<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 28, 1996
AAMES FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
DELAWARE 0-19604 95-4340340
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file number) identification number)
3731 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (213) 351-6100
-----------------------
<PAGE> 2
Item 2: ACQUISITION OR DISPOSITION OF ASSETS
On August 28, 1996, Aames Financial Corporation, a Delaware corporation
("Aames"), completed the acquisition of One Stop Mortgage, Inc., a Wyoming
corporation ("One Stop"). This acquisition was accomplished through the merger
of Aames Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Aames, with and into One Stop, in a stock-for-stock transaction
(the "Merger") pursuant to an Agreement and Plan of Reorganization (the
"Agreement"), dated as of August 12, 1996 and as amended on August 28, 1996. As
a result of the Merger, One Stop became a wholly-owned subsidiary of Aames. The
Merger will be accounted for as a pooling-of-interests.
Under the Agreement, each outstanding share of One Stop common stock,
no par value ("One Stop Common Stock"), was converted into the right to receive
16,479.4 shares of Aames common stock, par value $.001 per share ("Aames Common
Stock"). In connection with the Merger, Aames issued 2,322,940 shares of Aames
Common Stock, representing approximately 14.68% of the issued and outstanding
shares of Aames Common Stock (after giving effect to the Merger). In connection
with the Merger, 102,750 shares of Aames Common Stock issued to the former
equity holders of One Stop (the "Former Holders") have been pledged in favor of
Aames as security for the indemnification obligations of One Stop and its
principal stockholder under the Agreement. The shares of Aames Common Stock so
pledged are to be released to the Former Holders on or about August 28, 1997,
less any shares distributed to Aames in satisfaction of such indemnity
obligations.
Under the Agreement, each outstanding option to purchase One Stop
Common Stock was converted into an option to purchase that number of shares of
Aames Common Stock (rounded to the nearest whole share) into which the number
of shares of One Stop Common Stock subject to such option would be converted
under the terms of the Agreement. The exercise price per share of each such
option is equal to (x) the per share exercise price of such option in effect
immediately prior to the Merger multiplied by the number of shares of One Stop
Common Stock subject to such option immediately prior to the Merger, divided by
(y) the number of shares of Aames Common Stock subject to such option
immediately after the Merger. Aames has reserved 377,060 of Aames Common Stock
for issuance in connection with the exercise of these options. The options
generally vest in three equal annual installments, with the first options
becoming exercisable in 1999.
Aames has agreed to use its best efforts to file certain registration
statements under the Securities Act of 1933 covering 1,277,617 of the shares of
Aames Common Stock issued in connection with the Merger (the "Registration
Rights Shares") in order to enable the Former Holders to offer the Registration
Rights Shares for public sale. The Company has agreed to use its best efforts
to file a registration statement covering the resale of up to 813,029 of the
Registration Rights Shares on or before September 13, 1996 and to keep such
registration statement effective until the first anniversary of the closing of
the Merger. Aames has also agreed that, upon the first anniversary of the
closing the Merger, it will use its best efforts to file an additional
registration statement covering any then unsold Registration Rights Shares.
The terms of the Merger were negotiated at arm's length between
officers of Aames and One Stop (none of whom were affiliated with Aames, its
affiliates, its directors and officers and their associates).
Neil B. Kornswiet, the principal stockholder of One Stop, was elected
to Aames' Board of Directors on September 3, 1996.
One Stop, founded in 1995, is a residential lender specializing in
originating and purchasing home equity mortgage loans made to credit-impaired
borrowers from a network of independent mortgage brokers. One Stop, which
originates and purchases home equity loans in 26 states, currently operates out
of 24 offices and has approximately 230 employees. For the three-month period
ended June 30, 1996, One Stop's loan production totaled approximately
$126 million.
Attached hereto as Exhibit 99.1 is Aames' press release, issued August
12, 1996, which is incorporated in its entirety by this reference.
<PAGE> 3
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
One Stop Mortgage, Inc. Financial Statements at June 30, 1996 and
December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report .................................... F-1
Balance Sheets .................................................. F-2
Statements of Operations ........................................ F-3
Statements of Changes in Stockholders' Equity ................... F-4
Statements of Cash Flows ........................................ F-5
Notes to Financial Statements ................................... F-6
</TABLE>
(b) Pro Forma Financial Information.
At the time of filing of this Current Report on Form 8-K, it was
impracticable to provide the required pro forma financial statements
because all of the data necessary to compile those pro forma financial
statements was not available. The pro forma financial statements will be
filed as soon as practically possible, and no later than 60 days from
the date of filing this Current Report Form 8-K.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization, dated as of
August 12, 1996, as amended by Amendment No. 1, dated
August 28, 1996 (as amended, the "Agreement"), by and
among Aames Financial Corporation, a Delaware
corporation ("Aames"), Aames Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of
Aames ("Merger Sub"), One Stop Mortgage, Inc., a
Wyoming corporation ("One Stop") and Neil B. Kornswiet.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Price Waterhouse LLP*
99.1 Press Release issued August 12, 1996 with respect to
the merger of Merger Sub with and into One Stop.
__________
* To be filed by amendment.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
AAMES FINANCIAL CORPORATION
(Registrant)
Dated: September 11,1996 By: /s/ BARBARA S. POLSKY
------------------------------------
Barbara S. Polsky, Esq.
Senior Vice President and
General Counsel
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
The Board of Directors
One Stop Mortgage, Inc.:
We have audited the accompanying balance sheets of One Stop Mortgage, Inc. (the
Company) as of June 30, 1996 and December 31, 1995 and the related statements of
operations, changes in stockholders' equity and cash flows for the period
January 1, 1996 through June 30, 1996 and the period August 24, 1995 (inception)
through December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of One Stop Mortgage, Inc. as of
June 30, 1996 and December 31, 1995 and the results of its operations and its
cash flows for the period January 1, 1996 through June 30, 1996 and the period
August 24, 1995 (inception) through December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
August 16, 1996
F-1
<PAGE> 6
ONE STOP MORTGAGE, INC.
Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------------- -------------
<S> <C> <C>
Cash $ 5,724,797 2,332,753
Loans held for sale (notes 2 and 5) 117,239,035 7,437,604
Loans held for investment, net (note 3) 1,623,206 --
Accounts receivable 250,000 472,067
Interest receivable 835,449 232,261
Furniture, equipment and leasehold improvements (note 4) 1,061,942 763,887
Other assets 743,523 399,684
------------- -------------
$ 127,477,952 11,638,256
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, net (note 5) $ 101,336,989 9,641,911
Accounts payable and accrued expenses (note 7) 2,187,580 654,074
Accrued interest expense 695,348 76,242
Accrued bonus to stockholder -- 400,000
Deferred taxes payable (note 6) -- 19,040
------------- -------------
Total liabilities 104,219,917 10,791,267
------------- -------------
Commitments and contingencies (note 7)
Subsequent event (note 11)
Stockholders' equity (note 8):
Common stock, no par value. Authorized 1,000 shares; issued and
outstanding 100 shares 300,000 300,000
Additional paid-in capital (note 5) 24,216,000 --
Retained earnings (accumulated deficit) (1,257,965) 546,989
------------- -------------
Total stockholders' equity 23,258,035 846,989
------------- -------------
$ 127,477,952 11,638,256
============= =============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 7
ONE STOP MORTGAGE, INC.
Statements of Operations
<TABLE>
<CAPTION>
AUGUST 24,
1995
(INCEPTION)
JANUARY 1, THROUGH
1996 THROUGH DECEMBER 31,
JUNE 30, 1996 1995
------------- -------------
<S> <C> <C>
Revenues:
Gain on sale of loans, net of deferred loan origination costs
of $813,966 in 1996 and $596,144 in 1995 $ 4,578,584 2,611,901
Interest income 2,808,761 377,487
Other 67,520 22,277
----------- -----------
Total revenues 7,454,865 3,011,665
----------- -----------
Expenses:
Personnel 3,486,470 1,325,906
Interest expense (note 5) 1,928,007 306,603
Amortization of prepaid commitment fee (note 5) 788,000 --
General and administrative 1,474,802 490,381
Legal and professional (note 7) 747,064 193,826
Occupancy (note 7) 580,476 128,120
Provision for loan loss (note 3) 250,000 --
----------- -----------
Total expenses 9,254,819 2,444,836
----------- -----------
Earnings (loss) before income taxes (1,799,954) 566,829
Income taxes (note 6) 5,000 19,840
----------- -----------
Net income (loss) $(1,804,954) 546,989
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 8
ONE STOP MORTGAGE, INC.
Statements of Changes in Stockholders' Equity
For the period January 1, 1996 through June 30, 1996 and the period
August 24, 1995 (inception) through December 31, 1995
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
-------------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock 100 $ 300,000 -- -- 300,000
Net earnings -- -- -- 546,989 546,989
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 100 300,000 -- 546,989 846,989
Issuance of common stock warrants (note 5) -- -- 24,216,000 -- 24,216,000
Net loss -- -- -- (1,804,954) (1,804,954)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 100 $ 300,000 24,216,000 (1,257,965) 23,258,035
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 9
ONE STOP MORTGAGE, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
AUGUST 24,
1995
(INCEPTION)
JANUARY 1, THROUGH
1996 THROUGH DECEMBER 31,
JUNE 30, 1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,804,954) 546,989
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Provision for loan losses 250,000 --
Amortization of prepaid commitment fee 788,000 --
Depreciation and amortization 192,186 34,259
Loans purchased (236,973,798) (82,791,079)
Loans sold, net 125,299,161 75,353,475
Net increase in warehouse line of credit with investment bank 1 68,044,870 7,641,911
Payoff of warehouse line of credit with investment bank 1 (75,686,781) --
Net increase in warehouse line of credit with investment bank 2 122,764,989 --
Net change in interest receivable (603,188) (232,261)
Net change in accrued interest expense 619,106 76,242
Net change in other assets and liabilities 992,694 201,363
------------- -------------
Net cash provided by operating activities 3,882,285 830,899
------------- -------------
Cash flows from investing activities - purchases of furniture, equipment and
leasehold improvements (490,241) (798,146)
------------- -------------
Net cash used by investing activities (490,241) (798,146)
------------- -------------
Cash flows from financing activities:
Issuance of common stock -- 300,000
Increase (decrease) in working capital note payable to investment bank 1
(2,000,000) 2,000,000
Increase in working capital note payable to investment bank 2 2,000,000 --
------------- -------------
Cash flows provided by financing activities -- 2,300,000
------------- -------------
Net increase in cash 3,392,044 2,332,753
Cash at beginning of period 2,332,753 --
------------- -------------
Cash at end of period $ 5,724,797 2,332,753
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,231,576 230,361
Taxes 23,596 --
============= =============
Noncash investing activities - transfer of loans held for sale to held for
investment (note 4) $ 1,841,555 --
============= =============
Noncash operating and financing activities - issuance of common stock warrants
(note 5) $ 24,216,000 --
============= =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 10
ONE STOP MORTGAGE, INC.
Notes to Financial Statements
June 30, 1996 and December 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
One Stop Mortgage, Inc. (the Company) was incorporated in Wyoming in
August 1995 for the purpose of conducting a multistate subprime
mortgage banking operation to be headquartered in the state of
California.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheets and revenues and expenses for the periods.
Actual results could differ significantly from those estimates.
LOANS HELD FOR INVESTMENT
Loans held for investment primarily consist of loans in the process of
foreclosure and are carried at face value, net loan origination fees
and the allowance for possible loan losses. Interest is accrued daily
on a simple-interest basis, except where reasonable doubt exists as to
the collectibility of the interest, in which case the accrual of income
amortization of fees and accretion of discounts is discontinued.
Unearned discounts, fees and costs are recognized using the
effective-interest method.
Loan fees and direct costs relating to loans are netted and amortized
to operations as an adjustment to yield over the respective lives of
the loans using the interest method. Net deferred loan fees are taken
directly into income when loans are sold.
The Company considers a loan impaired when, based on current
information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the
loan agreement. The Company measures impairment of a loan based on the
present value of expected future cash flows discounted at the loan's
effective interest rate. If the measure of the impaired loan is less
than the recorded investment in the loan, the Company recognizes an
impairment by recording a valuation allowance with a corresponding
charge to provision for loan losses.
LOANS HELD FOR SALE
Loans held for sale are stated at the lower of cost or market in the
aggregate as determined by outstanding commitments from investors or
current investor yield requirements.
Interest is recognized as revenue when earned according to the terms of
the loans and when, in the opinion of management, it is collectible.
Nonrefundable fees and direct costs associated with the origination of
loans are deferred and recognized when the loans are sold as gain or
loss on sale of loans.
F-6
<PAGE> 11
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at original
cost, less depreciation and amortization. Depreciation is computed over
the estimated useful lives (two to five years) of depreciable assets
using the straight-line method. Leasehold improvements are amortized
over the lesser of the estimated useful lives of the assets or the
related lease term.
GAINS OR LOSSES ON SALES OF LOANS
Gains or losses on sales of loans are recognized at the date of
settlement and are based upon the difference between the selling price
and the carrying value of the related loans sold.
Nonrefundable fees and direct costs associated with the origination of
loans are deferred and recognized when the loans are sold as gain or
loss on sale of loans.
PREPAID COMMITMENT FEES
Prepaid commitment fees are amortized over the term of the related note
payable commitment.
INCOME TAXES
The Company elected S Corporation status under the Internal Revenue
Code and the corresponding tax laws of the various applicable states.
Accordingly, income is taxed directly to the stockholders for Federal
income and state franchise tax purposes. In addition, the California
Franchise Tax Board imposes a corporate level tax of approximately 3.5%
which adjusts annually. There can be no assurance that the Company will
receive the continued benefits of being taxed as an S Corporation.
Amounts provided for income taxes in the financial statements are based
on income reported for financial statement purposes at current tax
rates. Such amounts include taxes deferred to future periods resulting
from timing differences in the recognition of income and expense in
different periods for tax and financial reporting purposes.
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-7
<PAGE> 12
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
NET WORKING CAPITAL
The Company prepares its financial statements using an unclassified
balance sheet presentation as is customary in the mortgage banking
industry. A classified balance sheet presentation would have aggregated
current assets, current liabilities and net working capital as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current assets $126,416,010 10,805,337
Current liabilities 125,647,917 8,791,267
------------ ------------
Net working capital $ 768,093 2,014,070
============ ============
</TABLE>
ERRORS AND OMISSIONS POLICY
The Company has Fidelity Bond and Errors and Omissions insurance
coverage in excess of $300,000 each at June 30, 1996 and at December
31, 1995.
RECLASSIFICATION
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current year's presentation.
CURRENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS
121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable.
However, SFAS 121 does not apply to financial instruments, certain
intangibles, mortgage and other servicing rights or deferred tax
assets. The Company adopted SFAS 121 in fiscal year 1996, which had no
significant impact on the Company's operations.
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125 (SFAS 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities." SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. These standards are based on consistent application of a
financial components approach that focuses on control. Under that
approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been
surrendered and derecognizes liabilities when extinguished. SFAS 125
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS
125 requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing
assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets
sold, if any, and retained interest, if any, based on their relative
fair values at the date of the transfers. SFAS 125 includes specific
provisions to deal with servicing assets or liabilities. SFAS 125 will
be effective for transactions occurring after December 31, 1996. It is
not anticipated that the financial impact of this statement will have a
material effect on the Company.
F-8
<PAGE> 13
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
(2) LOANS HELD FOR SALE
A summary of loans held for sale at the lower of cost or market is as
follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Loans held for sale $116,668,931 7,374,061
Net deferred origination costs 570,104 63,543
------------ ------------
$117,239,035 7,437,604
============ ============
</TABLE>
Loans originated by the Company are primarily fixed-rate or
adjustable-rate, 15 to 30-year fully amortizing loans, secured by first
liens on single-family residential properties. Loans held for sale as
of June 30, 1996 were comprised of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
WEIGHTED
AVERAGE
AMOUNT RATE
------------ --------
<S> <C> <C>
Adjustable-rate $ 88,909,373 10.03%
Fixed-rate 27,759,558 11.15%
------------
$116,668,931 10.30%
============
</TABLE>
(3) LOANS HELD FOR INVESTMENT
Loans held for investment as of June 30, 1996 consist of the following:
<TABLE>
<S> <C>
Loans held for investment $ 1,841,555
Net deferred origination costs 31,651
Allowance for loan losses (250,000)
-----------
$ 1,623,206
===========
</TABLE>
The Company's total recorded investment in impaired loans at June 30,
1996 was $1,841,555. The related impairment valuation allowance at June
30, 1996 was $250,000. Approximately $3,000 of interest income was
accrued on impaired loans during the six-month period ended June 30,
1996. Loans on which the accrual of interest has been discontinued
amounted to $1.53 million at June 30, 1996 and the related interest
income which was not recorded due to the nonaccrual status
approximated $16,000. The Company had no loans held for investment
or impaired loans during the period ended December 31, 1995.
F-9
<PAGE> 14
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
Activity in the allowance for loan losses is as follows:
<TABLE>
<S> <C>
Balance at December 31, 1995 $ --
Provision for loan losses 250,000
Recoveries --
Charge-offs --
--------
Balance at June 30, 1996 $250,000
========
</TABLE>
(4) FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements were comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Furniture and equipment $ 1,215,980 768,627
Leasehold improvements 72,407 29,519
----------- -----------
1,288,387 798,146
Less accumulated depreciation and
amortization (226,445) (34,259)
----------- -----------
$ 1,061,942 763,887
=========== ===========
</TABLE>
(5) NOTES PAYABLE
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
$150,000,000 revolving warehouse line of credit with investment bank 1
secured by the loans held for sale. Interest accrued based on LIBOR,
which varied based on the outstanding balance of the line of credit
Balance paid in full May 1996. Highest balance outstanding was $75.7
million and $57.6 million during the six months ended June 30, 1996
and the period August 24, 1995 through December 31, 1995,
respectively
$ -- 7,641,911
$2,000,000 unsecured working capital note with investment bank
1 due March 1997. Interest accrued at 12% and paid
monthly. Balance paid in full May 1996 -- 2,000,000
</TABLE>
F-10
<PAGE> 15
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
$250,000,000 revolving warehouse line of credit with investment
bank 2 secured by the loans held for sale. Interest
accrues based on LIBOR, which varies based on the
outstanding balance of the line of credit. Matures June
1999. Highest balance outstanding was $122.8 million
during the six months ended June 30, 1996 $ 122,764,989 --
$5,000,000 unsecured working capital note with investment bank
2 due December 1998. Interest accrues at 12% and paid
monthly. Principal due at maturity 2,000,000 --
$50,000,000 residual line of credit with investment bank 2
secured by residual interests in securitizations of the
Company loans. Interest accrues on LIBOR, which varies
based on the outstanding line of credit. Matures December
1998. No amounts had been drawn on this line during the
six months ended June 30, 1996 -- --
------------- -------------
124,764,989 9,641,911
Prepaid commitment fee related to issuance of common stock
warrants to investment bank 2, net of amortization of
$788,000 (23,428,000) --
------------- -------------
$ 101,336,989 9,641,911
============= =============
</TABLE>
The line of credit agreement provides for various financial covenants,
the most restrictive of which place limitations on debt, investments,
transactions with affiliates, restricts the payment of dividends and
material changes in ownership.
In June 1996, concurrent with the completion of three new financing
agreements, the Company issued warrants for the purchase of the number
of shares of common stock equivalent to 25% of the outstanding shares
of the Company. These warrants have a 10-year term and are immediately
exercisable at a price of $1.00 per share. The excess of the fair
market value of the warrant on the date of grant over the exercise
price ($24,216,000) has been recorded as a prepaid commitment fee and
included as a reduction to the related debt amounts with a
corresponding credit to additional paid-in capital. Such commitment fee
is being amortized to expense using the straight-line method over the
remaining terms (30 to 36 months) to maturity of the related debt.
F-11
<PAGE> 16
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
(6) INCOME TAXES
For Federal income and state franchise tax purposes, the Company
maintains the status of an S Corporation. This status results in the
pass-through of all of the Company's Federal and state taxable income
to the stockholders of the Company. However, the Company is subject to
a California state tax rate of approximately 3.5%.
Income taxes are as follows:
<TABLE>
<CAPTION>
AUGUST 24,
JANUARY 1, 1995
1996 (INCEPTION)
THROUGH THROUGH
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
<S> <C> <C>
State:
Current $5,000 800
Deferred -- 19,040
------ ------
Total income taxes $5,000 19,840
====== ======
</TABLE>
The actual tax expense differs from expected as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ------------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Expected California tax expense (benefit) $(60,625) (3.5%) $ 19,840 3.5%
Net operating loss carryback disallowed
for California 60,625 3.5 -- --
Other state income taxes 5,000 0.3 -- --
-------- ------- --------- ---------
$ 5,000 0.3% $ 19,840 3.5%
======== ======= ========= =========
</TABLE>
F-12
<PAGE> 17
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
DEFERRED
INCOME
JUNE 30, TAXES DECEMBER 31,
1996 (BENEFIT) 1995
-------- --------- ------------
<S> <C> <C> <C>
Deferred tax asset:
Loan mark-to-market $ 18,839 18,839 --
Accruals -- (16,800) 16,800
Provision for loan losses 8,750 8,750 --
-------- -------- --------
27,589 10,789 16,800
Valuation allowance (27,115) (27,115) --
-------- -------- --------
Total tax asset 474 (16,326) 16,800
-------- -------- --------
Deferred tax liability:
Loan mark-to-market -- 21,348 (21,348)
Furniture, equipment and leasehold
improvements (474) (273) (201)
Other -- 14,291 (14,291)
-------- -------- --------
Net deferred tax asset
(liability) $ -- 19,040 (19,040)
======== ======== ========
</TABLE>
Upon the intended merger noted in note 11, the Company will
automatically convert from an S Corporation to a C Corporation under
provisions of the Internal Revenue Code.
(7) COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These instruments include commitments to originate and
sell loans and involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
Commitments to originate mortgage loans are agreements to provide
financing at a fixed or variable interest rate subject to specific
terms and a customer's creditworthiness on a case-by-case basis. These
commitments have fixed expiration dates and other termination clauses
and may require payment of a fee.
At June 30, 1996 and December 31, 1995, the Company had commitments to
fund mortgage loans of $153 million and over $40 million, respectively.
This does not necessarily represent future cash requirements, as some
portion of the commitments will expire without being drawn upon or will
be declined for credit or other reasons. At June 30, 1996 and December
31, 1995, the Company had no outstanding commitments to purchase loans.
F-13
<PAGE> 18
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
The Company conducts a major part of its business from leased
facilities and also leases certain equipment. Net rental payments of
approximately $289,000 and $81,000 have been charged to occupancy
expense in the accompanying statements of operations for the period
January 1, 1996 through June 30, 1996 and for the period August 24,
1995 (inception) through December 31, 1995, respectively.
At June 30, 1996, minimum rental commitments under all noncancelable
leases were as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1996 $ 300,243
1997 552,477
1998 297,691
1999 15,055
----------
Total minimum payments
required $1,165,466
==========
</TABLE>
For the period January 1, 1996 through June 30, 1996 and August 24,
1995 (inception) through December 31, 1995, a significant portion of
legal and professional expenses are related to costs incurred in the
settlement of a lawsuit against certain key employees of the Company by
their former employer. Management of the Company and outside legal
counsel believed that the lawsuit was without merit but settled to
avoid future legal costs.
The Company has entered into loan sale agreements with investors in the
normal course of business which include standard representations and
warranties customary to the mortgage banking industry. Violations of
these representations and warranties may require the Company to
repurchase loans previously sold. As of June 30, 1996, the Company had
repurchase requests outstanding from investment bank 1 of approximately
$2,700,000. Management does not believe that these repurchase requests
represent violations under its representations and warranties and does
not believe that the ultimate effect of these repurchase requests will
have a material affect on the operations of the Company. In the opinion
of management, the potential exposure related to the Company's loan
sale agreements will not have a material adverse effect on the
financial position and operating results of the Company.
(8) STOCKHOLDERS' EQUITY
During August 1995, the Company's stockholders contributed $300,000 in
exchange for 100 shares of the Company's common stock.
STOCK OPTIONS
During 1995 and 1996, the Company's Board of Directors granted stock
options to certain employees of the Company as part of their respective
employment contracts. These options were granted at the fair market
value of the Company's stock at the date of each grant. Each option
vests four years from the date of grant and becomes exercisable
annually from that date over the following three years.
F-14
<PAGE> 19
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
The following table summarizes option activity for the periods shown:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Options outstanding August 24, 1995 -- $ --
Granted 21.3375 9,948
Exercised -- --
Canceled -- --
------- --------
Options outstanding December 31, 1995 21.3375 9,948
Granted 1.5432 120,635
Exercised -- --
Canceled -- --
------- --------
Options outstanding June 30, 1996 22.8807 $ 17,414
======= ========
</TABLE>
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." This statement establishes financial accounting
standards for stock-based employee compensation plans. SFAS 123 permits
the Company to choose either a new fair value based method or the
current APB Opinion 25 intrinsic value based method of accounting for
its stock-based compensation arrangements. SFAS 123 requires pro forma
disclosures of net earnings (loss) computed as if the fair value based
method had been applied in financial statements of companies that
continue to follow current practice in accounting for such arrangements
under Opinion 25. SFAS 123 applies to all stock-based employee
compensation plans in which an employer grants shares of its stock or
other equity instruments to employees except for employee stock
ownership plans. SFAS 123 also applies to plans in which the employer
incurs liabilities to employees in amounts based on the price of the
employer's stock, i.e., stock option plans, stock purchase plans,
restricted stock plans, and stock appreciation rights. The statement
also specifies the accounting for transactions in which a company
issues stock options or other equity instruments for services provided
by nonemployees or to acquire goods or services from outside suppliers
or vendors. The Company elected to continue to apply the APB Opinion 25
intrinsic value method of accounting for its stock-based compensation
to management. The disclosure provisions of SFAS 123 are effective for
fiscal years beginning after December 15, 1995; however, disclosure of
the pro forma net earnings (loss), as if the fair value method of
accounting for stock-based compensation had been elected, is required
for all awards granted in fiscal years beginning after December 31,
1994. The effect on pro forma net earnings (loss) required by SFAS 123
would be to reduce net earnings (loss) for the period January 1, 1996
through June 30, 1996 and August 24, 1995 (inception) through December
31, 1995 approximately $16,000 for each period.
F-15
<PAGE> 20
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
(9) EMPLOYEE BENEFITS
The Company sponsors a pretax savings and profit sharing plan under
Section 401(k) of the Internal Revenue Code (the Plan). The Plan was
established January 1, 1996 and allows all eligible employees to
contribute up to the lesser of 15% of their compensation or $9,500. The
Company does not match employee contributions; however, the Company
anticipates an annual administrative expense of approximately $2,500
related to the Plan.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about
Fair Value of Financial Instruments." The estimated fair value amounts
have been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized in a current market
exchange. The use of different market assumptions or estimation
methodologies may have a material impact on the estimated fair value
amounts.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
----------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
------------ ----------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 5,724,797 5,724,797 2,332,753 2,332,753
Loans held for sale 117,239,035 125,450,000 7,437,604 7,773,784
Loans held for investment 1,623,206 1,623,206 -- --
Financial liabilities -notes
payable 124,764,989 124,764,989 9,641,911 9,641,911
Loan commitments -- 4,819,500 -- 1,808,000
</TABLE>
The following methods and assumptions were used in estimating the
Company's fair value disclosures for financial instruments.
Cash: The fair values of cash approximates the carrying values reported
in the balance sheet.
Loans Held for Sale: The fair value of loans held for sale is
determined in the aggregate based on outstanding commitments from
investors or current investor yield requirements.
Loans Held for Investment: The fair value of loans held for investment
is determined based upon the Company's estimate of the proceeds from
the ultimate sale of the underlying collateral of each loan.
Notes Payable: The fair value of the Company's fixed rate and variable
rate notes payable is estimated using discounted cash flow analyses
based on current market interest rates and comparison of interest rate
being paid to the Company's incremental borrowing rate for similar
types of borrowing arrangements.
F-16
<PAGE> 21
ONE STOP MORTGAGE, INC.
Notes to Financial Statements, Continued
Commitments: The fair value of commitments is determined in the
aggregate based on current investor yield requirements.
(11) SUBSEQUENT EVENT
In August 1996, the Company entered into an agreement to merge the
Company with Aames Financial Corporation (Aames) in a stock-for-stock
business combination intended to be accounted for as a pooling of
interests on or before August 31, 1996. The Company will receive
approximately 2.7 million shares of Aames stock valued at approximately
$130 million in exchange for all the outstanding shares of the Company.
Under the terms of the Company's existing financing agreements with
investment bank 2, the investment bank has the ability to terminate the
financing agreements upon consummation of the merger. Upon termination
of the financing agreements, the remaining unamortized prepaid
commitment fee ($23.4 million at June 30, 1996) would be fully
expensed.
F-17
<PAGE> 22
EXHIBIT INDEX
Exhibit
- -------
2.1 Agreement and Plan of Reorganization, dated as of
August 12, 1996, as amended by Amendment No. 1, dated
August 28, 1996 (as amended, the "Agreement"), by and
among Aames Financial Corporation, a Delaware
corporation ("Aames"), Aames Acquisition Corporation,
a Delaware corporation and a wholly owned subsidiary
of Aames ("Merger Sub"), One Stop Mortgage, Inc., a
Wyoming corporation ("One Stop") and Neil B. Kornswiet.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Price Waterhouse LLP*
99.1 Press Release issued August 12, 1996 with respect to the
Merger Sub with and into One Stop.
__________
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement And Plan Of Reorganization (this "Agreement") is made and
entered into as of the 12th day of August, 1996, by and among Aames Financial
Corporation, a Delaware corporation ("Aames"), Aames Acquisition Corporation, a
Delaware corporation to be formed as a wholly owned subsidiary of Aames ("Merger
Sub"), and One Stop Mortgage, Inc., a Wyoming corporation ("One Stop"), and
(solely for purposes of Article IV hereof) Neil B. Kornswiet who, along with his
spouse, is the principal stockholder of One Stop (the "Principal Stockholder").
RECITALS
A. Aames and One Stop desire to effect a merger (the "Merger") of Merger
Sub with and into One Stop in accordance with the terms of this Agreement and
the Articles of Merger (as defined herein).
B. The respective Boards of Directors of Aames and One Stop believe that
the proposed Merger, on the terms and conditions set forth herein, is in the
best interests of their respective corporations and stockholders.
C. The Parties desire to make certain representations, warranties,
covenants and agreements in connection with the transactions contemplated by
this Agreement.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in consideration
of the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto do agree as follows:
ARTICLE I
DEFINITIONS
<PAGE> 2
Except as otherwise expressly provided for in this Agreement, or unless the
context otherwise requires, as used throughout this Agreement the terms defined
in this ARTICLE I have the meanings assigned to them in this ARTICLE I and the
singular includes the plural.
1.1 "Aames" has the meaning set forth in the first paragraph of this
Agreement.
1.2 "Aames Rights Agreement" means the Rights Agreement, dated June 21,
1996 by and between Aames and Wells Fargo Bank, N.A.
1.3 "Aames Schedules" means the Schedules prepared and delivered by Aames
pursuant to Article V.
1.4 "Aames SEC Filings" has the meaning set forth in Section 5.3.
1.5 "Aames Stock" means the common stock, par value $.001 per share, of
Aames.
1.6 "Affiliate" of, or a person "Affiliated" with, a specific Person is a
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
1.7 "Agency" means any governmental agency, bureau, department or other
regulatory body having or purporting to have any jurisdiction or authority over
any aspect of the business or assets of One Stop, determine the investment or
servicing requirements with regard to loans originated, purchased or serviced by
One Stop, or otherwise participate in or promote mortgage lending.
1.8 "Alternative Transaction" means any of the following involving One Stop
for purposes of Section 6.2: any merger, consolidation, share exchange or other
business combination; a sale, lease, exchange, mortgage, pledge, transfer
<PAGE> 3
or other disposition of all or substantially all of the assets of One Stop; a
sale of shares of capital stock (or securities convertible or exchangeable into
or otherwise evidencing, or any agreement or instrument evidencing, the right to
acquire capital stock), representing 10% or more of the voting power of One
Stop; an exchange offer for at least 10% of the outstanding shares of One Stop;
or a public announcement of a proposal, plan, or intention to do any of the
foregoing.
1.9 "Applicable Requirements" mean (i) federal, state and local laws, rules
and regulations with respect to the origination, funding, closing, insuring,
purchase, sale, pooling, servicing, subservicing, master servicing or filing of
claims in connection with a Mortgage Loan, a Pipeline Loan or a Previously
Disposed Loan; (ii) the responsibilities and obligations set forth in any
written agreement between One Stop and an Investor, or an Insurer; (iii) the
laws, rules, regulations, guidelines, handbooks and other written requirements
of an Investor, Agency, Insurer, public housing program or Investor program with
respect to the origination, funding, closing, insuring, purchase, sale, pooling,
servicing, subservicing, master servicing or filing of claims in connection with
a Mortgage Loan, a Pipeline Loan or a Previously Disposed Loan; and (iv) the
terms and provisions of the Loan Documents.
1.10 "Articles of Merger" means the Articles of Merger to be filed by One
Stop substantially in the form of Exhibit A hereto, but subject to any changes
that may be necessary to conform to any requirements of any regulatory agency
having authority over the Merger.
1.11 "Average Price of Aames Stock" means the average of the Closing Prices
of Aames Stock for the 10 consecutive trading days ending on (and including) the
second trading day immediately preceding the Closing Date
<PAGE> 4
(subject to adjustment as provided below). The term "trading day" shall mean a
day on which trading generally takes place on the NYSE and on which trading in
Aames Stock has not been halted or suspended. In the event Aames pays, declares
or otherwise effects a stock split, reverse stock split, reclassification or
stock dividend or distribution with respect to the Aames Stock between the date
of this Agreement and the Effective Time, appropriate adjustments will be made
to the Average Price of Aames Stock.
1.12 "Business Day" means any day other than Saturday, Sunday or a day on
which commercial banks in Los Angeles are permitted to be closed.
1.13 "Certificate of Merger" means the certificate of merger to be filed by
Merger Sub with the Delaware Secretary under the DGLL.
1.14 "Closing" means the consummation of the Merger (as defined herein) on
the Closing Date (as defined herein) at the offices of Troop Meisinger Steuber &
Pasich, LLP, 10940 Wilshire Boulevard, Los Angeles, CA 90024, or at such other
place as the parties may agree upon.
1.15 "Closing Date" means a Business Day to be designated by the Parties.
1.16 "Closing Price of Aames Stock" means the closing price of Aames Stock
as reported on the NYSE Composite Transaction Tape.
1.17 "Code" means the Internal Revenue Code of 1986, as amended.
1.18 "Conversion Ratio" has the meaning set forth in Section 2.1(c).
1.19 "Convertible Debt" means the 5-1/2% Convertible Subordinated
Debentures of Aames due 2006.
1.20 "Correspondent Agreement" means a contract, arrangement or
Understanding pursuant to which One Stop funds or purchases Mortgage Loans on a
regular basis and the Mortgage Loans so purchased are underwritten according to
<PAGE> 5
One Stop's standards, Servicing Released Loans funded or originated by others.
1.21 "Delaware Secretary" means the Secretary of State of the State of
Delaware.
1.22 "DGCL" means the Delaware General Corporation law.
1.23 "Effective Time" means the date and time of the filing of the Articles
of Merger with the Wyoming Secretary and the Certificate of Merger with the
Delaware Secretary.
1.24 "Encumbrance" means any mortgage, lien, pledge, security interest,
claim, charge, easement, limitation, commitment, restriction or encumbrance of
any kind or nature whatsoever.
1.25 "Environmental Law" means any federal, state, or local statute, law,
ordinance, rule, regulation, order, consent, decree, judicial or administrative
decision or directive of the United States or other jurisdiction whether now
existing or as hereinafter promulgated, issued or enacted relating to: (A)
pollution or protection of the environment, including natural resources; (B)
exposure of persons, including employees, to Hazardous Substances or other
products, materials or chemicals; (C) protection of the public health or welfare
from the effects of products, by-products, wastes, emissions, discharges or
releases of chemical or other substances from industrial or commercial
activities; or (D) regulation of the manufacture, use or introduction into
commerce of substances, including, without limitation, their manufacture,
formulation, packaging, labeling, distribution, transportation, handling,
storage and disposal. For the purposes of this definition the term
"Environmental Law" shall include, without limiting the foregoing, the following
statutes, as amended from time to time: (1) the Clean Air Act, as amended, 42
U.S.C. Section 7401 ET SEQ.; (2) the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 ET SEQ.; (3) the Resource
<PAGE> 6
Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 ET
SEQ., (4) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (including the Superfund Amendments and Reauthorization
Act of 1986), 42 U.S.C. Section 9601 ET SEQ; (5) the Toxic Substances Control
Act, as amended, 15 U.S.C. Section 2601 ET SEQ.; (6) The Occupational Safety and
Health Act, as amended, 29 U.S.C. Section 651; (7) the Emergency Planning and
Community Right-To-Know Act of 1986, 42 U.S.C. Section 1101 ET SEQ.; (8) the
Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 ET SEQ.;
(9) the Safe Drinking Water Act, 42 U.S.C. Section 300f ET SEQ.; and (10) all
comparable state and local laws, laws of other jurisdictions or orders and
regulations including, but not limited to, the Carpenter-Presley-Tanner
Hazardous Substance Account Act, Cal. Health & Safety Code Section 25300 ET SEQ.
1.26 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.27 "Escrow Agent" means the entity selected by Aames and One Stop to
initially serve as the escrow agent under the Escrow Agreement.
1.28 "Escrow Agreement" means the agreement, dated as of the Closing Date,
by and among Aames, One Stop and the Escrow Agent, substantially in the form of
Exhibit B.
1.29 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.30 "Exchange Agent" means the financial institution appointed by Aames
with the consent of One Stop to effect the exchange contemplated by Article II
hereof.
1.31 "Existing Credit Facilities" means (i) that certain Amended and
Restated Warehouse and Security Agreement, Working Capital Loan Agreement and
<PAGE> 7
Standby Financing Agreement, each between One Stop and LCPI dated June 28, 1996.
1.32 "Financial Statements of One Stop" means (i) the audited financial
statements and notes thereto of One Stop and the related opinions for the year
ended December 31, 1995; and (ii) the unaudited interim financial statements and
notes thereto of One Stop for the quarters ended March 31 and June 30, 1996.
1.33 "GAAP" means generally accepted accounting principles as used in the
United States as in effect at the time any applicable financial statements were
prepared.
1.34 "Hazardous Substances" means (i) substances that are defined or listed
in, or otherwise classified pursuant to, or the use or disposal of which are
regulated by, any Environmental Law as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity;" (ii) oil, petroleum or petroleum
derived from substances and drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources; (iii) any flammable substances or
explosives, any radioactive materials, any hazardous wastes or substances, any
toxic wastes or substances or any other materials or pollutants which pose a
hazard to any property or to Persons on or about such property; and (iv)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of 50
parts per million.
<PAGE> 8
1.35 "Immediate Family" means a person's spouse, parents, in-laws, children
and siblings.
1.36 "Insurer" means a Person (other than One Stop) who insures or
guarantees all or any portion of the risk of loss upon borrower default on any
of the Mortgage Loans or Servicing Released Loans, including, without
limitation, any Agency which provides such insurance or guarantees and any
private mortgage insurer, and providers of life, hazard, disability, title or
other insurance with respect to any of the Mortgage Loans or Servicing Released
Loans or the collateral underlying such loans.
1.37 "Investor" means any Person who has acquired a Mortgage Loan or
Servicing Released Loan from One Stop.
1.38 "IRS" means the Internal Revenue Service.
1.39 "Knowledge" or "knowledge" (and variations thereof such as "known to"
or "knows of") means, for any Person which is a corporation, business trust,
partnership or other entity, the knowledge attributable to such Person based
solely on the actual, personal and direct knowledge of the senior vice
presidents (and all officers senior to such Persons) of such Person and, for any
person that is a natural person, the actual, personal and direct knowledge of
such Person.
1.40 "LB" means Lehman Brothers Holdings Inc., a Delaware corporation.
1.41 "LCPI" means Lehman Commercial Paper, Inc., a New York corporation.
1.42 "Licenses" means all certifications, authorizations, licenses,
permits and other approvals.
1.43 "Loan Documents" means the credit and closing packages, custodial
documents, escrow documents, and all other documents: (i) in the possession of
One Stop specifically pertaining to a Mortgage Loan or a Pipeline Loan, (ii)
<PAGE> 9
reasonably necessary for prudent servicing of a Mortgage Loan or a Pipeline
Loan, or (iii) necessary to establish the eligibility of the Mortgage Loan or a
Pipeline Loan for insurance by an Insurer or sale to an Investor, in each case
as required by Applicable Requirements.
1.44 "Loan Properties" means any property in which One Stop holds a
security interest and, where required by the context, said term means the owner
or operator of such property or Encumbrance.
1.45 "Loss" means any liability, loss, cost, damage, penalty, fine,
obligation or expense of any kind whatsoever (including, without limitation,
reasonable attorneys', accountants', consultants' or experts' fees and
disbursements).
1.46 "Material Adverse Effect" means when used in connection with One Stop
or Aames or any of Aames' subsidiaries, as the case may be, any condition,
change or effect that, individually or when taken together with all other such
conditions, changes or effects that existed or occurred prior to the date of
determination of the existence or occurrence of the Material Adverse
Effect, is or is reasonably likely to be materially adverse to the business,
operations, assets (including intangible assets), financial condition or results
of operations of One Stop or Aames and its subsidiaries taken as a whole, as
applicable.
1.47 "Merger Sub" has the meaning set forth in the first paragraph of this
Agreement.
1.48 "Merger Sub Stock" means the common stock of Merger Sub.
1.49 "Mortgage Banking Agreements" shall mean any Understanding pursuant to
which: (i) One Stop is or has been provided with funding (A) to originate and
close, purchase and/or securitize Mortgage Loans or Servicing Released Loans,
(B) to acquire real estate upon foreclosure of Mortgage Loans or Servicing
Released
<PAGE> 10
Loans and/or (C) for working capital or similar purposes; (ii) Mortgage Loans
are serviced or subserviced by One Stop or any other Person; (iii) Mortgage
Loans or Servicing Released Loans are or have been sold, assigned, transferred
or pledged to any other Person; and (iv) any Mortgage Loan or Servicing Released
Loan, or a borrower under any such loan, is insured or guaranteed against risk
of loss by an Insurer.
1.50 "Mortgage Loan" means any closed mortgage loan (including all
Warehouse Loans) of One Stop in the Mortgage Servicing Portfolio.
1.51 "Mortgage Servicing Portfolio" means the portfolio of Mortgage Loans
subserviced, serviced or master serviced by or on behalf of One Stop or any of
its Affiliates pursuant to Mortgage Banking Agreements or otherwise, together
with all Warehouse Loans.
1.52 "New Certificates" has the meaning set forth in Section 2.3(b).
1.53 "Non-Compete Agreement" means the agreement, dated as of the Closing
Date, by and between the Principal Stockholder, One Stop and Aames,
substantially in the form attached hereto as Exhibit C.
1.54 "NYSE" means the New York Stock Exchange, Inc.
1.55 "Old Certificates" has the meaning set forth in Section 2.3(b).
1.56 "One Stop" has the meaning set forth in the first paragraph of this
Agreement.
1.57 "One Stop Employee Plans" has the meaning set forth in Section 4.20.
1.58 "One Stop Real Property" has the meaning set forth in Section 4.9.
1.59 "One Stop Scheduled Contracts" has the meaning set forth in Section
4.16.
<PAGE> 11
1.60 "One Stop Schedules" has the meaning set forth in Section 6.3(j).
1.61 "One Stop Stock" means the common stock, no par value per share, of
One Stop.
1.62 "One Stop Stockholders' Consent" means the consent of One Stop's
stockholders referred to in Section 6.6 hereof.
1.63 "One Stop Supplied Information" has the meaning set forth in Section
4.43.
1.64 "Other Real Estate Owned" means any real property of One Stop owned or
acquired by foreclosure or otherwise, in the ordinary course of collecting a
debt previously contracted for in good faith.
1.65 "Party" means any of Aames, Merger Sub or One Stop or, solely for
purposes of Article IV hereof, the Principal Stockholder. "Parties" shall mean
Aames, Merger Sub and One Stop and, solely for purposes of Article IV hereof,
the Principal Stockholder.
1.66 "Person" means any individual, corporation, association, partnership,
limited liability company, limited liability partnership, joint venture, trust,
estate, other entity, government or governmental department or agency or other
entity of whatsoever kind or nature.
1.67 "Pipeline Loans" means those pending loans to be secured by a mortgage
lien on a one-to-four family residence with respect to which, as of the Closing
Date, an application has been filed or submitted by the prospective borrower
with (i) One Stop or (ii) a correspondent, broker or originator (and which, in
the case of those loans referred to in this clause (ii), such correspondent, or
brokerage or originator has registered or submitted such loan with One Stop),
and which have not yet closed or been purchased from the correspondent, broker
or originator on the Closing Date.
<PAGE> 12
1.68 "Previously Disposed Loan" means any Mortgage Loan and/or the
servicing rights related thereto which is not a Warehouse Loan, a Pipeline Loan
or a Mortgage Loan in the Mortgage Servicing Portfolio as of the Closing Date,
and which was sold to any Person by One Stop, any of its Affiliates or any of
their predecessors prior to the Closing Date.
1.69 "Principal Stockholder" has the meaning set forth in the first
paragraph of this Agreement.
1.70 "Recourse Loan" has the meaning set forth in Section 4.27.
1.71 "Related Group of Persons" means Affiliates, members of an Immediate
Family or Persons the obligations of whom would be attributed to another Person
pursuant to the regulations promulgated by the SEC (as defined herein).
1.72 "Schedules" means the One Stop Schedules and the Aames Schedules,
collectively.
1.73 "SEC" means the Securities and Exchange Commission.
1.74 "Securities Act" means the Securities Act of 1933, as amended.
1.75 "Servicing Released Loans" has the meaning set forth in Section 4.27.
1.76 "Servicing Rights" means the right to receive the servicing fees and
any other income the servicer is entitled to receive arising from or connected
to the Mortgage Loans and the related obligations to (i) administer and collect
payments for the reduction of principal and/or interest, (ii) pay taxes and
insurance premiums, (iii) remit all amounts in accordance with any servicing
agreements, (iv) provide foreclosure services and full escrow administration
and (v) perform such other obligations as may, from time to time, be
imposed under any Mortgage Banking Agreement.
<PAGE> 13
1.77 "State Agency Approvals" has the meaning set forth in Section 4.6.
1.78 "Subsidiary" means, when used with respect to any party, any
corporation, partnership or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes.
1.79 "Surviving Company" has the meaning set forth in Section 2.1(a)
hereof.
1.80 "Transferred Employees" has the meaning set forth in Section 12.1.
1.81 "Understanding" means any contract, agreement, understanding,
commitment or offer, whether written or oral, which may become a binding
obligation if accepted by another Person.
1.82 "Warehouse Lender" shall mean LCPI.
1.83 "Warehouse Loans" means Mortgage Loans owned by One Stop and which
have not been sold or delivered to a party other than One Stop.
1.84 "Warrant" means that certain Warrant, dated June 28, 1996, issued to
LCPI by One Stop.
1.85 "WBCA" means the Wyoming Business Corporation Act.
1.86 "Wyoming Secretary" means the Secretary of State of the State of
Wyoming.
ARTICLE II
THE MERGER AND RELATED MATTERS
2.1 THE MERGER. The Merger shall become effective upon the filing of the
Articles of Merger with the Wyoming Secretary in accordance with the provisions
of the WBCA and the Certificate of Merger with the Delaware Secretary under the
DGCL. At the Effective Time, the following transactions will be deemed to have
occurred simultaneously:
<PAGE> 14
(a) Merger Sub shall be merged with and into One Stop, the separate
corporate existence of Merger Sub shall cease and One Stop shall be the
surviving corporation in the Merger (the "Surviving Company").
(b) Each share of Merger Sub Stock issued and outstanding immediately
prior to the Effective Time shall be automatically canceled and cease to be an
issued and outstanding share of Merger Sub Stock and shall be converted into one
(1) share of common stock of the Surviving Company.
(c) Subject to Sections 2.2 and 2.12, each share of One Stop Stock
issued and outstanding immediately prior to the Effective Time shall, on and
after the Effective Time, be automatically canceled and cease to be an issued
and outstanding share of One Stop Stock and shall be converted into the right
to receive 16,497 shares of Aames Stock (the "Conversion Ratio").
2.2 FRACTIONAL SHARES. No fractional shares of Aames Stock shall be issued
in the Merger. In lieu thereof, each holder of One Stop Stock who would
otherwise be entitled to receive a fractional share shall receive an amount in
cash equal to the product (calculated to the nearest thousandth) obtained by
multiplying (a) the Average Price of Aames Stock times (b) the fraction of the
share of Aames Stock to which such holder would otherwise be entitled. No such
holder shall be entitled to dividends or other rights in respect of any such
fraction.
2.3 EXCHANGE PROCEDURES.
(a) On or before the Effective Time, Aames will deliver to the
Exchange Agent certificates representing a sufficient number of shares of Aames
Stock issuable in the Merger and funds representing a sufficient amount of cash
payable in lieu of fractional shares in the Merger.
(b) Upon surrender for cancellation to the Exchange Agent of one or
<PAGE> 15
more certificates for shares of One Stop Stock ("Old Certificates"), accompanied
by (x) stock powers duly endorsed in blank, and (y) a duly executed letter of
transmittal in the form attached hereto as Exhibit "D", the Exchange Agent
shall, promptly after the Effective Time, deliver (i) to the Escrow Agent the
number of shares of Aames Stock required to be deposited pursuant to the Escrow
Agreement, and (ii) to each holder of such surrendered Old Certificates new
certificates representing the appropriate number of shares of Aames Stock to
which the parties are entitled pursuant to this Agreement ("New Certificates"),
together with checks for payment of cash in lieu of fractional interests to be
issued in respect of the Old Certificates.
(c) Until Old Certificates have been surrendered and exchanged as
herein provided, each outstanding Old Certificate shall represent, on and after
the Effective Time, the right to receive the shares of Aames Stock and/or the
cash into which the number of shares of One Stop Stock shown thereon have been
converted, as provided herein. No dividends or other distributions that are
declared on Aames Stock will be paid to Persons otherwise entitled to receive
the same until the Old Certificates have been surrendered in exchange for New
Certificates in the manner herein provided, but upon such surrender, such
dividends or other distributions, from and after the Effective Time, will be
paid to such Persons in accordance with the terms of such Aames Stock. In no
event shall the Persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions.
(d) No transfer taxes shall be payable by any stockholder in respect
of the issuance of New Certificates, except that if any New Certificate is to be
issued in a name other than that in which the Old Certificate surrendered shall
have been registered, it shall be a condition of such issuance that the Person
requesting such issuance shall properly endorse the certificate or
<PAGE> 16
certificates and shall pay to Aames any transfer taxes payable by reason
thereof, or of any prior transfer of such surrendered certificate, or establish
to the satisfaction of Aames that such taxes have been paid or are not payable.
(e) Any Aames Stock or cash delivered to the Exchange Agent (together
with any interest or profits earned thereon) and not issued pursuant to this
Section 2.3 at the end of six months from the Effective Time shall be returned
to Aames.
(f) Notwithstanding anything to the contrary set forth in Sections
2.3(b) and 2.3(c) hereof, if any holder of One Stop Stock shall be unable to
surrender his Old Certificates because such certificates have been lost or
destroyed, such holder may deliver in lieu thereof an indemnity bond in form and
substance reasonably satisfactory to Aames.
(g) The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the shares of Aames Stock held by it from
time to time hereunder, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect to such shares of Aames
Stock for the account of the Persons entitled thereto.
2.4 NO LIABILITY. None of Aames, Merger Sub, the Exchange Agent or any
other Person shall be liable to any former holder of shares of One Stop Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
2.5 EFFECT OF MERGER. By virtue of the Merger and at the Effective Time,
all of the rights, privileges, powers and franchises and all property and assets
of every kind and description of Merger Sub and One Stop shall be vested in and
be held and enjoyed by the Surviving Company, without further act or deed, and
all the estates and interests of every kind of Merger Sub and One
<PAGE> 17
Stop, including all debts due to either of them, shall be as effectively the
property of the Surviving Company as they were of Merger Sub and One Stop, and
the title to any real estate vested by deed or otherwise in either Merger Sub or
One Stop shall not revert or be in any way impaired by reason of the Merger; and
all rights of creditors and liens upon any property of Merger Sub and One Stop
shall be preserved unimpaired and all debts, liabilities and duties of Merger
Sub and One Stop shall be debts, liabilities and duties of the Surviving Company
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it, and none of such debts,
liabilities or duties shall be expanded, increased, broadened or enlarged by
reason of the Merger.
2.6 NAME OF SURVIVING COMPANY. The name of the Surviving Company shall
be One Stop Mortgage, Inc.
2.7 ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING COMPANY. The Articles
of Incorporation and Bylaws of One Stop as in effect immediately prior to the
Effective Time shall continue to be the Articles of Incorporation and Bylaws of
the Surviving Company.
2.8 DIRECTORS AND OFFICERS OF SURVIVING COMPANY. At the Effective Time, the
Board of Directors of One Stop shall consist of Neil B. Kornswiet and a person
to be designated by Neil B. Kornswiet and reasonably acceptable to Aames and
three persons selected by Aames, each of whom shall be the directors of the
Surviving Company until their successors have been chosen and qualified in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Company. The officers of One Stop immediately prior to the Effective Time of the
Merger shall be the officers of the Surviving Company until they resign or are
replaced or terminated by the Board of Directors of the Surviving Company or
otherwise in accordance with the Surviving Company's Articles of Incorporation
and Bylaws.
<PAGE> 18
2.9 WARRANT. At the Effective Time, upon payment to Aames by LCPI of the
exercise price referred to therein, the Warrant shall be exchanged for the right
to receive 675,000 shares of Aames Stock. As soon as practicable following
Closing, Aames shall cause the appropriate number of Share Certificates to be
issued to LCPI and the Escrow Agent as provided in the Escrow Agreement and this
Agreement.
2.10 EMPLOYEE OPTIONS. Each of the outstanding options to purchase One Stop
Stock, whether vested or unvested, shall, subject to the terms of any applicable
stock option agreement evidencing the same, remain outstanding following the
Effective Time. At the Effective Time, such stock options shall, by virtue of
the Merger and without any further action on the part of One Stop, Aames, Merger
Sub or the holder of any such stock option, be assumed by Aames in such manner
that Aames (x) is a corporation "assuming a stock option in a transaction to
which Section 424 applies" within the meaning of Section 422A of the Code or (y)
to the extent Section 424 of the Code does not apply to any such stock option,
would be such a corporation were Section 424 applicable to such option. Each
stock option assumed by Aames shall be exercisable upon the same terms and
conditions as under the applicable stock option agreement or other applicable
agreement evidencing the same, except that (i) each such stock option shall be
exercisable for that number of shares of Aames Stock (rounded to the nearest
whole share) into which the number of shares of One Stop Stock subject to such
stock option immediately prior to the Effective Time would be converted under
Section 2.1(c) of this Agreement, and (ii) the option price per share of Aames
Stock shall be equal to (x) the per share exercise price of such stock option in
effect immediately prior to the Effective Time multiplied by the number of
shares of One Stop Stock subject to such stock option immediately
<PAGE> 19
prior to the Effective Time, DIVIDED BY (y) the number of shares of Aames Stock
subject to such stock option immediately after the Effective Time. No payment
shall be made for fractional interests. From and after the date hereof, no
additional stock options or other purchase rights shall be granted by One Stop
and no "vesting" or exercise schedule of One Stop stock options shall be
modified or accelerated (other than pursuant to the express terms of such stock
option) and no exercise price of any stock option shall be modified without the
prior written consent of Aames.
2.11 CONVERSION. As a result of the Merger, all of the outstanding
securities of One Stop, as of the Effective Time, will be converted into right
to receive (x) 1,649,700 shares of Aames Stock issuable to the Principal
Stockholder and his spouse, (y) 675,000 shares of Aames Stock issuable to LB,
and (z) 375,300 shares of Aames Stock issuable upon exercise of the options
assumed pursuant to Section 2.10 above.
2.12 ADJUSTMENTS. The Conversion Ratio and the number of shares of Aames
Stock to be issued to LCPI pursuant to Section 2.9 shall be adjusted to reflect
fully the effect of any stock split, reverse split, stock dividend,
reorganization, recapitalization or other like change with respect to shares of
Aames Common Stock or shares of One Stop Common Stock, occurring after the date
hereof and prior to the Closing.
ARTICLE III
THE CLOSING
3.1 CLOSING DATE. The Closing shall take place on the Closing Date.
3.2 EXECUTION OF MERGER AGREEMENTS. As soon as practicable after execution
of this Agreement, the Articles of Merger and the Certificate of
<PAGE> 20
Merger shall be executed by Aames and One Stop. On the Closing Date, the
Articles of Merger, together with all requisite certificates, shall be duly
filed with the Wyoming Secretary and the Certificate of Merger, together with
all requisite certificates, shall be filed with the Delaware Secretary as
required by applicable laws and regulations.
3.3 DOCUMENTS TO BE DELIVERED. At the Closing, the Parties shall deliver,
or cause to be delivered, such documents or certificates as may be necessary, in
the reasonable opinion of counsel for any of the Parties, to effect the
transactions contemplated by this Agreement. From and after the Effective Time,
each of the Parties hereby covenants and agrees, without the necessity of any
further consideration whatsoever, to execute, acknowledge and deliver any and
all other documents and instruments and take any and all such other action as
may be reasonably necessary or desirable to more effectively carry out the
intent and purpose of this Agreement and the Articles of Merger, and the
officers and directors of the Parties shall execute and deliver, or cause to be
executed and delivered, all such documents as may be reasonably necessary or
desirable to more effectively carry out the intent and purpose of this Agreement
and the Articles of Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ONE STOP
One Stop and the Principal Stockholder, jointly and severally represent and
warrant to Aames as set forth in this Article IV. All of the representations and
warranties of the Principal Stockholder in this Article IV are made solely to
the knowledge of the Principal Stockholder.
4.1 INCORPORATION, STANDING AND POWER. One Stop has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
State of Wyoming. One Stop has all requisite corporate power
<PAGE> 21
and authority to own, lease and operate its properties and assets and to carry
on its business as currently conducted. One Stop is duly licensed or qualified
to do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned
or leased by it makes such licensing or qualification necessary, and in each
jurisdiction in which such licensing or qualification is required in order to
foreclose upon any Encumbrance, in each case, except where the failure to be so
licensed or qualified, individually or in the aggregate, would not have a
Material Adverse Effect on One Stop.
4.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of One Stop consists of 1,000 shares of One Stop Stock, of which
100 shares are outstanding. All of the outstanding shares of One Stop Stock are
duly authorized, validly issued, fully paid and nonassessable and were not
issued in violation of any preemptive rights or applicable federal or state
securities laws. As of the date hereof, except as set forth on SCHEDULE 4.2(a)
of the One Stop Schedules, there are (i) no options, warrants, calls,
subscriptions, convertible securities or other rights (including preemptive
rights), agreements, Understandings, arrangements or commitments of any
character obligating One Stop now or at any time in the future to issue or sell
any of its capital stock or other equity interests of One Stop; (ii) there are
no obligations, contingent or otherwise, of One Stop to repurchase, redeem or
otherwise acquire any shares of capital stock or other equity interests
of One Stop or to provide funds or to make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity; (iii) there are no
outstanding bonds, debentures, notes or other obligations of One Stop the
holders of which have the right to vote (or which are convertible into or
<PAGE> 22
exercisable for securities having the right to vote) with the Principal
Stockholder on any matter; (iv) there are no obligations, contingent or
otherwise, guaranteeing the value of any of the shares of One Stop Stock either
now or at any time in the future; and (v) there are no voting trusts, proxies or
other agreements or Understandings to which One Stop is a party or is bound with
respect to the voting of any capital stock or other equity interests of One
Stop. SCHEDULE 4.2(a) also sets forth a true and complete list of the following:
(1) the names of all Persons who hold any security or instrument described in
Section 4.2(i); (2) the number of securities so held or securities purchasable
upon exercise of any security or instrument described in Section 4.2(i); (3) the
exercise price of security or instrument described in Section 4.2(i) or purchase
price of any such securities or instrument; (4) the date of grant, issuance or
sale of such securities or instrument, as applicable; (5) the vesting schedule
for any security or instrument described in Section 4.2(i); (6) the termination
date for any security or instrument described in Section 4.2(i); and (7) any
other material terms of the security or instrument described in Section 4.2(i).
Each Person listed on Schedule 4.2(a) has executed or on or prior to the Closing
will execute an agreement substantially in the form attached hereto as Exhibit
"E". SCHEDULE 4.2(b) of the One Stop Schedules sets forth the ownership of One
Stop Stock as of the date of this Agreement.
4.3 SUBSIDIARIES. One Stop does not own, directly or indirectly (except as
pledgee pursuant to loans or upon acquisition in satisfaction of debt previously
contracted), the outstanding stock or other voting interest in any corporation,
partnership, joint venture or other entity.
4.4 FINANCIAL STATEMENTS. One Stop has previously furnished to Aames a copy
of the Financial Statements of One Stop. The Financial Statements of One
<PAGE> 23
Stop: (a) present fairly the financial condition of One Stop as of the
respective dates indicated and its results of operations and changes in cash
flow, as applicable, for the respective periods then ended, subject, in the case
of the unaudited interim financial statements, to normal recurring adjustments;
and (b) have been prepared in accordance with GAAP consistently applied (except
as otherwise indicated therein).
4.5 REPORTS. One Stop has timely filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that it was required to file since its inception with any Agency, and
has paid all fees and assessments due and payable in connection therewith. As of
their respective dates, all such reports, registrations and statements complied
in all material respects with all the rules and regulations promulgated by the
applicable Agency or regulatory authorities and the information contained
therein was true and complete in all material respects. Except for normal
examinations conducted by an Agency in the regular course of the business of One
Stop or as set forth in SCHEDULE 4.5 of the One Stop Schedules, no Agency has
initiated any proceeding or, to the best knowledge of One Stop, investigation
into the business or operations of One Stop, since One Stop's inception. There
is no unresolved material violation, criticism, or exception by any Agency with
respect to any report or statement relating to any examinations of One Stop.
4.6 AUTHORITY OF ONE STOP. The execution and delivery by One Stop of this
Agreement and of the Articles of Merger and, subject to the requisite approval
of the stockholders of One Stop, the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of One Stop, and this Agreement is, and
<PAGE> 24
the Articles of Merger will be upon execution by the respective parties thereto,
a valid and binding obligation of One Stop, enforceable in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, liquidation, receivership, conservatorship, insolvency, moratorium
or other similar laws affecting the rights of creditors generally and by general
equitable principles. Except as set forth in SCHEDULE 4.6 of the One Stop
Schedules, none of the (i) execution and delivery by One Stop of this Agreement
and the Articles of Merger; (ii) the consummation of the Merger or the
transactions contemplated herein or therein; or (iii) compliance by One Stop
with any of the provisions hereof or thereof, will: (a) conflict with or result
in a breach of any provision of its Articles of Incorporation or Bylaws; (b)
constitute a breach of or result in a default (or give rise to any rights of
termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, Understanding or
other instrument or obligation to which One Stop is a party, or by which One
Stop or any of its properties or assets is bound; (c) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to One Stop or any of
its properties or assets; or (d) affect the validity or scope of any License
currently possessed by One Stop, except in the case of such breaches, defaults,
rights of termination, cancellation or acceleration or violations referred to in
clauses (b) and (c) that would not have a Material Adverse Effect on One Stop.
Except as set forth in SCHEDULE 4.6 of the One Stop Schedules, no consent of,
approval of, notice to or filing with any Agency, and no consent of, approval of
or notice to any other Person, is required in connection with the execution and
delivery by One Stop of this Agreement or the Articles of Merger, or the
consummation by One Stop of the Merger or the transactions
<PAGE> 25
contemplated hereby or thereby, except (i) the approval of this Agreement and
the transactions contemplated hereby by the stockholders of One Stop; (ii) the
filing of the Articles of Merger with the Wyoming Secretary and the Certificate
of Merger with the Delaware Secretary, (iii) the filing of applications and
notices, as applicable, with the agencies or licensing entities in each state
where One Stop does business, which such agencies or entities are listed on
SCHEDULE 4.6 of the One Stop Schedules (the "State Agency Approvals"); and (iv)
the compliance with any applicable requirements under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976.
4.7 INSURANCE. One Stop has policies of insurance and bonds with respect to
its assets and businesses against such casualties and contingencies and in such
amounts, types and forms as are customary in the industry for companies similar
to One Stop and/or which are required by the Applicable Requirements for One
Stop's business, operations, properties and assets. To One Stop's knowledge, all
such insurance policies and bonds are in full force and effect. To the knowledge
of One Stop and except as set forth on SCHEDULE 4.7 of the One Stop Schedules,
no insurer under any such policy or bond has canceled or indicated an intention
to cancel or not to renew any such policy or bond or generally disclaimed
liability thereunder. To the knowledge of One Stop, and except as set forth on
SCHEDULE 4.7 of the One Stop Schedules, One Stop is not in default under any
such policy or bond, all material claims thereunder have been filed in a timely
fashion and no action has been taken or failed to be taken, no event has
occurred and no state of facts exists or has existed which has resulted or will
result in an exclusion from, denial of, or defense to coverage under any such
insurance policy. Set forth on SCHEDULE 4.7 of the One Stop Schedules is a list
of all policies of insurance carried and
<PAGE> 26
owned by One Stop, showing the name of the insurance company, the nature of the
coverage, the policy limit, the annual premiums and the expiration dates. One
Stop has delivered to Aames a copy of each such policy of insurance.
4.8 TITLE TO ASSETS. One Stop has good and marketable title to all its
material properties and assets, other than real property, owned by One Stop,
free and clear of all Encumbrances of any kind or nature except: (a) as set
forth in the Financial Statements of One Stop; (b) for Encumbrances for current
taxes not yet due; (c) for Encumbrances incurred in the ordinary course of
business of businesses similar in size, scope and character to One Stop (and
none of which, either individually or in the aggregate, have or are likely to
have a Material Adverse Effect); (d) for Encumbrances that are not substantial
in character, amount or extent or that do not materially detract from the value,
or interfere with present use, of the property subject thereto or affected
thereby, or otherwise materially impair the conduct of business of One Stop; or
(e) as set forth on SCHEDULE 4.8 of the One Stop Schedules. One Stop has a valid
license or other right to use all material properties and assets, other than
real property, used by One Stop in the conduct of its business which is not
owned by One Stop free and clear of all Encumbrances of any kind or nature other
than those listed in clause (a) through (e) inclusive above.
4.9 REAL ESTATE. SCHEDULE 4.9 of the One Stop Schedules sets forth a list
of real property, including leaseholds, owned or leased by One Stop (the "One
Stop Real Property"). One Stop has good and marketable title to the One Stop
Real Property owned by it, and valid leasehold interests in the leaseholds in
the One Stop Real Property used but not owned by One Stop (which leaseholds are
described on SCHEDULE 4.9 of the One Stop Schedules), free and clear of all
Encumbrances, except (a) for rights of lessors, co-lessees or sublessees in
<PAGE> 27
such matters that are reflected in the lease; (b) for current taxes not yet due
and payable; (c) for Encumbrances of public record; (d) for such imperfections
of title and Encumbrances, if any, as do not materially detract from the value
of or materially interfere with the present use of such property; and (e) as
described on SCHEDULE 4.9 of the One Stop Schedules.
4.10 LITIGATION. Except as set forth on SCHEDULE 4.10 of the One Stop
Schedules, there is no private or governmental suit, claim, action or proceeding
pending, nor to One Stop's knowledge, threatened, against One Stop or against
any of its directors, officers or employees relating to the performance of their
duties in such capacities or against or affecting any properties of One Stop
(including any Loan Properties) that has had or may have a Material Adverse
Effect on One Stop or the transactions contemplated hereby or which may involve
a payment by One Stop in excess of $50,000 of applicable insurance coverage. To
the knowledge of One Stop, there is no reasonable basis for any suit, claim,
action or proceeding as described in the previous sentence, except as will not
individually or in the aggregate have a Material Adverse Effect on One Stop.
Also, except as disclosed on SCHEDULE 4.10 of the One Stop Schedules, there are
no material judgments, decrees, stipulations or orders against One Stop
enjoining it or any of its directors, officers or employees in respect of, or
the effect of which is to prohibit, any business practice or the acquisition of
any property or the conduct of business in any area. One Stop has previously
provided to Aames true and complete summary reports of One Stop's attorneys
relating to all pending litigation to which One Stop is a party and which names
One Stop as a defendant or cross-defendant and a true, correct and complete list
of all pending litigation in which One Stop is a named party.
<PAGE> 28
4.11 TAXES.
(a) One Stop has filed all federal and foreign income tax returns, all
state and local franchise and income tax, real and personal property tax, sales
and use tax, premium tax, excise tax and other tax returns of every character
required to be filed by it and has paid all taxes, together with any interest
and penalties owing in connection therewith, shown on such returns to be due in
respect of the periods covered by such returns, other than taxes which are being
contested in good faith and for which adequate reserves have been established.
One Stop has filed all required payroll tax returns, has fulfilled all tax
withholding obligations and has paid over to the appropriate governmental
authorities the proper amounts with respect to the foregoing. The tax and audit
positions taken by One Stop in connection with the tax returns described in the
preceding two sentences were reasonable and asserted in good faith. Adequate
provision has been made in the books and records of One Stop and, to the extent
required by GAAP, reflected in the Financial Statements of One Stop, for all tax
liabilities, including interest or penalties, whether or not due and payable and
whether or not disputed, with respect to any and all federal, foreign, state,
local and other taxes for the periods covered by such financial statements and
for all prior periods. SCHEDULE 4.11 of the One Stop Schedules sets forth the
date or dates through which the IRS has examined the federal tax returns of One
Stop and the date or dates through which any foreign, state, local or other
taxing authority has examined any other tax returns of One Stop. SCHEDULE 4.11
of the One Stop Schedules also contains a complete list of each year for which
any federal, state, local or foreign tax authority has obtained or has requested
an extension of the statute of limitations from One Stop and lists each tax case
of One Stop currently pending in audit, at the administrative appeals level or
in litigation.
<PAGE> 29
SCHEDULE 4.11 of the One Stop Schedules further lists the date and issuing
authority of each statutory notice of deficiency, notice of proposed assessment
and revenue agent's report issued to One Stop within the last twelve (12)
months. Except as set forth in SCHEDULE 4.11 of the One Stop Schedules, neither
the IRS nor any foreign, state, local or other taxing authority has, since One
Stop's inception, examined or is in the process of examining any federal,
foreign, state, local or other tax returns of One Stop. To the knowledge of One
Stop, neither the IRS nor any foreign, state, local or other taxing authority is
now asserting or threatening to assert any deficiency or claim for additional
taxes (or interest thereon or penalties in connection therewith) except as set
forth on SCHEDULE 4.11 of the One Stop Schedules.
4.12 COMPLIANCE WITH LAWS AND REGULATIONS. One Stop is not in default under
or in breach of any provision of its Articles of Incorporation or Bylaws, or, to
One Stop's knowledge, any law, ordinance, rule, regulation, Applicable
Requirement or policy and/or guideline promulgated by any Agency, other than
such defaults or breaches that would not have a Material Adverse Effect on One
Stop. Except as set forth on SCHEDULE 4.12 of the One Stop Schedules, no
investigation or review by any Agency with respect to One Stop is pending or, to
the knowledge of One Stop, threatened, nor has any such governmental entity or
regulatory authority provided notice to One Stop or any Affiliate of One Stop of
any intention to conduct the same, other than those the outcome of which would
not have a Material Adverse Effect on One Stop.
4.13 PERFORMANCE OF OBLIGATIONS. One Stop has performed in all material
respects all of the obligations required to be performed by it to date is not in
default under or in breach of any term or provision of any One Stop
<PAGE> 30
Scheduled Contract and no event has occurred that, with the giving of notice or
the passage of time or both, would constitute such default or breach, where such
default or breach would have a Material Adverse Effect on One Stop. Except for
loans and leases made by One Stop in the ordinary course of business, to One
Stop's knowledge, no party with whom One Stop has an Understanding is in default
thereunder. All One Stop Scheduled Contracts are in full force and effect, and
are enforceable in accordance with their respective terms against One Stop and,
to One Stop's knowledge, against any other party thereto. No Person who is a
party to such Understandings has notified One Stop that it intends to cancel or
modify, or reduce the benefits available to One Stop under, any such One Stop
Scheduled Contract. As of the date hereof, no Person with which One Stop does
business has notified One Stop that it intends to cease or modify the nature or
scope of its business relationship with One Stop, except where such cessation or
modification would not have a Material Adverse Effect.
4.14 EMPLOYEES. There are no controversies pending or threatened between
One Stop and any of its employees that are likely to have a Material Adverse
Effect on One Stop. One Stop is not a party to any collective bargaining
agreement with respect to any of its employees or any labor organization to
which its employees or any of them belong. Except as previously disclosed in
writing to Aames, there are no Understandings with respect to the employment of
any officer or employee of One Stop which are not terminable by One Stop without
liability on not more than thirty (30) days' notice. Except as disclosed in the
One Stop Financial Statements or as previously disclosed in writing to Aames,
all material sums due for employee compensation have been paid or accrued and
all employer contributions for employee benefits, including deferred
compensation obligations, and any benefits under any One Stop Employee
<PAGE> 31
Plan have been duly and adequately paid or provided for in accordance with plan
documents. Except as set forth on SCHEDULE 4.14 of the One Stop Schedules as of
the date hereof, no director, officer or employee of One Stop is entitled to
receive any payment or any amount under any existing One Stop Employee Plan,
Understanding, severance plan or other benefit plan as a result of the
consummation of any transaction contemplated by this Agreement or the Articles
of Merger.
4.15 BROKERS AND FINDERS. One Stop is not a party to or obligated under any
agreement with any broker or finder relating to the transactions contemplated
hereby, and neither the execution of this Agreement nor the consummation of the
transactions provided for herein or therein will result in any liability to any
broker or finder.
4.16 MATERIAL CONTRACTS. Except as set forth on SCHEDULE 4.16 of the One
Stop Schedules (all items listed or required to be listed on SCHEDULE 4.16 of
the One Stop Schedules being referred to herein as "One Stop Scheduled
Contracts"), One Stop is not a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting
contract that requires payment by One Stop of $50,000 or more per annum (except
to the extent such payments are made to commissioned loan agents of One Stop
under its standard commission arrangements) or any employment, management,
severance or consulting contract with any current or former officer, director,
or holder of more than 10% of the outstanding shares of the One Stop Stock or
with any entity in which any of the foregoing is a more than 10% equity owner,
officer, director, employee or consultant.
(b) any advertising, brokerage, licensing, dealership, representative
or agency relationship or contract not terminable by One Stop on 30 days' or
less notice and which requires payment by One Stop of $10,000 or
<PAGE> 32
more per annum;
(c) any contract or agreement that restricts One Stop (or would
restrict any Affiliate of One Stop after the Effective Time) or, to the
knowledge of One Stop, restricts any of One Stop's employees from competing in
any line of business with any Person or using or employing the services of any
Person;
(d) any lease of real or personal property providing for annual lease
payments by or to One Stop in excess of $100,000 per annum other than leases of
real property presently used by One Stop as offices;
(e) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of One Stop (other than as mortgagor or pledgor in the ordinary course of its
business or as mortgagee, secured party or deed of trust beneficiary in the
ordinary course of its business) in personal property having a value of $100,000
or more;
(f) any agreement to acquire equipment or any commitment to make
capital expenditures of $100,000 or more;
(g) other than agreements entered into in the ordinary course of
business, including sales of Other Real Estate Owned, any agreement for the sale
of any property or assets in which One Stop has an ownership interest or for the
grant of any preferential right to purchase any such property or asset;
(h) any agreement for the borrowing of any money (other than
liabilities made in the ordinary course of its business and reflected in the
Financial Statements of One Stop);
(i) any restrictive covenant contained in any deed to or lease of real
property owned or leased by One Stop or (as lessee) that materially restricts
the use, transferability or value of such property;
<PAGE> 33
(j) any guarantee or indemnification which involves the sum of
$100,000 or more, other than letters of credit or loan commitments issued in the
normal course of business;
(k) any supply, maintenance or landscape contracts not terminable by
One Stop without penalty on 30 days' or less notice and which provides for
payments in excess of $25,000 per annum;
(l) any (i) sales of assets of One Stop outside the ordinary cause of
business and (ii) any sale of a Mortgage Loan by One Stop with recourse of any
kind to One Stop except as contemplated under Section 4.27(a).
(m) any Understanding of any other kind not terminable on 30 days' or
less notice which involves future payments or receipts or performances of
services or delivery of items requiring payment of $25,000 or more to or by One
Stop other than payments made under or pursuant to Mortgage Loans;
(n) any contract, arrangement, commitment or Understanding which, upon
the consummation of the transactions contemplated by this Agreement will (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay, liquidated damages or otherwise) becoming due
from Aames, One Stop, the Surviving Company, or any of their respective
Subsidiaries to any Person; and
(o) any Understanding that is otherwise material to the business,
financial condition, results of operations or prospects of One Stop.
One Stop has previously delivered or made available to Aames true and
correct copies of all One Stop Scheduled Contracts, including all amendments and
supplements thereto.
4.17 ABSENCE OF MATERIAL CHANGE OR CERTAIN EVENTS. Since its inception,
<PAGE> 34
the business of One Stop has been conducted only in the ordinary course and (a)
no event has occurred or failed to occur that has had or may have a Material
Adverse Effect on One Stop; (b) there has not been (i) any material change in
accounting methods, principles and practices by One Stop (except for any such
changes required by reason of a concurrent change in GAAP); (ii) any damage,
destruction or loss, whether covered by insurance or not, having a Material
Adverse Effect on One Stop; (iii) except as set forth on SCHEDULE 4.17, any
entry by One Stop into any commitment or transaction material to One Stop which
is not in the ordinary course of business consistent with past practice; (iv)
any declaration, payment or setting aside for payment of any dividends; or (v)
except as set forth on SCHEDULE 4.17, any grant to any officer or director of
any increase in compensation or any loan to any officer or director, or any
adoption of any bonus, profit sharing, stock option, employee stock ownership,
pension, retirement, deferred compensation, employment or consulting or other
plan, agreement or arrangement for the benefit of employees of One Stop.
4.18 LICENSES AND PERMITS. One Stop has all Licenses that are necessary for
the conduct of its business, is in good standing under all applicable federal,
state and local laws and regulations thereunder, and such Licenses are in full
force and effect, except for any failure to be in full force and effect that
would not, individually or in the aggregate, have a Material Adverse Effect on
One Stop. Except as set forth on SCHEDULE 4.18 of the One Stop Schedules and One
Stop has complied with all such Licenses, and One Stop knows of no threatened
suspension, cancellation or invalidation of, penalties (including fines or
refunds) under, any such License. One Stop has previously delivered to Aames
true and complete copies of all such Licenses and permits and any restrictions,
modifications or supplements thereto.
<PAGE> 35
4.19 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of One
Stop of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such liability,
other than:
(a) liabilities disclosed in the Financial Statements of One Stop or
disclosed in the notes thereto;
(b) liabilities disclosed on SCHEDULE 4.19;
(c) liabilities that have arisen in the ordinary course of business
since December 31, 1995 and that could not reasonably be expected to have any
Material Adverse Effect; and
(d) other undisclosed liabilities that, individually or in the
aggregate, will not have a Material Adverse Effect.
4.20 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.20 of the One Stop Schedules sets forth and describes
all employee benefit plans and any collective bargaining agreements or labor
contracts in which One Stop participates, or by which it is bound, including,
without limitation: (i) profit sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement, welfare or
incentive plan or agreement whether legally binding or not; (ii) plan providing
for "fringe benefits" to its employees, including but not limited to vacation,
sick leave, medical, hospitalization, life insurance and other insurance plans,
and related benefits; (iii) written employment agreement and any other
employment agreement not terminable at will; or (iv) other "employee benefit
plan" (within the meaning of Section 3(3) of ERISA) (collectively, the "One Stop
Employee Plans"). Except as set forth in SCHEDULE 4.20 of the One Stop
<PAGE> 36
Schedules, (i) there are no negotiations, demands or proposals that are pending
or threatened that concern matters now covered, or that would be covered, by any
employment agreements or employee benefit plans other than amendments to plans
qualified under Section 401 of the Code that are required by the Tax Reform Act
of 1986 and later legislation; (ii) One Stop is in compliance with the material
reporting and disclosure requirements of Part 1 of Subtitle IB of ERISA and the
corresponding provisions of the Code to the extent applicable to all such
employee benefit plans; (iii) One Stop has performed all of its obligations
under all such employee benefit plans and employment agreements required to be
performed heretofore; and (iv) there are no actions, suits or claims (other than
routine claims for benefits) pending or, to the best knowledge of One Stop,
threatened against any such employee benefit plans and employment agreements or
the assets of such plans, and to the best knowledge of One Stop, no facts exist
which could give rise to any actions, suits or claims (other than routine claims
for benefits) against such plans or the assets of such plans.
(b) The "employee pension benefit plans" (within the meaning of
Section 3(2) of ERISA) described on SCHEDULE 4.20 of the One Stop Schedules have
been duly authorized by the Board of Directors of One Stop. Except as set forth
in SCHEDULE 4.20 of the One Stop Schedules, each such plan and associated trust
intended to be qualified under Section 401(a) and to be exempt from tax under
Section 501(a) of the Code, respectively, has either received a favorable
determination letter from the IRS, has applied for such a determination letter
or will apply for such a determination letter before the expiration of the
remedial amendment period set forth in Section 401(b) of the Code, as the IRS
may extend such period, and to the best knowledge of One Stop, no event has
occurred that will or could give rise to disqualification of any such plan
<PAGE> 37
which is intended to be qualified under Section 401(a) of the Code or loss of
the exemption from tax of any such trust which is intended to be exempt from tax
under Section 501(a) of the Code. No event has occurred that will or could
subject any such plans to tax under Section 511 of the Code. None of such plans
has engaged in a merger or consolidation with any other plan or transferred
assets or liabilities from any other plan. No prohibited transaction (within the
meaning of Section 406 or 502(i) of ERISA or Section 4975 of the Code) or
party-in-interest transaction (within the meaning of Section 406 of ERISA) has
occurred with respect to any of such plans which could subject One Stop to an
excise tax or penalty. To the best knowledge of One Stop, no employee of One
Stop has engaged in any transactions which could subject One Stop to indemnify
such person against liability. All costs of plans have been provided for on the
basis of consistent methods in accordance with sound actuarial assumptions and
practices. No employee benefit plan has incurred any "accumulated funding
deficiency" (as defined in Section 302(a)(2) of ERISA), whether or not waived,
taking into account contributions made within the period described in Section
412(c)(10) of the Code; nor are there any unfunded amounts under any employee
benefit plan which is required to be funded under Part 3 of Subtitle IB of ERISA
and Section 412 of the Code); nor has One Stop failed to make any contributions
or pay any amount due and owing as required by law or the terms of any employee
benefit plan or employment agreement. Subject to amendments that are required by
the Tax Reform Act of 1986 and later legislation, since the last valuation date
for each employee pension benefit plan, there has been no amendment or change to
such plan that would increase the amount of benefits thereunder.
(c) One Stop does not currently sponsor nor participate in, nor has
<PAGE> 38
it previously sponsored or participated in, any employee benefit pension plan to
which Section 4021 of ERISA applies that would create a liability under Title IV
of ERISA.
(d) One Stop does not currently sponsor nor participate in, nor has it
previously sponsored or participated in, any employee benefit pension plan that
is a "multi employer plan" (within the meaning of Section 3(37) of ERISA) that
would subject such Person to any liability with respect to any such plan.
(e) All group health plans of One Stop (including any plans of
Affiliates of One Stop that must be taken into account under Section 162(i) or
(k) of the Code as in effect immediately prior to the Technical and
Miscellaneous Revenue Act of 1988 and Section 4980B of the Code) have been
operated in compliance with the group health plan continuation coverage
requirements of Section 4980B of the Code to the extent such requirements are
applicable.
(f) There have been no acts or omissions by One Stop that have given
rise to or may give rise to fines, penalties, taxes, or related charges under
Sections 502(c) or (i) or 4071 of ERISA or Chapter 43 of the Code which could be
imposed on One Stop.
(g) Except as described in Section 4.20(j), One Stop does not maintain
any employee benefit plan or employment agreement pursuant to which any benefit
plan or other payment will be required to be made by One Stop or pursuant to
which any other benefit will accrue or vest in any director, officer or employee
of One Stop, in either case as a result of the consummation of the transactions
contemplated by this Agreement.
(h) No "reportable event," as defined in ERISA, has occurred with
respect to any of the employee benefit plans.
(i) All amendments required to bring each of the employee benefit
<PAGE> 39
plans into conformity with all of the provisions of ERISA and the Code and all
other applicable laws, rules and regulations have been made, or will be made
before the expiration of the remedial amendment period set forth under Section
401(b) of the Code, as such period may be extended by the IRS.
(j) SCHEDULE 4.20 of the One Stop Schedules sets forth the name of
each director, officer, employee, agent or representative of One Stop and every
other person entitled to receive any benefit or any payment of any amount under
any existing employment agreement, severance plan or other benefit plan or
Understanding as a result of the consummation of any transaction contemplated in
this Agreement, and with respect to each such person, the nature of such benefit
or the amount of such payment, the event triggering the benefit or payment, and
the date of, and parties to, such employment agreement, severance or other
benefit plan or Understanding. One Stop has furnished Aames with true and
correct copies of all documents with respect to the plans and agreements
referred to in SCHEDULE 4.20 of the One Stop Schedules delivered as of the date
of this Agreement, including all amendments and supplements thereto, and all
related summary plan descriptions. For each of the employee pension benefit
plans of One Stop referred to in SCHEDULE 4.20 of the One Stop Schedules
delivered as of the date of this Agreement, One Stop has furnished Aames with
true and correct copies of (i) a copy of the Form 5500 which was filed in each
of the three most recent plan years, including without limitation, all schedules
thereto and all financial statements with attached opinions of independent
accountants to the extent required; (ii) the most recent determination letter
from the IRS; (iii) the statement of assets and liabilities as of the most
recent valuation date; and (iv) the statement of changes
<PAGE> 40
in fund balance and in financial position or the statement of changes in net
assets available for benefits under each of said plans for the most recently
ended plan year. The documents referred to in subdivisions (iii) and (iv) fairly
present the financial condition of each of said plans as of and at such dates
and the results of operations of each of said plans, all in accordance with GAAP
or on the cash method of accounting applied on a consistent basis.
4.21 CORPORATE RECORDS. The minute books of One Stop accurately reflect in
all material respects all actions taken to this date by the stockholders, boards
of directors and committees of One Stop and contain true and complete copies of
the Articles of Incorporation, Bylaws and other charter documents, and all
amendments thereto.
4.22 OFFICES. SCHEDULE 4.22 of the One Stop Schedules sets forth the
headquarters of One Stop (identified as such) and each of the offices maintained
and operated by One Stop and the location thereof. Except as set forth on
SCHEDULE 4.22 of the One Stop Schedules, One Stop does not maintain any other
office or conduct business at any other location, and One Stop has not applied
for or received permission to operate at any other location.
4.23 SEC REPORTS. Neither One Stop nor its Affiliates has ever filed any
registration statement, prospectus, report, or schedule with the SEC.
4.24 INTELLECTUAL PROPERTY. One Stop owns or possesses valid and binding
licenses and other rights to use without payment all material copyrights, trade
secrets, trade names, service marks and trademarks used in its business; and One
Stop has not received any notice of conflict with respect thereto that asserts
the right of others. One Stop has in all material respects performed all the
obligations required to be performed by it and is not in default in any material
respect under any contract, agreement, arrangement or commitment
<PAGE> 41
relating to any of the foregoing, except where such non-performance or default
would not, individually or in the aggregate, have a Material Adverse Effect on
One Stop.
4.25 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 4.25, to the
knowledge of One Stop,
13
(a) no notice, notification, demand, request for information,
citation, summons, complaint or order has been issued to One Stop or any
Affiliate of One Stop, no complaint has been filed nor penalty been assessed
against One Stop or any Affiliate of One Stop; and no investigation or review is
pending, or threatened by any Agency or other Person against One Stop or any
Affiliate of One Stop with respect to any (A) alleged violation by One Stop or
any Affiliate of any Environmental Law or liability thereunder, (B) alleged
failure by One Stop or any Affiliate to have any permit, certificate, license,
approval, registration or authorization required under any Environmental Law in
connection with the conduct of its business, or (C) release, use, transfer or
disposal of Hazardous Materials; and
(b) No Hazardous Substances are or have been present, used, released
or discharged at, under or around any property now or previously owned, leased
or operated by One Stop or any Affiliate of One Stop (whether as mortgagee or
otherwise) except where such presence would not have a Material Adverse Effect;
and
(c) There has been no environmental investigation, study, audit, test,
review or other analysis conducted in relation to the current or prior business
of One Stop or any Affiliate.
4.26 LOAN PORTFOLIO. One Stop has previously delivered to Aames a
<PAGE> 42
magnetic tape prepared by Advanta containing such information and data as is
customarily prepared by Advanta for other Persons with respect to which it acts
as subservicer (which, in any event, shall include the number and principal
balance of all Warehouse Loans and the payment status of all Mortgage Loans as
of July 31, 1996). All information and data contained on the magnetic tape is
true and complete in all respects.
4.27 NO RECOURSE.
(a) Except as set forth in SCHEDULE 4.27(a) of the One Stop Schedules,
One Stop is not a party to: (i) any agreement or arrangement with (or otherwise
obligated to) any Person, including an Investor or Insurer, to repurchase from
any such Person any Mortgage Loan, mortgaged property serviced for others or
mortgage loan sold by One Stop with servicing released ("Servicing Released
Loans") or (ii) any agreement, arrangement or Understanding to reimburse,
indemnify or hold harmless any Person or otherwise assume any liability with
respect to any Loss suffered or incurred as a result of any default under or the
foreclosure or sale of any Mortgage Loan, mortgaged property serviced for others
or Servicing Released Loans, except, with respect to any of the Mortgage Loans,
mortgaged property serviced for others or Servicing Released Loans described in
clauses (i) or (ii) above, insofar as such obligation to repurchase, reimburse,
indemnify, hold harmless or otherwise assume liability is (x) based upon a
breach by One Stop of a contractual representation, warranty or undertaking, or
the misfeasance or malfeasance of One Stop, and (y) not based solely upon the
monetary default under or foreclosure or sale of any such Mortgage Loan,
mortgaged property or Servicing Released Loan without regard to the occurrence
of any such breach, misfeasance or malfeasance. For purposes of this Agreement,
the term "Recourse Loan" means, any Mortgage Loan, mortgage property serviced by
others or Servicing
<PAGE> 43
Released Loan, including the mortgage loans all of which are identified on
SCHEDULE 4.27(a) of the One Stop Schedules, under which One Stop bears the risk
of loss as described in the preceding sentence, except insofar as such risk of
loss arises by virtue of the matters set forth in clauses (x) and (y) of the
preceding sentence. Except as set forth on Exhibit 4.27(b) of the One Stop
Schedules, all payments due under the terms of any Loan Documents relating to
any Recourse Loans are less than 60 days past due.
(b) There has been a reserve established for the Recourse Loans that
is adequate to absorb all Losses or advances on account of such Recourse Loans.
4.28 COMPLIANCE WITH AGENCY, ETC., Requirements. Except as set forth in
SCHEDULE 4.28 of the One Stop Schedules, since One Stop's inception, no Agency,
Investor or Insurer has (y) claimed that One Stop has violated or not complied
with the applicable underwriting or other standards with respect to Mortgage
Loans or Previously Disposed Loans sold by One Stop to an Investor or (z)
imposed restrictions on the activities (including commitment or underwriting
authority) of One Stop or has threatened to reduce or has reduced or canceled
any commitment amount. To the knowledge of One Stop, there exist no facts or
circumstances which would entitle an Investor to demand repurchase of a Mortgage
Loan, a Pipeline Loan or a Previously Disposed Loan or which would entitle an
Insurer to demand indemnification from One Stop with respect to any Mortgage
Loan, Pipeline Loan or Previously Disposed Loan.
4.29 REPRESENTATIONS. Except as set forth in SCHEDULE 4.29 of the One Stop
Schedules, One Stop is not in breach or violation of any representation,
warranty or covenant made by One Stop, or any of One Stop's Affiliates to any
Person under the terms of any Mortgage Banking Agreement which may give rise to
repurchase, indemnification or other rights to other parties under such Mortgage
Banking Agreements.
<PAGE> 44
4.30 ADVANCES. One Stop has not made any advances on any Mortgage Loans at
any time (including advances of principal, interest, taxes or insurance) whether
or not permitted by the Applicable Requirements, nor any payments on behalf of,
or to supplement or discharge any obligation of, any mortgagor or under any
Mortgage Loan or Servicing Released Loan.
4.31 PAYMENT OF TAXES, INSURANCE PREMIUMS, ETC. The responsibilities of One
Stop and all prior servicers and originators of the Mortgage Loans with respect
to the payment of all applicable taxes (including tax reporting for the period
prior to the Closing), special assessments, ground rents, flood insurance
premiums, hazard insurance premiums, mortgage insurance premiums, water, sewer
and municipal charges and leasehold payments relating to the Mortgage Loans and
Other Real Estate Owned for which One Stop serves as escrow or paying agent for
such purpose have been met.
4.32 PAYOFF STATEMENTS. Since the inception of One Stop, all payoff and
assumption statements with respect to each Mortgage Loan provided by One Stop to
borrowers or their agents were, at the time they were provided, complete and
accurate, and all such payoff and assumption statements were provided to the
appropriate borrower or agent in a timely manner and in accordance with all
Applicable Requirements and the Loan Documents (except to the extent the failure
to provide payoff statements would not have a Material Adverse Effect).
4.33 CORRESPONDENT AGREEMENTS. To the knowledge of One Stop, each of the
Correspondent Agreements is a valid and subsisting contract in full force and
effect and enforceable in accordance with its terms. One Stop is not in default
under any Correspondent Agreement, and, to the knowledge of One Stop, no other
party to any such agreement is in material default thereunder, has claimed One
<PAGE> 45
Stop is in default thereunder or has an ongoing dispute with One Stop. To the
knowledge of One Stop, there are no facts or conditions that have occurred
which, through the passage of time or the giving of notice, or both, would
constitute a material default by any party under any Correspondent Agreement, or
would cause an acceleration of any material obligation of any party thereto or
the creation of an Encumbrance upon any asset of One Stop, and no such agreement
gives any other party thereto the right to terminate such agreement except upon
proper notice as provided therein. To the knowledge of One Stop, each
correspondent, broker or originator from whom One Stop has acquired Mortgage
Loans or Servicing Released Loans had at the time of any such purchase
acquisition and has currently all Licenses necessary to conduct its business and
is in good standing under all applicable federal, state and local laws and
regulations. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby requires the consent or
approval of any Correspondent. To the knowledge of One Stop, no Correspondent
conducts all or substantially all of its mortgage origination business or
activities by or through One Stop.
4.34 AFFILIATED PARTY TRANSACTIONS. Except as set forth on SCHEDULE 4.34 of
the One Stop Schedules, no director or officer of One Stop, nor any of their
respective Affiliates (i) has any ownership interest directly or indirectly, in
any competitor, supplier or customer of One Stop; (ii) has any outstanding loan
or other extension of credit to or from One Stop; (iii) is a party to, or has
any interest in, any contract or agreement with One Stop; or (iv) has engaged in
any transaction with One Stop since One Stop's inception.
4.35 SECURITIZATION TRANSACTIONS. Neither One Stop nor any Affiliate of One
Stop is a party to or bound by any transaction under which One Stop or any of
its Affiliates has sold, pledged or transferred or will sell, pledge or
<PAGE> 46
transfer Mortgage Loans in a securitization or under which securities
collateralized or backed by Mortgage Loans will be issued.
4.36 PREPAYMENT PENALTIES. Any provision of the Loan Documents purporting
to provide for the payment of a prepayment fee or penalty complies with all
Applicable Requirements and is enforceable in accordance with its terms.
4.37 NO ESCROW ACCOUNTS. No escrow, impound or similar accounts are
maintained or are required to be maintained by One Stop under any Applicable
Requirement.
4.38 APPRAISALS AND UNDERWRITING POLICIES. The appraisal and underwriting
practices, policies and procedures of One Stop have been established and carried
out in accordance with all Applicable Requirements and customary mortgage
banking practices for companies involved in extending financing to credit
impaired borrowers.
4.39 FRAUD. No fraud has been committed on the part of One Stop or its
employees or Affiliates in connection with the Mortgage Loans or the Servicing
Released Loans that has or may have a Material Adverse Effect.
4.40 RESERVES AND OTHER ACCOUNTS. The reserve for losses on loans sold and
serviced and the unearned insurance premiums reflected in the Financial
Statements of One Stop have been established in accordance with GAAP and, in the
opinion of One Stop's management, are adequate.
4.41 HEDGES, ETC. SCHEDULE 4.41 contains a complete and accurate list of
any type of hedge position of One Stop used for the purpose of managing interest
rate risk or any other purpose, including any forward commitments, futures,
caps, swaps, floors and option agreements and other derivative and mortgage
derivative interest rate management arrangements, together with a
<PAGE> 47
complete and accurate description of One Stop's policy for such hedging
positions.
4.42 POWER OF ATTORNEY. Except as set forth on SCHEDULE 4.42, One Stop
has not granted any Person a power of attorney or similar authorization that is
currently in effect or outstanding.
4.43 DISCLOSURE DOCUMENTS AND APPLICATIONS. To One Stop's knowledge, none
of the information supplied or to be supplied by or on behalf of One Stop ("One
Stop Supplied Information") for inclusion in the documents to be filed with the
SEC or any other governmental entity in connection with the transactions
contemplated in this Agreement will, at the respective times such documents are
filed or become effective, contain any untrue statement of a material fact, or
omit to state any material fact required to be stated in One Stop Supplied
Information or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4.44 ACCURACY AND CURRENTNESS OF INFORMATION FURNISHED. Each representation
and warranty of One Stop set forth in this Agreement and the One Stop Schedules
and the information and data contained in the magnetic tape provided to Aames
under Section 4.26 is true and correct in all material respects and does not
omit any material fact required to be included therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF AAMES
Aames represents and warrants to One Stop as follows:
5.1 INCORPORATION, STANDING AND POWER. Aames has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Delaware. Aames has all requisite corporate power and authority to
<PAGE> 48
own and lease its properties and assets and to carry on its business as
currently conducted.
5.2 CAPITALIZATION.
(a) As of the date of this Agreement, the authorized capital stock of
Aames consists of 51,000,000 shares, consisting of 50,000,000 shares of Aames
Stock, of which 13,503,869 shares are outstanding, and 1,000,000 shares of
preferred stock, par value $0.001 per share, none of which are outstanding. All
of the outstanding shares of Aames Stock are duly authorized, validly issued,
fully paid and nonassessable. As of the date of this Agreement, except for
employee stock options covering 2,015,490 shares of Aames Stock, $115,000,000 of
Convertible Debt convertible into 4,107,142 shares of Aames Stock, outstanding
warrants convertible into 20,055 shares of Aames Stock and pursuant to the Aames
Rights Agreement, there were no outstanding options, warrants or other rights in
or with respect to the unissued shares of Aames Stock or Aames preferred stock
nor any securities convertible into such stock. Aames is not obligated to issue
any additional shares of Aames Stock or preferred stock or any additional
options, warrants or other rights in or with respect to the unissued shares of
such stock or any other securities convertible into such stock.
(b) The shares of Aames Stock to be issued pursuant to Sections 2.1
and 2.9 shall be duly authorized and, when issued in accordance with the terms
of this Agreement, shall be validly issued, fully paid, nonassessable, free from
preemptive and other similar rights, qualified (or exempt from qualification)
under applicable state securities laws.
5.3 FILINGS. As of their respective dates, each report, registration
statement, proxy statement or other form filed since June 1, 1993 by Aames with
the SEC (such reports and filings referred to as "Aames SEC Filings") was, and
<PAGE> 49
all future Aames SEC Filings will be, true, complete and comply with applicable
rules in all material respects. As of their respective dates no past Aames SEC
Filings did, and no future Aames SEC Filings will, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were or will be made, not misleading, or fail in
any material respect to comply with applicable laws, statutes, rules and
regulations. Aames has delivered to One Stop all Aames SEC Filings (excluding
exhibits) filed by Aames under Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act since June 1, 1995. Any financial statement contained in any of the
Aames SEC Filings fairly presented the financial position of Aames, on a
consolidated basis, as of the respective dates indicated and its results of
operation and cash flow, as applicable, for the periods then ended, subject, in
the case of unaudited interim financial statements, to normal year-end
adjustments and was prepared in accordance with GAAP consistently applied,
except as stated therein, during the periods involved.
5.4 AUTHORITY OF AAMES AND MERGER SUB. The execution and delivery by Aames
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Aames, and this Agreement is a valid and binding obligation of Aames,
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, liquidation, receivership, conservatorship,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally and by general equitable principles. Merger Sub, upon its formation,
will have full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the
<PAGE> 50
transactions contemplated hereby will be duly and validly approved by the Board
of Directors of Merger Sub. Upon the due and valid approval by Aames as the sole
stockholder of Merger Sub, and by the Board of Directors of Merger Sub, no other
corporate proceedings on the part of Merger Sub will be necessary to consummate
the transactions contemplated hereby. This Agreement, upon execution and
delivery by Merger Sub, will be duly and validly executed by Merger Sub and will
(assuming due authorization, execution and delivery by One Stop) constitute a
valid and binding obligation of Merger Sub, enforceable against Merger Sub in
accordance with its terms, except as enforcement may be limited by bankruptcy,
liquidation, receivership, conservatorship, insolvency, moratorium or other
similar laws affecting the rights of creditors generally and by general
equitable principles. Except as set forth in Schedule 5.4 of the Aames
Schedules, none of (i) the execution and delivery by Aames or Merger Sub of this
Agreement; (ii) the consummation of the Merger or the transactions contemplated
herein or therein; or (iii) compliance by Aames or Merger Sub with any of the
provisions hereof or thereof, will: (a) conflict with or result in a breach of
any provision of the Certificate of Incorporation or Bylaws of Aames or similar
governing documents of Merger Sub; (b) constitute a breach of or result in a
default (or give rise to any rights of termination, cancellation or
acceleration, or any right to acquire any securities or assets) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement or other instrument or obligation to which
Aames or Merger Sub is a party, or by which Aames or Merger Sub or any of their
respective properties or assets are bound; or (c) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Aames or Merger
Sub or any of their respective properties or assets, except in the case
<PAGE> 51
of breaches, defaults, rights of termination, cancellation or acceleration or
violations referred to in clauses (b) and (c) that would not have a Material
Adverse Effect on Aames. No consent of, approval of, notice to or filing with
any governmental authority having jurisdiction over any aspect of the business
or assets of Aames, and no consent of, approval of or notice to any other
Person, is required in connection with the execution and delivery by Aames or
Merger Sub of this Agreement, or the consummation by Aames or Merger Sub of the
Merger or the transactions contemplated hereby, except (i) the filing of the
Articles of Merger with the Wyoming Secretary and the Certificate of Merger with
the Delaware Secretary; (ii) the State Agency Approvals; (iii) the incorporation
of Merger Sub as a Delaware corporation; and (iv) compliance with any applicable
requirements under the Hart-Scott-Rodino Antitrust Improvement Act of 1976.
5.5 BROKERS AND FINDERS. Except for any agreements between Aames and Smith
Barney Inc., and any fees payable thereunder, Aames is not a party to or
obligated under any agreement with any broker or finder relating to the
transactions contemplated hereby, and neither the execution of this Agreement
nor the consummation of the transactions provided for herein or therein will
result in any liability to any broker or finder.
5.6 LITIGATION. Except as set forth in the Aames SEC Filings, there is no
private or governmental suit, claim, action or proceeding pending, nor to Aames'
knowledge, threatened, against Aames or against any of its directors, officers
or employees relating to the performance of their duties in such capacities or
against or affecting any properties of Aames (including any Loan Properties)
that has had or may have a Material Adverse Effect on Aames.
5.7 COMPLIANCE WITH LAWS AND REGULATIONS. Aames is not in default under
<PAGE> 52
or in breach of any provision of its Articles of Incorporation or Bylaws, or, to
Aames' knowledge, any law, ordinance, rule, regulation, Applicable Requirement
or policy and/or guideline promulgated by any governmental agency having
authority over it, other than such defaults or breach that would not have a
Material Adverse Effect on Aames. Except as set forth in the Aames SEC Filings,
no investigation or review by any governmental entity or regulatory authority
with respect to Aames is pending or, to the knowledge of Aames, threatened, nor
has any such governmental entity or regulatory authority provided notice to
Aames or any Affiliate of Aames of any intention to conduct the same, other than
those the outcome of which would not have a Material Adverse Effect on Aames.
5.8 ABSENCE OF MATERIAL CHANGE OR CERTAIN EVENTS. Since March 31, 1996, the
business of Aames has been conducted only in the ordinary course and in the same
manner as theretofore conducted and (a) no event has occurred or failed to occur
that has had or may reasonably be expected to have a Material Adverse Effect on
Aames; (b) there has not been (i) any material change in accounting methods,
principles and practices by Aames (except for any such changes required by
reason of a concurrent change in GAAP); (ii) any damage, destruction or loss,
whether covered by insurance or not, having a Material Adverse Effect on Aames;
or (iii) except as set forth in the Aames SEC Filings, or the transactions
contemplated hereby or as otherwise disclosed in writing to One Stop, any entry
by Aames into any commitment or transaction material to Aames which is not in
the ordinary course of business consistent with past practice. The approval of
this Agreement by the Board of Directors of Aames shall constitute board of
directors' approval pursuant to Rule 16b-3(d), as amended effective August 15,
1996, sufficient to allow (i) the acquisition by
<PAGE> 53
the Principal Stockholder of the shares of Aames Stock which he is entitled to
receive pursuant to this Agreement, and (ii) any distribution of such shares out
of the escrow established by the Escrow Agreement, to be exempt transactions
under Rule 16b-3.
ARTICLE VI
COVENANTS OF ONE STOP
PENDING EFFECTIVE TIME OF THE MERGER
One Stop covenants and agrees with Aames as follows:
6.1 LIMITATION ON ONE STOP'S CONDUCT PRIOR TO EFFECTIVE TIME. Between the
date hereof and the Effective Time, except as contemplated by this Agreement,
One Stop agrees to conduct its business only in the normal and customary manner
and in accordance with sound mortgage banking practices, and One Stop shall not,
without the prior written consent of Aames:
(a) issue any One Stop Stock, One Stop preferred stock, any other
securities (including long term debt) or propose the issuance of any One Stop
Stock, One Stop preferred stock or any other securities or any rights, options
or securities to acquire any One Stop Stock, One Stop preferred stock, any other
securities (including long term debt) of One Stop, or split, combine or
reclassify any shares of One Stop's stock or any other securities;
(b) declare, set aside or pay any dividend or make any other
distribution upon, or purchase or redeem any shares of, One Stop Stock;
(c) amend its Articles of Incorporation or its Bylaws;
(d) grant any general or uniform increase in the rate of pay of
employees or employee benefits;
(e) grant any material increase in salary, incentive compensation or
employee benefits or pay any bonus to any Person except for payments in the
ordinary course of business consistent with past practices or pursuant to any
<PAGE> 54
pre-existing contract, arrangement or bonus plan;
(f) make any capital expenditure in excess of $50,000, except for
ordinary repairs, renewals and replacements;
(g) compromise or otherwise settle or adjust any assertion or claim of
a deficiency in taxes (or interest thereon or penalties in connection
therewith), extend the statute of limitations with any tax authority or file any
pleading in court in any tax litigation or any appeal from an asserted
deficiency;
(h) grant or commit to grant any new extension of credit or amend the
terms of any such credit outstanding on the date hereof to any executive
officer, director or holder of ten percent (10%) or more of the outstanding One
Stop Stock, or to any corporation, partnership, trust or other entity controlled
by any such person;
(i) relocate, close or open any offices at which business is
conducted;
(j) adopt or amend any One Stop Employee Plan or other benefit plan or
arrangement of any such type except for such amendments as are required by law
or do not materially increase the costs or benefits of such plan or arrangement;
(k) change any of One Stop's accounting policies and practices, except
such changes as may be required in the opinion of One Stop's management to
respond to economic or market conditions or as may be required by the rules of
the Institute of Certified Public Accountants or Financial Accounting Standards
Board or by applicable governmental authorities;
(l) change any of One Stop's personnel policies;
(m) grant any Person a power of attorney or similar authority;
<PAGE> 55
(n) make any material investment by purchase of stock or securities,
or assets, contributions to capital, property transfers or otherwise in any
other Person, except for investments made in the ordinary course of business
consistent with past practice;
(o) amend, modify or terminate, except in accordance with its terms,
any One Stop Scheduled Contract or enter into any agreement or contract that
would be a One Stop Scheduled Contract under Section 4.16;
(p) create or incur or suffer to exist any Encumbrance of any kind
against or in respect of any property or right of One Stop, except in connection
with Encumbrances related to One Stop's Existing Credit Facilities;
(q) sell, lease or otherwise dispose of any of its assets which are
material, individually or in the aggregate, to One Stop, except in the ordinary
course of business consistent with past practice;
(r) make any extraordinary payment to any Person;
(s) except as required by law, take or cause to be taken any action
which would prevent the transactions contemplated hereby from qualifying as a
tax free reorganization under Section 368 of the Code or prevent the
transactions contemplated hereby from qualifying for pooling-of-interests
accounting treatment;
(t) enter into any new line of business;
(u) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other than
in connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructuring in the ordinary course of business consistent with
prudent mortgage banking practices;
<PAGE> 56
(v) create, incur or assume any debt other than under the Existing
Credit Facilities consistent with past practice prior to June 30, 1996, and in
the ordinary course of business; or assume, guarantee, or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person;
(w) materially alter or vary its methods or policies of (i)
underwriting, pricing, originating, warehousing, selling and servicing, or
buying or selling rights to service, mortgage loans, (ii) hedging (which term
includes both buying futures and forward commitments from financial
institutions) its Mortgage Loan positions or commitments, and (iii) obtaining
financing and credit other than as provided in Section 6.1 (v) hereof;
(x) enter into or terminate any Mortgage Banking Agreement, except in
accordance with the provisions thereof as in effect on the date of this
Agreement;
(y) enter into any Understanding with respect to a Recourse Loan;
(z) take any action which would cause a material breach of any
representations and warranties contained in this Agreement or prevent One Stop
from performing or cause One Stop not to perform its covenants hereunder in any
material respect; or
(aa) agree to do any of the foregoing.
6.2 NO SOLICITATION, ETC.
(a) One Stop shall not, and shall cause each of its officers,
directors, employees, agents, legal and financial advisors and Affiliates not
to, directly or indirectly, solicit, initiate, encourage, entertain or
participate in any negotiations or discussions regarding, or furnish any
information with respect to, or otherwise cooperate in any way in connection
<PAGE> 57
with, or assist or participate in, facilitate or encourage, any effort or
attempt to effect, or enter into any agreement or agreement in principle, or
announce any intention to do any of the foregoing, with respect to any
Alternative Transaction, other than the Alternative Transaction contemplated by
this Agreement.
(b) One Stop shall promptly communicate to Aames the terms of any
proposal which it may receive in respect of any Alternative Transaction.
6.3 AFFIRMATIVE CONDUCT OF ONE STOP PRIOR TO EFFECTIVE TIME. Between
the date hereof and the Effective Time, One Stop shall:
(a) use and devote its best efforts consistent with this Agreement to
maintain and preserve intact its present business organization and to maintain
and preserve its relationships and goodwill with borrowers, employees, mortgage
brokers, correspondents, originators and others having business relationships
with One Stop;
(b) use its best efforts to keep in full force and effect all of the
existing material permits and Licenses of One Stop;
(c) use its best efforts to maintain insurance coverage at least equal
to that now in effect on all properties for which it is responsible and on its
business operations;
(d) perform its material contractual obligations and not become in
material default on any thereof;
(e) duly and timely file all reports and returns required to be filed
with any federal, state or local governmental authority, unless any extensions
have been duly granted by such authority;
(f) duly observe and conform to all lawful requirements applicable
to its business that are material to the business of One Stop;
<PAGE> 58
(g) maintain its assets and properties in good condition and repair,
normal wear and tear excepted;
(h) promptly notify Aames regarding receipt from any tax authority of
any notification of the commencement of an audit, any request to extend the
statute of limitations, any statutory notice of deficiency, any revenue agent's
report, any notice of proposed assessment, or any other similar notification of
potential adjustments to the tax liabilities of One Stop, or any actual or
threatened collection enforcement activity by any tax authority with respect to
tax liabilities of One Stop;
(i) furnish to Aames, as soon as practicable, and in any event within
five days after it is prepared, (i) a copy of any report (other than a report
with respect to the transactions contemplated hereby) submitted to the board of
directors of One Stop, provided, however, that One Stop need not furnish to
Aames communications of One Stop's legal counsel regarding One Stop's rights and
obligations under this Agreement or books, records and documents covered by the
attorney-client privilege, or which are attorneys' work product; (ii) copies of
all reports, filings, certificates, correspondence and other documents filed
with or received from any governmental or regulatory entity; (iii) monthly
unaudited balance sheets and statements of operations of One Stop; and (iv) such
other reports as Aames may reasonably request relating to One Stop;
(j) not later than the Closing Date, amend or supplement the Schedules
prepared and delivered pursuant to Article IV (the "One Stop Schedules") and the
magnetic tape referred to in Section 4.26 of the One Stop Schedules to ensure
that the information set forth in such One Stop Schedules and/or the magnetic
tape accurately reflects the then current status of the information set forth
therein;
<PAGE> 59
(k) use its best efforts to obtain any third party consent with
respect to any contract, agreement, lease, License, amendment, permit or release
that is material to the business of One Stop or that is contemplated or required
in connection with this Agreement or the Merger;
(l) promptly notify Aames of the filing of any material litigation, or
the filing of any governmental or regulatory action, including any investigation
or notice of investigation, or similar proceeding or notice of any claim against
One Stop or any of its assets; and
(m) prepare and timely file all tax returns and amendments thereto
required to be filed by it on or before the Closing Date. Aames shall have a
reasonable opportunity to review all such re turns and amendments thereto on a
pre-filing basis. One Stop shall discharge all taxes, assessments and
governmental charges in the nature of taxes upon or against it or any of its
properties or assets, and all tax liabilities at any time existing, before the
same shall become delinquent and before penalties accrue thereon, except to the
extent and as long as: (i) the same are being contested in good faith and by
appropriate proceedings pursued diligently and in such manner not to cause any
Material Adverse Effect on One Stop; and (ii) One Stop shall have set aside on
its books appropriate reserves in the amount of the demanded principal
imposition together with interest and penalties relating thereto, if any.
6.4 ACCESS TO INFORMATION. One Stop will afford Aames and its
representatives, counsel, accountants, agents and employees access during normal
business hours to all of its businesses, operations, properties, books, files
and records and will do everything reasonably necessary to enable Aames and its
representatives, counsel, accountants, agents and employees to make a
<PAGE> 60
complete examination of the financial statements, businesses, assets and
properties of One Stop and the condition thereof and to update such examination
at such intervals as Aames shall deem appropriate. Such examination shall be
conducted in cooperation with the officers of One Stop and in such a manner as
to minimize any disruption of, or interference with, the normal business
operations of One Stop. Upon the request of Aames, One Stop will request that
KPMG Peat Marwick provide reasonable access to auditors' work papers with
respect to the businesses and properties of One Stop, including tax accrual work
papers prepared for One Stop since its inception, other than (a) books, records
and documents covered by the attorney-client privilege, or that are attorneys'
work product, and (b) books, records and documents that One Stop is legally
obligated to keep confidential. No examination or review conducted under this
section shall constitute a waiver or relinquishment on the part of Aames of the
right to rely upon the representations and warranties made by One Stop herein;
provided, that Aames shall disclose in writing to One Stop any fact or
circumstance it may discover which Aames believes renders any representation or
warranty made by One Stop hereunder incorrect in any respect.
Aames covenants and agrees that it and its representatives, counsel,
accountants, agents and employees will hold in strict confidence all documents
and information concerning One Stop so obtained (except to the extent that such
documents or information are a matter of public record or any of the public
information or any applications required to be filed with any governmental or
regulatory agency to obtain the approvals and consents required to effect the
transactions contemplated hereby), and if the transactions contemplated herein
are not consummated, such confidence shall be maintained and all such documents
shall be promptly returned to One Stop and, in the case of any original
<PAGE> 61
materials prepared by or on behalf of Aames based on such documents, such
materials shall be promptly destroyed.
6.5 NOTICES; REPORTS. One Stop will promptly notify Aames of any event of
which One Stop obtains knowledge which has or may have a Material Adverse Effect
on One Stop or in the event that One Stop determines that it is unable to
fulfill any of the conditions to the performance of Aames' obligations
hereunder, as set forth in Articles IX or X herein.
6.6 ONE STOP STOCKHOLDERS' CONSENT. Promptly after execution of this
Agreement, One Stop will take all action necessary in accordance with applicable
law and its Articles of Incorporation and Bylaws to convene a meeting or solicit
the written consent of its stockholders to consider and vote upon this Agreement
and the transactions contemplated hereby and thereby. The Board of Directors of
One Stop shall obtain the affirmative vote of the holders of the largest
possible percentage of the outstanding One Stop Stock to approve this Agreement
and the transactions contemplated hereby.
6.7 AUDITED FINANCIAL STATEMENTS. One Stop shall provide to Aames no less
than five (5) Business Days prior to the Closing Date an audited balance sheet
for June 30, 1996, an audited income statement for the 6-month period ended June
30, 1996 and audited restated financial statements at and for the period ended
December 31, 1995, in each case accompanied by the unqualified opinion of One
Stop's independent accountants. The financial statements referred to herein will
(a) present fairly the financial condition of One Stop as of the date indicated
and its results of operations and cash flow, as applicable, for the respective
periods then ended; and (b) will be prepared in accordance with GAAP
consistently applied.
6.8 FILINGS; APPLICATIONS. One Stop will cooperate with Aames in the
<PAGE> 62
preparation of the statements or applications to be filed to obtain the
necessary regulatory approvals to consummate the transactions contemplated by
this Agreement. Prior to the Closing Date, One Stop covenants and agrees that
all information furnished by One Stop for inclusion in all applications or
statements filed with the appropriate regulatory authorities for approval of, or
consent to, the Merger will comply in all material respects with the provisions
of applicable law, and will not contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
` ARTICLE VII
COVENANTS OF AAMES PENDING EFFECTIVE TIME OF THE MERGER
Aames covenants and agrees with One Stop as follows:
7.1 ACCESS TO INFORMATION. Aames will afford One Stop and its
representatives, counsel, accountants, agents and employees access during normal
business hours to all of its businesses, operations, properties, books, files
and records and will do everything reasonably necessary to enable One Stop and
its representatives, counsel, accountants, agents and employees to make a
complete examination of the financial statements, businesses, assets and
properties of Aames and the condition thereof and to update such examination at
such intervals as One Stop shall deem appropriate. Such examination shall be
conducted in cooperation with the officers of Aames and in such a manner as to
minimize any disruption of, or interference with, the normal business operations
of Aames. Upon the request of One Stop, Aames will request that Price Waterhouse
LLP provide reasonable access to auditors' work papers with respect to the
businesses and properties of Aames, including tax accrual work papers prepared
for Aames during the preceding seventy-two (72) months, other
<PAGE> 63
than (a) books, records and documents covered by the attorney-client privilege,
or that are attorneys' work product, and (b) books, records and documents that
Aames is legally obligated to keep confidential. No examination or review
conducted under this section shall constitute a waiver or relinquishment on the
part of One Stop of the right to rely upon the representations and warranties
made by Aames herein; provided, that One Stop shall disclose in writing to Aames
any fact or circumstance it may discover which One Stop believes renders any
representation or warranty made by Aames hereunder incorrect in any respect. One
Stop covenants and agrees that it and its representatives, counsel, accountants,
agents and employees will hold in strict confidence all documents and
information concerning Aames so obtained (except to the extent that such
documents or information are a matter of public record or require disclosure in
any of the public information or any applications required to be filed with any
governmental or regulatory agency to obtain the approvals and consents required
to effect the transactions contemplated hereby), and if the transactions
contemplated herein are not consummated, such confidence shall be maintained and
all such documents shall be returned to Aames.
7.2 NOTICES; REPORTS. Aames will promptly notify One Stop of any event of
which Aames obtains knowledge which has had or may reasonably be expected to
have a materially adverse effect on the financial condition, operations,
business or prospects of Aames on a consolidated basis or in the event that
Aames determines that it is unable to fulfill any of the conditions to the
performance of One Stop's obligations hereunder, as set forth in Articles IX or
XI herein.
7.3 FILINGS; APPLICATIONS. Aames will prepare promptly and file any
statements or applications necessary to obtain the regulatory approvals
<PAGE> 64
required to consummate the transactions contemplated by this Agreement. Aames
covenants and agrees that all information included by Aames and in all
applications or statements filed with the appropriate regulatory authorities for
approval of, or consent to, the Merger, and other transactions contemplated by
this Agreement, will comply in all material respects with the provisions of
applicable law, and will not contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
ARTICLE VIII
GENERAL COVENANTS
The Parties hereto hereby mutually covenant and agree with each other as
follows:
8.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each Party will use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement as promptly as practical.
8.2 BLUE SKY. Aames shall take any action required to be taken under any
applicable state securities laws in connection with the issuance of Aames Stock
in the Merger, and One Stop shall furnish all information concerning One Stop as
may be reasonably requested in connection with any such action.
ARTICLE IX
CONDITIONS PRECEDENT TO THE MERGER
The obligations of each of the Parties hereto to consummate the
<PAGE> 65
transactions contemplated herein are subject to the satisfaction, on or before
the Closing Date, of the following conditions:
9.1 STOCKHOLDER APPROVAL. The transactions contemplated hereby shall
have received all requisite approvals of the stockholders of One Stop.
9.2 NO JUDGMENTS OR ORDERS. No judgment, decree, injunction, order or
proceeding shall be outstanding or threatened by any governmental entity which
prohibits or restricts the effectuation of, or threatens to invalidate or set
aside, the Merger substantially in the form contemplated by this Agreement,
unless counsel to the Party against which such action or proceeding was
instituted or threatened renders to the other Parties hereto a favorable opinion
that such judgment, decree, injunction, order or proceeding is without merit.
9.3 REGULATORY APPROVALS. To the extent required by applicable law or
regulation, all approvals or consents of any governmental authority, including,
without limitation, the State Agency Approvals, shall have been obtained or
granted for the Merger and the transactions contemplated hereby, and the
applicable waiting period under all laws shall have expired. All other statutory
or regulatory requirements for the valid completion of the transactions
contemplated hereby shall have been satisfied.
9.4 LB FINANCING. One Stop shall have provided written notice to LB and
LCPI of its intention to terminate the Existing Credit Facilities effective as
of a date which is not more than five business days following the Closing Date,
substantially in the form attached hereto as Exhibit "J."
9.5 POOLING OF INTERESTS ACCOUNTING TREATMENT. Price Waterhouse LLP
shall have confirmed in writing to Aames that the Merger will qualify for
pooling of interests accounting treatment.
<PAGE> 66
9.6 EMPLOYMENT AGREEMENT. An Employment Agreement between Aames and Neil
B. Kornswiet, substantially in the form attached hereto as Exhibit F, shall
have been entered into by Neil B. Kornswiet, effective immediately after the
Effective Time.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF AAMES
All of the obligations of Aames and Merger Sub to effect the transactions
contemplated hereby shall be subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by Aames:
10.1 LEGAL OPINION. Aames shall have received the opinion of Brown & Wood,
special counsel to One Stop, dated as of the Closing Date, in substantially the
form of Exhibit G hereto.
10.2 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. All the
covenants, terms and conditions of this Agreement to be complied with and
performed by One Stop at or before the Closing Date shall have been complied
with and performed in all material respects; the representations and warranties
of One Stop contained in Article IV hereof shall have been true and correct in
all material respects on and as of the date of this Agreement and on and as of
the Closing Date, with the same effect as though such representations and
warranties had been made on and as of the Closing Date.
10.3 AUTHORIZATION OF MERGERS. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the Articles of Merger
by One Stop, and the consummation of the transactions contemplated hereby and
thereby shall have been duly and validly taken by the Board of Directors and
stockholders of One Stop, as required by applicable law, and One
<PAGE> 67
Stop shall have full power and right to merge pursuant to the Articles of
Merger.
10.4 REGULATORY APPROVALS AND RELATED CONDITIONS. Other than the State
Agency Approvals, any governmental and regulatory approvals and consents which
are referred to in this Agreement and are required to consummate the Merger
shall have been granted without the imposition of conditions that are or would
have become applicable to Aames and that Aames reasonably and in good faith
concludes would materially adversely affect the consolidated financial condition
or operations of Aames or otherwise would be materially burdensome to Aames on a
consolidated basis and all applicable waiting periods shall have expired.
10.5 STATE AGENCY APPROVALS. Aames and One Stop shall have obtained all
State Agency Approvals necessary to permit the Merger and the transactions
contemplated herein to be consummated.
10.6 THIRD PARTY CONSENTS. Aames shall have obtained the consents listed
on Appendix I and One Stop shall have obtained the consents listed on Appendix
I.
10.7 ABSENCE OF CERTAIN CHANGES. Between the date of this Agreement and the
Effective Time, there shall have been no materially adverse change, or
development or discovery involving a prospective materially adverse change, in
the business, financial condition, or results of operations of One Stop, whether
or not such change or development or discovery is reflected in the One Stop
Schedules as amended or supplemented after the date of this Agreement, other
than such change or developments resulting from (x) any economic decline in the
economy generally, and (y) the public disclosure of this Agreement.
10.8 OFFICERS' CERTIFICATE. There shall have been delivered to Aames on
<PAGE> 68
the Closing Date a certificate executed by the President and the Chief Financial
Officer of One Stop certifying, to the best of their knowledge, compliance with
all of the provisions of Sections 10.2, 10.3, 10.6 and 10.7.
10.9 [Intentionally omitted.]
10.10 STOCKHOLDERS' VOTING AGREEMENTS. Concurrently with the
execution of this Agreement, the Principal Stockholder and shall have executed
and delivered to Aames an agreement substantially in the form of Exhibit H
attached hereto.
10.11 DIRECTOR RESIGNATIONS. Each director of One Stop other than the
Principal Stockholder shall have submitted his resignation as a director of One
Stop, effective immediately prior to the Effective Time.
10.12 LCPI LETTER. Concurrently with the execution of this Agreement,
LCPI shall have executed and delivered to Aames a letter substantially in the
form of Exhibit I attached hereto.
10.13 FINANCIAL STATEMENTS. The Financial Statements of One Stop delivered
to Aames under Section 6.7 do not reflect any material adverse changes from the
unaudited interim financial statements for the quarter ended June 30, 1996
included in the Financial Statements of One Stop.
10.14 NON-COMPETE AGREEMENT. The Principal Stockholder shall have
executed and delivered the Non-Compete Agreement on or prior to the Closing
Date.
10.15 EMPLOYEE AGREEMENTS. Each of the employees of One Stop listed on
Appendix II entitled to any of the options assumed by Aames pursuant to Section
2.10 hereof shall have executed and delivered to One Stop, on or prior to the
Closing Date, an agreement substantially in the form of Exhibit E attached
hereto.
<PAGE> 69
10.16 LB RELEASE. LB and LCPI shall each have executed and delivered
to Aames the release attached hereto as Exhibit J.
10.17 ESCROW AGREEMENT. LB and Neil B. Kornswiet shall have executed
and delivered to Aames the Escrow Agreement.
ARTICLE XI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ONE STOP
All of the obligations of One Stop to effect the transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of
the following conditions, any of which may be waived in writing by One Stop:
11.1 LEGAL OPINION. One Stop shall have received the opinion of the
General Counsel of Aames, dated as of the Closing Date, in substantially the
form of Exhibit K hereto.
11.2 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. All
covenants, terms and conditions of this Agreement to be complied with and
performed by Aames at or before the Closing Date shall have been complied with
and performed in all material respects; the representations and warranties of
Aames contained in Article V hereof shall have been true and correct in all
material respects on and as of the date of this Agreement and on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
11.3 AUTHORIZATION OF MERGER. All actions necessary to authorize the
execution, delivery and performance of this Agreement and the Articles of Merger
by Aames and the consummation of the transactions contemplated hereby and
thereby shall have been duly and validly taken by the Board of Directors and
stockholders of Aames, as required by applicable law, and Aames shall have
full power and right to merge pursuant to the Articles of Merger.
<PAGE> 70
11.4 ABSENCE OF CERTAIN CHANGES. Between the date of this Agreement and
the Effective Time, there shall have been no materially adverse change, or
development involving a prospective materially adverse change in, the business,
financial condition or results of operations of Aames on a consolidated basis,
other than such change or developments resulting from (x) any economic decline
in the economy generally, and (y) the public disclosure of this Agreement.
11.5 OFFICERS' CERTIFICATE. There shall have been delivered to One Stop on
the Closing Date a certificate executed by the Chief Executive Officer or Chief
Operating Officer and the Chief Financial Officer of Aames certifying, to the
best of their knowledge, compliance with all of the provisions of Sections 11.2,
11.3 and 11.4.
11.6 THIRD PARTY CONSENTS. Aames shall have obtained the consents listed
on Appendix I of the Aames Schedules and One Stop shall have obtained the
consents listed on Appendix I.
11.7 NYSE LISTING. The shares of Aames Stock issuable pursuant to this
Agreement shall have been duly authorized for listing, subject to notice of
issuance, on the NYSE or on such other national exchange on which the shares of
Aames Stock are listed.
11.8 REGISTRATION RIGHTS AGREEMENT. The Registration Rights Agreement by
and between Aames, on the one hand, and each of the Principal Stockholder and
LCPI, on the other, substantially in the form attached hereto as Exhibit L,
shall have been entered into effective immediately after the Effective Time.
11.9 DIRECTOR APPOINTMENT. Effective immediately after the Effective
Time, The Principal Stockholder shall be appointed to the Board of Directors of
Aames.
11.10 ESCROW AGREEMENT. Aames and the Escrow Agent shall have
<PAGE> 71
executed and delivered to the Principal Stockholder the Escrow Agreement.
ARTICLE XII
EMPLOYEE BENEFITS
12.1 EMPLOYEE BENEFITS. At and as of the Effective Time the former officers
and employees of One Stop who become officers and employees of the Surviving
Company ("Transferred Employees") shall, in that capacity, be entitled to
participate in all employee benefits and benefit programs of Aames in accordance
with the terms of such employee benefit programs. Aames shall recognize such
Transferred Employees' service with One Stop for purposes of eligibility and
vesting under all such benefit programs. Surviving Company or Aames shall also
cover under its health plans, without the application of any pre-existing
limitation or exclusion, all Transferred Employees and their covered dependents
who are covered under similar One Stop health plans as of the Closing Date and
who change coverage to Aames's health plans at the time such Transferred
Employees are first provided the option to enroll in health plans.
ARTICLE XIII
TERMINATION
13.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time of the Merger upon the occurrence of any of the following:
(a) by mutual agreement of the parties, in writing;
(b) by One Stop immediately upon expiration of ten (10) days from
delivery of written notice by One Stop to Aames of Aames' breach of or failure
to satisfy any covenant or agreement contained herein resulting in a material
<PAGE> 72
impairment of the benefit reasonably expected to be derived by One Stop from the
performance or satisfaction of such covenant or agreement (provided that such
breach has not been waived by One Stop or cured by Aames prior to expiration of
such ten (10) day period);
(c) by Aames immediately upon expiration of ten (10) days from
delivery of written notice by Aames to One Stop of One Stop's breach of or
failure to satisfy any covenant or agreement contained herein resulting in a
material impairment of the benefit reasonably expected to be derived by Aames
from the performance or satisfaction of such covenant or agreement (provided
that such breach has not been waived by Aames or cured by One Stop, prior to
expiration of such ten (10) day period);
(d) by One Stop or Aames upon the expiration of five (5) days after
any governmental or regulatory authority denies or refuses to grant any
approval, consent or authorization required to be obtained in order to
consummate the transactions contemplated by this Agreement unless, (i) within
said five (5) day period after such denial or refusal, all Parties hereto agree
to re-submit the application to the regulatory authority that has denied or
refused to grant the approval, consent or qualification requested; or (ii) such
denial or refusal would not have a Material Adverse Effect on One Stop or Aames.
(e) by One Stop, if any conditions set forth in Article XI shall not
have been met, by Aames if any conditions set forth in Article X, shall not have
been met, or by One Stop or Aames, if any conditions set forth in Article IX
shall not have been met by August 30, 1996 (or September 15, 1996 if necessary
to allow for compliance with the requirements of the Hart-Scott-Rodino Antitrust
Improvement Act), or such earlier time as it becomes apparent that such
conditions cannot be met; or
<PAGE> 73
13.2 TERMINATION DATE. This Agreement shall be terminated if the Closing
Date shall not have occurred by August 30, 1996 (or September 15, 1996 if
necessary to allow for compliance with the requirements of the Hart-Scott-Rodino
Antitrust Improvement Act).
13.3 EFFECT OF TERMINATION. No termination of this Agreement under this
Article XIII for any reason or in any manner shall release, or be construed as
so releasing, Aames or One Stop from their respective obligations under the last
sentence of Section 6.4, Section 7.1 or under Section 15.1 hereof, or any Party
hereto from any liability or damage to any other Party hereto arising out of in
connection with or otherwise relating to, directly or indirectly, said Party's
material breach, default or failure in performance of any of its covenants,
agreements, duties or obligations arising hereunder.
ARTICLE XIV
MISCELLANEOUS
14.1 EXPENSES; DAMAGES.
(a) Subject to Section 14.1(b), each Party hereto shall pay its own
costs and expenses, including but not limited to those of its attorneys,
financial advisors, and accountants, in connection with this Agreement and the
Articles of Merger and the transactions covered and contemplated hereby and
thereby.
(b) In the event (i) all the conditions in ARTICLE IX and ARTICLE X
are met prior to August 30, 1996 (or September 15, 1996, if extended, as
provided in Section 13.1(e)), and (ii) Aames terminates this Agreement or fails
to close this Agreement, then Aames shall pay to One Stop a fee of $5,000,000.
In addition, in the event (i) all of the conditions set forth in Sections 9.1,
9.4, 9.6, 10.1, 10.3, 10.8 and 10.10 through 10.17 are met prior to August 30,
<PAGE> 74
1996 (or September 15, 1996, if extended, as provided in Section 13.1(e)), all
the covenants, terms and conditions of this Agreement to be complied with and
performed by One Stop at or before the Closing Date shall have been complied
with and performed in all material respects and the representations and
warranties of One Stop contained in Article IV hereof shall have been true and
correct in all material respects on and as of the date of this Agreement and
(ii) Aames terminates this Agreement or fails to close this Agreement, then One
Stop shall have the right, by delivering written notice to Aames within 10 days
following the effective date of termination, to cause Aames to acquire all
Warehouse Loans which are more than 60 days past due as of the date One Stop
provides such notice to Aames (but in no event more than ten percent of all
Warehouse Loans as of the date hereof) at a purchase price equal to the
outstanding principal amount of the Warehouse Loans so purchased. To the extent
that the volume of Warehouse Loans that are more than 60 days past due exceeds
ten percent of all Warehouse Loans, then Aames shall have the right, in its sole
discretion, to select those Warehouse Loans it is obligated to acquire under
this Section 14.1. All Warehouse Loans acquired by Aames shall comply with the
agreement for purchase of Mortgage Loans between Aames Capital and One Stop
which is currently in effect and, in the event of any breach or violation of
such agreement with respect to any Warehouse Loan or Warehouse Loans, shall be
subject to indemnification or repurchase by One Stop to the same extent as if
such Warehouse Loans had been sold by One Stop to Aames under such agreement.
(c) In the event (i) all the conditions in ARTICLE IX and ARTICLE XI
are met prior to August 30, 1996 (or September 15, 1996, if extended, as
provided in Section 13.1(e)) and (ii) One Stop terminates this Agreement or
fails to close this Agreement, then One Stop shall pay to Aames, a fee of
<PAGE> 75
$5,000,000.
(d) Subject to Section 14.15 hereof, the Parties agree and stipulate
the foregoing is reasonable and full liquidated damages and reasonable
compensation for the involvement of the Parties and is not a penalty or
forfeiture.
14.2 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another shall be in writing and delivered
personally or by facsimile transmission or sent by registered or certified mail,
postage prepaid, with return receipt requested, addressed as follows:
If to Aames or Merger Sub, addressed to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
With a copy addressed to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Attention: C. N. Franklin Reddick III, Esq.
If to One Stop or the Principal, addressed to:
One Stop Mortgage, Inc.
200 Baker Street, Suite 101
Costa Mesa, California 92626
Attention: Neil B. Kornswiet
With a copy addressed to:
Brown & Wood LLP
One World Trade Center
58th Floor
<PAGE> 76
New York, NY 10048
Attention: Jack M. Costello, Jr., Esq.
Any such notice, request, instruction or other document shall be deemed
received on the date delivered personally or sent by facsimile transmission, or
on the third business day after it was sent by registered or certified mail,
postage prepaid. Any of the persons shown above may change its address for
purposes of this section by giving notice in accordance herewith.
14.3 SUCCESSORS AND ASSIGNS. All terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the Parties hereto and
their respective transferees, successors and assigns; provided, however, that
this Agreement and all rights, privileges, duties and obligations of the Parties
hereto may not be assigned or delegated by any Party hereto without the prior
written consent of the other Parties hereto.
14.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which, taken together, shall constitute one original
document.
14.5 EFFECT OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Parties contained in this Agreement or the Schedules shall
survive for a period of twelve (12) months after the Effective Time.
14.6 THIRD PARTIES. Each Party hereto intends that this Agreement shall not
benefit or create any right or cause of action to any person other than the
Parties hereto.
14.7 PUBLICITY. The initial press release relating to this Agreement shall
be a joint press release in a form mutually agreeable to Aames and One Stop and
Aames and One Stop shall, subject to Aames's legal obligations as a
<PAGE> 77
public company, use reasonable efforts to agree upon the text of any other press
release before issuing any such press release or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any federal or state governmental or regulatory agency or with
any national securities exchange with respect thereto.
14.8 LISTS; EXHIBITS; INTEGRATION. Each Schedule, exhibit and letter
delivered pursuant to this Agreement shall be in writing and shall constitute a
part of the Agreement, although Schedules and letters need not be attached to
each copy of this Agreement. This Agreement, together with such Schedules,
exhibits and letters, constitutes the entire agreement between the Parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
14.9 GOVERNING LAW. This Agreement is made and entered into in the State of
California and the laws of the State of California shall govern the validity and
interpretation hereof and the performance of the parties hereto of their
respective duties and obligations hereunder.
14.10 SCHEDULES. In the event there is any absolute unconditional
representation contained in this Agreement, said representation shall be
modified by any contrary information set forth in any Schedule. In the event
there is any representation contained in this Agreement that is modified by a
Schedule, said representation shall also be modified by any other applicable
information contained in any other Schedule.
14.11 CAPTIONS. The captions contained in this Agreement are for
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.
14.12 SEVERABILITY. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining
<PAGE> 78
terms hereof shall provide for the consummation of the transactions contemplated
herein in substantially the same manner as originally set forth at the date this
Agreement was executed.
14.13 WAIVER AND MODIFICATION. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further or continuing waiver
of any such term, provision or condition of this Agreement. Except as otherwise
required by law, this Agreement and the Articles of Merger, when executed
and delivered, may be modified or amended by action of the Boards of Directors
of Aames or One Stop without action by their respective stockholders.
This Agreement may be modified or amended only by an instrument of equal
formality signed by the parties or their duly authorized agents.
14.14 ATTORNEY'S FEES. In the event any of the Parties to this Agreement
brings an action or suit against any other Party by reason of any breach of any
covenant, agreement, representation, warranty or other provision hereof, or any
breach of any duty or obligation created hereunder by such other Party, the
prevailing Party, as determined by the court or other body having jurisdiction,
shall be entitled to have and recover of and from the losing Party, as
determined by the court or other body having jurisdiction, all reasonable costs
and expenses incurred or sustained by such prevailing Party in connection with
such suit or action, including, without limitation, legal fees and court costs
(whether or not taxable as such).
14.15 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of
<PAGE> 79
Article VI of this Agreement were not performed in accordance with their
specific terms or was otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
the covenants set forth in Article VI of this Agreement and to enforce
specifically the terms and provisions thereof in any California court; provided
that this equitable remedy shall be in addition to any other remedy to which the
parties may be entitled at law or in equity for such breach.
14.16 JURY WAIVER. THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY MATTER
ARISING OUT OF THIS AGREEMENT OR RELATED TO THIS AGREEMENT OR IN CONNECTION WITH
ANY TRANSACTION OR MATTER CONTEMPLATED IN THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ CARY H. THOMPSON
------------------------------
Cary H. Thompson
Its: Chief Operating Officer
AAMES ACQUISITION CORPORATION,
a Delaware corporation
By: /s/ CARY H. THOMPSON
------------------------------
Cary H. Thompson
Its: Executive Vice President
and Secretary
ACCEPTED AND AGREED:
ONE STOP MORTGAGE, INC.,
a Wyoming corporation
By: /s/ NEIL B. KORNSWIET
--------------------------------
Neil B. Kornswiet
Its: President
PRINCIPAL STOCKHOLDER, SOLELY
<PAGE> 80
WITH RESPECT TO ARTICLE IV HEREOF:
/s/ NEIL B. KORNSWIET
- ----------------------------------
Neil B. Kornswiet
<PAGE> 81
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II THE MERGER AND RELATED MATTERS. . . . . . . . . . . . . . . . 10
2.1 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . 10
2.3 EXCHANGE PROCEDURES . . . . . . . . . . . . . . . . . . . . . 10
2.4 NO LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 EFFECT OF MERGER. . . . . . . . . . . . . . . . . . . . . . . 11
2.6 NAME OF SURVIVING COMPANY . . . . . . . . . . . . . . . . . . 12
2.7 ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING COMPANY . . 12
2.8 DIRECTORS AND OFFICERS OF SURVIVING COMPANY . . . . . . . . . 12
2.9 WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.10 EMPLOYEE OPTIONS. . . . . . . . . . . . . . . . . . . . . . . 12
2.11 CONVERSION. . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.1 CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 EXECUTION OF MERGER AGREEMENTS. . . . . . . . . . . . . . . . 13
3.3 DOCUMENTS TO BE DELIVERED . . . . . . . . . . . . . . . . . . 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ONE STOP. . . . . . . . . . 14
4.1 INCORPORATION, STANDING AND POWER . . . . . . . . . . . . . . 14
4.2 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 15
4.5 REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.6 AUTHORITY OF ONE STOP . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 82
<TABLE>
<S> <C>
4.7 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.8 TITLE TO ASSETS . . . . . . . . . . . . . . . . . . . . . . . 16
4.9 REAL ESTATE . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.10 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.11 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.12 COMPLIANCE WITH LAWS AND REGULATIONS. . . . . . . . . . . . . 18
4.13 PERFORMANCE OF OBLIGATIONS. . . . . . . . . . . . . . . . . . 18
4.14 EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.15 BROKERS AND FINDERS . . . . . . . . . . . . . . . . . . . . . 19
4.16 MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . . . 19
4.17 ABSENCE OF MATERIAL CHANGE OR CERTAIN EVENTS. . . . . . . . . 21
4.18 LICENSES AND PERMITS. . . . . . . . . . . . . . . . . . . . . 21
4.19 NO UNDISCLOSED MATERIAL LIABILITIES . . . . . . . . . . . . . 21
4.20 EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . 22
4.21 CORPORATE RECORDS . . . . . . . . . . . . . . . . . . . . . . 24
4.22 OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.23 SEC REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.24 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . 24
4.25 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . 25
4.26 LOAN PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . 25
4.27 NO RECOURSE . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.28 COMPLIANCE WITH AGENCY, ETC., REQUIREMENTS. . . . . . . . . . 26
4.29 REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . 26
4.30 ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.31 PAYMENT OF TAXES, INSURANCE PREMIUMS, ETC.. . . . . . . . . . 26
4.32 PAYOFF STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 83
<TABLE>
<S> <C>
4.33 CORRESPONDENT AGREEMENTS. . . . . . . . . . . . . . . . . . . 27
4.34 AFFILIATED PARTY TRANSACTIONS . . . . . . . . . . . . . . . . 27
4.35 SECURITIZATION TRANSACTIONS . . . . . . . . . . . . . . . . . 27
4.36 PREPAYMENT PENALTIES. . . . . . . . . . . . . . . . . . . . . 27
4.37 NO ESCROW ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . 28
4.38 APPRAISALS AND UNDERWRITING POLICIES. . . . . . . . . . . . . 28
4.39 FRAUD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.40 RESERVES AND OTHER ACCOUNTS . . . . . . . . . . . . . . . . . 28
4.41 HEDGES, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . 28
4.42 POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . 28
4.43 DISCLOSURE DOCUMENTS AND APPLICATIONS . . . . . . . . . . . . 28
4.44 ACCURACY AND CURRENTNESS OF INFORMATION FURNISHED . . . . . . 28
ARTICLE V REPRESENTATIONS AND WARRANTIES OF AAMES . . . . . . . . . . . 29
5.1 INCORPORATION, STANDING AND POWER . . . . . . . . . . . . . . 29
5.2 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 FILINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.4 AUTHORITY OF AAMES AND MERGER SUB . . . . . . . . . . . . . . 30
5.5 BROKERS AND FINDERS . . . . . . . . . . . . . . . . . . . . . 31
5.6 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.7 COMPLIANCE WITH LAWS AND REGULATIONS. . . . . . . . . . . . . 31
5.8 ABSENCE OF MATERIAL CHANGE OR CERTAIN EVENTS. . . . . . . . . 31
ARTICLE VI COVENANTS OF ONE STOP PENDING EFFECTIVE TIME OF THE MERGER. . 32
6.1 LIMITATION ON ONE STOP'S CONDUCT PRIOR TO EFFECTIVE TIME. . . 32
6.2 NO SOLICITATION, ETC. . . . . . . . . . . . . . . . . . . . . 34
6.3 AFFIRMATIVE CONDUCT OF ONE STOP PRIOR TO EFFECTIVE TIME . . . 34
6.4 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
<PAGE> 84
<TABLE>
<S> <C>
6.5 NOTICES; REPORTS. . . . . . . . . . . . . . . . . . . . . . . 36
6.6 ONE STOP STOCKHOLDERS' CONSENT. . . . . . . . . . . . . . . . 37
6.7 AUDITED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . 37
6.8 FILINGS; APPLICATIONS . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII COVENANTS OF AAMES PENDING EFFECTIVE TIME OF THE MERGER . . . 37
7.1 ACCESS TO INFORMATION . . . . . . . . . . . . . . . . . . . . 37
7.2 NOTICES; REPORTS. . . . . . . . . . . . . . . . . . . . . . . 38
7.3 FILINGS; APPLICATIONS . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VIII GENERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . 38
8.1 BEST EFFORTS. . . . . . . . . . . . . . . . . . . . . . . . . 38
8.2 BLUE SKY. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IX CONDITIONS PRECEDENT TO THE MERGER . . . . . . . . . . . . . 39
9.1 STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . 39
9.2 NO JUDGMENTS OR ORDERS. . . . . . . . . . . . . . . . . . . . 39
9.3 REGULATORY APPROVALS. . . . . . . . . . . . . . . . . . . . . 39
9.4 LB FINANCING. . . . . . . . . . . . . . . . . . . . . . . . . 39
9.5 POOLING OF INTERESTS ACCOUNTING TREATMENT . . . . . . . . . . 39
9.6 EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . 39
ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF AAMES. . . . . . . . . 40
10.1 LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. . . 40
10.3 AUTHORIZATION OF MERGERS. . . . . . . . . . . . . . . . . . . 40
10.4 REGULATORY APPROVALS AND RELATED CONDITIONS . . . . . . . . . 40
10.5 STATE AGENCY APPROVALS. . . . . . . . . . . . . . . . . . . . 40
</TABLE>
<PAGE> 85
<TABLE>
<S> <C>
10.6 THIRD PARTY CONSENTS. . . . . . . . . . . . . . . . . . . . . 40
10.7 ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . . . 40
10.8 OFFICERS' CERTIFICATE . . . . . . . . . . . . . . . . . . . . 41
10.9 FAIRNESS OPINION. . . . . . . . . . . . . . . . . . . . . . . 41
10.10 STOCKHOLDERS' VOTING AGREEMENTS. . . . . . . . . . . . . . . 41
10.11 DIRECTOR RESIGNATIONS . . . . . . . . . . . . . . . . . . . 41
10.12 AFFILIATE'S LETTER. . . . . . . . . . . . . . . . . . . . . .41
10.13 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . .41
10.14 NON-COMPETE AGREEMENT . . . . . . . . . . . . . . . . . . . .41
10.15 EMPLOYEE AGREEMENTS.. . . . . . . . . . . . . . . . . . . . .41
10.16 LB RELEASE. . . . . . . . . . . . . . . . . . . . . . . . . .41
ARTICLE XI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ONE STOP. . . . . .42
11.1 LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . 42
11.2 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF COVENANTS. . . 42
11.3 AUTHORIZATION OF MERGER . . . . . . . . . . . . . . . . . . . 42
11.4 ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . . . 42
11.5 OFFICERS' CERTIFICATE . . . . . . . . . . . . . . . . . . . . 42
11.6 THIRD PARTY CONSENTS. . . . . . . . . . . . . . . . . . . . . 42
11.7 NYSE LISTING. . . . . . . . . . . . . . . . . . . . . . . . . 42
11.8 REGISTRATION RIGHTS AGREEMENT . . . . . . . . . . . . . . . . 42
11.9 DIRECTOR APPOINTMENT. . . . . . . . . . . . . . . . . . . . . 43
11.10 ESCROW AGREEMENT. . . . . . . . . . . . . . . . . . . . . . .43
ARTICLE XII EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . 43
12.1 EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XIII TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
<PAGE> 86
<TABLE>
<S> <C>
13.1 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 43
13.2 TERMINATION DATE. . . . . . . . . . . . . . . . . . . . . . . 44
13.3 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XIV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 44
14.1 EXPENSES; DAMAGES . . . . . . . . . . . . . . . . . . . . . . 44
14.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.3 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . 46
14.4 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . 46
14.5 EFFECT OF REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 46
14.6 THIRD PARTIES . . . . . . . . . . . . . . . . . . . . . . . . 46
14.7 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.8 LISTS; EXHIBITS; INTEGRATION. . . . . . . . . . . . . . . . . 47
14.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 47
14.10 SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.11 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .47
14.12 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . .47
14.13 WAIVER AND MODIFICATION . . . . . . . . . . . . . . . . . . .47
14.14 ATTORNEY'S FEES . . . . . . . . . . . . . . . . . . . . . . .48
14.15 ENFORCEMENT OF AGREEMENT. . . . . . . . . . . . . . . . . . .48
14.16 JURY WAIVER . . . . . . . . . . . . . . . . . . . . . . . . .48
</TABLE>
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
EXHIBIT E
EXHIBIT F
EXHIBIT G
EXHIBIT H
EXHIBIT I
EXHIBIT J
<PAGE> 87
EXHIBIT K
EXHIBIT L
APPENDIX I
APPENDIX II
<PAGE> 88
EXHIBIT A
ARTICLES OF MERGER OF
ONE STOP MORTGAGE, INC.
INTO
AAMES ACQUISITION CORPORATION
The undersigned surviving corporation following merger hereby files
Articles of Merger with respect to the merger of One Stop Mortgage, Inc., a
Wyoming corporation (hereinafter "One Stop"), and Aames Acquisition Corporation,
a Delaware corporation (hereinafter "AAC") pursuant to W.S. Section 17-16-1105
of the Wyoming Business Corporation Act, as follows:
I. The plan of merger:
See the attached Agreement and Plan of Reorganization, which is hereby
incorporated herein by this reference.
II. Shareholder approval of each corporation party to the merger was
required and given, as follows:
A. The designation, number of outstanding shares, and number of
votes entitled to be cast by each voting group entitled to vote
separately on the plan as to each corporation:
<TABLE>
<CAPTION>
Number of Shares Designation Number of Votes
<S> <C> <C> <C>
One Stop 100 common 100
AAC 100 common 100
</TABLE>
B. The number of votes cast for and against the plan by each voting
group entitled to vote separately:
<TABLE>
<CAPTION>
Number Voting for Number Against
<S> <C> <C>
One Stop 100 0
AAC 100 0
</TABLE>
III. The merger shall be effective immediately upon the filing of Articles
of Merger with the Secretary of State of the State of Delaware.
Dated: __________________ One Stop Mortgage, Inc.,
a Wyoming corporation
By: ________________________________
Authorized Agent
<PAGE> 89
EXHIBIT B
ESCROW AGREEMENT
This Escrow Agreement (this "Escrow Agreement") is made and entered
into as of the _____ day of August, 1996, by and among Aames Financial
Corporation, a Delaware corporation ("Aames"), Neil B. Kornswiet ("NK"), Lehman
Brothers Holdings Inc., a Delaware corporation ("LB") and
______________________, a __________________ (the "Escrow Agent"). NK and LB are
each referred to herein as a "One Stop Stockholder" and are collectively
referred to herein as the "One Stop Stockholders."
RECITALS
A. Aames, One Stop Mortgage Inc., a Wyoming corporation ("One Stop") and
Aames Acquisition Corporation, a wholly owned subsidiary of Aames ("Merger
Sub"), have entered into an Agreement and Plan of Reorganization, dated as of
August 12, 1996 (the "Agreement"), pursuant to which Merger Sub will merge with
and into One Stop. Capitalized terms not otherwise defined herein shall take the
meanings given them in the Agreement.
B. Pursuant to the terms of the Agreement, at the Effective Time, Aames
will deposit shares of the Aames Stock issuable to the Principal Stockholders in
connection with the Merger to the Escrow Agent (the "Escrow Deposit"), to be
held and disposed of in accordance with the terms and conditions hereof.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto do agree as follows:
1. Indemnity.
(a) Indemnification Obligations. Subject to Section 1(b), the One
Stop Stockholders shall indemnify, save and keep Aames and its officers,
directors, employees, and stockholders (each an "Indemnified Party") harmless
against and from all claims, liabilities, losses, damages, costs and expenses
(including reasonable attorneys', accountants', investigators', and experts'
fees and expenses, sustained or incurred in connection with the defense or
investigation of any claim ) (collectively, "Damages") which arise out of or by
virtue of:
(i) any inaccuracy in or breach of any representation and
warranty made by One Stop set forth in the Agreement or any One Stop Schedule;
and
<PAGE> 90
(ii) the breach by One Stop, or failure of One Stop to
comply with, any of the covenants or obligations under the Agreement to be
performed by One Stop.
This Escrow Agreement shall constitute the sole and exclusive remedy of the
Indemnified Parties for all Damages which arise out of or by virtue of the
foregoing. The representations and warranties included in the Agreement are
exclusive, and the parties hereto confirm that they have not relied upon any
representations, warranties or covenants not contained therein, in any Schedule
thereto or the other documents delivered in connection therewith to enter into
this Escrow Agreement.
(b) Limitation on Indemnification Obligations. The One Stop
Stockholders' obligations under Section 1 (a) above shall be subject to the
following limitations:
(i) Subject to the provisions of Section 1(b)(v) below, no
Indemnified Party shall be entitled to recover under this Escrow Agreement
unless a claim has been asserted by a Claim Notice (as defined below) delivered
to the One Stop Stockholders on or prior to the date (the "Applicable Date") as
is the earlier to occur of (i) the date of issuance of the first independent
audit report of Aames which includes any period ending after the Effective Time,
or (ii) the close of business on the first anniversary of the Closing Date;
(ii) Subject to the provisions of Section 1(b)(v) below,
notwithstanding anything to the contrary herein contained, the One Stop
Stockholders shall not be obligated hereunder with respect to any Damages until
such time as the Damages asserted by all Indemnified Parties in the aggregate
exceed $2,000,000 (the "Threshold"), at which time all Damages in excess of the
Threshold shall be recoverable (except as limited by the other provisions of
this Escrow Agreement);
(ii) Subject to the provisions of Section 1(b)(v) below,
notwithstanding anything to the contrary herein contained, the One Stop
Stockholders shall not be obligated hereunder with respect to any Damages to the
extent that such Damages exceed the value of the Escrow Shares. The One Stop
Stockholders shall have no right of contribution against One Stop or against
Aames or any of Aames' subsidiaries by reason or arising from any Claim asserted
by an Indemnified Party under this Agreement;
(iii) The amount of any recovery by an Indemnified Party
pursuant to this Section 1 shall be net of any insurance benefits actually
received by such Indemnified Party on or prior to the date such Claim actually
results in a distribution of Escrow Shares to such Indemnified Party pursuant to
the terms of this Escrow Agreement;
(iv) Subject to the provisions of Section 1(b)(v) below, the
obligations of the One Stop Stockholders under this Escrow Agreement shall be
satisfied solely by the distribution to the Indemnified Party of Escrow Funds
held pursuant to this Escrow Agreement. Subject to the provisions of Section
1(b)(v) below, after there are no Escrow Funds
2
<PAGE> 91
held pursuant to this Escrow Agreement, the One Stop Stockholders shall have no
further obligation under this Escrow Agreement; and
(v) Notwithstanding anything to the contrary herein
contained, the limitations contained in this Section 1(b) shall not apply to any
Damages to the extent it arises out of fraud or intentional misrepresentation by
One Stop's stockholders.
(c) At the Closing, Aames shall deposit a number of shares of
Aames Stock to be received by the One Stop Stockholders pursuant to Section 2.1
of the Agreement (the "Indemnification Shares") in escrow with the Escrow Agent,
to be held and administered in accordance with the terms and conditions of this
Escrow Agreement, that has an aggregate market value of $5,000,000 based upon
the Average Price of Aames Stock. Of the Indemnification Shares, 75% shall be
deposited by or for the account of NK and 25% shall be deposited by or for the
account of LB. Fractional shares of Aames Stock shall not be deposited in
escrow. In lieu thereof, each One Stop Stockholder shall round up such
fractional share to the nearest whole number and deposit in escrow an additional
share of Aames Stock. The Indemnification Shares shall be registered in the name
of the respective One Stop Stockholders and shall be accompanied by stock powers
endorsed in blank.
2. Escrow Funds.
(a) The Escrow Agent shall hold the Indemnification Shares and
all other amounts deposited with it pursuant to Section 6 of this Escrow
Agreement in an account entitled the "Indemnification Escrow Account" (the
"Escrow Account"). The Indemnification Shares, and such other amount from time
to time held by the Escrow Agent in the Escrow Account are hereinafter referred
to as the "Escrow Funds."
(b) The Escrow Agent hereby acknowledges receipt of the
Indemnification Shares. The Escrow Agent is directed to hold, deal with and
dispose of the Escrow Funds as hereinafter set forth.
3. Charges Against Escrow Funds. In the event that, and from time to
time as, an Indemnified Party determines that it has a claim of indemnification
pursuant to Section 1(a) of this Agreement (a "Claim"), Aames shall provide a
notice to each of the One Stop Stockholders and the Escrow Agent in the form
attached as Exhibit A hereto (a "Claim Notice") of such Claim (whether
liquidated or unliquidated) against the Escrow Funds, stating the amount thereof
and a brief description of the facts upon which the Claim is based. The Claim
Notice to the Escrow Agent shall certify the date of delivery of such Claim
Notice to each of the One Stop Stockholders. Unless the Escrow Agent receives
prior notice from NK pursuant to Section 4 below, the Escrow Agent shall deliver
to the Indemnified Party out of the Escrow Account Escrow Funds having a value
equal to the amount of such Claim or Claims as specified in the Claim Notice.
Subject to the provisions of Section 4 herein, delivery of any Escrow Funds to
an Indemnified Party shall be made on the Business Day that is, or, if the 15th
calendar day is
3
<PAGE> 92
not a Business Day, immediately follows, the 15th calendar day after delivery to
the Escrow Agent of a Claim Notice (or as soon as practicable thereafter). For
all purposes under this Escrow Agreement, the Indemnification Shares and all
other amounts deposited in the Escrow Account pursuant to Section 6 of this
Escrow Agreement shall be valued at a per share value equal to the Average Price
of the Aames Stock.
4. Dispute of Claim.
(a) NK shall have the right to dispute, in whole or in part, any
Claim prior to the Business Day that is, or, if the 15th calendar day is not a
Business Day, immediately follows the 15th calendar day following the delivery
to NK of a Claim Notice. Such dispute shall be made by delivering to the Escrow
Agent written notice in substantially the form attached hereto as Exhibit B (an
"Objection Notice") that NK disputes, in whole or in part, the matters set forth
in the Claim Notice either with respect to the validity or the amount of the
Claim, or on the basis that the matter in question is not properly chargeable
against the Escrow Account under the terms hereof. Such Objection Notice shall
include the basis, with reasonable specificity, of NK's objection. The Escrow
Agent shall promptly, and in no event later than the Business Day that is, or if
the 15th calendar day is not a Business Day, immediately follows, the day that
is two calendar days after receipt thereof, furnish the Indemnified Party with a
copy of any Objection Notice.
(b) During the thirty (30) day period following receipt of an
Objection Notice NK and the Indemnified Party in good faith shall attempt to
reach agreement (it being understood that neither the Indemnified Party or NK
shall be required to reach such an agreement) on an amount due (or that no
amount is due) with respect to the Damages asserted in the Claim Notice and
denied in the Objection Notice and report such agreement in writing to the
Escrow Agent (it being understood that such writing shall be executed by both
the Indemnified Party and NK). After its receipt of any such written report, if
applicable, the Escrow Agent shall promptly cause to be transferred to the
Indemnified Party such Escrowed Funds as is agreed to be due to such Indemnified
Party. If the Indemnified Party and NK do not reach such agreement within said
thirty (30) day period, then the Escrow Agent shall continue to hold in escrow,
and shall take no action with respect to, Escrow Funds having a value equal to
the Damages asserted in the Claim Notice and denied in the Objection Notice
except as provided in Section 5 hereof and except that the Escrow Agent shall
distribute such Escrow Funds to the Indemnified Party (i) upon receipt of joint
written instructions to such effect executed by both the Indemnified Party and
NK, or (ii) upon receipt of written notice executed by the Indemnified Party
that the dispute has been resolved by arbitration granting an award of Damages
to the Indemnified Party, which notice shall be accompanied by the order of the
arbitrator.
(c) In the event that NK has delivered an Objection Notice to the
Escrow Agent disputing all or a portion of a Claim asserted by an Indemnified
Party and the Indemnified Party and NK cannot within the 30 day period referred
to above agree upon their
4
<PAGE> 93
respective rights regarding the disputed Claim, then either the Indemnified
Party or NK may submit the dispute to binding arbitration in Los Angeles,
California, pursuant to the procedures and rules for commercial arbitration of
the American Arbitration Association. The Indemnified Party and NK shall bear
their respective costs and expenses of any such arbitration. The arbitration
provided hereunder shall be the exclusive means of resolving any dispute
hereunder and shall be binding on all parties.
5. Termination: Release of Escrow Funds. Subject to Section 10(d) and
(e) herein, the Escrow Agent shall distribute to the One Stop Stockholders at
the first anniversary of the Closing Date (the "Termination Date") the Escrow
Funds less the aggregate amount of such Escrow Funds (if any) which has been
distributed to the Indemnified Parties pursuant to Claim Notices and such Escrow
Funds (if any) which is then subject to a pending Claim Notice (whether or not
an Objection Notice has been given with respect thereto). Any Escrow Funds that
are not distributed to the One Stop Stockholders on the Termination Date because
it is subject to a pending Claim Notice as to which NK has given or, if the time
for giving such notice has not yet expired, gives, an Objection Notice shall be
distributed in accordance (i) with joint written instructions executed by both
the Indemnified Party and NK, or (ii) with written notice executed by the
Indemnified Party and NK that the dispute has been resolved by arbitration and
that the attached arbitration order or other determination should be promptly
followed by the Escrow Agent to the extent it deals with the Escrow Funds held
in the Escrow Account, or (iii) with an effective and final, nonappealable order
of a court of competent jurisdiction. All Escrow Funds distributed to the One
Stop Stockholders hereunder shall be distributed 75% to NK and 25% to LB.
6. Holding of Escrow Funds. The Escrow Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the Escrow Funds held
by it from time to time hereunder. All dividends and other distributions (other
than cash dividends paid on the Aames Stock held as part of the Escrow Funds)
paid or made on a portion or all of the Escrow Funds (including without
limitation any stock split affecting the Aames Stock included as part of the
Escrow Funds, and any dividend or distribution declared with respect to the
Aames Stock included as part of the Escrow Funds that is paid in whole or in
part with shares of stock) shall be deemed to have been paid or made to the One
Stop Stockholders for income tax purposes, but shall be received by the Escrow
Agent and held and distributed by it in the same manner as, and shall constitute
a part of, the Escrow Funds. A stock split affecting or a dividend or
distribution declared with respect to the Aames Stock included as part of the
Escrow Funds that is paid in whole or in part with shares of stock shall not be
deemed to change the number or value of the Aames Stock included as part of the
Escrow Funds held hereunder (although any such split, dividend or distribution
shall constitute a part of the share of Aames Stock with respect to which it is
paid or relates). Unless and until such time as the Aames Stock held as part of
the Escrow Funds or a portion of them are distributed to an Indemnified Party as
provided herein, the One Stop Stockholders shall have the full right to vote
such shares. If the Escrow Agent shall receive any cash dividends paid on or
with respect to the Aames Stock included as part of the Escrow Funds, the Escrow
Agent shall distribute such cash dividends to
5
<PAGE> 94
the One Stop Stockholders promptly following receipt thereof. All such dividends
distributed to the One Stop Stockholders hereunder shall be distributed 75% to
NK and 25% to LB.
7. Grant of Security Interest. It is understood and agreed by the
parties hereto that the Escrow Account established pursuant to this Escrow
Agreement is intended to secure the obligations and undertakings of each of NK
and LB under this Escrow Agreement. Accordingly, to secure its obligations
thereunder, each of NK and LB hereby irrevocably grants to Aames a first
priority security interest, in and to (a) the Escrow Account, (b) all Escrow
Funds and (c) all proceeds of the foregoing, in each case to the extent that the
same are subject to the escrow established by this Escrow Agreement
(collectively, the "COLLATERAL"). Upon release of any Collateral to any party
hereto in accordance with the terms hereof, the security interest created
hereunder shall automatically terminate without further action by any party
hereto.
8. Acknowledgment of Escrow Agent. The Escrow Agent hereby
acknowledges the security interest in the Collateral in favor of Aames. The
parties hereto shall take all actions requested by Aames as may be reasonably
necessary to perfect the security interest created under this Escrow Agreement
in the Collateral and cause it to be prior to all other security interests and
liens including, without limitation, placing appropriate restrictive legends on
the certificates evidencing the Indemnification Shares.
9. Designated Officers. Aames and NK shall from time to time provide
the Escrow Agent with a certificate which shall be signed, in the case of Aames,
by two authorized officers of Aames, and in the case of NK, by NK, which
certificate shall contain (a) the names of the person(s) who are authorized to
execute any written notice, instruction or certificate to the Escrow Agent
required or permitted by the terms of this Escrow Agreement (which, in the case
of NK shall be NK), and (b) a specimen signature(s) of such authorized person(s)
("Certificate of Designation"). The initial authorized officers of Aames and
their respective signatures, and the signature of NK, will be set forth on
Certificates of Designation of Aames and NK, delivered to the Escrow Agent on
the Closing Date. Each notice, instruction or other certificate required or
permitted by the terms hereof shall be in writing and shall be communicated to
the Escrow Agent by telecopy, the receipt of which by the Escrow Agent shall be
confirmed by telephone call from the sending party, and a confirmation copy of
which shall be sent by first class mail the same day. All notices, instructions
or other certificates from the Escrow Agent to the other parties hereto shall be
by first class mail. The Escrow Agent may conclusively rely without any inquiry
or investigation on each notice, instruction or other certificate received by it
in the manner set forth above if signed by those persons designated in each
Certificate of Designation. The addresses of the parties as set forth below may
be changed by notice to all other parties.
6
<PAGE> 95
(i) if to Aames, to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
(ii) if to NK, to:
Neil B. Kornswiet
16105 Whitecap Lane
Huntington Beach, California 92649
(iii) if to LB, to:
LEHMAN BROTHERS HOLDINGS INC.
3 WORLD FINANCIAL CENTER
NEW YORK, NY 10285
Attention: Robert B. Millard
Managing Director
(iv) if to the Escrow Agent, to:
----------------------------
----------------------------
----------------------------
with a copy to:
----------------------------
----------------------------
----------------------------
and confirming calls to:
----------------------------
----------------------------
----------------------------
7
<PAGE> 96
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given hereunder
by the Escrow Agent shall be effective and deemed received three (3) calendar
days after mailing by the Escrow Agent. The Escrow Agent is not obligated to
take any action with respect to any request or demand of Aames or NK, its
successor, or, if there is no such successor, its designee, unless properly
authenticated and delivered in the form required hereunder.
10. Regarding the Escrow Agent. In consideration of the acceptance by
the Escrow Agent of its duties hereunder, it is agreed by all parties hereto
that:
(a) The Escrow Agent's duties and responsibilities shall be
limited to those expressly set forth in this Escrow Agreement, and it shall not
be subject to, or obliged to recognize, any other agreement between the Parties
hereto even though reference thereto may be made herein; provided, however, that
with the Escrow Agent's written consent, this Escrow Agreement may be amended at
any time or times by an instrument in writing signed by or on behalf of Aames,
the Escrow Agent and NK. The Escrow Agent may withhold such consent only if such
amendment would adversely affect the rights or liabilities of the Escrow Agent.
(b) The Escrow Agent is authorized, in its reasonable discretion,
to disregard any and all notices or instructions given by any of the Parties
hereto or by any other person, firm or corporation, except only (i) such notices
or instructions as are herein specifically provided for, and (ii) orders or
process of any court with jurisdiction. If any property subject hereto is at any
time attached, garnished or levied upon or under any court order or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in case any order, judgment or
decree shall be made or entered by any court affecting such property or any part
thereof, then, and in any of such events, the Escrow Agent is authorized, in its
sole discretion, to rely upon and comply with any such order, writ, judgment or
decree which it is advised by legal counsel of its own choosing is binding upon
it; and if it complies with any such order, writ, judgment or decree it shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance even though such order, writ, judgment
or decree may be subsequently reversed, modified, annulled, set aside or
vacated.
(c) The Escrow Agent shall not be personally liable for any act
taken or omitted hereunder if taken or omitted by it in good faith. In taking
any action whatsoever hereunder, the Escrow Agent shall be fully protected in
relying upon any written notice, paper, demand, certificate or other document
reasonably believed by it in good faith to be genuine, or upon any evidence
reasonably deemed by it to be sufficient. The Escrow Agent may consult with
counsel in connection with its duties hereunder and shall be fully protected in
any act taken, suffered or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent shall not be responsible for the sufficiency
or accuracy of the form, execution, validity or genuineness of documents now or
hereafter deposited hereunder, nor shall it be responsible or liable in any
respect on account of the identity, authority or rights of the persons executing
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<PAGE> 97
and delivering or purporting to execute or deliver any such document. The Escrow
Agent shall not be responsible for the sufficiency of any deposit received or
any portion of the Escrow Funds, and its only duties hereunder are the express
duties detailed herein, and no duties or covenants shall be implied as to the
Escrow Agent.
(d) If the Escrow Agent believes it to be reasonably necessary to
consult with counsel concerning any of its duties in connection with this Escrow
Agreement, or in case it becomes involved in litigation on account of being
Escrow Agent hereunder or on account of having received property subject hereto,
then in either case, the Escrow Agent's costs, expenses, and reasonable
attorneys' fees shall be reimbursed by Aames and the One Stop Stockholders (on a
joint and several basis).
(e) Aames shall pay the regular fees and charges of the Escrow
Agent, and shall pay in arrears, when billed by the Escrow Agent, the
transaction and out-of-pocket costs of the Escrow Agent together with any
extraordinary fees. Aames hereby agrees to indemnify and hold harmless the
Escrow Agent from and against all claims, damages and losses, including legal
and accounting fees and expenses, arising out of this Escrow Agreement, provided
that no indemnification will be made for gross negligence or willful misconduct
by the Escrow Agent; provided, further, that NK and LB shall jointly and
severally indemnify and hold harmless the Escrow Agent from and against all
claims, damages and losses attributable to claims or demands made by NK or LB or
by third parties against NK or LB, except that no indemnification will be made
for gross negligence or willful misconduct by the Escrow Agent.
11. Resignation, Removal of Escrow Agent. The Escrow Agent may at any
time resign by giving 60 days' written notice of resignation to Aames and the
One Stop Stockholders. Aames and NK may jointly at any time remove the Escrow
Agent by giving written notice to the Escrow Agent. If the Escrow Agent shall
resign or be removed, a successor Escrow Agent, which shall be either a bank,
trust company or other financial institution, having an office in Los Angeles,
California satisfactory to both Aames and NK, shall be appointed by written
instrument executed and delivered by both Aames and the One Stop Stockholders to
the Escrow Agent and to such successor Escrow Agent, and upon the resignation or
removal of the predecessor Escrow Agent, the successor Escrow Agent shall,
without any further act, deed or conveyance, become vested with all the right,
title and interest to all property held hereunder, of such predecessor Escrow
Agent; but nevertheless such predecessor Escrow Agent shall, on the written
request of the NK, Aames or such successor Escrow Agent execute and deliver to
such successor Escrow Agent an instrument transferring to such successor Escrow
Agent all right, title and interest hereunder in and to the property in the
Escrow Funds and all other rights hereunder, of such predecessor Escrow Agent.
If no successor Escrow Agent has been appointed at the end of 60 days after
notice of resignation by the Escrow Agent, the Escrow Agent may file
interpleader proceedings in an appropriate court in the County of Los Angeles in
which Aames and the One Stop Stockholders shall be joined as parties.
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<PAGE> 98
12. Governing Agreement; Amendments. The Escrow Agent hereby
acknowledges receipt of a copy of the Agreement, but except for reference
thereto for definitions of certain words and the terms not defined herein, the
Escrow Agent is not charged with any duty or obligation arising under the
Agreement and the responsibilities and duties of the Escrow Agent shall be
governed by this Escrow Agreement. As between the Escrow Agent, on the one hand,
and the other parties hereto, on the other hand, this Escrow Agreement
(including those sections of the Agreement referenced herein and attached
hereto) constitutes the entire agreement with respect to the subject matter
herein. As between the other parties hereto, this Escrow Agreement shall govern
to the extent of any conflict between it and the Agreement; provided, that the
Principal Stockholder and Aames agree to make such amendments herein as may be
necessary to reconcile any conflict between the terms hereof and the Agreement.
No change in, addition to, or waiver of the terms and conditions hereof shall be
binding upon any of the parties hereto unless approved in writing by the other
parties hereto.
13. Applicable Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of California.
14. Counterparts. This Escrow Agreement may be executed in one or more
counterparts, each of which is an original but all of which together shall
constitute one and the same instrument.
15. Assignment. This Escrow Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors,
designees and legal representatives. Except as otherwise provided herein, no
assignment of any rights or delegation of any obligations provided for herein
may be made by any party without the express written consent of all other
parties hereto. The Principal Stockholder may not sell, assign or in any other
manner transfer any right to receive funds from the Escrow Account other than by
will, the laws of intestacy or nonvoluntarily by operation of law.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By: ____________________________
Its: ___________________________
10
<PAGE> 99
______________________________
Neil B. Kornswiet
LEHMAN BROTHERS HOLDINGS INC.,
a Delaware corporation
By: ___________________________
Its: Vice President
11
<PAGE> 100
EXHIBIT A
[DATE]
CLAIM NOTICE
Re: Escrow Agreement dated , 1996 (the
"Agreement") by and among Aames Financial Corporation,
a Delaware corporation ("Aames"), Neil B. Kornswiet ("NK"),
Lehman Brothers Holdings Inc., a Delaware corporation
("LB") and ________________, a ________________("Escrow
Agent")
You hereby are notified that Aames has determined that Aames Stock
with an Average Price of Aames Stock equal to $ [is chargeable/can be
reserved] as a Claim or Claims (as defined in Section 3 of this Escrow
Agreement) against the Escrow Funds. The basis for such Claim or Claims is/are:
[insert a paragraph stating with reasonable specificity the facts upon
which the Claim or Claims is/are based]
AAMES FINANCIAL CORPORATION
By:
[Designee as identified in Section 6]
12
<PAGE> 101
EXHIBIT B
[DATE]
OBJECTION NOTICE
Re: Escrow Agreement dated _______________, 1996 (the
"Agreement") by and among Aames Financial Corporation, a
Delaware corporation ("Aames"), Neil B. Kornswiet ("NK"),
Lehman Brothers Holdings Inc., a Delaware corporation
("LB"), and _________, a ___________ ("Escrow Agent")
You hereby are notified that the One Stop Designee disputes [in
part/in its entirety] the Claim or Claims (as defined in Section 3 of this
Escrow Agreement) against the Escrow Funds set out in the Claim Notice of Aames
dated , a copy of which is attached hereto ("Aames's Claim").
This Objection Notice is being delivered to you within the period set forth in
Section 4 of the Escrow Agreement following delivery to you of Aames's Claim.
The basis for disputing such Claim/Claims is/are:
[insert a paragraph stating with reasonable specificity the portion of
the Claim or Claims which is/are being disputed and the basis of the
objection]]
By:
Neil B. Kornswiet
13
<PAGE> 102
EXHIBIT C
NON-COMPETE AGREEMENT
This Non-Compete Agreement (this "Agreement") is made and entered into as
of the ___ day of August, 1996, by and between Aames Financial Corporation, a
Delaware corporation ("Aames") and Neil B. Kornswiet ("Stockholder"), with
reference to the following:
RECITALS
A. Aames, Aames Acquisition Corporation, a wholly-owned subsidiary of Aames
and a Delaware corporation ("Merger Sub"), and One Stop Mortgage, Inc., a
Wyoming corporation ("One Stop"), have entered into that certain Agreement and
Plan of Reorganization ("Merger Agreement"), dated as of August 12, 1996,
pursuant to which Merger Sub will merge into One Stop ("Merger").
B. Stockholder is a shareholder, director and officer of One Stop.
C. As an inducement to Aames and Merger Sub to enter into the Merger
Agreement, Stockholder desires to agree to refrain from competing with, using
trade secrets or soliciting customers or employees of One Stop.
D. Except as otherwise provided herein, each capitalized term shall have
the meaning given to such term in the Merger Agreement. As used in this
Agreement, the following terms shall have the meanings set forth:
"Business" shall mean the business of home equity lending.
"One Stop Enterprises" shall mean any of the businesses conducted by
One Stop whether on the date of the Merger Agreement or thereafter.
"Trade Secrets" shall mean:
(a) All secrets and other confidential information, ideas,
knowledge, know-how, techniques, secret processes, improvements, discoveries,
methods, inventions, sales, financial information, customers, customer lists,
potential customers, broker list, potential brokers, rate sheets, plans,
concepts, strategies or products, as well as all documents, reports, drawings,
designs, plans, proposals otherwise pertaining to same, with respect to Aames,
or One Stop or their respective affiliates.
(b) Notwithstanding any other provisions of this Agreement to the
contrary, "Trade Secrets" shall not include any information which is or has
become available from an independent third party whose disclosure of such
information has not breached any obligation to One Stop or Aames or any of their
subsidiaries; information which is obtained by Stockholder from a third person
who is lawfully in possession of such information and not in violation of any
contractual, legal or fiduciary obligation to One Stop or Aames or any of their
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<PAGE> 103
affiliates with respect to such information; and information readily
ascertainable from public, trade or other nonconfidential sources.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in consideration
of the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto do agree as follows:
1. ACKNOWLEDGMENTS BY STOCKHOLDER. Stockholder acknowledges that by virtue
of his position with One Stop he has developed considerable expertise in the
business operations of One Stop and has access to extensive confidential
information with respect to One Stop. Stockholder recognizes that Aames and One
Stop would be irreparably damaged, and Aames' substantial investment in One Stop
materially impaired, if Stockholder were to enter into an activity competing
with the Business of either Aames, One Stop, their respective affiliates, or
their respective successors in violation of the terms of this Agreement, or if
Stockholder were to disclose or make unauthorized use of any Trade Secrets, or
if Stockholder were to solicit customers or employees of Aames, One Stop, their
respective affiliates, or their respective successors. Accordingly, Stockholder
expressly acknowledges that he is voluntarily entering into this Agreement and
that the terms and conditions of this Agreement are fair and reasonable to
Stockholder in all respects.
2. NONCOMPETITION; TRADE SECRETS; NO SOLICITATION; EXCEPTIONS.
(a) Until the sixth anniversary of the Closing Date, Stockholder shall
not, directly or indirectly, without the prior written consent of Aames, (i)
own, manage, operate, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise with, any business or enterprise engaged in the Business within the
United States ("Territory"); (ii) engage in any other manner, within the
Territory, in the Business; or (iii) induce or attempt to induce any Person who
is a customer, supplier, distributor, officer or employee of Aames, One Stop, or
their respective affiliates (whether on the Closing Date or thereafter) to
terminate such Person's relationships with, or to take any action that would be
disadvantageous to, Aames, One Stop, or their respective affiliates.
Notwithstanding the above, Stockholder shall not be deemed to be engaged
directly or indirectly in any business in contravention of paragraphs (i) or
(ii) above, if Stockholder participates in any such business solely as a passive
investor in up to 1% of the equity securities of a company or partnership,
provided such securities are publicly traded.
(b) Without limiting the generality of the foregoing, other than for
the benefit of Aames or One Stop, Stockholder (i) shall make no use of Trade
Secrets, or any part thereof, and (ii) shall not disclose the Trade Secrets, or
any part thereof, to any other Person, firm or corporation, and (iii) shall
deliver all documents, reports, drawings, designs, plans, proposals and other
tangible evidence of Trade Secrets now possessed or hereafter acquired by
Stockholder, to Aames.
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<PAGE> 104
(c) Notwithstanding any provision of this Agreement to the contrary,
Stockholder may disclose or reveal any information, whether including in whole
or part any Trade Secrets, that:
(i) Stockholder is required to disclose or reveal under any
applicable law or regulation, provided Stockholder makes a good faith request
that the confidentiality of the Trade Secrets be preserved and, to the extent
not prohibited by applicable laws and regulations, gives Aames and One Stop
prompt advance notice of such requirement;
(ii) Stockholder is otherwise required to disclose or reveal by
any governmental entity, provided Stockholder makes a good faith request that
the confidentiality of the Trade Secrets be preserved and, to the extent not
prohibited by applicable laws and regulations, gives Aames prompt advance notice
of such requirement; or
(iii) which, in the opinion of Stockholder's counsel, Stockholder
is compelled to disclose or else stand liable for contempt or suffer other
censure or penalty imposed by any governmental entity, provided Stockholder
makes a good faith request that the confidentiality of the Trade Secrets be
preserved and, to the extent not prohibited by applicable laws and regulations,
gives Aames prompt advance notice of such requirement.
3. INDEPENDENCE OF OBLIGATIONS. The covenants of Stockholder set forth in
this Agreement shall be construed as independent of any other agreement or
arrangement between Stockholder, on the one hand, and Aames or One Stop, on the
other, or any of their subsidiaries; and the existence of any claim or cause of
action by Stockholder against One Stop or Aames or any of their subsidiaries
shall not constitute a defense to the enforcement of such covenants against
Stockholder.
4. EQUITABLE RELIEF. Stockholder expressly acknowledges that damages alone
will not be an adequate remedy for any breach by Stockholder of the covenants
set forth in Section 2 hereof and that the other parties hereto, in addition to
any other remedies which they may have, shall be entitled, as a matter of right,
to equitable relief, including specific performance, in any court of competent
jurisdiction with respect to any actual or threatened breach by Stockholder of
any of said covenants.
5. SEVERABILITY, ETC. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be unreasonable as to duration, activity or
subject, it shall be deemed to extend only over the maximum duration, range of
activities or subjects as to which such provision shall be valid and enforceable
under applicable law. If any provisions shall, for any reason, be held by a
court of competent jurisdiction to be invalid, illegal or unenforceable, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
6. CONDITION PRECEDENT. It shall be a condition precedent to the
obligations of Stockholder under this Agreement that the Merger has occurred.
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<PAGE> 105
7. NOTICES. Any notice or communication required or permitted hereunder
shall be deemed to have been given if in writing and (a) delivered in person,
(b) telexed, or (c) telecopied (provided that any notice given pursuant to
clauses (b) and (c) is also mailed by certified or registered mail, postage
prepaid) as follows:
If to Aames, addressed to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
With a copy addressed to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Attention: C. N. Franklin Reddick III, Esq.
If to Stockholder, addressed to:
Neil B. Kornswiet
16105 Whitecap Lane
Huntington Beach, California 92649
With a copy addressed to:
Brown & Wood LLP
One World Trade Center
58th Floor
New York, NY 10048
Attention: Jack M. Costello, Jr., Esq.
or at such other address and to the attention of such other Person as a party
may notice to the other in accordance with this Section 7.
8. WAIVER OF BREACH. Any failure or delay by Aames in enforcing any
provision of this Agreement shall not operate as a waiver thereof; and the
waiver by Aames of a breach of any provision of this Agreement by Stockholder
shall not operate or be construed as a waiver
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<PAGE> 106
of any subsequent breach or violation thereof. All waivers shall be in writing
and signed by the party to be bound.
9. ASSIGNMENT. This Agreement shall be assignable by Aames only to any
Person, firm or corporation which may become a successor in interest by
purchase, merger or otherwise to Aames or acquire any of the One Stop
Enterprises or which acquires all or substantially all of the assets or
outstanding capital stock of Aames.
10. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings of the parties in
connection therewith. This Agreement may not be altered or amended except by an
agreement in writing signed by the parties to be bound.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Aames and its successors and assigns and Stockholder and
Stockholder's heirs and legal representatives.
12. GOVERNING LAW. The Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts between California parties made and
performed in such State.
13. HEADINGS. The descriptive headings of the several Articles and Sections
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in one 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
party hereto and delivered to each party hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By:___________________________
Its:__________________________
STOCKHOLDER
______________________________
Neil B. Kornswiet
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<PAGE> 107
EXHIBIT D
LETTER OF TRANSMITTAL
To: Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
_______________, 19_____
Dear Sirs:
1. Pursuant to the Agreement and Plan of Reorganization dated August 12,
1996 (the "Agreement"), by and among Aames Financial Corporation ("Aames"),
Aames Acquisition Corporation ("Merger Sub"), and One Stop Mortgage, Inc. ("One
Stop"), providing for the merger of Merger Sub with and into One Stop (the
"Merger"), the undersigned hereby surrenders the certificate(s) issued by One
Stop and numbered ____ (the "Certificate(s)") representing _______ Common
Shares, no par value, of One Stop (the "One Stop Shares"), in exchange for
payment in the form of (i) ________ shares of Common Stock of Aames (the "Aames
Shares") and, if applicable, (ii) a check in lieu of any fractional share of
Common Stock of Aames. Also enclosed are stock powers duly endorsed in blank.
Delivery of the enclosed Certificate(s) and stock powers shall be effected, and
risk of loss and title to such Certificate(s) and stock powers shall pass, only
upon delivery thereof to you.
2. The undersigned hereby represents and warrants (a) the undersigned is
the exclusive owner of the One Stop Shares represented by the Certificates and
is entitled to all rights evidenced thereby, and (b) the One Stop Shares are
free and clear of all liens, claims and encumbrances. All authority conferred or
agreed to be conferred in this Letter of Transmittal shall be binding upon the
successors, assigns, heirs, executors, administrators and legal representatives
of the undersigned and shall not be affected by, and shall survive, the death or
incapacity of, the undersigned. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent to be necessary or
desirable to complete the surrender of the Certificate(s).
3. I understand that all questions as to the validity, form and acceptance
of this Letter of Transmittal and the Certificate(s) surrendered hereby will be
determined by Aames and the Exchange Agent, which determination shall be final
and binding. Aames reserves the right to waive any irregularities or defects in
the surrender of any Certificate(s) and its interpretations of the terms and
conditions of this Letter of Transmittal with respect to such irregularities or
defects shall be final and binding. A surrender will not be deemed to have been
made until all irregularities have been cured or waived.
_______________________________________
Signature(s)
_______________________________________
Signature(s)
Dated____________________________, 1996
Name(s)________________________________
(Please Print)
Name(s)________________________________
(Please Print)
Capacity (full title)__________________
Area Code and Telephone Number_________
Social Security No.____________________
(Must be signed by registered holder(s)
exactly as name(s) appear(s) on stock
certificate(s) or by person(s)
authorized to become registered
holder(s) by certificates and documents
transmitted herewith. If signature is by
a trustee, executor, administrator,
guardian, attorney-in-fact, agent,
officer of a corporation or other person
acting in a fiduciary or representative
capacity, please set forth full title.)
<PAGE> 108
IMPORTANT TAX INFORMATION
Federal income tax law requires that a One Stop stockholder whose
surrendered shares of beneficial interest of One Stop are accepted for exchange
must provide the Exchange Agent (as payer) with his or her correct and properly
certified taxpayer identification number ("TIN"), which, in the case of a One
Stop stockholder who is an individual, is his or her Social Security number. If
the Exchange Agent is not provided with the correct TIN, the One Stop
stockholder may be subject to a $50 penalty imposed by the Internal Revenue
Service ("IRS") and, in addition, delivery to such stockholder of any cash for
fractional shares pursuant to the Agreement may be subject to backup withholding
in an amount equal to 31% of any such payment. If withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
To prevent backup withholding, each surrendering One Stop stockholder must
provide his or her correct TIN by completing the "Substitute Form W-9" set forth
below, certifying that the TIN provided is correct (or that such stockholder is
awaiting a TIN) and that (i) the stockholder has not been notified by the IRS
that he or she is subject to backup withholding as a result of failure to report
all interest or dividends or (ii) the IRS has notified the stockholder that he
or she is no longer subject to backup withholding. Failure to provide the
information on the form may subject the stockholder to 31% federal income tax
withholding on any cash payment he or she is otherwise entitled to receive
pursuant to the Agreement. The box in Part 3 of the form may be checked if the
stockholder has not been issued a TIN and has applied for a number or intends to
apply for a number in the near future. If the box in Part 3 is checked, the
certification located below the Substitute Form W-9 must be completed. If the
box in Part 3 is checked, the Exchange Agent will withhold 31% of the cash
payment that the stockholder is otherwise entitled to receive until a TIN is
provided to the Exchange Agent. However, if a properly certified TIN is provided
to the Exchange Agent within 60 days, the backup tax will be refunded upon
request.
The One Stop stockholder is required to give the Exchange Agent the Social
Security number or employer identification number of the registered owner of the
shares of beneficial interest of One Stop being surrendered herewith. If the One
Stop Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed instructions for Substitute IRS Form W-9 for
information on which number to report.
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN BELOW AND CERTIFY BY
FORM W-9 SIGNING AND DATING BELOW
------------------------------------------
DEPARTMENT OF THE TREASURY (Social Security or Employer Identification Number)
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
---------------------------------------------------------------------------------------------
Part2- Check this box if you are NOT
subject to backup withholding under
the provisions of Section
3406(a)(I)(C) of the Internal
Revenue code because (1) you have
not been notified that you are
/_/ subject to backup withholding as a
result of failure to report all
interest or dividends or (2) the
Internal Revenue Service has notified
you that you are no longer subject
to backup withholding.
---------------------------------------------------------------------------------------------
CERTIFICATION - UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND
COMPLETE.
SIGNATURE __________________________________________
Part 3 ___
DATE ________________________________________________
Awaiting TIN /_/
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENT MADE TO YOU PURSUANT TO
THE AGREEMENT. PLEASE REVIEW ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED THE BOX
IN PART 3 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (b)
I intend to mail or deliver an application in the near future. I understand that
because I have not provided a taxpayer identification number, 31% of all
reportable payments made to me hereafter will be withheld until I provide a
number. If I provide a properly certified taxpayer identification number within
60 days, you will refund the tax if I so request.
- ----------------------------------------- ----------------------------------
Signature Date
<PAGE> 109
EXHIBIT E
ASSUMPTION STOCK OPTION AGREEMENT
(NON-QUALIFIED STOCK OPTION)
This Assumption Stock Option Agreement (this "Option Agreement") is
made and entered into on the execution date of the Option Certificate to which
it is attached (the "Certificate"), by and between Aames Financial Corporation,
a Delaware corporation (the "Company") and __________________ (the "Employee"),
with reference to the following:
RECITALS
A. Pursuant to that certain Employment Agreement, dated ______, 199_,
(the "Employment Agreement") by and between One Stop Mortgage, Inc. ("One Stop")
and Employee, Employee has been granted an option to purchase ______ shares of
One Stop Common Stock, no par value, at an exercise price of $____ per share
(the "Original Option").
B. Pursuant to that certain Agreement and Plan of Reorganization, dated
August 12, 1996, by and among the Company, One Stop and a wholly owned
subsidiary of the Company, the Company has agreed to assume all of One Stop's
obligations under the Original Option.
C. The option issued to Employee pursuant to this Option Agreement is
provided to Employee in substitution of the Original Option and in satisfaction
of the obligation referenced in the immediately preceding recital.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Company and Employee do agree as follows:
1. ASSUMPTION OF OPTION. The Company, in full satisfaction of One
Stop's obligations under the Original Option, hereby provides Employee with the
right and option (the "Option"), upon the terms and subject to the conditions
set forth in this Option Agreement, to purchase all or any portion of the number
of shares of Common Stock (the "Shares") set forth in the Certificate, at the
Option exercise price set forth in the Certificate (the "Exercise Price").
2. TERM OF OPTION. The Option shall terminate and expire on the Option
Expiration Date set forth in the Certificate, unless sooner terminated as
provided herein.
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<PAGE> 110
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b) and 5 of this
Option Agreement, the Option shall become exercisable (in whole or in part) upon
and after the dates set forth under the caption "Exercise Schedule" in the
Certificate. The installments shall be cumulative; i.e., the Option may be
exercised, as to any or all Shares covered by an installment, at any time or
times after the installment first becomes exercisable and until the expiration
or termination of the Option.
(b) Notwithstanding anything to the contrary contained in this
Option Agreement, the Option may not be exercised, in whole or in part, unless
and until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
4. EXERCISE OF OPTION. There is no obligation to exercise the Option,
in whole or in part. The Option may be exercised, in whole or in part, only by
delivery to the Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of shares of
Common Stock then being purchased (the "Purchased Shares"); and
(b) payment of the Exercise Price of the Purchased Shares, either
in cash or by check.
Following receipt of the notice and payment referred to above,
the Company shall issue and deliver to Employee a stock certificate or stock
certificates evidencing the Purchased Shares.
5. TERMINATION OF EMPLOYMENT.
(a) If Employee shall cease to be in the employ of One Stop, any
present or future corporation which would be a "subsidiary corporation"
("Subsidiary") as that term is defined in Section 424 of the Internal Revenue
Code of 1986, as amended from time to time, or any successor thereto (the
"Code"), or any present or future corporation which would be a "parent
corporation" as that term is defined in Section 424 of the Code ("Parent"), for
any reason other than death or permanent disability or termination by the
Company "for cause" (a "Terminating Event"), Employee shall have the right to
exercise the Option at any time following such Terminating Event until the
earlier to occur of (i) 90 days following the date of such Terminating Event and
(ii) the Expiration Date. The Option may be exercised following a Terminating
Event only to the extent exercisable as of the date of the Terminating Event. To
the extent unexercised at the end of the period referred to above, the Option
shall terminate. The Company, in its sole and absolute discretion, shall
determine whether or not authorized
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leaves of absence shall constitute termination of employment for purposes of
this Option Agreement.
(b) If, by reason of death or disability (a "Special
Terminating Event"), Employee shall cease to be an officer, director, consultant
or employee the Company or any Subsidiary or Parent, then Employee, Employee's
executors or administrators or any person or persons acquiring the Option
directly from Employee by bequest or inheritance, shall have the right to
exercise the Option at any time following such Special Terminating Event until
the earlier to occur of (i) 12 months following the date of such Special
Terminating Event and (ii) the Expiration Date. The Option may be exercised
following a Special Terminating Event only to the extent exercisable at the date
of the Special Terminating Event. To the extent unexercised at the end of the
period referred to above, the Option shall terminate. For purposes of this
Option Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code. Employee shall not be considered
permanently disabled unless he furnishes proof of such disability in such form
and manner, and at such times, as the Administrator may from time to time
require.
(c) If Employee shall be terminated "for cause" by One Stop,
the Company, or any Subsidiary or any Parent, the Option shall terminate as of
the date of termination. For purposes of this Option Agreement, "for cause"
shall be defined in the same manner as set forth in the Employment Agreement.
(d) Nothing in the Certificate or this Option Agreement shall
confer upon Employee any right to continue in the service and/or employ of One
Stop, the Company, any other Subsidiary or any Parent or shall affect the right
of the Company, any Subsidiary or any Parent to terminate the relationship or
employment of Employee, with or without cause.
6. RESTRICTIONS ON PURCHASED SHARES. None of the Purchased Shares shall
be transferred (with or without consideration), sold, offered for sale,
assigned, pledged, hypothecated or otherwise disposed of (each a "Transfer") and
the Company shall not be required to register any such Transfer and the Company
may instruct its transfer agent not to register any such Transfer, unless and
until all of the following events shall have occurred:
(a) the Purchased Shares are Transferred pursuant to and in
conformity with (i) (x) an effective registration statement filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Act of 1933, as amended (the "Act"), or (y) an exemption from registration under
the Act, and (ii) the securities laws of any state of the United States; and
(b) Employee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
Company's counsel so that upon Company's request, Company's counsel is able to,
and actually prepares and delivers to the Company a written opinion that the
proposed Transfer (i) (x) is pursuant to a registration
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statement which has been filed with the Commission and is then effective, or (y)
is exempt from registration under the Act as then in effect, and the Rules and
Regulations of the Commission thereunder, and (ii) is either qualified or
registered under any applicable state securities laws, or exempt from such
qualification or registration. The Company shall bear all reasonable costs of
preparing such opinion.
Any attempted Transfer which is not in full compliance with
this Section 6 shall be null and void ab initio, and of no force or effect.
7. ADJUSTMENTS UPON RECAPITALIZATION. Subject to any required action by
the stockholders of the Company:
(a) If the outstanding shares of the Common Stock shall be
subdivided into a greater number of shares of the Common Stock, or a dividend in
shares of Common Stock or other securities of the Company convertible into or
exchangeable for shares of the Common Stock (in which latter event the number of
shares of Common Stock issuable upon the conversion or exchange of such
securities shall be deemed to have been distributed) shall be paid in respect of
the shares of Common Stock, the Exercise Price in effect immediately prior to
such subdivision or at the record date of such dividend shall, simultaneously
with the effectiveness of such subdivision or immediately after the record date
of such dividend, be proportionately reduced, and conversely, if the outstanding
shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(b) When any adjustment is required to be made in the Exercise
Price, the number of Shares purchasable upon the exercise of the Option shall be
adjusted to that number of Shares determined by (i) multiplying an amount equal
to the number of Shares purchasable on the exercise of the Option immediately
prior to such adjustment by the Exercise Price in effect immediately prior to
such adjustment, and then (ii) dividing that product by the Exercise Price in
effect immediately after such adjustment.
(c) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by the
Administrator, and its determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be
exclusive, and Employee shall have no other rights upon the occurrence of any of
the events described in this Section 7.
(e) The grant of the Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or
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business structure, or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
8. INVESTMENT INTENT. Employee represents and agrees that if Employee
exercises the Option in whole or in part and if at the time of such exercise the
Purchased Shares have not been registered under the Act, Employee will acquire
the Shares upon such exercise for the purpose of investment and not with a view
to the distribution of such Shares, and that upon each exercise of the Option he
or she will furnish to the Company a written statement to such effect.
9. LEGEND ON STOCK CERTIFICATES. Employee agrees that all certificates
representing the Purchased Shares will be subject to such stock transfer orders
and other restrictions (if any) as the Company may deem advisable under the
rules, regulations and other requirements of the Commission, any stock exchange
upon which the Common Stock is then listed and any applicable federal or state
securities laws, and the Company may cause a legend or legends to be put on such
certificates to make appropriate reference to such restrictions.
10. NO RIGHTS AS STOCKHOLDER. Employee shall have no rights as a
stockholder with respect to the Shares until the date of the issuance to
Employee of a stock certificate or stock certificates evidencing such Shares.
Except as may be provided in Section 7 of this Option Agreement, no adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued.
11. WAIVER OF RIGHTS TO PURCHASE STOCK. By signing this Option
Agreement, Employee acknowledges and agrees that none of One Stop, the Company
nor any other person or entity is under any obligation to sell or transfer to
Employee any option or equity security of One Stop or the Company. By signing
this Option Agreement, Employee further acknowledges that all promises, whether
written or oral, made by One Stop or the Company regarding the grant of options
to purchase shares of the Common Stock of, or other securities of, One Stop or
the Company and all grants of such options are superseded and satisfied by this
Option Agreement. By signing this Option Agreement, Employee specifically waives
all rights which Employee may have had prior to the date of this Option
Agreement to receive any option or equity security of One Stop or the Company.
12. MODIFICATION. The Administrator may modify, extend or renew the
Option or accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised).
13. WITHHOLDING. The Company shall be entitled to require as a
condition of delivery of any Purchased Shares upon exercise of any Option that
the Employee agree to remit, at the time of such delivery or at such later date
as the Company may determine, an amount sufficient to satisfy all federal, state
and local withholding tax requirements relating thereto, and Employee
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agrees to take such other action required by the Company to satisfy such
withholding requirements.
14. CHARACTER OF OPTION. The Option is not intended to qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Employee shall promptly take all
actions and execute all documents requested by the Company which the Company
deems to be reasonably necessary to effectuate the terms and intent of this
Option Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Option Agreement shall be in written and shall be
given to the parties hereto as follows:
(i) If to the Company, to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
(ii) If to Employee, to the address set
forth in the records of One Stop.
or at such other address or addresses as may have been furnished by such party
in writing to the other party hereto. Any such notice, request, demand or other
communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subparagraph
(b).
(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The
Company may at any time transfer and assign its rights and delegate its
obligations under this Option Agreement to any other person, corporation, firm
or entity, including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Employee may not sell, transfer,
assign or otherwise dispose of the Option except by will or the laws of descent
and distribution, and the Option may be exercised during the lifetime of
Employee only by Employee or by Employee's guardian or legal representative in
the case of a disability, and upon Employee's death only by Employee's Estate or
by any person who acquired the Option by bequest or inheritance or by reason of
the death of Employee.
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(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE.
(g) MISCELLANEOUS. Titles and captions contained in this
Option Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any fight
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
The Signature Page to this Option Agreement consists of the
last page of the Certificate.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
TO: Aames Financial Corporation
The undersigned, the holder of the enclosed Stock Option
Agreement (Non-Qualified Stock Option), hereby irrevocably elects to exercise
the purchase rights represented by the Option and to purchase thereunder
___________ * shares of Common Stock of Aames Financial Corporation (the
"Company"), and herewith encloses payment of $________________ in full payment
of the purchase price of such shares being purchased.
Dated: ____________________
-------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Option)
-------------------------------
(Please Print Name)
-------------------------------
(Address)
* Insert here the number of shares called for on the face of the Option
(or, in the case of a partial exercise, the number of shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
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ASSUMPTION
OPTION CERTIFICATE
(NON-QUALIFIED STOCK OPTION)
THIS IS TO CERTIFY that Aames Financial Corporation, a Delaware
corporation (the "Company"), has issued to the employee named below (the
"Employee") an Assumption NonQualified Stock Option (the "Option") to purchase
shares of the Corporation's Common Stock, par value $0.001 per share (the
"Shares"), as follows:
Name of Employee:
Address of Employee:
Number of Shares:
Option Exercise Price:
Option Expiration Date:
EXERCISE SCHEDULE: With respect to all Shares underlying the Option,
the Option shall become exercisable ("vest") as follows __________________.
SUMMARY OF OTHER TERMS: This Option is defined in the Assumption Stock
Option Agreement (Non-Qualified Option) (the "Option Agreement") which is
attached to this Option Certificate (the "Certificate") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the Option
Agreement, not by this Summary. The Company strongly suggests that you carefully
review the full Option Agreement prior to signing this Certificate or exercising
the Option.
Among the terms of the Option Agreement are the following:
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates 12 months after the date of death or disability, and is
exercisable during such 12-month period as to the portion of the Option which
had vested prior to the date of death or disability. If your employment
terminates "for cause," the Option terminates immediately. In all other cases,
the Option terminates 90
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days after the date of termination of employment, and is exercisable during such
time period as to the portion of the Option which had vested prior to the date
of termination of employment. See Section 5 of the attached Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold,
transferred, assigned or otherwise disposed of to any other person, except on
your death. See Section 15(d) of the attached Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in
whole or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the Option Agreement.
ANTI-DILUTION PROVISIONS: The Option contains provisions which adjust
your Option to reflect stock splits, stock dividends, mergers and other major
corporate reorganizations which would change the nature of the Shares underlying
your Option. See Section 7 of the Option Agreement.
WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
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AGREEMENT
Aames Financial Corporation, a Delaware corporation (the "Company"),
and the above-named person (the "Employee") each hereby agrees to be bound by
all of the terms and conditions of the Assumption Stock Option Agreement
(Non-Qualified Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED: _________________
AAMES FINANCIAL CORPORATION
By:
---------------------------
Its:
--------------------------
EMPLOYEE
------------------------------
(Signature)
------------------------------
(Please print your name exactly as
you wish it to appear on any
stock certificates issued to you upon
exercise of the Option)
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EXHIBIT F
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into as of the ____ day of August, 1996, by and between Aames Financial
Corporation, a Delaware corporation (the "Parent"), and Neil B. Kornswiet, an
individual ("Executive"), with reference to the following:
RECITALS
A. The Parent is a party to an Agreement and Plan of Reorganization,
dated as of August 12, 1996, by and between the Parent, One Stop Mortgage, Inc.,
a Wyoming corporation (the "Company") and Aames Acquisition Corporation, a
Delaware corporation ("Merger Sub") (the "Reorganization Agreement") pursuant to
which Merger Sub will be merged with and into the Company, resulting in the
Company becoming a wholly owned subsidiary of Parent; and
B. It is material condition to the consummation of the transactions
contemplated by the Reorganization Agreement that the parties enter into and
deliver this Agreement to one another.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and
in consideration of the parties consummating the transactions contemplated by
the Reorganization Agreement and the mutual representations, warranties,
covenants and agreements contained herein, the parties hereto to agree as
follows:
1. EMPLOYMENT AND DUTIES. The Parent hereby employs Executive
to serve as Executive Vice President of the Parent and Chief Executive Officer
and President and Chairman of the Board of the Company, with the powers and
duties customarily accorded to such positions, including those powers and duties
set forth in the respective Bylaws of the Parent and Company for such office and
such other duties consistent therewith as may be assigned to Executive from time
to time by the Chief Executive Officer of the Parent. Executive shall report to
the Chief Executive Officer of the Parent. Executive shall devote his entire
business time and attention to his duties hereunder and shall endeavor in good
faith to perform his duties in an efficient, faithful and business-like manner.
During the term of his employment, it is intended that Executive also serve as a
Director on the Board of Directors of the Company (the "Company Board") and a
Director on the Board of Directors of Parent (the "Parent Board"), and the
Parent will take action within its powers to include Executive among the slate
of directors proposed to be nominated by the Parent Board at any applicable
stockholders meeting.
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2. TERM. The initial term of this Agreement shall begin on the
date hereof and shall expire on the fifth anniversary of the date hereof unless
terminated earlier as set forth in Section 6 hereof or by mutual agreement of
the parties hereto (the "Initial Term"). At the expiration of the Initial Term
and each anniversary thereafter, the term of this Agreement shall automatically
be extended for an additional year (the "Extension Term") unless either party
shall have given written notice to the other party at least ninety days prior to
the end of the Initial Term or the Extension Term, as the case may be, that it
does not desire to extend the term of this Agreement. If Executive's employment
under this Agreement is extended for an Extension Term, it shall thereafter or
during any Extension Term be terminable (other than upon expiration) only as
provided in Section 6 or by mutual agreement of the parties hereto.
3. COMPENSATION.
(a) Base Salary. During the term of this Agreement,
Executive shall be paid a base salary (the "Base Salary"), payable in accordance
with the Parent's normal payroll practices in the amount of $750,000 per year.
The amount of the Base Salary payable to Executive shall be reviewed at least
annually; provided, however, that Executive's Base Salary shall not be reduced
below $750,000 per annum during the term of this Agreement.
(b) Performance Bonus.
i) In addition to Base Salary to be paid to
Executive hereunder, the Parent shall pay to Executive a bonus (the "Performance
Bonus") equal to 7.5 percent of the Company's Adjusted Pre-Tax Income for each
fiscal year or portion thereof during the term of Executive's employment
hereunder.
ii) The Performance Bonus for each fiscal
year shall be paid in four quarterly payments (the "Quarterly Payments") as set
forth in clauses iii) and iv) below.
iii) Within forty-five days following the
end of the first three fiscal quarters during any fiscal year which includes any
portion of the employment term hereunder, the Company shall deliver to Executive
a statement setting forth the amount of the Company's Adjusted Pre-Tax Income
for such quarter and for the period from the beginning of the fiscal year (or,
in the case of fiscal 1997, the date of the commencement of Executive's
employment hereunder) through the most recent fiscal quarter (the "Measurement
Period"), certified by the Chief Financial Officer of Parent, accompanied by a
cash payment in the amount by which (x) 7.5% of the Company's Adjusted Pre-Tax
Income for the Measurement Period, exceeds (y) the sum of the Quarterly Payments
previously paid to Executive with respect to such fiscal year.
iv) Within 90 days following the end of the
fourth quarter of any fiscal year which includes any portion of the employment
term hereunder, the Company shall deliver to Executive a reasonably detailed
calculation of the Company's Adjusted Pre-Tax
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Income for such fiscal year and the Performance Bonus payable hereunder for such
fiscal year, prepared by the Parent's outside accounting firm. If the amount of
the Performance Bonus for such fiscal year, exceeds the sum of the Quarterly
Payments made to Executive with respect to such fiscal year, such calculation
shall be accompanied by a cash payment in the amount of the difference between
the Performance Bonus payable with respect to such fiscal year and the sum of
the Quarterly Payments previously paid to Executive with respect to such fiscal
year. If the sum of the Quarterly Payments previously paid to Executive with
respect to such fiscal year exceed the amount of the Performance Bonus, then
Executive shall, within 15 days of receipt of such calculation, pay such
difference to the Company.
v) If the employment term of Executive
hereunder commences or ends during any of the Company's fiscal quarters or
years, the applicable Performance Bonus and Quarterly Payment computed hereunder
with respect to such fiscal period shall be prorated based upon the actual
number of days during such fiscal period included in the employment term of
Executive hereunder; provided however, that the Performance Bonus for the fiscal
quarter commencing July 1, 1996 shall not be prorated and shall be paid as if
Executive had commenced employment pursuant to this Agreement on July 1, 1996.
vi) For purposes of this Agreement, the
Company shall adopt a fiscal year commencing on July 1 and ending on June 30.
(c) Adjusted Pre-Tax Income. For purposes of this
Agreement, Adjusted Pre-tax Income shall mean the income of the Company computed
on an accrual basis in accordance with generally accepted accounting principles
as previously consistently applied by Parent (GAAP), before federal, state and
local income taxes; provided that, in determining Adjusted Pre-Tax Income, the
following adjustments and exceptions shall apply to the application of GAAP
(even if required by "push down" or similar accounting rules under GAAP) and
whether or not recorded on the financial statements of the Company:
i) Revenues shall include only revenues (i)
of the Company derived from the origination, purchase, sale or servicing of
mortgage loans in the ordinary course of the Company's business, (ii) revenues
of the Parent (net of all expenses) derived from the servicing of mortgage loans
originated by the Company (for purposes of this subsection (c)i)(ii) revenues
shall include, without limitation, all loan interest income net of related
carying costs), (iii) revenues received by the Parent (net of commissions paid
by the Parent) with respect to the refinancing of any mortgage loan originated
by the Company, and (iv) revenues received by Parent (net of commissions paid by
the Parent) with respect to credit life, disability and other ancillary products
sold in connection with the Company's origination of mortgage loans;
ii) Any equity based benefits to the
employees, directors or agents of the Company, such as profit interests or
appreciation rights, shall be excluded from Adjusted Pre-Tax Income;
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iii) The legal, accounting and other
professional fees and expenses (whether incurred before or after the
consummation of the merger) and all other costs associated with negotiating,
entering and closing the Lehman Financing and Warrant Transactions,
Reorganization Agreement and the other agreements entered into in connection
therewith incurred by the Company, Parent or Merger Sub, or their respective
affiliates, shall be excluded from the computation of Adjusted Pre-Tax Income;
iv) All transactions between the Company and
the Parent or any of the affiliates of Parent shall be entered into only on an
arms-length basis, consistent with the past practices of Parent;
v) Charges from Parent (or its affiliates)
for outside legal and accounting services relating to the operations of the
Company, shall be based on the actual out-of-pocket costs charged by such third
party professionals;
vi) There shall be established an
intercompany account between Parent and the Company. All transfers of cash
between the two companies shall be accounted for in the intercompany account as
a loan from one company to the other and not as an equity contribution or
dividend payment to the extent the cash so transferred was raised by Parent
through the issuance of debt securities or under any credit or other financing
facilities now or hereafter made available to Parent. Adjusted Pre-Tax Income
shall reflect an interest expense on the amount owing to Parent in the
intercompany account computed using the weighted average interest rate payable
by Parent during the relevant period on Parent's outstanding debt.
vii) All costs, fees and expenses incurred
by the Company with respect to any loss which the Executive or other
stockholders of the Company actually indemnify the Company, pursuant to the
Reorganization Agreement, or which are covered by insurance (but only to the
extent of the indemnification or insurance payments actually made to the
Company), shall be excluded from the calculation of Adjusted Pre-Tax Income;
viii) All costs, fees and expenses incurred
by the Parent with respect to any department or division that provides
administrative services or support to both the Parent and the Company shall be
allocated among the Parent and the Company pro rata based upon total loan
originations and, if not included in the calculation of total loan originations,
loan purchases of the Parent (and its subsidiaries) and the Company during the
relevant period; and
ix) The proceeds or other amounts received,
if any, by the Company from life or other key man insurance on Executive shall
not be included in income or otherwise considered in any way in computing
Adjusted Pre-tax Income.
(d) Stock Bonus. Executive shall be eligible to
receive stock options under the Parent's stock option plans with annual awards
to be determined by the Compensation Committee of the Parent Board. All options
granted to Executive by the Parent in connection with the Executive's employment
are hereinafter referred to collectively as the "Options."
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4. OTHER EXECUTIVE BENEFITS. During the term of this
Agreement, the Parent shall provide to Executive benefits commensurate with his
position, including each of the following benefits:
(a) Medical and Dental Coverage. The Parent agrees to
provide coverage to Executive and dependent members of his family under the same
medical and dental plans as may be maintained from time to time in the
discretion of the Parent Board for the benefit of the Chief Executive Officer of
Parent (the "CEO") and the dependent members of his family.
(b) Vacation. Executive shall be entitled to four (4)
weeks of paid vacation during Executive's first year of employment with the
Parent and shall be entitled to five (5) weeks during each year of employment
with the Parent thereafter 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.
(c) Business Expenses. The Parent will pay or
reimburse Executive for any out-of-pocket expenses incurred by Executive in the
course of providing his services hereunder, which comply with Parent's travel
and expense policies adopted from time to time by the Parent Board for the CEO.
Such reimbursement shall be made by the Parent in the same manner and within the
same time period as applicable to the other executive officers of the Parent.
(d) Automobile. The Parent shall provide Executive
with the use of a luxury automobile that is selected by Executive. On the
earlier of significant damage or destruction or attaining three years of age,
the Company shall replace such automobile with a new automobile selected by
Executive. The Company shall pay all costs of insurance, repair, maintenance and
operation of such automobile.
(e) Benefit Plans. Executive shall be entitled to
participate in any pension, profit-sharing, stock option, stock purchase or
other benefit plan of the Parent and the Company now existing or hereafter
adopted for the benefit of employees generally or the senior executives of the
Parent and the Company.
(f) Life Insurance. Provided the following policies
may be obtained at a reasonable cost, the Parent shall provide Executive with a
$1,000,000 standard term life insurance policy and a $1,000,000 standard term
accidental death policy.
(g) Disability. Provided the following policy may be
obtained at a reasonable cost, the Parent shall provide Executive with a
long-term disability policy which provides for an annual disability payment in
an amount equal to 125% of Executive's Base Salary.
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5. CONFIDENTIAL INFORMATION.
(a) Non-Disclosure. Executive hereby agrees, during
the term of this Agreement, he will not disclose to any person or otherwise use
or exploit any proprietary or confidential information, including, without
limitation, trade secrets, processes, records of research, proposals, reports,
methods, processes, techniques, computer software or programming, or budgets or
other financial information, regarding the Company, the Parent or any of their
respective subsidiaries or any of their respective businesses, properties,
customers or affairs (collectively, "Confidential Information") obtained by him
at any time during the term, except to the extent required by Executive's
performance of his assigned duties. Notwithstanding anything herein to the
contrary, the term "Confidential Information" shall not include information
which (i) is or becomes generally available to the public other than as a result
of disclosure by Executive in violation of this Agreement, (ii) is or becomes
available to Executive on a non-confidential basis from a source other than the
Company, the Parent or any of their respective subsidiaries, provided that such
source is not known by Executive to be furnishing such information in violation
of a confidentiality agreement with or other obligation of secrecy to the
Company, the Parent or any of their respective subsidiaries, (iii) has been made
available, or is made available, on an unrestricted basis to a third party by
the Company, by an individual authorized to do so or (iv) is known by Executive
prior to its disclosure to Executive. Executive may use and disclose
Confidential Information to the extent necessary to assert any right or defend
against any claim arising under this Agreement or pertaining to Confidential
Information or its use, to the extent necessary to comply with any applicable
statute, constitution, treaty, rule, regulation, ordinance or order, whether of
the United States, any state thereof, or any other jurisdiction applicable to
Executive, or if Executive receives a request to disclose all or any part of the
information contained in the Confidential Information under the terms of a
subpoena, order, civil investigative demand or similar process issued by a court
of competent jurisdiction or by a governmental body or agency, whether of the
United States or any state thereof, or any other jurisdiction applicable to
Executive.
(b) Injunctive Relief. Executive agrees that the
remedy at law for any breach by him of the covenants and agreements set forth in
this Section 5 may be inadequate and that in the event of any such breach, the
Company, the Parent or their 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 the
breach of such covenants and agreements.
6. TERMINATION.
(a) Termination by Parent for "Cause or Voluntarily
by Executive. The Parent may terminate this Agreement for "Cause" effective
immediately upon written notice thereof to Executive. For purposes of this
Agreement, "Cause" shall mean and be limited to the following events: (i) an act
of fraud, embezzlement or similar conduct by Executive involving the Company,
the Parent or any of their respective subsidiaries; (ii) any action by
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Executive involving the arrest of Executive for violation of any criminal
statute constituting a felony if the Board reasonably determines that the
continuation of Executive's employment after such event would have an adverse
impact on the operations or reputation of the Company, the Parent or any of
their respective subsidiaries in the financial community; or (iii) a continuing,
repeated willful failure or refusal by Executive to perform his duties;
provided, however, that this Agreement may not be terminated under this
subclause (iii) unless Executive shall have first received written notice from
the Board advising Executive of the specific acts or omissions alleged to
constitute a failure or refusal to perform and such failure or refusal to
perform continues after Executive shall have had a reasonable opportunity to
correct the acts or omissions cited in such notice.
In the event of termination for "Cause" or voluntarily by
Executive other than as permitted in Sections 6(b)(i) and (ii) and 6(c), (x)
Executive shall be entitled to receive that portion of the Base Salary and all
benefits accrued through the date of termination and (y) all Options that have
become exercisable as of the date of termination shall remain so for a period of
90 days.
(b) Termination by Parent Other Than for "Cause."
i) Death. Provided that notice of
termination has not previously been given under any Section hereof, if
Executive shall die during the term of this Agreement, this Agreement
and all of the Parent's obligations hereunder shall terminate, except
that Executive's estate or designated beneficiaries shall be entitled
to receive (A) all earned and unpaid Base Salary through the date of
termination; (B) the Base Salary and Performance Bonus and all benefits
with respect to the then current contract year which would have been
payable or provided to Executive had the term ended two years following
the last day of the month in which Executive's death occurred; and (C)
all other benefits that may be due to Executive or Executive's estate
or beneficiaries under the general provisions of any benefit plan,
stock incentive plan or other plan in which Executive is then a
participant, which benefits shall continue to be provided for a period
of two years following the date of death. In addition, all Options that
have become exercisable as of the date of death shall remain so for a
period of twelve (12) months.
ii) Disability. Provided that notice of
termination has not previously been given under any Section hereof, if
Executive becomes ill or is injured or disabled during the term such
that Executive fails to perform all or substantially all of the duties
to be rendered hereunder and such failure continues for a period in
excess of 26 consecutive weeks (a "Disability"), the Parent shall
continue to employ Executive under this Agreement for one year from the
date of the Disability (which one year period shall commence at the
beginning of the 26 week period referred to herein) and shall continue
to pay Executive the Base Salary in effect on the date of the
Disability (determined at the beginning of the 26 week period referred
to herein), the Performance
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Bonus and all benefits then in effect; provided, that (A) the Parent
may relieve Executive of his duties and responsibilities hereunder to
the extent permitted by law and (B) any long-term disability payments
received by Executive under any disability insurance plan made
available to Executive by the Parent if the premiums were paid by the
Parent shall be deducted from the salary and bonus payments otherwise
required to be paid to Executive hereunder. If during the term and
subsequent to the Disability commencement date (which shall be at any
time following the end of the 26 week period referred to herein)
Executive shall fully recover, the Parent shall have the right
(exercisable within 60 days after receipt of notice from Executive of
such recovery), but not the obligation, to restore Executive to
full-time service at full compensation. If the Parent elects not to
restore Executive to full-time service, Executive shall be entitled to
obtain other employment. If Executive is not restored to full-time
employment with the Parent, all Options that have become exercisable as
of the date of Disability (determined at the end of the 26 week period
referred to herein) shall remain so for a period of 12 months.
iii) Without Cause. If the Parent elects to
terminate Executive for any reason whatsoever other than as provided in
Section 6(a) or if the Parent causes a Defacto Termination of Executive
(as defined below) (each, a "Severance Termination"), Executive shall
receive the "Separation Package." As used herein, the "Separation
Package" shall consist of (x) Base Salary for the Severance Period (at
the annual rate in effect at the date of the Severance Termination),
plus (y) an amount equal to the Performance Bonus actually paid to
Executive with respect to the period prior to the date of the Severance
Termination equal to the Severance Period (or if Executive has been
employed for a term less than the Severance Period, the amount of
Performance Bonus paid to Executive for the entire period of employment
multiplied by a fraction, the numerator of which is the number of days
in the Severance Period and the denominator of which is the actual
number of days for which Executive was employed by the Parent), and (z)
an amount, if any, necessary to reimburse Executive on a net after tax
basis for any applicable federal excise tax. In addition, all Options
which are scheduled to vest during the 12 months following the date of
the Severance Termination shall vest as of such date. Further, all
Options which have become exercisable as of the date of the Severance
Termination (including those which do so as a result of the provisions
of the preceding sentence) shall remain so for a period of 12 months.
In the event of a Severance Termination, Executive will also be
provided with reasonable office space and secretarial support as well
as the same mailing address and telephone number which Executive had
during the term for up to six months, and the Parent shall pay the
costs of out placement services with a provider of its choice at a
level appropriate to Executive's title and position as requested by
Executive. For purposes of this paragraph, the "Severance Period" shall
be the longer of (x) three years, and (y) the remaining portion of the
Initial Term of Executive's employment hereunder. For purposes of this
paragraph, a "Defacto Termination" shall include any of the following
events: (i) the Parent shall fail to pay or shall reduce the Base
Salary, Performance Bonus or other benefits provided herein, except as
permitted hereunder, or shall
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otherwise breach any material provision hereof which breach is not
cured within 10 days after receipt of notice thereof from Executive;
(ii) the Parent shall fail to cause Executive to remain the Executive
Vice President of the Parent and Chief Executive Officer and President
and Chairman of the Board of the Company; (iii) Executive shall not be
continuously afforded the authority, powers, responsibilities and
privileges contemplated in Section 1 above (whether or not accompanied
by a change in title); (iv) the Parent shall require Executive's
primary services to be rendered in an area other than the Company's
principal offices in Orange County; or (v) after a Change in Control
(as defined below), the Parent increases the base salary for senior
executives of the Parent generally without similarly increasing the
Base Salary of Executive. For purposes of clause (iii), Executive shall
be deemed not to have been continuously afforded the authority, powers,
responsibilities and privileges contemplated in Section 1 above if
there shall occur any reduction in the scope, level or nature of
Executive's employment hereunder, or any demotion, any phasing out or
assignment to others, of the duties contemplated herein.
(c) Change in Control.
i) Following a Change in Control, this
Agreement shall continue to be binding upon the Company and Executive shall be
entitled to the payments provided for in this Section 6 in the event of
termination resulting from death, disability, cause, or a Separation
Termination, all as provided for in Section 6(a) and 6(b).
ii) Executive may (but shall not be
obligated to) terminate this Agreement effective 30 days after the giving of
such notice given at any time within two years following a Change in Control. In
the event that Executive elects to terminate this Agreement pursuant to this
Section 6(c)(ii), Executive shall be entitled to the following payments:
(A) If the Change in Control is
effected to an Adverse Person (as defined below), then Executive shall be
entitled to and receive the Severance Package. In addition, all Options then
held by Executive which are not yet vested shall vest as of the date of such
termination. Further, all Options that have become exercisable as of the date of
such termination (including those which do so as a result of the provisions of
the preceding sentence) shall remain so for the entire remaining term of the
Options.
(B) If the Change in Control is
effected to a person other than an Adverse Person, Executive shall be entitled
to receive the Severance Package. In addition, all Options which are scheduled
to vest during the 12 months following the termination date shall vest as of the
date of such termination. Further, all Options that have become exercisable as
of the date of such termination (including those which do so as a result of the
provisions of the preceding sentence) shall remain so for a period of 12 months.
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(d) Payment of Termination Amounts. Executive may
elect to have all amounts to be paid to Executive pursuant to this Section 6
payable (i) over the remaining term of this Agreement or for such shorter period
as expressly provided for herein, as applicable, or (ii) in a lump sum within 30
days following termination; provided, however, in the case of death or
disability, the Performance Bonus shall be payable at such time as
performance-based bonuses are paid to similarly situated employees of the
Parent. In the event Executive elects to be paid pursuant to clause (i),
Executive agrees promptly to notify the Parent in writing of Executive's
acceptance of full-time employment; within 15 days after receipt of such notice,
the Parent shall pay Executive in a lump sum any amounts which remain otherwise
due to Executive hereunder.
(e) Stock and Similar Rights. Except with regard to
the vesting and exercise dates of Options as set forth in this Section 6,
Executive's rights under any other agreement or plan under which stock options,
restricted stock or similar awards are granted shall be determined in accordance
with the terms and provisions of such plans or agreements.
(f) No Mitigation. Payment of any sum under this
Section 6 shall not be subject to any claim of mitigation.
(g) Other Insurance Policies. Upon any termination of
Executive's employment, and upon reimbursement of the Company of all amounts
paid by the Company in connection with such policies, Executive shall have the
right to purchase or otherwise direct the disposition or assignment of any
disability insurance policy on him held by the Company (excluding only group
disability insurance policies) upon the payment of One Dollar ($1.00) as the
total consideration for each such policy.
(h) Officer and Director Positions. Executive agrees
that if this Agreement is terminated for any reason, he shall immediately resign
from all officer and director positions he then holds with the Company, the
Parent, or any of their respective subsidiaries.
7. CHANGE IN CONTROL. For purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any of the following events
which occur after the date of the Original Agreement:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act ("Rule 13d-3")) of more than
50% of the combined voting power of the then outstanding voting securities of
the Company or of 20% or more of the combined voting power of the then
outstanding securities of the Parent entitled to vote generally in the election
of directors (the "Outstanding Voting Securities of Parent"); provided, however,
that neither of the following acquisitions shall constitute a Change in Control;
(i) any acquisition by the Company, the Parent or their respective subsidiaries
or (ii) any acquisition by any employee benefit plan (or related
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trust) sponsored or maintained by the Company, the Parent or their respective
subsidiaries or any corporation controlled by the Company, Parent or any of
their respective subsidiaries; or
(b) Individuals who, as of the date hereof constitute
the Parent Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual becoming a
director subsequent to the date of the Original Agreement whose election, or
nomination for election by the stockholders of the Company, shall be approved by
a vote of a least a majority of the directors then compromising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board; or
(c) Approval by the stockholders of the Parent of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation: (i) more than 60% of the combined
voting power of the then outstanding voting securities of the corporation
resulting from such reorganization, merger, or consolidation, which may be the
Parent or any of its subsidiaries (the "Resulting Corporation") entitled to vote
generally in the election of directors (the "Resulting Corporation Voting
Securities") shall then be owned beneficially, directly or indirectly, by all or
substantially all of the Persons who were the beneficial owners of Outstanding
Voting Securities immediately prior to such reorganization, merger or
consolidation, in substantially the same proportions as their respective
ownerships of Outstanding Voting Securities immediately prior to such
reorganization, merger, or consolidation; (ii) no Person (excluding the Company,
the Parent or any of their respective subsidiaries or any employee benefit plan
(or related trust) sponsored by any of them, the Resulting Corporation, and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the combined voting power
of Outstanding Voting Securities) shall own beneficially, directly or indirectly
20% or more of the combined voting power of the Resulting Corporation Voting
Securities; and (iii) at least a majority of the members of the Board shall have
been members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the stockholders of the Parent of (i)
a complete liquidation or dissolution of the Parent or (ii) the sale or other
disposition of all or substantially all of the assets of the Company or Parent,
other than to a corporation (the "Buyer") with respect to which (x) following
such sale or other disposition, more than 60% of the combined voting power of
securities of Buyer entitled to vote generally in the election of directors
("Buyer Voting Securities"), shall be owned beneficially, directly or
indirectly, by Parent, any of its subsidiaries, any employee benefit plan
sponsored by the Company, the Parent or any their respective subsidiaries or by
all or substantially all of the Persons who were the beneficial owners of the
Outstanding Voting Securities immediately prior to such sale or other
disposition, in substantially the same proportion as their respective ownership
of Outstanding Voting Securities, immediately prior to such sale or other
disposition; (y) no Person (excluding the Company and any employee benefit plan
(or related trust) of the Company or Buyer and any
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Person that shall immediately prior to such sale or other disposition own
beneficially, directly or indirectly, 20% or more of the combined voting power
of Outstanding Voting Securities), shall own beneficially, directly or
indirectly, 20% or more of the combined voting power or, Buyer Voting
Securities; and (z) at least a majority of the members of the board of directors
of Buyer shall have been members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition or assets of the Company.
For purposes of this Agreement, an Adverse Person shall mean
any person which acquires control of the Parent in a transaction involving a
Change in Control other than a transaction which, before the time of the
transaction, has been approved by the Board of Directors of the Parent.
8. INSURANCE. During the term, the Parent shall maintain, at no cost to
Executive, officers and directors liability insurance that would cover Executive
in an amount of no less than $45,000,000.
9. GENERAL PROVISIONS.
(a) Notices. All notices, requirements, requests,
demands, claims or other communications hereunder shall be in writing. Any
notice, requirement, request, demand, claim or other communication hereunder
shall be deemed duly given (i) if personally delivered, when so delivered, (ii)
if mailed, two (2) business days after having been set by registered or
certified mail, return-receipt requested, postage prepaid and addressed to the
intended recipient as set forth below, (iii) if given by telecopier, once such
notice or other communication is transmitted to the telecopier number specified
below, and the appropriate telephonic confirmation is received, provided that
such notice or other communication is promptly thereafter mailed in accordance
with the provisions of clause (ii) above or (iv) if sent through an overnight
delivery service under circumstances by which such service guarantees next day
delivery, the date following the date so sent:
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If to the Company, to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
If to Executive, to:
Neil B. Kornswiet
16105 Whitecap Lane
Huntington Beach, California 92649
Any party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth.
(b) Assignment. This Agreement and the benefits
hereunder are personal to the Parent and the Company and are not assignable or
transferable, nor may be the services to be performed hereunder be assigned by
the Parent and the Company to any person, firm or corporation; provided however,
that this Agreement and the benefits hereunder may be assigned by the Parent and
the Company to any corporation into which the Parent and the Company may be
merged or consolidated, and this Agreement and the benefits hereunder will
automatically be deemed assigned to any such corporation, subject, however, to
Executive's right to terminate this Agreement to the extent provided in Section
6. In the event of any assignment of this Agreement to any corporation acquiring
all or substantially all of the assets of the Parent or the Company or to any
other corporation into which the Parent or the Company may be merged or
consolidated, the responsibilities and duties assigned to Executive by such
successor corporation shall be the responsibilities and duties of, and
compatible with the status of, a senior executive officer of such successor
corporation. The Parent or the Company may delegate any of its obligations
hereunder to any subsidiary of the Company, provided that such delegation shall
not relieve the Parent or the Company of any of its obligations hereunder.
Executive may not assign its rights hereunder or delegate his duties hereunder
to any Person.
(c) Complete Agreement. This Agreement contains the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersedes and cancels any and all previous written or oral
negotiations, commitments, understandings, agreements and any other writings or
communications in respect of such subject matter.
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(d) Amendments. This Agreement may be modified,
amended, superseded or terminated only by a writing duly signed by both parties.
(e) Severability. Any provision of this Agreement
which is invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.
(f) No Waiver. Any waiver by either party of a breach
of any provisions of this Agreement shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of this Agreement. The failure of either party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall be
considered a waiver or to deprive such party of the right thereafter to insist
upon strict adherence to that term or any other term of this Agreement.
(g) Binding Effect. This Agreement shall be binding
on, and shall inure to the benefit of, the parties hereto and their permitted
assigns, successors and legal representatives.
(h) Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together shall
constitute one and the same document.
(i) Governing Law. This Agreement has been negotiated
and entered into in the State of California and shall be construed in accordance
with the laws of the State of California.
(j) Arbitration. The parties hereby expressly agree
that any controversy or claim relating to this Agreement, including the
construction, enforcement or application of the terms hereof, shall be submitted
to arbitration in Los Angeles, California by the American Arbitration
Association in accordance with the Commercial Arbitration Rules of such
association. The arbitrator shall be a retired judge of the Los Angeles Superior
Court or other party acceptable to the parties and the rules of evidence shall
apply. The costs of the arbitrator shall be borne equally. Each party shall be
responsible for its own attorneys' fees and costs. However, the arbitrator shall
have the right to award costs and expenses (including actual attorneys' fees) to
the prevailing party as well as equitable relief. The award of the arbitrator
shall be final and binding and shall be enforceable in any court of competent
jurisdiction. Nothing in this paragraph shall preclude the parties from seeking
an injunction or other equitable relief from a court of competent jurisdiction
under appropriate circumstances.
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(k) Headings. The headings included in this Agreement
are for the convenience of the parties only and shall not affect the
construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By:
------------------------------
Its:
-----------------------------
EXECUTIVE
----------------------------------
Neil B. Kornswiet
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EXHIBIT G
FORM OF OPINION OF ONE STOP MORTGAGE, INC.'S COUNSEL
The opinion of counsel required by Section 10.1 of the Agreement and
Plan of Reorganization (the "Agreement") shall be dated as of the Closing Date,
shall be in form and substance reasonably satisfactory to Aames Financial
Corporation ("Aames"), and shall contain opinions substantially in the form set
forth below. (All capitalized terms not otherwise defined herein have the
meaning specified in the Agreement).
1. One Stop Mortgage, Inc. ("One Stop") is a Wyoming
corporation duly incorporated, validly existing and in good standing under the
laws of the state of Wyoming and is qualified to do business as a foreign
corporation in each other jurisdiction in which it is required to do so.
2. One Stop has all necessary corporate power and authority to
own or lease its properties and assets, and to carry on its business as now
conducted.
3. The authorized capital of One Stop is as set forth in
Section 4.2 of the Agreement. All of the outstanding shares of One Stop Stock
are duly authorized, validly issued, fully paid and nonassessable. To our
knowledge, there are no outstanding options, warrants or other rights in or with
respect to the unissued shares of One Stop Stock or any other securities
convertible into One Stop Stock other than the shares of One Stop Stock issuable
under the Warrant, as set forth in Exhibit A hereto, and the shares of One Stop
Stock underlying the Employee Stock Options, as set forth in Exhibit A hereto,
and One Stop is not obligated to issue any additional shares of One Stop Stock
or any additional options, warrants or other rights in or with respect to the
unissued shares of such stock or securities convertible into such stock.
4. The execution and delivery by One Stop of the Agreement,
the Articles of Merger and the consummation of the transactions contemplated
thereby, have been duly and validly authorized by all necessary action on the
part of One Stop. Each of the Agreement and the Articles of Merger constitutes a
valid and binding obligation of One Stop, enforceable in accordance with their
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the rights of creditors
generally, and general equitable principles.
5. Neither the execution and delivery by One Stop of the
Agreement or the Articles of Merger, nor the consummation of the transactions
contemplated thereby, nor compliance by One Stop with any of the provisions
thereof, will (i) conflict with or result in the breach of, or default under any
provision of the articles, certificate of incorporation or bylaws of One Stop,
(ii) to our knowledge, constitute a breach of or result in a default (or give
rise to
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any rights of termination, cancellation or acceleration, or any right to acquire
any securities or assets) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, franchise, license, permit, agreement or
other instrument or obligation to which One Stop is a party, or by which it or
any of its properties or assets is bound, except where such breach or default
would not have a material adverse effect on the financial condition, results of
operations, business, affairs and properties of One Stop; or (iii) violate any
law, order, writ, injunction, decree, statute, rule or regulation applicable to
One Stop or any of its properties or assets, except where such violation would
not have a material adverse effect on the financial condition, results of
operations, business, affairs and properties of One Stop.
6. All approvals under Delaware, Wyoming and federal law
required to be obtained by One Stop in order to permit the consummation by One
Stop of the Merger have been obtained.
7. Except as to those matters set forth on Schedule 4.10 of
the Agreement, to our knowledge, (i) there is no private or governmental suit,
claim, action or proceeding pending, nor private or governmental suit, claim,
action or proceeding threatened against One Stop or against any of its
directors, officers or employees relating to the performance of their duties in
such capacities or against or affecting any properties of One Stop; and (ii)
there are no judgments, decrees, stipulations or orders against One Stop
enjoining it or any of its directors, officers or employees in respect of, or
the effect of which is to prohibit, any business practice or the acquisition of
any property or the conduct of business of One Stop in any area.
In rendering its opinion, such counsel may rely, to the extent
that such counsel deems reliance necessary or appropriate, as to matters of
fact, upon certificates of government officials and of any officer or officers
of One Stop. The opinion need refer only to matters of Wyoming, Delaware and
federal law, and such counsel may expressly exclude any opinions as to choice of
law matters, antitrust matters and securities law matters and may add other
qualifications and explanations of the basis of its opinion as may be reasonably
acceptable to Aames.
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EXHIBIT H
STOCKHOLDER'S AGREEMENT
This Stockholder's Agreement (this "Agreement") is made and
entered into as of the _________ day of August, 1996, by and among Aames
Financial Corporation, a Delaware corporation ("Aames"), and Neil B. Kornswiet
and Debra Kornswiet (collectively, the "Stockholder"), with reference to the
following:
RECITALS
A. Aames, One Stop Mortgage, Inc. Corporation, a Wyoming corporation
("One Stop"), and Aames Acquisition Corporation, a Delaware corporation ("Merger
Sub"), entered into that certain Agreement and Plan of Reorganization dated as
of August 12, 1996 (the "Reorganization Agreement").
B. The Stockholder is a beneficial stockholder of shares of common
stock, no par value, of One Stop (the "One Stop Stock").
C. The Stockholder is a director of One Stop and a beneficial owner of
more than 10% of the outstanding One Stop Stock.
D. As an inducement to Aames to enter into the Reorganization
Agreement, and in order to ensure pooling-of-interests accounting treatment for
the Merger contemplated by the Reorganization Agreement, the Stockholder desires
to enter into this Agreement.
E. Unless otherwise provided in this Agreement, capitalized terms shall
have the meanings ascribed to such terms in the Reorganization Agreement.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein and in the Reorganization Agreement, the parties
hereto do agree as follows:
ARTICLE I
STOCKHOLDER'S AGREEMENT
1.1 AGREEMENT TO VOTE. Stockholder shall (i) vote or cause to be voted
at any meeting of stockholders of One Stop ("Stockholders' Meeting") or (ii)
consent in any written consent solicitation ("Stockholder Consent"), to approve
the principal terms of the Reorganization Agreement, the Merger and the
transactions contemplated thereby, all of the shares of One Stop Stock as to
which Stockholder has sole or shared voting power (the
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"Shares") as of the record date established to determine stockholders who have
the right to vote at any such Stockholders' Meeting or as of the date of receipt
of the written consent.
1.2 RESTRICTIONS ON DISPOSITIONS. The Stockholder agrees that, from and
after the date of this Agreement and during the term of this Agreement, the
Stockholder will not take any action that will transfer, assign, pledge, sell or
otherwise dispose of, or alter or affect in any way the right to vote the
Shares, except (i) with the prior written consent of Aames or (ii) to change
such right from that of a shared right of the Stockholder to vote the Shares to
a sole right of the Stockholder to vote the Shares.
1.3 INVESTMENT INTENT. The Stockholder represents and warrants that the
Stockholder is acquiring the Aames Stock for investment purposes only, for the
Stockholder's own account, not as nominee or agent for any other person, firm or
corporation and not with a view to, or for resale in connection with, a
distribution or public offering thereof within the meaning of the Securities
Act.
1.4 OPPORTUNITY TO ASK QUESTIONS. The Stockholder hereby acknowledges
that there has been direct communication and negotiation between the Stockholder
and Aames, and that the Stockholder has had the opportunity to ask questions of,
and receive answers from, senior officers and other representatives of Aames or
any person acting on its behalf concerning the financial condition, business
affairs and prospects of Aames.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
The Stockholder represents and warrants to Aames that the statements
set forth below are true and correct as of the date of this Agreement, except
those that are specifically as of a different date:
2.1 OWNERSHIP AND RELATED MATTERS. There are no proxies, voting trusts
or other agreements or understandings to or by which the Stockholder or the
Stockholder's spouse is a party or bound or that expressly requires that any of
the Shares be voted in any specific manner other than as provided in this
Agreement;
2.2 AUTHORIZATION AND BINDING AGREEMENT. The Stockholder has the legal
right, power, capacity and authority to execute, deliver and perform this
Agreement; and this Agreement is the valid and binding obligation of the
Stockholder enforceable in accordance with its terms, except as the enforcement
thereof may be limited by general principles of equity; and
2.3 NON-CONTRAVENTION. The execution, delivery and performance of this
Agreement by the Stockholder will not (a) conflict with or result in the breach
of, or default or actual or potential loss of any benefit under, any provision
of any agreement, instrument or obligation to which the Stockholder is a party
or by which any of Stockholder's properties are bound, or give any other party
to any such agreement, instrument or obligation a right to terminate or modify
any term thereof; (b) require the consent or approval of any third party; (c)
result in the creation
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or imposition of any lien, mortgage or encumbrance on any of the Shares or any
other assets of the Stockholder; or (d) violate any law, rule or regulation to
which the Stockholder is subject.
ARTICLE III
GENERAL
3.1 AMENDMENTS. To the fullest extent permitted by law, this Agreement
and any schedule or exhibit attached hereto may be amended by agreement in
writing of the parties hereto at any time
3.2 INTEGRATION. Except for the Reorganization Agreement and the other
documents to be executed in connection therewith, this Agreement constitutes the
entire agreement between the parties pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in connection
therewith.
3.3 SPECIFIC PERFORMANCE. The Stockholder and Aames each expressly
acknowledge that, in view of the uniqueness of the obligations of the
Stockholder contemplated hereby, Aames would not have an adequate remedy at law
for money damages in the event that this Agreement has not been performed by the
Stockholder in accordance with its terms, and therefore the Stockholder and
Aames agree that Aames shall be entitled to specific performance of the terms
hereof in addition to any other remedy to which it may be entitled at law or in
equity.
3.4 TERMINATION. This Agreement shall terminate automatically without
further action at the earlier of the Effective Time or the termination of the
Reorganization Agreement in accordance with its terms. Upon such termination of
this Agreement, the respective obligations of the parties hereto shall
immediately become void and have no further force and effect.
3.5 NO ASSIGNMENT. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by Aames or the Stockholder, in whole
or in part. Any attempted assignment in violation of this prohibition shall be
null and void. Subject to the foregoing, all of the terms and provisions hereof
shall be binding upon, and inure to the benefit of, the successors of the
parties hereto.
3.6 HEADINGS. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
3.7 COUNTERPARTS. This Agreement may be executed in one 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
party hereto and delivered to each party hereto.
3.8 NOTICES. Any notice or communication required or permitted
hereunder, shall be deemed to have been given if in writing and (a) delivered in
person, (b) delivered by confirmed facsimile transmission, (c) sent by overnight
carrier, postage prepaid with return receipt
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requested, or (d) mailed by certified or registered mail, postage prepaid with
return receipt requested, addressed as follows:
If to Aames, addressed to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
With a copy addressed to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Attention: C. N. Franklin Reddick III, Esq.
If to Stockholder, addressed to:
Neil B. Kornswiet and Debra Kornswiet
16105 Whitecap Lane
Huntington Beach, California 92649
With a copy addressed to:
Brown & Wood LLP
One World Trade Center
58th Floor
New York, New York 10048
Attention: Jack M. Costello, Jr., Esq.
or at such other address and to the attention of such other person as a party
may notice to the others in accordance with this Section 3.8. Any such notice or
communication shall be deemed received on the date delivered personally or
delivered by confirmed facsimile transmission, on the first Business Day after
it was sent by overnight carrier, postage prepaid with return receipt requested
or on the third Business Day after it was sent by certified or registered mail,
postage prepaid with return receipt requested.
3.9 GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts between California parties made and
performed in such State.
3.10 SEVERABILITY AND THE LIKE. If any provision of this Agreement
shall be held by a court of competent jurisdiction to be unreasonable as to
duration, activity or subject, it shall
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be deemed to extend only over the maximum duration, range of activities or
subjects as to which such provision shall be valid and enforceable under
applicable law. If any provisions shall, for any reason, be held by a court of
competent jurisdiction to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
3.11 WAIVER OF BREACH. Any failure or delay by Aames in enforcing any
provision of this Agreement shall not operate as a waiver thereof. The waiver by
Aames of a breach of any provision of this Agreement by the Stockholder shall
not operate or be construed as a waiver of any subsequent breach or violation
thereof. All waivers shall be in writing and signed by the party to be bound.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By:
---------------------------------
Its:
--------------------------------
STOCKHOLDER
-----------------------------------
Neil B. Kornswiet
-----------------------------------
Debra Kornswiet
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EXHIBIT I
LCPI LETTER
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
Ladies and Gentlemen:
In connection with the merger (the "Merger") of Aames Acquisition
Corporation ("Merger Sub"), a wholly-owned subsidiary of Aames Financial
Corporation ("Aames"), into One Stop Mortgage, Inc. ("One Stop"), we will
acquire shares ("Shares") of Aames Stock ("Aames Stock") in exchange for the
Warrant. (Capitalized terms not defined herein have the meanings ascribed to
such terms in the Agreement and Plan of Reorganization, dated as of August 12,
1996, by and among Aames, Merger Sub and One Stop.)
We represent and agree as follows:
1. We have carefully read this letter and, to the extent we felt
necessary, have discussed it with legal counsel.
2. We will not make any sale or other disposition of the Shares in
violation of the Securities Act of 1933 ("Act") or related rules and
regulations. We understand that the Shares must be held by us indefinitely
unless (A) the Shares have been registered under the Act for sale by us, or (B)
exemption from registration is available.
3. We understand that Aames is under an obligation to initially
register only a portion of the Shares for sale or other disposition by us or on
our behalf and to register the balance of the Shares pursuant to our Warrant
Agreement with One Stop.
4. We also understand that stop transfer instructions will be given to
Aames' transfer agents with respect to the Shares and that there will be placed
on the certificates for the Shares a legend stating in substance:
THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS, AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR
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AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS
AVAILABLE.
5. We agree that commencing on the Effective Date of the Merger and
until the time that financial results covering at least 30 days of post-Merger
combined operations of One Stop and Aames have been published within the meaning
of Section 201.01 of the Codification of Financial Reporting Policies of the
SEC, we will not sell, transfer or otherwise dispose of any interest in the
shares of One Stop Stock owned by us or any of the Shares that we receive as a
result of the Merger or reduce our interest in or our risk relating to any of
such shares. We understand that Aames will publish such financial results as
soon as reasonably practicable following the close of the first calendar quarter
which shall include at least 30 days of such post-Merger combined operations.
6. We know of no plan (written or oral) pursuant to which holders of
shares of the outstanding One Stop Stock intend to sell or otherwise dispose of
more than 50%, in the aggregate, of their interest in such shares, either by a
sale or other disposition of One Stop Stock before the Merger, by the exercise
of dissenters' right in the Merger or by a sale or other disposition of shares
of Aames Stock to be received by them as a result of the Merger.
7. We are acquiring the Aames Stock for investment purposes only, for
our own account, not as nominee or agent for any other person that is not an
affiliate of the undersigned firm or corporation and not with a view to, or for
resale in connection with, a distribution or public offering thereof within the
meaning of the Securities Act.
8. We hereby acknowledge that there has been direct communication and
negotiation between us and Aames, and that we have had the opportunity to ask
questions of, and receive answers from, Aames or any person acting on its behalf
concerning the financial condition, business affairs and prospects of Aames.
Very truly yours,
Date: ________________ ____________________________________
Signature
____________________________________
Type or Print Name
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EXHIBIT J
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is made and entered into
as of the ___ day of August, 1996, by and among Lehman Brothers Holdings Inc., a
Delaware corporation ("LB"), Lehman Commercial Paper, Inc., a New York
corporation ("LCPI"), One Stop Mortgage, Inc., a Wyoming corporation ("One
Stop") and Aames Financial Corporation, a Delaware corporation ("Aames"), with
reference to the following:
RECITALS
A. One Stop is a party to that certain Amended and Restated
Warehouse and Security Agreement, Working Capital Loan Agreement and Standby
Financing Agreement with LB and LCPI (collectively, the "Credit Facilities").
B. In consideration of LB's entry into the Credit Facilities,
One Stop issued to LB a warrant (the "Warrant") to purchase shares of Common
Stock of One Stop.
C. On August 12, 1996, One Stop and Aames, among others,
entered into that certain Agreement and Plan of Reorganization pursuant to which
a wholly owned subsidiary of Aames will merge (the "Merger") with and into One
Stop and all of the equity securities of One Stop, including the Warrant, shall
be exchanged for equity securities of Aames.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and
in consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto do agree as follows:
1. ACKNOWLEDGEMENT OF SATISFACTION OF WARRANT OBLIGATIONS. LB
hereby acknowledges receipt of 675,000 shares of Aames Common Stock (the
"Warrant Shares") in full satisfaction of all of One Stop's obligations to LB
and LCPI under the Warrant. LB and LCPI further acknowledge that other than the
Warrant Shares, it has no interest in, or right to acquire or otherwise receive
an interest in, any security of One Stop or Aames.
2. ACKNOWLEDGEMENT OF TERMINATION OF CREDIT FACILITIES. LB and
LCPI hereby acknowledge receipt of written notice from One Stop requesting the
termination of the Credit Facilities effective as of _______, 1996 (the
"Termination Date"). LB and LCPI hereby acknowledge that upon repayment of all
loans extended under the Credit Facilities and any
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accrued and unpaid interest thereon, which amounts at the Termination Date are
as set forth on the pay-off schedule on Annex "A" hereto the Credit Facilities
shall terminate without further cost or obligation.
3. NO COMPLAINTS, CHARGES OR LAWSUITS. LB and LCPI hereby
warrant and represent that neither they, nor either of them, has filed nor
authorized the filing of any complaints, charges or lawsuits against One Stop
and/or Aames regarding the Credit Facilities with any governmental agency or
court, and that if, unbeknownst to LB and/or LCPI, such a complaint, charge or
lawsuit has been filed on either or both of their behalf, they will immediately
cause it to be withdrawn and dismissed with prejudice.
4. RELEASE.
(a) Subject to the receipt of the Warrant Shares and
the termination of the Credit Facilities as contemplated by Sections 1 and 2 of
this Agreement, each of LB and LCPI, for itself and each of its respective
affiliates, hereby and forever generally releases, relieves, absolves and
discharges One Stop and Aames, and each of their respective affiliates, together
with their respective agents, assigns, attorneys, employees, directors,
officers, representatives, stockholders and successors, as applicable, from any
and all actions, causes of action, obligations, promises, agreements, debts,
costs, damages, losses, claims, liabilities, attorneys' fees, rights, suits and
demands of whatever character (whether known or unknown, suspected or
unsuspected, now existing or arising in the future) based on, arising out of, or
otherwise related to (i) the relationship between LB and LCPI on the one hand
and One Stop on the other hand, (ii) the Credit Facilities and/or (iii) the
Warrant.
(b) With regard to any claims which may exist or
arise out of the matters which are subject to the releases contained in this
Section 3 (collectively the "Released Matters") (whether known or unknown,
suspected or unsuspected, now existing or arising in the future), the LB and
LCPI, and each of them, expressly waive any and all rights under Section 1542 of
the Civil Code of the State of California which provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
LB and LCPI expressly waive and release any right or benefit
which they have or may have under any similar law or rule of any other
jurisdiction pertaining to the Released Matters. It is the intention of each
party, through this Agreement, and with the advice of counsel, fully, finally,
and forever to settle and release all such matters and claims relative thereto
which have existed, do now exist or may exist between the parties arising out of
or related to the Released Matters. In furtherance of such intention, the
release herein given shall
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be, and remain in effect as, a full and complete release of such matters
notwithstanding the discovery of the existence of any additional claims or facts
relating thereto.
(c) Notwithstanding the provisions of this Section 4,
following the Merger, Aames confirms that LCPI shall be entitled to exercise its
rights under Sections 9.5 and 9.6 of the Warrant with respect to the Warrant
Shares, in accordance with the terms and provisions thereof applicable mutatis
mutandis to the Warrant Shares.
5. PREDECESSORS, SUCCESSORS, ASSIGNS AND BENEFICIARIES. This
Agreement shall inure to the benefit of and shall bind the predecessors,
successors, assigns, representatives, beneficiaries and attorneys of the LP,
LCPI, One Stop and Aames, and each of them. This Agreement is intended to and
does release and inure to the benefit of One Stop and Aames and their affiliated
corporations and other related business entities including, without limitation,
parent corporations, subsidiaries, divisions, agents, attorneys, employees,
directors, officers, representatives and stockholders, individually as well as
in the capacity indicated.
6. INTEGRATION. This Agreement constitutes a single,
integrated contract expressing the entire agreement of the parties hereto
relative to the subject matter hereof. No covenants, agreements, representations
or warranties of any kind whatsoever have been made by any party hereto, except
as specifically set forth in this Agreement. All prior discussions and
negotiations have been and are merged and integrated into, and are superseded
by, this Agreement. This Agreement may be amended or modified only by a writing
signed by LP, LCPI, One Stop and Aames.
7. CHOICE OF LAW AND FORUM. THIS AGREEMENT SHALL BE CONSTRUED
UNDER AND CONTROLLED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE
TO CONFLICT OF LAWS PRINCIPLES. ANY ACTION BROUGHT TO ENFORCE THIS AGREEMENT
SHALL BE BROUGHT IN LOS ANGELES, CALIFORNIA.
8. SEVERABILITY. In the event that any provision of this
Agreement should be held to be void, voidable or unenforceable, the remaining
portions hereof shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which when taken
together shall constitute one instrument.
10. PARAGRAPH HEADINGS; INTERPRETATION. Paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. No provision of this
Agreement is to be interpreted for or against any party because that party or
its legal representative drafted such provision.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
LEHMAN BROTHERS HOLDINGS INC.,
a Delaware corporation
By:
---------------------------------------
Its:
---------------------------------------
LEHMAN COMMERCIAL PAPER, INC.,
a New York corporation
By:
---------------------------------------
Its:
---------------------------------------
ONE STOP MORTGAGE, INC.,
a Wyoming corporation
By:
---------------------------------------
Its:
---------------------------------------
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By:
---------------------------------------
Its:
---------------------------------------
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ANNEX A
CREDIT FACILITY PAYMENT SCHEDULE
I. Restated Warehouse and Security Agreement.
Payment Date Payment Amount
II. Working Capital Loan Agreement.
Payment Date Payment Amount
III. Standby Financing Agreement.
Payment Date Payment Amount
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EXHIBIT K
FORM OF OPINION OF AAMES FINANCIAL CORPORATION'S
GENERAL COUNSEL
The opinion of counsel required by Section 11.1 of the
Agreement and Plan of Reorganization (the "Agreement") shall be dated as of the
Closing Date, shall be in form and substance reasonably satisfactory to counsel
for One Stop Mortgage, Inc. ("One Stop") and shall contain opinions
substantially in the form set forth below. (All capitalized terms not otherwise
defined herein have the meaning specified in the Agreement).
1. Aames Financial Corporation ("Aames") is a Delaware
corporation duly incorporated, validly existing and in good standing under the
laws of the state of Delaware.
2. Each of Aames and Aames Acquisition Corporation ("Merger
Sub") have all necessary corporate power and authority to own or lease its
properties and assets, and to carry on its business as now conducted. Aames is
duly qualified and in good standing as a foreign corporation, and is authorized
to do business, in all states or other jurisdictions in which such qualification
or authorization is necessary, except where the failure to do so would not,
individually or in the aggregate, have a materially adverse effect on the
financial condition, results of operation or business of Aames on a consolidated
basis.
3. The authorized capital of Aames is as set forth in Section
5.2 of the Agreement. All of the outstanding shares of Aames Stock are duly
authorized, validly issued, fully paid and nonassessable. To my knowledge,
except as disclosed in the Aames SEC Filings, there are no outstanding options,
warrants or other rights in or with respect to the unissued shares of Aames
Stock or any other securities convertible into Aames Stock, and Aames is not
obligated to issue any additional shares of Aames Stock or any additional
options, warrants or other rights in or with respect to the unissued shares of
such stock or securities convertible into such stock.
4. The execution and delivery by each of Aames and Merger Sub
of the Agreement and the consummation of the transactions contemplated thereby,
have been duly and validly authorized by all necessary action on the part of
Aames and Merger Sub, as applicable and the Agreement is a valid and binding
obligation of Aames and Merger Sub, enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors generally and
general equitable principles.
5. Neither the execution and delivery by Aames or Merger Sub
of the Agreement, nor the consummation of the transactions contemplated therein,
nor compliance by Aames or Merger Sub with any of the provisions thereof, will
(i) conflict with or result in the breach of, or default under any provision of
the certificate of incorporation or bylaws of Aames or Merger Sub, (ii) to my
knowledge, constitute a breach of or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire any
securities or assets) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, franchise, license, permit, agreement or other
instrument or obligation to which either
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Aames or Merger Sub is a party, or by which either Aames or Merger Sub or any of
their respective properties or assets is bound, except where such breach or
default would not have a material adverse effect on the business, financial
condition or results of operations of Aames on a consolidated basis or where the
required consent or waiver has been received; or (iii) to my knowledge, violate
any law, order, writ, injunction, decree, statute, rule or regulation applicable
to either Aames or Merger Sub or any of their respective properties or assets,
except where such violation would not have a material adverse effect on the
business, financial condition or results of operations of Aames on a
consolidated basis.
6. Subject to the filing of the Certificate of Merger, all
approvals under Delaware and federal law required to be obtained by Aames or
Merger Sub in order to permit the consummation by Aames and Merger Sub of the
Merger have been obtained.
7. The Aames Stock to be issued in connection with the Merger,
when issued, sold and delivered in accordance with the terms of the Agreement,
will be duly and validly issued, fully paid and nonassessable and will be free
and clear of any liens or encumbrances.
In rendering its opinion, such counsel may rely, to the extent
that such counsel deems reliance necessary or appropriate, as to matters of
fact, upon certificates of government officials and of any officer or officers
of Aames or Merger Sub or Aames' registrar and transfer agent. The opinion need
refer only to matters of Delaware and federal law, and such counsel may
expressly exclude any opinions as to choice of law matters, antitrust matters
and may add other qualifications and explanations of the basis of her opinion as
may be reasonably acceptable to One Stop.
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EXHIBIT L
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of the ____ day of August, 1996, by and among Aames Financial
Corporation, a Delaware corporation (the "Company"), and the parties listed on
Schedule I hereto (the "Holders"), with reference to the following:
RECITALS
A. This Agreement is made pursuant to the Agreement Plan of
Reorganization, dated as of August 12, 1996 ("Reorganization Agreement"), by and
among the Company, Aames Acquisition Corporation, a wholly-owned subsidiary of
the Company and a Delaware corporation, and One Stop Mortgage, Inc., a Wyoming
corporation ("One Stop").
B. In order to induce One Stop to enter into the
Reorganization Agreement, the Company has agreed to provide the registration
rights provided for in this Agreement to the Holders. The execution of this
Agreement is a condition to the closing of the transactions contemplated by the
Reorganization Agreement.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto do agree as follows:
1. DEFINITIONS. As used in this Agreement, capitalized terms not
otherwise defined herein have the meanings given such terms in the
Reorganization Agreement, and the following terms shall have the following
meanings:
Advice: As defined in the last paragraph of Section 3 hereof.
Affiliate: As to any specified person shall mean any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control," when used with respect to any person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise and
the terms "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing.
Agreement: This Registration Rights Agreement, as the same may
be amended, supplemented or modified from time to time in accordance with the
terms hereof.
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Business Day: With respect to any act to be performed
hereunder, each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which banking institutions in New York, New York or other applicable
place where such act is to occur are authorized or obligated by applicable law,
regulation or executive order to close.
Commission: The Securities and Exchange Commission.
Common Stock: Common stock, $0.001 par value per share, of the
Company.
Company: Aames Financial Corporation, a Delaware corporation,
and any successor corporation thereto.
Effectiveness Period: As defined in Section 2(a) hereof.
Effectiveness Target Date: The 10th day following the
Publication Date.
Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the Commission pursuant thereto.
Filing Date: The first business day after the Closing Date.
Holder: Each registered holder of any Restricted Securities.
Proceeding: An action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
Prospectus: The prospectus included in the Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated pursuant to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the issuance or resale of any portion of the Restricted
Securities covered by such Shelf Registration Statement, and all other
amendments and supplements to any such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such prospectus.
Publication Date: The date of the Company's first publication
of financial results covering at least 30 days of post Merger combined
operations.
Restricted Securities: Of the shares of Company Common Stock
issued in the Merger 1,649,700 shares issued to Neil B. Kornswiet and Debra
Kornswiet and 675,000 shares issued to LB.
Rule 144: Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission as a replacement
thereto having substantially the same effect as such rule.
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Rule 415: Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission as a replacement
thereto having substantially the same effect as such rule.
Rule 424: Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission as a replacement
thereto having substantially the same effect as such rule.
Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder.
Shelf Registration Statement: The registration statement of
the Company that covers the resale of any of the Restricted Securities pursuant
to the provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference, if any, in such
registration statement.
Special Counsel: A single special counsel to the Holders of
the Restricted Securities, for which the Holders of the Restricted Securities
will be reimbursed pursuant to Section 5 hereof.
2. SHELF REGISTRATION.
(a) The Company shall use its best efforts to file with the
Commission as soon as practicable after the Closing Date, but in no event later
than the Filing Date, one Shelf Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering the Restricted
Securities. The Shelf Registration Statement shall be on Form S-3 under the
Securities Act or another appropriate form permitting registration of such
Restricted Securities for resale by the Holders in open market transactions
(with or without the use of one or more brokers). The Company shall use its
reasonable best efforts, as described in Section 3, to cause the Shelf
Registration Statement to be declared effective pursuant to the Securities Act
as promptly as practicable following the filing thereof, but in no event later
than the Effectiveness Target Date, and to keep the Shelf Registration Statement
continuously effective under the Securities Act thereafter for the period ending
two years after the Closing Date (subject to extension pursuant to clause (b)
and the last paragraph of Section 3 hereof), or such shorter holding period as
may be specified by the Commission in amending Rule 144(d) or ending when there
cease to be outstanding any Restricted Securities (the "Effectiveness Period").
(b) The Company shall use its reasonable best efforts to keep
the Shelf Registration Statement continuously effective by supplementing and
amending the Shelf Registration Statement as required by the rules, regulations
or instructions applicable to the registration form used for such Shelf
Registration Statement if required by the Securities Act or reasonably requested
by the Holders of a majority in aggregate principal amount of the
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Restricted Securities covered by such Shelf Registration Statement; provided
that the Effectiveness Period shall be extended as provided herein.
3. REGISTRATION PROCEDURES. In connection with the Company's Shelf
Registration Statement, the Company is required by the provisions of Section 2
hereof to effect the registration of Restricted Securities on the appropriate
form available to permit the sale of the Restricted Securities in open market
transactions (with or without the use of one or more brokers), and pursuant
thereto the Company, at its expense and as expeditiously as reasonably possible,
agrees to:
(a) Furnish to the Holders such number of copies of the Shelf
Registration Statement, and each amendment and supplement thereto, preliminary
Prospectus, final Prospectus and such other documents as the Holders may
reasonably request;
(b) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Shelf Registration Statement as may
be necessary to keep such Shelf Registration Statement continuously effective
and current for the Effectiveness Period (other than any period in which sales
have been deferred pursuant to Section 2 above); cause the related Prospectus to
be amended or supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all securities covered by such Shelf Registration
Statement during such period in accordance with the intended methods of
disposition as contemplated hereby;
(c) Use its best efforts to register or qualify the securities
covered by the Shelf Registration Statement under the state securities or "blue
sky" laws of up to ten (10) jurisdictions as the Holders may select within ten
(10) days prior to the original filing of the Shelf Registration Statement ,
except that the Company shall not for any purpose be required to execute a
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified;
(d) Notify the Holders promptly after it shall receive notice
thereof, of the date and time when the Shelf Registration Statement and each
post-effective amendment thereto has become effective or a supplement to any
Prospectus forming a part of any such registration statement has been filed;
(e) Notify the Holders promptly of any request by the
Commission or any state governmental authority for the amendment or
supplementation of the Shelf Registration Statement or Prospectus or for
additional information;
(f) Prepare and file with the Commission, promptly upon the
request of any Holders, any amendments or supplements to the Shelf Registration
Statement or Prospectus that, in the written opinion of Special Counsel for such
Holders, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Restricted Securities by
such Holders;
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<PAGE> 156
(g) Prepare and file promptly with the Commission, and
promptly notify the Holders of the filing of, such amendments or supplements to
the Shelf Registration Statement or Prospectus as may be necessary to correct
any statements or omissions if to the Company's knowledge, at the time when a
Prospectus relating to such securities is required to be delivered under the
Securities Act, any event has occurred as the result of which any such
Prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit 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;
(h) If any of the Holders is required to deliver a Prospectus
at a time when the Prospectus then in circulation is not in compliance with the
Securities Act or the rules and regulations of the Commission, prepare promptly
upon request such amendments or supplements to the Shelf Registration Statement
and such Prospectus as may be necessary for such Prospectus to comply with the
requirements of the Securities Act and such rules and regulations;
(i) Advise the Holders promptly after it shall receive notice
or obtain knowledge of the issuance of any stop order by the Commission, any
state securities commission, any other governmental agency or any court
suspending the effectiveness of the Shelf Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(j) Not file the Shelf Registration Statement or Prospectus or
any amendment or supplement to the Shelf Registration Statement or Prospectus to
which the Holders of a majority of the aggregate of the Restricted Securities
included or to be included in a registration have reasonably objected in writing
on the grounds that such Shelf Registration Statement or Prospectus or amendment
or supplement thereto does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations thereunder,
after having been furnished with a copy thereof at least one (1) business day
prior to the filing thereof; provided, however, that the failure of such Holders
or their Special Counsel to review or object to the Shelf Registration Statement
or Prospectus or any amendment or supplement to the Shelf Registration Statement
or Prospectus shall not affect the rights of such Holders or their respective
officers, directors, partners, legal counsel, accountants or controlling Persons
or any underwriter or any controlling Person of such underwriter under Section 5
hereof;
(k) Make available for inspection upon request by any Holder
of Restricted Securities covered by the Shelf Registration Statement and by
Special Counsel, all financial and other records, pertinent corporate documents
and properties of the Company, and cause all of the Company's officers,
directors and employees to supply all information reasonably requested by any
such Holder or Special Counsel, in connection with such registration statement
but only (x) to the extent necessary to the conduct of customary due diligence,
and (y) if the recipient thereof has executed a confidentiality agreement in a
form reasonably acceptable to the Company protecting against the
misappropriation or disclosure of the Company's confidential information; and
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<PAGE> 157
(l) List all Common Stock covered by the Shelf Registration
Statement on the stock exchange or system, if any, on which the Common Stock of
the Company is then listed.
The Company may require each seller of the Restricted
Securities as to which any registration is being effected to: (i) furnish to the
Company such information regarding the distribution of such Restricted
Securities as is required by law to be disclosed in the Shelf Registration
Statement and (ii) provide to the Company a signed writing accepting and
acknowledging its rights and obligations hereunder. The Company may exclude from
such registration the Restricted Securities of any holder of Restricted
Securities who unreasonably fails to furnish such information or signed writing
at least five business days prior to the effective date of the Shelf
Registration Statement.
Each Holder of the Restricted Securities agrees by
acquisition of such Restricted Securities that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e),
3(g) or 3(i) hereof, such Holder will forthwith discontinue disposition of such
Restricted Securities covered by such Shelf Registration Statement or Prospectus
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(g) hereof, or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. If the Company shall give any such notice, the
Effectiveness Period shall be extended by the number of days during such period
from and including the date of the giving of such notice to and including the
date when each seller of the Restricted Securities covered by such Shelf
Registration Statement shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Section 3(g) hereof or (y) the Advice, and,
in either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
Prospectus.
The registration rights of the Holders pursuant to
this Agreement and the ability to offer and sell Restricted Securities pursuant
to the Shelf Registration Statement are subject to the conditions and
limitations contained in this paragraph, and each Holder will be deemed to have
agreed with the Company that if the Board of Directors of the Company determines
in its good faith judgment that the use of any Prospectus would require the
disclosure of material information that the Company has a bona fide business
purpose for preserving as confidential or the disclosure of which would impede
the Company's ability to consummate a significant transaction, and that the
Company is not otherwise required by applicable securities laws or regulations
to disclose, upon written notice of such determination by the Company, the
rights of the Holders to offer, sell or distribute any Restricted Securities
pursuant to the Shelf Registration Statement or to require the Company to take
action with respect to the registration or sale of any Restricted Securities
pursuant to the Shelf Registration Statement shall be suspended until the date
upon which the Company notifies the Holders in writing (the "Suspension
Termination Notice") that suspension of such rights for the grounds set forth in
this paragraph is no longer necessary, and the Company agrees to give such
notice as promptly as practicable following the date that such suspension of
rights is no longer necessary (but in any event, any such suspension shall be
effective for a period not in excess of 90 consecutive days and for no more than
180 days in any calendar year). If the Company shall give any such
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<PAGE> 158
notice, the Effectiveness Period shall be extended by the number of days during
which the period from and including the date of the giving of such notice of
suspension to and including the date the Company delivers the Suspension
Termination Notice.
4. REGISTRATION EXPENSES.
(a) All fees and expenses of the Company incident to the
performance of or compliance with this Agreement by the Company shall be borne
by it whether or not the Shelf Registration Statement is filed or becomes
effective and whether or not any securities are issued or sold pursuant to any
Shelf Registration Statement.
(b) In connection with the registration hereunder, the Company
shall reimburse the Holders of the Restricted Securities being registered or
tendered for in such registration for the reasonable fees and disbursements of
not more than one firm of attorneys representing the Holders, which firm shall
be chosen by the Holders of a majority in aggregate principal amount of the
Restricted Securities.
5. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
each Holder of Restricted Securities that is included in the Shelf Registration
Statement pursuant to the provisions of this Agreement, and each Person who
controls such Holder within the meaning of the Securities Act from and against,
and agrees to reimburse such Holder and its controlling Persons with respect to,
any and all claims, actions (actual or threatened), demands, losses, damages,
liabilities, costs and expenses to which such Holder and its controlling Persons
may become subject under the Securities Act or otherwise, insofar as such
claims, actions, demands, losses, damages, liabilities, costs or expenses arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Shelf Registration Statement, any Prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company shall not be liable in any such case to the
extent that any such claim, action, demand, loss, damage, liability, cost or
expense is caused by (i) an untrue statement or alleged untrue statement or
omission or alleged omission contained in written information furnished by such
Holder or such controlling Person specifically for use in the preparation of the
Shelf Registration Statement or (ii) any untrue statement or alleged untrue
statement of material fact contained in, or any omission or alleged omission of
a material fact from, a Prospectus if (x) a later Prospectus corrects the untrue
statement or alleged untrue statement, or omission or alleged omission, which is
the basis for the claim, action, demand, loss, damage, liability, cost or
expense for which indemnification is sought, (y) a copy of the later Prospectus
had been made available to the Holders in a timely fashion in accordance with
the Securities Act and had not been sent or given to such purchaser at or prior
to confirmation of sale to such purchaser and the Holder seeking indemnification
was under an obligation to deliver such later Prospectus to the purchaser and
(z) there would have been no such liability but for such failure to deliver such
later Prospectus by such Holder.
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<PAGE> 159
(b) Each Holder of shares of Restricted Securities that are
included in the Shelf Registration Statement pursuant to the provisions of this
Agreement hereby agrees to indemnify and hold harmless the Company, its
officers, directors and each Person who controls the Company within the meaning
of the Securities Act, from and against, and agrees to reimburse the Company,
its officers, directors and controlling Persons with respect to, any and all
claims, actions, demands, losses, damages, liabilities, costs or expenses to
which the Company, its officers, directors or such controlling Persons may
become subject under the Securities Act or otherwise, insofar as such claims,
actions, demands, losses, damages, liabilities, costs or expenses arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in the Shelf Registration Statement, any Prospectus contained therein
or any amendment or supplement thereto, or are caused by the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon written information
furnished by such Holder specifically for use in the preparation thereof;
provided, however, that a Holder shall not be liable in any case to the extent
such claim, action, demand, loss, damage, liability, cost or expense arises out
of or is based upon any untrue statement or alleged untrue statement of a
material fact contained in, or any omission or alleged omission of a material
fact from, a Prospectus if (x) a later Prospectus shall correct the untrue
statement or alleged untrue statement, or omission or alleged omission, which is
the basis for the claims, actions, demands, losses, damages, liabilities, costs
or expenses for such indemnification is sought, (y) a copy of the later
Prospectus had been made available to the Holders in a timely fashion in
accordance with the Securities Act and had not been sent or given to such
purchaser at or prior to confirmation of sale to such purchaser and the Company,
another Holder, or a controlling person other than the Holder shall have been
under an obligation to deliver such later Prospectus, and (z) there would have
been no such liability but for such failure to deliver such later Prospectus by
the Company, another Holder or controlling Person.
(c) Promptly after receipt by a party indemnified pursuant to
the provisions of subsection (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of subsection (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability that it may have to an indemnified party otherwise than under this
Section 5 and shall not relieve the indemnifying party from liability under this
Section 5 unless such indemnifying party is prejudiced by such omission. In case
any such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying parties similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel (in which case the indemnifying party shall
not have the
8
<PAGE> 160
right to direct the defense of such action on behalf of the indemnified party or
parties). Upon the permitted assumption by the indemnifying party of the defense
of such action, and approval by the indemnified party of counsel, the
indemnifying party shall not be liable to such indemnified party under
subsection (a) or (b) for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in connection with the
assertion of legal defenses in accordance with the proviso to the next preceding
sentence, (ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time, or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
No indemnifying party shall be liable to an indemnified party for any settlement
of any action or claim without the prior written consent of the indemnifying
party and no indemnifying party may unreasonably withhold its consent to any
such settlement. No indemnifying party will consent to entry of any judgment or
enter into any settlement that 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 with respect to such claim or litigation.
(d) If the indemnification provided for in subsection (a) or
(b) of this Section 5 is held by a court of competent jurisdiction to be
unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of indemnifying
such indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party as a result of such claims, actions,
demands, losses, damages, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the Company on the one hand and
of the Holders on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. Notwithstanding the foregoing,
the amount any Holder of Restricted Securities shall be obligated to contribute
pursuant to this subsection (d) shall be limited to an amount equal to the per
share public offering price multiplied by the number of shares of Restricted
Securities sold by such Holder pursuant to the registration statement that gives
rise to such obligation to contribute. The relative fault of the Company on the
one hand and the Stockholders on the other hand shall be determined by reference
to, among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by the Stockholder's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
indemnification or contribution hereunder from any person who was not guilty of
such fraudulent misrepresentation.
6. REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT. The Company agrees to
file timely such information, documents and reports as the Commission may
require or prescribe under Section 13 or 15(d) (whichever is applicable) of the
Exchange Act.
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<PAGE> 161
7. MISCELLANEOUS.
(a) Amendments and Waivers. With the written consent of the
Holders of a majority of the Restricted Securities, the obligations of the
Company and the rights of the Holders under this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely), and with the same
consent the Company, when authorized by resolution of its Board, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of any supplemental agreement or modifying in any manner the rights and
obligations hereunder of the Holders and the Company; provided, however, that no
such waiver or supplemental agreement shall reduce the aforesaid proportion of
Restricted Securities, the Holders of which are required to consent to any
waiver or supplemental agreement, without the consent of the Holders of all of
the Restricted Securities. Upon the effectuation of each such waiver, consent or
agreement of amendment or modification, the Company agrees to give promptly
written notice thereof to the Holders of the Restricted Securities who have not
previously consented thereto in writing. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or by
course of dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 7(a). Specifically, but
without limiting the generality of the foregoing, the failure of the Holders at
any time or times to require performance of any provision hereof by the Company
shall in no manner affect the right of the Holders at a later time to enforce
the same. No waiver by any party of the breach of any term or provision
contained in this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
(b) Notices. All notices and other communications provided for
herein shall be made in writing by hand-delivery, next-day air courier,
certified first-class mail, return receipt requested, telex or telecopy:
(i) if to the Company, as provided in the
Reorganization Agreement,
(ii) if to any Holder of any Restricted Securities,
to the address of such Holder as it appears in the Common Stock register of the
Company.
Except as otherwise provided in this Agreement, all
such communications shall be deemed to have been duly given when (v) delivered
by hand, if personally delivered, (w) one Business Day after being timely
delivered to a next-day air courier, (x) five Business Days after being
deposited in the mail, postage prepaid, if mailed, (y) when answered back, if
telexed or (z) when receipt is acknowledged by the recipient's telecopier
machine, if telecopied.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder of the Restricted
Securities. The Company may not assign its rights or obligations hereunder
without the prior written consent of each Holder of the Restricted Securities.
Notwithstanding the foregoing, no transferee shall have any of the rights
granted
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<PAGE> 162
under this Agreement until such transferee shall acknowledge its rights and
obligations hereunder by a signed written statement of such transferee's
acceptance of such rights and obligations.
(d) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, as applied to
contracts made and performed within the State of California without regard to
principles of conflicts of law.
(f) Severability. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
(g) Construction. All Section and other subdivision titles or
captions contained in this Agreement are for convenience of reference only and
shall not effect the meaning or interpretation of any provision of this
Agreement. All terms used in this Agreement include, where appropriate the
singular as well as the plural and the masculine, feminine and neuter genders.
The words "herein", "hereof" and "hereunder", and other words of similar import,
refer to this Agreement as a whole and not to any particular Section or other
subdivision; and all Section and other subdivision references contained herein
refer to Sections and other subdivisions hereof. Use herein of the term "or" is
not intended to be exclusive, unless the context clearly requires. All
provisions hereof apply to successive events and transactions.
(h) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover its reasonable attorneys' fees in addition to any
other available remedy.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By:
--------------------------------------
Its:
--------------------------------------
HOLDERS
By:
--------------------------------------
By:
--------------------------------------
By:
--------------------------------------
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<PAGE> 164
SCHEDULE I
PARTIES TO THE REGISTRATION RIGHTS AGREEMENT
13
<PAGE> 165
AMENDMENT NO. 1
TO THE AGREEMENT AND PLAN OF REORGANIZATION
This Amendment No. 1 (this "Amendment") to the Agreement and Plan of
Reorganization, dated August 12, 1996 (the "Agreement"), is made and entered
into as of the 28th day of August 1996, by and among Aames Financial
Corporation, a Delaware corporation ("Aames"), Aames Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of Aames ("Merger Sub"), One
Stop Mortgage, Inc., a Wyoming corporation ("One Stop"), and Neil B. Kornswiet,
who along with his spouse is the principal stockholder of One Stop (the
"Principal Stockholder"), with reference to the following:
RECITALS
A. Aames, Merger Sub, One Stop and the Principal Stockholder (solely for
the purposes of Article IV thereof) entered into the Agreement as of August 12,
1996.
B. During the negotiation of the Agreement, One Stop made certain
administrative errors in the calculation of options granted to the employees of
One Stop and such errors are currently reflected in the Agreement.
C. The correction of such administrative errors is necessary in order to
properly reflect the terms of the options originally granted to the employees of
One Stop; such correction will in no way change One Stop's original obligations
to such employees.
D. Aames, Merger Sub, One Stop and the Principal Stockholder desire to
amend certain terms and provisions of the Agreement as set forth herein in order
to correct the above-referenced administrative errors and correct certain other
provisions of the Agreement.
<PAGE> 166
AGREEMENT
NOW, THEREFORE,on the basis of the foregoing recitals and in consideration
of the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto do agree as follows:
1. DEFINITIONS. For the purposes of this Amendment, the Agreement shall
mean the Agreement and all Schedules and Exhibits thereto. All capitalized terms
used herein and not otherwise defined herein shall have the meanings attributed
thereto in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
(a) Section 1.11 of the Agreement is deleted in its entirety and
replaced with the following:
"1.11 "Average Price of Aames Stock" means the average of the Closing
Prices of Aames Stock for the 10 consecutive trading days ending on
(and including) Monday, August 26, 1996 (subject to adjustment as
provided below). The term "trading day" shall mean a day on which
trading generally takes place on the NYSE and on which trading in
Aames Stock has not been halted or suspended. In the event Aames pays,
declares or otherwise effects a stock split, reverse stock split,
reclassification or stock dividend or distribution with respect to the
Aames Stock between the date of this Agreement and the Effective Time,
appropriate adjustments will be made to the Average Price of Aames
Stock.
(b) Section 2.1 (c) of the Agreement is deleted in its entirety and
replaced with the following:
"(c) Subject to Sections 2.2 and 2.12, each share of One Stop Stock
issued and outstanding immediately prior to the Effective Time shall,
on and after the Effective Time, be automatically canceled and cease
to be an issued and outstanding share of One Stop Stock and shall be
converted into the right to receive 16,479.4 shares of Aames Stock
(the "Conversion Ratio")."
<PAGE> 167
(c) Section 2.11 of the Agreement is deleted in its entirety and
replaced with the following:
"2.11 CONVERSION. As a result of the Merger, all of the outstanding
securities of One Stop, as of the Effective Time, will be concerted
into the right to receive (x) 1,647,940 shares of Aames Stock issuable
to the Principal Stockholder and his spouse, (y) 675,000 shares of
Aames Stock issuable to LB, and (z) 377,060 shares of Aames Stock
issuable upon exercise of the options assumed pursuant to Section 2.10
above."
(d) Section 11.5 of the Agreement is deleted in its entirety and
replaced with the following:
"11.5 OFFICER'S CERTIFICATE. There shall have been
delivered to One Stop on the Closing Date a certificate
executed by the Chief Operating Officer of Aames,
certifying, to the best of his knowledge, compliance with
the provisions of Sections 11.2, 11.3 and 11.4."
(e) Schedule 4.2(a) to the Agreement is deleted in its entirety and
replaced with SCHEDULE 4.2(a) hereto.
(f) The first paragraph of Schedule 4.10 to the Agreement is deleted
in its entirety and replaced with SCHEDULE 4.10 hereto.
(g) Schedule 4.18 to the Agreement is deleted in its entirety and
replaced with SCHEDULE 4.18 hereto.
(h) Exhibit B to the Agreement is deleted in its entirety and replaced
with EXHIBIT B hereto.
(i) Exhibit C to the Agreement is deleted in its entirety and replaced
with EXHIBIT C hereto.
(j) Exhibit F to the Agreement is deleted in its entirety and replaced
with EXHIBIT F hereto.
(k) Exhibit J to the Agreement is deleted in its entirety and replaced
with EXHIBIT J hereto.
<PAGE> 168
(l) Exhibit L to the Agreement is deleted in its entirety and replaced
with EXHIBIT L hereto.
3. SURVIVAL OF AGREEMENT. Except as expressly amended by Section 2 hereof,
the Agreement shall in all respects survive the execution and delivery of this
Amendment unmodified and shall remain in full force and effect.
4. MISCELLANEOUS. This Amendment is made and entered into in the State of
California and the laws of the State of California shall govern the validity and
interpretation hereof and the performance of the parties hereto of their
respective duties and obligations hereunder. This Amendment may be executed in
one or more counterparts, all of which, taken together, shall constitute one
original document.
[Signatures Are On The Next Page]
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
/s/ CARY H. THOMPSON
-------------------------------
By: Cary H. Thompson
Its: Chief Operating Officer
AAMES ACQUISITION CORPORATION,
a Delaware corporation
/s/ CARY H. THOMPSON
--------------------------------
By: Cary H. Thompson
Its: Executive Vice President
and Secretary
ONE STOP MORTGAGE, INC.,
a Wyoming corporation
/s/ NIEL B. KORNSWIET
--------------------------------
By: Neil B. Kornswiet
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Its: President
/s/ NEIL B. KORNSWIET
---------------------------------
Neil B. Kornswiet
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EXHIBIT B
ESCROW AGREEMENT
This Escrow Agreement (this "Escrow Agreement") is made and entered
into as of the _____ day of August, 1996, by and among Aames Financial
Corporation, a Delaware corporation ("Aames"), Neil B. Kornswiet ("NK"), Lehman
Commercial Paper Inc., a New York corporation ("LCPI") and Chemical Trust
Company of California, a California corporation (the "Escrow Agent"). NK and
LCPI are each referred to herein as a "One Stop Stockholder" and are
collectively referred to herein as the "One Stop Stockholders."
RECITALS
A. Aames, One Stop Mortgage Inc., a Wyoming corporation ("One Stop") and
Aames Acquisition Corporation, a wholly owned subsidiary of Aames ("Merger
Sub"), have entered into an Agreement and Plan of Reorganization, dated as of
August 12, 1996 (the "Agreement"), pursuant to which Merger Sub will merge with
and into One Stop (the "Merger").
B. Pursuant to the terms of the Agreement, at the Effective Time (as
hereinafter defined), Aames will deposit shares of the Aames Stock issuable to
the Principal Stockholders in connection with the Merger to the Escrow Agent
(the "Escrow Deposit"), to be held and disposed of in accordance with the terms
and conditions hereof.
C. For the purposes of this Agreement the following terms will have the
following meanings:
"Average Price of Aames Stock" means the average of the Closing Prices
of Aames Common Stock, par value $0.001 per share (the "Aames Stock") for the 10
consecutive trading days ending on (and including) Monday, August 26, 1996
(subject to adjustment as provided below). The term "trading day" shall mean a
day on which trading generally takes place on the New York Stock Exchange, Inc.
and on which trading in Aames Stock has not been halted or suspended. In the
event Aames pays, declares or otherwise effects a stock split, reverse stock
split, reclassification or stock dividend or distribution with respect to the
Aames Stock between the date of the Agreement and the Effective Time,
appropriate adjustments will be made to the Average Price of Aames Stock.
"Closing" means the consummation of the Merger on the Closing Date (as
defined herein) at the offices of Troop Meisinger Steuber & Pasich, LLP, 10940
Wilshire Boulevard, Los Angeles, CA 90024, or at such other place as the parties
may agree upon.
"Closing Date" means a Business Day to be designated by the Parties.
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"Effective Time" means the date and time of the filing of the Articles
of Merger effecting the Merger with (a) the office of the Wyoming Secretary of
State and (b) the Certificate of Merger effecting the Merger with the office of
the Delaware Secretary of State.
"Principal Stockholder" means NK together with his spouse.
Capitalized terms not otherwise defined herein shall take the meanings
given them in the Agreement.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto do agree as follows:
1. Indemnity.
(a) Indemnification Obligations. Subject to Section 1(b), the One
Stop Stockholders shall indemnify, save and keep Aames and its officers,
directors, employees, and stockholders (each an "Indemnified Party") harmless
against and from all claims, liabilities, losses, damages, costs and expenses
(including reasonable attorneys', accountants', investigators', and experts'
fees and expenses, sustained or incurred in connection with the defense or
investigation of any claim ) (collectively, "Damages") which arise out of or by
virtue of:
(i) any inaccuracy in or breach of any representation and
warranty made by One Stop set forth in the Agreement or any One Stop Schedule;
(ii) the breach by One Stop, or failure of One Stop to
comply with, any of the covenants or obligations under the Agreement to be
performed by One Stop; and
(iii) the matter referred to in the first paragraph of
Schedule 4.10 to the Agreement; it being understood that, without limiting the
foregoing, Damages for purposes of this subsection (iii) shall be net of the
fair market value or the proceeds upon disposition or liquidation by Aames or
One Stop, as applicable, of any loans referred to in such paragraph or related
property acquired by Aames or One Stop as a result of such matter.
This Escrow Agreement shall constitute the sole and exclusive remedy of the
Indemnified Parties for all Damages which arise out of or by virtue of the
foregoing. The representations and warranties included in the Agreement are
exclusive, and the parties hereto confirm that they have not relied upon any
representations, warranties or covenants not contained therein, in any Schedule
thereto or the other documents delivered in connection therewith to enter into
this Escrow Agreement.
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(b) Limitation on Indemnification Obligations. The One Stop
Stockholders' obligations under Section 1 (a) above shall be subject to the
following limitations:
(i) Subject to the provisions of Section 1(b)(v) below, no
Indemnified Party shall be entitled to recover under this Escrow Agreement
unless a claim has been asserted by a Claim Notice (as defined below) delivered
to the One Stop Stockholders on or prior to the date (the "Applicable Date") as
is the earlier to occur of (i) the date of issuance of the first independent
audit report of Aames which includes any period ending after the Effective Time,
or (ii) the close of business on the first anniversary of the Closing Date;
(ii) Subject to the provisions of Section 1(b)(v) below,
notwithstanding anything to the contrary herein contained, the One Stop
Stockholders shall not be obligated hereunder with respect to any Damages until
such time as the Damages asserted by all Indemnified Parties in the aggregate
exceed $2,000,000 (the "Threshold"), at which time all Damages in excess of the
Threshold shall be recoverable (except as limited by the other provisions of
this Escrow Agreement);
(ii) Subject to the provisions of Section 1(b)(v) below,
notwithstanding anything to the contrary herein contained, the One Stop
Stockholders shall not be obligated hereunder with respect to any Damages to the
extent that such Damages exceed the value of the Escrow Shares. The One Stop
Stockholders shall have no right of contribution against One Stop or against
Aames or any of Aames' subsidiaries by reason or arising from any Claim asserted
by an Indemnified Party under this Agreement;
(iii) The amount of any recovery by an Indemnified Party
pursuant to this Section 1 shall be net of any insurance benefits actually
received by such Indemnified Party on or prior to the date such Claim actually
results in a distribution of Escrow Shares to such Indemnified Party pursuant to
the terms of this Escrow Agreement;
(iv) Subject to the provisions of Section 1(b)(v) below, the
obligations of the One Stop Stockholders under this Escrow Agreement shall be
satisfied solely by the distribution to the Indemnified Party of Escrow Funds
held pursuant to this Escrow Agreement. Subject to the provisions of Section
1(b)(v) below, after there are no Escrow Funds held pursuant to this Escrow
Agreement, the One Stop Stockholders shall have no further obligation under this
Escrow Agreement; and
(v) Notwithstanding anything to the contrary herein
contained, the limitations contained in this Section 1(b) shall not apply to any
Damages to the extent it arises out of fraud or intentional misrepresentation by
One Stop Stockholders.
(c) At the Closing, Aames shall deposit a number of shares
of Aames Stock to be received by the One Stop Stockholders pursuant to Section
2.1 of the Agreement (the "Indemnification Shares") in escrow with the Escrow
Agent, to be held and administered in accordance with the terms and conditions
of this Escrow Agreement, that has an aggregate
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market value of $5,000,000 based upon the Average Price of Aames Stock. Of the
Indemnification Shares, 75% shall be deposited by or for the account of NK and
25% shall be deposited by or for the account of LCPI. Fractional shares of Aames
Stock shall not be deposited in escrow. In lieu thereof, each One Stop
Stockholder shall round up such fractional share to the nearest whole number and
deposit in escrow an additional share of Aames Stock. The Indemnification Shares
shall be registered in the name of the respective One Stop Stockholders and
shall be accompanied by stock powers endorsed in blank.
2. Escrow Funds.
(a) The Escrow Agent shall hold the Indemnification Shares and
all other amounts deposited with it pursuant to Section 6 of this Escrow
Agreement in an account entitled the "Indemnification Escrow Account" (the
"Escrow Account"). The Indemnification Shares, and such other amount from time
to time held by the Escrow Agent in the Escrow Account are hereinafter referred
to as the "Escrow Funds."
(b) The Escrow Agent hereby acknowledges receipt of the
Indemnification Shares. The Escrow Agent is directed to hold, deal with and
dispose of the Escrow Funds as hereinafter set forth.
3. Charges Against Escrow Funds. In the event that, and from time to
time as, an Indemnified Party determines that it has a claim of indemnification
pursuant to Section 1(a) of this Agreement (a "Claim"), Aames shall provide a
notice to each of the One Stop Stockholders and the Escrow Agent in the form
attached as Exhibit A hereto (a "Claim Notice") of such Claim (whether
liquidated or unliquidated) against the Escrow Funds, stating the amount thereof
and a brief description of the facts upon which the Claim is based. The Claim
Notice to the Escrow Agent shall certify the date of delivery of such Claim
Notice to each of the One Stop Stockholders. Unless the Escrow Agent receives
prior notice from NK pursuant to Section 4 below, the Escrow Agent shall deliver
to the Indemnified Party out of the Escrow Account Escrow Funds having a value
equal to the amount of such Claim or Claims as specified in the Claim Notice.
Subject to the provisions of Section 4 herein, delivery of any Escrow Funds to
an Indemnified Party shall be made on the Business Day that is, or, if the 15th
calendar day is not a Business Day, immediately follows, the 15th calendar day
after delivery to the Escrow Agent of a Claim Notice (or as soon as practicable
thereafter). For all purposes under this Escrow Agreement, the Indemnification
Shares and all other amounts deposited in the Escrow Account pursuant to Section
6 of this Escrow Agreement shall be valued at a per share value equal to the
Average Price of the Aames Stock.
4. Dispute of Claim.
(a) NK shall have the right to dispute, in whole or in part, any
Claim prior to the Business Day that is, or, if the 15th calendar day is not a
Business Day,
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immediately follows the 15th calendar day following the delivery to NK of a
Claim Notice. Such dispute shall be made by delivering to the Indemnified Party
and the Escrow Agent written notice in substantially the form attached hereto as
Exhibit B (an "Objection Notice") that NK disputes, in whole or in part, the
matters set forth in the Claim Notice either with respect to the validity or the
amount of the Claim, or on the basis that the matter in question is not properly
chargeable against the Escrow Account under the terms hereof. Such Objection
Notice shall include the basis, with reasonable specificity, of NK's objection.
(b) During the thirty (30) day period following receipt of an
Objection Notice, NK and the Indemnified Party in good faith shall attempt to
reach agreement (it being understood that neither the Indemnified Party nor NK
shall be required to reach such an agreement) on an amount due (or that no
amount is due) with respect to the Damages asserted in the Claim Notice and
denied in the Objection Notice and shall provide a joint written notice to the
Escrow Agent (executed by both the Indemnified Party and NK) specifying the
amount of Escrow Funds, if any, to be disbursed to the Indemnified Party. After
its receipt of any such joint written notice, if applicable, the Escrow Agent
shall promptly cause to be transferred to the Indemnified Party the Escrowed
Funds directed to be disbursed to such Indemnified Party in such joint written
notice. If the Indemnified Party and NK do not reach such agreement within said
thirty (30) day period, then the Escrow Agent shall continue to hold in escrow,
and shall take no action with respect to, Escrow Funds having a value equal to
the Damages asserted in the Claim Notice and denied in the Objection Notice
except as provided in Section 5 hereof and except that the Escrow Agent shall
distribute such Escrow Funds to the Indemnified Party (i) upon receipt of joint
written instructions to such effect executed by both the Indemnified Party and
NK, or (ii) upon receipt of written notice executed by both the Indemnified
Party and NK that the dispute has been resolved by arbitration granting an award
of Damages to the Indemnified Party, which notice shall be accompanied by the
order of the arbitrator.
(c) In the event that NK has delivered an Objection Notice to the
Escrow Agent disputing all or a portion of a Claim asserted by an Indemnified
Party and the Indemnified Party and NK cannot within the 30 day period referred
to above agree upon their respective rights regarding the disputed Claim, then
either the Indemnified Party or NK may submit the dispute to binding arbitration
in Los Angeles, California, pursuant to the procedures and rules for commercial
arbitration of the American Arbitration Association. The Indemnified Party and
NK shall bear their respective costs and expenses of any such arbitration. The
arbitration provided hereunder shall be the exclusive means of resolving any
dispute hereunder and shall be binding on all parties.
5. Termination: Release of Escrow Funds. Subject to Section 10(d) and
(e) herein, the Escrow Agent shall distribute to the One Stop Stockholders at
the first anniversary of the Closing Date (the "Termination Date") the Escrow
Funds less the aggregate amount of such Escrow Funds (if any) which has been
distributed to the Indemnified Parties pursuant to Claim Notices and such Escrow
Funds (if any) which is then subject to a pending Claim Notice (whether or not
an Objection Notice has been given with respect thereto). Any Escrow Funds that
are not distributed to the One Stop Stockholders on the Termination Date because
it is
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subject to a pending Claim Notice as to which NK has given or, if the time for
giving such notice has not yet expired, gives, an Objection Notice shall be
distributed in accordance (i) with joint written instructions executed by both
the Indemnified Party and NK, or (ii) with written notice executed by the
Indemnified Party and NK that the dispute has been resolved by arbitration and
that the attached arbitration order or other determination should be promptly
followed by the Escrow Agent to the extent it deals with the Escrow Funds held
in the Escrow Account, or (iii) with an effective and final, nonappealable order
of a court of competent jurisdiction. All Escrow Funds distributed to the One
Stop Stockholders hereunder shall be distributed 75% to NK and 25% to LCPI.
6. Holding of Escrow Funds. The Escrow Agent shall not be entitled to
vote or exercise any rights of ownership with respect to the Escrow Funds held
by it from time to time hereunder. All dividends and other distributions (other
than cash dividends paid on the Aames Stock held as part of the Escrow Funds)
paid or made on a portion or all of the Escrow Funds (including without
limitation any stock split affecting the Aames Stock included as part of the
Escrow Funds, and any dividend or distribution declared with respect to the
Aames Stock included as part of the Escrow Funds that is paid in whole or in
part with shares of stock) shall be deemed to have been paid or made to the One
Stop Stockholders for income tax purposes, but shall be received by the Escrow
Agent and held and distributed by it in the same manner as, and shall constitute
a part of, the Escrow Funds. A stock split affecting or a dividend or
distribution declared with respect to the Aames Stock included as part of the
Escrow Funds that is paid in whole or in part with shares of stock shall not be
deemed to change the number or value of the Aames Stock included as part of the
Escrow Funds held hereunder (although any such split, dividend or distribution
shall constitute a part of the share of Aames Stock with respect to which it is
paid or relates). Unless and until such time as the Aames Stock held as part of
the Escrow Funds or a portion of them are distributed to an Indemnified Party as
provided herein, the One Stop Stockholders shall have the full right to vote
such shares. If the Escrow Agent shall receive any cash dividends paid on or
with respect to the Aames Stock included as part of the Escrow Funds, the Escrow
Agent shall distribute such cash dividends to the One Stop Stockholders promptly
following receipt thereof. All such dividends distributed to the One Stop
Stockholders hereunder shall be distributed 75% to NK and 25% to LCPI.
7. Grant of Security Interest. It is understood and agreed by the
parties hereto that the Escrow Account established pursuant to this Escrow
Agreement is intended to secure the obligations and undertakings of each of NK
and LCPI under this Escrow Agreement. Accordingly, to secure its obligations
thereunder, each of NK and LCPI hereby irrevocably grants to Aames a first
priority security interest, in and to (a) the Escrow Account, (b) all Escrow
Funds and (c) all proceeds of the foregoing, in each case to the extent that the
same are subject to the escrow established by this Escrow Agreement
(collectively, the "COLLATERAL"). Upon release of any Collateral to any party
hereto in accordance with the terms hereof, the security interest created
hereunder shall automatically terminate without further action by any party
hereto.
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8. Acknowledgment of Escrow Agent. The Escrow Agent hereby
acknowledges the security interest in the Collateral in favor of Aames. The
parties hereto shall take all actions requested by Aames as may be reasonably
necessary to perfect the security interest created under this Escrow Agreement
in the Collateral and cause it to be prior to all other security interests and
liens including, without limitation, placing appropriate restrictive legends on
the certificates evidencing the Indemnification Shares.
9. Designated Officers. Aames and NK shall from time to time provide
the Escrow Agent with a certificate which shall be signed, in the case of Aames,
by two authorized officers of Aames, and in the case of NK, by NK, which
certificate shall contain (a) the names of the person(s) who are authorized to
execute any written notice, instruction or certificate to the Escrow Agent
required or permitted by the terms of this Escrow Agreement (which, in the case
of NK shall be NK), and (b) a specimen signature(s) of such authorized person(s)
("Certificate of Designation"). The initial authorized officers of Aames and
their respective signatures, and the signature of NK, will be set forth on
Certificates of Designation of Aames and NK, delivered to the Escrow Agent on
the Closing Date. Each notice, instruction or other certificate required or
permitted by the terms hereof shall be in writing and shall be communicated to
the Escrow Agent by telecopy, the receipt of which by the Escrow Agent shall be
confirmed by telephone call from the sending party, and a confirmation copy of
which shall be sent by first class mail the same day. All notices, instructions
or other certificates from the Escrow Agent to the other parties hereto shall be
by first class mail. The Escrow Agent may conclusively rely without any inquiry
or investigation on each notice, instruction or other certificate received by it
in the manner set forth above if signed by those persons designated in each
Certificate of Designation. The addresses of the parties as set forth below may
be changed by notice to all other parties.
(i) if to Aames, to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
(ii) if to NK, to:
Neil B. Kornswiet
16105 Whitecap Lane
Huntington Beach, California 92649
(iii) if to LCPI, to:
Lehman Commercial Paper Inc.
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3 World Financial Center
New York, NY 10285
Attention:
(iv) if to the Escrow Agent, to:
Chemical Trust Company of California
50 California Street, 10th Floor
San Francisco, CA 94111
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given hereunder
by the Escrow Agent shall be effective and deemed received three (3) calendar
days after mailing by the Escrow Agent. The Escrow Agent is not obligated to
take any action with respect to any request or demand of Aames or NK, its
successor, or, if there is no such successor, its designee, unless properly
authenticated and delivered in the form required hereunder.
10. Regarding the Escrow Agent. In consideration of the acceptance by
the Escrow Agent of its duties hereunder, it is agreed by all parties hereto
that:
(a) The Escrow Agent's duties and responsibilities shall be
limited to those expressly set forth in this Escrow Agreement, and it shall not
be subject to, or obliged to recognize, any other agreement between the Parties
hereto even though reference thereto may be made herein; provided, however, that
with the Escrow Agent's written consent, this Escrow Agreement may be amended at
any time or times by an instrument in writing signed by or on behalf of Aames,
the Escrow Agent and NK. The Escrow Agent may withhold such consent only if such
amendment would adversely affect the rights or liabilities of the Escrow Agent.
(b) The Escrow Agent is authorized, in its reasonable discretion,
to disregard any and all notices or instructions given by any of the Parties
hereto or by any other person, firm or corporation, except only (i) such notices
or instructions as are herein specifically provided for, and (ii) orders or
process of any court with jurisdiction. If any property subject hereto is at any
time attached, garnished or levied upon or under any court order or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in case any order, judgment or
decree shall be made or entered by any court affecting such property or any part
thereof, then, and in any of such events, the Escrow Agent is authorized, in its
sole discretion, to rely upon and comply with any such order, writ, judgment or
decree which it is advised by legal counsel of its own choosing is binding upon
it; and if it complies with any such order, writ, judgment or decree it shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance even though such order, writ, judgment
or decree may be subsequently reversed, modified, annulled, set aside or
vacated.
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(c) The Escrow Agent shall not be personally liable for any act
taken or omitted hereunder if taken or omitted by it in good faith. In taking
any action whatsoever hereunder, the Escrow Agent shall be fully protected in
relying upon any written notice, paper, demand, certificate or other document
reasonably believed by it in good faith to be genuine, or upon any evidence
reasonably deemed by it to be sufficient. The Escrow Agent may consult with
counsel in connection with its duties hereunder and shall be fully protected in
any act taken, suffered or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent may perform any of its duties hereunder
either directly or by or through agents or attorneys. The Escrow Agent shall not
be responsible for the sufficiency or accuracy of the form, execution, validity
or genuineness of documents now or hereafter deposited hereunder, nor shall it
be responsible or liable in any respect on account of the identity, authority or
rights of the persons executing and delivering or purporting to execute or
deliver any such document. The Escrow Agent shall not be responsible for the
sufficiency of any deposit received or any portion of the Escrow Funds, and its
only duties hereunder are the express duties detailed herein, and no duties or
covenants shall be implied as to the Escrow Agent. The Escrow Agent shall not be
responsible for monitoring compliance with any of the limitations on indemnity
set forth in Section 1(b) of this Escrow Agreement, including but not limited
to, the requirements of Section 1(b)(ii) regarding the Threshold. In no event
shall the Escrow Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Escrow Agent has been advised of the likelihood of such loss or damage
and regardless of the form of action.
(d) If the Escrow Agent believes it to be reasonably necessary to
consult with counsel concerning any of its duties in connection with this Escrow
Agreement, or in case it becomes involved in litigation on account of being
Escrow Agent hereunder or on account of having received property subject hereto,
then in either case, the Escrow Agent's costs, expenses, and reasonable
attorneys' fees shall be reimbursed by Aames and the One Stop Stockholders (on a
joint and several basis).
(e) Aames shall pay the regular fees and charges of the Escrow
Agent, and shall pay in arrears, when billed by the Escrow Agent, the
transaction and out-of-pocket costs of the Escrow Agent together with any
extraordinary fees. Aames hereby agrees to indemnify and hold harmless the
Escrow Agent from and against all claims, damages and losses, including legal
and accounting fees and expenses, arising out of this Escrow Agreement, provided
that no indemnification will be made for gross negligence or willful misconduct
by the Escrow Agent; provided, further, that NK and LCPI shall jointly and
severally indemnify and hold harmless the Escrow Agent from and against all
claims, damages and losses attributable to claims or demands made by NK or LCPI
or by third parties against NK or LCPI, except that no indemnification will be
made for gross negligence or willful misconduct by the Escrow Agent.
11. Resignation, Removal, Merger or Consolidation of Escrow Agent. The
Escrow Agent may at any time resign by giving 60 days' written notice of
resignation to Aames and the One Stop Stockholders. Aames and NK may jointly at
any time remove the Escrow
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Agent by giving written notice to the Escrow Agent. If the Escrow Agent shall
resign or be removed, a successor Escrow Agent, which shall be either a bank,
trust company or other financial institution, having an office in California
satisfactory to both Aames and NK, shall be appointed by written instrument
executed and delivered by both Aames and the One Stop Stockholders to the Escrow
Agent and to such successor Escrow Agent, and upon the resignation or removal of
the predecessor Escrow Agent, the successor Escrow Agent shall, without any
further act, deed or conveyance, become vested with all the right, title and
interest to all property held hereunder, of such predecessor Escrow Agent; but
nevertheless such predecessor Escrow Agent shall, on the written request of the
NK, Aames or such successor Escrow Agent execute and deliver to such successor
Escrow Agent an instrument transferring to such successor Escrow Agent all
right, title and interest hereunder in and to the property in the Escrow Funds
and all other rights hereunder, of such predecessor Escrow Agent. If no
successor Escrow Agent has been appointed at the end of 60 days after notice of
resignation by the Escrow Agent, the Escrow Agent may file interpleader
proceedings in an appropriate court in the County of San Francisco in which
Aames and the One Stop Stockholders shall be joined as parties. Any company into
which the Escrow Agent may be merged or converted or with which it may be
consolidated or any company resulting from any merger, conversion or
consolidation to which it shall be a party or any company to which the Escrow
Agent may sell or transfer all or substantially all of its escrow business,
provided such company shall be eligible to serve as Escrow Agent hereunder,
shall be the successor hereunder to the Escrow Agent without the execution or
filing of any paper or any further act.
12. Governing Agreement; Amendments. The Escrow Agent hereby
acknowledges receipt of a copy of the Agreement, but except for reference
thereto for definitions of certain words and the terms not defined herein, the
Escrow Agent is not charged with any duty or obligation arising under the
Agreement and the responsibilities and duties of the Escrow Agent shall be
governed by this Escrow Agreement. As between the Escrow Agent, on the one hand,
and the other parties hereto, on the other hand, this Escrow Agreement
(including those sections of the Agreement referenced herein and attached
hereto) constitutes the entire agreement with respect to the subject matter
herein. As between the other parties hereto, this Escrow Agreement shall govern
to the extent of any conflict between it and the Agreement; provided, that the
Principal Stockholder and Aames agree to make such amendments herein as may be
necessary to reconcile any conflict between the terms hereof and the Agreement.
No change in, addition to, or waiver of the terms and conditions hereof shall be
binding upon any of the parties hereto unless approved in writing by the other
parties hereto.
13. Applicable Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of California.
14. Counterparts. This Escrow Agreement may be executed in one or more
counterparts, each of which is an original but all of which together shall
constitute one and the same instrument.
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15. Assignment. This Escrow Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors,
designees and legal representatives. Except as otherwise provided herein, no
assignment of any rights or delegation of any obligations provided for herein
may be made by any party without the express written consent of all other
parties hereto. The Principal Stockholder may not sell, assign or in any other
manner transfer any right to receive funds from the Escrow Account other than by
will, the laws of intestacy or nonvoluntarily by operation of law.
WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
________________________________
By: Cary H. Thompson
Its: Chief Operating Officer
________________________________
Neil B. Kornswiet
LEHMAN COMMERCIAL PAPER INC.,
a New York corporation
________________________________
By: ____________________________
Its: ___________________________
CHEMICAL TRUST COMPANY OF
CALIFORNIA,
as Escrow Agent
________________________________
By: ____________________________
Its: Authorized Officer
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EXHIBIT A
[DATE]
CLAIM NOTICE
Re: Escrow Agreement dated , 1996 (the
"Agreement") by and among Aames Financial Corporation, a Delaware
corporation ("Aames"), Neil B. Kornswiet ("NK"), Lehman
Commercial Papaer Inc., a New York corporation ("LCPI") and
Chemical Trust Company of California, a California corporation
("Escrow Agent")
You hereby are notified that Aames has determined that Aames Stock with
an Average Price of Aames Stock equal to $ [is chargeable/can be reserved]
as a Claim or Claims (as defined in Section 3 of this Escrow Agreement) against
the Escrow Funds. The basis for such Claim or Claims is/are:
[insert a paragraph stating with reasonable specificity the facts upon
which the Claim or Claims is/are based]
AAMES FINANCIAL CORPORATION
By:
[Designee as identified in Section 6]
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EXHIBIT B
[DATE]
OBJECTION NOTICE
Re: Escrow Agreement dated _______________, 1996 (the
"Agreement") by and among Aames Financial Corporation, a Delaware
corporation ("Aames"), Neil B. Kornswiet ("NK"), Lehman
Commercial Paper Inc., a New York corporation ("LCPI"), and
Chemical Trust Company of California, a California corporation
("Escrow Agent")
You hereby are notified that the One Stop Designee disputes [in part/in
its entirety] the Claim or Claims (as defined in Section 3 of this Escrow
Agreement) against the Escrow Funds set out in the Claim Notice of Aames dated
, a copy of which is attached hereto ("Aames's Claim"). This Objection Notice is
being delivered to you within the period set forth in Section 4 of the Escrow
Agreement following delivery to you of Aames's Claim. The basis for disputing
such Claim/Claims is/are:
[insert a paragraph stating with reasonable specificity the portion of
the Claim or Claims which is/are being disputed and the basis of the
objection]]
By:
Neil B. Kornswiet
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EXHIBIT C
NON-COMPETE AGREEMENT
This Non-Compete Agreement (this "Agreement") is made and entered into
as of the ___ day of August, 1996, by and between Aames Financial Corporation, a
Delaware corporation ("Aames") and Neil B. Kornswiet ("Stockholder"), with
reference to the following:
RECITALS
A. Aames, Aames Acquisition Corporation, a wholly-owned subsidiary of
Aames and a Delaware corporation ("Merger Sub"), and One Stop Mortgage, Inc., a
Wyoming corporation ("One Stop"), have entered into that certain Agreement and
Plan of Reorganization ("Merger Agreement"), dated as of August 12, 1996,
pursuant to which Merger Sub will merge into One Stop ("Merger").
B. Stockholder is a shareholder, director and officer of One Stop.
C. As an inducement to Aames and Merger Sub to enter into the Merger
Agreement, Stockholder desires to agree to refrain from competing with, using
trade secrets or soliciting customers or employees of One Stop.
D. Except as otherwise provided herein, each capitalized term shall
have the meaning given to such term in the Merger Agreement. As used in this
Agreement, the following terms shall have the meanings set forth:
"Business" shall mean the business of home equity lending.
"One Stop Enterprises" shall mean any of the businesses conducted
by One Stop whether on the date of the Merger Agreement or thereafter.
"Trade Secrets" shall mean:
(a) All secrets and other confidential information, ideas,
knowledge, know-how, techniques, secret processes, improvements, discoveries,
methods, inventions, sales, financial information, customers, customer lists,
potential customers, broker list, potential brokers, rate sheets, plans,
concepts, strategies or products, as well as all documents, reports, drawings,
designs, plans, proposals otherwise pertaining to same, with respect to Aames,
or One Stop or their respective affiliates.
(b) Notwithstanding any other provisions of this Agreement
to the contrary, "Trade Secrets" shall not include any information which is or
has become available from an independent third party whose disclosure of such
information has not breached any obligation to One Stop or Aames or any of their
subsidiaries; information which is obtained by Stockholder from a third person
who is lawfully in possession of such information and not in
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violation of any contractual, legal or fiduciary obligation to One Stop or Aames
or any of their affiliates with respect to such information; and information
readily ascertainable from public, trade or other nonconfidential sources.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto do agree as follows:
1. ACKNOWLEDGMENTS BY STOCKHOLDER. Stockholder acknowledges that by
virtue of his position with One Stop he has developed considerable expertise in
the business operations of One Stop and has access to extensive confidential
information with respect to One Stop. Stockholder recognizes that Aames and One
Stop would be irreparably damaged, and Aames' substantial investment in One Stop
materially impaired, if Stockholder were to enter into an activity competing
with the Business of either Aames, One Stop, their respective affiliates, or
their respective successors in violation of the terms of this Agreement, or if
Stockholder were to disclose or make unauthorized use of any Trade Secrets, or
if Stockholder were to solicit customers or employees of Aames, One Stop, their
respective affiliates, or their respective successors. Accordingly, Stockholder
expressly acknowledges that he is voluntarily entering into this Agreement and
that the terms and conditions of this Agreement are fair and reasonable to
Stockholder in all respects.
2. NONCOMPETITION; TRADE SECRETS; NO SOLICITATION; EXCEPTIONS.
(a) Stockholder shall not, directly or indirectly, without the
prior written consent of Aames, (i) until the fifth anniversary of the Closing
Date own, manage, operate, control, finance or participate in the ownership,
management, operation, control or financing of, or be connected as an officer,
director, employee, partner, principal, agent, representative, consultant or
otherwise with, any business or enterprise engaged in the Business within the
United States ("Territory"); (ii) until the fifth anniversary of the Closing
Date engage in any other manner, within the Territory, in the Business; or (iii)
until the sixth anniversary of the Closing Date induce or attempt to induce any
Person who is a customer, supplier, distributor, officer or employee of Aames,
One Stop, or their respective affiliates (whether on the Closing Date or
thereafter) to terminate such Person's relationships with, or to take any action
that would be disadvantageous to, Aames, One Stop, or their respective
affiliates. Notwithstanding the above, Stockholder shall not be deemed to be
engaged directly or indirectly in any business in contravention of paragraphs
(i) or (ii) above, if Stockholder participates in any such business solely as a
passive investor in up to 5% of the equity securities of a company or
partnership, provided such securities are publicly traded.
(b) Without limiting the generality of the foregoing, other than
for the benefit of Aames or One Stop, Stockholder (i) shall make no use of Trade
Secrets, or any part thereof, and (ii) shall not disclose the Trade Secrets, or
any part thereof, to any other Person, firm or corporation, and (iii) shall
deliver all documents, reports, drawings, designs, plans, proposals and other
tangible evidence of Trade Secrets now possessed or hereafter acquired by
Stockholder, to Aames.
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(c) Notwithstanding any provision of this Agreement to the
contrary, Stockholder may disclose or reveal any information, whether including
in whole or part any Trade Secrets, that:
(i) Stockholder is required to disclose or reveal under any
applicable law or regulation, provided Stockholder makes a good faith request
that the confidentiality of the Trade Secrets be preserved and, to the extent
not prohibited by applicable laws and regulations, gives Aames and One Stop
prompt advance notice of such requirement;
(ii) Stockholder is otherwise required to disclose or reveal
by any governmental entity, provided Stockholder makes a good faith request that
the confidentiality of the Trade Secrets be preserved and, to the extent not
prohibited by applicable laws and regulations, gives Aames prompt advance notice
of such requirement; or
(iii) which, in the opinion of Stockholder's counsel,
Stockholder is compelled to disclose or else stand liable for contempt or suffer
other censure or penalty imposed by any governmental entity, provided
Stockholder makes a good faith request that the confidentiality of the Trade
Secrets be preserved and, to the extent not prohibited by applicable laws and
regulations, gives Aames prompt advance notice of such requirement.
3. INDEPENDENCE OF OBLIGATIONS. The covenants of Stockholder set forth
in this Agreement shall be construed as independent of any other agreement or
arrangement between Stockholder, on the one hand, and Aames or One Stop, on the
other, or any of their subsidiaries; and the existence of any claim or cause of
action by Stockholder against One Stop or Aames or any of their subsidiaries
shall not constitute a defense to the enforcement of such covenants against
Stockholder.
4. EQUITABLE RELIEF. Stockholder expressly acknowledges that damages
alone will not be an adequate remedy for any breach by Stockholder of the
covenants set forth in Section 2 hereof and that the other parties hereto, in
addition to any other remedies which they may have, shall be entitled, as a
matter of right, to equitable relief, including specific performance, in any
court of competent jurisdiction with respect to any actual or threatened breach
by Stockholder of any of said covenants.
5. SEVERABILITY, ETC. If any provision of this Agreement shall be held
by a court of competent jurisdiction to be unreasonable as to duration, activity
or subject, it shall be deemed to extend only over the maximum duration, range
of activities or subjects as to which such provision shall be valid and
enforceable under applicable law. If any provisions shall, for any reason, be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein.
6. CONDITION PRECEDENT. It shall be a condition precedent to the
obligations of Stockholder under this Agreement that the Merger has occurred.
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7. NOTICES. Any notice or communication required or permitted
hereunder shall be deemed to have been given if in writing and (a) delivered in
person, (b) telexed, or (c) telecopied (provided that any notice given pursuant
to clauses (b) and (c) is also mailed by certified or registered mail, postage
prepaid) as follows:
If to Aames, addressed to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
With a copy addressed to:
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024
Attention: C. N. Franklin Reddick III, Esq.
If to Stockholder, addressed to:
Neil B. Kornswiet
16105 Whitecap Lane
Huntington Beach, California 92649
With a copy addressed to:
Brown & Wood LLP
One World Trade Center
58th Floor
New York, NY 10048
Attention: Jack M. Costello, Jr., Esq.
or at such other address and to the attention of such other Person as a party
may notice to the other in accordance with this Section 7.
8. WAIVER OF BREACH. Any failure or delay by Aames in enforcing any
provision of this Agreement shall not operate as a waiver thereof; and the
waiver by Aames of a breach of any provision of this Agreement by Stockholder
shall not operate or be construed as a waiver
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of any subsequent breach or violation thereof. All waivers shall be in writing
and signed by the party to be bound.
9. ASSIGNMENT. This Agreement shall be assignable by Aames only to any
Person, firm or corporation which may become a successor in interest by
purchase, merger or otherwise to Aames or acquire any of the One Stop
Enterprises or which acquires all or substantially all of the assets or
outstanding capital stock of Aames.
10. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings of the parties in
connection therewith. This Agreement may not be altered or amended except by an
agreement in writing signed by the parties to be bound.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of Aames and its successors and assigns and Stockholder and
Stockholder's heirs and legal representatives.
12. GOVERNING LAW. The Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts between California parties made and
performed in such State.
13. HEADINGS. The descriptive headings of the several Articles and
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in one 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
party hereto and delivered to each party hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
______________________________
By: Cary H. Thompson
Its: Chief Operating Officer
STOCKHOLDER
______________________________
Neil B. Kornswiet
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EXHIBIT F
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and
entered into as of the ____ day of August, 1996, by and between Aames Financial
Corporation, a Delaware corporation (the "Parent"), and Neil B. Kornswiet, an
individual ("Executive"), with reference to the following:
RECITALS
A. The Parent is a party to an Agreement and Plan of
Reorganization, dated as of August 12, 1996, by and between the Parent, One
Stop Mortgage, Inc., a Wyoming corporation (the "Company") and Aames
Acquisition Corporation, a Delaware corporation ("Merger Sub") (the
"Reorganization Agreement") pursuant to which Merger Sub will be merged with
and into the Company, resulting in the Company becoming a wholly owned
subsidiary of Parent; and
B. It is material condition to the consummation of the
transactions contemplated by the Reorganization Agreement that the parties
enter into and deliver this Agreement to one another.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and
in consideration of the parties consummating the transactions contemplated by
the Reorganization Agreement and the mutual representations, warranties,
covenants and agreements contained herein, the parties hereto to agree as
follows:
1. EMPLOYMENT AND DUTIES. The Parent hereby employs
Executive to serve as Chief Executive Officer and President and Chairman of the
Board of the Company, and effective September 3, 1996, as Executive Vice
President of the Parent, with the powers and duties customarily accorded to
such positions, including those powers and duties set forth in the respective
Bylaws of the Parent and Company for such office and such other duties
consistent therewith as may be assigned to Executive from time to time by the
Chief Executive Officer of the Parent. Executive shall report to the Chief
Executive Officer of the Parent. Executive shall devote his entire business
time and attention to his duties hereunder and shall endeavor in good faith to
perform his duties in an efficient, faithful and business-like manner. During
the term of his employment, it is intended that Executive also serve as a
Director on the Board of Directors of the Company (the "Company Board") and a
Director on the Board of Directors of Parent (the "Parent Board"), and the
Parent will take action within its powers to include Executive among the slate
of directors proposed to be nominated by the Parent Board at any applicable
stockholders meeting.
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2. TERM. The initial term of this Agreement shall begin
on the date hereof and shall expire on the fifth anniversary of the date
hereof unless terminated earlier as set forth in Section 6 hereof or by mutual
agreement of the parties hereto (the "Initial Term"). At the expiration of the
Initial Term and each anniversary thereafter, the term of this Agreement shall
automatically be extended for an additional year (the "Extension Term") unless
either party shall have given written notice to the other party at least ninety
days prior to the end of the Initial Term or the Extension Term, as the case
may be, that it does not desire to extend the term of this Agreement. If
Executive's employment under this Agreement is extended for an Extension Term,
it shall thereafter or during any Extension Term be terminable (other than upon
expiration) only as provided in Section 6 or by mutual agreement of the parties
hereto.
3. COMPENSATION.
(a) Base Salary. During the term of this
Agreement, Executive shall be paid a base salary (the "Base Salary"), payable
in accordance with the Parent's normal payroll practices in the amount of
$750,000 per year. The amount of the Base Salary payable to Executive shall
be reviewed at least annually; provided, however, that Executive's Base Salary
shall not be reduced below $750,000 per annum during the term of this
Agreement.
(b) Performance Bonus.
i) In addition to Base Salary to be
paid to Executive hereunder, the Parent shall pay to Executive a bonus (the
"Performance Bonus") equal to 7.5 percent of the Company's Adjusted Pre-Tax
Income for each fiscal year or portion thereof during the term of Executive's
employment hereunder.
ii) The Performance Bonus for each
fiscal year shall be paid in four quarterly payments (the "Quarterly Payments")
as set forth in clauses iii) and iv) below.
iii) Within forty-five days following the
end of the first three fiscal quarters during any fiscal year which includes
any portion of the employment term hereunder, the Company shall deliver to
Executive a statement setting forth the amount of the Company's Adjusted
Pre-Tax Income for such quarter and for the period from the beginning of the
fiscal year (or, in the case of fiscal 1997, the date of the commencement of
Executive's employment hereunder) through the most recent fiscal quarter (the
"Measurement Period"), certified by the Chief Financial Officer of Parent,
accompanied by a cash payment in the amount by which (x) 7.5% of the Company's
Adjusted Pre-Tax Income for the Measurement Period, exceeds (y) the sum of the
Quarterly Payments previously paid to Executive with respect to such fiscal
year.
iv) Within 90 days following the end of the
fourth quarter of any fiscal year which includes any portion of the employment
term hereunder, the Company shall
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deliver to Executive a reasonably detailed calculation of the Company's
Adjusted Pre-Tax Income for such fiscal year and the Performance Bonus payable
hereunder for such fiscal year, prepared by the Parent's outside accounting
firm. If the amount of the Performance Bonus for such fiscal year, exceeds the
sum of the Quarterly Payments made to Executive with respect to such fiscal
year, such calculation shall be accompanied by a cash payment in the amount of
the difference between the Performance Bonus payable with respect to such
fiscal year and the sum of the Quarterly Payments previously paid to Executive
with respect to such fiscal year. If the sum of the Quarterly Payments
previously paid to Executive with respect to such fiscal year exceed the amount
of the Performance Bonus, then Executive shall, within 15 days of receipt of
such calculation, pay such difference to the Company.
v) If the employment term of Executive
hereunder commences or ends during any of the Company's fiscal quarters or
years, the applicable Performance Bonus and Quarterly Payment computed
hereunder with respect to such fiscal period shall be prorated based upon the
actual number of days during such fiscal period included in the employment term
of Executive hereunder; provided however, that the Performance Bonus for the
fiscal quarter commencing July 1, 1996 shall not be prorated and shall be paid
as if Executive had commenced employment pursuant to this Agreement on July 1,
1996.
vi) For purposes of this Agreement, the
Company shall adopt a fiscal year commencing on July 1 and ending on June 30.
(c) Adjusted Pre-Tax Income. For purposes of
this Agreement, Adjusted Pre-tax Income shall mean the income of the Company
computed on an accrual basis in accordance with generally accepted accounting
principles as previously consistently applied by Parent (GAAP), before federal,
state and local income taxes; provided that, in determining Adjusted Pre-Tax
Income, the following adjustments and exceptions shall apply to the application
of GAAP (even if required by "push down" or similar accounting rules under
GAAP) and whether or not recorded on the financial statements of the Company:
i) Revenues shall include only revenues
(i) of the Company derived from the origination, purchase, sale or servicing of
mortgage loans in the ordinary course of the Company's business, (ii) revenues
of the Parent (net of all expenses) derived from the servicing of mortgage
loans originated by the Company (for purposes of this subsection (c)i)(ii)
revenues shall include, without limitation, all loan interest income net of
related carying costs), (iii) revenues received by the Parent (net of
commissions paid by the Parent) with respect to the refinancing of any mortgage
loan originated by the Company, and (iv) revenues received by Parent (net of
commissions paid by the Parent) with respect to credit life, disability and
other ancillary products sold in connection with the Company's origination of
mortgage loans;
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ii) Any equity based benefits to the
employees, directors or agents of the Company, such as profit interests or
appreciation rights, shall be excluded from Adjusted Pre-Tax Income;
iii) The legal, accounting and other
professional fees and expenses (whether incurred before or after the
consummation of the merger) and all other costs associated with negotiating,
entering and closing the Lehman Financing and Warrant Transactions,
Reorganization Agreement and the other agreements entered into in connection
therewith incurred by the Company, Parent or Merger Sub, or their respective
affiliates, shall be excluded from the computation of Adjusted Pre-Tax Income;
iv) All transactions between the
Company and the Parent or any of the affiliates of Parent shall be entered into
only on an arms-length basis, consistent with the past practices of Parent;
v) Charges from Parent (or its
affiliates) for outside legal and accounting services relating to the
operations of the Company, shall be based on the actual out-of-pocket costs
charged by such third party professionals;
vi) There shall be established an
intercompany account between Parent and the Company. All transfers of cash
between the two companies shall be accounted for in the intercompany account as
a loan from one company to the other and not as an equity contribution or
dividend payment to the extent the cash so transferred was raised by Parent
through the issuance of debt securities or under any credit or other financing
facilities now or hereafter made available to Parent. Adjusted Pre-Tax Income
shall reflect an interest expense on the amount owing to Parent in the
intercompany account computed using the weighted average interest rate payable
by Parent during the relevant period on Parent's outstanding debt.
vii) All costs, fees and expenses
incurred by the Company with respect to any loss which the Executive or other
stockholders of the Company actually indemnify the Company, pursuant to the
Reorganization Agreement, or which are covered by insurance (but only to the
extent of the indemnification or insurance payments actually made to the
Company), shall be excluded from the calculation of Adjusted Pre-Tax Income;
viii) All costs, fees and expenses
incurred by the Parent with respect to any department or division that provides
administrative services or support to both the Parent and the Company shall be
allocated among the Parent and the Company pro rata based upon total loan
originations and, if not included in the calculation of total loan
originations, loan purchases of the Parent (and its subsidiaries) and the
Company during the relevant period; and
ix) The proceeds or other amounts
received, if any, by the Company from life or other key man insurance on
Executive shall not be included in income or otherwise considered in any way in
computing Adjusted Pre-tax Income.
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(d) Stock Bonus. Executive shall be eligible to
receive stock options under the Parent's stock option plans with annual awards
to be determined by the Compensation Committee of the Parent Board. All
options granted to Executive by the Parent in connection with the Executive's
employment are hereinafter referred to collectively as the "Options."
4. OTHER EXECUTIVE BENEFITS. During the term of this
Agreement, the Parent shall provide to Executive benefits commensurate with his
position, including each of the following benefits:
(a) Medical and Dental Coverage. The Parent
agrees to provide coverage to Executive and dependent members of his family
under the same medical and dental plans as may be maintained from time to time
in the discretion of the Parent Board for the benefit of the Chief Executive
Officer of Parent (the "CEO") and the dependent members of his family.
(b) Vacation. Executive shall be entitled to
four (4) weeks of paid vacation during Executive's first year of employment
with the Parent and shall be entitled to five (5) weeks during each year of
employment with the Parent thereafter 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.
(c) Business Expenses. The Parent will pay or
reimburse Executive for any out-of-pocket expenses incurred by Executive in the
course of providing his services hereunder, which comply with Parent's travel
and expense policies adopted from time to time by the Parent Board for the CEO.
Such reimbursement shall be made by the Parent in the same manner and within
the same time period as applicable to the other executive officers of the
Parent.
(d) Automobile. The Parent shall provide
Executive with the use of a luxury automobile that is selected by Executive.
On the earlier of significant damage or destruction or attaining three years of
age, the Company shall replace such automobile with a new automobile selected
by Executive. The Company shall pay all costs of insurance, repair,
maintenance and operation of such automobile.
(e) Benefit Plans. Executive shall be entitled
to participate in any pension, profit-sharing, stock option, stock purchase or
other benefit plan of the Parent and the Company now existing or hereafter
adopted for the benefit of employees generally or the senior executives of the
Parent and the Company.
(f) Life Insurance. Provided the following
policies may be obtained at a reasonable cost, the Parent shall provide
Executive with a $1,000,000 standard term life insurance policy and a
$1,000,000 standard term accidental death policy.
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(g) Disability. Provided the following policy
may be obtained at a reasonable cost, the Parent shall provide Executive with a
long-term disability policy which provides for an annual disability payment in
an amount equal to 125% of Executive's Base Salary.
5. CONFIDENTIAL INFORMATION.
(a) Non-Disclosure. Executive hereby agrees,
during the term of this Agreement, he will not disclose to any person or
otherwise use or exploit any proprietary or confidential information,
including, without limitation, trade secrets, processes, records of research,
proposals, reports, methods, processes, techniques, computer software or
programming, or budgets or other financial information, regarding the Company,
the Parent or any of their respective subsidiaries or any of their respective
businesses, properties, customers or affairs (collectively, "Confidential
Information") obtained by him at any time during the term, except to the extent
required by Executive's performance of his assigned duties. Notwithstanding
anything herein to the contrary, the term "Confidential Information" shall not
include information which (i) is or becomes generally available to the public
other than as a result of disclosure by Executive in violation of this
Agreement, (ii) is or becomes available to Executive on a non-confidential
basis from a source other than the Company, the Parent or any of their
respective subsidiaries, provided that such source is not known by Executive to
be furnishing such information in violation of a confidentiality agreement with
or other obligation of secrecy to the Company, the Parent or any of their
respective subsidiaries, (iii) has been made available, or is made available,
on an unrestricted basis to a third party by the Company, by an individual
authorized to do so or (iv) is known by Executive prior to its disclosure to
Executive. Executive may use and disclose Confidential Information to the
extent necessary to assert any right or defend against any claim arising under
this Agreement or pertaining to Confidential Information or its use, to the
extent necessary to comply with any applicable statute, constitution, treaty,
rule, regulation, ordinance or order, whether of the United States, any state
thereof, or any other jurisdiction applicable to Executive, or if Executive
receives a request to disclose all or any part of the information contained in
the Confidential Information under the terms of a subpoena, order, civil
investigative demand or similar process issued by a court of competent
jurisdiction or by a governmental body or agency, whether of the United States
or any state thereof, or any other jurisdiction applicable to Executive.
(b) Injunctive Relief. Executive agrees that the
remedy at law for any breach by him of the covenants and agreements set forth
in this Section 5 may be inadequate and that in the event of any such breach,
the Company, the Parent or their 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 the
breach of such covenants and agreements.
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6. TERMINATION.
(a) Termination by Parent for "Cause or
Voluntarily by Executive. The Parent may terminate this Agreement for "Cause"
effective immediately upon written notice thereof to Executive. For purposes
of this Agreement, "Cause" shall mean and be limited to the following events:
(i) an act of fraud, embezzlement or similar conduct by Executive involving the
Company, the Parent or any of their respective subsidiaries; (ii) any action by
Executive involving the arrest of Executive for violation of any criminal
statute constituting a felony if the Board reasonably determines that the
continuation of Executive's employment after such event would have an adverse
impact on the operations or reputation of the Company, the Parent or any of
their respective subsidiaries in the financial community; or (iii) a
continuing, repeated willful failure or refusal by Executive to perform his
duties; provided, however, that this Agreement may not be terminated under this
subclause (iii) unless Executive shall have first received written notice from
the Board advising Executive of the specific acts or omissions alleged to
constitute a failure or refusal to perform and such failure or refusal to
perform continues after Executive shall have had a reasonable opportunity to
correct the acts or omissions cited in such notice.
In the event of termination for "Cause" or voluntarily by
Executive other than as permitted in Sections 6(b)(i) and (ii) and 6(c), (x)
Executive shall be entitled to receive that portion of the Base Salary and all
benefits accrued through the date of termination and (y) all Options that have
become exercisable as of the date of termination shall remain so for a period
of 90 days.
(b) Termination by Parent Other Than for "Cause."
i) Death. Provided that notice of
termination has not previously been given under any Section hereof, if
Executive shall die during the term of this Agreement, this Agreement
and all of the Parent's obligations hereunder shall terminate, except
that Executive's estate or designated beneficiaries shall be entitled
to receive (A) all earned and unpaid Base Salary through the date of
termination; (B) the Base Salary and Performance Bonus and all
benefits with respect to the then current contract year which would
have been payable or provided to Executive had the term ended two
years following the last day of the month in which Executive's death
occurred; and (C) all other benefits that may be due to Executive or
Executive's estate or beneficiaries under the general provisions of
any benefit plan, stock incentive plan or other plan in which
Executive is then a participant, which benefits shall continue to be
provided for a period of two years following the date of death. In
addition, all Options that have become exercisable as of the date of
death shall remain so for a period of twelve (12) months.
ii) Disability. Provided that notice of
termination has not previously been given under any Section hereof, if
Executive becomes ill or is injured or disabled during the term such
that Executive fails to perform all or substantially all of the
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duties to be rendered hereunder and such failure continues for a
period in excess of 26 consecutive weeks (a "Disability"), the Parent
shall continue to employ Executive under this Agreement for two years
from the date of the Disability (which two year period shall commence
at the beginning of the 26 week period referred to herein) and shall
continue to pay Executive the Base Salary in effect on the date of the
Disability (determined at the beginning of the 26 week period referred
to herein), the Performance Bonus and all benefits then in effect;
provided, that (A) the Parent may relieve Executive of his duties and
responsibilities hereunder to the extent permitted by law and (B) any
long-term disability payments received by Executive under any
disability insurance plan made available to Executive by the Parent if
the premiums were paid by the Parent shall be deducted from the salary
and bonus payments otherwise required to be paid to Executive
hereunder. If during the term and subsequent to the Disability
commencement date (which shall be at any time following the end of the
26 week period referred to herein) Executive shall fully recover, the
Parent shall have the right (exercisable within 60 days after receipt
of notice from Executive of such recovery), but not the obligation, to
restore Executive to full-time service at full compensation. If the
Parent elects not to restore Executive to full-time service, Executive
shall be entitled to obtain other employment. If Executive is not
restored to full-time employment with the Parent, all Options that
have become exercisable as of the date of Disability (determined at
the end of the 26 week period referred to herein) shall remain so for
a period of 12 months.
iii) Without Cause. If the Parent elects
to terminate Executive for any reason whatsoever other than as
provided in Section 6(a) or if the Parent causes a Defacto Termination
of Executive (as defined below) (each, a "Severance Termination"),
Executive shall receive the "Separation Package." As used herein, the
"Separation Package" shall consist of (x) Base Salary for the
Severance Period (at the annual rate in effect at the date of the
Severance Termination), plus (y) an amount equal to the Performance
Bonus actually paid to Executive with respect to the period prior to
the date of the Severance Termination equal to the Severance Period
(or if Executive has been employed for a term less than the Severance
Period, the amount of Performance Bonus paid to Executive for the
entire period of employment multiplied by a fraction, the numerator of
which is the number of days in the Severance Period and the
denominator of which is the actual number of days for which Executive
was employed by the Parent), and (z) an amount, if any, necessary to
reimburse Executive on a net after tax basis for any applicable
federal excise tax. In addition, all Options which are scheduled to
vest following the date of the Severance Termination shall vest as of
such date. Further, all Options which have become exercisable as of
the date of the Severance Termination (including those which do so as
a result of the provisions of the preceding sentence) shall remain so
for a period of 12 months. In the event of a Severance Termination,
Executive will also be provided with reasonable office space and
secretarial support as well as the same mailing address and telephone
number which Executive had during the term for up to six months, and
the Parent shall pay the costs of out placement services with a
provider
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of its choice at a level appropriate to Executive's title and position
as requested by Executive. For purposes of this paragraph, the
"Severance Period" shall be the longer of (x) three years, and (y) the
remaining portion of the Initial Term of Executive's employment
hereunder. For purposes of this paragraph, a "Defacto Termination"
shall include any of the following events: (i) the Parent shall fail
to pay or shall reduce the Base Salary, Performance Bonus or other
benefits provided herein, except as permitted hereunder, or shall
otherwise breach any material provision hereof which breach is not
cured within 10 days after receipt of notice thereof from Executive;
(ii) the Parent shall fail to cause Executive to remain the Executive
Vice President of the Parent and Chief Executive Officer and President
and Chairman of the Board of the Company; (iii) Executive shall not be
continuously afforded the authority, powers, responsibilities and
privileges contemplated in Section 1 above (whether or not accompanied
by a change in title); (iv) the Parent shall require Executive's
primary services to be rendered in an area other than the Company's
principal offices in Orange County; or (v) after a Change in Control
(as defined below), the Parent increases the base salary for senior
executives of the Parent generally without similarly increasing the
Base Salary of Executive. For purposes of clause (iii), Executive
shall be deemed not to have been continuously afforded the authority,
powers, responsibilities and privileges contemplated in Section 1
above if there shall occur any reduction in the scope, level or nature
of Executive's employment hereunder, or any demotion, any phasing out
or assignment to others, of the duties contemplated herein.
(c) Change in Control.
i) Following a Change in Control, this
Agreement shall continue to be binding upon the Company and Executive shall be
entitled to the payments provided for in this Section 6 in the event of
termination resulting from death, disability, cause, or a Separation
Termination, all as provided for in Section 6(a) and 6(b).
ii) Executive may (but shall not be
obligated to) terminate this Agreement effective 30 days after the giving of
such notice given at any time within two years following a Change in Control.
In the event that Executive elects to terminate this Agreement pursuant to this
Section 6(c)(ii), Executive shall be entitled to the following payments:
(A) If the Change in Control is
effected to an Adverse Person (as defined below), then Executive shall be
entitled to and receive the Severance Package. In addition, all Options then
held by Executive which are not yet vested shall vest as of the date of such
termination. Further, all Options that have become exercisable as of the date
of such termination (including those which do so as a result of the provisions
of the preceding sentence) shall remain so for the entire remaining term of the
Options.
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(B) If the Change in Control is
effected to a person other than an Adverse Person, Executive shall be entitled
to receive the Severance Package. In addition, all Options which are scheduled
to vest during the 12 months following the termination date shall vest as of
the date of such termination. Further, all Options that have become
exercisable as of the date of such termination (including those which do so as
a result of the provisions of the preceding sentence) shall remain so for a
period of 12 months.
(d) Payment of Termination Amounts. Executive
may elect to have all amounts to be paid to Executive pursuant to this Section
6 payable (i) over the remaining term of this Agreement or for such shorter
period as expressly provided for herein, as applicable, or (ii) in a lump sum
within 30 days following termination; provided, however, in the case of death
or disability, the Performance Bonus shall be payable at such time as
performance-based bonuses are paid to similarly situated employees of the
Parent. In the event Executive elects to be paid pursuant to clause (i),
Executive agrees promptly to notify the Parent in writing of Executive's
acceptance of full-time employment; within 15 days after receipt of such
notice, the Parent shall pay Executive in a lump sum any amounts which remain
otherwise due to Executive hereunder.
(e) Stock and Similar Rights. Except with regard
to the vesting and exercise dates of Options as set forth in this Section 6,
Executive's rights under any other agreement or plan under which stock options,
restricted stock or similar awards are granted shall be determined in
accordance with the terms and provisions of such plans or agreements.
(f) No Mitigation. Payment of any sum under this
Section 6 shall not be subject to any claim of mitigation.
(g) Other Insurance Policies. Upon any
termination of Executive's employment, and upon reimbursement of the Company of
all amounts paid by the Company in connection with such policies, Executive
shall have the right to purchase or otherwise direct the disposition or
assignment of any disability insurance policy on him held by the Company
(excluding only group disability insurance policies) upon the payment of One
Dollar ($1.00) as the total consideration for each such policy.
(h) Officer and Director Positions. Executive
agrees that if this Agreement is terminated for any reason, he shall
immediately resign from all officer and director positions he then holds with
the Company, the Parent, or any of their respective subsidiaries.
7. CHANGE IN CONTROL. For purposes of this Agreement, a
"Change in Control" shall mean the occurrence of any of the following events
which occur after the date of the Original Agreement:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934) (a "Person") of
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beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act ("Rule 13d-3")) of more than 50% of the combined voting power of
the then outstanding voting securities of the Company or of 20% or more of the
combined voting power of the then outstanding securities of the Parent entitled
to vote generally in the election of directors (the "Outstanding Voting
Securities of Parent"); provided, however, that neither of the following
acquisitions shall constitute a Change in Control; (i) any acquisition by the
Company, the Parent or their respective subsidiaries or (ii) any acquisition by
any employee benefit plan (or related trust) sponsored or maintained by the
Company, the Parent or their respective subsidiaries or any corporation
controlled by the Company, Parent or any of their respective subsidiaries; or
(b) Individuals who, as of the date hereof
constitute the Parent Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date of the Original Agreement
whose election, or nomination for election by the stockholders of the Company,
shall be approved by a vote of a least a majority of the directors then
compromising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board; or
(c) Approval by the stockholders of the Parent of
a reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation: (i) more than 60% of the combined
voting power of the then outstanding voting securities of the corporation
resulting from such reorganization, merger, or consolidation, which may be the
Parent or any of its subsidiaries (the "Resulting Corporation") entitled to
vote generally in the election of directors (the "Resulting Corporation Voting
Securities") shall then be owned beneficially, directly or indirectly, by all
or substantially all of the Persons who were the beneficial owners of
Outstanding Voting Securities immediately prior to such reorganization, merger
or consolidation, in substantially the same proportions as their respective
ownerships of Outstanding Voting Securities immediately prior to such
reorganization, merger, or consolidation; (ii) no Person (excluding the
Company, the Parent or any of their respective subsidiaries or any employee
benefit plan (or related trust) sponsored by any of them, the Resulting
Corporation, and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or more of
the combined voting power of Outstanding Voting Securities) shall own
beneficially, directly or indirectly 20% or more of the combined voting power
of the Resulting Corporation Voting Securities; and (iii) at least a majority
of the members of the Board shall have been members of the Incumbent Board at
the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the stockholders of the Parent of
(i) a complete liquidation or dissolution of the Parent or (ii) the sale or
other disposition of all or substantially all of the assets of the Company or
Parent, other than to a corporation (the "Buyer") with respect to which (x)
following such sale or other disposition, more than 60% of the combined voting
power of securities of Buyer entitled to vote generally in the election of
directors ("Buyer Voting Securities"), shall be owned beneficially, directly or
indirectly, by Parent, any of its subsidiaries,
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any employee benefit plan sponsored by the Company, the Parent or any their
respective subsidiaries or by all or substantially all of the Persons who were
the beneficial owners of the Outstanding Voting Securities immediately prior to
such sale or other disposition, in substantially the same proportion as their
respective ownership of Outstanding Voting Securities, immediately prior to
such sale or other disposition; (y) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or Buyer and any Person
that shall immediately prior to such sale or other disposition own
beneficially, directly or indirectly, 20% or more of the combined voting power
of Outstanding Voting Securities), shall own beneficially, directly or
indirectly, 20% or more of the combined voting power or, Buyer Voting
Securities; and (z) at least a majority of the members of the board of
directors of Buyer shall have been members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board providing for
such sale or other disposition or assets of the Company.
For purposes of this Agreement, an Adverse Person shall mean
any person which acquires control of the Parent in a transaction involving a
Change in Control other than a transaction which, before the time of the
transaction, has been approved by the Board of Directors of the Parent.
8. INSURANCE. During the term, the Parent shall maintain, at no
cost to Executive, officers and directors liability insurance that would cover
Executive in an amount of no less than $45,000,000.
9. GENERAL PROVISIONS.
(a) Notices. All notices, requirements,
requests, demands, claims or other communications hereunder shall be in
writing. Any notice, requirement, request, demand, claim or other
communication hereunder shall be deemed duly given (i) if personally delivered,
when so delivered, (ii) if mailed, two (2) business days after having been set
by registered or certified mail, return-receipt requested, postage prepaid and
addressed to the intended recipient as set forth below, (iii) if given by
telecopier, once such notice or other communication is transmitted to the
telecopier number specified below, and the appropriate telephonic confirmation
is received, provided that such notice or other communication is promptly
thereafter mailed in accordance with the provisions of clause (ii) above or
(iv) if sent through an overnight delivery service under circumstances by which
such service guarantees next day delivery, the date following the date so sent:
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If to the Company, to:
Aames Financial Corporation
3731 Wilshire Boulevard
Los Angeles, California 90010
Attention: Barbara S. Polsky, Esq.
Senior Vice President
and General Counsel
If to Executive, to:
Neil B. Kornswiet
16105 Whitecap Lane
Huntington Beach, California 92649
Any party may change the address to which notices, requests, demands, claims
and other communications hereunder are to be delivered by giving the other
party notice in the manner herein set forth.
(b) Assignment. This Agreement and the benefits
hereunder are personal to the Parent and the Company and are not assignable or
transferable, nor may be the services to be performed hereunder be assigned by
the Parent and the Company to any person, firm or corporation; provided
however, that this Agreement and the benefits hereunder may be assigned by the
Parent and the Company to any corporation into which the Parent and the Company
may be merged or consolidated, and this Agreement and the benefits hereunder
will automatically be deemed assigned to any such corporation, subject,
however, to Executive's right to terminate this Agreement to the extent
provided in Section 6. In the event of any assignment of this Agreement to any
corporation acquiring all or substantially all of the assets of the Parent or
the Company or to any other corporation into which the Parent or the Company
may be merged or consolidated, the responsibilities and duties assigned to
Executive by such successor corporation shall be the responsibilities and
duties of, and compatible with the status of, a senior executive officer of
such successor corporation. The Parent or the Company may delegate any of its
obligations hereunder to any subsidiary of the Company, provided that such
delegation shall not relieve the Parent or the Company of any of its
obligations hereunder. Executive may not assign its rights hereunder or
delegate his duties hereunder to any Person.
(c) Complete Agreement. This Agreement contains
the entire agreement among the parties hereto with respect to the subject
matter hereof and supersedes and cancels any and all previous written or oral
negotiations, commitments, understandings, agreements and any other writings or
communications in respect of such subject matter.
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(d) Amendments. This Agreement may be modified,
amended, superseded or terminated only by a writing duly signed by both
parties.
(e) Severability. Any provision of this
Agreement which is invalid, illegal or unenforceable in any jurisdiction shall,
as to that jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the remaining
provisions hereof in such jurisdiction or rendering that or any other provision
of this Agreement invalid, illegal or unenforceable in any other jurisdiction.
(f) No Waiver. Any waiver by either party of a
breach of any provisions of this Agreement shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Agreement. The failure of either party to insist upon
strict adherence to any term of this Agreement on one or more occasions shall
be considered a waiver or to deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
(g) Binding Effect. This Agreement shall be
binding on, and shall inure to the benefit of, the parties hereto and their
permitted assigns, successors and legal representatives.
(h) Counterparts. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which when taken together shall
constitute one and the same document.
(i) Governing Law. This Agreement has been
negotiated and entered into in the State of California and shall be construed
in accordance with the laws of the State of California.
(j) Arbitration. The parties hereby expressly
agree that any controversy or claim relating to this Agreement, including the
construction, enforcement or application of the terms hereof, shall be
submitted to arbitration in Los Angeles, California by the American Arbitration
Association in accordance with the Commercial Arbitration Rules of such
association. The arbitrator shall be a retired judge of the Los Angeles
Superior Court or other party acceptable to the parties and the rules of
evidence shall apply. The costs of the arbitrator shall be borne equally.
Each party shall be responsible for its own attorneys' fees and costs.
However, the arbitrator shall have the right to award costs and expenses
(including actual attorneys' fees) to the prevailing party as well as equitable
relief. The award of the arbitrator shall be final and binding and shall be
enforceable in any court of competent jurisdiction. Nothing in this paragraph
shall preclude the parties from seeking an injunction or other equitable relief
from a court of competent jurisdiction under appropriate circumstances.
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(k) Headings. The headings included in this
Agreement are for the convenience of the parties only and shall not affect the
construction or interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
_______________________________________
By: Cary H. Thompson
Its: Chief Operating Officer
EXECUTIVE
_______________________________________
Neil B. Kornswiet
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EXHIBIT J
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is made and entered into as
of the ___ day of August, 1996, by and among Lehman Brothers Holdings Inc., a
Delaware corporation ("LB"), Lehman Commercial Paper, Inc., a New York
corporation ("LCPI"), One Stop Mortgage, Inc., a Wyoming corporation ("One
Stop") and Aames Financial Corporation, a Delaware corporation ("Aames"), with
reference to the following:
RECITALS
A. One Stop is a party to that certain Amended and Restated Warehouse
and Security Agreement (the "Warehouse Loan"), Working Capital Loan Agreement
(the "Working Capital Loan") and Standby Financing Agreement (the "Standby
Loan") with LB and LCPI (collectively, the "Credit Facilities").
B. In consideration of LB's entry into the Credit Facilities, One Stop
issued to LB a warrant (the "Warrant") to purchase shares of Common Stock of One
Stop.
C. On August 12, 1996, One Stop and Aames, among others, entered into
that certain Agreement and Plan of Reorganization pursuant to which a wholly
owned subsidiary of Aames will merge (the "Merger") with and into One Stop and
all of the equity securities of One Stop, including the Warrant, shall be
exchanged for equity securities of Aames.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto do agree as follows:
1. ACKNOWLEDGEMENT OF SATISFACTION OF WARRANT OBLIGATIONS. LCPI hereby
acknowledges receipt of 675,000 shares of Aames Common Stock (the "Warrant
Shares") in full satisfaction of all of One Stop's obligations to LB and LCPI
under the Warrant. LB and LCPI further acknowledge that other than the Warrant
Shares, it has no interest in, or right to acquire or otherwise receive an
interest in, any security of One Stop or Aames.
2. ACKNOWLEDGEMENT OF TERMINATION OF CREDIT FACILITIES. LB and LCPI
hereby acknowledge receipt of written notice from One Stop requesting the
termination of the Credit Facilities, which notice is effective with respect to
the Working Capital Loan and the Standby Loan as of September 6, 1996 and
effective with respect to the Warehouse Loan on such date as Aames elects to
terminate the Warehouse Loan (but in no event later than
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September 27, 1996). LB and LCPI hereby acknowledge that upon repayment of all
loans extended under the Credit Facilities and any accrued and unpaid interest
thereon, the Credit Facilities shall terminate without further cost or
obligation.
3. NO COMPLAINTS, CHARGES OR LAWSUITS. LB and LCPI hereby warrant and
represent that neither they, nor either of them, has filed nor authorized the
filing of any complaints, charges or lawsuits against One Stop and/or Aames
regarding the Credit Facilities with any governmental agency or court, and that
if, unbeknownst to LB and/or LCPI, such a complaint, charge or lawsuit has been
filed on either or both of their behalf, they will immediately cause it to be
withdrawn and dismissed with prejudice.
4. RELEASE.
(a) Subject to the receipt of the Warrant Shares and the
termination of the Credit Facilities as contemplated by Sections 1 and 2 of this
Agreement, each of LB and LCPI, for itself and each of its respective
affiliates, hereby and forever generally releases, relieves, absolves and
discharges One Stop and Aames, and each of their respective affiliates, together
with their respective agents, assigns, attorneys, employees, directors,
officers, representatives, stockholders and successors, as applicable, from any
and all actions, causes of action, obligations, promises, agreements, debts,
costs, damages, losses, claims, liabilities, attorneys' fees, rights, suits and
demands of whatever character (whether known or unknown, suspected or
unsuspected, now existing or arising in the future) based on, arising out of, or
otherwise related to (i) the relationship between LB and LCPI on the one hand
and One Stop on the other hand, (ii) the Credit Facilities and/or (iii) the
Warrant.
(b) With regard to any claims which may exist or arise out of the
matters which are subject to the releases contained in this Section 3
(collectively the "Released Matters") (whether known or unknown, suspected or
unsuspected, now existing or arising in the future), the LB and LCPI, and each
of them, expressly waive any and all rights under Section 1542 of the Civil Code
of the State of California which provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
LB and LCPI expressly waive and release any right or benefit which
they have or may have under any similar law or rule of any other jurisdiction
pertaining to the Released Matters. It is the intention of each party, through
this Agreement, and with the advice of counsel, fully, finally, and forever to
settle and release all such matters and claims relative thereto which have
existed, do now exist or may exist between the parties arising out of or related
to the Released Matters. In furtherance of such intention, the release herein
given shall be, and remain in effect as, a full and complete release of such
matters notwithstanding the discovery of the existence of any additional claims
or facts relating thereto.
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(c) Notwithstanding the provisions of this Section 4, following
the Merger, Aames confirms that LCPI shall be entitled to exercise its rights
under Sections 9.5 and 9.6 of the Warrant with respect to the Warrant Shares, in
accordance with the terms and provisions thereof applicable mutatis mutandis to
the Warrant Shares.
5. PREDECESSORS, SUCCESSORS, ASSIGNS AND BENEFICIARIES. This Agreement
shall inure to the benefit of and shall bind the predecessors, successors,
assigns, representatives, beneficiaries and attorneys of the LP, LCPI, One Stop
and Aames, and each of them. This Agreement is intended to and does release and
inure to the benefit of One Stop and Aames and their affiliated corporations and
other related business entities including, without limitation, parent
corporations, subsidiaries, divisions, agents, attorneys, employees, directors,
officers, representatives and stockholders, individually as well as in the
capacity indicated.
6. INTEGRATION. This Agreement constitutes a single, integrated
contract expressing the entire agreement of the parties hereto relative to the
subject matter hereof. No covenants, agreements, representations or warranties
of any kind whatsoever have been made by any party hereto, except as
specifically set forth in this Agreement. All prior discussions and negotiations
have been and are merged and integrated into, and are superseded by, this
Agreement. This Agreement may be amended or modified only by a writing signed by
LP, LCPI, One Stop and Aames.
7. CHOICE OF LAW AND FORUM. THIS AGREEMENT SHALL BE CONSTRUED UNDER
AND CONTROLLED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO
CONFLICT OF LAWS PRINCIPLES. ANY ACTION BROUGHT TO ENFORCE THIS AGREEMENT SHALL
BE BROUGHT IN LOS ANGELES, CALIFORNIA.
8. SEVERABILITY. In the event that any provision of this Agreement
should be held to be void, voidable or unenforceable, the remaining portions
hereof shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which when taken
together shall constitute one instrument.
10. PARAGRAPH HEADINGS; INTERPRETATION. Paragraph headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. No provision of this
Agreement is to be interpreted for or against any party because that party or
its legal representative drafted such provision.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
LEHMAN BROTHERS HOLDINGS INC.,
a Delaware corporation
By:________________________________
Its:_______________________________
LEHMAN COMMERCIAL PAPER, INC.,
a New York corporation
By:________________________________
Its:_______________________________
ONE STOP MORTGAGE, INC.,
a Wyoming corporation
By: Neil B. Kornswiet
Its: President
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By: Cary H. Thompson
Its: Chief Operating Officer
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ANNEX A
CREDIT FACILITY PAYMENT SCHEDULE
I. Restated Warehouse and Security Agreement.
Payment Date Payment Amount
------------ --------------
II. Working Capital Loan Agreement.
Payment Date Payment Amount
------------ --------------
III. Standby Financing Agreement.
Payment Date Payment Amount
------------ --------------
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EXHIBIT L
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of the _____ day of August, 1996, by and among Aames Financial
Corporation, a Delaware corporation (the "Company"), and the parties listed on
Schedule I hereto (the "Holders"), with reference to the following:
RECITALS
A. This Agreement is made pursuant to the Agreement Plan of
Reorganization, dated as of August 12, 1996 ("Reorganization Agreement"), by and
among the Company, Aames Acquisition Corporation, a wholly-owned subsidiary of
the Company and a Delaware corporation, and One Stop Mortgage, Inc., a Wyoming
corporation ("One Stop") and Neil B. Kornswiet (solely with respect to Article
IV of the Reorganization Agreement).
B. In order to induce One Stop to enter into the Reorganization
Agreement, the Company has agreed to provide the registration rights provided
for in this Agreement to the Holders. The execution of this Agreement is a
condition to the closing of the transactions contemplated by the Reorganization
Agreement.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in consideration
of the mutual representations, warranties, covenants and agreements contained
herein, the parties hereto do agree as follows:
1. DEFINITIONS. As used in this Agreement, capitalized terms not otherwise
defined herein have the meanings given such terms in the Reorganization
Agreement, and the following terms shall have the following meanings:
Advice: As defined in the last paragraph of Section 3 hereof.
Affiliate: As to any specified person shall mean any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.
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Business Day: With respect to any act to be performed hereunder, each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in New York, New York or other applicable place where such
act is to occur are authorized or obligated by applicable law, regulation or
executive order to close.
Commission: The Securities and Exchange Commission.
Common Stock: Common stock, $0.001 par value per share, of the
Company.
Company: Aames Financial Corporation, a Delaware corporation, and any
successor corporation thereto.
Effectiveness Period: As defined in Section 2(a) hereof.
Effectiveness Target Date: The 10th day following the Publication
Date.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission pursuant thereto.
Holder: Each registered holder of any Restricted Securities.
Proceeding: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated pursuant to the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the issuance or resale of any portion of the Restricted
Securities covered by such Shelf Registration Statement, and all other
amendments and supplements to any such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such prospectus.
Publication Date: The date of the Company's first publication of
financial results covering at least 30 days of post Merger combined operations.
Restricted Securities: Of the shares of the Common Stock issued in the
Merger 906,367 shares issued to Neil B. Kornswiet and Debra K. Kornswiet as
community property and 371,250 shares issued to LCPI.
Rule 144: Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
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Rule 415: Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Rule 424: Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the Commission thereunder.
Shelf Registration Statement: Any registration statement of the
Company that covers the resale of any of the Restricted Securities pursuant to
the provisions of this Agreement, including any Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference, if any, in such
registration statement.
Special Counsel: A single special counsel to the Holders of the
Restricted Securities, for which the Holders of the Restricted Securities will
be reimbursed pursuant to Section 5 hereof.
2. SHELF REGISTRATION.
(a) The Company shall use its best efforts to file with the Commission
as soon as practicable after the Closing Date, but in no event later than
September 13, 1996, one Shelf Registration Statement for an offering to be made
on a continuous basis pursuant to Rule 415 covering 576,779 shares of the
Restricted Securities issued to Neil B. Kornswiet and Debra K. Kornswiet and
236,250 shares of the Restricted Securities issued to LCPI. The Company shall
use its reasonable best efforts, as described in Section 3, to cause such Shelf
Registration Statement to be declared effective pursuant to the Securities Act
as promptly as practicable following the filing thereof, but in no event later
than the Effectiveness Target Date, and to keep such Shelf Registration
Statement continuously effective under the Securities Act thereafter for the
period ending one year after the Closing Date (subject to extension pursuant to
clause (b) and the last paragraph of Section 3 hereof), or such shorter holding
period as may be specified by the Commission in amending Rule 144(d) or ending
when there cease to be outstanding any Restricted Securities which were the
subject of such Shelf Registration Statement (the "Effectiveness Period"). If
the Commission does not amend Rule 144(d) to reduce the holding period to 12
months, then as soon as practical following the first anniversary of the
Effectiveness Date, the Company shall use its reasonable best efforts to file
with the Commission a second Shelf Registration Statement for an offering to
made on a continuous basis pursuant to Rule 415 covering all of the unsold
Restricted Securities. The Company shall use its reasonable best efforts, as
described in Section 3, to cause such Shelf Registration Statement to be
declared effective under the Securities Act and to keep such Shelf Registration
Statement continuously
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effective under the Securities Act for the period ending on the second
anniversary of the Effectiveness Date (subject to extension pursuant to clause
(b) of the last paragraph of Section 3 hereof), or such shorter holding period
as may be specified by the Commission in amending Rule 144(d) or ending when
there ceases to be outstanding any Restricted Securities (also the
"Effectiveness Period"). The Shelf Registration Statement shall be on Form S-3
under the Securities Act or another appropriate form permitting registration of
such Restricted Securities for resale by the Holders in open market transactions
(with or without the use of one or more brokers).
(b) During the relevant Effectiveness Period, the Company shall use
its reasonable best efforts to keep the then applicable Shelf Registration
Statement continuously effective by supplementing and amending such Shelf
Registration Statement as required by the rules, regulations or instructions
applicable to the registration form used for such Shelf Registration Statement
if required by the Securities Act or reasonably requested by the Holders of a
majority in aggregate principal amount of the Restricted Securities covered by
such Shelf Registration Statement; provided that the relevant Effectiveness
Period shall be extended as provided herein.
3. REGISTRATION PROCEDURES. In connection with each Shelf Registration
Statement, the Company is required by the provisions of Section 2 hereof to
effect the registration of Restricted Securities on the appropriate form
available to permit the sale of the Restricted Securities in open market
transactions (with or without the use of one or more brokers), and pursuant
thereto the Company, at its expense and as expeditiously as reasonably possible,
agrees with respect to each Shelf Registration Statement to:
(a) Furnish to the Holders such number of copies of the Shelf
Registration Statement, and each amendment and supplement thereto, preliminary
Prospectus, final Prospectus and such other documents as the Holders may
reasonably request;
(b) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Shelf Registration Statement as may be
necessary to keep such Shelf Registration Statement continuously effective and
current for the relevant Effectiveness Period (other than any period in which
sales have been deferred pursuant to Section 2 above); cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Securities
Act; and comply with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all securities covered by such Shelf
Registration Statement during such period in accordance with the intended
methods of disposition as contemplated hereby;
(c) Use its best efforts to register or qualify the securities covered
by the Shelf Registration Statement under the state securities or "blue sky"
laws of up to ten (10) jurisdictions as the Holders may select within ten (10)
days prior to the original filing of the Shelf Registration Statement, except
that the Company shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified;
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(d) Notify the Holders promptly after it shall receive notice thereof,
of the date and time when the Shelf Registration Statement and each
post-effective amendment thereto has become effective or a supplement to any
Prospectus forming a part of any such registration statement has been filed;
(e) Notify the Holders promptly of any request by the Commission or
any state governmental authority for the amendment or supplementation of the
Shelf Registration Statement or Prospectus or for additional information;
(f) Prepare and file with the Commission, promptly upon the request of
any Holders, any amendments or supplements to the Shelf Registration Statement
or Prospectus that, in the written opinion of Special Counsel for such Holders,
is required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Restricted Securities by such Holders;
(g) Prepare and file promptly with the Commission, and promptly notify
the Holders of the filing of, such amendments or supplements to the Shelf
Registration Statement or Prospectus as may be necessary to correct any
statements or omissions if to the Company's knowledge, at the time when a
Prospectus relating to such securities is required to be delivered under the
Securities Act, any event has occurred as the result of which any such
Prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit 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;
(h) If any of the Holders is required to deliver a Prospectus at a
time when the Prospectus then in circulation is not in compliance with the
Securities Act or the rules and regulations of the Commission, prepare promptly
upon request such amendments or supplements to the Shelf Registration Statement
and such Prospectus as may be necessary for such Prospectus to comply with the
requirements of the Securities Act and such rules and regulations;
(i) Advise the Holders promptly after it shall receive notice or
obtain knowledge of the issuance of any stop order by the Commission, any state
securities commission, any other governmental agency or any court suspending the
effectiveness of the Shelf Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(j) Not file the Shelf Registration Statement or Prospectus or any
amendment or supplement to the Shelf Registration Statement or Prospectus to
which the Holders of a majority of the aggregate of the Restricted Securities
included or to be included in a registration have reasonably objected in writing
on the grounds that such Shelf Registration Statement or Prospectus or amendment
or supplement thereto does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations thereunder,
after having been furnished with a copy thereof at least one (1) business day
prior to the filing thereof; provided, however, that the failure of such Holders
or their Special Counsel to review or object to the Shelf Registration Statement
or Prospectus or any amendment or supplement to the Shelf
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Registration Statement or Prospectus shall not affect the rights of such Holders
or their respective officers, directors, partners, legal counsel, accountants or
controlling Persons or any underwriter or any controlling Person of such
underwriter under Section 5 hereof;
(k) Make available for inspection upon request by any Holder of
Restricted Securities covered by the Shelf Registration Statement and by Special
Counsel, all financial and other records, pertinent corporate documents and
properties of the Company, and cause all of the Company's officers, directors
and employees to supply all information reasonably requested by any such Holder
or Special Counsel, in connection with such registration statement but only (x)
to the extent necessary to the conduct of customary due diligence, and (y) if
the recipient thereof has executed a confidentiality agreement in a form
reasonably acceptable to the Company protecting against the misappropriation or
disclosure of the Company's confidential information; and
(l) List all Common Stock covered by the Shelf Registration Statement
on the stock exchange or system, if any, on which the Common Stock of the
Company is then listed.
The Company may require each seller of the Restricted Securities
as to which any registration is being effected to: (i) furnish to the Company
such information regarding the distribution of such Restricted Securities as is
required by law to be disclosed in the Shelf Registration Statement and (ii)
provide to the Company a signed writing accepting and acknowledging its rights
and obligations hereunder. The Company may exclude from such registration the
Restricted Securities of any holder of Restricted Securities who unreasonably
fails to furnish such information or signed writing at least five business days
prior to the effective date of such Shelf Registration Statement.
Each Holder of the Restricted Securities agrees by acquisition of
such Restricted Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(e), 3(g) or 3(i)
hereof, such Holder will forthwith discontinue disposition of such Restricted
Securities covered by such Shelf Registration Statement or Prospectus until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(g) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus. If the Company shall give any such notice, the
applicable Effectiveness Period shall be extended by the number of days during
such period from and including the date of the giving of such notice to and
including the date when each seller of the Restricted Securities covered by such
Shelf Registration Statement shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 3(g) hereof or (y)
the Advice, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
The registration rights of the Holders pursuant to this Agreement
and the ability to offer and sell Restricted Securities pursuant to any Shelf
Registration Statement are subject to the conditions and limitations contained
in this paragraph, and each Holder will be
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deemed to have agreed with the Company that if the Board of Directors of the
Company determines in its good faith judgment that the use of any Prospectus
would require the disclosure of material information that the Company has a bona
fide business purpose for preserving as confidential or the disclosure of which
would impede the Company's ability to consummate a significant transaction, and
that the Company is not otherwise required by applicable securities laws or
regulations to disclose, upon written notice of such determination by the
Company, the rights of the Holders to offer, sell or distribute any Restricted
Securities pursuant to any Shelf Registration Statement or to require the
Company to take action with respect to the registration or sale of any
Restricted Securities pursuant to a Shelf Registration Statement shall be
suspended until the date upon which the Company notifies the Holders in writing
(the "Suspension Termination Notice") that suspension of such rights for the
grounds set forth in this paragraph is no longer necessary, and the Company
agrees to give such notice as promptly as practicable following the date that
such suspension of rights is no longer necessary (but in any event, with respect
to either or both Shelf Registration Statements, any such suspension shall be
effective for a period not in excess of 90 consecutive days and for no more than
180 days in any calendar year). If the Company shall give any such notice, the
then applicable Effectiveness Period shall be extended by the number of days
during which the period from and including the date of the giving of such notice
of suspension to and including the date the Company delivers the Suspension
Termination Notice.
4. REGISTRATION EXPENSES.
(a) All fees and expenses of the Company incident to the
performance of or compliance with this Agreement by the Company shall be borne
by it whether or not any Shelf Registration Statement is filed or becomes
effective and whether or not any securities are issued or sold pursuant to any
Shelf Registration Statement.
(b) In connection with any registration hereunder, the Company
shall reimburse the Holders of the Restricted Securities being registered or
tendered for in such registration for the reasonable fees and disbursements of
not more than one firm of attorneys representing the Holders, which firm shall
be chosen by the Holders of a majority in aggregate principal amount of the
Restricted Securities.
5. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless each
Holder of Restricted Securities that is included in any Shelf Registration
Statement pursuant to the provisions of this Agreement, and each Person who
controls such Holder within the meaning of the Securities Act from and against,
and agrees to reimburse such Holder and its controlling Persons with respect to,
any and all claims, actions (actual or threatened), demands, losses, damages,
liabilities, costs and expenses to which such Holder and its controlling Persons
may become subject under the Securities Act or otherwise, insofar as such
claims, actions, demands, losses, damages, liabilities, costs or expenses arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Shelf Registration Statement, any Prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be
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stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company shall not be liable in any such case to the extent that any
such claim, action, demand, loss, damage, liability, cost or expense is caused
by (i) an untrue statement or alleged untrue statement or omission or alleged
omission contained in written information furnished by such Holder or such
controlling Person specifically for use in the preparation of any Shelf
Registration Statement or (ii) any untrue statement or alleged untrue statement
of material fact contained in, or any omission or alleged omission of a material
fact from, a Prospectus if (x) a later Prospectus corrects the untrue statement
or alleged untrue statement, or omission or alleged omission, which is the basis
for the claim, action, demand, loss, damage, liability, cost or expense for
which indemnification is sought, (y) a copy of the later Prospectus had been
made available to the Holders in a timely fashion in accordance with the
Securities Act and had not been sent or given to such purchaser at or prior to
confirmation of sale to such purchaser and the Holder seeking indemnification
was under an obligation to deliver such later Prospectus to the purchaser and
(z) there would have been no such liability but for such failure to deliver such
later Prospectus by such Holder.
(b) Each Holder of shares of Restricted Securities that are included
in any Shelf Registration Statement pursuant to the provisions of this Agreement
hereby agrees to indemnify and hold harmless the Company, its officers,
directors and each Person who controls the Company within the meaning of the
Securities Act, from and against, and agrees to reimburse the Company, its
officers, directors and controlling Persons with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs or expenses to which the
Company, its officers, directors or such controlling Persons may become subject
under the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained in any
Shelf Registration Statement, any Prospectus contained therein or any amendment
or supplement thereto, or are caused by the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon written information furnished by such Holder
specifically for use in the preparation thereof; provided, however, that a
Holder shall not be liable in any case to the extent such claim, action, demand,
loss, damage, liability, cost or expense arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact contained in, or
any omission or alleged omission of a material fact from, a Prospectus if (x) a
later Prospectus shall correct the untrue statement or alleged untrue statement,
or omission or alleged omission, which is the basis for the claims, actions,
demands, losses, damages, liabilities, costs or expenses for such
indemnification is sought, (y) a copy of the later Prospectus had been made
available to the Holders in a timely fashion in accordance with the Securities
Act and had not been sent or given to such purchaser at or prior to confirmation
of sale to such purchaser and the Company, another Holder, or a controlling
person other than the Holder shall have been under an obligation to deliver such
later Prospectus, and (z) there would have been no such liability but for such
failure to deliver such later Prospectus by the Company, another Holder or
controlling Person.
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(c) Promptly after receipt by a party indemnified pursuant to the
provisions of subsection (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of subsection (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability that it may have to an indemnified party otherwise than under this
Section 5 and shall not relieve the indemnifying party from liability under this
Section 5 unless such indemnifying party is prejudiced by such omission. In case
any such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying parties similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties). Upon the permitted assumption by the indemnifying
party of the defense of such action, and approval by the indemnified party of
counsel, the indemnifying party shall not be liable to such indemnified party
under subsection (a) or (b) for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed separate counsel in connection
with the assertion of legal defenses in accordance with the proviso to the next
preceding sentence, (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time, or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the prior written
consent of the indemnifying party and no indemnifying party may unreasonably
withhold its consent to any such settlement. No indemnifying party will consent
to entry of any judgment or enter into any settlement that 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 with respect to such claim or
litigation.
(d) If the indemnification provided for in subsection (a) or (b) of
this Section 5 is held by a court of competent jurisdiction to be unavailable to
a party to be indemnified with respect to any claims, actions, demands, losses,
damages, liabilities, costs or expenses referred to therein, then each
indemnifying party under any such subsection, in lieu of indemnifying such
indemnified party thereunder, hereby agrees to contribute to the amount paid or
payable by such indemnified party as a result of such claims, actions, demands,
losses, damages, liabilities, costs or expenses in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the Holders on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. Notwithstanding the foregoing,
the amount any Holder of Restricted Securities shall be obligated to contribute
pursuant to this subsection (d) shall be limited to an amount equal to the per
share public offering price multiplied by the number of
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shares of Restricted Securities sold by such Holder pursuant to the registration
statement that gives rise to such obligation to contribute. The relative fault
of the Company on the one hand and the Stockholders on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or by the
Stockholder's relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
indemnification or contribution hereunder from any person who was not guilty of
such fraudulent misrepresentation.
6. REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT. The Company agrees to
file timely such information, documents and reports as the Commission may
require or prescribe under Section 13 or 15(d) (whichever is applicable) of the
Exchange Act.
7. MISCELLANEOUS.
(a) Amendments and Waivers. With the written consent of the Holders of
a majority of the Restricted Securities, the obligations of the Company and the
rights of the Holders under this Agreement may be waived (either generally or in
a particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board, may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of any
supplemental agreement or modifying in any manner the rights and obligations
hereunder of the Holders and the Company; provided, however, that no such waiver
or supplemental agreement shall reduce the aforesaid proportion of Restricted
Securities, the Holders of which are required to consent to any waiver or
supplemental agreement, without the consent of the Holders of all of the
Restricted Securities. Upon the effectuation of each such waiver, consent or
agreement of amendment or modification, the Company agrees to give promptly
written notice thereof to the Holders of the Restricted Securities who have not
previously consented thereto in writing. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally or by
course of dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought, except to the extent provided in this Section 7(a). Specifically, but
without limiting the generality of the foregoing, the failure of the Holders at
any time or times to require performance of any provision hereof by the Company
shall in no manner affect the right of the Holders at a later time to enforce
the same. No waiver by any party of the breach of any term or provision
contained in this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
(b) Notices. All notices and other communications provided for herein
shall be made in writing by hand-delivery, next-day air courier, certified
first-class mail, return receipt requested, telex or telecopy:
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(i) if to the Company, as provided in the Reorganization
Agreement,
(ii) if to any Holder of any Restricted Securities, to the
address of such Holder as it appears in the Common Stock register of the
Company.
Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when (v) delivered by
hand, if personally delivered, (w) one Business Day after being timely delivered
to a next-day air courier, (x) five Business Days after being deposited in the
mail, postage prepaid, if mailed, (y) when answered back, if telexed or (z) when
receipt is acknowledged by the recipient's telecopier machine, if telecopied.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder of the Restricted
Securities. The Company may not assign its rights or obligations hereunder
without the prior written consent of each Holder of the Restricted Securities.
Notwithstanding the foregoing, no transferee shall have any of the rights
granted under this Agreement until such transferee shall acknowledge its rights
and obligations hereunder by a signed written statement of such transferee's
acceptance of such rights and obligations.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
(e) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, as applied to contracts
made and performed within the State of California without regard to principles
of conflicts of law.
(f) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(g) Construction. All Section and other subdivision titles or captions
contained in this Agreement are for convenience of reference only and shall not
effect the meaning or interpretation of any provision of this Agreement. All
terms used in this Agreement include, where appropriate the singular as well as
the plural and the masculine, feminine and neuter genders. The words "herein",
"hereof" and "hereunder", and other words of similar import, refer to this
Agreement as a whole and not to any particular Section or other subdivision; and
all Section and other subdivision references contained herein refer to Sections
and other
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subdivisions hereof. Use herein of the term "or" is not intended to be
exclusive, unless the context clearly requires. All provisions hereof apply to
successive events and transactions.
(h) Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
AAMES FINANCIAL CORPORATION,
a Delaware corporation
By:________________________________
Its:_______________________________
HOLDERS
By:________________________________
By:________________________________
By:________________________________
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SCHEDULE I
HOLDERS OF THE REGISTRATION RIGHTS
1. Neil B. Kornswiet and Debra K. Kornswiet, as community property
2. Lehman Commercial Paper Inc.
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion herein and to the incorporation by
reference in the Registration Statements (Nos. 33-44606 and 333-01312) on Forms
S-8 and (Nos. 33-93826 and 33-95120) on Forms S-3 of Aames Financial Corporation
("AFC") of our report dated August 16, 1996, relating to the balance sheets of
One Stop Mortgage, Inc. as of June 30, 1996 and December 31, 1995 and the
related statements of operations, changes in stockholders' equity and cash flows
for the period January 1, 1996 through June 30, 1996 and the period August 24,
1995 (inception) through December 31, 1995, which report appears in AFC's report
on Form 8-K dated August 28, 1996.
KPMG Peat Marwick LLP
Orange County, California
September 9, 1996
<PAGE> 1
EXHIBIT 99.1
HEADLINE: AAMES FINANCIAL CORPORATION AND ONE STOP MORTGAGE, INC. ANNOUNCE
MERGER AGREEMENT
DATELINE: LOS ANGELES, Aug. 12, 1996
BODY:
Aames Financial Corporation (NYSE: AAM) and One Stop Mortgage, Inc. today
announced that they have entered into a definitive agreement providing for the
acquisition of One Stop Mortgage, Inc. by Aames Financial Corporation. This
merger will result in One Stop Mortgage, Inc. becoming a wholly owned
subsidiary of Aames. Aames currently originates loans through its retail
offices and purchases loans through its correspondent and bulk purchase loan
programs. The acquisition of One Stop expands the origination network to
include One Stop's wholesale originations from mortgage brokers.
Under the terms of the agreement, Aames will issue approximately 2.3
million shares in a tax-free transaction to be treated as a pooling of interests
for accounting purposes. One Stop stockholders and employees will receive a
combination of approximately 1.65 million shares of Aames common stock and
options for an additional 375,300 shares of Aames common stock. In addition,
approximately 675,000 shares of Aames common stock will be issued to Lehman
Brothers, which owns a warrant in One Stop.
Completion of the merger is subject to customary closing conditions. The
transaction is expected to close by September 1996.
One Stop, based in Costa Mesa, California, specializes in acquiring and
originating home equity loans made to credit-impaired borrowers from mortgage
brokers throughout the United States. The privately held company, which
originates and acquires home equity loans in 21 states, currently operates out
<PAGE> 2
of 25 offices and has 230 employees. For the three-month period ended July 31,
1996, One Stop's loan originations totaled approximately $126 million. Aames
reported total loan originations of approximately $300 million for the
three-month period ended June 30, 1996.
"This acquisition significantly increases Aames' origination network,
adding important diversification to our conduits for loans," said Gary K. Judis,
Aames' chairman and chief executive officer. "At present, most of Aames' loans
are originated through our retail loan offices, purchased from our nationwide
network of correspondents or in bulk acquisitions. One Stop has specialized in
aggregating loans from small brokers throughout the country -- a previously
untapped origination network for us. With this acquisition, Aames will have
covered all three sectors of origination of home equity lending. Furthermore,
with Neil Kornswiet and his staff, we are gaining an experienced team of
professionals who have earned the respect and trust of brokers throughout the
country that is so necessary to the continued growth of this business."
One Stop President and Chief Executive Officer Neil B. Kornswiet will
continue to serve as president and chief executive officer of the mortgage
wholesaler after the acquisition under a five-year employment contract.
Additionally, Kornswiet, (39), will become a member of Aames' board of directors
and an executive vice president of the corporation. Kornswiet's election as a
director will bring Aames' board to eight members.
"We believe that our partnership with Aames will further enhance both
Aames' and One Stop's national lending operations and market penetration," said
Kornswiet. "For example, One Stop will be able to utilize Aames' new outbound
telemarketing system and Aames will be able to utilize One Stop's nationwide
<PAGE> 3
network of staff review appraisers. I am also thrilled about the opportunity to
work with Gary Judis, one of the true legends of nonconforming home equity
lending."
Following the closing, Aames intends to terminate One Stop's existing
credit facilities with Lehman Brothers. The early termination of the credit
facilities will result in a write-off of the unamortized value of the warrant
received by Lehman Brothers. This write-off will result in Aames incurring a one
time after-tax expense in the fiscal quarter ending September 30, 1996.
Aames Financial Corporation is a leading home equity lender and currently
operates 48 loan offices in 16 states throughout the United States.
CONTACT: Gregory J. Witherspoon of Aames Financial Corporation,
213-351-6153; or Cecilia A. Wilkinson or Roger S. Pondel of Pondel Parsons &
Wilkinson, 310-207-9300.
