive’s employment with Company, as may be determined by the Board of Directors in its sole discretion.  If the Board of Directors believes such a conflict exists during the term of this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or resign employment with Company.  If the Board of Directors believes such a conflict exists during any period in which Executive is receiving payments pursuant to this Agreement, the Board of Directors may ask Executive to choose to discontinue the other work or forego the remaining payments.  In addition, Executive agrees not to refer any client or potential client of Company to competitors of Company, without obtaining Company’s prior written consent, during the term of Executive’s employment and during any period in which Executive is receiving payments from Company pursuant to this Agreement.  Notwithstanding the foregoing, Executive may work or perform services for Company and its affiliates or a financial institution or similar entity that is involved in the mortgage business so long as such entity is not engaged primarily in managing real estate investment trusts or originating and/or selling mortgages, and Executive may own securities in any publicly held corporation, but only to the extent Executive does not own of record or beneficially more than 1 percent of the outstanding beneficial ownership of such corporation. 

10.Confidentiality Agreement and Return of Company Property.  Executive agrees to abide by Company’s Confidentiality Agreement that Executive read and signed in connection with Executive’s employment by Company, which is incorporated herein by reference.  Executive further agrees that upon termination or expiration of Executive’s employment, Executive will return all Company property, including all confidential and proprietary information as described in the Confidentiality Agreement, all materials and documents containing trade secrets and copyrighted materials, all correspondence, management studies and any other materials or data relating to or connected with Executive’s employment, including all copies and excerpts of the same.

11.Indemnification.  Company agrees to defend and indemnify Executive to the fullest extent provided by California Labor Code section 2802 and/or Company’s Directors’ and Officers’ liability insurance policy.

12.Injunctive Relief.  Executive acknowledges that Executive’s breach of the covenants contained in paragraphs 9-10 (collectively “Covenants”) would cause irreparable injury to Company and agrees that in the event of any such breach, Company shall be entitled to seek temporary, preliminary and permanent injunctive relief without the necessity of proving actual damages or posting any bond or other security.

13.Agreement to Arbitrate.  To the fullest extent permitted by law, Executive and Company agree to arbitrate any controversy, claim or dispute between them arising out of or in any way related to this Agreement, the employment relationship between Company and Executive and any disputes upon termination of employment, including but not limited to breach

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of contract, tort, discrimination, harassment, wrongful termination, demotion, discipline, failure to accommodate, family and medical leave, compensation or benefits claims, constitutional claims; and any claims for violation of any local, state or federal law, statute, regulation or ordinance or common law.  By executing this Agreement, Executive and Company are both waiving the right to a jury trial with respect to any such disputes.  For the purpose of this agreement to arbitrate, references to “Company” include all parent, subsidiary or related entities and their employees, supervisors, officers, directors, agents, pension or benefit plans, pension or benefit plan sponsors, fiduciaries, administrators, affiliates and all successors and assigns of any of them, and this agreement shall apply to them to the extent Executive’s claims arise out of or relate to their actions on behalf of Company. 

13.1Consideration.  The mutual promise by Company and Executive to arbitrate any and all disputes between them rather than litigate them before the courts or other bodies, provides the consideration for this agreement to arbitrate.

13.2Initiation of Arbitration.  Either party may exercise the right to arbitrate by providing the other party with written notice of any and all claims forming the basis of such right in sufficient detail to inform the other party of the substance of such claims.  In no event shall the request for arbitration be made after the date when institution of legal or equitable proceedings based on such claims would be barred by the applicable statute of limitations.

13.3Arbitration Procedure.  The arbitration will be conducted in San Diego, California by a single neutral arbitrator and in accordance with the then current rules for resolution of employment disputes of the American Arbitration Association (“AAA”).  The parties are entitled to representation by an attorney or other representative of their choosing.  The arbitrator shall have the power to enter any award that could be entered by a judge of the trial court of the State of California, and only such power, and shall follow the law.  The parties agree to abide by and perform any award rendered by the arbitrator.  The arbitrator shall issue the award in writing and therein state the essential findings and conclusions on which the award is based.  Judgment on the award may be entered in any court having jurisdiction thereof.

13.4Costs of Arbitration.  Company shall bear the costs of the arbitrator, forum and filing fees. 

14.General Provisions.

14.1Successors and Assigns.  The rights and obligations of Company under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company.  Executive shall not be entitled to assign any of Executive’s rights or obligations under this Agreement.

14.2Waiver.  Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.

14.3Attorneys’ Fees.  Each side will bear its own attorneys’ fees in any dispute unless a statutory section at issue, if any, authorizes the award of attorneys’ fees to the prevailing party.

14.4Severability.  In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it

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being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law.  If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

14.5Interpretation; Construction.  The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement.  This Agreement has been drafted by legal counsel representing Company, but Executive has participated in the negotiation of its terms.  Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

14.6Governing Law.  This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California.  Each party consents to the jurisdiction and venue of the state or federal courts in San Diego, California, if applicable, in any action, suit, or proceeding arising out of or relating to this Agreement.

14.7Notices.  Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated:  (i) by personal delivery when delivered personally; (ii) by overnight courier upon written verification of receipt; (iii) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (iv) by certified or registered mail, return receipt requested, upon verification of receipt.  Notice shall be sent to the addresses set forth below, or such other address as either party may specify in writing.

14.8Survival.  Sections 9 (“No Conflict of Interest”), 10 (“Confidentiality Agreement”), 12 (“Injunctive Relief”), 13 (“Agreement to Arbitrate”), 7.3 (“General Provisions”) and 15 (“Entire Agreement”) of this Agreement shall survive Executive’s employment by Company.

THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK

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15.Entire Agreement.  This Agreement, including the Company’s Confidentiality Agreement incorporated herein by reference, constitutes the entire agreement between the parties relating to this subject matter and supersedes all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral.  This Agreement may be amended or modified only with the written consent of Executive and the CEO of Company.  No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

		JAY FULLER
Dated:	3/31/03	/s/ Jay Fuller
		American Mortgage Network, Inc.
Dated:	3/31/03	By:	/s/ John Robbins
		John Robbins
		Chief Executive Officer
		10421 Wateridge Circle, Ste. 250
		San Diego, CA 92121

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EX-99.1

EXHIBIT 99.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, John M. Robbins, Chief Executive Officer of American Residential Investment Trust, Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated: May 14, 2003	/s/  John M. Robbins
	John M. Robbins
	Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to American Residential Investment Trust, Inc. and will be retained by American Residential Investment Trust, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.2

EXHIBIT 99.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Judith A. Berry, Chief Financial Officer of American Residential Investment Trust, Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

(1) the Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Dated:  May 14, 2003	/s/  Judith A. Berry
	Judith A. Berry
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to American Residential Investment Trust, Inc. and will be retained by American Residential Investment Trust, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.