1
EXHIBIT 10.1
EXECUTION COPY
================================================================================
PREFERRED STOCK
PURCHASE AGREEMENT
by and between
AAMES FINANCIAL CORPORATION
and
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.
================================================================================
Dated as of December 23, 1998
================================================================================
2
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS............................................................. 2
Section 1.1. Definitions.................................................. 2
Section 1.2. General Interpretive Principles.............................. 10
ARTICLE II. ACTIONS TO OCCUR ON THE DATE HEREOF; ISSUANCE AND SALE OF
SECURITIES........................................................... 10
Section 2.1. Actions to Occur on the Date of this Agreement............... 10
Section 2.2. Issuance, Sale and Purchase of Senior Preferred Stock........ 11
Section 2.3. Initial Closing.............................................. 11
Section 2.4. Issuance, Sale and Purchase of Series C Preferred
Stock Pursuant to the Standby Commitment.................. 12
Section 2.5. Supplemental Closing......................................... 12
Section 2.6. Further Action............................................... 13
ARTICLE III. REPRESENTATIONS AND WARRANTIES.......................................... 13
Section 3.1. Representations and Warranties of the Company................ 13
Section 3.1.1. Organization, Good Standing and Qualification................ 14
Section 3.1.2. Authorization; Enforceability................................ 14
Section 3.1.3. Consents; No Conflict........................................ 15
Section 3.1.4. Capitalization............................................... 15
Section 3.1.5. Subsidiaries................................................. 16
Section 3.1.6. Dividends; Stock Repurchases................................. 17
Section 3.1.7. Valid Issuance of Securities................................. 17
Section 3.1.8. Litigation................................................... 17
Section 3.1.9. Compliance with Law and Other Instruments.................... 18
Section 3.1.10. SEC Documents; Financial Statements.......................... 18
Section 3.1.11. Undisclosed Liabilities...................................... 19
Section 3.1.12. Absence of Certain Changes or Events......................... 20
Section 3.1.13. ERISA and Other Employment Matters........................... 20
Section 3.1.14. Taxes........................................................ 22
Section 3.1.15. Company Intellectual Property................................ 23
Section 3.1.16. Contracts.................................................... 25
Section 3.1.17. Insurance.................................................... 26
Section 3.1.18. Registration Rights.......................................... 26
Section 3.1.19. Brokers...................................................... 27
Section 3.1.20. Environmental Protection..................................... 27
Section 3.1.21. State Takeover Laws.......................................... 27
Section 3.1.22. Proxy Statement.............................................. 28
Section 3.1.23. Fairness Opinion............................................. 28
Section 3.1.24. Certain Assets............................................... 28
Section 3.1.25. Fiduciary Activities......................................... 29
Section 3.1.26. Warehouse Facilities......................................... 29
(i)
3
Page
----
Section 3.2. Representations and Warranties of the Purchaser.............. 30
Section 3.2.1. Organization................................................. 30
Section 3.2.2. Authorization................................................ 30
Section 3.2.3. Purchase for Investment...................................... 30
Section 3.2.4. Restricted Securities........................................ 30
Section 3.2.5. Purchaser Information........................................ 31
Section 3.2.6. Consents; No Conflict........................................ 31
Section 3.2.7. Brokers...................................................... 31
Section 3.2.8. Financing.................................................... 32
ARTICLE IV. CERTAIN AGREEMENTS OF THE PARTIES....................................... 32
Section 4.1. Conduct of Business of the Company........................... 32
Section 4.2. Approvals, Etc............................................... 34
Section 4.3. Access; Non-Solicitation..................................... 34
Section 4.4. Existing Rights.............................................. 36
Section 4.5. Proxy Statement; Shareholders' Meeting....................... 37
Section 4.6. Publicity.................................................... 37
Section 4.7. Warehouse Facilities......................................... 37
Section 4.8. NYSE Waiver.................................................. 38
Section 4.9. Recapitalization; Rights Offering............................ 38
Section 4.10. Material Developments........................................ 38
Section 4.11. New Option Plan; Other Employee Arrangements................. 38
Section 4.12. Board of Directors........................................... 38
Section 4.13. Indemnification and Insurance................................ 40
ARTICLE V. CLOSING CONDITIONS...................................................... 41
Section 5.1. Conditions to Obligation of Purchaser........................ 41
Section 5.1.1. Representations and Warranties Complete and Correct.......... 41
Section 5.1.2. Compliance with this Agreement............................... 42
Section 5.1.3. Officers' Certificate........................................ 42
Section 5.1.4. Consents; Debt Waivers....................................... 42
Section 5.1.5. Supporting Documents......................................... 42
Section 5.1.6. HSR Act...................................................... 43
Section 5.1.7. Other Agreements; Additional Investments..................... 43
Section 5.1.8. Material Adverse Change...................................... 43
Section 5.1.9. Illegality, Etc.............................................. 43
Section 5.1.10. NYSE Waiver; Stockholder Approval............................ 43
Section 5.1.11. Legal Opinions............................................... 44
Section 5.1.12. Litigation................................................... 44
Section 5.1.13. Board of Directors........................................... 44
Section 5.1.14. Warehouse Facilities......................................... 44
Section 5.2. Conditions to the Obligations of the Company................. 44
Section 5.2.1. Compliance with this Agreement............................... 44
Section 5.2.2. Purchaser's Representations and Warranties Complete
and Correct............................................... 44
Section 5.2.3. Officer's Certificate........................................ 45
Section 5.2.4. Consents..................................................... 45
(ii)
4
Page
----
Section 5.2.5. HSR Act...................................................... 45
Section 5.2.6. Illegality, Etc.............................................. 45
Section 5.2.7. NYSE Waiver; Stockholder Approval............................ 45
Section 5.2.8. Legal Opinions............................................... 45
ARTICLE VI. TERMINATION............................................................. 45
Section 6.1. Termination.................................................. 45
Section 6.2. Effect of Termination; Termination Fee....................... 47
ARTICLE VII. MISCELLANEOUS........................................................... 48
Section 7.1. Expenses and Indemnification................................. 48
Section 7.2. Survival of Representations and Warranties................... 49
Section 7.3. Notices...................................................... 49
Section 7.4. Governing Law................................................ 50
Section 7.5. Entire Agreement............................................. 50
Section 7.6. Counterparts................................................. 51
Section 7.7. Amendments................................................... 51
Section 7.8. Severability................................................. 51
Section 7.9. Titles and Subtitles......................................... 51
Section 7.10. Further Assurances........................................... 51
Section 7.11. Successors and Assigns....................................... 51
Exhibit A Series B Certificate of Designations
Exhibit B Series C Certificate of Designations
Exhibit C Form of Warrant
Exhibit D Form of New Option Plan
Exhibit E Form of Contingent Warrant
Exhibit F Registration Rights Agreement
Exhibit G Terms of Management Services Agreement
Exhibit H Management Voting Agreement
Exhibit I-1 Management Investment Agreement (Xxxx Xxxxxxxx)
Exhibit I-2 Management Investment Agreement (Xxxx Xxxxxxxxx)
Exhibit I-3 Management Investment Agreement (Other Investors)
Exhibit J Employment Agreements
Exhibit K Conditions to the Rights Offer
Exhibit L Opinions to be provided by the Company
Exhibit M Opinions to be provided by the Purchaser
(iii)
5
PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") dated as of
December 23, 1998 between Aames Financial Corporation, a Delaware corporation
(the "Company"), and Capital Z Financial Services Fund II, L.P., a Bermuda
limited partnership ("Capital Z" and, solely for purposes of the provisions of
this Agreement relating to the rights of the Purchaser hereunder, together with
such Designated Purchasers as Capital Z may designate in accordance with
Sections 2.2 and 2.4 hereof, collectively the "Purchaser").
RECITALS:
WHEREAS, each of the Company and the Purchaser has determined to
enter into this Agreement, pursuant to which the Purchaser has agreed to
purchase from the Company, and the Company has agreed to issue and sell to the
Purchaser on the Initial Closing Date (as hereinafter defined), (i) shares of
the Company's Series B Convertible Preferred Stock, par value $0.001 per share
(the "Series B Preferred Stock"), having the rights, preferences, privileges and
restrictions set forth in the form of the Certificate of Designations attached
hereto as Exhibit A (the "Series B Certificate of Designations"),; and (ii)
shares of the Company's Series C Convertible Preferred Stock, par value $0.001
per share (the "Series C Preferred Stock," and together with the Series B
Preferred Stock, the "Senior Preferred Stock"), having the rights, preferences,
privileges and restrictions set forth in the form of the Certificate of
Designations attached hereto as Exhibit B (the "Series C Certificate of
Designations," and together with the Series B Certificate of Designations, the
"Certificates of Designations"), the aggregate number of which shares is to be
determined in accordance with Section 2.2 of this Agreement;
WHEREAS, as promptly as practicable after the date hereof, the
Company will (i) call a meeting of its stockholders, at which the Company will
submit to its stockholders a proposal to (among other things) amend the
certificate of incorporation of the Company to increase the authorized number of
shares of the Company's common stock, par value $0.001 per share ("Common
Stock"), and the Company's preferred stock, par value $0.001 per share (the
"Preferred Stock") as contemplated by the Certificates of Designations; and (ii)
upon the effectiveness of such amendment, (and assuming the Initial Closing Date
(as hereinafter defined) has occurred) cause the outstanding shares of Senior
Preferred Stock to be split on the basis of one thousand-for-one (the foregoing
increase in authorized shares and split of Senior Preferred Stock are referred
to collectively herein as the "Recapitalization");
WHEREAS, subject to the completion of the Recapitalization, the
Company will offer, pursuant to the Rights Offering (as hereinafter defined), to
the existing holders of
6
Common Stock non-transferable rights to purchase an aggregate of $25 million in
stated value of Series C Preferred Stock, and the Purchaser will purchase on the
Supplemental Closing Date (as hereinafter defined) an amount equal to the entire
unsubscribed portion of the Rights Offering (the "Standby Commitment");
WHEREAS, on January 4, 1999 the Company will issue to Capital Z
(or its designee), as a fee for the Standby Commitment, a warrant (the
"Warrant") to purchase 1,250,000 shares of Common Stock at an exercise price of
$1.00 per share, such Warrant to be in the form attached hereto as Exhibit C;
and
WHEREAS, the Company and the Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act. The term "Affiliated" has a correlative meaning.
"Agreement" has the meaning set forth in the preamble hereto.
"Alternative Transaction" has the meaning given in Section 4.3.
"Ancillary Agreements" means, collectively, the Registration
Rights Agreement, Employment Agreements, Management Investment Agreements,
Management Voting Agreements, New Option Plan and Management Services Agreement.
"Balance Sheet" has the meaning set forth in Section 3.1.11
hereof.
"Beneficially Own" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof. The terms "Beneficial
Ownership" and "Beneficial Owner" have correlative meanings.
"Board of Directors" means the board of directors of the Company.
-2-
7
"Business Day" means any day, other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Bylaws" means the bylaws of the Company, as amended from time to
time.
"Capital Z" has the meaning set forth in the preamble hereto.
"Certificates of Designations" has the meaning set forth in the
recitals hereto.
"Certificate of Incorporation" means the certificate of
incorporation of the Company, as such may be amended from time to time.
"Closing Dates" mean each of the Initial Closing Date and the
Supplemental Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended, and
all regulations promulgated thereunder, as in effect from time to time.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" has the meaning set forth in the recitals hereto.
"Company" has the meaning set forth in the preamble hereto.
"Company Disclosure Letter" has the meaning set forth in Section
3.1.
"Contingent Warrant" has the meaning set forth in Section 2.3(b).
"Continuing Directors" shall mean the directors of the Company on
the date of this Agreement and any successors to such directors who are not
nominees of the Purchaser.
"Derivative Securities" means any subscriptions, options,
conversion rights, exchange rights, warrants, or other agreements (oral or in
writing), securities or commitments of any kind obligating the Company or any of
its Subsidiaries to issue, grant, deliver or sell, or cause to be issued,
granted, delivered or sold, any Equity Securities of the Company or any of its
Subsidiaries.
"Designated Purchaser" has the meaning set forth in Section
7.11(b).
-3-
8
"DGCL" means the Delaware General Corporation Law.
"Environmental Laws" means any federal, state or local statute,
code, ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, writ, decree, injunction or other authorization and any amendments
thereto, relating to:
(i) emissions, discharges, release or threatened releases of
pollutants, contaminants or hazardous or toxic materials or wastes into
indoor or ambient air, surface water, ground water, publicly owned
treatment works, septic systems or land;
(ii) the treatment, storage, disposal, handling, manufacturing,
transportation, or shipment of Hazardous Waste or hazardous and/or toxic
wastes, material, substances, products or by-products as defined in the
Comprehensive Environmental Response Compensation and Liability Act as
amended by the Superfund Amendments and Reauthorization Act, as amended,
42 U.S.C. Section 9601 et seq.; the Resource Conservation Recovery Act,
as amended, 42 U.S.C. Section 6901 et seq. and the Toxic Substances
Control Act, as amended, 15 U.S.C. Section 2601 et seq. as amended from
time to time and corresponding state legislation and all regulations
promulgated thereunder; or
(iii) otherwise relating to the pollution or protection of
health or the environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all regulations promulgated thereunder, as in effect from
time to time.
"Equity Securities" of any Person means any and all common stock,
preferred stock and any other class of capital stock of, and any partnership or
limited liability company interests of such Person or any other similar
interests of any Person that is not a corporation, partnership or limited
liability company.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Existing Common Share Equivalents" means, as of any date, any
options, warrants, convertible or exchangeable securities or other rights to
acquire Common Stock (other than those in favor of the Purchaser) outstanding as
of such date.
"Existing Rights" mean the preferred stock purchase rights issued
by the Company to its stockholders on July 12, 1996, each of which Existing
Rights, when exercisable, entitles the holder to purchase from the Company one
one-hundredth of a
-4-
9
share of Series A Preferred Stock at a price of $100.00 (subject to
anti-dilution adjustment).
"Existing Rights Agreement" means the Rights Agreement, dated as
of June 21, 1996, between the Company and Xxxxx Fargo Bank, pursuant to which
agreement the Company issued the Existing Rights to the holders of Common Stock
on July 12, 1996.
"GAAP" means U.S. generally accepted accounting principles as in
effect at the relevant time or for the relevant period.
"Governmental Authority" means any government or political
subdivision or department thereof, any governmental or regulatory body,
commission, board, bureau, agency or instrumentality, or any court or arbitrator
or alternative dispute resolution body, in each case whether federal, state,
local or foreign.
"Group" has the meaning set forth in Rule 13d-5 under the
Exchange Act.
"Hazardous Waste" means any chemical substance or material
including, but not limited to wastes, petroleum and petroleum-derived
substances, asbestos, urea formaldehyde foam insulation, transformer equipment
containing dielectric fluid with levels of polychlorinated biphenyls, radon gas,
radioactive materials or other pollutants or contaminants which have the
characteristic of hazardous waste as set forth in or which are now or hereafter
included or regulated by the Clean Water Act, 33 U.S.C. Section 1251 et seq.;
the Clean Air Act, as amended, 42 U.S.C. Section 7401, et seq.; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; CERCLA;
RCRA; and TSCA.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended, and the regulations promulgated thereunder.
"Initial Closing" means the closing of the sale and purchase of
the Senior Preferred Stock pursuant to Section 2.2 hereof.
"Initial Closing Date" has the meaning set forth in Section 2.3
hereto.
"Intellectual Property" means all intellectual property rights
including, but not limited to, patents, patent rights, trade secrets, know-how,
trademarks, service marks, trade names, copyrights, licenses, proprietary
processes and formulae, customer marketing information, data list software,
broker producer lists and technology rights.
"Knowledge" with respect to the Company means the actual
knowledge of the Company's executive officers, and with
-5-
10
respect to the Purchaser means the actual knowledge of its general partners.
"Licenses" means all licenses, permits, franchises,
authorizations and similar rights.
"Lien" means any mortgage, pledge, lien, security interest,
claim, voting agreement, conditional sale agreement, title retention agreement,
restriction, option or encumbrance of any kind, character or description
whatsoever.
"Management Services Agreement" means a services agreement
between the Company and Equifin having the terms set forth in Exhibit G.
"Material Adverse Effect" means (i) a material adverse change in
or effect with respect to the business, operations, assets, properties,
financial condition, results of operations, regulatory condition or prospects of
the Company and its Subsidiaries taken as a whole; or (ii) any impairment in any
material respect of the Company's ability to perform any of its obligations or
agreements hereunder or under the Ancillary Agreements to which it is a party or
consummate the transactions contemplated hereby or thereby.
"NYSE" means the New York Stock Exchange.
"NYSE Waiver" means a written waiver from the NYSE of (i) the
shareholder approval requirements of Section 312.03 of the NYSE Listed Company
Manual with respect to the issuance and sale of the Senior Preferred Stock
pursuant to this Agreement and (ii) any other NYSE rule (including without
limitation, any listing standard that may be applicable with respect to the
Common Stock) that may apply to the issuance of the Senior Preferred Stock (or
the terms thereof).
"New Option Plan" means the Company's 1999 Stock Option Plan, in
the form attached hereto as Exhibit D, which shall be in effect as of the
Initial Closing Date, subject to shareholder approval and consummation of the
Recapitalization.
"Option Plans" means the Company's 1991 Stock Incentive Plan,
1995 Stock Incentive Plan, 1996 Stock Incentive Plan, 1997 Stock Option Plan,
1997 Non-Qualified Stock Option Plan, as amended and restated effective May 22,
1998, and options granted under those certain assumption option agreements
entered into by the Company in connection with its acquisition of One Stop
Mortgage, Inc. pursuant to an agreement dated August 12, 1996, and outstanding
stock options granted to Xxxx Xxxxxxxx and Xxxxx Xxxxx outside any of the
foregoing.
"Person" means any individual, corporation, company, association,
partnership, joint venture, limited liability
-6-
11
partnership, limited liability company, trust, estate or unincorporated
organization, or Governmental Authority.
"Proxy Statement" means the proxy statement to be filed by the
Company with the SEC in connection with the Shareholders Meeting.
"Purchase Price" has the meaning set forth in Section 2.2 hereof.
"Purchase Rights" has the meaning set forth in Section 4.9
hereof.
"Rating Agency" means, with respect to any Securitization
Securities, any nationally recognized statistical rating agency, including but
not limited to Xxxxx'x Investors Service, Inc., Standard & Poor's Rating
Services, a division of The XxXxxx-Xxxx Companies, Inc., Duff & Xxxxxx Credit
Ratings Co. and Fitch IBCA, Inc. from whom the Company has requested that a
rating be assigned.
"Recapitalization" has the meaning set forth in the recitals
hereto.
"Registration Rights Agreement" means the Registration Rights
Agreement to be entered into between the Company and the Purchaser on the
Initial Closing Date, in the form attached hereto as Exhibit F.
"Representatives" means, with respect to any Person, any of such
Person's officers, directors, employees, agents, attorneys, accountants,
actuaries, consultants, equity financing partners or financial advisors or other
Person associated with, or acting on behalf of, such Person.
"Rights Offering" has the meaning set forth in Section 4.9
hereof.
"SEC Documents" has the meaning set forth in Section 3.1.10
hereof.
"Securities" means the Senior Preferred Stock, the Warrant and
the Contingent Warrant issued pursuant to this Agreement.
"Securities Act" means the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Securitization Documents" means each of the documents delivered
in connection with any Securitization Transaction, including but not limited to,
pooling and servicing agreements, indentures, trust agreements, mortgage loan
purchase agreements, asset sale agreements, servicing agreements,
indemnification agreements, insurance agreements, insurance policies,
-7-
12
underwriting agreements, placement agency agreements, certificate purchase
agreement, note purchase agreements, subscription agreements, rating letters,
opinions of counsel and related closing documents or certifications.
"Securitization Securities" means each class of notes,
certificates, retained interests or residual interests issued or created in any
Securitization Transaction sponsored by the Company or a Subsidiary of the
Company.
"Securitization Transaction" means any pooling of mortgage loans
or other assets, and the associated issuance of beneficial interests in such
pools.
"Senior Preferred Stock" has the meaning set forth in the
recitals hereto.
"Series A Preferred Stock" means the Company's Series A Preferred
Stock, par value $0.001 per share.
"Series B Certificate of Designations" has the meaning set forth
in the recitals hereto.
"Series B Preferred Stock" has the meaning set forth in the
recitals hereto.
"Series C Certificate of Designations" has the meaning set forth
in the recitals hereto.
"Series C Preferred Stock" has the meaning set forth in the
recitals hereto.
"Shareholder Approval" means the approval by the stockholders of
the Company, in accordance with the DGCL and the rules of the NYSE, of all
matters which are required to be approved by the Company's stockholders (and not
the subject of a NYSE Waiver) in connection with the issuance and sale of the
Senior Preferred Stock and the consummation of the Recapitalization.
"Shareholders' Meeting" means the Company's annual meeting of
stockholders to be held as promptly as practicable after the mailing of the
definitive Proxy Statement, at which meeting, among other things, the Company
will seek the Shareholders' Approval.
"Shares" means the shares of Common Stock (i) into which the
Senior Preferred Stock is convertible and (ii) issued, or issuable upon,
exercise of the Warrant and the Contingent Warrant (if issued).
"Standby Commitment" has the meaning set forth in the recitals
hereto.
-8-
13
"Standby Purchase Price" has the meaning set forth in Section 2.4
hereto.
"Subsidiary" means, as to any Person, any other Person of which
more than 50% of the shares of the Voting Securities are owned or controlled, or
the ability to select or elect 50% or more of the directors or similar managers
is held, directly or indirectly, by such first Person or one or more of its
Subsidiaries or by such first Person and one or more of its Subsidiaries.
"Supplemental Closing" means the closing of the sale and purchase
of Series C Preferred Stock pursuant to the Standby Commitment.
"Supplemental Purchase Price" has the meaning set forth in
Section 2.4 hereof.
"Tax" or "Taxes" means all taxes, including any interest,
liabilities, fines, penalties or additions to tax that may become payable in
respect thereof, imposed by any Governmental Authority, which taxes shall
include, without limiting the generality of the foregoing, income taxes
(including, but not limited to, United States federal income taxes and state
income taxes), payroll and employee withholding taxes, unemployment insurance,
social security, sales and use taxes, excise taxes, franchise taxes, gross or
net receipts taxes, occupation taxes, real and personal property taxes, ad
valorem taxes, stamp taxes, transfer taxes, capital taxes, import duties,
withholding taxes, workers' compensation taxes, and other obligations of the
same or of a similar nature.
"Transaction Fee" means a cash fee of $1,000,000, payable to
Capital Z (or its designee) on the Initial Closing Date.
"Voting Power" means, with respect to any Voting Securities, the
aggregate number of votes attributable to such Voting Securities that could
generally be cast by the holders thereof for the election of directors (or
similar managing persons) at the time of determination (assuming such election
were then being held).
"Voting Securities" means, (i) with respect to the Company, the
Equity Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
"Warehouse Facility" shall mean any funding arrangement with a
financial institution or other lender or purchaser to the extent (and only to
the extent) any funding thereunder is available exclusively to finance or
refinance the purchase or
-9-
14
origination of mortgage loans by the Company or any of its Subsidiaries,
including, but not limited to, purchase and sale facilities pursuant to which
the Company or a Subsidiary of the Company sells mortgage loans to a financial
institution.
"Warrant" has the meaning set forth in the recitals hereto.
"Wholly-Owned Subsidiary" means, as to any Person, a Subsidiary
of such Person of which 100% of the Equity Securities (other than directors'
qualifying shares or similar shares) is owned, directly or indirectly, by such
Person.
Section 1.2. General Interpretive Principles. Whenever used in
this Agreement, except as otherwise expressly provided or unless the context
otherwise requires, any noun or pronoun shall be deemed to include the plural as
well as the singular and to cover all genders. The name assigned this Agreement
and the section captions used herein are for convenience of reference only and
shall not be construed to affect the meaning, construction or effect hereof.
Unless otherwise specified, the terms "hereof," "herein" and similar terms refer
to this Agreement as a whole (including the exhibits and schedules hereto), and
references herein to Articles or Sections refer to Articles or Sections of this
Agreement.
ARTICLE II.
ACTIONS TO OCCUR ON THE DATE HEREOF;
ISSUANCE AND SALE OF SECURITIES
Section 2.1. Actions to Occur on the Date of this Agreement.
Contemporaneously with the execution and delivery of this Agreement:
(i) the Company and the Purchaser are entering into a
Registration Rights Agreement in the form attached hereto as Exhibit F;
(ii) Capital Z and Messrs. Xxxxxxxx and Xxxxxxxxx are entering
into the Management Voting Agreement in the form attached hereto as
Exhibit H;
(iii) the Company and Messrs. Xxxxxxxx and Kornswiet are entering
into the Management Investment Agreement in the forms attached hereto as
Exhibits I-1 and I-2, respectively; and
(iv) the Company and each of Messrs. Xxxxxxxx and Xxxxxxxxx are
entering into Employment Agreements in the forms attached hereto as
Exhibit J.
-10-
15
Section 2.2. Issuance, Sale and Purchase of Senior Preferred
Stock. Upon the terms and subject to the conditions set forth in this Agreement,
and in reliance upon the representations and warranties hereinafter set forth,
at the Initial Closing, the Company will issue, sell, and deliver to the
Purchaser (including any Designated Purchasers), and the Purchaser will purchase
from the Company:
(i) a number of shares of Series B Preferred Stock equal to (I)
the quotient obtained by dividing (A) the product of (x) the number of
shares of Common Stock outstanding on the Initial Closing Date and (y)
0.998, multiplied by (B) 1,000, rounded to the nearest tenth of a share
of Series B Preferred Stock, with such number of shares of Series B
Preferred Stock to represent, as of the Initial Closing Date, 49.99% of
the total voting power of the Company entitled to vote for the election
of directors of the Company, minus (II) (A) the number of shares of
Common Stock issuable upon exercise of the Warrant and the Contingent
Warrant divided by (B) 1,000; and
(ii) a number of shares of Series C Preferred Stock equal to
75,000 minus the number of shares of Series B Preferred Stock purchased
pursuant to this Section 2.2.
The purchase price per share of Senior Preferred Stock shall equal $75,000,000
divided by the total number of shares of Senior Preferred Stock issued pursuant
to the provisions of this Section 2.2 (the "Purchase Price"). Notwithstanding
the foregoing, if the Shareholder Approval shall have been obtained, and the
Recapitalization consummated prior to the Initial Closing Date, the number
"1,000" in the foregoing clause (i) shall, in each case, instead be "1" and the
number "75,000" in the foregoing clause (ii) shall be "75,000,000."
Section 2.3. Initial Closing. (a) Subject to the satisfaction or,
if permissible, waiver of the conditions set forth in Article V hereof, the
Initial Closing shall take place at the offices of Xxxxxxx Xxxx & Xxxxxxxxx, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx at 10:00 a.m., New York City time, on the
third Business Day following the satisfaction of the closing conditions set
forth in Article V hereof, or at such other time and place as the parties may
agree (the date on which the Initial Closing occurs, the "Initial Closing
Date").
(b) At the Initial Closing, (i) the Company will deliver to the
Purchaser certificates representing the Senior Preferred Stock to be purchased
by, and sold to, the Purchaser pursuant to Section 2.2 hereof (registered in the
name or names and in the denominations designated by Capital Z at least two
Business Days prior to the Initial Closing Date), together with the other
documents, certificates and opinions to be delivered pursuant to Section 5.1
hereof, (ii) the Purchaser, in full payment for the Senior Preferred Stock to be
purchased by, and
-11-
16
sold to, the Purchaser pursuant to Section 2.2 hereof, will deliver to the
Company an amount per share equal to the Purchase Price, in immediately
available funds by wire transfer to the account specified by the Company to
Capital Z at least two Business Days prior to the Initial Closing Date, or by
such other means as may be agreed upon by the parties hereto, together with the
other documents, certificates and opinions to be delivered pursuant to Section
5.2 hereof, (iii) the Company will pay to Capital Z (or its designee) the
Transaction Fee, in immediately available funds by wire transfer to the account
designated by Capital Z at least two Business Days prior to the Initial Closing
Date, (iv) the Company will issue to Capital Z (or its designees) a warrant (the
"Contingent Warrant") in the form attached hereto as Exhibit E, and (v) the
Company shall execute and deliver the Management Services Agreement.
Section 2.4. Issuance, Sale and Purchase of Series C Preferred
Stock Pursuant to the Standby Commitment. Upon the terms and subject to the
conditions set forth in this Agreement, including, without limitation, the
consummation of the Recapitalization, and in reliance upon the representations
and warranties hereinafter set forth, at the Supplemental Closing, the Company
will issue, sell and deliver to the Purchaser (including such Affiliates of
Capital Z as Capital Z may designate in writing to the Company prior to the
Supplemental Closing Date and any Designated Purchasers), and the Purchaser will
purchase from the Company on the Supplemental Closing Date, any shares of Series
C Preferred Stock which were offered in, and which remain unsubscribed after
consummation of, the Rights Offering. The purchase price per share for the
Series C Preferred Stock purchased pursuant to the Standby Commitment shall be
the amount obtained by dividing (x) Purchase Price by (y) 1,000 (the "Standby
Purchase Price"). Notwithstanding the foregoing, if the Shareholder Approval
shall have been obtained, and the Recapitalization consummated prior to the
Initial Closing Date, the number "1,000" in the foregoing clause (y) shall
instead be "1". In the event that the Initial Closing occurs, and the
Supplemental Closing does not occur as result of a material breach by the
Purchaser of its obligation to consummate the purchase of the Series C Preferred
Stock to be purchased by the Purchaser at the Supplemental Closing (and not any
other breach or alleged breach by the Purchaser hereunder), then Capital Z shall
cause its designee which received the Warrant to return the Warrant to the
Company for cancellation. The provisions of the immediately preceding sentence
shall be of no force or effect if this Agreement terminates for any reason prior
to the Initial Closing Date.
Section 2.5. Supplemental Closing. (a) Subject to the
satisfaction or, if permissible, waiver of the conditions set forth in Article V
hereof (which are applicable to the Supplemental Closing as set forth therein),
the Supplemental Closing shall take place at the offices of Xxxxxxx Xxxx &
Xxxxxxxxx, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx at 10:00 a.m.,
-12-
17
New York City time, on the 15th Business Day following the consummation of the
Rights Offering, or at such other time and place as the parties may agree (the
date on which the Supplemental Closing occurs, the "Supplemental Closing Date").
(b) At the Supplemental Closing, (i) the Company will deliver to
Purchaser certificates representing the Series C Preferred Stock to be purchased
by, and sold to, the Purchaser pursuant to Section 2.4 hereof (registered in the
name or names designated by Capital Z at least two Business Days prior to the
Supplemental Closing Date), together with the other documents, certificates and
opinions to be delivered pursuant to Section 5.1 hereof; and (ii) the Purchaser,
in full payment for the Series C Preferred Stock to be purchased by, and sold
to, the Purchaser pursuant to Section 2.4 hereof, will deliver to the Company
the aggregate Standby Purchase Price, in immediately available funds by wire
transfer to the account specified by the Company to Capital Z at least two
Business Days prior to the Supplemental Closing Date, or by such other means as
may be agreed upon by the parties hereto, together with the other documents,
certificates and opinions to be delivered pursuant to Section 5.2 hereof. At the
Supplemental Closing, the Purchaser, at its option, may exchange up to 3,000,000
shares of Series C Preferred Stock (as such Series C Preferred Stock shall have
been adjusted pursuant to the one-thousand-for-one stock split effected pursuant
to the Recapitalization) acquired at the Initial Closing for an equivalent
number of shares of Series B Preferred Stock; provided, that, immediately
following such exchange, the total number of outstanding shares of Series B
Preferred Stock do not represent more than 49.99% of the total voting power of
the Company entitled to vote for the election of direction of the Company.
Section 2.6. Further Action. During the period from the date
hereof to the Supplemental Closing Date, each of the Company and the Purchaser
shall use all commercially reasonable efforts to take all action necessary or
appropriate to satisfy the applicable closing conditions contained herein.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company. The
Company represents and warrants to the Purchaser as follows, subject, in the
cases specified in this Article III, to the matters set forth in the disclosure
letter of the Company delivered to the Purchaser on the date hereof and
incorporated by reference herein (the "Company Disclosure Letter"). The matters
referred to in the Company Disclosure Letter shall be deemed to qualify (i) the
specific representations and warranties which are referred to therein, and (ii)
such other representations and warranties where the substance of the disclosure
made with
-13-
18
respect to such matter includes sufficient information and detail to make clear
the nature of such qualification.
Section 3.1.1. Organization, Good Standing and Qualification.
Each of the Company and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has all requisite corporate or other organizational power and
authority under such laws to own or lease and operate its properties and to
carry on its business as now conducted. Each of the Company and its Subsidiaries
is duly qualified or licensed to do business as a foreign corporation, in good
standing in each jurisdiction in which the nature of the business transacted by
it or the character of the properties owned or leased by it requires it to so
qualify or be licensed, except where the failure to be so licensed or qualified
would not, singly or in the aggregate, be reasonably likely to have a Material
Adverse Effect. The Company has made available to the Purchaser a complete and
correct copy of the Certificate of Incorporation and the Bylaws of the Company
and each of its Subsidiaries, each as amended to date and each of which as so
made available is in full force and effect. The Company has made available to
the Purchaser a complete and correct copy of the minute books of the Company and
each of its Subsidiaries, and each such minute book includes minutes of the
meetings of, and resolutions adopted by, the board of directors of each such
entity and the committees thereof to date.
Section 3.1.2. Authorization; Enforceability. (a) Except for the
Shareholder Approval, (i) the Company has all requisite corporate power and
authority to perform, execute and deliver its obligations under this Agreement,
each Ancillary Agreement to which it is a party, the Warrant, the Contingent
Warrant and the Certificates of Designations; and (ii) all corporate action on
the part of the Company, its officers, directors and stockholders necessary for
the authorization, execution and delivery of this Agreement, each Ancillary
Agreement to which the Company is a party, the Warrant, the Contingent Warrant
and the Certificates of Designation, and the performance of all obligations of
the Company hereunder and thereunder, and the authorization, issuance, sale and
delivery of the Securities, has been taken.
(b) This Agreement and each Ancillary Agreement to which the
Company is a party and which is to be entered into on the date hereof, have been
duly authorized, executed and delivered by the Company and constitute the valid
and legally binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether enforcement is sought by proceedings in
equity or at law).
-14-
19
(c) Each Ancillary Agreement to which the Company is a party and
which is to be entered into on the Initial Closing Date has been duly authorized
and, on the Initial Closing Date, will be executed and delivered by the Company
and constitute the valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law).
Section 3.1.3. Consents; No Conflict. (a) Except (i) as set forth
on the Company Disclosure Letter; (ii) required blue sky filings, if any, which
will be effected in accordance with applicable blue sky laws; (iii) filings
required under the Securities Act in connection with the Registration Rights
Agreement; (iv) the filing of a Pre-Merger Notification Form and related
documents under the HSR Act; (v) the approval of the NYSE for the issuance and
listing of the Shares on the NYSE, subject to official notice of issuance; (vi)
the Shareholder Approval, and (vii) as would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority or any other
Person on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
(b) The execution and delivery by the Company of this Agreement,
each of the Ancillary Agreements to which it is a party, and the Warrant and the
Contingent Warrant, and the performance by the Company of its obligations
hereunder, thereunder and in the Certificates of Designations, will not (i)
violate any provision of the Certificate of Incorporation or Bylaws; (ii)
violate any provision of any law or any order of any court or Governmental
Authority; (iii) conflict with, result in a breach of or constitute (with notice
or lapse of time or both) a default under, or allow any other party thereto a
right to terminate or seek a payment from the Company or any Subsidiary under
the terms of, any indenture, agreement or other instrument by which the Company
or any of its subsidiaries or any of their properties or assets is bound; or
(iv) result in the creation or imposition of any Lien upon any of the properties
or assets of the Company or any of its Subsidiaries, other than, in the case of
clauses (ii), (iii) and (iv), as would not be reasonably likely to have a
Material Adverse Effect.
Section 3.1.4. Capitalization. (a) The authorized capital stock
of the Company consists of (i) 1,000,000 shares of Preferred Stock, 500,000 of
which have been designated as Series A Preferred Stock; and (ii) 50,000,000
shares of Common Stock.
-15-
20
(b) As of December 17, 1998, no shares of Series A Preferred
Stock were issued and outstanding and there were issued and outstanding (i)
31,015,763 shares of Common Stock and (ii) options to purchase 5,247,243 shares
of Common Stock under the Option Plans.
(c) Except as set forth in the Company Disclosure Letter or as
provided in this Agreement, there are no Derivative Securities outstanding
(including preemptive rights). The Company has, and will at the Initial Closing
have (after giving effect to the issuance of securities being issued on the
Initial Closing Date) sufficient authorized Common Stock reserved for issuance
for all outstanding Derivative Securities (other than, prior to the
Recapitalization, the Senior Preferred Stock). The Company agrees that there
shall be no adjustment made pursuant to (i) Section 9 of the 1996 Stock Option
Plan, (ii) Section 8 of the 1997 Stock Option Plan, and (iii) Section 8 of the
1997 Non-Qualified Stock Option Plan to any options granted or other grants made
under the applicable plan as a result of the issuance and sale of the
Securities, and no other anti-dilution adjustment shall be required under any
other Option Plan as a result of the issuance and sale of the Securities.
(d) The Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its Equity Securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
Section 3.1.5. Subsidiaries. (a) The Company Disclosure Schedule
lists, for each Subsidiary of the Company, existing as of the date hereof, the
name of such Subsidiary, together with (i) the jurisdiction and nature (e.g.,
corporation, partnership, limited liability company) of its organization; (ii)
the number and percentage of shares of each class of Equity Securities of such
Subsidiary owned by the Company or any of its Subsidiaries; and (iii) the
identity of any Person other than the Company or its Subsidiaries that has the
right (including upon the passage of time or upon the occurrence of specified
events) to acquire any of its Equity Securities. The Equity Securities of each
such Subsidiary owned, directly or indirectly, by the Company are held free and
clear of all Liens, and all such Equity Securities have been duly authorized and
validly issued and are fully paid and non-assessable.
(b) Except for Equity Securities of the Subsidiaries of the
Company, as set forth in the Company Disclosure Letter hereto, or investment
securities of any Person held by Subsidiaries of the Company in the ordinary
course of business (provided the Company and its Subsidiaries Beneficially Own
(and, after giving effect to such transactions, would Beneficially Own), in the
aggregate, less than 5% of the Voting Power of the Voting Securities of such
Person), the Company does not, directly or indirectly, (i) Beneficially Own or
own of record any Equity Securities of, or any other equity interest in, any
other Person;
-16-
21
or (ii) have any other equity investment or other ownership interest in any
other Person.
Section 3.1.6. Dividends; Stock Repurchases. Except as disclosed
in the Company Disclosure Letter, there are no contractual or other restrictions
or limitations on the ability of the Company or any of its Subsidiaries to pay
any dividends or make any other distributions on, or to purchase, redeem or
otherwise acquire, any of its Common Stock.
Section 3.1.7. Valid Issuance of Securities. (a) The Securities
and the Shares, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly authorized, validly
issued, fully paid and nonassessable.
(b) The outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and nonassessable.
(c) The issuance, sale and delivery of the Securities and Shares
is not subject to any preemptive right of stockholders of the Company arising
under law or the Certificate of Incorporation or Bylaws or to any contractual
right of first refusal or other contractual right in favor of any Person.
Section 3.1.8. Litigation. Except as expressly disclosed in the
SEC Documents or in the Company Disclosure Letter, as of the date hereof (i)
there is no action, suit, proceeding or investigation pending or, to the
Knowledge of the Company, currently threatened against the Company or any of its
Subsidiaries that involves a claim against the Company or any of its
Subsidiaries in an amount in excess of $500,000, or that questions the validity
of this Agreement or any of the Ancillary Agreements or the right of the Company
to enter into, or to consummate, the transactions contemplated hereby or
thereby, or that would be reasonably likely, either individually or in the
aggregate, to have a Material Adverse Effect, nor does the Company have
Knowledge that there is any basis for any of the foregoing; and (ii) the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any Governmental Authority that specifically names the
Company or any of its Subsidiaries and as to which either compliance or
noncompliance is reasonably likely to have a Material Adverse Effect; and (iii)
there are no regulatory proceedings applicable to, or pending (or to the
Knowledge of the Company threatened) against the Company or any of its
Subsidiaries, which are reasonably likely to have a Material Adverse Effect. As
of the date hereof, there is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or which the Company its
Subsidiaries intends to initiate that is material to the operations of the
Company and Subsidiaries considered as a whole.
-17-
22
Section 3.1.9. Compliance with Law and Other Instruments. (a)
Except as disclosed in the SEC Documents or in the Company Disclosure Letter,
the Company and its Subsidiaries are not in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or decree
applicable to any of them or by which any of their property or assets is bound
or affected; or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, License, permit, franchise or other instrument or obligation to which any
of them is a party or by which any of their property or assets is bound or
affected, except for any such conflicts, defaults or violations that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect.
(b) Any and all requirements of any federal, state, or local law
including, without limitation, usury, truth in lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws applicable to the origination and servicing of mortgage loans represented
as assets on the most recent financial statements of the Company and its
Subsidiaries have been complied with, except for any failure to so comply that
would not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect.
(c) The Company and each Subsidiary of the Company holds all
material Licenses from all Governmental Authorities necessary for the conduct of
its business pursuant to any Securitization Documents to which it is a party and
has received no notice of proceedings relating to the revocation of any such
License, which alone or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would be reasonably likely to have a Material
Adverse Effect or materially and adversely affect (i) the ability of the Company
or any Subsidiary of the Company to perform its obligations under any
Securitization Documents, or (ii) the validity or enforceability of any mortgage
loans included in any Securitization Transaction to which the Company or any
Subsidiary of the Company is a party or any mortgage loan serviced by the
Company or any Subsidiary of the Company.
Section 3.1.10. SEC Documents; Financial Statements. (a) There
are no agreements, understandings or proposed transactions between the Company
or any of its Subsidiaries and any of their respective officers, directors or
Affiliates, or any Affiliate thereof, of a type that would be required to be
disclosed on Form 10-K for the year ending on June 30, 1998 other than the
agreements, understandings or proposed transactions disclosed in the SEC
Documents (as defined below).
(b) The Company has timely filed all reports required to be filed
by it with the SEC since July 1, 1995 pursuant to the Exchange Act. The Company
has provided the Purchaser with copies of (i) the Company's annual reports on
Form 10-K for the years ended June 30, 1996, 1997 and 1998; (ii) the Proxy
Statement
-18-
23
filed by the Company with the SEC on October 28, 1998 with respect to the 1998
Annual Meeting of Stockholders of the Company originally scheduled to be held on
December 18, 1998; and (iii) the Company's quarterly report on Form 10-Q for the
quarter ended September 30, 1998 (collectively, together with any other reports
or filings made by the Company since July 1, 1995 and prior to the date hereof
with the SEC pursuant to the requirements of the Securities Act or the Exchange
Act, the "SEC Documents"). As of their respective dates, or, in the case of
registration statements as of their respective effective dates, the SEC
Documents complied (or, as to filings by the Company with the SEC after the date
hereof, will comply) in all material respects with the requirements of the
Exchange Act or the Securities Act, as applicable. None of the SEC Documents, as
of their respective dates, contained (or, as to filings by the Company with the
SEC after the date hereof, will contain) any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Without limiting the representations and
warranties made in Section 3.1.11, the representation in the immediately
preceding sentence shall not apply to any misstatement or omission in any SEC
Document filed prior to the date of this Agreement which was superseded or
corrected by a subsequent SEC Document filed by the Company before the date
hereof.
(c) Except as otherwise noted therein or in the Company
Disclosure Letter, the financial statements of the Company included in the SEC
Documents comply (or, as to filings by the Company with the SEC after the date
hereof, will comply) as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles, except in the case of unaudited statements, applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
during the periods involved and fairly present the consolidated financial
position of the Company and its Subsidiaries as of the respective date thereof
and the consolidated results of their operations and cash flows for the
respective periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).
(d) None of the information set forth on Schedule 3.1.10(d)
hereof contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 3.1.11. Undisclosed Liabilities. Except as disclosed in
the SEC Documents, at June 30, 1998, there were no liabilities or obligations of
any nature (whether accrued, absolute, fixed, contingent, liquidated,
unliquidated or
-19-
24
otherwise and whether due or to become due) required by GAAP to be set forth on
the Balance Sheet (as defined below) of the Company and its Subsidiaries taken
as a whole except as reflected or reserved against on the balance sheet at June
30, 1998 (including the notes thereto, the "Balance Sheet"). Since June 30,
1998, except as set forth in the SEC Documents, the Company has not incurred any
such liabilities or obligations except (i) liabilities incurred in the ordinary
course of business consistent with past practice, (ii) such as would not be
reasonably likely to, individually or in the aggregate, have a Material Adverse
Effect, or (iii) as contemplated by this Agreement or the letter agreement
referred to in Section 6.2(e).
Section 3.1.12. Absence of Certain Changes or Events. Except as
disclosed in the SEC Documents or in the Company Disclosure Letter, or as a
consequence of, or as contemplated by, this Agreement, since September 30, 1998,
(i) the business of the Company has been carried on only in the ordinary and
usual course; (ii) there has not occurred any change or event which has resulted
or is reasonably likely to result in a Material Adverse Effect; provided,
however, that in determining whether a Material Adverse Effect has occurred,
there shall be excluded any change or effect resulting from matters disclosed by
the Company in any SEC Document filed prior to the date hereof or in the Company
Disclosure Letter; provided, further, that any material worsening of the capital
markets generally or the Company's liquidity needs or access to capital from
that in existence as of the date hereof shall be deemed to result in a Material
Adverse Effect, and (iii) neither the Company nor any Company Subsidiary has
taken any action of the type described in Section 4.1.
Section 3.1.13. ERISA and Other Employment Matters. (a) Except as
set forth in the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries nor any trade or business (whether or not incorporated) under
common control with the Company or any of its Subsidiaries within the meaning of
Section 414(b), (c), (m) or (o) of the Code (the "Controlled Group") maintains
or contributes to or has any obligation to contribute to, or has any liability
(contingent or otherwise) with respect to, any plan, program, arrangement,
agreement or commitment which is an employment, consulting or deferred
compensation agreement, or an executive compensation, incentive bonus or other
bonus, employee pension, profit-sharing, savings, retirement, stock option,
stock purchase, severance pay, life, health, disability or accident insurance
plan, or vacation, or other employee benefit plan, program, arrangement,
agreement or commitment, including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of ERISA (individually, a "Plan", and
collectively, the "Plans").
With respect to the Plans, the Company has delivered to the
Purchasers or their Representatives current copies of: (i) the Plan documents,
and, where applicable, related trust agreements, and any related agreements
which are in writing; (ii)
-20-
25
summary Plan descriptions; (iii) the most recent Internal Revenue Service
determination letter relating to each Plan for which a letter of determination
was obtained; (iv) to the extent required to be filed, the most recent Annual
Report (Form 5500 Series and accompanying schedules of each Plan and applicable
financial statements) as filed with the Internal Revenue Service; and (v)
audited financial statements, if any.
(b) In all material respects, each Plan conforms to, and its
administration is in substantial compliance with, all applicable requirements of
law, including, without limitation, ERISA and the Code, and all of the Plans are
in full force and effect as written, and all premiums, contributions and other
payments required to be made by the Company, any Company Subsidiary or any
member of the Controlled Group under the terms of any Plan have been made or
accrued.
(c) Each Plan that is intended to be qualified under Section
401(a) of the Code and each trust maintained pursuant thereto has received a
favorable determination letter from the Internal Revenue Service with respect to
each such Plan's qualification and its trust's exemption from tax, and, to the
Knowledge of the Company, nothing has occurred since the date of such letter
which could adversely impact such qualification and tax exemption. No Plan that
is an employee welfare benefit plan as defined in Section 3(1) of ERISA is
funded through a voluntary employees' beneficiary association as defined in
Section 501(c)(9) of the Code.
(d) Neither the Company nor any Company Subsidiary nor any member
of the Controlled Group has ever maintained, contributed to or incurred any
liability with respect to any plan subject to Title IV of ERISA or Section 412
of the Code.
(e) There are no multiemployer plans (as defined in Subsection
3(37) of ERISA) to which the Company, any Company Subsidiary or any member of
the Controlled Group is, or has ever been required to make a contribution or
other payment.
(f) There has been no non-exempt prohibited transaction (within
the meaning of Section 4975 of the Code or Section 406 of ERISA) with respect to
any Plan or penalty incurred with respect to any Plan under Section 502(i) of
ERISA.
(g) Except as set forth in the Company Disclosure Letter, neither
the Company nor any Company Subsidiary maintains any Plan providing
post-retirement benefits other than Plans qualified under Section 401(a) of the
Code ("Post-Retirement Benefits"). Neither the Company nor any Company
Subsidiary is liable for Post-Retirement Benefits under any plan not maintained
by the Company or any Company Subsidiary. The Company and its Subsidiaries have
complied in all material respects with the requirements of Section 4980B of the
Code and Sections 601 et
-21-
26
seq. of ERISA relating to continuation coverage for group health plans.
(h) There has been no material violation of ERISA or the Code
with respect to the filing of applicable reports, documents and notices
regarding the Plans with the Secretary of Labor or the Secretary of the Treasury
or the furnishing of required reports, documents or notices to the participants
or beneficiaries of the Plans.
(i) There are no pending actions, claims or lawsuits which have
been asserted, instituted or, to the Knowledge of the Company, threatened,
against the Plans, the assets of any of the trusts under such Plans or the Plan
sponsor or the Plan administrator, or, to the Knowledge of the Company, against
any fiduciary of the Plans with respect to the operation of such Plans (other
than routine benefit claims).
(j) There has been no mass layoff or plant closing as defined by
the Worker Adjustment and Retraining Notification Act or any similar state or
local "plant closing" law with respect to the employees of the Company or any
Company Subsidiary which resulted in any liability of the Company or any Company
Subsidiary which remains unsatisfied.
(k) The execution of, and performance of the transactions
contemplated in, this Agreement will not, either alone or upon the occurrence of
subsequent events, result in (i) any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any employee
or (ii) the Company's or any Company Subsidiary's failing to be able to deduct
for Federal income tax purposes any items on account of Section 280G or 162(m)
of the Code.
Section 3.1.14. Taxes. Except as disclosed in the Company
Disclosure Letter or in the SEC Documents:
(a) The Company is the common parent of an affiliated group of
corporations (within the meaning of Section 1504(a) of the Code) eligible to
file consolidated federal income Tax Returns, of which the Company is a member.
From July 1, 1994 through the Initial Closing Date, the Company has included
each Subsidiary in its consolidated federal income Tax Return as a member of the
affiliated group of which the Company is the common parent.
(b) The Company and its Subsidiaries have duly filed all U.S.
federal, state, local, foreign and other tax returns (including any information
returns), reports and statements that are required to have been filed with the
appropriate taxing authority and have paid all Taxes with respect to the taxable
periods covered by such returns, reports or statements. All information provided
with respect to the taxable periods covered
-22-
27
by such returns, reports and statements is complete and accurate in all material
respects.
(c) Any liability of the Company for Taxes not yet due and
payable, or which are being contested in good faith, has been provided for on
the financial statements of the Company in accordance with generally accepted
accounting principles.
(d) No audits or investigations relating to any Taxes for which
the Company or its Subsidiaries may be liable are pending or threatened in
writing by any taxing authority. There are no agreements or applications by the
Company or any of its Subsidiaries for the extension of the time for filing any
tax return or paying any Tax, and neither the Company nor any Subsidiary has
extended or waived any statute of limitation for the assessment of any Taxes.
The Company Disclosure Letter lists the audit status of each of the Company's
tax returns.
(e) Neither the Company nor any of its Subsidiaries are parties
to any agreements relating to the sharing or allocation of, or indemnification
agreement with respect to, Taxes, or similar contract or arrangement.
(f) Since January 1, 1994, no claim has been made by any Tax
authority in a jurisdiction where the Company or any Subsidiary does not
currently file a Tax return that it is or may be subject to Tax by such
jurisdiction, nor to the Company's Knowledge is any such assertion threatened.
(g) As of January 1, 1998 for U.S. federal income tax purposes,
the Company had no net operating loss carryforwards. There has not been an
ownership change of the Company within the meaning of Section 382 of the Code
during the five years preceding the date of this Agreement.
(h) The Company or its Subsidiaries have withheld from its
employees, independent contractors and third parties and timely paid to the
appropriate taxing authority proper and accurate amounts in all material
respects through all periods in compliance in all material respects with all Tax
withholding provisions of all applicable Laws.
(i) Neither the Company nor any Subsidiary has income that is
includable in computing the taxable income of a United States person (pursuant
to Section 7701 of the Code) under Section 951 of the Code.
(j) All material elections with respect to Taxes of the Company
or any Subsidiary are set forth in the Company Disclosure Letter.
Section 3.1.15. Company Intellectual Property. (a) The Company
and its Subsidiaries own or have the valid and enforceable right to use all
material Intellectual Property
-23-
28
necessary for the conduct of their business and operations as currently
conducted.
(b) The Company Disclosure Letter sets forth a complete list of
all material Intellectual Property owned by the Company and its Subsidiaries.
Except as indicated in the Company Disclosure Letter, the Company and its
Subsidiaries own all right, title and interest in the material Intellectual
Property free and clear of all Liens and other adverse claims and has the right
to use without payment to a third party. The Intellectual Property owned or
licensed by the Company and/or its Subsidiaries is adequate and sufficient for
the conduct of the business of the Company and its Subsidiaries in the ordinary
course and as currently proposed to be conducted.
(c) Except as set forth in the Company Disclosure Letter and
except as relates to trademarks and service marks not registered or subject to
application for registration, the material Intellectual Property is valid,
subsisting, unexpired, in proper form and enforceable and all renewal fees and
other maintenance fees with respect to material Intellectual Property, as
applicable, which have fallen due on or before the effective date of this
Agreement have been paid. The grants, registrations and applications for the
material Intellectual Property have not lapsed, expired or been abandoned and no
application or registration thereof is the subject of any legal or governmental
proceeding before any governmental, registration or other authority in any
jurisdiction other than grants, registrations or applications, the lapse,
expiration or abandonment of which would not reasonably be expected to have a
Material Adverse Effect.
(d) Except as set forth in the Company Disclosure Letter and
except for infringements, claims, demands, proceedings and defects in rights
that would not reasonably be expected to have a Material Adverse Effect, to the
Company's Knowledge, (i) there are no conflicts with or infringements of any
Company Intellectual Property by any third party; and (ii) the conduct of the
business of the Company and its Subsidiaries as currently conducted does not
conflict with or infringe any proprietary right of any third party. Except as
set forth in the SEC Documents, there is no claim, suit, action or proceeding
pending or, to the Knowledge of the Company or its Subsidiaries, threatened
against the Company or its Subsidiaries, (i) alleging any such conflict or
infringement with any third party's proprietary rights; or (ii) challenging the
ownership, use, validity or enforceability of the Company Intellectual Property
that would be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect.
(e) The Company Disclosure Letter sets forth a complete and
correct list, as of the date hereof, of all material Licenses. The Company has
furnished Purchaser with complete and correct copies of the Licenses listed in
the Company Disclosure Letter, as in effect on the date hereof. Neither the
Company nor
-24-
29
its Subsidiaries nor, to the Company's Knowledge, any other party thereto, is in
default under any License listed in the Company Disclosure Letter as of the date
hereof, and each License listed in the Company Disclosure Letter is in full
force and effect as to the Company or any of its Subsidiaries party thereto and,
to the Company's Knowledge, as to each other party thereto, except for such
defaults and failures to be in full force and effect as would not reasonably be
expected to have a Material Adverse Effect. Except as set forth in the Company
Disclosure Letter, neither the Company nor its Subsidiaries is under any
obligation to pay royalties or similar payments in connection with any License
listed in the Company Disclosure Letter in excess of $25,000 per year in the
aggregate.
(f) Except as set forth in the Company Disclosure Letter, neither
the Company nor its Subsidiaries is, nor will any of them be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement in breach of any License listed in the Company Disclosure
Letter. The validity and enforceability of the material Company Intellectual
Property and the registration thereof has not been materially affected adversely
as a result of the consummation of the transactions contemplated by this
Agreement.
(g) Neither the Company nor its Subsidiaries has entered into any
material consent, indemnification, forbearance to xxx or settlement agreement
with any person relating to the material Company Intellectual Property or the
Intellectual Property of any third party other than as set forth in the Company
Disclosure Letter.
(h) The Company and its Subsidiaries have developed and commenced
a comprehensive plan to modify or replace any items, products or systems used in
the operation of the business of the Company or its Subsidiaries, which
incorporate the processing of dates and date-related data (including, but not
limited to, calculating, comparing and sequencing) that are operationally
material to the business of Company or its Subsidiaries including, but not
limited to, computer systems, infrastructure items, software applications,
hardware, and related equipment and utilities ("Products") to ensure that such
Products will be Year 2000 Compliant by August 31, 1999 except where
non-compliance would not be reasonably likely to have a Material Adverse Effect.
As part of such plan, the Company either (i) has undertaken (or will undertake)
all reasonable efforts to obtain, or has obtained, assurances from its vendors
that such vendors' products are already Year 2000 Compliant or will be Year 2000
Compliant by August 31, 1999; or (ii) the Company will have modified or replaced
such products by August 31, 1999.
Section 3.1.16. Contracts. (a) Except as set forth in the SEC
Documents or the Company Disclosure Letter, neither
-25-
30
the Company nor any of its Subsidiaries is a party or subject to any of the
following (whether written or oral, express or implied): (i) any employment
agreement or understanding or obligation, with respect to severance or
termination, to pay liabilities or fringe benefits with any present or former
officer or director of the Company or with any consultant of the Company or any
of its Subsidiaries, who is or may be entitled to receive pursuant to the terms
thereof, compensation in excess of $100,000 upon termination of such Person's
employment or engagement; (ii) any plan, contract or understanding providing for
bonuses, pensions, options, deferred compensation, retirement payments, royalty
payments, profit sharing or similar understanding with respect to any present or
former officer or director of the Company or with any consultant of the Company
or any of its Subsidiaries, who is or may be entitled to receive pursuant to the
terms thereof, compensation in excess of $100,000 in any single year, or (iii)
any non-compete or similar agreement or obligation of the Company or any
Subsidiary. Except as set forth in the Company Disclosure Letter or in the SEC
Documents, neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement covering their respective employees.
(b) Except as set forth in the SEC Documents, none of the
Company, any of its Subsidiaries, or to the Knowledge of the Company, any other
party is in breach or violation or in default in the performance or observance
of any term or provision of any contract, agreement, indenture, mortgage, loan
agreement, note, lease or other instrument to which the Company or any such
Subsidiary is a party or by which the Company or any such Subsidiary is bound or
to which any of the properties of the Company or any such Subsidiary is subject,
which breach, violation or default is reasonably likely to, individually or in
the aggregate, have a Material Adverse Effect.
Section 3.1.17. Insurance. The Company and its Subsidiaries are
insured with reputable insurers against such risks and in such amounts as are
prudent in accordance with industry practices. All the insurance policies,
binders, or bonds maintained by the Company or its Subsidiaries (the "Policies")
have been maintained in accordance with their respective terms and will remain
in full force and effect after the Closing. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its Subsidiaries has received
any notice of default with respect to any provision of any such Policies. With
respect to its directors' and officers' liability insurance policies, neither
the Company nor any of its Subsidiaries has failed to give any notice or present
any claim thereunder in due and timely fashion or as required by any such
policies so as to jeopardize full recovery under such Policies.
Section 3.1.18. Registration Rights. Other than as set forth in
the Company Disclosure Letter, the Company has not
-26-
31
granted or agreed to grant any registration rights, including piggyback rights,
to any person or entity.
Section 3.1.19. Brokers. Other than its financial advisor,
Xxxxxxxxx, Xxxxxx and Xxxxxxxx Securities Corporation ("DLJ"), the Company has
not employed any investment banker, broker, finder, or intermediary in
connection with the transactions contemplated by this Agreement, and the Company
is under no obligation to pay any investment banking, brokerage, finder's or
similar fee or commission in connection with such transactions, other than
certain fees payable to DLJ, which are the obligation of the Company, which fees
are specified in the Company Disclosure Letter. The Company has provided to
Capital Z copies of all agreements between the Company or any of its
Subsidiaries and DLJ with respect to the transactions contemplated hereby.
Section 3.1.20. Environmental Protection. (a) The Company and its
Subsidiaries are not in violation of any Environmental Laws, other than such
violations which have not had and are reasonably expected not to have a Material
Adverse Effect and have, and are in compliance with all terms and conditions of,
all permits, licenses and authorizations necessary for the conduct of their
respective businesses, other than such instances of non-compliance which are not
reasonably likely to have a Material Adverse Effect.
(b) There is no site which is listed on either the National
Priorities List pursuant to CERCLA or a similar state or local law list with
respect to which the Company or any Subsidiary has received notice from the
United States Environmental Protection Agency or a state or local agency that
the Company or any Subsidiary is considered to be a potentially responsible
party by reason of arranging for disposal, owning or operating any facility or
site or transporting any Hazardous Waste.
Section 3.1.21. State Takeover Laws. The Company has taken all
actions necessary to render any potentially applicable state takeover law,
including, but not limited to, Section 203 of the DGCL, inapplicable to (a) the
transactions contemplated hereby and by the Ancillary Agreements and (b) any
future transactions between the Company, on the one hand, and the Purchaser
and/or any of its Affiliates or Designated Purchasers and/or any of their
respective Affiliates, on the other hand. The Company has taken all action so
that the entering into of this Agreement and the consummation of the sale of the
Senior Preferred Stock, the issuance of the Warrant and the Contingent Warrant
and the other transactions contemplated by this Agreement do not and will not
result in the grant of any rights to any person under the Certificate of
Incorporation, Bylaws, or other governing instruments of the Company, or
restrict or impair the ability of the Purchaser to vote, or otherwise to
exercise the rights of a stockholder with respect to, shares of the Company
-27-
32
that may be directly or indirectly acquired or controlled by the Purchaser.
Section 3.1.22. Proxy Statement. None of the information in the
Proxy Statement (other than the information referred to in Section 3.2.5) will,
at the time of the mailing of the Proxy Statement to the Company's stockholders
(or, in the case of any amendment or supplement thereto, at the time of mailing
of such amendment or supplement, as the case may be) and at the time of the
Shareholders' Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
Section 3.1.23. Fairness Opinion. The Company has obtained an
opinion from DLJ as to the fairness, from a financial point of view, of the
Purchase Price to be paid for the Senior Preferred Stock pursuant to this
Agreement. A copy such fairness opinion has been provided to Capital Z prior to
the date hereof.
Section 3.1.24. Certain Assets. (a) Except as set forth in the
Company Disclosure Letter, none of the Company nor any Subsidiary of the Company
is in default and no trigger event has occurred (other than those which have
been cured) under any Securitization Document to which it is a party; and no
event has occurred which with notice or lapse of time or both would constitute
such a default or trigger event under any Securitization Document to which it is
a party.
(b) Except as set forth in the Company Disclosure Letter, none of
the Company nor any Subsidiary of the Company has received any notice from any
Rating Agency or any other Person that (i) the Company or any Subsidiary of the
Company is or, with the passage of time may be, no longer eligible to service
mortgage loans or (ii) that the ratings assigned to any of the Securitization
Securities may be subject to modification, qualification or downgrade by any
Rating Agency.
(c) No breach of any representation or warranty made by the
Company or any Subsidiary of the Company in any Securitization Document (other
than those which have been cured) with respect to any mortgage loans has
occurred and none of the Company nor any Subsidiary of the Company has received
any notice of such a breach of a representation or warranty with respect to any
mortgage loans such that the Company or any Subsidiary of the Company is
obligated to substitute or repurchase any mortgage loans included in a
Securitization Transaction.
(d) Other than servicing advances that are expressly permitted
under any applicable Securitization Document, neither the Company nor any of its
Subsidiaries, nor to the Knowledge of the Company, any director or officer of
the Company or any entity controlled by any of them, has made or advanced,
directly or
-28-
33
indirectly, payments of principal or interest on any mortgage loan that is
included in any Securitization Transaction that was sponsored by the Company or
a Subsidiary of the Company or that is serviced by the Company or a Subsidiary
of the Company.
(e) None of the Company nor any Subsidiary of the Company has
withdrawn any amounts on deposit in any collection account, servicing account,
distribution account or other similar account created under any Securitization
Documents to which it is a party, except as expressly provided in such
Securitization Documents.
(f) None of the servicing fees payable to the Company or any
Subsidiary of the Company under any Securitization Document is, or upon the
occurrence of any event will be, subordinated to any distributions to investors
in the related Securitization Transaction.
(g) None of the Company or any Subsidiary of the Company has made
any payment to any third party insurer of a Securitization Transaction to
prevent such insurer from paying a claim under an insurance policy with respect
to such Securitization Transaction.
(h) The value of each mortgage loan or pool mortgage loans and
Securitization Security owned by the Company or any Subsidiary of the Company
has been marked to market on the books and records of the Company or such
Subsidiary.
Section 3.1.25. Fiduciary Activities. The Company and each of its
Subsidiaries has properly administered in all respects material and which could
reasonably be expected to be material to the financial condition of the Company
and its Subsidiaries taken as a whole all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, or custodian, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law.
Neither the Company nor any Subsidiary has committed any breach of trust with
respect to any such fiduciary account which is material to or could reasonably
be expected to be material to the financial condition of the Company and its
Subsidiaries taken as a whole, and the accountings for each such fiduciary
account are true and correct in all material respects and accurately reflect the
assets of such fiduciary account.
Section 3.1.26. Warehouse Facilities. The Company and its
Subsidiaries have in full force and effect as of the date hereof (i) committed
Warehouse Facilities in the total amount of approximately $300 million and (ii)
uncommitted Warehouse Facilities in the total amount of approximately $700
million. The Company Disclosure Letter sets forth the names, locations, balances
and limits of all such Warehouse Facilities.
-29-
34
Section 3.2. Representations and Warranties of the Purchaser. The
Purchaser represents and warrants to the Company that:
Section 3.2.1. Organization. The Purchaser is a limited
partnership duly organized and validly existing under the laws of Bermuda.
Section 3.2.2. Authorization. The Purchaser has full power and
authority to enter into this Agreement and the Ancillary Agreements. Each of
this Agreement and the Ancillary Agreements to which the Purchaser is a party
has been duly authorized, executed and delivered by the Purchaser and
constitutes the valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law).
Section 3.2.3. Purchase for Investment. The Purchaser is an
accredited investor as defined under Rule 501(a) of the Securities Act. The
Securities and the Shares will be acquired for investment for the Purchaser's
(or its Affiliates' or a Designated Purchaser's) own account and not with a view
to the resale or distribution of any part thereof, except in compliance with the
provisions of the Securities Act or an exemption therefrom.
Section 3.2.4. Restricted Securities. The Purchaser understands
that the Securities and the Shares are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such Securities and the Shares may be resold
without registration under the Securities Act only in certain limited
circumstances.
The Purchaser further agrees that each certificate representing the
Securities or the Shares shall be stamped or otherwise imprinted with a legend
substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION
IS AVAILABLE."
A certificate shall not bear such legend if the Purchaser shall have delivered
to the Company an opinion of counsel reasonably satisfactory to the Company to
the effect that the securities
-30-
35
being sold may be publicly sold without registration under the Securities Act.
The foregoing shall not be deemed to affect the obligations of the Company under
the Registration Rights Agreement.
Section 3.2.5. Purchaser Information. None of the information
regarding the Purchaser supplied by the Purchaser in writing specifically for
inclusion in the Proxy Statement will, at the time of the mailing of the Proxy
Statement to the Company's stockholders (or, in the case of any amendment or
supplement thereto, at the time of mailing of such amendment or supplement, as
the case may be) and at the time of the Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Section 3.2.6. Consents; No Conflict. (a) Except as set forth in
Schedule 3.2.6., no consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
governmental authority, agency or body or any other person on the part of the
Purchaser is required in connection with the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements, except for (i) the
filing of a Pre-Merger Notification Form and related documents under the HSR
Act; (ii) filings required under the Securities Act or the Exchange Act; or
(iii) such consents, approvals, orders, authorizations, registrations,
qualifications, designations, declarations or filings, which if not obtained or
made, as the case may be, are not reasonably likely to impair in any material
respect the ability of the Purchaser to perform any of its obligations or
agreements hereunder or under the Ancillary Agreements or consummate the
transactions contemplated hereby or thereby.
(b) Neither the execution and delivery of this Agreement by
Purchaser, nor the consummation of the transactions contemplated hereby, nor the
fulfillment of the terms and compliance with the provisions hereof will conflict
with or result in a material breach of or a material default (or in an
occurrence which with the lapse of time or action by a third party, or both,
could result in a material default) with respect to any of the terms, conditions
or provisions of any applicable order, writ or decree of any court or of any
Governmental Authority, applicable to Purchaser, or of the governing documents
of Purchaser, or of any indenture, contract, agreement, lease, or other
instrument to which Purchaser is a party or subject or by which Purchaser or any
of its properties or assets are bound, or of any applicable statute, rule, or
regulation to which Purchaser or its businesses is subject.
Section 3.2.7. Brokers. Other xxxx Xxxxxxx Xxxxx & Co., the
Purchaser has not employed any investment banker,
-31-
36
broker, finder, or intermediary in connection with the transactions contemplated
by this Agreement, and the Purchaser is under no obligation to pay any
investment banking, brokerage, finder's or similar fee or commission in
connection with such transactions, other than certain fees payable to Xxxxxxx
Xxxxx & Co., which are the obligation of the Purchaser (except to the extent
otherwise provided in Section 6.1).
Section 3.2.8. Financing. The Purchaser has or will have at the
Initial Closing and the Supplemental Closing sufficient funds available to it to
consummate the purchase of the Senior Preferred Stock at the Initial Closing and
the Supplemental Closing, as the case may be, as contemplated hereby.
ARTICLE IV.
CERTAIN AGREEMENTS OF THE PARTIES
Section 4.1. Conduct of Business of the Company. Except as set
forth in the Company Disclosure Letter, from the date of this Agreement until
the earlier of the Initial Closing or the termination of this Agreement, unless
the prior written consent of the Purchaser shall have been obtained, and except
as otherwise contemplated by this Agreement, the Company will conduct, and will
cause each of its Subsidiaries to conduct, its operations according to its
ordinary and usual course of business consistent with past practice and shall
use all reasonable efforts to preserve intact its current business
organizations, keep available the service of its current senior officers and key
employees, maintain its material permits and contracts and preserve its
relationships with customers, suppliers and others having material business
dealings with it. Without limiting the generality of the foregoing, and except
as otherwise contemplated by this Agreement or as set forth in the Company
Disclosure Letter, the Company will not, without the prior written consent of
the Purchaser:
(a) issue, sell, grant, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, sale, disposition or
pledge or other encumbrance of (i) any additional shares of capital
stock of any class (including shares of Common Stock), or any securities
or rights convertible into, exchangeable for, or evidencing the right to
subscribe for any shares of capital stock, or any rights, warrants,
options, calls, commitments or any other agreements of any character to
purchase or acquire any shares of capital stock or any securities or
rights convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of capital stock or (ii) any other securities
in respect of, in lieu of, or in substitution for, shares of Common
Stock outstanding on the date hereof;
-32-
37
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding shares of Common
Stock;
(c) split, combine, subdivide or reclassify any shares of Common
Stock or declare, set aside for payment or pay any dividend, or make any
other actual, constructive or deemed distribution in respect of any
capital stock of the Company or otherwise make any payments to
stockholders in their capacity as such, except for dividends by a direct
or indirect wholly owned Company Subsidiary;
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of the Subsidiaries;
(e) adopt any amendments to its Certificate of Incorporation or
Bylaws or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or
ownership of any direct or indirect Subsidiary, except for Subsidiaries
which are not material to the assets, liabilities, financial condition
or results of operations of the Company and the Subsidiaries taken as a
whole;
(f) make, or permit any Company Subsidiary to make, any material
acquisition, by means of merger, consolidation or otherwise, or material
disposition, of assets or securities;
(g) other than in the ordinary course of business consistent
with past practice, incur, or permit any Subsidiary to incur, any
material indebtedness for borrowed money or guarantee any such
indebtedness or make any material loans, advances, or capital
contributions to, or other material investments in, any person other
than the Company or any Subsidiary;
(h) change any method of accounting or accounting practice by
the Company or any Subsidiary, except for such required change in GAAP
or applicable statutory accounting principles;
(i) make, change or revoke, or permit to be made, changed or
revoked, any election or method of accounting with respect to Taxes
affecting or relating to the Company or any of the Subsidiaries;
(j) enter into, or permit to be entered into, any closing or
other agreement or settlement with respect to Taxes affecting or
relating to the Company or any of its Subsidiaries;
-33-
38
(k) (x) take, or agree or commit to take, or permit any
Subsidiary to take, or agree or commit to take, any action that would
make any representation and warranty of the Company hereunder inaccurate
in any material respect at the Initial Closing (except for
representations and warranties which speak as of a particular date,
which need be accurate only as of such date); (y) omit, or agree or
commit to omit, or permit any Subsidiary to omit, or agree or commit to
omit, to take any action necessary to prevent any such representation
and warranty from being inaccurate in any material respect at the
Initial Closing (except for representations and warranties which speak
as of a particular date, which need be accurate only as of such date),
provided however that the Company shall be permitted to take or omit to
take such action which can be cured, and in fact is cured, at or prior
to the Initial Closing; or (z) any action that would result in, or would
be reasonably likely to result in, any of the conditions set forth in
Article V not being satisfied;
(l) settle or compromise any claim brought by any present,
former or purported holder of any securities of the Company in
connection with the transactions contemplated by this Agreement prior to
the Initial Closing Date, without the prior written consent of the
Purchaser, which consent may not be unreasonably withheld; or
(m) authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any contract, agreement, commitment
or arrangement to do any of the foregoing.
Section 4.2. Approvals, Etc. Subject to the terms and conditions
provided herein, each of the parties hereto agrees to (i) promptly effect all
registrations, submissions and filings, including but not limited to, filings
under the HSR Act, which may be necessary or required in connection with the
consummation of the transactions contemplated by this Agreement; (ii) use all
reasonable efforts to take all other action and to do all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement; and (iii) use all
reasonable efforts to obtain all other necessary or appropriate waivers,
consents and approvals with respect to the transactions contemplated by this
Agreement, including but not limited to all waivers of "change of control" or
similar provisions that may be applicable with respect to the transactions
contemplated by this Agreement.
Section 4.3. Access; Non-Solicitation. (a) The Company hereby
agrees that, from the date hereof until the earlier to occur of the termination
of this Agreement and the Initial Closing Date, the Company will grant the
Purchaser and its (or their) Representatives such access during normal business
-34-
39
hours as may be reasonably requested to the personnel, advisors, properties,
books, accounts, records, contracts and documentation of, or relating to, the
business and operations of the Company and its Subsidiaries, and neither the
Company nor any of its Subsidiaries shall authorize or permit any of their
respective officers, directors or employees, or any representative of the
Company or any of its Subsidiaries to, (A) solicit, initiate or encourage
(including by way of furnishing information) or take any other action to
facilitate, any inquiry or the making of any proposal which constitutes, or may
reasonably be expected to lead to, any acquisition or purchase of all or a
significant portion of the assets or business of the Company or its subsidiaries
(determined on a consolidated basis), or an equity interest in the Company or
any of its Subsidiaries, or any merger, consolidation, business combination or
similar transaction involving the Company or any of its Subsidiaries or any
other similar transaction (each, an "Alternative Transaction") or agree to or
endorse any Alternative Transaction; or (B) engage in any negotiations
concerning or have any discussions with any Person relating to an Alternative
Transaction.
(b) Notwithstanding the foregoing, the Company may, (subject to
compliance by the Company with the other requirements of this Section 4.3(b)),
furnish information concerning its business, properties or assets to any Person
pursuant to appropriate confidentiality agreements, and may negotiate and
participate in discussions and negotiations with such Person concerning an
Alternative Transaction if (x) such Person has on an unsolicited basis submitted
a bona fide written proposal to the Company relating to any such transaction
which the Board of Directors determines in good faith, after receiving advice
from a nationally recognized investment banking firm, represents a superior
transaction to the transactions contemplated by this Agreement, (y) such
transaction is not conditioned upon obtaining additional financing and is
reasonably likely to be consummated without unreasonable delay compared to the
transactions contemplated by this Agreement and (z) in the opinion of the Board
of Directors of the Company, only after receipt of advice from outside legal
counsel to the Company, such action is required to avoid a breach of the
fiduciary duties of the Board of Directors to the Company's stockholders under
applicable law (a proposal which satisfies clauses (x), (y) and (z) being
referred to herein as a "Superior Proposal"). The Company hereby agrees that if,
prior to the Initial Closing, it shall receive a Superior Proposal, the Company
shall promptly thereafter notify the Purchaser in writing of the receipt of such
Superior Proposal and the material terms and conditions thereof. If the Company
determines to accept the terms of such Superior Proposal, it shall promptly
notify the Purchaser in writing of such determination. Within ten Business Days
from receipt of such notice from the Company, the Purchaser shall notify the
Company either that (i) it is prepared to enter into a transaction with the
Company on the terms and conditions set forth in the Superior
-35-
40
Proposal (with such modifications to the terms thereof which relate to the
identity of the other party to the transaction or which do not adversely affect
the economic terms thereof to the Company or impose material other conditions)
(a "Matching Notice"), or (ii) it declines to match such Superior Offer. If the
Purchaser delivers a Matching Notice to the Company, (x) the Company shall grant
to the Purchaser the right (which may be exercised by the Purchaser in its sole
discretion) to enter into a definitive agreement for the Alternative Transaction
contemplated by such Superior Proposal on such terms and conditions, except that
if such Superior Proposal contemplates the payment of consideration other than
cash and/or marketable securities, the Purchaser shall have the option to pay
the equivalent value in cash and/or marketable securities, and (y) the parties
agree to negotiate in good faith to complete such definitive agreement within 30
days from the date such notice is given by the Purchaser. The Company may,
during such 30-day period, negotiate the terms of such Superior Proposal with
the person or persons making such Superior Proposal, it being understood that
the Purchaser's rights hereunder will apply to any subsequent Superior Proposal
which may be made. Notwithstanding the foregoing, if any Superior Proposal is a
modification by a Person of a Superior Proposal which has been previously made
by such Person, the ten-business day period referred to in this Section 4.3(b)
shall instead be deemed to be a five-business day period with respect to such
modified Superior Proposal. If the Purchaser does not give a Matching Notice
within such ten-business day period (or five-business day period in respect of a
modification specified in the preceding sentence), the Company shall be entitled
to terminate this Agreement in order to take the action referred to in Section
4.3(c) and enter into a definitive agreement to effect such Alternative
Transaction and shall, concurrently with such termination, pay to the Purchaser
the fee required by Section 6.2(b). Nothing in this Section 4.3(b) (including,
without limitation, the election by the Purchaser not to give a Matching Notice)
shall limit the Company's obligations to the Purchaser under any other provision
of this Agreement.
(c) Except to the extent permitted by Section 4.3(b), neither the
Board of Directors of the Company nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to the
Purchaser, the approval or recommendation by such Board of Directors or any such
committee this Agreement or the transactions contemplated hereby, including,
without limitation, the Recapitalization, (ii) approve or recommend or propose
to approve or recommend, any Alternative Transaction or (iii) enter into any
agreement with respect to any Alternative Transaction.
Section 4.4. Existing Rights . The Company hereby represents that
as of the date this Agreement, the Company has taken all necessary action to
amend the Existing Rights Agreement so as to prevent the Existing Rights from
becoming exercisable
-36-
41
upon the consummation of the transactions contemplated hereby. At or prior to
the Initial Closing, the Company shall cause the Existing Rights Agreement to be
amended to have rights issued thereunder with respect to the Senior Preferred
Stock on a Common Stock equivalent basis.
Section 4.5. Proxy Statement; Shareholders' Meeting. (a) As
promptly as possible after the date hereof, the Company shall prepare and file
with the SEC the Proxy Statement. The Company shall use it reasonable best
efforts to file a definitive Proxy Statement with the SEC as promptly as
practicable after such initial filing, and promptly thereafter the Company shall
mail the definitive Proxy Statement to the holders of Common Stock.
(b) The Company and Purchaser shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, executive officers, stockholders, and partners and such other matters
as may be reasonably necessary or advisable in connection with the Proxy
Statement, or any other statement, filing, notice or application made by or on
behalf of the Company or Purchaser to any third party and/or any Government
Authority in connection with the transactions contemplated by this Agreement.
(c) The Company will take, in accordance with its Certificate of
Incorporation and Bylaws, all action necessary to convene the Shareholders'
Meeting as promptly as practicable after the date the Proxy Statement is mailed
in order to obtain the Shareholder Approval and shall use all commercially
reasonable efforts to solicit such approval. At the Shareholders' Meeting, the
Purchaser shall vote its Voting Securities of the Company in favor of the
Recapitalization, the New Option Plan and any other matters which are required
to be approved by the Company's shareholders in connection with the issuance and
sale of the Senior Preferred Stock and the consummation of the Recapitalization.
Section 4.6. Publicity . Neither the Company nor the Purchaser
shall make any public announcement concerning this Agreement or the transactions
contemplated hereby without the prior written consent of the other, except as
may be required by law or NYSE rule or as may be necessary in connection with
the satisfaction of the conditions to Closing hereunder (provided, that, prior
to such disclosure, if practicable, the Company or the Purchaser, as the case
may be, shall notify the other of such intended disclosure and consult with the
other on the specific disclosure to be made).
Section 4.7. Warehouse Facilities. The Company shall use all
commercially reasonable efforts to cause to be in effect, as of the Initial
Closing Date, Warehouse Facilities consistent with the requirements of Section
5.1.14.
-37-
42
Section 4.8. NYSE Waiver. The Company shall as promptly as
practicable prepare and submit to the NYSE an application seeking the NYSE
Waiver, which application has been approved by the Board of Directors or the
Audit Committee of the Board of Directors. The Company shall comply with Section
312.03 of the NYSE Listed Company Manual and all other NYSE rules and
regulations with respect to the NYSE Waiver, pursuant to which the Company shall
mail to all stockholders not later than ten (10) days before the Initial Closing
Date a letter alerting the stockholders to the Company's omission to seek
Shareholder Approval and that the Audit Committee of the Board of Directors has
expressly approved the NYSE Waiver.
Section 4.9. Recapitalization; Rights Offering. As promptly as
possible after obtaining the Shareholder Approval, the Company shall take all
necessary action to effectuate and complete the Recapitalization, including, but
not limited to, (i) making all necessary filings with the NYSE (including having
the NYSE approve for listing on the NYSE the shares of Common Stock into which
the Senior Preferred Stock may be converted) and (ii) filing an amended
Certificate of Incorporation with the Secretary of State of the State of
Delaware. Following the completion of the Recapitalization, the Company will
offer to its existing holders of Common Stock non-transferable rights ("Purchase
Rights") to purchase an aggregate of $25,000,000 in stated value (at $1.00 per
share) of Series C Preferred Stock at the Standby Purchase Price (the "Rights
Offering"), which Purchase Rights shall expire thirty (30) days after issuance.
The Rights Offering shall be subject to the conditions set forth on Exhibit K
attached hereto. The Purchaser shall be provided with copies of all documents
relating to the Recapitalization and the Rights Offering, and all such documents
shall be subject to the comments and prior approval of the Purchaser. Without
limiting any rights of the Purchaser hereunder or under the Certificate of
Designations, if the Shareholder Approval is not obtained, the Company shall
take all actions reasonably requested by the Purchaser and consistent with the
DGCL to effect the increase in the authorized shares of capital stock of the
Company contemplated by the Recapitalization.
Section 4.10. Material Developments. Prior to the Initial
Closing, the Company shall keep the Purchaser advised of all material
developments relevant to its business and to consummation of the transactions
contemplated hereby.
Section 4.11. New Option Plan; Other Employee Arrangements. The
Company shall cause the New Option Plan to be effective as of the Initial
Closing Date, subject to shareholder approval and consummation of the
Recapitalization. The Company shall use all reasonable efforts to cause to be
effective, at the Initial Closing, the actions set forth on Schedule 5.1.7.
Section 4.12. Board of Directors. The Company will exercise all
authority and take all such actions (including,
-38-
43
without limitation, complying with Section 14(f) of the Exchange Act) which it
may take under applicable law which are necessary to cause, concurrently with
the Initial Closing, the Board of Directors to consist of nine persons as of the
Initial Closing Date and to cause five nominees of the Purchaser to be appointed
to the Board of Directors as of such date. From and after the Initial Closing
Date, the Company shall (i) cause the four nominees (the "Series B Designees")
designated by the holders of the Series B Preferred Stock to be elected as
directors in accordance with the Series B Certificate of Designations; and (ii)
nominate one additional director designated by Capital Z (the "Capital Z
Nominee") to the Company's stockholders for election as directors at each annual
meeting of stockholders of the Company at which the applicable class of
directors is being elected and shall use its best efforts to cause the election
of each such nominee, including soliciting proxies in favor of the election of
such persons. The Company's By-laws shall be amended, effective as of the
Initial Closing Date, to be consistent with the foregoing and the Series B
Certificate of Designations. If, in connection with the conversion into Common
Stock of all outstanding shares of Series B Preferred Stock, the holders of a
majority of such shares request that the Series B Designees continue to serve as
directors after such conversion, the Company shall take such actions to assure
the continuation of the Series B Designees as directors after such conversion,
until the next meeting at which any such director is to be elected. In the event
that any such nominee elected to the Board of Directors shall cease to serve as
a director for any reason, the vacancy resulting therefrom shall be filled by
such Board with a substitute person who has been nominated by the Holders of
Series B Preferred Stock (in the case of a Series B Designee) or by Capital Z
(in the case of the Capital Z Nominee). Following the election or appointment of
the Series B Designees and the Capital Z Nominee pursuant to this Section 4.12
and prior to the earlier to occur of June 30, 1999 and the Supplemental Closing,
any amendment or waiver by the Company of any term or condition of this
Agreement, any Ancillary Agreement or the Certificate of Incorporation or the
By-Laws, any termination by the Company of this Agreement or any Ancillary
Agreement, any extension by the Company of the time for the performance of any
of the obligations or other acts of the Purchaser or waiver or assertion of any
of the Company's rights hereunder, or any other consents or actions by the Board
of Directors with respect of this Agreement or any Ancillary Agreement, will
require, and will require only (with respect to such action on behalf of the
Company), the concurrence of a majority of the Continuing Directors, except to
the extent that applicable law requires that such action be acted upon by the
full Board of Directors, in which case such action will require the concurrence
of a majority of the Directors, which majority shall include each of the
Continuing Directors, and no other action by the Company shall be required for
purposes of this Agreement. After the date of this Agreement, until the earlier
to occur of the consummation of the Supplemental Closing and June 30, 1999, or
the earlier termination of this Agreement,
-39-
44
the Purchaser will not exercise any rights it may have as a stockholder of the
Company to effect a change in the composition of the Board of Directors of the
Company, except as provided for in this Section 4.12.
Section 4.13. Indemnification and Insurance. From and after the
Initial Closing date:
(a) The Company shall include as part of its Certificate of
Incorporation and Bylaws provisions relating to the indemnification of
all current and former directors, officers, employees and agents of the
Company which are no less favorable than the provisions contained in the
Company's Certificate of Incorporation and Bylaws as of the date hereof.
Such provisions shall not be amended, repealed or otherwise modified for
a period of not less than six years after the Initial Closing Date in
any manner that would adversely affect the rights thereunder of
individuals who as of the date hereof were directors, offices, employees
or agents of the Company in respect to actions or omissions occurring at
or prior to the Initial Closing Date (including, without limitation,
actions or omissions which occur in connection with the transactions
contemplated by this Agreement) unless such modification is required by
law.
(b) The Company shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless each present and former
director, officer, employee and agent of the Company or any of its
Subsidiaries (collectively, the "Indemnified Parties") against any costs
or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, (x) arising
out of or pertaining to the transactions contemplated by this Agreement
or (y) otherwise with respect to any act or omissions occurring at or
prior to the Initial Closing Date, in each case for a period of not less
than six years after the Initial Closing Date. In the event of any such
claim, action, suit, proceeding or investigation, whether arising before
or after the Initial Closing Date (i) any counsel retained by the
Indemnified Parties for any period after the Initial Closing Date shall
be reasonably satisfactory to the Company, (ii) after the Initial
Closing date, the Company shall pay the reasonable fees and expenses of
such counsel, promptly after statements therefor are received, and (iii)
the Company shall cooperate in defense of any such matter; provided,
however, that the Company shall not be liable for any settlement
effected without its written consent (which consent shall not be
unreasonably withheld); and provided, further, that in the event that
any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect of any such
-40-
45
claim or claims shall continue until the disposition of any and all such
claims. The Indemnified Parties as a group may retain only one law firm
to represent them with respect to any single action unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more indemnified
parties in which case this limitation shall not apply.
(c) For the period not less than six years after the Initial
Closing Date, the Company shall maintain in effect directors' and
officers' liability insurance covering those persons who are currently
covered by the Company's directors' and officers' liability insurance
policy on terms no less favorable that those now applicable to directors
and officers of the Company, provided that in no event shall the Company
be required to expend annually more than 150% of the amount that the
Company spent for these purposes in the last fiscal year to maintain or
procure insurance coverage pursuant hereto; and provided further that if
the Company is unable to obtain the insurance called for by this section
the Company will obtain as much comparable insurance as is available for
such amount per year.
Section 4.14. Issuance of Warrant. The Company agrees to issue
the Warrant to the Purchaser on January 4, 1999. Such obligation shall survive
termination of this Agreement for any reason whatsoever.
ARTICLE V.
CLOSING CONDITIONS
Section 5.1. Conditions to Obligation of Purchaser. The
obligation of the Purchaser to purchase the Senior Preferred Stock at the
Initial Closing Date and at the Supplemental Closing Date shall be subject to
the satisfaction or waiver of the following conditions (provided, that, with
respect to the Supplemental Closing, such obligation shall only be subject to
the consummation of the Initial Closing, the consummation of the
Recapitalization prior to June 30, 1999 and the satisfaction or waiver of the
conditions set forth in Sections 5.1.1, 5.1.2, 5.1.4, 5.1.7, 5.1.8, 5.1.9,
5.1.12 and 5.1.13) on or before the applicable Closing Date:
Section 5.1.1. Representations and Warranties Complete and
Correct. The representations and warranties of the Company contained in Section
3.1 hereof which are qualified as to materiality or a Material Adverse Effect
shall have been true and correct when made and shall be true and correct at and
as of the Initial Closing Date, as if made on and as of such date (except for
representations and warranties which speak as of a specific time or date, which
shall be true and correct as of such time and
-41-
46
date). The representations and warranties of the Company contained in Section
3.1 hereof which are not qualified as to materiality or a Material Adverse
Effect shall have been true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Initial
Closing Date, as if made on and as of such date (except for representations and
warranties which speak as of a specific time or date, which shall be true and
correct in all material respects as of such time and date).
Section 5.1.2. Compliance with this Agreement. The Company shall
have executed and delivered all securities, documents and instruments required
to be executed and delivered on the applicable Closing Date and shall have
performed and complied in all material respects with all agreements and
covenants contained herein which are required to be performed or complied with
by it on or before the applicable Closing Date.
Section 5.1.3. Officers' Certificate. The Purchaser shall have
received a certificate, dated as of the Initial Closing Date and signed by the
President or any Vice President and attested by the Secretary of the Company,
certifying that the conditions set forth in Sections 5.1.1 and 5.1.2 are
satisfied on and as of such date.
Section 5.1.4. Consents; Debt Waivers. (a) The consents,
approvals, authorization, and filings set forth on Schedule 5.1.4(a) shall have
been obtained or made.
(b) The Company shall have received each of the debt waivers and
have obtained consents listed on Schedule 5.1.4(b) hereto on terms set forth
therein.
Section 5.1.5. Supporting Documents. The Purchaser shall have
received copies of the following documents:
(i) (A) the Certificate of Incorporation, certified as of a
recent date by the appropriate authority of the Company's jurisdiction
of incorporation; and (B) a certificate of such authority dated as of a
recent date as to the due incorporation and good standing of the Company
and each Subsidiary, and listing all documents of the Company on file
with said authority; and
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated as of the Initial Closing Date and certifying: (A)
that attached thereto is a true and complete copy of the Bylaws of the
Company as in effect on the date of such certification; (B) that
attached thereto is a true and complete copy of all resolutions adopted
by the Board of Directors or the stockholders of the Company authorizing
the execution, delivery and performance of this Agreement and the
Ancillary Agreements, the issuance, sale and delivery of the Securities
and the Shares, and that all
-42-
47
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement and the Ancillary Agreements; (C) that the Certificate of
Incorporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i)(B)
above; and (D) that the Bylaws have not been amended since the date of
the last amendment referred to in such certificate pursuant to subclause
(ii)(A) above.
Section 5.1.6. HSR Act. Any required waiting periods under the
HSR Act relating to the transactions to be consummated on the Initial Closing
Date shall have expired or been terminated.
Section 5.1.7. Other Agreements; Additional Investments. The
Company shall have complied in all material respects with all agreements
required to be complied with by it under the Ancillary Agreements on or before
the applicable Closing Date. Each of the Ancillary Agreements entered into prior
to the Initial Closing Date shall be in full force and effect, and none of the
other parties thereto (other than the Purchaser) shall have breached any of
their respective obligations thereunder (unless such breach shall have been
cured). The transactions contemplated by Section 4.11 shall have been completed
and the waivers described on such Schedule 5.1.7 shall be effective.
Section 5.1.8. Material Adverse Change. Since the date of this
Agreement, there shall not have occurred (i) a Material Adverse Effect or (ii)
any change or event which is reasonably likely to have a Material Adverse
Effect, provided, however, that in determining whether a Material Adverse Effect
has occurred, there shall be excluded any change or effect resulting from
matters disclosed by the Company in any SEC Document filed prior to the date
hereof or in the Company Disclosure Letter; and provided, further, that any
material worsening of the capital markets generally or the Company's liquidity
needs or access to capital from that in existence as of the date hereof shall be
deemed to result in a Material Adverse Effect.
Section 5.1.9. Illegality, Etc. No statute, rule or regulation,
or order, decree or injunction enacted, entered, promulgated or enforced by any
Governmental Authority shall be in effect which prohibits or restricts the
consummation of the transactions contemplated hereby or by any of the Ancillary
Agreements.
Section 5.1.10. NYSE Waiver; Stockholder Approval. The NYSE
Waiver shall have been obtained and the terms thereof complied with or, in the
event that the Shareholder Meeting is held prior to the Initial Closing Date,
the Shareholder Approval shall have been obtained. The shares of Common Stock
shall
-43-
48
continue to be listed on the NYSE and the NYSE shall not have initiated any
proceedings to, or have otherwise indicated and intention to, delist the Common
Stock.
Section 5.1.11. Legal Opinions. The Purchaser shall have received
an opinion or opinions of counsel to the Company, dated as of the Initial
Closing, covering the matters set forth in Exhibit L.
Section 5.1.12. Litigation. There shall not be pending any
litigation, action or proceeding (an "Action") by any Governmental Authority or
any other Person challenging the transactions contemplated by this Agreement or
any of the Ancillary Agreements or seeking material damages with respect thereto
(but only to the extent such damages will not, in the reasonable judgment of the
Purchaser, be covered by insurance which is maintained by and available to the
Company, unless, notwithstanding such coverage, the settlement or other
disposition of such Action would not be reasonably likely to have a Material
Adverse Effect), which Action, in the reasonable judgment of the Purchaser
(after consultation with the Company), has a material likelihood of success.
Section 5.1.13. Board of Directors. The Board of Directors shall
have been reconstituted as contemplated by Section 4.12 hereof.
Section 5.1.14. Warehouse Facilities. The Company and its
Subsidiaries shall have in full force and effect as of the Initial Closing Date,
subject to the consummation of the Initial Closing, committed Warehouse
Facilities in the total amount of at least $600 million, which commitments have
terms of at least 6-12 months. The other terms and conditions of such Warehouse
Facilities, when taken as a whole, shall be at least as favorable to the Company
or relevant Subsidiary as those in effect on the date hereof with respect to
existing Warehouse Facilities.
Section 5.2. Conditions to the Obligations of the Company. The
Company's obligation to sell the Senior Preferred Stock on the Initial Closing
Date shall be subject to the satisfaction or waiver by it of the following
conditions on or before the Initial Closing Date:
Section 5.2.1. Compliance with this Agreement. The Purchaser
shall have executed and delivered all documents required to be executed and
delivered on the applicable Closing Date and shall have performed and complied
in all material respects with all agreements and covenants contained herein or
in any Ancillary Agreement which are required to be performed or complied with
by it on or before the applicable Closing Dates.
Section 5.2.2. Purchaser's Representations and Warranties
Complete and Correct. The Purchaser's representations and warranties contained
in Section 3.2 of this Agreement shall
-44-
49
be true and correct in all material respects when made and shall be true and
correct in all material respects at and as of the Closing Date, as if made on
and as of such date.
Section 5.2.3. Officer's Certificate. The Company shall have
received a certificate, dated the Initial Closing Date and signed by a duly
authorized officer of the Purchaser, certifying that the conditions set forth in
Sections 5.2.1 and 5.2.2 are satisfied on and as of such date.
Section 5.2.4. Consents. (a) The consents, approvals,
authorization, and filings set forth on Schedule 5.1.4(a) shall have been
obtained or made.
(b) The Company shall have received each of the debt waivers and
obtained consents listed on Schedule 5.1.4(b) hereto on terms set forth therein.
Section 5.2.5. HSR Act. Any required waiting periods under the
HSR Act relating to the transactions to be consummated on the Initial Closing
Date shall have expired or been terminated.
Section 5.2.6. Illegality, Etc. No statute, rule or regulation,
or order, decree or injunction enacted, entered, promulgated or enforced by any
Governmental Authority shall be in effect which prohibits or restricts the
consummation of the transactions contemplated hereby.
Section 5.2.7. NYSE Waiver; Stockholder Approval. The NYSE Waiver
shall have been obtained and the terms thereof complied with, or in the event
that the Shareholder Meeting is held prior to the Initial Closing Date, the
Shareholder Approval shall have been obtained.
Section 5.2.8. Legal Opinions. The Company shall have received an
opinion or opinions of counsel to the Purchaser, dated as of the Closing Dates,
covering the matters set forth in Exhibit M.
ARTICLE VI.
TERMINATION
Section 6.1. Termination. This Agreement may be terminated as
follows:
(a) by mutual written consent of the Company and the Purchaser;
or
(b) by either party if the Initial Closing shall not have
occurred by May 1, 1999 (and the failure of the Initial Closing to occur is not
due to the breach by either party of this
-45-
50
Agreement); provided, however, that if, at such date, there shall be pending a
Superior Proposal in respect of which the Purchaser may exercise rights under
Section 4.3(b), such date may be extended at the option of the Purchaser (one or
more times) until the date that the Purchaser shall not have any further rights
under such Section 4.3(b); or
(c) by either party (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained in this Agreement), prior to the Initial Closing, in the
event of a breach by the other party of any representation or warranty contained
in this Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching Party of such breach and which breach
would cause (i) in the case of a breach by the Company, the conditions set forth
in Section 5.1 not to be satisfied (assuming the Initial Closing were to occur
on the date of such termination), and (ii) in the case of a breach by the
Purchaser, the conditions set forth in Section 5.2 not to be satisfied (assuming
the Initial Closing were to occur on the date of such termination); or
(d) by either party (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained in this Agreement), prior to the Initial Closing, in the
event of a material breach by the other party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach; or
(e) by either party (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained in this Agreement), prior to the Initial Closing, in the
event any court of competent jurisdiction in the United States or some other
governmental body or regulatory authority shall have issued an order permanently
restraining, enjoining or otherwise prohibiting the sale of the Senior Preferred
Stock and such order shall have become final and nonappealable; provided that
the party seeking to terminate this Agreement pursuant to this Section 6.1(e)
shall have used all reasonable efforts to remove such order; or
(f) by the Purchaser, prior to the Initial Closing, if the
Shareholder's Meeting has occurred prior to the Initial Closing and the
Shareholder Approval was not received;
(g) by the Purchaser, prior to the Initial Closing, if the
Company takes any action referred to in clauses (i), (ii), or (iii) of Section
4.3(c) or enters into an agreement to effect an Alternative Transaction pursuant
to Section 4.3(b); or
-46-
51
(h) by the Company, prior to the Initial Closing, in accordance
with (and subject to compliance with the provisions of) Section 4.3(b).
Section 6.2. Effect of Termination; Termination Fee. (a) In the
event of the termination of this Agreement pursuant to Section 6.1, this
Agreement shall forthwith become void and have no effect, without any liability
on the part of any party hereto, other than the provisions of Sections 4.14,
6.2, 7.1, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10 and 7.11, which shall survive
any such termination. Nothing contained in this Section 6.2 shall relieve any
party from liability for any willful breach of this Agreement.
(b) If this Agreement is terminated (i) pursuant to Sections
6.1(b) or (f), (ii) by the Purchaser pursuant to Section 6.1(g) or (iii) by the
Company pursuant to Section 6.1(h), the Company shall pay to Capital Z (or its
designee) a cash fee equal to $5,500,000, such fee to be payable (A) in the case
of a termination referred to in clause (i) above, if, on or prior to November
15, 1999, (x) the Company (and/or one or more of its Subsidiaries) consummates a
Covered Transaction (as defined below) or enters into a letter of intent,
agreement-in-principle or definitive agreement to effect a Covered Transaction
(and subsequently consummates such Covered Transaction, whether before or after
such first anniversary) or (y) any person or group (other than the Purchaser)
acquires in a single transaction or series of related transactions equity
securities of the Company representing 25% or more of the voting or equity
interests in the Company or (B) in the case of a termination referred to in
clause (ii) or (iii) above, immediately upon such termination.
(c) As used herein:
(i) a "Covered Transaction" shall mean (x) any Alternative
Transaction other than (I) an Excluded Asset Transaction or an Excluded
Equity Transaction or (II) any asset sale undertaken by the Company as
part of a partial liquidation of the Company's business (i.e., and not
as part of a transaction or series of related transactions in which the
Company's business is being sold to one or more persons as an entirety
or substantially as an entirety) or (III) any sale of an equity interest
in the Company or any subsidiary not included in clause (y) below or (y)
any transaction or series of related transactions in which a person or
group provides (or commits to provide) $25,000,000 or more of capital to
the Company and/or its Subsidiaries (whether structured as debt or
equity, or a combination thereof), but not including short-term debt
financing;
(ii) an "Excluded Asset Transaction" shall mean the sale
of all or a portion of the Company's servicing business; and
-47-
52
(iii) an "Excluded Equity Transaction" means the issuance
of equity interests in the Company (or securities exercisable for such
equity securities) as part of a "residuals" financing transaction or
other working capital financing, which issuance (together with all other
issuances in connection with any such transactions) does not involve, in
the aggregate, the issuance of equity securities (or rights to acquire
same) representing more than a 10% equity interest in the Company.
(d) The fee payable under Section 6.2(b)(i) shall be paid on the
date a Covered Transaction is consummated (in the case of clause (A)(x) of
Section 6.2(b)) or on the date such acquisition occurs (in the case of clause
(A)(y) of Section 6.2(b)).
(e) The provisions of this Section 6.2(b) supersede the
provisions of paragraph 4(c) of the letter agreement dated November 16, 1998
between Capital Z and the Company.
(f) All fees payable under this Section 6.2 shall be payable in
immediately available funds to an account specified by Capital Z to the Company
in writing.
ARTICLE VII.
MISCELLANEOUS
Section 7.1. Expenses and Indemnification. (a) The Company hereby
agrees to pay or reimburse the Purchaser and its affiliates for all reasonable
out-of-pocket expenses (including the reasonable fees and disbursements of legal
counsel and investment and other advisors and consultants and expenses) incurred
in connection with the transactions contemplated by this Agreement and the
Ancillary Agreements, whether incurred before or after the date hereof and
whether or not such transactions contemplated hereby are made or effected. Any
such amounts shall be paid or reimbursed promptly after invoicing thereof by the
Purchaser which invoicing shall be accompanied by supporting detail evidencing
such expenses.
(b) In addition to the foregoing the Company agrees to indemnify
and hold harmless the Purchaser and any of its officers, partners, members,
directors, employees and affiliates (direct or indirect) from and against all
actions, suits, proceedings (including any investigations or inquiries), claims,
losses, damages, liabilities or expenses of any kind or nature whatsoever
("Claims") which may be incurred by or asserted against or involve the
Purchaser, or any of its officers, partners, members, directors, employees or
affiliates (direct or indirect) as a result of any third party claim arising out
of the transactions contemplated hereby and, upon demand by the Purchaser or any
such officer, partner, member, director,
-48-
53
employee or affiliates, pay or reimburse any of the Purchaser or such officers,
partners, members, directors, employees or affiliates for any reasonable
out-of-pocket legal or other expenses, and other internal costs incurred by the
Purchaser or its officers, partners, members, directors, employees or affiliates
(direct or indirect) in connection with the investigation, defending or
preparing to defend any such Claim, provided that the foregoing indemnity shall
not apply to the extent any Claim arises from any material breach by the
Purchaser of this Agreement or the gross negligence or willful misconduct of an
indemnified party.
(c) Each person entitled to indemnification under Section 7.1(b)
(each an "Indemnified Party") shall give notice to the Company promptly after
such Indemnified Party has actual knowledge of any Claim as to which indemnity
may be sought, and shall permit the Company to assume the defense of any such
Claim; provided, that counsel for the Company, who shall conduct the defense of
such Claim, shall be approved by the Indemnified Party (which approval shall not
be unreasonably withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there is a conflict of interest between the
Indemnified Party and the Company in such action, in which case the reasonable
fees and expenses for one such counsel for all Indemnified Parties (and one
local counsel) shall be at the expense of the Company), and provided, further,
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Company of its obligations under Section 7.1(b) or this
Section 7.1(c) unless the Company is materially prejudiced thereby. The Company
may not, in the defense of any such Claim, except with the consent of each
Indemnified Party (which consent shall not be unreasonably withheld or delayed),
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
Claim. Each Indemnified Party shall furnish such information regarding itself or
the Claim in question as the Company may reasonably request in writing and as
shall be reasonably required in connection with the defense of such Claim.
Section 7.2. Survival of Representations and Warranties. The
representations and warranties (i) of the Company set forth in Sections 3.1.1
through 3.1.7, inclusive, and Sections 3.1.19, 3.1.21 and 3.1.22 hereof and (ii)
of the Purchaser set forth in Sections 3.2.1 through 3.2.7, inclusive, shall
survive the Closing, indefinitely. None of the other representations or
warranties made in Article III of this Agreement shall survive the Initial
Closing Date.
Section 7.3. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person or
mailed by certified or registered mail,
-49-
54
return receipt requested, or sent by facsimile transmission, addressed as
follows:
(a) if to the Company:
Aames Financial Corporation
2 California Plaza
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Fax No.: (000) 000-0000
with a copy to:
Troop Xxxxxxx Pasich Reddick & Xxxxx
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: C. N. Xxxxxxxx Xxxxxxx, Esq.
Fax No.: (000) 000-0000
(b) if to the Purchaser:
Capital Z Financial Services
Fund II, L.P.
Xxx Xxxxx Xxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
Fax No.: (000) 000-0000
with copies to:
Xxxxxxx Xxxx & Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Fax No.: (000) 000-0000
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others. All notices, requests,
consents and other communications hereunder shall be deemed to have been duly
given or served on the date on which personally delivered or on the date
actually received, if sent by mail or telex, with receipt acknowledged.
Section 7.4. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to conflicts of law principles thereof.
Section 7.5. Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto and the Company Disclosure Letter, constitutes the
sole and entire agreement of the parties with respect to the subject matter
hereof. All such documents are hereby incorporated herein by reference.
-50-
55
Section 7.6. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.7. Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent of
the Company and the Purchaser.
Section 7.8. Severability. If any provision of this Agreement
shall be declared void or unenforceable by any judicial or administrative
authority, the validity of any other provision and of the entire Agreement shall
not be affected thereby.
Section 7.9. Titles and Subtitles. The titles and subtitles used
in this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement. The term
"date of this Agreement" and words of similar import (such as "date hereof")
shall mean and refer to December 23, 1998.
Section 7.10. Further Assurances. From and after the date of this
Agreement, upon the request of the Purchaser or the Company, the Company and the
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement.
Section 7.11. Successors and Assigns. (a) Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the Company's successors and assigns. Except as provided in
Section 7.11(b) hereof, neither this Agreement nor any rights hereunder shall be
assignable by any party hereto without the prior written consent of the other
party hereto; provided, however, that the Purchaser may assign all or part of
its interest in this Agreement and its rights hereunder to any of its Affiliates
and, thereafter, the term "Purchaser," as applied to the assigning Purchaser,
shall include any such Affiliate to the extent of such assignment and shall mean
the assigning Purchaser and such Affiliates taken collectively; and, provided,
further, that no such assignment shall relieve the Purchaser of its obligations
hereunder.
(b) Notwithstanding the foregoing, prior to the Closing the
Purchaser may assign its rights with respect to the purchase of up to 33 1/3% of
the Senior Preferred Stock to be purchased by the Purchaser hereunder to (i) any
Affiliate of Capital Z, including, for this purpose, Equifin or any Person in
which the direct or indirect partners of Capital Z or its general partner have
an economic interest, and/or (ii) any other Person or Persons not included in
the preceding clause (i) which is approved by the Company, such approval not to
be unreasonably withheld or delayed (each such Person, a "Designated
Purchaser").
-51-
56
IN WITNESS WHEREOF, the Company and the Purchaser have executed
this Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION
By: /S/ Xxxxxxx Xxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxx
Title: Executive Vice President
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.,
By its General Partner
CAPITAL Z PARTNERS, L.P.,
By its General Partner
CAPITAL Z PARTNERS, LTD.
By: /S/ Xxxx X. Xxxxx
-------------------------------
Name: Xxxx X. Xxxxx
Title: Partner
-52-
57
EXHIBIT A
--------------------------------------------------------------------------------
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
AAMES FINANCIAL CORPORATION
--------------------------------------------------------------------------------
AAMES FINANCIAL CORPORATION, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation (the "Board of Directors") pursuant to
authority of the Board of Directors as required by Section 151 of the Delaware
General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors in accordance with the provisions of the Certificate
of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
SERIES B CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
The designation of this series of shares shall be "Series B
Convertible Preferred Stock" (the "Series B Preferred Stock") par value $0.001
per share; the initial stated value per share shall be $1,000.00 (the "Initial
Stated Value"); and the number of shares constituting such series shall be
100,000. The number of shares of the Series B Preferred Stock may be decreased
from time to time by a resolution or resolutions of the Board of Directors;
provided, however, that such number shall not be decreased below the aggregate
number of shares of the Series B Preferred Stock then outstanding.
II. RANK
A. With respect to dividends, the Series B Preferred Stock
shall rank (i) senior to each other class or series of Preferred Stock, except
for the Series C Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series C Preferred Stock"); (ii) on a parity with the Series C
Preferred Stock; and (iii) senior to the Corporation's Common Stock, par value
$.001 per share (the "Common Stock"), and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to dividends, all equity securities of the Corporation
to which the Series B Preferred Stock ranks senior, including the Common Stock,
are collectively referred to herein as the
58
"Junior Dividend Securities"; all equity securities of the Corporation with
which the Series B Preferred Stock ranks on a parity, including the Series C
Preferred Stock, are collectively referred to herein as the "Parity Dividend
Securities"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series B Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as the "Senior
Dividend Securities."
B. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series B Preferred Stock shall rank (i) senior to each other
class or series of Preferred Stock of the Corporation, except for the Series C
Preferred Stock; (ii) on a parity with the Series C Preferred Stock; and (iii)
senior to the Common Stock, and, except as specified above, all other classes
and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
all equity securities of the Corporation to which the Series B Preferred Stock
ranks senior, including the Common Stock, are collectively referred to herein as
"Junior Liquidation Securities"; all equity securities of the Corporation (other
than convertible debt securities) to which the Series B Preferred Stock ranks on
parity, including the Series C Preferred Stock, are collectively referred to
herein as "Parity Liquidation Securities"; and all equity securities of the
Corporation to which the Series B Preferred Stock ranks junior are collectively
referred to herein as "Senior Liquidation Securities."
C. The Series B Preferred Stock shall be subject to the
creation of Junior Dividend Securities and Junior Liquidation Securities
(collectively, "Junior Securities"), but no Parity Dividend Securities or Parity
Liquidation Securities (collectively, "Parity Securities") (other than the
Series C Preferred Stock) or Senior Dividend Securities or Senior Liquidation
Securities (collectively, "Senior Securities") shall be created except in
accordance with the terms hereof.
III. DIVIDENDS
A. DIVIDENDS. Subject to the terms of paragraph D below,
shares of Series B Preferred Stock shall accumulate dividends at a rate of 6.5%
per annum (the "Dividend Rate"), which dividends shall be paid quarterly in
cash, in four equal quarterly installments on the last day of March, June,
September and December of each year, or if any such date is not a Business Day,
the Business Day next preceding such day (each such date, regardless of whether
any dividends have been paid or declared and set aside for payment on such date,
a "Dividend Payment Date"), to holders of record (the "Registered Holders") as
they appear on the stock record books of the Corporation on the fifteenth day
prior to the relevant Dividend Payment Date; provided, however, that during the
Accrual Period (as defined in Article IX hereof) the Corporation shall have the
option to accrue such dividends, which dividends, to the extent so accrued,
shall compound quarterly. Prior to the consummation of the Recapitalization,
dividends shall accrue and accumulate on the Initial Stated Value of each share
of Series B Preferred Stock. Following the consummation of the Recapitalization,
dividends shall accrue and accumulate on the Post-Recapitalization Stated Value
of each share of Series B Preferred Stock. Dividends shall be paid only when, as
and if declared by the Board of Directors out of funds at the time
2
59
legally available for the payment of dividends. Dividends shall begin to
accumulate on outstanding shares of Series B Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.
B. ACCUMULATION. Dividends on the Series B Preferred Stock
shall be cumulative, and from and after (i) any Dividend Payment Date on which
any dividend that has accumulated or been deemed to have accumulated through
such date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at 125% of the
stated dividend rate (or such lesser rate as may be the maximum rate that is
then permitted by applicable law). Such additional dividends in respect of any
Arrearage shall be deemed to accumulate from day to day whether or not earned or
declared until the Arrearage is paid, shall be calculated as of such successive
Dividend Payment Date, and shall constitute an additional Arrearage from and
after any Dividend Payment Date to the extent not paid on such Dividend Payment
Date. References in any Article herein to dividends that have accumulated or
that have been deemed to have accumulated with respect to the Series B Preferred
Stock shall include the amount, if any, of any Arrearage together with any
dividends accumulated or deemed to have accumulated on such Arrearage pursuant
to the immediately preceding two sentences. Additional dividends in respect of
any Arrearage may be declared and paid at any time, in whole or in part, without
reference to any regular Dividend Payment Date, to Registered Holders as they
appear on the stock record books of the Corporation on such record date as may
be fixed by the Board of Directors (which record date shall be no less than 10
days prior to the corresponding payment date). Dividends in respect of any
Arrearage shall be paid in cash.
C. METHOD OF PAYMENT. Dividends paid on the shares of Series B
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable on all outstanding shares of Series B Preferred
Stock shall be allocated pro rata on a share-by-share basis among all such
shares then outstanding. After the Second Anniversary Date, dividends that are
declared and paid in an amount less than the full amount of dividends
accumulated on the Series B Preferred Stock (and on any Arrearage) shall be
applied first to the earliest dividend which has not theretofore been paid. All
cash payments of dividends on the shares of Series B Preferred Stock shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
D. SPECIAL DIVIDEND RIGHTS.
1. In addition to the dividend rights set forth in paragraph A
above, prior to the consummation of the Recapitalization, the holders of shares
of Series B Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, cash dividends in an amount per whole share (rounded to the nearest
cent) equal to the Formula Number then in effect times the aggregate per share
amount of all
3
60
cash dividends declared or paid on the Common Stock. If, prior to the
consummation of the Recapitalization, the Corporation shall pay any dividend or
make any distribution on the Common Stock payable in assets, securities or other
forms of non-cash consideration, then, in each such case, the Corporation shall
simultaneously pay or make on each whole outstanding share of the Series B
Preferred Stock a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series B Preferred Stock
pursuant to this paragraph are hereinafter referred to as "Participating
Dividends." The Corporation shall declare each Participating Dividend
immediately prior to or at the same time it declares any cash or non-cash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required shall
be paid or set aside for payment on the Common Stock unless a Participation
Dividend in respect of such dividend shall be have been paid. Nothing contained
in this paragraph D shall obligate the Company to declare or pay any dividend or
other distribution on the Common Stock or (except pursuant to paragraph A of
this Article III or in connection with a dividend or distribution on the Common
Stock as provided in this paragraph D) the Series B Preferred Stock.
2. If the Recapitalization is not consummated prior to June
30, 1999, the Dividend Rate shall be deemed to be 15% per annum during the
period commencing on such date and ending on the date the Recapitalization is
consummated.
IV. LIQUIDATION PREFERENCE
A. PRIOR TO THE RECAPITALIZATION. In the event of a
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, occurring prior to the consummation of the Recapitalization, the
holders of then-outstanding shares of Series B Preferred Stock shall be entitled
to receive out of the assets of the Corporation, whether such assets are capital
or surplus of any nature, an amount per share equal to the sum of (i) the
dividends, if any, accumulated or deemed to have accumulated thereon, to the
date of final distribution to such holders, whether or not such dividends are
declared; and (ii) the Initial Stated Value thereof, before any payment shall be
made or any assets distributed to the holders of any Junior Liquidation
Securities (the "Initial Preferred Distribution"). After the Initial Preferred
Distribution has been made, the holders of Series B Preferred Stock shall be
entitled to share pro rata with the holders of Common Stock in the distribution
of any remaining assets of the Corporation on the basis of each whole
outstanding share of the Series B Preferred Stock receiving an amount equal to
the Formula Number then in effect times such distribution on each share of the
Common Stock. The distributions on the Series B Preferred Stock pursuant to the
immediately preceding sentence of this paragraph A are hereinafter referred to
as "Participating Liquidation Distributions." No distribution on the Common
Stock in respect of which a Participating Liquidation Distribution is required
shall be paid or set aside for payment on the Common Stock unless a
Participating Liquidation Distribution in respect of such distribution is
concurrently paid.
4
61
B. AFTER THE RECAPITALIZATION. Subsequent to the consummation
of the Recapitalization, the holders of the outstanding shares of Series B
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of (i) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and (ii) the Post-Recapitalization
Stated Value thereof, before any payment shall be made or any assets distributed
to the holders of any Junior Liquidation Securities. After any such payment in
full after the consummation of the Recapitalization, the holders of Series B
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.
C. PARITY SECURITIES. All the assets of the Corporation
available for distribution to stockholders after the liquidation preferences of
any Senior Liquidation Securities shall be distributed ratably (in proportion to
the full distributable amounts to which holders of Series B Preferred Stock and
Parity Liquidation Securities, if any, are respectively entitled upon such
dissolution, liquidation or winding up) among the holders of the
then-outstanding shares of Series B Preferred Stock and Parity Liquidation
Securities, if any, when such assets are not sufficient to pay in full the
aggregate amounts payable thereon.
D. MERGER NOT A LIQUIDATION. Neither a consolidation or merger
of the Corporation with or into any other Person or Persons, nor a sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets for cash, securities or other property to a Person or Persons shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Article IV, but the holders of shares of Series B Preferred
Stock shall nevertheless be entitled from and after any such consolidation,
merger or sale, conveyance, lease, exchange or transfer of all or part of the
Corporation's assets to the rights provided by this Article IV following any
such transaction. Notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to each holder of
shares of Series B Preferred Stock in such circumstances shall be payable, shall
be given by first-class mail, postage prepaid, mailed not less than 30 days
prior to any payment date stated therein, to holders of record as they appear on
the stock record books of the Corporation as of the date such notices are first
mailed.
V. REDEMPTION
A. MANDATORY REDEMPTION. If the Recapitalization has not been
consummated prior to June 30, 1999, then on the sixth anniversary of the Issue
Date (the "Mandatory Redemption Date"), the Corporation shall redeem all
outstanding shares of Series B Preferred Stock by paying the Redemption Price
therefor in cash out of funds legally available for such purpose.
B. OPTIONAL REDEMPTION. Commencing on the earlier to occur of
(x) the tenth anniversary of the Issue Date and (y) the date on which fewer than
25% of the shares of Series B Preferred Stock issued on the Issue Date remain
outstanding, and at all times thereafter, the Corporation may, at its option,
redeem all (but not less than all) outstanding shares of Series
5
62
B Preferred Stock on a date specified by the Corporation (the "Optional
Redemption Date") by paying the Redemption Price therefor in cash out of funds
legally available for such purpose.
C. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption
of shares of Series B Preferred Stock pursuant to paragraph A or B of this
Article V (a "Notice of Redemption") shall be sent to the holders of record of
the shares of Series B Preferred Stock to be redeemed by first class mail,
postage prepaid, at each such holder's address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Mandatory Redemption Date or Optional Redemption Date, as applicable, which date
shall be set forth in such notice (the "Redemption Date"); provided that failure
to give such Notice of Redemption to any holder, or any defect in such Notice of
Redemption to any holder shall not affect the validity of the proceedings for
the redemption of any shares of Series B Preferred Stock held by any other
holder. In order to facilitate the redemption of shares of Series B Preferred
Stock, the Board of Directors may fix a record date for the determination of the
holders of shares of Series B Preferred Stock to be redeemed not more than 30
days prior to the date the Notice of Redemption is mailed. On or after the
Mandatory Redemption Date or Optional Redemption Date, as applicable, each
holder of the shares called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price for
such shares. From and after the Mandatory Redemption Date or Optional Redemption
Date, as applicable, all dividends on shares of Series B Preferred Stock shall
cease to accumulate and all rights of the holders thereof as holders of Series B
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Mandatory Redemption Date or Optional
Redemption Date, as applicable.
D. DEPOSIT OF FUNDS. The Corporation shall, on or prior to the
Mandatory Redemption Date or Optional Redemption Date, as applicable, pursuant
to paragraph C of this Article V, deposit with its transfer agent or other
redemption agent in the Borough of Manhattan, The City of New York having a
capital and surplus of at least $500,000,000 selected by the Board of Directors,
as a trust fund for the benefit of the holders of the shares of Series B
Preferred Stock to be redeemed, cash that is sufficient in amount to redeem the
shares to be redeemed in accordance with the Notice of Redemption, with
irrevocable instructions and authority to such transfer agent or other
redemption agent to pay to the respective holders of such shares, as evidenced
by a list of such holders certified by an officer of the Corporation, the
Redemption Price for such shares upon surrender of their respective share
certificates. Such deposit shall be deemed to constitute full payment of the
Redemption Price for such shares to the holders, and from and after the date of
such deposit, all rights of the holders of the shares of Series B Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. No dividends shall
accumulate on any shares of Series B Preferred Stock after the Mandatory
Redemption Date or Optional Redemption Date, as applicable, for such shares
(unless the Corporation shall fail to deposit cash sufficient to redeem all such
shares). In case holders of any shares of Series B Preferred Stock called for
redemption shall not, within two years after such deposit, claim the cash
deposited for redemption thereof, such transfer agent or other redemption agent
shall, upon demand, pay over to the Corporation
6
63
the balance so deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders thereof and the
sole right of such holders, with respect to shares to be redeemed, shall be to
receive the Redemption Price as general creditors of the Corporation. Any
interest accrued on any funds so deposited shall belong to the Corporation, and
shall be paid to it from time to time on demand.
VI. RESTRICTIONS ON DIVIDENDS
So long as any shares of the Series B Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation shall
not pay or set apart for payment any dividend on any Junior Securities or make
any payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of, any Junior
Securities or Parity Securities or any warrants, rights or options exercisable
for or convertible into any Junior Securities or Parity Securities (other than
the repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities), or make any distribution in respect of the Junior
Securities, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than distributions or
dividends in Junior Securities to the holders of Junior Securities), and shall
not permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any Junior Securities or Parity Securities
or any warrants, rights, calls or options exercisable for or convertible into
any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities or
the repurchase, redemption or other retirement of Junior Securities or Parity
Securities in exchange for Junior Securities or Parity Securities) unless prior
to or concurrently with such declaration, payment, setting apart for payment,
repurchase, redemption or other retirement or distribution, as the case may be,
all accumulated and unpaid dividends on shares of the Series B Preferred Stock
not paid on the dates provided for in paragraph A of Article III hereof
(including Arrearages and accumulated dividends thereon) shall have been paid,
except that when dividends are not paid in full as aforesaid upon the shares of
Series B Preferred Stock, all dividends declared on the Series B Preferred Stock
and any series of Parity Dividend Securities shall be declared and paid pro rata
so that the amount of dividends so declared and paid on Series B Preferred Stock
and such series of Parity Dividend Securities shall in all cases bear to each
other the same ratio that accumulated dividends (including interest accrued on
or additional dividends accumulated in respect of such accumulated dividends) on
the shares of Series B Preferred Stock and such Parity Dividend Securities bear
to each other.
VII. VOTING RIGHTS
A. On or prior to the consummation of the Recapitalization,
the holders of Series B Preferred Stock shall be entitled to one thousand
(1,000) votes per share of Series B Preferred Stock at each meeting of
stockholders of the Corporation with respect to any and all matters presented to
the stockholders of the Corporation for their action and consideration. After
the consummation of the Recapitalization, the holders of Series B Preferred
Stock shall be entitled to the number of votes per share of Series B Preferred
Stock equal to the number of
7
64
shares of Common Stock for which such share of Series B Preferred Stock is then
convertible pursuant to Article VIII at each meeting of stockholders of the
Corporation with respect to any and all matters presented to the stockholders of
the Corporation for their action and consideration.
B. So long as any shares of the Series B Preferred Stock are
outstanding, (i) each share of Series B Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock; and (ii) the
shares of Series B Preferred Stock shall vote together with shares of Common
Stock (and any shares of Series C Preferred Stock entitled to vote) as a single
class.
C. At each annual meeting of the stockholders of the
Corporation, the holders of Series B Preferred Stock, voting as a separate
class, shall have the right to elect, by the written consent (if action by
written consent is permitted) or affirmative vote of the holders of a majority
of the outstanding shares of Series B Preferred Stock, four members of a
separate class of directors, each of whom shall serve until the next annual
meeting of the stockholders of the Corporation or until his or her successor is
elected and qualified. Such vote or consent shall be taken in accordance with
the procedures specified in paragraph F below. The initial directors shall be
[insert names].
D. Without the written consent (if action by written consent
is permitted) or affirmative vote of the holders of a majority of the
outstanding shares of Series B Preferred Stock and Series C Preferred Stock,
voting together as a single class, the Corporation shall not (i) authorize,
create or issue, or increase the authorized amount of, (x) any Senior Securities
or Parity Securities or (y) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock,
redeemable mandatorily or redeemable at the option of the holder thereof at any
time on or prior to the Mandatory Redemption Date (whether or not only upon the
occurrence of a specified event) or (ii) enter into any Transaction (as defined
in paragraph H of Article VIII). Such vote or consent shall be taken in
accordance with the procedures specified in paragraph F below.
E. Without the written consent (if action by written consent
is permitted) or affirmative vote of the holders of at least a majority of the
outstanding shares of Series B Preferred Stock and Series C Preferred Stock,
voting together as a single class, the Corporation shall not (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws, if the
amendment, alteration or repeal alters or changes the powers, preferences or
special rights of the Series B Preferred Stock so as to affect them materially
and adversely or (ii) authorize or take any other action if such action alters
or changes any of the rights of the Series B Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph F below.
F. The foregoing rights of holders of shares of Series B
Preferred Stock to take any actions as provided in this Article VII may be
exercised at any annual meeting of
8
65
stockholders or at a special meeting of stockholders held for such purpose as
hereinafter provided or at any adjournment thereof, or by the written consent,
delivered to the Secretary of the Corporation, of the holders of the minimum
number of shares required to take such action, if action by written consent of
stockholders of the Corporation is then permitted.
The Chairman of the Board of the Corporation may call, and
upon written request of holders of record of 35% of the outstanding shares of
Series B Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of record of 35% of the outstanding
shares of Series B Preferred Stock and Series C Preferred Stock, if the holders
of shares of Series B Preferred Stock are to vote as a class with the holders of
shares of any Series C Preferred Stock, addressed to the Secretary of the
Corporation at the principal office of the Corporation shall call, a special
meeting of the holders of shares entitled to vote as provided herein. Such
meeting shall be held within 30 days after delivery of such request to the
Secretary, at the place and upon the notice provided by law and in the By-laws
of the Corporation for the holding of meetings of stockholders.
At each meeting of stockholders at which the holders of shares
of Series B Preferred Stock shall have the right, voting separately as a single
class or as a class with the holders of shares of any Series C Preferred Stock,
to elect directors of the Corporation as provided in paragraph C above or to
take any action, the presence in person or by proxy of the holders of record of
one-third of the total number of shares of Series B Preferred Stock, if the
holders of shares of Series B Preferred Stock are to vote separately as a single
class, or the holders of record of one-third of the total number of shares of
Series B Preferred Stock and Series C Preferred Stock, if the holder of shares
of Series B Preferred Stock are to vote as a class with the holders of shares of
Series C Preferred Stock, then outstanding and entitled to vote on the matter
shall be necessary and sufficient to constitute a quorum. At any such meeting or
at any adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series
B Preferred Stock, if the holders of Series B Preferred Stock are to
vote separately as a single class, shall not prevent the election of
directors other than those to be elected by the holders of shares of
Series B Preferred Stock, and the absence of a quorum of the holders of
shares of any other class or series of capital stock shall not prevent
the election of directors to be elected by the holders of shares of
Series B Preferred Stock or the taking of any action as provided in
this Article VII; and
(B) in the absence of a quorum of the holders of shares of
Series B Preferred Stock, if the holders of Series B Preferred Stock
are to vote separately as a single class, or the holders of shares of
Series B Preferred Stock and Series C Preferred Stock, if the holders
of Series B Preferred Stock are to vote as a class with the holders of
shares of Series C Preferred Stock, a majority of the holders of such
shares present in person or by proxy shall have the power to adjourn
the meeting as to the actions to be taken by the holders of shares of
Series B Preferred Stock or the holders of Series B Preferred Stock and
Series C Preferred Stock, as the case may be, from time to time and
place to place without notice other than announcement at the meeting
until a quorum shall be present.
9
66
For taking of any action as provided in this Article VII by
the holders of shares of Series B Preferred Stock voting separately as a single
class or together with the holders of shares of Series B Preferred Stock and
Series C Preferred Stock as a single class, as the case may be, each such holder
shall have one vote for each share of such stock standing in his name on the
transfer books of the Corporation as of any record dated fixed for such purpose
or, if no such date be fixed, at the close of business on the Business Day next
preceding the day on which notice is given, or if notice if waived, at the close
of business on the Business Day next preceding the day on which the meeting is
held.
In case any vacancy shall occur among the directors elected by
the holders of shares of Series B Preferred Stock, as provided in paragraph C
above, such vacancy may be filled for the unexpired portion of the term by vote
of the remaining directors theretofore elected by such holders (if there is a
remaining director), or the last remaining director's successor in office. If
any such vacancy is not so filled within 20 days after the creation thereof or
if all directors so elected by the holders of Series B Preferred Stock shall
cease to serve as directors before their terms shall expire, the holders of the
Series B Preferred Stock then outstanding and entitled to vote for such
directors may, by written consent as herein provided (if action by written
consent is permitted), or at a special meeting of such holders called as
provided herein, elect successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
Any director elected by the holders of shares of Series B
Preferred Stock voting separately as a single class may be removed from office
with or without cause by the vote or written consent (if action by written
consent is permitted) of the holders of at least a majority of the outstanding
shares of Series B Preferred Stock. A special meeting of the holders of shares
of Series B Preferred Stock may be called in accordance with the procedures set
forth in this paragraph F.
G. The Corporation shall not enter into any agreement or issue
any security that prohibits, conflicts or is inconsistent with, or would be
breached by, the Corporation's performance of its obligations hereunder.
VIII. CONVERSION
The holders of the Series B Preferred Stock shall have
conversion rights as follows:
A. Each share of Series B Preferred Stock shall be convertible at
the direction of, and by notice to the Corporation from, the
holders of a majority of the outstanding shares of Series B
Preferred Stock, at any time, at the office of the Corporation
or any transfer agent for such Series, into one thousand
(1,000) fully paid and nonassessable shares of Common Stock
subject (x) to adjustment from time to time as provided below
(as so adjusted, the "conversion ratio") and (y) (prior to the
consummation of the Recapitalization) to limitations resulting
from the available number of shares of Common Stock which may
be reserved for issuance upon such conversion, provided ,that
any conversion pursuant to this paragraph A of less than all
of the outstanding shares of Series B Preferred Stock shall be
on a
10
67
pro rata basis amongst all holders of Series B Preferred
Stock. [NOTE: IF THE CERTIFICATE OF INCORPORATION IS AMENDED
IN CONNECTION WITH THE RECAPITALIZATION, AS CONTEMPLATED BY
THE PREFERRED STOCK PURCHASE AGREEMENT, THE NUMBER "1,000" IN
THIS PARAGRAPH SHALL BE "1"]
B. If the holders of a majority of the outstanding shares of
Series B Preferred Stock give notice of conversion under
paragraph A above, the Corporation shall notify all other
record holders of Series B Preferred Stock (a "Conversion
Notice"). Following receipt of a Conversion Notice, the
holders of Series B Preferred Stock shall surrender the
certificate or certificates therefor duly endorsed, at the
office of the Corporation or of any transfer agent for such
Series, and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to
be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder,
or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the
close of business on the date of such Conversion Notice and
the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all
purposes as the recordholder or holders of such shares of
Common Stock as of such date. The issuance of certificates or
shares of Common Stock upon conversion of shares of Series B
Preferred Stock shall be made without charge for any issue,
stamp or other similar tax in respect of such issuance.
C. No fractional shares shall be issued upon conversion of any
shares of Series B Preferred Stock and the number of shares of
Common Stock to be issued shall be rounded down to the nearest
whole share, and the holder of Series B Preferred Stock shall
be paid in cash for any fractional share.
D. In case at any time or from time to time the Corporation shall
pay any dividend or make any other distribution to the holders
of its Common Stock or other class of securities, or shall
offer for subscription pro rata to the holders of its Common
Stock or other class of securities any additional shares of
stock of any class or any other right, or there shall be any
capital reorganization or reclassification of the Common Stock
of the Corporation or consolidation or merger of the
Corporation with or into another corporation, or any sale or
conveyance to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, or
there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, then, in any one
or more of said cases the Corporation shall give at least 20
days' prior written notice (the time of mailing of such notice
shall be deemed to be the time of giving thereof) to the
registered holders of the Series B Preferred Stock at the
addresses of each as shown on the books of the Corporation
maintained by the Transfer Agent thereof of the date on which
(i) the books of the Corporation shall close or a record shall
be taken for such stock dividend, distribution or subscription
rights or (ii) such reorganization, reclassification,
11
68
consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may
be, provided that in the case of any Transaction to which
paragraph H applies the Corporation shall give at least 30
days' prior written notice as aforesaid. Such notice shall
also specify the date as of which the holders of the Common
Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance or participate in
such dissolution, liquidation or winding up, as the case may
be. Failure to give such notice shall not invalidate any
action so taken.
E. From and after the Recapitalization, the Corporation shall at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock, and if at any
time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series B Preferred Stock, then in
addition to such other remedies as shall be available to the
holder of Series B Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purposes.
F. Any notice required by the provisions of paragraph D to be
given the holders of shares of Series B Preferred Stock shall
be deemed given if sent by facsimile transmission, by telex,
or if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his, her or its
address appearing on the books of the Corporation.
G. The conversion ratio shall be subject to adjustment from time
to time as follows:
(i) In case the Corporation shall at any time or from
time to time after the Issue Date (A) pay a dividend or make a
distribution, on the outstanding shares of Common Stock in
shares of Common Stock, (B) subdivide the outstanding shares
of Common Stock into a larger number of shares of Common
Stock, (C) combine the outstanding shares of Common Stock into
a smaller number of shares or (D) issue by reclassification of
the shares of Common Stock any shares of capital stock of the
Corporation, then, and in each such case, the conversion ratio
in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the
holder of any shares of Series B Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other securities of the
Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events
described above, had such shares of
12
69
Series B Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record
date therefor, whichever is earlier. An adjustment made
pursuant to this clause (i) shall become effective (x) in the
case of any such dividend or distribution, immediately after
the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (y) in the case of any such
subdivision, reclassification or combination, at the close of
business on the day upon which such corporate action becomes
effective.
(ii) In the case the Corporation shall, after the
Issue Date, issue shares of Common Stock at a price per share,
or securities convertible into or exchangeable for shares of
Common Stock ("Convertible Securities") having a "Conversion
Price" (as defined below) less than the Current Market Price
(for a period of 15 consecutive trading days prior to such
date), then, and in each such case, the conversion ratio shall
be adjusted so that the holder of each share of Series B
Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the applicable conversion ratio
on the day immediately prior to such date by (B) a fraction,
the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding on the date on which such
shares or Convertible Securities are issued and (2) the number
of additional shares of Common Stock issued, or into which the
Convertible Securities may convert, and the denominator of
which shall be the sum of (x) the number of shares of Common
Stock outstanding on such date and (y) the number of shares of
Common Stock which the aggregate consideration receivable by
the Corporation for the total number of shares of Common Stock
so issued, or the number of shares of Common Stock which the
aggregate of the Conversion Price of such Convertible
Securities so issued, would purchase at such Current Market
price on such date. An adjustment made pursuant to this clause
(ii) shall be made on the next Business Day following the date
on which any such issuance is made and shall be effective
retroactively immediately after the close of business on such
date. For purposes of this clause (ii), the aggregate
consideration receivable by the Corporation in connection with
the issuance of any securities shall be deemed to be the sum
of the aggregate offering price to the public (before
deduction of underwriting discounts or commissions and
expenses payable to third parties), and the "Conversion Price"
of any Convertible Securities is the total amount received or
receivable by the Corporation as consideration for the issue
or sale of such Convertible Securities (before deduction of
underwriting discounts or commissions and expenses payable to
third parties) plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible
Securities. Neither (A) the issuance of any shares of Common
Stock (whether treasury shares or newly issued shares)
pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of
Common Stock requiring an adjustment in the conversion ratio
pursuant to clause (i) of this
13
70
paragraph G, or pursuant to any employee benefit plan or
program of the Corporation or pursuant to any option, warrant,
right, or Convertible Security outstanding as of the date
hereof (including, but not limited to, the Rights, the Series
B Preferred Stock, the Series C Preferred Stock and the
Warrants) nor (B) the issuance of shares of Common Stock
pursuant thereto shall be deemed to constitute an issuance of
Common Stock or Convertible Securities by the Corporation to
which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or
converted and for which an adjustment shall have been made
pursuant to this clause (ii), the Conversion Price computed
upon the original issue thereof shall upon expiration be
recomputed as if the only additional shares of Common Stock
issued were such shares of Common Stock (if any) actually
issued upon exercise or conversion of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Corporation for the
issue of such Convertible Securities (whether or not exercised
or converted) plus the consideration actually received by the
Corporation upon such exercise of conversion.
(iii) In case the Corporation shall at any time or
from time to time after the Issue Date declare, order, pay or
make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of
the Corporation or any of its Subsidiaries by way of dividend
or spin-off), on its Common Stock, other than (A) regular
quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before
extraordinary items of the Corporation, determined in
accordance with generally accepted accounting principles,
during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such
dividend is paid or (B) dividends or distributions of shares
of Common Stock which are referred to in clause (i) of this
paragraph G, then, and in each such case, the conversion ratio
shall be adjusted so that the holder of each share of Series B
Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (1) the applicable conversion ratio
on the day immediately prior to the record date fixed for the
determination of stockholders entitled to receive such
dividend or distribution by (2) a fraction, the numerator of
which shall be the then Current Market Price per share of
Common Stock for the period of 20 Trading Days preceding such
record date, and the denominator of which shall be such
Current Market Price per share of Common Stock for the period
of 20 Trading Days preceding such record date, less the Fair
Market Value (as defined in Article IX) per share of Common
Stock (as determined in good faith by the Board of Directors
of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series B
Preferred Stock) of such dividend or distribution; provided,
however, that in the event of a distribution of shares of
capital stock of a Subsidiary of the Corporation (a
14
71
"Spin-Off") made to holders of shares of Common Stock, the
numerator of such fraction shall be the sum of the Current
Market Price per share of Common Stock for the period of 20
Trading Days preceding the 35th Trading Day after the
effective date of such Spin-Off and the Current Market Price
of the number of shares (or the fraction of a share) of
capital stock of the Subsidiary which is distributed in such
Spin-Off in respect of one share of Common Stock for the
period of 20 Trading Days preceding such 35th Trading Day and
the denominator of which shall be the current market price per
share of the Common Stock for the period of 20 Trading Days
proceeding such 35th Trading Day. An adjustment made pursuant
to this clause (iii) shall be made upon the opening of
business on the next Business Day following the date on which
any such dividend or distribution is made and shall be
effective retroactively immediately after the close of
business on the record date fixed for the determination of
stockholders entitled to receive such dividend or
distribution; provided, however, if the proviso to the
preceding sentence applies, then such adjustment shall be made
and be effective as of such 35th Trading Day after the
effective date of such Spin-Off.
(iv) For purposes of this paragraph G, the number of
shares of Common Stock at any time outstanding shall not
include any shares of Common Stock then owned or held by or
for the account of the Corporation.
(v) The term "dividend", as used in this paragraph G
shall mean a dividend or other distribution upon stock of the
Corporation except pursuant to the Rights Agreement (as
defined in Article IX). Notwithstanding anything in this
Article VIII to the contrary, the conversion ratio shall not
be adjusted as a result of any dividend, distribution or
issuance of securities of the Corporation pursuant to the
Rights Agreement.
(vi) Anything in this paragraph G to the contrary
notwithstanding, the Corporation shall not be required to give
effect to any adjustment in the conversion ratio unless and
until the net effect of one or more adjustments (each of which
shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least
one-hundredth of one share of Common Stock, and when the
cumulative net effect of more than one adjustment so
determined shall be to change the conversion ratio by at least
one-hundredth of one share of Common Stock, such change in
conversion ratio shall thereupon be given effect.
(vii) The certificate of any firm of independent
public accountants of recognized standing selected by the
Board of Directors of the Corporation (which may be the firm
of independent public accountants regularly employed by the
Corporation) shall be presumptively correct for any
computation made under this paragraph G.
15
72
(viii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to receive a dividend or other distribution, and shall
thereafter and before the distribution to stockholders thereof
legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of
shares of Common Stock issuable upon exercise of the right of
conversion granted by this paragraph G or in the conversion
ratio then in effect shall be required by reason of the taking
of such record.
(ix) There shall be no adjustment of the conversion
ratio in case of the issuance of any stock of the Corporation
in a merger, reorganization, acquisition or other similar
transaction except as set forth in paragraph G(i), G(ii) and H
of this Article VIII.
H. In case of any reorganization or reclassification of
outstanding shares of Common Stock (other than a
reclassification covered by paragraph G(i) of this Article
VIII, or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case
of any sale or conveyance to another corporation of the
property of the Corporation as an entirety or substantially as
an entirety (each of the foregoing being referred to as a
"Transaction"), each share of Series B Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of
the Common Stock issuable upon such conversion prior to
consummation of such Transaction, the kind and amount of
shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by
a holder of that number of shares of Common Stock into which
one share of Series B Preferred Stock was convertible
immediately prior to such Transaction (including, on a pro
rata basis, the cash, securities or property received by
holders of Common Stock in any tender or exchange offer that
is a step in such Transaction). In case securities or property
other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all reference in this paragraph
H shall be deemed to apply, so far as appropriate and as
nearly as may be, to such other securities or property.
I. Upon any adjustment of the conversion ratio then in effect and
any increase or decrease in the number of shares of Common
Stock issuable upon the operation of the conversion set forth
in Article VIII, then, and in each such case, the Corporation
shall promptly deliver to the registered holders of the Series
B Preferred and Common Stock, a certificate signed by the
President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation setting forth in reasonable detail the
event requiring the adjustment and the method by which such
adjustment was calculated and specifying the conversion ratio
then in effect following such adjustment and the increased or
decreased number of shares issuable upon the conversion set
forth in this Article VIII.
IX. ADDITIONAL DEFINITIONS
16
73
For the purposes of this Certificate of Designations of Series
B Preferred Stock, the following terms shall have the meanings indicated:
"Accrual Period" means the end of the first quarterly period
following the Second Anniversary Date.
"Beneficially Own" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof, except that a Person
shall be deemed to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have
correlative meanings.
"Business Day" means any day, other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Bylaws" means the Bylaws of the Corporation, as amended.
"Current Market Price", when used with reference to shares of
Common Stock or other securities on any date, shall mean the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Current Market Price" shall mean
the Fair Market Value per share of Common Stock or of such other securities as
determined in good faith by the Board of Directors of the Corporation based on
an opinion of an independent investment banking firm with an established
national reputation as a valuer of securities, which opinion may be based on
such assumption as such firm shall deem to be necessary and appropriate.
"Equity Securities" of any Person means any and all common
stock, preferred stock and any other class of capital stock of, and any
partnership or limited liability company
17
74
interests of such Person or any other similar interests of any Person that is
not a corporation, partnership or limited liability company.
"Exchange Act" means the U.S. Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder, from time to
time.
"Fair Market Value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
"Formula Number" shall mean one thousand (1,000) prior to
consummation of the Recapitalization, provided, however, that if at any time
prior to the consummation of the Recapitalization, the Corporation shall (i)
declare or pay any dividend or make any distribution on the Common Stock,
payable in shares of Common Stock; (ii) subdivide (by a stock split or
otherwise) the outstanding shares of Common Stock into a larger number of shares
of Common Stock; or (iii) combine (by a reverse stock split or otherwise) the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each such case the Formula Number in effect immediately prior to
such event shall be adjusted to a number determined by multiplying the Formula
Number then in effect by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if prior to the consummation
of the Recapitalization the Corporation shall issue any shares of its capital
stock in a merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification, or change so that each share
of Series B Preferred Stock continues to be the economic equivalent of a Formula
Number of shares of Common Stock immediately prior to such merger,
reclassification, or change.
"Group" has the meaning set forth in Rule 13d-5 under the
Exchange Act.
"Issue Date" shall mean the first date on which shares of
Series B Preferred Stock are issued.
"Person" means any individual, corporation, company,
association, partnership, joint venture, trust or unincorporated organization,
or a government or any agency or political subdivision thereof.
"Post-Recapitalization Stated Value" shall be equal to $1.00.
"Recapitalization" means the amendment of the Corporation's
Certificate of Incorporation to increase the authorized shares of Common Stock
from 50,000,000 to [250,000,000], and the authorized shares of Preferred Stock
from 1,000,000 to [125,000,000], and the subsequent one thousand-for-one split
of Series B Preferred Stock and Series C Preferred Stock. [Increased number of
authorized shares is subject to final determination]
18
75
"Redemption Price" of a share of Class B Preferred Stock shall
mean the sum of (a) the dividends, if any, accumulated or deemed to have
accumulated thereon to the Mandatory Redemption Date or Optional Redemption
Date, as applicable, whether or not such dividends are declared plus (b) either
(i) the Initial Stated Value thereof (if the Recapitalization has not been
consummated prior to June 30, 1999) or (ii) the Post-Recapitalization Stated
Value thereof (if the Recapitalization has been consummated prior to June 30,
1999), in each case subject to adjustment for splits, reclassifications,
recombinations or other similar events.
"Rights" shall mean any rights to purchase securities of the
Corporation issued pursuant to any Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement, dated as
of June 21, 1996, between the Company and Xxxxx Fargo Bank as rights agent, and
all amendments, supplements and replacements thereof.
"Second Anniversary Date" means the second anniversary of the
Issue Date.
"Subsidiary" means, as to any Person, any other Person of
which more than 50% of the shares of the Voting Securities or other voting
interests are owned or controlled, or the ability to select or elect 50% or more
of the directors or similar managers is held, directly or indirectly, by such
first Person and one or more of its Subsidiaries.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange a Business Day.
"Voting Securities" means, (i) with respect to the Company,
the Equity Securities of the Company entitled to vote generally for the election
of directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
X. MISCELLANEOUS
A. NOTICES. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:
(i) if to the Corporation, to its office at 2
California Plaza, 000 Xxxxx Xxxxx Xxxxxx,
Xxx Xxxxxxx, Xxxxxxxxxx 00000 (Attention:
General Counsel)
or to the transfer agent for the Series B
Preferred Stock;
19
76
(ii) if to a holder of the Series B Preferred
Stock, to such holder at the address of such
holder as listed in the stock record books
of the Corporation (which may include the
records of any transfer agent for the Series
B Preferred Stock); or
(iii) to such other address as the Corporation or
such holder, as the case may be, shall have
designated by notice similarly given.
B. REACQUIRED SHARES. Any shares of Series B Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation, directly or
indirectly, in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Delaware General Corporation Law. All such shares of Series
B Preferred Stock shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State of Delaware,
become authorized but unissued shares of Preferred Stock, par value $0.001 per
share, of the Corporation and may be reissued as part of another series of
Preferred Stock, par value $0.001 per share, of the Corporation subject to the
conditions or restrictions on issuance set forth herein.
C. ENFORCEMENT. Any registered holder of shares of Series B
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to
the terms of this Certificate of Designations, the Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series B Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series B Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E. TRANSFER AGENT. The Corporation may appoint, and from time
to time discharge and change, a transfer agent for the Series B Preferred Stock.
Upon any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to each holder
of record of shares of Series B Preferred Stock.
20
77
F. RECORD DATES. In the event that the Series B Preferred
Stock shall be registered under either the Securities Act of 1933, as amended,
or the Exchange Act, the Corporation shall establish appropriate record dates
with respect to payments and other actions to be made with respect to the Series
B Preferred Stock.
21
78
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its [ ] and attested by its Assistant
Secretary, this ___ day of ____________ , 1999.
AAMES FINANCIAL CORPORATION
By:_________________________________
Name:
Title:
[Corporate Seal]
ATTEST:
__________________________________
22
79
EXHIBIT B
--------------------------------------------------------------------------------
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
AAMES FINANCIAL CORPORATION
--------------------------------------------------------------------------------
AAMES FINANCIAL CORPORATION, a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation (the "Board of Directors") pursuant to
authority of the Board of Directors as required by Section 151 of the Delaware
General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors in accordance with the provisions of the Certificate
of Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
SERIES C CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
The designation of this series of shares shall be "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock") par value $0.001
per share; the initial stated value per share shall be $1,000.00 (the "Initial
Stated Value"); and the number of shares constituting such series shall be
100,000. The number of shares of the Series C Preferred Stock may be decreased
from time to time by a resolution or resolutions of the Board of Directors;
provided, however, that such number shall not be decreased below the aggregate
number of shares of the Series C Preferred Stock then outstanding.
II. RANK
A. With respect to dividends, the Series C Preferred Stock
shall rank (i) senior to each other class or series of Preferred Stock, except
for the Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series B Preferred Stock"); (ii) on a parity with the Series B
Preferred Stock; and (iii) senior to the Corporation's Common Stock, par value
$.001 per share (the "Common Stock"), and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to dividends, all equity securities of the Corporation
to which the Series C Preferred Stock ranks senior, including the Common Stock,
are collectively referred to herein as the
80
"Junior Dividend Securities"; all equity securities of the Corporation with
which the Series C Preferred Stock ranks on a parity, including the Series B
Preferred Stock, are collectively referred to herein as the "Parity Dividend
Securities"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series C Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as the "Senior
Dividend Securities."
B. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series C Preferred Stock shall rank (i) senior to each other
class or series of Preferred Stock, except for the Series B Preferred Stock;
(ii) on a parity with the Series B Preferred Stock; and (iii) senior to the
Common Stock, and, except as specified above, all other classes and series of
capital stock of the Corporation hereafter issued by the Corporation. With
respect to the distribution of assets upon liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, all equity securities
of the Corporation to which the Series C Preferred Stock ranks senior, including
the Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all equity securities of the Corporation (other than convertible
debt securities) to which the Series C Preferred Stock ranks on parity,
including the Series B Preferred Stock, are collectively referred to herein as
"Parity Liquidation Securities"; and all equity securities of the Corporation to
which the Series C Preferred Stock ranks junior are collectively referred to
herein as "Senior Liquidation Securities."
C. The Series C Preferred Stock shall be subject to the
creation of Junior Dividend Securities and Junior Liquidation Securities
(collectively, "Junior Securities"), but no Parity Dividend Securities or Parity
Liquidation Securities (collectively, "Parity Securities") (other than the
Series B Preferred Stock) or Senior Dividend Securities or Senior Liquidation
Securities (collectively, "Senior Securities") shall be created except in
accordance with the terms hereof.
III. DIVIDENDS
A. DIVIDENDS. Subject to the terms of paragraph D below,
shares of Series C Preferred Stock shall accumulate dividends at a rate of 6.5%
per annum (the "Dividend Rate"), which dividends shall be paid quarterly in
cash, in four equal quarterly installments on the last day of March, June,
September and December of each year, or if any such date is not a Business Day,
the Business Day next preceding such day (each such date, regardless of whether
any dividends have been paid or declared and set aside for payment on such date,
a "Dividend Payment Date"), to holders of record (the "Registered Holders") as
they appear on the stock record books of the Corporation on the fifteenth day
prior to the relevant Dividend Payment Date; provided, however, that during the
Accrual Period (as defined in Article IX hereof) the Corporation shall have the
option to accrue such dividends, which dividends, to the extent so accrued,
shall compound quarterly. Prior to the consummation of the Recapitalization,
dividends shall accrue and accumulate on the Initial Stated Value of each share
of Series B Preferred Stock. Following the consummation of the Recapitalization,
dividends shall accrue and accumulate on the Post-Recapitalization Stated Value
of each share of Series B Preferred Stock. Dividends shall be paid only when, as
and if declared by the Board of Directors out of funds at the time
2
81
legally available for the payment of dividends. Dividends shall begin to
accumulate on outstanding shares of Series C Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.
B. ACCUMULATION. Dividends on the Series C Preferred Stock
shall be cumulative, and from and after (i) any Dividend Payment Date on which
any dividend that has accumulated or been deemed to have accumulated through
such date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at 125% of the
stated dividend rate (or such lesser rate as may be the maximum rate that is
then permitted by applicable law). Such additional dividends in respect of any
Arrearage shall be deemed to accumulate from day to day whether or not earned or
declared until the Arrearage is paid, shall be calculated as of such successive
Dividend Payment Date, and shall constitute an additional Arrearage from and
after any Dividend Payment Date to the extent not paid on such Dividend Payment
Date. References in any Article herein to dividends that have accumulated or
that have been deemed to have accumulated with respect to the Series C Preferred
Stock shall include the amount, if any, of any Arrearage together with any
dividends accumulated or deemed to have accumulated on such Arrearage pursuant
to the immediately preceding two sentences. Additional dividends in respect of
any Arrearage may be declared and paid at any time, in whole or in part, without
reference to any regular Dividend Payment Date, to Registered Holders as they
appear on the stock record books of the Corporation on such record date as may
be fixed by the Board of Directors (which record date shall be no less than 10
days prior to the corresponding payment date). Dividends in respect of any
Arrearage shall be paid in cash.
C. METHOD OF PAYMENT. Dividends paid on the shares of Series C
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable on all outstanding shares of Series C Preferred
Stock shall be allocated pro rata on a share-by-share basis among all such
shares then outstanding. After the Second Anniversary Date, dividends that are
declared and paid in an amount less than the full amount of dividends
accumulated on the Series C Preferred Stock (and on any Arrearage) shall be
applied first to the earliest dividend which has not theretofore been paid. All
cash payments of dividends on the shares of Series C Preferred Stock shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
D. SPECIAL DIVIDEND RIGHTS.
1. In addition to the dividend rights set forth in paragraph A
above, prior to the consummation of the Recapitalization, the holders of shares
of Series C Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, cash dividends in an amount per whole share (rounded to the nearest
cent) equal to the Formula Number then in effect times the aggregate per share
amount of all
3
82
cash dividends declared or paid on the Common Stock. If, prior to the
consummation of the Recapitalization, the Corporation shall pay any dividend or
make any distribution on the Common Stock payable in assets, securities or other
forms of non-cash consideration, then, in each such case, the Corporation shall
simultaneously pay or make on each whole outstanding share of the Series C
Preferred Stock a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series C Preferred Stock
pursuant to this paragraph D are hereinafter referred to as "Participating
Dividends." The Corporation shall declare each Participating Dividend
immediately prior to or at the same time it declares any cash or non-cash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required shall
be paid or set aside for payment on the Common Stock unless a Participation
Dividend in respect of such dividend shall be have been paid. Nothing contained
in this paragraph D shall obligate the Company to declare or pay any dividend or
other distribution on the Common Stock or (except pursuant to paragraph A of
this Article III or in connection with a dividend or distribution on the Common
Stock as provided in this paragraph D) the Series B Preferred Stock.
2. If the Recapitalization is not consummated prior to June
30, 1999, the Dividend Rate shall be deemed to be 15% per annum during the
period commencing on such date and ending on the date the Recapitalization is
consummated.
IV. LIQUIDATION PREFERENCE
A. PRIOR TO THE RECAPITALIZATION. In the event of a
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, occurring prior to the consummation of the Recapitalization, the
holders of then-outstanding shares of Series C Preferred Stock shall be entitled
to receive out of the assets of the Corporation, whether such assets are capital
or surplus of any nature, an amount per share equal to the sum of (i) the
dividends, if any, accumulated or deemed to have accumulated thereon, to the
date of final distribution to such holders, whether or not such dividends are
declared; and (ii) the Initial Stated Value thereof, before any payment shall be
made or any assets distributed to the holders of any Junior Liquidation
Securities (the "Initial Preferred Distribution"). After the Initial Preferred
Distribution has been made, the holders of Series C Preferred Stock shall be
entitled to share pro rata with the holders of Common Stock in the distribution
of any remaining assets of the Corporation on the basis of each whole
outstanding share of the Series C Preferred Stock receiving an amount equal to
the Formula Number then in effect times such distribution on each share of the
Common Stock. The distributions on the Series C Preferred Stock pursuant to the
immediately preceding sentence of this paragraph A are hereinafter referred to
as "Participating Liquidation Distributions." No distribution on the Common
Stock in respect of which a Participating Liquidation Distribution is required
shall be paid or set aside for payment on the Common Stock unless a
Participating Liquidation Distribution in respect of such distribution is
concurrently paid.
4
83
B. AFTER THE RECAPITALIZATION. Subsequent to the consummation
of the Recapitalization, the holders of the outstanding shares of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of (i) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and (ii) the Post-Recapitalization
Stated Value thereof, before any payment shall be made or any assets distributed
to the holders of any Junior Liquidation Securities. After any such payment in
full after the consummation of the Recapitalization, the holders of Series C
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.
C. PARITY SECURITIES. All the assets of the Corporation
available for distribution to stockholders after the liquidation preferences of
any Senior Liquidation Securities shall be distributed ratably (in proportion to
the full distributable amounts to which holders of Series C Preferred Stock and
Parity Liquidation Securities, if any, are respectively entitled upon such
dissolution, liquidation or winding up) among the holders of the
then-outstanding shares of Series C Preferred Stock and Parity Liquidation
Securities, if any, when such assets are not sufficient to pay in full the
aggregate amounts payable thereon.
D. MERGER NOT A LIQUIDATION. Neither a consolidation or merger
of the Corporation with or into any other Person or Persons, nor a sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets for cash, securities or other property to a Person or Persons shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Article IV, but the holders of shares of Series C Preferred
Stock shall nevertheless be entitled from and after any such consolidation,
merger or sale, conveyance, lease, exchange or transfer of all or part of the
Corporation's assets to the rights provided by this Article IV following any
such transaction. Notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to each holder of
shares of Series C Preferred Stock in such circumstances shall be payable, shall
be given by first-class mail, postage prepaid, mailed not less than 30 days
prior to any payment date stated therein, to holders of record as they appear on
the stock record books of the Corporation as of the date such notices are first
mailed.
V. REDEMPTION
A. MANDATORY REDEMPTION. If the Recapitalization has not been
consummated prior to June 30, 1999, then on the sixth anniversary of the Issue
Date (the "Mandatory Redemption Date"), the Corporation shall redeem all
outstanding shares of Series C Preferred Stock by paying the Redemption Price
therefor in cash out of funds legally available for such purpose.
B. OPTIONAL REDEMPTION. Commencing on the earlier to occur of
(x) the tenth anniversary of the Issue Date and (y) the date on which fewer than
25% of the shares of Series C Preferred Stock issued on the Issue Date remain
outstanding, and at all times thereafter, the Corporation may, at its option,
redeem all (but not less than all) outstanding shares of Series
5
84
C Preferred Stock on a date specified by the Corporation (the "Optional
Redemption Date") by paying the Redemption Price therefor in cash out funds
legally available for such purpose.
C. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption
of shares of Series C Preferred Stock pursuant to paragraph A or B of this
Article V (a "Notice of Redemption") shall be sent to the holders of record of
the shares of Series C Preferred Stock to be redeemed by first class mail,
postage prepaid, at each such holder's address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Mandatory Redemption Date or Optional Redemption Date, as applicable, which date
shall be set forth in such notice (the "Redemption Date"); provided that failure
to give such Notice of Redemption to any holder, or any defect in such Notice of
Redemption to any holder shall not affect the validity of the proceedings for
the redemption of any shares of Series C Preferred Stock held by any other
holder. In order to facilitate the redemption of shares of Series C Preferred
Stock, the Board of Directors may fix a record date for the determination of the
holders of shares of Series C Preferred Stock to be redeemed not more than 30
days prior to the date the Notice of Redemption is mailed. On or after the
Mandatory Redemption Date or Optional Redemption Date, as applicable, each
holder of the shares called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price for
such shares. From and after the Mandatory Redemption Date or Optional Redemption
Date, as applicable, all dividends on shares of Series C Preferred Stock shall
cease to accumulate and all rights of the holders thereof as holders of Series C
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Mandatory Redemption Date or Optional
Redemption Date, as applicable.
D. DEPOSIT OF FUNDS. The Corporation shall, on or prior to the
Mandatory Redemption Date or Optional Redemption Date, as applicable, pursuant
to paragraph C of this Article V, deposit with its transfer agent or other
redemption agent in the Borough of Manhattan, The City of New York having a
capital and surplus of at least $500,000,000 selected by the Board of Directors,
as a trust fund for the benefit of the holders of the shares of Series C
Preferred Stock to be redeemed, cash that is sufficient in amount to redeem the
shares to be redeemed in accordance with the Notice of Redemption, with
irrevocable instructions and authority to such transfer agent or other
redemption agent to pay to the respective holders of such shares, as evidenced
by a list of such holders certified by an officer of the Corporation, the
Redemption Price upon surrender of their respective share certificates. Such
deposit shall be deemed to constitute full payment of the Redemption Price for
such shares to the holders, and from and after the date of such deposit, all
rights of the holders of the shares of Series C Preferred Stock that are to be
redeemed as stockholders of the Corporation with respect to such shares, except
the right to receive the Redemption Price upon the surrender of their respective
certificates, shall cease and terminate. No dividends shall accumulate on any
shares of Series C Preferred Stock after the Mandatory Redemption Date or
Optional Redemption Date, as applicable, for such shares (unless the Corporation
shall fail to deposit cash sufficient to redeem all such shares). In case
holders of any shares of Series C Preferred Stock called for redemption shall
not, within two years after such deposit, claim the cash deposited for
redemption thereof, such transfer agent or other redemption agent shall, upon
demand, pay over to the Corporation
6
85
the balance so deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders thereof and the
sole right of such holders, with respect to shares to be redeemed, shall be to
receive the Redemption Price as general creditors of the Corporation. Any
interest accrued on any funds so deposited shall belong to the Corporation, and
shall be paid to it from time to time on demand.
VI. RESTRICTIONS ON DIVIDENDS
So long as any shares of the Series C Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation shall
not pay or set apart for payment any dividend on any Junior Securities or make
any payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of, any Junior
Securities or Parity Securities or any warrants, rights or options exercisable
for or convertible into any Junior Securities or Parity Securities (other than
the repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities), or make any distribution in respect of the Junior
Securities, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than distributions or
dividends in Junior Securities to the holders of Junior Securities), and shall
not permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any Junior Securities or Parity Securities
or any warrants, rights, calls or options exercisable for or convertible into
any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities or
the repurchase, redemption or other retirement of Junior Securities or Parity
Securities in exchange for Junior Securities or Parity Securities) unless prior
to or concurrently with such declaration, payment, setting apart for payment,
repurchase, redemption or other retirement or distribution, as the case may be,
all accumulated and unpaid dividends on shares of the Series C Preferred Stock
not paid on the dates provided for in paragraph A of Article III hereof
(including Arrearages and accumulated dividends thereon) shall have been paid,
except that when dividends are not paid in full as aforesaid upon the shares of
Series C Preferred Stock, all dividends declared on the Series C Preferred Stock
and any series of Parity Dividend Securities shall be declared and paid pro rata
so that the amount of dividends so declared and paid on Series C Preferred Stock
and such series of Parity Dividend Securities shall in all cases bear to each
other the same ratio that accumulated dividends (including interest accrued on
or additional dividends accumulated in respect of such accumulated dividends) on
the shares of Series C Preferred Stock and such Parity Dividend Securities bear
to each other.
VII. VOTING RIGHTS
A. On or prior to the consummation of the Recapitalization,
the holders of Series C Preferred Stock shall be entitled to one thousand
(1,000) votes per share of Series C Preferred Stock at each meeting of
stockholders of the Corporation with respect to any and all matters presented to
the stockholders of the Corporation for their action and consideration, other
than the election of directors. After the consummation of the Recapitalization,
the holders of Series C Preferred Stock shall be entitled to the number of votes
per share of Series C Preferred
7
86
Stock equal to the number of shares of Common Stock for which such share of
Series C Preferred Stock is then convertible pursuant to Article VIII at each
meeting of stockholders of the Corporation with respect to any and all matters
presented to the stockholders of the Corporation for their action and
consideration, other than the election of directors.
B. So long as any shares of the Series C Preferred Stock are
outstanding, (i) each share of Series C Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock, other than
the election of directors; and (ii) the shares of Series C Preferred Stock shall
vote together with shares of Common Stock and shares of Series B Preferred Stock
as a single class.
C. Without the written consent (if action by written consent
is permitted) or affirmative vote of the holders of a majority of the
outstanding shares of Series C Preferred Stock and Series B Preferred Stock,
voting together as a single class, the Corporation shall not (i) authorize,
create or issue, or increase the authorized amount of, (x) any Senior Securities
or Parity Securities or (y) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock,
redeemable mandatorily or redeemable at the option of the holder thereof at any
time on or prior to the Mandatory Redemption Date (whether or not only upon the
occurrence of a specified event) or (ii) enter into any Transaction (as defined
in paragraph H of Article VIII). Such vote or consent shall be taken in
accordance with the procedures specified in paragraph E below.
D. Without the written consent (if action by written consent
is permitted) or affirmative vote of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock and Series B Preferred Stock,
voting together as a single class, the Corporation shall not (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws, if the
amendment, alteration or repeal alters or changes the powers, preferences or
special rights of the Series C Preferred Stock so as to affect them materially
and adversely or (ii) authorize or take any other action if such action alters
or changes any of the rights of the Series C Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph E below.
E. The foregoing rights of holders of shares of Series C
Preferred Stock to take any actions as provided in this Article VII may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action, if action by written consent of stockholders of the Corporation is
then permitted.
The Chairman of the Board of the Corporation may call, and
upon written request of holders of record of 35% of the outstanding shares of
Series C Preferred Stock and Series B Preferred Stock, addressed to the
Secretary of the Corporation at the principal office of the Corporation shall
call, a special meeting of the holders of shares entitled to vote as provided
8
87
herein. Such meeting shall be held within 30 days after delivery of such request
to the Secretary, at the place and upon the notice provided by law and in the
By-laws of the Corporation for the holding of meetings of stockholders.
At each meeting of stockholders at which the holders of shares
of Series C Preferred Stock shall have the right to take any action, the
presence in person or by proxy of the holders of record of one-third of the
total number of shares of Series C Preferred Stock and Series B Preferred Stock
then outstanding and entitled to vote on the matter shall be necessary and
sufficient to constitute a quorum. At any such meeting or at any adjournment
thereof:
(A) the absence of a quorum of the holders of shares of Series
C Preferred Stock shall not prevent the election of directors to be
elected by the holders of shares of Series B Preferred Stock or the
taking of any action as provided in this Article VII; and
(B) in the absence of a quorum of the holders of shares of
Series C Preferred Stock and Series B Preferred Stock, a majority of
the holders of such shares present in person or by proxy shall have the
power to adjourn the meeting as to the actions to be taken by the
holders of shares of Series C Preferred Stock and Series B Preferred
Stock, from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.
For taking of any action as provided in this Article VII by
the holders of shares of Series C Preferred Stock and Series B Preferred Stock,
each such holder shall have one vote for each share of such stock standing in
his name on the transfer books of the Corporation as of any record dated fixed
for such purpose or, if no such date be fixed, at the close of business on the
Business Day next preceding the day on which notice is given, or if notice if
waived, at the close of business on the Business Day next preceding the day on
which the meeting is held.
F. The Corporation shall not enter into any agreement or issue
any security that prohibits, conflicts or is inconsistent with, or would be
breached by, the Corporation's performance of its obligations hereunder.
VIII. CONVERSION
The holders of the Series C Preferred Stock shall have
conversion rights as follows:
A. Each share of Series C Preferred Stock shall be convertible at
the direction of, and by notice to the Corporation from, (i)
the holder thereof or (ii) the holders of a majority of the
outstanding shares of Series C Preferred Stock, at any time,
at the office of the Corporation or any transfer agent for
such Series, into one thousand (1,000) fully paid and
nonassessable shares of Common Stock subject (x) to adjustment
from time to time as provided below (as so adjusted, the
"conversion ratio") and (y) (prior to the consummation of the
Recapitalization) to limitations resulting from the available
number of shares of Common Stock which may be reserved for
issuance upon such conversion, provided, that any conversion
9
88
pursuant to clause (ii) above of less than all of the
outstanding shares of Series C Preferred Stock shall be on a
pro rata basis amongst all holders of Series C Preferred
Stock. [NOTE: IF THE CERTIFICATE OF INCORPORATION IS AMENDED
IN CONNECTION WITH THE RECAPITALIZATION, AS CONTEMPLATED BY
THE PREFERRED STOCK PURCHASE AGREEMENT, THE NUMBER "1,000" IN
THIS PARAGRAPH SHALL BE "1"]
B. If a holder of Series C Preferred Stock gives notice (an
"Optional Conversion Notice") of conversion under paragraph A
above, such holder shall surrender with such Optional
Conversion Notice the duly endorsed certificate or
certificates for the Series C Preferred Stock being converted,
at the office of the Corporation or of any transfer agent for
such Series, and shall state therein the name or names in
which the certificate or certificates for shares of Common
Stock are to be issued. If the holders of a majority of the
outstanding shares of Series C Preferred Stock give notice of
conversion under paragraph A above, the Corporation shall
notify all other record holders of Series C Preferred Stock (a
"Mandatory Conversion Notice"). Following receipt of a
Mandatory Conversion Notice, the holders of Series C Preferred
Stock shall surrender the certificate or certificates therefor
duly endorsed, at the office of the Corporation or of any
transfer agent for such Series, and shall state therein the
name or names in which the certificate or certificates for
shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable after the surrender of a Series
C Preferred Stock certificate or certificates pursuant to an
Optional Conversion Notice or Mandatory Conversion Notice,
issue and deliver at such office to such holder, or to the
nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the
close of business on the date of such Optional Conversion
Notice or Mandatory Conversion Notice, as applicable, and the
person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all
purposes as the recordholder or holders of such shares of
Common Stock as of such date. The issuance of certificates or
shares of Common Stock upon conversion of shares of Series C
Preferred Stock shall be made without charge for any issue,
stamp or other similar tax in respect of such issuance.
C. No fractional shares shall be issued upon conversion of any
shares of Series C Preferred Stock and the number of shares of
Common Stock to be issued shall be rounded down to the nearest
whole share, and the holder of Series C Preferred Stock shall
be paid in cash for any fractional share.
D. In case at any time or from time to time the Corporation shall
pay any dividend or make any other distribution to the holders
of its Common Stock or other class of securities, or shall
offer for subscription pro rata to the holders of its Common
Stock or other class of securities any additional shares of
stock of any class or any other right, or there shall be any
capital reorganization or reclassification of the Common Stock
of the Corporation or consolidation or merger of the
Corporation
10
89
with or into another corporation, or any sale or conveyance to
another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then, in any one or more of said cases
the Corporation shall give at least 20 days' prior written
notice (the time of mailing of such notice shall be deemed to
be the time of giving thereof) to the registered holders of
the Series C Preferred Stock at the addresses of each as shown
on the books of the Corporation maintained by the Transfer
Agent thereof of the date on which (i) the books of the
Corporation shall close or a record shall be taken for such
stock dividend, distribution or subscription rights or (ii)
such reorganization, reclassification, consolidation, merger,
sale or conveyance, dissolution, liquidation or winding up
shall take place, as the case may be, provided that in the
case of any Transaction to which paragraph H applies the
Corporation shall give at least 30 days' prior written notice
as aforesaid. Such notice shall also specify the date as of
which the holders of the Common Stock of record shall
participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale
or conveyance or participate in such dissolution, liquidation
or winding up, as the case may be. Failure to give such notice
shall not invalidate any action so taken.
E. From and after the Recapitalization, the Corporation shall at
all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series C Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all
outstanding shares of Series C Preferred Stock, and if at any
time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series C Preferred Stock, then in
addition to such other remedies as shall be available to the
holder of Series C Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purposes.
F. Any notice required by the provisions of paragraph D to be
given the holders of shares of Series C Preferred Stock shall
be deemed given if sent by facsimile transmission, by telex,
or if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his, her or its
address appearing on the books of the Corporation.
G. The conversion ratio shall be subject to adjustment from time
to time as follows:
(i) In case the Corporation shall at any time or from
time to time after the Issue Date (A) pay a dividend or make a
distribution, on the outstanding shares of Common Stock in
shares of Common Stock, (B) subdivide the
11
90
outstanding shares of Common Stock into a larger number of
shares of Common Stock, (C) combine the outstanding shares of
Common Stock into a smaller number of shares or (D) issue by
reclassification of the shares of Common Stock any shares of
capital stock of the Corporation, then, and in each such case,
the conversion ratio in effect immediately prior to such event
or the record date therefor, whichever is earlier, shall be
adjusted so that the holder of any shares of Series C
Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or
other securities of the Corporation which such holder would
have owned or have been entitled to receive after the
happening of any of the events described above, had such
shares of Series C Preferred Stock been surrendered for
conversion immediately prior to the happening of such event or
the record date therefor, whichever is earlier. An adjustment
made pursuant to this clause (i) shall become effective (x) in
the case of any such dividend or distribution, immediately
after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to
receive such dividend or distribution, or (y) in the case of
any such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action
becomes effective.
(ii) In the case the Corporation shall, after the
Issue Date, issue shares of Common Stock at a price per share,
or securities convertible into or exchangeable for shares of
Common Stock ("Convertible Securities") having a "Conversion
Price" (as defined below) less than the Current Market Price
(for a period of 15 consecutive trading days prior to such
date), then, and in each such case, the conversion ratio shall
be adjusted so that the holder of each share of Series C
Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (A) the applicable conversion ratio
on the day immediately prior to such date by (B) a fraction,
the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding on the date on which such
shares or Convertible Securities are issued and (2) the number
of additional shares of Common Stock issued, or into which the
Convertible Securities may convert, and the denominator of
which shall be the sum of (x) the number of shares of Common
Stock outstanding on such date and (y) the number of shares of
Common Stock which the aggregate consideration receivable by
the Corporation for the total number of shares of Common Stock
so issued, or the number of shares of Common Stock which the
aggregate of the Conversion Price of such Convertible
Securities so issued, would purchase at such Current Market
price on such date. An adjustment made pursuant to this clause
(ii) shall be made on the next Business Day following the date
on which any such issuance is made and shall be effective
retroactively immediately after the close of business on such
date. For purposes of this clause (ii), the aggregate
consideration receivable by the Corporation in connection with
the issuance of any securities shall be deemed to be the sum
of the aggregate offering price to the public (before
deduction of underwriting discounts or commissions and
expenses payable to third parties), and the
12
91
"Conversion Price" of any Convertible Securities is the total
amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion, exchange or
exercise of any such Convertible Securities. Neither (A) the
issuance of any shares of Common Stock (whether treasury
shares or newly issued shares) pursuant to a dividend or
distribution on, or subdivision, combination or
reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to
clause (i) of this paragraph G, or pursuant to any employee
benefit plan or program of the Corporation or pursuant to any
option, warrant, right, or Convertible Security outstanding as
of the date hereof (including, but not limited to, the Rights,
the Series B Preferred Stock, the Series C Preferred Stock and
the Warrants) nor (B) the issuance of shares of Common Stock
pursuant thereto shall be deemed to constitute an issuance of
Common Stock or Convertible Securities by the Corporation to
which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or
converted and for which an adjustment shall have been made
pursuant to this clause (ii), the Conversion Price computed
upon the original issue thereof shall upon such expiration be
recomputed as if the only additional shares of Common Stock
issued were such shares of Common Stock (if any) actually
issued upon exercise of such Convertible Securities and the
consideration received therefor was the consideration actually
received by the Corporation for the issue of such Convertible
Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such
exercise of conversion.
(iii) In case the Corporation shall at any time or
from time to time after the Issue Date declare, order, pay or
make a dividend or other distribution (including, without
limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of
the Corporation or any of its Subsidiaries by way of dividend
or spin-off), on its Common Stock, other than (A) regular
quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before
extraordinary items of the Corporation, determined in
accordance with generally accepted accounting principles,
during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such
dividend is paid or (B) dividends or distributions of shares
of Common Stock which are referred to in clause (i) of this
paragraph G, then, and in each such case, the conversion ratio
shall be adjusted so that the holder of each share of Series C
Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (1) the applicable conversion ratio
on the day immediately prior to the record date fixed for the
determination of stockholders entitled to receive such
dividend or distribution by (2) a fraction, the numerator of
13
92
which shall be the then Current Market Price per share of
Common Stock for the period of 20 Trading Days preceding such
record date, and the denominator of which shall be such
Current Market Price per share of Common Stock for the period
of 20 Trading Days preceding such record date less the Fair
Market Value (as defined in Article IX) per share of Common
Stock (as determined in good faith by the Board of Directors
of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series C
Preferred Stock) of such dividend or distribution; provided,
however, that in the event of a distribution of shares of
capital stock of a Subsidiary of the Corporation (a
"Spin-Off") made to holders of shares of Common Stock, the
numerator of such fraction shall be the sum of the Current
Market Price per share of Common Stock for the period of 20
Trading Days preceding the 35th Trading Day after the
effective date of such Spin-Off and the Current Market Price
of the number of shares (or the fraction of a share) of
capital stock of the Subsidiary which is distributed in such
Spin-Off in respect of one share of Common Stock for the
period of 20 Trading Days preceding such 35th Trading Day and
the denominator of which shall be the current market price per
share of the Common Stock for the period of 20 Trading Days
proceeding such 35th Trading Day. An adjustment made pursuant
to this clause (iii) shall be made upon the opening of
business on the next Business Day following the date on which
any such dividend or distribution is made and shall be
effective retroactively immediately after the close of
business on the record date fixed for the determination of
stockholders entitled to receive such dividend or
distribution; provided, however, if the proviso to the
preceding sentence applies, then such adjustment shall be made
and be effective as of such 35th Trading Day after the
effective date of such Spin-Off.
(iv) For purposes of this paragraph G, the number of
shares of Common Stock at any time outstanding shall not
include any shares of Common Stock then owned or held by or
for the account of the Corporation.
(v) The term "dividend", as used in this paragraph G
shall mean a dividend or other distribution upon stock of the
Corporation except pursuant to the Rights Agreement (as
defined in Article IX). Notwithstanding anything in this
Article VIII to the contrary, the conversion ratio shall not
be adjusted as a result of any dividend, distribution or
issuance of securities of the Corporation pursuant to the
Rights Agreement.
(vi) Anything in this paragraph G to the contrary
notwithstanding, the Corporation shall not be required to give
effect to any adjustment in the conversion ratio unless and
until the net effect of one or more adjustments (each of which
shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least
one-hundredth of one share of Common Stock, and when the
cumulative net effect of more than one adjustment so
determined shall be to change the conversion ratio by at least
14
93
one-hundredth of one share of Common Stock, such change in
conversion ratio shall thereupon be given effect.
(vii) The certificate of any firm of independent
public accountants of recognized standing selected by the
Board of Directors of the Corporation (which may be the firm
of independent public accountants regularly employed by the
Corporation) shall be presumptively correct for any
computation made under this paragraph G.
(viii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them
to receive a dividend or other distribution, and shall
thereafter and before the distribution to stockholders thereof
legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of
shares of Common Stock issuable upon exercise of the right of
conversion granted by this paragraph G or in the conversion
ratio then in effect shall be required by reason of the taking
of such record.
(ix) There shall be no adjustment of the conversion
ratio in case of the issuance of any stock of the Corporation
in a merger, reorganization, acquisition or other similar
transaction except as set forth in paragraph G(i), G(ii) and H
of this Article VIII.
H. In case of any reorganization or reclassification of
outstanding shares of Common Stock (other than a
reclassification covered by paragraph G(i) of this Article
VIII), or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case
of any sale or conveyance to another corporation of the
property of the Corporation as an entirety or substantially as
an entirety (each of the foregoing being referred to as a
"Transaction"), each share of Series C Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of
the Common Stock issuable upon such conversion prior to
consummation of such Transaction, the kind and amount of
shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by
a holder of that number of shares of Common Stock into which
one share of Series C Preferred Stock was convertible
immediately prior to such Transaction (including, on a pro
rata basis, the cash, securities or property received by
holders of Common Stock in any tender or exchange offer that
is a step in such Transaction). In case securities or property
other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all reference in this paragraph
H shall be deemed to apply, so far as appropriate and as
nearly as may be, to such other securities or property.
I. Upon any adjustment of the conversion ratio then in effect and
any increase or decrease in the number of shares of Common
Stock issuable upon the operation of the conversion set forth
in Article VIII, then, and in each such case, the Corporation
shall promptly deliver to the registered holders of the Series
C
15
94
Preferred and Common Stock, a certificate signed by the
President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation setting forth in reasonable detail the
event requiring the adjustment and the method by which such
adjustment was calculated and specifying the conversion ratio
then in effect following such adjustment and the increased or
decreased number of shares issuable upon the conversion set
forth in this Article VIII.
16
95
IX. ADDITIONAL DEFINITIONS
For the purposes of this Certificate of Designations of Series
C Preferred Stock, the following terms shall have the meanings indicated:
"Accrual Period" means the end of the first quarterly period
following the Second Anniversary Date.
"Beneficially Own" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof, except that a Person
shall be deemed to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have
correlative meanings.
"Business Day" means any day, other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Bylaws" means the Bylaws of the Corporation, as amended.
"Current Market Price", when used with reference to shares of
Common Stock or other securities on any date, shall mean the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Current Market Price" shall mean
the Fair Market Value per share of Common Stock or of such other securities as
determined in good faith by the Board of Directors of the Corporation based on
an opinion of an independent investment banking firm with an established
national reputation as a valuer of securities, which opinion may be based on
such assumption as such firm shall deem to be necessary and appropriate.
17
96
"Equity Securities" of any Person means any and all common
stock, preferred stock and any other class of capital stock of, and any
partnership or limited liability company interests of such Person or any other
similar interests of any Person that is not a corporation, partnership or
limited liability company.
"Exchange Act" means the U.S. Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder, from time to
time.
"Fair Market Value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
"Formula Number" shall mean one thousand (1,000) prior to
consummation of the Recapitalization; provided, however, that if at any time
prior to the consummation of the Recapitalization, the Corporation shall (i)
declare or pay any dividend or make any distribution on the Common Stock,
payable in shares of Common Stock; (ii) subdivide (by a stock split or
otherwise) the outstanding shares of Common Stock into a larger number of shares
of Common Stock; or (iii) combine (by a reverse stock split or otherwise) the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each such case the Formula Number in effect immediately prior to
such event shall be adjusted to a number determined by multiplying the Formula
Number then in effect by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if prior to the consummation
of the Recapitalization the Corporation shall issue any shares of its capital
stock in a merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification, or change so that each share
of Series C Preferred Stock continues to be the economic equivalent of a Formula
Number of shares of Common Stock immediately prior to such merger,
reclassification, or change.
"Group" has the meaning set forth in Rule 13d-5 under the
Exchange Act.
"Issue Date" shall mean the first date on which shares of
Series C Preferred Stock are issued.
"Person" means any individual, corporation, company,
association, partnership, joint venture, trust or unincorporated organization,
or a government or any agency or political subdivision thereof.
"Post-Recapitalization Stated Value" shall be equal to $1.00.
"Recapitalization" means the amendment of the Corporation's
Certificate of Incorporation to increase the authorized shares of Common Stock
from 50,000,000 to [250,000,000], and the authorized shares of Preferred Stock
from 1,000,000 to [125,000,000], and the subsequent one thousand-for-one split
of Series C Preferred Stock and Series B Preferred Stock. [Increased number of
authorized shares is subject to final determination]
18
97
"Redemption Price" of a share of Series C Preferred Stock
shall mean the sum of (a) the dividends, if any, accumulated or deemed to have
accumulated thereon to the Mandatory Redemption Date or Optional Redemption
Date, as applicable, whether or not such dividends are declared plus (b) either
(i) the Initial Stated Value thereof (if the Recapitalization has not been
consummated prior to June 30, 1999) or (ii) the Post-Recapitalization Stated
Value thereof (if the Recapitalization has been consummated prior to June 30,
1999), in each case subject to adjustment for splits, reclassifications,
recombinations or similar events.
"Rights" shall mean any rights to purchase securities of the
Corporation issued pursuant to any Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement, dated as
of June 21, 1996, between the Company and Xxxxx Fargo Bank as rights agent, and
all amendments, supplements and replacements thereof.
"Second Anniversary Date" means the second anniversary of the
Issue Date.
"Subsidiary" means, as to any Person, any other Person of
which more than 50% of the shares of the Voting Securities or other voting
interests are owned or controlled, or the ability to select or elect 50% or more
of the directors or similar managers is held, directly or indirectly, by such
first Person and one or more of its Subsidiaries.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange a Business Day.
"Voting Securities" means, (i) with respect to the Company,
the Equity Securities of the Company entitled to vote generally for the election
of directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
X. MISCELLANEOUS
A. NOTICES. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:
(i) if to the Corporation, to its office at 2
California Plaza, 000 Xxxxx Xxxxx Xxxxxx,
Xxx Xxxxxxx, Xxxxxxxxxx 00000 (Attention:
General Counsel)
or to the transfer agent for the Series C
Preferred Stock;
19
98
(ii) if to a holder of the Series C Preferred
Stock, to such holder at the address of such
holder as listed in the stock record books
of the Corporation (which may include the
records of any transfer agent for the Series
C Preferred Stock); or
(iii) to such other address as the Corporation or
such holder, as the case may be, shall have
designated by notice similarly given.
B. REACQUIRED SHARES. Any shares of Series C Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation, directly or
indirectly, in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Delaware General Corporation Law. All such shares of Series
C Preferred Stock shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State of Delaware,
become authorized but unissued shares of Preferred Stock, par value $0.001 per
share, of the Corporation and may be reissued as part of another series of
Preferred Stock, par value $0.001 per share, of the Corporation subject to the
conditions or restrictions on issuance set forth herein.
C. ENFORCEMENT. Any registered holder of shares of Series C
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to
the terms of this Certificate of Designations, the Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series C Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series C Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E. TRANSFER AGENT. The Corporation may appoint, and from time
to time discharge and change, a transfer agent for the Series C Preferred Stock.
Upon any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to each holder
of record of shares of Series C Preferred Stock.
20
99
F. RECORD DATES. In the event that the Series C Preferred
Stock shall be registered under either the Securities Act of 1933, as amended,
or the Exchange Act, the Corporation shall establish appropriate record dates
with respect to payments and other actions to be made with respect to the Series
C Preferred Stock.
21
100
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its [ ] and attested by its Assistant
Secretary, this ___ day of ____________ , 1999.
AAMES FINANCIAL CORPORATION
By:_________________________________
Name:
Title:
[Corporate Seal]
ATTEST:
__________________________________
22
101
EXHIBIT C
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
FORM OF WARRANT
To Purchase Common Stock of
AAMES FINANCIAL CORPORATION
102
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS...................................................................... 1
ARTICLE 2. EXERCISE OF WARRANT.............................................................. 4
Section 2.1. Manner of Exercise.................................................... 4
Section 2.2. Payment of Taxes...................................................... 5
Section 2.3. Fractional Shares..................................................... 6
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION............................................... 6
Section 3.1. Transfer.............................................................. 6
Section 3.2. Division and Combination.............................................. 6
Section 3.3. Expenses.............................................................. 7
Section 3.4. Maintenance of Books.................................................. 7
ARTICLE 4. ADJUSTMENTS...................................................................... 7
Section 4.1. Stock Dividends, Subdivisions, Combinations and Reclassifications..... 7
Section 4.2. Issuance of Additional Shares of Common Stock or Convertible
Securities..................................................... 8
Section 4.3. Certain Other Distributions........................................... 9
Section 4.4. Other Provisions Applicable to Adjustments Under This Section......... 10
Section 4.5. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets.......................................... 12
Section 4.6. Notices............................................................... 12
Section 4.7. Certificates.......................................................... 13
ARTICLE 5. NO IMPAIRMENT.................................................................... 13
ARTICLE 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY.................................... 13
ARTICLE 7. STOCK AND WARRANT TRANSFER BOOKS................................................. 14
ARTICLE 8. RESTRICTIONS ON TRANSFERABILITY.................................................. 14
Section 8.1. Restrictive Legend.................................................... 14
Section 8.2. Transfers............................................................. 15
Section 8.3. Termination of Restrictions........................................... 15
ARTICLE 9. SUPPLYING INFORMATION............................................................ 16
ARTICLE 10. LOSS OR MUTILATION.............................................................. 16
ARTICLE 11. OFFICE OF THE COMPANY........................................................... 16
ARTICLE 12. REGISTRATION RIGHTS............................................................. 17
ARTICLE 13. LIMITATION OF LIABILITY......................................................... 17
i
103
Page
----
ARTICLE 14. REPRESENTATION OF HOLDER........................................................ 17
ARTICLE 15. MISCELLANEOUS................................................................... 17
Section 15.1. Nonwaiver and Expenses............................................... 17
Section 15.2. No Rights As Stockholder............................................. 17
Section 15.3. Notice Generally..................................................... 18
Section 15.4. Successors and Assigns............................................... 18
Section 15.5. Amendment............................................................ 18
Section 15.6. Severability......................................................... 19
Section 15.7. Headings............................................................. 19
Section 15.8. Governing Law........................................................ 19
Section 15.9. Mutual Waiver of Jury Trial.......................................... 19
ii
104
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
WARRANT
To Purchase 1,250,000 Shares of Common Stock of
AAMES FINANCIAL CORPORATION
THIS IS TO CERTIFY THAT Capital Z Management, Inc., or its
registered assigns, is entitled, at any time prior to December 31, 2004 (the
"Expiration Date"), to purchase from Aames Financial Corporation, a Delaware
corporation (the "Company"), 1,250,000 shares of common stock, par value $0.001
per share, of the Company (the "Common Stock"), subject to adjustment as
provided herein, in whole or in part, including fractional parts, at a purchase
price of $1.00 per share (the "Exercise Price"), subject to adjustment as set
forth herein, all on the terms and conditions and pursuant to the provisions
hereinafter set forth. Capitalized terms not otherwise defined herein are used
as defined in the Preferred Stock Purchase Agreement.
ARTICLE 1.
DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Issue Date, other than Warrant
Stock.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Z" shall have the meaning set forth in the first
paragraph hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in the first
paragraph hereof.
"Company" shall have the meaning set forth in the first paragraph
hereof.
105
"Conversion Price" shall have the meaning set forth in Section
4.2 hereof.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event, other than the Senior Preferred Stock and
the Contingent Warrant issued under the Preferred Stock Purchase Agreement.
"Current Market Price" shall mean, when used with reference to
shares of Common Stock or other securities on any date, the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Current Market Price" shall mean
the Fair Market Value per share of Common Stock or of such other securities as
determined in good faith by the Board of Directors of the Corporation based on
an opinion of an independent investment banking firm with an established
national reputation as a valuer of securities, which opinion may be based on
such assumption as such firm shall deem to be necessary and appropriate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
2
106
"Exercise Price" shall have the meaning set forth in the first
paragraph hereof.
"Expiration Date" shall have the meaning set forth in the first
paragraph hereof.
"Fair Market Value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"holder" shall mean, as the context requires, the Person in whose
name this Warrant is registered on the books of the Company maintained for such
purpose and/or the Person holding any Warrant Stock.
"Issue Date" shall mean the date on which this Warrant is issued.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, corporation or other entity and shall include
any successor (by merger or otherwise) of such entity.
"Preferred Stock Purchase Agreement" shall mean the Preferred
Stock Purchase Agreement, dated as of December 23, between the Company and
Capital Z.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of the date hereof, between the Company and Capital
Z.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
8.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.
"Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Subsidiary" shall mean any corporation of which an aggregate of
more than 50% of the outstanding stock having
3
107
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by the Company and/or one or more Subsidiaries of the
Company.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Business Day.
"Transaction" shall have the meaning set forth in Section 4.5
hereof.
"transfer" shall mean any transfer, sale, encumbrance,
hypothecation or other disposition of this Warrant or any Warrant Stock or of
any interest in either thereof.
"Transfer Notice" shall have the meaning set forth in Section
8.2.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Exercise Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased
by the holder of this Warrant upon the exercise thereof.
ARTICLE 2.
EXERCISE OF WARRANT
Section 2.1. Manner of Exercise. From and after the date hereof
and until 5:00 P.M., New York time, on the Expiration Date, the holder may
exercise this Warrant for all or any part of the number of shares of Common
Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, the
holder shall deliver to the Company at its office at 2 California Plaza, 000
Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, or at the office or agency
designated by the Company pursuant to Section 11, (i) a written notice of the
holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (ii) payment of the Warrant
Price in the manner provided below, and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as Exhibit A, duly executed by or on behalf of the holder. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or
4
108
cause to be executed and deliver or cause to be delivered to the holder a
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as such holder shall request in the notice and shall be
registered in the name of the holder or, subject to Section 8, such other name
as shall be designated in the notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and the holder or any other Person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the notice, together with the cash, check or checks
and/or securities, if any, and this Warrant, are received by the Company as
described above and all taxes required to be paid by the holder, if any,
pursuant to Section 2.2 prior to the issuance of such shares have been paid. If
this Warrant shall have been exercised in part, the Company shall, at the time
of delivery of the certificate or certificates representing Warrant Stock,
deliver to the holder a new Warrant evidencing the rights of the holder to
purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of the holder, appropriate notation may be made on this
Warrant and the same returned to the holder.
Payment of the Warrant Price shall be made at the option of the
holder by cash, wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, or certified or official bank
check, or by transfer to the Company of shares of Series B Preferred Stock or
Series C Preferred Stock, or any combination thereof. In the event of the
application shares of Series B Preferred Stock or Series C Preferred Stock to
the payment of the Warrant Price, the amount to be credited to the payment of
the Warrant Price shall be the Initial Stated Value per share, in the case of
any such application prior to the consummation of the Recapitalization, or the
Post-Recapitalization Stated Value per share, in the case of any such
application after the consummation of the Recapitalization, in each case, plus
an amount per share equal to all accrued and unpaid dividends thereon, whether
or not declared, to the date of such exercise, provided that no such credit
shall be made with respect to any such dividends if the holder of such shares
held such shares on the record date therefor.
Section 2.2. Payment of Taxes. The Company shall pay all expenses
in connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery of the Warrant Shares, unless
such tax or charge is imposed by law upon the holder, in which case such taxes
or charges shall be paid by the holder. The Company shall
5
109
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for shares of Common
Stock issuable upon exercise of this Warrant in any name other than that of the
holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the satisfaction of the Company that no such tax or other
charge is due.
Section 2.3. Fractional Shares. The Company shall not be required
to issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which the holder of this Warrant would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash adjustment
in respect of such final fraction in an amount equal to the same fraction of the
Current Market Price per share of Common Stock on the date of exercise.
ARTICLE 3.
TRANSFER, DIVISION AND COMBINATION
Section 3.1. Transfer. Subject to compliance with Section 8,
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 11, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by the holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making
of such transfer. Upon such surrender and, if required, such payment, the
Company shall, subject to Section 8, execute and deliver a new Warrant or
Warrants in the name(s) of the assignee or assignees and in the denomination(s)
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled. A Warrant, if properly assigned in
compliance with Section 8, may be exercised by a new holder for the purchase of
shares of Common Stock without having a new Warrant issued.
Section 3.2. Division and Combination. Subject to Section 8, this
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 8, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
6
110
Section 3.3. Expenses. The Company shall prepare, issue and
deliver at its own expense (other than transfer taxes) the new Warrant or
Warrants under this Section 3.
Section 3.4. Maintenance of Books. The Company agrees to
maintain, at its aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.
ARTICLE 4.
ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give the holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
Section 4.1. Stock Dividends, Subdivisions, Combinations and
Reclassifications. If the Company shall at any time or from time to time after
the Issue Date:
(a) pay a dividend or make a distribution, on the outstanding
shares of Common Stock in Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock,
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or
(d) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the holder
of any Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Common Stock or other securities of the Company
which such holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such Warrant been exercised
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this Section 4.1 shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.
7
111
Section 4.2. Issuance of Additional Shares of Common Stock or
Convertible Securities. In the case the Corporation shall, after the Issue Date,
issue or sell:
(a) Additional Shares of Common Stock at a price per share, or
(b) Convertible Securities having a Conversion Price per share,
less than the Current Market Price (for a period of 15 consecutive Trading Days
prior to such date), then, and in each such case, the number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby shall be adjusted
so that the holder of each Warrant evidenced hereby shall be entitled to
receive, upon the exercise thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby on the day immediately prior to such
date by (B) a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding on the date on which such shares or
Convertible Securities are issued and (2) the number of Additional Shares of
Common Stock issued, or into which the Convertible Securities may convert, and
the denominator of which shall be the sum of (x) the number of shares of Common
Stock outstanding on such date and (y) the number of shares of Common Stock
which the aggregate consideration receivable by the Company for the total number
of shares of Common Stock so issued, or the number of shares of Common Stock
which the aggregate of the Conversion Price of such Convertible Securities so
issued, would purchase at the Current Market Price on such date.
An adjustment made pursuant to this Section 4.2 shall be made on
the next Business Day following the date on which any such issuance is made and
shall be effective retroactively immediately after the close of business on such
date. For purposes of this Section 4.2, the aggregate consideration receivable
by the Company in connection with the issuance of any securities shall be deemed
to be the sum of the aggregate offering price to the public (before deduction of
underwriting discounts or commissions and expenses payable to third parties),
and the "Conversion Price" of any Convertible Securities is the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities.
Neither (A) the issuance of any shares of Common Stock (whether
treasury shares or newly issued shares) pursuant to a dividend or distribution
on, or subdivision, combination or
8
112
reclassification of, the outstanding shares of Common Stock requiring an
adjustment in the number of shares of Common Stock issuable upon exercise of the
Warrants evidenced hereby pursuant to Section 4.1, or pursuant to any employee
benefit plan or program of the Company or pursuant to any option, warrant,
right, or Convertible Security outstanding as of the date hereof (including, but
not limited to, the Rights, the Series B Preferred Stock, the Series C Preferred
Stock and the Warrants) nor (B) the issuance of shares of Common Stock pursuant
thereto shall be deemed to constitute an issuance of Common Stock or Convertible
Securities by the Company to which this Section 4.2 applies.
Upon expiration of any Convertible Securities which shall not
have been exercised or converted and for which an adjustment shall have been
made pursuant to this Section 4.2, the Conversion Price computed upon the
original issue thereof shall upon expiration be recomputed as if the only
additional shares of Common Stock issued were such shares of Common Stock (if
any) actually issued upon exercise or conversion of such Convertible Securities
and the consideration received therefor was the consideration actually received
by the Corporation for the issue of such Convertible Securities (whether or not
exercised or converted) plus the consideration actually received by the
Corporation upon such exercise of conversion.
Section 4.3. Certain Other Distributions. In case the Company
shall at any time or from time to time after the Issue Date declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or warrants to
subscribe for securities of the Company or any of its Subsidiaries by way of
dividend or spin-off), on its Common Stock, other than:
(a) regular quarterly dividends payable in cash in an aggregate
amount not to exceed 15% of net income from continuing operations before
extraordinary items of the Company, determined in accordance with GAAP,
during the period (treated as one accounting period) commencing on July
1, 1998, and ending on the date such dividend is paid, or
(b) dividends or distributions of shares of Common Stock which
are referred to in Section 4.1,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby shall be adjusted so that the holder
of each share of each Warrant evidenced thereby shall be entitled to receive,
upon the exercise thereof, the number of shares of Common Stock determined by
multiplying (1) the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby on the day immediately prior to the record date
fixed for the determination of stockholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the then
9
113
Current Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, and the denominator of which shall be the Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, less the Fair Market Value per share of Common Stock
(as determined in good faith by the Board of Directors of the Company, a
certified resolution with respect to which shall be mailed to the holder of the
Warrants evidenced hereby) of such dividend or distribution; provided, however,
that in the event of a distribution of shares of capital stock of a Subsidiary
of the Company (a "Spin-Off") made to holders of shares of Common Stock, the
numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the Current Market Price per share of the
Common Stock for the period of 20 Trading Days proceeding such 35th Trading Day.
An adjustment made pursuant to this Section 4.3 shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
provided, however, if the proviso to the preceding sentence applies, then such
adjustment shall be made and be effective as of such 35th Trading Day after the
effective date of such Spin-Off.
Section 4.4. Other Provisions Applicable to Adjustments Under
This Section. The following provisions shall be applicable to the making of
adjustments provided for in this Section 4:
(a) For purposes of this Section 4, the number of shares of
Common Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the Company.
(b) The term "dividend", as used in this Section 4 shall mean a
dividend or other distribution upon stock of the Company except pursuant
to the Rights Agreement. Notwithstanding anything in this Section 4 to
the contrary, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby shall not be adjusted as a
result of any dividend, distribution or issuance of securities of the
Company pursuant to the Rights Agreement.
(c) Notwithstanding anything in this Section 4 to the contrary,
the Company shall not be required to give
10
114
effect to any adjustment in the number of shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby unless and until
the net effect of one or more adjustments (each of which shall be
carried forward), determined as above provided, shall have resulted in a
change in the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby by at least one-hundredth of one share of
Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the number of shares of
Common Stock issuable upon exercise of the Warrants evidenced hereby by
at least one-hundredth of one share of Common Stock, such change in the
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby shall thereupon be given effect.
(d) The certificate of any firm of independent public
accountants of recognized standing selected by the Board of Directors of
the Company (which may be the firm of independent public accountants
regularly employed by the Company) shall be presumptively correct for
any computation made under this Section 4.
(e) If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then, no adjustment in the number of shares of
Common Stock issuable upon exercise of the Warrants evidenced hereby
shall be required by reason of the taking of such record.
(f) There shall be no adjustment of the number of shares of
Common Stock issuable upon exercise of the Warrants evidenced hereby in
case of the issuance of any stock of the Company in a merger,
reorganization, acquisition or other similar transaction except as set
forth in Sections 4.1, 4.2 and 4.5.
(g) Notwithstanding anything herein to the contrary, the Company
agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Exercise Price to be less than the
par value per share of Common Stock.
(h) Upon each adjustment to the number of shares of Common Stock
issuable upon exercise of the Warrants pursuant to Sections 4.1, 4.2 or
4.3, the Exercise Price effective immediately prior to the making of
such adjustment shall thereafter be adjusted to be the amount obtained
by (i) multiplying (A) the applicable number of shares of Common Stock
issuable upon exercise of the Warrants immediately prior to such
adjustment by (B) the Exercise Price in effect
11
115
immediately prior to such adjustment and (ii) dividing the product so
obtained by the number of shares of Common Stock issuable upon exercise
of the Warrants immediately after such adjustment.
Section 4.5. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case of any reorganization or
reclassification of outstanding shares of Common Stock (other than a
reclassification covered by Section 4.1), or in case of any consolidation or
merger of the Company with or into another corporation, or in the case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each such Warrant then outstanding shall thereafter be
exercisable for, in lieu of the Common Stock issuable upon such exercise prior
to consummation of the Transaction, the kind and amount of shares of stock and
other securities and property receivable (including cash) upon the consummation
of the Transaction by a holder of that number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to the Transaction (including,
on a pro rata basis, the cash, securities or property received by holders of
Common Stock in any tender or exchange offer that is a step in the Transaction).
Section 4.6. Notices to Warrantholders. In case at any time or
from time to time, prior to the Expiration Date, the Company shall pay any
dividend or make any other distribution to the holders of its Common Stock, or
shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or any other right, or there shall be
any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, in any one or more of said cases the Company shall give at least 20 days'
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holder of the Warrants evidenced
hereby at its address as shown on the books of the Company maintained by the
Transfer Agent thereof of the date on which (i) the books of the Company shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such reorganization, reclassification,
consolidation, merger, sale or conveyance, dissolution, liquidation or winding
up shall take place, as the case may be, provided that in the case of any
Transaction to which Section 4.5 applies the Company shall give at least 30
days' prior written notice as aforesaid. Such notice shall also specify the date
as of which the holders of the Common Stock of record shall participate in said
dividend, distribution or subscription rights or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon
12
116
such reorganization, reclassification, consolidation, merger, sale or conveyance
or participate in such dissolution, liquidation or winding up, as the case may
be. Failure to give such notice shall not invalidate any action so taken.
Section 4.7. Certificates. Upon any adjustment of the number of
shares of Common Stock issuable upon exercise of the Warrants evidenced hereby
or of the Exercise Price, then, and in each such case, the Company shall
promptly deliver to the holders of the Warrants and the Common Stock, a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased or
decreased number of shares of Common Stock issuable upon exercise of the
Warrants evidenced hereby and the Exercise Price then in effect following such
adjustment.
ARTICLE 5.
NO IMPAIRMENT
The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the holder of the Warrant against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock,
free and clear of any liens, claims, encumbrances and restrictions (other than
as provided herein) upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
Upon the request of the holder of the Warrant, the Company will
at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to the holder of this Warrant, the continuing
validity of this Warrant and the obligations of the Company hereunder.
ARTICLE 6.
RESERVATION AND AUTHORIZATION OF
13
117
COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
The Company covenants and agrees that, until the Expiration Date,
the Company shall at all times reserve and keep available for issue upon the
exercise of Warrants such number of its authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of Common Stock which shall be so issuable, when issued
upon exercise of Warrants and payment therefor in accordance with the terms of
such Warrant, shall be duly and validly issued, fully paid and nonassessable and
free and clear of any liens, claims and restrictions (other than as provided
herein). No stockholder of the Company has or shall have any preemptive rights
to subscribe for such shares of Common Stock.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or in
the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
ARTICLE 7.
STOCK AND WARRANT TRANSFER BOOKS
The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
ARTICLE 8.
RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred
before satisfaction of the conditions specified in this Section 8, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and state securities laws with respect to the Transfer of any
Warrant or any Warrant Stock. The holder, by acceptance of this Warrant, agrees
to be bound by the provisions of this Section 8.
Section 8.1. Restrictive Legend.
(a) Except as otherwise provided in this Section 8, each
certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws
14
118
of any state and are subject to the conditions specified in a
certain Warrant dated January 4, 1998, originally issued by
Aames Financial Corporation. The shares represented by this
certificate may not be transferred in violation of such Act and
laws, the rules and regulations thereunder or the provisions of
the Warrant. A copy of the form of said Warrant is on file with
the Secretary of Aames Financial Corporation. The holder of this
certificate, by acceptance of this certificate, agrees to be
bound by the provisions of such Warrant."
(b) Except as otherwise provided in this Section 8, each Warrant
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended, or
the securities laws of any state and may not be sold or
otherwise transferred in the absence of such registration or an
exemption therefrom under such Act and under any such applicable
state laws, or in violation of the provisions of this Warrant."
Section 8.2. Transfers. Prior to any transfer or attempted
transfer of any Warrants or any shares of Restricted Common Stock, the holder of
such Warrants or Restricted Common Stock shall give notice (a "Transfer Notice")
to the Company of such holder's intention to effect such transfer, describing
the manner and circumstances of the proposed transfer, and obtain from counsel a
written opinion addressed and reasonably satisfactory to the Company that the
proposed transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act and applicable state
securities laws. After receipt of the Transfer Notice and written opinion, the
Company shall, within two Business Days thereof, so notify the holder of such
Warrants or such Restricted Common Stock and such holder shall thereupon be
entitled to transfer such warrants or such Restricted Common Stock, in
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such transfer
shall bear the restrictive legend set forth in Section 8.1(a), and each Warrant
issued upon such transfer shall bear the restrictive legend set forth in Section
8.1(b), unless in the written opinion of counsel addressed to the Company such
legend is not required in order to ensure compliance with the Securities Act.
Section 8.3. Termination of Restrictions. Notwithstanding the
foregoing provisions of Section 8, the restrictions imposed by this Section 8
upon the transferability
15
119
of the Warrants, the Warrant Stock and the Restricted Common Stock (or Common
Stock issuable upon the exercise of the Warrants) and the legend requirements of
Section 8.1 shall terminate as to any particular Warrant or share of Warrant
Stock or Restricted Common Stock (or Common Stock issuable upon the exercise of
the Warrants) (i) as to the Warrant Stock and Restricted Common Stock, when and
so long as the resale of such security shall have been effectively registered
under the Securities Act and disposed of pursuant thereto, or (ii) as to the
Warrant, Warrant Stock and Restricted Common Stock, when the holder of the
Warrant, Warrant Stock or Restricted Common Stock shall have delivered to the
Company the written opinion of counsel addressed and reasonably satisfactory to
the Company stating that such legend is not required in order to ensure
compliance with the Securities Act. Whenever the restrictions imposed by this
Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense (except for any transfer taxes), a new
certificate representing such Common Stock not bearing the restrictive legend
set forth in Section 8.1(a).
ARTICLE 9.
SUPPLYING INFORMATION
The Company shall cooperate with the holder of the Warrant and
the holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such holder or reasonably necessary for such holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
ARTICLE 10.
LOSS OR MUTILATION
Upon receipt by the Company from any holder of evidence
reasonably satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it and in case of mutilation upon surrender and cancellation hereof, the
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
the holder; provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
ARTICLE 11.
OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants
16
120
may be presented for exercise, registration of transfer, division or combination
as provided in this Warrant.
ARTICLE 12.
REGISTRATION RIGHTS
The Warrant Stock issuable upon exercise of this Warrant are
entitled to the benefits of the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 11 and shall
furnish copies thereof to the holder upon request.
ARTICLE 13.
LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
the holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
ARTICLE 14.
REPRESENTATION OF HOLDER
The holder represents that it is acquiring the Warrant and the
Warrant Stock for the purpose of investment and not with a view to the resale or
distribution hereof or thereof; provided, that the disposition of holder's
property shall at all times be and remain within its control.
ARTICLE 15.
MISCELLANEOUS
Section 15.1. Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of the parties
shall operate as a waiver of such right or otherwise prejudice the parties'
rights, powers or remedies. If the Company fails to comply with any provision of
this Warrant, the Company shall pay to the holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees incurred by the holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.
Section 15.2. No Rights As Stockholder. The Person in whose name
this Warrant is registered shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered holder of this Warrant shall
not be entitled to
17
121
any rights whatsoever as a stockholder of the Company except as herein provided.
Section 15.3. Notice Generally. Any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Warrant shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or
sent by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to the holder, at its last known address appearing
on the books of the Company maintained for such purpose.
(b) If to the Company:
Aames Financial Corporation
2 California Plaza
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Fax No.: (000) 000-0000
with a copy to:
Troop Xxxxxxx Pasich Reddick & Xxxxx
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: C. N. Xxxxxxxx Xxxxxxx, Esq.
Fax No.: (000) 000-0000
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail.
Section 15.4. Successors and Assigns. Subject to the provisions
of Sections 3.1 and 8, (i) this Warrant and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company and
the successors and assigns of the holder, and (ii) the provisions of this
Warrant are intended to be for the benefit of all holders from time to time of
this Warrant, and shall be enforceable by any such holders.
Section 15.5. Amendment. The Warrants may be modified or amended
or the provisions thereof waived with the written
18
122
consent of the Company and the holders of the majority of the portion of this
Warrant then outstanding.
Section 15.6. Severability. Wherever possible, each provision of
this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Warrant.
Section 15.7. Headings. The headings used in this Warrant are for
the convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
Section 15.8. Governing Law. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to conflicts of law principles thereof.
Section 15.10. Mutual Waiver of Jury Trial. BECAUSE DISPUTES
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS WARRANT.
19
123
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer on January 4, 1999.
AAMES FINANCIAL CORPORATION
By:________________________
Name:
Title:
20
124
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of AAMES
FINANCIAL CORPORATION and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to __________________ whose address is ____________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
______________________ (Name of Registered Owner)
______________________ (Signature of Registered owner)
______________________ (Street Address)
______________________ (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
125
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ____________ attorney-in-fact
to register such transfer on the books of AAMES FINANCIAL CORPORATION maintained
for the purpose, with full power of substitution in the premises.
Dated: _______________________________________
Name: ________________________________________
Signature: ____________________________________
Witness: _____________________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
126
EXHIBIT D
AAMES FINANCIAL CORPORATION
1999 STOCK OPTION PLAN
ARTICLE I.
PURPOSE
This Stock Option Plan (the "Plan") is intended as an incentive
and to encourage stock ownership by officers and certain other key employees of
Aames Financial Corporation (the "Company") in order to increase their
proprietary interest in the Company's success and to encourage them to remain in
the employ of the Company.
The term "Company," when used in the Plan with reference to
eligibility and employment, shall include the Company and its subsidiaries. The
word "subsidiary," when used in the Plan, shall mean any subsidiary of the
Company within the meaning of Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code").
It is intended that certain options granted under this Plan will
qualify as "incentive stock options" under Section 422 of the Code. All grants
under the Plan shall be subject to obtaining the approvals required to be
obtained under Article XVIII by June 30, 1999. If either of such approvals is
not obtained on a timely basis, all grants under the Plan shall be void ab
initio, and the Plan shall be of no further force or effect.
ARTICLE II.
ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board") appointed by
the Board which shall consist of not less than three members, two of whom shall
be appointed by Capital Z Financial Services Fund II, L.P. ("Capital Z") during
any period that Capital Z and/or its designated purchasers under the Preferred
Stock Purchase Agreement by and among the Company and Capital Z, dated as of the
23rd day of December, 1998 (the "Purchase Agreement") own at least 25% of the
outstanding voting securities of the Company (the "Minimum Stock Ownership
Threshold"). Each of the members of the Compensation Committee should be an
"outside director" within the meaning of Section 162(m) of the Code. Subject to
the provisions of the Plan, the Committee shall have sole authority, in its
absolute discretion:
127
(a) to determine which of the eligible employees of the Company shall be granted
options; (b) to authorize the granting of both incentive stock options and
nonqualified options; (c) to determine the times when options shall be granted
and the number of shares to be optioned; (d) to determine the option price of
the shares subject to each option, which price shall be not less than the
minimum specified in ARTICLE V; (e) to determine the time or times when each
option becomes exercisable, the duration of the exercise period and any other
restrictions on the exercise of options issued hereunder; (f) to prescribe the
form or forms of the option agreements under the Plan (which forms shall be
consistent with the terms of the Plan but need not be identical); (g) to adopt,
amend and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan; and (h) to construe and interpret
the Plan, the rules and regulations and the option agreements under the Plan and
to make all other determinations deemed necessary or advisable for the
administration of the Plan. All decisions, determinations and interpretations of
the Committee shall be final and binding on all optionees.
ARTICLE III.
STOCK
The stock to be optioned under the Plan shall be shares of
authorized but unissued Common Stock of the Company, par value $.001 per share,
or previously issued shares of Common Stock reacquired by the Company (the
"Stock"). Under the Plan, the total number of shares of Stock which may be
purchased pursuant to options granted hereunder shall not exceed, in the
aggregate, 14,612,008 shares, except as such number of shares shall be adjusted
in accordance with the provisions of ARTICLE X hereof.
The number of shares of Stock available for grant of options
under the Plan shall be decreased by the sum of the number of shares with
respect to which options have been issued and are then outstanding and the
number of shares issued upon exercise of options. In the event that any
outstanding option under the Plan for any reason expires, is terminated or is
canceled prior to the end of the period during which options may be granted, the
shares of Stock called for by the unexercised portion of such option may again
be subject to an option under the Plan.
ARTICLE IV.
ELIGIBILITY OF PARTICIPANTS
Subject to ARTICLE VII in the case of incentive stock options,
officers and other key employees of the Company
-2-
128
(excluding any person who is a member of the Committee) shall be eligible to
receive options under the Plan. In addition, options which are not incentive
stock options may be granted to consultants or other key persons (excluding any
person who is a member of the Committee) who the Committee determines shall
receive options under the Plan. No person may receive options for more than
7,306,004 shares of Outstanding Stock during the term of the Plan.
ARTICLE V.
OPTION EXERCISE PRICE
Subject to ARTICLE VII in the case of incentive stock options,
except as otherwise provided by the Committee in the option agreement, the
option exercise price of each option granted under the Plan shall not be less
than the Fair Market Value of stock at the time the option is granted. Fair
Market Value shall in all cases be based on trading days occurring after the
"Initial Closing Date" as such term is defined in the Purchase Agreement. For
purposes of the Plan, the Fair Market Value on a given date means (i) if the
Stock is listed on a national securities exchange, the average of the closing
sale prices reported as having occurred on the primary exchange with which the
Stock is listed and traded during the twenty (20) trading days occurring
immediately prior to such date; (ii) if the Stock is not listed on any national
securities exchange but is quoted in the National Market System of the National
Association of Securities Dealers Automated Quotation System on a last sale
basis, the average between the high bid price and low ask price reported during
the twenty (20) trading days occurring immediately prior to such date; or (iii)
if the Stock is not listed on a national securities exchange nor quoted in the
National Market System of the National Association of Securities Dealers
Automated Quotation System on a last sale basis, the amount determined by the
Committee to be the fair market value based upon a good faith attempt to value
the Stock accurately and computed in accordance with applicable regulations of
the Internal Revenue Service.
ARTICLE VI.
EXERCISE AND TERMS OF OPTIONS
Subject to this ARTICLE VI, the Committee shall determine the
dates after which options may be exercised, in whole or in part. If an option is
exercisable in installments, installments or portions thereof which are
exercisable and not exercised shall remain exercisable.
-3-
129
Unless otherwise provided in the option agreement or agreed to by
the Committee at the time of exercise, each optionee shall enter into a binding
agreement with the Company at the time of grant pursuant to which such optionee
agrees (i) not to sell, assign or otherwise transfer more than 25% of the Stock
purchased pursuant to an Option in any given year and (ii) in aggregate not to
sell, assign or otherwise transfer more than 25% of the Stock purchased pursuant
to an Option over a five year period beginning on the effective date of this
Plan. Appropriate legends shall be placed on the stock certificates evidencing
shares issued upon exercise of options to reflect such transfer restrictions.
Any other provision of the Plan to the contrary notwithstanding,
but subject to ARTICLE VII in the case of incentive stock options, no option
shall be exercised after the date ten years from the date of grant of such
option (the "Termination Date").
If prior to the Termination Date, an optionee shall cease to be
employed by the Company by reason of a disability, as defined in Section
22(e)(3) of the Code, or by reason of retirement on or after age 65
("Retirement") the option shall remain exercisable until the earlier of the
Termination Date or one year after the date of cessation of employment to the
extent the option was exercisable at the time of cessation of employment.
In the event of the death of an optionee prior to the Termination
Date and while employed by the Company, or while entitled to exercise an option
pursuant to the preceding paragraph or the next to last sentence of the
subsequent paragraph, the option shall remain exercisable until the earlier of
the Termination Date or one year after the date of death, by the person or
person to whom the optionee's rights under the option pass by will or the
applicable laws of descent and distribution, to the extent that the optionee was
entitled to exercise it on the date of death.
Unless otherwise provided in the option agreement, if an optionee
voluntarily terminates employment with the Company for reasons other than (i)
death, (ii) disability, (iii) Retirement, or (iv) Good Reason (as hereinafter
defined), or if an optionee's employment with the Company is terminated for
Cause (as hereinafter defined), all options previously granted to such optionee
which have not been exercised prior to such termination shall lapse and be
canceled. If the Company terminates an optionee's employment without Cause, or
if an optionee terminates his employment for Good Reason, all options previously
granted to such optionee which were vested and satisfied all conditions to
exercisability immediately prior to such termination shall continue to be vested
and exercisable for a period not extending beyond the earlier of the Termination
Date or one year after the date of such termination. In addition, if a Change in
Control (as defined in Article XI hereof) occurs within six months from the date
of termination of employment of an optionee referred to in
-4-
130
the preceding sentence, unvested options shall become vested and exercisable to
the same extent as if the Change in Control had occurred on the date of his
termination of employment, and any such options shall continue to be exercisable
until the earlier of the Termination Date or the first anniversary of optionee's
termination of employment.
In the case of any optionee who has an employment agreement with
the Company, it shall be a condition to exercise of an option that the optionee
not have engaged in any material and knowing or intentional breach of his
employment agreement. After the expiration of the exercise period described in
any of the preceding four paragraphs hereof, options shall terminate together
with all of the optionee's rights thereunder, to the extent not previously
exercised.
For purposes of the Plan, the Company shall have "Cause" to
terminate an optionee's employment if the Company has cause to terminate the
optionee's employment under any existing employment agreement between the
optionee and the Company or, in the absence of an employment agreement between
the optionee and the Company, if the Company terminates the optionee after the
Company reasonably determines that the optionee: (1) shall have been determined
by a court of law to have committed any felony including, but not limited to, a
felony involving fraud, theft, misappropriation, dishonesty, embezzlement, or
any other crime involving moral turpitude, or if the optionee shall have been
arrested or indicted for violation of any criminal statute constituting a
felony, provided the Company reasonably determines that the continuation of the
optionee's employment after such event would have an adverse impact on the
operation or reputation of the Company or its affiliates (subsequent references
to the "Company" in this paragraph shall be deemed to refer to the Company or
its affiliates); (2) shall have committed one or more acts or gross negligence
or willful misconduct that, in the good faith opinion of the Company, materially
impair the goodwill or business of the Company or cause material damage to its
property, goodwill, or business, or would, if known, subject the Company to
public ridicule; (3) shall have refused or failed to a material degree to
perform his duties hereunder (continuing without cure for ten (10) days after
receipt of written notice of need to cure); (4) shall have violated any material
written Company policy provided to the Executive during or prior to the Term
(continuing without cure for ten (10) days after receipt of written notice of
need to cure) and that has caused material harm to the Company; or (5) knew, or
should have known, that the Company materially, and knowingly or intentionally
breached any representation, warranty, or covenant under the Purchase Agreement
or, if the optionee has an employment agreement with the Company, the optionee
shall have materially and intentionally or knowingly breached any provision of
such employment agreement.
For purposes of the Plan, in the case of an optionee who is not
an employee of the Company, references to employment
-5-
131
herein shall be deemed to refer to such person's relationship to the Company.
Upon any merger or reorganization or other business combination
in which the Company shall not be the surviving corporation, or a dissolution or
liquidation of the Company, or a sale of all or substantially all of the
Company's assets, all outstanding options shall terminate; provided, however,
that the Company shall cause either (i) the optionees to be paid an amount equal
to the difference between (A) the aggregate fair market value (determined in
accordance with ARTICLE V of the Plan) of the Stock subject to options held by
the optionees at the time of such transaction that have become vested and
exercisable by the terms of the Plan and the applicable option agreements
(either as a result of or prior to such transaction) and (B) the aggregate
exercise price of such options, or (ii) the surviving or resulting corporation
to grant the optionees substitute options to purchase its shares on such terms
and conditions, both as to the number of shares and otherwise, which the
Committee shall deem appropriate.
Notwithstanding the foregoing provisions of this ARTICLE VI or
the terms of any option agreement, the Committee may in its sole discretion
accelerate the exercisability of any option granted hereunder. Any such
acceleration shall not affect the terms and conditions of any such option other
than with respect to exercisability.
ARTICLE VII.
SPECIAL PROVISIONS APPLICABLE
TO INCENTIVE STOCK OPTIONS ONLY
To the extent the aggregate fair market value (determined as of
the time the option is granted) of the Stock with respect to which any options
granted hereunder which are intended to be incentive stock options may be
exercisable for the first time by the optionee in any calendar year (under this
Plan or any other stock option plan of the Company or any parent or subsidiary
thereof) exceeds $100,000, such options shall not be considered incentive stock
options.
No incentive stock option may be granted to an individual who, at
the time the option is granted, owns directly, or indirectly within the meaning
of Section 424(d) of the Code, stock possessing more than 10 percent of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary thereof, unless such option (i) has an option price of at
least 110 percent of the fair market value of the Stock on the date of the grant
of such option; and (ii) cannot be exercised more than five years after the date
it is granted.
-6-
132
Each optionee who receives an incentive stock option must agree
to notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the optionee was granted the incentive stock option or (b) one year after
the date the optionee acquired Stock by exercising the incentive stock option.
ARTICLE VIII.
PAYMENT FOR SHARES
Payment for shares of Stock purchased under an option granted
hereunder shall be made in full upon exercise of the option, by certified or
bank cashier's check payable to the order of the Company or by any other means
acceptable to the Company. The Stock purchased shall thereupon be promptly
delivered; provided, however, that the Company may, in its discretion, require
that an optionee pay to the Company, at the time of exercise, such amount as the
Company deems necessary to satisfy its obligation to withhold Federal, state or
local income or other taxes incurred by reason of the exercise or the transfer
of shares thereupon.
ARTICLE IX.
NON-TRANSFERABILITY OF OPTION RIGHTS
No option shall be transferable except by will or the laws of
descent and distribution. During the lifetime of the optionee, the option shall
be exercisable only by him. The Committee may, however, in its sole discretion,
allow for transfer of options which are not incentive stock options to other
persons or entities, subject to such conditions or limitations as it may
establish.
ARTICLE X.
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
The aggregate number of shares of Stock which may be purchased
pursuant to options granted hereunder, the maximum number of shares for which
options may be granted to any one person the number of shares of Stock covered
by each outstanding option and the price per share thereof in each such option
shall be appropriately adjusted for any increase or decrease in the number of
outstanding shares of stock resulting from a stock split
-7-
133
or other subdivision or consolidation of shares of Stock or for other capital
adjustments or payments of stock dividends or distributions or other increases
or decreases in the outstanding shares of Stock without receipt of consideration
by the Company. Any adjustment shall be conclusively determined by the
Committee.
In the event of any change in the outstanding shares of Stock by
reason of any recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distributions to common
shareholders other than cash dividends, the Committee shall make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number or kind of shares of Stock or other securities issued or reserved for
issuance pursuant to the Plan, and the number or kind of shares of Stock or
other securities covered by outstanding options, and the option price thereof.
In instances where another corporation or other business entity is being
acquired by the Company, and the Company has assumed outstanding employee option
grants and/or the obligation to make future or potential grants under a prior
existing plan of the acquired entity, similar adjustments are permitted at the
discretion of the Committee. The Committee shall notify optionees of any
intended sale of all or substantially all of the Company's assets within a
reasonable time prior to such sale.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
ARTICLE XI.
EFFECT OF CHANGE IN CONTROL
(a) Except to the extent otherwise provided in a particular
option agreement or in paragraph (c) below, in the event of a "Change in
Control," notwithstanding any unsatisfied service requirement established in the
option agreement, such option shall become immediately exercisable with respect
to 100 percent of the shares subject to such option.
(b) For purposes of the Plan, a Change in Control shall, subject
to subsection (c) below, be deemed to occur if, after the date the conditions of
Article XVIII have been satisfied (i) any "person" (as that term is used in
Sections 13 and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than Capital Z or any of its affiliates, is or becomes
the beneficial owner (as that term is used in Section 13(d) of the Exchange
Act), directly or indirectly, of 50% or more of either the outstanding shares of
Common Stock or the combined voting power of the Company's then
-8-
134
outstanding voting securities entitled to vote generally, (ii) the Company is
merged, consolidated or reorganized into or with another corporation or another
legal entity and, as a result of such merger, consolidation or reorganization,
less than 50% of the combined voting power of the then-outstanding securities of
such corporation or entity immediately after such transaction is held in the
aggregate by the holders of the combined voting power of the securities of the
Company entitled to generally in the election of directors of the Company
immediately prior to such transaction, (iii) individuals who constitute the
Board at the beginning of such period cease for any reason to constitute at
least a majority thereof, unless the election or the nomination for election by
the Company's shareholders of each new director was approved by a vote of at
least three-quarters of the directors then still in office who were directors at
the beginning of the period or (iv) the Company undergoes a liquidation or
dissolution or a sale of all or substantially all of the assets of the Company.
No merger, consolidation or corporate reorganization in which the owners of the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally prior to said combination, own 50% or more of the
resulting entity's outstanding voting securities shall, by itself, be considered
a Change in Control.
(c) Notwithstanding any other provision of this Plan, unless (i)
an optionee terminates his employment for Good Reason, or (ii) is terminated by
the Company without Cause, in either case within one year after a Change in
Control (as defined in subsection (b) above), no event shall be treated as a
Change in Control unless all equity securities of the Company then held by
Capital Z are contemporaneously exchanged for cash or other liquid assets, which
Capital Z is free to sell on a basis reasonably likely to result in receipt of
cash proceeds equal to or greater than the price payable to shareholders upon a
Change in Control (such event is referred to as a "Capital Z Realization Event"
and such price is referred to as the "Change in Control Price"). If an
optionee's employment is terminated by the Company without Cause or by the
optionee for Good Reason within one year after a Change in Control (as defined
in subsection (b) above), the event shall be treated as both a Change in Control
and a Capital Z Realization Event with respect to such optionee and acceleration
of vesting shall occur to the extent the performance conditions established in
the option agreement were satisfied as of the date of the Change in Control.
ARTICLE XII.
NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the recipient
to exercise such option.
-9-
135
ARTICLE XIII.
USE OF PROCEEDS
The proceeds received from the sale of Stock pursuant to the Plan
shall be used for general corporate purposes.
ARTICLE XIV.
RIGHTS AS A STOCKHOLDER
An optionee or a transferee of an option shall have no rights as
a stockholder with respect to any share covered by his option until he shall
have become the holder of record of such share, and he shall not be entitled to
any dividends or distributions or other rights in respect of such share for
which the record date is prior to the date on which he shall have become the
holder of record thereof.
Notwithstanding anything herein to the contrary, the Committee,
in its sole discretion, may restrict the transferability of all or any number of
shares issued under the Plan upon the exercise of an option by legending the
stock certificate as it deems appropriate.
ARTICLE XV.
EMPLOYMENT RIGHTS
Nothing in the Plan or in any option granted hereunder shall
confer on any optionee any right to continue in the employ of the Company or any
of its subsidiaries, or to interfere in any way with the right of the Company or
any of its subsidiaries to terminate the optionee's employment at any time for
any reason, whether or not for Cause.
ARTICLE XVI.
COMPLIANCE WITH LAW
The Company is relieved from any liability for the nonissuance or
non-transfer or any delay in issuance or transfer of any shares of Stock subject
to options under the Plan which results from the inability of the Company to
obtain or in any delay in obtaining from any regulatory body having
jurisdiction, all requisite authority to issue or transfer shares of Stock of
the Company either upon exercise of the options under the Plan or shares of
Stock issued as a result of such exercise if counsel for
-10-
136
the Company deems such authority necessary for lawful issuance or transfer of
any such shares, Appropriate legends may be placed on the stock certificates
evidencing shares issued upon exercise of options to reflect such transfer
restrictions.
Each option granted under the Plan is subject to the requirement
that if at any time the Committee determines, in its discretion, that the
listing, registration or qualification of shares of Stock issuable upon exercise
of options is required by any securities exchange or under any state or Federal
law, or that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of Stock, no shares of Stock shall be issued,
in whole or in part, unless such listing, registration, qualification, consent
or approval has been effected or obtained free of any conditions or with such
conditions as are acceptable to the Committee.
ARTICLE XVII.
CANCELLATION OF OPTIONS
The Committee, in its discretion, may, with the consent of any
optionee, cancel any outstanding option hereunder.
ARTICLE XVIII.
EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
The Plan is effective as of the Initial Closing Date, subject to
(i) approval by the stockholders of the Company in a manner which complies with
Section 162(m) and Section 422(b)(1) of the Code and the Treasury Regulations
thereunder, such approval to occur at the next meeting of stockholders of the
Company, and (ii) the consummation, on or prior to June 30, 1999, of the
"Recapitalization," as such term is defined in the Purchase Agreement. The
expiration date of the Plan, after which no option may be granted hereunder,
shall be December 31, 2008.
ARTICLE XIX.
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of the Company's stockholders
or optionees under the Plan, at any time terminate the Plan entirely and at any
time or from time to time amend or modify the Plan, provided that no such action
shall adversely affect options theretofore granted hereunder without the
optionee's consent, and provided further that no such action by
-11-
137
the Board, without approval of the stockholders, may (a) increase the total
number of shares of Stock which may be purchased pursuant to options granted
under the Plan, except as contemplated in ARTICLE X, or (b) expand the class of
employees eligible to receive options under the Plan.
ARTICLE XX.
MISCELLANEOUS
(a) Options shall be evidenced by option agreements (which need
not be identical) in such forms as the Committee may from time to time approve.
Such agreements shall conform to the terms and conditions of the Plan and may
provide that the grant of any option under the Plan and Stock acquired pursuant
to the Plan shall also be subject to such other conditions (whether or not
applicable to the option or Stock received by any other optionee) as the
Committee determines appropriate, including, without limitation, provisions to
assist the optionee in financing the purchase of Stock through the exercise of
options, provisions for the forfeiture of, or restrictions on, resale or other
disposition of shares under the Plan, and provisions to comply with Federal and
state securities laws and Federal and state income tax withholding requirements.
(b) If the Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Committee so directs the Company, be
paid to his spouse, child, relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to be a
proper recipient on behalf of such person otherwise entitled to payment. Any
such payment shall be a complete discharge of the liability of the Committee and
the Company therefor.
(c) No member of the Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Committee nor for any mistake of
judgment made in good faith, and the Company shall indemnify and hold harmless
each member of the Committee and each other employee, officer or director of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in connection
with the Plan unless arising out of such person's own fraud or bad faith;
provided, however, that approval of the Company's Board of Directors shall be
required for the payment of any amount in settlement of a claim
-12-
138
against any such person. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or By-Laws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.
(d) The Plan shall be governed by and construed in accordance
with the internal laws of the State of Delaware without reference to the
principles of conflicts of law thereof.
(e) No provision of the Plan shall require the Company, for the
purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. optionees shall
have no rights under the Plan other than as unsecured general creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
(f) Each member of the Committee and each member of the Company's
Board of Directors shall be fully justified in relaying, acting or failing to
act, and shall not be liable for having so relied, acted or failed to act in
good faith, upon any report made by the independent public accountant of the
Company and upon any other information furnished in connection with the Plan by
any person or persons other than such member.
(g) References to "Good Reason" as used herein shall relate only
to optionees who have employment agreements with the Company, and in such cases,
shall have the same meaning as set forth in such employment agreement. If the
optionee does not have an employment agreement with the Company, or has an
employment agreement that does not use the term Good Reason, then provisions
relating to such term shall not apply.
(h) Except as otherwise specifically provided in the relevant
plan document, no payment under the Plan shall be taken into account in
determining any benefits under any pension, retirement, profit-sharing, group
insurance or other benefit plan of the Company.
(i) The expenses of administering the Plan shall be borne by the
Company.
Masculine pronouns and other words of masculine gender
shall refer to both men and women.
* * *
-13-
139
As adopted by the Board of Directors of
Aames Financial Corporation as of January __, 1999
-14-
140
EXHIBIT E
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
FORM OF
CONTINGENT WARRANT
To Purchase Common Stock of
AAMES FINANCIAL CORPORATION
141
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS..............................................................................1
ARTICLE 2. EXERCISE OF WARRANT......................................................................4
Section 2.1. Manner of Exercise............................................................4
Section 2.2. Payment of Taxes..............................................................6
Section 2.3. Fractional Shares.............................................................6
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION.......................................................6
Section 3.1. Transfer......................................................................6
Section 3.2. Division and Combination......................................................7
Section 3.3. Expenses......................................................................7
Section 3.4. Maintenance of Books..........................................................7
ARTICLE 4. ADJUSTMENTS..............................................................................7
Section 4.1. Stock Dividends, Subdivisions, Combinations and Reclassifications.............7
Section 4.2. Issuance of Additional Shares of Common Stock or Convertible
Securities....................................................................8
Section 4.3. Certain Other Distributions...................................................9
Section 4.4. Other Provisions Applicable to Adjustments Under This Section................10
Section 4.5. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets........................................................12
Section 4.6. Notices......................................................................12
Section 4.7. Certificates.................................................................13
ARTICLE 5. NO IMPAIRMENT...........................................................................13
ARTICLE 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY..................................................................14
ARTICLE 7. STOCK AND WARRANT TRANSFER BOOKS........................................................14
ARTICLE 8. RESTRICTIONS ON TRANSFERABILITY.........................................................14
Section 8.1. Restrictive Legend...........................................................14
Section 8.2. Transfers....................................................................15
Section 8.3. Termination of Restrictions..................................................16
ARTICLE 9. SUPPLYING INFORMATION...................................................................16
ARTICLE 10. LOSS OR MUTILATION......................................................................16
ARTICLE 11. OFFICE OF THE COMPANY...................................................................17
ARTICLE 12. REGISTRATION RIGHTS.....................................................................17
ARTICLE 13. LIMITATION OF LIABILITY.................................................................17
i
142
ARTICLE 14. REPRESENTATION OF HOLDER................................................................17
ARTICLE 15. MISCELLANEOUS...........................................................................17
Section 15.1. Nonwaiver and Expenses.......................................................17
Section 15.2. No Rights As Stockholder.....................................................18
Section 15.3. Notice Generally.............................................................18
Section 15.4. Successors and Assigns.......................................................18
Section 15.5. Amendment....................................................................19
Section 15.6. Severability.................................................................19
Section 15.7. Headings.....................................................................19
Section 15.8. Governing Law................................................................19
Section 15.9. Mutual Waiver of Jury Trial..................................................19
ii
143
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
WARRANT
To Purchase 3,000,000* Shares of Common Stock of
AAMES FINANCIAL CORPORATION
THIS IS TO CERTIFY THAT [____________________________], or its
registered assigns, is entitled, subject to the provisions of the last sentence
of this paragraph, at any time after June 30, 1999 and prior to December __,
2004 (the "Expiration Date"), to purchase from Aames Financial Corporation, a
Delaware corporation (the "Company"), 3,000,000* shares of common stock, par
value $0.001 per share, of the Company (the "Common Stock"), subject to
adjustment as provided herein, in whole or in part, including fractional parts,
at a purchase price of $1.00 per share (the "Exercise Price"), subject to
adjustment as set forth herein, all on the terms and conditions and pursuant to
the provisions hereinafter set forth. Capitalized terms not otherwise defined
herein are used as defined in the Preferred Stock Purchase Agreement.
Notwithstanding anything to the contrary set forth in this Warrant, this Warrant
shall not be exercisable by the holder hereof if the Recapitalization is
completed prior to June 30, 1999.
ARTICLE 1.
DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Issue Date, other than Warrant
Stock.
--------
* The actual number of shares will be reduced, if necessary, to account
for any shares of Common Stock which may be required to be reserved for
issuance as a result of anti-dilution adjustments in Company securities
outstanding as of the date of execution of the Preferred Stock Purchase
Agreement.
144
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Z" shall have the meaning set forth in the first
paragraph hereof.
"Commission" shall mean the Securities and Exchange
Commission.
"Common Stock" shall have the meaning set forth in the first
paragraph hereof.
"Company" shall have the meaning set forth in the first
paragraph hereof.
"Conversion Price" shall have the meaning set forth in Section
4.2 hereof.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" shall mean, when used with reference to
shares of Common Stock or other securities on any date, the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other
2
145
securities are not publicly held or so listed or publicly traded, "Current
Market Price" shall mean the Fair Market Value per share of Common Stock or of
such other securities as determined in good faith by the Board of Directors of
the Corporation based on an opinion of an independent investment banking firm
with an established national reputation as a valuer of securities, which opinion
may be based on such assumption as such firm shall deem to be necessary and
appropriate.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder.
"Exercise Price" shall have the meaning set forth in the first
paragraph hereof.
"Expiration Date" shall have the meaning set forth in the
first paragraph hereof.
"Fair Market Value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"holder" shall mean, as the context requires, the Person in
whose name this Warrant is registered on the books of the Company maintained for
such purpose and/or the Person holding any Warrant Stock.
"Issue Date" shall mean the date on which this Warrant is
issued.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, corporation or other entity and shall include
any successor (by merger or otherwise) of such entity.
"Preferred Stock Purchase Agreement" shall mean the Preferred
Stock Purchase Agreement, dated as of December 23, between the Company and
Capital Z.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of the date hereof, between the Company and Capital
Z.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 8.1(a).
3
146
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.
"Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Subsidiary" shall mean any corporation of which an aggregate
of more than 50% of the outstanding stock having ordinary voting power to elect
a majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by the Company and/or one or more Subsidiaries of the Company.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Business Day.
"Transaction" shall have the meaning set forth in Section 4.5
hereof.
"transfer" shall mean any transfer, sale, encumbrance,
hypothecation or other disposition of this Warrant or any Warrant Stock or of
any interest in either thereof.
"Transfer Notice" shall have the meaning set forth in Section
8.2.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Exercise Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holder of this Warrant upon the exercise thereof.
ARTICLE 2.
EXERCISE OF WARRANT
Section 2.1. Manner of Exercise. From and after the date
hereof and until 5:00 P.M., New York time, on the Expiration Date, the holder
may exercise this Warrant for all or any part of the number of shares of Common
Stock purchasable hereunder.
4
147
In order to exercise this Warrant, in whole or in part, the
holder shall deliver to the Company at its office at 2 California Plaza, 000
Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, or at the office or agency
designated by the Company pursuant to Section 11, (i) a written notice of the
holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (ii) payment of the Warrant
Price in the manner provided below, and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as Exhibit A, duly executed by or on behalf of the holder. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as such holder
shall request in the notice and shall be registered in the name of the holder
or, subject to Section 8, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the notice, together
with the cash, check or checks and/or securities, if any, and this Warrant, are
received by the Company as described above and all taxes required to be paid by
the holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to the holder a new Warrant evidencing the rights of the
holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of the holder, appropriate notation may be made on
this Warrant and the same returned to the holder.
Payment of the Warrant Price shall be made at the option of
the holder by cash, wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, or certified or official bank
check, or by transfer to the Company of shares of Series B Preferred Stock or
Series C Preferred Stock, or any combination thereof. In the event of the
application shares of Series B Preferred Stock or Series C Preferred Stock to
the payment of the Warrant Price, the amount to be credited to the payment of
the Warrant Price shall be the Initial Stated Value per share, in the case of
any such application prior to the consummation of the Recapitalization, or the
Post-Recapitalization Stated Value per share, in the case of any such
application after the consummation of the
5
148
Recapitalization, in each case, plus an amount per share equal to all accrued
and unpaid dividends thereon, whether or not declared, to the date of such
exercise, provided that no such credit shall be made with respect to any such
dividends if the holder of such shares held such shares on the record date
therefor.
Section 2.2. Payment of Taxes. The Company shall pay all
expenses in connection with, and all taxes and other governmental charges that
may be imposed with respect to, the issue or delivery of the Warrant Shares,
unless such tax or charge is imposed by law upon the holder, in which case such
taxes or charges shall be paid by the holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of the holder, and in
such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
Section 2.3. Fractional Shares. The Company shall not be
required to issue a fractional share of Common Stock upon exercise of this
Warrant. As to any fraction of a share which the holder of this Warrant would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price per share of Common Stock on the date of
exercise.
ARTICLE 3.
TRANSFER, DIVISION AND COMBINATION
Section 3.1. Transfer. Subject to compliance with Section 8,
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 11, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by the holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making
of such transfer. Upon such surrender and, if required, such payment, the
Company shall, subject to Section 8, execute and deliver a new Warrant or
Warrants in the name(s) of the assignee or assignees and in the denomination(s)
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled. A Warrant, if properly assigned in
compliance with Section 8, may be exercised by a new holder for the purchase of
shares of Common Stock without having a new Warrant issued.
6
149
Section 3.2. Division and Combination. Subject to Section 8,
this Warrant may be divided or combined with other Warrants upon presentation
hereof at the aforesaid office or agency of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued, signed by the holder or its agent or attorney. Subject to compliance
with Section 3.1 and with Section 8, as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.
Section 3.3. Expenses. The Company shall prepare, issue and
deliver at its own expense (other than transfer taxes) the new Warrant or
Warrants under this Section 3.
Section 3.4. Maintenance of Books. The Company agrees to
maintain, at its aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.
ARTICLE 4.
ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give the holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
Section 4.1. Stock Dividends, Subdivisions, Combinations and
Reclassifications. If the Company shall at any time or from time to time after
the Issue Date:
(a) pay a dividend or make a distribution, on the outstanding
shares of Common Stock in Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock,
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or
(d) issue by reclassification of its shares of Common Stock
any shares of capital stock of the Company,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the holder
of any Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Common Stock or other
7
150
securities of the Company which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Warrant been exercised immediately prior to the happening of such event
or the record date therefor, whichever is earlier. An adjustment made pursuant
to this Section 4.1 shall become effective (x) in the case of any such dividend
or distribution, immediately after the close of business on the record date for
the determination of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (y) in the case of any such subdivision,
reclassification or combination, at the close of business on the day upon which
such corporate action becomes effective.
Section 4.2. Issuance of Additional Shares of Common Stock or
Convertible Securities. In the case the Corporation shall, after the Issue Date,
issue or sell:
(a) Additional Shares of Common Stock at a price per share, or
(b) Convertible Securities having a Conversion Price per
share,
less than the Current Market Price (for a period of 15 consecutive Trading Days
prior to such date), then, and in each such case, the number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby shall be adjusted
so that the holder of each Warrant evidenced hereby shall be entitled to
receive, upon the exercise thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby on the day immediately prior to such
date by (B) a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding on the date on which such shares or
Convertible Securities are issued and (2) the number of Additional Shares of
Common Stock issued, or into which the Convertible Securities may convert, and
the denominator of which shall be the sum of (x) the number of shares of Common
Stock outstanding on such date and (y) the number of shares of Common Stock
which the aggregate consideration receivable by the Company for the total number
of shares of Common Stock so issued, or the number of shares of Common Stock
which the aggregate of the Conversion Price of such Convertible Securities so
issued, would purchase at the Current Market Price on such date.
An adjustment made pursuant to this Section 4.2 shall be made
on the next Business Day following the date on which any such issuance is made
and shall be effective retroactively immediately after the close of business on
such date. For purposes of this Section 4.2, the aggregate consideration
receivable by the Company in connection with the issuance of any securities
shall be deemed to be the sum of the aggregate offering price to the public
(before deduction of underwriting
8
151
discounts or commissions and expenses payable to third parties), and the
"Conversion Price" of any Convertible Securities is the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities.
Neither (A) the issuance of any shares of Common Stock
(whether treasury shares or newly issued shares) pursuant to a dividend or
distribution on, or subdivision, combination or reclassification of, the
outstanding shares of Common Stock requiring an adjustment in the number of
shares of Common Stock issuable upon exercise of the Warrants evidenced hereby
pursuant to Section 4.1, or pursuant to any employee benefit plan or program of
the Company or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series B Preferred Stock, the Series C Preferred Stock and the Warrants) nor
(B) the issuance of shares of Common Stock pursuant thereto shall be deemed to
constitute an issuance of Common Stock or Convertible Securities by the Company
to which this Section 4.2 applies.
Upon expiration of any Convertible Securities which shall not
have been exercised or converted and for which an adjustment shall have been
made pursuant to this Section 4.2, the Conversion Price computed upon the
original issue thereof shall upon expiration be recomputed as if the only
additional shares of Common Stock issued were such shares of Common Stock (if
any) actually issued upon exercise or conversion of such Convertible Securities
and the consideration received therefor was the consideration actually received
by the Corporation for the issue of such Convertible Securities (whether or not
exercised or converted) plus the consideration actually received by the
Corporation upon such exercise of conversion.
Section 4.3. Certain Other Distributions. In case the Company
shall at any time or from time to time after the Issue Date declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or warrants to
subscribe for securities of the Company or any of its Subsidiaries by way of
dividend or spin-off), on its Common Stock, other than:
(a) regular quarterly dividends payable in cash in an
aggregate amount not to exceed 15% of net income from continuing
operations before extraordinary items of the Company, determined in
accordance with GAAP, during the period (treated as one accounting
period) commencing on July 1, 1998, and ending on the date such
dividend is paid, or
9
152
(b) dividends or distributions of shares of Common Stock which
are referred to in Section 4.1,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby shall be adjusted so that the holder
of each share of each Warrant evidenced thereby shall be entitled to receive,
upon the exercise thereof, the number of shares of Common Stock determined by
multiplying (1) the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby on the day immediately prior to the record date
fixed for the determination of stockholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the then Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, and the denominator of which shall be the Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, less the Fair Market Value per share of Common Stock
(as determined in good faith by the Board of Directors of the Company, a
certified resolution with respect to which shall be mailed to the holder of the
Warrants evidenced hereby) of such dividend or distribution; provided, however,
that in the event of a distribution of shares of capital stock of a Subsidiary
of the Company (a "Spin-Off") made to holders of shares of Common Stock, the
numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the Current Market Price per share of the
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day.
An adjustment made pursuant to this Section 4.3 shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
provided, however, if the proviso to the preceding sentence applies, then such
adjustment shall be made and be effective as of such 35th Trading Day after the
effective date of such Spin-Off.
Section 4.4. Other Provisions Applicable to Adjustments Under
This Section. The following provisions shall be applicable to the making of
adjustments provided for in this Section 4:
(a) For purposes of this Section 4, the number of shares of
Common Stock at any time outstanding shall not
10
153
include any shares of Common Stock then owned or held by or for the
account of the Company.
(b) The term "dividend", as used in this Section 4 shall mean
a dividend or other distribution upon stock of the Company except
pursuant to the Rights Agreement. Notwithstanding anything in this
Section 4 to the contrary, the number of shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby shall not be
adjusted as a result of any dividend, distribution or issuance of
securities of the Company pursuant to the Rights Agreement.
(c) Notwithstanding anything in this Section 4 to the
contrary, the Company shall not be required to give effect to any
adjustment in the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby unless and until the net
effect of one or more adjustments (each of which shall be carried
forward), determined as above provided, shall have resulted in a change
in the number of shares of Common Stock issuable upon exercise of the
Warrants evidenced hereby by at least one-hundredth of one share of
Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the number of shares of
Common Stock issuable upon exercise of the Warrants evidenced hereby by
at least one-hundredth of one share of Common Stock, such change in the
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby shall thereupon be given effect.
(d) The certificate of any firm of independent public
accountants of recognized standing selected by the Board of Directors
of the Company (which may be the firm of independent public accountants
regularly employed by the Company) shall be presumptively correct for
any computation made under this Section 4.
(e) If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then, no adjustment in the number of shares
of Common Stock issuable upon exercise of the Warrants evidenced hereby
shall be required by reason of the taking of such record.
(f) There shall be no adjustment of the number of shares of
Common Stock issuable upon exercise of the Warrants evidenced hereby in
case of the issuance of any stock of the Company in a merger,
reorganization, acquisition or other similar transaction except as set
forth in Sections 4.1, 4.2 and 4.5.
11
154
(g) Notwithstanding anything herein to the contrary, the
Company agrees not to enter into any transaction which, by reason of
any adjustment hereunder, would cause the Exercise Price to be less
than the par value per share of Common Stock.
(h) Upon each adjustment to the number of shares of Common
Stock issuable upon exercise of the Warrants pursuant to Sections 4.1,
4.2 or 4.3, the Exercise Price effective immediately prior to the
making of such adjustment shall thereafter be adjusted to be the amount
obtained by (i) multiplying (A) the applicable number of shares of
Common Stock issuable upon exercise of the Warrants immediately prior
to such adjustment by (B) the Exercise Price in effect immediately
prior to such adjustment and (ii) dividing the product so obtained by
the number of shares of Common Stock issuable upon exercise of the
Warrants immediately after such adjustment.
Section 4.5. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets. In case of any reorganization or
reclassification of outstanding shares of Common Stock (other than a
reclassification covered by Section 4.1), or in case of any consolidation or
merger of the Company with or into another corporation, or in the case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each such Warrant then outstanding shall thereafter be
exercisable for, in lieu of the Common Stock issuable upon such exercise prior
to consummation of the Transaction, the kind and amount of shares of stock and
other securities and property receivable (including cash) upon the consummation
of the Transaction by a holder of that number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to the Transaction (including,
on a pro rata basis, the cash, securities or property received by holders of
Common Stock in any tender or exchange offer that is a step in the Transaction).
Section 4.6. Notices to Warrantholders. In case at any time or
from time to time, prior to the Expiration Date, the Company shall pay any
dividend or make any other distribution to the holders of its Common Stock, or
shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or any other right, or there shall be
any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, in any one or more of said cases the Company shall give at least 20 days'
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof)
12
155
to the registered holder of the Warrants evidenced hereby at its address as
shown on the books of the Company maintained by the Transfer Agent thereof of
the date on which (i) the books of the Company shall close or a record shall be
taken for such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the case may be,
provided that in the case of any Transaction to which Section 4.5 applies the
Company shall give at least 30 days' prior written notice as aforesaid. Such
notice shall also specify the date as of which the holders of the Common Stock
of record shall participate in said dividend, distribution or subscription
rights or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale or conveyance or participate in such dissolution,
liquidation or winding up, as the case may be. Failure to give such notice shall
not invalidate any action so taken.
Section 4.7. Certificates. Upon any adjustment of the number
of shares of Common Stock issuable upon exercise of the Warrants evidenced
hereby or of the Exercise Price, then, and in each such case, the Company shall
promptly deliver to the holders of the Warrants and the Common Stock, a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased or
decreased number of shares of Common Stock issuable upon exercise of the
Warrants evidenced hereby and the Exercise Price then in effect following such
adjustment.
ARTICLE 5.
NO IMPAIRMENT
The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the holder of the Warrant against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock,
free and clear of any liens, claims, encumbrances and restrictions (other than
as provided herein) upon the exercise of this
13
156
Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of the holder of the Warrant, the Company
will at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to the holder of this Warrant, the continuing
validity of this Warrant and the obligations of the Company hereunder.
ARTICLE 6.
RESERVATION AND AUTHORIZATION OF
COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
The Company covenants and agrees that, until the Expiration
Date, the Company shall at all times reserve and keep available for issue upon
the exercise of Warrants such number of its authorized but unissued shares of
Common Stock as will be sufficient to permit the exercise in full of all
outstanding Warrants. All shares of Common Stock which shall be so issuable,
when issued upon exercise of Warrants and payment therefor in accordance with
the terms of such Warrant, shall be duly and validly issued, fully paid and
nonassessable and free and clear of any liens, claims and restrictions (other
than as provided herein). No stockholder of the Company has or shall have any
preemptive rights to subscribe for such shares of Common Stock.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
ARTICLE 7.
STOCK AND WARRANT TRANSFER BOOKS
The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
ARTICLE 8.
RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred
before satisfaction of the conditions specified in this Section 8, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and state securities laws with respect to the Transfer of any
Warrant or any Warrant Stock. The holder, by acceptance of this Warrant, agrees
to be bound by the provisions of this Section 8.
14
157
Section 8.1. Restrictive Legend.
(a) Except as otherwise provided in this Section 8, each
certificate for Warrant Stock initially issued upon the exercise of
this Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state and are subject to the
conditions specified in a certain Warrant dated [______],
1999, originally issued by Aames Financial Corporation. The
shares represented by this certificate may not be transferred
in violation of such Act and laws, the rules and regulations
thereunder or the provisions of the Warrant. A copy of the
form of said Warrant is on file with the Secretary of Aames
Financial Corporation. The holder of this certificate, by
acceptance of this certificate, agrees to be bound by the
provisions of such Warrant."
(b) Except as otherwise provided in this Section 8, each
Warrant shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended,
or the securities laws of any state and may not be sold or
otherwise transferred in the absence of such registration or
an exemption therefrom under such Act and under any such
applicable state laws, or in violation of the provisions of
this Warrant."
Section 8.2. Transfers. Prior to any transfer or attempted
transfer of any Warrants or any shares of Restricted Common Stock, the holder of
such Warrants or Restricted Common Stock shall give notice (a "Transfer Notice")
to the Company of such holder's intention to effect such transfer, describing
the manner and circumstances of the proposed transfer, and obtain from counsel a
written opinion addressed and reasonably satisfactory to the Company that the
proposed transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act and applicable state
securities laws. After receipt of the Transfer Notice and written opinion, the
Company shall, within two Business Days thereof, so notify the holder of such
Warrants or such Restricted Common Stock and such holder shall thereupon be
entitled to transfer such warrants or such Restricted Common Stock, in
15
158
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such transfer
shall bear the restrictive legend set forth in Section 8.1(a), and each Warrant
issued upon such transfer shall bear the restrictive legend set forth in Section
8.1(b), unless in the written opinion of counsel addressed to the Company such
legend is not required in order to ensure compliance with the Securities Act.
Section 8.3. Termination of Restrictions. Notwithstanding the
foregoing provisions of Section 8, the restrictions imposed by this Section 8
upon the transferability of the Warrants, the Warrant Stock and the Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) and
the legend requirements of Section 8.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) (i) as to the Warrant Stock and
Restricted Common Stock, when and so long as the resale of such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto, or (ii) as to the Warrant, Warrant Stock and Restricted Common
Stock, when the holder of the Warrant, Warrant Stock or Restricted Common Stock
shall have delivered to the Company the written opinion of counsel addressed and
reasonably satisfactory to the Company stating that such legend is not required
in order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the holder thereof shall be entitled to receive
from the Company, at the Company's expense (except for any transfer taxes), a
new certificate representing such Common Stock not bearing the restrictive
legend set forth in Section 8.1(a).
ARTICLE 9.
SUPPLYING INFORMATION
The Company shall cooperate with the holder of the Warrant and
the holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such holder or reasonably necessary for such holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
ARTICLE 10.
LOSS OR MUTILATION
Upon receipt by the Company from any holder of evidence
reasonably satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it and in case of mutilation upon surrender and cancellation hereof, the
Company will execute
16
159
and deliver in lieu hereof a new Warrant of like tenor to the holder; provided,
in the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
ARTICLE 11.
OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant.
ARTICLE 12.
REGISTRATION RIGHTS
The Warrant Stock issuable upon exercise of this Warrant are
entitled to the benefits of the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 11 and shall
furnish copies thereof to the holder upon request.
ARTICLE 13.
LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
the holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
the holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
ARTICLE 14.
REPRESENTATION OF HOLDER
The holder represents that it is acquiring the Warrant and the
Warrant Stock for the purpose of investment and not with a view to the resale or
distribution hereof or thereof; provided, that the disposition of holder's
property shall at all times be and remain within its control.
ARTICLE 15.
MISCELLANEOUS
Section 15.1. Nonwaiver and Expenses. No course of dealing or
any delay or failure to exercise any right hereunder on the part of the parties
shall operate as a waiver of such right or otherwise prejudice the parties'
rights, powers or remedies. If the Company fails to comply with any provision of
this Warrant, the Company shall pay to the holder such amounts as
17
160
shall be sufficient to cover any costs and expenses including, but not limited
to, reasonable attorneys' fees incurred by the holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.
Section 15.2. No Rights As Stockholder. The Person in whose
name this Warrant is registered shall be deemed the owner hereof and of the
Warrants evidenced hereby for all purposes. The registered holder of this
Warrant shall not be entitled to any rights whatsoever as a stockholder of the
Company except as herein provided.
Section 15.3. Notice Generally. Any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Warrant shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or
sent by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to the holder, at its last known address appearing on
the books of the Company maintained for such purpose.
(b) If to the Company:
Aames Financial Corporation
2 California Plaza
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxxx
Fax No.: (000) 000-0000
with a copy to:
Troop Xxxxxxx Pasich Reddick & Xxxxx
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: C. N. Xxxxxxxx Xxxxxxx, Esq.
Fax No.: (000) 000-0000
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail.
18
161
Section 15.4. Successors and Assigns. Subject to the
provisions of Sections 3.1 and 8, (i) this Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company and the successors and assigns of the holder, and (ii) the provisions of
this Warrant are intended to be for the benefit of all holders from time to time
of this Warrant, and shall be enforceable by any such holders.
Section 15.5. Amendment. The Warrants may be modified or
amended or the provisions thereof waived with the written consent of the Company
and the holders of the majority of the portion of this Warrant then outstanding.
Section 15.6. Severability. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Warrant.
Section 15.7. Headings. The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
Section 15.8. Governing Law. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to conflicts of law principles thereof.
Section 15.10. Mutual Waiver of Jury Trial. BECAUSE DISPUTES
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS WARRANT.
19
162
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer on _______________, 1998.
AAMES FINANCIAL CORPORATION
By:_________________________________
Name:
Title:
20
163
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of AAMES
FINANCIAL CORPORATION and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to __________________ whose address is ____________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
______________________ (Name of Registered Owner)
______________________ (Signature of Registered owner)
______________________ (Street Address)
______________________ (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
164
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ____________ attorney-in-fact
to register such transfer on the books of AAMES FINANCIAL CORPORATION maintained
for the purpose, with full power of substitution in the premises.
Dated:____________________________
Name:_____________________________
Signature:________________________
Witness:__________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
165
EXHIBIT F
AAMES FINANCIAL CORPORATION
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of December 23, 1998, among
Capital Z Financial Services Fund II, L.P. ("Capital Z"), together with the
other investors listed on Schedule I hereto (collectively, the "Investors"), and
Aames Financial Corporation, a Delaware corporation (the "Company").
R E C I T A L S
WHEREAS, the Investors, pursuant to the terms of a Preferred Stock
Purchase Agreement, dated as of the date hereof, between Capital Z and the
Company (the "Purchase Agreement"), (i) have agreed to purchase shares of Series
B Convertible Preferred Stock, par value $0.001 per share, of the Company (the
"Series B Preferred Stock") and Series C Convertible Preferred Stock, par value
$0.001 per share, of the Company (the "Series C Preferred Stock" and, together
with the Series B Preferred Stock, the "Preferred Stock"), (ii) have received on
the date hereof warrants (the "Warrants") to purchase an aggregate of 1,250,000
shares of Common Stock, par value $0.001 per share (the "Common Stock"), of the
Company, and (iii) are to receive additional Common Stock purchase warrants (the
"Contingent Warrants" and, together with the Warrants, the "Investor Warrants")
on the Initial Closing Date (as defined in the Purchase Agreement); and
WHEREAS, the Company has agreed, as a condition precedent to Capital
Z's obligations under the Purchase Agreement to grant the Investors certain
registration rights; and
WHEREAS, the Company and the Investors desire to define the
registration rights of the Investors on the terms and subject to the conditions
herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms have the respective meanings
set forth below:
Commission: shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act;
166
Conversion Shares: shall mean the shares of Common Stock for which
the Preferred Stock has been, or may be, converted.
Exchange Act: shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder;
Holder: shall mean any holder of Registrable Securities;
Initiating Holder: shall mean (a) Capital Z or (b) any Holder or
Holders of Registrable Securities aggregating at least 35% of (i) the aggregate
number of shares of Preferred Stock held by all Holders, in the case of any
registration of Preferred Stock, or (ii) the aggregate number of Conversion
Shares and Warrant Shares held by all Holders, in the case of any registration
of Conversion Shares or Warrant Shares (x) held by such Holders or (y) issued or
issuable upon conversion of the Preferred Stock or exercise of the Investor
Warrants;
Person: shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization,
and a government or agency or political subdivision thereof;
register, registered and registration: shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement;
Registrable Securities: (A) the shares of Preferred Stock issued to
the Investors pursuant to the Purchase Agreement, (B) the Warrant Shares, (C)
the Conversion Shares, (D) any additional shares of Common Stock or Preferred
Stock acquired by the Investors (but not their assignees, unless any such
assignee shall have acquired at least a number of Preferred Stock or Conversion
Shares equal to 15% of the shares of Preferred Stock or Conversion Shares
originally issued to the Investors pursuant to the Purchase Agreement, adjusted
for splits, combinations, and similar events), (E) any capital stock of the
Company issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, the shares of Preferred Stock or Common Stock
referred to in clauses (A), (B), (C) or (D) above, until, in the case of any
such securities, (i) a registration statement covering such securities has been
declared effective by the Commission and such securities have been disposed of
pursuant to such effective Registration Statement or (ii) such securities have
been disposed of in open market transactions pursuant to Rule 144 under the
Securities Act (or similar rule then in effect);
2
167
Registration Expenses: shall mean (x) all expenses incurred by the
Company in compliance with Sections 2(a) and (b) hereof, excluding Selling
Expenses, but including, without limitation, all registration and filing fees,
printing expenses, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company) and (y) all reasonable fees and disbursements of one
counsel retained by the Holders of a majority of the Registrable Securities to
be included in a particular registration;
Security, Securities: shall have the meaning set forth in Section 2(1)
of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder;
Selling Expenses: shall mean all underwriting and selling discounts,
fees and commissions applicable to the sale of Registrable Securities; and
Warrant Shares: shall mean the shares of Common Stock for which the
Investor Warrants have been, or may be, exercised.
2. REGISTRATION RIGHTS
(a) Requested Registration.
(i) Request for Registration. If the Company shall receive from an
Initiating Holder, at any time, a written request that the Company effect
any registration with respect to all or a part of the Registrable
Securities, the Company will:
(A) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(B) as soon as reasonably practicable, use its reasonable best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Securities Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of
such Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request
received by the Company within 10 business days after written notice
from the Company is given under
3
168
Section 2(a)(i)(A) above; provided that the Company shall not be
obligated to effect, or take any action to effect, any such registration
pursuant to this Section 2(a):
(v) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act or applicable rules or regulations
thereunder;
(w) (i) with respect to a request for registration of
Warrant Shares or Conversion Shares, after the Company has effected five
(5) such registrations pursuant to this Section 2(a) requested by an
Initiating Holder and (ii) with respect to a request for registration of
shares of Preferred Stock, after the Company has effected five (5) such
registrations pursuant to this Section 2(a) requested by an Initiating
Holder, and, in each case, such registrations have been declared or
ordered effective and the sales of such Registrable Securities shall
have closed;
(x) if the Registrable Securities requested by all Holders
to be registered pursuant to such request do not have an anticipated
aggregate public offering price (before any underwriting discounts and
commissions) of at least $10,000,000; or
(y) if at the time of any request to register Registrable
Securities, the Company is engaged or intends to engage in an
acquisition, financing or other material transaction which, in the good
faith determination of the Board of Directors of the Company, would be
adversely affected by the requested registration to the material
detriment of the Company, or the Board of Directors of the Company
determines in good faith that the registration would require the
disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential, and that the Company is
not otherwise required by applicable securities laws or regulations to
disclose, in which event, the Company may, at its option, direct that
such request be delayed for a period not in excess of ninety days from
the date of the determination by the Board of Directors, as the case may
be, such right to delay a request to be exercised by the Company not
more than once in any twelve-month period.
4
169
(z) with respect to Holders who are officers, directors or
employees of the Company, if at the time of any request to register
Registrable Securities, directors, officers, or employees of the Company
are not permitted to offer or sell securities in accordance with the
Company's policies.
The registration statement filed pursuant to the request of an
Initiating Holder may, subject to the provisions of Section 2(a)(ii) below,
include other securities, other than Registrable Securities, of the Company
which are held by the other stockholders ("Other Stockholders") of the Company.
The Holders holding a majority of the Registrable Securities requested
to be registered may, at any time prior to the effective date of the
registration statement relating to such registration, revoke such request,
without liability to the Company, such Holders, any of the other Holders or the
Other Stockholders, by providing a written notice to the Company revoking such
request, provided that such revoked request shall count against the
registrations available to the Holders pursuant to Section 2(a)(x) unless such
Holders pay the costs and expenses associated with such revoked request.
Notwithstanding the foregoing provisions of this Section 2(a)(i), if the
Initial Closing (as defined in the Purchase Agreement) does not take place for
any reason whatsoever, the holder or holders of a majority of the Warrants shall
be entitled to one demand registration right with respect to the Warrant Shares,
subject to the other provisions of this Agreement.
(ii) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 2(a). If shares held by Other Stockholders are
requested by such Other Stockholders to be included in any registration
pursuant to this Section 2, the Company shall condition such inclusion on
their acceptance of the further applicable provisions of this Section 2.
The Initiating Holders whose Registrable Securities are to be included in
such registration and the Company shall (together with all Other
Stockholders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected for such
underwriting by such Initiating Holders and reasonably acceptable to the
Company. Notwithstanding any other provision of this Section 2(a), if the
representative advises the Holders in writing that marketing factors
(including, without limitation, pricing considerations) require a
limitation on the number of shares to be underwritten or a limitation on
the inclusion of shares held by directors and officers of
5
170
the Company, the securities of the Company held by Other Stockholders
shall be excluded from such registration to the extent so required by such
limitation. If, after the exclusion of such shares, further reductions are
still required, the Registrable Securities of the Company held by each
Holder other than the Initiating Holders shall be excluded from such
registration to the extent so required by such limitation. Thereafter, if
still further reductions are required, the number of Registrable
Securities included in the registration by each Initiating Holder shall be
reduced on a pro rata basis (based on the number of Registrable Securities
held by such Initiating Holder), by such minimum number of Registrable
Securities as is necessary to comply with such request. No Registrable
Securities or any other securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Other Stockholder who has requested inclusion in such
registration as provided above disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the underwriter and the Initiating Holders. The
securities so withdrawn shall also be withdrawn from registration. If the
underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company and officers and directors of
the Company (including representatives and designees of Capital Z or the
Series B Preferred Stock holders) may include its or their securities for
its or their own account in such registration if the representative so
agrees and if the number of Registrable Securities and other securities
which would otherwise have been included in such registration and
underwriting will not thereby be limited.
(iii) Other Registration Rights. The Company shall not grant any
registration rights inconsistent with the provisions of this Section 2(a)
and in granting any demand registration rights hereafter shall provide
that the Holders shall have the right to notice of the exercise of any
such demand registration right and to participate in such registration on
a pro rata basis.
(b) Company Registration.
(i) If the Company shall determine to register any of its equity
securities either for its own account or any Other Stockholders, other
than a registration relating solely to employee benefit plans, or a
registration relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit secondary
sales or does not include substantially the same information as would be
required to be included in a registration statement covering the sale of
Registrable Securities, the Company will:
6
171
(A) promptly give to each of the Holders a written notice
thereof; and
(B) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made by the Holders within fifteen (15) days after
receipt of the written notice from the Company described in clause (A)
above, except as set forth in Section 2(b)(ii) below.
The Company may terminate, in its sole and absolute discretion, any
registration described in this Section 2(b) at any time prior to the
effectiveness of the applicable registration statement. Upon such
termination, the Company's obligations under this Section 2(b) with
respect to such terminated registration shall terminate.
(ii) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written
notice given pursuant to Section 2(b)(i)(A). In such event, the right of
each of the Holders to registration pursuant to this Section 2(b) shall be
conditioned upon such Holders' participation in such underwriting and the
inclusion of such Holders' Registrable Securities in the underwriting to
the extent provided herein. The Holders whose shares are to be included in
such registration shall (together with the Company and the Other
Stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for
underwriting by the Company. Notwithstanding any other provision of this
Section 2(b), if the representative determines that marketing factors
require a limitation on the number of shares to be underwritten or a
limitation on the inclusion of shares held by directors and officers of
the Company, the representative may (subject to the allocation priority
set forth below) limit the number of Registrable Securities to be included
in the registration and underwriting to not less than twenty five percent
(25%) of the total number of shares to be included in such underwritten
offering, subject to the Company's compliance with any registration
obligations to any Demanding Holders (as hereinafter defined)
participating in such registration. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and
underwriting shall be allocated in the following manner: The securities of
the Company held by officers, directors (including representatives and
designees
7
172
of Capital Z or the Series B Preferred Stock holders) and Other
Stockholders (other than Registrable Securities and other than securities
held by holders who by contractual right demanded such registration
("Demanding Holders")) shall be excluded from such registration and
underwriting to the extent required by such limitation, and, if a
limitation on the number of shares is still required, the number of shares
that may be included in the registration and underwriting by each of the
Holders other than the Demanding Holders shall be excluded from such
registration to the extent so required by such limitation. Thereafter, if
still further reductions are required, the number of shares included in the
registration by each of the Demanding Holders shall be reduced, on a pro
rata basis (based on the number of shares held by such Demanding Holders),
by such minimum number of shares as is necessary to comply with such
limitation. If any of the Holders or any officer, director or Other
Stockholder disapproves of the terms of any such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the underwriter.
Any Registrable Securities or other securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
(iii) Number and Transferability. Each of the Holders shall be
entitled to have its shares included in an unlimited number of
registrations pursuant to this Section 2(b).
(c) Shelf Registration.
(i) If requested by the Initiating Holder at any time after the
date hereof, the Company shall file a "shelf" registration statement
pursuant to Rule 415 (if then available) under the Securities Act (the
"Shelf Registration") with respect to the resale of all or any portion of
the Registrable Securities, as requested by the Initiating Holder. If such
request is made, the Company shall (A) use its reasonable best efforts to
have the Shelf Registration declared effective as promptly as practicable
and (B) use its reasonable best efforts to keep the Shelf Registration
continuously effective from the date such Shelf Registration is declared
effective until the date specified in Section 2(i) in order to permit the
prospectus forming a part thereof to be usable by Holders during such
period. The Shelf Registration may not include other securities of the
Company which are held by Other Stockholders.
(ii) The Company shall supplement or amend the Shelf
Registration, (A) as required by the registration form utilized by the
Company or by the instructions applicable to such registration form or by
the Securities Act or the rules and regulations promulgated thereunder, (B)
to include in such Shelf Registration any additional securities that become
Registrable Securities by operation of the definition
8
173
thereof and (C) following the written request of an Initiating Holder
pursuant to Section 2(c)(iii) below, to cover offers and sales of all or a
part of the Registrable Securities by means of an underwriting including
the incorporation of any information required pursuant to Section 2(e)(x)
below. The Company shall furnish to the Holders of the Registrable
Securities to which the Shelf Registration relates copies of any such
supplement or amendment sufficiently in advance (but in no event less than
five business days in advance) of its use and/or filing with the Commission
to allow the Holders a meaningful opportunity to comment thereon.
(iii) The Holders may, at their election and upon written notice
by the Initiating Holders to the Company, effect offers and sales under the
Shelf Registration by means of one or more underwritten offerings, in which
case the provisions of Section 2(a)(ii) above shall apply to any such
underwritten distribution of securities under the Shelf Registration and
such underwriting shall, if sales of Registrable Securities pursuant
thereto shall have closed, be regarded as the exercise of one of the
registration rights contemplated by Section 2(a) hereof.
(iv) The rights of the Holders to request and effect a Shelf
Registration hereunder and the Company's obligations to keep a Shelf
Registration effective shall be subject to the restrictions and limitations
set forth in Section 2(a)(x), (y) and (z).
(d) Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 2 (including all Registration Expenses incurred in connection with the
Shelf Registration and any supplements or amendments thereto, whether or not it
becomes effective, and whether all, none or some of the Registrable Securities
are sold pursuant to the Shelf Registration) shall be borne by the Company, and
all Selling Expenses shall be borne by the Holders of the securities so
registered pro rata on the basis of the number of their shares so registered;
provided, however, that if, as a result of the withdrawal of a request for
registration by any of the Holders, as applicable, the registration statement
does not become effective, the Holders and Other Stockholders requesting
registration may elect to bear the Registration Expenses (pro rata on the basis
of the number of their shares so included in the registration request, or on
such other basis as such Holders and Other Stockholders may agree), in which
case such registration shall not be counted as a registration pursuant to
Section 2(a)(i)(B)(x).
(e) Registration Procedures. In the case of each registration effected
by the Company pursuant to this Section 2, the Company will keep the Holders
holding Registrable Securities
9
174
requested to be included in such registration ("Participating Holders") advised
in writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will:
(i) other than the Shelf Registration, the obligations in
respect of which are set forth in Section 2(c)(i)(B) above, keep such
registration effective for a period of one hundred eighty (180) days or
until the Participating Holders, as applicable, have completed the
distribution described in the registration statement relating thereto,
whichever first occurs;
(ii) furnish to each Participating Holder, and to any
underwriter before filing with the Commission, copies of any
registration statement (including all exhibits) and any prospectus
forming a part thereof and any amendments and supplements thereto
(including, upon request, all documents incorporated or deemed
incorporated by reference therein) prior to the effectiveness of such
registration statement and including each preliminary prospectus, any
summary prospectus or any term sheet (as such term is used in Rule 434
under the Securities Act)) and any other prospectus filed under Rule 424
under the Securities Act, which documents, other than exhibits and
documents incorporated or deemed incorporated by reference, will be
subject the review of the Participating Holders and any such underwriter
for a period of at least five business days, and the Company shall not
file any such registration statement or such prospectus or any amendment
or supplement to such registration statement or prospectus to which any
Participating Holder or any such underwriter shall reasonably object
within five business days after the receipt thereof; a Participating
Holder or such underwriter(s), if any, shall be deemed to have
reasonably objected to such filing only if the registration statement,
amendment, prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission;
(iii) furnish to each Participating Holder and to any
underwriter, such number of conformed copies of the applicable
registration statement and of each amendment and supplement thereto (in
each case including all exhibits) and such number of copies of the
prospectus forming a part of such registration statement (including each
preliminary prospectus, any summary prospectus or any term sheet (as
such term is used in Rule 434 under the Securities Act)) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
including without limitation documents incorporated or deemed to be
incorporated by reference prior to the effectiveness of such
registration, as each of the Participating Holders or any such
underwriter, from time to time may reasonably request;
10
175
(iv) to the extent practicable, promptly prior to the filing of
any document that is to be incorporated by reference into any
registration statement or prospectus forming a part thereof subsequent
to the effectiveness thereof, and in any event no later than the date
such document is filed with the Commission, provide copies of such
document to the Participating Holders, if requested, and to any
underwriter, make representatives of the Company available for
discussion of such document and other customary due diligence matters;
(v) make available at reasonable times for inspection by the
Participating Holders, any underwriter participating in any disposition
pursuant to such registration and any attorney or accountant retained by
the Holders or any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and cause
the officers, directors and employees of the Company to supply all
information reasonably requested by the Participating Holders and any
such underwriters, attorneys or accountants in connection with such
registration subsequent to the filing of the applicable registration
statement and prior to the effectiveness of the applicable registration
statement, subject to the execution of a customary confidentiality
agreement;
(vi) use its reasonable best efforts (x) to register or qualify
all Registrable Securities and other securities covered by such
registration under such other securities or blue sky laws of such States
of the United States of America where an exemption is not available and
as the sellers of Registrable Securities covered by such registration
shall reasonably request, (y) to keep such registration or qualification
in effect for so long as the applicable registration statement remains
in effect, and (z) to take any other action which may be reasonably
necessary or advisable to enable such sellers to consummate the
disposition in such jurisdictions of the securities to be sold by such
sellers, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in
any jurisdiction where it is not so qualified, or to subject itself to
taxation in any such jurisdiction, or to execute a general consent to
service of process in effecting such registration, qualification or
compliance, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act or
applicable rules or regulations thereunder;
(vii) use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with
or approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the Company
and
11
176
counsel to the Participating Holders of Registrable Securities to enable
the Holders thereof to consummate the disposition of such Registrable
Securities in accordance with the plan of distribution described in the
applicable registration statement;
(viii) subject to Section 2(i) hereof, promptly notify each
Holder of Registrable Securities covered by a registration statement (A)
upon discovery that, or upon the happening of any event as a result of
which, the prospectus forming a part of such registration statement, as
then in effect, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, (B) of the issuance by the
Commission of any stop order suspending the effectiveness of such
registration statement or the initiation of proceedings for that
purpose, (C) of any request by the Commission for (1) amendments to such
registration statement or any document incorporated or deemed to be
incorporated by reference in any such registration statement, (2)
supplements to the prospectus forming a part of such registration
statement or (3) additional information, (D) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, and at the request of any such Holder
promptly prepare and furnish to it a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ix) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of any such registration, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction;
(x) if requested by a Participating Holder, or any underwriter,
subject to receipt of any required information from such Holder or
underwriter, promptly incorporate in such registration statement or
prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as the Participating Holder and any
underwriter may reasonably request to have included therein, including,
without limitation, information relating to the "plan of distribution"
of the Registrable Securities, information with respect to the number of
shares of
12
177
Registrable Securities being sold to such underwriter, the purchase
price being paid therefor and any other terms of the offering of the
Registrable Securities to be sold in such offering and make all required
filings of any such prospectus supplement or post-effective amendment as
soon as practicable after the Company is notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(xi) furnish to the Participating Holders, addressed to them, an
opinion of counsel for the Company, dated the date of the closing under
the underwriting agreement, if any, or the date of effectiveness of the
registration statement if such registration is not an underwritten
offering, and use its reasonable best efforts to furnish to the
Participating Holders, addressed to them, a "cold comfort" letter signed
by the independent certified public accountants who have certified the
Company's financial statements included in such registration, covering
substantially the same matters with respect to such registration (and
the prospectus included therein) and, in the case of such accountants'
letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten
public offerings of securities and such other matters as the
Participating Holders may reasonably request;
(xii) provide promptly to the Participating Holders upon request
any document filed by the Company with the Commission pursuant to the
requirements of Section 13 and Section 15 of the Exchange Act; and
(xiii) use its reasonable best efforts to cause all Registrable
Securities included in any registration pursuant hereto to be listed on
each securities exchange on which securities of the same class are then
listed or, if not then listed on any securities exchange, to be eligible
for trading in any over-the-counter market or trading system in which
securities of the same class are then traded.
(f) Indemnification.
(i) The Company will indemnify each of the Holders, as
applicable, each of its officers, directors and partners, and each
person controlling each of the Holders (within the meaning of the
Securities Act), with respect to each registration which has been
effected pursuant to this Section 2, and each underwriter, if any, and
each person who controls any underwriter, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any preliminary, final or summary prospectus,
offering circular
13
178
or other document (including any related registration statement,
notification or the like, or any amendment or supplement to any of the
foregoing) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation (or alleged
violation) by the Company of the Securities Act or the Exchange Act or
any rule or regulation thereunder or of any applicable state or common
law applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification or compliance, and (subject to Section 2(f)(iii)) will
reimburse each of the Holders, each of its officers, directors and
partners, and each person controlling each of the Holders, each such
underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon
and in conformity with written information furnished to the Company by
the Holders or underwriter and stated to be specifically for use
therein. The foregoing indemnification shall remain in effect regardless
of any investigation by any indemnified party and shall survive any
transfer or assignment by a Holder of its Registrable Securities or of
its rights pursuant to this Agreement.
(ii) Each of the Holders will, if Registrable Securities held by
it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify on a several,
but not joint basis, the Company, each of its directors and officers and
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter, each Other Stockholder and each of their officers,
directors, and partners, and each person controlling such Other
Stockholder against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) made by such Holder of a
material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged
omission) made by such Holder to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such directors, officers,
partners, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each
case to the
14
179
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document
in reliance upon and in conformity with written information furnished to
the Company by such Holder and stated to be specifically for use
therein; provided, however, that the obligations of each of the Holders
hereunder shall be limited to an amount equal to the net proceeds to
such Holder of securities sold pursuant to such registration statement
or prospectus.
(iii) Each party entitled to indemnification under this Section
2(f) (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom; provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in
such defense at such party's expense (unless the Indemnified Party shall
have reasonably concluded upon advice from counsel that there may be a
conflict of interest between the Indemnifying Party and the Indemnified
Party in such action, in which case the reasonable fees and expenses of
one firm of counsel (and one local counsel) shall be at the expense of
the Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 2 except to
the extent the Indemnifying Party is materially prejudiced thereby. No
Indemnifying Party, in the defense of any such claim or litigation
shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall
promptly furnish such information regarding itself or the claim in
question as an Indemnifying Party may reasonably request in writing and
as shall be reasonably required in connection with the defense of such
claim and litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 2(f) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result
15
180
of such loss, liability, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability,
claim, damage or expense, as well as any other relevant equitable
considerations, provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not
guilty of any such fraudulent misrepresentation. The relative fault of
the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue (or alleged
untrue) statement of a material fact or the omission (or alleged
omission) to state a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the
foregoing, no Holder will be required to contribute any amount pursuant
to this paragraph (f) in excess of the total price at which the
Registrable Securities of such Holder were offered to the public (less
underwriting discounts and commissions, if any). Each Holder's
obligations to contribute pursuant to this paragraph are several in the
proportion that the proceeds of the offering received by such Holder
bears to the total proceeds of the offering received by all the
applicable Holders and not joint.
(v) The foregoing indemnity agreement of the Company and Holders
is subject to the condition that, insofar as they relate to any loss,
claim, liability or damage made in a prospectus, preliminary prospectus
or other offering document but eliminated or remedied in an amended
prospectus, preliminary prospectus or other offering document delivered
to an underwriter or Holder, as applicable (the "Final Prospectus"),
such indemnity agreement shall not inure to the benefit of (A) any
underwriter if a copy of the Final Prospectus was furnished to the
underwriter and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is
required by the Securities Act or (B) in circumstances where no
underwriter is acting as such in the offer and sale in question, any
Holder who (1) either directly or through its agent provided the
preliminary prospectus to the Person asserting the loss, liability,
claim or damage, (2) was furnished with a copy of the Final Prospectus,
and (3) did not furnish or cause to be furnished the Final Prospectus to
the Person asserting the loss, liability, claim or damage at or prior to
the time such action is required by the Securities Act.
16
181
(vi) Any indemnification payments required to be made to an
Indemnified Party under this Section 2(f) shall be made as the related
claims, losses, damages, liabilities or expenses are incurred.
(g) Information by the Holders. Each of the Holders holding securities
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Section 2. No Investor shall be required, in connection with any
underwriting agreements entered into in connection with any registration, to
provide any information, representations or warranties, or covenants with
respect to the Company, its business or its operations, and such Investors shall
not be required to provide any indemnification with respect to any registration
statement except as specifically provided for in Section 2(f)(ii) hereof.
(h) Rule 144 Reporting.
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
to the public without registration, the Company agrees to:
(i) make and keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act ("Rule
144"), at all times;
(ii) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(iii) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 and of
the Securities Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed as the Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration.
(i) Termination. The registration rights set forth in this Section 2
shall not be available to any Holder if, in the opinion of counsel to the
Company, all of the Registrable Securities then owned by such Holder could be
sold in any 90-day period pursuant to Rule 144 (without giving effect to the
provisions of Rule 144(k)) or at such time that no Registrable Securities are
outstanding. The Company will arrange for a
17
182
provision to the transfer agent for such shares of an opinion of counsel in
connection with any such sale under Rule 144.
(j) Assignment. The registration rights set forth in Section 2 hereof
may be assigned, in whole or in part, to any transferee of Registrable
Securities (who shall be considered thereafter to be a Holder and shall be bound
by all obligations and limitations of this Agreement).
(k) The Holders agree that, upon receipt of any notice from the Company
pursuant to Section 2(e)(viii), they shall immediately discontinue the
disposition of Registrable Securities pursuant to the registration statement
applicable to such Registrable Securities until they have received copies of the
amended or supplemented prospectus as described in Section 2(e)(viii). The
Holders shall destroy all copies in their possession of the registration
statement and related materials covering such Registrable Securities at the time
of receipt of the Company's notice.
3. MISCELLANEOUS
(a) Directly or Indirectly. Where any provision in this Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(b) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed entirely within such State.
(c) Section Headings. The headings of the sections and subsections of
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
(d) Notices.
(i) All communications under this Agreement shall be in writing
and shall be delivered by hand or by facsimile or mailed by overnight
courier or by registered or certified mail, postage prepaid:
(A) if to the Company, to Aames Financial Corporation, 2
California Plaza, 000 Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx,
Xxxxxxxxxx 00000, facsimile no. (000) 000-0000 or at such other
address or facsimile number as it may have furnished in writing
to the Investors;
(B) if to the Investors, at the address or facsimile
number listed on Schedule I hereto, or at
18
183
such other address or facsimile number as may have been
furnished in writing to the Company.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand or facsimile, on the date of such delivery; if mailed
by courier, on the first business day following the date of such
mailing; and if mailed by registered or certified mail, on the third
business day after the date of such mailing.
(e) Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, any consents, waivers and modifications
which may hereafter be executed may be reproduced by the parties hereto by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and the parties hereto may destroy any original document so
reproduced. The parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Investors in the regular course
of business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties.
(g) Entire Agreement; Amendment and Waiver. This Agreement constitutes
the entire understanding of the parties hereto and supersedes all prior
understanding among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the Investors holding a majority of the then
outstanding Registrable Securities.
(h) Severability. In the event that any part or parts of this Agreement
shall be held illegal or unenforceable by any court or administrative body of
competent jurisdiction, such determination shall not effect the remaining
provisions of this Agreement which shall remain in full force and effect.
(i) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
19
184
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.
AAMES FINANCIAL CORPORATION
By: /S/ Xxxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxx
----------------------------
Title: Executive Vice President
---------------------------
INVESTORS:
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.,
By its General Partner
CAPITAL Z PARTNERS, L.P.,
By its General Partner
CAPITAL Z PARTNERS, LTD.
By: /S/ Xxxx X. Xxxxx
---------------------------------
Name: Xxxx X. Xxxxx
----------------------------
Title: Partner
---------------------------
CAPITAL Z MANAGEMENT, INC.
By: /S/ Xxxx X. Xxxxx
---------------------------------
Name: Xxxx X. Xxxxx
----------------------------
Title: Partner
---------------------------
20
185
SCHEDULE I
NAME AND ADDRESS OF INVESTORS:
Capital Z Financial Services Fund, L.P.
Xxx Xxxxx Xxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
Capital Z Management Inc.
Xxx Xxxxx Xxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
This schedule will be amended to include (i) Designated Purchasers under the
Preferred Stock Purchase Agreement and (ii) the designees of Capital Z who will
receive any of the Warrants.
186
EXHIBIT G
TERMS OF MANAGEMENT SERVICES AGREEMENT
PARTIES: The Company and Equifin.
SERVICES TO BE PROVIDED: Equifin will provide the Company with consulting
services regarding business performance
improvements, cost reduction programs and
quality initiatives to be implemented by the
Company, general transactional advice and other
services (subject to mutual agreement as to
scope and compensation).
COMPENSATION: $250,000 per quarter, with quarterly
installments payable in advance on January 15,
April 15, July 15 and October 15 of each year of
the agreement, except that the first quarterly
installment shall be paid on the Initial Closing
Date (pro rated for the balance of the quarterly
period in which the Initial Closing Date
occurs).
EXPENSES; INDEMNIFICATION: Equifin will be entitled to periodic
reimbursement of all reasonable out-of-pocket
expenses incurred in performing the services to
be performed under the agreement. In addition,
Equifin (and its officers, employees, affiliates
and controlling persons) will have
indemnification rights with respect to all
claims asserted against any of them arising out
of the performance of the services to be
performed by Equifin under the agreement.
TERM: Five years, subject to renewal thereafter by
mutual agreement. Early termination rights will
apply if Equifin professionals spend, in the
aggregate, less than 480 hours per contract year
performing services for the Company.
OTHER TERMS: Other customary terms to be agreed upon.
187
EXHIBIT H
MANAGEMENT VOTING AGREEMENT
MANAGEMENT VOTING AGREEMENT dated as of December 23, 1998, among Capital
Z Financial Services Fund II, L.P., a Bermuda limited partnership ("Capital Z"),
and Xxxx Xxxxxxxx and Xxxx Xxxxxxxxx (collectively, the "Shareholders").
WHEREAS, the Shareholders desire that the Aames Financial Corporation, a
Delaware corporation (the "Company"), and Capital Z enter into a Preferred Stock
Purchase Agreement dated as of the date hereof (as the same may be amended from
time to time, the "Purchase Agreement"), which provides, among other things,
that Capital Z, together with certain Capital Z affiliates and co-investors as
provided therein, will purchase shares of the Company's Series B Convertible
Preferred Stock, par value $0.001 per share ("Series B Preferred Stock") and
Series C Convertible Preferred Stock, par value $0.001 per share ("Series C
Preferred Stock," and, together with the Series B Preferred Stock, "Senior
Preferred Stock"), in the amounts and subject to the conditions set forth in the
Purchase Agreement; and
WHEREAS, the Shareholders are executing this Agreement as an inducement
to the Company and Capital Z to execute and deliver the Purchase Agreement.
NOW THEREFORE, in consideration of the execution and delivery by the
Company and Capital Z of the Purchase Agreement and the mutual covenants,
conditions and agreements contained therein and herein, the parties hereto agree
as follows:
SECTION 1. Representations and Warranties. Each of the Shareholders
severally and not jointly represents and warrants to the Company and Capital Z
as to himself (and not as to any other Shareholder) as follows:
(a) Such Shareholder is the record and beneficial owner of the number of
shares of the Company's common stock, par value $0.001 per share ("Common
Stock") (together with any shares of Common Stock or other voting securities of
the Company, including, without limitation, Senior Preferred Stock, with respect
to which the Shareholder obtains voting power after the date hereof, the
"Shares"), as set forth on Exhibit A hereto (which Exhibit shall be amended
after the date hereof to include any voting securities of the Company with
respect to which the Shareholder obtains voting power after the date hereof).
Except for such number of Shares and except for Shares, if any, (i) issuable in
connection with options outstanding as of the date hereof or (ii) which such
Shareholder has agreed to purchase in
188
connection with the transactions contemplated by the Purchase Agreement, such
Shareholder is not the record or beneficial owner of any shares of Common Stock.
(b) Such Shareholder has the authority to execute, deliver and perform
this Agreement without the necessity of obtaining any third party consent,
approval, authorization or waiver, or giving of any notice or otherwise, except
for such consents as have been obtained, are unconditional and are in full force
and effect.
(c) This Agreement has been duly executed and delivered by such
Shareholder and, assuming due execution and delivery thereof by the Company and
Capital Z, constitutes the legal, valid, and binding obligation of such
Shareholder enforceable against the Shareholder in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
enforcement is sought by proceedings in equity or at law).
(d) The execution, delivery, and performance of this Agreement by such
Shareholder will not (i) result in the breach of or constitute a default under
any contract to which such Shareholder is subject, (ii) constitute a violation
of any Law applicable or relating to such Shareholder or (iii) result in the
creation of any Lien.
(e) Except for this Agreement, there are no voting trusts or other
agreements or understandings, including, without limitation, any proxies, in
effect governing the voting of the Shares.
(f) Such Shareholder does not hold, and has not issued, any proxies, or
securities convertible into or exchangeable for or any options, warrants, or
other rights to purchase or subscribe for any shares of Common Stock.
(g) The Shares and the certificates representing such Shares are now and
until the earlier to occur of June 30, 1999 and consummation of the
Recapitalization will be held by such Shareholder, or by a nominee or custodian
for the benefit of such Shareholder, free and clear of all Liens, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever other than as created by this Agreement.
(h) Such Shareholder understands and acknowledges that the Company and
Capital Z are entering into the Purchase Agreement in reliance upon such
Shareholder's execution and delivery of this Agreement.
(i) There are no undertakings, agreements, arrangements or
understandings of the type required to be
-2-
189
disclosed by the Company pursuant to Item 404 of Regulation S-K under the
Securities Act in filings by the Company with the Securities and Exchange
Commission in effect between such Shareholder, or any of his or her affiliates,
on the one hand, and the Company or any of its subsidiaries, on the other hand,
which have not been fully and completely disclosed, in writing, to Capital Z.
SECTION 2. Voting Agreement. Each Shareholder agrees with, and covenants
to, Capital Z as follows:
(a) At the Shareholders' Meeting or at any adjournment thereof or in any
other circumstances upon which a vote, consent or other approval will be held or
solicited with respect to the increase of the authorized capital stock of the
Company as contemplated by the Purchase Agreement (the "Charter Amendment"),
such Shareholder shall vote (or cause to be voted) or shall consent, execute a
consent or cause to be executed a consent in respect of the Shares in favor of
the Charter Amendment and the Stock Split.
(b) At any meeting of shareholders of the Company or at any adjournment
thereof or in any other circumstances upon which their vote, consent or other
approval is sought while the Purchase Agreement remains in effect, such
Shareholder shall vote (or cause to be voted) the Shares against (i) any
Alternative Transaction or any action which is a component of any Alternative
Transaction or would be a component of an Alternative Transaction if it were
contained in a proposal, or (ii) any other matter submitted to the shareholders
of the Company, including, without limitation, any amendment of the Company's
Certificate of Incorporation or By-Laws, which matter would in any manner
partially or wholly prevent or materially impede, interfere with or delay any of
the transactions contemplated by the Purchase Agreement, as determined in good
faith by Purchaser and with respect to which Purchaser provides written notice
to the Shareholder..
(c) In the event that the Recapitalization (as defined in the Purchase
Agreement) is not consummated prior to June 30, 1999, each Shareholder agrees to
vote all Shares for which he has or shares the power to vote, or grant a consent
for approval in respect of such Shares in any manner permitted by the DGCL, as
such Shareholder is directed by the board of directors of the Company, on any
matters submitted to the shareholders of the Company, other than the election of
directors. The foregoing agreement shall terminate automatically upon the
termination of this Agreement with respect to any Shares owned by such person
upon transfer of such Shares pursuant to Section 7. The Company shall be a third
party beneficiary of this Agreement for the purposes of this Section 2(c).
(d) Each Shareholder represents and warrants to the Company and Capital
Z that any proxies heretofore given in
-3-
190
respect of the Shares are not irrevocable, and that any such proxies are hereby
revoked, to the extent in conflict with Section 2(c) hereof.
(e) Each Shareholder hereby affirms that the irrevocable proxy set forth
in this Section 2 is given in connection with the execution of the Purchase
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of such Shareholder under this Agreement. Each Shareholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. Each Shareholder hereby ratifies and confirms
all that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 212(e) of the DGCL.
SECTION 3. Covenants of the Shareholder. Each Shareholder agrees with,
and covenants to, Capital Z that such Shareholder shall not on or prior to the
earlier to occur of June 30, 1999 or the consummation of the Recapitalization,
(i) transfer (which term shall include, without limitation, for the purposes of
this Agreement, any sale, gift, pledge, encumbrance (other than an unforeclosed
pledge or encumbrance for financing purposes where the Shareholder retains sole
voting power with respect to all pledged securities), or other disposition), or
consent to any transfer of, any or all the Shares or any interest therein,
unless the transferee(s) of such Shares agrees in writing to be bound by the
provisions of this Agreement applicable to such Shareholder, (ii) grant any
proxy, power-of-attorney or other authorization in or with respect to such
Shares, except under or in accordance or not in conflict with this Agreement, or
(iii) deposit such Shares into a voting trust, enter into a voting agreement or
arrangement with respect to such Shares or otherwise limit such Shareholder's
power to vote his or her Shares in a manner that conflicts with this Agreement.
SECTION 4. Certain Events. In the event of any stock split, stock
dividend, merger, reorganization, recapitalization or other change in the
capital structure of the Company affecting the Common Stock, or the acquisition
of additional shares of Common Stock or other voting securities of the Company
by such Shareholder, the number of Shares set forth in Section 1(a) hereof shall
be adjusted appropriately and this Agreement and the obligations hereunder shall
attach to any additional shares of Common Stock or other voting securities of
the Company issued to or acquired by such Shareholder.
SECTION 5. Shareholder Capacity. No person executing this Agreement who
is or becomes a director of the Company makes any agreement or understanding
herein in his or her capacity as such director. Each Shareholder signs solely in
such Shareholder's capacity as the record and beneficial owner of the Shares.
-4-
191
SECTION 6. Further Assurances. Each Shareholder shall, upon request of
Capital Z, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by Capital Z to be necessary or desirable to
carry out the provisions hereof.
SECTION 7. Termination. This Agreement, and all rights and obligations
of the parties hereunder, shall terminate upon the date upon which the
Recapitalization has been consummated and the Shareholder Approval has been
obtained or the Purchase Agreement is earlier terminated in accordance with its
terms, except that no Shareholder shall be relieved of any liability for breach
of this Agreement by such Shareholder prior to such termination. Further, this
Agreement shall terminate with respect to any Shares which are transferred as
permitted by Section 3 hereof.
SECTION 8. Defined Terms. Capitalized terms used and not otherwise
defined in this Agreement shall have the respective meanings assigned to them in
the Purchase Agreement.
SECTION 9. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be sufficiently given if sent by
registered or certified mail, postage prepaid, or overnight air courier service,
or telecopy or facsimile transmission (with hard copy to follow) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice): (i) if to Capital Z, to the address set forth in
Section 7.3 of the Purchase Agreement; and (ii) if to any Shareholder, to the
address set forth opposite such Shareholder's name on Exhibit A hereto.
SECTION 10. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 11. Counterparts; Effectiveness. This Agreement may be executed
in two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective as to any Shareholder when one or more
counterparts have been signed by Capital Z and such Shareholder and delivered to
Capital Z and such Shareholder.
SECTION 12. Entire Agreement. This Agreement (including the documents
and instruments referred to herein) constitutes the entire agreement, and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof.
SECTION 13. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to any applicable conflicts of law principles of such State.
-5-
192
SECTION 14. Successors and Assigns. Neither this Agreement nor any of
the rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise, by any of the parties
without the prior written consent of the other parties, except as expressly
contemplated by Section 3(a), and except that Capital Z may assign its rights
under this Agreement to any transferee of any of the Company's securities
acquired by it under the Purchase Agreement (and any such transferee may
similarly assign its rights in connection with any further transfer of such
securities, in whole or in part). Any assignment in violation of the foregoing
shall be void.
SECTION 15. Enforcement. Each party agrees that irreparable damage would
occur and that the other party hereto would not have any adequate remedy at law
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that each party shall be entitled to an injunction or
injunctions to prevent breaches by the other party hereto of this Agreement and
to enforce specifically the terms and provisions of this Agreement in any court
of the United States located in the State of Delaware or in Delaware State
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (i) consents to submit
such party to the personal jurisdiction of any Federal court located in the
State of Delaware or any Delaware State court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court sitting in the State of Delaware or a Delaware State court.
SECTION 16. Severability. If any term or provision hereof, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid or unenforceable with respect to
such jurisdiction, and only to such extent, and the remainder of the terms and
provisions hereof, and the application thereof to any other circumstance, shall
remain in full force and effect, shall not in any way be affected, impaired or
invalidated, and shall be enforced to the fullest extent permitted by law, and
the parties hereto shall reasonably negotiate in good faith a substitute term or
provision that comes as close as possible to the invalidated or unenforceable
term or provision, and that puts each party in a position as nearly comparable
as possible to the position each such party would have been in but for the
finding of invalidity or unenforceability, while remaining valid and
enforceable.
-6-
193
SECTION 17. Amendment; Modification; Waiver. No amendment, modification
or waiver in respect of this Agreement shall be effective against any party
unless it shall be in writing and signed by such party.
-7-
194
IN WITNESS WHEREOF, Capital Z and the Shareholders have caused this
Agreement to be duly executed and delivered as of the date first written above.
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.,
By its General Partner
CAPITAL Z PARTNERS, L.P.,
By its General Partner
CAPITAL Z PARTNERS, LTD.
By: /S/ Xxxx X. Xxxxx
-------------------------------
Name: Xxxx X. Xxxxx
Title: Partner
SHAREHOLDERS:
-----------------------------------
Xxxx Xxxxxxxx
/S/ Xxxx Xxxxxxxxx
_________________________________
Xxxx Xxxxxxxxx
-8-
195
EXHIBIT I-1
FORM OF
MANAGEMENT INVESTMENT AGREEMENT
(XXXX XXXXXXXX)
MANAGEMENT INVESTMENT AGREEMENT (this "Agreement") dated as of
December 23, 1998, between Aames Financial Corporation, a Delaware corporation
(the "Company"), and Xxxx Xxxxxxxx, an individual residing at 0000 Xxxxxxxx
Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx, 00000 (the "Management Investor").
WHEREAS, on the date hereof, the Company and Capital Z Financial
Services Fund II, L.P., a Bermuda limited partnership ("Capital Z"), are
entering into a Preferred Stock Purchase Agreement (the "Purchase Agreement"),
pursuant to which Capital Z has agreed to purchase, together with Capital Z
Affiliates and co-investors as designated by Capital Z, shares of the Company's
Series B Convertible Preferred Stock, par value $0.001 per share ("Series B
Preferred Stock") and Series C Convertible Preferred Stock, par value $0.001 per
share ("Series C Preferred Stock," and, together with the Series B Preferred
Stock, "Senior Preferred Stock"), in the amounts and subject to the conditions
set forth in the Purchase Agreement; and
WHEREAS, the Management Investor is a senior management employee
of the Company and, as a condition precedent to the closing of the transactions
contemplated by the Purchase Agreement, certain senior management employees of
the Company, including the Management Investor, are required to purchase Series
C Preferred Stock from the Company; and
WHEREAS, the Management Investor desires to purchase from the
Company, and the Company desires to sell to the Management Investor, Series C
Preferred Stock under the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. Defined Terms. Capitalized terms used and not
otherwise defined in this Agreement shall have the respective meanings assigned
to them in the Purchase Agreement.
SECTION 2. Sale and Delivery.
(a) Upon the terms and subject to the conditions set forth
herein, and conditioned upon the consummation of the Initial Closing, in
reliance upon the representations and warranties of the Management Investor
hereinafter set forth, and for the purchase price described in Section 2(b), at
the Initial
196
Closing, the Company shall issue, sell and deliver to the Management Investor,
and the Management Investor shall purchase from the Company, two hundred and
fifty (250) shares of Series C Preferred Stock (such shares of Series C
Preferred Stock are referred to collectively herein as the "Shares"). The number
"250" in the preceding sentence shall be two hundred and fifty thousand
(250,000) if the Recapitalization has been consummated prior to the Initial
Closing Date).
(b) The purchase price per share of Series C Preferred Stock
shall be equal to the Purchase Price (as such term is defined in the Purchase
Agreement) (as used herein, the "Purchase Price") and shall be paid in cash at
the Initial Closing.
(c) The purchase and sale of Shares shall occur on the Initial
Closing Date and, at the Initial Closing:
(i) the Company shall deliver to the Management Investor
certificates representing the Shares, duly endorsed for transfer,
transferring to the Management Investor good and marketable title to
such Shares, free and clear of all liens and encumbrances; and
(ii) the Management Investor shall deliver to the Company the
Purchase Price, in immediately available funds to the account specified
by the Company at least two Business Days prior to the Initial Closing
Date;
SECTION 3. Representations and Warranties of the Management
Investor. The Management Investor hereby represents and warrants to the Company
as follows:
(a) The Shares (and the Underlying Common Shares) to be
purchased by such Management Investor will be acquired for investment for the
Management Investor's own account and not with a view to the resale or
distribution of any part thereof, except in compliance with the provisions of
the Securities Act of 1933, as amended (the "Securities Act"), or an exemption
therefrom, and in compliance with the terms of this Agreement. The Management
Investor is a senior management employee of the Company and is fully familiar
with the business of the Company and with the risks associated with the purchase
of the Shares pursuant to this Agreement. The Management Investor is an
accredited investor as defined under Rule 501(a) under the Securities Act.
(b) The Management Investor understands that the Shares and the
Underlying Common Shares are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable regulations such Shares (and the Underlying Common Shares) may be
resold without registration under the Securities Act only in certain limited
circumstances.
-2-
197
(c) The Management Investor further agrees that each certificate
representing the Shares (and the Underlying Common Shares) shall be stamped or
otherwise imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND TO THE OTHER TERMS SET FORTH IN
THAT CERTAIN MANAGEMENT INVESTMENT AGREEMENT, DATED AS OF
DECEMBER 23, 1998, A COPY OF WHICH AGREEMENT HAS BEEN FILED WITH
THE SECRETARY OF THE COMPANY AND ARE AVAILABLE UPON REQUEST."
SECTION 4. Restrictions on Transfer of Shares. For a period
commencing on the Initial Closing Date and ending on the fifth anniversary of
the Initial Closing Date, the Management Investor may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of (each, a "transfer") any of
the Shares (or the Underlying Common Shares), without the prior express written
consent of the Company, provided, however, that the foregoing restriction on
transfer shall not apply (i) if Capital Z Beneficially Owns less than (A) fifty
percent (50%) of the number of shares of Senior Preferred Stock purchased by
Capital Z on the Initial Closing Date (the "Original Preferred Shares") or (B)
if any Original Preferred Shares shall thereafter have been converted into
Common Stock, fifty percent (50%) of the sum of (x) the aggregate number of
shares Common Stock owned by Capital Z as a result of such conversion(s) plus
(y) the aggregate number of shares Common Stock into which any remaining
Original Preferred Shares owned by Capital Z may be converted (determined
without regard to any limitations on conversion of such shares prior to the
Recapitalization), in each case subject to adjustment for splits, combinations,
reclassifications and similar events; (ii) if the Management Employee dies,
retires, is terminated by the Company, or terminates his employment with the
Company, subject to the provisions of Section 5 hereof; or (iii) a Change of
Control (as defined in the New Option Plan) has occurred, but only if a Capital
Z Realization Event (as defined in the New Option Plan) has also occurred on or
prior to such Change of Control, and provided, further, that notwithstanding the
foregoing restriction on transfer, the Management Investor may transfer, during
the twelve-month period ending on the first anniversary of the Initial Closing
Date and during each succeeding twelve-month period, up to 25% of the total
number of Underlying Common Shares (whether structured as a transfer of Shares,
Underlying Shares or a combination thereof) acquired hereunder (subject to
adjustment for splits, combinations, reclassifications and similar events), it
being further agreed that the Management Investor may request the Company's
Board of
-3-
198
Directors to allow the Management Investor to transfer Shares (or Underlying
Common Shares) in excess of the 25% limitation described in this proviso if
extraordinary liquidity needs have arisen with respect to the Management
Investor, and, in such event, the Company (through its Board of Directors) will
consider such request in good faith and will not unreasonably withhold its
consent to a waiver of such limitation.
SECTION 5. Company's Option to Purchase Shares.
(a) In the event of the death or retirement from, or termination
of employment for any reason with, the Company of the Management Investor (a
"Termination Date"), the Company shall have the option, but not the obligation,
to purchase all, or any portion, of the Shares (and any Underlying Common Shares
that may have been acquired upon conversion of the Shares) then owned by the
Management Investor at the Fair Market Value (as hereinafter defined) per Share
and/or Underlying Common Share on the Business Day immediately prior to the date
on which the Company exercises its option to purchase in accordance with the
this Section 5. The Company may exercise the foregoing option at any time within
30 days after the Termination Date, by written notice to the Management
Investor, or his legal representative in the case of death, stating a date and
time for consummation of the purchase no less than 10 nor more than 30 days
after giving of such notice. "Fair Market Value" per Share or per Underlying
Common Share, as of any particular date, shall mean (a) in the case of a Share,
the product obtained by multiplying (I) the Formula Number (as defined in the
Certificate of Designations for the Senior Preferred Stock) in effect as of such
date by (II) the Current Market Price (as defined in the Certificate of
Designations for the Senior Preferred Stock) for the period of 15 consecutive
Trading Days (as defined in the Certificate of Designations for the Senior
Preferred Stock) prior to such date, or (b) in the case of an Underlying Share,
the Current Market Price for the period of 15 consecutive Trading Days prior to
such date.
(b) At the closing of the purchase of Shares (and any Underlying
Common Shares) by the Company pursuant to Section 4(a), the Management Investor
will deliver the Shares (and any Underlying Common Shares) to the Company
against payment by the Company to the Management Investor of the purchase price
for such Shares (and any Underlying Common Shares). Such purchase price shall be
paid in cash.
SECTION 5. Termination. All rights and obligations of the
parties hereunder shall terminate upon the date upon which the Purchase
Agreement is terminated in accordance with its terms, provided, that any such
termination that results from the breach by a party of his or its obligations
hereunder shall not relieve such party from any liability for breach of this
Agreement.
-4-
199
SECTION 6. Further Assurances. The Management Investor shall,
upon request of the Company, execute and deliver any additional documents and
take such further actions as may reasonably be deemed by the Company to be
necessary or desirable to carry out the provisions hereof.
SECTION 7. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be sufficiently given if sent by
registered or certified mail, postage prepaid, or overnight air courier service,
or telecopy or facsimile transmission (with hard copy to follow) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice): (i) if to the Company, to the address set forth in
Section 7.3 of the Purchase Agreement; and (ii) if to the Management Investor,
to the address set forth for the Management Investor in the preamble to this
Agreement or by telecopy to (000) 000-0000.
SECTION 8. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9. Counterparts; Effectiveness. This Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the Company and the Management Investor and delivered to
the Company and the Management Investor.
SECTION 10. Entire Agreement. This Agreement (including the
documents and instruments referred to herein) constitutes the entire agreement,
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
SECTION 11. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, without
regard to any applicable conflicts of law principles of such State.
SECTION 12. Successors and Assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by any of the
parties without the prior written consent of the other parties. Any assignment
in violation of the foregoing shall be void.
SECTION 13. Enforcement. Each party agrees that irreparable
damage would occur and that the other party hereto would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that each party shall be entitled to an injunction or
injunctions to prevent breaches by the other party
-5-
200
hereto of this Agreement and to enforce specifically the terms and provisions of
this Agreement in any court of the United States located in the State of
Delaware or in Delaware State court, this being in addition to any other remedy
to which they are entitled at law or in equity. In addition, each of the parties
hereto (i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of Delaware or any Delaware State court in
the event any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (ii) agrees that such party will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (iii) agrees that such party will not bring any action relating
to this Agreement or any of the transactions contemplated hereby in any court
other than a Federal court sitting in the State of Delaware of in Delaware State
court.
SECTION 14. Severability. If any term or provision hereof, or
the application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid or unenforceable with respect to
such jurisdiction, and only to such extent, and the remainder of the terms and
provisions hereof, and the application thereof to any other circumstance, shall
remain in full force and effect, shall not in any way be affected, impaired or
invalidated, and shall be enforced to the fullest extent permitted by law, and
the parties hereto shall reasonably negotiate in good faith a substitute term or
provision that comes as close as possible to the invalidated or unenforceable
term or provision, and that puts each party in a position as nearly comparable
as possible to the position each such party would have been in but for the
finding of invalidity or unenforceability, while remaining valid and
enforceable.
SECTION 15. Amendment; Modification; Waiver. No amendment,
modification or waiver in respect of this Agreement shall be effective against
any party unless it shall be in writing and signed by such party.
SECTION 16. Expenses. The Company and the Management Investor
shall each bear their own legal fees and other costs and expenses with respect
to the negotiation, execution and delivery of this Agreement and consummation of
the transactions contemplated hereby.
-6-
201
IN WITNESS WHEREOF, the Company and the Management Investor have
caused this Agreement to be duly executed and delivered as of the date first
written above.
AAMES FINANCIAL CORPORATION
By: /S/ Xxxxxxx Xxxxxx
--------------------------------
Name: Xxxxxxx Xxxxxx
Title: Executive Vice President
MANAGEMENT INVESTOR:
/S/ Xxxx Xxxxxxxx
----------------------------------
Xxxx Xxxxxxxx
-7-
202
EXHIBIT I-2
FORM OF
MANAGEMENT INVESTMENT AGREEMENT
(XXXX XXXXXXXXX)
MANAGEMENT INVESTMENT AGREEMENT (this "Agreement") dated as of
December 23, 1998, between Aames Financial Corporation, a Delaware corporation
(the "Company"), and Xxxx Xxxxxxxxx, an individual residing at 00000 Xxxxxxxx
Xxxx, Xxxxxxxxxx Xxxxx, Xxxxxxxxxx, 00000 (the "Management Investor").
WHEREAS, on the date hereof, the Company and Capital Z
Financial Services Fund II, L.P., a Bermuda limited partnership ("Capital Z"),
are entering into a Preferred Stock Purchase Agreement (the "Purchase
Agreement"), pursuant to which Capital Z has agreed to purchase, together with
Capital Z Affiliates and co-investors as designated by Capital Z, shares of the
Company's Series B Convertible Preferred Stock, par value $0.001 per share
("Series B Preferred Stock") and Series C Convertible Preferred Stock, par value
$0.001 per share ("Series C Preferred Stock," and, together with the Series B
Preferred Stock, "Senior Preferred Stock"), in the amounts and subject to the
conditions set forth in the Purchase Agreement; and
WHEREAS, the Management Investor is a senior management
employee of the Company and, as a condition precedent to the closing of the
transactions contemplated by the Purchase Agreement, certain senior management
employees of the Company, including the Management Investor, are required to
purchase Series C Preferred Stock from the Company; and
WHEREAS, the Management Investor desires to purchase from the
Company, and the Company desires to sell to the Management Investor, Series C
Preferred Stock under the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. Defined Terms. Capitalized terms used and not
otherwise defined in this Agreement shall have the respective meanings assigned
to them in the Purchase Agreement.
SECTION 2. Sale and Delivery.
(a) Upon the terms and subject to the conditions set forth
herein, and conditioned upon the consummation of the Initial Closing, in
reliance upon the representations and warranties of the Management Investor
hereinafter set forth, and
203
for the purchase price described in Section 2(b), the Company shall issue, sell
and deliver to the Management Investor pursuant to the Rights Offering, and the
Management Investor shall purchase from the Company pursuant to the Rights
Offer, an aggregate of $1,667,000 in stated value (at $1.00 per share) of Series
C Preferred Stock (such shares of Series C Preferred Stock are referred to
collectively herein as the "Shares") at the price per share at which Series
Preferred Stock is offered in the Rights Offer, subject to the terms and
conditions of the Rights Offering.
(b) The purchase price for the Shares purchased by the
Management Investor shall be paid by delivery by the Management Investor to the
Company of a 6.5% promissory note having an original principal amount equal to
such amount (the "Note"), the form of which Note is attached hereto as Exhibit
A.
(c) The purchase and sale of Shares by the Management Investor
shall occur at the time and place provided for in the Rights Offer, and at the
closing of such purchase and sale of Shares by the Management Investor:
(i) the Company shall deliver to the Management Investor
certificates representing the Shares, duly endorsed for transfer,
transferring to the Management Investor good and marketable title to
such Shares, free and clear of all liens and encumbrances; and
(ii) the Management Investor shall deliver to the Company:
(A) any documents required to be submitted by a
Company shareholder desiring to participate in the Rights
Offer;
(B) the Note; and
(C) a pledge agreement (the "Pledge Agreement")
substantially in the form attached hereto as Exhibit B,
pursuant to which Pledge Agreement, among other things, the
Management Investor's obligations under the Note shall be
secured by a pledge of (i) the Shares, (ii) the shares of
Common Stock that may be acquired upon conversion of the
Shares (the "Underlying Common Shares"), and (iii) certain
other collateral described therein.
SECTION 3. Representations and Warranties of the Management
Investor. The Management Investor hereby represents and warrants to the Company
as follows:
(a) The Shares (and the Underlying Common Shares) to be
purchased by such Management Investor will be acquired for investment for the
Management Investor's own account and not with
-2-
204
a view to the resale or distribution of any part thereof, except in compliance
with the provisions of the Securities Act of 1933, as amended (the "Securities
Act"), or an exemption therefrom, and in compliance with the terms of this
Agreement. The Management Investor is a senior management employee of the
Company and is fully familiar with the business of the Company and with the
risks associated with the purchase of the Shares pursuant to this Agreement. The
Management Investor is an accredited investor as defined under Rule 501(a) under
the Securities Act.
(b) The Management Investor understands that the Shares and
the Underlying Common Shares are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such Shares (and the Underlying Common Shares) may be
resold without registration under the Securities Act only in certain limited
circumstances.
(c) The Management Investor further agrees that each
certificate representing the Shares (and the Underlying Common Shares) shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES
HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND TO THE OTHER TERMS SET FORTH IN
THAT CERTAIN MANAGEMENT INVESTMENT AGREEMENT, DATED AS OF
DECEMBER 23, 1998, AND BY A CERTAIN RELATED PLEDGE AGREEMENT,
BETWEEN THE COMPANY AND XXXX XXXXXXXXX, A COPY OF WHICH
AGREEMENTS HAVE BEEN FILED WITH THE SECRETARY OF THE COMPANY
AND ARE AVAILABLE UPON REQUEST."
SECTION 4. Restrictions on Transfer of Shares. For a period
commencing on the Initial Closing Date and ending on the fifth anniversary of
the Initial Closing Date, the Management Investor may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of (each, a "transfer") any of
the Shares (or the Underlying Common Shares), without the prior express written
consent of the Company, provided, however, that the foregoing restriction on
transfer shall not apply (i) if Capital Z Beneficially Owns less than (A) fifty
percent (50%) of the number of shares of Senior Preferred Stock purchased by
Capital Z on the Initial Closing Date (the "Original Preferred Shares") or (B)
if any Original Preferred Shares shall thereafter have been converted into
Common Stock, fifty percent (50%) of the sum of (x) the aggregate number
-3-
205
of shares Common Stock owned by Capital Z as a result of such conversion(s) plus
(y) the aggregate number of shares Common Stock into which any remaining
Original Preferred Shares owned by Capital Z may be converted (determined
without regard to any limitations on conversion of such shares prior to the
Recapitalization), in each case subject to adjustment for splits, combinations,
reclassifications and similar events; (ii) if the Management Employee dies,
retires, is terminated by the Company, or terminates his employment with the
Company, subject to the provisions of Section 5 hereof; or (iii) a Change of
Control (as defined in the New Option Plan) has occurred, but only if a Capital
Z Realization Event (as defined in the New Option Plan) has also occurred on or
prior to such Change of Control, and provided, further, that notwithstanding the
foregoing restriction on transfer, the Management Investor may transfer, during
the twelve-month period ending on the first anniversary of the Initial Closing
Date and during each succeeding twelve-month period, up to 25% of the total
number of Underlying Common Shares (whether structured as a transfer of Shares,
Underlying Shares or a combination thereof) acquired hereunder (subject to
adjustment for splits, combinations, reclassifications and similar events), it
being further agreed that the Management Investor may request the Company's
Board of Directors to allow the Management Investor to transfer Shares (or
Underlying Common Shares) in excess of the 25% limitation described in this
proviso if extraordinary liquidity needs have arisen with respect to the
Management Investor, and, in such event, the Company (through its Board of
Directors) will consider such request in good faith and will not unreasonably
withhold its consent to a waiver of such limitation.
SECTION 5. Company's Option to Purchase Shares.
(a) In the event of the death or retirement from, or
termination of employment for any reason with, the Company of the Management
Investor (a "Termination Date"), the Company shall have the option, but not the
obligation, to purchase all, or any portion, of the Shares (and any Underlying
Common Shares that may have been acquired upon conversion of the Shares) then
owned by the Management Investor at the Fair Market Value (as hereinafter
defined) per Share and/or Underlying Common Share on the Business Day
immediately prior to the date on which the Company exercises its option to
purchase in accordance with the this Section 5. The Company may exercise the
foregoing option at any time within 30 days after the Termination Date, by
written notice to the Management Investor, or his legal representative in the
case of death, stating a date and time for consummation of the purchase no less
than 10 nor more than 30 days after giving of such notice. "Fair Market Value"
per Share or per Underlying Common Share, as of any particular date, shall mean
(a) in the case of a Share, the product obtained by multiplying (I) the Formula
Number (as defined in the Certificate of Designations for
-4-
206
the Senior Preferred Stock) in effect as of such date by (II) the Current Market
Price (as defined in the Certificate of Designations for the Senior Preferred
Stock) for the period of 15 consecutive Trading Days (as defined in the
Certificate of Designations for the Senior Preferred Stock) prior to such date,
or (b) in the case of an Underlying Share, the Current Market Price for the
period of 15 consecutive Trading Days prior to such date.
(b) At the closing of the purchase of Shares (and any
Underlying Common Shares) by the Company pursuant to Section 4(a), the
Management Investor will deliver the Shares (and any Underlying Common Shares)
to the Company against payment by the Company to the Management Investor of the
purchase price for such Shares (and any Underlying Common Shares). Such purchase
price shall be paid in cash, provided that if any principal or accrued but
unpaid interest is then outstanding under the Note, the cash portion of the
purchase price shall be reduced by the amount of such outstanding principal and
accrued interest on the Note (with such reduction being applied first to any
accrued interest and then to principal), and, if no principal or accrued
interest is then remaining on the Note, the Note shall be canceled.
SECTION 5. Termination. All rights and obligations of the
parties hereunder shall terminate upon the date upon which the Purchase
Agreement is terminated in accordance with its terms, provided, that any such
termination that results from the breach by a party of his or its obligations
hereunder shall not relieve such party from any liability for breach of this
Agreement.
SECTION 6. Further Assurances. The Management Investor shall,
upon request of the Company, execute and deliver any additional documents and
take such further actions as may reasonably be deemed by the Company to be
necessary or desirable to carry out the provisions hereof.
SECTION 7. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be sufficiently given if sent by
registered or certified mail, postage prepaid, or overnight air courier service,
or telecopy or facsimile transmission (with hard copy to follow) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice): (i) if to the Company, to the address set forth in
Section 7.3 of the Purchase Agreement; and (ii) if to the Management Investor,
to the address set forth for the Management Investor in the preamble to this
Agreement or by telecopy to (000) 000-0000.
SECTION 8. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9. Counterparts; Effectiveness. This Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the Company and the Management Investor and delivered to
the Company and the Management Investor.
-5-
207
SECTION 10. Entire Agreement. This Agreement (including the
documents and instruments referred to herein) constitutes the entire agreement,
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
SECTION 11. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware, without
regard to any applicable conflicts of law principles of such State.
SECTION 12. Successors and Assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by any of the
parties without the prior written consent of the other parties. Any assignment
in violation of the foregoing shall be void.
SECTION 13. Enforcement. Each party agrees that irreparable
damage would occur and that the other party hereto would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that each party shall be entitled to an injunction or
injunctions to prevent breaches by the other party hereto of this Agreement and
to enforce specifically the terms and provisions of this Agreement in any court
of the United States located in the State of Delaware or in Delaware State
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (i) consents to submit
such party to the personal jurisdiction of any Federal court located in the
State of Delaware or any Delaware State court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court sitting in the State of Delaware of in Delaware State court.
SECTION 14. Severability. If any term or provision hereof, or
the application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid or unenforceable with respect to
such jurisdiction, and only to such extent, and the remainder of the terms and
provisions hereof, and the application thereof to any other circumstance, shall
remain in full force and effect, shall not in any way be affected, impaired or
invalidated, and shall be enforced to the fullest extent permitted by law, and
the parties hereto shall reasonably negotiate in good faith a substitute term or
provision that comes as close as possible to the invalidated or unenforceable
term or provision, and that puts each party in a
-6-
208
position as nearly comparable as possible to the position each such party would
have been in but for the finding of invalidity or unenforceability, while
remaining valid and enforceable.
SECTION 15. Amendment; Modification; Waiver. No amendment,
modification or waiver in respect of this Agreement shall be effective against
any party unless it shall be in writing and signed by such party.
SECTION 16. Expenses. The Company and the Management Investor
shall each bear their own legal fees and other costs and expenses with respect
to the negotiation, execution and delivery of this Agreement and consummation of
the transactions contemplated hereby.
-7-
209
IN WITNESS WHEREOF, the Company and the Management Investor
have caused this Agreement to be duly executed and delivered as of the date
first written above.
AAMES FINANCIAL CORPORATION
By: /S/ Xxxxxxx X. Xxxxxx
--------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Executive Vice President
MANAGEMENT INVESTOR:
/S/ Xxxx Xxxxxxxxx
-----------------------------------
Xxxx Xxxxxxxxx
-8-
210
ATTACH NOTE AS EXHIBIT A
-9-
211
EXHIBIT A TO
MANAGEMENT INVESTMENT AGREEMENT
(XXXX XXXXXXXXX)
FORM OF
SECURED PROMISSORY NOTE
$___________ ________, 1999
FOR VALUE RECEIVED, Xxxx Xxxxxxxxx (the "Maker"), hereby promises to
pay to the order of Aames Financial Corporation, a Delaware corporation
("Aames"), 2 California Plaza, 000 Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx, XX 00000 or
such address as Aames shall have given to the Maker, the principal sum of
_________ DOLLARS and 00/100 ($_______), plus interest, which shall accrue from
the date hereof, on the unpaid principal balance of this Note at such address,
at the rate of 6.5% per annum (computed on the basis of a 360-day year) until
the principal amount hereof has been repaid in full, on ________, 2004.
The Maker shall have the option to prepay the principal amount and
accrued interest on this Note, in whole or in part, at any time, without payment
of premium or penalty. During the period in which this Note is outstanding, the
Maker shall make an annual mandatory prepayment against the outstanding
principal balance of, and accrued interest on, this Note an amount equal to 25%
of the aggregate cash bonuses (if any) paid to Maker in respect of the fiscal
year ended immediately prior to such payment date, net of income taxes payable
thereon, such payments to be made within two business days after receipt of the
cash bonus paid at the end of such fiscal year and to be applied first, against
any accrued and unpaid interest on this Note and then, to the outstanding
principal balance of this Note. In addition, upon receipt by the Maker of any
proceeds from the transfer of the securities pledged under the Pledge Agreement
(as defined below) or dividends, interest payments or other distributions of
cash in respect of such pledged securities, the Maker shall make an immediate
prepayment in respect of the Note in an amount equal to the after tax amount of
such proceeds, dividends, payments or distributions, with such prepayments to be
applied first to the payment of all interest accrued on, and then to the payment
of unpaid principal of, this Note.
Payments of principal and interest shall be made in such currency of
the United States as at the time of payment shall be legal tender for the
payment of public and private debts.
Aames and the Maker have entered into a pledge agreement dated the date
hereof (the "Pledge Agreement") providing, among
212
other things, for the securing of this Note by a pledge of the Pledged
Collateral (as defined in the Pledge Agreement).
If any of the following events (each, an "Event of Default") shall occur:
(a) the Maker shall default in the payment of any part of the
principal or interest on this Note when the same shall become due and
payable, whether at maturity, by acceleration or otherwise and such
default continues for more than 10 days after receipt of notice from
Aames;
(b) the Maker's employment with Aames shall have ceased for
any reason whatsoever or for no reason, whether such cessation is
voluntary or involuntary, and regardless of whether the Maker may claim
such cessation of employment constitutes a wrongful termination of
employment;
(c) the Maker shall (i) become insolvent or be unable, or
admit in writing his inability, to pay his debts as they mature; (ii)
make a general assignment for the benefit of creditors; (iii) be
adjudicated as bankrupt or insolvent or file a voluntary petition in
bankruptcy; (iv) file a petition or an answer seeking an arrangement
with creditors to take advantage of any insolvency law; or (v) file an
answer admitting to the material obligations or consent to, or default
in answering, or fail to have dismissed within 60 days after the filing
thereof, a petition filed against him in any bankruptcy or insolvency
proceeding; or
(d) any breach of the Maker's obligations under the Pledge
Agreement shall have occurred and be continuing or any representation
or warranty made thereunder shall be false in any material respect,
then, the holder of this Note may at any time by written notice to the
Maker, declare the entire unpaid principal of and the interest accrued on this
Note through the date of such Event of Default to be forthwith due and payable,
without other notices or demands of any kind, all of which are hereby waived by
the Maker.
Subject to the terms and conditions herein, if Maker is employed by
Aames for the full period from the date hereof through the first anniversary of
the Effective Date, as such term is defined in Maker's current Employment
Agreement with Aames (the "Employment Agreement"), or through the date of any
earlier termination of Maker's employment by Aames pursuant to Paragraphs 5A, B,
or F of the Employment Agreement or by the Maker pursuant to Paragraph 5D of the
Employment Agreement, the indebtedness evidenced by this Note shall be
nonrecourse (i.e., Aames shall not have recourse to any assets of Maker for any
liability under or in connection with the Pledge Agreement other than the
Pledged Collateral and, Aames shall not be liable for any deficiency
-2-
213
owing in respect of such liabilities in the event the proceeds derived from the
sale of such Pledged Collateral are insufficient to pay such liabilities.
The Maker agrees to pay to the holder hereof all expenses incurred by
such holder, including reasonable attorneys' fees, in enforcing and collecting
this Note.
The Maker hereby forever waives presentment, demand, presentment for
payment, protest, notice of protest, notice of dishonor of this Note and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
This Note shall be paid without deduction by reason of any set-off,
defense or counterclaim of the Maker.
This Note shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to conflicts of law
principles thereof, shall be binding upon the heirs or legal representatives of
the Maker and shall inure to the benefits of the successors and assigns of
Aames.
____________________________________
Xxxx Xxxxxxxxx
-3-
214
ATTACH PLEDGE AGREEMENT AS EXHIBIT B
-10-
215
EXHIBIT B TO MANAGEMENT INVESTMENT AGREEMENT
(XXXX XXXXXXXXX)
FORM OF PLEDGE AGREEMENT
PLEDGE AGREEMENT ("Agreement"), dated as of _____, 1999, made
by Xxxx Xxxxxxxxx, an individual residing at 00000 Xxxxxxxx Xxxx, Xxxxxxxxxx
Xxxxx, XX, 00000 (the "Pledgor"), to Aames Financial Corporation, a Delaware
corporation ("Aames").
WHEREAS, on the date hereof, the Pledgor is purchasing shares
of Aames' Series C Convertible Preferred Stock, par value $0.001 per share
("Series C Preferred Stock"), pursuant to a Management Investment Agreement,
dated the date hereof, between Pledgor and Aames (the "Management Investment
Agreement"); and
WHEREAS, as part of the transactions contemplated by the
Management Investment Agreement, the Pledgor is executing and delivering to
Aames a Secured Promissory Note dated as of the date hereof in favor of Aames
(the "Aames Note") as part of the purchase price for the Series C Preferred
Stock, and (ii) in accordance with the terms and conditions set forth herein,
pledge the Series C Preferred Stock, together with any shares of Aames' common
stock, par value $0.001 per share that may be acquired upon conversion of the
Series C Preferred Stock (the "Underlying Common Shares, and, together with the
shares of Series C Preferred Stock, the "Pledged Shares").
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, and in order to induce Aames to
accept the Aames Note, the Pledgor hereby agrees as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to Aames, and
grants to Aames a security interest in, the following (the "Pledged
Collateral"):
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property of any
character whatsoever (including, without limitation, shares of Common Stock)
from time to time received, receivable or otherwise distributed or distributable
in respect of or in exchange for any or all of the Pledged Shares; and
(ii) all proceeds of any and all of the foregoing collateral
(including, without limitation, proceeds that constitute property of the types
described above).
SECTION 2. Security for Obligations. This Agreement secures
the payment of all obligations, whether for principal, interest, fees, expenses
or otherwise, now or hereafter existing, of the Pledgor under the Aames Note and
under this Agreement (all
-1-
216
such obligations of the Pledgor being the "Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by the Pledgor to
Aames under the Aames Note or this Agreement but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Aames pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Aames. Aames shall have the right, at any time in its discretion
and without notice to the Pledgor, to transfer to or to have registered in the
name of Aames or any of its nominees any or all of the Pledged Collateral,
subject only to the revocable rights specified in Section 6(a). For the better
perfection of Aames's rights in and to the Pledged Collateral, the Pledgor shall
forthwith, upon the pledge of any Pledged Collateral hereunder, cause such
Pledged Collateral to be registered in the name of Aames or such nominee or
nominees of Aames as Aames shall direct, subject only to the revocable rights
specified in Section 6(a). In addition, Aames shall have the right at any time
to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. The Pledgor
represents and warrants as follows:
(a) Neither the execution nor the delivery by the Pledgor of
this Agreement nor the consummation by the Pledgor of the transactions
contemplated hereby, nor compliance with nor fulfillment by the Pledgor
of the terms and provisions hereof, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a
default under any lease, contract, instrument, mortgage, deed of trust,
trust deed or deed to secure debt evidencing or securing indebtedness
for borrowed money, financing lease, law, rule, regulation, judgment,
order, award, decree or other restriction of any kind to which the
Pledgor is a party or by which he is bound.
(b) This Agreement has been duly executed and delivered by the
Pledgor and is the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms.
(c) There is no action, lawsuit, claim, counterclaim,
proceeding, or investigation (or group of related actions, lawsuits,
claims, proceedings or investigations) pending or,
-2-
217
to the knowledge of the Pledgor, threatened, relating to or challenging
the Pledgor's obligations under this Agreement or the pledge of the
Pledged Collateral hereunder.
(d) The Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest
created by this Agreement.
(e) The pledge of the Pledged Shares pursuant to this
Agreement creates a valid and perfected first priority security
interest in the Pledged Collateral, securing the payment of the
Obligations.
(f) No consent of any other person or entity and no
authorization, approval, or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required (i) for
the pledge by the Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this
Agreement by the Pledgor, (ii) for the perfection or maintenance of the
security interest created hereby (including the first priority nature
of such security interest) or (iii) for the exercise by Aames of the
voting or other rights provided for in this Agreement or the remedies
in respect of the Pledged Collateral pursuant to this Agreement (except
as may be required in connection with any disposition of any portion of
the Pledged Collateral by laws affecting the offering and sale of
securities generally).
(g) There are no conditions precedent to the effectiveness of
the Pledgor's obligations under this Agreement that have not been
satisfied or waived.
SECTION 5. Further Assurances. (a) The Pledgor agrees that at
any time and from time to time, at the expense of the Pledgor, the Pledgor will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that Aames may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Aames to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral.
(b) The Pledgor hereby authorizes Aames to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Pledged Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Pledged Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
-3-
218
SECTION 6. Voting Rights; Dividends, Etc. (a) so long as no
Event of Default (as defined in the Aames Note) or event which, with the giving
of notice or the lapse of time, or both, would become such an Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise or refrain from
exercising any and all voting and other consensual rights pertaining to
the Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Aames Note;
provided, however, that the Pledgor shall not exercise or refrain from
exercising any such right if, in Aames's judgment, such action would
have a material adverse effect on the value of the Pledged Collateral
or any part thereof.
(ii) The Pledgor shall be entitled to any and all dividends
paid in respect of the Pledged Collateral; provided, however, that any
and all dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for, any Pledged Collateral,
shall be, and shall be forthwith delivered to Aames to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust
for the benefit of Aames, be segregated from the other property or
funds of the Pledgor, and be forthwith delivered to Aames as Pledged
Collateral in the same form as so received (with any necessary
endorsement or assignment); and provided, further, that the after tax
amount of any cash dividends, proceeds, or other distributions paid in
respect of the Pledged Collateral shall be applied as an immediate
prepayment in respect of the Aames Note, with such prepayments to be
applied first to the payment of all interest accrued on, and then to
the payment of unpaid principal of, the Aames Note.
(iii) Aames shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as
the Pledgor may reasonably request for the purpose of enabling the
Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (i) above and to receive the dividends
which it is authorized to receive and retain pursuant to paragraph (ii)
above.
(b) Upon the occurrence and during the continuance of an Event
of Default or an event which, with the giving of notice or the lapse of time, or
both, would become an Event of Default:
(i) All rights of the Pledgor (x) to exercise or refrain from
exercising the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 6(a)(i) shall,
upon notice to the Pledgor by Aames, cease and (y) to receive the
dividends
-4-
219
payments which it would otherwise be authorized to receive and retain
pursuant to Section 6(a)(ii) shall automatically cease, and all such
rights shall thereupon become vested in Aames (or its designee), who
shall thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to receive and
hold as Pledged Collateral such dividends.
(ii) All dividends which are received by the Pledgor contrary
to the provisions of paragraph (i) of this Section 6(b) shall be
received in trust for the benefit of Aames, shall be segregated from
other funds of the Pledgor and shall be forthwith paid over to Aames as
Pledged Collateral in the same form as so received (with any necessary
endorsement).
SECTION 7. Transfers and Other Liens. The Pledgor agrees that
it will not (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Pledged Collateral
or (ii) create or permit to exist any lien, security interest, option or other
charge or encumbrance upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement and except for any such
sale the proceeds from which are used to repay all unpaid principal of, and
accrued interest on, the Aames Note (with such proceeds first being applied to
accrued interest and then to principal).
SECTION 8. Appointment of Attorney-in-Fact. The Pledgor hereby
appoints [_______] the Pledgor's attorney-in-fact, with full authority in the
place and stead of the Pledgor and in the name of the Pledgor or otherwise, from
time to time in Aames's discretion to take any action and to execute any
instrument that Aames may deem necessary or advisable to accomplish the purposes
of this Agreement (subject to the rights of the Pledgor under Section 6),
including, without limitation, to receive, indorse and collect all instruments
made payable to the Pledgor representing any dividend or other distribution in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same.
SECTION 9. Aames May Perform. If the Pledgor fails to perform
any agreement contained herein and does not cure such failure within 10 days
after its receipt of written notice from Aames, Aames may itself perform, or
cause performance of, such agreement, and the expenses of Aames incurred in
connection therewith shall be payable by the Pledgor under Section 12.
SECTION 10. Aames' Duties. The powers conferred on Aames
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, Aames shall have no duty as to
-5-
220
any Pledged Collateral as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Collateral, whether or not Aames has or is deemed to have knowledge
of such matters, or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Pledged Collateral.
Aames shall be deemed to have exercised reasonable care in the custody and
preservation of any Pledged Collateral in its possession if such Pledged
Collateral is accorded treatment substantially equal to that which Aames accords
its own property.
SECTION 11. Remedies upon Default. If any Event of Default
shall have occurred and be continuing:
(a) Aames may exercise in respect of the Pledged Collateral,
in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured
party on default under the Uniform Commercial Code in effect in the
State of Delaware at that time (the "Code") (whether or not the Code
applies to the affected Collateral), and may also, without notice
except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any
exchange or broker's board or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as Aames may deem
commercially reasonable. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to the
Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable
notification. Aames shall not be obligated to make any sale of Pledged
Collateral regardless of notice of sale having been given. Aames may
adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(b) Any cash held by Aames as Pledged Collateral and all cash
proceeds received by Aames in respect of any sale of, collection from
or other realization upon all or any part of the Pledged Collateral
may, in the discretion of Aames, be held by Aames as collateral for,
and/or then or at any time thereafter be applied (after payment of any
amounts payable to Aames pursuant to Section 12) in whole or in part by
Aames against, all or any part of the Obligations in such order as
Aames shall elect. Any surplus of such cash or cash proceeds held by
Aames and remaining after payment in full of all the Obligations shall
be paid over to the Pledgor or to whomsoever may be lawfully entitled
to receive such surplus.
SECTION 12. Expenses. The Pledgor will upon demand pay to
Aames the amount of any and all reasonable expenses,
-6-
221
including the reasonable fees and expenses of its counsel and of any experts and
agents, which Aames may incur in connection with (i) the exercise or enforcement
of any of the rights of Aames hereunder or (ii) the failure by the Pledgor to
perform or observe any of the provisions hereof.
SECTION 13. Security Interest Absolute. The obligations of the
Pledgor under this Agreement are independent of the Obligations, and a separate
action or actions may be brought and prosecuted against the Pledgor to enforce
this Agreement. All rights of Aames and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of the Aames Note
any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations, or any other
amendment or waiver of or any consent to any departure from the Aames
Note;
(iii) any taking, exchange, release or nonperfection of any
other collateral, or any taking, release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the
Obligations;
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Obligations
or any other assets of the Pledgor;
(v) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Pledgor.
SECTION 14. Amendments, Etc. No amendment or waiver of any
provision of this Agreement shall in any event be effective unless the same
shall be in writing and signed by the parties hereto, and no consent to any
departure by one party herefrom, shall in any event be effective unless the same
shall be in writing and signed by the other party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 15. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and sent by express courier, telecopied, telegraphed,
telexed or hand-delivered, if to the Pledgor, at his address first set forth
above; and, if to Aames, at its address at 2 California Plaza, 000 Xxxxx Xxxxx
Xxxxxx, Xxx Xxxxxxx, XX 00000, Attention: Xxxx
-7-
222
Xxxxxxxx; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such notices and
communications shall, when sent by express courier, be effective three days
after being sent, when telecopied, telegraphed, telexed or hand-delivered, be
effective when telecopied, delivered to the telegraph company, confirmed by
telex answerback or delivered, respectively.
SECTION 16. Continuing Security Interest; Assignments Under
Aames Note. This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect until the
payment in full of the Obligations and all other amounts payable under this
Agreement, (ii) be binding upon the Pledgor, its successors and assigns and
(iii) inure to the benefit of, and be enforceable by, Aames and its successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), Aames may assign or otherwise transfer all or any portion of its rights
and obligations under the Aames Note to any other person or entity, and such
other person or entity shall thereupon become vested with all the benefits in
respect thereof granted to Aames herein or otherwise. Upon the payment in full
of the Obligations and all other amounts payable under this Agreement, the
security interest granted hereby shall terminate and all rights to the Pledged
Collateral shall revert to the Pledgor. Upon any such termination, Aames will,
at the Pledgor's expense, return to the Pledgor such of the Pledged Collateral
as shall not have been sold or otherwise applied pursuant to the terms hereof
and execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence such termination.
SECTION 17. Governing Law; Terms. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
DELAWARE. Unless otherwise defined herein or in the Aames Note, terms defined in
Article 9 of the Code are used herein as therein defined.
-8-
223
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
____________________________________
Xxxx Xxxxxxxxx
ACKNOWLEDGED AND AGREED:
AAMES FINANCIAL CORPORATION
By:_______________________________
Name:
Title:
-9-
224
EXHIBIT I-3
FORM OF
MANAGEMENT INVESTMENT AGREEMENT
(OTHER THAN XXXX XXXXXXXXX)
MANAGEMENT INVESTMENT AGREEMENT (this "Agreement") dated as of
________, 1999, between Aames Financial Corporation, a Delaware corporation (the
"Company"), and ___________, an individual residing at __________ (the
"Management Investor").
WHEREAS, on the date hereof, the Company and Capital Z
Financial Services Fund II, L.P., a Bermuda limited partnership ("Capital Z"),
are entering into a Preferred Stock Purchase Agreement (the "Purchase
Agreement"), pursuant to which Capital Z has agreed to purchase, together with
Capital Z Affiliates and co-investors as designated by Capital Z, shares of the
Company's Series B Convertible Preferred Stock, par value $0.001 per share
("Series B Preferred Stock") and Series C Convertible Preferred Stock, par value
$0.001 per share ("Series C Preferred Stock," and, together with the Series B
Preferred Stock, "Senior Preferred Stock"), in the amounts and subject to the
conditions set forth in the Purchase Agreement; and
WHEREAS, the Management Investor is a senior management
employee of the Company and, as a condition precedent to the closing of the
transactions contemplated by the Purchase Agreement, certain senior management
employees of the Company, including the Management Investor, are required to
purchase Series C Preferred Stock from the Company; and
WHEREAS, the Management Investor desires to purchase from the
Company, and the Company desires to sell to the Management Investor, Series C
Preferred Stock under the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. Defined Terms. Capitalized terms used and not
otherwise defined in this Agreement shall have the respective meanings assigned
to them in the Purchase Agreement.
SECTION 2. Sale and Delivery.
(a) Upon the terms and subject to the conditions set forth
herein, and conditioned upon the consummation of the Initial Closing, in
reliance upon the representations and warranties of the Management Investor
hereinafter set forth, and for the purchase price described in Section 2(b), at
the Initial
225
Closing, the Company shall issue, sell and deliver to the Management
Investor, and the Management Investor shall purchase from the Company, [_______]
(_____) shares of Series C Preferred Stock (such shares of Series C Preferred
Stock are referred to collectively herein as the "Shares").
(b) The purchase price per share of Series C Preferred Stock
shall be equal to the Purchase Price (as such term is defined in the Purchase
Agreement) (as used herein, the "Purchase Price") and shall be paid as follows
at the Initial Closing:
(i) an amount equal to 50% of the aggregate Purchase Price for
all the Shares being purchased by the Management Investor hereunder
shall be paid in cash (the "Closing Payment"); and
(ii) an amount equal to 50% of the aggregate Purchase Price
for all the Shares being purchased by the Management Investor hereunder
shall be paid by delivery by the Management Investor to the Company of
a 6.5% promissory note having an original principal amount equal to
such amount (the "Note"), the form of which Note is attached hereto as
Exhibit A.
(c) The purchase and sale of Shares shall occur on the Initial
Closing Date and, at the Initial Closing:
(i) the Company shall deliver to the Management Investor
certificates representing the Shares, duly endorsed for transfer,
transferring to the Management Investor good and marketable title to
such Shares, free and clear of all liens and encumbrances; and
(ii) the Management Investor shall deliver to the Company:
(A) the Closing Payment, in immediately available
funds to the account specified by the Company at least two
Business Days prior to the Initial Closing Date;
(B) the Note; and
(C) a pledge agreement (the "Pledge Agreement")
substantially in the form attached hereto as Exhibit B,
pursuant to which Pledge Agreement, among other things, the
Management Investor's obligations under the Note shall be
secured by a pledge of (i) the Shares, (ii) the shares of
Common Stock that may be acquired upon conversion of the
Shares (the "Underlying Common Shares"), and (iii) certain
other collateral described therein.
-2-
226
SECTION 3. Representations and Warranties of the Management
Investor. The Management Investor hereby represents and warrants to the Company
as follows:
(a) The Shares (and the Underlying Common Shares) to be
purchased by such Management Investor will be acquired for investment for the
Management Investor's own account and not with a view to the resale or
distribution of any part thereof, except in compliance with the provisions of
the Securities Act of 1933, as amended (the "Securities Act"), or an exemption
therefrom, and in compliance with the terms of this Agreement. The Management
Investor is a senior management employee of the Company and is fully familiar
with the business of the Company and with the risks associated with the purchase
of the Shares pursuant to this Agreement. The Management Investor is an
accredited investor as defined under Rule 501(a) under the Securities Act.
(b) The Management Investor understands that the Shares and
the Underlying Common Shares are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such Shares (and the Underlying Common Shares) may be
resold without registration under the Securities Act only in certain limited
circumstances.
(c) The Management Investor further agrees that each
certificate representing the Shares (and the Underlying Common Shares) shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES
HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND TO THE OTHER TERMS SET FORTH IN
THAT CERTAIN MANAGEMENT INVESTMENT AGREEMENT, DATED AS OF
______, 1999, AND BY THAT CERTAIN PLEDGE AGREEMENT, DATED AS
OF ______, 1999, BY AND AMONG THE COMPANY AND ________, A COPY
OF WHICH AGREEMENTS HAVE BEEN FILED WITH THE SECRETARY OF THE
COMPANY AND ARE AVAILABLE UPON REQUEST."
SECTION 4. Restrictions on Transfer of Shares. For a period
commencing on the Initial Closing Date and ending on the fifth anniversary of
the Initial Closing Date, the Management Investor may not sell, transfer,
assign, pledge, hypothecate or otherwise dispose of (each, a "transfer") any of
the Shares (or the Underlying Common Shares), without the prior express written
consent of the Company, provided, however, that the foregoing restriction on
transfer shall not apply (i) if Capital Z
-3-
227
Beneficially Owns less than (A) fifty percent (50%) of the number of shares of
Senior Preferred Stock purchased by Capital Z on the Initial Closing Date (the
"Original Preferred Shares") or (B) if any Original Preferred Shares shall
thereafter have been converted into Common Stock, fifty percent (50%) of the sum
of (x) the aggregate number of shares Common Stock owned by Capital Z as a
result of such conversion(s) plus (y) the aggregate number of shares Common
Stock into which any remaining Original Preferred Shares owned by Capital Z may
be converted (determined without regard to any limitations on conversion of such
shares prior to the Recapitalization), in each case subject to adjustment for
splits, combinations, reclassifications and similar events; (ii) if the
Management Employee dies, retires, is terminated by the Company, or terminates
his employment with the Company, subject to the provisions of Section 5 hereof;
or (iii) a Change of Control (as defined in the New Option Plan) has occurred,
but only if a Capital Z Realization Event (as defined in the New Option Plan)
has also occurred on or prior to such Change of Control, and provided, further,
that notwithstanding the foregoing restriction on transfer, the Management
Investor may transfer, during the twelve-month period ending on the first
anniversary of the Initial Closing Date and during each succeeding twelve-month
period, up to 25% of the total number of Underlying Common Shares (whether
structured as a transfer of Shares, Underlying Shares or a combination thereof)
acquired hereunder (subject to adjustment for splits, combinations,
reclassifications and similar events), it being further agreed that the
Management Investor may request the Company's Board of Directors to allow the
Management Investor to transfer Shares (or Underlying Common Shares) in excess
of the 25% limitation described in this proviso if extraordinary liquidity needs
have arisen with respect to the Management Investor, and, in such event, the
Company (through its Board of Directors) will consider such request in good
faith and will not unreasonably withhold its consent to a waiver of such
limitation.
SECTION 5. Company's Option to Purchase Shares.
(a) In the event of the death or retirement from, or
termination of employment for any reason with, the Company of the Management
Investor (a "Termination Date"), the Company shall have the option, but not the
obligation, to purchase all, or any portion, of the Shares (and any Underlying
Common Shares that may have been acquired upon conversion of the Shares) then
owned by the Management Investor at the Fair Market Value (as hereinafter
defined) per Share and/or Underlying Common Share on the Business Day
immediately prior to the date on which the Company exercises its option to
purchase in accordance with the this Section 5. The Company may exercise the
foregoing option at any time within 30 days after the Termination Date, by
written notice to the Management Investor, or his legal representative in the
case of death, stating a date and time for consummation of the purchase no less
than 10 nor more than 30 days after giving of such notice. "Fair Market Value"
per Share or per Underlying Common
-4-
228
Share, as of any particular date, shall mean (a) in the case of a Share, the
product obtained by multiplying (I) the Formula Number (as defined in the
Certificate of Designations for the Senior Preferred Stock) in effect as of such
date by (II) the Current Market Price (as defined in the Certificate of
Designations for the Senior Preferred Stock) for the period of 15 consecutive
Trading Days (as defined in the Certificate of Designations for the Senior
Preferred Stock) prior to such date, or (b) in the case of an Underlying Share,
the Current Market Price for the period of 15 consecutive Trading Days prior to
such date.
(b) At the closing of the purchase of Shares (and any
Underlying Common Shares) by the Company pursuant to Section 4(a), the
Management Investor will deliver the Shares (and any Underlying Common Shares)
to the Company against payment by the Company to the Management Investor of the
purchase price for such Shares (and any Underlying Common Shares). Such purchase
price shall be paid in cash, provided that if any principal or accrued but
unpaid interest is then outstanding under the Note, the cash portion of the
purchase price shall be reduced by the amount of such outstanding principal and
accrued interest on the Note (with such reduction being applied first to any
accrued interest and then to principal), and, if no principal or accrued
interest is then remaining on the Note, the Note shall be canceled.
SECTION 5. Termination. All rights and obligations of the
parties hereunder shall terminate upon the date upon which the Purchase
Agreement is terminated in accordance with its terms, provided, that any such
termination that results from the breach by a party of his or its obligations
hereunder shall not relieve such party from any liability for breach of this
Agreement.
SECTION 6. Further Assurances. The Management Investor shall,
upon request of the Company, execute and deliver any additional documents and
take such further actions as may reasonably be deemed by the Company to be
necessary or desirable to carry out the provisions hereof.
SECTION 7. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be sufficiently given if sent by
registered or certified mail, postage prepaid, or overnight air courier service,
or telecopy or facsimile transmission (with hard copy to follow) to the parties
at the following addresses (or at such other address for a party as shall be
specified by like notice): (i) if to the Company, to the address set forth in
Section 7.3 of the Purchase Agreement; and (ii) if to the Management Investor,
to the address set forth for the Management Investor in the preamble to this
Agreement or by telecopy to (___)_______.
SECTION 8. Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
-5-
229
SECTION 9. Counterparts; Effectiveness. This Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the Company and the Management Investor and delivered to
the Company and the Management Investor.
SECTION 10. Entire Agreement. This Agreement (including the
documents and instruments referred to herein) constitutes the entire agreement,
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
SECTION 11. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware, without
regard to any applicable conflicts of law principles of such State.
SECTION 12. Successors and Assigns. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise, by any of the
parties without the prior written consent of the other parties. Any assignment
in violation of the foregoing shall be void.
SECTION 13. Enforcement. Each party agrees that irreparable
damage would occur and that the other party hereto would not have any adequate
remedy at law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that each party shall be entitled to an injunction or
injunctions to prevent breaches by the other party hereto of this Agreement and
to enforce specifically the terms and provisions of this Agreement in any court
of the United States located in the State of Delaware or in Delaware State
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (i) consents to submit
such party to the personal jurisdiction of any Federal court located in the
State of Delaware or any Delaware State court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court and (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court sitting in the State of Delaware of in Delaware State court.
SECTION 14. Severability. If any term or provision hereof, or
the application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be invalid or unenforceable with respect to
such jurisdiction, and only to such extent, and the remainder of the terms and
-6-
230
provisions hereof, and the application thereof to any other circumstance, shall
remain in full force and effect, shall not in any way be affected, impaired or
invalidated, and shall be enforced to the fullest extent permitted by law, and
the parties hereto shall reasonably negotiate in good faith a substitute term or
provision that comes as close as possible to the invalidated or unenforceable
term or provision, and that puts each party in a position as nearly comparable
as possible to the position each such party would have been in but for the
finding of invalidity or unenforceability, while remaining valid and
enforceable.
SECTION 15. Amendment; Modification; Waiver. No amendment,
modification or waiver in respect of this Agreement shall be effective against
any party unless it shall be in writing and signed by such party.
SECTION 16. Expenses. The Company and the Management Investor
shall each bear their own legal fees and other costs and expenses with respect
to the negotiation, execution and delivery of this Agreement and consummation of
the transactions contemplated hereby.
-7-
231
IN WITNESS WHEREOF, the Company and the Management Investor
have caused this Agreement to be duly executed and delivered as of the date
first written above.
AAMES FINANCIAL CORPORATION
By:_________________________________
Name:
Title:
MANAGEMENT INVESTOR:
____________________________________
[Management Investor]
-8-
232
ATTACH NOTE AS EXHIBIT A
-9-
233
EXHIBIT A TO
MANAGEMENT INVESTMENT AGREEMENT
(OTHER THAN XXXX XXXXXXXXX)
FORM OF
SECURED PROMISSORY NOTE
$___________________________ ________, 1999
FOR VALUE RECEIVED, [Management Employee] (the "Maker"), hereby
promises to pay to the order of Aames Financial Corporation, a Delaware
corporation ("Aames"), 2 California Plaza, 000 Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx,
XX 00000 or such address as Aames shall have given to the Maker, the principal
sum of DOLLARS and 00/100 ($_______), plus interest, which shall accrue from the
date hereof, on the unpaid principal balance of this Note at such address, at
the rate of 6.5% per annum (computed on the basis of a 360-day year) until the
principal amount hereof has been repaid in full, on ________, 2004.
The Maker shall have the option to prepay the principal amount and
accrued interest on this Note, in whole or in part, at any time, without payment
of premium or penalty. During the period in which this Note is outstanding, the
Maker shall make an annual mandatory prepayment against the outstanding
principal balance of, and accrued interest on, this Note an amount equal to 25%
of the aggregate cash bonuses (if any) paid to Maker in respect of the fiscal
year ended immediately prior to such payment date, net of income taxes payable
thereon, such payments to be made within two business days after receipt of the
cash bonus paid at the end of such fiscal year and to be applied first, against
any accrued and unpaid interest on this Note and then, to the outstanding
principal balance of this Note. In addition, upon receipt by the Maker of any
proceeds from the transfer of the securities pledged under the Pledge Agreement
(as defined below) or dividends, interest payments or other distributions of
cash in respect of such pledged securities, the Maker shall make an immediate
prepayment in respect of the Note in an amount equal to the after tax amount of
such proceeds, dividends, payments or distributions, with such prepayments to be
applied first to the payment of all interest accrued on, and then to the payment
of unpaid principal of, this Note.
Payments of principal and interest shall be made in such currency of
the United States as at the time of payment shall be legal tender for the
payment of public and private debts.
234
Aames and the Maker have entered into a pledge agreement dated the date
hereof (the "Pledge Agreement") providing, among other things, for the securing
of this Note by a pledge of the Pledged Collateral (as defined in the Pledge
Agreement).
If any of the following events (each, an "Event of Default") shall occur:
(a) the Maker shall default in the payment of any part of the principal
or interest on this Note when the same shall become due and payable,
whether at maturity, by acceleration or otherwise and such default
continues for more than 10 days after receipt of notice from Aames;
(b) the Maker's employment with Aames shall have ceased for any reason
whatsoever or for no reason, whether such cessation is voluntary or
involuntary, and regardless of whether the Maker may claim such cessation
of employment constitutes a wrongful termination of employment;
(c) the Maker shall (i) become insolvent or be unable, or admit in
writing his inability, to pay his debts as they mature; (ii) make a general
assignment for the benefit of creditors; (iii) be adjudicated as bankrupt
or insolvent or file a voluntary petition in bankruptcy; (iv) file a
petition or an answer seeking an arrangement with creditors to take
advantage of any insolvency law; or (v) file an answer admitting to the
material obligations or consent to, or default in answering, or fail to
have dismissed within 60 days after the filing thereof, a petition filed
against him in any bankruptcy or insolvency proceeding; or
(d) any breach of the Maker's obligations under the Pledge Agreement
shall have occurred and be continuing or any representation or warranty
made thereunder shall be false in any material respect,
then, the holder of this Note may at any time by written notice to the
Maker, declare the entire unpaid principal of and the interest accrued on this
Note through the date of such Event of Default to be forthwith due and payable,
without other notices or demands of any kind, all of which are hereby waived by
the Maker.
The Maker agrees to pay to the holder hereof all expenses incurred by
such holder, including reasonable attorneys' fees, in enforcing and collecting
this Note.
The Maker hereby forever waives presentment, demand, presentment for
payment, protest, notice of protest, notice of dishonor of this Note and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
-2-
235
This Note shall be paid without deduction by reason of any set-off,
defense or counterclaim of the Maker.
This Note shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to conflicts of law
principles thereof, shall be binding upon the heirs or legal representatives of
the Maker and shall inure to the benefits of the successors and assigns of
Aames.
____________________________________
[Management Investor]
-3-
236
ATTACH PLEDGE AGREEMENT AS EXHIBIT B
-10-
237
EXHIBIT B TO MANAGEMENT INVESTMENT AGREEMENT
(OTHER THAN XXXX XXXXXXXXX)
FORM OF PLEDGE AGREEMENT
PLEDGE AGREEMENT ("Agreement"), dated as of _____, 1999, made
by [MANAGEMENT INVESTOR], an individual residing at ________ (the "Pledgor"), to
Aames Financial Corporation, a Delaware corporation ("Aames").
WHEREAS, on the date hereof, the Pledgor is purchasing shares
of Aames' Series C Convertible Preferred Stock, par value $0.001 per share
("Series C Preferred Stock"), pursuant to a Management Investment Agreement,
dated the date hereof, between Pledgor and Aames (the "Management Investment
Agreement"); and
WHEREAS, as part of the transactions contemplated by the
Management Investment Agreement, the Pledgor is executing and delivering to
Aames a Secured Promissory Note dated as of the date hereof in favor of Aames
(the "Aames Note") as part of the purchase price for the Series C Preferred
Stock, and (ii) in accordance with the terms and conditions set forth herein,
pledge the Series C Preferred Stock, together with any shares of Aames' common
stock, par value $0.001 per share that may be acquired upon conversion of the
Series C Preferred Stock (the "Underlying Common Shares, and, together with the
shares of Series C Preferred Stock, the "Pledged Shares").
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, and in order to induce Aames to
accept the Aames Note, the Pledgor hereby agrees as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to Aames, and
grants to Aames a security interest in, the following (the "Pledged
Collateral"):
(i) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property of any
character whatsoever (including, without limitation, shares of Common Stock)
from time to time received, receivable or otherwise distributed or distributable
in respect of or in exchange for any or all of the Pledged Shares; and
(ii) all proceeds of any and all of the foregoing collateral
(including, without limitation, proceeds that constitute property of the types
described above).
SECTION 2. Security for Obligations. This Agreement secures
the payment of all obligations, whether for principal, interest, fees, expenses
or otherwise, now or hereafter existing, of the Pledgor under the Aames Note and
under this Agreement (all
-1-
238
such obligations of the Pledgor being the "Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by the Pledgor to
Aames under the Aames Note or this Agreement but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Pledgor.
SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Aames pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to Aames. Aames shall have the right, at any time in its discretion
and without notice to the Pledgor, to transfer to or to have registered in the
name of Aames or any of its nominees any or all of the Pledged Collateral,
subject only to the revocable rights specified in Section 6(a). For the better
perfection of Aames's rights in and to the Pledged Collateral, the Pledgor shall
forthwith, upon the pledge of any Pledged Collateral hereunder, cause such
Pledged Collateral to be registered in the name of Aames or such nominee or
nominees of Aames as Aames shall direct, subject only to the revocable rights
specified in Section 6(a). In addition, Aames shall have the right at any time
to exchange certificates or instruments representing or evidencing Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. The Pledgor
represents and warrants as follows:
(a) Neither the execution nor the delivery by the Pledgor of
this Agreement nor the consummation by the Pledgor of the transactions
contemplated hereby, nor compliance with nor fulfillment by the Pledgor
of the terms and provisions hereof, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a
default under any lease, contract, instrument, mortgage, deed of trust,
trust deed or deed to secure debt evidencing or securing indebtedness
for borrowed money, financing lease, law, rule, regulation, judgment,
order, award, decree or other restriction of any kind to which the
Pledgor is a party or by which he is bound.
(b) This Agreement has been duly executed and delivered by the
Pledgor and is the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms.
(c) There is no action, lawsuit, claim, counterclaim,
proceeding, or investigation (or group of related actions, lawsuits,
claims, proceedings or investigations) pending or,
-2-
239
to the knowledge of the Pledgor, threatened, relating to or challenging
the Pledgor's obligations under this Agreement or the pledge of the
Pledged Collateral hereunder.
(d) The Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest
created by this Agreement.
(e) The pledge of the Pledged Shares pursuant to this
Agreement creates a valid and perfected first priority security
interest in the Pledged Collateral, securing the payment of the
Obligations.
(f) No consent of any other person or entity and no
authorization, approval, or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required (i) for
the pledge by the Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this
Agreement by the Pledgor, (ii) for the perfection or maintenance of the
security interest created hereby (including the first priority nature
of such security interest) or (iii) for the exercise by Aames of the
voting or other rights provided for in this Agreement or the remedies
in respect of the Pledged Collateral pursuant to this Agreement (except
as may be required in connection with any disposition of any portion of
the Pledged Collateral by laws affecting the offering and sale of
securities generally).
(g) There are no conditions precedent to the effectiveness of
the Pledgor's obligations under this Agreement that have not been
satisfied or waived.
SECTION 5. Further Assurances. (a) The Pledgor agrees that at
any time and from time to time, at the expense of the Pledgor, the Pledgor will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that Aames may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Aames to exercise and enforce its
rights and remedies hereunder with respect to any Pledged Collateral.
(b) The Pledgor hereby authorizes Aames to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Pledged Collateral without the signature of the Pledgor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Pledged Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
-3-
240
SECTION 6. Voting Rights; Dividends, Etc. (a) so long as no
Event of Default (as defined in the Aames Note) or event which, with the giving
of notice or the lapse of time, or both, would become such an Event of Default
shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise or refrain from
exercising any and all voting and other consensual rights pertaining to
the Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the Aames Note;
provided, however, that the Pledgor shall not exercise or refrain from
exercising any such right if, in Aames's judgment, such action would
have a material adverse effect on the value of the Pledged Collateral
or any part thereof.
(ii) The Pledgor shall be entitled to any and all dividends
paid in respect of the Pledged Collateral; provided, however, that any
and all dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for, any Pledged Collateral,
shall be, and shall be forthwith delivered to Aames to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust
for the benefit of Aames, be segregated from the other property or
funds of the Pledgor, and be forthwith delivered to Aames as Pledged
Collateral in the same form as so received (with any necessary
endorsement or assignment); and provided, further, that the after tax
amount of any cash dividends, proceeds, or other distributions paid in
respect of the Pledged Collateral shall be applied as an immediate
prepayment in respect of the Aames Note, with such prepayments to be
applied first to the payment of all interest accrued on, and then to
the payment of unpaid principal of, the Aames Note.
(iii) Aames shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as
the Pledgor may reasonably request for the purpose of enabling the
Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (i) above and to receive the dividends
which it is authorized to receive and retain pursuant to paragraph (ii)
above.
(b) Upon the occurrence and during the continuance of an Event
of Default or an event which, with the giving of notice or the lapse of time, or
both, would become an Event of Default:
(i) All rights of the Pledgor (x) to exercise or refrain from
exercising the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section 6(a)(i) shall,
upon notice to the Pledgor by Aames, cease and (y) to receive the
dividends
-4-
241
payments which it would otherwise be authorized to receive and retain
pursuant to Section 6(a)(ii) shall automatically cease, and all such
rights shall thereupon become vested in Aames (or its designee), who
shall thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to receive and
hold as Pledged Collateral such dividends.
(ii) All dividends which are received by the Pledgor contrary
to the provisions of paragraph (i) of this Section 6(b) shall be
received in trust for the benefit of Aames, shall be segregated from
other funds of the Pledgor and shall be forthwith paid over to Aames as
Pledged Collateral in the same form as so received (with any necessary
endorsement).
SECTION 7. Transfers and Other Liens. The Pledgor agrees that
it will not (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Pledged Collateral
or (ii) create or permit to exist any lien, security interest, option or other
charge or encumbrance upon or with respect to any of the Pledged Collateral,
except for the security interest under this Agreement and except for any such
sale the proceeds from which are used to repay all unpaid principal of, and
accrued interest on, the Aames Note (with such proceeds first being applied to
accrued interest and then to principal).
SECTION 8. Appointment of Attorney-in-Fact. The Pledgor hereby
appoints [_______] the Pledgor's attorney-in-fact, with full authority in the
place and stead of the Pledgor and in the name of the Pledgor or otherwise, from
time to time in Aames's discretion to take any action and to execute any
instrument that Aames may deem necessary or advisable to accomplish the purposes
of this Agreement (subject to the rights of the Pledgor under Section 6),
including, without limitation, to receive, indorse and collect all instruments
made payable to the Pledgor representing any dividend or other distribution in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same.
SECTION 9. Aames May Perform. If the Pledgor fails to perform
any agreement contained herein and does not cure such failure within 10 days
after its receipt of written notice from Aames, Aames may itself perform, or
cause performance of, such agreement, and the expenses of Aames incurred in
connection therewith shall be payable by the Pledgor under Section 12.
SECTION 10. Aames' Duties. The powers conferred on Aames
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Pledged Collateral in its possession and the accounting for
moneys actually received by it hereunder, Aames shall have no duty as to
-5-
242
any Pledged Collateral as to ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Collateral, whether or not Aames has or is deemed to have knowledge
of such matters, or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Pledged Collateral.
Aames shall be deemed to have exercised reasonable care in the custody and
preservation of any Pledged Collateral in its possession if such Pledged
Collateral is accorded treatment substantially equal to that which Aames accords
its own property.
SECTION 11. Remedies upon Default. If any Event of Default
shall have occurred and be continuing:
(a) Aames may exercise in respect of the Pledged Collateral,
in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured
party on default under the Uniform Commercial Code in effect in the
State of Delaware at that time (the "Code") (whether or not the Code
applies to the affected Collateral), and may also, without notice
except as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any
exchange or broker's board or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as Aames may deem
commercially reasonable. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to the
Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable
notification. Aames shall not be obligated to make any sale of Pledged
Collateral regardless of notice of sale having been given. Aames may
adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(b) Any cash held by Aames as Pledged Collateral and all cash
proceeds received by Aames in respect of any sale of, collection from
or other realization upon all or any part of the Pledged Collateral
may, in the discretion of Aames, be held by Aames as collateral for,
and/or then or at any time thereafter be applied (after payment of any
amounts payable to Aames pursuant to Section 12) in whole or in part by
Aames against, all or any part of the Obligations in such order as
Aames shall elect. Any surplus of such cash or cash proceeds held by
Aames and remaining after payment in full of all the Obligations shall
be paid over to the Pledgor or to whomsoever may be lawfully entitled
to receive such surplus.
SECTION 12. Expenses. The Pledgor will upon demand pay to
Aames the amount of any and all reasonable expenses,
-6-
243
including the reasonable fees and expenses of its counsel and of any experts and
agents, which Aames may incur in connection with (i) the exercise or enforcement
of any of the rights of Aames hereunder or (ii) the failure by the Pledgor to
perform or observe any of the provisions hereof.
SECTION 13. Security Interest Absolute. The obligations of the
Pledgor under this Agreement are independent of the Obligations, and a separate
action or actions may be brought and prosecuted against the Pledgor to enforce
this Agreement. All rights of Aames and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of the Aames Note
any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations, or any other
amendment or waiver of or any consent to any departure from the Aames
Note;
(iii) any taking, exchange, release or nonperfection of any
other collateral, or any taking, release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the
Obligations;
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Obligations
or any other assets of the Pledgor;
(v) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Pledgor.
SECTION 14. Amendments, Etc. No amendment or waiver of any
provision of this Agreement shall in any event be effective unless the same
shall be in writing and signed by the parties hereto, and no consent to any
departure by one party herefrom, shall in any event be effective unless the same
shall be in writing and signed by the other party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 15. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and sent by express courier, telecopied, telegraphed,
telexed or hand-delivered, if to the Pledgor, at his address first set forth
above; and, if to Aames, at its address at 2 California Plaza, 000 Xxxxx Xxxxx
Xxxxxx, Xxx Xxxxxxx, XX 00000, Attention: Xxxx
-7-
244
Xxxxxxxx; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such notices and
communications shall, when sent by express courier, be effective three days
after being sent, when telecopied, telegraphed, telexed or hand-delivered, be
effective when telecopied, delivered to the telegraph company, confirmed by
telex answerback or delivered, respectively.
SECTION 16. Continuing Security Interest; Assignments Under
Aames Note. This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect until the
payment in full of the Obligations and all other amounts payable under this
Agreement, (ii) be binding upon the Pledgor, its successors and assigns and
(iii) inure to the benefit of, and be enforceable by, Aames and its successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), Aames may assign or otherwise transfer all or any portion of its rights
and obligations under the Aames Note to any other person or entity, and such
other person or entity shall thereupon become vested with all the benefits in
respect thereof granted to Aames herein or otherwise. Upon the payment in full
of the Obligations and all other amounts payable under this Agreement, the
security interest granted hereby shall terminate and all rights to the Pledged
Collateral shall revert to the Pledgor. Upon any such termination, Aames will,
at the Pledgor's expense, return to the Pledgor such of the Pledged Collateral
as shall not have been sold or otherwise applied pursuant to the terms hereof
and execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence such termination.
SECTION 17. Governing Law; Terms. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
DELAWARE. Unless otherwise defined herein or in the Aames Note, terms defined in
Article 9 of the Code are used herein as therein defined.
-8-
245
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
____________________________________
ACKNOWLEDGED AND AGREED:
AAMES FINANCIAL CORPORATION
By:_______________________________
Name:
Title:
-9-
246
EXHIBIT J
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is between Aames Financial
Corporation, a Delaware corporation (the "COMPANY"), and Xxxx X. Xxxxxxxxx (the
"EXECUTIVE"). This Agreement shall become effective (the "EFFECTIVE DATE") on
the "Initial Closing Date," as such term is defined in the Purchase Agreement
(defined below).
BACKGROUND
A. As of the Effective Date, the Company is or will be engaged
primarily in originating, selling and servicing home mortgage loans.
B. The Executive is currently a stockholder and officer of the
Company, and as part of the closing (the "Closing") under the Preferred Stock
Purchase Agreement by and among the Company and Capital Z Financial Services
Fund II, L.P. ("Purchaser"), dated the 23rd day of December, 1998 (the "PURCHASE
AGREEMENT"), the Company has agreed that, after the Effective Date, the Company
will continue to employ the Executive to provide services for the benefit of the
Company on the terms of this Agreement. If the Closing does not occur, this
Agreement shall have no force or effect and the Employment Agreement dated
August 26, 1998 shall remain in force.
C. In exchange for the benefits provided for under this
Agreement, except as otherwise specifically provided in this Agreement or in
Exhibit A hereto, as of the Effective Date, the Executive hereby waives any and
all rights and benefits accruing under all other employment, change in control,
and any and all other agreements between Executive and the Company and its
subsidiaries that provide for the payment of compensation or benefits to
Executive, other than (i) benefits provided under the Company's 401(k) plan,
(ii) benefits continued pursuant to Section 3C hereof, and (iii) stock options
granted under the Aames Financial Corporation 1997 Non-Qualified Stock Option
Plan, as Amended and Restated Effective May 22, 1998, the Aames Financial
Corporation 1997 Stock Option Plan, the Aames Financial Corporation 1996 Stock
Incentive Plan, as amended, the Aames Financial Corporation 1995 Stock Incentive
Plan, the Aames Financial Corporation 1991 Stock Incentive Plan and under those
certain assumption option agreements entered into by the Company in connection
with its acquisition of One Stop Mortgage, Inc., pursuant to an Agreement dated
August 12, 1996, which, to the extent practicable, will be modified to provide
for transfer to the Executive in the event they are forfeited by the original
grantees after August 12, 1996, provided that the Executive shall in no event
acquire greater rights under such assumption options than those held by the
optionees to whom they were originally issued, all of which options shall be
preserved.
247
In consideration of the foregoing and the mutual agreements set forth below, the
parties agree as follows:
AGREEMENT - PRINCIPAL TERMS
1. Employment and Duties. The Company shall employ the Executive as its
President responsible for day to day operation of the Company and its
subsidiaries, and the Executive accepts such employment on the terms and
conditions of the Agreement. The Executive shall, while this Agreement remains
in effect, have the duties, responsibilities, powers, and authority customarily
associated with such position. The Executive shall report to, and follow the
direction of, the Board of Directors of the Company (the "BOARD"). During each
year of the Term (as hereinafter defined), the Company shall nominate the
Executive for election as a member of the Board. In addition, the Executive also
shall perform such other and unrelated services and duties as the Board may
assign to him. The Executive shall diligently, competently, and faithfully
perform all duties, and shall devote his entire business time, energy,
attention, and skill to the performance of duties for the Company and its
affiliates and will use his best efforts to promote the interests of the Company
and its affiliates.
2. Term of Employment. Unless sooner terminated as provided in this
Agreement, the initial term under this Agreement shall be five (5) years,
starting on the Effective Date (the "INITIAL TERM"). The term of employment
shall be renewed automatically for successive periods of one (1) year each (a
"RENEWAL TERM") after the expiration of the Initial Term and any subsequent
Renewal Term, unless the Board provides the Executive, or the Executive provides
the Board, with written notice to the contrary at least one hundred twenty (120)
days prior to the end of the Initial Term or any Renewal Term. The Initial Term
and the Renewal Terms are referred to collectively as "TERMS."
3. Compensation.
A. Salary. The Company shall pay the Executive an annual
salary of $600,000 (the "BASE SALARY"), payable in substantially equal
installments in accordance with the Company's payroll policy. The amount of Base
Salary payable to Executive shall be reviewed at least annually; provided,
however, that Executive's Base Salary shall not be reduced below $600,000 per
annum during the term of this Agreement.
B. Performance Bonus; Other Limitations. The Executive shall
be entitled to annual cash bonuses, and other extraordinary compensation and
benefits on the basis outlined in Exhibit A. The covenants set forth in Exhibit
A shall be binding upon the parties to the same extent as if set forth herein.
-2-
248
C. Automobile. The Company's current policy with regard to the
provision of an automobile to the Executive shall be maintained during the Term
until such time as the Compensation Committee of the Board determines otherwise
and provides other benefits not materially less favorable to Executive.
D. Vacation. Executive shall be entitled to 5 weeks of paid
vacation each year of employment with the Company for the term of this
Agreement. In each case, such entitlement shall accrue pro rata over the
contract year and shall be taken at such time or times as shall not unreasonably
interfere with the operations of the Company.
E. Insurance. During the Term, the Company shall maintain, at
no cost to Executive, directors and officers liability insurance that covers the
Executive in an amount of not less than $45,000,000.
F. Stock Options. The Company shall grant to the Executive on
the Effective Date an option to purchase 3,214,642 million shares of the
Company's common stock pursuant to and subject to the provisions of the
Company's 1999 Stock Option Plan. Such option shall be subject to the terms of
an option agreement substantially in the form annexed hereto as Exhibit B.
G. Other Benefits. While this Agreement remains in effect, the
Company shall continue to provide the Executive with (i) not less than
$2,000,000 of standard term life insurance; (ii) medical and dental benefits for
the Executive and his dependents substantially comparable to that provided
immediately prior to the execution of this Agreement; (iii) a long-term
disability policy providing for payments in an amount equal to 60% of the
Executive's Base Salary, provided such a policy may be obtained at reasonable
cost; and (iv) the Executive shall participate in such other savings, pension
and retirement plans and other benefit plans or programs maintained by the
Company for the benefit of its executives.
4. Expenses. The Company shall reimburse the Executive for all
reasonable business expenses, that are incurred in accordance with the Company's
policies as in effect from time to time, provided the Executive submits
appropriate receipts or other documentation acceptable to the Company and as
required by the Internal Revenue Service to qualify as ordinary and necessary
business expenses under the Internal Revenue Code of 1986, as amended.
5. Termination. Notwithstanding anything in Paragraph 2 of this
Agreement to the contrary, the term of this Agreement and Executive's services
under this Agreement shall terminate upon the first to occur of the following
events:
A. At the end of the applicable Term of this Agreement,
including any Renewal Terms.
-3-
249
B. Upon the Executive's date of death or the date the
Executive is given written notice that the Company has properly determined that
he is disabled. For purposes of this Agreement, the Executive shall be properly
deemed to be disabled if the Executive, as a result of illness or incapacity,
shall be unable to perform substantially his required duties for a period of 120
consecutive days or for any aggregate period of 183 days in any twelve (12)
month period. The Company shall notify the Executive that his employment has
been terminated by written notice. The termination shall be effective on the
tenth (10th) business day after the Executive receives the notice, unless the
Executive returns to full-time performance of his duties before such tenth
(10th) business day.
C. On the date the Company provides the Executive with written
notice that he is being terminated for "cause." For purposes of this Agreement,
and as reasonably determined by the Company, the Executive shall be deemed
terminated for cause if the Company terminates the Executive after finding that
the Executive: (1) shall have been determined by a court of law to have
committed any felony including, but not limited to, a felony involving fraud,
theft, misappropriation, dishonesty, embezzlement, or any other crime involving
moral turpitude, or if the Executive shall have been arrested or indicted for
violation of any criminal statute constituting a felony, provided the Company
reasonably determines that the continuation of the Executive's employment after
such event would have an adverse impact on the operation or reputation of the
Company or its affiliates (subsequent references to the "Company" in this
Xxxxxxxxx 0X xxxxx xx deemed to refer to the Company or its affiliates); (2)
shall have committed one or more acts of gross negligence or willful misconduct,
either within or outside of the scope of his employment that, in the good faith
opinion of the Board, materially impair the goodwill or business of the Company
or cause material damage to its property, goodwill, or business, or would, if
known, subject the Company to public ridicule; (3) shall have refused or failed
to a material degree to perform his duties hereunder (continuing without cure
for ten (10) days after receipt of written notice of need to cure); (4) shall
have violated any material written Company policy provided to the Executive
during or prior to the Term (continuing without cure for ten (10) days after
receipt of written notice of need to cure) and that has caused material harm to
the Company; or (5) knew, or should have known, that the Company materially, and
knowingly or intentionally breached any representation, warranty, or covenant
under the Purchase Agreement, or that the Executive shall have materially and
knowingly or intentionally breached any provision this Agreement; provided,
however, that no termination of Executive's employment for Cause shall be deemed
to have occurred unless Executive is given notice of the reason therefore
including the allegations which may constitute reason for such termination and
after (a) Executive is provided an opportunity to be heard by the Board or the
Executive Committee thereof, and (b)
-4-
250
such decision has been upheld by the Board or Executive Committee.
D. On the date the Executive terminates his employment for
"Good Reason." For purposes of this Agreement, "GOOD REASON" shall mean
termination by the Executive within ninety (90) days of learning of the acts
which are the basis for alleging Good Reason, because of the occurrence of any
of the following acts, without the Executive's consent: (1) he has been demoted
to a position of materially less stature or importance within the Company than
the position described in Paragraph 1, (2) he has been assigned to duties that
are of materially less importance than, or materially inconsistent with, those
required to be performed pursuant to Paragraph 1 of this Agreement, (3) the
Company has failed to pay or provide material compensation or benefits that are
required to be provided by this Agreement, or (4) the Company's principal
executive offices have been relocated to any county other than Los Angeles
County, CA or Orange County, CA., provided that no such termination shall be
treated as for Good Reason unless the Executive shall have given the Company
thirty (30) days advance written notice of his intention to terminate his
employment for Good Reason, and the Company shall have failed to cure such acts
within such thirty (30) day period.
E. On the date the Executive terminates his employment for any
reason, other than Good Reason, provided that the Executive shall give the
Company thirty (30) days written notice prior to such date of his intention to
terminate this Agreement.
F. On the date the Company terminates the Executive's
employment for any reason, other than a reason otherwise set forth in this
Paragraph 5. Any purported termination of the Executive's employment for Cause
which is finally determined to be without Cause shall be treated for all
purposes of this Agreement as a termination pursuant to this Xxxxxxxxx 0X.
6. Compensation Upon Termination. If the Executive's services are
terminated pursuant to Paragraph 5, the Executive shall be entitled to the Base
Salary through his final date of active employment, plus any accrued but unused
vacation pay. If the Executive's services are terminated pursuant to Paragraph
5D or 5F, the Executive shall in addition be entitled to receive severance
benefits for a period of 12 months payable in substantially equal installments
in accordance with the Company's payroll policy, in an amount equal to (i) $2
million, if such termination occurs within one year from the Effective Date,
(ii) $1.5 million, if such termination occurs after the first and on or before
the second anniversary of the Effective Date, (iii) $1.0 million, if such
termination occurs after the second and on or before the third anniversary of
the Effective Date, (iv) $0.5 million, if such termination occurs after the
fourth anniversary of the Effective Date, and (v), plus an amount, if any,
-5-
251
(regardless of the date of termination) necessary to reimburse the Executive on
a net after-tax basis for any applicable federal excise tax, provided in each
case the Executive signs an agreement that releases the Company from actions,
suits, claims, proceedings, and demands related to the period of employment
and/or termination of employment. Executive agrees that if his employment is
terminated for any reason, he shall immediately resign from all officer and
director positions he then holds with the Company and each of its parents,
affiliates and subsidiaries.
7. Offset. In the event that severance benefits become payable to the
Executive pursuant to Paragraph 6 above, such benefits, to the extent not
theretofore paid, shall be reduced, on a dollar-for-dollar basis, by (i) any
outstanding amounts owed by Executive to the Company and (ii) the amount of any
compensation for services earned by Executive on account of his employment or
consulting services with another business or on account of his self employment,
from any source, whether paid currently or deferred. In such event, Executive
shall cooperate with the Company and shall provide such information to the
Company as it may reasonably require in order to calculate the amount of the
reduction described above.
8. COBRA. If the Executive's services are terminated pursuant to
Paragraph 5, the Executive shall also be entitled to any benefits mandated under
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or required
under the terms of any death, insurance, or retirement plan, program, or
agreement provided by the Company and to which the Executive is a party or in
which the Executive is a participant, including, but not limited to, any
short-term or long-term disability plan or program, if applicable. If the
Executive elects COBRA continuation coverage, the Company shall pay for such
health insurance coverage for the shorter of 12 months or the remaining Term at
the same rate as it pays for health insurance coverage for its active employees
(with the Executive required to pay for any employee-paid portion of such
coverage). After the expiration of the period set forth in the prior sentence
concludes, the Executive shall be responsible for the payment of all further
premiums attributable to COBRA continuation coverage at the same rate as the
Company charges all COBRA beneficiaries. However, no provision of this Agreement
shall be construed to extend the period of time over which such COBRA
continuation coverage is required to be provided to the Executive and/or his
dependents.
9. Arbitration. Any dispute between the parties hereto respecting the
meaning and intent of this Agreement or any of its terms and provisions shall be
submitted for expedited arbitration in Los Angeles, California, in accordance
with the National Rules of the American Arbitration Association for the
Resolution of Employment Disputes then in effect, and the arbitration
determination resulting from any such submission shall be final
-6-
252
and binding upon the parties hereto. Judgment upon any arbitration award may be
entered in any court of competent jurisdiction. The parties further agree that
either party may at any time seek provisional relief, including, but not limited
to a temporary restraining order or a preliminary injunction, from any state or
federal court in California, in connection with any dispute being submitted for
arbitration.
10. Exclusive Employment; Confidentiality; Non-Solicitation.
A. Executive agrees to perform his duties, responsibilities
and obligations hereunder efficiently and to the best of his ability. Executive
also agrees that he will not engage in any other business activities, pursued
for gain, profit or other pecuniary advantage, that are competitive with the
activities of the Company. Executive agrees that all of his activities as an
employee of the Company shall be in conformity with all present and future
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
B. Executive acknowledges that his employment by the Company
will bring him into close contact with many trade secrets and other confidential
affairs of the Company and its clients and customers, including, without
limitation, non-public information pertaining to ideas, knowledge, operations,
computer hardware and software, systems, costs, profits, markets, sales,
products, programs, interfaces, networks, protocols, data bases, key personnel,
pricing policies, operational methods, concepts, data, equipment, models,
compensation, suppliers, servicing, broker lists, customer lists, customers,
potential customers, rate sheets, plans, concepts, strategies, or products,
advertising, technical processes and applications and other business affairs and
methods, plans for future developments and other information not readily
available to the public or the Company's competitors or clients (collectively
referred to hereinafter as "Information"). In consideration of the foregoing,
the Executive agrees that he: (1) will keep secret and confidential all
Information and will not use it for his own benefit or disclose it to, or use it
for the benefit of, anyone other than the Company, either during or after his
employment by the Company, except with the prior written consent of the Company;
(2) will take all reasonable action that the Company deems necessary or
appropriate to prevent unauthorized use or disclosure of or to protect the
Company's interest in Information; (3) will deliver promptly to the Company upon
termination of his employment by the Company or at any other time the Company
may so request, all memoranda, notes, documentation, equipment, files,
flowcharts, program listings, data listings, records, reports and other tangible
manifestations of the Information (and all copies thereof), that he may then
possess or have under his control; and (4) will, unless the Company otherwise
agrees in writing, and without additional compensation, promptly disclose and,
upon request, assign to the Company all rights to work product and
-7-
253
business opportunities related to the present or, to the extent presented to the
Board of Directors prior to termination of employment, contemplated business of
the Company.
C. Executive further agrees that if his employment is
terminated during the three year period beginning on the Effective Date, he will
abide by the limitations set forth in the following sentence (i) for a period of
six months from the date of termination, if his employment is terminated
pursuant to Xxxxxxxxx 0X, 0X xx 0X, xxx (xx) for a period of one year from the
date of termination, if his employment is terminated by the Company pursuant to
Xxxxxxxxx 0X or if his employment is terminated by the Executive without Good
Reason (the applicable period is referred to below as the "Nonsolicitation
Period"). During the Nonsolicitation Period, the Executive agrees that he will
not, without the Company's express written consent, himself or through any
organization with which he is associated: (i) hire any person who was employed
by the Company on the Executive's date of termination of employment or at any
time within six months prior thereto, or hire any agent, consultant, or
independent contractor of the Company, or of any organization with respect to
which the Company has agreed to a similar prohibition and of which the Employee
has knowledge, or induce or attempt to induce any such person to discontinue
such employment or affiliation with the Company or such organization, as the
case may be, or (ii) induce or attempt to induce any client or customer of the
Company on the date of termination to discontinue any business relationship or
to refrain from entering into a new business relationship with the Company.
D. Executive confirms and acknowledges that (i) he was
represented by counsel of his own choosing during the negotiation of the
limitations set forth in Paragraphs 10 and 11 of this Agreement, (ii) his strict
adherence to the limitations imposed upon him thereunder, or under any agreement
referenced therein, was a material factor in Purchaser's entering into the
Purchase Agreement and agreeing to consummate the transactions contemplated
thereby, and to pay the Executive the cash and equity-based compensation called
for in this Agreement, (iii) the Company's ability to maintain continuing
relationships with its employees without disruption was a material factor in
Purchaser's entering into the Purchase Agreement and agreeing to consummate the
transactions contemplated thereby, (iv) his failure to adhere to the obligations
imposed by Paragraphs 10 and 11 of this Agreement will expose such Purchaser to
substantial and irreparable harm. Accordingly, Executive agrees that the remedy
at law for any breach by him of the covenants and agreements set forth in this
Paragraph 10 or in Paragraph 11 below may be inadequate and that in the event of
any such breach, the Company or its respective subsidiaries may, in addition to
the other remedies that may be available to it at law, seek injunctive relief
prohibiting him (together with all those persons associated with him) from
breach of such covenants and agreements.
-8-
254
11. Non-Competition. Executive reconfirms and acknowledges his duties
and obligations under the Non-Compete Agreement dated August 28th, 1996. The
Company agrees to release him from such obligations on the earlier to occur of
(x) the expiration of any Nonsolicitation Period referred to in Section 10(c)
hereof, and (y) the third anniversary of the Effective Date.
AGREEMENT - MISCELLANEOUS
12. Entire Agreement. This Agreement sets forth the entire and final
agreement and understanding of the Company and the Executive and contains all of
the agreements made between them with respect to the subject matter hereof. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the Company and the Executive with respect to Executive's provision of
services to the Company. No change or modification of this Agreement shall be
valid unless in writing and signed by the Company and the Executive.
13. Enforcement; Severability. Should a decision be entered by a court
of competent jurisdiction that the character, duration or geographical scope of
any provision of this Agreement is unreasonable, or that any provision of this
Agreement is invalid or unenforceable for any reason, in whole or in part, then
the Company and the Executive agree that such provision shall be construed by
the court in such a manner as to impose all those restrictions on the
Executive's conduct set forth in this Agreement or in the Non-Compete Agreement
dated August 28, 1996 that are reasonable in light of the circumstances and as
are necessary to assure to the Company the benefits of this Agreement and to
render the provision valid and enforceable, and this Agreement shall be
construed and enforced to the maximum extent permitted by law, as if such
provision had been originally incorporated in this Agreement as so modified,
restricted, or reformulated or as if such provision had not been originally
included in this Agreement, as the case may be. The parties further agree to
seek a lawful substitute for any provision found to be unlawful; provided, that,
if the parties are unable to agree upon a lawful substitute, the parties desire
and request that the arbitrator or other authority called upon to decide the
enforceability of this Agreement modify those provisions such that, once
modified, this Agreement will be enforceable to the maximum extent permitted by
the law in existence at the time of the requested enforcement.
14. Miscellaneous.
A. Notices. All notices required in connection with this
Agreement shall be sufficiently given only if transmitted in writing and (i)
personally delivered, or sent by first class, registered or certified mail,
return receipt requested, postage prepaid, or by recognized overnight courier,
(ii) sent by facsimile, provided a hard copy is mailed on that date to the party
for whom such notices are intended, or (iii) sent by other
-9-
255
means at least as fast and reliable as first class mail. A written notice shall
be deemed to have been given to the recipient party on the earliest of (1) the
date it shall be delivered to the address required by this Agreement; (2) the
date delivery shall have been refused at the address required by this Agreement;
(3) with respect to notices sent by mail or overnight courier, the date as of
which the Postal Service or overnight courier, as the case may be, shall have
indicated such notice to be undeliverable at the address required by this
Agreement; or (4) with respect to a facsimile, the date on which the facsimile
is sent and receipt is confirmed. Any and all notices referred to in this
Agreement, or which either party desires to give to the other shall, in the case
of the Executive, be addressed to the residence address given to the Company by
the Executive in writing for this purpose, or failing receipt of such notice, to
the last residence address on the Company's records, or in the case of the
Company, to its principal office with a copy to Capital Z's principal office.
B. Waiver of Breach. A waiver by the Company of a breach of
any provision of this Agreement by the Executive shall not operate or be
construed as a waiver of any subsequent breach by the Executive. No waiver shall
be valid unless it is in writing and signed by an authorized officer of the
Company (other than the Executive).
C. Assignment. The Executive acknowledges that the services he
is to render are unique and personal. Accordingly, the Executive may not assign
any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Company.
D. Construction. The heading in this Agreement are inserted
for convenience only and are not to be considered a construction of the
provisions hereof. The Background recitals are incorporated in this Agreement as
an integral part hereof and shall be considered as substantive and not precatory
language.
E. Execution of Agreement. This Agreement may be executed in
several counterparts, each of which shall be considered an original, but which
when taken together, shall constitute one agreement.
F. Governing Law. This agreement shall be construed in
accordance with the laws of the State of California.
COMPANY: EXECUTIVE:
By /S/ Xxxxx X. Xxxxx /S/ Xxxx Xxxxxxxxx
------------------------------ ------------------------------------
-10-
256
EXHIBIT A
- Within two weeks of the Effective Date, Company shall pay Executive
$1,460,000, such amount being in full and complete satisfaction of all
amounts owed Executive in respect of his June 1998 bonus accrued by the
Company.
- Subject to execution by the Executive of the promissory note attached
hereto as Exhibit C, the Company shall pay Executive a guaranteed cash
bonus for the 1999 calendar year (the "1999 Bonus"), such bonus to be
paid within two weeks following the Effective Date, in an amount equal
to $540,000. The 1999 Bonus shall be paid in the form of a recourse
loan, which shall be forgiven and treated as paid in full so long as
Executive remains employed by the Company through the first anniversary
of the Effective Date, or through the date of any earlier termination
of Executive's employment under Paragraphs 5B, 5D or 5F of the
Employment Agreement. Executive to receive a cash supplemental bonus
for his first year of employment of $300,000, such bonus to be paid
within 2-1/2 months after the first anniversary of the Effective Date,
subject to the Board's determination that the Company has completed a
satisfactory program of cost reductions by such anniversary date (the
"1999 Supplemental Bonus").
- For bonuses after the 1999 calendar year, Executive shall receive a
cash bonus paid annually on a calendar year basis ranging from 0-100%
of total Base Salary, with an expected bonus of $400,000, and a bonus
in excess of 100% of Base Salary for extraordinary performance. Bonuses
shall be paid according to a budget approved by the Board of Directors
of the Company and the achievement of other non-financial goals adopted
by such Board.
- Subject to execution by the Executive of the promissory note attached
hereto as Exhibit I-2 to the Management Investment Agreement, the
Company shall loan Executive an amount equal to the purchase price of
100% of his pro-rata ownership position in the shareholders rights
offering (the "Rights Offering Advance"). The Rights Offering Advance
shall be in the form of a loan, which shall be nonrecourse provided
Executive remains employed by the Company through the first anniversary
of the Effective Date, or through the date of any earlier termination
of Executive's employment under Paragraph 5B, 5D or 5F of the
Employment Agreement.
- For so long as Capital Z and/or its Designated Purchasers under the
Purchase Agreement own at least 25% of the outstanding voting
securities of the Company, Executive covenants and agrees not to sell,
assign or otherwise transfer, during his employment with the Company,
in any one twelve month period, more than 25% of the aggregate amount
of shares of Company stock which the Executive owned immediately
A-1
257
prior to the Effective Date. The Company, by action of its Board of
Directors, agrees to consider whether to waive all or part of such
limitation in the event of extraordinary hardship, which consent shall
not be unreasonably withheld.
A-2
258
EXHIBIT B
MODEL OPTION AGREEMENT
NON-QUALIFIED
STOCK OPTION AGREEMENT
UNDER THE
1999 AAMES FINANCIAL CORPORATION
STOCK OPTION PLAN
THIS AGREEMENT, made this day of , , by
and between Aames Financial Corporation, a Delaware corporation (the "Company"),
and (the "Optionee")
W I T N E S S E T H:
WHEREAS, the Optionee is now employed by the Company in a key
capacity, and the Company desires to have him remain in such employment and to
afford him the opportunity to acquire, or enlarge, his ownership of the
Company's Common Stock, par value $.01 per share ("Stock"), so that he may have
a direct proprietary interest in the Company's success;
WHEREAS, all capitalized terms not otherwise defined herein
shall have the same meaning as set forth in the Company's Stock Option Plan;
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set
forth herein and in the Company's Stock Option Plan (the "Plan"), the Company
hereby grants to the Optionee, during the period commencing on the date of this
Agreement and ending ten years from the date hereof (the "Termination Date"),
the right and option (the right to purchase any one share of Stock hereunder
being an "Option") to purchase from the Company, at a price of $1.00 per share,
an aggregate of shares of Stock.
2. LIMITATIONS ON EXERCISE OF OPTION. (a) Subject to the terms
and conditions set forth herein, all Options shall vest and become exercisable
on the ninth anniversary of the date of grant (the "Grant Date"), provided that
Optionee remains an employee of the Company on such date, subject to earlier
vesting, based upon the Company's attainment of the following share price
values: (i) 25% of the Options shall vest at such time as the Stock's Fair
Market Value is first, while the Optionee is employed by the Company and after
the Grant Date, at or above $1.30 per share; (ii) an additional 25% of the
Options shall vest at such time as the Stock's Fair Market Value is first, while
the
259
Optionee is employed by the Company and after the Grant Date, at or above $1.75
per share; and (iii) an additional 50% of the Options shall vest at such time as
the Stock's Fair Market Value is first, while the Optionee is employed by the
Company and after the Grant Date, at or above $2.50 per share; provided,
however, that any such acceleration shall be limited according to the following
schedule: not more than 15% of the Options that have become vested based upon
performance shall become exercisable before the first anniversary of the Grant
Date; not more than an additional 15% of the Options that have become vested
based upon performance shall become exercisable before the second anniversary of
the Grant Date; not more than an additional 20% of the Options that have become
vested based upon performance shall become exercisable before each of the third
and fourth anniversaries of the Grant Date; and the remaining 30% of the Options
that have become vested based upon performance shall not become exercisable
before the fifth anniversary of the Grant Date; and further provided, that if
the Optionee is terminated without Cause or the Optionee terminates his
employment for Good Reason, after a date when any of the performance thresholds
set forth in clause (i), (ii) or (iii) of this paragraph 2(a) has been
satisfied, then , in computing the exercisability limitation set forth in the
preceding proviso, an additional 15% of the Options that have become vested
based upon performance shall be exercisable over and above the Options that
become exercisable without regard to this proviso.
(b) Any provision of paragraph 2(a) hereof to the contrary
notwithstanding, but subject to Article XI(c) of the Plan, upon a Change in
Control, 100% of the Options shall vest and become exercisable, provided,
however, that no such exercise rights shall arise unless (i) if a Change in
Control occurs within 12 months of the consummation of the transactions
contemplated by the Purchase Agreement (the "Closing Date"), the Change in
Control Price is at or above $1.50 per share or (ii) if a Change in Control
occurs more than twelve months from the Closing Date, the Change in Control
Price is at or above $2.50 per share (or if the Change in Control Price is less
than $2.50 but above $1.30 or $1.75 per share the acceleration of vesting shall
result, but only to the extent such acceleration would have resulted pursuant to
paragraph 2(a)(i) or 2(a)(ii) above, without regard to service requirements).
3. TERMINATION OF EMPLOYMENT. An Optionee's rights upon
termination of employment shall be as set forth in Article VI of the Plan.
4. METHOD OF EXERCISING OPTION. (a) The Optionee may exercise
any or all of the Options by delivering to the Company a written notice signed
by the Optionee stating the number of Options that the Optionee has elected to
exercise at that time and full payment of the purchase price of the shares to be
thereby purchased from the Company. Payment of the purchase price of the shares
may be made (a) by certified or bank cashier's check
-2-
260
payable to the order of the Company, (b) by surrender or delivery to the Company
of shares of Stock or other property acceptable to the Committee in its sole
discretion, which Stock or other property shall have a value equal to the
purchase price or (c) by delivery to the Committee of a copy of irrevocable
instructions to a stockbroker to deliver promptly to the Company an amount of
sale or loan proceeds sufficient to pay the purchase price.
(b) At the time of exercise, the Optionee shall pay to the
Company such amount as the Company deems necessary to satisfy its obligation to
withhold Federal, state or local income or other taxes incurred by reason of the
exercise or the transfer of shares thereupon.
5. ISSUANCE OF SHARES. As promptly as practical after receipt
of such written notification and full payment of such purchase price and any
required income tax withholding amount, the Company shall issue or transfer to
the Optionee the number of shares with respect to which Options have been so
exercised, and shall deliver to the Optionee a certificate or certificates
therefor, registered in the Optionee's name.
6. COMPANY; OPTIONEE. (a) The term "Company" as used in this
Agreement with reference to employment shall include the Company and its
subsidiaries. The term "subsidiary" as used in this Agreement shall mean any
subsidiary of the Company as defined in Section 424(f) of the Code.
(b) Whenever the word "Optionee" is used in any provision of
this Agreement under circumstances where the provision should logically be
construed to apply to the executors, the administrators, or the person or
persons to whom the Options may be transferred by will or by the laws of descent
and distribution, the word "Optionee" shall be deemed to include such person or
persons.
7. NON-TRANSFERABILITY. The Options are not transferable by
the Optionee otherwise than by will or the laws of descent and distribution and
are exercisable during the Optionee's lifetime only by him. No assignment or
transfer of the Options, or of the rights represented thereby, whether voluntary
or involuntary, by operation of law or otherwise (except by will or the laws of
descent and distribution), shall vest in the assignee or transferee any interest
or right herein whatsoever, but immediately upon such assignment or transfer the
Options shall terminate and become of no further effect. Unless otherwise
provided by the Committee at the time of exercise, Optionee shall enter into a
binding agreement with the Company at the time of grant pursuant to which
Optionee agrees, during any period when the Minimum Stock Ownership Threshold is
met or exceeded, (i) not to sell, assign or otherwise transfer more than 25%
-3-
261
of the Stock purchased pursuant to an Option in any given year and (ii) in
aggregate not to sell, assign or otherwise transfer more than 25% of the Stock
purchased pursuant to an Option over a five year period beginning on the
effective date of the Plan. Appropriate legends shall be placed on the stock
certificates evidencing shares issued upon exercise of options to reflect such
transfer restrictions.
8. RIGHTS AS STOCKHOLDER. The Optionee or a transferee of the
Options shall have no rights as a stockholder with respect to any share covered
by the Options until he shall have become the holder of record of such share,
and no adjustment shall be made for dividends or distributions or other rights
in respect of such share for which the record date is prior to the date upon
which he shall become the holder or record thereof.
9. RECAPITALIZATIONS, REORGANIZATIONS, ETC. (a) The existence
of the Options shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks ahead of or affecting the Stock or the
rights thereof or convertible into or exchangeable for Stock, or the dissolution
or liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
(b) The shares with respect to which the Options are granted
are shares of Stock of the Company as presently constituted, but if, and
whenever, prior to the delivery by the Company of all of the shares of the Stock
with respect to which the Options are granted, the Company shall effect a
subdivision or consolidation of shares of the Stock outstanding, without
receiving compensation therefor in money, services or property, the number and
price of shares remaining under the Options shall be appropriately adjusted.
Such adjustment shall be made by the Committee, whose determination as to what
adjustment shall be made, and the extent thereof, shall be final, binding and
conclusive. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to the Options.
(c) In the event of any change in the outstanding shares of
Stock by reason of any recapitalization, merger, consolidation, spin-off,
combination or exchange of shares or other corporate change, or any
distributions to common shareholders other than cash dividends, the Committee
shall make such substitution or adjustment, if any, as it deems to be equitable,
as to the number or kind or shares of Stock or other securities covered by the
Options and the option price thereof. The Committee shall notify the Optionee of
any intended sale of
-4-
262
all or substantially all of the Company's assets within a reasonable time prior
to such sale.
(d) Except as hereinbefore expressly provided, the issue by
the Company of shares of stock of any class, or securities convertible into or
exchangeable for shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of options,
rights or warrants to subscribe therefore, or to purchase the same, or upon
conversion of shares or obligation of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Stock subject to the
Options.
10. COMPLIANCE WITH LAW. Notwithstanding any of the provisions
hereof, the Optionee hereby agrees that he will not exercise the Options, and
that the Company will not be obligated to issue or transfer any shares to the
Optionee hereunder, if the exercise hereof or the issuance or transfer of such
shares shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority. Any
determination in this connection by the Committee shall be final, binding and
conclusive. The Company shall in no event be obliged to register any securities
pursuant to the Securities Act of 1933 (as now in effect or as hereafter
amended) or to take any other affirmative action in order to cause the exercise
of the Options or the issuance or transfer of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
11. NOTICE. Every notice or other communication relating to
this Agreement shall be in writing, and shall be mailed to or delivered to the
party for whom it is intended at such address as may from time to time be
designated by it in a notice mailed or delivered to the other party as herein
provided, provided that, unless and until some other address be so designated,
all notices or communications by the Optionee to the Company shall be mailed or
delivered to the Company at its principal executive office, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to him at the address shown below his signature to
this Agreement.
12. NON-QUALIFIED OPTIONS. The Options granted hereunder are
not intended to be incentive stock options within the meaning of Section 422 of
the Code.
13. BINDING EFFECT. Subject to Section 7 hereof, this
Agreement shall be binding upon the heirs, executors, administrators and
successors of the parties hereto.
14. GOVERNING LAW. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Delaware.
-5-
263
15. PLAN. The terms and provisions of the Plan are
incorporated herein by reference. In the event of a conflict or inconsistency
between discretionary terms and provisions of the Plan and the express
provisions of this Agreement, this Agreement shall govern and control. In all
other instances of conflicts or inconsistencies or omissions, the terms and
provisions of the Plan shall govern and control.
-6-
264
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
AAMES FINANCIAL CORPORATION
By: ________________________________
Optionee
-7-
265
EXHIBIT C
PROMISSORY NOTE AND WAIVER
$540,000 LOS ANGELES, CALIFORNIA
January __, 1999
FOR VALUE RECEIVED, the undersigned Xxxx X. Xxxxxxxxx
(hereinafter "Kornswiet") hereby promises to pay to the order of Aames Financial
Corporation, 000 X. Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000 (hereinafter
called the "Company") the principal amount of FIVE HUNDRED AND FORTY THOUSAND
DOLLARS ($540,000) together with the interest on the unpaid balance of such
principal amount from the date hereof at the lowest rate of interest prescribed
by Section 7872 of the Internal Revenue Code of 1986 that would permit
imputation of interest under such section to be avoided.
This Note and the indebtedness evidenced hereby are being
provided pursuant to the terms of the agreement effective as of January , 1999
between Kornswiet and the Company (the "Employment Agreement").
Subject to the terms and conditions herein, if Kornswiet is
employed by the Company for the full period from January __, 1999 through the
first anniversary of the "Effective Date", as such term is defined in
Kornswiet's Employment Agreement (the "Effective Date") or through the date of
any earlier termination of Executive's employment by the Company pursuant to
Paragraphs 5A, B, or F of the Employment Agreement or by the Executive pursuant
to Paragraph 5D of the Employment Agreement, the principal on this Note,
together with the interest accrued on such principal shall be forgiven by the
Company in full and this Note shall be marked canceled. The Company shall also
reimburse Kornswiet on a net after-tax basis for any tax liability attributable
to the forgiveness of interest.
In the event Kornswiet's employment with the Company is
terminated prior to the first anniversary of the Effective Date, pursuant to
Xxxxxxxxx 0X of the Employment Agreement or in the event that Kornswiet
terminates his employment with the Company prior to the first anniversary of the
Effective Date for other than "good reason" (as defined in the Paragraph 5D of
the Employment Agreement), Kornswiet shall repay the full principal amount
evidenced by this Note, together with the interest accrued on such principal,
within fourteen (14) days of such termination date.
Unless this note is forgiven by the Company pursuant to the
third paragraph hereof, the Company shall have the right to set off any amounts
which Kornswiet owes the Company hereunder
266
against any monies which the Company or any of its subsidiaries may owe to
Kornswiet, of any nature whatsoever, including without limitation, any
compensation and any severance owed under the Employment Agreement or any other
benefit owed to or held by Kornswiet as an employee of the Company or any of its
subsidiaries, and Kornswiet hereby agrees to and authorizes any such setoff.
If payment of the principal, together with the interest
accrued on such principal, on this Note is not paid in accordance with the terms
aforementioned, then this Note shall be deemed to be in default and if suit is
brought to collect this Note, the Company shall be entitled to collect, in
addition to any principal outstanding, together with the interest accrued on
such Note, all reasonable costs and expenses to include, but not necessarily be
limited to, reasonable attorneys' fees and expenses.
Presentment, notice of dishonor and protest are hereby waived
by Kornswiet. This Note shall be binding upon Kornswiet and his heirs,
executors, administrators, and legal representatives.
No delay or omission on the part of the Company in exercising
any rights hereunder shall operate as a waiver of such rights or of any other
right of the Company, nor shall any delay, omission or waiver on any one
occasion be deemed as a bar to or waiver of the same or any other right on any
future occasion. This Note may not be changed or terminated orally.
Kornswiet shall have the right to prepay the principal of this
Note, together with the accrued and unpaid interest on such principal, in whole
or in part, at any time or times, without penalty.
Regardless of whether this Note is forgiven, Kornswiet
acknowledges having received the entire principal amount of this Note from the
Company and hereby waives all rights, if any, to his 1999 Bonus (as defined in
Exhibit A of the Employment Agreement).
All rights and obligations hereunder shall be governed by, and
construed and enforced in accordance with, the substantive laws of the State of
Delaware, and this Note is executed as, and shall have effect of, a sealed
instrument. If any provision of this transaction is inconsistent with the laws
and statutes of the State of Delaware, the rest of the transaction shall not be
affected, and that part that is not in accord with the said laws shall be
adjusted to so comply.
-2-
267
IN WITNESS WHEREOF, the undersigned has executed this Note as
an instrument under seal this ____ day of January, 1999.
____________________________________
-3-
268
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is between Aames Financial
Corporation, a Delaware corporation (the "COMPANY"), and Xxxx X. Xxxxxxxx (the
"EXECUTIVE"). This Agreement shall become effective (the "EFFECTIVE DATE") on
the "Initial Closing Date," as such term is defined in the Purchase Agreement
(defined below).
BACKGROUND
A. As of the Effective Date, the Company is or will be engaged
primarily in originating, selling and servicing home mortgage loans.
B. The Executive is currently a stockholder and officer of the
Company, and as part of the closing (the "Closing") under the Preferred Stock
Purchase Agreement by and among the Company and Capital Z Financial Services
Fund II, L.P. ("Purchaser"), dated the 23rd day of December, 1998 (the "PURCHASE
AGREEMENT"), the Company has agreed that, after the Effective Date, the Company
will continue to employ the Executive to provide services for the benefit of the
Company on the terms of this Agreement. If the Closing does not occur, this
Agreement shall have no force or effect and the Employment Agreement dated May
8, 1997 shall remain in force.
C. In exchange for the benefits provided for under this
Agreement, except as otherwise specifically provided in this Agreement or in
Exhibit A hereto, as of the Effective Date, the Executive hereby waives any and
all rights and benefits accruing under all other employment, change in control,
stock option and any and all other agreements (except for benefits provided
under the Company's 401(k) plan or continued pursuant to Section 3C hereof, and
stock options granted under the Aames Financial Corporation 1997 Non-Qualified
Stock Option Plan, as Amended and Restated Effective May 22, 1998, the Aames
Financial Corporation 1997 Stock Option Plan, the Aames Financial Corporation
1996 Stock Incentive Plan, as amended, the Aames Financial Corporation 1995
Stock Incentive Plan the Aames Financial Corporation 1991 Stock Incentive Plan
and under the Stock Option Agreement between the Company and the Executive dated
June 21, 1996, as amended August 26, 1998 (all of which shall be preserved)),
between Executive and the Company and its subsidiaries that provide for the
payment of compensation or benefits to Executive.
In consideration of the foregoing and the mutual agreements set forth below, the
parties agree as follows:
AGREEMENT - PRINCIPAL TERMS
269
1. Employment and Duties. The Company shall employ the Executive as its
Chief Executive Officer, and the Executive accepts such employment on the terms
and conditions of the Agreement. The Executive shall, while this Agreement
remains in effect, have the duties, responsibilities, powers, and authority
customarily associated with such position. The Executive shall report to, and
follow the direction of, the Board of Directors of the Company (the "BOARD").
During each year of the Term (as hereinafter defined), the Company shall
nominate the Executive for election as a member of the Board. In addition, the
Executive also shall perform such other and unrelated services and duties as the
Board may assign to him. The Executive shall diligently, competently, and
faithfully perform all duties, and shall devote his entire business time,
energy, attention, and skill to the performance of duties for the Company and
its affiliates and will use his best efforts to promote the interests of the
Company and its affiliates.
2. Term of Employment. Unless sooner terminated as provided in this
Agreement, the initial term under this Agreement shall be five (5) years,
starting on the Effective Date (the "INITIAL TERM"). The term of employment
shall be renewed automatically for successive periods of one (1) year each (a
"RENEWAL TERM") after the expiration of the Initial Term and any subsequent
Renewal Term, unless the Board provides the Executive, or the Executive provides
the Board, with written notice to the contrary at least one hundred twenty (120)
days prior to the end of the Initial Term or any Renewal Term. The Initial Term
and the Renewal Terms are referred to collectively as "TERMS."
3. Compensation.
A. Salary. The Company shall pay the Executive an annual
salary of $600,000 (the "BASE SALARY"), payable in substantially equal
installments in accordance with the Company's payroll policy. The amount of Base
Salary payable to Executive shall be reviewed at least annually; provided,
however, that Executive's Base Salary shall not be reduced below $600,000 per
annum during the term of this Agreement.
B. Performance Bonus; Other Limitations. The Executive shall
be entitled to an annual cash bonus on the basis outlined in Exhibit A. The
covenants set forth in Exhibit A shall be binding upon the parties to the same
extent as if set forth herein.
C. Automobile. The Company's current policy with regard to the
provision of an automobile to the Executive shall be maintained during the Term
until such time as the Compensation Committee of the Board determines otherwise
and provides other benefits not materially less favorable to Executive.
-2-
270
D. Vacation. Executive shall be entitled to 5 weeks of paid
vacation each year of employment with the Company for the term of this
Agreement. In each case, such entitlement shall accrue pro rata over the
contract year and shall be taken at such time or times as shall not unreasonably
interfere with the operations of the Company.
E. Insurance. During the Term, the Company shall maintain, at
no cost to Executive, directors and officers liability insurance that covers the
Executive in an amount of not less than $45,000,000.
F. Stock Options. The Company shall grant to the Executive on
the Effective Date an option to purchase 2,630,162 shares of the Company's
common stock pursuant to and subject to the provisions of the Company's 1999
Stock Option Plan. Such option shall be subject to the terms of an option
agreement substantially in the form annexed hereto as Exhibit B.
G. Other Benefits. While this Agreement remains in effect, the
Company shall continue to provide the Executive with (i) not less than
$2,000,000 of standard term life insurance; (ii) medical and dental benefits for
the Executive and his dependents substantially comparable to that provided
immediately prior to the execution of this Agreement; (iii) a long-term
disability policy providing for payments in an amount equal to 60% of the
Executive's Base Salary, provided such a policy may be obtained at reasonable
cost; and (iv) the Executive shall participate in such other savings, pension
and retirement plans and other benefit plans or programs maintained by the
Company for the benefit of its executives.
4. Expenses. The Company shall reimburse the Executive for all
reasonable business expenses, that are incurred in accordance with the Company's
policies as in effect from time to time, provided the Executive submits
appropriate receipts or other documentation acceptable to the Company and as
required by the Internal Revenue Service to qualify as ordinary and necessary
business expenses under the Internal Revenue Code of 1986, as amended.
5. Termination. Notwithstanding anything in Paragraph 2 of this
Agreement to the contrary, the term of this Agreement and Executive's services
under this Agreement shall terminate upon the first to occur of the following
events:
A. At the end of the applicable Term of this Agreement,
including any Renewal Terms.
B. Upon the Executive's date of death or the date the
Executive is given written notice that the Company has properly determined that
he is disabled. For purposes of this Agreement, the Executive shall be properly
deemed to be disabled if the Executive, as a result of illness or incapacity,
shall be unable
-3-
271
to perform substantially his required duties for a period of 120 consecutive
days or for any aggregate period of 183 days in any twelve (12) month period.
The Company shall notify the Executive that his employment has been terminated
by written notice. The termination shall be effective on the tenth (10th)
business day after the Executive receives the notice, unless the Executive
returns to full-time performance of his duties before such tenth (10th) business
day.
C. On the date the Company provides the Executive with written
notice that he is being terminated for "cause." For purposes of this Agreement,
and as reasonably determined by the Company, the Executive shall be deemed
terminated for cause if the Company terminates the Executive after finding that
the Executive: (1) shall have been determined by a court of law to have
committed any felony including, but not limited to, a felony involving fraud,
theft, misappropriation, dishonesty, embezzlement, or any other crime involving
moral turpitude, or if the Executive shall have been arrested or indicted for
violation of any criminal statute constituting a felony, provided the Company
reasonably determines that the continuation of the Executive's employment after
such event would have an adverse impact on the operation or reputation of the
Company or its affiliates (subsequent references to the "Company" in this
Xxxxxxxxx 0X xxxxx xx deemed to refer to the Company or its affiliates); (2)
shall have committed one or more acts of gross negligence or willful misconduct,
either within or outside the scope of his employment that, in the good faith
opinion of the Board, materially impair the goodwill or business of the Company
or cause material damage to its property, goodwill, or business, or would, if
known, subject the Company to public ridicule; (3) shall have refused or failed
to a material degree to perform his duties hereunder (continuing without cure
for ten (10) days after receipt of written notice of need to cure); (4) shall
have violated any material written Company policy provided to the Executive
during or prior to the Term (continuing without cure for ten (10) days after
receipt of written notice of need to cure) and that has caused material harm to
the Company; or (5) knew or should have known, that the Company materially, and
knowingly or intentionally breached any representation, warranty, or covenant
under the Purchase Agreement, or that the Executive shall have materially and
knowingly or intentionally breached any provision this Agreement; provided,
however, that no termination of Executive's employment for Cause shall be deemed
to have occurred unless Executive is given notice of the reason therefore
including the allegations which may constitute reason for such termination and
after (a) Executive is provided an opportunity to be heard by the Board or the
Executive Committee thereof, and (b) such decision has been upheld by the Board
or Executive Committee.
D. On the date the Executive terminates his employment for
"Good Reason." For purposes of this Agreement,
-4-
272
"GOOD REASON" shall mean termination by the Executive within ninety (90) days of
learning of the acts which are the basis for alleging Good Reason, because of
the occurrence of any of the following acts, without the Executive's consent:
(1) he has been demoted to a position of materially less stature or importance
within the Company than the position described in Paragraph 1, (2) he has been
assigned to duties that are of materially less importance than those required to
be performed pursuant to Paragraph 1 of this Agreement, (3) the Company has
failed to pay or provide material compensation or benefits that are required to
be provided in this Agreement, or (4) the Company's principal executive offices
have been relocated to any county other than Los Angeles County, CA or Orange
County, CA., provided that no such termination shall be treated as for Good
Reason unless the Executive shall have given the Company thirty (30) days
advance written notice of his intention to terminate his employment for Good
Reason, and the Company shall have failed to cure such acts within such thirty
(30) day period.
E. On the date the Executive terminates his employment for any
reason, other than Good Reason, provided that the Executive shall give the
Company thirty (30) days written notice prior to such date of his intention to
terminate this Agreement.
F. On the date the Company terminates the Executive's
employment for any reason, other than a reason otherwise set forth in this
Paragraph 5. Any purported termination of the Executive's employment for Cause
which is finally determined to be without Cause shall be treated for all
purposes of this Agreement as a termination pursuant to this Xxxxxxxxx 0X.
6. Compensation Upon Termination. If the Executive's services are
terminated pursuant to Paragraph 5, the Executive shall be entitled to the Base
Salary through his final date of active employment, plus any accrued but unused
vacation pay. If the Executive's services are terminated pursuant to Paragraph
5D or 5F, the Executive shall in addition be entitled to receive severance
benefits for a period of 12 months payable in substantially equal installments
in accordance with the Company's payroll policy, in an amount equal to (i) $2
million, if such termination occurs within one year from the Effective Date,
(ii) $1.5 million, if such termination occurs after the first and on or before
the second anniversary of the Effective Date, (iii) $1.0 million, if such
termination occurs after the second and on or before the third anniversary of
the Effective Date, (iv) $0.5 million, if such termination occurs after the
fourth anniversary of the Effective Date, and (v) plus an amount, if any,
(regardless of the date of termination) necessary to reimburse the Executive on
a net after-tax basis for any applicable federal excise tax, provided in each
case the Executive signs an agreement that releases the Company from actions,
suits, claims, proceedings, and demands related to the period of employment
-5-
273
and/or termination of employment. Executive agrees that if his employment is
terminated for any reason, he shall immediately resign from all officer and
director positions he then holds with the Company and each of its parents,
affiliates and subsidiaries.
7. Offset. In the event severance benefits become payable to the
Executive pursuant to Paragraph 6 above, such benefits, to the extent not
theretofore paid, shall be reduced, on a dollar-for-dollar basis, by (i) any
outstanding amounts owed by Executive to the Company and (ii) the amount of any
compensation for services earned by Executive on account of his employment or
consulting services with another business or on account of his self employment,
from any source, whether paid currently or deferred. In such event, Executive
shall cooperate with the Company and shall provide such information to the
Company as it may reasonably require in order to calculate the amount of the
reduction described above.
8. COBRA. If the Executive's services are terminated pursuant to
Paragraph 5, the Executive shall also be entitled to any benefits mandated under
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or required
under the terms of any death, insurance, or retirement plan, program, or
agreement provided by the Company and to which the Executive is a party or in
which the Executive is a participant, including, but not limited to, any
short-term or long-term disability plan or program, if applicable. If the
Executive elects COBRA continuation coverage, the Company shall pay for such
health insurance coverage for the shorter of 12 months or the remaining Term at
the same rate as it pays for health insurance coverage for its active employees
(with the Executive required to pay for any employee-paid portion of such
coverage). After the expiration of the period set forth in the prior sentence
concludes, the Executive shall be responsible for the payment of all further
premiums attributable to COBRA continuation coverage at the same rate as the
Company charges all COBRA beneficiaries. However, no provision of this Agreement
shall be construed to extend the period of time over which such COBRA
continuation coverage is required to be provided to the Executive and/or his
dependents.
9. Arbitration. Any dispute between the parties hereto respecting the
meaning and intent of this Agreement or any of its terms and provisions shall be
submitted for expedited arbitration in Los Angeles, California, in accordance
with the National Rules of the American Arbitration Association for the
Resolution of Employment Disputes then in effect, and the arbitration
determination resulting from any such submission shall be final and binding upon
the parties hereto. Judgment upon any arbitration award may be entered in any
court of competent jurisdiction. The parties further agree that either party may
at any time seek provisional relief, including, but not limited to a temporary
restraining order or a preliminary injunction from
-6-
274
any state or federal court in California, in connection with any dispute being
submitted for arbitration.
10. Exclusive Employment; Confidentiality; Non-Solicitation.
A. Executive agrees to perform his duties, responsibilities
and obligations hereunder efficiently and to the best of his ability. Executive
also agrees that he will not engage in any other business activities, pursued
for gain, profit or other pecuniary advantage, that are competitive with the
activities of the Company. Executive agrees that all of his activities as an
employee of the Company shall be in conformity with all present and future
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.
B. Executive acknowledges that his employment by the Company
will bring him into close contact with many trade secrets and other confidential
affairs of the Company and its clients and customers, including, without
limitation, non-public information pertaining to ideas, knowledge, operations,
computer hardware and software, systems, costs, profits, markets, sales,
products, programs, interfaces, networks, protocols, data bases, key personnel,
pricing policies, operational methods, concepts, data, equipment, models,
compensation, suppliers, servicing, broker lists, customer lists, customers,
potential customers, rate sheets, plans, concepts, strategies, or products,
advertising, technical processes and applications and other business affairs and
methods, plans for future developments and other information not readily
available to the public or the Company's competitors or clients (collectively
referred to hereinafter as "Information"). In consideration of the foregoing,
the Executive agrees that he: (1) will keep secret and confidential all
Information and will not use it for his own benefit or disclose it to, or use it
for the benefit of, anyone other than the Company, either during or after his
employment by the Company, except with the prior written consent of the Company;
(2) will take all reasonable action that the Company deems necessary or
appropriate to prevent unauthorized use or disclosure of or to protect the
Company's interest in Information; (3) will deliver promptly to the Company upon
termination of his employment by the Company or at any other time the Company
may so request, all memoranda, notes, documentation, equipment, files,
flowcharts, program listings, data listings, records, reports and other tangible
manifestations of the Information (and all copies thereof), that he may then
possess or have under his control; and (4) will, unless the Company otherwise
agrees in writing, and without additional compensation, promptly disclose and,
upon request, assign to the Company all rights to work product and business
opportunities related to the present or, to the extent presented to the Board of
Directors prior to termination of employment, contemplated business of the
Company.
-7-
275
C. Executive further agrees that if his employment is
terminated during the three year period beginning on the Effective Date, he will
abide by the limitations set forth in the following sentence (i) for a period of
six months from the date of termination, if his employment is terminated
pursuant to Xxxxxxxxx 0X, 0X xx 0X, xxx (xx) for a period of one year from the
date of termination, if his employment is terminated by the Company pursuant to
Xxxxxxxxx 0X or if his employment is terminated by the Executive without Good
Reason (the applicable period is referred to below as the "Nonsolicitation
Period"). During the Nonsolicitation Period, the Executive agrees that he will
not, without the Company's express written consent, himself or through any
organization with which he is associated: (i) hire any person who was employed
by the Company on the Executive's date of termination of employment or at any
time within six months prior thereto or hire any agent, consultant, or
independent contractor of the Company, or of any organization with respect to
which the Company has agreed to a similar prohibition and of which the Employee
has knowledge, or induce or attempt to induce any such person to discontinue
such employment or affiliation with the Company or such organization, as the
case may be, or (ii) induce or attempt to induce any client or customer of the
Company on the date of termination to discontinue any business relationship or
to refrain from entering into a new business relationship with the Company.
D. Executive confirms and acknowledges that (i) he was
represented by counsel of his own choosing during the negotiation of the
limitations set forth in Paragraphs 10 and 11 of this Agreement, (ii) his strict
adherence to the limitations imposed upon him thereunder, or under any agreement
referenced therein, was a material factor in Purchaser's entering into the
Purchase Agreement and agreeing to consummate the transactions contemplated
thereby, and to pay the Executive the cash and equity-based compensation called
for in this Agreement, (iii) the Company's ability to maintain continuing
relationships with its employees without disruption was a material factor in
Purchaser's entering into the Purchase Agreement and agreeing to consummate the
transactions contemplated thereby, (iv) his failure to adhere to the obligations
imposed by Paragraphs 10 and 11 of this Agreement will expose such Purchaser to
substantial and irreparable harm. Accordingly, Executive agrees that the remedy
at law for any breach by him of the covenants and agreements set forth in this
Paragraph 10 or in Paragraph 11 below may be inadequate and that in the event of
any such breach, the Company or its respective subsidiaries may, in addition to
the other remedies that may be available to it at law, seek injunctive relief
prohibiting him (together with all those persons associated with him) from
breach of such covenants and agreements.
11. Non-Competition. The Company's obligation to provide the
compensation due upon termination pursuant to the last sentence of Paragraph 6
hereof shall be contingent upon his not,
-8-
276
directly or indirectly, owning, managing, operating, joining or controlling,
becoming employed by or participating in the ownership, management, operation or
control of, or becoming a consultant to or connected in any other manner with,
any business, firm or corporation which is materially similar to or materially
competes with the Company, provided, however, that the foregoing shall not
preclude the Executive from providing investment banking services not involving
the Company. For these purposes, Executive's ownership of securities of a public
company not in excess of one percent of any class of such securities shall not
be considered to be competition with the Company.
AGREEMENT - MISCELLANEOUS
12. Entire Agreement. This Agreement sets forth the entire and final
agreement and understanding of the Company and the Executive and contains all of
the agreements made between them with respect to the subject matter hereof. This
Agreement supersedes any and all other agreements, either oral or in writing,
between the Company and the Executive with respect to Executive's provision of
services to the Company. No change or modification of this Agreement shall be
valid unless in writing and signed by the Company and the Executive.
13. Enforcement; Severability. Should a decision be entered by a court
of competent jurisdiction that the character, duration or geographical scope of
any provision of this Agreement is unreasonable, or that any provision of this
Agreement is invalid or unenforceable for any reason, in whole or in part, then
the Company and the Executive agree that such provision shall be construed by
the court in such a manner as to impose all those restrictions on the
Executive's conduct that are reasonable in light of the circumstances and as are
necessary to assure to the Company the benefits of this Agreement and to render
the provision valid and enforceable, and this Agreement shall be construed and
enforced to the maximum extent permitted by law, as if such provision had been
originally incorporated in this Agreement as so modified, restricted, or
reformulated or as if such provision had not been originally included in this
Agreement, as the case may be. The parties further agree to seek a lawful
substitute for any provision found to be unlawful; provided, that, if the
parties are unable to agree upon a lawful substitute, the parties desire and
request that the arbitrator or other authority called upon to decide the
enforceability of this Agreement modify those provisions such that, once
modified, this Agreement will be enforceable to the maximum extent permitted by
the law in existence at the time of the requested enforcement.
14. Miscellaneous.
D. Notices. All notices required in connection with this
Agreement shall be sufficiently given only if transmitted in writing and (i)
personally delivered, or sent by first class, registered or certified mail,
return receipt requested, postage
-9-
277
prepaid, or by recognized overnight courier, (ii) sent by facsimile, provided a
hard copy is mailed on that date to the party for whom such notices are
intended, or (iii) sent by other means at least as fast and reliable as first
class mail. A written notice shall be deemed to have been given to the recipient
party on the earliest of (1) the date it shall be delivered to the address
required by this Agreement; (2) the date delivery shall have been refused at the
address required by this Agreement; (3) with respect to notices sent by mail or
overnight courier, the date as of which the Postal Service or overnight courier,
as the case may be, shall have indicated such notice to be undeliverable at the
address required by this Agreement; or (4) with respect to a facsimile, the date
on which the facsimile is sent and receipt is confirmed. Any and all notices
referred to in this Agreement, or which either party desires to give to the
other shall, in the case of the Executive, be addressed to his residence address
given to the Company by the Executive in writing for this purpose, or failing
receipt of such notice, to the last residence address on the Company's records,
or in the case of the Company, to its principal office with a copy to Capital
Z's principal office.
E. Waiver of Breach. A waiver by the Company of a breach of
any provision of this Agreement by the Executive shall not operate or be
construed as a waiver of any subsequent breach by the Executive. No waiver shall
be valid unless it is in writing and signed by an authorized officer of the
Company (other than the Executive).
F. Assignment. The Executive acknowledges that the services he
is to render are unique and personal. Accordingly, the Executive may not assign
any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Company.
G. Construction. The heading in this Agreement are inserted
for convenience only and are not to be considered a construction of the
provisions hereof. The Background recitals are incorporated in this Agreement as
an integral part hereof and shall be considered as substantive and not precatory
language.
H. Execution of Agreement. This Agreement may be executed in
several counterparts, each of which shall be considered an original, but which
when taken together, shall constitute one agreement.
I. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of California.
COMPANY: EXECUTIVE:
-10-
278
- By /S/ Xxxxxxx Xxxxxx /S/ Xxxx X. Xxxxxxxx
------------------------ ----------------------------
EXHIBIT A
- For bonuses after the 1999 calendar year, Executive shall receive a
cash bonus paid annually on a calendar year basis ranging from 0-100%
of total Base Salary, with an expected bonus of $400,000 and a bonus in
excess of 100% of Base Salary for extraordinary performance. Bonuses
shall be paid according to a budget approved by the Board of Directors
of the Company and the achievement of other non-financial goals adopted
by such Board.
- For so long as Capital Z and/or its Designated Purchasers under the
Purchase Agreement own at least 25% of the voting securities of the
Company, Executive covenants and agrees not to sell, assign or
otherwise transfer, in any one twelve month period, more than 25% of
the aggregate amount of shares of Company stock which the Executive
owned immediately prior to the Effective Date. The Company, by action
of its Board of Directors, agrees to consider whether to waive all or
part of such limitation in the event of extraordinary hardship, which
consent shall not be unreasonably withheld.
-11-
279
EXHIBIT K
CONDITIONS TO THE RIGHTS OFFER
1. Consummation of the Recapitalization.
2. Each Company stockholder desiring to accept the Rights Offer shall have
properly completed and forwarded to the Company (or its agent) (together
with the exercise price for the rights) a subscription certificate prior to
the expiration date for the Rights Offer.
280
EXHIBIT L
FORM OF OPINION OF
TROOP XXXXXXX XXXXXX XXXXXXX & XXXXX
Capitalized terms used but not defined herein shall have the
meanings set forth in the Preferred Stock Purchase Agreement, dated as of
December 23, 1998 (the "Agreement"), by and between Aames Financial Corporation,
a Delaware corporation (the "Company"), and Capital Z Financial Services Fund
II, L.P., a Bermuda limited partnership (the "Purchaser").
(i) Each of the Company and its Subsidiaries is a corporation,
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, and has all
requisite corporate or other organizational power and authority under such laws
to own or lease and operate its properties and to carry on its business as now
conducted. Each of the Company and its Subsidiaries is duly qualified or
licensed to do business as a foreign corporation, partnership or limited
liability company in good standing in each jurisdiction in which the nature of
the business transacted by it or the character of the properties owned or leased
by it requires it to so qualify or be licensed, except where the failure to be
so licensed or qualified would not, singly or in the aggregate, be reasonably
likely to have a Material Adverse Effect. The Certificate of Incorporation and
the Bylaws of the Company and each of its Subsidiaries, each as amended to date,
in full force and effect.
(ii) Except are for the Shareholder Approval, (a) the Company
has all requisite corporate power and authority to perform, execute and deliver
its obligations under the Agreement, each Ancillary Agreement to which it is a
party, the Warrant, the Contingent Warrant and the Certificates of Designations;
and (b) all corporate action on the part of the Company, its officers, directors
and stockholders necessary for the authorization, execution and delivery of the
Agreement, each Ancillary Agreement to which the Company is a party, the
Warrant, the Contingent Warrant and the Certificates of Designation, and the
performance of all obligations of the Company thereunder, and the authorization,
issuance, sale and delivery of the Securities, has been taken.
(iii) The Agreement and each Ancillary Agreement to which the
Company is a party which was entered into on or prior to the date hereof, have
been duly authorized, executed and delivered by the Company and constitute the
valid and legally binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting
281
the enforcement of creditors' rights generally and by general principles of
equity (whether enforcement is sought by proceedings in equity or at law).
(iv) Except (a) as set forth on the Company Disclosure Letter,
(b) required blue sky filings, if any, which will be effected in accordance with
applicable blue sky laws,(c) filings required under the Securities Act in
connection with the Registration Rights Agreement, (d) the filing of a
Pre-Merger Notification Form and related documents under the HSR Act, (e) the
approval of the NYSE for the issuance and listing of the Shares on the NYSE,
subject to official notice of issuance, (f) the Shareholder Approval, and (g) as
would not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect, no consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
Governmental Authority or any other Person on the part of the Company is
required in connection with the consummation of the transactions contemplated by
the Agreement and the Ancillary Agreements.
(v) The execution and delivery by the Company of the
Agreement, each of the Ancillary Agreements to which it is a party, and the
Warrant and the Contingent Warrant, and the performance by the Company of its
obligations thereunder and in the Certificates of Designations, will not (a)
violate any provision of the Certificate of Incorporation or Bylaws, (b) violate
any provision of any law or any order of any court or Governmental Authority,
(c) conflict with, result in a breach of or constitute (with notice or lapse of
time or both) a default under, or allow any other party thereto a right to
terminate or seek a payment from the Company or any Subsidiary under the terms
of, any indenture, agreement or other instrument by which the Company or any of
its subsidiaries or any of their properties or assets is bound, or (d) result in
the creation or imposition of any Lien upon any of the properties or assets of
the Company or any of its Subsidiaries, other than, in the case of clauses (b),
(c) and (d), as would not be reasonably likely to have a Material Adverse
Effect.
(vi) The Company has authorized and outstanding capital stock
as provided in the Agreement. To our knowledge, the outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
non-assessable; except as provided in the Agreement, there are no Derivative
Securities outstanding (including preemptive rights), the Company has not
granted or agreed to grant any registration rights, including piggyback rights,
to any person or entity and the Company has no obligation (contingent or other)
to purchase, redeem or otherwise acquire any of its Equity Securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof.
L-2
282
(vii) The Securities and the Shares, when issued, sold and
delivered in accordance with the terms of the Agreement for the consideration
expressed therein, will be duly authorized, validly issued, fully paid and
nonassessable. The issuance, sale and delivery of the Securities and Shares is
not subject to any preemptive right of stockholders of the Company arising under
law or the Certificate of Incorporation or Bylaws or to any contractual right of
first refusal or other contractual right in favor of any Person. The issuance
and sale of the Securities and the Shares will not require registration under
the Securities Act or state securities laws.
(viii) Except as expressly disclosed in the SEC Documents, to
such counsel's knowledge, (a) there is no action, suit, proceeding or
investigation pending or, to the knowledge of such counsel, currently threatened
or likely to be instituted against the Company or any of its Subsidiaries that
involves a claim against the Company or any of its Subsidiaries in an amount in
excess of $500,000, or that questions the validity of the Agreement or any of
the Ancillary Agreements or the right of the Company to enter into, or to
consummate, the transactions contemplated thereby, or that would be reasonably
likely, either individually or in the aggregate, to have a Material Adverse
Effect, nor does such counsel have knowledge that there is any basis for any of
the foregoing, (b) the Company is not a party or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or Governmental
Authority or instrumentality that specifically names the Company or any of
Subsidiaries and as to which either compliance or noncompliance is reasonably
likely to have a Material Adverse Effect, and (c) there are no statutes, rules
or regulations, statutory or regulatory proceedings applicable to, or pending
(or to the knowledge of such counsel threatened) against the Company or any of
its Subsidiaries, which are reasonably likely to have a Material Adverse Effect.
There is no action, suit, proceeding or investigation by the Company or any of
its Subsidiaries currently pending or which the Company its Subsidiaries intends
to initiate that is material to the operations of the Company and Subsidiaries
considered as a whole.
L-3
283
EXHIBIT M
FORM OF OPINION OF
XXXXXXX XXXX & XXXXXXXXX
Capitalized terms used but not defined herein shall have the
meanings set forth in the Preferred Stock Purchase Agreement, dated as of
December 23, 1998 (the "Agreement"), by and between Aames Financial Corporation,
a Delaware corporation (the "Company"), and Capital Z Financial Services Fund
II, L.P., a Bermuda limited partnership (the "Purchaser").
(i) The Purchaser is a limited partnership duly organized and
validly existing under the laws of Bermuda.
(ii) The Purchaser has full partnership power and authority to
enter into the Agreement and the Ancillary Agreements. Each of the Agreement and
the Ancillary Agreements to which the Purchaser is a party has been duly
authorized, executed and delivered by the Purchaser and constitutes the valid
and legally binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether enforcement is sought by proceedings in equity or
at law).
(iii) Based on a certificate to be delivered by the Purchaser,
the Purchaser is an accredited investor as defined under Rule 501(a) of the
Securities Act.
(iv) Except as provided in the Agreement, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any New York or federal Governmental
Authority on the part of the Purchaser is required in connection with the
consummation of the transactions contemplated by the Agreement and the Ancillary
Agreements, except for (a) the filing of a Pre-Merger Notification Form and
related documents under the HSR Act, (b) filings required under the Securities
Act or the Exchange Act, or (c) such consents, approvals, orders,
authorizations, registrations, qualifications, designations, declarations or
filings, which if not obtained or made, as the case may be, are not reasonably
likely to impair in any material respect the ability of the Purchaser to perform
any of its obligations or agreements under the Agreement or the Ancillary
Agreements or consummate the transactions contemplated thereby.
(v) Neither the execution and delivery of the Agreement by
Purchaser, nor the consummation of the transactions contemplated thereby, nor
the fulfillment of the terms and
284
compliance with the provisions thereof will conflict with or result in a
material breach of or a material default (or in an occurrence which with the
lapse of time or action by a third party, or both, could result in a material
default) with respect to any of the terms, conditions or provisions applicable
to Purchaser, or of the partnership agreement of Purchaser, or, to such
counsel's knowledge, of any applicable order, writ or decree of any court or of
any Governmental Authority, any indenture, contract, agreement, lease or other
instrument to which Purchaser is a party or is subject or by which Purchaser or
any of its properties or assets are bound, or of any applicable New York or
federal statute, rule or regulation to which Purchaser or its businesses is
subject.
M-2
