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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
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<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
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<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-19604
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AAMES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4340340
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
350 SOUTH GRAND AVENUE, LOS ANGELES, CA 90071-3459
(Address of Registrant's principal executive offices including zip code)
(323) 210-5000
(Registrant's telephone number,
including area code)
NO CHANGES
(Former name, former address and former fiscal year,
if changed since last report)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
AT MAY 19, 2000, REGISTRANT HAD 6,212,713 SHARES OF COMMON STOCK
OUTSTANDING.
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TABLE OF CONTENTS
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ITEM NO. PAGE NO.
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PART I--FINANCIAL INFORMATION
Item 1-- Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 2000 and
June 30, 1999.................................. 3
Condensed Consolidated Statements of Operations
for the three and nine months ended March 31,
2000 and 1999.................................. 4
Condensed Consolidated Statements of Cash Flows
for the nine months ended March 31, 2000 and
1999........................................... 5
Notes to Condensed Consolidated Financial
Statements..................................... 6
Item 2-- Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 8
PART II--OTHER INFORMATION
Item 1-- Legal Proceedings............................. 40
Item 2-- Changes in Securities......................... 40
Item 3-- Defaults Upon Senior Securities............... 40
Item 4-- Submission of Matters to a Vote of Security
Holders....................................... 40
Item 5-- Other Information............................. 41
Item 6-- Exhibits and Reports on Form 8-K.............. 41
Signature Page.............................................. 42
</TABLE>
2
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
------------ --------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 19,396,000 $ 20,764,000
Loans held for sale, at lower of cost or market............. 383,282,000 559,869,000
Accounts receivable......................................... 46,470,000 56,964,000
Residual interests, at estimated fair market value.......... 297,577,000 332,327,000
Mortgage servicing rights, net.............................. 14,325,000 20,928,000
Equipment and improvements, net............................. 10,235,000 13,495,000
Prepaid and other........................................... 14,176,000 15,013,000
Income tax refund receivable................................ -- 1,737,000
------------ --------------
Total assets............................................ $785,461,000 $1,021,097,000
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings.................................................. $275,470,000 $ 281,220,000
Revolving warehouse and repurchase facilities............... 386,165,000 535,997,000
Accounts payable and accrued expenses....................... 58,797,000 50,505,000
Income taxes payable........................................ 8,533,000 7,819,000
------------ --------------
Total liabilities....................................... 728,965,000 875,541,000
------------ --------------
Commitments and contingencies............................... -- --
Stockholders' equity:
Series A Preferred Stock, par value $0.001 per share;
500,000 shares authorized; none outstanding............. -- --
Series B Convertible Preferred Stock, par value $0.001 per
share; 29,704,000 and 100,000,000 shares authorized;
26,704,000 and 26,704,000 shares outstanding............ 27,000 27,000
Series C Convertible Preferred Stock, par value $0.001 per
share; 107,105,700 and 100,000,000 shares authorized;
20,166,000 and 15,009,000 shares outstanding............ 20,000 15,000
Common Stock, par value $0.001 per share 400,000,000 and
50,000,000 shares authorized; 6,213,000 and 6,203,000
shares outstanding...................................... 6,000 6,000
Additional paid-in capital.................................. 367,338,000 342,278,000
Retained deficit............................................ (310,895,000) (196,770,000)
------------ --------------
Total stockholders' equity.............................. 56,496,000 145,556,000
------------ --------------
Total liabilities and stockholders' equity.............. $785,461,000 $1,021,097,000
============ ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- -----------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Gain on sale of loans.............. $ 9,053,000 $ 8,236,000 $ 40,403,000 $ 36,665,000
Write-down of residual interests
and mortgage servicing rights.... (47,300,000) (8,100,000) (82,490,000) (194,551,000)
Origination fees................... 7,671,000 10,283,000 29,429,000 32,067,000
Loan servicing..................... 3,958,000 7,559,000 12,133,000 20,675,000
Interest........................... 24,627,000 18,836,000 72,387,000 45,296,000
------------ ------------ ------------- -------------
Total revenue, including
write-down of residual
interests and mortgage
servicing rights............... (1,991,000) 36,814,000 71,862,000 (59,848,000)
------------ ------------ ------------- -------------
Expenses:
Compensation....................... 25,922,000 21,759,000 71,404,000 65,460,000
Production......................... 5,805,000 9,390,000 21,420,000 30,879,000
General and administrative......... 14,204,000 11,300,000 45,506,000 38,472,000
Interest........................... 13,010,000 9,474,000 39,444,000 31,759,000
Nonrecurring charge-off of
servicing receivable............. -- 37,044,000 -- 37,044,000
------------ ------------ ------------- -------------
Total expenses................... 58,941,000 88,967,000 177,774,000 203,614,000
------------ ------------ ------------- -------------
Loss before income taxes............. (60,932,000) (52,153,000) (105,912,000) (263,462,000)
Provision (benefit) for income
taxes.............................. 533,000 (16,174,000) 2,458,000 (29,582,000)
------------ ------------ ------------- -------------
Net loss............................. $(61,465,000) $(35,979,000) $(108,370,000) $(233,880,000)
============ ============ ============= =============
Net loss per share:
Basic.............................. $ (10.25) $ (5.91) $ (18.38) $ (37.84)
============ ============ ============= =============
Diluted............................ $ (10.25) $ (5.91) $ (18.38) $ (37.84)
============ ============ ============= =============
Dividends per common share......... $ -- $ -- $ -- $ 0.16
============ ============ ============= =============
Weighted average number shares
outstanding:
Basic.............................. 6,210,000 6,201,000 6,209,000 6,199,000
============ ============ ============= =============
Diluted............................ 6,210,000 6,201,000 6,209,000 6,199,000
============ ============ ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
---------------------------------
MARCH 31, MARCH 31,
2000 1999
--------------- ---------------
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Operating activities:
Net loss.................................................. $ (108,370,000) $ (233,880,000)
Adjustments to reconcile net loss to net cash provided by
(used in)
operating activities:
Depreciation and amortization........................... 4,314,000 4,142,000
Gain on sale of loans................................... (34,596,000) (35,716,000)
Valuation of residual interests and mortgage servicing
rights................................................ 82,490,000 186,451,000
Accretion of residual interests......................... (39,471,000) (20,563,000)
Mortgage servicing rights originated.................... (5,175,000) (6,194,000)
Mortgage servicing rights amortized..................... 6,778,000 9,109,000
Mortgage servicing rights charged off................... -- 8,100,000
Changes in assets and liabilities:
Loans held for sale originated or purchased........... (1,551,096,000) (1,677,024,000)
Proceeds from sale of loans held for sale............. 1,727,683,000 1,533,166,000
Decrease (increase) in:
Accounts receivable................................... 10,494,000 31,416,000
Residual interests.................................... 31,327,000 33,351,000
Prepaid and other..................................... 836,000 4,066,000
Income tax refund receivable.......................... 1,737,000 (9,850,000)
Increase (decrease) in:
Accounts payable and accrued expenses................. 8,292,000 (2,139,000)
Income taxes payable.................................. 715,000 (24,684,000)
6.5% accrued preferred stock dividend................... (5,746,000) (691,000)
--------------- ---------------
Net cash provided by (used in) operating activities......... 130,212,000 (200,940,000)
--------------- ---------------
Investing activities:
Purchases of equipment and improvements................... (1,054,000) (4,667,000)
--------------- ---------------
Net cash used in investing activities....................... (1,054,000) (4,667,000)
--------------- ---------------
Financing activities:
Net proceeds from convertible preferred stock issuance.... 25,060,000 67,429,000
Proceeds from exercise of common stock options............ 2,000 235,000
Repayments of borrowings.................................. (5,750,000) (5,748,000)
Proceeds from (repayments of) revolving warehouse and
repurchase facilities................................... (149,833,000) 143,375,000
Dividends paid............................................ -- (1,022,000)
Other, net................................................ (5,000) --
--------------- ---------------
Net cash provided by (used in) financing activities......... (130,526,000) 204,269,000
--------------- ---------------
Net decrease in cash and cash equivalents................... (1,368,000) (1,338,000)
Cash and cash equivalents at beginning of period............ 20,764,000 12,322,000
--------------- ---------------
Cash and cash equivalents at end of period.................. $ 19,396,000 $ 10,984,000
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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AAMES FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The condensed consolidated financial statements of Aames Financial
Corporation, a Delaware corporation, and its subsidiaries (collectively, the
"Company") included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted.
The condensed consolidated financial statements include the accounts of the
Company and all of its subsidiaries after eliminating all significant
intercompany transactions and reflect all normal, recurring adjustments which
are, in the opinion of management, necessary to present a fair statement of the
results of operations of the Company for the interim periods reported. The
results of operations for the Company for the three and nine months ended
March 31, 2000 are not necessarily indicative of the results expected for the
full fiscal year.
NOTE 2: SUBSIDIARY GUARANTORS
In October 1996, the Company completed an offering of its 9.125% Senior
Notes due 2003 which were guaranteed by all of the Company's operating
subsidiaries, all of which are wholly-owned. The guarantees are joint and
several, full, complete and unconditional. There are no restrictions on the
ability of such subsidiaries to transfer funds to the Company in the form of
cash dividends, loans or advances. The Company is a holding company with limited
assets or operations other than its investments in its subsidiaries. Separate
financial statements of the guarantors are not presented because the aggregate
total assets, net earnings and net equity of such subsidiaries are substantially
equivalent to the total assets, net earnings and net equity of the Company on a
consolidated basis.
NOTE 3: STOCKHOLDERS' EQUITY
On August 3, 1999, the Company received $25.0 million of additional capital
(the "Additional Investment") from Specialty Finance Partners ("SFP"), a
partnership controlled by Capital Z Financial Services Fund, II, L.P., a Bermuda
limited partnership ("Capital Z") at which time the Company issued 5,000
additional shares of Series C Convertible Preferred Stock, par value $0.001, for
$5,000 per share. Net proceeds to the Company from the Additional Investment,
after issuance expenses, were $24.8 million.
On September 24, 1999, the Company effected a 1,000-for-1 stock split to the
then outstanding shares of its Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock. All authorized and outstanding Series B
and Series C Convertible Preferred Stock share amounts in the accompanying
condensed consolidated financial statements have been retroactively restated to
reflect the stock split.
On October 7, 1999, the Company received $4.2 million of capital from
existing holders of the Company's Common Stock in connection with its rights
offering of up to 6.2 million shares of Series C Convertible Preferred Stock to
stockholders (the "Stockholder Offering"). On October 27, 1999, the Company
received $20.8 million of capital from Capital Z in connection with Capital Z's
standby commitment to purchase up to $25.0 million of unsubscribed shares in the
Stockholder Offering (the "Standby Commitment"). The Company issued an aggregate
of 5.0 million shares of Series C Convertible Preferred Stock in the Stockholder
and pursuant to the Standby Commitment of which net proceeds, after issuance
expenses, were approximately $24.0 million.
On October 1, 1999, the Company received $1.1 million of capital from
certain members of the Company's management team in the form of cash and
promissory notes and issued 220,000 shares of Series C Convertible Preferred
Stock.
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On April 14, 2000, the Company effected a 1 for 5 reverse stock split of the
outstanding shares of the Company's Common Stock and Series C Convertible
Preferred Stock. Outstanding share information for the Common Stock and
Series C Convertible Preferred Stock and per common share information in the
accompanying condensed consolidated financial statements have been retroactively
restated to reflect the reverse stock split.
The following table sets forth information regarding net loss per common
share for the three and nine months ended March 31, 2000 and 1999 (unaudited)
(Dollars and weighted average number of shares in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic net loss per common share:
Net loss............................................ $61,465 $35,979 $108,370 $233,880
Plus: Accrued dividends on Series B and C
Convertible Preferred Stock....................... 2,166 691 5,746 691
------- ------- -------- --------
Net loss to common stockholders..................... $63,631 $36,670 $114,116 $234,571
Weighted average number of common shares
outstanding....................................... 6,210 6,201 6,209 6,199
------- ------- -------- --------
Basic net loss per common share....................... $ 10.25 $ 5.91 $ 18.38 $ 37.84
======= ======= ======== ========
Diluted net loss per common share:
Net loss to common stockholders..................... $63,631 $36,670 $114,116 $234,571
Weighted average number of common shares
outstanding....................................... 6,210 6,201 6,209 6,199
======= ======= ======== ========
Diluted net loss per common share..................... $ 10.25 $ 5.91 $ 18.38 $ 37.84
======= ======= ======== ========
</TABLE>
NOTE 4: RECLASSIFICATIONS
Certain amounts related to fiscal year 1999 have been reclassified to
conform to the fiscal year 2000 presentation.
NOTE 5: REVOLVING WAREHOUSE AND REPURCHASE FACILITIES
On February 11, 2000, the Company entered into a $200.0 million revolving
warehouse facility with an investment bank whose prior $90.0 million committed
and $100.0 million uncommitted revolving warehouse facility had recently
expired. The warehouse facility has a 364-day term and is renewable upon
maturity and at the sole discretion of the lender for an additional 364-day
term. Included in the facility is a $35.0 million non-revolving subline that is
secured by substantially all of the Company's previously unencumbered and
pledgeable residual interests. Borrowings under the subline are subject to
scheduled amortization payments. The subline has an initial 364 day term and is
renewable for an additional 364 day term; and thereafter, renewable on a
month-to-month basis for an additional six month period contingent upon, in all
cases, that certain repayment, financial and performance conditions are met. As
part of the transaction, Capital Z, the Company's largest shareholder, agreed to
provide certain credit enhancements to the lender for a portion of the subline.
In connection therewith, the Company agreed to pay Capital Z a $1 million fee.
On February 25, 2000, the Company entered into an arrangement with the same
investment bank pursuant to which the bank purchased certain servicing related
advances and agreed to undertake the obligation to make a substantial portion of
the Company's advance obligations on its 1999 securitization trusts.
On April 28, 2000, the Company renewed at $200.0 million a committed
revolving repurchase facility with an investment bank whose prior $300.0
committed facility had expired. Pursuant to the terms of the facility, if
certain financial covenants of that facility are not satisfactorily maintained
by the Company, the facility will expire at October 31, 2000,; otherwise, this
facility expires on April 30, 2001.
7
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NOTE 6: RECENT EVENT
On May 19, 2000, the Company entered into a Preferred Stock Purchase
Agreement (the "Stock Purchase Agreement") with SFP, the Company's largest
stockholder, which is controlled by Capital Z, providing for an additional
equity investment (the "Investment") of $50.0 million in the Company. The
Investment is to be made in two stages as follows: (i) on or after May 30, 2000
(the "Initial Closing Date"), the Company will sell 40.0 million shares of
Series C Preferred Stock to SFP for a price per share equal to the lower of
$0.90 per share or the average closing price of the Company's Common Stock for
the five trading days immediately prior to the Initial Closing Date (the
"Price") and issue warrants to purchase an additional 5.0 million shares of
Series C Preferred Stock at the Price; (ii) as soon as practicable after the
Initial Closing Date the Company will sell to SFP additional shares of Series C
Preferred Stock at the Price in a number of shares such that the Investment
totals $50.0 million. The Investment is subject to certain conditions including
(i) the receipt by the Company of an opinion by an independent investment
banking firm that the transaction is fair to the Company, (ii) the receipt by
the Company of waivers of certain financial covenants by its warehouse lenders
and credit enhancers and (iii) no material adverse change in the Company's
financial position prior to the Investment. There can be no assurance that the
conditions will be met or that the Investment will be consummated. If the
Investment is not consummated, or if it is delayed, the Company would be unable
to meet its financial covenants under its existing warehouse or repurchase lines
and would have to cease loan production operations which would negatively impact
profitability and jeopardize the Company's ability to continue to operate as a
going concern.
As part of the Investment, the Company intends to make a distribution in the
form of a dividend, to the Common stockholders of the Company and the Series C
Preferred stockholders not affiliated with SFP or Capital Z (the "Nonaffiliated
Stockholders"), of nontransferable subscription rights to purchase shares of
Series C Preferred Stock at the Price per share (the "Rights Offering"). The
number of shares offered in the Rights Offering will be in proportion to the
number of shares purchased by SFP in the Investment such that the percentage of
shares held by Nonaffiliated Stockholders (on a fully diluted basis) would not
be affected by the Investment if the Rights Offering is fully subscribed. The
Company intends to complete the Rights Offering on the earliest practicable date
following the Initial Closing Date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the Company's
Condensed Consolidated Financial Statements included in Item 1 of this Form
10-Q.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Report contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. The words "expect," "estimate,"
"anticipate," "predict," "believe," and similar expressions and variations
thereof are intended to identify forward-looking statements. Such statements
appear in a number of places in this filing and include statements regarding the
intent, belief or current expectations of the Company, its directors or officers
with respect to, among other things (a) market conditions in the securitization,
capital, credit and whole loan markets and their future impact on the Company's
operations, (b) trends affecting the Company's liquidity position, including,
but not limited to, its access to warehouse, working capital and other credit
facilities and its ability to effect securitizations and whole loan sales,
(c) the impact of the various cash savings plans and other restructuring
strategies being considered by the Company, (d) the Company's on-going efforts
in improving its equity position, (e) trends affecting the Company's financial
condition and results of operations, (f) the Company's business and liquidity
strategies. The stockholders of the Company are cautioned not to put undue
reliance on such forward-looking statements. Such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected in this Report, for the
reasons, among others,
8
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discussed under the captions "Recent Developments" and "Risk Factors" and the
other portions of Management's Discussion and Analysis of Financial Condition
and Results of Operations. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. Readers should carefully review the factors
referred to above and the other documents the Company files from time to time
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K and Form 10-K/A for the fiscal year ended June 30, 1999, the
quarterly reports on Form 10-Q filed by the Company during the remainder of
fiscal 2000, and any current reports on Form 8-K filed by the Company.
RECENT DEVELOPMENTS
The Company lost $61.5 million during the three months ended March 31, 2000.
The $61.5 million loss resulted from the Company's $47.3 million valuation
adjustment to its residual interest assets and a $14.2 million net operating
loss. The $47.3 million valuation adjustment reflects the Company's assessment
of recent credit loss experience in its securitized pools and the impact on such
pools of recent interest rate increases in the market on excess spread. The
$14.2 million net operating loss during the March quarter is attributable
primarily to the Company's reliance on the whole loan sale market as its sole
loan disposition strategy, and the Company's constrained loan production in
March resulting from its reliance on working capital to fund its mortgage loan
production.
On May 19, 2000, the Company entered into a Stock Purchase Agreement with
SFP, the Company's largest stockholder, which is controlled by Capital Z,
providing for the Investment of $50.0 million in the Company. The Investment is
to be made in two stages as follows: (i) on or after May 30, 2000 (the Initial
Closing Date), the Company will sell 40.0 million shares of Series C Preferred
Stock to SFP for a price per share equal to the lower of $0.90 per share or the
average closing price of the Company's Common Stock for the five trading days
immediately prior to the Initial Closing Date (the Price) and issue warrants to
purchase an additional 5.0 million shares of Series C Preferred Stock at the
Price; (ii) as soon as practicable after the Initial Closing Date the Company
will sell to SFP additional shares of Series C Preferred Stock at the Price in a
number of shares such that the Investment totals $50.0 million. The Investment
is subject to certain conditions including (i) the receipt by the Company of an
opinion by an independent investment banking firm that the transaction is fair
to the Company, (ii) the receipt by the Company of waivers of certain financial
covenants by its warehouse lenders and credit enhancers (described more fully
below) and (iii) no material adverse change in the Company's financial position
prior to the Investment. There can be no assurance that the conditions will be
met or that the Investment will be consummated. If the Investment is not
consummated, or if it is delayed, the Company would be unable to meet its
financial covenants under its existing warehouse or repurchase lines and would
have to cease loan production operations which would negatively impact
profitability and jeopardize the Company's ability to continue to operate as a
going concern.
As part of the Investment, the Company intends to make a distribution in the
form of a dividend, to the Common stockholders of the Company and the Series C
Preferred stockholders not affiliated with SFP or Capital Z (the Nonaffiliated
Stockholders), of nontransferable subscription rights to purchase shares of
Series C Preferred Stock at the Price per share (the Rights Offering). The
number of shares offered in the Rights Offering will be in proportion to the
number of shares purchased by SFP in the Investment such that the percentage of
shares held by Nonaffiliated Stockholders (on a fully diluted basis) would not
be affected by the Investment if the Rights Offering is fully subscribed. The
Company intends to complete the Rights Offering on the earliest practicable date
following the Initial Closing Date.
The Company is also negotiating with Capital Z to arrange, with an affiliate
of Capital Z, a facility (the "Residual Facility") pursuant to which the Company
would sell, on a forward flow basis, residual interest assets created from its
securitizations with the servicing retained by the Company on the loans in such
securitization trusts. The Company believes that the Residual Facility would
(i) assist the Company in addressing its longer-term liquidity requirements by
periodically converting residual interest assets into
9
<PAGE>
cash and (ii) strengthen its ability to pursue its business strategy of
disposing of loans through a combination of whole loan sales for cash and
securitizations and (iii) increase its servicing portfolio. The Residual
Facility is subject to completion of negotiations and definitive documentation
and there can be no assurance that the Residual Facility will be consummated.
Given the pending nature of the negotiations and the conditions involved,
investors should not place undue reliance on these discussions.
All of the Company's revolving warehouse and repurchase facilities contain
provisions requiring the Company to meet certain periodic financial covenants,
including among other things, minimum liquidity, stockholders' equity, leverage,
and net income levels. Due to the $61.5 million loss for the quarter ended
March 31, 2000, the Company failed to meet certain existing financial covenants
under its revolving warehouse and repurchase facilities at March 31, 2000 and
April 30, 2000 and does not expect to meet those covenants at May 31, 2000. The
Company is seeking amendments to these financial covenants from its warehouse
and repurchase lenders to bring itself into compliance. The Company's failure to
meet these financial covenants gives the warehouse and repurchase lenders the
right to declare an event of default and to terminate the warehouse and
repurchase facilities, cease funding loans thereunder and foreclose upon and
sell the loans securing the facilities. An event of default under any one of the
Company's warehouse or repurchase facilities would cross-default the remaining
warehouse and repurchase facilities. Moreover, an acceleration of the
indebtedness under the Company's warehouse or repurchase facilities would result
in a default under the Company's 9.125% Senior Notes dues 2003, the Company's
10.5% Senior Notes due 2002 and the Company's 5.5% Convertible Subordinated
Debentures due 2006 (collectively, the "Corporate Debt"), which would, in turn,
result in an acceleration of such indebtedness. An acceleration of the maturity
of the Corporate Debt would jeopardize the Company's ability to continue to
operate as a going concern. If the Company is unable to obtain amendments to its
warehouse and repurchase facilities, or is unable to meet these financial
covenants going forward, or for any other reason is unable to maintain existing
warehouse or repurchase lines or renew them when they expire, it would have to
cease loan production operations which would negatively impact profitability and
jeopardize the Company's ability to continue to operate as a going concern.
Under one of the Company's 1999 securitization trusts, the monoline
insurance company providing credit enhancement requires the Company to maintain
a specified net worth and level of cash liquidity in order to be able to
continue to service the loans in the trust. The Company was not in compliance
with those requirements at March 31, 2000 or April 31, 2000; however, the
Company received notification from the monoline insurer that it was not
exercising its rights to terminate the Company as servicer. Moreover, due to the
$61.5 million loss for the quarter ended March 31, 2000, the Company failed to
meet the net worth test at March 31, 2000, April 30, 2000 and does not expect to
meet the test at May 31, 2000. If the Initial Closing Date occurs after May 31,
2000, the Company will not be in compliance with the monoline insurance
liquidity requirement at May 31, 2000. The Company is seeking amendments to
these financial covenants from the monoline insurer. If the Company is unable to
obtain a waiver from the monoline insurer, it would be unable to satisfy a
condition required by Capital Z to consummate the Investment.
Through February 29, 2000, the Company used a warehouse facility to fund the
majority of its mortgage loans at closing (the "Concurrent Funding Facility") at
which date the Facility expired and was not renewed. The Company's existing
revolving warehouse and repurchase facilities do not provide for the funding of
mortgage loans at closing; instead, the Company uses working capital to close
mortgage loans. After the mortgage loans are closed, the Company pledges them
under one of its other revolving warehouse or repurchase facilities to replenish
working capital. This has restricted the ability of the Company to fund its
mortgage loan production in March, 2000, which has negatively impacted the
profitability of the Company. The Company is currently seeking a new revolving
warehouse or repurchase facility to fund mortgage loans at closing. However,
unless and until a new facility is obtained, the Company is required to fund
mortgage loans exclusively out of working capital and hold them until such
mortgage loans can be transferred to another facility or sold. If future loan
fundings are reduced due to a
10
<PAGE>
lack of funding or capital alternatives, ongoing operations may be jeopardized,
which would negatively impact profitability and jeopardize the Company's ability
to continue to operate as a going concern.
On April 28, 2000, the Company renewed a $300.0 million committed facility
and decreased the borrowing limit thereunder by $100.0 million to
$200.0 million. As previously reported, on February 11, 2000, the Company
obtained $35.0 million in additional liquidity secured by certain of its
residual interests and certain other collateral through the renewal of a
$90.0 million committed and $100.0 million uncommitted revolving warehouse
facility which expired on February 9, 2000. The committed warehouse facility was
increased to $200.0 million and included a $35.0 million non-revolving subline,
which the Company drew down on February 11, 2000. Additionally, as part of the
transaction, Capital Z, the Company's largest shareholder, agreed to provide
certain credit enhancements to the lender for a portion of the subline. In
connection therewith, the Company has agreed to pay Capital Z a $1 million fee.
With these recent renewals, the Company has current borrowing capacity under
committed revolving warehouse and repurchase facilities of $615.0 million
(excluding the $35.0 million non-revolving subline). However, as a result of the
Company's recent financial performance, including the prices the Company has
received in recent whole loan sales, all of the Company's warehouse and
repurchase lenders advance less than 100% of the principal balance of the
mortgage loans, requiring the Company to use working capital to fund the
remaining portion of the principal balance of the mortgage loans.
On February 25, 2000, the Company entered into a sale transaction with an
investment bank pursuant to which a limited partnership controlled by the
investment bank purchased $17.7 million of certain servicing related advances
for $15.0 million in cash and an interest in the limited partnership. On
February 25, 2000, the Company also entered into an arrangement with the same
investment bank pursuant to which the investment bank has agreed to make a
substantial portion of the Company's advance obligations on its 1999
securitization trusts.
On April 14, 2000, the Company effected a one for five reverse stock split
of the issued and outstanding shares of Common Stock and Series C Preferred
Stock. The Company undertook the reverse stock split, among other reasons, to
increase the market price of each share of Common Stock. As previously reported,
the Company was notified in writing by the New York Stock Exchange (the "NYSE")
on December 2, 1999 (the "NYSE Notice") that the average price of the Company's
Common Stock was below the NYSE's minimum stock price requirement of $1.00 per
share for the thirty trading-day period ended October 29, 1999. Pursuant to the
NYSE Notice, the Company has six months from the date of the NYSE Notice to
raise the market price of the Common Stock above $1.00 per share in both average
and absolute value or the NYSE will suspend the Company's listing and apply to
the Securities and Exchange Commission ("SEC") for delisting. The closing price
of the Common Stock was not below $1.00 per share between April 14, 2000 and
May 19, 2000. The closing price of the Common Stock on May 19, 2000 was $1.125
per share and the average closing price for the thirty trading-day period ended
May 19, 2000 was $1.86 per share. The NYSE also has a requirement that the
Common Stock maintain a minimum market capitalization of $8.0 million. Based
upon the closing sale price of the Common Stock on May 19, 2000 of $1.125 per
share, the Company's market capitalization was approximately $7.0 million, or
below the NYSE minimum requirement. The Company has not received official
notification from the NYSE about the market capitalization requirement. There
can be no assurance that the price of the Common Stock will remain above $1.00
per share in both average and absolute value or that the Common Stock will not
be delisted by the NYSE. If the Common Stock were delisted by the NYSE, it would
seriously impair the ability of Common stockholders to trade their shares.
The Company's loan production was $446.7 million during the March 2000
quarter, down from the $580.9 million during the quarter ended December 1999,
but up $45.0 million from production levels during the March 1999 quarter.
Although loan production for the nine months ended March 31, 2000 of
$1.6 billion has not yet recovered to the production levels of $1.7 billion for
the comparable nine month
11
<PAGE>
period in the prior year, core retail and broker production increased
$71.9 million, offset by a $197.7 million decrease in correspondent production
resulting from the Company's previously announced plans to focus on its core
retail and broker production.
The Company sold $434.9 million and $1.7 billion of loans during the three
and nine months ended March 31, 2000, respectively, compared to $393.9 million
and $1.6 billion of loans sold during the comparable periods for 1999. During
the March 2000 quarter, the Company relied solely on whole loan sales for cash
for loan dispositions. For the nine months ended March 31, 2000, the Company's
loan dispositions included $803.6 million of securitizations and $912.1 million
of whole loan sales, reflecting the Company's strategy of disposition of loans
through a combination of securitizations and whole loan sales. The Company's
loan dispositions during the quarter ended March 31, 1999 consisted entirely of
whole loan sales totaling $393.9 million.
The Company continues to focus on its core business strategy, which consists
of: (i) continuing to focus on its core loan production units; (ii) increasing
its servicing portfolio and servicing capabilities; and (iii) diversifying its
funding sources to become self-financing (i.e., the ability to obtain sufficient
lines of credit to provide financing for assets created by the Company and the
reduction of reliance on the public equity and debt markets). In particular, the
Company intends to employ the following strategies:
FOCUS ON CORE LOAN PRODUCTION. The Company intends to evaluate expansion
opportunities in its retail, including internet, and broker operations by
improving market penetration in existing locations and evaluating other
potential locations and by building new relationships with independent mortgage
brokers, with the goal of increasing market share in these areas. The Company
regularly reviews its loan offerings and introduces new loan products to further
meet the needs of its customers and increase its core loan production volume.
INCREASE SERVICING PORTFOLIO AND INCREASE MARGINS. The Company plans to
continue to build the size of its servicing portfolio to provide a stable and
significant source of recurring revenue. The Company expects to increase slowly
the size of its loan servicing portfolio by continuing to increase loan
originations and selling a portion of its loan production through new
securitizations.
CONTINUE TO DIVERSIFY FUNDING SOURCES AND BECOME SELF-FINANCING. The
Company intends to continue to expand and diversify its funding sources by
adding additional warehouse or repurchase facilities, disposing of a portion of
its loan production for cash in the whole loan market, and developing new
sources for working capital.
The strategies discussed above contain forward-looking statements. Such
statements are based on current expectations and are subject to risks,
uncertainties and assumptions, including those discussed under "Risk Factors."
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Thus, no assurance can be given that
the Company will be able to accomplish the above strategies.
GENERAL
The Company is a consumer finance company primarily engaged, through its
subsidiaries, in the business of originating, purchasing, selling, and servicing
home equity mortgage loans secured by single family residences. Upon its
formation in 1991, the Company acquired Aames Home Loan, a home equity lender
founded in 1954. In August 1996, the Company acquired its broker production
channel through the acquisition of One Stop Mortgage, Inc. In 1999, the Company
consolidated its loan production channels into one company and the retail and
broker production channels (including the former One Stop) now operate under the
name "Aames Home Loan."
12
<PAGE>
The Company's principal market is borrowers whose financing needs are not
being met by traditional mortgage lenders for a variety of reasons, including
the need for specialized loan products or credit histories that may limit such
borrowers' access to credit. The Company believes these borrowers continue to
represent an underserved niche of the home equity loan market and present an
opportunity to earn a superior return for the risk assumed. The residential
mortgage loans originated and purchased by the Company, which include fixed and
adjustable rate loans, are generally used by borrowers to consolidate
indebtedness or to finance other consumer needs, and to a lesser extent, to
purchase homes.
LOAN ORIGINATION. The Company originates and purchases loans nationally
through three production channels-retail, broker and correspondent. In recent
quarters, the Company has emphasized its core retail and broker loan production
channels and decreased its reliance on correspondent purchases. The Company
underwrites and appraises every loan it originates and generally reviews
appraisals and re-underwrites all loans it purchases.
The following table presents the volume of loans originated and purchased by
the Company during the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Broker Network................................. $261,573 $226,420 $ 959,111 $ 866,713(1)
Retail......................................... 179,792 156,059 561,582 582,173
Correspondent.................................. 5,355 19,270 30,403 228,138
-------- -------- ---------- ----------
Total............................................ $446,720 $401,749 $1,551,096 $1,677,024
======== ======== ========== ==========
</TABLE>
- ------------------------
(1) Includes $14.4 million of commercial loans.
Total loan production during the three months ended March 31, 2000 of $446.7
million was down $134.2 million, or 23.1%, from the $580.9 million reported
during the quarter ended December 31, 1999. When compared to the Company's
December 1999 quarter production by channel, production in its broker, retail
and correspondent channel's during the March 2000 quarter was down $104.4
million, $22.8 million and $7.0 million, respectively. Retail and broker
production has been negatively impacted by the Company's increased pricing in
response to a rising interest rate environment and changes in underwriting
designed to improve credit quality. Additionally, since February 29, 2000, the
Company has been funding mortgage loans at closing out of working capital. This
limitation constrained the Company's ability to fund loan production during the
March 2000 quarter. See "Liquidity and Capital Resources - Warehouse and
Repurchase Facilities." Finally, and to a lesser extent, the Company has
historically experienced a seasonal slowdown in its production levels during the
first calendar quarter.
Total loan production for the three months ended March 31, 2000 was $446.7
million, up $45.0 million, or 11.2%, from the $401.7 million of loan production
reported for the quarter ended March 31, 1999. Loan origination volume from the
Company's broker channel increased to $261.6 million during the March 2000
quarter, up $35.2 million, or 15.5% from the $226.4 million in production
reported during the comparable 1999 quarter. During the three months ended
March 31, 2000, the Company's retail channel production increased $23.7 million,
or 15.2%, to $179.8 million from $156.1 million during the comparable period a
year ago. Correspondent production during the March 2000 quarter declined $13.9
million to $5.4 million from $19.3 million during the March 1999 quarter. As
previously disclosed, origination volumes during the March 1999 quarter were
constrained by limited warehouse capacity existing during the first half of that
quarter.
Total loan production for the nine months ended March 31, 2000 was $1.6
billion, a decrease of $125.9 million, or 7.5%, from the $1.7 billion reported
in the comparable nine month period a year ago.
13
<PAGE>
Correspondent production decreased $197.7 million during the nine months ended
March 31, 2000 to $30.4 million from $228.1 million in the comparable nine month
period a year ago reflecting the Company's previously reported decision to
decrease its reliance on this production channel. While the Company's broker
loan production was up $92.4 million during the nine months ended March 31, 2000
from levels during the comparable 1999 period, retail production declined $20.6
million for the period and continues to be negatively affected by a rising
interest rate environment, increased pricing and decreased demand in response
thereto and underwriting changes designed to improve credit quality. The Company
expects current market conditions to continue which could adversely impact the
Company's future loan production levels.
In the later part of the quarter ended December 31, 1999, the Company
commenced originating loans through the internet, through an affiliation with
certain internet lending sites. Loans originated through this retail production
channel during the quarter ended March 31, 2000 increased to $8.3 million, up
$2.2 million or 36.1% from the $6.1 million during the quarter ended
December 31, 1999. Loan production originated through the internet during the
nine months ended March 31, 2000 was $14.4 million.
In an effort to augment its core retail and broker production, the Company
hired certain of the retail and broker loan production employees, and acquired
certain assets including loans in process, of another sub-prime mortgage lender
during the March 2000 quarter.
The following table sets forth the number of retail branch and broker
offices operated by the Company at March 31, 2000 and 1999:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Retail branch offices....................................... 101 101
Broker offices.............................................. 7 44
</TABLE>
The decline between March 31, 2000 and 1999 in the number of broker offices
reflects the Company's decision, as part of cost reduction efforts, to close
unprofitable branches and to regionalize its back office operations including
the underwriting, loan processing and appraisal review functions while
maintaining its national network of loan officers dealing with individual loan
brokers within its markets across the country.
LOAN SECURITIZATIONS AND SALES. As a fundamental part of its business and
financing strategy, the Company sells its loans to third party investors in the
secondary market as market conditions allow. The Company maximizes opportunities
in its loan disposition transactions by disposing of its loan production through
a combination of securitizations and whole loan sales, depending on market
conditions, profitability and cash flows. The Company generally realizes higher
gain on sale on securitization than it does on whole loan sales for cash. The
higher gain on sale in securitizations transactions is attributable to the
excess servicing spread and mortgage servicing rights associated with retaining
a residual interest and the servicing on the mortgage loans in the
securitization, respectively, net of transactional costs. Generally, in a
securitization, the underlying securities are over-collateralized by the Company
depositing a combination of mortgage loans with a principal balance exceeding
the principal balance of the securities, and cash into the securitization, which
requires a cash outflow. In whole loan sales with servicing released, the gain
on sale is generally lower than gains realized in securitizations, but the
Company receives the gain in the form of cash.
14
<PAGE>
The following table sets forth certain information regarding the Company's
securitizations and whole loan sales during the three and nine months ended
March 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Loans pooled and sold in securitizations......... $ -- $ -- $ 803,557 $ 650,000
Whole loan sales................................. 434,854 393,914 912,072 940,138
-------- -------- ---------- ----------
Total loans securitized and sold............... $434,854 $393,914 $1,715,629 $1,590,138
======== ======== ========== ==========
</TABLE>
During the three months ended March 31, 2000, based upon its review of
market conditions, profitability and the cash flow needs of the Company, the
Company determined to dispose of its loan production solely through whole loan
sales for cash. The Company's loan dispositions during the nine months ended
March 31, 2000 reflected the Company's business strategy of a combination of
securitizations and whole loan sales. The Company is evaluating market and other
conditions and has not yet determined whether or not it will complete a
securitization during the quarter ended June 30, 2000. During the three and six
months ended March 31, 1999, the Company determined to rely solely on whole loan
sales for cash based on its review of market conditions that occurred in early
fiscal 1999 rendering the asset-backed market inaccessible to, or impractical
for, the Company's loan disposition activities. During the nine months ended
March 31, 1999, the Company completed one $650.0 million securitization
transaction, which occurred in the September 1998 quarter.
LOAN SERVICING. The Company retains the servicing on the loans it
securitizes. However, the Company generally does not retain servicing on loans
it sells in whole loan sales. The Company believes that the business of loan
servicing provides a more consistent revenue stream and is less cyclical than
the business of loan origination and disposition. The following table sets forth
certain information regarding the Company's servicing portfolio at March 31,
2000 and 1999 and June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
-------------------------- ----------
2000 1999 1999
---------- ---------- ----------
<S> <C> <C> <C>
Servicing portfolio............... $3,684,000(1) $4,045,000(2) $3,841,000(3)
Serviced in-house................. 3,386,000(1) 4,045,000(2) 3,428,000(3)
</TABLE>
- ------------------------
(1) Includes $139.1 million of loans subserviced for others by the Company on an
interim basis.
(2) Includes $193.9 million of loans subserviced for others by the Company on an
interim basis.
(3) Includes $84.0 million of loans subserviced for others by the Company on an
interim basis.
The Company's loan servicing portfolio at March 31, 2000 decreased to
$3.7 billion from $3.8 billion reported at June 30, 1999, and $4.0 billion
reported at March 31, 1999, reflecting loan servicing portfolio run-off during
the respective periods partially offset by the Company's $803.6 million of
securitizations during the nine and twelve months ended March 31, 2000. The
growth of the Company's servicing portfolio will be impacted by the Company's
business strategy of loan dispositions through whole loan sales with servicing
released as well as securitizations which will result in lower growth than
historical periods when the Company predominately sold its loan production in
securitizations. Should prepayments be faster in future periods, such portfolio
run off could lead to a smaller servicing portfolio in spite of securitization
activity. See "Risk Factors."
15
<PAGE>
The delinquency rate at March 31, 2000 declined to 14.2% from 14.5% at
December 31, 1999 and 15.7% at June 30, 1999. The decline in delinquencies is
due primarily to the Company's strategy of increasing early collection
intervention efforts on one payment delinquencies within applicable grace
payment periods. A decline in delinquencies generally reduces the Company's
servicing advance obligations. The Company has historically experienced
delinquency rates that are higher than those prevailing in this industry due to
its origination of lower credit grade loans. As previously reported, in more
recent quarters the Company has discontinued its bulk purchase of correspondent
loans, increased its focus on higher credit grade loans and discontinued certain
broker programs which the Company believes will cause delinquencies in the
Company's servicing portfolio to decrease in the future. The Company's sale of a
portion of its loan production in the whole loan market on a servicing released
basis will diminish growth of the servicing portfolio. A slow growing or
declining portfolio could cause delinquency rates to rise. See "Results of
Operations--Revenue."
At March 31, 2000, of the Company's $3.7 billion servicing portfolio, 91.9%
was serviced in-house compared to 100% of the Company's $4.0 billion servicing
portfolio serviced in-house at March 31, 1999. During the quarter ended
June 30, 1999, in order to reduce its servicing advance obligations, the Company
entered into an arrangement with a loan servicing company whereby that servicing
company purchased certain cumulative advances and agreed to make future
servicing advances with respect to an aggregate of $388.0 million
($297.5 million at March 31, 2000) in principal amount of loans.
CERTAIN ACCOUNTING CONSIDERATIONS
ACCOUNTING FOR SECURITIZATIONS. The Company's loan disposition strategy
relies on a combination of securitization transactions and whole loan sales. See
"General--Loan Securitization and Sales." The following discusses certain
accounting considerations which arise only in the context of securitization
transactions.
In a securitization, the Company conveys loans that it has originated or
purchased to a separate entity (such as a trust or trust estate) in exchange for
cash proceeds and an interest in the loans securitized represented by the
non-cash gain on sale of loans. The cash proceeds are raised through an offering
of the pass-through certificates or bonds evidencing the right to receive
principal payments on the securitized loans and the interest rate on the
certificate balance or on the bonds. The non-cash gain on sale of loans
represents the difference between the proceeds (including premiums) from the
sale, net of related transaction costs, and the allocated carrying amount of the
loans sold. The allocated carrying amount is determined by allocating the
original cost basis amount of loans (including premiums paid on loans purchased)
between the portion sold and any retained interests (residual interests), based
on their relative fair values at the date of transfer. The residual interests
represent, over the estimated life of the loans, the present value of the
estimated future cash flows. These cash flows are determined by the excess of
the weighted average coupon on each pool of loans sold over the sum of the
interest rate paid to investors, the contractual servicing fee (currently .50%),
a monoline insurance fee, if any, and an estimate for loan losses. In quarters
where the Company engaged in a securitization transaction, net gains or losses
in valuation of residual interests and mortgage servicing rights include the
recognition of a gain or loss which represents the initial difference between
the allocated carrying amount and the fair market value of the residual
interests at the date of sale. Each agreement that the Company has entered into
in connection with its securitizations requires either the overcollateralization
of the trust or the establishment of a reserve account that may initially be
funded by cash deposited by the Company.
The Company determines the present value of the cash flows at the time each
securitization transaction closes using certain estimates made by management at
the time the loans are sold. These estimates include: (i) future rate of
prepayment; (ii) discount rate used to calculate present value; and
(iii) credit losses on loans sold. The future cash flows represent management's
best estimate. Management monitors the performance of the loans, and any changes
in the estimates are reflected in earnings. There can be no assurance of the
accuracy of management's estimates.
16
<PAGE>
The residual interests are recorded at estimated fair value and are marked
to market through a charge (or credit) to earnings. On a quarterly basis, the
Company reviews the fair value of the residual interests by analyzing current
interest rates, and its prepayment, discount rate and loss assumptions in
relation to its actual experience and current rates of prepayment and loss
prevalent in the industry. As a result of this review, the Company may adjust or
take a charge to earnings to reflect the valuation of its residual interests. In
its regular quarterly review of its residual interests during the three months
ended March 31, 2000, the Company considered the historical performance of its
securitized loan pools, the recent prepayment experience of those pools, the
credit performance of previously securitized loans and other industry data and
determined that a $47.3 million write-down of its residual interest assets was
warranted. Of the $47.3 million adjustment, approximately $35.0 million related
to its credit loss assumptions. During the three months ended March 31, 2000 and
in response to rising interest rates in the money markets, the Company further
adjusted its residual interest assets to primarily reflect interest rate
increases and the differences between the pass through rates in the securitized
pools and the loans in the pools. Results for the nine months ended March 31,
2000 also include the previously reported $30.2 million residual interest
adjustment recorded during the December 1999 quarter. See "Credit Losses" below.
RATE OF PREPAYMENT. The estimated life of the securitized loans depends
on the assumed annual prepayment rate which is a function of estimated
voluntary (full and partial) and involuntary (liquidations) prepayments. The
prepayment rate represents management's expectations of future prepayment
rates based on prior and expected loan performance, the type of loans in the
relevant pool (fixed or adjustable rate), the production channel which
produced the loan, prevailing interest rates, the presence of prepayment
penalties, the loan-to-value ratios and the credit grades of the loans
included in the securitization and other industry data. The rate of
prepayment may be affected by a variety of economic and other factors. For
the quarters up to and including September 30, 1998, prepayment rates used
by the Company were held constant, i.e. flat, over the life of the pool. The
estimates used by the Company for the quarters up to and including
September 30, 1998 were flat prepayment rates ranging from 26% for fixed to
30.5% for adjustable and hybrid loan products. These rates represented a
weighted average loan life of approximately 2.6 to 3.8 years. During the
quarter ended December 31, 1998, the Company changed its estimate of
prepayment rates from a flat prepayment rate to a vectored rate, which more
closely approximates the performance of the securitized loans. The new
vectored prepayment rates peak at approximately 29% for fixed and
approximately 42% to 57% for adjustable rate loans. These revised prepayment
rates resulted in a weighted average life of approximately 2.9 years.
As previously reported, during the three months ended December 31, 1999,
the Company evaluated actual prepayment trends of mortgage loans in its
securitized pools. The Company changed and adjusted its estimate of
prepayment rates to peak at approximately 27% for fixed rate mortgage loans
and approximately 39% to 53% for adjustable rate mortgage loans. These
revised prepayment rates result in a weighted average life of approximately
3.2 years. The impact of the change in prepayment speed assumptions amounted
to a favorable adjustment of approximately $21.1 million to the Company's
residual assets during the three months ended December 31, 1999. During the
three months ended March 31, 2000, the Company's evaluation of its
prepayment rate assumptions considered recent prepayment experience of its
securitized pools and determined that no adjustment of its prepayment
assumption was warranted.
DISCOUNT RATE. In order to determine the fair value of the cash flow
from the residual interests, the Company discounts the cash flows based upon
rates prevalent in the market. For the quarters up to and including
September 30, 1998, the Company used the weighted average interest rates of
the loans included in the pool as the best estimate available as an
appropriate discount rate to determine fair value. As the market
deteriorated in the quarter ended December 31, 1998, it became apparent that
a change in discount rate would be required in order for the estimate of
fair value to be consistent with market conditions. Since the quarter
commencing with the quarter ended December 31, 1998,
17
<PAGE>
the Company has used a discount rate of 15% to reflect current market
conditions and the appropriate rate of return given the inherent risk of the
related asset.
CREDIT LOSSES. In determining the estimate for credit losses on loans
securitized, the Company uses assumptions that it believes are reasonable
based on information from its prior securitizations, the loan-to-value
ratios and credit grades of the loans included in the securitization, loss
and delinquency information by origination channel, and information
available from other market participants such as investment bankers, credit
providers and credit agencies. On a quarterly basis, the Company
re-evaluates its estimate for credit losses.
The Company incurred losses on liquidations of $25.4 million and
$14.8 million during the three months ended March 31, 2000 and 1999,
respectively. The Company incurred losses on liquidations of $67.3 million
for the nine months ended March 31, 2000 compared to losses of
$35.4 million for the nine months ended March 31, 1999. The increase in
losses on liquidations principally reflects losses in the portfolio of lower
credit grade correspondent loans purchased in bulk sales and broker loans
originated through programs which have been discontinued, together with the
Company's efforts to improve its liquidity by accelerating delinquent loan
loss resolution through early disposition of REO and acceptance of less than
full principal payoffs in certain cases and other loss mitigation steps. As
previously disclosed, the Company has also incurred losses on mortgage loans
having lower than average balances and secured by properties having low
appraised values. Although such loans were originated by correspondents and
brokers with whom the Company has since ceased doing business, the Company
may incur continued losses on these loans. While the Company has eliminated
its bulk purchase program, the seasoning of the lower grade bulk portfolio
may continue to contribute to increased losses over time. The Company
believes that its practice of early disposition of REO and accepting short
principal payoffs in certain cases is more cost effective than incurring
longer-term, and generally higher costs (including interest advances in the
securitizations) associated with extended REO holding periods or with
migration of delinquent loans through the foreclosure process. Moreover, the
Company believes its efforts in early problem credit intervention result in
higher loss trends in the near term, but decrease the absolute level of
losses.
The Company previously disclosed that if actual losses exceeded
management's assumptions, the Company would be required to take a charge to
earnings. In light of recent higher than expected losses on liquidations and
based upon management's assessment of the aforementioned factors considered
in developing its credit loss estimate, during the three months ended
March 31, 2000 the Company adjusted its prospective cumulative loss estimate
to 4.1% of the remaining balance of loans in its securitized pools. The
change in the credit loss estimate resulted in a $35.0 million write-down to
the Company's residual interest assets during the three months ended
March 31, 2000. The Company closely monitors its residual interests and
should higher loss levels continue, it will incorporate this factor into its
normal quarterly valuation of its residual interests.
As previously reported, during the three months ended December 31, 1999,
the Company adjusted its prospective cumulative loss estimate in light of
higher than expected credit loss experience existing at that time. The
change in the credit loss estimate resulted in a $51.3 million unfavorable
adjustment (partially offset by a $21.1 million favorable valuation
adjustment to the prepayment speed assumptions) to the Company's residual
interest assets during the December 31, 1999 quarter. The increase in the
prospective cumulative estimate was primarily related to then current credit
loss experience related to loans purchased in bulk transactions from
correspondents during fiscal years 1996 and 1997, and loans acquired through
certain brokers during the same period. As previously reported, the Company
has eliminated its bulk purchase program; however, the seasoning of the
lower credit grade bulk portfolio may continue to contribute to an increase
in losses over time.
Additionally, upon sale or securitization of servicing retained mortgages,
the Company capitalizes the fair value of MSRs assets separate from the loan.
The Company determines fair value based on the present
18
<PAGE>
value of estimated net future cash flows related to servicing income. The
Company uses an interest rate of 15% to discount these cash flows. The
capitalized cost basis allocated to the servicing rights is amortized over the
period of estimated net future servicing fee income. The Company periodically
reviews the valuation of capitalized servicing rights. This review is performed
on a disaggregated basis for the predominant risk characteristics of the
underlying loans which are loan type and origination date. During the three
months ended March 31, 2000, management determined that no adjustment of its
assumptions underlying the valuation of the Company's MSR's was necessary.
Results for the nine months ended March 31, 2000 include the previously reported
$5.0 million charge to income in the December 1999 quarter for the Company's
adjustment of its MSR's reflecting management's estimate of the effects of
increased costs associated with the Company's increased early intervention
efforts in servicing delinquencies in the portfolio.
NEW PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133,
'Accounting for Derivative Instruments and Hedging Activities.' ("SFAS 133") In
July 1999, the FASB issued SFAS 137 which deferred the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. SFAS No. 133 requires
companies to record derivatives on the balance sheet as assets and liabilities,
measured at fair value. Gains and losses resulting from changes in the values of
those derivatives would be accounted for in earnings. Depending on the use of
the derivative and the satisfaction of other requirements, special hedge
accounting may apply. At and during the nine months ended March 31, 2000, the
Company had no freestanding derivative instruments in place and believes it had
no material amounts of embedded derivative instruments as defined by SFAS
No. 133. Based upon the Company's analysis of the applicability of SFAS
No. 133, which the Company is continuing to formalize, the adoption of this
standard is not expected to have a materially adverse effect on the Company's
consolidated financial statements.
RESULTS OF OPERATIONS--THREE AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999
The following table sets forth information regarding the components of the
Company's revenue and expenses for the three and nine months ended March 31,
2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Gain on sale of loans............................ $ 9,053 $ 8,236 $ 40,403 $ 36,665
Write-down of residual interests and mortgage
servicing rights............................... (47,300) (8,100) (82,490) (194,551)
Origination fees................................. 7,671 10,283 29,429 32,067
Loan servicing................................... 3,958 7,559 12,133 20,675
Interest income.................................. 24,627 18,836 72,387 45,296
-------- -------- --------- ---------
Total revenue, including write-down................ (1,991) 36,814 71,862 (59,848)
-------- -------- --------- ---------
Expenses:
Compensation..................................... 25,922 21,759 71,404 65,460
Production....................................... 5,805 9,390 21,420 30,879
General and administrative....................... 14,204 11,300 45,506 38,472
Interest......................................... 13,010 9,474 39,444 31,759
Nonrecurring servicing receivable................ -- 37,044 -- 37,044
-------- -------- --------- ---------
Total expenses..................................... 58,941 88,967 177,774 203,614
-------- -------- --------- ---------
Loss before income taxes........................... (60,932) (52,153) (105,912) (263,462)
Provision (benefit) for income taxes............... 533 (16,174) 2,458 (29,582)
-------- -------- --------- ---------
Net loss........................................... $(61,465) $(35,979) $(108,370) $(233,880)
======== ======== ========= =========
</TABLE>
19
<PAGE>
REVENUE
Total revenue for the three months ended March 31, 2000 was $(2.0) million
as compared to $36.8 million reported in the comparable three month period in
1999. Total revenue for the nine months ended March 31, 2000 was $71.9 million,
up $131.7 million from the $(59.8) million for the nine months ended March 31,
1999. Included in total revenues for the three and nine months ended March 31,
2000 is a $47.3 million write-down of the Company's residual interests resulting
primarily from the Company's regular quarterly evaluation of the carrying values
of such residual assets which indicated that a valuation adjustment of
approximately $35.0 million was warranted due to the credit loss experience of
loans in its securitized trusts. In response to rising interest rates in the
money markets, the Company further adjusted its residual interest assets
downward to primarily reflect interest rate increases and the differences
between the pass through rates in the securitized pools and the loans in the
pools. Also included in total revenues for the nine months ended March 31, 2000
is the previously reported $35.2 million write-down of the Company's residual
interests and MSR's taken during the quarter ended December 31, 1999. See
"Certain Accounting Considerations--Accounting for Securitizations--Credit
Losses." As previously reported, included in total revenues for the three and
nine months ended March 31, 1999 was a nonrecurring charge in the amount of
$37.0 million and an $8.1 million valuation adjustment to the Company's MSR's.
Also included in total revenues for the nine months ended March 31, 1999 is a
$191.6 million write-down of the Company's residual interests charged against
income during the three months ended December 31, 1998.
Gain on sale for the three months ended March 31, 2000 was $9.1 million, an
$817,000 increase from the $8.2 million gain on sale reported during the
comparable three month period a year ago. Gain on sale for the three months
ended March 31, 2000 and 1999 reflects the Company's sole reliance on whole loan
sales for cash in those periods as its loan disposition strategy. The Company
determined to dispose of its loan production solely through whole loan sales
during the quarter ended March 31, 2000 based upon its review of market
conditions, profitability and cash flow needs of the Company. During the three
months ended March 31, 2000, the Company disposed of $434.9 million of loans in
whole loan sale transactions, up $41.0 million from the $393.9 million of whole
loan sales consummated during the comparable period a year earlier. The gains on
sale recognized during the three months ended March 31, 2000 were generally
higher than gains recognized during the comparable three month period in 1999.
This is attributable to the increased volume of loans sold in the March 2000
quarter over that in the March 1999 quarter and to generally better market
conditions prevailing during the March 2000 quarter compared to the same period
a year ago. Furthermore, gains on whole loan sales during the March 1999 quarter
were negatively impacted by the Company's need to dispose of loans on an
expedited basis during the first half of the quarter to free up limited
warehouse capacity existing at that time. Gain on sale for the nine months ended
March 31, 2000 was $40.4 million, a $3.7 million increase from the
$36.7 million gain on sale reported in the comparable nine month period in 1999.
During the nine months ended March 31, 2000, the Company securitized
$803.6 million of loans and sold $912.0 million of loans in whole loan sales.
During the comparable nine month period in 1999, the Company securitized
$650.0 million of loans and sold $940.1 million of loans in whole loan sales.
The gain on sale for the securitizations in the nine months ended March 31, 2000
were lower than historical gains due to, among other things, market conditions
at the time of the securitizations and the Company's adoption of revised gain
related assumptions during the December 31, 1998 quarter. As previously
reported, gain on sale for the nine months ended March 31, 1999 was adversely
affected by a $13.5 million hedge loss recorded in the period. As of and during
the nine months ended March 31, 2000, the Company had no hedge positions in
place.
Origination fee revenue during the three months ended March 31, 2000 was
$7.7 million, down $2.6 million, or 25.4% from $10.3 million during the three
months ended March 31, 1999. Origination fee revenue is primarily comprised of
points charged on mortgage loans originated by the Company and, to a lesser
extent, other fees charged in the loan origination process. Origination fee
revenue in the form of points is primarily a function of the volume of mortgage
loans originated by the Company through its retail channel, the credit grade of
the loans originated and the weighted average points charged on such loans.
20
<PAGE>
The decrease in origination fee revenue during the March 2000 quarter occurred
despite an increase in retail loan production during the period, reflecting
recent changes in the Company's pricing strategies that place a higher emphasis
on coupon rates rather than points at origination and a focus on higher credit-
quality borrowers. Deferred origination fee revenue recognized during the period
is attributable to the mix in the composition of loans being either securitized
or sold in whole loan sales in excess of the loans originated during the same
periods. The recognition or deferral of deferred origination fee revenue during
a period coincides with the recognition or deferral of deferred compensation
expense during the same period. See "Expenses--Compensation." Origination fee
revenue for the three months ended March 31, 2000 is net of $181,000 of
origination fee revenue deferred to future periods. Origination fee revenue for
the three months ended March 31, 1999 includes $21,000 of deferred origination
fee revenue recognized during the period relating to prior periods' loan
production. Net of the effects of the recognition or deferral of deferred
origination fee revenue, during the three months ended March 31, 2000
origination fee revenue decreased $2.4 million to $7.9 million from
$10.3 million during the comparable period a year ago.
Origination fee revenue during the nine months ended March 31, 2000 was
$29.4 million, down $2.6 million, or 8.2% from $32.1 million during the nine
months ended March 31, 1999. Origination fee revenue for the nine months ended
March 31, 2000 includes $2.0 million of deferred origination fee revenue
recognized during the period relating to prior periods' loan production.
Origination fee revenue for the nine months ended March 31, 1999 is net of
$1.8 million of origination fees deferred to future periods. Net of the effects
of recognition or deferral of deferred origination fee revenue, during the nine
months ended March 31, 2000 origination fee revenue decreased $6.4 million to
$27.4 million from $33.8 million during the comparable period a year ago
reflecting the decrease in the Company's loan production volumes in its retail
units, and the recent changes in the Company's pricing strategies discussed
above.
21
<PAGE>
Loan service revenue consists of prepayment fees, late charges and other
fees retained by the Company, and servicing fees earned on securitized pools,
reduced by the subservicing costs and amortization of the Company's MSRs. Loan
service revenue decreased to $4.0 million in the three months ended March 31,
2000 from $7.6 million during the three months ended March 31, 1999. Loan
service revenue decreased to $12.1 million during the nine months ended
March 31, 2000 from $20.7 million during the comparable nine month period in
1999. During the quarter ended June 30, 1999, the Company entered into three
arrangements in order to reduce its servicing advance obligations. In the first
arrangement, a loan servicing company purchased certain servicing related
advances and agreed to make future servicing advances with respect to an
aggregate of $388.0 million ($297.5 million at March 31, 2000) in principal
amount of loans. In the second arrangement, an investment bank purchased certain
servicing related advances from the Company. In the third arrangement, the
Company and the same investment bank entered into a transaction pursuant to
which the investment bank undertook the obligation to make a substantial portion
of the Company's advance obligations on its pre-1999 securitization trusts. On
February 25, 2000, the Company entered into two additional arrangements with the
same investment bank pursuant to which the investment bank purchased certain
servicing related advances and agreed to undertake the obligation to make a
substantial portion of the Company's advance obligations on its 1999
securitization trusts. The decrease in loan service revenue during the three and
nine months ended March 31, 2000 from the comparable periods in 1999 was due
primarily to expenses incurred in the periods for those arrangements, which were
not in place a year ago. To a lesser extent, the decrease is due to the decline
in prepayment fee income and in the balance of loans serviced by the Company
during the current periods when compared to the 1999 periods. See "General--Loan
Servicing."
During the nine months ended March 31, 2000, losses on liquidations of loans
increased to $67.3 million from $35.4 million in the comparable prior year
period primarily due to the seasoning of the lower credit grade loans purchased
in bulk and included in the Company's earlier trusts. See "Certain Accounting
Considerations--Accounting for Securitizations--Credit Losses." Further, the
adverse market conditions that have existed since the fall of 1998 have resulted
in the tightening in underwriting guidelines by purchasers of whole loans and
the insolvency of several large subprime home equity lenders. These factors have
had the effect of decreasing the availability of credit to delinquent lower
credit grade borrowers who in the past had avoided default by refinancing.
Included in the Company's results for the three and nine months ended March 31,
2000 are $35.0 million and $65.2 million, respectively, of charges to income
reflecting the Company's evaluation of the trends in credit losses and their
impact on the residual interest asset. See "Certain Accounting
Considerations--Accounting for Securitizations--Credit Losses."
21
<PAGE>
The following table sets forth delinquency, foreclosure, and loss
information of the Company's servicing portfolio at and for the periods
indicated:
<TABLE>
<CAPTION>
MARCH 31, YEAR ENDED JUNE 30,
----------------------- ------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Percentage of dollar amount of
delinquent loans to loans
serviced (period end)
(1)(2)(3)(4)
One month.......................... 1.8% 3.0% 2.4% 3.8% 4.3%
Two months......................... 0.8% 1.0% 1.0% 1.3% 1.9%
Three or more months:
Not foreclosed(4)(5)............... 9.5% 10.5% 10.3% 9.0% 8.1%
Foreclosed(6)...................... 2.1% 1.9% 2.0% 1.5% 1.0%
---------- ---------- ---------- ---------- ----------
Total............................ 14.2% 16.4% 15.7% 15.6% 15.3%
========== ========== ========== ========== ==========
Percentage of dollar amount of
loans foreclosed during the
period to servicing
portfolio(4)(8).................. 2.8% 2.3% 2.9% 2.0% 1.5%
Number of loans foreclosed during
the period(6).................... 1,454 1,284 1,680 1,125 560
Principal amount of foreclosed
loans during the period.......... $ 106,161 $ 93,896 $ 122,445 $ 84,613 $ 48,029
Net losses on liquidations during
the period(7).................... $ 67,291 $ 35,439 $ 51,730 $ 26,488 $ 5,470
Percentage of annualized losses to
servicing portfolio(4)(8)........ 2.3% 1.1% 1.2% 0.7% 0.2%
Servicing portfolio at period
end.............................. $3,684,000 $4,045,000 $3,841,000 $4,147,000 $3,174,000
</TABLE>
- ------------------------
(1) Delinquent loans are loans for which more than one payment is due.
(2) The delinquency and foreclosure percentages are calculated on the basis of
the total dollar amount of mortgage loans serviced by the Company, and any
subservicers as of the end of the periods indicated.
(3) At March 31, 2000, the dollar volume of loans delinquent more than 90 days
in twelve of the Company's REMIC trusts, exceeded the permitted limit in the
related pooling and servicing agreements. Four of the aforementioned REMIC
trusts plus two additional REMIC trusts have also exceeded certain loss
limits. See "--Certain Accounting Considerations" and "--Risk Factors".
(4) The servicing portfolio used in the percentage calculations includes loans
subserviced for others by the Company on an interim basis of $139.1 million,
$193.9 million, $84.0 million, $82.0 million and $-0- for the periods ended
March 31, 2000, March 31, 1999, June 30, 1999, June 30, 1998 and June 30,
1997, respectively.
(5) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded
(6) Represents properties acquired following a foreclosure sale and still
serviced by the Company.
(7) Represents losses, net of gains, on foreclosed properties sold during the
period indicated.
(8) The percentages for periods subsequent to June 30, 1998 were calculated to
reflect the dollar volume of loans foreclosed or annualized losses, as the
case may be, to the average dollar amount of mortgage loans serviced by the
Company and any subservicers during the related periods indicated.
22
<PAGE>
Interest income includes interest on loans held for sale, interest on
short-term overnight investments and accretion income associated with the
Company's residual interests. Interest income during the three months ended
March 31, 2000 increased $5.8 million to $24.6 million from $18.8 million during
the three months ended March 31, 1999. During the nine months ended March 31,
2000, interest income was $72.4 million, up $27.1 million, from $45.3 million
reported during the comparable period a year ago. Interest income increased
during the three and nine months ended March 31, 2000 over the comparable 1999
periods due primarily to higher accretion on Company's residual interests due to
a higher level of residuals recorded as a consequence of securitization activity
in the 2000 periods that was absent a year ago, and use of a higher discount
rate during the nine months ended March 31, 2000 over the comparable period in
1999. To a lesser extent, the increase in interest income is attributable to
weighted average interest rates on higher balances of loans held for sale during
the three and nine months ended March 31, 2000 when compared to such rates and
balances during the comparable periods in 1999.
EXPENSES
Compensation expense during the three months ended March 31, 2000 increased
$4.2 million, or 19.1%, to $25.9 million from $21.8 million during the three
months ended March 31, 1999. This increase was primarily due to $2.6 million of
non-recurring severance costs incurred in the quarter ended March 31, 2000, and,
to a lesser extent, incentive compensation, bonus awards, and hiring certain
employees during the quarter ended March 31, 2000. Compensation expense for the
three months ended March 31, 2000 and March 31, 1999 includes $163,000 and
$866,000, respectively, of deferred direct compensation costs associated with
loans originated in prior periods that were disposed of in whole loan sales
consummated during the quarter. Net of the effects of the recognition or the
deferral of direct compensatory costs, compensation expense during the quarter
ended March 31, 2000 increased $4.9 million to $25.8 million from $20.9 million
during the comparable period a year ago.
Compensation expense during the nine months ended March 31, 2000 increased
$5.9 million, or 9.1%, to $71.4 million from $65.5 million during the nine
months ended March 31, 1999. Compensation expense for the nine months ended
March 31, 2000 includes $3.2 million of deferred direct compensation costs
associated with loans originated in prior periods that were disposed of in
either whole loans sales or in the securitization consummated during the period,
and also includes $3.6 million of nonrecurring severance costs. Compensation
expense for the nine months ended March 31, 1999 is net of $618,000 of direct
compensation income associated with loans originations which were deferred to
future periods pending disposition of the loans in either whole loans sales or
securitizations. Net of the effects of the recognition or the deferral of direct
compensatory costs, compensation expense for the nine months ended March 31,
2000 increased $2.1 million to $68.2 million from $66.1 million during the
comparable period from a year ago. This increase is attributable to the
nonrecurring severance costs and, to a lesser extent, incentive compensation,
bonus awards, and hiring certain employees during the quarter ended March 31,
2000.
Production expense, primarily advertising, outside appraisal costs, travel
and entertainment, and credit reporting fees is generally related to the
Company's loan origination volume. Production expense during the three months
ended March 31, 2000 decreased $3.6 million, or 38.2%, to $5.8 million from $9.4
million during the three months ended March 31, 1999. During the nine months
ended March 31, 2000, production expense decreased $9.5 million, or 30.6% to
$21.4 million from $30.9 million during the comparable period in 1999. The
decreases in production expense during the three and nine months ended
March 31, 2000 from the comparable periods in 1999 is due primarily to the
Company's cost reduction efforts, which include closing smaller, less productive
retail branch offices, and reducing its advertising expenses by improving the
efficiency and penetration of its advertising strategies. Additionally, in
December 1999, in an effort to further reduce production costs, the Company
commenced the practice of having prospective borrowers pay for appraisal costs
prior to incurrence of the appraisal expense during the loan origination process
whenever possible. Prior thereto, the Company did not charge customers for
appraisals unless and until their loans closed, and absorbed as a production
expense appraisal costs incurred for loan
23
<PAGE>
applications where the prospective applicants' loans were not closed and funded.
Production expense expressed as a percentage of total loan origination volume
for the three months ended March 31, 2000 was 1.3% compared to 2.3% during the
comparable three month period in 1999. The decrease in the percentage reflects
the decline in production expense during the March 2000 quarter from the 1999
quarter despite a $45.0 million increase in total loan production between the
two periods. Production expense expressed as a percentage of total loan
origination volume for the nine months ended March 31, 2000 decreased to 1.4%
from 1.8% during the comparable nine month period in 1999, because the 30.6%
decline in production expense more than offset the 7.5% decline in total
origination volume for the nine months ended March 31, 2000 from the same period
in the previous year.
General and administrative expenses increased $2.9 million and $7.0 million
to $14.2 million and $45.5 million during the three and nine months ended
March 31, 2000 from $11.3 million and $38.5 million during the comparable three
and nine month periods in 1999. The increases were primarily attributable to the
Company's decision to utilize outside professional advisors on specific
operational projects, primarily to support the two servicing advance facilities
the Company put in place to reduce its servicing advance obligations, and
miscellaneous operational charges taken by the Company, partially offset by
declines in the Company's communication and miscellaneous expenses. As
previously reported, at December 31, 1999, the Company reviewed its accounts
receivable consisting of servicing advances made by the Company in connection
with its securitized pools and valued such receivables to reflect their fair
market value at December 31, 1999. This valuation resulted in a write-down in
the amount of $2.0 million and was recorded in the quarter ended December 31,
1999. As part of the Company's on-going costs savings program, it ceased
activities in certain branches that were deemed unprofitable by management or as
part of the regionalization of branches in the broker network. The office space
for some of the closed branches remains subject to operating leases that
management is attempting to sublease or terminate. The Company is also
attempting to sublet significant space at its headquarter office located at 350
South Grand Avenue in downtown Los Angeles. If the Company agrees to sublease
such space at lease rates significantly less than existing base lease terms or
if the lease commitments are bought out as a consequence of a negotiated lease
termination, the Company could incur a significant one-time charge.
Interest expense increased $3.5 million and $7.7 million to $13.0 million
and $39.4 million for the three and nine months ended March 31, 2000,
respectively, from $9.5 million and $31.8 million for the comparable three and
nine month periods in 1999, respectively. The increase in interest expense in
the three and nine months ended March 31, 2000 from levels reported in the
comparable 1999 periods resulted primarily from increased borrowings at higher
interest rates under various revolving warehouse and repurchase facilities to
fund the origination and purchase of mortgage loans prior to their
securitization or sale in the secondary market. Interest expense is expected to
increase in future periods due to the Company's continued reliance on external
financing arrangements to fund its operations.
INCOME TAXES
During the three and nine months ended March 31, 2000, the Company recorded
an income tax provision of $533,000 and $2.5 million, respectively, and such
provisions relate exclusively to the Company's estimated tax on excess inclusion
income on its REMIC trusts. During the three and nine months ended March 31,
1999, the Company recorded estimated tax benefits of $16.2 million and $29.6
million, respectively, which were net of tax valuation adjustments recorded to
account for estimated non-realizable deferred tax assets. The investment in the
Company by Capital Z resulted in a change in control for income tax purposes
thereby limiting future net operating loss and certain other future deductions.
24
<PAGE>
FINANCIAL CONDITION
LOANS HELD FOR SALE. The Company's portfolio of loans held for sale
decreased to $383.3 million at March 31, 2000 from $559.9 million at June 30,
1999. The decline is due to the Company's $803.6 million of securitizations and
$912.0 million of whole loan sales in the secondary markets during the nine
months ended March 31, 2000, partially offset by the Company's loan production
during the period.
ACCOUNTS RECEIVABLE. Accounts receivable, representing servicing fees and
advances and other receivables, decreased to $46.5 million at March 31, 2000
from $57.0 million at June 30, 1999. Included in accounts receivable at
June 30, 1999 was $25.0 million of estimated proceeds from the Additional
Investment which were subsequently received by the Company in August 1999. The
level of servicing related advances, in any given period, is dependent upon
portfolio delinquencies, the levels of REO and loans in the process of
foreclosure and the timing of cash collections. Net of the $25.0 million of
estimated proceeds from the additional investment, the increase in the Company's
accounts receivable since June 30, 1999 is primarily attributable to advances on
delinquent loans in the two securitization trusts closed during the nine months
ended March 31, 2000 and continued advances on seriously delinquent loans offset
partially by the sale of certain servicing advances during the March 2000
quarter.
RESIDUAL INTERESTS. Residual interests decreased to $297.6 million at
March 31, 2000 from $332.3 million at June 30, 1999 reflecting residual
interests recognized in the Company's securitizations in the nine months ended
March 31, 2000, plus accretion during the same period, net of the $47.3 million
and $30.2 million residual asset write-downs during the quarters ended
March 31, 2000 and December 31, 1999, respectively.
MORTGAGE SERVICING RIGHTS, NET. Mortgage servicing rights, net, decreased
to $14.3 million at March 31, 2000 from $20.9 million at June 30, 1999
reflecting the capitalization of mortgage servicing rights on securitizations
during the nine months ended March 31, 2000, net of amortization during the
period and the $5.0 million write-down during the three months ended
December 31, 1999.
EQUIPMENT AND IMPROVEMENTS, NET. Equipment and improvements, net, decreased
to $10.2 million at March 31, 2000 from $13.5 million at June 30, 1999 due to
depreciation and amortization outpacing equipment and improvement acquisitions
during the nine months ended March 31, 2000.
PREPAID AND OTHER ASSETS. Prepaid and other assets declined to $14.2
million at March 31, 2000 from $15.0 million at June 30, 1999. The $1.7 million
of income tax refunds receivable at June 30, 1999 were realized in cash during
the three months ended September 30, 1999.
BORROWINGS. Amounts outstanding under borrowings at March 31, 2000
decreased to $275.5 million from the $281.2 million outstanding at June 30, 1999
and reflects the Company's $5.8 million scheduled sinking fund payment on its
10.5% Senior Notes during the March 2000 quarter.
REVOLVING WAREHOUSE FACILITIES. Amounts outstanding under revolving
warehouse and repurchase facilities decreased to $386.2 million at March 31,
2000 from $536.0 million at June 30, 1999, primarily as the result of the
decrease in loans held for sale due to whole loan sales and the securitizations
during the nine months ended March 31, 2000, partially offset by the Company's
loan production during the period. Proceeds from whole loan sales and
securitizations are used to reduce balances outstanding under the Company's
revolving warehouse and repurchase facilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require continued access to short-term and
long-term sources of cash. The Company's primary operating cash requirements
include: (i) the funding of mortgage loan originations and purchases prior to
their securitization and sale, (ii) fees, expenses and hedging costs, if any,
incurred in connection with the securitization and sale of loans, (iii)
overcollateralization or reserve requirements in
25
<PAGE>
connection with the securitization, (iv) ongoing administrative, operating, and
tax expenses, (v) interest and principal payments under the Company's warehouse
and repurchase credit facilities and other existing indebtedness, (vi) advances
in connection with the Company's servicing portfolio and (vii) costs associated
with realigning the Company's core production units.
The Company has historically financed its operating cash requirements
primarily through: (i) warehouse and repurchase facilities, (ii) working capital
financing facilities, (iii) the securitization and sale of mortgage loans, and
(iv) the issuance of debt and equity securities.
WAREHOUSE AND REPURCHASE FACILITIES. The Company generally relies on
warehouse and repurchase facilities to originate and purchase mortgage loans and
hold them prior to securitization or sale. At March 31, 2000, the Company had
committed revolving warehouse and repurchase facilities in the amount of $715.0
million (excluding the $35.0 million non-revolving subline described more fully
below). During the quarter ended March 31, 2000, the $150.0 million Concurrent
Funding Facility expired and was not renewed. During the March 31, 2000 quarter,
the Company renewed the $90.0 million committed and $100.0 million uncommitted
revolving warehouse facility which expired and increased the committed borrowing
limit under the facility to $200.0 million, less any outstanding amounts under
the non-revolving subline.
Of the $715.0 million of committed revolving warehouse and repurchase
facilities available to the Company at March 31, 2000, $250.0 million and $165.0
million expire on October 29, 2000 and February 11, 2001, respectively.
Subsequent to March 31, 2000, the remaining $300.0 million committed repurchase
facility expired. The Company renewed the $300.0 million committed repurchase
facility on April 28, 2000 and decreased the borrowing limit thereunder by
$100.0 million to $200.0 million. If certain financial covenants imposed by the
bank are not satisfactorily maintained by the Company through October 31, 2000
or otherwise amended as discussed more fully below, the facility will expire at
that time; otherwise, this facility expires on April 30, 2001. With these recent
renewals, the Company has current borrowing capacity under committed revolving
warehouse and repurchase facilities of $615.0 million (excluding the
$35.0 million non-revolving subline). However, as a result of the Company's
recent financial performance, including the prices the Company has received in
recent whole loan sales, all of the Company's warehouse and repurchase lenders
advance less than 100% of the principal balance of the mortgage loans, requiring
the Company to use working capital to fund the remaining portion of the
principal balance of the mortgage loans.
Until the expiration of the Concurrent Funding Facility on February 29,
2000, the Company used its Concurrent Funding Facility to fund the majority of
its mortgage loans at closing. The Company is not permitted to use its other
revolving warehouse and repurchase facilities to fund mortgage loans at closing;
instead, the Company uses working capital to close mortgage loans. After the
mortgage loans are closed, the Company pledges them under one of its other
revolving warehouse or repurchase facilities to replenish working capital. This
restricted the ability of the Company to fund its mortgage loan production in
March, 2000, which has negatively impacted the profitability of the Company. The
Company is currently seeking a new revolving warehouse or repurchase facility to
fund mortgage loans at closing. However, unless and until a new facility is
negotiated, the Company is required to fund mortgage loans exclusively out of
working capital, and hold them until such mortgage loans can be transferred to
another facility or sold to SFP. If future loan fundings are reduced due to a
lack of funding or capital alternatives, ongoing operations may be jeopardized,
which would negatively impact profitability and jeopardize the Company's ability
to continue to operate as a going concern.
All of the Company's revolving warehouse and repurchase facilities contain
provisions requiring the Company to meet certain periodic financial covenants,
including among other things, minimum liquidity, stockholders' equity, leverage,
and net income levels. Due to the $61.5 million loss for the quarter ended
March 31, 2000, the Company failed to meet certain existing financial covenants
under its revolving warehouse and repurchase facilities at March 31, 2000 and
April 30, 2000 and does not expect to meet
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those covenants at May 31, 2000. The Company is seeking amendments to these
financial covenants from its warehouse and repurchase lenders to bring itself
into compliance. The Company's failure to meet these financial covenants gives
the warehouse and repurchase lenders the right to declare an event of default
and to terminate the warehouse and repurchase facilities, cease funding loans
thereunder and foreclose upon and sell the loans securing the facilities. An
event of default under any one of the Company's warehouse or repurchase
facilities would cross-default the remaining warehouse and repurchase
facilities. Moreover, an acceleration of the indebtedness under the Company's
warehouse or repurchase facilities would result in a default under the Corporate
Debt, which would, in turn, result in an acceleration of such indebtedness. An
acceleration of the maturity of the Corporate Debt would jeopardize the
Company's ability to continue to operate as a going concern. If the Company is
unable to obtain amendments to its warehouse and repurchase facilities, or is
unable to meet these financial covenants going forward, or for any other reason
is unable to maintain existing warehouse or repurchase lines or renew them when
they expire, it would have to cease loan production operations which would
negatively impact profitability and jeopardize the Company's ability to continue
to operate as a going concern.
WORKING CAPITAL FINANCING FACILITIES. The Company has historically relied
on working capital lines to help it fund its servicing advance obligations. In
April 1999, the Company reduced its servicing advance obligations by engaging a
loan servicing company to subservice two of the Company's securitization trusts,
pursuant to which, the loan service company assumed the obligations to make all
future advances on those two trusts. The Company also sold to the loan servicing
company the outstanding servicing advances on those two trusts for approximately
$13.0 million. In June 1999, in order to further reduce its servicing advance
obligations, the Company entered into an arrangement with an investment bank
pursuant to which the bank purchased certain cumulative advances and undertook
the obligation to make a substantial portion of the Company's advance
obligations on its pre-1999 securitization trusts. On February 25, 2000, the
Company entered into an arrangement with the same investment bank pursuant to
which the bank purchased certain additional cumulative advances and agreed to
undertake the obligation to make a substantial portion of the Company's advance
obligations on its existing 1999 securitization trusts.
The Company also requires working capital to originate mortgage loans.
Historically, the Company has had access to warehouse and repurchase facilities
which advanced up to 100% of the principal balance of the mortgage loans to the
Company. However, as a result of the difficult current market conditions which
began in the quarter ended December 31, 1998, and the Company's recent financial
performance, including the prices the Company has received in recent whole loan
sales, all of the Company's warehouse and repurchase lenders advance less than
100% of the principal balance of the mortgage loans, requiring the Company to
use working capital to fund the remaining portion of the principal balance of
the mortgage loans. The Company also requires working capital to fund mortgage
loans at closing. See "Liquidity and Capital Resources--Warehouse and Repurchase
Facilities."
On February 11, 2000, the Company secured $35.0 million in working capital
secured by certain of its residual interests and certain other collateral
through the renewal of a $90.0 million committed warehouse line which expired on
February 9, 2000. The committed warehouse line was increased to $200.0 million
and included a $35.0 million non-revolving subline, which the Company drew down
on February 11, 2000. As part of the transaction, Capital Z, the Company's
largest shareholder, agreed to provide certain credit enhancements to the lender
for a portion of the subline. In connection therewith, the Company agreed to pay
Capital Z a $1 million fee.
Under the terms of the Company's Indenture dated October 21, 1996 with
respect to its 9.125% Senior Notes due 2003, the Company's ability to incur
certain additional indebtedness, including residual financing, is limited to two
times stockholders' equity. Warehouse indebtedness is generally not included in
the indebtedness limitations. As a result of the loss for the quarter ended
December 31, 1999, the Company is restricted from incurring additional
indebtedness as defined in the Indenture. The Company's repurchase and warehouse
facilities also contain limits on the Company's ability to incur additional
indebtedness. Further, until the Company receives investment grade ratings for
the notes issued under the
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Indenture, the amount of assets allocable to post-September 1996 securitizations
which the Company may pledge to secure debt is limited by the Indenture to 75%
of the difference between such post-September 1996 residuals and servicing
advances and $225.0 million. The Company pledged certain residuals to secure the
subline. Under the terms of the subline, the Company is required to pledge
additional residual interests in an amount equal to $10.0 million in order to
maintain the scheduled amortization and maturity of the subline. The Company
does not anticipate having additional residual interests available to finance in
the near term. This could restrict the Company's ability to borrow to provide
working capital as needed in the future.
THE SECURITIZATION AND SALE OF MORTGAGE LOANS. The Company's ability to
sell loans originated and purchased by it in the secondary market through
securitizations and whole loan sales is necessary to generate cash proceeds to
pay down its warehouse and repurchase facilities and fund new originations and
purchases. The ability of the Company to sell loans in the secondary market on
acceptable terms is essential for the continuation of the Company's loan
origination and purchase operations. See "Risk Factors--A Prolonged Interruption
or Reduction in the Secondary Market Would Hurt Our Financial Performance."
The Company securitized $803.6 million of loans held for sale during the
nine months ended March 31, 2000 compared to $650.0 million of loans in the
comparable period a year ago. The gain on sale recognized on securitizations
during the nine months ended March 31, 2000 was lower than historical gains due,
among other things, to market conditions at the time of the securitizations, and
the Company's adoption of the revised assumptions during the quarter ended
December 31, 1998. See "Certain Accounting Considerations--Accounting for
Securitizations." In connection with securitization transactions, the Company is
generally required to provide credit enhancements in the form of
overcollateralization amounts or reserve accounts. In addition, during the life
of the related securitization trusts, the Company subordinates a portion of the
excess cash flow otherwise due it to the rights of holders of senior interests
as a credit enhancement to support the sale of the senior interests. The terms
of the securitization trusts generally require that all excess cash flow
otherwise payable to the Company during the early months of the trusts be used
to increase the cash reserve accounts or to repay the senior interests in order
to increase overcollateralization to specified maximums. Overcollateralization
requirements for certain pools increase up to approximately twice the level
otherwise required when the delinquency rates or realized losses for those pools
exceed the specified limit. As of March 31, 2000, the Company was required to
maintain an additional $64.8 million in overcollateralization amounts as a
result of the level of its delinquency rates and realized losses above that
which would have been required to be maintained if the applicable delinquency
rates and realized losses had been below the specified limit. Of this amount, at
March 31, 2000, $30.7 million remains to be added to the overcollateralization
amounts from future spread income on the loans held by these trusts.
In the Company's securitizations structured as a REMIC, the recognition of
non-cash gain on sale has a negative impact on the cash flow of the Company
since the Company is required to pay federal and state taxes on a portion of
these amounts in the period recognized although it does not receive the cash
representing the gain until later periods as the cash flows are received and
applicable reserve or overcollateralization requirements are met.
During the three and nine months ended March 31, 2000, the Company sold
loans for cash in whole loan sales with servicing released of $434.9 million and
$912.0 million, respectively, compared to $393.9 million and $940.1 million
during the three and nine months ended March 31, 1999, respectively. The Company
currently has in place two forward commitments for whole loan sales. One of the
commitments expires on May 16, 2000 and has a minimum and maximum commitment
amount of $500.0 million and $1.5 billion, respectively, against which
approximately $320.1 million of loans had been sold at March 31, 2000. The other
commitment expires on November 30, 2000 and has a minimum and maximum commitment
amount of $300.0 and $600.0 million, respectively, against which approximately
$326.7 million of loans had been sold at March 31, 2000.
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THE ISSUANCE OF DEBT AND EQUITY SECURITIES. The Company has historically
funded negative cash flow primarily from the sale of its equity and debt
securities. However, current market conditions have restricted the Company's
ability to access its traditional equity and debt sources.
On May 19, 2000 the Company entered into an agreement with SFP, the
Company's lead stockholder which is controlled by Capital Z, for the sale of
$50.0 million of the Company's Series C Convertible Preferred Stock for the
lesser of $0.90 per share, or the average market trading price for the five days
prior to the Initial Closing, plus the issuance of warrants to purchase an
additional 5 million shares of Series C Convertible Preferred Stock at the same
price.
The Company also announced that it will offer to all holders of its Common
Stock and Series C Convertible Preferred Stock other than SFP, and its
affiliates, the right to purchase additional shares of Series C Preferred Stock
at the same price as SFP.
The Company has previously raised $127.9 million through the sale of
preferred stock in several phases to Capital Z and its designees, certain
members of the Company's management and holders of the Company's common stock.
The Company raised $76.8 million in February 1999, $25.0 million in August 1999
and $25.0 million ($4.2 million in the Rights Offering and $20.8 million
pursuant to the Standby Commitment) in October 1999 which was accrued at
September 30, 1999. In October 1999, the Company also issued $1.1 million of
preferred stock to certain management investors. In connection with the sale of
stock to Capital Z, the Company also issued warrants to affiliates and employees
of an affiliate of Capital Z to purchase an aggregate of 500,000 shares of the
Company's common stock for $5.00 per share.
In December 1991, July 1993, June 1995 and October 1996, the Company
effected public offerings and in April 1998 effected a private placement of its
common stock with net proceeds to the Company aggregating $217.0 million. In the
private placement, the Company also issued warrants to purchase an aggregate
additional 1.3 million shares (as adjusted) of the Company's common stock at an
exercise price of $38.35 (as adjusted), subject to customary anti-dilution
provisions. The warrants are exercisable only upon a change in control of the
Company and expire in April 2001. In March 1995, the Company completed an
offering of its 10.5% Senior Notes due 2002 with net proceeds to the Company of
$22.2 million. In February 1996, the Company completed an offering of its 5.5%
Convertible Subordinated Debentures due 2006 with net proceeds to the Company of
$112.0 million. In October 1996, the Company completed an offering of its 9.125%
Senior Notes due 2003 with net proceeds to the Company of $145.0 million. Under
the agreements relating to these debt issuances, the Company is required to
comply with various operating and financial covenants including covenants which
may restrict the Company's ability to pay certain distributions, including
dividends. At March 31, 2000, the Company did not have the ability to pay such
distributions and does not expect to have the ability to pay dividends for the
foreseeable future.
The Company's primary sources of liquidity are expected to be fundings under
revolving warehouse and repurchase facilities and whole loan sales and the
monetization of the Company's servicing advances. See "Liquidity and Capital
Resources." In addition, the Company is in negotiations with an affiliate of
Capital Z for a facility which will allow the Company to sell up to
$75.0 million residual assets created in securitizations over the next
24 months. If the Company's access to warehouse lines, working capital or the
securitization or whole loan markets is restricted, or cash savings are not
realized through the implementation of the Company's cost reduction efforts, the
Company may have to seek additional equity. Further, if available at all, the
type, timing and terms of financing selected by the Company will be dependent
upon the Company's cash needs, the availability of other financing sources,
limitations under debt covenants and the prevailing conditions in the financial
markets. There can be no assurance that any such sources will be available to
the Company at any given time or that favorable terms will be available. As a
result of the limitations described above, the Company may be restricted in the
amount of loans that it will be able to produce and sell. This would negatively
impact profitability and jeopardize the Company's ability to continue to operate
as a going concern.
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RISK MANAGEMENT
The Company is currently re-evaluating its current hedging policy, and at
March 31, 2000 had no hedge transactions in place. While the Company monitors
the interest rate environment and has employed fixed rate hedging strategies in
the past, there can be no assurance that the earnings of the Company would not
be adversely affected during any period of unexpected changes in interest rates
or prepayment rates.
FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITIES
SALE OF LOANS--SECURITIZATIONS AND WHOLE LOAN SALES--INTEREST RATE
RISK. The most significant variable in the determination of gain on sale in a
securitization is the spread between the weighted average coupon on the
securitized loans and the pass-through interest rate. In the interim period
between loan origination or purchase and securitization or sale of such loans,
the Company is exposed to interest rate risk. The majority of loans are
securitized or sold within 90 days of origination or purchase. However, a
portion of the loans are held for sale or securitization for as long as 12
months (or longer in very limited circumstances) prior to securitization or
sale. If interest rates rise during the period that the mortgage loans are held,
for securitized loans the spread between the weighted average interest rate on
the loans to be securitized and the pass-through interest rates on the
securities to be sold (the latter having increased as a result of market rate
movements) would narrow, and reduce the Company's related gain on sale upon
securitization. For loans sold in whole loan sales, if interest rates rise while
the loans are held, the gain on sale recognized by the Company may be reduced.
In the past, the Company mitigated exposure to rising interest rates through
swap agreements with third parties that sell United States Treasury securities
not yet purchased and the purchase of Treasury Put Options. Hedge gains or
losses are initially deferred and subsequently included in gain on sale upon
completion of the securitization or whole loan sale. These hedging activities
help mitigate the risk of absolute movements in interest rates but they do not
mitigate the risk of a widening in the spreads between pass-through certificates
and U.S. Treasury securities with comparable maturities. At March 31, 2000 and
during the three and nine months then ended, the Company did not have any hedge
transactions in place. Accordingly, during the three and nine months ended
March 31, 2000, there were no hedge losses in gain on sale. At September 30,
1998, the Company had outstanding notional balances of Treasury swap agreements
in the amount of $85 million. This position, which was terminated by the Company
on December 31, 1998, had a market value at September 30, 1998 of $80 million.
The Company recorded the related hedge loss at September 30, 1998 for the $4.6
million shortfall in the gain on sale for that period. The Company had a similar
swap agreement in the notional amount of $250.0 million which expired on
September 30, 1998 and had a market value at June 30, 1998 of $248 million. Due
to market conditions in the quarter ended September 30, 1998, this position
deteriorated to a loss of $10.7 million which was recorded in gain on sale
during the three months ended September 30, 1998. The Company also had LIBOR cap
contracts outstanding at September 30, 1998 in the notional amount of $7.2
million. These positions were valued at par at September 30, 1998 as their
contractual cap (strike price) exceeded the LIBOR market rate at September 30,
1998. The September 30, 1998 position expired December 23, 1998. These
instruments had no negative risk above the original premiums paid in cash.
RESIDUAL INTERESTS AND MSRS. The Company had residual interests of $297.6
million and $332.3 million at March 31, 2000 and June 30, 1999, respectively.
The Company also had MSRs at March 31, 2000 and June 30, 1999 in the amount of
$14.3 million and $20.9 million, respectively. Both of these instruments are
recorded at amounts that approximate estimated fair value at March 31, 2000 and
June 30, 1999. Residual interests decreased during the nine months ended
March 31, 2000 from June 30, 1999 reflecting the $77.5 million write-down offset
by residual interests recognized on the Company's securitizations and accretion
during the period.
The Company's MSR's decreased during the nine months ended March 31, 2000
reflecting MSR's recognized on the Company's securitizations offset by MSR
amortization and a $5.0 million write-down
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during the period. See "Certain Accounting Considerations--Accounting for
Securitizations". The Company values these assets based on the present value of
future revenue streams net of expenses using various assumptions. The discount
rate used to calculate the present value of the residual interests and MSRs was
15.0% both at March 31, 2000 and June 30, 1999. The weighted average life used
for valuations at March 31, 2000 and June 30, 1999 was 3.2 years and 2.9 years,
respectively.
These assets are subject to risk in accelerated mortgage prepayment or
losses in excess of assumptions used in valuation. Ultimate cash flows realized
from these assets would be reduced should prepayments or losses exceed
assumptions used in the valuation. Conversely, cash flows realized would be
greater should prepayments or losses be below expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments
recorded at contractual amounts that approximate market or fair value primarily
consist of loans held for sale, accounts receivables and revolving warehouse and
repurchase facilities which are short term in nature and/or generally bear
market rates of interest, thus, the carrying amounts of these instruments are
reasonable estimates of their fair values. The carrying amount of the Company's
borrowings approximate fair value when valued using available quoted market
prices.
CREDIT RISK. The Company is exposed to on-balance sheet credit risk related
to its loans held for sale and residual interests. The Company is exposed to
off-balance sheet credit risk related to loans which the Company has committed
to originate or purchase.
The Company is a party to financial instruments with off-balance sheet
credit risk in the normal course of business, including commitments to extend
credit to borrowers. The Company has a first or second lien position on all of
its loans, and the combined loan-to-value ratio ("CLTV") permitted by the
Company's mortgage underwriting guidelines generally may not exceed 90%. In some
cases, the Company originates loans up to 97% CLTV that are insured down to
approximately 67% with mortgage insurance. The CLTV represents the combined
first and second mortgage balances as a percentage of the appraised value of the
mortgaged property at the time of origination, with the appraised value
determined by an appraiser with appropriate professional designations. A title
insurance policy is required for all loans.
WAREHOUSING EXPOSURE. The Company utilizes warehouse and repurchase
financing facilities to facilitate the holding of mortgage loans prior to
securitization or sale. At March 31, 2000, the Company had total committed
revolving warehouse and repurchase facilities available in the amount of
$715.0 million, subsequently reduced to $615.0 million (both amounts excluding
the $35.0 million subline) and the balance outstanding related to these
facilities was $386.2 million. See "Liquidity and Capital Resources--Warehouse
and Repurchase Facilities." At June 30, 1999, the Company had total committed
revolving warehouse and repurchase facilities available of $590.0 million and
the balance outstanding related to those facilities was $536.0 million.
Warehouse and repurchase facilities are typically for a term of one year or less
and are designated to fund mortgages originated within specified underwriting
guidelines. The majority of the assets remain in the facilities for a period of
up to 90 days at which point they are either securitized or sold to
institutional investors. As these amounts are short term in nature and/or
generally bear market rates of interest, the contractual amounts of these
instruments are reasonable estimates of their fair values.
RISK FACTORS
IF OUTSIDE SOURCES OF CASH ARE NOT SUFFICIENT, OUR ABILITY TO MAKE AND
SERVICE LOANS WILL BE IMPAIRED AND OUR REVENUES WILL SUFFER.
We operate on a negative cash flow basis, which means our cash expenditures
exceed our cash earnings. Therefore, we need continued access to short- and
long-term external sources of cash to fund our operations.
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Our primary uses of cash include:
- mortgage loan originations and purchases before their securitization or
sale in the secondary market;
- fees, expenses and hedging costs, if any, incurred for the securitization
of loans;
- cash reserve accounts or overcollateralization required in the
securitization of loans;
- tax payments generally due on recognition of non-cash gain on sale
recorded in the securitizations;
- ongoing administrative and other operating expenses;
- interest and principal payments under our credit facilities and other
existing indebtedness;
- cash advances made on delinquent loans included in our loan servicing
portfolio; and
- costs of expanding our loan production units.
Our primary sources of cash are expected to be warehouse and repurchase
facilities, transactions by which we monetize our servicing advance receivables,
securitizations and whole loan sales.
Our primary and potential sources of cash as described in the paragraph
above should be sufficient to fund our cash requirements through at least the
next 12 months, assuming the Company successfully closes a new warehouse
facility which provides for concurrent funding and receives additional equity
capital. If available at all, the type, timing and terms of financing selected
by us will be dependent upon our cash needs, the availability of other financing
sources, limitations under debt covenants and the prevailing conditions in the
financial markets. However, we are not sure that these sources of cash will be
available when needed. Even if the sources of cash are available, the providers
of cash may impose terms that are not favorable to us. As a result of the
limitations described above, we may be restricted in the amount of loans that we
will be able to produce and sell.
IF WE ARE UNABLE TO MAINTAIN ADEQUATE FINANCING SOURCES, OUR ABILITY TO MAKE
MORTGAGE LOANS WILL BE IMPAIRED AND OUR REVENUES WILL SUFFER.
We use cash draws under credit facilities, referred to as revolving
warehouse and repurchase facilities, to fund new originations and purchases of
mortgage loans before securitization or sale. We currently have three committed
lines with aggregate borrowing capacity of $615.0 million (excluding the $35.0
million subline). All of our revolving warehouse and repurchase facilities
require us to maintain certain liquidity and net worth levels, place
restrictions on our ability to borrow money, and require us to report a profit
during certain quarters. Due to our $61.5 million net loss for the quarter ended
March 31, 2000, we did not meet some of those requirements at March 31, 2000 or
April 30, 2000 and we do not expect to meet those requirements at May 31, 2000.
We are seeking to reduce these requirements so that we may meet them. Our
failure to meet these requirements gives the warehouse and repurchase providers
the right to declare an event of default under the revolving facilities, stop
funding loans and foreclose in our loans financed under the facilities. If a
warehouse lender declared an event of default, it would cause an event of
default under our other warehouse and repurchase facilities and our corporate
debt. This would have a material adverse effect on our financial position and
results of operations and jeopardize our ability to continue to operate as a
going concern.
The facility which the Company used to fund the majority of its mortgage
loans at closing expired on February 29, 2000. We are currently in the process
of replacing that facility. The remaining existing facilities expire between
October 2000 and April 2001 and no assurances can be given that we will be able
to extend or replace these facilities at the times they mature. We recently
entered into a transaction pursuant to which we sold certain accounts receivable
representing servicing advances we had previously made and engaged an investment
bank to make a substantial portion of future servicing advances on substantially
all of the loans in our servicing portfolio. As servicer of the loans we
securitize, we are
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required to advance, or loan, to the trusts delinquent interest. In addition, as
servicer, we advance to the trusts foreclosure related expenses, and certain tax
and insurance remittances relating to loans serviced. To the extent that we are
unable to maintain existing credit facilities, arrange new warehouse, repurchase
or other credit facilities or obtain additional commitments to sell whole loans
for cash, we may have to curtail making loans. This would have a material
adverse effect on our financial position and results of operations and
jeopardize our ability to continue to operate as a going concern.
OUR LOANS ARE SUBJECT TO HIGHER RISKS OF DELINQUENCY AND LOSS THAN THOSE
MADE BY CONVENTIONAL MORTGAGE SOURCES.
Loans made to borrowers in the lower credit grades have historically
resulted in a higher risk of delinquency and loss than loans made to borrowers
who use conventional mortgage sources. We believe that the underwriting criteria
and collection methods we use permit us to mitigate the higher risks inherent in
loans made to these borrowers. However, we cannot be sure that those criteria or
methods will protect us against those risks.
All of our loans are collateralized by residential property. The value of
the property collateralizing our loans may not be sufficient to cover the
principal amount of the loans in the event of liquidation. Losses not covered by
the underlying properties could have a material adverse effect on our results of
operations and financial condition. In addition, historical loss rates affect
the assumptions used by us in computing our non-cash gain on sale. If actual
losses exceed those assumptions, we may be required to take a charge to
earnings.
Adjustable rate loans account for a substantial portion of the mortgage
loans that we originate or purchase. Credit-impaired borrowers may encounter
financial difficulties as a result of increases in the interest rate over the
life of the loan. Substantially all of the adjustable rate mortgages include a
teaser rate, i.e., an initial interest rate significantly below the fully
indexed interest rate at origination. Loans with an initial adjustment date six
months after funding are underwritten at the indexed rate as of the first
adjustment date, and loans with an initial adjustment date two or three years
after funding are underwritten at the teaser rate. As a result, borrowers will
face interest rate increases on their adjustable rate loan, even in a stable
interest rate environment.
OUR RIGHT TO SERVICE LOANS MAY BE TERMINATED BECAUSE OF THE HIGH
DELINQUENCIES AND LOSSES ON THE LOANS IN OUR SERVICING PORTFOLIO OR OUR
LIQUIDITY OR NET WORTH POSITION.
If, at any measuring date, the delinquencies or losses with respect to any
of our securitization trusts credit-enhanced by monoline insurance were to
exceed the delinquency or loss limits applicable to that trust, our rights to
service the loans in the affected trust may be terminated.
A substantial majority of our servicing portfolio consists of loans
securitized by us and sold to real estate mortgage investment conduits or owner
trusts in securitization transactions. Generally, the agreement entered into in
connection with these securitizations contains specified limits on
delinquencies, which means loans past due 90, or in some cases past due 60, days
or more, and losses that may be incurred in each trust. Losses occur when the
cash we receive from the sale of foreclosed properties, less sales expenses, is
less than the principal balances of the loans previously secured by those
properties and related interest and servicing advances. See below.
A majority of our securitization transactions were credit-enhanced by an
insurance policy issued by a monoline insurance company. That insurance policy
protects the securitization investor against certain losses. The monoline
insurance company can terminate us as servicer if delinquencies or losses are
over a specified limit. Additionally, the agreements entered into in connection
with our 1999 securitizations provide that our rights and obligations to service
the loans will periodically cease unless renewed by the monoline insurance
carrier for successive periods.
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At March 31, 2000, the dollar volume of loans delinquent more than 90 days
in twelve of our securitization trusts formed during the period from
December 1994 to March 1997 and during December 1997 and March 1998, exceeded
the permitted limit in the related securitization agreements.
We have implemented various plans to lower the delinquency rates in our
future trusts, including diversifying the loans we originate and purchase to
include higher credit grade loans. The delinquency rate at March 31, 2000 was
14.2% and at June 30, 1999 was 15.7%.
Four of the twelve trusts referred to above, plus two additional trusts,
which represent in the aggregate 28.1% of the dollar volume of our servicing
portfolio, exceeded loss limits at March 31, 2000. The limit that has been
exceeded provides that losses may not exceed 1.25% of the prior year pool
balances in the relevant securitization trusts on a rolling 12 month basis.
Although the monoline insurance company has the right to terminate servicing
with respect to the 1999 securitization trusts and the trusts that exceed the
delinquency and loss limits, no servicing rights have been terminated and we
believe that it is unlikely that we will be terminated as servicer. We cannot be
sure, however, that our servicing rights with respect to the mortgage loans in
such trusts, or any other trusts which exceed the specified delinquency or loss
limits in future periods, will not be terminated.
Under one of our securitization trusts, the monoline insurer requires that
we maintain a specific level of minimum net worth and cash in order for us to
continue servicing loans in that trust. We did not meet those requirements at
March 31, 2000 or April 30, 2000. We received a notice from the monoline insurer
which indicated it was not currently exercising its right to terminate us as
servicer on this trust. Due to our $61.5 million loss during the March 2000
quarter, we did not meet the minimum net worth test at March 31, 2000, or
April 30, 2000 and we do not expect to meet that test at May 31, 2000. If we are
unable to close the $50.0 million capital transaction with Capital Z by May 31,
2000, we will not be in compliance with the minimum cash requirement at that
time. We are seeking amendments to these requirements imposed by the monoline
insurer. If we are unable to obtain amendments from the monoline insurer, we
would be unable to satisfy a condition required by Capital Z to bring closure to
the $50.0 million investment by Capital Z.
HIGH DELINQUENCIES ON THE LOANS IN OUR SERVICING PORTFOLIO MAY HURT OUR CASH
FLOWS.
As servicer of the loans we securitize, we are required to advance, or loan,
to the trusts delinquent interest. In addition, as servicer, we advance to the
trusts foreclosure related expenses, and certain tax and insurance remittances
relating to loans serviced. We recently entered into a transaction pursuant to
which we sold certain accounts receivable representing servicing advances we had
previously made and engaged an investment bank to make a substantial portion of
future servicing advances on substantially all of the loans in our servicing
portfolio.
High delinquency rates hurt our cash flows. When delinquency rates exceed
the limit specified in the securitization agreement, our right to receive cash
from the trust is delayed. When delinquency rates exceed the specified amount,
we are required to use the cash flows from the trust to make accelerated
payments of principal on the certificates or bonds issued by the trust. These
accelerated payments increase the overcollateralization levels. The
overcollateralization level represents the amount that the principal balance of
the loans in the trust exceeds the principal balance of the certificates or
bonds issued by the trust. We do not receive distributions from the trust until
after the required overcollateralization levels are met. Generally, provisions
in the securitization agreements have the effect of requiring the
overcollateralization amount to be increased up to approximately twice the level
otherwise required when the delinquency rates do not exceed the specified limit.
As of March 31, 2000, we were required to maintain an additional $64.8 million
in overcollateralization amounts as a result of the level of the delinquency
rates above that which would have been required to be maintained if the
applicable delinquency rates had been below the specified limit. Of this amount,
at March 31, 2000, $30.7 million remains to be added to the
overcollateralization amounts from future spread income on the loans held by
these trusts.
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<PAGE>
High delinquency rates also negatively affect our cash flows because we act
as servicer of the loans in the trust. As the servicer, we are required to use
our cash to advance to the trust past due interest.
HIGH DELINQUENCIES AND LOSSES MAY HURT OUR EARNINGS.
Higher delinquency and loss levels may also affect our reported earnings. We
apply certain assumptions with respect to expected losses on loans in a
securitization trust to determine the amount of non-cash gain on sale that we
record at the closing of a securitization transaction. If actual losses exceed
those assumptions, we may be required to take a charge to earnings. The charge
to earnings would result in an adjustment to the carrying value of the residual
interests recorded on our balance sheet.
FASTER THAN EXPECTED PREPAYMENT RATES ON OUR LOANS WILL HURT EARNINGS.
If actual prepayments occur more quickly than was projected at the time
loans were sold, the carrying value of the residual interests may have to be
adjusted through a charge to earnings in the period of adjustment. The rate of
prepayment of loans may be affected by a variety of economic and other factors.
We estimate prepayment rates based on our expectations of future prepayment
rates, which are based, in part, on the historic performance of our loans and
other considerations.
OUR OPERATIONS MAY BE HURT BY A SUBSTANTIAL AND SUSTAINED INCREASE OR
DECREASE IN INTEREST RATES.
A substantial and sustained increase in long-term interest rates could,
among other things:
- decrease the demand for consumer credit;
- adversely affect our ability to make loans; and
- reduce the average size of loans we underwrite.
A substantial and sustained increase in short-term interest rates could,
among other things,
- increase our borrowing costs, most of which are tied to those rates; and
- reduce the gains recorded by us upon the securitization and sale of loans.
A significant decline in long-term or short-term interest rates could
increase the level of loan prepayments. An increase in prepayments would
decrease the size of, and servicing income from, our servicing portfolio. Our
expectations as to prepayment are used to determine the amount of non-cash gain
on sale recorded at the closing of a securitization transaction. An increase in
prepayment rates could result in a charge to earnings if the rate is faster than
originally expected.
IN AN INCREASING INTEREST RATE ENVIRONMENT, OUR EARNINGS COULD SUFFER
BECAUSE OF ADJUSTABLE RATE LOANS THAT WE SECURITIZED.
The value of our residual interests created as a result of the
securitization of adjustable rate mortgage loans is subject to so-called basis
risk. Basis risk arises when the adjustable rate mortgage loans in a
securitization trust, including those with a fixed initial rate, bear interest
based on an index or adjustment period that is different from the certificates
or bonds issued by the trust. In the absence of effective hedging or loss
mitigation strategies, in a period of increasing interest rates, the value of
the residual interests could be adversely affected because the interest rates on
the certificates or bonds issued by a securitization trust could adjust faster
than the interest rates on our adjustable rate mortgage loans in the trust.
Adjustable rate mortgage loans are typically subject to periodic and lifetime
interest rate caps, which limit the amount an adjustable rate mortgage loan's
interest rate can change during any given period. In a period of rapidly
increasing interest rates, the value of the residual interests could be
adversely affected in the absence of effective hedging strategies because the
interest rates on the certificates or bonds issued by a securitization trust
could increase without limitation by caps, while the interest rates on our
adjustable rate mortgage loans would be so limited.
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<PAGE>
A PROLONGED INTERRUPTION OR REDUCTION IN THE SECONDARY MARKET WOULD HURT OUR
FINANCIAL PERFORMANCE.
We must be able to sell loans we make in the securitization and whole loan
market to generate cash proceeds to pay down our warehouse and repurchase
facilities and fund new loans. Our ability to sell loans in the securitization
and whole loan markets on acceptable terms is essential for the continuation of
our loan origination and purchase operations. The value of and market for our
loans are dependent upon a number of factors, including general economic
conditions, interest rates and governmental regulations. Adverse changes in
these factors may affect our ability to securitize or sell whole loans for
acceptable prices within a reasonable period of time.
To facilitate the sale of certificates or bonds issued by the securitization
trust, we must obtain investment grade ratings for the certificates or bonds. To
obtain those credit ratings, we credit-enhance the securitization trust. The
overcollateralization amount is one form of credit enhancement. Additionally, we
either obtain an insurance policy to protect holders of the certificates or
bonds against certain losses, or sell subordinated interests in the
securitization program.
Our financial position and results of operations would be materially
affected if investors were unwilling to purchase interests in our securitization
trusts or monoline insurance companies were unwilling to provide financial
guarantee insurance for the certificates or bonds sold. Other accounting, tax or
regulatory changes could also adversely affect our securitization program.
We rely on institutional purchasers, such as investment banks, financial
institutions and other mortgage lenders, to purchase our loans in the whole loan
market. We cannot be sure that the purchasers will be willing to purchase loans
on satisfactory terms or that the market for such loans will continue. Our
results of operations and financial condition could be materially adversely
affected if we could not successfully identify whole loan purchasers or
negotiate favorable terms for loan purchases.
IF WE ARE UNABLE TO SELL A SIGNIFICANT PORTION OF OUR LOANS ON AT LEAST A
QUARTERLY BASIS, OUR EARNINGS WOULD BE SIGNIFICANTLY AFFECTED.
Any delay in the sale of a significant portion of our loan production beyond
a quarter-end would postpone the recognition of gain on sale related to such
loans until their sale and would likely result in losses for the quarter. Our
loan disposition strategy calls for substantially all of our production to be
sold in the secondary market within 90 days of origination. However, market and
other considerations, including the conformity of loan pools to monoline
insurance company and rating agency requirements, could affect the timing of the
sale transactions.
CHANGES IN THE VOLUME AND COST OF OUR BROKER LOANS MAY DECREASE OUR LOAN
PRODUCTION.
We depend on independent mortgage brokers for the origination and purchase
of our broker loans, which constitute a significant portion of our loan
production. Our future results of operations and financial condition may be
vulnerable to changes in the volume and cost of our broker loans resulting from,
among other things, competition from other lenders and purchasers of such loans.
These independent mortgage brokers negotiate with multiple lenders for each
prospective borrower. We compete with these lenders for the independent brokers'
business on pricing, service, loan fees, costs and other factors. Our
competitors also seek to establish relationships with such brokers, who are not
obligated by contract or otherwise to do business with us.
OUR COMPETITORS IN THE MORTGAGE BANKING MARKET ARE OFTEN LARGER AND HAVE
GREATER FINANCIAL RESOURCES THAN WE DO, WHICH WILL MAKE IT DIFFICULT FOR US TO
SUCCESSFULLY COMPETE.
We face intense competition in the business of originating, purchasing and
selling mortgage loans. Competition among industry participants can take many
forms, including convenience in obtaining a loan, customer service, marketing
and distribution channels, amount and term of the loan, loan origination fees
and interest rates. Many of our competitors are substantially larger and have
considerably greater financial, technical and marketing resources than we do.
Our competitors in the industry include other consumer
36
<PAGE>
finance companies, mortgage banking companies, commercial banks, investment
banks, credit unions, thrift institutions, credit card issuers and insurance
companies. In the future, we may also face competition from government-sponsored
entities, such as FNMA and FHLMC. These government-sponsored entities may enter
the subprime mortgage market and target potential customers in our highest
credit grades, who constitute a significant portion of our customer base.
The historical level of gains realized on the sale of subprime mortgage
loans could attract additional competitors into this market. Certain large
finance companies and conforming mortgage originators have announced their
intention to originate, or have purchased companies that originate and purchase,
subprime mortgage loans, and some of these large mortgage companies, thrifts and
commercial banks have begun offering subprime loan products to customers similar
to our targeted borrowers. In addition, establishing a broker-sourced loan
business requires a substantially smaller commitment of capital and human
resources than a direct-sourced loan business. This relatively low barrier to
entry permits new competitors to enter this market quickly and compete with our
broker lending business.
Additional competition may lower the rates we can charge borrowers and
increase the cost to purchase loans, which could potentially lower the gain on
future loan sales or securitizations. Increased competition may also reduce the
volume of our loan origination and loan sales and increase the demand for our
experienced personnel and the potential that such personnel will leave for
competitors.
Competitors with lower costs of capital have a competitive advantage over
us. During periods of declining rates, competitors may solicit our customers to
refinance their loans. In addition, during periods of economic slowdown or
recession, our borrowers may face financial difficulties and be more receptive
to the offers of our competitors to refinance their loans.
Our broker program depends largely on independent mortgage bankers and
brokers and other financial institutions for the purchases of new loans. Our
competitors also seek to establish relationships with the same sources.
BECAUSE A SIGNIFICANT AMOUNT OF THE LOANS WE SERVICE ARE IN CALIFORNIA AND
FLORIDA, OUR OPERATIONS COULD BE HURT BY ECONOMIC DOWNTURNS OR NATURAL DISASTERS
IN THOSE STATES.
At March 31, 2000, 20.8% and 11.8% of the loans we serviced were
collateralized by residential properties located in California and Florida,
respectively. Because of these concentrations, our financial position and
results of operations have been and are expected to continue to be influenced by
general trends in the California and Florida economies and their residential
real estate markets. Residential real estate market declines may adversely
affect the values of the properties collateralizing loans. If the principal
balances of our loans, together with any primary financing on the mortgaged
properties, equal or exceed the value of the mortgaged properties, we could
incur higher losses on sales of properties collateralizing foreclosed loans.
California historically has been vulnerable to certain natural disaster risks,
such as earthquakes and erosion-caused mudslides. Florida historically has been
vulnerable to certain other natural disasters, such as tropical storms and
hurricanes. Such natural disasters are not typically covered by the standard
hazard insurance policies maintained by borrowers. Uninsured disasters may
adversely impact our ability to recover losses on properties affected by such
disasters and adversely impact our results of operations.
THE RISKS ASSOCIATED WITH OUR BUSINESS BECOME MORE ACUTE IN ANY ECONOMIC
SLOWDOWN OR RECESSION.
Periods of economic slowdown or recession may be accompanied by decreased
demand for consumer credit and declining real estate values. Any material
decline in real estate values reduces the ability of borrowers to use home
equity to support borrowings. Material declines in real estate values also
weakens collateral coverage and increases the possibility of a loss in the event
of liquidation. Further, delinquencies, foreclosures and losses generally
increase during economic slowdowns or recessions. Because of our focus on
credit-impaired borrowers, the actual rates of delinquencies, foreclosures and
losses on such loans could be higher than those generally experienced in the
mortgage lending industry. In addition, in an
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<PAGE>
economic slowdown or recession, our servicing costs may increase. Any sustained
period of increased delinquencies, foreclosure, losses or increased costs could
adversely affect our ability to securitize or sell loans in the secondary market
and could increase the cost of these transactions.
EVEN AFTER WE SELL OUR LOANS, WE REMAIN SUBJECT TO RISKS FROM DELINQUENCIES
AND LOSSES ON THE LOANS WE SERVICE.
Although we sell substantially all the mortgage loans which we originate or
purchase, we retain some degree of credit risk on substantially all loans sold
where we continue to service those loans. During the period of time that loans
are held before sale, we are subject to the various business risks associated
with the lending business including the risk of borrower default, the risk of
foreclosure and the risk that a rapid increase in interest rates would result in
a decline in the value of loans to potential purchasers. Cash flows from the
securitization trust are represented by the interest rate earned on the loans in
the trust over the amount of interest paid by the trust to the holders of the
certificates or bonds issued by the trust, plus certain monoline and servicing
fees. The agreements governing our securitization program require us to
credit-enhance the securitization trust by either establishing deposit accounts
or building overcollateralization levels. Deposit accounts are established by
maintaining a portion of the excess cash flows in a trust deposit account.
Overcollateralization levels are built up by applying these excess cash flows to
reduce the principal balances of the certificates or bonds issued by the trust.
Those amounts are available to fund losses realized on loans held by such trust.
We continue to be subject to the risks of default and foreclosure following
securitization and the sale of loans to the extent excess cash flows are
required to be maintained in the deposit account or applied to build up
overcollateralization, as opposed to being distributed to us.
When borrowers are delinquent in making monthly payments on loans included
in a securitization trust, as servicer of the loans in the trust, we are
required to advance interest payments with respect to such delinquent loans.
These advances require funding from our capital resources, but have priority of
repayment from collections or recoveries on the loans in the related pool in the
succeeding month. In connection with our whole loan sales, we may be obligated
in certain instances to buy back mortgage loans if the borrower defaults on the
first payment of principal and interest due.
WE MAY BE REQUIRED TO REPURCHASE LOANS OR INDEMNIFY INVESTORS IF WE BREACH
REPRESENTATIONS AND WARRANTIES.
In the ordinary course of our business, we are subject to claims made
against us by borrowers arising from, among other things, losses that are
claimed to have been incurred as a result of alleged breaches of fiduciary
obligations, misrepresentations, errors and omissions of our employees and
officers, incomplete documentation and failures to comply with various laws and
regulations applicable to our business. In addition, agreements governing our
securitization program and whole loan sales require us to commit to repurchase
or replace loans which do not conform to our representations and warranties at
the time of sale. We believe that liability with respect to any currently
asserted claims or legal actions is not likely to be material to our financial
position or results of operations. However, any claims asserted in the future
may result in expenses or liabilities which could have a material adverse effect
on our financial position and results of operations.
IF WE ARE UNABLE TO COMPLY WITH MORTGAGE BANKING RULES AND REGULATIONS, OUR
ABILITY TO MAKE MORTGAGE LOANS MAY BE RESTRICTED.
Our operations are subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and are subject
to various laws, regulations and judicial and administrative decisions imposing
requirements and restrictions on part or all of our operations. Failure to
comply with these requirements can lead to loss of approved status, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement action. Our consumer lending activities are subject
to various federal laws and regulations. We are also subject to the rules and
regulations of, and examinations by, state regulatory authorities with respect
to originating, processing, underwriting, selling, securitizing and servicing
loans. These rules and regulations, among other things, impose licensing
obligations on us, establish eligibility criteria for mortgage loans, prohibit
discrimination, govern inspections and appraisals
38
<PAGE>
of properties and credit reports on loan applicants, regulate collection,
foreclosure and claims handling, investment and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Because our business is highly regulated, the laws, rules and
regulations applicable to us are subject to regular modification and change.
There are currently proposed various laws, rules and regulations which, if
adopted, could negatively impact us.
CHANGES IN THE MORTGAGE INTEREST DEDUCTION COULD HURT OUR FINANCIAL
PERFORMANCE.
Members of Congress and government officials have from time-to-time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of our loans are made to borrowers for the
purpose of consolidating consumer debt or financing other consumer needs, the
competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by us.
WE WILL BE UNABLE TO PAY DIVIDENDS ON OUR CAPITAL STOCK FOR THE FORESEEABLE
FUTURE.
The indentures governing certain of our outstanding indebtedness as well as
our other credit agreements limit our ability to pay cash dividends on our
capital stock. Under the most restrictive of these limitations, we will be
prevented from paying cash dividends on our capital stock for the foreseeable
future.
THE CONCENTRATED OWNERSHIP OF OUR VOTING STOCK BY OUR CONTROLLING
STOCKHOLDER MAY HAVE AN ADVERSE EFFECT ON YOUR ABILITY TO INFLUENCE THE
DIRECTION WE WILL TAKE.
At May 18, 2000, Capital Z beneficially owned senior preferred stock
representing 46.2% of our combined voting power in the election of directors and
76.2% of the combined voting in all matters other than the election of
directors. The percentage of beneficial ownership of Capital Z could change as a
result of the Investment, depending upon the Price and the number of shares of
Series C Preferred Stock subscribed to by Nonaffiliated Stockholders in the
Rights Offering. Representatives or nominees of Capital Z have five seats on our
nine person Board of Directors, and as current members' terms expire Capital Z
has the continuing right to appoint and elect four directors and nominate one
additional director. As a result of its beneficial ownership and Board
representation, Capital Z has, and will continue to have, sufficient power to
determine our direction and policies.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its 1999 Annual Meeting of Stockholders (the "Meeting") on
March 3, 2000.
(b) The following Series B Directors were elected at the Meeting to serve one
year terms:
Steven M. Gluckstern
Adam M. Mizel
Mani A. Sadeghi
David A. Spuria
The following Class II Common Stock directors were elected at the Meeting to
serve three-year terms:
Georges C. St. Laurent, Jr.
Cary H. Thompson
The following directors continued in office after Meeting:
A. Jay Meyerson
David H. Elliot
Eric C. Rahe
(c) At the Meeting, stockholders voted on (1) the amendment of the Company's
Certificate of Incorporation to effect a one-for-five reverse stock split of
the shares of the Company's Common Stock (the "Reverse Common Stock Split
Proposal"); (2) the amendment of the Company's Certificate of Incorporation
to effect a one-for-five reverse stock split of the shares of the Company's
Series C Convertible Preferred Stock (the "Reverse Series C Preferred Stock
Proposal"); (3) an amendment to the Company's Certificate of Incorporation
to enable stockholders to act by written consent as permitted by Delaware
law (the "Stockholder Action by Written Consent Proposal"); (4) the election
of four Series B Directors (5) the election of two Class II Common Stock
Directors; (6) the
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ratification of the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ended June 30, 2000. The results
of the voting were as follows:
<TABLE>
<CAPTION>
VOTES BROKER
MATTER VOTES FOR AGAINST WITHHELD ABSTENTIONS NON-VOTES
- ------ ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Reverse Common Stock Split Proposal
(All Stockholders).................... 149,217,328 1,758,552 -- 131,706 --
Reverse Common Stock Split Proposal
(Class Vote--Common Stockholders)..... 24,283,958 1,679,359 -- 125,774 --
Reverse Series C Preferred Stock Split
Proposal (All Stockholders)........... 149,323,693 2,604,612 -- 179,281 --
Reverse Series C Preferred Stock Split
Proposal (Class Vote--All Preferred
Stockholders)......................... 124,930,415 80,348 -- 7,732 --
Reverse Series C Preferred Stock Split
Proposal (Class Vote--Series C
Preferred Stock)...................... 98,226,415 80,348 -- 7,732 --
Stockholder Action by Written Consent
Proposal (All Stockholders)........... 130,880,353 1,010,991 -- 257,536 --
Series B Directors
Steven M. Gluckstern.................. 26,704,000 -- -- -- --
Mani A. Sadeghi....................... 26,704,000 -- -- -- --
Adam M. Mizel......................... 26,704,000 -- -- -- --
David A. Spuria....................... 26,704,000 -- -- -- --
Class II Common Stock Directors
Georges C. St. Laurent, Jr. .......... 51,970,819 -- 822,273 -- --
Cary H. Thompson...................... 51,970,269 -- 822,823 -- --
Auditors................................ 150,648,670 325,466 -- 133,451 --
</TABLE>
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
(c) Exhibits: See Exhibit Index
(d) During the quarter ended March 31, 2000, the Company filed (i) a Current
Report on Form 8-K on January 14, 2000 (earliest event reported October 29,
1999), reporting information under Item 5 regarding the consummation of one
of the Company's warehouse lines and the amendment of two other warehouse
lines; (ii) a Current Report on Form 8-K on February 16, 2000 (earliest
event reported February 14, 2000), reporting information under Item 5
regarding the Company's financial results for the second fiscal quarter;
(iii) a Current Report on Form 8-K on March 14, 2000 (earliest event
reported March 6, 2000), reporting information under Item 5 regarding the
results of the Company's annual meeting; (iv) a Current Report on Form 8-K
on March 14, 2000 (earliest event reported February 25, 2000), reporting
information under Item 5 regarding the sale of some of the Company's
servicing advance receivables.
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AAMES FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
AAMES FINANCIAL CORPORATION
By: /s/ JOSEPH R. TOMEI
-----------------------------------------
Joseph R. Tomei
EXECUTIVE VICE PRESIDENT--FINANCE AND
Date: May 22, 2000 CHIEF FINANCIAL AND ACCOUNTING OFFICER
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <S>
3.1 Certificate of Incorporation of Registrant, as amended.
4.1(a) Specimen certificate evidencing Common Stock of Registrant.
4.1(b) Specimen certificate evidencing Series C Convertible
Preferred Stock of Registrant.
10.26(a) Second Amended and Restated Master Repurchase Agreement
Governing Purchases and Sales of Mortgage Loans, dated as of
April 28, 2000, between Aames Capital Corporation,
Registrant's wholly owned subsidiary ("ACC") and Lehman
Commercial Paper, Inc.
10.26(b) Guaranty, dated as of April 28, 2000, between Registrant and
Lehman Commercial Paper, Inc., with respect to
Exhibit 10.26(a).
10.27(a) Warehouse Loan and Security Agreement, dated as of
February 10, 2000, between ACC and Greenwich Capital
Financial Products, Inc.
10.27(b) Guaranty, dated as of February 10, 2000, between Registrant
and Greenwich Capital Financial Products, Inc., with respect
to Exhibit 10.27(a).
10.27(c) Amendment No. 1 to Guaranty, dated as of April 28, 2000,
between Registrant and Greenwich Capital Financial
Products, Inc., with respect to Exhibit 10.27(b).
10.32(a) Amendment No. 1 to Limited Partnership Agreement, dated as
of February 24, 2000, by and among ACC, Random Properties
Acquisition Corp. IV, Greenwich Capital Derivatives, Inc.
10.33 Historical Advance Purchase Agreement between ACC and
Steamboat Financial Partnership, L.P., dated as of
February 24, 2000.
10.37(b) Amendment No. 2 to the Master Loan and Security Agreement,
dated as of April 4, 2000, between ACC and Morgan Stanley
Dean Witter Mortgage Capital, Inc., formerly Morgan Stanley
Mortgage Capital, Inc.
11 Computation of Per Share Loss.
27 Financial Disclosure Schedule
</TABLE>
- ------------------------
(1) Incorporated by reference from Registrant's Current Report on Form 8-K dated
January 14, 2000.
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
AAMES FINANCIAL CORPORATION
FIRST: The name of this corporation is Aames Financial
Corporation (the "Corporation").
SECOND: The address of the registered office of the Corporation
in the State of Delaware is 1209 Orange Street, City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may now or hereafter be organized
under the General Corporation Law of the State of Delaware as set forth in Title
8 to the Delaware Code (the "GCL").
FOURTH: The total number of shares which the Corporation shall
have authority to issue is 8,000,000 consisting of 7,000,000 shares of common
stock, par value $0.001 per share (the "Common Stock"), and 1,000,000 shares of
preferred stock, par value $0.001 per share (the "Preferred Stock").
Shares of the Preferred Stock of the Corporation may be issued
from time to time in one or more classes or series, each of which class or
series shall have such distinctive designation or title as shall be fixed by the
Board of Directors of the Corporation (the "Board of Directors") prior to the
issuance of any shares thereof. Each such class or series of Preferred Stock
shall have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated in
such resolution or resolutions providing for the issue of such class or series
of Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware.
FIFTH: All rights to vote and all voting power shall be vested
in the Common Stock and the holders thereof shall be entitled at all elections
of directors to one (1) vote per share. Special meetings of the stockholders for
any purpose or purposes may be called at any time only by the Board of
Directors, the Chairman of the Board or by the Chief Executive Officer or
President of the Corporation.
SIXTH: The directors of the Corporation shall be divided into
three classes, designated Class I, Class II and Class III. The term of the
initial Class I directors shall terminate on the date of the 1994 annual meeting
of stockholders; the term of the initial Class II directors shall terminate on
the date of the 1993 annual meeting of stockholders and the term of the initial
Class III directors shall terminate on the date of the 1992 annual meeting of
stockholders. At each annual
<PAGE>
meeting of stockholders beginning in 1992, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as reasonably possible, and any additional directors of
any class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of that
class, but in no case will a decrease in the number of directors shorten the
term of any incumbent directors. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy on the Board of
Directors, howsoever resulting, shall be filled only by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director and not by the stockholders. Any director elected to fill a vacancy
shall hold office for a term that shall coincide with the terms of the class to
which such director shall have been elected.
Subject to the rights, if any, of the holders of shares of
Preferred Stock then outstanding, any or all of the directors of the Corporation
may be removed from office at any time, for cause only, by the affirmative vote
of the holders of a majority of the outstanding shares of the Corporation then
entitled to vote generally in the election of directors, considered for purposes
of this Article SIXTH as one class.
Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to the second paragraph of Article
FOURTH applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article SIXTH unless expressly provided by such
terms.
SEVENTH: Elections of directors at an annual or special meeting
of stockholders need not be by written ballot unless the Bylaws of the
Corporation shall otherwise provide.
Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or special meeting duly noticed and called, as
provided in the Bylaws of the Corporation, and may not be taken by written
consent of the stockholders pursuant to the GCL.
EIGHTH: The officers of the Corporation shall be chosen in such
a manner, shall hold their offices for such terms and shall carry out such
duties as are determined solely by the Board of Directors, subject to the right
of the Board of Directors to remove any officer or officers at any time with or
without cause.
2
<PAGE>
NINTH: (A) The Corporation shall indemnify to the full extent
authorized or permitted by law (as now or hereafter in effect) any person made,
or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
he, his testator or intestate, is or was a director or officer of the
Corporation or by reason of the fact that such director or officer, at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or enterprise, in any
capacity. Nothing contained herein shall affect any rights to indemnification to
which employees other than directors and officers may be entitled by law. No
amendment or repeal of this Section A of Article NINTH shall apply to or have
any effect on any right to indemnification provided hereunder with respect to
any acts or omissions occurring prior to such amendment or repeal.
(B) No director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for any breach of fiduciary duty by such a director as a director.
Notwithstanding the foregoing sentence, a director shall be liable to the extent
provided by applicable law (i) for any breach of the Director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the GCL, or (iv) for any transaction from which
such director derived an improper personal benefit. No amendment to or repeal of
this Section B of Article NINTH shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
(C) In furtherance and not in limitation
of the powers conferred by statute:
(i) the Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify against such liability under the provisions of
law; and
(ii) the Corporation may create a
trust fund, grant a security interest and/or use other means (including, without
limitation, letters of credit, surety bonds and/or other similar arrangements),
as well as enter into contracts providing indemnification to the full extent
authorized or permitted by law and including as part thereof provisions with
respect to any or all of the foregoing to ensure the payment of such amounts as
may become necessary to effect indemnification as provided therein, or
elsewhere.
3
<PAGE>
TENTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to adopt,
repeal, alter, amend or rescind the Bylaws of the Corporation.
ELEVENTH: The Corporation reserves the right to repeal, alter,
amend or rescind any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
on stockholders herein are granted subject to this reservation.
TWELFTH: The name and mailing address for the Incorporator of
the Corporation is as follows: Barbara J. Gillen, 10940 Wilshire Boulevard,
Suite 600, Los Angeles, California 90024-3902.
IN WITNESS WHEREOF, the undersigned has executed the
Certificate of Incorporation this 2nd day of October, 1991.
/s/ Barbara J. Gillen
---------------------
Barbara J. Gillen
Incorporator
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
AAMES FINANCIAL CORPORATION, a corporation organized and existing under
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That a meeting of the Board of Directors of Aames Financial
Corporation (the "Corporation"), resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of the Corporation,
declaring the amendment to be advisable and calling a meeting of the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation
be amended by changing Article FOURTH to provide that the authorized
number of shares shall be 11,000,000, consisting of 10,000,000
shares of common stock, par value $0.001 per shares, and 1,000,000
shares of preferred stock, par value $0.001 per share.
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That the amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporate law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Gary K. Judis, its Chief Executive Officer, and Bobbie J. Burroughs,
its Secretary, this 25 day of April, 1994.
By:/s/ Gary K. Judis
------------------------------
Chief Executive Officer
ATTEST: /s/ Bobbie J. Burroughs
--------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AAMES FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
The undersigned GARY JUDIS and BOBBIE BURROUGHS, the President and
Secretary, respectively, of Aames Financial Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "DGCL"), do hereby certify
pursuant to Section 103 of the DGCL:
The text of Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended and restated to read in full as follows:
FOURTH: The total number of shares which the Corporation shall have
authority to issue is 51,000,000, consisting of 50,000,000 shares
of common stock, par value $0.001 per share (the "Common Stock")
and 1,000,000 shares of preferred stock, par value $0.001 per share
(the "Preferred Stock").
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to the Certificate of Incorporation of the Corporation as of this 17th
day of January, 1996.
By: /s/ Gary K. Judis
---------------------------------------
Gary K. Judis, President
Attest: /s/ Bobbie J. Burroughs, Secretary
-----------------------------------
Bobbie J. Burroughs, Secretary
<PAGE>
CERTIFICATE OF DESIGNATION OF
RIGHTS, PREFERENCES AND PRIVILEGES OF
SERIES A PREFERRED STOCK
OF
AAMES FINANCIAL CORPORATION
Pursuant to Section 151 of the Delaware General Corporation law:
The undersigned hereby certifies that the following resolution has been
adopted by the Board of Directors of Aames Financial Corporation, a Delaware
corporation (the "Corporation") as required by Section 151 of the Delaware
General Corporation Law by unanimous written consent on June 21, 1996;
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter
called the "Board of Directors") in accordance with the
provisions of the Certificate of Incorporation of the
Corporation, the Board of Directors hereby creates a new series
of the previously authorized Preferred Stock, par value $0.001
per share (the "Preferred Stock") of the Corporation, and
hereby states the designation and number of shares, and fixes
the, relative rights, preferences and limitations thereof (in
addition to any provision set forth in the Certificate of
Incorporation of the Corporation which are applicable to the
Preferred Stock of all classes and series) as follows:
Series A Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting the Series A Preferred Stock shall be 500,000
shares of Series A Preferred Stock, having a par value of $0.001 per share. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, that no decrease shall reduce the number of shares of
Series A Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series A
Preferred Stock.
<PAGE>
Section 2. Dividends and Distributions
(a) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $0.001 per share (the "Common Stock"), of the Corporation, and of any
other junior stock, shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the purpose, (i) cash
dividends in an amount per whole share (rounded to the nearest cent) equal to
the Formula Number (as defined below) then in effect, times the aggregate per
share amount of all cash dividends declared or paid on the Common Stock, and
(ii) a preferential cash dividend (a "Preferential Dividend"), if any, on the
first day of July, October, January and April in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to $1.00 per share of Series A Preferred Stock less
the per share amount of all cash dividends declared on the Series A Preferred
Stock pursuant to clause (i) of this sentence since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In addition, if the Corporation shall pay any dividend
or make any distribution on the Common Stock payable in assets, securities or
other forms of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the Corporation
shall simultaneously pay or make on each whole outstanding share of Series A
Preferred Stock, a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series A Preferred Stock to
which holders thereof are entitled pursuant to clause (i) of the first sentence
of this paragraph and the second sentence of this paragraph are hereinafter
referred to as "Participating Dividends." As used herein, the "Formula Number"
shall be 100; provided, however, that if at any time after June 21, 1996, the
Corporation shall (i) declare or pay any dividend or make any distribution on
the Common Stock, payable in shares of Common Stock, (ii) subdivide (by a stock
split or otherwise), the outstanding shares of Common Stock into a larger number
of shares of Common Stock, or (iii) combine (by a reverse stock split or
otherwise) the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then in each such case the Formula Number in effect
immediately prior to such event shall be adjusted to a number determined by
multiplying the Formula Number then in effect by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if at any time after June 21,
1996, the Corporation shall issue any shares of its capital stock in a merger,
reclassification, or change of the outstanding shares of Common Stock, then in
each such event the Formula Number shall be appropriately adjusted to reflect
such merger, reclassification, or change so that each share of Series A
Preferred Stock continues to be the economic equivalent of a Formula Number of
shares of Common Stock prior to such merger, reclassification or change.
<PAGE>
(b) The Corporation shall declare each Participating Dividend
immediately prior to or at the same time it declares any cash or non-cash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required shall
be paid or set aside for payment on the Common Stock unless a Participating
Dividend in respect of such dividend shall have been paid.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled
to a number of votes equal to the Formula Number then in effect, for each share
of Series A Preferred Stock held of record on each matter on which holders of
the Common Stock or stockholders generally are entitled to vote, multiplied by
the maximum number of votes per share which any holder of the Common Stock or
stockholders generally then have with respect to such matter (assuming any
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided herein, in any other
Certificate of Amendment creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except
3
<PAGE>
to the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever Preferential Dividends or Participating Dividends
are in arrears or the Corporation shall be in default in payment thereof,
thereafter and until all accrued and unpaid Participating Dividends and
Preferential Dividends, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid or set aside for payment in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions on or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on the shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior or on a parity (either as to
dividends or upon liquidation, dissolution or winding up) to or with the Series
A Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior or parity stock in
exchange for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
4
<PAGE>
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Amendment or
Certificate of Designation creating a series of Preferred Stock or any similar
stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received an amount equal to the accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (i) $0.01 per whole share,
or (ii) an aggregate amount per share equal to the Formula Number then in effect
times the aggregate amount to be distributed per share to holders of Common
Stock, or (b) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, unless simultaneously therewith distributions are made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of Series A Preferred Stock shares are
entitled under clause (a)(i) of this sentence and to which the holders of such
parity shares are entitled in each case upon such liquidation, dissolution or
winding up.
Section 7. Consolidation, Merger, etc. If the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share equal to the Formula Number then in effect
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event that both this Section 7 and
Section 2 appear to apply to a transaction, this Section 7 shall control.
Section 8. Effective Time of Adjustments.
(a) Adjustments to the Series A Preferred Stock required by the
provisions hereof shall be effective as of the time at which the event requiring
such adjustments occurs.
(b) The Corporation shall give prompt written notice to each
holder of a share of Series A Preferred Stock of the effect on any such shares
of any adjustment to the dividend rights or rights upon liquidation, dissolution
or winding up of the Corporation required by the provisions hereof.
Notwithstanding the foregoing sentence, the failure of the Corporation to give
such notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment.
5
<PAGE>
Section 9. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 10. Rank. Unless otherwise provided in the Certificate of
Incorporation or a Certificate of Designation relating to a subsequent series of
Preferred Stock of the Corporation, the Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all series of any other class of the Corporation's Preferred Stock.
Section 11. Fractional Shares. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is one one-hundredth (1/100th)
of a share or any integral multiple of such fraction which shall entitle the
holder, in proportion to such holder's fractional shares, to receive dividends,
exercise voting rights, participate in distributions and to have the benefit of
all other rights of holders of Series A Preferred Stock. In lieu of fractional
shares, the Corporation, prior to the first issuance of a share or a fraction of
a share of Series A Preferred Stock, may elect (1) to make a cash payment as
provided in the Rights Agreement for fractions of a share other than one
one-hundredth (1/100th) of a share or any integral multiple thereof, or (2) to
issue depository receipts evidencing such authorized fraction of a share of
Series A Preferred Stock pursuant to an appropriate agreement between the
Corporation and a depository selected by the Corporation; provided that such
agreement shall provide that the holders of such depository receipts shall have
the rights, privileges and preferences to which they are entitled as holders of
the Series A Preferred Stock.
Section 12. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, AAMES FINANCIAL CORPORATION has caused this
Certificate to be signed and attested this 21st day of June, 1996.
/s/ Gary K. Judis
--------------------------------
Gary K. Judis,
Chief Executive Officer
Attest:
/s/ Audry Patterson
- - --------------------------------
Audry Patterson, Secretary
6
<PAGE>
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR IN THE
CERTIFICATE OF AMENDMENT OF
AAMES FINANCIAL CORPORATION
Aames Financial Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
1. The name of the corporation is Aames Financial Corporation.
2. That a Certificate of Amendment was filed by the Secretary of
State of Delaware on January 19, 1996 and that said Certificate requires
correction as permitted by Section 103 of the General Corporation Law of the
State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected
is as follows: the second paragraph of Article FOURTH was inadvertently
deleted.
4. Article FOURTH of said Certificate is corrected to read in its
entirety as follows:
FOURTH: The total number of shares which the Corporation shall
have authority to issue is 51,000,000, consisting of 50,000,000
shares of common stock, par value $0.001 per share (the "Common
Stock") and 1,000,000 shares of preferred stock, par value
$0.001 per share (the "Preferred Stock").
Shares of the Preferred Stock of the Corporation may be issued
from time to time in one or more classes or series, each of
which class or series shall have such distinctive designation
or title as shall be fixed by the Board of Directors of the
Corporation (the "Board of Directors") prior to the issuance of
any shares thereof. Each such class or series of Preferred
Stock shall have such voting powers, full or limited, or no
voting powers, and such preferences and relative,
participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall
be stated in such resolution or resolutions providing for the
issue of such class or series of Preferred Stock as may be
adopted from time to time by the Board of Directors prior to
the issuance of any shares thereof pursuant to the authority
hereby expressly vested in it, all in accordance with the laws
of the State of Delaware.
7
<PAGE>
Aames Financial Corporation has caused this Certificate of Correction
to be signed by Barbara S. Polsky, its authorized officer, this 26th day of
August, 1997.
By: /s/ Barbara S. Polsky
----------------------------------
Barbara S. Polsky
Executive Vice President,
General Counsel and Secretary
<PAGE>
- --------------------------------------------------------------------------------
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
AAMES FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
AAMES FINANCIAL CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation (the "Board of Directors") pursuant to authority of
the Board of Directors as required by Section 151 of the Delaware General
Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
SERIES B CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
The designation of this series of shares shall be "Series B
Convertible Preferred Stock" (the "Series B Preferred Stock") par value $0.001
per share; the initial stated value per share shall be $1,000.00 (the "Initial
Stated Value"); and the number of shares constituting such series shall be
100,000. The number of shares of the Series B Preferred Stock may be decreased
from time to time by a resolution or resolutions of the Board of Directors;
provided, however, that such number shall not be decreased below the aggregate
number of shares of the Series B Preferred Stock then outstanding.
II. RANK
A. With respect to dividends, the Series B Preferred Stock shall
rank (i) senior to each other class or series of Preferred Stock, except for the
Series C Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series C Preferred Stock"); (ii) on a parity with the Series
C Preferred Stock; and (iii) senior to the Corporation's Common Stock, par value
$.001 per share (the "Common Stock"), and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to dividends, all equity securities of the Corporation
to which the Series B Preferred Stock ranks senior, including the Common Stock,
are collectively referred to herein as the
<PAGE>
"Junior Dividend Securities"; all equity securities of the Corporation with
which the Series B Preferred Stock ranks on a parity, including the Series C
Preferred Stock, are collectively referred to herein as the "Parity Dividend
Securities"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series B Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as the "Senior
Dividend Securities."
B. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the Series B Preferred Stock shall rank (i) senior to each other class or series
of Preferred Stock of the Corporation, except for the Series C Preferred Stock;
(ii) on a parity with the Series C Preferred Stock; and (iii) senior to the
Common Stock, and, except as specified above, all other classes and series of
capital stock of the Corporation hereafter issued by the Corporation. With
respect to the distribution of assets upon liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, all equity securities
of the Corporation to which the Series B Preferred Stock ranks senior, including
the Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all equity securities of the Corporation (other than convertible
debt securities) to which the Series B Preferred Stock ranks on parity,
including the Series C Preferred Stock, are collectively referred to herein as
"Parity Liquidation Securities"; and all equity securities of the Corporation to
which the Series B Preferred Stock ranks junior are collectively referred to
herein as "Senior Liquidation Securities."
C. The Series B Preferred Stock shall be subject to the creation
of Junior Dividend Securities and Junior Liquidation Securities (collectively,
"Junior Securities"), but no Parity Dividend Securities or Parity Liquidation
Securities (collectively, "Parity Securities") (other than the Series C
Preferred Stock) or Senior Dividend Securities or Senior Liquidation Securities
(collectively, "Senior Securities") shall be created except in accordance with
the terms hereof.
III. DIVIDENDS
A. DIVIDENDS. Subject to the terms of paragraph D below, shares
of Series B Preferred Stock shall accumulate dividends at a rate of 6.5% per
annum (the "Dividend Rate"), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a "Dividend
Payment Date"), to holders of record (the "Registered Holders") as they appear
on the stock record books of the Corporation on the fifteenth day prior to the
relevant Dividend Payment Date; provided, however, that during the Accrual
Period (as defined in Article IX hereof) the Corporation shall have the option
to accrue such dividends, which dividends, to the extent so accrued, shall
compound quarterly. Prior to the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Initial Stated Value of each share of Series
B Preferred Stock. Following the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Post-Recapitalization Stated Value of each
share of Series B Preferred Stock. Dividends shall be paid only when, as and if
declared by the Board of Directors out of funds at the time
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legally available for the payment of dividends. Dividends shall begin to
accumulate on outstanding shares of Series B Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.
B. ACCUMULATION. Dividends on the Series B Preferred Stock shall
be cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at 125% of the
stated dividend rate (or such lesser rate as may be the maximum rate that is
then permitted by applicable law). Such additional dividends in respect of any
Arrearage shall be deemed to accumulate from day to day whether or not earned or
declared until the Arrearage is paid, shall be calculated as of such successive
Dividend Payment Date, and shall constitute an additional Arrearage from and
after any Dividend Payment Date to the extent not paid on such Dividend Payment
Date. References in any Article herein to dividends that have accumulated or
that have been deemed to have accumulated with respect to the Series B Preferred
Stock shall include the amount, if any, of any Arrearage together with any
dividends accumulated or deemed to have accumulated on such Arrearage pursuant
to the immediately preceding two sentences. Additional dividends in respect of
any Arrearage may be declared and paid at any time, in whole or in part, without
reference to any regular Dividend Payment Date, to Registered Holders as they
appear on the stock record books of the Corporation on such record date as may
be fixed by the Board of Directors (which record date shall be no less than 10
days prior to the corresponding payment date). Dividends in respect of any
Arrearage shall be paid in cash.
C. METHOD OF PAYMENT. Dividends paid on the shares of Series B
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable on all outstanding shares of Series B Preferred
Stock shall be allocated pro rata on a share-by-share basis among all such
shares then outstanding. After the Second Anniversary Date, dividends that are
declared and paid in an amount less than the full amount of dividends
accumulated on the Series B Preferred Stock (and on any Arrearage) shall be
applied first to the earliest dividend which has not theretofore been paid. All
cash payments of dividends on the shares of Series B Preferred Stock shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
D. SPECIAL DIVIDEND RIGHTS.
1. In addition to the dividend rights set forth in paragraph A
above, prior to the consummation of the Recapitalization, the holders of shares
of Series B Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, cash dividends in an amount per whole share (rounded to the nearest
cent) equal to the Formula Number then in effect times the aggregate per share
amount of all
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cash dividends declared or paid on the Common Stock. If, prior to the
consummation of the Recapitalization, the Corporation shall pay any dividend or
make any distribution on the Common Stock payable in assets, securities or other
forms of non-cash consideration, then, in each such case, the Corporation shall
simultaneously pay or make on each whole outstanding share of the Series B
Preferred Stock a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series B Preferred Stock
pursuant to this paragraph are hereinafter referred to as "Participating
Dividends." The Corporation shall declare each Participating Dividend
immediately prior to or at the same time it declares any cash or non-cash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required shall
be paid or set aside for payment on the Common Stock unless a Participation
Dividend in respect of such dividend shall be have been paid. Nothing contained
in this paragraph D shall obligate the Company to declare or pay any dividend or
other distribution on the Common Stock or (except pursuant to paragraph A of
this Article III or in connection with a dividend or distribution on the Common
Stock as provided in this paragraph D) the Series B Preferred Stock.
2. If the Recapitalization is not consummated prior to June 30,
1999, the Dividend Rate shall be deemed to be 15% per annum during the period
commencing on such date and ending on the date the Recapitalization is
consummated.
IV. LIQUIDATION PREFERENCE
A. PRIOR TO THE RECAPITALIZATION. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
occurring prior to the consummation of the Recapitalization, the holders of
then-outstanding shares of Series B Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets are capital or surplus
of any nature, an amount per share equal to the sum of (i) the dividends, if
any, accumulated or deemed to have accumulated thereon, to the date of final
distribution to such holders, whether or not such dividends are declared; and
(ii) the Initial Stated Value thereof, before any payment shall be made or any
assets distributed to the holders of any Junior Liquidation Securities (the
"Initial Preferred Distribution"). After the Initial Preferred Distribution has
been made, the holders of Series B Preferred Stock shall be entitled to share
pro rata with the holders of Common Stock in the distribution of any remaining
assets of the Corporation on the basis of each whole outstanding share of the
Series B Preferred Stock receiving an amount equal to the Formula Number then in
effect times such distribution on each share of the Common Stock. The
distributions on the Series B Preferred Stock pursuant to the immediately
preceding sentence of this paragraph A are hereinafter referred to as
"Participating Liquidation Distributions." No distribution on the Common Stock
in respect of which a Participating Liquidation Distribution is required shall
be paid or set aside for payment on the Common Stock unless a Participating
Liquidation Distribution in respect of such distribution is concurrently paid.
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B. AFTER THE RECAPITALIZATION. Subsequent to the consummation of
the Recapitalization, the holders of the outstanding shares of Series B
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of (i) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and (ii) the Post-Recapitalization
Stated Value thereof, before any payment shall be made or any assets distributed
to the holders of any Junior Liquidation Securities. After any such payment in
full after the consummation of the Recapitalization, the holders of Series B
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.
C. PARITY SECURITIES. All the assets of the Corporation available
for distribution to stockholders after the liquidation preferences of any Senior
Liquidation Securities shall be distributed ratably (in proportion to the full
distributable amounts to which holders of Series B Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution,
liquidation or winding up) among the holders of the then-outstanding shares of
Series B Preferred Stock and Parity Liquidation Securities, if any, when such
assets are not sufficient to pay in full the aggregate amounts payable thereon.
D. MERGER NOT A LIQUIDATION. Neither a consolidation or merger of
the Corporation with or into any other Person or Persons, nor a sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets for cash, securities or other property to a Person or Persons shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Article IV, but the holders of shares of Series B Preferred
Stock shall nevertheless be entitled from and after any such consolidation,
merger or sale, conveyance, lease, exchange or transfer of all or part of the
Corporation's assets to the rights provided by this Article IV following any
such transaction. Notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to each holder of
shares of Series B Preferred Stock in such circumstances shall be payable, shall
be given by first-class mail, postage prepaid, mailed not less than 30 days
prior to any payment date stated therein, to holders of record as they appear on
the stock record books of the Corporation as of the date such notices are first
mailed.
V. REDEMPTION
A. INTENTIONALLY OMITTED
B. OPTIONAL REDEMPTION. Commencing on the earlier to occur of (x)
the tenth anniversary of the Issue Date and (y) the date on which fewer than 25%
of the shares of Series B Preferred Stock issued on the Issue Date remain
outstanding, and at all times thereafter, the Corporation may, at its option,
redeem all (but not less than all) outstanding shares of Series B Preferred
Stock on a date specified by the Corporation (the "Optional Redemption Date") by
paying the Redemption Price therefor in cash out of funds legally available for
such purpose.
C. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption of
shares of Series B Preferred Stock pursuant to paragraph B of this Article V (a
"Notice of Redemption")
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shall be sent to the holders of record of the shares of Series B Preferred Stock
to be redeemed by first class mail, postage prepaid, at each such holder's
address as it appears on the stock record books of the Corporation not more than
120 nor fewer than 90 days prior to the Optional Redemption Date, which date
shall be set forth in such notice (the "Redemption Date"); provided that failure
to give such Notice of Redemption to any holder, or any defect in such Notice of
Redemption to any holder shall not affect the validity of the proceedings for
the redemption of any shares of Series B Preferred Stock held by any other
holder. In order to facilitate the redemption of shares of Series B Preferred
Stock, the Board of Directors may fix a record date for the determination of the
holders of shares of Series B Preferred Stock to be redeemed not more than 30
days prior to the date the Notice of Redemption is mailed. On or after the
Optional Redemption Date, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date, all dividends on shares of Series B Preferred Stock shall cease to
accumulate and all rights of the holders thereof as holders of Series B
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Optional Redemption Date.
D. DEPOSIT OF FUNDS. The Corporation shall, on or prior to the
Optional Redemption Date, pursuant to paragraph C of this Article V, deposit
with its transfer agent or other redemption agent in the Borough of Manhattan,
The City of New York having a capital and surplus of at least $500,000,000
selected by the Board of Directors, as a trust fund for the benefit of the
holders of the shares of Series B Preferred Stock to be redeemed, cash that is
sufficient in amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption, with irrevocable instructions and authority to such
transfer agent or other redemption agent to pay to the respective holders of
such shares, as evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price for such shares upon surrender of their
respective share certificates. Such deposit shall be deemed to constitute full
payment of the Redemption Price for such shares to the holders, and from and
after the date of such deposit, all rights of the holders of the shares of
Series B Preferred Stock that are to be redeemed as stockholders of the
Corporation with respect to such shares, except the right to receive the
Redemption Price upon the surrender of their respective certificates, shall
cease and terminate. No dividends shall accumulate on any shares of Series B
Preferred Stock after the Optional Redemption Date for such shares (unless the
Corporation shall fail to deposit cash sufficient to redeem all such shares). In
case holders of any shares of Series B Preferred Stock called for redemption
shall not, within two years after such deposit, claim the cash deposited for
redemption thereof, such transfer agent or other redemption agent shall, upon
demand, pay over to the Corporation the balance so deposited. Thereupon, such
transfer agent or other redemption agent shall be relieved of all responsibility
to the holders thereof and the sole right of such holders, with respect to
shares to be redeemed, shall be to receive the Redemption Price as general
creditors of the Corporation. Any interest accrued on any funds so deposited
shall belong to the Corporation, and shall be paid to it from time to time on
demand.
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VI. RESTRICTIONS ON DIVIDENDS
So long as any shares of the Series B Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation shall
not pay or set apart for payment any dividend on any Junior Securities or make
any payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of, any Junior
Securities or Parity Securities or any warrants, rights or options exercisable
for or convertible into any Junior Securities or Parity Securities (other than
the repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities), or make any distribution in respect of the Junior
Securities, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than distributions or
dividends in Junior Securities to the holders of Junior Securities), and shall
not permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any Junior Securities or Parity Securities
or any warrants, rights, calls or options exercisable for or convertible into
any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities or
the repurchase, redemption or other retirement of Junior Securities or Parity
Securities in exchange for Junior Securities or Parity Securities) unless prior
to or concurrently with such declaration, payment, setting apart for payment,
repurchase, redemption or other retirement or distribution, as the case may be,
all accumulated and unpaid dividends on shares of the Series B Preferred Stock
not paid on the dates provided for in paragraph A of Article III hereof
(including Arrearages and accumulated dividends thereon) shall have been paid,
except that when dividends are not paid in full as aforesaid upon the shares of
Series B Preferred Stock, all dividends declared on the Series B Preferred Stock
and any series of Parity Dividend Securities shall be declared and paid pro rata
so that the amount of dividends so declared and paid on Series B Preferred Stock
and such series of Parity Dividend Securities shall in all cases bear to each
other the same ratio that accumulated dividends (including interest accrued on
or additional dividends accumulated in respect of such accumulated dividends) on
the shares of Series B Preferred Stock and such Parity Dividend Securities bear
to each other.
VII. VOTING RIGHTS
A. On or prior to the consummation of the Recapitalization, the
holders of Series B Preferred Stock shall be entitled to one thousand (1,000)
votes per share of Series B Preferred Stock at each meeting of stockholders of
the Corporation with respect to any and all matters presented to the
stockholders of the Corporation for their action and consideration. After the
consummation of the Recapitalization, the holders of Series B Preferred Stock
shall be entitled to the number of votes per share of Series B Preferred Stock
equal to the number of shares of Common Stock for which such share of Series B
Preferred Stock is then convertible pursuant to Article VIII at each meeting of
stockholders of the Corporation with respect to any and all matters presented to
the stockholders of the Corporation for their action and consideration.
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B. So long as any shares of the Series B Preferred Stock are
outstanding, (i) each share of Series B Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock; and (ii) the
shares of Series B Preferred Stock shall vote together with shares of Common
Stock (and any shares of Series C Preferred Stock entitled to vote) as a single
class.
C. At each annual meeting of the stockholders of the Corporation,
the holders of Series B Preferred Stock, voting as a separate class, shall have
the right to elect, by the written consent (if action by written consent is
permitted) or affirmative vote of the holders of a majority of the outstanding
shares of Series B Preferred Stock, four members of a separate class of
directors, each of whom shall serve until the next annual meeting of the
stockholders of the Corporation or until his or her successor is elected and
qualified. Such vote or consent shall be taken in accordance with the procedures
specified in paragraph F below. The initial directors shall be Steven M.
Gluckstern, Adam M. Mizel, Mani Sadeghi and David Spuria.
D. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of a majority of the outstanding
shares of Series B Preferred Stock and Series C Preferred Stock, voting together
as a single class, the Corporation shall not (i) authorize, create or issue, or
increase the authorized amount of, (x) any Senior Securities or Parity
Securities or (y) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock,
redeemable mandatorily or redeemable at the option of the holder thereof or (ii)
enter into any Transaction (as defined in paragraph H of Article VIII). Such
vote or consent shall be taken in accordance with the procedures specified in
paragraph F below.
E. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of at least a majority of the
outstanding shares of Series B Preferred Stock and Series C Preferred Stock,
voting together as a single class, the Corporation shall not (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws, if the
amendment, alteration or repeal alters or changes the powers, preferences or
special rights of the Series B Preferred Stock so as to affect them materially
and adversely or (ii) authorize or take any other action if such action alters
or changes any of the rights of the Series B Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph F below.
F. The foregoing rights of holders of shares of Series B
Preferred Stock to take any actions as provided in this Article VII may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action, if action by written consent of stockholders of the Corporation is
then permitted.
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The Chairman of the Board of the Corporation may call, and upon
written request of holders of record of 35% of the outstanding shares of Series
B Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of record of 35% of the outstanding
shares of Series B Preferred Stock and Series C Preferred Stock, if the holders
of shares of Series B Preferred Stock are to vote as a class with the holders of
shares of any Series C Preferred Stock, addressed to the Secretary of the
Corporation at the principal office of the Corporation shall call, a special
meeting of the holders of shares entitled to vote as provided herein. Such
meeting shall be held within 30 days after delivery of such request to the
Secretary, at the place and upon the notice provided by law and in the By-laws
of the Corporation for the holding of meetings of stockholders.
At each meeting of stockholders at which the holders of shares of
Series B Preferred Stock shall have the right, voting separately as a single
class or as a class with the holders of shares of any Series C Preferred Stock,
to elect directors of the Corporation as provided in paragraph C above or to
take any action, the presence in person or by proxy of the holders of record of
one-third of the total number of shares of Series B Preferred Stock, if the
holders of shares of Series B Preferred Stock are to vote separately as a single
class, or the holders of record of one-third of the total number of shares of
Series B Preferred Stock and Series C Preferred Stock, if the holder of shares
of Series B Preferred Stock are to vote as a class with the holders of shares of
Series C Preferred Stock, then outstanding and entitled to vote on the matter
shall be necessary and sufficient to constitute a quorum. At any such meeting or
at any adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, shall not prevent the election of
directors other than those to be elected by the holders of shares of
Series B Preferred Stock, and the absence of a quorum of the holders of
shares of any other class or series of capital stock shall not prevent
the election of directors to be elected by the holders of shares of
Series B Preferred Stock or the taking of any action as provided in this
Article VII; and
(B) in the absence of a quorum of the holders of shares of Series
B Preferred Stock, if the holders of Series B Preferred Stock are to
vote separately as a single class, or the holders of shares of Series B
Preferred Stock and Series C Preferred Stock, if the holders of Series B
Preferred Stock are to vote as a class with the holders of shares of
Series C Preferred Stock, a majority of the holders of such shares
present in person or by proxy shall have the power to adjourn the
meeting as to the actions to be taken by the holders of shares of Series
B Preferred Stock or the holders of Series B Preferred Stock and Series
C Preferred Stock, as the case may be, from time to time and place to
place without notice other than announcement at the meeting until a
quorum shall be present.
For taking of any action as provided in this Article VII by the
holders of shares of Series B Preferred Stock voting separately as a single
class or together with the holders of shares of Series B Preferred Stock and
Series C Preferred Stock as a single class, as the case may be, each such holder
shall have one vote for each share of such stock standing in his name on the
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transfer books of the Corporation as of any record dated fixed for such purpose
or, if no such date be fixed, at the close of business on the Business Day next
preceding the day on which notice is given, or if notice if waived, at the close
of business on the Business Day next preceding the day on which the meeting is
held.
In case any vacancy shall occur among the directors elected by
the holders of shares of Series B Preferred Stock, as provided in paragraph C
above, such vacancy may be filled for the unexpired portion of the term by vote
of the remaining directors theretofore elected by such holders (if there is a
remaining director), or the last remaining director's successor in office. If
any such vacancy is not so filled within 20 days after the creation thereof or
if all directors so elected by the holders of Series B Preferred Stock shall
cease to serve as directors before their terms shall expire, the holders of the
Series B Preferred Stock then outstanding and entitled to vote for such
directors may, by written consent as herein provided (if action by written
consent is permitted), or at a special meeting of such holders called as
provided herein, elect successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
Any director elected by the holders of shares of Series B
Preferred Stock voting separately as a single class may be removed from office
with or without cause by the vote or written consent (if action by written
consent is permitted) of the holders of at least a majority of the outstanding
shares of Series B Preferred Stock. A special meeting of the holders of shares
of Series B Preferred Stock may be called in accordance with the procedures set
forth in this paragraph F.
G. The Corporation shall not enter into any agreement or issue
any security that prohibits, conflicts or is inconsistent with, or would be
breached by, the Corporation's performance of its obligations hereunder.
VIII. CONVERSION
The holders of the Series B Preferred Stock shall have conversion
rights as follows:
A. Each share of Series B Preferred Stock shall be convertible at
the direction of, and by notice to the Corporation from, the
holders of a majority of the outstanding shares of Series B
Preferred Stock, at any time, at the office of the Corporation or
any transfer agent for such Series, into one thousand (1,000)
fully paid and nonassessable shares of Common Stock subject (x)
to adjustment from time to time as provided below (as so
adjusted, the "conversion ratio") and (y) (prior to the
consummation of the Recapitalization) to limitations resulting
from the available number of shares of Common Stock which may be
reserved for issuance upon such conversion, provided, that any
conversion pursuant to this paragraph A of less than all of the
outstanding shares of Series B Preferred Stock shall be on a pro
rata basis amongst all holders of Series B Preferred Stock. After
consummation of the Recapitalization, the number "1,000" in this
paragraph shall be "1", subject to adjustment as provided in
paragraph VIII.G.
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B. If the holders of a majority of the outstanding shares of Series
B Preferred Stock give notice of conversion under paragraph A
above, the Corporation shall notify all other record holders of
Series B Preferred Stock (a "Conversion Notice"). Following
receipt of a Conversion Notice, the holders of Series B Preferred
Stock shall surrender the certificate or certificates therefor
duly endorsed, at the office of the Corporation or of any
transfer agent for such Series, and shall state therein the name
or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such
holder, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to
the close of business on the date of such Conversion Notice and
the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all
purposes as the recordholder or holders of such shares of Common
Stock as of such date. The issuance of certificates or shares of
Common Stock upon conversion of shares of Series B Preferred
Stock shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance.
C. No fractional shares shall be issued upon conversion of any
shares of Series B Preferred Stock and the number of shares of
Common Stock to be issued shall be rounded down to the nearest
whole share, and the holder of Series B Preferred Stock shall be
paid in cash for any fractional share.
D. In case at any time or from time to time the Corporation shall
pay any dividend or make any other distribution to the holder of
its Common Stock or other class of securities, or shall offer for
subscription pro rata to the holders of its Common Stock or other
class of securities any additional shares of stock of any class
or any other right, or there shall be any capital reorganization
or reclassification of the Common Stock of the Corporation or
consolidation or merger of the Corporation with or into another
corporation, or any sale or conveyance to another corporation of
the property of the Corporation as an entirety or substantially
as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, then,
in any one or more of said cases the Corporation shall give at
least 20 days' prior written notice (the time of mailing of such
notice shall be deemed to be the time of giving thereof) to the
registered holders of the Series B Preferred Stock at the
addresses of each as shown on the books of the Corporation
maintained by the Transfer Agent thereof of the date on which (i)
the books of the Corporation shall close or a record shall be
taken for such stock dividend,
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distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the
case may be, provided that in the case of any Transaction to
which paragraph H applies the Corporation shall give at least 30
days' prior written notice as aforesaid. Such notice shall also
specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale or
conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall
not invalidate any action so taken.
E. From and after the Recapitalization, the Corporation shall at all
times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock, and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of Series B Preferred Stock, then in addition
to such other remedies as shall be available to the holder of
Series B Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes.
F. Any notice required by the provisions of paragraph D to be given
the holders of shares of Series B Preferred Stock shall be deemed
given if sent by facsimile transmission, by telex, or if
deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.
G. The conversion ratio shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time or from time
to time after the Issue Date (A) pay a dividend or make a
distribution, on the outstanding shares of Common Stock in shares
of Common Stock, (B) subdivide the outstanding shares of Common
Stock into a larger number of shares of Common Stock, (C) combine
the outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of the shares of Common
Stock any shares of capital stock of the Corporation, then, and
in each such case, the conversion ratio in effect immediately
prior to such event or the record date therefor, whichever is
earlier, shall be adjusted so that the holder of any shares of
Series B Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock
or other securities of the Corporation which such holder would
have owned or have been entitled to receive after the happening
of any of the events described above, had such shares of Series B
Preferred Stock been surrendered for conversion immediately prior
to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause
(i) shall become effective (x) in the case of any such dividend
or distribution, immediately after the close of business on the
record date for the determination of holders of shares of Common
Stock
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entitled to receive such dividend or distribution, or (y) in the
case of any such subdivision, reclassification or combination, at
the close of business on the day upon which such corporate action
becomes effective.
(ii) In the case the Corporation shall, after the Issue
Date, issue shares of Common Stock at a price per share, or
securities convertible into or exchangeable for shares of Common
Stock ("Convertible Securities") having a "Conversion Price" (as
defined below) less than the Current Market Price (for a period
of 15 consecutive trading days prior to such date), then, and in
each such case, the conversion ratio shall be adjusted so that
the holder of each share of Series B Preferred Stock shall be
entitled to receive, upon the conversion thereof, the number of
shares of Common Stock determined by multiplying (A) the
applicable conversion ratio on the day immediately prior to such
date by (B) a fraction, the numerator of which shall be the sum
of (1) the number of shares of Common Stock outstanding on the
date on which such shares or Convertible Securities are issued
and (2) the number of additional shares of Common Stock issued,
or into which the Convertible Securities may convert, and the
denominator of which shall be the sum of (x) the number of shares
of Common Stock outstanding on such date and (y) the number of
shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of
Common Stock so issued, or the number of shares of Common Stock
which the aggregate of the Conversion Price of such Convertible
Securities so issued, would purchase at such Current Market price
on such date. An adjustment made pursuant to this clause (ii)
shall be made on the next Business Day following the date on
which any such issuance is made and shall be effective
retroactively immediately after the close of business on such
date. For purposes of this clause (ii), the aggregate
consideration receivable by the Corporation in connection with
the issuance of any securities shall be deemed to be the sum of
the aggregate offering price to the public (before deduction of
underwriting discounts or commissions and expenses payable to
third parties), and the "Conversion Price" of any Convertible
Securities is the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting
discounts or commissions and expenses payable to third parties)
plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion, exchange or
exercise of any such Convertible Securities. Neither (A) the
issuance of any shares of Common Stock (whether treasury shares
or newly issued shares) pursuant to a dividend or distribution
on, or subdivision, combination or reclassification of, the
outstanding shares of Common Stock requiring an adjustment in the
conversion ratio pursuant to clause (i) of this paragraph G, or
pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or
Convertible Security outstanding as of the date hereof
(including, but not limited to, the Rights, the Series B
Preferred Stock, the Series C Preferred Stock and the Warrants)
nor (B) the issuance of shares of Common Stock pursuant thereto
shall be deemed to
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constitute an issuance of Common Stock or Convertible Securities
by the Corporation to which this clause (ii) applies. Upon
expiration of any Convertible Securities which shall not have
been exercised or converted and for which an adjustment shall
have been made pursuant to this clause (ii), the Conversion Price
computed upon the original issue thereof shall upon expiration be
recomputed as if the only additional shares of Common Stock
issued were such shares of Common Stock (if any) actually issued
upon exercise or conversion of such Convertible Securities and
the consideration received therefor was the consideration
actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted)
plus the consideration actually received by the Corporation upon
such exercise of conversion.
(iii) In case the Corporation shall at any time or from
time to time after the Issue Date declare, order, pay or make a
dividend or other distribution (including, without limitation,
any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation
or any of its Subsidiaries by way of dividend or spin-off), on
its Common Stock, other than (A) regular quarterly dividends
payable in cash in an aggregate amount not to exceed 15% of net
income from continuing operations before extraordinary items of
the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one
accounting period) commencing on July 1, 1998, and ending on the
date such dividend is paid or (B) dividends or distributions of
shares of Common Stock which are referred to in clause (i) of
this paragraph G, then, and in each such case, the conversion
ratio shall be adjusted so that the holder of each share of
Series B Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (1) the applicable conversion ratio on
the day immediately prior to the record date fixed for the
determination of stockholders entitled to receive such dividend
or distribution by (2) a fraction, the numerator of which shall
be the then Current Market Price per share of Common Stock for
the period of 20 Trading Days preceding such record date, and the
denominator of which shall be such Current Market Price per share
of Common Stock for the period of 20 Trading Days preceding such
record date, less the Fair Market Value (as defined in Article
IX) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution
with respect to which shall be mailed to each holder of shares of
Series B Preferred Stock) of such dividend or distribution;
provided, however, that in the event of a distribution of shares
of capital stock of a Subsidiary of the Corporation (a
"Spin-Off") made to holders of shares of Common Stock, the
numerator of such fraction shall be the sum of the Current Market
Price per share of Common Stock for the period of 20 Trading Days
preceding the 35th Trading Day after the effective date of such
Spin-Off and the Current Market Price of the number of shares (or
the fraction of a share) of capital stock of the Subsidiary which
is
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distributed in such Spin-Off in respect of one share of Common
Stock for the period of 20 Trading Days preceding such 35th
Trading Day and the denominator of which shall be the current
market price per share of the Common Stock for the period of 20
Trading Days proceeding such 35th Trading Day. An adjustment made
pursuant to this clause (iii) shall be made upon the opening of
business on the next Business Day following the date on which any
such dividend or distribution is made and shall be effective
retroactively immediately after the close of business on the
record date fixed for the determination of stockholders entitled
to receive such dividend or distribution; provided, however, if
the proviso to the preceding sentence applies, then such
adjustment shall be made and be effective as of such 35th Trading
Day after the effective date of such Spin-Off.
(iv) For purposes of this paragraph G, the number of shares
of Common Stock at any time outstanding shall not include any
shares of Common Stock then owned or held by or for the account
of the Corporation.
(v) The term "dividend", as used in this paragraph G shall
mean a dividend or other distribution upon stock of the
Corporation except pursuant to the Rights Agreement (as defined
in Article IX). Notwithstanding anything in this Article VIII to
the contrary, the conversion ratio shall not be adjusted as a
result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.
(vi) Anything in this paragraph G to the contrary
notwithstanding, the Corporation shall not be required to give
effect to any adjustment in the conversion ratio unless and until
the net effect of one or more adjustments (each of which shall be
carried forward), determined as above provided, shall have
resulted in a change of the conversion ratio by at least
one-hundredth of one share of Common Stock, and when the
cumulative net effect of more than one adjustment so determined
shall be to change the conversion ratio by at least one-hundredth
of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.
(vii) The certificate of any firm of independent public
accountants of recognized standing selected by the Board of
Directors of the Corporation (which may be the firm of
independent public accountants regularly employed by the
Corporation) shall be presumptively correct for any computation
made under this paragraph G.
(viii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution, and shall thereafter
and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution,
then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of
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<PAGE>
the right of conversion granted by this paragraph G or in the
conversion ratio then in effect shall be required by reason of
the taking of such record.
(ix) There shall be no adjustment of the conversion ratio
in case of the issuance of any stock of the Corporation in a
merger, reorganization, acquisition or other similar transaction
except as set forth in paragraph G(i), G(ii) and H of this
Article VIII.
H. In case of any reorganization or reclassification of outstanding
shares of Common Stock (other than a reclassification covered by
paragraph G(i) of this Article VIII, or in case of any
consolidation or merger of the Corporation with or into another
corporation, or in the case of any sale or conveyance to another
corporation of the property of the Corporation as an entirety or
substantially as an entirety (each of the foregoing being
referred to as a "Transaction"), each share of Series B Preferred
Stock then outstanding shall thereafter be convertible into, in
lieu of the Common Stock issuable upon such conversion prior to
consummation of such Transaction, the kind and amount of shares
of stock and other securities and property receivable (including
cash) upon the consummation of such Transaction by a holder of
that number of shares of Common Stock into which one share of
Series B Preferred Stock was convertible immediately prior to
such Transaction (including, on a pro rata basis, the cash,
securities or property received by holders of Common Stock in any
tender or exchange offer that is a step in such Transaction). In
case securities or property other than Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then all
reference in this paragraph H shall be deemed to apply, so far as
appropriate and as nearly as may be, to such other securities or
property.
I. Upon any adjustment of the conversion ratio then in effect and
any increase or decrease in the number of shares of Common Stock
issuable upon the operation of the conversion set forth in
Article VIII, then, and in each such case, the Corporation shall
promptly deliver to the registered holders of the Series B
Preferred and Common Stock, a certificate signed by the President
or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the
Corporation setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment
was calculated and specifying the conversion ratio then in effect
following such adjustment and the increased or decreased number
of shares issuable upon the conversion set forth in this Article
VIII.
IX. ADDITIONAL DEFINITIONS
For the purposes of this Certificate of Designations of Series B
Preferred Stock, the following terms shall have the meanings indicated:
"Accrual Period" means the end of the first quarterly period
following the Second Anniversary Date.
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<PAGE>
"Beneficially Own" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof, except that a Person
shall be deemed to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have
correlative meanings.
"Business Day" means any day, other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Bylaws" means the Bylaws of the Corporation, as amended.
"Current Market Price", when used with reference to shares of
Common Stock or other securities on any date, shall mean the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Current Market Price" shall mean
the Fair Market Value per share of Common Stock or of such other securities as
determined in good faith by the Board of Directors of the Corporation based on
an opinion of an independent investment banking firm with an established
national reputation as a valuer of securities, which opinion may be based on
such assumption as such firm shall deem to be necessary and appropriate.
"Equity Securities" of any Person means any and all common stock,
preferred stock and any other class of capital stock of, and any partnership or
limited liability company interests of such Person or any other similar
interests of any Person that is not a corporation, partnership or limited
liability company.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, from time to
time.
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"Fair Market Value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.
"Formula Number" shall mean one thousand (1,000) prior to
consummation of the Recapitalization, provided, however, that if at any time
prior to the consummation of the Recapitalization, the Corporation shall (i)
declare or pay any dividend or make any distribution on the Common Stock,
payable in shares of Common Stock; (ii) subdivide (by a stock split or
otherwise) the outstanding shares of Common Stock into a larger number of shares
of Common Stock; or (iii) combine (by a reverse stock split or otherwise) the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each such case the Formula Number in effect immediately prior to
such event shall be adjusted to a number determined by multiplying the Formula
Number then in effect by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if prior to the consummation
of the Recapitalization the Corporation shall issue any shares of its capital
stock in a merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification, or change so that each share
of Series B Preferred Stock continues to be the economic equivalent of a Formula
Number of shares of Common Stock immediately prior to such merger,
reclassification, or change.
"Group" has the meaning set forth in Rule 13d-5 under the
Exchange Act.
"Issue Date" shall mean the first date on which shares of Series
B Preferred Stock are issued.
"Person" means any individual, corporation, company, association,
partnership, joint venture, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Post-Recapitalization Stated Value" shall be equal to $1.00.
"Recapitalization" means the amendment of the Corporation's
Certificate of Incorporation to increase the authorized shares of Common Stock
from 50,000,000 to 400,000,000, and the authorized shares of Preferred Stock
from 1,000,000 to 200,000,000, and the subsequent one thousand-for-one split of
Series B Preferred Stock and Series C Preferred Stock.
"Redemption Price" of a share of Class B Preferred Stock shall
mean the sum of (a) the dividends, if any, accumulated or deemed to have
accumulated thereon to the Optional Redemption Date, whether or not such
dividends are declared plus (b) either (i) the Initial Stated Value thereof (if
the Recapitalization has not been consummated prior to June 30, 1999) or (ii)
the Post-Recapitalization Stated Value thereof (if the Recapitalization has been
consummated prior to June 30, 1999), in each case subject to adjustment for
splits, reclassifications, recombinations or other similar events.
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<PAGE>
"Rights" shall mean any rights to purchase securities of the
Corporation issued pursuant to any Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement, dated as of
June 21, 1996, between the Company and Wells Fargo Bank as rights agent, and all
amendments, supplements and replacements thereof.
"Second Anniversary Date" means the second anniversary of the
Issue Date.
"Subsidiary" means, as to any Person, any other Person of which
more than 50% of the shares of the Voting Securities or other voting interests
are owned or controlled, or the ability to select or elect 50% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person and one or more of its Subsidiaries.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange a Business Day.
"Voting Securities" means, (i) with respect to the Company, the
Equity Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
X. MISCELLANEOUS
A. NOTICES. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:
(i) if to the Corporation, to its office at 2 California
Plaza, 350 South Grand Avenue, Los Angeles, California
90071 (Attention: General Counsel) or to the transfer
agent for the Series B Preferred Stock;
(ii) if to a holder of the Series B Preferred Stock, to such
holder at the address of such holder as listed in the
stock record books of the Corporation (which may
include the records of any transfer agent for the
Series B Preferred Stock); or
(iii) to such other address as the Corporation or such
holder, as the case may be, shall have designated by
notice similarly given.
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B. REACQUIRED SHARES. Any shares of Series B Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation, directly or
indirectly, in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Delaware General Corporation Law. All such shares of Series
B Preferred Stock shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State of Delaware,
become authorized but unissued shares of Preferred Stock, par value $0.001 per
share, of the Corporation and may be reissued as part of another series of
Preferred Stock, par value $0.001 per share, of the Corporation subject to the
conditions or restrictions on issuance set forth herein.
C. ENFORCEMENT. Any registered holder of shares of Series B
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to
the terms of this Certificate of Designations, the Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series B Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series B Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E. TRANSFER AGENT. The Corporation may appoint, and from time to
time discharge and change, a transfer agent for the Series B Preferred Stock.
Upon any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to each holder
of record of shares of Series B Preferred Stock.
F. RECORD DATES. In the event that the Series B Preferred Stock
shall be registered under either the Securities Act of 1933, as amended, or the
Exchange Act, the Corporation shall establish appropriate record dates with
respect to payments and other actions to be made with respect to the Series B
Preferred Stock.
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed
on behalf of the Corporation by its Executive vice President, General Counsel
and Secretary and attested by its Assistant Secretary, this 10th day of February
, 1999.
AAMES FINANCIAL CORPORATION
By: /s/ Barbara S. Polsky
---------------------------------
Name: Barbara S. Polsky
Title: Executive Vice President, General
Counsel and Secretary
[Corporate Seal]
ATTEST:
/s/ John F. Madden, Jr.
- ---------------------------------
John F. Madden Jr.
Assistant Secretary
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- --------------------------------------------------------------------------------
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
AAMES FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
AAMES FINANCIAL CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation (the "Board of Directors") pursuant to authority of
the Board of Directors as required by Section 151 of the Delaware General
Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
SERIES C CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
The designation of this series of shares shall be "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock") par value $0.001
per share; the initial stated value per share shall be $1,000.00 (the "Initial
Stated Value"); and the number of shares constituting such series shall be
100,000. The number of shares of the Series C Preferred Stock may be decreased
from time to time by a resolution or resolutions of the Board of Directors;
provided, however, that such number shall not be decreased below the aggregate
number of shares of the Series C Preferred Stock then outstanding.
II. RANK
A. With respect to dividends, the Series C Preferred Stock shall
rank (i) senior to each other class or series of Preferred Stock, except for the
Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series B Preferred Stock"); (ii) on a parity with the Series B
Preferred Stock; and (iii) senior to the Corporation's Common Stock, par value
$.001 per share (the "Common Stock"), and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to dividends, all equity securities of the Corporation
to which the Series C Preferred Stock ranks senior, including the Common Stock,
are collectively referred to herein as the
<PAGE>
"Junior Dividend Securities"; all equity securities of the Corporation with
which the Series C Preferred Stock ranks on a parity, including the Series B
Preferred Stock, are collectively referred to herein as the "Parity Dividend
Securities"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series C Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as the "Senior
Dividend Securities."
B. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the Series C Preferred Stock shall rank (i) senior to each other class or series
of Preferred Stock, except for the Series B Preferred Stock; (ii) on a parity
with the Series B Preferred Stock; and (iii) senior to the Common Stock, and,
except as specified above, all other classes and series of capital stock of the
Corporation hereafter issued by the Corporation. With respect to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, all equity securities of the
Corporation to which the Series C Preferred Stock ranks senior, including the
Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all equity securities of the Corporation (other than convertible
debt securities) to which the Series C Preferred Stock ranks on parity,
including the Series B Preferred Stock, are collectively referred to herein as
"Parity Liquidation Securities"; and all equity securities of the Corporation to
which the Series C Preferred Stock ranks junior are collectively referred to
herein as "Senior Liquidation Securities."
C. The Series C Preferred Stock shall be subject to the creation
of Junior Dividend Securities and Junior Liquidation Securities (collectively,
"Junior Securities"), but no Parity Dividend Securities or Parity Liquidation
Securities (collectively, "Parity Securities") (other than the Series B
Preferred Stock) or Senior Dividend Securities or Senior Liquidation Securities
(collectively, "Senior Securities") shall be created except in accordance with
the terms hereof.
III. DIVIDENDS
A. DIVIDENDS. Subject to the terms of paragraph D below, shares
of Series C Preferred Stock shall accumulate dividends at a rate of 6.5% per
annum (the "Dividend Rate"), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a "Dividend
Payment Date"), to holders of record (the "Registered Holders") as they appear
on the stock record books of the Corporation on the fifteenth day prior to the
relevant Dividend Payment Date; provided, however, that during the Accrual
Period (as defined in Article IX hereof) the Corporation shall have the option
to accrue such dividends, which dividends, to the extent so accrued, shall
compound quarterly. Prior to the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Initial Stated Value of each share of Series
B Preferred Stock. Following the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Post-Recapitalization Stated Value of each
share of Series B Preferred Stock. Dividends shall be paid only when, as and if
declared by the Board of Directors out of funds at the time
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legally available for the payment of dividends. Dividends shall begin to
accumulate on outstanding shares of Series C Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.
B. ACCUMULATION. Dividends on the Series C Preferred Stock shall
be cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at 125% of the
stated dividend rate (or such lesser rate as may be the maximum rate that is
then permitted by applicable law). Such additional dividends in respect of any
Arrearage shall be deemed to accumulate from day to day whether or not earned or
declared until the Arrearage is paid, shall be calculated as of such successive
Dividend Payment Date, and shall constitute an additional Arrearage from and
after any Dividend Payment Date to the extent not paid on such Dividend Payment
Date. References in any Article herein to dividends that have accumulated or
that have been deemed to have accumulated with respect to the Series C Preferred
Stock shall include the amount, if any, of any Arrearage together with any
dividends accumulated or deemed to have accumulated on such Arrearage pursuant
to the immediately preceding two sentences. Additional dividends in respect of
any Arrearage may be declared and paid at any time, in whole or in part, without
reference to any regular Dividend Payment Date, to Registered Holders as they
appear on the stock record books of the Corporation on such record date as may
be fixed by the Board of Directors (which record date shall be no less than 10
days prior to the corresponding payment date). Dividends in respect of any
Arrearage shall be paid in cash.
C. METHOD OF PAYMENT. Dividends paid on the shares of Series C
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable on all outstanding shares of Series C Preferred
Stock shall be allocated pro rata on a share-by-share basis among all such
shares then outstanding. After the Second Anniversary Date, dividends that are
declared and paid in an amount less than the full amount of dividends
accumulated on the Series C Preferred Stock (and on any Arrearage) shall be
applied first to the earliest dividend which has not theretofore been paid. All
cash payments of dividends on the shares of Series C Preferred Stock shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
D. SPECIAL DIVIDEND RIGHTS.
1. In addition to the dividend rights set forth in paragraph A
above, prior to the consummation of the Recapitalization, the holders of shares
of Series C Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, cash dividends in an amount per whole share (rounded to the nearest
cent) equal to the Formula Number then in effect times the aggregate per share
amount of all
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cash dividends declared or paid on the Common Stock. If, prior to the
consummation of the Recapitalization, the Corporation shall pay any dividend or
make any distribution on the Common Stock payable in assets, securities or other
forms of non-cash consideration, then, in each such case, the Corporation shall
simultaneously pay or make on each whole outstanding share of the Series C
Preferred Stock a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series C Preferred Stock
pursuant to this paragraph D are hereinafter referred to as "Participating
Dividends." The Corporation shall declare each Participating Dividend
immediately prior to or at the same time it declares any cash or non-cash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required shall
be paid or set aside for payment on the Common Stock unless a Participation
Dividend in respect of such dividend shall be have been paid. Nothing contained
in this paragraph D shall obligate the Company to declare or pay any dividend or
other distribution on the Common Stock or (except pursuant to paragraph A of
this Article III or in connection with a dividend or distribution on the Common
Stock as provided in this paragraph D) the Series B Preferred Stock.
2. If the Recapitalization is not consummated prior to June 30,
1999, the Dividend Rate shall be deemed to be 15% per annum during the period
commencing on such date and ending on the date the Recapitalization is
consummated.
IV. LIQUIDATION PREFERENCE
A. PRIOR TO THE RECAPITALIZATION. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
occurring prior to the consummation of the Recapitalization, the holders of
then-outstanding shares of Series C Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets are capital or surplus
of any nature, an amount per share equal to the sum of (i) the dividends, if
any, accumulated or deemed to have accumulated thereon, to the date of final
distribution to such holders, whether or not such dividends are declared; and
(ii) the Initial Stated Value thereof, before any payment shall be made or any
assets distributed to the holders of any Junior Liquidation Securities (the
"Initial Preferred Distribution"). After the Initial Preferred Distribution has
been made, the holders of Series C Preferred Stock shall be entitled to share
pro rata with the holders of Common Stock in the distribution of any remaining
assets of the Corporation on the basis of each whole outstanding share of the
Series C Preferred Stock receiving an amount equal to the Formula Number then in
effect times such distribution on each share of the Common Stock. The
distributions on the Series C Preferred Stock pursuant to the immediately
preceding sentence of this paragraph A are hereinafter referred to as
"Participating Liquidation Distributions." No distribution on the Common Stock
in respect of which a Participating Liquidation Distribution is required shall
be paid or set aside for payment on the Common Stock unless a Participating
Liquidation Distribution in respect of such distribution is concurrently paid.
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B. AFTER THE RECAPITALIZATION. Subsequent to the consummation of
the Recapitalization, the holders of the outstanding shares of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of (i) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and (ii) the Post-Recapitalization
Stated Value thereof, before any payment shall be made or any assets distributed
to the holders of any Junior Liquidation Securities. After any such payment in
full after the consummation of the Recapitalization, the holders of Series C
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.
C. PARITY SECURITIES. All the assets of the Corporation available
for distribution to stockholders after the liquidation preferences of any Senior
Liquidation Securities shall be distributed ratably (in proportion to the full
distributable amounts to which holders of Series C Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution,
liquidation or winding up) among the holders of the then-outstanding shares of
Series C Preferred Stock and Parity Liquidation Securities, if any, when such
assets are not sufficient to pay in full the aggregate amounts payable thereon.
D. MERGER NOT A LIQUIDATION. Neither a consolidation or merger of
the Corporation with or into any other Person or Persons, nor a sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets for cash, securities or other property to a Person or Persons shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Article IV, but the holders of shares of Series C Preferred
Stock shall nevertheless be entitled from and after any such consolidation,
merger or sale, conveyance, lease, exchange or transfer of all or part of the
Corporation's assets to the rights provided by this Article IV following any
such transaction. Notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to each holder of
shares of Series C Preferred Stock in such circumstances shall be payable, shall
be given by first-class mail, postage prepaid, mailed not less than 30 days
prior to any payment date stated therein, to holders of record as they appear on
the stock record books of the Corporation as of the date such notices are first
mailed.
V. REDEMPTION
A. INTENTIONALLY OMITTED
B. OPTIONAL REDEMPTION. Commencing on the earlier to occur of (x)
the tenth anniversary of the Issue Date and (y) the date on which fewer than 25%
of the shares of Series C Preferred Stock issued on the Issue Date remain
outstanding, and at all times thereafter, the Corporation may, at its option,
redeem all (but not less than all) outstanding shares of Series C Preferred
Stock on a date specified by the Corporation (the "Optional Redemption Date") by
paying the Redemption Price therefor in cash out funds legally available for
such purpose.
C. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption of
shares of Series C Preferred Stock pursuant to paragraph B of this Article V (a
"Notice of Redemption")
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shall be sent to the holders of record of the shares of Series C Preferred Stock
to be redeemed by first class mail, postage prepaid, at each such holder's
address as it appears on the stock record books of the Corporation not more than
120 nor fewer than 90 days prior to the Optional Redemption Date, which date
shall be set forth in such notice (the "Redemption Date"); provided that failure
to give such Notice of Redemption to any holder, or any defect in such Notice of
Redemption to any holder shall not affect the validity of the proceedings for
the redemption of any shares of Series C Preferred Stock held by any other
holder. In order to facilitate the redemption of shares of Series C Preferred
Stock, the Board of Directors may fix a record date for the determination of the
holders of shares of Series C Preferred Stock to be redeemed not more than 30
days prior to the date the Notice of Redemption is mailed. On or after the
Optional Redemption Date, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date, all dividends on shares of Series C Preferred Stock shall cease to
accumulate and all rights of the holders thereof as holders of Series C
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Optional Redemption Date.
D. DEPOSIT OF FUNDS. The Corporation shall, on or prior to the
Optional Redemption Date, pursuant to paragraph C of this Article V, deposit
with its transfer agent or other redemption agent in the Borough of Manhattan,
The City of New York having a capital and surplus of at least $500,000,000
selected by the Board of Directors, as a trust fund for the benefit of the
holders of the shares of Series C Preferred Stock to be redeemed, cash that is
sufficient in amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption, with irrevocable instructions and authority to such
transfer agent or other redemption agent to pay to the respective holders of
such shares, as evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price upon surrender of their respective share
certificates. Such deposit shall be deemed to constitute full payment of the
Redemption Price for such shares to the holders, and from and after the date of
such deposit, all rights of the holders of the shares of Series C Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. No dividends shall
accumulate on any shares of Series C Preferred Stock after the Optional
Redemption Date, for such shares (unless the Corporation shall fail to deposit
cash sufficient to redeem all such shares). In case holders of any shares of
Series C Preferred Stock called for redemption shall not, within two years after
such deposit, claim the cash deposited for redemption thereof, such transfer
agent or other redemption agent shall, upon demand, pay over to the Corporation
the balance so deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders thereof and the
sole right of such holders, with respect to shares to be redeemed, shall be to
receive the Redemption Price as general creditors of the Corporation. Any
interest accrued on any funds so deposited shall belong to the Corporation, and
shall be paid to it from time to time on demand.
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VI. RESTRICTIONS ON DIVIDENDS
So long as any shares of the Series C Preferred Stock are
outstanding, the Board of Directors shall not declare, and the Corporation shall
not pay or set apart for payment any dividend on any Junior Securities or make
any payment on account of, or set apart for payment money for a sinking or other
similar fund for, the repurchase, redemption or other retirement of, any Junior
Securities or Parity Securities or any warrants, rights or options exercisable
for or convertible into any Junior Securities or Parity Securities (other than
the repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities), or make any distribution in respect of the Junior
Securities, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than distributions or
dividends in Junior Securities to the holders of Junior Securities), and shall
not permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any Junior Securities or Parity Securities
or any warrants, rights, calls or options exercisable for or convertible into
any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities or
the repurchase, redemption or other retirement of Junior Securities or Parity
Securities in exchange for Junior Securities or Parity Securities) unless prior
to or concurrently with such declaration, payment, setting apart for payment,
repurchase, redemption or other retirement or distribution, as the case may be,
all accumulated and unpaid dividends on shares of the Series C Preferred Stock
not paid on the dates provided for in paragraph A of Article III hereof
(including Arrearages and accumulated dividends thereon) shall have been paid,
except that when dividends are not paid in full as aforesaid upon the shares of
Series C Preferred Stock, all dividends declared on the Series C Preferred Stock
and any series of Parity Dividend Securities shall be declared and paid pro rata
so that the amount of dividends so declared and paid on Series C Preferred Stock
and such series of Parity Dividend Securities shall in all cases bear to each
other the same ratio that accumulated dividends (including interest accrued on
or additional dividends accumulated in respect of such accumulated dividends) on
the shares of Series C Preferred Stock and such Parity Dividend Securities bear
to each other.
VII. VOTING RIGHTS
A. On or prior to the consummation of the Recapitalization, the
holders of Series C Preferred Stock shall be entitled to one thousand (1,000)
votes per share of Series C Preferred Stock at each meeting of stockholders of
the Corporation with respect to any and all matters presented to the
stockholders of the Corporation for their action and consideration, other than
the election of directors. After the consummation of the Recapitalization, the
holders of Series C Preferred Stock shall be entitled to the number of votes per
share of Series C Preferred Stock equal to the number of shares of Common Stock
for which such share of Series C Preferred Stock is then convertible pursuant to
Article VIII at each meeting of stockholders of the Corporation with respect to
any and all matters presented to the stockholders of the Corporation for their
action and consideration, other than the election of directors.
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B. So long as any shares of the Series C Preferred Stock are
outstanding, (i) each share of Series C Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock, other than
the election of directors; and (ii) the shares of Series C Preferred Stock shall
vote together with shares of Common Stock and shares of Series B Preferred Stock
as a single class.
C. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of a majority of the outstanding
shares of Series C Preferred Stock and Series B Preferred Stock, voting together
as a single class, the Corporation shall not (i) authorize, create or issue, or
increase the authorized amount of, (x) any Senior Securities or Parity
Securities or (y) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock,
redeemable mandatorily or redeemable at the option of the holder thereof or (ii)
enter into any Transaction (as defined in paragraph H of Article VIII). Such
vote or consent shall be taken in accordance with the procedures specified in
paragraph E below.
D. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock and Series B Preferred Stock,
voting together as a single class, the Corporation shall not (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws, if the
amendment, alteration or repeal alters or changes the powers, preferences or
special rights of the Series C Preferred Stock so as to affect them materially
and adversely or (ii) authorize or take any other action if such action alters
or changes any of the rights of the Series C Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph E below.
E. The foregoing rights of holders of shares of Series C
Preferred Stock to take any actions as provided in this Article VII may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action, if action by written consent of stockholders of the Corporation is
then permitted.
The Chairman of the Board of the Corporation may call, and upon
written request of holders of record of 35% of the outstanding shares of Series
C Preferred Stock and Series B Preferred Stock, addressed to the Secretary of
the Corporation at the principal office of the Corporation shall call, a special
meeting of the holders of shares entitled to vote as provided herein. Such
meeting shall be held within 30 days after delivery of such request to the
Secretary, at the place and upon the notice provided by law and in the By-laws
of the Corporation for the holding of meetings of stockholders.
At each meeting of stockholders at which the holders of shares of
Series C Preferred Stock shall have the right to take any action, the presence
in person or by proxy of the
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holders of record of one-third of the total number of shares of Series C
Preferred Stock and Series B Preferred Stock then outstanding and entitled to
vote on the matter shall be necessary and sufficient to constitute a quorum. At
any such meeting or at any adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series C
Preferred Stock shall not prevent the election of directors to be
elected by the holders of shares of Series B Preferred Stock or the
taking of any action as provided in this Article VII; and
(B) in the absence of a quorum of the holders of shares of Series
C Preferred Stock and Series B Preferred Stock, a majority of the
holders of such shares present in person or by proxy shall have the
power to adjourn the meeting as to the actions to be taken by the
holders of shares of Series C Preferred Stock and Series B Preferred
Stock, from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.
For taking of any action as provided in this Article VII by the
holders of shares of Series C Preferred Stock and Series B Preferred Stock, each
such holder shall have one vote for each share of such stock standing in his
name on the transfer books of the Corporation as of any record dated fixed for
such purpose or, if no such date be fixed, at the close of business on the
Business Day next preceding the day on which notice is given, or if notice if
waived, at the close of business on the Business Day next preceding the day on
which the meeting is held.
F. The Corporation shall not enter into any agreement or issue
any security that prohibits, conflicts or is inconsistent with, or would be
breached by, the Corporation's performance of its obligations hereunder.
VIII. CONVERSION
The holders of the Series C Preferred Stock shall have conversion
rights as follows:
A. Each share of Series C Preferred Stock shall be convertible at
the direction of, and by notice to the Corporation from, (i) the
holder thereof or (ii) the holders of a majority of the
outstanding shares of Series C Preferred Stock, at any time, at
the office of the Corporation or any transfer agent for such
Series, into one thousand (1,000) fully paid and nonassessable
shares of Common Stock subject (x) to adjustment from time to
time as provided below (as so adjusted, the "conversion ratio")
and (y) (prior to the consummation of the Recapitalization) to
limitations resulting from the available number of shares of
Common Stock which may be reserved for issuance upon such
conversion, provided, that any conversion pursuant to clause
(ii) above of less than all of the outstanding shares of Series C
Preferred Stock shall be on a pro rata basis amongst all holders
of Series C Preferred Stock. After consummation of the
Recapitalization, the number "1,000" in this paragraph shall be
"1", subject to adjustment as provided in paragraph VIII.G.
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B. If a holder of Series C Preferred Stock gives notice (an
"Optional Conversion Notice") of conversion under paragraph A
above, such holder shall surrender with such Optional Conversion
Notice the duly endorsed certificate or certificates for the
Series C Preferred Stock being converted, at the office of the
Corporation or of any transfer agent for such Series, and shall
state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. If the
holders of a majority of the outstanding shares of Series C
Preferred Stock give notice of conversion under paragraph A
above, the Corporation shall notify all other record holders of
Series C Preferred Stock (a "Mandatory Conversion Notice").
Following receipt of a Mandatory Conversion Notice, the holders
of Series C Preferred Stock shall surrender the certificate or
certificates therefor duly endorsed, at the office of the
Corporation or of any transfer agent for such Series, and shall
state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable after the surrender of
a Series C Preferred Stock certificate or certificates pursuant
to an Optional Conversion Notice or Mandatory Conversion Notice,
issue and deliver at such office to such holder, or to the
nominee or nominees of such holder, a certificate or certificates
for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on
the date of such Optional Conversion Notice or Mandatory
Conversion Notice, as applicable, and the person or persons
entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the recordholder
or holders of such shares of Common Stock as of such date. The
issuance of certificates or shares of Common Stock upon
conversion of shares of Series C Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in
respect of such issuance.
C. No fractional shares shall be issued upon conversion of any
shares of Series C Preferred Stock and the number of shares of
Common Stock to be issued shall be rounded down to the nearest
whole share, and the holder of Series C Preferred Stock shall be
paid in cash for any fractional share.
D. In case at any time or from time to time the Corporation shall
pay any dividend or make any other distribution to the holders of
its Common Stock or other class of securities, or shall offer for
subscription pro rata to the holders of its Common Stock or other
class of securities any additional shares of stock of any class
or any other right, or there shall be any capital reorganization
or reclassification of the Common Stock of the Corporation or
consolidation or merger of the Corporation with or into another
corporation, or any sale or conveyance to another corporation of
the property of the Corporation as an entirety or substantially
as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, then,
in any one or more of said cases the Corporation shall give at
least 20 days' prior written notice (the time of mailing of such
notice shall be deemed to be the time of giving thereof) to the
registered holders of the Series C
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Preferred Stock at the addresses of each as shown on the books of
the Corporation maintained by the Transfer Agent thereof of the
date on which (i) the books of the Corporation shall close or a
record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the
case may be, provided that in the case of any Transaction to
which paragraph H applies the Corporation shall give at least 30
days' prior written notice as aforesaid. Such notice shall also
specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale or
conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall
not invalidate any action so taken.
E. From and after the Recapitalization, the Corporation shall at all
times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series C Preferred
Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all
outstanding shares of Series C Preferred Stock, and if at any
time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of Series C Preferred Stock, then in addition
to such other remedies as shall be available to the holder of
Series C Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes.
F. Any notice required by the provisions of paragraph D to be given
the holders of shares of Series C Preferred Stock shall be deemed
given if sent by facsimile transmission, by telex, or if
deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.
G. The conversion ratio shall be subject to adjustment from time to
time as follows:
(i) In case the Corporation shall at any time or from time
to time after the Issue Date (A) pay a dividend or make a
distribution, on the outstanding shares of Common Stock in shares
of Common Stock, (B) subdivide the outstanding shares of Common
Stock into a larger number of shares of Common Stock, (C) combine
the outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of the shares of Common
Stock any shares of capital stock of the Corporation, then, and
in each such case, the conversion ratio in effect immediately
prior to such event or the record date therefor, whichever is
earlier, shall be adjusted so that the holder of any shares of
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Series C Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock
or other securities of the Corporation which such holder would
have owned or have been entitled to receive after the happening
of any of the events described above, had such shares of Series C
Preferred Stock been surrendered for conversion immediately prior
to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause
(i) shall become effective (x) in the case of any such dividend
or distribution, immediately after the close of business on the
record date for the determination of holders of shares of Common
Stock entitled to receive such dividend or distribution, or (y)
in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such
corporate action becomes effective.
(ii) In the case the Corporation shall, after the Issue
Date, issue shares of Common Stock at a price per share, or
securities convertible into or exchangeable for shares of Common
Stock ("Convertible Securities") having a "Conversion Price" (as
defined below) less than the Current Market Price (for a period
of 15 consecutive trading days prior to such date), then, and in
each such case, the conversion ratio shall be adjusted so that
the holder of each share of Series C Preferred Stock shall be
entitled to receive, upon the conversion thereof, the number of
shares of Common Stock determined by multiplying (A) the
applicable conversion ratio on the day immediately prior to such
date by (B) a fraction, the numerator of which shall be the sum
of (1) the number of shares of Common Stock outstanding on the
date on which such shares or Convertible Securities are issued
and (2) the number of additional shares of Common Stock issued,
or into which the Convertible Securities may convert, and the
denominator of which shall be the sum of (x) the number of shares
of Common Stock outstanding on such date and (y) the number of
shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of
Common Stock so issued, or the number of shares of Common Stock
which the aggregate of the Conversion Price of such Convertible
Securities so issued, would purchase at such Current Market price
on such date. An adjustment made pursuant to this clause (ii)
shall be made on the next Business Day following the date on
which any such issuance is made and shall be effective
retroactively immediately after the close of business on such
date. For purposes of this clause (ii), the aggregate
consideration receivable by the Corporation in connection with
the issuance of any securities shall be deemed to be the sum of
the aggregate offering price to the public (before deduction of
underwriting discounts or commissions and expenses payable to
third parties), and the "Conversion Price" of any Convertible
Securities is the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting
discounts or commissions and expenses payable to third parties)
plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion, exchange or
exercise of any such Convertible Securities. Neither (A)
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<PAGE>
the issuance of any shares of Common Stock (whether treasury
shares or newly issued shares) pursuant to a dividend or
distribution on, or subdivision, combination or reclassification
of, the outstanding shares of Common Stock requiring an
adjustment in the conversion ratio pursuant to clause (i) of this
paragraph G, or pursuant to any employee benefit plan or program
of the Corporation or pursuant to any option, warrant, right, or
Convertible Security outstanding as of the date hereof
(including, but not limited to, the Rights, the Series B
Preferred Stock, the Series C Preferred Stock and the Warrants)
nor (B) the issuance of shares of Common Stock pursuant thereto
shall be deemed to constitute an issuance of Common Stock or
Convertible Securities by the Corporation to which this clause
(ii) applies. Upon expiration of any Convertible Securities which
shall not have been exercised or converted and for which an
adjustment shall have been made pursuant to this clause (ii), the
Conversion Price computed upon the original issue thereof shall
upon such expiration be recomputed as if the only additional
shares of Common Stock issued were such shares of Common Stock
(if any) actually issued upon exercise of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue
of such Convertible Securities (whether or not exercised or
converted) plus the consideration actually received by the
Corporation upon such exercise of conversion.
(iii) In case the Corporation shall at any time or from
time to time after the Issue Date declare, order, pay or make a
dividend or other distribution (including, without limitation,
any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation
or any of its Subsidiaries by way of dividend or spin-off), on
its Common Stock, other than (A) regular quarterly dividends
payable in cash in an aggregate amount not to exceed 15% of net
income from continuing operations before extraordinary items of
the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one
accounting period) commencing on July 1, 1998, and ending on the
date such dividend is paid or (B) dividends or distributions of
shares of Common Stock which are referred to in clause (i) of
this paragraph G, then, and in each such case, the conversion
ratio shall be adjusted so that the holder of each share of
Series C Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock
determined by multiplying (1) the applicable conversion ratio on
the day immediately prior to the record date fixed for the
determination of stockholders entitled to receive such dividend
or distribution by (2) a fraction, the numerator of which shall
be the then Current Market Price per share of Common Stock for
the period of 20 Trading Days preceding such record date, and the
denominator of which shall be such Current Market Price per share
of Common Stock for the period of 20 Trading Days preceding such
record date less the Fair Market Value (as defined in Article IX)
per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution
with
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<PAGE>
respect to which shall be mailed to each holder of shares of
Series C Preferred Stock) of such dividend or distribution;
provided, however, that in the event of a distribution of shares
of capital stock of a Subsidiary of the Corporation (a
"Spin-Off") made to holders of shares of Common Stock, the
numerator of such fraction shall be the sum of the Current Market
Price per share of Common Stock for the period of 20 Trading Days
preceding the 35th Trading Day after the effective date of such
Spin-Off and the Current Market Price of the number of shares (or
the fraction of a share) of capital stock of the Subsidiary which
is distributed in such Spin-Off in respect of one share of Common
Stock for the period of 20 Trading Days preceding such 35th
Trading Day and the denominator of which shall be the current
market price per share of the Common Stock for the period of 20
Trading Days proceeding such 35th Trading Day. An adjustment made
pursuant to this clause (iii) shall be made upon the opening of
business on the next Business Day following the date on which any
such dividend or distribution is made and shall be effective
retroactively immediately after the close of business on the
record date fixed for the determination of stockholders entitled
to receive such dividend or distribution; provided, however, if
the proviso to the preceding sentence applies, then such
adjustment shall be made and be effective as of such 35th Trading
Day after the effective date of such Spin-Off.
(iv) For purposes of this paragraph G, the number of shares
of Common Stock at any time outstanding shall not include any
shares of Common Stock then owned or held by or for the account
of the Corporation.
(v) The term "dividend", as used in this paragraph G shall
mean a dividend or other distribution upon stock of the
Corporation except pursuant to the Rights Agreement (as defined
in Article IX). Notwithstanding anything in this Article VIII to
the contrary, the conversion ratio shall not be adjusted as a
result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.
(vi) Anything in this paragraph G to the contrary
notwithstanding, the Corporation shall not be required to give
effect to any adjustment in the conversion ratio unless and until
the net effect of one or more adjustments (each of which shall be
carried forward), determined as above provided, shall have
resulted in a change of the conversion ratio by at least
one-hundredth of one share of Common Stock, and when the
cumulative net effect of more than one adjustment so determined
shall be to change the conversion ratio by at leas one-hundredth
of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.
(vii) The certificate of any firm of independent public
accountants of recognized standing selected by the Board of
Directors of the Corporation (which may be the firm of
independent public accountants regularly employed by the
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<PAGE>
Corporation) shall be presumptively correct for any computation
made under this paragraph G.
(viii) If the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution, and shall thereafter
and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution,
then thereafter no adjustment in the number of shares of Common
Stock issuable upon exercise of the right of conversion granted
by this paragraph G or in the conversion ratio then in effect
shall be required by reason of the taking of such record.
(ix) There shall be no adjustment of the conversion ratio
in case of the issuance of any stock of the Corporation in a
merger, reorganization, acquisition or other similar transaction
except as set forth in paragraph G(i), G(ii) and H of this
Article VIII.
H. In case of any reorganization or reclassification of outstanding
shares of Common Stock (other than a reclassification covered by
paragraph G(i) of this Article VIII), or in case of any
consolidation or merger of the Corporation with or into another
corporation, or in the case of any sale or conveyance to another
corporation of the property of the Corporation as an entirety or
substantially as an entirety (each of the foregoing being
referred to as a "Transaction"), each share of Series C Preferred
Stock then outstanding shall thereafter be convertible into, in
lieu of the Common Stock issuable upon such conversion prior to
consummation of such Transaction, the kind and amount of shares
of stock and other securities and property receivable (including
cash) upon the consummation of such Transaction by a holder of
that number of shares of Common Stock into which one share of
Series C Preferred Stock was convertible immediately prior to
such Transaction (including, on a pro rata basis, the cash,
securities or property received by holders of Common Stock in any
tender or exchange offer that is a step in such Transaction). In
case securities or property other than Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then all
reference in this paragraph H shall be deemed to apply, so far as
appropriate and as nearly as may be, to such other securities or
property.
I. Upon any adjustment of the conversion ratio then in effect and
any increase or decrease in the number of shares of Common Stock
issuable upon the operation of the conversion set forth in
Article VIII, then, and in each such case, the Corporation shall
promptly deliver to the registered holders of the Series C
Preferred and Common Stock, a certificate signed by the President
or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the
Corporation setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment
was calculated and specifying the conversion ratio then in effect
following such adjustment and
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<PAGE>
the increased or decreased number of shares issuable upon the
conversion set forth in this Article VIII.
IX. ADDITIONAL DEFINITIONS
For the purposes of this Certificate of Designations of Series C
Preferred Stock, the following terms shall have the meanings indicated:
"Accrual Period" means the end of the first quarterly period
following the Second Anniversary Date.
"Beneficially Own" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof, except that a Person
shall be deemed to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have
correlative meanings.
"Business Day" means any day, other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Bylaws" means the Bylaws of the Corporation, as amended.
"Current Market Price", when used with reference to shares of
Common Stock or other securities on any date, shall mean the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Current Market Price" shall mean
the Fair Market Value per share of Common Stock or of such other securities as
determined in good faith by the Board of Directors of the
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<PAGE>
Corporation based on an opinion of an independent investment banking firm with
an established national reputation as a valuer of securities, which opinion may
be based on such assumption as such firm shall deem to be necessary and
appropriate.
"Equity Securities" of any Person means any and all common stock,
preferred stock and any other class of capital stock of, and any partnership or
limited liability company interests of such Person or any other similar
interests of any Person that is not a corporation, partnership or limited
liability company.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, from time to
time.
"Fair Market Value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.
"Formula Number" shall mean one thousand (1,000) prior to
consummation of the Recapitalization; provided, however, that if at any time
prior to the consummation of the Recapitalization, the Corporation shall (i)
declare or pay any dividend or make any distribution on the Common Stock,
payable in shares of Common Stock; (ii) subdivide (by a stock split or
otherwise) the outstanding shares of Common Stock into a larger number of shares
of Common Stock; or (iii) combine (by a reverse stock split or otherwise) the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each such case the Formula Number in effect immediately prior to
such event shall be adjusted to a number determined by multiplying the Formula
Number then in effect by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if prior to the consummation
of the Recapitalization the Corporation shall issue any shares of its capital
stock in a merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification, or change so that each share
of Series C Preferred Stock continues to be the economic equivalent of a Formula
Number of shares of Common Stock immediately prior to such merger,
reclassification, or change.
"Group" has the meaning set forth in Rule 13d-5 under the
Exchange Act.
"Issue Date" shall mean the first date on which shares of Series
C Preferred Stock are issued. "Person" means any individual, corporation,
company, association, partnership, joint venture, trust or unincorporated
organization, or a government or any agency or political subdivision thereof.
"Post-Recapitalization Stated Value" shall be equal to $1.00.
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"Recapitalization" means the amendment of the Corporation's
Certificate of Incorporation to increase the authorized shares of Common Stock
from 50,000,000 to 400,000,000, and the authorized shares of Preferred Stock
from 1,000,000 to 200,000,000, and the subsequent one thousand-for-one split of
Series C Preferred Stock and Series B Preferred Stock.
"Redemption Price" of a share of Series C Preferred Stock shall
mean the sum of (a) the dividends, if any, accumulated or deemed to have
accumulated thereon to the Optional Redemption Date, whether or not such
dividends are declared plus (b) either (i) the Initial Stated Value thereof (if
the Recapitalization has not been consummated prior to June 30, 1999) or (ii)
the Post-Recapitalization Stated Value thereof (if the Recapitalization has been
consummated prior to June 30, 1999), in each case subject to adjustment for
splits, reclassifications, recombinations or similar events.
"Rights" shall mean any rights to purchase securities of the
Corporation issued pursuant to any Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement, dated as of
June 21, 1996, between the Company and Wells Fargo Bank as rights agent, and all
amendments, supplements and replacements thereof.
"Second Anniversary Date" means the second anniversary of the
Issue Date.
"Subsidiary" means, as to any Person, any other Person of which
more than 50% of the shares of the Voting Securities or other voting interests
are owned or controlled, or the ability to select or elect 50% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person and one or more of its Subsidiaries.
"Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange a Business Day.
"Voting Securities" means, (i) with respect to the Company, the
Equity Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
X. MISCELLANEOUS
A. NOTICES. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:
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<PAGE>
(i) if to the Corporation, to its office at 2 California
Plaza, 350 South Grand Avenue, Los Angeles, California
90071 (Attention: General Counsel)
or to the transfer agent for the Series C
Preferred Stock;
(ii) if to a holder of the Series C Preferred Stock, to such
holder at the address of such holder as listed in the
stock record books of the Corporation (which may
include the records of any transfer agent for the
Series C Preferred Stock); or
(iii) to such other address as the Corporation or such
holder, as the case may be, shall have designated by
notice similarly given.
B. REACQUIRED SHARES. Any shares of Series C Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation, directly or
indirectly, in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Delaware General Corporation Law. All such shares of Series
C Preferred Stock shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State of Delaware,
become authorized but unissued shares of Preferred Stock, par value $0.001 per
share, of the Corporation and may be reissued as part of another series of
Preferred Stock, par value $0.001 per share, of the Corporation subject to the
conditions or restrictions on issuance set forth herein.
C. ENFORCEMENT. Any registered holder of shares of Series C
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to
the terms of this Certificate of Designations, the Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series C Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series C Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
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<PAGE>
E. TRANSFER AGENT. The Corporation may appoint, and from time to
time discharge and change, a transfer agent for the Series C Preferred Stock.
Upon any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to each holder
of record of shares of Series C Preferred Stock.
F. RECORD DATES. In the event that the Series C Preferred Stock
shall be registered under either the Securities Act of 1933, as amended, or the
Exchange Act, the Corporation shall establish appropriate record dates with
respect to payments and other actions to be made with respect to the Series C
Preferred Stock.
20
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed
on behalf of the Corporation by its Executive Vice President, General Counsel
and Secretary and attested by its Assistant Secretary, this 10th day of
February , 1999.
AAMES FINANCIAL CORPORATION
By: /s/ Barbara S. Polsky
---------------------------------
Name: Barbara S. Polsky
Title: Executive Vice President, General
Counsel and Secretary
[Corporate Seal]
ATTEST:
/s/ John F. Madden, Jr.
- -----------------------------------
John F. Madden Jr.
Assistant Secretary
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<PAGE>
CERTIFICATE OF INCREASE
OF
AUTHORIZED NUMBER OF SHARES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
AAMES FINANCIAL CORPORATION
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
Aames Financial Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
That a Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions Thereof, of Series B Convertible
Preferred Stock was filed in the Office of the Secretary of State on February
10,1999.
That the Board of Directors of the Corporation adopted a resolution
authorizing and directing an increase in the authorized number of shares of
Series B Convertible Preferred Stock of the Corporation, from 100,000 shares to
29,704,000 shares, all in accordance with the provisions of Section 151 of The
General Corporation Law of the State of Delaware and the Certificate of
Incorporation of the Corporation.
That the effective date and time of this Certificate of Increase is
September 30, 1999 at 11:59 p.m., eastern time.
IN WITNESS WHEREOF, Aames Financial Corporation has caused this
certificate to be signed by Barbara S. Polsky, its Executive Vice President,
General Counsel and Secretary, this 30th day of September, 1999.
AAMES FINANCIAL CORPORATION
By: /s/ Barbara S. Polsky
-------------------------------
Name: Barbara S. Polsky
Title: Executive Vice President,
General Counsel and Secretary
<PAGE>
CERTIFICATE OF INCREASE
OF
AUTHORIZED NUMBER OF SHARES
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
AAMES FINANCIAL CORPORATION
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
Aames Financial Corporation, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
That a Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions Thereof, of Series C Convertible
Preferred Stock was filed in the Office of the Secretary of State on February
10,1999.
That the Board of Directors of the Corporation adopted a resolution
authorizing and directing an increase in the authorized number of shares of
Series C Convertible Preferred Stock of the Corporation, from 100,000 shares to
107,122,664 shares, all in accordance with the provisions of Section 151 of The
General Corporation Law of the State of Delaware and the Certificate of
Incorporation of the Corporation.
That the effective date and time of this Certificate of Increase is
September 30, 1999 at 11:59 p.m., eastern time.
IN WITNESS WHEREOF, Aames Financial Corporation has caused this
certificate to be signed by Barbara S. Polsky, its Executive Vice President,
General Counsel and Secretary, this 30th day of September, 1999.
AAMES FINANCIAL CORPORATION
By: /s/ Barbara S. Polsky
-----------------------------
Name: Barbara S. Polsky
Title: Executive Vice President,
General Counsel and Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AAMES FINANCIAL CORPORATION
(a Delaware corporation)
The undersigned Barbara S. Polsky the Executive Vice President, General
Counsel and Secretary, respectively, of Aames Financial Corporation (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "DGCL"), do hereby certify
that the following amendments were adopted in accordance with the provisions of
Section 242 of the DGCL:
The text of the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation is hereby amended and restated to read in full
as follows:
FOURTH: The total number of shares which the Corporation shall
have the authority to issue is 600,000,000, consisting of
400,000,000 shares of common stock, par value $0.001 per share (the
"Common Stock") and 200,000,000 shares of preferred stock, par value
$0.001 per share (the "Preferred Stock").
Simultaneously with the effective date of this amendment (the
"EFFECTIVE DATE"), each share of the Corporation's Series B
Convertible Preferred Stock having a par value of $0.001 per share
issued and outstanding immediately prior to the Effective Date (the
"PRE-SPLIT SERIES B PREFERRED STOCK") shall automatically and
without any action on the part of the holder thereof be reclassified
as and changed into one thousand (1,000) shares of Series B
Convertible Preferred Stock, par value of $0.001 per share (the
"POST-SPLIT SERIES B STOCK"). Each holder of a certificate or
certificates which immediately prior to the Effective Date
represented outstanding shares of Pre-Split Series B Convertible
Preferred Stock (the "PRE-SPLIT SERIES B CERTIFICATES," whether one
or more) shall be entitled to receive upon surrender of such
Pre-Split Series B Certificates to the Corporation's Secretary for
cancellation, a certificate or certificates (the "POST-SPLIT SERIES
B CERTIFICATES," whether one or more) representing the number of
whole shares of Post-Split Series B Convertible Preferred Stock into
which and for which the shares of Pre-Split Series B Convertible
Preferred Stock formerly represented by such Pre-Split Series B
Certificates so surrendered, are reclassified pursuant to the terms
hereof. From and after the Effective Date, Pre-Split Series B
Certificates shall represent only the right to receive Post-Split
Series B Certificates pursuant to the provisions hereof. If more
than one Pre-Split Series B Certificate shall be surrendered at one
time for the account of the same stockholder, the number of full
shares of Post-Split Series B Convertible Preferred Stock for which
the Post-Split Series B Certificates shall be issued shall be
computed on the basis of the aggregate number of shares represented
by the Pre-Split Series B Certificates so surrendered. If any
Post-Split Series B Certificate is to be issued in a name other than
that in which the Pre-Split Series B Certificate surrendered for
exchange are issued, the Pre-Split Series B Certificates so
surrendered shall be properly endorsed and otherwise in proper form
for transfer, and the person or persons requesting such exchange
shall affix any requisite stock transfer tax stamps to the Pre-Split
Series B Certificates surrendered, or provide funds for their
purchase, or establish to the satisfaction of the Corporation's
Secretary that such taxes are not payable;
Simultaneously with the Effective Date, each share of the
Corporation's Series C Convertible Preferred Stock having a par
value of $0.001 per share issued and outstanding immediately prior
to the Effective Date (the "PRE-SPLIT SERIES C PREFERRED STOCK")
<PAGE>
shall automatically and without any action on the part of the holder
thereof be reclassified as and changed into one thousand (1,000)
shares of Series C Convertible Preferred Stock, par value of $0.001
per share (the "POST-SPLIT SERIES C STOCK"). Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented outstanding shares of Pre-Split Series C
Convertible Preferred Stock (the "PRE-SPLIT SERIES C CERTIFICATES,"
whether one or more) shall be entitled to receive upon surrender of
such Pre-Split Series C Certificates to the Corporation's Secretary
for cancellation, a certificate or certificates (the "POST-SPLIT
SERIES C CERTIFICATES," whether one or more) representing the number
of whole shares of Post-Split Series C Convertible
Preferred Stock into which and for which the shares of
Pre-Split Series C Convertible Preferred Stock formerly represented
by such Pre-Split Series C Certificates so surrendered, are
reclassified pursuant to the terms hereof. From and after the
Effective Date, Pre-Split Series C Certificates shall represent only
the right to receive Post-Split Series C Certificates pursuant to
the provisions hereof. If more than one Pre-Split Series C
Certificate shall be surrendered at one time for the account of the
same stockholder, the number of full shares of Post-Split Series C
Convertible Preferred Stock for which the Post-Split Series C
Certificates shall be issued shall be computed on the basis of the
aggregate number of shares represented by the Pre-Split Series C
Certificates so surrendered. If any Post-Split Series C Certificate
is to be issued in a name other than that in which the Pre-Split
Series C Certificate surrendered for exchange are issued, the
Pre-Split Series C Certificates so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and the person
or persons requesting such exchange shall affix any requisite stock
transfer tax stamps to the Pre-Split Series C Certificates
surrendered, or provide funds for their purchase, or establish to
the satisfaction of the Corporation's Secretary that such taxes are
not payable;
The Corporation's Series A Preferred Stock shall not be
affected by the filing of this Amendment.
The text of Article III, Subsection D(2) of the Series B Certificate of
Designations of the Corporation is hereby amended and restated to read in full
as follows:
2. If the Recapitalization is not consummated prior to the
earlier to occur of September 30, 1999 and the date of a meeting of
the stockholders of the Company at which any proposal necessary to
consummate the Recapitalization is defeated, the Dividend Rate shall
be deemed to be 15% per annum during the period commencing on such
date and ending on the date the Recapitalization is consummated.
The text of Article III, Subsection D(2) of the Series C Certificate of
Designations of the Corporation is hereby amended and restated to read in full
as follows:
2. If the Recapitalization is not consummated prior to the
earlier to occur of September 30, 1999 and the date of a meeting of
the stockholders of the Company at which any proposal necessary to
consummate the Recapitalization is defeated, the Dividend Rate shall
be deemed to be 15% per annum during the period commencing on such
date and ending on the date the Recapitalization is consummated."
The Effective Date of this Certificate of Amendment is September 30,
1999 at 11:59 p.m., eastern time.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to the Certificate of Incorporation of the Corporation as of this 30th
of September, 1999.
<PAGE>
By: /s/ Barbara S. Polsky
----------------------
Barbara S. Polsky
Executive Vice President, General
Counsel and Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AAMES FINANCIAL CORPORATION
(a Delaware corporation)
The undersigned John F. Madden, Jr. the Secretary of Aames Financial
Corporation (the "Corporation"), a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware ("DGCL"), does
hereby certify that the following amendments were adopted in accordance with the
provisions of Section 242 of the DGCL:
The text of the second paragraph of Article SEVENTH of the Certificate of
Incorporation of the Corporation is hereby amended and restated to read in full
as follows:
Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken either upon the vote of
the stockholders at an annual or special meeting duly noticed and
called, as provided in the Bylaws of the Corporation, or may be
taken by written consent of the stockholders pursuant to the GCL.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to the Certificate of Incorporation of the Corporation as of this 15th
day of March, 2000.
By: /s/ John F. Madden, Jr.
-----------------------
John F. Madden, Jr.
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AAMES FINANCIAL CORPORATION
(a Delaware corporation)
The undersigned John F. Madden, Jr. the Secretary of Aames Financial
Corporation (the "Corporation"), a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware ("DGCL"), does
hereby certify that the following amendments were adopted in accordance with the
provisions of Section 242 of the DGCL:
The Certificate of the Voting Powers, Designations, Preferences and
Relative, Participating, Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions thereof, of Series C Convertible Preferred Stock of
the Corporation is hereby amended as follows:
(i) the references to Series B Preferred Stock in the twelfth and
fourteenth lines of paragraph A of Section III, each of which
was in error, shall be amended to instead refer to Series C
Preferred Stock; and
(ii) the definition of "Post-Recapitalization Stated Value" shall
be amended by inserting immediately after "$1.00" and before
the period at the end of the sentence "; provided, however,
that from and after the effective date of the Reverse Series C
Preferred Stock Split approved by the stockholders of the
Company at the 1999 Annual Meeting of Stockholders (the
"Reverse Series C Preferred Stock Split") the
Post-Recapitalization Stated Value shall be equal to $5.00,
subject to subsequent adjustments for splits,
reclassifications, recombinations or similar events".
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to the Certificate of Incorporation of the Corporation as of this 15th
day of March, 2000.
By: /s/ John F. Madden, Jr.
-----------------------
John F. Madden, Jr.
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AAMES FINANCIAL CORPORATION
(a Delaware corporation)
The undersigned John F. Madden, Jr. the Secretary of Aames Financial
Corporation (the "Corporation"), a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware ("DGCL"), do
hereby certify that the following amendments were adopted in accordance with the
provisions of Section 242 of the DGCL:
The first paragraph of Article FOURTH of the Certificate of Incorporation
of the Corporation is amended and restated in its entirety to read in full as
follows:
FOURTH: The total number of shares which the Corporation shall
have the authority to issue is 600,000,000, consisting of
400,000,000 shares of common stock, par value $0.001 per share (the
"Common Stock") and 200,000,000 shares of preferred stock, par value
$0.001 per share (the "Preferred Stock").
The following two paragraphs are hereby added to Article FOURTH of the
Certificate of Incorporation of the Corporation after the first paragraph but
before the second paragraph:
Simultaneously with the effective date of this amendment (the
"EFFECTIVE DATE"), each share of the Corporation's common stock, par
value $0.001 per share issued and outstanding immediately prior to
the Effective Date (the "PRE-SPLIT COMMON STOCK") shall
automatically and without any action on the part of the holder
thereof be reclassified as and changed (the "Reverse Common Stock
Split") into 0.2 of one share of common stock, par value of $0.001
per share (the "POST-SPLIT COMMON STOCK"). Each holder of a
certificate or certificates which immediately prior to the Effective
Date represented outstanding shares of Pre-Split Common Stock (the
"PRE-SPLIT CERTIFICATES," whether one or more) shall be entitled to
receive upon surrender of such Pre-Split Certificates to the
Corporation's Secretary for cancellation, a certificate or
certificates (the "POST-SPLIT CERTIFICATES," whether one or more)
representing the number of whole shares of Post-Split Common Stock
into which and for which the shares of Pre-Split Common Stock
formerly represented by such Pre-Split Certificates so surrendered,
are reclassified pursuant to the terms hereof. No script or
fractional shares certificates will be issued for Pre-Split Common
Stock in connection with the Reverse Common Stock Split. Each holder
of shares of Old Common Stock not divisible by five as of the
effective date of the Reverse Common Stock Split will, in lieu of
receiving fractional shares, have the option for 60 days after such
effective date to either (a) purchase from other stockholders
otherwise entitled to fractional shares a sufficient fractional
share interest to 'round-up' to a full share of New Common Stock, to
the extent such fractions of shares are available from other
stockholders, at a price equal to the product of (x) the fractional
shares to which a holder would otherwise be entitled, multiplied by
(y) five times the closing sale price per share of the Old Common
Stock as listed on the New York Stock Exchange ("NYSE") on the
business day prior to the Effective Date, or (b) sell such holder's
fractional share interest to other stockholders at the same price
(the "Fractional Share Program"). The period during which
stockholders will be able to make the aforementioned election will
expire 60 days after the Effective Date. Any stockholder whose
transmittal form is not received by the Exchange Agent selected by
the Corporation within such period will be deemed to have elected to
sell any fractional share interest held by such stockholder. Any
<PAGE>
fractional share interests not purchased by other stockholders will
be aggregated and sold on the open market by the Exchange Agent.
From and after the Effective Date, Pre-Split Certificates shall
represent only the right to receive Post-Split Certificates pursuant
to the provisions hereof. If more than one Pre-Split Certificate
shall be surrendered at one time for the account of the same
stockholder, the number of full shares of Post-Split Common Stock
for which the Post-Split Certificates shall be issued shall be
computed on the basis of the aggregate number of shares represented
by the Pre-Split Certificates so surrendered. If any Post-Split
Certificate is to be issued in a name other than that in which the
Pre-Split Certificate surrendered for exchange are issued, the
Pre-Split Certificates so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person or persons
requesting such exchange shall affix any requisite stock transfer
tax stamps to the Pre-Split Certificates surrendered, or provide
funds for their purchase, or establish to the satisfaction of the
Corporation's Secretary that such taxes are not payable. From and
after the Effective Date the amount of capital represented by the
shares of Post-Split Common Stock into which and for which the
shares of the Pre-Split Common Stock are reclassified pursuant to
the terms hereof shall be the same as the amount of capital
represented by the shares of Pre-Split Common Stock so reclassified,
until thereafter reduced or increased in accordance with applicable
law;
Simultaneously with the Effective Date, each share of the
Corporation's Series C Convertible Preferred Stock, par value of
$0.001 per share issued and outstanding immediately prior to the
Effective Date (the "PRE-SPLIT SERIES C PREFERRED STOCK") shall
automatically and without any action on the part of the holder
thereof be reclassified as and changed (the "REVERSE SERIES C
PREFERRED STOCK SPLIT") into 0.2 of one share of Post-Split Series C
Convertible Preferred Stock, par value $0.001 per share ("POST-SPLIT
SERIES C PREFERRED STOCK"). Each holder of a certificate or
certificates which immediately prior to the Effective Date
represented outstanding shares of Pre-Split Series C Preferred Stock
(the "PRE-SPLIT SERIES C PREFERRED CERTIFICATES," whether one or
more) shall be entitled to receive upon surrender of such Pre-Split
Series C Preferred Certificates to the Corporation's Secretary for
cancellation, a certificate or certificates (the "POST-SPLIT SERIES
C CERTIFICATES," whether one or more) representing the number of
whole shares of Post-Split Series C Preferred Stock into which and
for which the shares of Pre-Split Series C Preferred Stock formerly
represented by such Pre-Split Series C Preferred Certificates so
surrendered, are reclassified pursuant to the terms hereof. No
script or fractional shares certificates will be issued for
Pre-Split Series C Preferred Stock in connection with the Reverse
Series C Preferred Stock Split. Each holder of shares of Old Series
C Preferred Stock not divisible by five as of the effective date of
the Reverse Series C Preferred Stock Split will, in lieu of
receiving fractional shares, have the option for 60 days after such
effective date to either (a) purchase from other stockholders
otherwise entitled to fractional shares a sufficient fractional
share interest to 'round-up' to a full share of New Series C
Preferred Stock, to the extent such fractions of shares are
available from other stockholders, at a price equal to the product
of (x) the fractional shares to which a holder would otherwise be
entitled, multiplied by (y) five times the closing sale price per
share of the Old Common Stock as listed on the NYSE on the business
day prior to the Effective Date, or (b) sell such holder's
fractional share interest to other stockholders at the same price
(the "Fractional Share Program"). The period during which
stockholders will be able to make the aforementioned election will
expire 60 days after the Effective Date. Any stockholder whose
transmittal form is not received by the Exchange Agent selected by
the Corporation within such period will be deemed to have elected to
sell any fractional share interest held by such stockholder. Any
fractional share interests not purchased by other stockholders will
be aggregated and sold on the open market by the Exchange Agent.
From and after the Effective Date, Pre-Split Series C Certificates
shall represent only the right to receive Post-Split Series C
Certificates pursuant to the provisions hereof. If more than one
Pre-Split Series C Certificate shall be surrendered at one time for
the account of the same stockholder, the number of full shares of
Post-Split Series C Preferred Stock for which the Post-Split Series
<PAGE>
C Certificates shall be issued shall be computed on the basis of the
aggregate number of shares represented by the Pre-Split Series C
Certificates so surrendered. If any Post-Split Series C Certificate
is to be issued in a name other than that in which the Pre-Split
Series C Certificate surrendered for exchange are issued, the
Pre-Split Series C Certificates so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and the person
or persons requesting such exchange shall affix any requisite stock
transfer tax stamps to the Pre-Split Series C Certificates
surrendered, or provide funds for their purchase, or establish to
the satisfaction of the Corporation's Secretary that such taxes are
not payable. From and after the Effective Date the amount of capital
represented by the shares of Post-Split Series C Preferred Stock
into which and for which the shares of the Pre-Split Series C
Preferred Stock are reclassified pursuant to the terms hereof shall
be the same as the amount of capital represented by the shares of
Pre-Split Series C Preferred Stock so reclassified, until thereafter
reduced or increased in accordance with applicable law;
The following paragraph is hereby added to the end of Article FOURTH of
the Certificate of Incorporation of the Corporation:
The Corporation's Series A Preferred Stock and Series B
Preferred Stock shall not be affected by the filing of this
Amendment.
The Effective Date of this Certificate of Amendment is April 14, 2000 at
12:01 a.m. eastern time.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to the Certificate of Incorporation of the Corporation as of this 13th
day of April, 2000.
By: John F. Madden, Jr.
-------------------
John F. Madden, Jr.
Secretary
<PAGE>
Exhibit 4.1(a)
Temporary Certificate-Exchangeable for Definitive Engraved Certificate When
Ready for Delivery
COMMON STOCK
5869
- -----NUMBER----- -------SHARES------
AC
- ---------------- -------------------
Aames SEE REVERSE FOR
CERTAIN DEFINITIONS
AAMES FINANCIAL CORPORATION CUSIP 00253A 30 9
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN THE CITIES OF
RIDGEFIELD PARK, NJ OR NEW YORK, NY
- --------------------------------------------------------------------------------
This Certifies that
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
- ------------------------ AAMES FINANCIAL CORPORATION ---------------------------
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrant.
WITNESS the seal of the Corporation and the facsimile signatures of its
duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
[SEAL OMITTED]
SECRETARY CHAIRMAN
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests shall be made to the Corporations's Secretary at the
principal office of the Corporation.
This Certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Rights Agreement between Aames Financial Corporation
(the "Company") and Wells Fargo Bank, as Rights Agent, dated as of June 21,
1996, as it may from time to time be supplemented or amended pursuant to its
terms (the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal executive
offices of the Company. Under certain circumstances, as set forth in the Rights
Agreement, such Rights may be redeemed, may expire, or may be evidenced by
separate certificates and no longer be evidenced by this certificate. The
Company will mail to the holder of record of this Certificate a copy of the
Rights Agreement without charge within ten business days after receipt of a
written request therefor. Under certain circumstances, as set forth in the
Rights Agreement, Rights issued to, or held by, any Person who is, was or
becomes an Acquiring Person or an Affiliate or Associate thereof (as such terms
are defined in the Rights Agreement), whether currently held by or on behalf of
such Person or by any subsequent holder, may become null and void.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with rights of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________Custodian__________
(Cust) (Minor)
under Uniform Gifts to Minors
Act____________________
(Share)
UNIF TRF MIN ACT - ________ Custodian (until age____)
(Cust)
___________ under Uniform Transfers
(Minor)
to Minors Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_____________________
X ______________________________________________
X ______________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION ON ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Temporary Certificate-Exchangeable for Definitive Engraved Certificate When
Ready for Delivery
PREFERRED STOCK
65869
- -----NUMBER----- -------SHARES------
AP
- ---------------- -------------------
Aames SEE REVERSE FOR
CERTAIN DEFINITIONS
AAMES FINANCIAL CORPORATION CUSIP 00253A 40 8
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN THE CITIES OF
RIDGEFIELD PARK, NJ OR NEW YORK, NY
- --------------------------------------------------------------------------------
This Certifies that
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE SERIES C CONVERTIBLE PREFERRED
STOCK, $.001 PAR VALUE, OF
- ------------------------ AAMES FINANCIAL CORPORATION ---------------------------
CERTIFICATE OF STOCK
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate property
endorsed. This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrant.
WITNESS the seal of the Corporation and the facsimile signatures of its
duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
[SEAL OMITTED]
SECRETARY CHAIRMAN
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporations's Secretary at the principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
- --------------------------------------------------------------------------------
NOTICE OF ELECTION TO CONVERT
(CONVERTIBLE INTO COMMON STOCK)
The undersigned hereby irrevocably elects to convert
_________________________________________________________________________ shares
of Series C Cumulative Convertible Preferred Stock, represented by the
certificate into shares of Common Stock of AAMES FINANCIAL CORPORATION (as such
shares may be constituted on the conversion date) in accordance with the
provisions of the Certificate of Incorporation, as amended, of the Corporations.
Dated _______________________
_________________________________________
Signature
- --------------------------------------------------------------------------------
FOR
CONVERSION
USE
ONLY
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with rights of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________Custodian__________
(Cust) (Minor)
under Uniform Gifts to Minors
Act____________________
(Share)
UNIF TRF MIN ACT - ________ Custodian (until age____)
(Cust)
___________ under Uniform Transfers
(Minor)
to Minors Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_____________________
X ______________________________________________
X ______________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION ON ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 10.26
SECOND AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT
GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS
Dated as of April 28, 2000
Between
LEHMAN COMMERCIAL PAPER INC.,
as Buyer
and
AAMES CAPITAL CORPORATION,
as Seller
1. APPLICABILITY
From time to time until the Final Repurchase Date, Lehman Commercial Paper
Inc. ("Buyer") shall, subject to the terms hereof, enter into transactions upon
the request of Aames Capital Corporation ("Seller") in which Seller agrees to
transfer to Buyer Mortgage Loans against the transfer of funds by Buyer, with a
simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans at a
date certain not later than 30 days after the date of transfer or on demand, as
specified in the Confirmation, against the transfer of funds by Seller. Each
such transaction shall be referred to herein as a "Transaction" and shall be
governed by this Agreement and the related Confirmation, unless otherwise agreed
in writing. Notwithstanding anything in this Agreement to the contrary, Buyer
shall have no obligation to enter into any Transaction hereunder if there shall
have occurred any material adverse change, as determined by Buyer in its
reasonable judgment, in the financial condition of Seller, the financial markets
generally or the secondary market for Mortgage Loans. Buyer shall promptly
notify Seller of any determination by Buyer that any of the foregoing has
occurred.
2. DEFINITIONS
"Act of Insolvency" means, with respect to any party and its Affiliates,
(i) the filing of a petition, commencing, or authorizing the commencement of any
case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law relating to the protection of creditors,
or suffering any such petition or proceeding to be commenced by another which is
consented to, not timely contested or results in entry of an order for relief,
(ii) the seeking the appointment of a receiver, trustee, custodian or similar
official for such party or an Affiliate or any substantial part of the property
of either, (iii) the appointment of a receiver, conservator, or manager for such
party or an Affiliate by any governmental agency or authority having the
jurisdiction to do so, (iv) the making or offering by such party or an Affiliate
of a composition with its creditors or a general assignment for the benefit of
creditors, (v) the admission by such party or an Affiliate of such party of its
inability to pay its debts or discharge its obligations as they become due or
mature, or (vi) that any governmental authority or agency or any person, agency
or entity acting or purporting to act under governmental authority shall have
taken any action to condemn, seize or appropriate, or to assume custody or
control of, all or any substantial part of the property of such party or of any
of its Affiliates, or shall have taken any action to displace the management of
such party or of any of its Affiliates or to curtail its authority in the
conduct of the business of such party or of any of its Affiliates.
<PAGE>
"Additional Loans" means Mortgage Loans provided by Seller to Buyer or its
designee pursuant to Section 4(a).
"Adjusted Leverage Ratio" means, at any time, the ratio of (i) the
aggregate principal amount of all indebtedness (other than indebtedness incurred
in connection with Mortgage Loan warehousing facilities of Guarantor and its
subsidiaries) of Guarantor and its subsidiaries at such time which on a
consolidated basis in accordance with GAAP would be required to be reflected on
a consolidated balance sheet of Guarantor and its subsidiaries as a liability to
(ii) Tangible Net Worth.
"Affiliate" means an affiliate of a party as such term is defined in the
United States Bankruptcy Code in effect from time to time.
"Agreement" means this Master Repurchase Agreement Governing Purchases and
Sales of Mortgage Loans between Buyer and Seller, as amended from time to time.
"A-MI Loan" shall mean a Mortgage Loan described in Exhibit VI hereto.
"Balloon Mortgage Loan" means any Mortgage Loan that provided on the date
of origination for scheduled payments by the Mortgagor based upon an
amortization schedule extending beyond its maturity date.
"Business Day" means a day other than (i) a Saturday or Sunday, or (ii) a
day in which the New York Stock Exchange is authorized or obligated by law or
executive order to be closed.
"Buyer" has the meaning specified in Section 1.
"Collateral" has the meaning specified in Section 6.
"Collateral Amount" means, with respect to any Transaction, the amount
obtained by application of the applicable Collateral Amount Percentage to the
Repurchase Price for such Transaction.
"Collateral Amount Percentage" means the amount set forth in the
Confirmation which, in any event, (i) shall not be less than 105% in determining
whether a Market Value Collateral Deficit exists pursuant to the first sentence
of Section 4(a) hereof and (ii) shall not be less than 107% in determining
whether a Securitization Value Collateral Deficit exists pursuant to the second
sentence of Section 4(a) hereof.
"Collateral Deficit" means either a Market Value Collateral Deficit or a
Securitization Value Collateral Deficit.
"Collateral Information" means the following information with respect to
each Mortgage Loan: (i) Seller's loan number, (ii) the Mortgagor's name, (iii)
the address of the Mortgaged Property, (iv) the current interest rate, (v) the
original balance, (vi) current balance as of the first day of the current month,
(vii) the paid to date and the next payment date, (viii) the appraised value of
the Mortgaged Property at the time the Mortgage Loan was originated, (ix)
whether interest rate is fixed or adjustable (and if adjustable, the ARM code,
which includes the index, adjustment frequency, spread and caps), (x) the lien
position of the Mortgage Loan on the Mortgaged Property (and if a second lien,
the outstanding principal balance of the first lien at the time the Mortgage
Loan was originated), (xi) the occupancy status of the Mortgaged Property
(including whether owner occupied), (xii) whether the Mortgage Loan is a Balloon
Loan, (xiii) the first payment date, (xiv) the maturity date, (xv) the principal
and interest payment, (xvi)
2
<PAGE>
the property type of the Mortgaged Property, (xvii) the Mortgagor's Credit Score
(where available in the Mortgage File), (xviii) the Mortgage Loan grade and FICO
score (where available in the Mortgage File), (xix) the delinquency status, (xx)
whether the Mortgage Loan is an A-MI Loan, and (xxi) if the Mortgage Loan is an
A-MI Loan, the identity of the mortgage insurance company insuring the A-MI Loan
and the percentage of insurance coverage so provided.
"Confirmation" has the meaning specified in Section 3(a).
"Custodial Agreement" means that amended and restated custodial agreement,
dated as of February 10, 1999, as amended, modified or supplemented from time to
time, by and among Buyer, Seller and the Custodian.
"Custodial Delivery" means the form executed by the Seller in order to
deliver a Mortgage Loan Schedule and/or Mortgage Files to Buyer or its designee
(including the Custodian) pursuant to Section 7, a form of which is attached
hereto as Exhibit II.
"Custodian" means the custodian under the Custodial Agreement. The initial
custodian is Bankers Trust Company of California, N.A.
"Delinquent" means, with respect to any Mortgage Loan, the period of time
from the date on which a Mortgagor fails to pay an obligation under the terms of
such Mortgage Loan to the date on which such payment is made.
"EBITDA" means, for any period, Net Income for such period plus, without
duplication and to the extent reflected as a charge in the statement of such Net
Income for such period, the sum of (a) total income tax expense, (b) interest
expense, (c) depreciation and amortization expense, (d) amortization of
intangibles (including, but not limited to, goodwill) and organization costs,
(e) any extraordinary expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Net Income for such
period, losses on sales of assets outside of the ordinary course of business),
and (f) any other noncash charges, and minus, to the extent included in the
statement of such Net Income for such period, the sum of (a) any extraordinary
income or gains (including, whether or not otherwise includable as a separate
item in the statement of such Net Income for such period, gains on the sales of
assets outside of the ordinary course of business) and (b) any other noncash
income (other than any income represented by a receivable that in the ordinary
course would be expected to be paid in cash), all as determined on a
consolidated basis.
"Event of Default" has the meaning specified in Section 13.
"Fee Letter" has the meaning specified in Section 3(g).
"Final Repurchase Date" means October 31, 2000 or such earlier date on
which all Purchased Mortgage Loans are required to be immediately repurchased
pursuant to Section 14(a); provided, that so long as none of the Events of
Default set forth in Section 13(xii) - (xx) shall have occurred and be
continuing as of October 31, 2000, then the "Final Repurchase Date" shall be
deemed automatically extended to April 30, 2001.
"First Mortgage" means the Mortgage that is the first lien on the
Mortgaged Property.
"Forward Commitment Provider" means a Person who enters into a formal
commitment to purchase Mortgage Loans from the Seller and who is approved by
Buyer in its sole discretion.
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"GAAP" means with respect to the financial statements or other financial
information of any Person, generally accepted accounting principles in the
United States which are in effect from time to time.
"Guarantor" means Aames Financial Corporation.
"Hedge" means, with respect to any or all of the Mortgage Loans, any
interest rate swap, cap or collar agreement or similar arrangements providing
for protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies, entered
into by Seller, and reasonably acceptable to the Buyer.
"HUD" means the United States Department of Housing and Urban Development.
"Income" means, with respect to any Mortgage Loan at any time, any
principal thereof then payable and all interest, dividends or other
distributions payable thereon less any related servicing fee(s) charged by the
Servicer.
"Interest Coverage Ratio" means for any period, the ratio of (a) EBITDA of
Guarantor and its subsidiaries for such period to (b) Interest Expense for such
period.
"Interest Expense" means for any period, total interest expense, both
expensed and capitalized, of Guarantor and its subsidiaries for such period with
respect to all outstanding indebtedness of Guarantor and its subsidiaries
(including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under interest rate protection agreements), determined on a
consolidated basis in accordance with GAAP, net of interest income of Guarantor
and its subsidiaries for such period (determined on a consolidated basis in
accordance with GAAP).
"Leverage Ratio" means, at any time, the ratio of (i) the aggregate
principal amount of all indebtedness of Guarantor or Seller, as applicable, and
its respective subsidiaries at such time which on a consolidated basis in
accordance with GAAP would be required to be reflected on a consolidated balance
sheet of Guarantor or Seller, as applicable, and its respective subsidiaries as
a liability to (ii) the Net Worth at such time.
"LIBOR" means the London Interbank Offered Rate for one-month United
States dollar deposits as set forth on page 3750 of Telerate as of 11:00 a.m.,
London time, on the date of determination.
"Loan-to-Value Ratio" means with respect to any Mortgage Loan, the
fraction, expressed as a percentage, the numerator of which is the principal
balance of such Mortgage Loan at the date of origination and the denominator of
which is the lowest of (a) the value of the related Mortgaged Property as set
forth in the appraisal of such Mortgaged Property obtained in connection with
the origination of such Mortgage Loan, (b) the purchase price of the Mortgaged
Property or (c) the review appraisal, if any, provided that the appraised value
shown in the review appraisal is less than the appraised value at origination by
a variance of 10% or greater. For purposes of calculating the Loan-to-Value
Ratio of a Mortgage Loan secured by a second Mortgage, the principal balance of
the related First Mortgage as well as the second Mortgage shall be included in
the numerator.
"Market Value" means as of any date with respect to any Mortgage Loan, the
price at which such Mortgage Loan could readily be sold as determined by Buyer
in its sole discretion; provided, that Buyer may take into consideration the
price at which the Forward Commitment Provider will buy such
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Mortgage Loan from Seller and any Hedges with respect to such Mortgage Loans;
provided, further, that Buyer shall not take into account, for purposes of
calculating Market Value, any Mortgage Loan,
(i) which has been subject to Transactions for more than 60 days
(provided that this clause (i) (x) shall not apply to Purchased Mortgage
Loans which do not exceed in the aggregate 20% of the aggregate
outstanding principal balance of Purchased Mortgage Loans subject to then
outstanding Transactions which Purchased Mortgage Loans that have been
subject to Transactions for more than 60 days may be subject to
Transactions for up to 90 days and (y) shall not apply to Purchased
Mortgage Loans which do not exceed in the aggregate 10% of the aggregate
outstanding principal balance of Purchased Mortgage Loans subject to then
outstanding Transactions which Purchased Mortgage Loans that have been
subject to Transactions for more than 90 days may be subject to
Transactions for up to 120 days),
(ii) which, together with the other Mortgage Loans subject to then
outstanding Transactions, would cause the 30+ Delinquency Percentage to
exceed 3.0%,
(iii) which is more than 59 days Delinquent,
(iv) which is a Wet Ink Mortgage Loan for more than 7 Business Days,
or
(v) with respect to which there is a breach of a representation,
warranty or covenant made by Seller in this Agreement that materially
adversely affects Buyer's interest in such Mortgage Loan and which breach
has not been cured.
"Market Value Collateral Deficit" has the meaning specified in Section
4(a).
"Mortgage" means a mortgage, deed of trust, deed to secure debt or other
instrument, creating a valid and enforceable first or second lien on or a first
or second priority ownership interest in an estate in fee simple in real
property and the improvements thereon, securing a mortgage note or similar
evidence of indebtedness.
"Mortgage File" means the documents specified as the "Mortgage File" in
Section 7(d).
"Mortgage Loan" means (i) non-securitized whole loan, namely a
conventional mortgage loan secured by a first or second lien on a one to four
family residential property or mixed-use property which conforms to Seller's
underwriting guidelines (including, without limitation, a Wet Ink Mortgage
Loan), or (ii) other type of non-securitized whole loan as may be agreed upon in
writing by the parties hereto from time to time.
"Mortgage Loan Schedule" means a schedule of Mortgage Loans attached to
each Trust Receipt, Confirmation and Custodial Delivery.
"Mortgage Note" means a note or other evidence of indebtedness of a
Mortgagor secured by a Mortgage.
"Mortgaged Property" means the real property securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagee" means the record holder of a Mortgage Note secured by a
Mortgage.
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"Mortgagor" means the obligor on a Mortgage Note and the grantor of the
related Mortgage.
"Net Income" means, for any period, the consolidated net income (or loss)
for such period, determined on a consolidated basis in accordance with GAAP.
"Net Worth" mean the amount which would be included under stockholders'
equity on a consolidated balance sheet of Guarantor and its subsidiaries
determined on a consolidated basis in accordance with GAAP
"Periodic Payment" has the meaning specified in Section 5(b).
"Person" means an individual, partnership, corporation, joint stock
company, trust or unincorporated organization or a governmental agency or
political subdivision thereof.
"Price Differential" means, with respect to any Transaction hereunder as
of any date, the aggregate amount obtained by daily application of the Pricing
Rate for such Transaction to the Purchase Price for such Transaction on a 360
day per year basis for the actual number of days during the period commencing on
(and including) the Purchase Date for such Transaction and ending on (but
excluding) the Repurchase Date (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction).
"Pricing Rate" means, with respect to a Transaction, the per annum
percentage rate specified in the related Confirmation for determination of the
Price Differential which shall not exceed LIBOR as of the applicable Purchase
Date plus the applicable Pricing Spread.
"Pricing Spread" means the rate specified in the Confirmation, which shall
be equal to (i) on each date prior to the delivery to the Custodian of the
complete Mortgage Files with respect to the related Purchased Mortgage Loans,
1.75% and (ii) on each date on and after the delivery to the Custodian of such
Mortgage Files, 1.25%.
"Prime Rate" means the rate of interest published by The Wall Street
Journal, northeast edition, as the "prime rate."
"Purchase Date" means the date on which Purchased Mortgage Loans are
transferred by Seller to Buyer or its designee (including the Custodian) as
specified in the Confirmation.
"Purchase Price" means on each Purchase Date, the price at which Purchased
Mortgage Loans are transferred by Seller to Buyer or its designee (including the
Custodian) which shall be equal to, with respect to each Purchased Mortgage
Loan, the lowest of (x) 95% of the Market Value of such Purchased Mortgage Loan
as determined by the Buyer in its sole discretion, (y) 97% of the Securitization
Value of such Purchased Mortgage Loan as determined by the Buyer in its sole
discretion and (z) 98% of the outstanding principal amount of such Purchased
Mortgage Loan.
"Purchased Mortgage Loans" means the Mortgage Loans (including any
Additional Loans) sold by Seller to Buyer in a Transaction, any Additional Loans
and any Substituted Mortgage Loans.
"Q-1 Loan" means a Mortgage Loan that (i) is available only to borrowers
of A, A- and B credit grades and (ii) provides for a hold back of proceeds or
future advances to be applied to minor property repairs restricted to roofing,
plumbing, electrical or carpentry repairs in an amount that does not exceed the
lesser of $10,000 or 10% of the aggregate Purchase Price for such Q-1 Loan.
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"Replacement Loans" has the meaning specified in Section 14(b)(ii).
"Repurchase Date" means the date on which Seller is to repurchase the
Purchased Mortgage Loans from Buyer, including any date determined by
application of the provisions of Sections 3 or 14, as specified in the
Confirmation; provided that in no event shall such date be more than 30 days
after the Purchase Date.
"Repurchase Price" means the price at which Purchased Mortgage Loans are
to be transferred from Buyer or its designee (including the Custodian) to Seller
upon termination of a Transaction, which will be determined in each case
(including Transactions terminable upon demand) as the sum of the Purchase Price
and the Price Differential as of the date of such determination decreased by all
cash, Income and Periodic Payments actually received by Buyer pursuant to
Sections 4(a), 5(a) and 5(b), respectively, with respect to such Transaction.
"Securitization Value" means, as of any date with respect to any Mortgage
Loans, the price at which such Mortgage Loans could be securitized and sold in a
securitization as determined by Buyer in its sole discretion; provided, that the
Buyer may take into consideration any Hedges with respect to such Mortgage
Loans; provided, however, that Buyer shall not take into account, for purposes
of calculating Securitization Value, any Mortgage Loan,
(i) which has been subject to Transactions for more than 60 days
(provided this clause (i) (x) shall not apply to Purchased Mortgage Loans
which do not exceed in the aggregate 20% of the aggregate outstanding
principal balance of Purchased Mortgage Loans subject to then outstanding
Transactions which Purchased Mortgage Loans that have been subject to
Transactions for more than 60 days may be subject to Transactions for up
to 90 days and (y) shall not apply to Purchased Mortgage Loans which do
not exceed in the aggregate 10% of the aggregate outstanding principal
balance of Purchased Mortgage Loans subject to then outstanding
Transactions which Purchased Mortgaged Loans that have been subject to
Transactions for more than 90 days may be subject to Transactions for up
to 120 days),
(ii) which, together with the other Mortgage Loans subject to then
outstanding Transactions, would cause the 30+ Delinquency Percentage to
exceed 3.0%,
(iii) which is more than 59 days Delinquent,
(iv) which is a Wet Ink Mortgage Loan for more than 7 Business Days,
or
(v) with respect to which there is a breach of a representation,
warranty or covenant made by Seller in this Agreement that materially
adversely affects Buyer's interest in such Mortgage Loan and which breach
has not been cured.
"Securitization Value Collateral Deficit" has the meaning specified in
Section 4(a).
"Seller" has the meaning specified in Section 1.
"Servicing Records" has the meaning specified in Section 25.
"Substituted Mortgage Loans" means any Mortgage Loans substituted for
Purchased Mortgage Loans in accordance with Section 9 hereof.
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"Tangible Net Worth" means, at any time, Net Worth at such time, minus
intangible assets included in determining Net Worth.
"30+ Delinquency Percentage" means the fraction, expressed as a
percentage, the numerator of which is the aggregate outstanding principal
balance of Purchased Mortgage Loans subject to then outstanding Transactions
which are more than 30 days Delinquent and the denominator of which is the
aggregate outstanding principal balance of all Purchased Mortgage Loans subject
to then outstanding Transactions.
"Transaction" has the meaning specified in Section 1.
"Trust Receipt" means a trust receipt issued by Custodian to Buyer
confirming the Custodian's possession of certain mortgage loan files which are
the property of and held by Custodian for the benefit of the Buyer or the
registered holder of such trust receipt.
"Wet Ink Mortgage Loan" means a Mortgage Loan for which a Mortgage File
has not been delivered to the Custodian.
3. INITIATION; CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS
(a) Each agreement to enter into a Transaction must be entered into in
writing at the initiation of Seller. In any event, Buyer shall confirm the terms
of each Transaction by issuing a written confirmation to Seller promptly after
the parties enter into such Transaction in the form of Exhibit I attached hereto
(a "Confirmation"). Such Confirmation shall describe the Purchased Mortgage
Loans, identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the
Purchase Price, (iii) the Repurchase Date, unless the Transaction is stated to
be terminable on demand as stated in the Confirmation, (iv) the Pricing Rate
applicable to the Transaction, (v) the applicable Collateral Amount Percentages
and (vi) additional terms or conditions not inconsistent with this Agreement.
After receipt of the Confirmation, Seller shall, subject to the provisions of
subsection (c) below, sign the Confirmation and promptly return it to Buyer. The
Purchase Price for any Transaction shall exceed $750,000.
(b) Any Confirmation by Buyer shall be deemed to have been received by
Seller on the date actually received by Seller.
(c) Each Confirmation, together with this Agreement, shall be conclusive
evidence of the terms of the Transaction(s) covered thereby unless objected to
in writing by Seller no more than two (2) Business Days after the date the
Confirmation was received by Seller or unless a corrected Confirmation is sent
by Buyer. An objection sent by Seller must state specifically that writing which
is an objection, must specify the provision(s) being objected to by Seller, must
set forth such provision(s) in the manner that the Seller believes they should
be stated, and must be received by Buyer no more than two (2) Business Days
after the Confirmation was received by Seller. Buyer shall promptly respond to
any such objection raised by Seller.
(d) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller by telephone or otherwise, no later than 1:00 p.m.
(New York Time) on the Business Day prior to the Repurchase Date.
(e) On the Repurchase Date, termination of the Transaction will be
effected by transfer to Seller or its designee of the Purchased Mortgage Loans
(and any Income in respect thereof received by
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Buyer not previously credited or transferred to, or applied to the obligations
of, Seller pursuant to Section 5) against the simultaneous transfer of the
Repurchase Price to an account of Buyer. Seller is obligated to obtain the
Mortgage Files from Buyer or its designee at Seller's expense on the Repurchase
Date.
(f) With respect to all Transactions hereunder, the aggregate Purchase
Price for all Purchased Mortgage Loans at any one time subject to then
outstanding Transactions shall not exceed $200,000,000. The Purchase Price for
any individual Purchased Mortgage Loan under this Agreement shall not exceed the
unpaid principal balance of such Purchased Mortgage Loan.
(g) On the date of execution of this Agreement, Seller shall pay to Buyer
a commitment fee pursuant to a separate letter agreement dated the date hereof
(the "Fee Letter") among Seller, Buyer and Guarantor.
(h) Buyer shall not be obligated to enter into any Transaction until such
time as Buyer shall have received copies of each material agreement or
instrument entered into by Guarantor, Seller or any of their respective
subsidiaries with respect to indebtedness for borrowed money, certified by the
chief financial officer or vice president of finance of Guarantor or Seller as
being a true and correct copy of such agreement or instrument, as the case may
be, and in full force and effect.
4. COLLATERAL AMOUNT MAINTENANCE
(a) Buyer shall mark to market the Mortgage Loans in its sole discretion,
but at least monthly. If at any time the aggregate Market Value of all Purchased
Mortgage Loans subject to all Transactions is less than the aggregate Collateral
Amount for all such Transactions (a "Market Value Collateral Deficit"), then
Buyer may by notice to Seller require Seller to transfer to Buyer or its
designee (including the Custodian) Mortgage Loans ("Additional Loans") or cash
or other collateral acceptable to Buyer, so that the cash and aggregate Market
Value of the Purchased Mortgage Loans and other collateral, including any such
Additional Loans, will thereupon equal or exceed the aggregate Collateral
Amount. If at any time the aggregate Securitization Value of all Mortgage Loans
subject to Transactions is less than the aggregate Collateral Amount for all
such Transactions (a "Securitization Value Collateral Deficit"), then Buyer may
by notice to Seller require Seller to transfer to Buyer or its designee
(including the Custodian) Additional Loans or cash or other collateral
acceptable to Buyer, so that the cash and aggregate Securitization Value of the
Purchased Mortgage Loans and other collateral, including any such Additional
Loans, will thereupon equal or exceed the aggregate Collateral Amount.
(b) Notice required pursuant to subsection (a) above may be given by any
means of facsimile or telegraphic transmission. Seller shall transfer Additional
Loans or cash pursuant to subsection (a) above not later than 5:00 p.m. on
Business Day following the receipt of such notice. The failure of Buyer, on any
one or more occasions, to exercise its rights under subsection (a) of this
Section shall not change or alter the terms and conditions to which this
Agreement is subject or limit the right of the Buyer to do so at a later date.
Buyer and Seller agree that a failure or delay to exercise its rights under
subsection (a) of this Section shall not limit Buyer's rights under this
Agreement or otherwise existing by law or in any way create additional rights
for Seller.
(c) In the event that Seller fails to comply with the provisions of this
Section 4, Buyer shall not enter into any additional Transactions hereunder
after the date of such failure.
5. INCOME PAYMENTS
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(a) Where a particular Transaction's term extends over an Income payment
date on the Purchased Mortgage Loans subject to that Transaction such Income
shall be the property of Buyer. Seller shall instruct each Mortgagor to remit
all Income (including all tax and insurance escrow payments) to a lockbox under
the sole dominion and control of a financial institution (the "Lockbox Bank")
reasonably acceptable to Buyer. The Lockbox Bank shall upon receipt thereof
deposit all cash, checks, and other near cash items received in the lockbox to a
lockbox account, and shall promptly remit all Income (other than tax and
insurance escrow payments) on deposit in such lockbox account to the Collection
Account (as defined below).
(b) Seller shall establish on or prior to the date of the first
Transaction, and maintain for the Buyer's benefit, one or more collection
accounts pledged to the Buyer with a financial institution (the "Collection
Account Bank") reasonably acceptable to the Buyer, which may be interest-bearing
and entitled "Aames Capital Corporation in trust for Lehman Commercial Paper
Inc." (the "Collection Account"). Prior to the date of the first Transaction,
Seller shall cause the Collection Account Bank to deliver to the Buyer an
acknowledgment of the Buyer's security interest in the Collection Account (the
"Depository Acknowledgment"). The Depository Acknowledgment shall provide that
upon notice to the Collection Account Bank (which notice Buyer may deliver at
its reasonable discretion but in any event after the occurrence of an Event of
Default or a Market Value Collateral Deficit or Securitization Value Collateral
Deficit which is not cured in accordance with Section 4), only Buyer shall be
permitted to withdraw funds from the Collection Account, such funds to be
applied by Buyer to reduce the outstanding Repurchase Price. Prior to the
delivery by Buyer to the Collection Account Bank of the notice referred to in
the immediately preceding sentence, all Income held in the Collection Account
may be withdrawn by Seller for servicing of the Mortgage Loans, administration
of and escrow-related matters pertaining to the Purchased Mortgage Loans and any
other purposes approved by Buyer.
(c) Notwithstanding that Buyer and Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased Mortgage Loans, Seller shall pay by
wire transfer to Buyer the accreted value of the Price Differential (less any
amount of such Price Differential previously paid by Seller to Buyer) (each such
payment, a "Periodic Payment") on the earlier of (x) the fifth day of each month
(or if such day is not a Business Day, the following Business Day) or (y) the
related Repurchase Date. The Price Differential shall accrue, be calculated and
be compounded on a daily basis for each Purchased Mortgage Loan.
(d) Buyer shall offset against the Repurchase Price of each such
Transaction all Income and Periodic Payments actually received by Buyer pursuant
to Sections 5(a) and (b), respectively.
6. SECURITY INTEREST
(a) Buyer and the Seller intend that the Transactions hereunder be sales
to Buyer of the Purchased Mortgage Loans and not loans from Buyer to Seller
secured by the Purchased Mortgage Loans. However, in order to preserve Buyer's
rights under this Agreement in the event that a court or other forum
recharacterizes the Transactions hereunder as loans and as security for the
performance by Seller of all of Seller's obligations to Buyer under this
Agreement and the Transactions entered into pursuant to this Agreement, Seller
grants Buyer a first priority security interest in the Purchased Mortgage Loans,
Servicing Records, insurance relating to the Purchased Mortgage Loans, Income,
any and all Hedges, any and all custodial accounts and escrow accounts relating
to the Purchased Mortgage Loans, the Collection Account and all cash or other
property or amounts on deposit therein and any other contract rights, general
intangibles and other assets relating to the Purchased Mortgage Loans or any
interest in the Purchased Mortgage Loans and the servicing of the Purchased
Mortgage Loans and any
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and all replacements, substitutions, distributions on or proceeds of any and all
of the foregoing (collectively, the "Collateral").
(b) Seller shall pay all fees and expenses associated with perfecting
Buyer's security interest in the Collateral, including, without limitation, the
cost of filing financing statements under the Uniform Commercial Code and, upon
the occurrence of an Event of Default, recording assignments of Mortgage, as and
when required by Buyer in its sole discretion.
7. PAYMENT, TRANSFER AND CUSTODY
(a) Unless otherwise mutually agreed in writing, all transfers of funds
hereunder shall be in immediately available funds.
(b) On or before each Purchase Date, Seller shall deliver or cause to be
delivered to Buyer or its designee the Custodial Delivery in the form attached
hereto as Exhibit II.
(c) On the Purchase Date for each Transaction, ownership of the Purchased
Mortgage Loans shall be transferred to the Buyer or its designee (including the
Custodian) against the simultaneous transfer of the Purchase Price to an account
of Seller specified in the Confirmation. Seller, simultaneously with the
delivery to Buyer or its designee (including the Custodian) of the Purchased
Mortgage Loans relating to each Transaction hereby sells, transfers, conveys and
assigns to Buyer or its designee (including the Custodian) without recourse, but
subject to the terms of this Agreement, all the right, title and interest of
Seller in and to the Purchased Mortgage Loans together with all right, title and
interest in and to the proceeds of any related insurance policies.
(d) In connection with each sale, transfer, conveyance and assignment, on
or prior to each Purchase Date with respect to each Mortgage Loan which is not a
Wet Ink Mortgage Loan (or with respect to item (vii) below within seven Business
Days after the Purchase Date), the Seller shall deliver or cause to be delivered
and released to the Custodian the following original documents (collectively the
"Mortgage File"), pertaining to each of the Purchased Mortgage Loans identified
in the Custodial Delivery delivered therewith:
(i) the original Mortgage Note bearing all intervening endorsements
(or allonges), endorsed "Pay to the order of ________, without recourse"
and signed in the name of the last endorsee (the "Last Endorsee") by an
authorized officer (in the event that the Mortgage Loan was acquired by
the Last Endorsee in a merger, the signature must be in the following
form: "[the Last Endorsee], successor by merger to [name of predecessor]";
in the event that the Mortgage Loan was acquired or originated while doing
business under another name, the signature must be in the following form:
"[the Last Endorsee], formerly known as [previous name]");
(ii) the original of any guarantee executed in connection with the
Mortgage Note (if any);
(iii) the original Mortgage with evidence of recording thereon or a
copy certified by Seller to have been sent for recording;
(iv) the originals of all assumption, modification, consolidation or
extension agreements, with evidence of recording thereon or copies
certified by Seller to have been sent for recording;
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(v) the original assignment of Mortgage in blank for each Mortgage
Loan, in form and substance acceptable for recording and signed in the
name of the Last Endorsee (in the event that the Mortgage Loan was
acquired by the Last Endorsee in a merger, the signature must be in the
following form: "[the Last Endorsee], successor by merger to [name of
predecessor]"; in the event that the Mortgage Loan was acquired or
originated while doing business under another name, the signature must be
in the following form: "[the Last Endorsee], formerly known as [previous
name]");
(vi) the originals of all intervening assignments of mortgage with
evidence of recording thereon or copies certified by Seller to have been
sent for recording;
(vii) the original policy of title insurance or a true copy thereof
or, if such policy has not yet been delivered by the insurer, the
commitment or binder to issue the same; and
(viii) the original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Mortgage (if any).
(e) In connection with each sale, transfer, conveyance and assignment, on
or prior to the seventh Business Day following each Purchase Date with respect
to each Mortgage Loan which is a Wet Ink Mortgage Loan, Seller shall deliver or
cause to be delivered to the Custodian a complete Mortgage File. On the date on
which the Buyer receives a Trust Receipt from the Custodian certifying that a
complete Mortgage File with respect to a Wet Ink Mortgage Loan is in the
possession of the Custodian, such Wet Ink Mortgage Loan be deemed a standard
Mortgage Loan (and no longer a Wet Ink Mortgage Loan) for all purposes
hereunder, including, without limitation, determination of the Pricing Spread
and compliance with subsection (zz) of Exhibit V.
(f) With respect to each Mortgage Loan delivered by Seller to Buyer or its
designee (including the Custodian), Seller shall have executed an omnibus power
of attorney substantially in the form of Exhibit III attached hereto irrevocably
appointing Buyer its attorney-in-fact with full power to complete and record the
assignment of Mortgage, complete the endorsement of the Mortgage Note and take
such other steps as may be necessary or desirable to enforce Buyer's rights
against such Mortgage Loans, the related Mortgage Files and the Servicing
Records.
(g) Buyer shall deposit the Mortgage Files representing the Purchased
Mortgage Loans, or direct that the Mortgage Files be deposited directly, with
the Custodian. The Mortgage Files shall be maintained in accordance with the
Custodial Agreement.
(h) Any Mortgage Files not delivered to Buyer or its designee (including
the Custodian) are and shall be held in trust by Seller or its designee for the
benefit of Buyer as the owner thereof. Seller or its designee shall maintain a
copy of the Mortgage File and the originals of the Mortgage File not delivered
to Buyer or its designee. The possession of the Mortgage File by Seller or its
designee is at the will of the Buyer for the sole purpose of servicing the
related Purchased Mortgage Loan, and such retention and possession by the Seller
or its designee is in a custodial capacity only. The books and records
(including, without limitation, any computer records or tapes) of Seller or its
designee shall be marked appropriately to reflect clearly the sale of the
related Purchased Mortgage Loan to Buyer. Seller or its designee (including the
Custodian) shall release its custody of the Mortgage File only in accordance
with written instructions from Buyer, unless such release is required as
incidental to the servicing of the Purchased Mortgage Loans or is in connection
with a repurchase of any Purchased Mortgage Loan by Seller.
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8. REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS
Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer shall
have free and unrestricted use of all Purchased Mortgage Loans. Nothing in this
Agreement shall preclude Buyer from engaging in repurchase transactions with the
Purchased Mortgage Loans or otherwise assigning, syndicating, participating,
sub-participating, pledging, repledging, hypothecating, or rehypothecating the
Purchased Mortgage Loans, but no such transaction shall relieve Buyer of its
obligations to transfer Purchased Mortgage Loans to Seller pursuant to Section
3. Seller shall cooperate with Buyer's reasonable requests to complete such
assignments, syndication, participation or pledge. Nothing contained in this
Agreement shall obligate Buyer to segregate any Purchased Mortgage Loans
delivered to Buyer by Seller. In the event that there is a material adverse
change or other development in the repurchase markets which results in Buyer
being unable to finance its position through the repurchase market with its
traditional repurchase counterparties, Buyer may accelerate the Repurchase Date
for any outstanding Transactions following reasonable notice to Seller of the
occurrence of such event.
9. SUBSTITUTION
(a) Subject to Section 9(b) and the agreement of Buyer, Seller may, upon
one (1) Business Days' written notice to Buyer, with a copy to Custodian,
substitute Mortgage Loans or other assets for any Purchased Mortgage Loans. Such
substitution shall be made by transfer to Buyer or its designee (including the
Custodian) of the Mortgage File of such other Mortgage Loans together with a
Custodial Delivery and transfer to Seller or its designee of the Purchased
Mortgage Loans requested for release. After substitution, the substituted
Mortgage Loans, shall be deemed to be Purchased Mortgage Loans subject to the
same Transaction as the released Mortgage Loans.
(b) Notwithstanding anything to the contrary in this Agreement, Seller may
not substitute other Mortgage Loans or other assets for any Purchased Mortgage
Loans if (i) after taking into account such substitution, a Collateral Deficit
would occur, (ii) such substitution would cause a breach of any provision of
this Agreement or (iii) the Market Value of the Mortgage Loans or assets
substituted is less than the Market Value of such Purchased Mortgage Loans.
10. REPRESENTATIONS AND WARRANTIES
(a) Each of Buyer and Seller represents and warrants to the other that (i)
it is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance; (ii) it will engage in such Transactions as principal; (iii) the
person signing this Agreement on its behalf is duly authorized to do so on its
behalf; (iv) no approval, consent or authorization of the Transactions
contemplated by this Agreement from any federal, state, or local regulatory
authority having jurisdiction over it is required or, if required, such
approval, consent or authorization has been or will, prior to the first Purchase
Date, be obtained; (v) the execution, delivery, and performance of this
Agreement and the Transactions hereunder will not violate any law, regulation,
order, judgment, decree, ordinance, charter, by-law, or rule applicable to it or
its property or constitute a default (or an event which, with notice or lapse of
time, or both would constitute a default) under or result in a breach of any
agreement or other instrument by which it is bound or by which any of its assets
are affected; (vi) it has received approval and authorization to enter into this
Agreement and each and every Transaction actually entered into hereunder
pursuant to its internal policies and procedures; and (vii) neither this
Agreement nor any Transaction pursuant hereto are entered into in contemplation
of insolvency or with intent to hinder, delay or defraud any creditor.
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(b) Seller represents and warrants to Buyer that as of the Purchase Date
for the purchase of any Purchased Mortgage Loans by Buyer from Seller and as of
the date of this Agreement and any Transaction hereunder and at all times while
this Agreement and any Transaction hereunder is in full force and effect:
(i) Organization. Seller is duly organized, validly existing and in
good standing under the laws and regulations of the state of California
and is duly licensed, qualified, and in good standing in every state where
Seller transacts business and in any state where any Mortgaged Property is
located if the laws of such state require licensing or qualification in
order to conduct business of the type conducted by Seller therein.
(ii) No Litigation. There is no action, suit, proceeding,
arbitration or investigation pending or, to Seller's knowledge, threatened
against Seller which, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations,
financial condition, properties or assets of Seller, or in any material
impairment of the right or ability of Seller to carry on its business
substantially as now conducted, or in any material liability on the part
of Seller, or which if adversely determined would affect the validity of
this Agreement or any of the Purchased Mortgage Loans or of any action
taken or to be taken in connection with the obligations of Seller
contemplated herein, or which would be likely to impair materially the
ability of Seller to perform under the terms of this Agreement.
(iii) No Broker. Seller has not dealt with any broker, investment
banker, agent, or other person, except for Buyer, who may be entitled to
any commission or compensation in connection with the sale of Purchased
Mortgage Loans pursuant to this Agreement.
(iv) Good Title to Collateral. Purchased Mortgage Loans shall be
free and clear of any lien, encumbrance or impediment to transfer, and
Seller has good, valid and marketable title and the right to sell and
transfer such Purchased Mortgage Loans to Buyer.
(v) Delivery of Mortgage File. With respect to each Purchased
Mortgage Loan (other than a Wet Ink Mortgage Loan), the Mortgage Note, the
Mortgage, the assignment of Mortgage and any other documents required to
be delivered under this Agreement and the Custodial Agreement for the
Mortgage Loans have been delivered to the Custodian. Seller or its
designee is in possession of a complete, true and accurate Mortgage File
with respect to the Mortgage Loans, except for such documents the
originals of which have been delivered to the Custodian.
(vi) Selection Process. The Purchased Mortgage Loans were selected
from among the outstanding mortgage loans in Seller's portfolio as to
which the representations and warranties set forth in this Agreement could
be made and such selection was not made in a manner so as to affect
adversely the interests of Buyer.
(vii) No Untrue Statements. To the best of Seller's knowledge,
neither this Agreement nor any written statement made, or any report or
other document issued or delivered or to be issued or delivered by Seller
pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
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(viii) Origination Practices. The origination practices used by
Seller with respect to each Mortgage Loan (i) have been and are in all
respects legal and proper in the mortgage origination business and (ii)
are in accordance with the underwriting guidelines previously supplied by
Seller to Buyer.
(ix) Performance of Agreement. Seller does not believe, nor does it
have any reason or cause to believe, that it cannot perform each and every
covenant contained in this Agreement on its part to be performed.
(x) Seller Not Insolvent. Seller is not, and with the passage of
time does not expect to become, insolvent.
(xi) No Event of Default. No Event of Default has occurred and is
continuing hereunder.
(c) Seller represents and warrants to the Buyer that each Purchased
Mortgage Loan sold hereunder and each pool of Purchased Mortgage Loans sold in a
Transaction hereunder, as of the related Purchase Date, conforms to the
representations and warranties set forth in Exhibit V attached hereto and that
each Mortgage Loan delivered hereunder as Additional Loans or Substituted
Mortgage Loans, as of the date of such delivery, conforms to the representations
and warranties set forth in Exhibit V hereto. Seller further represents and
warrants to the Buyer that, as of the seventh Business Day of each month, the
Collateral Information delivered on such day with respect to each Purchased
Mortgage Loan is complete, true and correct. It is understood and agreed that
the representations and warranties set forth in Exhibit V hereto, if any, shall
survive delivery of the respective Mortgage File to Buyer or its designee
(including the Custodian).
(d) On the Purchase Date for any Transaction, Buyer and Seller shall each
be deemed to have made all the foregoing representations with respect to itself
as of such Purchase Date.
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and until
this Agreement is no longer in force with respect to any Transaction, Seller
covenants that it will not:
(a) take any action which would directly or indirectly impair or adversely
affect Buyer's title to or the value of the Purchased Mortgage Loans; or
(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or
otherwise transfer any interest in the Purchased Mortgage Loans to any person
not a party to this Agreement nor will the Seller create, incur or permit to
exist any lien, encumbrance or security interest in or on the Purchased Mortgage
Loans except as described in Section 6 of this Agreement.
12. AFFIRMATIVE COVENANTS OF THE SELLER
For so long as this Agreement is in effect:
(a) Seller covenants that it will promptly notify Buyer of any material
adverse change in its business operations and/or financial condition.
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(b) Seller shall provide Buyer with copies of such documentation as Buyer
may reasonably request evidencing the truthfulness of the representations set
forth in Section 10, including but not limited to resolutions evidencing the
approval of this Agreement by Seller's board of directors or loan committee and
copies of the minutes of the meetings of Seller's board of directors or loan
committee at which this Agreement and the Transactions contemplated by this
Agreement were approved.
(c) Seller shall, at Buyer's request, take all action necessary to ensure
that Buyer will have a first priority security interest in the Purchased
Mortgage Loans, including, among other things, filing such Uniform Commercial
Code financing statements as Buyer may reasonably request.
(d) Seller covenants that it will not create, incur or permit to exist any
lien, encumbrance or security interest in or on any of the Collateral without
the prior express written consent of Buyer.
(e) Seller shall notify Buyer no later than one (1) Business Day after
obtaining actual knowledge thereof, if any event has occurred that constitutes
an Event of Default with respect to Seller or any event that with the giving of
notice or lapse of time, or both, would become an Event of Default with respect
to Seller.
(f) Seller covenants that each Purchased Mortgage Loan subject to this
Agreement shall be serviced in accordance with Section 25 hereof.
(g) Seller covenants to provide Buyer with a copy of any material changes
to Seller's underwriting guidelines prior to the effectiveness of any such
change. Buyer shall use commercially reasonable efforts to notify Seller within
7 Business Days of receipt of such changes if such changes are acceptable. If
such changes are not acceptable to Buyer in its sole discretion, Buyer shall not
be obligated to purchase Mortgage Loans hereunder that are originated in
accordance with such changed underwriting guidelines.
(h) Seller covenants, upon request of Buyer after the occurrence of a
Collateral Deficit, to enter into hedging transactions with respect to fixed
rate Purchased Mortgage Loans in order to protect adequately, in the reasonable
judgment against interest rate risks.
(i) Seller covenants to provide Buyer on the seventh Business Day of each
month, either by direct modem electronic transmission or via a computer
diskette, the Collateral Information in computer readable format with respect to
all Purchased Mortgage Loans then subject to Transactions.
(j) Seller covenants to provide Buyer with the following financial and
reporting information:
(i) Within 90 days after the last day of its fiscal year,
Guarantor's audited consolidated statements of income and balance sheets
and statements of changes in cash flow for such year and balance sheets as
of the end of such year in each case presented fairly in accordance with
GAAP, and accompanied, in all cases, by an unqualified report of Price
Waterhouse LP or another nationally recognized independent certified
public accounting firm consented to by Buyer (which consent shall not be
unreasonably withheld);
(ii) Within 90 days after the last day of its fiscal year, Seller's
audited consolidated statements of income and balance sheets as of the end
of such year in each case presented fairly in accordance with GAAP, and
accompanied, in all cases, by an unqualified report of Price Waterhouse LP
or another nationally recognized independent certified public accounting
firm consented to by Buyer (which consent shall not be unreasonably
withheld);
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(iii) Within 60 days after the last day of the first three fiscal
quarters in any fiscal year, Seller's unaudited consolidated statements of
income and statements of changes in cash flow for such quarter and balance
sheets as of the end of such quarter presented fairly in accordance with
GAAP;
(iv) Within 30 days after the last day of each calendar month, an
officer's certificate from the chief financial officer or vice president
of finance of Seller addressed to Buyer certifying that, as of such
calendar month, (x) Seller is in compliance with all of the terms,
conditions and requirements of this Agreement (such certification to
include a calculation on a quarterly basis of the financial tests set
forth in Sections 13(xiii) - (xviii)), and (y) no Event of Default exists;
(v) As soon as available, copies of all proxy statements, financial
statements, and reports which Guarantor sends to its stockholders, and
copies of all regular, periodic and special reports, and all registration
statements under the Securities Act of 1933, as amended, which it files
with the Securities and Exchange Commission or any government authority
which may be substituted therefor, or with any national securities
exchange
(vi) Within 45 days after the last day of each fiscal quarter in any
fiscal year, an officer's certificate from the chief financial officer or
vice president of finance of Guarantor addressed to Buyer certifying the
calculation of Tangible Net Worth, including the valuation (and the
assumptions used to derive such valuation) of residual certificates,
interest-only certificates and other comparable instruments with respect
to securitizations of mortgage loans included in the calculation of such
Tangible Net Worth.
(k) Seller covenants to repurchase or substitute pursuant to Section 9
hereof any Mortgage Loan, within two Business Days following written notice from
Buyer, which as to a representation or warranty made by Seller set forth in
Exhibit V hereto proves to be incorrect or untrue in any material respect.
(l) Seller covenants to provide Buyer, within seven Business Days
following the execution thereof by the parties thereto, copies of each material
agreement or instrument entered into after the date of this Agreement by
Guarantor, Seller or any of their respective subsidiaries with respect to
indebtedness for borrowed money, certified by the chief financial officer or
vice president of finance of Guarantor or Seller as being a true and correct
copy of such agreement or instrument, as the case may be, and in full force and
effect.
(m) In the event the Seller amends any of the Seller's other lending or
financing facilities (including, without limitation, mortgage loan warehouse,
residual financing, working capital or repurchase facilities) to incorporate new
financial covenants or to modify existing financial covenants which modification
makes such covenants more stringent than the financial covenants set forth in
clauses (xii) through (xxi) of Section 13 hereof immediately prior to such
modification, then the Seller shall simultaneously amend this Agreement to
incorporate any such new or modified financial covenant. Seller shall notify
Buyer in writing of any such proposed amendment (including together with such
notice any draft amendment documentation) prior to entering into such amendment.
13. EVENTS OF DEFAULT
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(a) If any of the following events (each an "Event of Default") occur,
Seller and Buyer shall have the rights set forth in Section 14, as applicable:
(i) Seller or Buyer fails to satisfy or perform any material
obligation or covenant under this Agreement;
(ii) an Act of Insolvency occurs with respect to Seller or Buyer;
(iii) any representation (excluding the representations and
warranties made with respect to the Mortgage Loans set forth on Exhibit V
hereto) made by Seller shall have been incorrect or untrue in any material
respect when made or repeated or deemed to have been made or repeated;
(iv) Seller or Buyer shall admit its inability to, or its intention
not to, perform any of its obligations hereunder;
(v) any governmental, regulatory, or self-regulatory authority takes
any action to remove, limit, restrict, suspend or terminate the rights,
privileges, or operations of the Seller or any of its Affiliates,
including suspension as an issuer, lender or seller/servicer of mortgage
loans, which suspension has a material adverse effect on the ordinary
business operations of Seller or Seller's Affiliate, and which continues
for more than 24 hours;
(vi) Seller dissolves, merges or consolidates with another entity
(unless (A) it is the surviving party or (B) the entity into which it
mergers has equity and a market value of at least that of the Seller
immediately prior to such merger and such entity expressly assumes the
obligations of the Seller at the time of such merger), or sells,
transfers, or otherwise disposes of a material portion of its business or
assets, except for the sale or transfer of Mortgage Loans in the ordinary
course of business;
(vii) Buyer, in its good faith judgment, believes that there has
been a material adverse change in the business, operations, corporate
structure or financial condition of Seller or that Seller will not meet
any of its obligations under any Transaction pursuant to this Agreement,
this Agreement or any other agreement between the parties;
(viii) Seller, Guarantor or any of their respective subsidiaries
shall fail to perform or shall violate any other material agreement or
instrument between any of them and Buyer or any of its Affiliates and such
failure or violation continues unremedied after any applicable grace
period therefor, or Seller, Guarantor or any of their respective
subsidiaries shall fail to pay when due or within any applicable grace
period therefor any portion of any single obligation constituting
indebtedness of Borrower, Guarantor or any of their respective
subsidiaries in excess of $1,000,000; or any default or other event shall
occur under or with respect to any agreement under which any single
obligation constituting indebtedness of Borrower, Guarantor or any of
their respective subsidiaries in excess of $1,000,000 was created or is
governed, the effect of which is to cause, or to permit the holder or
holder of such indebtedness to cause, such indebtedness to become due
prior to its stated maturity; or any single obligation constituting
indebtedness of Borrower, Guarantor or any of their respective
subsidiaries in excess of $1,000,000 shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
payment), prior to the stated maturity thereof;
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(ix) a final judgment by any competent court in the United States of
America for the payment of money in an amount of at least $1,000,000 is
rendered against the Seller, and the same remains undischarged or unpaid
for a period of sixty (60) days during which execution of such judgment is
not effectively stayed;
(x) this Agreement shall for any reason cease to create a valid,
first priority security interest in any of the Purchased Mortgage Loans
purported to be covered hereby;
(xi) a Market Value Collateral Deficit or Securitization Value
Collateral Deficit occurs with respect to Seller or Buyer, as applicable,
and is not eliminated within the time period specified in Section 4(b);
(xii) either Net Worth or Tangible Net Worth of the Guarantor shall
be less than (i) $95,000,000 at any time from the date of this Agreement
to and including October 31, 2000 or (ii) $100,000,000 at any time
thereafter;
(xiii) Tangible Net Worth of the Seller shall be less than
$365,000,000 at any time;
(xiv) the Interest Coverage Ratio of the Guarantor shall exceed (i)
1.25 to 1.0 on the last Business Day of any calendar quarter at any time
from the date of this Agreement to and including October 31, 2000 or (ii)
1.50 to 1.0 on the last Business Day of any calendar quarter at any time
thereafter or (iii) 1.1 to 1.0 on the last Business Day of any two
consecutive calendar quarters beginning with the fiscal quarter ending
September 30, 2000;
(xv) the Leverage Ratio of the Guarantor shall exceed (i) 7.5 to 1.0
at any time from the date of this Agreement to and including October 31,
2000 or (ii) 6.5 to 1.0 at any time thereafter;
(xvi) the Adjusted Leverage Ratio of the Guarantor shall exceed (i)
3.5 to 1.0 at any time from the date of this Agreement to and including
October 31, 2000 or (ii) 3.0 to 1.0 at any time thereafter;
(xvii) the Adjusted Leverage Ratio of the Seller shall exceed 3.0 to
1.0 at any time;
(xviii) the aggregate amount of the Guarantor's cash, cash
equivalents and available borrowing capacity on unencumbered assets that
could be drawn against (taking into account required haircuts) under
committed warehouse or working capital facilities, on a consolidated basis
and on any given day, shall be less than (a) prior to and on May 31, 2000,
$5,000,000 and (b) on and after June 1, 2000, $15,000,000;
(xix) the aggregate amount of the Seller's cash, cash equivalents
and unused borrowing capacity on unencumbered assets that could be drawn
against (taking into account required haircuts) under committed warehouse
facilities shall be less than $1,000,000;
(xx) the Seller shall be a party to committed facilities (other than
this Agreement) with a maximum aggregate principal amount of commitments
equal to less than $100,000,000 at any time;
(xxi) for any fiscal quarter of Guarantor, beginning with the fiscal
quarter ending June 30, 2000, or for any two consecutive fiscal quarters
of Guarantor, beginning with the fiscal
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quarter ending September 30, 2000, Guarantor and its subsidiaries shall
incur a loss on a consolidated basis in accordance with GAAP; or
(xxii) Seller or Guarantor shall fail to satisfy or perform any
obligation or covenant under the Fee Letter.
14. REMEDIES
(a) If an Event of Default occurs with respect to Seller, the following
rights and remedies are available to Buyer:
(i) At the option of Buyer, exercised by written notice to Seller
(which option shall be deemed to have been exercised, even if no notice is
given, immediately upon the occurrence of an Act of Insolvency), the
Repurchase Date for each Transaction hereunder shall be deemed immediately
to occur.
(ii) If Buyer exercises or is deemed to have exercised the option
referred to in subsection (a)(i) of this Section,
(A) Seller's obligations hereunder to repurchase all Purchased
Mortgage Loans in such Transactions shall thereupon become
immediately due and payable,
(B) to the extent permitted by applicable law, the Repurchase
Price with respect to each such Transaction shall be increased by
the aggregate amount obtained by daily application of, on a 360 day
per year basis for the actual number of days during the period from
and including the date of the exercise or deemed exercise of such
option to but excluding the date of payment of the Repurchase Price
as so increased, (x) the greater of the Prime Rate or the Pricing
Rate for each such Transaction to (y) the Repurchase Price for such
Transaction as of the Repurchase Date as determined pursuant to
subsection (a)(i) of this Section (decreased as of any day by (I)
any amounts actually in the possession of Buyer pursuant to clause
(C) of this subsection, (II) any proceeds from the sale of Purchased
Mortgage Loans applied to the Repurchase Price pursuant to
subsection (a)(xii) of this Section, and (III) any amounts applied
to the Repurchase Price pursuant to subsection (a)(iii) of this
Section), and
(C) all Income actually received by the Buyer or its designee
(including the Custodian) pursuant to Section 5 shall be applied to
the aggregate unpaid Repurchase Price owed by Seller.
(iii) After one Business Day's notice to Seller (which notice need
not be given if an Act of Insolvency shall have occurred, and which may be
the notice given under subsection (a)(i) of this Section), Buyer may (A)
immediately sell, without notice or demand of any kind, at a public or
private sale and at such price or prices Buyer may reasonably deem
satisfactory any or all Purchased Mortgage Loans subject to a Transaction
hereunder or (B) in its sole discretion elect, in lieu of selling all or a
portion of such Purchased Mortgage Loans, to give Seller credit for such
Purchased Mortgage Loans in an amount equal to the Market Value of the
Purchased Mortgage Loans against the aggregate unpaid Repurchase Price and
any other amounts owing by Seller hereunder. The proceeds of any
disposition of Purchased Mortgage Loans shall be applied first to the
costs and expenses incurred by Buyer in connection with Seller's default;
second to
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costs of cover and/or related hedging transactions relating to
Transactions and to losses, damages, costs or expenses directly arising or
resulting from the occurrence of the Event of Default; third to the
Repurchase Price; and fourth to any other outstanding obligation of Seller
to Buyer or its Affiliates.
(iv) The parties recognize that it may not be possible to purchase
or sell all of the Purchased Mortgage Loans on a particular Business Day,
or in a transaction with the same purchaser, or in the same manner because
the market for such Purchased Mortgage Loans may not be liquid. In view of
the nature of the Purchased Mortgage Loans, the parties agree that
liquidation of a Transaction or the underlying Purchased Mortgage Loans
does not require a public purchase or sale and that a good faith private
purchase or sale shall be deemed to have been made in a commercially
reasonable manner. Accordingly, Buyer may elect, in its sole discretion,
the time and manner of liquidating any Purchased Mortgage Loan and nothing
contained herein shall (A) obligate Buyer to liquidate any Purchased
Mortgage Loan on the occurrence of an Event of Default or to liquidate all
Purchased Mortgage Loans in the same manner or on the same Business Day or
(B) constitute a waiver of any right or remedy of Buyer. However, in
recognition of the parties' agreement that the Transactions hereunder have
been entered into in consideration of and in reliance upon the fact that
all Transactions hereunder constitute a single business and contractual
relationship and that each Transaction has been entered into in
consideration of the other Transactions, the parties further agree that
Buyer shall use its best efforts to liquidate all Transactions hereunder
upon the occurrence of an Event of Default as quickly as is prudently
possible in the reasonable judgment of Buyer.
(v) Buyer shall, without regard to the adequacy of the security for
the Seller's obligations under this Agreement, be entitled to the
appointment of a receiver by any court having jurisdiction, without
notice, to take possession of and protect, collect, manage, liquidate, and
sell the Collateral or any portion thereof, and collect the payments due
with respect to the Collateral or any portion thereof. Seller shall pay
all costs and expenses incurred by Buyer in connection with the
appointment and activities of such receiver.
(vi) Seller agrees that Buyer may obtain an injunction or an order
of specific performance to compel Seller to fulfill its obligations as set
forth in Section 25, if Seller fails or refuses to perform its obligations
as set forth therein.
(vii) Seller shall be liable to Buyer for the amount of all
expenses, reasonably incurred by Buyer in connection with or as a
consequence of an Event of Default, including, without limitation,
reasonable legal fees and expenses and reasonable costs incurred in
connection with hedging or covering transactions relating to Transactions.
(viii) Buyer shall have all the rights and remedies provided herein,
provided by applicable federal, state, foreign, and local laws (including,
without limitation, the rights and remedies of a secured party under the
Uniform Commercial Code of the State of New York, to the extent that the
Uniform Commercial Code is applicable, and the right to offset any mutual
debt and claim), in equity, and under any other agreement between Buyer
and Seller.
(ix) Buyer may exercise one or more of the remedies available to
Buyer immediately upon the occurrence of an Event of Default and, except
to the extent provided in subsections (a)(i) and (iii) of this Section, at
any time thereafter without notice to Seller. All rights and
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remedies arising under this Agreement as amended from time-to-time
hereunder are cumulative and not exclusive of any other rights or remedies
which Buyer may have.
(x) In addition to its rights hereunder, Buyer shall have the right
to proceed against any assets of Seller which may be in the possession of
Buyer or its agent on Buyer's behalf including the right to liquidate such
assets and to set off the proceeds against monies owed by Seller to Buyer
pursuant to this Agreement. Buyer may set off cash, the proceeds of the
liquidation of the Purchased Mortgage Loans, any Collateral or its
proceeds, and all other sums or obligations owed by Seller to Buyer
against all of Seller's obligations to Buyer, whether under this
Agreement, under a Transaction, or under any other agreement between the
parties, or otherwise, whether or not such obligations are then due,
without prejudice to Buyer's right to recover any deficiency. Any cash,
proceeds, or property in excess of any amounts due, or which Buyer
reasonably believes may become due, to it from Seller shall be returned to
Seller after satisfaction of all obligations of Seller to Buyer.
(xi) Buyer may enforce its rights and remedies hereunder without
prior judicial process or hearing, and Seller hereby expressly waives any
defenses Seller might otherwise have to require Buyer to enforce its
rights by judicial process. Seller also waives any defense Seller might
otherwise have arising from the use of nonjudicial process, enforcement
and sale of all or any portion of the Collateral, or from any other
election of remedies. Seller recognizes that nonjudicial remedies are
consistent with the usages of the trade, are responsive to commercial
necessity and are the result of a bargain at arm's length.
(xii) Buyer and Seller hereby agree that sales of the Purchased
Mortgage Loans shall be deemed to include and permit the sales of
Purchased Mortgaged Loans pursuant to a securities offering. The net
proceeds of any such sale shall be applied to reduce the Repurchase Price
of outstanding Transactions.
(b) If an Event of Default occurs with respect to Buyer, the following
rights and remedies are available to Seller:
(i) Upon tender by Seller of payment of the aggregate Repurchase
Price for all such Transactions, Buyer's right, title and interest in all
Purchased Mortgage Loans subject to such Transactions shall be deemed
transferred to Seller, and Buyer shall deliver or cause to be transferred
all such Purchased Mortgage Loans to Seller or its designee at Buyer's
expense.
(ii) If Seller exercises the option referred to in subsection (b)(i)
of this Section and Buyer fails to deliver or cause to be delivered the
Purchased Mortgage Loans to Seller or its designee, after one Business
Day's notice to Buyer, Seller may (A) purchase Mortgage Loans
("Replacement Loans") that are as similar as is reasonably practicable in
characteristics, outstanding principal amounts (as a pool) and interest
rate to any Purchased Mortgage Loans that are not delivered by Buyer to
Seller or its designee as required hereunder or (B) in its sole discretion
elect, in lieu of purchasing Replacement Loans, to be deemed to have
purchased Replacement Loans at a price therefor on such date, equal to the
Market Value of the Purchased Mortgage Loans.
(iii) Buyer shall be liable to the Seller (A) with respect to
Purchased Mortgage Loans (other than Additional Loans), for any excess of
the price paid (or deemed paid) by Seller for Replacement Loans therefor
over the Repurchase Price for such Purchased Mortgage Loans and
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(B) with respect to Additional Loans, for the price paid (or deemed paid)
by Seller for the Replacement Loans therefor. In addition, Buyer shall be
liable to Seller for interest on such remaining liability with respect to
each such purchase (or deemed purchase) of Replacement Loans calculated on
a 360-day year basis for the actual number of days during the period from
and including the date of such purchase (or deemed purchase) until paid in
full by Buyer. Such interest shall be at the greater of the Pricing Rate
or the Prime Rate.
(iv) Buyer shall be liable to Seller for the amount of all expenses
reasonably incurred by Seller in connection with or as a consequence of an
Event of Default, including, without limitation, reasonable legal fees and
expenses and reasonable costs incurred in connection with covering
existing hedging transactions with respect to the Purchased Mortgage
Loans.
(v) Seller shall have all the rights and remedies provided herein,
provided by applicable federal, state, foreign, and local laws, in equity,
and under any other agreement between Buyer and Seller, including, without
limitation, the right to offset any debt or claim.
(vi) Seller may exercise one or more of the remedies available to
Seller immediately upon the occurrence of an Event of Default and at any
time thereafter without notice to Buyer. All rights and remedies arising
under this Agreement as amended from time-to-time hereunder are cumulative
and not exclusive of any other rights or remedies which Seller may have.
15. ADDITIONAL CONDITION
Seller shall, on the date of the initial Transaction hereunder and, upon
the request of Buyer, on the date of any subsequent Transaction, cause to be
delivered to Buyer, with reliance thereon permitted as to any Person that
purchases the Purchased Mortgage Loan from Buyer in a repurchase transaction, a
favorable opinion or opinions of counsel with respect to the matters set forth
in Exhibit IV attached hereto.
16. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereunto and will
enter into each Transaction hereunder in consideration of and in reliance upon
the fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in consideration of
the other Transactions. Accordingly, each of Buyer and Seller agrees (i) to
perform all of its obligations in respect of each Transaction hereunder, and
that a default in the performance of any such obligations shall constitute a
default by it in respect of all Transactions hereunder, (ii) that each of them
shall be entitled to set off claims and apply property held by them in respect
of any Transaction against obligations owing to them in respect of any other
Transactions hereunder and (iii) that payments, deliveries, and other transfers
made by either of them in respect of any Transaction shall be deemed to have
been made in consideration of payments, deliveries, and other transfers in
respect of any other Transactions hereunder, and the obligations to make any
such payments, deliveries, and other transfers may be applied against each other
and netted; provided, however, that the parties hereto acknowledge and agree
that each Purchased Mortgage Loan is identified and unique and nothing in this
Agreement should limit or reduce Buyer's obligation to deliver the Purchased
Mortgage Loans to Seller as and when provided herein.
17. NOTICES AND OTHER COMMUNICATIONS
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Unless another address is specified in writing by the respective party to
whom any written notice or other communication is to be given hereunder, all
such notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in the form of Confirmation set
forth in Exhibit I.
18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmation constitutes the
entire understanding between Buyer and Seller with respect to the subject matter
it covers and shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions involving
Purchased Mortgage Loans. By acceptance of this Agreement, Buyer and Seller
acknowledge that they have not made, and are not relying upon, any statements,
representations, promises or undertakings not contained in this Agreement. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.
19. NON-ASSIGNABILITY
The rights and obligations of the parties under this Agreement and under
any Transaction shall not be assigned by Seller without the prior written
consent of Buyer. Subject to the foregoing, this Agreement and any Transactions
shall be binding upon and shall inure to the benefit of the parties and their
respective successors and assigns. Nothing in this Agreement express or implied,
shall give to any person, other than the parties to this Agreement and their
successors hereunder, any benefit or any legal or equitable right, power, remedy
or claim under this Agreement.
20. TERMINABILITY
(a) This Agreement shall terminate upon the earlier of (i) the Final
Repurchase Date or (ii) written notice from Seller to Buyer to such effect
pursuant to Section 14 hereof, except that this Agreement shall, notwithstanding
the above clauses, remain applicable to any Transaction then outstanding.
(b) Buyer may, in its sole and absolute discretion, terminate this
Agreement if, within 30 days after notice from Buyer to Guarantor stating that
Buyer does not agree with the valuation (and the assumptions used to derive such
valuation) of residual certificates, interest-only certificates and other
comparable instruments with respect to securitizations of mortgage loans
included in the calculation of Tangible Net Worth as certified in the
certificate delivered to Buyer pursuant to Section 12(j)(vi), Buyer and
Guarantor do not agree on such valuation. Upon any such termination, the
Repurchase Price of all Transactions shall become immediately due and payable.
(c) Notwithstanding any termination of this Agreement or the occurrence of
an Event of Default, all of the representations and warranties hereunder
(including those made in Exhibit V) shall continue and survive.
21. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
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22. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction of
the United States District Court for the Southern District of New York, the
parties irrevocably waiving any objection thereto. If, for any reason, federal
jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction
of the Supreme Court of the State of New York, the parties irrevocably waiving
any objection thereto. Notwithstanding the foregoing two sentences, at either
party's sole option exercisable at any time not later than thirty (30) days
after an action or proceeding has been commenced, the parties agree that the
matter may be submitted to binding arbitration in accordance with the commercial
rules of the American Arbitration Association then in effect in the State of New
York and judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction thereof within the City, County and State of New
York; provided, however, that the arbitrator shall not amend, supplement, or
reform in any regard this Agreement or the terms of any Confirmation, the rights
or obligations of any party hereunder or thereunder, or the enforceability of
any of the terms hereof or thereof. Any arbitration shall be conducted before a
single arbitrator who shall be reasonably familiar with repurchase transactions
and the secondary mortgage market in the City, County, and State of New York.
23. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Any such waiver or modification shall be effective only in the
specific instance and for the specific purpose for which it was given.
24. INTENT
The parties understand and intend that this Agreement and each Transaction
hereunder constitute a "repurchase agreement" and a "securities contract" as
those terms are defined under the relevant provisions of Title 11 of the United
States Code, as amended.
25. SERVICING
(a) Notwithstanding the purchase and sale of the Purchased Mortgage Loans
hereby, Seller shall continue to service the Purchased Mortgage Loans for the
benefit of Buyer and, if Buyer shall exercise its rights to pledge or
hypothecate the Purchased Mortgage Loan prior to the related Repurchase Date
pursuant to Section 8, Buyer's assigns; provided, however, that the obligations
of Seller to service the Purchased Mortgage Loans shall cease upon the payment
by Seller to Buyer of the Repurchase Price therefor. Seller shall service the
Purchased Mortgage Loans in accordance with the servicing standards maintained
by other prudent mortgage lenders with respect to mortgage loans similar to the
Purchased Mortgage Loans.
(b) Seller agrees that Buyer is the owner of all servicing records,
including but not limited to any and all servicing agreements, files, documents,
records, data bases, computer tapes, copies of computer tapes, proof of
insurance coverage, insurance policies, appraisals, other closing documentation,
payment history records, and any other records relating to or evidencing the
servicing of Purchased Mortgage Loans (the "Servicing Records"). Seller grants
Buyer a security interest in all servicing fees
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and rights relating to the Mortgage Loans and all Servicing Records to secure
the obligation of the Seller or its designee to service in conformity with this
Section and any other obligation of Seller to Buyer. Seller covenants to, and
will cause each servicer and subservicer to, segregate such Servicing Records
from any and all servicing agreements, files, documents, records, data bases,
computer tapes, copies of computer tapes, proof of insurance coverage, insurance
policies, appraisals, other closing documentation, payment history records, and
any other records relating to or evidencing the servicing of Mortgage Loans
which are not Purchased Mortgage Loans and to safeguard such Servicing Records
and to deliver them promptly to Buyer or its designee (including the Custodian)
at Buyer's request.
(c) Upon the occurrence and continuance of an Event of Default, Buyer may,
in its sole discretion, (i) sell its right to the Purchased Mortgage Loans on a
servicing released basis or (ii) terminate the Seller as servicer of the
Purchased Mortgage Loans with or without cause, in each case without payment of
any termination fee.
(d) Seller shall not employ sub-servicers (other than an Affiliate of
Seller) to service the Purchased Mortgage Loans without the prior written
approval of Buyer.
(e) Seller shall cause any sub-servicer hereunder to execute a letter
agreement with Buyer acknowledging Buyer's security interest and agreeing that,
upon notice from Buyer (or the Custodian on its behalf) that an Event of Default
has occurred and in continuing hereunder, it shall deposit all Income with
respect to the Purchased Mortgage Loans in the account specified in the third
sentence of Section 5(a).
(f) After the occurrence of an Event of Default or a Market Value
Collateral Deficit or Securitization Value Collateral Deficit which is not cured
in accordance with Section 4, at the request of Buyer, Seller shall enter into a
master servicing agreement with Buyer and a backup servicer reasonably
acceptable to Buyer, which agreement shall be satisfactory in form and substance
to Buyer.
26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the case of
Transactions in which one of the parties is an "insured depository institution"
as that term is defined in Section 1831(a) of Title 12 of the United States
Code, as amended, funds held by the financial institution pursuant to a
Transaction hereunder are not a deposit and therefore are not insured by the
Federal Deposit Insurance Corporation, the Savings Association Insurance Fund or
the Bank Insurance Fund, as applicable.
27. NETTING
If Buyer and Seller are "financial institutions" as now or hereinafter
defined in Section 4402 of Title 12 of the United States Code ("Section 4402")
and any rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by one party to or on behalf of the
other under this Agreement or any Transaction hereunder shall be deemed to be
"payment obligations" and all amounts to be received by or on behalf of one
party from the other under this Agreement or any Transaction hereunder shall be
deemed to be "payment entitlements" within the meaning of Section 4402, and this
Agreement shall be deemed to be a "netting contract" as defined in Section 4402.
(b) The payment obligations and the payment entitlements of the parties
hereto pursuant to this Agreement and any Transaction hereunder shall be netted
as follows. In the event that either party (the "Defaulting Party") shall fail
to honor any payment obligation under this Agreement or any
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Transaction hereunder, the other party (the "Nondefaulting Party") shall be
entitled to reduce the amount of any payment to be made by the Nondefaulting
Party to the Defaulting Party by the amount of the payment obligation that the
Defaulting Party failed to honor.
28. MISCELLANEOUS
(a) Time is of the essence under this agreement and all Transactions and
all references to a time shall mean New York time in effect on the date of the
action unless otherwise expressly stated in this Agreement.
(b) Buyer shall be authorized to accept orders and take any other action
affecting any accounts of the Seller in response to instructions given in
writing by any authorized officer of Seller listed on Exhibit VI hereto, as such
list may be amended in writing from time to time. Seller shall indemnify Buyer,
defend, and hold Buyer harmless from and against any and all liabilities,
losses, damages, costs, and expenses of any nature arising out of or in
connection with any action taken by Buyer in response to such instructions
received or reasonably believed to have been received from such authorized
officers of Seller.
(c) If there is any conflict between the terms of this Agreement or any
Transaction entered into hereunder and the Custodial Agreement, this Agreement
shall prevail.
(d) If there is any conflict between the terms of a Confirmation or a
corrected Confirmation issued by the Buyer and this Agreement, the Confirmation
shall prevail.
(e) This Agreement may be executed in counterparts, each of which so
executed shall be deemed to be an original, but all of such counterparts shall
together constitute but one and the same instrument.
(f) Seller agrees to reimburse Buyer for all reasonable costs and expenses
of Buyer in connection with this Agreement including, without limitation, the
fees, expenses and disbursement of outside counsel to Buyer and due diligence
expenses and on-going auditing fees not to exceed $25,000 per year.
(g) Seller and Buyer agree to maintain the confidentiality of this
Agreement and its terms and agree not to disclose this Agreement or its terms to
any other party except as required for the enforcement of its terms or as
required by law, regulatory requirements or court order or discovery. In the
event Seller determines that the Agreement must be filed with the Securities and
Exchange Commission pursuant to applicable law, such filing may only be made
after consultation with Buyer and upon redaction of the Pricing Spread.
(h) The headings in this Agreement are for convenience of reference only
and shall not affect the interpretation or construction of this Agreement.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date set forth above.
LEHMAN COMMERCIAL PAPER INC., as Buyer
By:
----------------------------
Name:
Title:
AAMES CAPITAL CORPORATION, as Seller
By:
----------------------------
Name:
Title:
<PAGE>
EXHIBITS
EXHIBIT I Confirmation
EXHIBIT II Form of Custodial Delivery
EXHIBIT III Form of Power of Attorney
EXHIBIT IV Opinion of Counsel to Seller
EXHIBIT V Representations and Warranties Regarding Mortgage Loan
EXHIBIT VI Authorized Officers of Seller
<PAGE>
EXHIBIT I
Form of Confirmation Letter
(date)
Aames Capital Corporation
350 South Grand Avenue
Los Angeles, California 90071
Attention:
Confirmation No.: _____________________
Ladies/Gentlemen:
This letter confirms our agreement to purchase from you the Mortgage Loans
listed in Appendix I hereto, pursuant to the Second Amended and Restated Master
Repurchase Agreement Governing Purchases and Sales of Mortgage Loans between us,
dated as of April 28, 2000 (the "Agreement"), as follows:
Purchase Date:
Mortgage Loans to be Purchased: See Appendix I hereto.(1)
Aggregate Principal Amount of Purchased Mortgage Loans:
Purchase Price:
Pricing Rate:
Repurchase Date:
Repurchase Price:
Collateral Amount Percentage with respect to Market Value:
Collateral Amount Percentage with respect to Securitization Value:
Names and addresses for communications:
Buyer:
Lehman Commercial Paper Inc.
200 Vesey Street
9th Floor
New York, New York 10285-0900
Attention: Central Funding Department
- ---------------------------
(1) Appendix I to Confirmation Letter will list Mortgage Loans.
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Seller:
Aames Capital Corporation
350 South Grand Avenue
Los Angeles, California 90071
Attention: Michelle Treasure, Finance Department
LEHMAN COMMERCIAL PAPER INC., as Buyer
By: ______________________________
Name:
Title:
Agreed and Acknowledged:
AAMES CAPITAL CORPORATION, as Seller
By: ______________________________
Name:
Title:
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EXHIBIT II
Form of Custodial Delivery
4
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EXHIBIT III
Form of Power of Attorney
"Know All Men by These Presents, that Aames Capital Corporation
("Seller"), does hereby appoint Lehman Commercial Paper Inc. ("Buyer"), its
attorney-in-fact to act in Seller's name, place and stead in any way which
Seller could do with respect to (i) the completion of the endorsements of the
Mortgage Notes and the Assignments of Mortgages, (ii) the recordation of the
assignments of Mortgages and (iii) the enforcement of the Seller's rights under
the Mortgage Loans purchased by Buyer pursuant to a Second Amended and Restated
Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans
dated as of April 28, 2000 between Seller and Buyer and to take such other steps
as may be necessary or desirable to enforce Buyer's rights against such Mortgage
Loans, the related Mortgage Files and the Servicing Records to the extent that
Seller is permitted by law to act through an agent.
TO INDUCE ANY THIRD PARTY TO ACT HEREUNDER, SELLER HEREBY AGREES THAT ANY
THIRD PARTY RECEIVING A DULY EXECUTED COPY OR FACSIMILE OF THIS INSTRUMENT MAY
ACT HEREUNDER, AND THAT REVOCATION OR TERMINATION HEREOF SHALL BE INEFFECTIVE AS
TO SUCH THIRD PARTY UNLESS AND UNTIL ACTUAL NOTICE OR KNOWLEDGE OF SUCH
REVOCATION OR TERMINATION SHALL HAVE BEEN RECEIVED BY SUCH THIRD PARTY, AND
SELLER ON ITS OWN BEHALF AND ON BEHALF OF SELLER'S ASSIGNS, HEREBY AGREES TO
INDEMNIFY AND HOLD HARMLESS ANY SUCH THIRD PARTY FROM AND AGAINST ANY AND ALL
CLAIMS THAT MAY ARISE AGAINST SUCH THIRD PARTY BY REASON OF SUCH THIRD PARTY
HAVING RELIED ON THE PROVISIONS OF THIS INSTRUMENT.
IN WITNESS WHEREOF Seller has caused this Power of Attorney to be executed
and the Seller's seal to be affixed this 28th day of April, 2000.
AAMES CAPITAL CORPORATION, as Seller
By: ______________________________
Name:
Title:
(Seal)
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EXHIBIT IV
Opinion Of Seller's Counsel
1. Seller is duly organized and validly existing as a corporation in good
standing under the laws of California and has power and authority to enter into
and perform its obligations under the Agreement and the Custodial Agreement.
Seller is duly qualified to do business and is in good standing in each
jurisdiction in which the character of the business transacted by it requires
such qualification and in which the failure so to qualify would have a material
adverse effect on the business, properties, assets or condition (financial or
other) of Seller and its subsidiaries, considered as a whole.
2. The Agreement and the Custodial Agreement have each been duly
authorized, executed and delivered by Seller, and each constitutes a valid and
legally binding obligation of Seller enforceable against Seller in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights generally and to general equity principles.
3. No consent, approval, authorization or order of any state or federal
court or government agency or body is required to be obtained by Seller for the
consummation of the transactions contemplated by the Agreement or the Custodial
Agreement.
4. The consummation of any of the transactions contemplated by the
Agreement and the Custodial Agreement will not conflict with, result in a breach
of, or constitute a default under the charter or bylaws of Seller or the terms
of any indenture or other agreement or instrument known to us to which Seller is
party or bound, or any order known to such counsel to be applicable to Seller or
any regulations applicable to Seller, of any state or federal court, regulatory
body, administrative agency, governmental body or arbitrator having jurisdiction
over Seller.
5. There is no pending or, to such counsel's knowledge, threatened action,
suit or proceeding before any court or governmental agency, authority or body or
any arbitrator involving Seller or relating to the transactions contemplated by
the Agreement or the Custodial Agreement which, if adversely determined, would
have a material adverse effect on Seller.
6. The Agreement together with (a) the delivery of such related Mortgage
Loans to Custodian; (b) the endorsement of such Mortgage Loans in blank; and (c)
the delivery of the assignments of Mortgages related to the Mortgage Loans to
the Custodian in recordable form assigning such Mortgages to Custodian, creates
a valid, perfected security interest in such Mortgage Loans in favor of Buyer.
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EXHIBIT V
Representations and Warranties Regarding Mortgage Loans
The Seller represents and warrants to the Buyer that, with respect to each
Mortgage Loan sold in a Transaction hereunder, as of the related Purchase Date:
(a) Mortgage Loans as Described. The information set forth in the Mortgage
Loan Schedule is complete, true and correct in all material respects.
(b) Payments Current Within 59 Days; Delinquency. The Mortgage Loan (i)
together with the other Purchased Mortgage Loans subject to Transactions, would
not cause the 30+ Delinquency Percentage for all Mortgage Loans to exceed 3% and
(ii) is not more than 59 days Delinquent.
(c) No Outstanding Charges. There are no defaults in complying with the
terms of the Mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground rents
which previously became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and payable.
Seller has not advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the Mortgagor, directly or indirectly,
for the payment of any amount required under the Mortgage Loan, except for
interest accruing from the date of the Mortgage Note or date of disbursement of
the Mortgage Loan proceeds, whichever is greater, to the day which precedes by
one month the due date of the first installment of principal and interest.
(d) Original Terms Unmodified. The terms of the Mortgage Note and Mortgage
have not been impaired, waived, altered or modified in any respect, except by a
written instrument which has been recorded, if necessary to protect the
interests of Buyer and which has been delivered to Buyer or its designee
(including the Custodian). The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the policy, and its terms are reflected on the Mortgage Loan Schedule. No
Mortgagor has been released, in whole or in part, except in connection with an
assumption agreement approved by the title insurer, and which assumption
agreement is included in the Mortgage File delivered to Buyer or its designee
(including the Custodian) and the terms of which are reflected in the Mortgage
Loan Schedule.
(e) No Defenses. The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including without limitation the
defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in part, or subject to
any right of rescission, set-off, counterclaim or defense, including without
limitation the defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto.
(f) Insurance Policies in Effect. The fire and casualty insurance policy
covering the Mortgaged Property (1) affords (and will afford) sufficient
insurance against fire and such other risks as are usually insured against in
the broad form of extended coverage insurance from time to time available, as
well as insurance against flood hazards if the Mortgaged Property is an area
identified by the Federal Emergency Management Agency as having special flood
hazards; (2) is a standard policy of insurance for the locale where the
Mortgaged Property is located, is in full force and effect, and the amount of
the insurance is in the amount of the full insurable value of the Mortgaged
Property on a replacement cost
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basis or the unpaid balance of the Mortgage Loans, whichever is less; (3) names
(and will name) the present owner of the Mortgaged Property as the insured; and
(4) contains a standard mortgagee loss payable clause in favor of Seller. All
individual insurance policies with respect to the Mortgage Loan are the valid
and binding obligation of the insurer and contain a standard mortgage clause
naming Seller, its successors and assigns, as Mortgagee. All premiums thereon
have been paid. The Mortgage obligates the Mortgagor thereunder to maintain all
such insurance policies at the Mortgagor's cost and expense, and upon the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain
and maintain such insurance at the Mortgagor's cost and expense and to seek
reimbursement therefor from the Mortgagor.
(g) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the origination and
servicing of the Mortgage Loan have been complied with, and Seller shall
maintain in its possession, available for Buyer's inspection, and shall deliver
to Buyer upon demand, evidence of compliance with all such requirements.
(h) No Satisfaction of Mortgage. The Mortgage has not been satisfied,
canceled, subordinated or rescinded, in whole or in part, and the Mortgaged
Property has not been released from the lien of the Mortgage, in whole or in
part, nor has any instrument been executed that would effect any such release,
cancellation, subordination or rescission.
(i) Location and Type of Mortgaged Property. The Mortgaged Property is
located in the state identified in the Mortgage Loan Schedule and consists of a
parcel of real property with a detached single family residence erected thereon,
or a two- to four-family dwelling, or an individual condominium unit in a
condominium project, or an individual unit in a planned unit development and no
residence or dwelling is a mobile home or a manufactured dwelling (other than a
mobile home or a manufactured dwelling permanently affixed to real property). No
portion of the Mortgaged Property is used for commercial purposes (except for
home offices).
(j) Valid First or Second Lien. The Mortgage is a valid, subsisting and
enforceable first or second lien on the Mortgaged Property, including all
buildings on the Mortgaged Property and all installations and mechanical,
electrical, plumbing, heating and air conditioning systems located in or annexed
to such buildings, and all additions, alterations and replacements made at any
time with respect to the foregoing. The lien of the Mortgage is subject only to:
(i) the lien of current real property taxes and special assessments
not yet due and payable;
(ii) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of
recording acceptable to mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy delivered
to the originator of the Mortgage Loan and (i) referred to or otherwise
considered in the appraisal made for the originator of the Mortgage Loan
or (ii) which do not adversely affect the appraised value of the Mortgaged
Property set forth in such appraisal;
(iii) in the case of a Mortgaged Property that is a condominium or
an individual unit in a planned unit development, liens for common charges
permitted by statute;
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(iv) in the case where the Mortgage Loan is secured by a second
mortgage lien on the Mortgaged Property (and represented on the Mortgage
Loan Schedule as such), the lien of the First Mortgage; and
(v) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security
intended to be provided by the mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document related to
and delivered in connection with the Mortgage Loan establishes and creates a
valid, subsisting and enforceable first or second lien and first or second
priority security interest on the property described therein and Seller has full
right to pledge and assign the same to Buyer or its designee (including the
Custodian).
(k) Validity of Mortgage Documents. The Mortgage Note and the Mortgage are
genuine, and each is the legal, valid and binding obligation of the maker
thereof enforceable in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditor's
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law.) All parties to
the Mortgage Note and the Mortgage had legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note and the Mortgage, and the
Mortgage Note and the Mortgage have been duly and properly executed by such
parties. The Mortgagor is a natural person or living trust who is a party to the
Mortgage Note and the Mortgage in an individual or trustee capacity,
respectively.
(l) Full Disbursement of Proceeds. The proceeds of the Mortgage Loan have
been fully disbursed and there is no requirement for future advances thereunder,
and any and all requirements as to completion of any on-site or off-site
improvement and as to disbursements of any escrow funds therefor have been
complied with, except with respect to the proceeds of a Q-1 Loan; provided, that
the Purchase Price of such Q-1 Loan, together with the aggregate Purchase Price
for all such Q-1 Loans subject to then outstanding Transactions does not exceed
5% of the aggregate Purchase Price for all Purchased Mortgage Loans subject to
then outstanding Transactions (after giving effect to the purchase of such Q-1
Loan). All costs, fees and expenses incurred in making or closing the Mortgage
Loan and the recording of the Mortgage were paid, and the Mortgagor is not
entitled to any refund of any amounts paid or due under the Mortgage Note or
Mortgage.
(m) Ownership. Seller is the sole owner of record and holder of the
Mortgage Loan. The Mortgage Loan is not assigned or pledged except as provided
in this Agreement, and Seller has good and marketable title thereto, and has
full right to pledge and assign the Mortgage Loan to Buyer or its designee
(including the Custodian) free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security interest, and
has full right and authority subject to no interest or participation of, or
agreement with, any other party, to sell and assign each Mortgage Loan pursuant
to this Agreement.
(n) Doing Business. All parties which have had any interest in the
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (2) organized under the
laws of such state, or (3) qualified to do business in such state, or (4)
federal savings and loan associations or national banks having principal offices
in such state, or (5) not doing business in such state.
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(o) Loan-to-Value Ratio. The Mortgage Loans subject to Transactions do not
have a weighted average cumulative Loan-to-Value Ratio in excess of 85%. If a
Mortgage Loan has a Loan-to-Value Ratio greater than 90% and less than 95% or
equal to or greater than 95% and less than or equal to 100%, the Purchase Price
of such Mortgage Loan together with the Purchase Price of Purchased Mortgage
Loans secured by a first or a second lien on the related Mortgaged Properties
subject to then outstanding Transactions having a Loan-to-Value Ratio greater
than 90% and less than 95% or equal to or greater than 95% and less than or
equal to 100% does not, in either case, exceed the greater of (x) 3% of the
aggregate Purchase Price for all Mortgage Loans which are subject to then
outstanding Transactions and (y) $5,000,000.
(p) Title Insurance. The Mortgage Loan is covered by an ALTA mortgage
title insurance policy or such other form of policy acceptable to FNMA or FHLMC,
issued by and constituting the valid and binding obligation of a title insurer
generally acceptable to prudent mortgage lenders that regularly originate or
purchase mortgage loans comparable to the Mortgage Loans for sale to prudent
investors in the secondary market that invest in mortgage loans such as the
Mortgage Loans and qualified to do business in the jurisdiction where the
Mortgaged Property is located, insuring Seller, its successors and assigns, as
to the first priority lien of the Mortgage in the case of a First Mortgage Loan
secured by a First Mortgage and the second priority lien of the Mortgage in the
case of a Mortgage Loan secured by a second lien on the related Mortgaged
Property, in the original principal amount of the Mortgage Loan. Seller is the
sole named insured of such mortgage title insurance policy, the assignment to
Buyer or the Custodian as assignee of Buyer of Seller's interest in such
mortgage title insurance policy does not require the consent of or notification
to the insurer or the same has been obtained, and such mortgage title insurance
policy is in full force and effect and will be in full force and effect and
inure to the benefit of Buyer upon the consummation of the transactions
contemplated by this Agreement. No claims have been made under such mortgage
title insurance policy and no prior holder of the related Mortgage, including
Seller, has done, by act or omission, anything that would impair the coverage of
such mortgage title insurance policy.
(q) No Defaults. Other than a payment default, there is no default,
breach, violation or event of acceleration existing under the Mortgage or the
Mortgage Note and no event which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration, and neither Seller nor its predecessors have
waived any default, breach, violation or event of acceleration.
(r) No Mechanics' Liens. There are no mechanics' or similar liens or
claims which have been filed for work, labor or material (and no rights are
outstanding that under the law could give rise to such liens) affecting the
Mortgaged Property which are or may be liens prior to, or equal or coordinate
with, the lien of the Mortgage.
(s) Location of Improvements; No Encroachments. All improvements which
were considered in determining the appraised value of the mortgaged property lay
wholly within the boundaries and building restriction lines of the mortgaged
property and no improvements on adjoining properties encroach upon the mortgaged
property. No improvement located on or being part of the mortgaged property is
in violation of any applicable zoning law or regulation.
(t) Origination. The Mortgage Loan was originated by Seller, an affiliate
of Seller or by an originator not affiliated with the Seller licensed to
originate such Mortgage Loan. The documents, instruments and agreements
submitted for loan underwriting were not falsified and contain no untrue
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<PAGE>
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the information and statements therein not
misleading.
(u) Customary Provisions. The Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the benefits of
the security provided thereby, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial
foreclosure. There is no homestead or other exemption available to a Mortgagor
which would interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage.
(v) Occupancy of the Mortgaged Property. As of the related Purchase Date
the Mortgaged Property is capable of being lawfully occupied under applicable
law. All inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of the Mortgaged Property and, with
respect to the use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities. Either that the Mortgagor represented
at the time of origination of the Mortgage Loan that the Mortgagor would occupy
the Mortgaged Property as the Mortgagor's primary residence or second home or
the Mortgaged Property is capable of being occupied pursuant to terms that
approximate current standard market rental terms and rates.
(w) No Additional Collateral. The Mortgage Note is not and has not been
secured by any collateral except the lien of the corresponding Mortgage and the
security interest of any applicable security agreement or chattel mortgage
referred to in (j) above.
(x) Deeds of Trust. In the event the Mortgage constitutes a deed of trust,
a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or will become payable by Buyer to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Mortgagor.
(y) Acceptable Investment. Seller has no knowledge of any circumstances or
conditions with respect to the Mortgage, the Mortgaged Property, the Mortgagor
(other than the Mortgagor's credit standing) that can reasonably be expected to
cause private institutional investors that regularly invest in subprime or high
loan-to-value mortgage loans similar to the Mortgage Loans to regard the
Mortgage Loan as an unacceptable investment or adversely affect the value or
marketability of the Mortgage Loan to other similar institutional investors.
(z) Purchase of Mortgage Documents. The Mortgage File and any other
documents required by Buyer to be delivered for the Mortgage Loan by Seller
under this Agreement have been delivered (or with respect to Wet Ink Mortgage
Loans, will be delivered within seven Business Days) to the Custodian. Seller is
in possession of a complete, true and accurate Mortgage File except for such
documents the originals of which have been delivered to the Buyer or its
designee (including the Custodian). Each of the documents and instruments
included in the Mortgage File is duly executed and in due and proper form and
each such document or instrument is in a form generally acceptable to prudent
institutional mortgage lenders that regularly originate and purchase subprime or
high loan-to-value mortgage loans.
(aa) Condominiums/Planned Unit Developments. If the Mortgaged Property is
a condominium unit or a planned unit development (other than a de minimus
planned unit development) such condominium or planned unit development project
meets Seller's Underwriting Guidelines.
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<PAGE>
(bb) Transfer of Mortgage Loans. The assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located.
(cc) Due on Sale. The Mortgage contains an enforceable provision for the
acceleration of the payment of the unpaid principal balance of the Mortgage Loan
in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the Mortgagee thereunder.
(dd) No Buydown Provisions; No Graduated Payments or Contingent Interests.
The Mortgage Loan does not contain provisions pursuant to which monthly payments
are paid or partially paid with funds deposited in any separate account
established by Seller, the Mortgagor or anyone on behalf of the mortgagor, or
paid by any source other than the Mortgagor nor does it contain any other
similar provisions currently in effect which may constitute a "buydown"
provision. The Mortgage Loan is not a graduated payment mortgage loan and the
Mortgage Loan does not have a shared appreciation or other contingent interest
feature.
(ee) Consolidation of Future Advances. Any future advances made prior to
the Purchase Date have been consolidated with the outstanding principal amount
secured by the Mortgage, and the secured principal amount, as consolidated,
bears a single interest rate and single repayment term. The lien of the Mortgage
securing the consolidated principal amount is expressly insured as having first
or second lien priority, as the case may be, by a title insurance policy or an
endorsement to the policy insuring the mortgagee's consolidated interest. The
consolidated principal amount does not exceed the original principal amount of
the Mortgage Loan.
(ff) Mortgaged Property Undamaged. There is no proceeding pending or, to
Seller's knowledge, threatened for the total or partial condemnation of the
Mortgaged Property. The Mortgaged Property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or other casualty so as
to affect adversely the value of the Mortgaged Property as security for the
Mortgage Loan or the use for which the premises were intended.
(gg) Collection Practices; Escrow Deposits; Interest Rate Adjustments. The
origination and collection practices used with respect to the Mortgage Loan have
been in all respects in accordance with industry custom and practice, and have
been in all respects legal and proper. With respect to escrow deposits and
escrow payments, all such payments are in the possession of Seller and there
exist no deficiencies in connection therewith for which customary arrangements
for repayment thereof have not been made. All escrow payments have been
collected in full compliance with state and federal law. If an escrow of funds
has been established, it is not prohibited by applicable law and has been
established in an amount sufficient to pay for every item that remains unpaid
and has been assessed but is not yet due and payable. No escrow deposits or
escrow payments or other charges or payments due Seller have been capitalized
under the Mortgage or the Mortgage Note. All mortgage interest rate adjustments
have been made in strict compliance with state and federal law and the terms of
the related Mortgage Note. Any interest required to be paid pursuant to state
and local law has been properly paid and credited.
(hh) Conversion to Fixed Interest Rate. With respect to the aggregate
outstanding principal balance of the Mortgage Loans on the related Purchase
Date, no more than 50% of the Mortgage Notes contain a provision allowing the
Mortgagor to convert the Mortgage Note from an adjustable interest rate Mortgage
Note to a fixed interest rate Mortgage Note for the remaining term thereof all
in accordance with the terms of a rider to the related Mortgage Note.
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<PAGE>
(ii) Appraisal. The Mortgage File for each Mortgage Loan contains an
appraisal of the related Mortgaged Property signed prior to the approval of the
Mortgage Loan application by a qualified appraiser, duly appointed by the
originator of the Mortgage Loan, who had no interest, direct or indirect in the
mortgaged property or in any loan made on the security thereof, other than as an
employee of the lender, and whose compensation is not affected by the approval
or disapproval of the Mortgage Loan, and the appraisal and appraiser both
satisfy the requirements of Title XI of the Federal Institutions Reform,
Recovery, and Enforcement Act of 1989 and the regulations promulgated
thereunder, all as in effect on the date the Mortgage Loan was originated.
(jj) Soldiers' and Sailors' Relief Act. The Mortgagor has not notified
Seller, and Seller has no knowledge of any relief requested or allowed to the
Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(kk) Environmental Matters. To the best of Seller's knowledge based on
customary residential mortgage industry practices the mortgaged Property is free
from any and all toxic or hazardous substances and there exists no violation of
any local, state or federal environmental law, rule or regulation.
(ll) Seller Origination The Mortgage Loan was originated by Seller or an
Affiliate of Seller or was purchased and reunderwritten by Seller.
(mm) Balloon Mortgage Loans. Each Balloon Mortgage Loan has an original
term of not less than 7 years and which provides for level monthly payments
based on a thirty (30) year amortization schedule and a final Monthly Payment
substantially greater than the preceding Monthly Payments.
(nn) No Construction Loans. No Mortgage Loan is a construction loan or
relates to manufactured housing which is not permanently affixed to real
property.
(oo) Selection by Seller. No Mortgage Loan was selected for inclusion
under this Agreement on any basis which was intended to have a material adverse
effect on Buyer.
(pp) Second Mortgages. With respect to each Mortgage Loan secured by a
second lien on the related Mortgaged Property:
(i) if the Loan-to-Value Ratio is higher than 70%, either the
related first lien does not provide for a balloon payment or the maturity
date of each Mortgage Loan with respect to which a first lien on the
related Mortgaged Property provides for a balloon payment is prior to the
maturity date of the mortgage loan relating to such first lien;
(ii) the related first lien on any Mortgaged Property with respect
to which the related Mortgage Loan secured by a second lien does not
provide for negative amortization;
(iii) either no consent for the Mortgage Loan secured by a second
lien on the related Mortgaged Property is required by the holder of the
related first lien or such consent has been obtained and is contained in
the Mortgage File;
(iv) the related first lien is not held by an individual;
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<PAGE>
(v) the Purchase Price of such Mortgage Loan together with the
Purchase Price of Purchased Mortgage Loans subject to then outstanding
Transactions secured by a second lien on the related Mortgaged Properties
does not exceed 10% of the aggregate Purchase Price for all Mortgage Loans
subject to then outstanding Transactions.
(qq) CERCLA. To the best of the Seller's knowledge, no Mortgaged Property
was, as of the Purchase Date or, with respect to Additional Loans or Substitute
Mortgage Loans, as of the related date of addition or substitution, located
within a one-mile radius of any site listed in the National Priorities List as
defined under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or on any similar state list of hazardous
waste sites which are known to contain any hazardous substance or hazardous
waste.
(rr) No Bankruptcy of Mortgagor. None of the Mortgage Loans are subject to
a bankruptcy plan.
(ss) Conformance to Underwriting Standards. Each Mortgage Loan was
underwritten in accordance with the underwriting guidelines supplied to Buyer by
Seller.
(tt) Qualified Mortgage. Each Mortgage Loan constitutes a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code.
(uu) Balloon Loan Concentration. If the Mortgage Loan is a Balloon Loan,
it, together with the other Purchased Mortgage Loans which are Balloon Loans
subject to Transactions, constitutes less than 10% of the aggregate outstanding
Repurchase Price of all Purchased Mortgage Loans subject to Transactions.
(vv) No Short Maturity Balloon Loans. The Mortgage Loan is not a Balloon
Loan with a maturity date occurring within five years from its origination date
of the related Purchase Date.
(ww) Owner Occupied. In the event the Purchased Mortgage Loan relates to a
Mortgaged Property which is non-owner occupied, it, together with the other
Purchased Mortgage Loans subject to Transactions relating to Mortgaged
Properties which are non-owner occupied, does not exceed 20% of the aggregate
outstanding Repurchase Price of all Purchased Mortgage Loans subject to
Transactions.
(xx) Payment Terms. With respect to adjustable rate Mortgage Loans,
following any applicable initial fixed rate period of 2, 3 or 5 years, the
mortgage interest rate is adjusted annually or semi-annually on each interest
rate adjustment date to equal the index plus the gross margin, rounded up or
down to the nearest 1/8%, subject to the mortgage interest rate cap. With
respect to fixed rate Mortgage Loans, the mortgage note is payable each month in
equal monthly installments of principal and interest. With respect to adjustable
rate Mortgage Loans, installments of interest are subject to change due to the
adjustments to the mortgage interest rate on each interest rate adjustment date,
with interest calculated and payable in arrears, sufficient to amortize the
Mortgage Loan fully by the stated maturity date, over an original term of not
more than thirty years from commencement of amortization.
(yy) Securitization Standards. Each of the Mortgage Loans conforms to the
then current standards of securitization applicable to similar assets as
determined in the reasonable judgment of Buyer.
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(zz) Wet Ink Mortgage Loans. The Purchase Price of a Wet Ink Mortgage Loan
together with the Purchase Price of Purchased Mortgage Loans which are Wet Ink
Mortgage Loans does not exceed, during the first and last week of each month,
$70,000,000 and, at all other times, $35,000,000.
(aaa) A-MI Loan Concentration. If the Mortgage Loan is an A-MI Loan, it,
together with the other Purchased Mortgage Loans which are A-MI Loans subject to
the Transactions, constitutes the lesser of (i) 20% of the aggregate outstanding
Repurchase Price of all Purchased Mortgage Loans subject to the Transactions or
(ii) $65,000,000.
It is understood and agreed that the representations and warranties set
forth in this Exhibit V shall survive delivery of the respective Mortgage Files
to the Custodian on behalf of Buyer.
15
<PAGE>
EXHIBIT VI
DESCRIPTION OF MGIC'S A-PROGRAM UNDERWRITING CRITERIA
16
<PAGE>
GUARANTY
This GUARANTY, dated as of April 28, 2000, is made by AAMES FINANCIAL
CORPORATION, a corporation organized under the laws of the State of Delaware
("Guarantor"), in favor of LEHMAN COMMERCIAL PAPER INC., a corporation organized
under the laws of the State of New York ("Lehman").
As an inducement to and in consideration for Lehman to enter into the
Second Amended and Restated Master Repurchase Agreement Governing Purchases and
Sales of Mortgage Loans dated as of the date hereof (the "Repurchase Agreement")
between Lehman and Aames Capital Corporation, a wholly-owned subsidiary of the
Guarantor ("Aames"), the Guarantor hereby unconditionally and irrevocably
guarantees the punctual payment and performance when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of Aames now or
hereafter existing under the Repurchase Agreement (such obligations being the
"Obligations"), and agree to pay any and all expenses incurred by Lehman in
enforcing any rights under this Guaranty. This Guaranty is a guaranty of payment
and not of collection. Lehman shall not be required to exhaust any right to
remedy or take any action against Aames, any guarantor, any other person, any
collateral or any credit support.
The Guarantor guarantees that the Obligations will be paid or performed
strictly in accordance with their terms. The liability of the Guarantor under
this Guaranty shall be absolute and unconditional irrespective of any defense
whatsoever available to Aames or a guarantor, including but not limited to the
following: (a) any lack of validity or enforceability or any Obligation or any
agreement or instrument related thereto; (b) any change in the time, manner or
place of payment or performance of, or in any term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to the departure
from any Obligation or any agreement or instrument related thereto; (c) any
exchange, release or non-perfection of any collateral, or any release or
amendment or waiver of or consent to departure from any other guaranty, for all
or any of the Obligations; or (d) any law, regulation or order of any
jurisdiction affecting or purporting to affect any terms of any Obligation or of
any agreement or instrument relating thereto or any of Lehman's rights with
respect thereto (including, without limitation, any stay imposed by the Federal
bankruptcy laws).
This Guaranty is a continuing guaranty and shall remain in full force and
effect until the Obligations have been paid in full.
The Guarantor hereby waives promptness, diligence, notice of acceptance
and any other notice with respect to any of the Obligations or this Guaranty.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if any payment of any of the Obligations is rescinded or must otherwise be
returned by Lehman upon the insolvency, bankruptcy or reorganization of Aames or
otherwise, all as though such payment had not been made.
The Guarantor will not exercise any rights which it may acquire by way of
subrogation under this Guaranty, by any payment made hereunder or otherwise,
until all the Obligations shall have been paid in full. If any amount shall be
paid to the Guarantor on account of such subrogation rights at any time when all
the Obligations shall not have been paid in full, such amount shall be held in
trust for the benefit of Lehman and shall forthwith be paid to Lehman to be
applied to the Obligations, whether matured or unmatured, in accordance with the
terms of such Obligations and any related agreement or instrument.
<PAGE>
Any and all payments made by the Guarantor hereunder shall be made free
and clear of and without deduction from any and all present and future taxes,
levies, deductions, charges or withholdings and all liabilities with respect
thereof, excluding taxes imposed on Lehman's income and franchise taxes imposed
on Lehman by the jurisdiction under which Lehman is organized.
All notices hereunder shall be in writing and sent or delivered:
if to Lehman:
c/o Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Fred Madonna
if to the Guarantor:
350 South Grand Avenue
Los Angeles, California 90071
Attention: ______________
or to either party at such other address(es) as may be specified in a written
notice given in accordance herewith.
This Guaranty shall be binding upon the Guarantor, its successors and
assigns, and shall inure to the benefit of and be enforceable by Lehman and its
successors, transferees and assigns.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS (OTHER THAN CONFLICTS LAWS) OF THE STATE OF NEW YORK.
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IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its duly authorized officers as of the date first
above written.
AAMES FINANCIAL CORPORATION
By: _________________________________
Name:
Title:
3
<PAGE>
Exhibit 10.27
EXECUTION COPY
- --------------------------------------------------------------------------------
WAREHOUSE LOAN AND SECURITY AGREEMENT
---------------------------
Dated as of February 10, 2000
---------------------------
AAMES CAPITAL CORPORATION
as a Borrower
and
AAMES FUNDING CORPORATION
as a Borrower
and
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
as Lender
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions and Accounting Matters...............................1
1.01 Certain Defined Terms..........................................1
1.02 Accounting Terms and Determinations...........................19
Section 2. Advances, Note and Prepayments..................................19
2.01 Advances......................................................19
2.02 Notes.........................................................20
2.03 Procedure for Borrowing.......................................21
2.04 Limitation on Types of Advances; Illegality...................22
2.05 Repayment of Advances; Interest. ............................22
2.06 Mandatory Prepayments or Pledge; Request for Release..........23
2.07 Optional Prepayments. .......................................23
2.08 Requirements of Law...........................................24
2.09 Renewal of Termination Date...................................25
Section 3. Payments; Computations; Taxes...................................25
3.01 Payments......................................................25
3.02 Computations..................................................26
3.03 [Intentionally Omitted].......................................26
3.04 Release Fee...................................................26
3.05 Application of Collections....................................26
3.06 Reamortization of Tranche B...................................27
Section 4. Collateral Security.............................................27
4.01 Collateral; Security Interest.................................27
4.02 Further Documentation.........................................29
4.03 Changes in Locations, Name, etc...............................29
4.04 Lender's Appointment as Attorney-in-Fact......................30
4.05 Performance by Lender of either Borrower's Obligations........31
4.06 Proceeds......................................................31
4.07 Remedies......................................................31
4.08 Limitation on Duties Regarding Presentation of Collateral.....32
4.09 Powers Coupled with an Interest...............................33
4.10 Release of Security Interest..................................33
Section 5. Conditions Precedent............................................33
5.01 Initial Advance...............................................33
5.02 Initial and Subsequent Advances...............................35
Section 6. Representations and Warranties..................................37
6.01 Existence.....................................................37
6.02 Financial Condition...........................................37
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6.03 Litigation....................................................37
6.04 No Breach.....................................................37
6.05 Action........................................................38
6.06 Approvals.....................................................38
6.07 Margin Regulations............................................38
6.08 Taxes.........................................................38
6.09 Investment Company Act........................................38
6.10 No Legal Bar..................................................38
6.11 No Default....................................................38
6.12 Collateral; Collateral Security. ............................39
6.13 Chief Executive Office; Chief Operating Office................39
6.14 Location of Books and Records.................................39
6.15 Ownership by Aames Capital of the Pledged Securities..........39
6.16 True and Complete Disclosure..................................39
6.17 Tangible Net Worth; Liquidity.................................40
6.18 ERISA.........................................................40
6.19 Licenses......................................................40
6.20 Relevant States...............................................40
6.21 True Sales....................................................40
6.22 No Burdensome Restrictions....................................40
6.23 Subsidiaries..................................................40
6.24 Origination and Acquisition of Mortgage Loans.................41
6.25 No Adverse Selection..........................................41
6.26 Borrowers Solvent; Fraudulent Conveyance......................41
6.27 Representations as to each Pooling and Servicing Agreement....41
Section 7. Covenants of the Borrowers......................................41
7.01 Financial Statements..........................................41
7.02 Litigation....................................................43
7.03 Existence, Etc................................................44
7.04 Prohibition of Fundamental Changes............................44
7.05 Borrowing Base Deficiency.....................................44
7.06 Notices.......................................................44
7.07 Servicing.....................................................45
7.08 Underwriting Guidelines.......................................45
7.09 Lines of Business.............................................45
7.10 Transactions with Affiliates..................................45
7.11 Application of Funding........................................46
7.12 Limitation on Liens...........................................46
7.13 Limitation on Sale of Assets. ...............................46
7.14 Limitation on Distributions...................................46
7.15 Maintenance of Liquidity......................................46
7.16 Maintenance of Tangible Net Worth.............................46
7.17 Committed Warehouse Facilities................................46
7.18 [Intentionally Omitted].......................................46
7.19 Servicing Transmission........................................47
7.20 No Amendment or Waiver........................................47
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7.21 Maintenance of Property; Insurance............................47
7.22 Further Identification of Collateral..........................47
7.23 Mortgage Loan Determined to be Defective......................47
7.24 Interest Rate Protection Agreements...........................47
7.25 Covenants of the Borrowers with respect to the Collateral.....47
7.26 Computer Systems..............................................48
7.27 Certificate of a Responsible Officer of each Borrower.........48
7.28 Deposit of Collections........................................49
7.29 Fees..........................................................49
7.30 Servicing Rights; Call Rights.................................49
Section 8. Events of Default...............................................49
8.02 Remedies Upon Default.........................................52
Section 9. No Duty on Lender's Part........................................53
Section 10. Miscellaneous...................................................53
10.01 Waiver........................................................53
10.02 Notices.......................................................53
10.03 Indemnification and Expenses..................................54
10.04 Amendments....................................................55
10.05 Successors and Assigns........................................55
10.06 Survival......................................................55
10.07 Captions......................................................55
10.08 Counterparts..................................................55
10.09 Warehouse Agreement Constitutes Security Agreement;
Governing Law...................................................55
10.10 SUBMISSION TO JURISDICTION; WAIVERS...........................55
10.11 WAIVER OF JURY TRIAL..........................................56
10.12 Acknowledgments...............................................56
10.13 Hypothecation or Pledge of Collateral.........................56
10.14 Assignments; Participations...................................56
10.15 Servicing. ..................................................57
10.16 Periodic Due Diligence Review.................................59
10.17 Effect of Payment Under Guarantee.............................59
10.18 Set-Off.......................................................59
10.19 Intent........................................................60
10.20 Joint and Several Liability...................................60
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SCHEDULES
SCHEDULE 1 Representations and Warranties re: Mortgage Loans
SCHEDULE 2-A Initial Scheduled Amortization Balance
SCHEDULE 2-B June 30, 2000 Future Residual Failure Event Scheduled
Amortization Balance
SCHEDULE 2-C June 30, 2000 and September 30, 2000 Future Residual
Failure Event Scheduled Amortization Balance
SCHEDULE 2-D September 30, 2000 Future Residual Failure Event
Scheduled Amortization Balance
SCHEDULE 3 Filing Jurisdictions and Offices
SCHEDULE 4 Relevant States
SCHEDULE 5 Subsidiaries
SCHEDULE 6 [Intentionally Omitted]
SCHEDULE 7 Pledged Securities
SCHEDULE 8 Governing Agreements
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B [Intentionally Omitted]
EXHIBIT C Form of Opinion of Counsel to the Borrowers
EXHIBIT D Form of Notice of Borrowing and Pledge
EXHIBIT E Underwriting Guidelines
EXHIBIT F Required Fields for Servicing Transmission
EXHIBIT G Required Fields for Mortgage Loan Data Transmission
EXHIBIT H Form of Borrowing Base Certificate
EXHIBIT I Form of Confidentiality Agreement
EXHIBIT J Form of Subservicer Instruction Letter
EXHIBIT K Form of Trustee Instruction Letter
EXHIBIT L Form of Power of Attorney
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WAREHOUSE LOAN AND SECURITY AGREEMENT
WAREHOUSE LOAN AND SECURITY AGREEMENT, dated as of February 10,
2000, between AAMES CAPITAL CORPORATION, a California corporation, as a
Borrower, AAMES FUNDING CORPORATION, a California corporation, as a Borrower
(each a "Borrower", collectively, the "Borrowers") and GREENWICH CAPITAL
FINANCIAL PRODUCTS, INC., a Delaware corporation (the "Lender").
RECITALS
The Borrowers wish to obtain financing from time to time to provide
interim funding for the origination and acquisition of certain Mortgage Loans
(as defined herein).
The Lender has agreed, subject to the terms and conditions of this
Warehouse Agreement (as defined herein), to provide such financing to the
Borrowers.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Warehouse Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Aames Capital" shall mean Aames Capital Corporation and any
permitted successors and assigns.
"Aames Funding" shall mean Aames Funding Corporation and any
permitted successors and assigns.
"Accepted Servicing Practices" shall mean, with respect to any
Mortgage Loan, accepted and prudent mortgage servicing practices of prudent
mortgage lending institutions which service mortgage loans of the same type as
such Mortgage Loans in the jurisdiction where the related Mortgaged Property is
located and in a manner at least equal in quality to the servicing the Borrowers
or Borrowers' designees provide to mortgage loans which they own in their own
portfolio.
"Actual Amortization Amount" shall mean with respect to Tranche B
Advances and the Tranche B Collections for any Payment Date: the greater of
(i)(a) to the extent the Tranche B Collections in respect of Initial Securities
for such Payment Date do not exceed the Expected Monthly Collections for such
Payment Date by more than 120%, an amount equal to the Scheduled Monthly
Amortization Amount for such Payment Date, or (b) to the extent the Tranche B
Collections in respect of Initial Securities for such Payment Date exceed the
Expected Monthly Collections for such Payment Date by more than 120%, an amount
equal to 50% of the
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Tranche B Collections in respect of the Initial Securities received by the
Borrower or Lender for such Payment Date after deducting interest due hereunder
on such Payment Date on outstanding Tranche B Advances and (ii) such amount as
will reduce the outstanding Tranche B Advances to the Scheduled Amortization
Balance for such Payment Date.
"Advance" shall have the meaning provided in Section 2.01 hereof.
"Affiliate" means, with respect to any Person, any other Person
which, directly or indirectly, controls, is controlled by, or is under common
control with, such Person, excluding any Person which would otherwise meet the
definition of Affiliate with respect to the Guarantor unless such Person
directly owns at least 70% of the capital stock of the Guarantor as of the
Effective Date. For purposes of this definition, "control" (together with the
correlative meanings of "controlled by" and "under common control with") means
possession, directly or indirectly, of the power (a) to vote 10% or more of the
securities (on a fully diluted basis) having ordinary voting power for the
directors or managing general partners (or their equivalent) or such Person, or
(b) to directly or indirectly cause the direction of the management or policies
of such Person, whether through the ownership of voting securities, by contract,
or otherwise.
"ALTA" means the American Land Title Association.
"Applicable Collateral Percentage" shall mean, (i) for the first 120
days following the date such Eligible Mortgage Loan first becomes subject to the
terms of this Warehouse Agreement, with respect to each Advance:
(a) with respect to Eligible Mortgage Loans as to which scheduled
payments of principal and interest are not more than 29 days
past due, 95%;
(b) with respect to Delinquent Mortgage Loans, 85%; and
(ii) thereafter, 0%.
"Applicable Margin" shall mean, with respect to Advances that are
Tranche A Advances, Tranche B Advances and Tranche C Advances the applicable
rate per annum set forth below:
Tranche A Advances: 1.50%
Tranche B Advances: 3.75%
Tranche C Advances: 1.50%
"Appraised Value" shall mean the value set forth in an appraisal
made in connection with the origination of the related Mortgage Loan as the
value of the Mortgaged Property.
"Assignment of Mortgage" shall mean, with respect to any Mortgage,
an assignment of the Mortgage, notice of transfer or equivalent instrument in
recordable form,
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sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect the assignment and pledge of the Mortgage.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of
1978, as amended from time to time.
"Best's" means Best's Key Rating Guide, as the same shall be amended
from time to time.
"Borrower" or "Borrowers" shall have the meaning provided in the
heading hereof.
"Borrowing Base" shall mean the aggregate Collateral Value of all
Collateral that has been, and remains pledged to the Lender hereunder.
"Borrowing Base Certificate" shall mean the certificate prepared by
the Lender substantially in the form of Exhibit H, attached hereto.
"Borrowing Base Deficiency" shall have the meaning provided in
Section 2.06 hereof.
"Business Day" shall mean any day other than (i) a Saturday or
Sunday, or (ii) a day in which the New York Stock Exchange, the Federal Reserve
Bank of New York or the Custodian is authorized or obligated by law or executive
order to be closed.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Warehouse Agreement, the amount of such obligations shall be the capitalized
amount thereof, determined in accordance with GAAP.
"Capital Z" shall mean Capital Z Financial Services Fund II, L.P.
and any permitted successors and assigns.
"Cash Equivalents" shall mean (a) securities with maturities of 90
days or less from the date of acquisition issued or fully guaranteed or insured
by the United States Government or any agency thereof, (b) certificates of
deposit and eurodollar time deposits with maturities of 90 days or less from the
date of acquisition and overnight bank deposits of any commercial bank having
capital and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than seven days with respect to securities issued or
fully guaranteed or insured by the United States Government, (d) commercial
paper of a domestic issuer rated at least A-1 or the equivalent thereof by
Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") and in either case maturing within
90 days after the day of acquisition, (e) securities with maturities of 90 days
or less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth
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or territory or by any foreign government, the securities of which state,
commonwealth, territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by Moody's, (f)
securities with maturities of 90 days or less from the date of acquisition
backed by standby letters of credit issued by any commercial bank satisfying the
requirements of clause (b) of this definition or (g) shares of money market
mutual or similar funds which invest exclusively in assets satisfying the
requirements of clauses (a) through (f) of this definition.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" shall have the meaning assigned to such term in Section
4.01(b) hereof.
"Collateral Value" shall mean (a) with respect to each Mortgage Loan
the lesser of (i) the product of the related Applicable Collateral Percentage
times the Market Value thereof and (ii) 100% (or such other percentage as agreed
upon by the Borrower and the Lender from time to time) of the outstanding
principal balance of such Mortgage Loan; provided, further that, the Collateral
Value as calculated above shall be deemed to be zero in either case, with
respect to each Mortgage Loan:
(1) in respect of which there is a material breach of a
representation and warranty set forth on Schedule 1 (assuming each
representation and warranty is made as of the date Collateral Value
is determined) or a Material Exception which was not otherwise
waived by the Lender;
(2) which the Lender determines, in its reasonable discretion that
such Mortgage Loan is not eligible for sale in the secondary market
or for securitization without unreasonable credit enhancement;
(3) which has been released from the possession of the Custodian
under Section 5(a) of the Custodial Agreement to the Borrower or its
bailee for a period in excess of the period specified in the
Custodial Agreement;
(4) which has been released from the possession of the Custodian
under Section 5(b) of the Custodial Agreement under any Transmittal
Letter in excess of the time period stated in such Transmittal
Letter for release;
(5) in respect of which (a) the related Mortgaged Property is the
subject of a foreclosure proceeding or (b) the related Mortgage Note
has been extinguished under relevant state law in connection with a
judgment of foreclosure or foreclosure sale or otherwise;
(6) in respect of which the related Mortgagor is the subject of a
bankruptcy proceeding;
(7) if the Mortgagor has not made its first payment on the related
Mortgage Loan within forty-five days of its related Due Date;
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(8) if such Mortgage Loan is a Delinquent Mortgage Loan and the
Collateral Value of such Mortgage Loan when added to the aggregate
Collateral Value of all other Delinquent Mortgage Loans exceeds, at
any time, $5,000,000;
(9) if, with respect to such Mortgage Loan, the Borrower has
provided the Lender with a lost note affidavit and the Collateral
Value of such Mortgage Loan when added to the aggregate Collateral
Value of all other Mortgage Loans for which a lost note affidavit
was provided to the Lender exceeds $1,000,000 at any time;
(10) if the Borrower has delivered a lost note affidavit to the
Lender and such Mortgage Loan is either (i) more than 29 days
delinquent with respect to scheduled payments of principal and
interest or (ii) remains pledged to the Lender hereunder more than
90 days after the date on which it is first included in the
Collateral;
(11) if such Mortgage Loan is delinquent with respect to scheduled
payments of principal and interest for sixty (60) or more days; or
(12) if the Borrower has delivered a lost note affidavit to the
Lender or the Custodian for Mortgage Loans securing any Advances
which have not been repaid on a date which is not more than 90 days
from the related Funding Date.
(b) with respect to the Initial Haircut Collateral, the Collateral
Value shall be deemed to be $35,000,000 on the Effective Date. After the
Effective Date, such Collateral Value for the Initial Haircut Collateral shall
be deemed to be $35,000,000, minus any amounts applied to reduce the principal
balance of the Tranche B Advances, and plus any additional Tranche B Advances
made pursuant to Section 2.01(a)(ii); and
(c) with respect to all Collateral other than Mortgage Loans and the
Initial Haircut Collateral, the Collateral Value shall be deemed to be zero
unless otherwise agreed by the Lender in its sole discretion.
"Collections" shall mean the collective reference to Tranche A
Collections, Tranche B Collections and Tranche C Collections.
"Combined LTV or CLTV" means with respect to any Mortgage Loan, the
ratio of (i) the original outstanding principal amount of the Mortgage Loan and
any other mortgage loan which is secured by a lien on the related Mortgaged
Property at the time of the applicable Borrower's funding of such Mortgage Loan
(ii) the lesser of (a) the Appraised Value of the Mortgaged Property at
origination or (b) if the Mortgaged Property was purchased within 6 months of
the origination of the Mortgage Loan, the purchase price of the Mortgaged
Property.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with either Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes either
Borrower and which is treated as a single employer under Section 414 of the
Code.
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"Contractual Obligation" shall mean as to any Person, any material
provision of any agreement, instrument or other undertaking to which such Person
is a party or by which it or any of its property is bound or any material
provision of any security issued by such Person.
"Cooperative Corporation" shall mean with respect to any Cooperative
Loan, the cooperative apartment corporation that holds legal title to the
related Cooperative Project and grants occupancy rights to units therein to
stockholders through Proprietary Leases or similar arrangements.
"Cooperative Loan" shall mean a Mortgage Loan that is secured by a
first lien on and a perfected security interest in Cooperative Shares and the
related Proprietary Lease granting exclusive rights to occupy the related
Cooperative Unit in the building owned by the related Cooperative Corporation.
"Cooperative Project" shall mean with respect to any Cooperative
Loan, all real property and improvements thereto and rights therein and thereto
owned by a Cooperative Corporation including without limitation the land,
separate dwelling units and all common elements.
"Cooperative Shares" shall mean with respect to any Cooperative
Loan, the shares of stock issued by a Cooperative Corporation and allocated to a
Cooperative Unit and represented by a stock certificate.
"Cooperative Unit" shall mean with respect to any Cooperative Loan,
a specific unit in a Cooperative Project.
"Custodial Agreement" shall mean the Custodial Agreement, dated as
of February 10, 1999, among Aames Capital Corporation, the Custodian and the
Lender, as the same shall be modified and supplemented and in effect from time
to time.
"Custodian" shall mean Bankers Trust Company of California, N.A.,
its successors and permitted assigns.
"Custodian Loan Transmission" shall have the meaning provided in the
Custodial Agreement.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Delinquent Mortgage Loan" means an Eligible Mortgage Loan which is
30-59 days delinquent with respect to scheduled payments of principal and
interest.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"Due Date" means the day of the month on which the Monthly Payment
is due on a Mortgage Loan, exclusive of any days of grace.
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"Due Diligence Review" shall mean the performance by the Lender of
any or all of the reviews permitted under Section 10.16 hereof with respect to
any or all of the Mortgage Loans or the Borrowers or related parties, as desired
by the Lender from time to time.
"Effective Date" shall mean the date upon which the conditions
precedent set forth in Section 5.01 shall have been satisfied.
"Eligible Mortgage Loan" shall mean a Mortgage Loan which is made
to a subprime credit Mortgagor secured by a first or second mortgage lien (as
reflected on the Mortgage Loan Data Transmission) on a one-to-four family
residential property and as to which (i) the representations and warranties in
Section 6.12 and 6.24 and Schedule 1 hereof are correct, (ii) was originated or
acquired by the Borrowers in accordance with the applicable Borrower's or Lender
approved third party's Underwriting Guidelines not more than 60 days prior to
the related Funding Date, (iii) contains all required Mortgage Loan Documents
without any Material Exception and (iv) such other customary criteria for
eligibility determined by the Lender shall have been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which either Borrower is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which such Borrower is a member.
"Escrow Payments" means with respect to any Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.
"Event of Default" shall have the meaning provided in Section 8
hereof.
"Exception Report" shall mean the exception report prepared by the
Custodian pursuant to the Custodial Agreement.
"Expected Monthly Collections" shall mean with respect to Tranche B
Collections in respect of Initial Securities for any Payment Date, the amount
set forth for the corresponding Payment Date under the heading "Expected Monthly
Collections" on Schedule 2-A, 2-B, 2-C and 2-D attached hereto, as applicable.
"Federal Funds Rate" shall mean, for any day, the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business
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Day, the average of the quotations for the day of such transactions received by
the Lender from three primary dealers (other than an affiliate of the Lender).
"Fee Agreement" shall mean that certain Fee Agreement, dated as of
the date hereof, between Aames Capital and the Lender setting forth certain fees
required to be paid by the Borrowers to the Lender as contemplated herein.
"FHLMC" means the Federal Home Loan Mortgage Corporation, or any
successor thereto.
"First Lien" shall mean with respect to each Mortgaged Property, the
lien of the mortgage, deed of trust or other instrument securing a mortgage note
which creates a first lien on the Mortgaged Property.
"FNMA" means the Federal National Mortgage Association, or any
successor thereto.
"Funding Date" shall mean the date on which an Advance is made
hereunder.
"Future Pledged Securities" shall mean those certain residual
securities to be delivered to the Lender and which are to be issued pursuant to
the first two securitizations completed by Aames Capital after the Effective
Date unless and until all amounts due the Lender under this Warehouse Agreement
with respect to Tranche B Advances are paid in full prior to such
securitization.
"GAAP" shall mean generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governing Agreement" shall mean the agreement or agreements listed
on Schedule 8 attached hereto as such agreements shall be amended or
supplemented from time to time and such other agreements governing the issuance
and payment of any Pledged Securities or Servicing Advance Receivables pledged
to the Lender after the Effective Date.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over either
Borrower, any of its Subsidiaries or any of its properties.
"Gross Margin" means with respect to each adjustable rate Mortgage
Loan, the fixed percentage amount set forth in the related Mortgage Note.
"Guarantee" shall mean, as to any Person, any obligation of such
Person directly or indirectly guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, or to take-or-pay, by swap
agreement or other credit derivatives, or otherwise), provided that the term
"Guarantee" shall not include (i) endorsements for collection or deposit in the
ordinary course of business, or (ii) obligations to
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make servicing advances for delinquent taxes and insurance, or other obligations
in respect of a Mortgaged Property, to the extent required by the Lender. The
amount of any Guarantee of a Person shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have
correlative meanings.
"Guarantor" shall mean Aames Financial Corporation.
"Guaranty" shall mean the guaranty, dated February 10, 2000,
executed by the Guarantor in favor of the Lender which evidences the guarantee
by the Guarantor of the obligations of the Borrowers under this Warehouse
Agreement and the Note.
"Indebtedness" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
Indebtedness so secured has been assumed by such Person; (d) obligations
(contingent or otherwise) of such Person in respect of letters of credit or
similar instruments issued or accepted by banks and other financial institutions
for account of such Person; (e) Capital Lease Obligations of such Person; (f)
obligations of such Person under repurchase agreements or like arrangements; (g)
Indebtedness of others Guaranteed by such Person; (h) all obligations of such
Person incurred in connection with the acquisition or carrying of fixed assets
by such Person; (i) Indebtedness of general partnerships of which such Person is
a general partner; and (j) any other indebtedness of such Person by a note,
bond, debenture or similar instrument.
"Index" means with respect to each adjustable rate Mortgage Loan,
the index set forth in the related Mortgage Note for the purpose of calculating
the interest rate thereon.
"Initial Haircut Collateral" shall mean all Pledged Securities, the
Limited Partnership Interest and Servicing Advance Receivables delivered to the
Lender as collateral hereunder as of the Effective Date plus the Future Pledged
Securities delivered to the Lender as Collateral thereafter.
"Initial Securities" shall mean Pledged Securities that are
Initial Haircut Collateral.
"Instruction Letter" shall mean a letter agreement between the
Borrowers and each Subservicer substantially in the form of Exhibit J attached
hereto, in which such Persons acknowledge the Lender's security interest in the
Mortgage Loans, and agree to remit any
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collections with respect to the Mortgage Loans as the Lender may so direct from
time to time, which Instruction Letter may be delivered by Lender to such
Subservicer in its sole discretion.
"Insurance Proceeds" means with respect to each Mortgage Loan,
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property.
"Intercreditor Agreement" shall mean that certain Intercreditor
Agreement, dated as of the date hereof, among the Lender, Capital Z, the
Guarantor and Aames Capital.
"Interest Period" shall mean, with respect to any Advance, (i)
initially, the period commencing on the Funding Date with respect to such
Advance and ending on the calendar day prior to the Payment Date of the next
succeeding month, and (ii) thereafter, each period commencing on the Payment
Date of a month and ending on the calendar day prior to the Payment Date of the
next succeeding month. Notwithstanding the foregoing, no Interest Period may end
after the Termination Date.
"Interest Rate Adjustment Date" means with respect to each
adjustable rate Mortgage Loan, the date, specified in the related Mortgage Note
and the Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.
"Interest Rate Protection Agreement" shall mean with respect to any
or all of the Mortgage Loans and/or Advances, any interest rate swap, cap or
collar agreement or any other applicable hedging arrangements providing for
protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies entered
into by either Borrower and reasonably acceptable to the Lender.
"Lender" shall have the meaning assigned thereto in the heading
hereto.
"LIBO Base Rate" shall mean with respect to each day an Advance is
outstanding (or if such day is not a Business Day, the next succeeding Business
Day), the rate per annum equal to the rate published by Bloomberg or if such
rate is not available, the rate appearing at page 3750 of the Telerate Screen as
one-month LIBOR on such date, and if such rate shall not be so quoted, the rate
per annum at which the Lender is offered Dollar deposits at or about 11:00 A.M.,
eastern time, on such date by prime banks in the interbank eurodollar market
where the eurodollar and foreign currency and exchange operations in respect of
its Advances are then being conducted for delivery on such day for a period of
one month and in an amount comparable to the amount of the Advances to be
outstanding on such day.
"LIBO Rate" shall mean with respect to each Interest Period
pertaining to an Advance, a rate per annum determined by the Lender in its sole
discretion in accordance with the following formula (rounded upwards to the
nearest l/100th of one percent), which rate as determined by the Lender shall be
conclusive absent manifest error by the Lender:
LIBO Base Rate
--------------------------------
1.00 - LIBO Reserve Requirements
The LIBO Rate shall be calculated each Funding Date and Payment Date
commencing with the first Funding Date.
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"LIBO Reserve Requirements" shall mean for any Interest Period for
any Advance, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements applicable to the Lender in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction with
respect thereto), dealing with reserve requirements prescribed for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) maintained by a member bank of such Governmental Authority. As of
the Effective Date, the LIBO Reserve Requirements shall be deemed to be zero.
"Lien" shall mean any mortgage, lien, pledge, charge, security
interest or similar encumbrance.
"Limited Partnership Interest" shall mean the ownership interest of
Aames Capital as provided in the Limited Partnership Agreement of Steamboat
Financial Partnership I, L.P., dated as of June 10, 1999 as further amended or
modified from time to time.
"Loan Documents" shall mean collectively, this Warehouse Agreement,
the Guaranty, the Note and the Custodial Agreement and any other document
executed in connection therewith.
"Loan Party" shall mean collectively, the Borrowers and the
Guarantor.
"Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage
Loan, the ratio of the original outstanding principal amount of the Mortgage
Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at
origination or (b) if the Mortgaged Property was purchased within 6 months of
the origination of the Mortgage Loan, the purchase price of the Mortgaged
Property.
"Market Value" shall mean the value, determined by the Lender in its
sole reasonable discretion, of the Mortgage Loans if sold in its entirety to a
single third-party purchaser. In determining Market Value, the Lender may take
into account (a) customary factors, including, but not limited to current market
conditions and the fact that the Mortgage Loans may be sold under circumstances
in which the Borrowers, as originators of the Mortgage Loans, is in default
under the Warehouse Agreement, and (b) firm take-out commitments from investment
grade purchasers in favor of the Borrowers covering the Mortgage Loans or
mortgage loans substantially similar to the Mortgage Loans to the extent
recently obtained and during similar market conditions. The Lender's
determination of Market Value shall be conclusive upon the parties, absent
manifest error on the part of the Lender. The Lender shall have the right to
mark to market the Mortgage Loans on a daily basis which Market Value may be
determined to be zero. The Borrowers acknowledge that the Lender's determination
of Market Value is for the limited purpose of determining Collateral Value for
lending purposes hereunder without the ability to perform customary purchaser's
due diligence and is not necessarily equivalent to a determination of the fair
market value of the Collateral achieved by obtaining competing bids in an
orderly market in which the originator/servicer is not in default under a
revolving debt facility and the bidders have adequate opportunity to perform
customary loan and servicing due diligence.
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"Material Adverse Effect" shall mean a material adverse effect on
(a) the property, business, operations, financial condition or prospects of the
either Borrower or the Guarantor, (b) the ability of either Borrower or the
Guarantor to perform in all material respects its obligations under any of the
Loan Documents to which it is a party, (c) the validity or enforceability in all
material respects of any of the Loan Documents, (d) the rights and remedies of
the Lender under any of the Loan Documents, (e) the Collateral other than the
Initial Haircut Collateral (except for changes in Market Value due to market
conditions).
"Material Exception" shall have the meaning assigned thereto in the
Custodial Agreement.
"Maximum Credit" shall mean two hundred million Dollars.
"Minimum Scheduled Amortization Shortfall Payment" shall mean with
respect to any Payment Date the lesser of (a) the amount, if any, by which the
outstanding principal balance of Tranche B Advances exceeds the Scheduled
Amortization Balance for such Payment Date plus $500,000, and (b) 10 basis
points multiplied by the Release Balance for such Payment Date, but not to
exceed $75,000 for any such Payment Date.
"Monthly Payment" means the scheduled monthly payment of principal
and interest on a Mortgage Loan as adjusted in accordance with changes in the
Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an
adjustable rate Mortgage Loan.
"Mortgage" shall mean the mortgage, deed of trust or other
instrument, which creates a first lien or second lien (as indicated on the
Mortgage Loan Data Transmission) on either (i) with respect to a Mortgage Loan
other than a Cooperative Loan, the fee simple or leasehold estate in such real
property or (ii) with respect to a Cooperative Loan, the Proprietary Lease and
related Cooperative Shares, which in either case secures the Mortgage Note.
"Mortgage File" shall have the meaning assigned thereto in the
Custodial Agreement.
"Mortgage Interest Rate" means the annual rate of interest borne on
a Mortgage Note, which shall be adjusted from time to time with respect to
adjustable rate Mortgage Loans.
"Mortgage Interest Rate Cap" means with respect to an adjustable
rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set
forth in the related Mortgage Note.
"Mortgage Loan" shall mean a mortgage loan or Cooperative Loan which
the Custodian has been instructed to hold for the Lender pursuant to the
Custodial Agreement, and which Mortgage Loan includes, without limitation, (i) a
Mortgage Note, the related Mortgage and all other Mortgage Loan Documents and
(ii) all right, title and interest of the applicable Borrower in and to the
Mortgaged Property covered by such Mortgage.
"Mortgage Loan Data Transmission" shall mean a computer-readable
magnetic or other electronic format incorporating the fields identified on
Exhibit G.
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"Mortgage Loan Documents" shall mean, with respect to a Mortgage
Loan, the documents comprising the Mortgage File for such Mortgage Loan.
"Mortgage Loan List" shall mean the hard copy report provided by the
Borrowers which shall include with respect to each Mortgage Loan to be included
as Collateral: (i) the Mortgage Loan number, (ii) the Mortgagor's name, (iii)
the original principal amount of the Mortgage Loan and (iv) the current
principal balance of the Mortgage Loan.
"Mortgage Note" shall mean the original executed promissory note or
other evidence of the indebtedness of a mortgagor/borrower with respect to a
Mortgage Loan.
"Mortgaged Property" means the real property (including all
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagee" means either Borrower or any subsequent holder of a
Mortgage Loan.
"Mortgagor" means the obligor on a Mortgage Note.
"Multiemployer Plan" shall mean a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been or are required to be
made by either Borrower or any ERISA Affiliate and that is covered by Title IV
of ERISA.
"Net Income" shall mean, for any period, the net income of the
applicable Borrower for such period as determined in accordance with GAAP.
"Net Worth" shall mean, with respect to any Person, the excess of
total assets of such Person, over total liabilities of such Person, determined
in accordance with GAAP.
"Note" shall mean the promissory note provided for by Section
2.02(a) hereof for Advances and any promissory note delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Notice of Borrowing and Pledge" shall have the meaning assigned to
such term in Section 2.03(a).
"Payment and Reimbursement Agreement" shall mean that certain
Payment and Reimbursement Agreement, dated as of the date hereof, by Capital Z
in favor of the Lender.
"Payment Date" shall mean the second Business Day following the 15th
day of each month. The first Payment Date under this Warehouse Agreement shall
be March 17, 2000.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
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"Permitted Exceptions" shall mean the exceptions to lien priority
including but not limited to: (i) the lien of current real property taxes and
assessments not yet due and payable; (ii) covenants, conditions and
restrictions, rights of way, easements and other matters of the public record as
of the date of recording acceptable to mortgage lending institutions generally
and specifically referred to in the lender's title insurance policy delivered to
the originator of the Mortgage Loan and (A) referred to or otherwise considered
in the appraisal (if any) made for the originator of the Mortgage Loan or (B)
which do not adversely affect the appraised value of the Mortgaged Property set
forth in such appraisal; (iii) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property; and (iv) in the case of a
Second Lien Mortgage Loan, a First Lien on the Mortgaged Property.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established or
maintained by either Borrower or any ERISA Affiliate and that is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"Pledged Securities" shall mean those certain Class C and Class R
or subordinated securities pledged or delivered to the Lender and identified on
Schedule 7, any Future Pledged Securities and any other securities pledged or
delivered to the Lender from time to time and held as Collateral hereunder.
"Pledged Securities Value" shall mean the value, determined by
Lender in its sole reasonable good faith discretion, of the Pledged Securities
using the same methodology that an issuer of such securities would use for GAAP
valuation purposes. In determining Pledged Securities Value, the Lender may take
into account customary factors, including, but not limited to current market
conditions and recent performance of the Mortgage Loans underlying the Pledged
Securities. Lender's determination of Pledged Securities Value shall be
conclusive upon the parties, absent manifest error on the part of Lender. The
Borrowers acknowledge that Lender's determination of Pledged Securities Value is
for lending purposes hereunder and is not necessarily equivalent to a
determination of the fair market value of the Pledged Securities achieved by
obtaining competing bids in an orderly market.
"PMI Policy" or "Primary Insurance Policy" means a policy of primary
mortgage guaranty insurance issued by a Qualified Insurer.
"Pooling and Servicing Agreement" shall mean any pooling and
servicing agreement, trust agreement or other agreement listed on Schedule 8
pursuant to which the mortgage loans underlying any of the Pledged Securities
are serviced and administered or the Pledged Securities are issued or exchanged
and all Pooling and Servicing Supplements.
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"Pooling and Servicing Supplements" shall mean the supplements
listed on Schedule 8 and any other supplements hereafter entered into pursuant
to which the Lender or its Affiliates have agreed or will agree to act as
supplemental servicer.
"Post-Default Rate" shall mean, in respect of any principal of any
Advance or any other amount under this Warehouse Agreement, the Note or any
other Loan Document that is not paid when due to the Lender (whether at stated
maturity, by acceleration or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2% per annum, plus (a) the
interest rate otherwise applicable to such Advance or other amount, or (b) if no
interest rate is otherwise applicable, the LIBO Rate plus the Applicable Margin.
Proceeds: All "proceeds" as such term is defined in Section 9-306(1)
of the Uniform Commercial Code in effect in the State of New York on the date
hereof from the Collateral which, in any event, shall include, without
limitation, all dividends or other income from the Collateral, collections
thereon or distributions with respect thereto.
"Property" shall mean any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Proprietary Lease" shall mean the lease on a Cooperative Unit
evidencing the possessory interest of the owner of the Cooperative Shares in
such Cooperative Unit.
"Qualified Insurer" means an insurance company duly qualified as
such under the laws of the states in which the Mortgaged Property is located,
duly authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, and approved as an insurer by FNMA
and FHLMC and whose claims paying ability is rated in the two highest rating
categories by any of the rating agencies with respect to primary mortgage
insurance and in the two highest rating categories by Best's with respect to
hazard and flood insurance.
"Qualified Originator" shall mean (a) either Borrower, or (b) any
other mutually agreed upon originator of Mortgage Loans; provided, however, that
no correspondent of either Borrower shall be a Qualified Originator for the
purposes of this Warehouse Agreement.
"Regulations T, U and X" shall mean Regulations T, U and X of the
Board of Governors of the Federal Reserve System (or any successor), as the same
may be modified and supplemented and in effect from time to time.
"Release Balance" shall mean for any Payment Date, an amount equal
to the outstanding principal balance of Tranche A Advances and Tranche C
Advances repaid by the Borrowers during the preceding calendar month in order to
obtain a release of the Lender's Lien on the related Collateral. For purposes
hereof, if a Mortgage Loan is released from the Lender's Lien on account of any
Tranche A Advance or a Tranche C Advance, such Tranche A Advance or Tranche C
Advance as the case may be, shall be deemed repaid, regardless of whether one or
more Mortgage Loans are substituted as Collateral for such released Mortgage
Loan.
"Release Fee" shall mean the "Release Fee" set forth in the Fee
Agreement.
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"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
ss. 2615.
"Required Documents" shall mean those documents identified in
Section 2(I) of the Custodial Agreement.
"Requirement of Law" shall mean as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" shall mean, as to any Person, the chief
executive officer or, with respect to financial matters, the chief financial
officer of such Person; provided, that in the event any such officer is
unavailable at any time he or she is required to take any action hereunder,
Responsible Officer shall mean any officer authorized to act on such officer's
behalf as demonstrated by a certificate of corporate resolution.
"Restricted Payments" shall mean with respect to any Person,
collectively, all dividends or other distributions of any nature (cash,
securities, assets or otherwise), and all payments, by virtue of redemption or
otherwise, on any class of equity securities (including, without limitation,
warrants, options or rights therefor) issued by such Person, whether such
securities are now or may hereafter be authorized or outstanding and any
distribution in respect of any of the foregoing, whether directly or indirectly.
"Scheduled Amortization Balance" shall mean, for any Payment Date,
the amount set forth under the heading "Targeted Tranche B Amortization Balance"
on Schedule 2-A attached hereto, provided that, on or before each of June 30,
2000 and September 30, 2000, in the event Aames Capital has failed to pledge to
the Lender an additional Future Residual Security, each with a GAAP value of at
least $10,000,000 as of such date of delivery, or such lesser value as may be
acceptable to the Lender in its sole discretion, a "Future Residual Failure
Event" shall be deemed to have occurred. Upon the occurrence of a June 30, 2000
Future Residual Failure Event, the Scheduled Amortization Balance shall be as
set forth on Schedule 2-B and upon the occurrence of a September 30, 2000 Future
Residual Failure Event, the Scheduled Amortization Balance shall be as set forth
on Schedule 2-C. Upon the occurrence of a September 30, 2000 Future Residual
Failure Event where no June 30, 2000 Future Residual Failure Event has occurred,
the Scheduled Amortization Balance shall be as set forth on Schedule 2-D.
"Scheduled Amortization Deviation" shall occur if at any time the
outstanding Tranche B Advances owed to the Lender shall be in excess of the
Scheduled Amortization Balance applicable at such time by $12,000,000 or more.
"Scheduled Monthly Amortization Amount" means with respect to
Tranche B Advances and any Payment Date, the amount corresponding to such
Payment Date set forth under the heading "Scheduled Monthly Amortization Amount"
on Schedules 2-A, 2-B, 2-C and 2-D attached hereto, as applicable.
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"Second Lien" shall mean with respect to each Mortgaged Property,
the lien of the mortgage, deed of trust or other instrument securing a mortgage
note which creates a second lien on the Mortgaged Property.
"Second Lien Mortgage Loan" shall mean an Eligible Mortgage Loan
secured by the lien on the Mortgaged Property, subject to one prior lien on such
Mortgaged Property securing financing obtained by the related Mortgagor and to
Permitted Exceptions.
"Secured Obligations" shall have the meaning assigned thereto in
Section 4.01(c) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities File" shall mean all documents related to a Pledged
Security including without limitation all original certificates, and any other
collateral pledged or otherwise relating to such Pledged Security.
"Securitization Agreement" shall mean that certain agreement by and
among the Borrowers and the Lender, dated the date hereof, outlining, among
other things, rights and obligations with respect to subsequent securitizations
of mortgage loans from time to time.
"Senior Note Indenture" shall mean that certain Indenture of Trust,
dated as of February 1, 1995, and that certain Supplemental Indenture of Trust,
dated as of April 25, 1995, each between Aames Financial Corporation and Bankers
Trust Company of California, N.A. providing for the issuance of 10.5% Senior
Notes due 2002.
"Servicer" shall mean Aames Capital in its capacity as servicer or
master servicer of the Mortgage Loans.
"Servicing Advance Receivables" shall mean Aames Capital's right to
recover monthly advances and servicing advances, or such comparable advances, in
its capacity as servicer under the Pooling and Servicing Agreements listed on
Schedule 8 attached hereto, and such other Governing Agreements identified by
the Borrower to the Lender in writing from time to time, from whichever source
of cash as is set forth in the Governing Agreements.
"Servicing File" means with respect to each Mortgage Loan, the file
retained by the applicable Borrower consisting of originals of all material
documents in the Mortgage File which are not delivered to a Custodian and copies
of the Mortgage Loan Documents set forth in Section 2 of the Custodial
Agreement.
"Servicing Records" shall have the meaning assigned thereto in
Section 10.15(b) hereof.
"Servicing Transmission" shall mean a computer-readable magnetic or
other electronic format acceptable to the parties containing the information
identified on Exhibit F.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
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"Subservicer" shall have the meaning provided in Section 10.15(c)
hereof.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"System" shall mean all hardware or software, or any system
consisting of one or more thereof, including, without limitation, any and all
enhancements, upgrades, customizations, modifications, maintenance and the like
utilized by any Person for the benefit of such Person to perform its obligations
and to administer and track, store, process, provide, and where appropriate,
insert, true and accurate dates and calculations for dates and spans with
respect to the Mortgage Loans.
"Tangible Net Worth" shall mean, with respect to any Person, as of
any date of determination, the consolidated Net Worth of such Person and its
Subsidiaries, less the consolidated net book value of all assets of such Person
and its Subsidiaries (to the extent reflected as an asset in the balance sheet
of such Person or any Subsidiary at such date) which will be treated as
intangibles under GAAP, including, without limitation, such items as deferred
financing expenses, net leasehold improvements, good will, trademarks, trade
names, service marks, copyrights, patents, licenses and unamortized debt
discount and expense; provided, that residual securities issued by such Person
or its Subsidiaries shall not be treated as intangibles for purposes of this
definition.
"Termination Date" shall mean January 31, 2001, or such earlier date
on which this Warehouse Agreement shall terminate in accordance with the
provisions hereof or by operation of law or as same may be renewed pursuant to
Section 2.09.
"Total Indebtedness" shall mean with respect to any Person, for any
period, the aggregate Indebtedness of such Person and its Subsidiaries during
such period (excluding any warehouse debt), less the amount of any nonspecific
consolidated balance sheet reserves maintained in accordance with GAAP.
"Tranche A Advances" shall mean all Advances made pursuant to
Section 2.01(a)(i).
"Tranche A Collections" shall mean all cash collections and other
cash proceeds of any Mortgage Loans other than Mortgage Loans pledged to the
Lender by Aames Funding.
"Tranche B Advances" shall mean all Advances made pursuant to
Section 2.01(a)(ii).
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"Tranche B Collections" shall mean all cash collections and other
cash proceeds of any Initial Haircut Collateral to the Lender.
"Tranche C Advances" shall mean Advances made by the Lender to Aames
Funding pursuant to Section 2.01(a)(iii).
"Tranche C Collections" shall mean all cash collections and other
cash proceeds of any Collateral pledged to the Lender by Aames Funding.
"Trust Agreement" means any deposit trust agreement or indenture
governing the administration and issuance of the Pledged Securities.
"Trustee" shall mean any trustee under a Governing Agreement.
"Underwriting Guidelines" shall mean collectively, the underwriting
guidelines applicable to the Mortgage Loans which shall be subject to the prior
written approval of the Lender and may be amended from time to time in
accordance with Section 7.08.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as
in effect on the date hereof in the State of New York; provided that if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.
"Warehouse Agreement" shall mean this Warehouse Loan and Security
Agreement, as may be amended, supplemented or otherwise modified from time to
time as mutually agreed by the parties in writing.
"Year 2000 Compliant" shall mean the ability of a System to
continue its normal functions including and following January 1, 2000 and the
ability of such System to support its continued normal usage such that neither
the performance nor the correct functioning of such System will be affected by
the year 2000.
1.02 Accounting Terms and Determinations. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.
Section 2. Advances, Note and Prepayments.
2.01 Advances. (a) Subject to fulfillment of the conditions
precedent set forth in Sections 5.01 and 5.02 hereof, and provided that no
Default shall have occurred and be continuing hereunder, the Lender agrees from
time to time, on the terms and conditions of this Warehouse Agreement, to make
loans (individually an "Advance"; collectively, the "Advances") to the Borrowers
in Dollars as follows:
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(i) to Aames Capital, with respect to Tranche A Advances, on any
Business Day from and including the Effective Date to but excluding the
Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the lesser of (A) the Maximum Credit
less the outstanding principal balance of Tranche B Advances and Tranche C
Advances (and further subject to the limitations in the definition of
Collateral Value), and (B) the Borrowing Base as in effect from time to
time. Subject to the terms and conditions of this Warehouse Agreement,
during such period the Borrower may borrow, repay and reborrow Tranche A
Advances hereunder; provided that, the Borrower shall not request more
than one Tranche A Advance in any one week period;
(ii) to Aames Capital, with respect to Tranche B Advances, on the
initial Funding Date, in the amount of $35,000,000, provided, however,
that, subject to Section 2.03(e) hereof, the Borrower may repay and
reborrow Tranche B Advances on any Business Day after the Effective Date
if all other conditions of borrowing hereunder have been satisfied,
provided, however, that Tranche B Advances which are reborrowings shall be
on an uncommitted basis and, provided that, in any event the Borrower may
not reborrow (x) after month twenty-four, (y) after the occurrence of a
Scheduled Amortization Deviation, and (z) without the consent of Capital Z
(which consent shall not be required with respect to the initial Tranche B
Advance made hereunder);
(iii) to Aames Funding, with respect to Tranche C Advances, on any
Business Day from and including the Effective Date to but excluding the
Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding $1,000,000 (and further subject to the
limitations in the definition of Collateral Value); provided that the
Tranche C Advances shall at all times be secured by both (a) Mortgage
Loans with a Market Value equal to the aggregate outstanding principal
balance of such Tranche C Advances and by (b) Cash Equivalents with a face
amount equal to the aggregate outstanding principal balance of such
Tranche C Advances. Subject to the terms and conditions of this Warehouse
Agreement, during such period Aames Funding may borrow, repay and reborrow
Tranche C Advances hereunder; provided that, Aames Funding shall not
request more than one Tranche C Advance in any one week period.
(b) In no event shall an Advance be made when any Default or Event
of Default has occurred and is continuing.
2.02 Notes. (a) The Advances made by the Lender shall be evidenced
by a single promissory note of the Borrowers substantially in the form of
Exhibit A hereto (the "Note"), dated the date hereof, payable to the Lender in a
principal amount equal to the amount of the Maximum Credit as originally in
effect and otherwise duly completed. The Lender shall, with the consent of the
Borrowers, have the right to have its Note subdivided, by exchange for
promissory notes of lesser denominations or otherwise.
(b) The date, amount and interest rate of each Advance made by the
Lender to each Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of the Note, noted by the Lender on the grid attached to the Note or any
continuation thereof; provided, that the failure of the Lender to make
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any such recordation or notation shall not affect the obligations of the
Borrowers to make a payment when due of any amount owing hereunder or under the
Note in respect of the Advances.
2.03 Procedure for Borrowing. (a) Borrowing Procedure for Requesting
a Tranche A Advance. Aames Capital may request a Tranche A Advance on any
Business Day during the period from and including the Effective Date to the
Termination Date, by delivering to the Lender, with a copy to the Custodian, a
Mortgage Loan Data Transmission and a Notice of Borrowing and Pledge
substantially in the form of Exhibit D hereto (a "Notice of Borrowing and
Pledge"), appropriately completed, which must be received no later than 2:00
p.m. (eastern time) two Business Days prior to the requested Funding Date. Such
Notice of Borrowing and Pledge shall include a Mortgage Loan List in respect of
the Eligible Mortgage Loans, if applicable, that Aames Capital proposes to
pledge to the Lender and to be included in the Borrowing Base in connection with
such borrowing, if applicable.
(b) Borrowing Procedure for Requesting a Tranche C Advance Aames
Funding may request a Tranche C Advance on any Business Day during the period
from and including the Effective Date to the Termination Date, by delivering to
the Lender, with a copy to the Custodian, a Mortgage Loan Data Transmission and
a Notice of Borrowing and Pledge appropriately completed, which must be received
no later than 2:00 p.m. (eastern time) two Business Days prior to the requested
Funding Date. Such Notice of Borrowing and Pledge shall include a Mortgage Loan
List in respect of the Eligible Mortgage Loans, and a list of Cash Equivalents
that Aames Funding proposes to pledge to the Lender and to be included in the
Borrowing Base in connection with such borrowing.
(c) Upon the applicable Borrower's request for a borrowing pursuant
to Section 2.03(a) or 2.03(b) above, the Lender shall, assuming all conditions
precedent set forth in this Section 2.03 and in Section 5.01 and 5.02 have been
met, and provided no Default shall have occurred and be continuing (in
accordance with Section 2.01), not later than 2:00 p.m. (eastern time) on the
requested Funding Date make an Advance (determined by the Lender) in an amount
which would not cause the aggregate amount of Advances then outstanding to
exceed the lesser of (i) the Maximum Credit or (ii) the Borrowing Base shown on
the latest Borrowing Base Certificate of the Lender. Subject to the foregoing,
such borrowing will be made available to the applicable Borrower by the Lender
transferring, via wire transfer (pursuant to wire transfer instructions provided
by such Borrower on or prior to such Funding Date), in the aggregate amount of
such borrowing in funds immediately available to such Borrower.
(d) Borrowing Procedure for Requesting a Tranche B Advance. Aames
Capital may request a Tranche B Advance on any Business Day during the period
from and including the Effective Date to the Termination Date, by delivering to
the Lender the related Collateral and a Notice of Borrowing and Pledge
substantially in the form of Exhibit D.
(e) Upon Aames Capital's request for a borrowing pursuant to Section
2.01(a)(ii) and 2.03(d) above, the Lender may, in its sole discretion, assuming
all conditions precedent set forth in this Section 2.03 and in Section 5.01 and
5.02 have been met, and subject to any additional conditions precedent imposed
by the Lender upon Aames Capital from time to time, and provided further that no
Default shall have occurred and be continuing (in accordance with Section 2.01),
not later than 2:00 p.m. (eastern time) on the requested Funding Date make a
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Tranche B Advance. Subject to the foregoing, such borrowing will be made
available to Aames Capital by the Lender transferring, via wire transfer
(pursuant to wire transfer instructions provided by Aames Capital on or prior to
such Funding Date), in the aggregate amount of such borrowing in funds
immediately available to Aames Capital. Notwithstanding the foregoing, upon
satisfaction of the conditions set forth in Section 5.01 hereof the Lender shall
make a Tranche B Advance of $35,000,000 on the Effective Date.
2.04 Limitation on Types of Advances; Illegality. Anything herein to
the contrary notwithstanding, if, on or prior to the determination of any LIBO
Base Rate:
(a) the Lender determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in the
definition of "LIBO Base Rate" in Section 1.01 hereof are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
rates of interest for Advances as provided herein; or
(b) it becomes unlawful for the Lender to honor its obligation to
make or maintain Advances hereunder using a LIBO Rate;
then the Lender shall give the Borrowers prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Advances.
2.05 Repayment of Advances; Interest. (a) The Borrowers shall repay
in full on the Termination Date the then aggregate outstanding principal amount
of the Advances (as evidenced by the Note).
(b) No later than two (2) Business Days prior to each Payment Date,
the Lender shall provide to the Borrowers a report which shall state the
interest amount due for the current interest period on the Advance (including
the amount of interest which will accrue on such Advance on the Business Day
immediately preceding the related Payment Date) setting forth the amount of
interest accrued for such period for the Tranche A Advances, the Tranche B
Advances and the Tranche C Advances separately. The calculation on such report
shall be based upon information provided in the Servicing Transmission and the
report provided pursuant to Section 7.19.
(c) The Borrowers shall pay to the Lender interest on the unpaid
principal amount of each Advance for the period from and including the date of
such Advance to but excluding the date such Tranche A Advance, Tranche B Advance
and Tranche C Advance shall be paid in full, at a rate per annum equal to the
LIBO Rate plus the Applicable Margin related to the Tranche A Advance, the
Tranche B Advance and the Tranche C Advance, as applicable. Notwithstanding the
foregoing, the Borrowers shall pay to the Lender interest at the applicable
Post-Default Rate on any principal of any Advance and on any other amount
payable by the Borrowers hereunder or under the Note, that shall not be paid in
full when due (whether at stated maturity, by acceleration or by mandatory
prepayment or otherwise), for the period from and including the due date thereof
to but excluding the date the same is paid in full. Accrued interest on each
Advance as calculated in Section 2.05(b) above shall be payable monthly on each
Payment Date and on the Termination Date, except that interest payable at the
Post-Default Rate shall accrue daily and shall be payable promptly upon receipt
of invoice. Promptly after the determination of
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any interest rate provided for herein or any change therein, the Lender shall
give written notice thereof to the Borrowers.
2.06 Mandatory Prepayments or Pledge; Request for Release. (a) If at
any time the aggregate Collateral Value of all Collateral securing the Advances
is less than the outstanding Advances at such time (such deficit a "Borrowing
Base Deficiency"), as determined by the Lender and notified to the Borrowers on
any Business Day, the Borrowers shall no later than one Business Day after
receipt of such written notice, either prepay the Advances in part or in whole
or pledge additional Mortgage Loans or such other Collateral as may be
acceptable to the Lender in its sole discretion (which Collateral shall be in
all respects acceptable to the Lender) to the Lender, such that after giving
effect to such prepayment or pledge the aggregate outstanding principal amount
of the Advances does not exceed the Borrowing Base. If at any time the aggregate
Collateral Value of all Collateral exceeds the outstanding Advances at such time
(such excess a "Borrowing Base Excess"), then the Borrowers may by written
notice to the Lender, accompanied by a certificate of a Responsible Officer on
the date of such request certifying that no Default shall have occurred and be
continuing, request the Lender to transfer Mortgage Loans to the Borrowers, so
that the Collateral Value of the Collateral, after deduction of any Collateral
so transferred, will thereupon not exceed, but in no event be less than, the
outstanding Advances. Notwithstanding the foregoing, except as provided in
Section 4.10(a), the Lender shall have no obligation to release any Initial
Securities to Aames Capital until (i) all outstanding Tranche B Advances are
repaid in full and (ii) no Event of Default has occurred and is continuing.
(b) On the date of each Advance or other date on which there is a
change in the Mortgage Loans held by the Custodian, the Custodian shall deliver
to the Lender and the Borrowers the Custodian Loan Transmission. The Lender
shall deliver to the Borrowers a Borrowing Base Certificate in the form attached
hereto as Exhibit H, the calculation in such certificate to be based on the
delinquency status and principal balance of the Eligible Mortgage Loans as of
the later of the Funding Date balance or such date when more recent information
is available). Such information shall be ascertained from the Servicing
Transmission which shall be delivered or caused to be delivered by the Borrowers
in accordance with Section 7.19 and shall include all Mortgage Loans which were
funded on or prior to the last calendar day of the previous month.
2.07 Optional Prepayments. (a) The Advances are prepayable without
premium or penalty, in whole or in part on each Payment Date after providing not
less than five (5) Business Days prior notice. The Advances are prepayable at
any other time, in whole or in part, in accordance herewith and subject to
clause (b) below. Any amounts prepaid shall be applied to repay the outstanding
principal amount of any Advances (together with interest thereon) until paid in
full. Amounts repaid may be reborrowed in accordance with the terms of this
Warehouse Agreement. If the either Borrower intends to prepay an Advance in
whole or in part from any source, such Borrower shall give five (5) Business
Days' prior written notice thereof to the Lender. If such notice is given, the
amount specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to such date on the amount prepaid.
Partial prepayments shall be in an aggregate principal amount of at least
$100,000.
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(b) If either Borrower makes a prepayment of the Advances other than
as provided in Section 2.07(a) above, the Borrowers shall indemnify the Lender
and hold the Lender harmless from any actual loss or expense which the Lender
may sustain or incur arising from (a) the deployment of funds obtained by the
Lender to maintain the Advances hereunder or from (b) fees payable to terminate
the deposits from which such funds were obtained, in either case, which actual
loss or expense shall be equal to an amount equal to the excess, as reasonably
determined by the Lender, of (i) its cost of obtaining funds for such Advances
for the period from the date of such payment through the following Payment Date
over (ii) the amount of interest likely to be realized by such Lender in
redeploying the funds not utilized by reason of such payment for such period.
This Section 2.07 shall survive termination of this Warehouse Agreement and
payment of the Note.
2.08 Requirements of Law. (a) If any Requirement of Law (other than
with respect to any amendment made to the Lender's certificate of incorporation
and by-laws or other organizational or governing documents) or any change in the
interpretation or application thereof or compliance by the Lender with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority made subsequent to the date hereof:
(i) shall subject the Lender to any tax of any kind whatsoever with
respect to this Warehouse Agreement, the Note or any Advance made by it
(excluding net income taxes) or change the basis of taxation of payments
to the Lender in respect thereof;
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory Advance or similar requirement against assets held by
deposits or other liabilities in or for the account of advances. Advances
or other extensions of credit by, or any other acquisition of funds by any
office of the Lender which is not otherwise included in the determination
of the LIBO Base Rate hereunder;
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Advance made after the Effective Date or to reduce any amount
receivable hereunder in respect thereof, then, in any such case, the Borrowers
shall promptly pay the Lender such additional amount or amounts as will
compensate the Lender for such increased cost or reduced amount receivable
thereafter incurred or shall prepay the aggregate amount of outstanding
Advances. Any prepayment made by the Borrowers as a result of the application of
this Section 2.08(a) shall not be subject to the provisions of Section 2.07(b).
(b) If the Lender shall have determined that the adoption of or any
change in any Requirement of Law (other than with respect to any amendment made
to the Lender's certificate of incorporation and by-laws or other organizational
or governing documents) regarding capital adequacy or in the interpretation or
application thereof or compliance by the Lender or any corporation controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which
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the Lender or such corporation (taking into consideration the Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
the Lender to be material, then from time to time, the Borrowers shall promptly
pay to the Lender such additional amount or amounts as will thereafter
compensate the Lender for such reduction or shall prepay the aggregate amount of
outstanding Advances. Any prepayment made by the Borrowers as a result of the
application of this Section 2.08(b) shall not be subject to the provisions of
Section 2.07(b).
(c) If the Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrowers of the event
by reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this subsection submitted by the Lender to the
Borrowers shall be conclusive in the absence of manifest error.
2.09 Renewal of Termination Date. (a) At the request of Borrowers,
at least thirty (30) days prior to the then Termination Date, the Lender may in
its sole discretion renew this Warehouse Agreement with a new Termination Date
for the Tranche A Advances and Tranche C Advances for a period of 364 days by
giving written notice of such renewal to the Borrowers no later than twenty (20)
days, but in no event more than thirty (30) days, prior to the Termination Date.
(b) Provided that (i) no Default or Event of Default has occurred
and is continuing, and (ii) no Scheduled Amortization Deviation has occurred,
this Warehouse Agreement shall be automatically renewed for the Tranche B
Advances for a period of 364 days (the "Automatic Renewal Period"). After the
expiration of the Automatic Renewal Period, this Warehouse Agreement shall be
further renewed for the Tranche B Advances on a month to month basis for a
period of up to six (6) months, provided that, as of the Payment Date for each
such month no Scheduled Amortization Deviation has occurred, (x) no Default or
Event of Default has occurred and is continuing, and (y) the unpaid principal
balance of the Tranche B Advances, including the Release Fee, if any, plus
interest accrued thereon as of the Payment Date in the next succeeding month
(the "Projected Balance") does not exceed $12,000,000, and (z) the Projected
Balance does not exceed 35% of the Pledged Securities Value of the Initial
Securities.
Section 3. Payments; Computations; Taxes.
3.01 Payments. Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrowers
under this Warehouse Agreement and the Note, shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
Lender at the following account maintained by the Lender at The Chase Manhattan
Bank: Account Number 140095961, For the A/C of Greenwich Capital Financial
Products, Inc., ABA# 021000021, Attn: Brett Kibbe, not later than 2:00 p.m.,
eastern time, on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day) or such other account as a Responsible Officer
of the Lender may direct through written notice to the Borrowers. The Borrowers
acknowledge that they have no rights of withdrawal from the foregoing account.
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3.02 Computations. Interest on the Advances shall be computed on the
basis of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
3.03 [Intentionally Omitted]
3.04 Release Fee. In the event Aames Capital fails to appoint
Greenwich Capital Markets, Inc. as lead manager in accordance with the
Securitization Agreement, the Borrowers shall owe a Release Fee which Release
Fee shall constitute a Secured Obligation hereunder. Notwithstanding the
foregoing, the Release Fee shall be added to the Scheduled Amortization Balance
at the earlier of the date of such failure and the second (2nd) anniversary of
the Effective Date.
3.05 Application of Collections. (a) Aames Capital shall remit the
Tranche B Collections received by it or its Affiliates in accordance with this
Section 3.05(a) on each Payment Date, provided that no Event of Default shall
have occurred and be continuing. In the event that an Event of Default shall
have occurred and is continuing the Tranche B Collections shall promptly be
remitted by Aames Capital to the Lender in accordance with Section 4.06. With
respect to Tranche B Collections, on each Payment Date, until an Event of
Default shall have occurred and is continuing, and subject to the provisions of
Section 4.10(b), the Lender shall cause the Tranche B Collections to be applied
in the following order of priority:
(i) FIRST, to any costs and expenses due under any of the Loan
Documents attributable to the Tranche B Advances;
(ii) SECOND, to the Lender, in an amount equal to all accrued and
unpaid interest on the Tranche B Advances through such Payment Date;
(iii) THIRD, to the Lender, for payment of the outstanding principal
balance of the Tranche B Advances, (A) in an amount equal to the Actual
Amortization Amount for such month, or (B) if a Scheduled Amortization
Deviation has occurred, until such outstanding principal balance of the
Tranche B Advances equals zero;
(iv) FOURTH, to the Lender, any costs and expenses due under the
Loan Documents;
(v) FIFTH, to the Lender, in an amount equal to all accrued and
unpaid interest on the Tranche A Advances and Tranche C Advances through
such Payment Date;
(vi) SIXTH, to the Lender, any Borrowing Base Deficiency to the
extent not paid pursuant to Section 2.06;
(vii) SEVENTH, the excess, if any, to Aames Capital.
(b) To the extent not paid by Tranche B Collections as described in
Section 3.05(a) above, on each Payment Date, until an Event of Default shall
have occurred and is continuing, the Borrowers shall make payments to the Lender
as follows:
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(i) FIRST, any costs and expenses due under any of the Loan
Documents;
(ii) SECOND, in an amount equal to all accrued and unpaid interest
on the Advances through such Payment Date;
(iii) THIRD, any Borrowing Base Deficiency to the extent not paid
pursuant to Section 2.06; and
(iv) FOURTH, the Minimum Scheduled Amortization Shortfall Payment,
if any, which shall be applied to the reduction of Tranche B Advances.
3.06 Reamortization of Tranche B. If on any Payment Date, (a) the
unpaid principal balance of the Tranche B Advances is 85% or less of the
Scheduled Amoritization Balance for such Payment Date, (b) no Default or Event
of Default exists, and (c) no Scheduled Amortization Deviation has occurred, the
Lender and the Borrower shall negotiate in good faith a reamortization of the
outstanding Tranche B Advances taking into account the performance of the
Initial Securities and the expected cash flow of the Initial Securities over the
remaining amortization period.
Section 4. Collateral Security.
4.01 Collateral; Security Interest. (a) Pursuant to the Custodial
Agreement, the Custodian shall hold the Mortgage Loan Documents as exclusive
bailee and agent for the Lender pursuant to the terms of the Custodial Agreement
and shall deliver to the Lender Trust Receipts with Exception Reports (as such
terms are defined in the Custodial Agreement) to the effect that it has reviewed
such Mortgage Loan Documents in the manner required by the Custodial Agreement
and identifying any deficiencies in such Mortgage Loan Documents as so reviewed.
(b) Each of the following items or types of property, whether now
owned or hereafter acquired, now existing or hereafter created and wherever
located, is hereinafter referred to as the "Collateral":
(i) all Mortgage Loans identified on a Notice of Borrowing and
Pledge delivered by the Borrowers to the Lender and the Custodian from
time to time;
(ii) all other Property delivered by the Borrowers to the Lender or
the Custodian from time to time to be held as "collateral" hereunder;
(iii) all Mortgage Loan Documents, including without limitation all
promissory notes, and all Servicing Records (as defined in Section
10.15(b) below), and any other collateral pledged or otherwise relating to
such Mortgage Loans, together with all files, material documents,
instruments, surveys (if available), certificates, correspondence,
appraisals, computer records, computer storage media, Mortgage Loan
accounting records and other books and records relating thereto;
(iv) the Borrowers' interest in all mortgage guaranties and
insurance (issued by governmental agencies or otherwise) and any mortgage
insurance certificate or other
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document evidencing such mortgage guaranties or insurance relating to any
Mortgage Loans and all claims and payments thereunder;
(v) the Borrowers' interest in all other insurance policies and
insurance proceeds relating to any Mortgage Loans or the related Mortgaged
Property;
(vi) all Interest Rate Protection Agreements relating to any or all
of the foregoing;
(vii) any Governing Agreements, purchase agreements or other similar
agreements constituting any or all of the foregoing;
(viii) all purchase or take-out commitments relating to or
constituting any or all of the foregoing;
(ix) all Pledged Securities identified herein;
(x) all "securities accounts" (as defined in Section 8-501(a) of the
Uniform Commercial Code) to which any or all of the Pledged Securities are
or may be credited;
(xi) the Limited Partnership Interest;
(xii) all of Aames Capital's rights to reimbursement of Servicing
Advance Receivables;
(xiii) all "supporting obligations" within the meaning of the
Uniform Commercial Code as in effect from time to time;
(xiv) all "investment property", "accounts", "chattel paper" and
"general intangibles" as defined in the Uniform Commercial Code relating
to or constituting any or all of the foregoing; and
(xv) any and all replacements, substitutions, distributions on or
proceeds of any or all of the foregoing.
(c) Each Borrower hereby assigns, pledges and grants a security
interest to the Lender in all of its right, title and interest in, to and under
all the Collateral, whether now owned or hereafter acquired, now existing or
hereafter created and wherever located, to secure the repayment of principal of
and interest on all Advances and all other amounts owing to the Lender
hereunder, under the Note and under the Warehouse Agreement (collectively, the
"Secured Obligations"). The Borrowers agree to mark their computer records and
tapes to evidence the security interests granted to the Lender hereunder.
(d) The Lender as "entitlement holder" (as defined in Section
8-102(a) of the Uniform Commercial Code) with respect to the Pledged Securities,
shall be entitled to receive all cash dividends and distributions paid in
respect thereof and shall apply same in accordance with Section 3.05(a) hereof.
Aames Capital and the Lender agree that Aames Capital shall direct the Trustee
to make all payments with respect to any Pledged Securities directly to the
Lender.
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Unless an Event of Default shall have occurred and be continuing, Aames
Capital shall be entitled to exercise all voting and corporate rights with
respect to the Pledged Securities, and Lender shall exercise such rights on
Aames Capital's behalf during the time in which Lender is the registered holder
of such Pledged Securities, provided, however, that no vote shall be cast or
other action taken which, in Lender's judgment, would impair the Pledged
Securities or which would be inconsistent with or result in any violation of any
provision of this Warehouse Agreement.
(e) Aames Capital shall deliver to the Lender Pledged Securities
with all necessary documents to re-register such Pledged Securities in the name
of the Lender on or prior to the date on which such Borrower pledges such
Pledged Securities to the Lender. The Lender or its other designee shall have
the rights of conversion, exchange, subscription and any other rights,
privileges and options pertaining to such Pledged Securities with any committee,
depository transfer, agent, register or other designated agency upon such terms
and conditions as the Lender may determine.
(f) Notification to Trustee. Concurrently with the delivery to
Lender of each certificate representing one or more of the Pledged Securities,
(A) Aames Capital shall have (1) notified the Trustee in connection with the
related securitization transaction of the pledge of the related Pledged
Securities hereunder, and (2) instructed the Trustee to pay all amounts payable
to the holders of the Pledged Securities to an account specified by the Lender,
in the form of the instruction letter attached hereto as Exhibit K (the "Trustee
Instruction Letter") and (B) the Trustee shall have acknowledged in writing the
instructions set forth in clause (A) above, and a copy of the fully executed
Trustee Instruction Letter shall be delivered to the Lender.
4.02 Further Documentation. At any time and from time to time, upon
the written request of the Lender, and at the sole expense of the Borrowers, the
Borrowers will promptly and duly execute and deliver, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Warehouse Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The Borrowers also
hereby authorize the Lender to file any such financing or continuation statement
without the signature of either Borrower to the extent permitted by applicable
law. A carbon, photographic or other reproduction of this Warehouse Agreement
shall be sufficient as a financing statement for filing in any jurisdiction.
4.03 Changes in Locations, Name, etc. Neither Borrower shall (i)
change the location of its chief executive office/chief place of business from
that specified in Section 6 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have given
the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed reasonably necessary by the Lender to continue its perfected status in
the Collateral with the same or better priority.
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4.04 Lender's Appointment as Attorney-in-Fact. (a) Each Borrower
hereby irrevocably constitutes and appoints the Lender and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of such Borrower and in the name of such Borrower or in its own name, from
time to time in the Lender's discretion, for the purpose of carrying out the
terms of this Warehouse Agreement, in the form of Exhibit L attached hereto, to
take any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Warehouse Agreement, and, without limiting the generality of the foregoing,
such Borrower hereby gives the Lender the power and right, on behalf of such
Borrower, without assent by, but with notice to, such Borrower, if an Event of
Default shall have occurred and be continuing, to do the following:
(i) in the name of the applicable Borrower or its own name, or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of moneys
due under any mortgage insurance or with respect to any other Collateral
and to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Lender for
the purpose of collecting any and all such moneys due under any such
mortgage insurance or with respect to any other Collateral whenever
payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to
ask or demand for, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against either Borrower with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith, to
give such discharges or releases as the Lender may deem appropriate; and
(G) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner thereof for all
purposes, and to do, at the Lender's option and the Borrowers' expense, at
any time, or from time to time, all acts and things which the Lender deems
necessary to protect, preserve or realize upon the Collateral and the
Lender's Liens thereon and to effect the intent of this Warehouse
Agreement, all as fully and effectively as the Borrowers might do.
The Borrowers hereby ratify all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
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(b) The Borrowers also authorize the Lender, at any time and from
time to time, to execute, in connection with the sale provided for in Section
4.07 hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrowers for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
4.05 Performance by Lender of either Borrower's Obligations. If
either Borrower fails to perform or comply with any of its material agreements
contained in the Loan Documents and the Lender may itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the reasonable
out-of-pocket expenses of the Lender incurred in connection with such
performance or compliance, together with interest thereon at a rate per annum
equal to the Post-Default Rate, shall be payable by the Borrowers to the Lender
on demand and shall constitute Secured Obligations.
4.06 Proceeds. If an Event of Default shall occur and be continuing,
(a) all proceeds of Collateral received by the Borrowers consisting of cash,
checks and other near-cash items shall be held by the Borrowers in trust for the
Lender, segregated from other funds of the Borrowers, and shall forthwith upon
receipt by the Borrowers be turned over to the Lender in the exact form received
by the Borrowers (duly endorsed by the Borrowers to the Lender, if required) and
(b) any and all such proceeds received by the Lender will be applied by the
Lender against, the Secured Obligations. Any balance of such proceeds remaining
after the Secured Obligations shall have been paid in full and this Warehouse
Agreement shall have been terminated shall be promptly paid over to the
Borrowers or to whomsoever may be contractually entitled to receive the same.
For purposes hereof, proceeds shall include, but not be limited to, all
principal and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
4.07 Remedies. (a) If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Warehouse Agreement and in any other instrument
or agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Lender without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Borrowers or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels or as
an entirety at public or private sale or sales, at any exchange, broker's board
or office of the Lender or elsewhere upon such terms and conditions and at
prices that are consistent with the prevailing market for similar collateral as
it may deem
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advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Lender shall act in
good faith to seek to obtain the best execution possible under prevailing market
conditions. The Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Borrowers, which right or equity is hereby waived or
released. The Lender may, on one or more occasions, postpone or adjourn any such
sale by public announcement at the time of such sale. The Lender shall give the
Borrowers prior or concurrent notice of any such postponement or adjournment.
The Borrowers further agree, at the Lender's request, to assemble the Collateral
and make it available to the Lender at places which the Lender shall reasonably
select, whether at either Borrower's premises or elsewhere. The Lender shall
apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Lender
hereunder, including, without limitation, reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Secured Obligations, in
such order as the Lender may elect, and only after such application and after
the payment by the Lender of any other amount required or permitted by any
provision of law, including, without limitation, Section 9-504(1)(c) of the
Uniform Commercial Code, need the Lender account for the surplus, if any, to the
Borrowers. To the extent permitted by applicable law, the Borrowers all claims,
damages and demands they may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, other than those claims,
damages and demands arising from the gross negligence or willful misconduct of
the Lender. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Borrowers
shall remain liable for any deficiency (plus accrued interest thereon as
contemplated pursuant to Section 2.05(c) hereof) if the proceeds of any sale or
other disposition of the Collateral are insufficient to pay the Secured
Obligations and the reasonable fees and disbursements of any attorneys employed
by the Lender to collect such deficiency.
(b) The Borrowers recognize that Lender may be unable to effect a
public sale of any or all of the Pledged Securities, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Borrowers acknowledge and agree that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. Lender shall be
under no obligation to delay a sale of any of the Pledged Securities for the
period of time necessary to permit any issuer of such Pledged Securities to
register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if any such issuer would agree to do so.
4.08 Limitation on Duties Regarding Presentation of Collateral. The
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither
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the Lender nor any of its directors, officers or employees shall be liable for
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Borrowers or otherwise.
4.09 Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
4.10 Release of Security Interest. (a) Except as may otherwise be
provided by any other agreement executed by the Borrowers and the Lender, upon
termination of this Warehouse Agreement and repayment to the Lender of all
Secured Obligations and the performance of all obligations under the Loan
Documents the Lender shall release its security interest in any remaining
Collateral; provided that if any payment, or any part thereof, of any of the
Secured Obligations is rescinded or must otherwise be restored or returned by
the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of either Borrower, or upon or as a result of the appointment of
a receiver, intervenor or conservator of, or a trustee or similar officer for
such Borrower or any substantial part of its Property, or otherwise, this
Warehouse Agreement, all rights hereunder and the Liens created hereby shall
continue to be effective, or be reinstated, until such payments have been made.
Upon the request of Aames Capital after the twelfth (12th) Payment Date, the
Lender shall release its security interest on a Future Residual Security pledged
to the Lender, as selected by the Lender, provided that (i) the unpaid principal
balance of the Tranche B Advances following such twelfth (12th) Payment Date is
less than or equal to the Scheduled Amortization Balance as of such month, (ii)
no Default or Event of Default exists under the Warehouse Agreement; and (iii)
and sufficient documentation, in the Lender's sole discretion, has been executed
by a third-party lender or purchaser in connection with the purchase or
financing of such Future Residual Security.
(b) Upon the repayment in full of the outstanding Tranche B
Advances, the Lender shall release all Initial Haircut Collateral to Aames
Capital or such other Person as Aames Capital may direct in writing, provided,
that, no Event of Default has occurred and is continuing.
Section 5. Conditions Precedent.
5.01 Initial Advance. The obligation of the Lender to make its
initial Advance hereunder is subject to the satisfaction, immediately prior to
or concurrently with the making of such Advance, of the following conditions
precedent:
(a) Warehouse Agreement. The Lender shall have received this
Warehouse Agreement, executed and delivered by a duly authorized officer of the
Borrowers.
(b) Loan Documents. The Lender shall have received the following
documents, each of which shall be satisfactory to the Lender in form and
substance:
(i) Note. The Note, duly completed and executed;
(ii) Custodial Agreement. The Custodial Agreement, duly executed and
delivered by the Borrowers and the Custodian. In addition, the Borrowers
shall have filed
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all Uniform Commercial Code and related filings and performed under the
Custodial Agreement and taken such other action as the Lender shall have
requested in order to perfect the security interests created pursuant to
the Warehouse Agreement; and
(iii) Guaranty. The Guaranty, duly executed and delivered by the
Guarantor;
(iv) Payment and Reimbursement Agreement. The Payment and
Reimbursement Agreement duly executed and delivered by Capital Z;
(v) Fee Agreement. The Fee Agreement duly executed and delivered by
Aames Capital.
(c) Organizational Documents. A good standing certificate and
certified copies of the charter and by-laws (or equivalent documents) of each
Loan Party and of all corporate or other authority for such Loan Party with
respect to the execution, delivery and performance of the Loan Documents and
each other document to be delivered by such Loan Party from time to time in
connection herewith (and the Lender may conclusively rely on such certificate
until it receives notice in writing from the applicable Loan Party to the
contrary).
(d) Legal Opinion. A legal opinion of counsel to the Borrowers,
substantially in the form attached hereto as Exhibit C.
(e) Securitization Agreement. The Lender shall have received the
Securitization Agreement, in form and substance satisfactory to the Lender and
executed by a duly authorized officer of the Borrowers.
(f) Filings, Registrations, Recordings. Any documents (including,
without limitation, financing statements) required to be filed, registered or
recorded in order to create, in favor of the Lender, a perfected, first-priority
security interest in the Collateral, subject to no Liens other than those
created hereunder, shall have been properly prepared and executed for filing
(including the applicable county(ies) if the Lender determines such filings are
necessary in its reasonable discretion), registration or recording in each
office in each jurisdiction in which such filings, registrations and
recordations are required to perfect such first-priority security interest.
(g) Financial Statements. The Lender shall have received the
available quarterly financial statements referenced in Section 7.01(a).
(h) Underwriting Guidelines. The Lender and the Borrowers shall have
agreed upon the Qualified Originators' current Underwriting Guidelines for the
Mortgage Loans and the Lender shall have received a copy thereof.
(i) Consents, Licenses, Approvals, etc. The Lender shall have
received copies certified by the Borrowers of all consents, licenses and
approvals, if any, required in connection with the execution, delivery and
performance by the Borrowers of, and the validity and enforceability of, the
Loan Documents, which consents, licenses and approvals shall be in full force
and effect.
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(j) Insurance. The Lender shall have received evidence in form and
substance satisfactory to the Lender showing compliance by the Borrowers as of
such initial Funding Date with Section 7.21 hereof.
(k) Trustee Instruction Letter. The Lender shall have received a
Trustee Instruction Letter in the form attached hereto as Exhibit K executed by
Aames Capital.
(l) Instruction Letter. The Lender shall have received Instruction
Letters in the form attached hereto as Exhibit J executed by the Borrowers.
(m) Other Documents. The Lender shall have received such other
documents as the Lender or its counsel may reasonably request.
5.02 Initial and Subsequent Advances. The making of each Advance to
the Borrowers (including the initial Advance) on any Business Day is subject to
the following further conditions precedent, both immediately prior to the making
of such Advance and also after giving effect thereto and to the intended use
thereof:
(a) no Default or Event of Default shall have occurred and be
continuing or would be created by the making of such Advance;
(b) both immediately prior to the making of such Advance and also
after giving effect thereto and to the intended use thereof, the representations
and warranties made by the Borrowers in Section 6 hereof, and in each of the
other Loan Documents, shall be true and complete on and as of the date of the
making of such Advance in all material respects (in the case of the
representations and warranties in Section 6.24 and Schedule 1, solely with
respect to Mortgage Loans included in the Borrowing Base) with the same force
and effect as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date). At the request of the Lender, the Lender shall have received an
officer's certificate signed by a Responsible Officer of the applicable Borrower
certifying as to the truth and accuracy of the above, which certificate shall
specifically include a statement that such Borrower is in compliance with all
governmental licenses and authorizations and is qualified to do business and in
good standing in all required jurisdictions;
(c) The Pledged Securities shall have been delivered to Lender or
its agent and registered in the name of the Lender or with all necessary
documents to re-register such Pledged Securities in the name of the Lender;
(d) the aggregate outstanding principal amount of the Advances shall
not exceed the Borrowing Base;
(e) subject to the Lender's right to perform one or more Due
Diligence Reviews pursuant to Section 10.16 hereof, the Lender shall have
completed its due diligence view of the Mortgage Loan Documents for each Advance
and such other documents, records, agreements, instruments, mortgaged properties
or information relating to such Advances and the Borrowers as the Lender in its
reasonable discretion deems appropriate to review and such review shall be
satisfactory to the Lender in its reasonable discretion;
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(f) the Lender shall have received a Notice of Borrowing and Pledge,
Loan List and Mortgage Loan Data Transmission and all other documents required
under Section 2.03;
(g) the Lender shall have received from the Custodian a Custodian
Loan Transmission and one or more Trust Receipts in respect of Mortgage Loans to
be pledged hereunder on such Business Day and an Exception Report, in each case
dated such Business Day and duly completed;
(h) if any Mortgage Loans to be pledged hereunder were acquired by
the Borrowers, such Mortgage Loans shall conform to the Underwriting Guidelines
or the Lender shall have received Underwriting Guidelines for such Mortgage
Loans acceptable to the Lender in its reasonable discretion;
(i) the Lender shall have received all information requested from
the Borrowers relating to Interest Rate Protection Agreements pursuant to
Section 7.24, and the Lender shall have reasonably determined that such Interest
Rate Protection Agreements adequately protect the Borrowers from interest rate
fluctuations;
(j) the Lender shall have received, no later than 10:00 a.m. three
(3) days prior to the requested Funding Date, an Instruction Letter, executed by
the applicable Borrower, with the related Servicing Agreement (as defined in
Section 10.15(c)) attached thereto, which such Servicing Agreement shall be in
form and substance acceptable to Lender;
(k) the following documents shall have been delivered to the Lender
with respect to the Pledged Securities: (i) the original documents described in
Sections 4.01(e) and (f) hereof, (ii) a copy of the executed Pooling and
Servicing Agreement governing the Pledged Securities and/or any supplements
thereto, each certified by Aames Capital or the Trustee or master servicer under
such Pooling and Servicing Agreement as a true, correct and complete copy of the
original, and all ancillary documents required to be delivered to the
certificateholders under such Pooling and Servicing Agreement, and (iii) copies
of distribution statements delivered by the Trustee for two months prior to the
month in which the related Request for Borrowing is made, if any, certified by
the applicable servicer or master servicer as true and correct; and
(l) with respect to making any Tranche A Advances or Tranche C
Advances, if at any time after the Effective Date, either Borrower shall have
materially amended or modified its Underwriting Guidelines, such Borrower shall
have delivered to the Lender a complete copy of such amended or modified
Underwriting Guidelines and the Lender shall have consented in writing to such
material amendment or modification.
Each request for a borrowing by either Borrower hereunder shall constitute a
certification by such Borrower to the effect set forth in this Section (both as
of the date of such notice, request or confirmation and as of the date of such
borrowing).
Notwithstanding any other terms and conditions of this Warehouse
Agreement, Aames Funding shall not be required to satisfy any conditions
precedent other than those provided in Section 5.01(a), 5.01(b)(i) and
5.01(b)(ii) until such date as Aames Funding shall request an Advance hereunder,
at which time it shall be a condition precedent to the Lender making such
Advance that Aames Funding shall have satisfied all conditions provided herein.
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Section 6. Representations and Warranties. The Borrowers represent
and warrant to the Lender that throughout the term of this Warehouse Agreement:
6.01 Existence. The Borrowers (a) are corporations duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) have all requisite corporate or other power, and have all
governmental licenses, authorizations, consents and approvals, necessary to own
their assets and carry on their business as now being or as proposed to be
conducted, except where the lack of such licenses, authorizations, consents and
approvals would not be reasonably likely to have a material adverse effect on
their property, business or financial condition, or prospects; and (c) are
qualified to do business and are in good standing in all other jurisdictions in
which the nature of the business conducted by either Borrower makes such
qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a material
adverse effect on its property, business or financial condition, or prospects
and (d) are in compliance in all material respect with all Requirements of Law.
6.02 Financial Condition. The Guarantor has heretofore furnished to
the Lender a copy of its Annual Report on Form 10-K which includes audited
consolidated financial statements at and for the fiscal year ended June 30, 1999
with the opinion thereon of Ernst & Young LLP. All such financial statements are
materially complete and correct and fairly present the consolidated financial
condition of the Guarantor and its Subsidiaries and the consolidated results of
their operations for the fiscal year ended on said date, all in accordance with
GAAP applied on a consistent basis. The Guarantor has heretofore furnished to
the Lender a copy of its Quarterly Report on Form 10-Q which includes unaudited
consolidated financial statements at and for the fiscal quarter ended September
30, 1999. All such financial statements are materially complete and correct and
fairly present the consolidated financial condition of the Guarantor and its
Subsidiaries and the consolidated results of their operations for the fiscal
quarter ended on said date, all in accordance with GAAP applied on a consistent
basis.
6.03 Litigation. There are no actions, suits, arbitrations,
investigations or proceedings pending or, to its knowledge, threatened against
either Borrower or any of its Subsidiaries or affecting any of the property
thereof before any Governmental Authority, (i) as to which individually or in
the aggregate there is a reasonable likelihood of an adverse decision which
would be reasonably likely to have a material adverse effect on the property,
business or financial condition, or prospects of such Borrower or (ii) which
questions the validity or enforceability of any of the Loan Documents or any
action to be taken in connection with the transactions contemplated hereby and
there is a reasonable likelihood of a materially adverse effect or decision.
6.04 No Breach. Neither (a) the execution and delivery of the Loan
Documents or (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will conflict with or result in
a breach of the charter or by-laws of the either Borrower, or any applicable
law, rule or regulation, or any order, writ, injunction or decree of any
Governmental Authority, or other material agreement or instrument to which such
Borrower, or any of its Subsidiaries, is a party or by which any of them or any
of their property is bound or to which any of them is subject, or constitute a
default under any such material agreement or instrument, or (except for the
Liens created pursuant to this Warehouse Agreement)
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result in the creation or imposition of any Lien upon any property of either
Borrower or any of its Subsidiaries, pursuant to the terms of any such agreement
or instrument.
6.05 Action. Each Borrower has all necessary corporate or other
power, authority and legal right to execute, deliver and perform its obligations
under each of the Loan Documents to which it is a party; the execution, delivery
and performance by such Borrower of each of the Loan Documents to which it is a
party has been duly authorized by all necessary corporate or other action on its
part; and each Loan Document has been duly and validly executed and delivered by
such Borrower and constitutes a legal, valid and binding obligation such the
Borrower, enforceable against such Borrower in accordance with its terms.
6.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority, or any other Person,
are necessary for the execution, delivery or performance by either Borrower of
the Loan Documents to which it is a party or for the legality, validity or
enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to this Warehouse Agreement.
6.07 Margin Regulations. Neither the making of any Advance
hereunder, nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation T, U or X.
6.08 Taxes. Each Borrower and its Subsidiaries have filed all
Federal income tax returns and all other material tax returns that are required
to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any of them, except for any such taxes,
if any, that are being appropriately contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
have been provided. The charges, accruals and reserves on the books of each
Borrower and its Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of such Borrower, adequate.
6.09 Investment Company Act. Neither Borrower nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. Neither Borrowers is subject to any Federal or state statute or
regulation which limits its ability to incur indebtedness.
6.10 No Legal Bar. The execution, delivery and performance of this
Warehouse Agreement and the Note, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of either Borrower or of any of its Subsidiaries and will not result
in, or require, the creation or imposition of any Lien (other than the Liens
created hereunder) on any of its or their respective properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation.
6.11 No Default. Neither Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which should reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.
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6.12 Collateral; Collateral Security. (a) Neither Borrower has
assigned, pledged, nor otherwise conveyed or encumbered any Collateral to any
other Person, and immediately prior to the pledge of any such Collateral, such
Borrower was the sole owner of such Collateral and had good and marketable title
thereto, free and clear of all Liens, in each case except for Liens to be
released simultaneously with the Liens granted in favor of the Lender hereunder
and no Person other than such Borrower has any Lien on any Collateral.
(b) All of the Pledged Securities have been validly issued, and are
fully paid and non-assessable, and the Pledged Securities have been offered,
issued and sold in compliance with all applicable laws. There are no outstanding
rights, options, warrants or agreements for the purchase from, or sale or
issuance, in connection with the Pledged Securities; there are no agreements on
the part of Aames Capital to issue, sell or distribute the Pledged Securities;
and Aames Capital has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any securities or any interest therein or to pay any
dividend or make any distribution in respect of the Pledged Securities. Aames
Capital has not executed any call rights with respect to the Pledged Securities.
(c) The provisions of this Warehouse Agreement are effective to
create in favor of the Lender a valid security interest in all right, title and
interest of the Borrowers in, to and under the Collateral.
(d) Upon receipt by the Custodian of each Mortgage Note, endorsed in
blank by a duly authorized officer of the applicable Borrower, the Lender shall
have a fully perfected first priority security interest therein, in the Mortgage
Loan evidenced thereby and in such Borrower's interest in the related Mortgaged
Property.
(e) Upon the filing of financing statements on Form UCC-1 naming the
Lender as "Secured Party" and the applicable Borrower as "Debtor", and
describing the Collateral, in the jurisdictions and recording offices listed on
Schedule 3 attached hereto, the security interests granted hereunder in the
Collateral will constitute fully perfected first priority security interests
under the Uniform Commercial Code in all right, title and interest of such
Borrower in, to and under such Collateral, which can be perfected by filing
under the Uniform Commercial Code.
6.13 Chief Executive Office; Chief Operating Office. The Borrowers'
chief executive office and chief operating office on the Effective Date is
located, and for the four months immediately preceding the date hereof has been
located, at 350 South Grand Avenue, Los Angeles, California 90071.
6.14 Location of Books and Records. The location where the Borrowers
keeps their books and records including all computer tapes and records relating
to the Collateral is their chief executive office or chief operating office or
the offices of the Custodian.
6.15 Ownership by Aames Capital of the Pledged Securities. Aames
Capital owns beneficially and of record all of the Pledged Securities.
6.16 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules, other than interim financial
statements, furnished in writing by or on behalf of the Borrowers to the Lender
in connection with the negotiation, preparation or
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delivery of this Warehouse Agreement and the other Loan Documents or included
herein or therein or delivered pursuant hereto or thereto, when taken as a
whole, do not, contain any untrue statement of material fact or omit to state
any material fact necessary to make the statements herein or therein, in light
of the circumstances under which they were made, not misleading. The September
30, 1999 Form 10-Q and financial statements contained therein do not, as of the
date of their filing, contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Borrowers to
the Lender in connection with this Warehouse Agreement and the other Loan
Documents and the transactions contemplated hereby and thereby will be true,
complete and accurate in every material respect, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified.
6.17 Tangible Net Worth; Liquidity. Aames Capital's Tangible Net
Worth is not less than $365,000,000 and Aames Capital has cash, Cash Equivalents
and unused borrowing capacity on unencumbered assets that could be drawn against
(taking into account required haircuts) under committed warehouse facilities in
an amount not less than $1,000,000.
6.18 ERISA. Each Plan to which the each Borrower or its Subsidiaries
make direct contributions, and, to the knowledge of such Borrower, each other
Plan and each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or State law. No
event or condition has occurred and is continuing as to which such Borrower
would be under an obligation to furnish a report to the Lender under Section
7.01(d) hereof.
6.19 Licenses. The Lender will not be required solely as a result of
financing or taking a pledge of the Collateral to be licensed, registered or
approved or to obtain permits or otherwise qualify (i) to do business in any
state in which it is not currently so required or (ii) under any state consumer
lending, fair debt collection or other applicable state statute or regulation.
6.20 Relevant States. Schedule 4 sets forth all of the states or
other jurisdictions (the "Relevant States") in which the Qualified Originators
originate Mortgage Loans in their own names or through brokers on the date of
this Warehouse Agreement.
6.21 True Sales. Any and all interest of a Qualified Originator in,
to and under any Mortgage funded in the name of or acquired by such Qualified
Originator has been sold, transferred, conveyed and assigned to the applicable
Borrower pursuant to a legal sale and such Qualified Originator retains no
interest in such Mortgage Loan.
6.22 No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of either Borrower or any of its Subsidiaries has a
Material Adverse Effect.
6.23 Subsidiaries. All of the Subsidiaries of the Guarantor at the
date hereof are listed on Schedule 5 to this Warehouse Agreement.
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6.24 Origination and Acquisition of Mortgage Loans. The Mortgage
Loans were originated or acquired by the Borrowers, and the origination and
collection practices used by the Borrowers or Qualified Originator, as
applicable, with respect to the Mortgage Loans have been, in all material
respects legal, proper, prudent and customary in the residential mortgage loan
servicing business, and in accordance with the Underwriting Guidelines. With
respect to Mortgage Loans acquired by the Borrowers, all such Mortgage Loans are
in conformity with the Underwriting Guidelines. Each of the Mortgage Loans
complies with the representations and warranties listed in Schedule 1 hereto.
6.25 No Adverse Selection. The Borrowers used no selection
procedures that identified the Mortgage Loans as being less desirable or
valuable than other comparable Mortgage Loans owned by the Borrowers.
6.26 Borrowers Solvent; Fraudulent Conveyance. As of the date hereof
and immediately after giving effect to each Advance, the fair value of the
assets of each Borrower is greater than the fair value of the liability
(including, without limitation, contingent liabilities if and to the extent
required to be recorded as a liability on the financial statements of such
Borrower in accordance with GAAP) of such Borrower and such Borrower is and will
be solvent, is and will be able to pay its debts as they mature and does not and
will not have an unreasonably small capital to engage in the business in which
it is engaged and proposes to engage. Each Borrower does not intend to incur, or
believe that it has incurred, debt beyond its ability to pay such debts as they
mature. Neither Borrower is contemplating the commencement of insolvency,
bankruptcy, liquidation or consolidation proceedings or the appointment of a
receiver, liquidator, conservator, trustee or similar official in respect of
such Borrower or any of its assets. Neither Borrower is transferring any
Collateral with any intent to hinder, delay or defraud any of its creditors.
6.27 Representations as to each Pooling and Servicing Agreement.
Other than any servicer termination events, no event of default has occurred and
is continuing under any Governing Agreement. There has been no notice from the
Trustee of any intent to terminate the Aames Capital's servicing rights.
Section 7. Covenants of the Borrowers. The Borrowers covenant and
agree with the Lender that, so long as any Advance is outstanding and until
payment in full of all Secured Obligations:
7.01 Financial Statements. The Borrowers shall, and shall cause the
Guarantor to, deliver to the Lender:
(a) (1) within 30 days after the end of each month, the consolidated
balance sheets of such Loan Party as at the end of such month and the related
unaudited consolidated statements of income and retained earnings and of cash
flows for such Loan Party and its consolidated Subsidiaries for such month and
the portion of the fiscal year through the end of such month, setting forth in
each case in comparative form the figures for the previous year, accompanied by
a certificate of a Responsible Officer of the applicable Loan Party, which
certificate shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations of such
Loan Party and its Subsidiaries in
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accordance with GAAP, consistently applied, as at the end of, and for, such
month (subject to normal year-end audit adjustments);
(ii) within 45 days after the end of each of the first three
quarterly fiscal periods of each fiscal year of such Loan Party, the
consolidated balance sheets of such Loan Party as at the end of such
period and the related unaudited consolidated statements of income and
retained earnings and of cash flows for such Loan Party and its
consolidated Subsidiaries for such period and the portion of the fiscal
year through the end of such period, setting forth in each case in
comparative form the figures for the previous year, accompanied by a
certificate of a Responsible Officer of such Loan Party, which certificate
shall state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of such Loan
Party and its Subsidiaries in accordance with GAAP, consistently applied,
as at the end of, and for, such period (subject to normal year-end audit
adjustments);
(b) within 90 days after the end of each fiscal year of such Loan
Party, the consolidated balance sheets of such Loan Party and its consolidated
Subsidiaries as at the end of such fiscal year and the related consolidated
statements of income and retained earnings and of cash flows for such Loan Party
and its consolidated Subsidiaries for such year, setting forth in each case in
comparative form the figures for the previous year, accompanied by an opinion
thereon of independent certified public accountants of recognized national
standing, which opinion shall not be qualified as to scope of audit or going
concern and shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations of such
Loan Party and its consolidated Subsidiaries at the end of, and for, such fiscal
year in accordance with GAAP, and a certificate of such accountants stating
that, in making the examination necessary for their opinion, they obtained no
knowledge, except as specifically stated, of any Default or Event of Default;
(c) from time to time such other information regarding the financial
condition, operations, or business of such Loan Party as the Lender may
reasonably request; and
(d) as soon as reasonably possible, and in any event within thirty
(30) days after a Responsible Officer knows, or with respect to any Plan or
Multiemployer Plan to which each Borrower or any of its Subsidiaries makes
direct contributions, has reason to believe, that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan has
occurred or exists, a statement signed by a senior financial officer of such
Borrower setting forth details respecting such event or condition and the
action, if any, that such Borrower or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC by such Borrower or an ERISA Affiliate with respect to such event
or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA and
the regulations issued thereunder, with respect to a Plan, as to which
PBGC has not by regulation or otherwise waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the
occurrence of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its due
date a
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required installment under Section 412(m) of the Code or Section 302(e) of
ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code); and any request
for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a notice of
intent to terminate any Plan or any action taken by such Borrower or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by such Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan by
such Borrower or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt by
such Borrower or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 or
4245 of ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against such Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;
and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result in
the loss of tax-exempt status of the trust of which such Plan is a part if
such Borrower or an ERISA Affiliate fails to timely provide security to
such Plan in accordance with the provisions of said Sections.
Each Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate of
a Responsible Officer of such Borrower to the effect that, to the best of such
Responsible Officer's knowledge, such Borrower during such fiscal period or year
has observed or performed all of its covenants and other agreements, and
satisfied every material condition, contained in this Warehouse Agreement and
the other Loan Documents to be observed, performed or satisfied by it, and that
such Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate (and, if any Default or Event of
Default has occurred and is continuing, describing the same in reasonable detail
and describing the action such Borrower has taken or proposes to take with
respect thereto).
7.02 Litigation. Each Borrower will promptly, and in any event
within 7 days after service process on any of the following, give to the Lender
notice of all legal or arbitrable proceedings affecting such Borrower or any of
its Subsidiaries that questions or challenges the
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validity or enforceability of any of the Loan Documents or as to which there is
a reasonable likelihood of adverse determination which would result in a
Material Adverse Effect.
7.03 Existence, Etc. Each of the Borrowers, their Subsidiaries and
the Qualified Originators will:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (other than Subsidiaries
which are not material to the business of the Borrowers);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, truth in lending, real estate settlement procedures and all
environmental laws) if failure to comply with such requirements would be
reasonably likely (either individually or in the aggregate) to have a Material
Adverse Effect;
(c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;
(d) not move its chief executive office or chief operating office
from the addresses referred to in Section 6.13 unless it shall have provided the
Lender 30 days prior written notice of such change (other than Subsidiaries
which are not material to the business of the Borrowers);
(e) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for any
such tax, assessment, charge or levy the payment of which is being contested in
good faith and by proper proceedings and against which adequate reserves are
being maintained; and
(f) permit representatives of the Lender, during normal business
hours upon three (3) Business Days' prior written notice at a mutually desirable
time, to examine, copy and make extracts from its books and records, to inspect
any of its Properties, and to discuss its business and affairs with its
officers, all to the extent reasonably requested by the Lender.
7.04 Prohibition of Fundamental Changes. Neither Borrower shall
enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or
dissolution) or sell all or substantially all of its assets; provided, that such
Borrower may merge or consolidate with (a) any wholly owned subsidiary of such
Borrower, or (b) any other Person if such Borrower is the surviving corporation;
and provided further, that if after giving effect thereto, no Default would
exist hereunder.
7.05 Borrowing Base Deficiency. If at any time there exists a
Borrowing Base Deficiency the Borrowers shall cure same in accordance with
Section 2.06 hereof.
7.06 Notices. The Borrowers shall give notice to the Lender
promptly:
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(a) upon either Borrower becoming aware of, and in any event within
one (1) Business Day after, the occurrence of any Default or Event of Default or
any material event of default or default under any other material agreement of
such Borrower which has not been waived or cured;
(b) upon, and in any event within three (3) Business Days after,
service of process on either Borrower or any of its Subsidiaries, or any agent
thereof for service of process, in respect of any legal or arbitrable
proceedings affecting such Borrower or any of its Subsidiaries (i) that
questions or challenges the validity or enforceability of any of the Loan
Documents or (ii) in which the amount in controversy exceeds $1,000,000;
(c) upon either Borrower becoming aware of any default related to
any Collateral which would reasonably be expected to have a Material Adverse
Effect and any event or change in circumstances which should reasonably be
expected to have a Material Adverse Effect;
(d) upon either Borrower becoming aware during the normal course of
its business that the Mortgaged Property in respect of any Mortgage Loan or
Mortgage Loans with an aggregate unpaid principal balance of at least $1,000,000
has been damaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty, or otherwise damaged so as to materially and
adversely affect the Collateral Value of such Mortgage Loan;
(e) upon the entry of a judgment or decree in an amount in excess of
$1,000,000;
(f) upon either Borrower becoming aware of any event or circumstance
which, with notice or the passage of time, could result in a Material Adverse
Effect.
Each notice pursuant to this Section 7.06 (other than 7.06(e)) shall be
accompanied by a statement of a Responsible Officer of the applicable Borrower
setting forth details of the occurrence referred to therein and stating what
action such Borrower has taken or proposes to take with respect thereto.
7.07 Servicing. Except as provided in Section 10.15(c), the
Borrowers shall not permit any Person other than the Borrowers to service
Mortgage Loans without the prior written consent of the Lender, which consent
shall not be unreasonably withheld.
7.08 Underwriting Guidelines. In the event that either Borrower
makes any amendment or modification to the Underwriting Guidelines, such
Borrower shall promptly deliver to the Lender a complete copy of the amended or
modified Underwriting Guidelines.
7.09 Lines of Business. Neither Borrower will engage to any
substantial extent in any line or lines of business activity other than the
businesses generally carried on by it as of the Effective Date.
7.10 Transactions with Affiliates. Neither Borrower will enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (i) pursuant to such Borrower's executive loan program as
approved from time to time by its Board of Directors or (ii)(a) otherwise
permitted under this Warehouse Agreement, (b) in the ordinary course of such
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Borrower's business and (c) upon fair and reasonable terms no less favorable to
such Borrower than it would obtain in a comparable arm's length transaction with
a Person which is not an Affiliate, or make a payment that is not otherwise
permitted by this Section 7.10 to any Affiliate.
7.11 Application of Funding. The Borrowers will use the funding
hereunder solely to originate, fund, and purchase Mortgage Loans for the purpose
of (a) pooling such Mortgage Loans prior to securitization, or (b) sale, in each
case in the ordinary course of business.
7.12 Limitation on Liens. Neither Borrower will, nor will it permit
or allow others to, create, incur or permit to exist any Lien, security interest
or claim on or to any of the Collateral. The Borrowers will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or claim on or to the Collateral, other than the
security interests created under this Warehouse Agreement, and the Borrowers
will defend the right, title and interest of the Lender in and to any of the
Collateral against the claims and demands of all persons whomsoever.
7.13 Limitation on Sale of Assets. The Borrowers shall not convey,
sell, lease, assign, transfer or otherwise dispose of (collectively,
"Transfer"), all or substantially all of its Property, business or assets
(including, without limitation, receivables and leasehold interests) whether now
owned or hereafter acquired or allow any Subsidiary to Transfer substantially
all of its assets to any Person; provided, that either Borrower may after prior
written notice to the Lender allow such action with respect to any Subsidiary
which is not a material part of the Borrower's overall business operations.
7.14 Limitation on Distributions. Except as required by the Senior
Note Indenture, without the Lender's consent, Aames Capital shall not make any
payment on account of, or set apart assets for a sinking or other analogous fund
for the purchase, redemption, defeasance, retirement or other acquisition of,
any stock or senior or subordinate debt of Aames Capital, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of Aames
Capital, provided, however, nothing herein shall restrict the ability of Aames
Capital to pay dividends to the Guarantor.
7.15 Maintenance of Liquidity. Aames Capital has cash, Cash
Equivalents and available borrowing capacity under committed warehouse
facilities equal to $1,000,000.
7.16 Maintenance of Tangible Net Worth. The Tangible Net Worth of
Aames Capital shall be $365,000,000 at all times during the term of this
Warehouse Agreement.
7.17 Committed Warehouse Facilities. Aames Capital at all times has
(a) available capacity under committed revolving facilities, other than the
Lender's committed revolving facility, greater than or equal to $100,000,000,
and (b) committed wet funding revolving facilities that provide funding in the
aggregate of at least $35,000,000.
7.18 [Intentionally Omitted]
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7.19 Servicing Transmission. The Borrowers shall provide to the
Lender no later than 11:00 a.m. eastern time two Business Days prior to each
Payment Date (or such other day requested by Lender) (i) the Servicing
Transmission, on a loan-by-loan basis and in the aggregate, with respect to the
Mortgage Loans serviced hereunder by Aames Capital which were funded prior to
the first day of the current month, summarizing Aames Capital's delinquency and
loss experience with respect to Mortgage Loans serviced by Aames Capital
(including, in the case of the Mortgage Loans, the following categories:
current, 30-59, 60-89 and 90+) and (ii) any other information reasonably
requested by the Lender with respect to the Mortgage Loans.
7.20 No Amendment or Waiver. Neither Borrower will, nor will it
permit or allow others to amend, modify, terminate or waive any provision of any
Mortgage Loan to which such Borrower is a party in any manner which shall
reasonably be expected to materially and adversely affect the value of such
Mortgage Loan as Collateral.
7.21 Maintenance of Property; Insurance. The Borrowers shall (a)
keep all property useful and necessary in its business in good working order and
condition; and
(b) maintain errors and omissions insurance and/or mortgage
impairment insurance and blanket bond coverage in such amounts as are in effect
on the Effective Date (as disclosed to Lender in writing) and shall not reduce
such coverage without the written consent of the Lender, and shall also maintain
such other insurance with financially sound and reputable insurance companies,
and with respect to property and risks of a character usually maintained by
entities engaged in the same or similar business similarly situated, against
loss, damage and liability of the kinds and in the amounts customarily
maintained by such entities.
7.22 Further Identification of Collateral. The Borrowers will
furnish to the Lender from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Lender or any Lender may reasonably request, all in
reasonable detail.
7.23 Mortgage Loan Determined to be Defective. Upon discovery by the
Borrowers or the Lender of any breach of any representation or warranty listed
on Schedule 1 hereto applicable to any Mortgage Loan, the party discovering such
breach shall promptly give notice of such discovery to the other.
7.24 Interest Rate Protection Agreements. Upon the Lender's request,
the Borrowers shall deliver to the Lender any and all information relating to
Interest Rate Protection Agreements.
7.25 Covenants of the Borrowers with respect to the Collateral. (a)
Unless the Trustee is directly providing the Lender with reports issued pursuant
to the Governing Agreement, Aames Capital shall promptly deliver to the Lender
(i) any report received by such Borrower pursuant to the Governing Agreement
including, without limitation, any trustee's report and any reports delivered to
a holder of Pledged Securities; (ii) any notice of transfer of servicing; (iii)
all reports sent by Aames Capital to each Trustee under a Governing Agreement,
and (iv) any other such document or information as the Lender may reasonably
request from time to time with respect to the Pledged Securities.
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(b) The Borrowers shall permit the Lender to inspect its books and
records relating to any of the Collateral and other matters relating to the
transactions contemplated hereby, upon reasonable prior notice and during normal
business hours.
(c) If the Borrowers shall, as a result of its ownership of the
Collateral (other than Mortgage Loans), become entitled to receive or shall
receive any rights, whether in addition to, in substitution of, as a conversion
of, or in exchange for the Collateral (other than Mortgage Loans), or otherwise
in respect thereof, the Borrowers shall accept the same as the Lender's agent,
hold the same in trust for the Lender and deliver the same forthwith to the
Lender in the exact form received, duly indorsed by the applicable Borrower to
the Lender, if required, together with an undated bond power covering such
certificate duly executed in blank and with, if the Lender so requests,
signature guaranteed, to be held by the Lender hereunder as additional
collateral security for the Obligations. If any sums of money or property so
paid or distributed in respect of the Collateral (other than Mortgage Loans)
shall be received by either Borrower, such Borrower shall, until such money or
property is paid or delivered to the Lender as required hereunder, hold such
money or property in trust for the Lender, segregated from other funds of such
Borrower, as additional collateral security for the Obligations.
(d) At any time and from time to time, upon the written request of
Lender, and at the sole expense of the Borrowers, the Borrowers will promptly
and duly execute and deliver such further instruments and documents and take
such further actions as Lender may reasonably request for the purposes of
obtaining or preserving the full benefits of this Warehouse Agreement and of the
rights and powers herein granted. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any instrument
(including any certificated security or promissory note) or chattel paper (in
each case as defined in the Uniform Commercial Code), such instrument or chattel
paper shall be immediately delivered to Lender, duly endorsed in a manner
satisfactory to Lender, to be held as Collateral pursuant to this Warehouse
Agreement. Prior to such delivery, the Borrowers shall hold all such instruments
or chattel paper in trust for Lender, and shall not commingle any of the
foregoing with any assets of the Borrowers.
(e) The Borrowers shall pay, and save Lender harmless from, any and
all liabilities with respect to, or resulting from any delay in paying, any and
all stamp, excise, sales or other similar taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Warehouse Agreement.
7.26 Computer Systems. Each Borrower shall maintain its System in a
manner that permits the Borrower to be Year 2000 Compliant.
7.27 Certificate of a Responsible Officer of each Borrower. At the
time that each Borrower delivered financial statements to the Lender in
accordance with Section 7.01 hereof, such Borrower shall, and shall cause the
Guarantor to, forward to the Lender a certificate of a Responsible Officer of
such Borrower which demonstrates that such Borrower or the Guarantor, as
applicable, is in compliance with the covenants set forth in Sections 7.15, 7.16
and 7.17.
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7.28 Deposit of Collections. Upon the request of the Lender, after
the occurrence of a Default, the Borrowers shall deposit all Collections
received on account of the Collateral into one or more segregated accounts
holding exclusively proceeds received with respect to the Collateral for the
sole benefit of the Lender. The Borrowers shall remit all Collections received
by the Borrowers to the Lender no later than the next Payment Date, accompanied
by a report with sufficient detail to enable the Lender to appropriately
identify the Collateral to which any amount remitted applies. The Lender shall
apply all amounts so remitted in accordance with the provisions set forth in
Section 3.05 hereof.
7.29 Fees. Aames Capital shall pay the Lender such fees are set
forth in the Fee Agreement within two (2) Business Days of the Effective Date.
7.30 Servicing Rights; Call Rights. Aames Capital shall not (a)
other than as a result of a servicer termination event under the related
Governing Agreement, transfer, convey, pledge, assign, mortgage or otherwise
permit a Lien to exist on any servicing rights under any of the Governing
Agreements relating to the Pledged Securities, nor (b) exercise any of its call
rights pursuant to such Governing Agreements relating to the Pledged Securities,
in either case of clause (a) or (b), without the consent of the Lender.
Section 8. Events of Default. Each of the following events shall
constitute an event of default (an "Event of Default") hereunder:
(a) either Borrower shall default in the payment of any principal of
or interest on any Advance (whether at stated maturity, upon acceleration or at
mandatory prepayment) or the Guarantor shall default in the payment of any
amount required to be paid by it under the Guaranty; or
(b) any Loan Party shall default in the payment of any other amount
payable by it hereunder or under any other Loan Document after notification by
the Lender of such default, and such default shall have continued unremedied for
three Business Days; or
(c) any representation, warranty or certification made or deemed
made herein or in any other Loan Document by either Borrower or the Guarantor or
any certificate furnished to the Lender pursuant to the provisions thereof,
shall prove to have been false or misleading in any material respect as of the
time made or furnished (other than the representations and warranties set forth
in Schedule 1 which shall be considered solely for the purpose of determining
the Collateral Value of the Mortgage Loans; unless such Borrower shall have made
any such representations and warranties with knowledge that they were materially
false or misleading at the time made); or
(d) Aames Capital shall (or, if there are any outstanding Tranche C
Advances outstanding, Aames Funding shall) fail to comply with the requirements
of any of Sections 7.03, 7.04, 7.05, 7.06, 7.09, 7.10, 7.11, 7.12, 7.13, 7.14,
7.15, 7.16, 7.17, 7.22, 7.25 or 7.30 hereof or the Guarantor shall fail to
comply with the requirements of Section 3(b) of the Guaranty; or either Borrower
shall otherwise fail to observe or perform any other agreement contained in this
Warehouse Agreement or any other Loan Document and such failure to observe or
perform shall continue unremedied for a period of five (5) Business Days; or
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(e) a final judgment or judgments for the payment of money in excess
of $2,000,000 in the aggregate (to the extent that it is, in the reasonable
determination of the Lender, uninsured and provided that any insurance or other
credit posted in connection with an appeal shall not be deemed insurance for
these purposes) shall be rendered against either Borrower or any of its
Subsidiaries by one or more courts, administrative tribunals or other bodies
having jurisdiction over them and the same shall not be discharged (or provision
shall not be made for such discharge) or bonded, or a stay of execution thereof
shall not be procured, within 60 days from the date of entry thereof and such
Borrower or any such Subsidiary shall not, within said period of 60 days, or
such longer period during which execution of the same shall have been stayed or
bonded, appeal therefrom and cause the execution thereof to be stayed during
such appeal; or
(f) any Loan Party or any of its Affiliates shall admit in writing
its inability to pay its debts as such debts become due; or
(g) any Loan Party or any of its Affiliates shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file
a petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, arrangement or winding-up,
or composition or readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or (vi) take any corporate or
other action for the purpose of effecting any of the foregoing; or
(h) a proceeding or case shall be commenced, without the application
or consent of any Loan Party or any of its Affiliates, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a receiver, custodian, trustee, examiner, liquidator or the
like of such Loan Party or any such Affiliate or of all or any substantial part
of its property, or (iii) similar relief in respect of such Loan Party or any
such Affiliate under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief against such
Loan Party or any such Affiliate shall be entered in an involuntary case under
the Bankruptcy Code; or
(i) the Custodial Agreement or any Loan Document shall for whatever
reason (including an event of default thereunder) be terminated or the lien on
the Collateral created by this Warehouse Agreement or either Borrower's material
obligations hereunder shall cease to be in full force and effect, or the
enforceability thereof shall be contested by either Borrower; or
(j) any material adverse change in the Properties, business or
financial condition, or prospects of any Loan Party or any of its Affiliates or
any Qualified Originator, in each case as determined by the Lender in its sole
discretion, or the existence of any other condition which, in the Lender's sole
discretion, constitutes a material impairment of either Borrower's ability to
perform its obligations under this Warehouse Agreement, the Note or any other
Loan Document
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or the ability of any Affiliate of such Borrower to perform its obligations
under any agreement between such Affiliate and the Lender or an Affiliate of the
Lender; or
(k) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any material "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan or any Lien
in favor of the PBGC or a Plan shall arise on the assets of either Borrower or
any Commonly Controlled Entity, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) either
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Lenders is likely to, incur any liability in connection with a withdrawal
from, or the insolvency or reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan; and in
each case in clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, could reasonably be expected
to have a Material Adverse Effect; or
(l) the Guarantor shall own less than 100% of the outstanding
capital stock of the Borrowers; or
(m) either Borrower shall grant, or suffer to exist, any Lien on any
Collateral except the Liens contemplated hereby; or the Liens contemplated
hereby shall cease to be first priority perfected Liens on the Collateral in
favor of the Lender or shall be Liens in favor of any Person other than the
Lender; or
(n) either Borrower or any of its Affiliates shall default under, or
fail to perform as requested under, or shall otherwise materially breach the
terms of any instrument, agreement or contract between such Borrower or any of
such Borrower's Affiliates, on the one hand, and Lender or any of Lender's
Affiliates, on the other hand; or
(o) any Loan Party or its Affiliates shall default under or be
subject to any acceleration provision of any material agreement to which the
such Loan Party or Affiliate is a party and, as a consequence of such default,
such Loan Party's or Affiliates' monetary obligations thereunder which shall
equal $5,000,000 or more shall have been accelerated; or
(p) the Lender shall reasonably request, specifying the reasons for
such request, information, and/or written responses to such requests, regarding
the financial well-being of any Loan Party and such information and/or responses
shall not have been provided within three Business Days of such request; or
(q) there shall have occurred a Scheduled Amortization Deviation
which shall have not been cured within 15 Business Days following the occurrence
thereof; or
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(r) at any time after the occurrence of a Scheduled Amortization
Deviation the outstanding Tranche B Advances shall exceed the Scheduled
Amortization Balance required at such time; or
(s) The discovery by the Lender after the date hereof of a condition
or event which existed at or prior to the execution hereof which has not been
previously publicly disclosed by Aames Capital or the Guarantor or of which the
Lender did not have actual knowledge on the date hereof and which the Lender, in
its sole reasonable discretion, determines materially and adversely affects: (i)
the condition (financial or otherwise) of either Borrower, its Subsidiaries or
Affiliates; or (ii) the ability of either Borrower to fulfill its respective
obligations under this Agreement.
8.02 Remedies Upon Default. (a) If an Event of Default shall have
occurred and be continuing, at any time at the Lender's election, the Lender may
apply all or any part of the Proceeds of the Collateral (other than Initial
Haircut Collateral), including any Tranche A Collections and Tranche C
Collections, in the payment of the Secured Obligations in the following order of
priority:
(i) FIRST, to the payment of all reasonable costs and expenses
incurred by the Lender in connection with this Warehouse Agreement, the
Note, any other Loan Document or any of the Obligations, including,
without limitation, all court costs and the reasonable costs or expenses
incurred in connection with the exercise by the Lender of any right or
remedy under this Warehouse Agreement, the Note or any other Loan
Document;
(ii) SECOND, to the satisfaction of all other Secured Obligations;
and
(iii) THIRD, any excess to the Borrower or any other Person as
directed by the Borrower in writing.
(b) If an Event of Default shall have occurred and be continuing, at
any time at the Lender's election, the Lender may apply all or any part of the
Proceeds of Initial Haircut Collateral, including any Tranche B Collections, in
the payment of the Secured Obligations in the following order of priority:
(i) FIRST, to the payment of all reasonable costs and expenses
incurred by the Lender in connection with this Warehouse Agreement, the
Note, any other Loan Document or any of the Obligations, including,
without limitation, all court costs and the reasonable costs or expenses
incurred in connection with the exercise by the Lender of any right or
remedy under this Warehouse Agreement, the Note or any other Loan
Document;
(ii) SECOND, to the satisfaction of all other Secured Obligations
with respect to the Tranche B Advances; and
(iii) THIRD, to the reimbursement of amounts paid by a guarantor to
the Lender (other than the Guarantor) on any Guarantee with respect to
this Warehouse Agreement;
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(iv) FOURTH, to the satisfaction of any unpaid Secured Obligations;
and
(v) FIFTH, any excess to the Borrowers or any other Person as
directed by the Borrower in writing.
(c) Upon the occurrence of one or more Events of Default (subject to
the expiration of the applicable cure period contained therein) other than those
referred to in Section 8(g) or (h), the Lender may immediately declare the
principal amount of the Advances then outstanding under the Note to be
immediately due and payable, together with all interest thereon and reasonable
fees and out-of-pocket expenses accruing under this Warehouse Agreement;
provided that upon the occurrence of an Event of Default referred to in Sections
8(g) or (h), such amounts shall immediately and automatically become due and
payable without any further action by any Person. Upon such declaration or such
automatic acceleration, the balance then outstanding on the Note shall become
immediately due and payable, without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrowers and may thereupon exercise any remedies available to it at law and
pursuant to the Loan Documents. An Event of Default shall be deemed to be
continuing unless expressly waived by the Lender in writing.
(d) Upon the occurrence of one or more Events of Default, the Lender
shall have the right to obtain physical possession of the Servicing Records and
all other files of the Borrowers relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to the
possession of the Borrowers or any third party acting for the Borrowers and the
Borrowers shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all agreements
of the Borrowers contained in this Warehouse Agreement and to become Servicer
under the applicable Governing Agreement.
Section 9. No Duty on Lender's Part. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrowers for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
Section 10. Miscellaneous.
10.01 Waiver. No failure on the part of the Lender to exercise and
no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Loan Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
10.02 Notices. Except as otherwise expressly permitted by this
Warehouse Agreement, all notices, requests and other communications provided for
herein and under the Custodial Agreement (including, without limitation, any
modifications of, or waivers, requests or
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consents under, this Warehouse Agreement) shall be given or made in writing
(including, without limitation, by telex or telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof); or, as to any party, at such other address as shall be designated
by such party in a written notice to each other party. Except as otherwise
provided in this Warehouse Agreement and except for notices given under Section
2 (which shall be effective only on receipt), all such communications shall be
deemed to have been duly given when transmitted by telex or telecopier or
personally delivered or, in the case of a mailed notice, upon receipt, in each
case given or addressed as aforesaid.
10.03 Indemnification and Expenses. (a) The Borrowers and the
Guarantor agree to hold the Lender harmless from and indemnify the Lender
against all liabilities, losses, damages, judgments, costs and expenses of any
kind which may be imposed on, incurred by, or asserted against the Lender,
relating to or arising out of, this Warehouse Agreement, the Note, any other
Loan Document or any transaction contemplated hereby or thereby, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Warehouse Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, that, in each case, results from
anything other than the Lender's gross negligence or willful misconduct. In any
suit, proceeding or action brought by the Lender in connection with any Mortgage
Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage
Loan, the Borrowers will save, indemnify and hold the Lender harmless from and
against all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrowers of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrowers. The Borrowers also agree to reimburse the
Lender as and when billed by the Lender for all the Lender's reasonable
out-of-pocket costs and expenses incurred in connection with the enforcement or
the preservation of the Lender's rights under this Warehouse Agreement, the
Note, any other Loan Document or any transaction contemplated hereby or thereby,
including without limitation the reasonable fees and disbursements of its
counsel. The Borrowers hereby acknowledge that, notwithstanding the fact that
the Note is secured by the Collateral, the obligation of the Borrowers under the
Note is a recourse obligation of the Borrowers.
(b) The Borrowers agree to pay as and when billed by the Lender all
of the out-of pocket costs and expenses incurred by the Lender in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Warehouse Agreement, the Note, any other
Loan Document or any other documents prepared in connection herewith or
therewith. The Borrowers agree to pay as and when billed by the Lender all of
the out-of-pocket costs and expenses incurred in connection with the
consummation and administration of the transactions contemplated hereby and
thereby including, without limitation, (i) all the reasonable fees,
disbursements and expenses of counsel to the Lender in connection with the
execution of this Warehouse Agreement, (ii) all the due diligence, inspection,
testing and review costs and expenses incurred by the Lender with respect to
Collateral under this Warehouse Agreement, including, but not limited to, those
costs and expenses incurred by the Lender pursuant to Sections 10.03(a), 10.14
and 10.16 hereof other than any costs and expenses incurred in connection with
the Lender's rehypothication of the Mortgage Loans prior to an
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Event of Default and (iii) initial and ongoing fees and expenses incurred by the
Custodian in connection with the performance of its duties under the Custodial
Agreement.
10.04 Amendments. Except as otherwise expressly provided in this
Warehouse Agreement, any provision of this Warehouse Agreement may be modified
or supplemented only by an instrument in writing signed by the Borrowers and the
Lender and any provision of this Warehouse Agreement may be waived by the
Lender.
10.05 Successors and Assigns. This Warehouse Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
10.06 Survival. The obligations of the Borrowers under Sections 3.03
and 10.03 hereof shall survive the repayment of the Advances and the termination
of this Warehouse Agreement. In addition, each representation and warranty made,
or deemed to be made by a request for a borrowing, herein or pursuant hereto
shall survive the making of such representation and warranty, and the Lender
shall not be deemed to have waived, by reason of making any Advance, any Default
that may arise by reason of such representation or warranty proving to have been
false or misleading, notwithstanding that the Lender may have had notice or
knowledge or reason to believe that such representation or warranty was false or
misleading at the time such Advance was made.
10.07 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Warehouse
Agreement.
10.08 Counterparts. This Warehouse Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Warehouse
Agreement by signing any such counterpart.
10.09 Warehouse Agreement Constitutes Security Agreement; Governing
Law. This Warehouse Agreement shall be governed by New York law without
reference to choice of law doctrine (but with reference to Section 5-1401 of the
New York General Obligations Law, which by its terms applies to this Warehouse
Agreement), and shall constitute a security agreement within the meaning of the
Uniform Commercial Code.
10.10 SUBMISSION TO JURISDICTION; WAIVERS. EACH LOAN PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS WAREHOUSE AGREEMENT, THE NOTE AND THE OTHER
LOAN DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY
THEREOF;
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(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS
ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF
WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
10.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND THE LENDER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS WAREHOUSE AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
10.12 Acknowledgments. Each Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Warehouse Agreement, the Note and the other Loan Documents to
which it is a party;
(b) the Lender has no fiduciary relationship to such Borrower, and
the relationship between such Borrower and the Lender is solely that of debtor
and creditor; and
(c) no joint venture exists among or between the Lender and such
Borrower.
10.13 Hypothecation or Pledge of Collateral. The Lender shall have
free and unrestricted use of all Collateral and nothing in this Warehouse
Agreement shall preclude the Lender from engaging in repurchase transactions
with the Collateral or otherwise pledging, repledging, transferring,
hypothecating, or rehypothecating the Collateral. Nothing contained in this
Warehouse Agreement shall obligate the Lender to segregate any Collateral
delivered to the Lender by the Borrowers.
10.14 Assignments; Participations. (a) Each Borrower may assign any
of its rights or obligations hereunder or under the Note with the prior written
consent of the Lender which consent shall not be unreasonably withheld. The
Lender may assign or transfer to any bank or other financial institution that
makes or invests in loans or any Affiliate of the Lender all
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or any of its rights or obligations under this Warehouse Agreement and the other
Loan Documents.
(b) The Lender may, in accordance with applicable law, at any time
sell to one or more lenders or other entities ("Participants") participating
interests in any Advance, the Note, its commitment to make Advances, or any
other interest of the Lender hereunder and under the other Loan Documents. In
the event of any such sale by the Lender of participating interests to a
Participant, the Lender's obligations under this Warehouse Agreement to the
Borrowers shall remain unchanged, the Lender shall remain solely responsible for
the performance thereof, the Lender shall remain the holder of the Note for all
purposes under this Warehouse Agreement and the other Loan Documents, and the
Borrowers and the Lender shall continue to deal solely and directly with the
Lender in connection with the Lender's rights and obligations under this
Warehouse Agreement and the other Loan Documents. The Borrowers agree that if
amounts outstanding under this Warehouse Agreement and the Note are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall be deemed to have
the right of set-off in respect of its participating interest in amounts owing
under this Warehouse Agreement and the Note to the same extent as if the amount
of its participating interest were owing directly to it as a Lender under this
Warehouse Agreement or the Note; provided, that such Participant shall only be
entitled to such right of set-off if it shall have agreed in the agreement
pursuant to which it shall have acquired its participating interest to share
with the Lender the proceeds thereof. The Lender also agrees that each
Participant shall be entitled to the benefits of Sections 2.07 and 10.03 with
respect to its participation in the Advances outstanding from time to time;
provided, that the Lender and all Participants shall be entitled to receive no
greater amount in the aggregate pursuant to such Sections than the Lender would
have been entitled to receive had no such transfer occurred.
(c) The Lender may furnish any information concerning the Borrowers
or any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants)
only after notifying the Borrowers in writing and securing signed
confidentiality statements (a form of which is attached hereto as Exhibit I) and
only for the sole purpose of evaluating participations and for no other purpose.
(d) The Borrowers agree to cooperate with the Lender in connection
with any such assignment and/or participation, to execute and deliver such
replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Warehouse Agreement and the other
Loan Documents in order to give effect to such assignment and/or participation.
Each Borrower further agrees to furnish to any Participant identified by the
Lender to the Borrower copies of all reports and certificates to be delivered by
such Borrower to the Lender hereunder, as and when delivered to the Lender.
10.15 Servicing. (a) The Borrowers covenant to maintain or cause the
servicing of the Mortgage Loans to be maintained in conformity with Accepted
Servicing Practices. In the event that the preceding language is interpreted as
constituting one or more servicing contracts, each such servicing contract shall
terminate automatically upon the earliest of (i) an Event of Default, or (ii)
the date on which all the Secured Obligations have been paid in full, or (iii)
the transfer of servicing to any entity approved by the Lender.
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(b) During the period the each Borrower is servicing the Mortgage
Loans, (i) such Borrower agrees that Lender has a first priority perfected
security interest in all servicing records, including but not limited to any and
all servicing agreements, files, documents, records, data bases, computer tapes,
copies of computer tapes, proof of insurance coverage, insurance policies,
appraisals, other closing documentation, payment history records, and any other
records or rights relating to or evidencing the servicing of such Mortgage Loans
(the "Servicing Records"), and (ii) such Borrower grants the Lender a security
interest in all servicing fees and rights relating to the Mortgage Loans and all
Servicing Records to secure the obligation of such Borrower or its designee to
service in conformity with this Section and any other obligation of such
Borrower to the Lender. The Borrowers covenant to safeguard such Servicing
Records and to deliver them promptly to the Lender or its designee (including
the Custodian) at the Lender's request. It is understood and agreed by the
parties that prior to an Event of Default, the Borrowers shall retain the
servicing fees with respect to the Mortgage Loans.
(c) If the Mortgage Loans are serviced by any other third party
servicer (such third party servicer, the "Subservicer"), the applicable Borrower
shall provide a copy of the related servicing agreement with a properly executed
Instruction Letter to the Lender at least three (3) Business Days prior to the
applicable Funding Date or the date on which the Subservicer shall begin
subservicing the Mortgage Loans, which shall be in the form and substance
acceptable to Lender (the "Servicing Agreement") and shall have obtained the
written consent of the Lender for such Subservicer to subservice the Mortgage
Loans. Initially, the Subservicer shall be Aames Funding.
(d) The Borrowers agree that upon the occurrence of an Event of
Default, the Lender may terminate the Borrowers in their capacity as servicer
and terminate any Servicing Agreement and transfer such servicing to the Lender
or its designee, at no cost or expense to the Lender. In addition, each Borrower
shall provide to the Lender an Instruction Letter from such Borrower to the
effect that upon the occurrence of an Event of Default, the Lender may terminate
any Subservicer or Servicing Agreement and direct that collections with respect
to the Mortgage Loans be remitted in accordance with the Lender's instructions.
The Borrowers agree to cooperate with the Lender in connection with the transfer
of servicing.
(e) After the Funding Date, until the pledge of any Mortgage Loan is
relinquished by the Custodian, the Borrowers will have no right to modify or
alter the terms of the Mortgage Loan or consent to the modification or
alteration of the terms of any Mortgage Loan, and the Borrowers will have no
obligation or right to repossess any Mortgage Loan or substitute another
Mortgage Loan, except as provided in any Custodial Agreement.
(f) The Borrowers shall permit the Lender to inspect upon reasonable
prior written notice (which shall be no more than five (5) Business Days prior
to such date) at a mutually convenient time, the Borrowers' or their Affiliate's
servicing facilities, as the case may be, for the purpose of satisfying the
Lender that the Borrowers or their Affiliate, as the case may be, has the
ability to service the Mortgage Loans as provided in this Warehouse Agreement.
In addition, with respect to any Subservicer which is not an Affiliate of either
Borrower, the applicable Borrower shall use its best efforts to enable the
Lender to inspect the servicing facilities of such Subservicer.
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10.16 Periodic Due Diligence Review. The Borrowers acknowledge that
the Lender has the right to perform continuing due diligence reviews with
respect to the Mortgage Loans, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
each Borrower agrees that upon reasonable (but no less than one (1) Business
Day's) prior notice to such Borrower, the Lender or its authorized
representatives will be permitted during normal business hours to examine,
inspect, make copies of, and make extracts of, the Mortgage Files and any and
all documents, records, agreements, instruments or information relating to such
Mortgage Loans in the possession, or under the control, of such Borrower and/or
the Custodian. The Borrowers also shall make available to the Lender a
knowledgeable financial or accounting officer for the purpose of answering
questions respecting the Mortgage Files and the Mortgage Loans. Without limiting
the generality of the foregoing, the each Borrower acknowledges that the Lender
shall make Advances to the Borrowers based solely upon the information provided
by the Borrowers to the Lender in the Mortgage Loan Data Transmission and the
representations, warranties and covenants contained herein, and that the Lender,
at its option, has the right, at any time to conduct a partial or complete due
diligence review on some or all of the Mortgage Loans securing such Advance,
including, without limitation, ordering new credit reports, new appraisals on
the related Mortgaged Properties and otherwise re-generating the information
used to originate such Mortgage Loan. The Lender may underwrite such Mortgage
Loans itself or engage a mutually agreed upon third party underwriter to perform
such underwriting. Each Borrower agrees to cooperate with the Lender and any
third party underwriter in connection with such underwriting, including, but not
limited to, providing the Lender and any third party underwriter with access to
any and all documents, records, agreements, instruments or information relating
to such Mortgage Loans in the possession, or under the control, of such
Borrower. In addition, the Lender has the right to perform continuing Due
Diligence Reviews of each Borrower and its Affiliates, directors, officers,
employees and significant shareholders. The Borrowers and Lender further agree
that all out-of-pocket costs and expenses incurred by the Lender in connection
with the Lender's activities pursuant to this Section 10.16 shall be paid for as
agreed by such parties.
10.17 Effect of Payment Under Guarantee. To the extent the Lender
receives a payment under a Guarantee related to this Warehouse Agreement, the
Lender shall use the amount of such payment solely for purposes determining the
existence of an Event of Default by applying such payment against the
outstanding principal balance of the Tranche B Advances and the Scheduled
Amortization Balance. The parties agree that the foregoing is for purposes of
calculation only and shall not constitute payment, release discharge or
satisfaction of the Aames Capital's obligations under this Warehouse Agreement.
10.18 Set-Off. In addition to any rights and remedies of the Lender
provided by this Warehouse Agreement and by law, the Lender shall have the
right, without prior notice to the Borrowers, any such notice being expressly
waived by the Borrowers to the extent permitted by applicable law, upon any
amount becoming due and payable by the Borrowers hereunder (whether at the
stated maturity, by acceleration or otherwise) to set-off and appropriate and
apply against such amount any and all Property and deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Lender or any Affiliate thereof to or for the credit or the account
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of the Borrowers. The Lender agrees promptly to notify the Borrowers after any
such set-off and application made by the Lender; provided that the failure to
give such notice shall not affect the validity of such set-off and application.
10.19 Intent. The parties recognize that each Advance is a
"securities contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended.
10.20 Joint and Several Liability. Each Borrower hereby acknowledges
and agrees that such Borrower shall be jointly and severally liable for all
representations, warrants, covenants, obligations and indemnities of the
Borrowers hereunder.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Warehouse
Agreement to be duly executed and delivered as of the day and year first above
written.
BORROWER
AAMES CAPITAL CORPORATION
By:_________________________________
Name:
Title:
Address for Notices:
350 South Grand Avenue
Los Angeles, California 90071
Attention: Chief Financial Officer
Telecopier No.: (323) 210-5551
Telephone No.: (323) 210-5276
With a copy to:
Attention: Vice President/Treasury
Telecopier No.: (323) 210-5036
Telephone No.: (323) 210-5036
With a copy to:
Attention: General Counsel
Telecopier No.: (323) 210-5026
Telephone No.: (323) 210-4871
BORROWER
AAMES FUNDING CORPORATION
By:_________________________________
Name:
Title:
Address for Notices:
350 South Grand Avenue
Los Angeles, California 90071
Attention: Chief Financial Officer
Telecopier No.: (323) 210-5551
Telephone No.: (323) 210-5276
<PAGE>
With a copy to:
Attention: Vice President/Treasury
Telecopier No.: (323) 210-5036
Telephone No.: (323) 210-5036
With a copy to:
Attention: General Counsel
Telecopier No.: (323) 210-5026
Telephone No.: (323) 210-4871
LENDER
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.
By:_________________________________
Name:
Title:
Address for Notices:
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: John Anderson
Telecopier No.: (203) 618-2135
Telephone No.: (203) 625-7941
With a copy to:
Attention: General Counsel
Telecopier No.: (203) 618-2132
Telephone No.: (203) 625-2700
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Schedule 1
REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS
Eligible Mortgage Loans
As to each Mortgage Loan that forms part of the Collateral hereunder
(and the related Mortgage, Mortgage Note, Assignment of Mortgage and Mortgaged
Property), each Borrower shall be deemed to make the following representations
and warranties to the Lender as of such date and as of each date Collateral
Value is determined:
(a) Mortgage Loans as Described. The information set forth in the
Mortgage Loan Data Transmission with respect to the Mortgage Loan is complete,
true and correct in all material respects.
(b) Payments Current. The Mortgagor has made its first Monthly
Payment within forty-five days of the related Due Date.
(c) No Outstanding Charges. There are no defaults in complying with
the terms of the Mortgage securing the Mortgage Loan, and all taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously became due and
owing have been paid, or an escrow of funds has been established in an amount
sufficient to pay for every such item which remains unpaid and which has been
assessed but is not yet due and payable. Neither the Borrower nor the Qualified
Originator from which the Borrower acquired the Mortgage Loan has advanced
funds, or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment of any
amount required under the Mortgage Loan, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the proceeds of the
Mortgage Loan, whichever is more recent, to the day which precedes by one month
the Due Date of the first installment of principal and interest thereunder.
(d) Original Terms Unmodified. The terms of the Mortgage Note and
Mortgage have not been impaired, waived, altered or modified in any respect,
from the date of origination; except by a written instrument which has been
recorded, if necessary to protect the interests of the Lender, and which has
been delivered to the Custodian and the terms of which are reflected in the
Mortgage Loan Schedule. The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required by
the title insurance policy, and its terms are reflected on the Mortgage Loan
Schedule. No Mortgagor in respect of the Mortgage Loan has been released, in
whole or in part, except in connection with an assumption agreement approved by
the title insurer, to the extent required by such policy, and which assumption
agreement is part of the Mortgage File delivered to the Custodian and the terms
of which are reflected in the Mortgage Loan Schedule.
(e) No Defenses. The Mortgage Loan is not subject to any right of
rescission, setoff, counterclaim or defense, including without limitation the
defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right
<PAGE>
thereunder, render either the Mortgage Note or the Mortgage unenforceable, in
whole or in part and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto, and no Mortgagor in respect of
the Mortgage Loan was a debtor in any state or Federal bankruptcy or insolvency
proceeding at the time the Mortgage Loan was originated.
(f) Hazard Insurance. The Mortgaged Property is insured by a fire
and extended perils insurance policy, issued by a Qualified Insurer, and such
other hazards as are customary in the area where the Mortgaged Property is
located, and to the extent required by the Borrower as of the date of
origination consistent with the Underwriting Guidelines, against earthquake and
other risks insured against by Persons operating like properties in the locality
of the Mortgaged Property, in an amount not less than the greatest of (i) 100%
of the replacement cost of all improvements to the Mortgaged Property, (ii)
either (A) the outstanding principal balance of the Mortgage Loan with respect
to each First Lien Mortgage Loan or (B) with respect to each Second Lien
Mortgage Loan, the sum of the outstanding principal balance of the First Lien
Mortgage Loan and the outstanding principal balance of the Second Lien Mortgage
Loan, (iii) the amount necessary to avoid the operation of any co-insurance
provisions with respect to the Mortgaged Property, and consistent with the
amount that would have been required as of the date of origination in accordance
with the Underwriting Guidelines or (iv) the amount necessary to fully
compensate for any damage or loss to the improvements that are a part of such
property on a replacement cost basis. If any portion of the Mortgaged Property
is in an area identified by any federal Governmental Authority as having special
flood hazards, and flood insurance is available, a flood insurance policy
meeting the current guidelines of the Federal Insurance Administration is in
effect with a generally acceptable insurance carrier, in an amount representing
coverage not less than the least of (1) the outstanding principal balance of the
Mortgage Loan, (2) the full insurable value of the Mortgaged Property, and (3)
the maximum amount of insurance available under the Flood Disaster Protection
Act of 1973, as amended. All such insurance policies (collectively, the "hazard
insurance policy") contain a standard mortgagee clause naming the Borrower, its
successors and assigns (including without limitation, subsequent owners of the
Mortgage Loan), as mortgagee, and may not be reduced, terminated or canceled
without 30 days' prior written notice to the mortgagee. No such notice has been
received by the Borrower. All premiums due and owing on such insurance policy
have been paid. The related Mortgage obligates the Mortgagor to maintain all
such insurance and, at such Mortgagor's failure to do so, authorizes the
mortgagee to maintain such insurance at the Mortgagor's cost and expense and to
seek reimbursement therefor from such Mortgagor. Where required by state law or
regulation, the Mortgagor has been given an opportunity to choose the carrier of
the required hazard insurance, provided the policy is not a "master" or
"blanket" hazard insurance policy covering a condominium, or any hazard
insurance policy covering the common facilities of a planned unit development.
The hazard insurance policy is the valid and binding obligation of the insurer
and is in full force and effect. The Borrower has not engaged in, and has no
knowledge of the Mortgagor's having engaged in, any act or omission which would
impair the coverage of any such policy, the benefits of the endorsement provided
for herein, or the validity and binding effect of either including, without
limitation, no unlawful fee, commission, kickback or other unlawful compensation
or value of any kind has been or will be received, retained or realized by any
attorney, firm or other Person, and no such unlawful items have been received,
retained or realized by the Borrower.
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(g) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the Mortgage Loan have
been complied with, the consummation of the transactions contemplated hereby
will not involve the violation of any such laws or regulations, and the Borrower
shall maintain or shall cause its agent to maintain in its possession, available
for the inspection of the Lender, and shall deliver to the Lender, upon two
Business Days' request, evidence of compliance with all such requirements.
(h) No Satisfaction of Mortgage. The Mortgage has not been
satisfied, canceled, subordinated or rescinded, in whole or in part, and the
Mortgaged Property has not been released from the lien of the Mortgage, in
whole-or in part, nor has any instrument been executed that would effect any
such release, cancellation, subordination or rescission other than in the case
of a release of a portion of the land comprising a Mortgaged Property or a
release of a blanket Mortgage which release will not cause the Mortgage Loan to
fail to satisfy the Underwriting Guidelines. The Borrower has not waived the
performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Borrower waived any default resulting from any action or inaction by the
Mortgagor.
(i) Location and Type of Mortgaged Property. The Mortgaged Property
is located in the state identified in the Mortgage Loan Schedule and consists of
a single parcel of real property with a detached single family residence erected
thereon, or a two- to four-family dwelling, or an individual condominium unit in
a condominium project, or an individual unit in a planned unit development or a
de minimis planned unit development, provided, however, that any condominium
unit or planned unit development shall conform with the applicable FNMA and
FHLMC requirements regarding such dwellings, that a de minimus percentage of the
Mortgage Loans may be Cooperative Loans subject to a land trust and that no
residence or dwelling is a mobile home or a manufactured dwelling. No portion of
the Mortgaged Property is used for commercial purposes.
(j) Valid Lien. The Mortgage is a valid, subsisting, enforceable and
perfected (A) first lien and first priority security interest with respect to
each Mortgage Loan which is indicated by the Borrower to be a First Lien (as
reflected on the Mortgage Loan Data Transmission), or (B) second lien and second
priority security interest with respect to each Mortgage Loan which is indicated
by the Borrower to be a Second Lien (as reflected on the Mortgage Loan Data
Transmission), in either case, on the real property included in the Mortgaged
Property, including all buildings on the Mortgaged Property and all
installations and mechanical, electrical, plumbing, heating and air conditioning
systems located in or annexed to such buildings, and all additions, alterations
and replacements made at any time with respect to the foregoing and with respect
to Cooperative Loans, including the Proprietary Lease and the Cooperative
Shares. The lien of the Mortgage is subject only to:
(1) the lien of current real property taxes and assessments not
yet due and payable;
(2) covenants, conditions and restrictions, rights of way, easements
and other matters of the public record as of the date of recording
acceptable to prudent mortgage
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lending institutions generally and specifically referred to in the
Lender's title insurance policy delivered to the originator of the
Mortgage Loan and (a) referred to or otherwise considered in the appraisal
made for the originator of the Mortgage Loan or (b) which do not adversely
affect the Appraised Value of the Mortgaged Property set forth in such
appraisal;
(3) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security
intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property; and
(4) with respect to each Mortgage Loan which is indicated by the
Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage
Loan Data Transmission) a First Lien on the Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document
related to and delivered in connection with the Mortgage Loan establishes and
creates a valid, subsisting and enforceable (A) first lien and first priority
security interest with respect to each Mortgage Loan which is indicated by the
Borrower to be a First Lien (as reflected on the Mortgage Loan Data
Transmission), or (B) second lien and second priority security interest with
respect to each Mortgage Loan which is indicated by the Borrower to be a Second
Lien Mortgage Loan (as reflected on the Mortgage Loan Data Transmission), in
either case, on the property described therein and the Borrower has full right
to pledge and assign the same to the Lender. The Mortgaged Property was not, as
of the date of origination of the Mortgage Loan, subject to a mortgage, deed of
trust, deed to secure debt or other security instrument creating a lien
subordinate to the lien of the Mortgage.
(k) Validity of Mortgage Documents. The Mortgage Note and the
Mortgage and any other agreement executed and delivered by a Mortgagor or
guarantor, if applicable, in connection with a Mortgage Loan are genuine, and
each is the legal, valid and binding obligation of the maker thereof enforceable
in accordance with its terms. All parties to the Mortgage Note, the Mortgage and
any other such related agreement had legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note, the Mortgage and any such
agreement, and the Mortgage Note, the Mortgage and any other such related
agreement have been duly and properly executed by such related parties. No
fraud, error, omission, misrepresentation, negligence or similar occurrence with
respect to a Mortgage Loan has taken placed on the part of any Person,
including, without limitation, the Mortgagor, any appraiser, any builder or
developer, or any other party involved in the origination of the Mortgage Loan.
The Borrower has reviewed all of the documents constituting the Servicing File
and has made such inquiries as it deems necessary to make and confirm the
accuracy of the representations set forth herein.
(l) Full Disbursement of Proceeds. The proceeds of the Mortgage Loan
have been fully disbursed and there is no further requirement for future
advances thereunder, and any and all requirements as to completion of any
on-site or off-site improvement and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing the Mortgage Loan and the recording of the Mortgage
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were paid, and the Mortgagor is not entitled to any refund of any amounts paid
or due under the Mortgage Note or Mortgage.
(m) Ownership. The Borrower is the sole owner and holder of the
Mortgage Loan. All Mortgage Loans acquired by the Borrower from third parties
(including affiliates) were acquired in a true and legal sale pursuant to which
such third party sold, transferred, conveyed and assigned to the Borrower all of
its right, title and interest in, to and under such Mortgage Loan and retained
no interest in such Mortgage Loan. In connection with such sale, such third
party received reasonably equivalent value and fair consideration and, in
accordance with GAAP and for federal income tax purposes, reported the sale of
such Mortgage Loan to the Borrower as a sale of its interests in such Mortgage
Loan. The Mortgage Loan is not assigned or pledged, and the Borrower has good,
indefeasible and marketable title thereto, and has full right to transfer,
pledge and assign the Mortgage Loan to the Lender free and clear of any
encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to assign, transfer and
pledge each Mortgage Loan pursuant to this Warehouse Agreement and following the
pledge of each Mortgage Loan, the Lender will hold such Mortgage Loan free and
clear of any encumbrance, equity, participation interest, lien, pledge, charge,
claim or security interest except any such security interest created pursuant to
the terms of this Warehouse Agreement.
(n) Doing Business. All parties which have had any interest in the
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (i) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (ii) either (A) organized
under the laws of such state, (B) qualified to do business in such state, (C) a
federal savings and loan association, a savings bank or a national bank having a
principal office in such state or (D) not doing business in such state.
(o) LTV. As of the date of origination of the Mortgage Loan, the LTV
or CLTV (if applicable) are as identified on the Mortgage Loan Data
Transmission.
(p) Title Insurance. The Mortgage Loan is covered by either (i) an
attorney's opinion of title and abstract of title, the form and substance of
which is acceptable to prudent mortgage lending institutions making mortgage
loans in the area wherein the Mortgaged Property is located or (ii) an ALTA
Lender's title insurance policy or other generally acceptable form of policy or
insurance acceptable to FNMA or FHLMC and each such title insurance policy is
issued by a title insurer acceptable to FNMA or FHLMC and qualified to do
business in the jurisdiction where the Mortgaged Property is located, insuring
the Borrower, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the Mortgage Loan (or to the extent
a Mortgage Note provides for negative amortization, the maximum amount of
negative amortization in accordance with the Mortgage), subject only to the
exceptions contained in clauses (1), (2), (3) and, with respect to each Mortgage
Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan (as
reflected on the Mortgage Loan Data Transmission) clause (4) of paragraph (j) of
this Part I of Schedule 1, and in the case of adjustable rate Mortgage Loans,
against any loss by reason of the invalidity or unenforceability of the lien
resulting from the provisions of the Mortgage providing for
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adjustment to the Mortgage Interest Rate and Monthly Payment. Where required by
state law or regulation, the Mortgagor has been given the opportunity to choose
the carrier of the required mortgage title insurance. Additionally, such
Lender's title insurance policy affirmatively insures ingress and egress and
against encroachments by or upon the Mortgaged Property or any interest therein.
The title policy does not contain any special exceptions (other than the
standard exclusions) for zoning and uses and has been marked to delete the
standard survey exception or to replace the standard survey exception with a
specific survey reading. The Borrower, its successors and assigns, are the sole
insureds of such Lender's title insurance policy, and such Lender's title
insurance policy is valid and remains in full force and effect and will be in
force and effect upon the consummation of the transactions contemplated by this
Warehouse Agreement. No claims have been made under such Lender's title
insurance policy, and no prior holder or servicer of the related Mortgage,
including the Borrower, has done, by act or omission, anything which would
impair the coverage of such Lender's title insurance policy, including, without
limitation, no unlawful fee, commission, kickback or other unlawful compensation
or value of any kind has been or will be received, retained or realized by any
attorney, firm or other Person, and no such unlawful items have been received,
retained or realized by the Borrower.
(q) No Defaults. There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no event has
occurred which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach, violation or event
of acceleration, and neither the Borrower nor its predecessors have waived any
default, breach, violation or event of acceleration. With respect to each
Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage
Loan (as reflected on the Mortgage Loan Data Transmission) (i) the First Lien is
in full force and effect, (ii) there is no default, breach, violation or event
of acceleration existing under such First Lien mortgage or the related mortgage
note, (iii) no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration thereunder, and either (A) the First Lien
mortgage contains a provision which allows or (B) applicable law requires, the
mortgagee under the second lien Mortgage Loan to receive notice of, and affords
such mortgagee an opportunity to cure any default by payment in full or
otherwise under the First Lien mortgage.
(r) No Mechanics' Liens. At origination, there were no mechanics' or
similar liens or claims which have been filed for work, labor or material (and
no rights are outstanding that under the law could give rise to such liens)
affecting the Mortgaged Property which are or may be liens prior to, or equal or
coordinate with the lien of the Mortgage.
(s) Location of Improvements: No Encroachments. All improvements
which were considered in determining the Appraised Value of the Mortgaged
Property lie wholly within the boundaries and building restriction lines of the
Mortgaged Property, and no improvements on adjoining properties encroach upon
the Mortgaged Property. No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning and building law, ordinance or
regulation.
(t) Origination: Payment Terms. Principal payments on the Mortgage
Loan commenced no more than sixty (60) days after funds were disbursed in
connection with the Mortgage Loan. The Mortgage Interest Rate is adjusted, with
respect to adjustable rate Mortgage
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Loans, on each Interest Rate Adjustment Date to equal the Index plus the Gross
Margin (rounded up or down to the nearest .125 %), subject to the Mortgage
Interest Rate Cap. The Mortgage Note is payable on the day set forth in the
Mortgage Note in equal monthly installments of principal and interest, which
installments of interest, with respect to adjustable rate Mortgage Loans, are
subject to change due to the adjustments to the Mortgage Interest Rate on each
Interest Rate Adjustment Date, with interest calculated and payable in arrears,
sufficient to amortize the Mortgage Loan fully by the stated maturity date, over
an original term of not more than 30 years from commencement of amortization.
The Due Date of the first payment under the Mortgage Note is no more than 60
days from the date of the Mortgage Note.
(u) Customary Provisions. The Mortgage Note has a stated maturity.
The Mortgage contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the realization against
the Mortgaged Property of the benefits of the security provided thereby,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a
Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the
Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage
Loan will be able to deliver good and merchantable title to the Mortgaged
Property. There is no homestead or other exemption available to a Mortgagor
which would interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage.
(v) Conformance with Underwriting Guidelines and Agency Standards.
The Mortgage Loan was underwritten in accordance with the applicable
Underwriting Guidelines. The Mortgage Note and Mortgage are on forms similar to
those used by FHLMC or FNMA, or, on such forms, copies of which have been
delivered to the Lender, which are customary in the mortgage origination and
servicing industry and the Borrower has not made any representations to a
Mortgagor that are inconsistent with the mortgage instruments used.
(w) Occupancy of the Mortgaged Property. As of the Funding Date the
Mortgaged Property is either vacant or lawfully occupied under applicable law.
All inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of the Mortgaged Property and, with respect to
the use and occupancy of the same, including but not limited to certificates of
occupancy and fire underwriting certificates, have been made or obtained from
the appropriate authorities. The Borrower has not received written notification
from any governmental authority that the Mortgaged Property is in material
non-compliance with such laws or regulations, is being used, operated or
occupied unlawfully or has failed to have or obtain such inspection, licenses or
certificates, as the case may be. The Borrower has not received notice of any
violation or failure to conform with any such law, ordinance, regulation,
standard, license or certificate. Except as otherwise set forth in the Mortgage
Loan Data Transmission, the Mortgagor represented at the time of origination of
the Mortgage Loan that the Mortgagor would occupy the Mortgaged Property as the
Mortgagor's primary residence.
(x) No Additional Collateral. The Mortgage Note is not and has not
been secured by any collateral except the lien of the corresponding Mortgage and
the security interest of any applicable security agreement or chattel mortgage
referred to in clause (j) above.
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(y) Deeds of Trust. In the event the Mortgage constitutes a deed of
trust, a trustee, authorized and duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is named in the
Mortgage, and no fees or expenses are or will become payable by the Custodian or
the Lender to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor.
(z) Delivery of Mortgage Documents. The Mortgage Note, the Mortgage,
the Assignment of Mortgage and any other documents required to be delivered
under the Custodial Agreement for each Mortgage Loan have been delivered to the
Custodian. The Borrower or its agent is in possession of a complete, true and
materially accurate Mortgage File in compliance with the Custodial Agreement,
except for such documents the originals of which have been delivered to the
Custodian.
(aa) Transfer of Mortgage Loans. The Assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located.
(bb) Due-On-Sale. The Mortgage contains an enforceable provision for
the acceleration of the payment of the unpaid principal balance of the Mortgage
Loan in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the mortgagee thereunder.
(cc) No Buydown Provisions: No Graduated Payments or Contingent
Interests. The Mortgage Loan does not contain provisions pursuant to which
Monthly Payments are paid or partially paid with funds deposited in any separate
account established by the Borrower, the Mortgagor, or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor nor does it contain
any other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature.
(dd) Consolidation of Future Advances. Any future advances made to
the Mortgagor prior to the origination of the Mortgage Loan have been
consolidated with the outstanding principal amount secured by the Mortgage, and
the secured principal amount, as consolidated, bears a single interest rate and
single repayment term. The lien of the Mortgage securing the consolidated
principal amount is expressly insured as having (A) first lien priority with
respect to each Mortgage Loan which is indicated by the Borrower to be a First
Lien (as reflected on the Mortgage Loan Data Transmission), or (B) second lien
priority with respect to each Mortgage Loan which is indicated by the Borrower
to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan Data
Transmission), in either case, by a title insurance policy, an endorsement to
the policy insuring the mortgagee's consolidated interest or by other title
evidence acceptable to FNMA and FHLMC. The consolidated principal amount does
not exceed the original principal amount of the Mortgage Loan.
(ee) Mortgaged Property Undamaged. The Mortgaged Property (and with
respect to any Cooperative Loan, the Cooperative Unit) is undamaged by waste,
fire, earthquake or earth movement, windstorm, flood, tornado or other casualty
so as to affect adversely the value of the Mortgaged Property as security for
the Mortgage Loan or the use for which the
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premises were intended and each Mortgaged Property is in good repair. There have
not been any condemnation proceedings with respect to the Mortgaged Property and
the Borrower has no knowledge of any such proceedings.
(ff) Collection Practices: Escrow Deposits: Interest Rate
Adjustments. The origination and collection practices used by the originator,
each servicer of the Mortgage Loan and the Borrower with respect to the Mortgage
Loan have been in all material respects in compliance with Accepted Servicing
Practices, applicable laws and regulations, and have been in all respects legal
and proper. With respect to escrow deposits and Escrow Payments (other than with
respect to each Mortgage Loan which is indicated by the Borrower to be a Second
Lien Mortgage Loan and for which the mortgagee under the First Lien is
collecting Escrow Payments (as reflected on the Mortgage Loan Data
Transmission), all such payments are in the possession of, or under the control
of, the Borrower and there exist no deficiencies in connection therewith for
which customary arrangements for repayment thereof have not been made. All
Escrow Payments have been collected in full compliance with state and federal
law. An escrow of funds is not prohibited by applicable law and has been
established in an amount sufficient to pay for every item that remains unpaid
and has been assessed but is not yet due and payable. No escrow deposits or
Escrow Payments or other charges or payments due the Borrower have been
capitalized under the Mortgage or the Mortgage Note. All Mortgage Interest Rate
adjustments have been made in strict compliance with state and federal law and
the terms of the related Mortgage Note. Any interest required to be paid
pursuant to state, federal and local law has been properly paid and credited.
(gg) Conversion to Fixed Interest Rate. With respect to adjustable
rate Mortgage Loans, the Mortgage Loan is not convertible to a fixed interest
rate Mortgage Loan.
(hh) Other Insurance Policies. No action, inaction or event has
occurred and no state of facts exists or has existed that has resulted or will
result in the exclusion from, denial of, or defense to coverage under any
applicable special hazard insurance policy, PMI Policy or bankruptcy bond,
irrespective of the cause of such failure of coverage. In connection with the
placement of any such insurance, no commission, fee, or other compensation has
been or will be received by the Borrower or by any officer, director, or
employee of the Borrower or any designee of the Borrower or any corporation in
which the Borrower or any officer, director, or employee had a financial
interest at the time of placement of such insurance.
(ii) Soldiers' and Sailors' Civil Relief Act. The Mortgagor has not
notified the Borrower, and the Borrower has no knowledge, of any relief
requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil
Relief Act of 1940.
(jj) Appraisal. The Mortgage File contains an appraisal of the
related Mortgaged Property signed prior to the approval of the Mortgage Loan
application by a qualified appraiser, duly appointed by the Borrower or the
Qualified Originator, who had no interest, direct or indirect in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan, and the
appraisal and appraiser both satisfy the requirements of FNMA or FHLMC and Title
XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as
amended and the
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regulations promulgated thereunder, all as in effect on the date the Mortgage
Loan was originated.
(kk) Disclosure Materials. The Mortgagor has executed a statement to
the effect that the Mortgagor has received all disclosure materials required by
applicable law with respect to the making of adjustable rate mortgage loans, and
the Borrower maintains such statement in the Mortgage File.
(ll) Construction or Rehabilitation of Mortgaged Property. No
Mortgage Loan was made in connection with the construction or rehabilitation of
a Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged
Property.
(mm) No Defense to Insurance Coverage. No action has been taken or
failed to be taken, no event has occurred and no state of facts exists or has
existed on or prior to the Funding Date (whether or not known to the Borrower on
or prior to such date) which has resulted or will result in an exclusion from,
denial of, or defense to coverage under any private mortgage insurance
(including, without limitation, any exclusions, denials or defenses which would
limit or reduce the availability of the timely payment of the full amount of the
loss otherwise due thereunder to the insured) whether arising out of actions,
representations, errors, omissions, negligence, or fraud of the Borrower, the
related Mortgagor or any party involved in the application for such coverage,
including the appraisal, plans and specifications and other exhibits or
documents submitted therewith to the insurer under such insurance policy, or for
any other reason under such coverage, but not including the failure of such
insurer to pay by reason of such insurer's breach of such insurance policy or
such insurer's financial inability to pay.
(nn) Capitalization of Interest. The Mortgage Note does not by its
terms provide for the capitalization or forbearance of interest.
(oo) No Equity Participation. No document relating to the Mortgage
Loan provides for any contingent or additional interest in the form of
participation in the cash flow of the Mortgaged Property or a sharing in the
appreciation of the value of the Mortgaged Property. The indebtedness evidenced
by the Mortgage Note is not convertible to an ownership interest in the
Mortgaged Property or the Mortgagor and the Borrower has not financed nor does
it own directly or indirectly, any equity of any form in the Mortgaged Property
or the Mortgagor.
(pp) Withdrawn Mortgage Loans. If the Mortgage Loan has been
released to the Borrower pursuant to a Request for Release as permitted under
Section 5 of the Custodial Agreement, then the promissory note relating to the
Mortgage Loan was returned to the Custodian within 10 days (or if such tenth day
was not a Business Day, the next succeeding Business Day).
(qq) No Exception. Other than as noted by the Custodian on the
Exception Report; no Material Exception exists (as defined in the Custodial
Agreement) with respect to the Mortgage Loan which would materially adversely
affect the Mortgage Loan or the Lender's security interest, granted by the
Borrower, in the Mortgage Loan as determined by the Lender in its sole
discretion.
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(rr) Qualified Originator. The Mortgage Loan has been originated by,
and, if applicable, purchased by the Borrower from, a Qualified Originator. No
Mortgage Loan was originated by First Alliance.
(ss) Mortgage Submitted for Recordation. The Mortgage has been
submitted for recordation in the appropriate governmental recording office of
the jurisdiction where the Mortgaged Property is located.
(tt) First Lien Consent. With respect to each Mortgage Loan which is
a Second Lien, (i) if the related first lien provides for negative amortization,
the LTV was calculated at the maximum principal balance of such first lien that
could result upon application of such negative amortization feature, and (ii)
either no consent for the Mortgage Loan is required by the holder of the first
lien or such consent has been obtained and is contained in the Mortgage File.
(uu) Acceptable Investment. No specific circumstances or conditions
exist with respect to the Mortgage, the Mortgaged Property or the Mortgagor,
other than the Mortgagor's credit standing, that should reasonably be expected
to (i) cause private institutional investors which invest in Mortgage Loans
similar to the Mortgage Loan to regard the Mortgage Loan as an unacceptable
investment, (ii) cause the Mortgage Loan to be more likely to become past due in
comparison to similar Mortgage Loans, or (iii) adversely affect the value or
marketability of the Mortgage Loan in comparison to similar Mortgage Loans;
(vv) Environmental Matters. The Mortgaged Property is free from any
and all toxic or hazardous substances and there exists no violation of any
local, state or federal environmental law, rule or regulation;
(ww) Ground Leases. With respect to each ground lease to which the
Mortgaged Property is subject (a "Ground Lease"): (i) the Mortgagor is the owner
of a valid and subsisting interest as tenant under the Ground Lease; (ii) the
Ground Lease is in full force and effect, unmodified and not supplemented by any
writing or otherwise; (iii) all rent, additional rent and other charges reserved
therein have been paid to the extent they are payable to the date hereof; (iv)
the Mortgagor enjoys the quiet and peaceful possession of the estate demised
thereby, subject to any sublease; (v) the Mortgagor is not in default under any
of the terms thereof and there are no circumstances which, with the passage of
time or the giving of notice or both, would constitute an event of default
thereunder; (vii) the lessor under the Ground Lease is not in default under any
of the terms or provisions thereof on the part of the lessor to be observed or
performed; (vii) the lessor under the Ground Lease has satisfied all of its
repair or construction obligations, if any, to date pursuant to the terms of the
Ground Lease; and (ix) the execution, delivery and performance of the Mortgage
do not require the consent (other than those consents which have been obtained
and are in full force and effect) under, and will not contravene any provision
of or cause a default under, the Ground Lease.
(xx) Value of Mortgage Property. The Borrower has no knowledge of
any circumstances existing, other than the Mortgagor's credit standing, that
should reasonably be expected to adversely affect the value or the marketability
of the Mortgaged Property or the Mortgage Loan or to cause the Mortgage Loan to
prepay during any period materially faster or slower than the Mortgage Loans
originated by the Borrower generally; and
-11-
<PAGE>
(yy) Section 32 Mortgages; Overages. The Borrower has provided the
related Mortgagor with all disclosure materials required by Section 226.32 of
the Federal Reserve Board Regulation Z with respect to any Mortgage Loans
subject to such Section of the Federal Reserve Board Regulation Z. The Borrower
has not made or caused to be made any payment in the nature of an "overage" or
"yield spread premium" to a mortgage broker or like Person which has not been
fully disclosed to the Mortgagor.
(zz) Cooperative Loans. With respect to each Cooperative Loan, each
original Uniform Commercial Code financing statement, continuation statement or
other governmental filing or recordation necessary to create or preserve the
perfection and priority of the first priority lien and security interest in the
Cooperative Shares and Proprietary Lease has been timely and properly made. Any
security agreement, chattel mortgage or equivalent document related to the
Cooperative Loan and delivered to the Borrower or its designee establishes in
the Borrower a valid and subsisting perfected first lien on and security
interest in the Mortgaged Property described therein, and the Borrower has full
right to sell and assign the same
-12-
<PAGE>
Schedule 2-A
INITIAL SCHEDULED AMORTIZATION BALANCE
<TABLE>
<CAPTION>
Scheduled Targeted
Monthly Tranche B
Expected Amortization Amortization
Payment Monthly Amount Balance
Period Date Collections 2A 2A
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
35,000,000
- -------------------------------------------------------------------------------------------------------
1 March 17, 2000 1,805,360 1,066,667 33,933,333
- -------------------------------------------------------------------------------------------------------
2 April 17, 2000 1,750,887 1,066,667 32,866,667
- -------------------------------------------------------------------------------------------------------
3 May 17, 2000 1,669,232 1,016,667 31,850,000
- -------------------------------------------------------------------------------------------------------
4 June 17, 2000 1,590,399 750,000 31,100,000
- -------------------------------------------------------------------------------------------------------
5 July 17, 2000 6,798,387 2,000,000 29,100,000
- -------------------------------------------------------------------------------------------------------
6 August 17, 2000 2,140,468 811,171 28,288,829
- -------------------------------------------------------------------------------------------------------
7 September 17, 2000 2,137,610 812,703 27,476,126
- -------------------------------------------------------------------------------------------------------
8 October 17, 2000 2,985,423 1,175,775 26,300,351
- -------------------------------------------------------------------------------------------------------
9 November 17, 2000 2,752,102 1,080,595 25,219,756
- -------------------------------------------------------------------------------------------------------
10 December 17, 2000 2,756,036 1,085,925 24,133,831
- -------------------------------------------------------------------------------------------------------
11 January 17, 2001 2,760,348 1,091,435 23,042,396
- -------------------------------------------------------------------------------------------------------
12 February 17, 2001 2,746,288 1,025,087 22,017,309
- -------------------------------------------------------------------------------------------------------
13 March 17, 2001 2,757,982 1,033,031 20,984,278
- -------------------------------------------------------------------------------------------------------
14 April 17, 2001 2,771,605 1,041,772 19,942,506
- -------------------------------------------------------------------------------------------------------
15 May 17, 2001 2,751,403 1,037,011 18,905,495
- -------------------------------------------------------------------------------------------------------
16 June 17, 2001 2,730,292 1,031,871 17,873,623
- -------------------------------------------------------------------------------------------------------
17 July 17, 2001 2,707,797 1,026,162 16,847,461
- -------------------------------------------------------------------------------------------------------
18 August 17, 2001 2,683,991 1,019,909 15,827,552
- -------------------------------------------------------------------------------------------------------
19 September 17, 2001 2,658,943 1,013,140 14,814,412
- -------------------------------------------------------------------------------------------------------
20 October 17, 2001 2,650,752 1,013,092 13,801,320
- -------------------------------------------------------------------------------------------------------
21 November 17, 2001 2,622,795 1,005,138 12,796,182
- -------------------------------------------------------------------------------------------------------
22 December 17, 2001 2,593,987 996,818 11,799,364
- -------------------------------------------------------------------------------------------------------
23 January 17, 2002 2,563,197 987,678 10,811,686
- -------------------------------------------------------------------------------------------------------
24 February 17, 2002 2,531,624 978,196 9,833,490
- -------------------------------------------------------------------------------------------------------
25 March 17, 2002 NA NA 0
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 2-B
JUNE 30, 2000 FUTURE RESIDUAL FAILURE EVENT
Scheduled Amortization Balance
<TABLE>
<CAPTION>
Scheduled Targeted
Monthly Tranche B
Expected Amortization Amortization
Payment Monthly Amount Balance
Period Date Collections 2B 2B
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
35,000,000
- ---------------------------------------------------------------------------------------------------------
1 March 17, 2000 1,805,360 1,066,667 33,933,333
- ---------------------------------------------------------------------------------------------------------
2 April 17, 2000 1,750,887 1,066,667 32,866,667
- ---------------------------------------------------------------------------------------------------------
3 May 17, 2000 1,669,232 1,016,667 31,850,000
- ---------------------------------------------------------------------------------------------------------
4 June 17, 2000 1,590,399 750,000 31,100,000
- ---------------------------------------------------------------------------------------------------------
5 July 17, 2000 6,798,387 2,085,701 29,014,299
- ---------------------------------------------------------------------------------------------------------
6 August 17, 2000 2,140,468 896,872 28,117,428
- ---------------------------------------------------------------------------------------------------------
7 September 17, 2000 2,137,610 898,404 27,219,024
- ---------------------------------------------------------------------------------------------------------
8 October 17, 2000 2,985,423 1,261,476 25,957,548
- ---------------------------------------------------------------------------------------------------------
9 November 17, 2000 2,752,102 1,166,295 24,791,253
- ---------------------------------------------------------------------------------------------------------
10 December 17, 2000 2,756,036 1,171,626 23,619,627
- ---------------------------------------------------------------------------------------------------------
11 January 17, 2001 2,760,348 1,177,136 22,442,492
- ---------------------------------------------------------------------------------------------------------
12 February 17, 2001 2,746,288 1,110,787 21,331,705
- ---------------------------------------------------------------------------------------------------------
13 March 17, 2001 2,757,982 1,118,732 20,212,973
- ---------------------------------------------------------------------------------------------------------
14 April 17, 2001 2,771,605 1,127,473 19,085,500
- ---------------------------------------------------------------------------------------------------------
15 May 17, 2001 2,751,403 1,122,712 17,962,788
- ---------------------------------------------------------------------------------------------------------
16 June 17, 2001 2,730,292 1,117,572 16,845,216
- ---------------------------------------------------------------------------------------------------------
17 July 17, 2001 2,707,797 1,111,862 15,733,354
- ---------------------------------------------------------------------------------------------------------
18 August 17, 2001 2,683,991 1,105,610 14,627,745
- ---------------------------------------------------------------------------------------------------------
19 September 17, 2001 2,658,943 1,098,840 13,528,904
- ---------------------------------------------------------------------------------------------------------
20 October 17, 2001 2,650,752 1,098,793 12,430,111
- ---------------------------------------------------------------------------------------------------------
21 November 17, 2001 2,622,795 1,090,838 11,339,273
- ---------------------------------------------------------------------------------------------------------
22 December 17, 2001 2,593,987 1,082,518 10,256,755
- ---------------------------------------------------------------------------------------------------------
23 January 17, 2002 2,563,197 1,073,379 9,183,376
- ---------------------------------------------------------------------------------------------------------
24 February 17, 2002 2,531,624 1,063,897 8,119,479
- ---------------------------------------------------------------------------------------------------------
25 March 17, 2002 NA NA 0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 2-C
JUNE 30, 2000 AND SEPTEMBER 30, 2000 FUTURE RESIDUAL FAILURE EVENT
Scheduled Amortization Balance
<TABLE>
<CAPTION>
Scheduled Targeted
Monthly Tranche B
Expected Amortization Amortization
Payment Monthly Amount Balance
Period Date Collections 2C 2C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
35,000,000
- ---------------------------------------------------------------------------------------------------------
1 March 17, 2000 1,805,360 1,066,667 33,933,333
- ---------------------------------------------------------------------------------------------------------
2 April 17, 2000 1,750,887 1,066,667 32,866,667
- ---------------------------------------------------------------------------------------------------------
3 May 17, 2000 1,669,232 1,016,667 31,850,000
- ---------------------------------------------------------------------------------------------------------
4 June 17, 2000 1,590,399 750,000 31,100,000
- ---------------------------------------------------------------------------------------------------------
5 July 17, 2000 6,798,387 2,085,701 29,014,299
- ---------------------------------------------------------------------------------------------------------
6 August 17, 2000 2,140,468 896,872 28,117,428
- ---------------------------------------------------------------------------------------------------------
7 September 17, 2000 2,137,610 898,404 27,219,024
- ---------------------------------------------------------------------------------------------------------
8 October 17, 2000 2,985,423 1,395,181 25,823,844
- ---------------------------------------------------------------------------------------------------------
9 November 17, 2000 2,752,102 1,300,000 24,523,843
- ---------------------------------------------------------------------------------------------------------
10 December 17, 2000 2,756,036 1,305,331 23,218,513
- ---------------------------------------------------------------------------------------------------------
11 January 17, 2001 2,760,348 1,310,840 21,907,672
- ---------------------------------------------------------------------------------------------------------
12 February 17, 2001 2,746,288 1,244,492 20,663,180
- ---------------------------------------------------------------------------------------------------------
13 March 17, 2001 2,757,982 1,252,436 19,410,744
- ---------------------------------------------------------------------------------------------------------
14 April 17, 2001 2,771,605 1,261,178 18,149,566
- ---------------------------------------------------------------------------------------------------------
15 May 17, 2001 2,751,403 1,256,417 16,893,149
- ---------------------------------------------------------------------------------------------------------
16 June 17, 2001 2,730,292 1,251,277 15,641,873
- ---------------------------------------------------------------------------------------------------------
17 July 17, 2001 2,707,797 1,245,567 14,396,305
- ---------------------------------------------------------------------------------------------------------
18 August 17, 2001 2,683,991 1,239,315 13,156,991
- ---------------------------------------------------------------------------------------------------------
19 September 17, 2001 2,658,943 1,232,545 11,924,445
- ---------------------------------------------------------------------------------------------------------
20 October 17, 2001 2,650,752 1,232,498 10,691,948
- ---------------------------------------------------------------------------------------------------------
21 November 17, 2001 2,622,795 1,224,543 9,467,404
- ---------------------------------------------------------------------------------------------------------
22 December 17, 2001 2,593,987 1,216,223 8,251,181
- ---------------------------------------------------------------------------------------------------------
23 January 17, 2002 2,563,197 1,207,084 7,044,098
- ---------------------------------------------------------------------------------------------------------
24 February 17, 2002 2,531,624 1,197,602 5,846,496
- ---------------------------------------------------------------------------------------------------------
25 NA NA 0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 2-D
SEPTEMBER 30, 2000 FUTURE RESIDUAL FAILURE EVENT
Scheduled Amortization Balance
<TABLE>
<CAPTION>
Scheduled Targeted
Monthly Tranche B
Expected Amortization Amortization
Payment Monthly Amount Balance
Period Date Collections 2D 2D
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
35,000,000
- -----------------------------------------------------------------------------------------------------------
1 March 17, 2000 1,805,360 1,066,667 33,933,333
- -----------------------------------------------------------------------------------------------------------
2 April 17, 2000 1,750,887 1,066,667 32,866,667
- -----------------------------------------------------------------------------------------------------------
3 May 17, 2000 1,669,232 1,016,667 31,850,000
- -----------------------------------------------------------------------------------------------------------
4 June 17, 2000 1,590,399 750,000 31,100,000
- -----------------------------------------------------------------------------------------------------------
5 July 17, 2000 6,798,387 2,000,000 29,100,000
- -----------------------------------------------------------------------------------------------------------
6 August 17, 2000 2,140,468 811,171 28,288,829
- -----------------------------------------------------------------------------------------------------------
7 September 17, 2000 2,137,610 812,703 27,476,126
- -----------------------------------------------------------------------------------------------------------
8 October 17, 2000 2,985,423 1,271,760 26,204,366
- -----------------------------------------------------------------------------------------------------------
9 November 17, 2000 2,752,102 1,176,579 25,027,787
- -----------------------------------------------------------------------------------------------------------
10 December 17, 2000 2,756,036 1,181,910 23,845,877
- -----------------------------------------------------------------------------------------------------------
11 January 17, 2001 2,760,348 1,187,420 22,658,457
- -----------------------------------------------------------------------------------------------------------
12 February 17, 2001 2,746,288 1,121,071 21,537,386
- -----------------------------------------------------------------------------------------------------------
13 March 17, 2001 2,757,982 1,129,016 20,408,370
- -----------------------------------------------------------------------------------------------------------
14 April 17, 2001 2,771,605 1,137,757 19,270,613
- -----------------------------------------------------------------------------------------------------------
15 May 17, 2001 2,751,403 1,132,996 18,137,618
- -----------------------------------------------------------------------------------------------------------
16 June 17, 2001 2,730,292 1,127,856 17,009,762
- -----------------------------------------------------------------------------------------------------------
17 July 17, 2001 2,707,797 1,122,146 15,887,615
- -----------------------------------------------------------------------------------------------------------
18 August 17, 2001 2,683,991 1,115,894 14,771,721
- -----------------------------------------------------------------------------------------------------------
19 September 17, 2001 2,658,943 1,109,125 13,662,597
- -----------------------------------------------------------------------------------------------------------
20 October 17, 2001 2,650,752 1,109,077 12,553,520
- -----------------------------------------------------------------------------------------------------------
21 November 17, 2001 2,622,795 1,101,123 11,452,397
- -----------------------------------------------------------------------------------------------------------
22 December 17, 2001 2,593,987 1,092,802 10,359,595
- -----------------------------------------------------------------------------------------------------------
23 January 17, 2002 2,563,197 1,083,663 9,275,932
- -----------------------------------------------------------------------------------------------------------
24 February 17, 2002 2,531,624 1,074,181 8,201,751
- -----------------------------------------------------------------------------------------------------------
25 NA NA 0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 3
FILING JURISDICTIONS
--------------------
Aames Capital Corporation
-------------------------
State of California
Aames Funding Corporation
-------------------------
State of California
State of New York
New York County
<PAGE>
Schedule 4
RELEVANT STATES
- ------------------------------------------------------------------------------
POSTAL CODE STATE
==============================================================================
AK ARKANSAS
- ------------------------------------------------------------------------------
AR ARKANSAS
- ------------------------------------------------------------------------------
AZ ARIZONA
- ------------------------------------------------------------------------------
CA CALIFORNIA
- ------------------------------------------------------------------------------
CO COLORADO
- ------------------------------------------------------------------------------
CT CONNECTICUT
- ------------------------------------------------------------------------------
DC DISTRICT OF COLUMBIA
- ------------------------------------------------------------------------------
DE DELAWARE
- ------------------------------------------------------------------------------
FL FLORIDA
- ------------------------------------------------------------------------------
GA GEORGIA
- ------------------------------------------------------------------------------
HI HAWAII
- ------------------------------------------------------------------------------
IA IOWA
- ------------------------------------------------------------------------------
ID IDAHO
- ------------------------------------------------------------------------------
IL ILLINOIS
- ------------------------------------------------------------------------------
IN INDIANA
- ------------------------------------------------------------------------------
KS KANSAS
- ------------------------------------------------------------------------------
KY KENTUCKY
- ------------------------------------------------------------------------------
LA LOUISIANA
- ------------------------------------------------------------------------------
MA MASSACHUSETTS
- ------------------------------------------------------------------------------
MD MARYLAND
- ------------------------------------------------------------------------------
ME MAINE
- ------------------------------------------------------------------------------
MI MICHIGAN
- ------------------------------------------------------------------------------
MN MINNESOTA
- ------------------------------------------------------------------------------
MO MISSOURI
- ------------------------------------------------------------------------------
MS MISSISSIPPI
- ------------------------------------------------------------------------------
MT MONTANA
- ------------------------------------------------------------------------------
NC NORTH CAROLINA
- ------------------------------------------------------------------------------
ND NORTH DAKOTA
- ------------------------------------------------------------------------------
NE NEBRASKA
- ------------------------------------------------------------------------------
NH NEW HAMPSHIRE
- ------------------------------------------------------------------------------
NJ NEW JERSEY
- ------------------------------------------------------------------------------
NM NEW MEXICO
- ------------------------------------------------------------------------------
NV NEVADA
- ------------------------------------------------------------------------------
NY NEW YORK
- ------------------------------------------------------------------------------
OH OHIO
- ------------------------------------------------------------------------------
OK OKLAHOMA
- ------------------------------------------------------------------------------
OR OREGON
- ------------------------------------------------------------------------------
PA PENNSYLVANIA
- ------------------------------------------------------------------------------
<PAGE>
RI RHODE ISLAND
- ------------------------------------------------------------------------------
SC SOUTH CAROLINA
- ------------------------------------------------------------------------------
SD SOUTH DAKOTA
- ------------------------------------------------------------------------------
TN TENNESSEE
- ------------------------------------------------------------------------------
TX TEXAS
- ------------------------------------------------------------------------------
UT UTAH
- ------------------------------------------------------------------------------
VA VIRGINIA
- ------------------------------------------------------------------------------
VT VERMONT
- ------------------------------------------------------------------------------
WA WASHINGTON
- ------------------------------------------------------------------------------
WI WISCONSIN
- ------------------------------------------------------------------------------
WV WEST VIRGINIA
- ------------------------------------------------------------------------------
WY WYOMING
- ------------------------------------------------------------------------------
-2-
<PAGE>
Schedule 5
SUBSIDIARIES OF AAMES FINANCIAL CORPORATION
- ------------------------------------------------------------------------------
Name of Subsidiary Jurisdiction of Incorporation
- ------------------------------------------------------------------------------
Aames Capital Acceptance Corp. Delaware
- ------------------------------------------------------------------------------
Aames Capital Corporation California
- ------------------------------------------------------------------------------
Aames Funding Corporation California
- ------------------------------------------------------------------------------
One Stop Mortgage, Inc. Wyoming
- ------------------------------------------------------------------------------
Oxford Aviation Corporation, Inc. California
- ------------------------------------------------------------------------------
Rossmore Financial Insurance Services, Inc. California
- ------------------------------------------------------------------------------
Serrano Insurance Services Nevada
- ------------------------------------------------------------------------------
Windsor Management Co.
- ------------------------------------------------------------------------------
<PAGE>
Schedule 6
[INTENTIONALLY OMITTED]
<PAGE>
Schedule 7
PLEDGED SECURITIES
(1) Aames Mortgage Trust 1995-A, Mortgage Pass-Through Certificate, Series
1995-A, Class R
(2) Aames Mortgage Trust 1995-B, Mortgage Pass-Through Certificate Series
1995-B, Class R
(3) Aames Mortgage Trust 1995-C, Mortgage Pass-Through Certificate Series
1995-C, Class R
(4) Aames Mortgage Trust 1995-D, Mortgage Pass-Through Certificate Series
1995-D, Class R
(5) Aames Mortgage Trust 1996-A, Mortgage Pass-Through Certificate Series
1996-A, Class R
(6) Aames Mortgage Trust 1996-B, Mortgage Pass-Through Certificate Series
1996-B, Class R
(7) Aames Mortgage Trust 1996-C, Mortgage Pass-Through Certificate Series
1996-C, Class R
(8) Aames Mortgage Trust 1997-B, Mortgage Pass-Through Certificate Series
1997-B, Class C
(9) Aames Mortgage Trust 1997-B, Mortgage Pass-Through Certificate Series
1997-B, Class R-IA
(10) Aames Mortgage Trust 1997-B, Mortgage Pass-Through Certificate Series
1997-B, Class R-IF
(11) Aames Mortgage Trust 1997-B, Mortgage Pass-Through Certificate Series
1997-B, Class R-II
(12) Aames Mortgage Trust 1997-B, Mortgage Pass-Through Certificate Series
1997-B, Class R-III
(13) Aames Mortgage Trust 1997-C, Mortgage Pass-Through Certificate Series
1997-C, Class C
(14) Aames Mortgage Trust 1997-C, Mortgage Pass-Through Certificate Series
1997-C, Class R-IA
(15) Aames Mortgage Trust 1997-C, Mortgage Pass-Through Certificate Series
1997-C, Class R-IF
<PAGE>
(16) Aames Mortgage Trust 1997-C, Mortgage Pass-Through Certificate Series
1997-C, Class R-II
(17) Aames Mortgage Trust 1997-C, Mortgage Pass-Through Certificate Series
1997-C, Class R-III
-2-
<PAGE>
Schedule 8
GOVERNING AGREEMENTS
(1) Aames Home Loan, Pooling and Servicing Agreement, Series 1992-2, December
10, 1992
(2) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1993-A,
December 1, 1993
(3) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1994-A,
March 1, 1994
(4) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1994-B,
June 1, 1994
(5) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1994-C,
September 1, 1994
(6) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1994-D,
December 1, 1994
(7) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1995-A,
March 1, 1995
(8) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1995-B,
May 12, 1995
(9) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1995-C,
September 1, 1995
(10) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1995-D,
December 1, 1995
(11) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1996-A,
March 1, 1996
(12) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1996-B,
June 1, 1996
(13) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1996-C,
September 1, 1996
(14) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1997-A,
March 1, 1997
(15) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1997-B,
June 1, 1997
<PAGE>
(16) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1997-C,
September 1, 1997
(17) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1997-D,
December 1, 1997
(18) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1998-A,
March 1, 1998
(19) Aames Capital Acceptance Corp., Pooling and Servicing Agreement, Series
1998-B, June 1, 1998
(20) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1998-C,
September 1, 1998
(21) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1999-1,
July 1, 1999
(22) Aames Capital Corporation, Pooling and Servicing Agreement, Series 1999-2,
November 1, 1999
-2-
<PAGE>
PROMISSORY NOTE
$200,000,000
February 10, 2000
New York, New York
FOR VALUE RECEIVED, AAMES CAPITAL CORPORATION, a California
corporation and AAMES FUNDING CORPORATION, a California corporation (each a
"Borrower", collectively, the "Borrowers"), hereby promise to pay to the order
of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. (the "Lender"), at the principal
office of the Lender at 600 Steamboat Road, Greenwich, Connecticut 06830, in
lawful money of the United States, and in immediately available funds, the
principal sum of TWO HUNDRED MILLION DOLLARS ($200,000,000) (or such lesser
amount as shall equal the aggregate unpaid principal amount of the Advances made
by the Lender to the Borrowers under the Warehouse Agreement), on the dates and
in the principal amounts provided in the Warehouse Agreement, and to pay
interest on the unpaid principal amount of each such Advance, at such office, in
like money and funds, for the period commencing on the date of such Advance
until such Advance shall be paid in full, at the rates per annum and on the
dates provided in the Warehouse Agreement.
The date, amount and interest rate of each Advance made by the
Lender to the Borrowers, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note, endorsed by the Lender on the schedule attached hereto or any
continuation thereof; provided, that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrowers to
make a payment when due of any amount owing under the Warehouse Agreement or
hereunder in respect of the Advances made by the Lender.
This Note is the Note referred to in the Warehouse Loan and Security
Agreement dated as of February 10, 2000 (as amended, supplemented or otherwise
modified and in effect from time to time, the "Warehouse Agreement") between the
Borrowers, and the Lender, and evidences Advances made by the Lender thereunder.
Terms used but not defined in this Note have the respective meanings assigned to
them in the Warehouse Agreement.
The Borrowers agree to pay all the Lender's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of Lender's
counsel) in respect of this Note when incurred, including, without limitation,
reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrowers hereby
acknowledge, admit and agree that the Borrowers' obligations under this Note are
recourse obligations of the Borrowers to which the Borrowers pledge their full
faith and credit.
The Borrowers, and any indorsers or guarantors hereof, (a) severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayments of this Note, (b) expressly agree that this
Note, or any payment hereunder, may be extended from time to time, and consent
to the acceptance of further Collateral, the release of any Collateral for this
Note, the release of any party primarily or secondarily liable hereon, and
<PAGE>
(c) expressly agree that it will not be necessary for the Lender, in order to
enforce payment of this Note, to first institute or exhaust the Lender's
remedies against the Borrowers or any other party liable hereon or against any
Collateral for this Note. No extension of time for the payment of this Note, or
any installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Note, shall affect the liability under
this Note of the Borrowers, even if the Borrowers are not a party to such
agreement; provided, however, that the Lender and the Borrowers, by written
agreement between them, may affect the liability of the Borrowers.
Any reference herein to the Lender shall be deemed to include and
apply to every subsequent holder of this Note. Reference is made to the
Warehouse Agreement for provisions concerning optional and mandatory
prepayments, Collateral, acceleration and other material terms affecting this
Note.
Any enforcement action relating to this Note may be brought by
motion for summary judgment in lieu of a complaint pursuant to Section 3213 of
the New York Civil Practice Law and Rules. The Borrowers hereby submit to New
York jurisdiction with respect to any action brought with respect to this Note
and waives any right with respect to the doctrine of forum non conveniens with
respect to such transactions.
Each Borrower hereby acknowledges and agrees that such Borrower
shall be jointly and severally liable for all obligations and indemnities of the
Borrowers hereunder.
-2-
<PAGE>
This Note shall be governed by and construed under the laws of the
State of New York (without reference to choice of law doctrine but with
reference to Section 5-1401 of the New York General Obligations Law, which by
its terms applies to this Note) whose laws the Borrowers expressly elect to
apply to this Note. The Borrowers agree that any action or proceeding brought to
enforce or arising out of this Note may be commenced in the Supreme Court of the
State of New York, Borough of Manhattan, or in the District Court of the United
States for the Southern District of New York.
AAMES CAPITAL CORPORATION
By: ___________________________________________
Name:
Title:
AAMES FUNDING CORPORATION
By: ___________________________________________
Name:
Title:
-3-
<PAGE>
SCHEDULE OF LOANS
This Note evidences Advances made under the within-described
Warehouse Agreement to the Borrowers, on the dates, in the principal amounts and
bearing interest at the rates set forth below, and subject to the payments and
prepayments of principal set forth below:
- -------------------------------------------------------------------------------
Principal Amount Paid Unpaid Notation
Date Made Amount of Loan or Prepaid Principal Amount Made by
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
[INTENTIONALLY OMITTED]
<PAGE>
EXHIBIT C
[FORM OF OPINION OF COUNSEL TO THE BORROWERS]
(date)
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to Aames Capital
Corporation, a California corporation, and Aames Funding Corporation, a
California corporation (each a "Borrower", collectively, the "Borrowers"), with
respect to certain matters in connection with that certain Warehouse Loan and
Security Agreement, dated as of February 10, 2000 (the "Loan and Security
Agreement"), by and between the Borrowers and Greenwich Capital Financial
Products, Inc. (the "Lender"), being executed contemporaneously with a
Promissory Note dated February 10, 2000 from the Borrowers to the Lender (the
"Note"), an Custodial Agreement, dated as of February 10, 2000 (the "Custodial
Agreement"), by and among the Borrowers, Bankers Trust Company (the
"Custodian"), and the Lender. Capitalized terms not otherwise defined herein
have the meanings set forth in the Loan and Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. the Custodial Agreement;
4. the Guaranty executed by Aames Financial Corporation;
6. unfiled copies of the financing statements listed on Schedule 1
(collectively, the "Financing Statements") naming each Borrower as
Debtor and the Lender as Secured Party and describing the
Collateral (as defined in the Loan and Security Agreement) as to
which security interests may be perfected by filing under the
Uniform Commercial Code of the States listed on Schedule 1 (the
"Filing Collateral"), which I understand will be filed in the
filing offices listed on Schedule 1 (the "Filing Offices");
7. the reports listed on Schedule 2 as to Uniform Commercial Code
financing statements (collectively, the "UCC Search Report"); and
8. such other documents, records and papers as we have deemed
necessary and relevant as a basis for this opinion.
<PAGE>
To the extent [we] [I] have deemed necessary and proper, [we] [I]
have relied upon the representations and warranties of the Borrowers contained
in the Loan and Security Agreement. [We] [I] have assumed the authenticity of
all documents submitted to me as originals, the genuineness of all signatures,
the legal capacity of natural persons and the conformity to the originals of all
documents.
Based upon the foregoing, it is [our] [my] opinion that:
1. Each Borrower and the Guarantor are each corporations duly
organized, validly existing and in good standing under the laws of
the state of its organization and is qualified to transact business
in, duly licensed and in the case of each Borrower is in good
standing under, the laws of each state in which any Mortgaged
Property is located to the extent necessary to ensure the
enforceability of each Mortgage Loan and the servicing of each
Mortgage Loan pursuant to the Loan and Security Agreement.
2. The Borrowers and the Guarantor each have the corporate power to
engage in the transactions contemplated by the Loan and Security
Agreement, the Note, the Guaranty and the Custodial Agreement and
all requisite corporate power, authority and legal right to execute
and deliver the Loan and Security Agreement, the Note, the Guaranty
and the Custodial Agreement and observe the terms and conditions of
such instruments. The Borrowers have all requisite corporate power
to borrow under the Loan and Security Agreement and to grant a
security interest in the Collateral pursuant to the Loan and
Security Agreement.
3. The execution, delivery and performance by the Borrowers of the Loan
and Security Agreement, the Note, and the Custodial Agreement, and
the borrowings by the Borrowers and the pledge of the Collateral
under the Loan and Security Agreement and the execution of the
Guaranty by the Guarantor have been duly authorized by all necessary
corporate action on the part of the Borrowers. Each of the Loan and
Security Agreement, the Note, the Guaranty and the Custodial
Agreement have been executed and delivered by the Borrowers or the
Guarantor, as the case may be, and are legal, valid and binding
agreements enforceable in accordance with their respective terms
against the Borrowers or the Guarantor, subject to bankruptcy laws
and other similar laws of general application affecting rights of
creditors and subject to the application of the rules of equity,
including those respecting the availability of specific performance,
none of which will materially interfere with the realization of the
benefits provided thereunder or with the Lender's security interest
in the Mortgage Loans.
4. No consent, approval, authorization or order of, and no filing or
registration with, any court or governmental agency or regulatory
body is required on the part of the Borrowers for the execution,
delivery or performance by the Borrowers of the Loan and Security
Agreement, the Note and the Custodial Agreement or for the
borrowings by the Borrowers under the Loan and Security Agreement or
the granting of a security interest to the Lender in the Collateral,
pursuant to the Loan and Security Agreement.
-2-
<PAGE>
5. The execution, delivery and performance by each Borrower or the
Guarantor of, and the consummation of the transactions contemplated
by, the Loan and Security Agreement, the Note, the Guaranty and the
Custodial Agreement do not and will not (a) violate any provision of
such Borrower's or the Guarantor's charter or by-laws, (b) violate
any applicable law, rule or regulation, (c) violate any order, writ,
injunction or decree of any court or governmental authority or
agency or any arbitral award applicable to such Borrower or the
Guarantor of which I have knowledge (after due inquiry) or (d)
result in a breach of, constitute a default under, require any
consent under, or result in the acceleration or required prepayment
of any indebtedness pursuant to the terms of, any agreement or
instrument of which I have knowledge (after due inquiry) to which
such Borrower or the Guarantor is a party or by which it is bound or
to which it is subject, or (except for the Liens created pursuant to
the Loan and Security Agreement) result in the creation or
imposition of any Lien upon any Property of such Borrower pursuant
to the terms of any such agreement or instrument.
6. There is no action, suit, proceeding or investigation pending or, to
the best of [our] [my] knowledge, threatened against any Loan Party
which, in [our] [my] judgment, either in any one instance or in the
aggregate, would be reasonably likely to result in any material
adverse change in the properties, business or financial condition,
or prospects of the Borrowers or the Guarantor or in any material
impairment of the right or ability of such Loan Party to carry on
its business substantially as now conducted or in any material
liability on the part of the Borrowers or which would draw into
question the validity of the Loan and Security Agreement, the Note,
the Guaranty, the Custodial Agreement or the Mortgage Loans or of
any action taken or to be taken in connection with the transactions
contemplated thereby, or which would be reasonably likely to impair
materially the ability of such Loan Party to perform under the terms
of the Loan and Security Agreement, the Note, the Guaranty, the
Custodial Agreement or the Mortgage Loans.
7. The Loan and Security Agreement is effective to create, in favor of
the Lender, a valid security interest under the Uniform Commercial
Code in all of the right, title and interest of the Borrowers in, to
and under the Collateral as collateral security for the payment of
the Secured Obligations (as defined in the Loan and Security
Agreement), except that (a) such security interests will continue in
Collateral after its sale, exchange or other disposition only to the
extent provided in Section 9-306 of the Uniform Commercial Code, (b)
the security interests in Collateral in which the Borrowers acquires
rights after the commencement of a case under the Bankruptcy Code in
respect of the Borrowers may be limited by Section 552 of the
Bankruptcy Code.
8. When the Mortgage Notes are delivered to the Custodian, endorsed in
blank by a duly authorized officer of the applicable Borrower, the
security interest referred to in paragraph 7 above in the Mortgage
Notes will constitute a fully perfected first priority security
interest in all right, title and interest of such Borrower therein,
in
-3-
<PAGE>
the Mortgage Loan evidenced thereby and in such Borrower's interest
in the related Mortgaged Property.
9. (a) Upon the filing of financing statements on Form UCC-1 naming the
Lender as "Secured Party" and each Borrower as "Debtor", and
describing the Collateral, in the jurisdictions and recording
offices listed on Schedule 1 attached hereto, the security interests
referred to in paragraph 8 above will constitute fully perfected
security interests under the Uniform Commercial Code in all right,
title and interest of such Borrower in, to and under such
Collateral, which can be perfected by filing under the Uniform
Commercial Code.
(b) The UCC Search Report sets forth the proper filing offices and
the proper debtors necessary to identify those Persons who have on
file in the jurisdictions listed on Schedule 1 financing statements
covering the Filing Collateral as of the dates and times specified
on Schedule 2. Except for the matters listed on Schedule 2, the UCC
Search Report identifies no Person who has filed in any Filing
Office a financing statement describing the Filing Collateral prior
to the effective dates of the UCC Search Report.
10. The Assignments of Mortgage are in recordable form, except for the
insertion of the name of the assignee, and upon the name of the
assignee being inserted, are acceptable for recording under the laws
of the state where each related Mortgaged Property is located.
11. Each Borrower is duly registered as a [____________] in each state
in which Mortgage Loans were originated to the extent such
registration is required by applicable law, and has obtained all
other licenses and governmental approvals in each jurisdiction to
the extent that the failure to obtain such licenses and approvals
would render any Mortgage Loan unenforceable or would materially and
adversely affect the ability of the Borrowers to perform any of its
obligations under, or the enforceability of, the Loan Documents.
12. Assuming that all other elements necessary to render a Mortgage Loan
legal, valid, binding and enforceable were present in connection
with the execution, delivery and performance of each Mortgage Loan
(including completion of the entire Mortgage Loan fully, accurately
and in compliance with all applicable laws, rules and regulations)
and assuming further that no action was taken in connection with the
execution, delivery and performance of each Mortgage Loan (including
in connection with the sale of the related Mortgaged Property) that
would give rise to a defense to the legality, validity, binding
effect and enforceability of such Mortgage Loan, nothing in the
forms of such Mortgage Loans, as attached hereto as Exhibit A, would
render such Mortgage Loans other than legal, valid, binding and
enforceable.
13. Assuming their validity, binding effect and enforceability in all
other respects (including completion of the entire Mortgage Loan
fully, accurately and in compliance with all applicable laws, rules
and regulations), the forms of
-4-
<PAGE>
Mortgage Loans attached hereto as Exhibit A are in sufficient
compliance with ________ law and Federal consumer protection laws so
as not to be rendered void or voidable at the election of the
Mortgagor thereunder.
Very truly yours,
-5-
<PAGE>
EXHIBIT D
FORM OF NOTICE OF BORROWING AND PLEDGE
[insert date]
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Kathleen O'Connor
Notice of Borrowing and Pledge No.:_____________________
Ladies/Gentlemen:
Reference is made to the Warehouse Loan and Security Agreement,
dated as of February 10, 2000 (the "Warehouse Agreement"; capitalized terms used
but not otherwise defined herein shall have the meaning given them in the
Warehouse Agreement), between Aames Capital Corporation, as a Borrower, Aames
Funding Corporation, as a Borrower (each a the "Borrower") and Greenwich Capital
Financial Products, Inc. (the "Lender").
In accordance with Section 2.03(a), 2.03(b) or 2.03(d) of the
Warehouse Agreement, the undersigned Borrower hereby requests that you, the
Lender, make Advances to us in connection with our delivery of [Mortgage Loans]
[Pledged Securities] [insert requested Funding Date, which must be at least two
(2) Business Days following the date of the request], in connection with which
we shall pledge to you as Collateral the [Mortgage Loans (along with all
previous pledges defined as Eligible Mortgage Loans for such date) set forth on
the Mortgage Loan Schedule attached hereto] [Pledged Securities attached
hereto].
The Borrower hereby certifies, as of such Funding Date, that:
(a) no Default or Event of Default has occurred and is continuing on
the date hereof nor will occur after giving effect to such Advance as a
result of such Advance;
(b) each of the representations and warranties made by the Borrower
in or pursuant to the Loan Documents is true and correct in all material
respects on and as of such date [(in the case of the representations and
warranties in respect of Mortgage Loans, solely with respect to Mortgage
Loans being included the Borrowing Base on the Funding Date)] as if made
on and as of the date hereof (or, if any such representation or warranty
is expressly stated to have been made as of a specific date, as of such
specific date);
(c) the Borrower is in compliance with all governmental licenses and
authorizations and is qualified to do business and is in good standing in
all required jurisdictions; and
<PAGE>
(d) the Borrower has satisfied all conditions precedent in Section
5.02 of the Warehouse Agreement and all other requirements of the
Warehouse Agreement.
[The undersigned duly authorized officer of Borrower further
represents and warrants that (1) the documents constituting the Custodial File
(as defined in the Custodial Agreement) with respect to the Mortgage Loans that
are the subject of the Advance requested herein and more specifically identified
on the mortgage loan schedule or computer readable magnetic transmission
delivered to both the Lender and the Custodian in connection herewith (the
"Receipted Mortgage Loans") have been or are hereby submitted to Custodian and
such Required Documents are to be held by the Custodian subject to Lender's
first priority security interest thereon, (2) all other documents related to
such Receipted Mortgage Loans (including, but not limited to, mortgages,
insurance policies, loan applications and appraisals) have been or will be
created and held by Borrower in trust for Lender, (3) all documents related to
such Receipted Mortgage Loans withdrawn from Custodian shall be held in trust by
Borrower for Lender, and Borrower will not attempt to pledge, hypothecate or
otherwise transfer such Receipted Mortgage Loans to any other party until the
Advance to which such Receipted Mortgage Loans are related has been paid in full
by Borrower and (4) Borrower has granted a first priority perfected security
interest in and lien on the Receipted Mortgage Loans.
Borrower hereby represents and warrants that (x) the Receipted Mortgage Loans
have an unpaid principal balance as of the date hereof of $__________ and (y)
the number of Receipted Mortgage Loans is ______.]
Very truly yours,
By:_______________________
Authorized Officer
-2-
<PAGE>
[Schedule I
to Notice of Borrowing and Pledge
[COLLATERAL PROPOSED TO BE PLEDGED
TO LENDER ON FUNDING DATE]
[attach Mortgage Loan Schedule]]
<PAGE>
EXHIBIT E
UNDERWRITING GUIDELINES
[TO BE PROVIDED BY BORROWERS]
<PAGE>
EXHIBIT F
REQUIRED FIELDS FOR SERVICING TRANSMISSION
[TO BE PROVIDED BY LENDER]
<PAGE>
EXHIBIT G
REQUIRED FIELDS FOR MORTGAGE LOAN DATA TRANSMISSION
[TO BE PROVIDED BY LENDER]
<PAGE>
EXHIBIT H
FORM OF BORROWING BASE CERTIFICATE
[TO BE PROVIDED BY LENDER ]
<PAGE>
EXHIBIT I
FORM OF CONFIDENTIALITY
AGREEMENT
In connection with your consideration of a possible or actual
acquisition of a participating interest (the "Transaction") in an advance, note
or commitment of Greenwich Capital Financial Products, Inc. ("Greenwich")
pursuant to an Warehouse Loan and Security Agreement between Greenwich and Aames
Capital Corporation (the "Borrower"") dated February 10, 2000, you have
requested the right to review certain non-public information regarding the
Borrower that is in the possession of Greenwich. In consideration of, and as a
condition to, furnishing you with such information and any other information
(whether communicated in writing or communicated orally) delivered to you by
Greenwich or its affiliates, directors, officers, employees, advisors, agents or
"controlling persons" (within the meaning of the Securities Exchange Act of
1934, as amended (the "1934 Act")) (such affiliates and other persons being
herein referred to collectively as Greenwich "Representatives") in connection
with the consideration of a Transaction (such information being herein referred
to as "Evaluation Material"), Greenwich hereby requests your agreement as
follows:
11. The Evaluation Material will be used solely for the purpose of
evaluating a possible Transaction with Greenwich involving you or
your affiliates, and unless and until you have completed such
Transaction pursuant to a definitive agreement between you or any
such affiliate and Greenwich, such Evaluation Material will be kept
strictly confidential by you and your affiliates, directors,
officers, employees, advisors, agents or controlling persons (such
affiliates and other persons being herein referred to collectively
as "your Representatives"), except that the Evaluation Material or
portions thereof may be disclosed to those of your Representatives
who need to know such information for the purpose of evaluating a
possible Transaction with Greenwich (it being understood that prior
to such disclosure your Representatives will be informed of the
confidential nature of the Evaluation Material and shall agree to be
bound by this Agreement). You agree to be responsible for any breach
of this Agreement by your Representatives.
12. The term "Evaluation Material" does not include any information
which (i) at the time of disclosure or thereafter is generally known
by the public (other than as a result of its disclosure by you or
your Representatives) or (ii) was or becomes available to you on a
nonconfidential basis from a person not otherwise bound by a
confidential agreement with Greenwich or its Representatives or is
not otherwise prohibited from transmitting the information to you.
As used in this Agreement, the term "person" shall be broadly
interpreted to include, without limitation, any corporation,
company, joint venture, partnership or individual.
13. In the event that you receive a request to disclose all or any part
of the information contained in the Evaluation Material under the
terms of a valid and effective subpoena or order issued by a court
of competent jurisdiction, you agree to (i) immediately notify
Greenwich and the Borrower of the existence, terms and
<PAGE>
circumstances surrounding such a request, (ii) consult with the
Borrower on the advisability of taking legally available steps to
resist or narrow such request, and (iii) if disclosure of such
information is required, exercise your best efforts to obtain an
order or other reliable assurance that confidential treatment will
be accorded to such information.
14. Unless otherwise required by law in the opinion of your counsel,
neither you nor your Representative will, without our prior written
consent, disclose to any person the fact that the Evaluation
Material has been made available to you.
15. You agree not to initiate or maintain contact (except for those
contacts made in the ordinary course of business) with any officer,
director or employee of the Borrower regarding the business,
operations, prospects or finances of the Borrower or the employment
of such officer, director or employee, except with the express
written permission of the Borrower.
16. You understand and acknowledge that the Borrower is not making any
representation or warranty, express or implied, as to the accuracy
or completeness of the Evaluation Material or any other information
provided to you by Greenwich. The Borrower, its respective
affiliates or Representatives, nor any of its respective officers,
directors, employees, agents or controlling persons (within the
meaning of the 1934 Act) shall have any liability to you or any
other person (including, without limitation, any of your
Representatives) resulting from your use of the Evaluation Material.
17. You agree that neither Greenwich or the Borrower has not granted you
any license, copyright, or similar right with respect to any of the
Evaluation Material or any other information provided to you by
Greenwich.
18. If you determine that you do not wish to proceed with the
Transaction, you will promptly deliver to Greenwich all of the
Evaluation Material, including all copies and reproductions thereof
in your possession or in the possession of any of your
Representatives.
19. Without prejudice to the rights and remedies otherwise available to
the Borrower, the Borrower shall be entitled to equitable relief by
way of injunction if you or any of your Representatives breach or
threaten to breach any of the provisions of this Agreement. You
agree to waive, and to cause your Representatives to waive, any
requirement for the securing or posting of any bond in connection
with such remedy.
20. The validity and interpretation of this Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the
State of New York applicable to agreements made and to be fully
performed therein (excluding the conflicts of law rules). You submit
to the jurisdiction of any court of the State of New York or the
United States District Court for the Southern District of the State
-2-
<PAGE>
of New York for the purpose of any suit, action, or other proceeding
arising out of this Agreement.
21. The benefits of this Agreement shall inure to the respective
successors and assigns of the parties hereto, and the obligations
and liabilities assumed in this Agreement by the parties hereto
shall be binding upon the respective successors and assigns.
22. If it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that any term or
provision hereof is invalid or unenforceable, (i) the remaining
terms and provisions hereof shall be unimpaired and shall remain in
full force and effect and (ii) the invalid or unenforceable
provision or term shall be replaced by a term or provision that is
valid and enforceable and that comes closest to expressing the
intention of such invalid or unenforceable term or provision.
23. This Agreement embodies the entire agreement and understanding of
the parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to the matters provided for
herein. No alteration, waiver, amendments, or change or supplement
hereto shall be binding or effective unless the same is set forth in
writing by a duly authorized representative of each party and may be
modified or waived only by a separate letter executed by the
Borrower and you expressly so modifying or waiving such Agreement.
24. For the convenience of the parties, any number of counterparts of
this Agreement may be executed by the parties hereto. Each such
counterpart shall be, and shall be deemed to be, an original
instrument, but all such counterparts taken together shall
constitute one and the same Agreement.
-3-
<PAGE>
Kindly execute and return one copy of this letter which will
constitute our Agreement with respect to the subject matter of this letter.
By:____________________________________
Greenwich Capital Financial
Products, Inc.
Confirmed and agreed to this _____ day of _____________, 199_.
By:_____________________
Name
Title:
-4-
<PAGE>
EXHIBIT J
FORM OF SUBSERVICER INSTRUCTION LETTER
__________ __, 2000
___________________, as [Subservicer]
___________________
___________________
Attention: _______________
Re: Warehouse Loan and Security Agreement, dated as of
February 10, 2000, by and between Greenwich Capital
Financial Products, Inc., ("Lender"), Aames Capital
Corporation, as a Borrower, and Aames Funding
Corporation, as a Borrower (each a "Borrower")
Ladies and Gentlemen:
Pursuant to the Warehouse Loan and Security Agreement, dated as of
February 10, 2000 (the "Loan and Security Agreement"), between the Lender and
the Borrowers, you are hereby notified that: (i) the undersigned Borrower has
pledged to the Lender the assets described on Schedule 1 hereto (the "Eligible
Assets"), (ii) each of the Eligible Assets is subject to a security interest in
favor of the Lender, and (iii) effective as of the delivery of this letter to
the Subservicer, unless otherwise notified by the Lender in writing, any
payments or distributions made with respect to such Eligible Assets shall be
remitted immediately by the [Subservicer] in accordance with the Lender's wiring
instructions provided below:
Account No.: [____________________]
ABA No.: [____________________]
[____________________]
Reference: [____________________]
The Subservicer also acknowledges its consent to terminate such
Servicing Agreement upon notification by the Lender of an occurrence of an Event
of Default.
<PAGE>
Please acknowledge receipt of this instruction letter by signing in the
signature block below and forwarding an executed copy to the Lender promptly
upon receipt. Any notices to the Lender should be delivered to the following
address: 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Joe
Bartolotta, Telephone: (203) 625-6675, Facsimile: (203) 625-4751.
Very truly yours,
[BORROWER]
By:____________________________________
Name:
Title:
ACKNOWLEDGED:
_______________________________, as [Subservicer]
By:____________________________
Name:
Title:
Telephone:
Facsimile:
-2-
<PAGE>
EXHIBIT K
FORM OF TRUSTEE INSTRUCTION LETTER
__________ __, 2000
[_______________], as Trustee
_________________
_________________
Attention: _______________
Re: Warehouse Loan and Security Agreement, dated as of
February __, 2000, by and between Greenwich Capital
Financial Products, Inc., as Lender (the "Lender"),
Aames Capital Corporation, as Borrower, and Aames
Funding Corporation, as Borrower, (each a "Borrower",
collectively, the "Borrowers")
Ladies and Gentlemen:
Pursuant to Section 4.01(c) of the Warehouse Loan and Security
Agreement, dated as of February __, 2000 (the "Agreement"), between the Lender
and the Borrowers (you are hereby notified that: (i) the undersigned Borrower
has pledged to the Lender the Pledged Securities described on Schedule 1 hereto
(the "Pledged Securities"), (ii) each of the Pledged Securities is subject to a
security interest in favor of the Lender and (iii) unless otherwise notified by
the Lender in writing, any payments or distributions made with respect to such
Pledged Securities should be remitted immediately by the Trustee directly to the
Lender, in accordance with the following wire instructions:
Chase Manhattan Bank
ABA #021000021
Acct Name: Greenwich Capital Financial Products, Inc.
A/C #: 140095961
Attn: Kathleen O'Connor
All remittance reports, statements and notices shall be sent to the
attention of:
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attn: Ms. Kathleen O'Connor
D-1
<PAGE>
Please acknowledge receipt of this instruction letter by signing in
the signature block below and forwarding an executed copy to the Lender promptly
upon receipt.
Very truly yours,
AAMES CAPITAL CORPORATION
By:
Name:
Title:
ACKNOWLEDGED:
- ------------
_____________________________, as Trustee
By:
Name:
Title:
<PAGE>
EXHIBIT L
FORM OF POWER OF ATTORNEY
The Borrowers hereby irrevocably constitute and appoint the Lender
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Borrowers and in the name of each Borrower or in its own
name, from time to time in the Lender's discretion, for the purpose of carrying
out the terms of that certain Warehouse Loan and Security Agreement, dated
February 10, 2000, among Aames Capital Corporation, as a Borrower, Aames Funding
Corporation, as a Borrower (collectively the "Borrowers"), and Greenwich Capital
Financial Products, Inc. (the "Lender") (the "Warehouse Agreement"), to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this Warehouse
Agreement, and, without limiting the generality of the foregoing, the Borrowers
hereby give the Lender the power and right, on behalf of the Borrowers, without
assent by, but with notice to, the Borrowers, if an Event of Default shall have
occurred and be continuing, to do the following:
(ii) in the name of the any Borrower or its own name, or otherwise, to
take possession of and endorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of moneys
due under any mortgage insurance or with respect to any other
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Lender for the purpose of collecting any and all
such moneys due under any such mortgage insurance or with respect to
any other Collateral whenever payable;
(iii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(iv) (A) to direct any party liable for any payment under any Collateral
to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B)
to ask or demand for, collect, receive payment of and receipt for,
any and all moneys, claims and other amounts due or to become due at
any time in respect of or arising out of any Collateral; (C) to sign
and endorse any invoices, assignments, verifications, notices and
other documents in connection with any of the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect
of any Collateral; (E) to defend any suit, action or proceeding
brought against either Borrower with respect to any Collateral; (F)
to settle, compromise or adjust any suit, action or proceeding
described in clause (E) above and, in connection therewith, to give
such discharges or releases as the Lender may deem appropriate; and
(G) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner thereof for
all purposes, and to do, at the Lender's option and the Borrowers'
expense, at any time, or from time to time, all acts and things
which the Lender deems necessary to protect, preserve or realize
upon the Collateral and
<PAGE>
the Lender's Liens thereon and to effect the intent of this
Warehouse Agreement, all as fully and effectively as the Borrowers
might do.
The Borrowers hereby ratify all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
The Borrowers also authorize the Lender, at any time and from time
to time, to execute, in connection with the sale provided for in Section 4.07 of
the Warehouse Agreement and, any endorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral.
The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrowers for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
AAMES CAPITAL CORPORATION
By:
-------------------------------
Name:
Title:
AAMES FUNDING CORPORATION
By:
-------------------------------
Name:
Title:
Accepted and Acknowledged,
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By:
---------------------------------------
Name:
Title:
-2-
<PAGE>
GUARANTY
GUARANTY, dated as of February 10, 2000 (the "Guaranty"), made
by AAMES FINANCIAL CORPORATION (the "Guarantor") in favor of GREENWICH CAPITAL
FINANCIAL PRODUCTS, INC. (the "Lender"), party to the Warehouse Loan and
Security Agreement referred to below.
RECITALS
Pursuant to the Warehouse Loan and Security Agreement dated as
of February 10, 2000 (as amended, supplemented or otherwise modified from time
to time, the "Agreement") between Aames Capital Corporation and Aames Funding
Corporation (each, a "Borrower" and collectively, the "Borrowers") and the
Lender, the Lender has agreed to make Advances to the Borrowers upon the terms
and subject to the conditions set forth therein. It is a condition precedent to
the obligation of the Lender to make the Advances to the Borrowers under the
Agreement that the Guarantor shall have executed and delivered this Guaranty to
the Lender.
NOW, THEREFORE, in consideration of the premises and to induce
the Lender to enter into the Agreement and to induce the Lender to make the
Advances to the Borrowers under the Agreement, the Guarantor hereby agrees with
the Lender as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms
defined in the Agreement and used herein shall have the meanings given to them
in the Agreement.
(b) "Change of Control" means the acquisition by any Person,
or two or more Persons acting in concert, of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of outstanding shares of voting stock of the
Guarantor and the proceeds of such acquisition are not received by the
Guarantor, at any time, if after giving effect to such acquisition, and any and
all other such acquisitions, such Person or Persons owns forty percent (40%) or
more of such outstanding voting stock.
(c) "Obligations" shall mean the obligations and liabilities
of the Borrowers to the Lender, including, without limitation, the obligations
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, or out of or in
connection with the Agreement, the Loan Documents and any other document made,
delivered or given in connection therewith or herewith, whether on account of
principal, interest, reimbursement obligations, all Claims (as defined in
Section 101 of the Bankruptcy Code) of the Lender against the Borrowers, fees,
indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel to the Lender that are required to be paid by the
Borrowers pursuant to the terms of the Agreement) or otherwise.
(d) "Material Adverse Change" shall mean, with respect to any
Person, a material adverse change in the business, operations, property,
condition (financial or otherwise)
-1-
<PAGE>
or prospects of such Person or (b) the validity or enforceability of this or any
of the other documents to which such Person is a party or the rights or remedies
of the Lender thereunder or hereunder.
(e) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Guaranty shall refer to this Guaranty as a
whole and not to any particular provision of this Guaranty, and section and
paragraph references are to this Guaranty unless otherwise specified.
(f) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Guaranty. (a) The Guarantor hereby, unconditionally and
irrevocably, guarantees to the Lender and its successors, indorsees, transferees
and assigns, the prompt and complete payment and performance by the Borrowers
when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(b) The Guarantor further agrees to pay any and all expenses
(including, without limitation, all reasonable fees and disbursements of
counsel) which may be paid or incurred by the Lender in enforcing any rights
with respect to, or collecting against, the Guarantor under this Guaranty. This
Guaranty shall remain in full force and effect until the Obligations are paid in
full.
(c) Except for payments required to be made by the Guarantor
hereunder, no other payments affect the Guarantor's liability under the
Guaranty. No payment or payments made by the Borrowers, the Guarantor, any other
guarantor or any other Person or received or collected by the Lender from the
Borrowers, the Guarantor, any other guarantor or any other Person by virtue of
any action or proceeding or any set-off or appropriation or application at any
time or from time to time in reduction of or in payment of the Obligations shall
be deemed to modify, reduce, release or otherwise affect the liability of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by the Guarantor in respect of the Obligations or
payments received or collected from the Guarantor in respect of the Obligations,
remain liable for the Obligations up to the maximum liability of the Guarantor
hereunder until the Obligations are paid in full and the Agreement is
terminated, subject to the provisions of Section 9 hereof.
(e) The Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Lender on account of its
liability hereunder, it will notify the Lender in writing that such payment is
made under this Guaranty for such purpose. No payments made by the Guarantor to
the Borrowers shall be applied towards the Obligations except for those payments
required by this Guaranty.
3. Representations, Warranties and Covenants of Guarantor. (a)
Guarantor hereby represents and warrants (i) that it is duly organized and
validly existing in good standing
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under the laws of the jurisdiction under which it is organized and is duly
qualified to do business and is in good standing in every other jurisdiction as
to which the nature of the business conducted by it makes such qualification
necessary, (ii) that it has power and authority to enter into and perform this
Guaranty, (iii) that execution, delivery and performance of this Guaranty by it
have been duly authorized by proper action and are not in contravention of law
or of the terms of its articles of incorporation, by-laws, or any agreement,
instrument, indenture or other undertaking to which it is a party or by which it
is bound, (iv) that all registrations and approvals of any governmental agency,
department or commission necessary for the execution, delivery and performance
of this Guaranty and for the validity and enforceability thereof, have been
obtained and are in full force and effect, (v) that this Guaranty is the legal,
valid and binding obligation of the Guarantor, enforceable against Guarantor, in
accordance with its terms, subject to bankruptcy, insolvency and similar laws
and to the availability of equitable remedies, (vi) that no legal proceedings
are pending, or threatened, before any court or governmental agency which would
adversely affect its financial condition, operations or any licenses or its
ability to perform under this Guaranty, (vii) that Guarantor has received and
reviewed copies of the Loan Documents, (viii) that no Default or Event of
Default has occurred and is continuing under this Guaranty, and (ix) that the
Guarantor has a financial interest in the Borrowers and the Guarantor has
determined that it will benefit from the execution of the Loan Documents.
(b) The Guarantor covenants and agrees with the Lender that,
until the payment in full of the Obligations:
(i) Maintenance of Tangible Net Worth. The Tangible Net
Worth of the Guarantor, on a consolidated basis and on any
given day, shall be equal to or greater than $95,000,000; and
not less than 80% of the Tangible Net Worth of the Guarantor,
on a consolidated basis, as at the end of each fiscal quarter;
(ii) Maintenance of Ratio of Total Indebtedness to
Tangible Net Worth. The Guarantor shall not permit the ratio
of Total Indebtedness to Tangible Net Worth, on a consolidated
basis and on any given day, to be greater than 3.5:1;
(iii) Liquidity. The aggregate amount of the Guarantor's
cash, Cash Equivalents and available borrowing capacity on
unencumbered assets that could be drawn against (taking into
account required haircuts) under committed warehouse or
working capital facilities, on a consolidated basis and on any
given day, shall be equal to or greater than $15,000,000;
(iv) Maintenance of Ratio of Earnings to Total Interest
Expense. The Guarantor shall not permit the ratio of earnings
before interest and taxes to total interest expense, on a
consolidated basis, to be less than 1.10:1 measured on a
rolling basis from the immediately preceding two calendar
quarters commencing with the two quarters ending June 30, 2000
and September 30, 2000; and
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(v) Profitability. The Guarantor shall have a GAAP after
tax net income of at least $1.00 for the fiscal quarter ended
June 30, 2000.
(c) At the time that the Guarantor delivers its consolidated
financial statements to the Lender in accordance with Section 7.01 of the
Agreement, the Guarantor shall forward to the Lender a certificate of a
Responsible Officer of the Guarantor which demonstrates that the Guarantor is in
compliance with the covenants set forth in clauses (b) (i) through (v) above.
4. Right of Set-off. Upon the occurrence of any Event of
Default under this Guaranty, the Guarantor hereby irrevocably authorizes the
Lender and each of its affiliates at any time and from time to time without
notice to the Guarantor, any such notice being expressly waived by the
Guarantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Lender or any of its affiliates to or for the credit or the account
of the Guarantor, or any part thereof in such amounts as the Lender or any of
its affiliates may elect, against and on account of the Obligations and
liabilities of the Guarantor to the Lender hereunder and claims of every nature
and description of the Lender or any of its affiliates against the Guarantor, in
any currency, whether arising hereunder, under the Agreement as the Lender may
elect, whether or not the Lender has made any demand for payment and although
such obligations, liabilities and claims may be contingent or unmatured. The
Lender shall notify the Guarantor promptly of any such set-off and the
application made by the Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have.
5. Subrogation. Notwithstanding any payment or payments made
by the Guarantor hereunder or any set-off or application of funds of the
Guarantor by the Lender, the Guarantor shall not be entitled to be subrogated to
any of the rights of the Lender against the Borrowers or any other guarantor or
any collateral security or guarantee or right of offset held by the Lender or
any of its affiliates for the payment of the Obligations, nor shall the
Guarantor seek or be entitled to seek any contribution or reimbursement from the
Borrowers or any other guarantor in respect of payments made by the Guarantor
hereunder, until all amounts owing to the Lender by the Borrowers on account of
the Obligations are paid in full and the Agreement is terminated. If any amount
shall be paid to the Guarantor on account of such subrogation rights at any time
when all of the Obligations shall not have been paid in full, such amount shall
be held by the Guarantor in trust for the Lender, segregated from other funds of
the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned
over to the Lender in the exact form received by the Guarantor (duly indorsed by
the Guarantor to the Lender, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Lender may
determine.
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6. Amendments, Etc. with Respect to the Obligations. The
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor and without notice to or further
assent by the Guarantor, any demand for payment of any of the Obligations made
by the Lender may be rescinded by the Lender and any of the Obligations
continued, and the Obligations, or the liability of any other party upon or for
any part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Lender, and the Agreement and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or in part, as the Lender may deem
advisable from time to time, and any collateral security, guarantee or right of
offset at any time held by the Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. The Lender shall not have any
obligation to protect, secure, perfect or insure any Lien at any time held by it
as security for the Obligations or for this Guaranty or any property subject
thereto. When making any demand hereunder against the Guarantor, the Lender may,
but shall be under no obligation to, make a similar demand on the Borrowers or
any other guarantor, and any failure by the Lender to make any such demand or to
collect any payments from the Borrowers or any such other guarantor or any
release of the Borrowers or such other guarantor shall not relieve the Guarantor
of its Obligations or liabilities hereunder, and shall not impair or affect the
rights and remedies, express or implied, or as a matter of law, of the Lender
against the Guarantor. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings. The Lender may release
any Collateral pledged to it in its sole discretion, provided, however, in the
event the Lender has received amounts from the Guarantor pursuant to this
Guaranty, which amounts have not been reimbursed, the Lender shall not
voluntarily release any Pledged Securities to the Lender under the Agreement,
except as may be provided in the Agreement, without the consent of the
Guarantor, which consent shall not unreasonably be withheld. The Guarantor
hereby further consents to any renewal or modification of any Obligation or any
extension of the time within which such is to be performed and to any other
indulgences, whether before or after the date of this Guaranty, and waives
notice with respect thereto.
7. Waiver of Rights. The Guarantor waives any and all notice
of the creation, renewal, extension or accrual of any of the Obligations, and
notice of or proof of reliance by the Lender upon this Guaranty or acceptance of
this Guaranty; the Obligations, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon this Guaranty; and all dealings between the Borrowers and the
Guarantor, on the one hand, and the Lender, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon this
Guaranty. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrowers or the
Guarantor with respect to the Obligations. The Guarantor hereby waives
diligence; presentment; demand for payment or performance; filing of claims with
any court in case of the insolvency, reorganization or bankruptcy of either
Borrower; protest or notice with respect to the Obligations or the amounts
payable by either Borrower thereunder; and all demands whatsoever; any fact,
event or circumstance that might otherwise constitute a legal
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<PAGE>
or equitable defense to or discharge of the Guarantor, including (but without
typifying or limiting this waiver), failure by the Lender to perfect a security
interest in any collateral securing performance of any Obligation or to realize
the value of any collateral or other assets which may be available to satisfy
any Obligation and any delay by the Lender in exercising any of its rights
hereunder or against the Borrowers.
8. Guaranty Absolute and Unconditional. The Guarantor
understands and agrees that this Guaranty shall be construed as a continuing,
absolute and unconditional guarantee of the full and punctual payment and
performance by the Borrowers of the Obligations and not only of their
collectibility (a) without regard to (i) the validity, regularity or
enforceability of the Agreement, any of the Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Lender, (ii) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Borrowers against the Lender, (iii)
any defense by the Borrowers to the Obligations or any subordination of the Lien
on the Collateral or the priority of the Lender in the Collateral, or (iv) any
other circumstance whatsoever (with or without notice to or knowledge of the
Borrowers or the Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrowers from the
Obligations, or of the Guarantor from this Guaranty, in bankruptcy or in any
other instance and (b) is in no way conditioned upon any requirement that the
Lender first attempt to collect any of the Obligations from the Borrowers. The
Guarantor understands and agrees that this Guaranty shall be construed as a
continuing, absolute and unconditional guarantee without regard to waiver,
forbearance, compromise, release, settlement, the dissolution, liquidation,
reorganization or other change regarding either Borrower, or either Borrower
being the subject of any case or proceeding under any bankruptcy or other law
for the protection of debtors or creditors, or any other action or matter that
would release a guarantor. When pursuing its rights and remedies hereunder
against the Guarantor, the Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Borrowers or any
other Person or against any collateral security or guarantee for the Obligations
or any right of offset with respect thereto, and any failure by the Lender to
pursue such other rights or remedies or to collect any payments from the
Borrowers or any such other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
the Borrowers or any such other Person or any such collateral security,
guarantee or right of offset, shall not relieve the Guarantor of any liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Lender against the
Guarantor. This Guaranty shall remain in full force and effect and be binding in
accordance with and to the extent of its terms upon the Guarantor and the
successors and assigns thereof, and shall inure to the benefit of the Lender,
and its successors, indorsees, transferees and assigns, until all the
Obligations and the Obligations of the Guarantor under this Guaranty shall have
been satisfied by payment in full and the Agreement shall be terminated, subject
to the provisions of Section 9 hereof.
9. Reinstatement. This Guaranty shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the
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Obligations is rescinded or avoided or is restored, repaid or returned by the
Lender for any reason after the insolvency, bankruptcy, dissolution, liquidation
or reorganization of either Borrower or the Guarantor, or the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for,
either Borrower or the Guarantor or any substantial part of its property, or
otherwise, all as though such payments had not been made.
10. Events of Default. Each of the following events and
occurrences shall constitute an Event of Default under this Guaranty if not
cured within 3 Business Days of their occurrence unless the context of the
provision indicates otherwise;
(a) The Guarantor shall (i) fail to make any payment required
to be made to Lender under this Guaranty or (ii) fail to comply with the
requirements of Section 3 of this Guaranty.
(b) the Guarantor shall fail to observe or perform any other
agreement contained in Guaranty or any other Loan Document and such failure to
observe or perform shall continue unremedied for a period of five (5) Business
Days.
(c) The Guarantor shall fail to pay any money due under any
other agreement, note, indenture or instrument evidencing, securing,
guaranteeing or otherwise relating to indebtedness of the Guarantor for borrowed
money in an aggregate amount of at least $5,000,000 which failure to pay
constitutes a default or event of default under any such agreement or
indebtedness, or the Guarantor receives notice, or a Responsible Officer has
knowledge, of any other default or event of default or other event which with
the giving of notice or the passing of time or both would constitute a default
or event of default under any such agreement or instrument, with respect to
amounts due under such agreement or instrument, whether by acceleration or
otherwise, in an aggregate amount of $5,000,000 or such lesser amount as shall
be included in a cross-acceleration provision of any such agreement or
instrument.
(d) A proceeding or case shall be commenced, without the
application or consent of the Guarantor or any of its Subsidiaries, as
applicable, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Guarantor, or any
such Subsidiary or of all or any substantial part of its property, or (iii)
similar relief in respect of the Guarantor or any such Subsidiary under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 or more days;
or an order for relief against the Guarantor or any such Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code.
(e) The Guarantor or any of its Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or
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liquidator of itself or of all or a substantial part of its property, (ii) make
a general assignment for the benefit of its creditors, (iii) commence a
voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any corporate or other
action for the purpose of effecting any of the foregoing.
(f) The Guarantor or any Affiliate thereof becomes insolvent
or admits in writing to its inability to pay its debts as they mature.
(g) Any other event shall occur with respect to the Guarantor
which, in the sole good faith discretion of the Lender, has had a Material
Adverse Effect.
(h) Any Change of Control of the Guarantor shall have occurred
without the prior consent of the Lender.
(i) The Lender shall reasonably request, specifying the
reasons for such request, information, and/or written responses to such
requests, regarding the financial well-being of the Guarantor and such
information and/or responses shall not have been provided within three Business
Days of such request.
11. Payments. The Guarantor hereby guarantees that payments
hereunder will be paid to the Lender without set-off or counterclaim in U.S.
Dollars in accordance with the wiring instructions of the Lender.
12. Notices. All notices, requests and other communications
provided for herein (including without limitation any modifications of, or
waivers, requests or consents under, this Guaranty) shall be given or made in
writing (including without limitation by telex or telecopy) delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages of the Agreement); or, as to any party, at such other address as
shall be designated by such party in a written notice to each other party. All
such communications shall be deemed to have been duly given when transmitted by
telex or telecopy or personally delivered or, in the case of a mailed notice,
upon receipt, in each case given or addressed as aforesaid.
13. Severability. Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14. Integration. This Guaranty and the Agreement represent the
agreement of the Guarantor with respect to the subject matter hereof and thereof
and there are no promises or
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<PAGE>
representations by the Lender relative to the subject matter hereof or thereof
not reflected herein or therein.
15. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None
of the terms or provisions of this Guaranty may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Guarantor
and the Lender, provided that any provision of this Guaranty may be waived by
the Lender.
(b) The Lender shall not by any act (except by a written
instrument pursuant to Section 14(a) hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Lender, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise have
on any future occasion.
(c) The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
16. Section Headings. The section headings used in this Guaranty are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
17. Successors and Assigns. This Guaranty shall be binding upon the
successors and assigns of the Guarantor and shall inure to the benefit of the
Lender and its successors and assigns. This Guaranty may not be assigned by the
Guarantor without the express written consent of the Lender.
18. Governing Law. This Guaranty shall be governed by New York law
without reference to choice of law doctrine.
19. SUBMISSION TO JURISDICTION; WAIVERS. THE GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTY AND THE AGREEMENT, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
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APPELLATE COURTS FROM ANY THEREOF, OR THE COURTS OF THE STATE OF NEW
YORK, WITHIN THE COUNTY OF NEW YORK, IN THE EVENT THE FEDERAL COURT
LACKS OR DECLINES JURISDICTION;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD
OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
20. WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR AND THE LENDER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS GUARANTY, ANY THE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
21. Termination. This Guaranty shall terminate upon the final
payment in full of the Obligations and the termination of the Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guaranty
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.
AAMES FINANCIAL CORPORATION
By: ______________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.27(c)
AMENDMENT NO. 1
TO
GUARANTY
This Amendment No. 1 (this "Amendment") dated April 28, 2000 amends the Guaranty
dated as of February 10, 2000 (the "Guaranty"), made by Aames Financial
Corporation (the "Guarantor") in favor of Greenwich Capital Financial Products,
Inc. (the "Lender"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Guaranty or, if not so defined
therein, the Loan Agreement (as defined in the Guaranty). The Guarantor and the
Lender, for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, enter into this Agreement and agree as follows:
AMENDMENT
Effective as of January 31, 2000 Section 3(b)(iii) of the Guaranty is hereby
amended and restated in its entirety as follows:
LIQUIDITY. The aggregate amount of the Guarantor's cash, Cash
Equivalents and available borrowing capacity on unencumbered assets
that could be drawn against (taking into account required haircuts)
under committed warehouse or working capital facilities, on a
consolidated basis and on any given day, shall be (a) prior to and on
May 31, 2000, $5,000,000; and (b) on and after June 1, 2000,
$15,000,000.
REPRESENTATIONS
In order to induce the Lender to execute and deliver this Amendment, the
Guarantor hereby represents to the Lender that as of the date hereof, after
giving effect to this Amendment, (a) the representations and warranties set
forth in Section 3 of the Guaranty are and shall be and remain true and correct
and (b) the Guarantor is in full compliance with all of the terms and conditions
of the Guaranty.
MISCELLANEOUS
Except as specifically amended herein, the Guaranty shall continue in full force
and effect in accordance with its original terms. Reference to this specific
Amendment need not be made in the Guaranty or any other instrument or document
executed in connection therewith, or in any certificate, letter or communication
on issued
<PAGE>
or made pursuant to or with respect to the Guaranty, any reference in any of
such terms to the Guaranty being sufficient to refer to the Guaranty as amended
hereby.
IN WITNESS WHEREOF, the Guarantor and the Lender have caused this Amendment No.
1 to be duly executed and delivered as of the date first above written.
AAMES FINANCIAL CORPORATION
By: /s/ Jon D. Van Deuren
-------------------------------
Name: Jon D. Van Deuren
Title: Senior Vice President
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.
By: /s/ John C. Anderson
-------------------------------
Name: John C. Anderson
Title: Senior Vice President
<PAGE>
AMENDMENT NO. 1
TO LIMITED PARTNERSHIP AGREEMENT
OF STEAMBOAT FINANCIAL PARTNERSHIP I, L.P.
This Amendment No. 1 To Limited Partnership Agreement of Steamboat
Financial Partnership I, L.P. dated as of February 24, 2000 (this "AMENDMENT"),
between and among RANDOM PROPERTIES ACQUISITION CORP. IV, as general partner
("RPAC"), GREENWICH CAPITAL DERIVATIVES, INC., as special limited partner
("GCD") and AAMES CAPITAL CORPORATION, as limited partner ("ACC").
RECITALS
RPAC, GCD and ACC are parties to that certain Limited Partnership
Agreement dated as of June 10, 1999 (the "EXISTING AGREEMENT" and, as amended
by this Amendment, the "AGREEMENT"). Capitalized Terms used but not
otherwise defined herein shall have the meanings given to them in the
Existing Agreement.
RPAC, GCD and ACC have agreed, subject to the terms and conditions
of this Amendment, that the Existing Agreement be amended to reflect certain
agreed-upon revisions to the terms of the Existing Agreement as set forth
herein.
Accordingly, RPAC, GCD and ACC hereby agree, in consideration of
the mutual premises and mutual obligations set forth herein, that the
Existing Agreement is hereby amended as follows:
Section 1. DEFINITIONS. Section 1.01 of the Existing Agreement is
hereby amended by:
(a) deleting the definition of "CUT-OFF DATE" in its entirety and
replacing it with the following:
""CUT-OFF DATE" means each date, prior to the date an Historical
Advance is acquired by the Partnership, as of which the unreimbursed
balance of the Historical Advances acquired by the Partnership is
calculated, as set forth in Schedule C hereto, as supplemented from time
to time."
(b) deleting the definition of "PURCHASE AGREEMENT" in its
entirety and replacing it with the following:
""PURCHASE AGREEMENT" means the Historical Advance Purchase
Agreement between Aames, as Seller, and the Partnership, as Buyer, dated
as of the date hereof, and any other purchase agreement listed on
SCHEDULE D hereto, as supplemented from time to time, under which the
Partnership purchases Historical Advances (as defined in such purchase
agreement)."
<PAGE>
(c) deleting the definition of "REPURCHASE" in its entirety and
replacing it with the following:
"" REPURCHASE" means a repurchase of Historical Advances by Aames or
any other seller of Historical Advance to the Partnership, pursuant to
the terms of the relevant Purchase Agreement."
(d) deleting the definition of "SLP PREFERRED RETURN" in its
entirety and replacing it with the following language:
""SLP PREFERRED RETURN" means, with respect to any Collection
Period, an amount equal to 0.667% of Undistributed Capital Contributions
of the Special Limited Partner on the last day of such Collection
Period."
(e) modifying the definition of "SLP REDETERMINED PERCENTAGE" by
deleting the balance of the definition after the words "reasonable efforts"
in the next to last line of said definition and substituting therefor:
", (ii) any amounts paid to the Partnership as a Repurchase, and
(iii) any amounts paid to the Partnership by the Scheduled Trustees on
account of the Historical Advances."
Section 2. Effective as of the date of this Amendment, Section
2.05 PURPOSES OF PARTNERSHIP of the Existing Agreement shall be amended by
deleting the words "an interest in" in the second line of said Section.
Section 3. Effective as of the date of this Amendment, all
references to "Partners" currently contained in Section 3.05 ACTIVITIES OF
THE GENERAL PARTNER of the Existing Agreement shall be deleted and the word
"partners" shall be substituted therefor.
Section 4. Effective as of the date of this Amendment, Subsection
3.07 (a) INDEMNIFICATION of the Existing Agreement shall be deleted in its
entirety and the following substituted therefor:
"(a) The Partnership, out of its own assets and not out of the
assets of any Partner (except as provided in SECTION 3.07(b) below), shall
indemnify and hold harmless the General Partner and the Manager and any
partner, manager, officer, employee or agent of the General Partner, the
Manager and/or the legal representatives or controlling persons of any of
them and any employee or agent of the Partnership or the Manager (herein
collectively called the "INDEMNIFIED PERSONS"), from and against any loss,
expense, judgment, settlement cost, fee and related expenses (including
attorneys' fees and expenses), costs or damages suffered or sustained by
reason of being or having been the General Partner, the Manager, a partner,
manager, officer,
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employee or agent (or a legal representative or controlling person of any of
them) or any employee or agent of the Partnership, or arising out of or in
connection with the business of the Partnership or the performance by the
Indemnified Person of any of the responsibilities of the General Partner or
the Manager hereunder, provided that an Indemnified Person shall be entitled
to indemnification hereunder only if the Indemnified Person's conduct did not
constitute willful misconduct, gross negligence or criminal wrongdoing. The
Partnership shall, in the sole discretion of the General Partner upon advice
of counsel that such Indemnified Person is likely to be entitled to such
indemnification, advance to any Indemnified Person reasonable attorneys' fees
and other costs and expenses incurred in connection with the defense of any
action or proceeding which arises out of conduct which is the subject of the
indemnification provided hereunder. The General Partner hereby agrees and
each other Indemnified Person shall agree, that in the event such Indemnified
Person receives any such advance, such Indemnified Person shall reimburse the
Partnership for such advance to the extent that it shall be finally
judicially determined that such Indemnified Person was not entitled to
indemnification under this SECTION 3.07. Except as provided in SECTION 2.04,
the satisfaction of any indemnification and any saving harmless pursuant to
this SECTION 3.07(a) shall be from and limited to Partnership assets, and no
Partner shall have any personal liability on account thereof."
Section 5. SCHEDULES. Schedules A, B, C and D to the Existing
Agreement are hereby replaced in their entirety by Schedules A, B, C and D to
this Amendment.
Section 6. LIMITED EFFECT.
(a) Except as expressly amended and modified by this Amendment,
the Existing Agreement shall continue to be, and shall remain, in full force
and effect in accordance with its terms. Each reference to the Agreement in
any document shall be deemed to be a reference to the Agreement as amended
hereby.
(b) This Amendment shall not be deemed effective unless and until
a fully executed Amendment is delivered to RPAC, GCD and ACC.
Section 7. COUNTERPARTS. This Amendment may be executed by each
of the parties hereto on any number of separate counterparts, each of which
shall be an original and all of which taken together shall constitute one and
the same instrument.
SECTION 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE WITHOUT
REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first set forth above.
GENERAL PARTNER:
RANDOM PROPERTIES ACQUISITION CORP. IV
By: ___________________________________
Name: James Esposito
Title: Senior Vice President
SPECIAL LIMITED PARTNER:
GREENWICH CAPITAL DERIVATIVES, INC.
By: ___________________________________
Name: Scott E. Gimpel
Title: Vice President
LIMITED PARTNER:
AAMES CAPITAL CORPORATION
By: ___________________________________
Name:
Title:
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SCHEDULE A
<PAGE>
SCHEDULE B
<PAGE>
SCHEDULE C
<PAGE>
SCHEDULE D
<PAGE>
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- ----------------------------------------------------------------------------
EXHIBIT 10.33
HISTORICAL ADVANCE PURCHASE AGREEMENT
BETWEEN
AAMES CAPITAL CORPORATION
AS SELLER,
AND
STEAMBOAT FINANCIAL PARTNERSHIP I, L.P.
AS BUYER
DATED AS OF FEBRUARY 24, 2000
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- ----------------------------------------------------------------------------
<PAGE>
HISTORICAL ADVANCE PURCHASE AGREEMENT
This HISTORICAL ADVANCE PURCHASE AGREEMENT, dated as of February 24, 2000
(as amended, supplemented or otherwise modified and in effect from time to time,
this "AGREEMENT"), is made by and between STEAMBOAT FINANCIAL PARTNERSHIP I,
L.P., a Delaware limited partnership, as buyer (the "BUYER"), and AAMES CAPITAL
CORPORATION, a California corporation, as seller (the "SELLER").
R E C I T A L S:
WHEREAS, in the ordinary course of the Seller's business, the Seller
enters into servicing agreements, which include the Scheduled Pooling and
Servicing Agreements (as defined below), pursuant to which the Seller acts as
servicer of portfolios of mortgage loans;
WHEREAS, pursuant to the Scheduled Pooling and Servicing Agreements, the
Seller has made Historical Advances (as defined below) which, subject to the
terms and conditions of this Agreement, the Seller now wishes to sell to the
Buyer, and the Buyer wishes to purchase from the Seller, on the Closing Date;
and
WHEREAS, concurrently with the sale contemplated herein, each of the
Scheduled Pooling and Servicing Agreements are being supplemented to reflect the
conveyance of the Historical Advances to Buyer, as Limited Servicer, and to
provide for the direct payment by the trustee under each Scheduled Pooling and
Servicing Agreement to the Buyer with respect to such Historical Advances;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and for good and sufficient consideration, the parties hereto,
intending to be legally bound, do hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN DEFINED TERMS. All capitalized terms used herein and
not otherwise defined herein shall have the meaning ascribed to them in the
Scheduled Pooling and Servicing Agreements, and, to the extent not inconsistent
therewith, in the Limited Partnership Agreement, and the following capitalized
terms shall have the following meanings:
"AFFILIATE" shall mean, with respect to a Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with, such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
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"BUSINESS DAY" shall mean any day other than (i) a Saturday or Sunday or
(ii) any other day on which banking institutions are authorized or required by
law, executive order or governmental decree to be closed in the States of
Delaware, New York or California.
"BUYER" shall have the meaning set forth in the recitals hereto.
"CERTIFICATE INSURER" shall mean the "Financial Guaranty Insurer" or the
"Certificate Insurer" as the case may be, in each case as defined in each
Scheduled Pooling and Servicing Agreement.
"CHIEF EXECUTIVE OFFICE" shall mean, with respect to the Seller or the
Buyer, the place where the Seller or the Buyer, as the case may be, is located,
within the meaning of Section 9-103(3)(d), or any analogous provision, of the
UCC, in effect in the jurisdiction whose Law governs the perfection of the
Buyer's ownership of any of the Historical Advances.
"CLOSING DATE" shall mean February 24, 2000.
"COLLECTION POLICY" shall mean the Seller's policies regarding the
collection and remittance of monies due under Historical Advances as promptly as
is reasonably practical and in accordance with the provisions of the Scheduled
Pooling and Servicing Agreements.
"CUT-OFF DATE" shall mean January 31, 2000.
"GAAP" shall mean generally accepted accounting principles in the United
States of America, applied on a consistent basis and applied to both
classification of items and amounts, and shall include, without limitation, the
official interpretations thereof by the Financial Accounting Standards Board,
its predecessors and successors.
"HISTORICAL ADVANCEs" shall mean, with respect to the Scheduled Pooling
and Servicing Agreements, the Monthly Advances and Servicing Advances made by
the Servicer, including all rights to repayment and reimbursement with respect
thereto, which remain unreimbursed as of the Cut-off Date, having an aggregate
balance of $17,647,503.88 as of the Cut-off Date, and the proceeds thereof, as
defined in the Relevant UCC, listed on Schedule 1 hereto.
"INDEMNIFIED PARTIES" shall have the meaning specified in Section 7.1
hereof.
"LAW" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LIEN", in respect of the property of any Person, shall mean any
ownership interest of any other Person, any mortgage, deed of trust,
hypothecation, pledge, lien, security interest, financing statement, or charge
or other encumbrance or security arrangement of any nature whatsoever,
including, without limitation, any conditional sale or title retention
arrangement, and any assignment, deposit arrangement, consignment or lease
intended as, or having the effect of, security.
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"LIMITED PARTNER CAPITAL ACCOUNT ADJUSTMENT" shall mean the positive
adjustment to the Capital Account of the Limited Partner in the Buyer as of the
Closing Date, as set forth in Schedule A to the Limited Partnership Agreement.
"LIMITED PARTNERSHIP AGREEMENT" shall mean the Limited Partnership
Agreement of Steamboat Financial Partnership I, L.P., dated as of June 10, 1999,
as amended by that certain Amendment No. 1 To Limited Partnership Agreement
dated as of February 24, 2000, as further amended or modified from time to
time.
"OFFICIAL BODY" shall mean any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"OUTSTANDING BALANCE" of any Historical Advance shall mean, at any time,
the then outstanding amount thereof.
"PERSON" shall mean an individual, corporation, limited liability
company, partnership (general or limited), trust, business trust, unincorporated
association, joint venture, joint-stock company, Official Body or any other
entity of whatever nature.
"PURCHASE" shall mean the purchase by the Buyer from the Seller of an
undivided ownership interest in the Historical Advances pursuant to Sections 2.1
and 2.2 hereof.
"PURCHASE PRICE" shall have the meaning specified in Section 2.2(c)
hereof.
"RECORDS" shall mean correspondence, memoranda, computer programs, tapes,
discs, papers, books or other documents or transcribed information of any type
whether expressed in ordinary or machine readable language.
"RELEVANT UCC" shall mean the UCC as in effect in the State of California
and in the jurisdiction whose Law governs the perfection of the Buyer's
ownership interests in the Historical Advances.
"REPURCHASE EVENT" shall mean, with respect to any Historical Advance
sold by the Seller to the Buyer pursuant to this Agreement, either (i) any
representation or warranty made by the Seller in Section 3.2 of this Agreement
with respect to such Historical Advance proves to have been false or misleading;
or (ii) the failure of the Buyer to have a perfected ownership interest in
such Historical Advance, free and clear of any Lien imposed by or in respect of
Seller.
"RESPONSIBLE OFFICER" shall mean, with respect to the Seller or the
Buyer, the chief executive officer, chief financial officer, or treasurer of
such Person and any other Person designated as a Responsible Officer by any such
officers, identified on the List of Responsible Officers attached as EXHIBIT D
hereto (as such list may be amended or supplemented from time to time) and
agreed to by the Seller and Buyer.
"SCHEDULED POOLING AND SERVICING AGREEMENTS" shall mean, collectively,
those pooling and servicing agreements described on SCHEDULE 2 attached hereto
to which the Seller is
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a party, pursuant to which the Seller acts as the servicer of portfolios of
mortgage loans, or by which Seller's servicing obligations are governed. For
all purposes of this Agreement, the term "Scheduled Pooling and Servicing
Agreements" shall include the Scheduled Supplements thereto, and any and all
instruments, agreements, invoices or other writings, which gives rise to or
otherwise evidence any of the Historical Advances.
"SCHEDULED SUPPLEMENTS" shall mean, collectively, those supplements to
each Scheduled Pooling and Servicing Agreement, as restated and amended as of
June 10, 1999 and as further amended or modified from time to time.
"SCHEDULED TRUSTEE" shall mean each "Trustee" under each Scheduled
Pooling and Servicing Agreement.
"SELLER" shall have the meaning set forth in the recitals hereto.
"UCC" shall mean, with respect to any jurisdiction, the Uniform
Commercial Code, or any successor statute, or any comparable law, as the same
may from time to time be amended, supplemented or otherwise modified and in
effect in such jurisdiction.
SECTION 1.2 INTERPRETATION AND CONSTRUCTION. Unless the context of this
Agreement otherwise clearly requires, references to the plural include the
singular, the singular the plural and the part the whole. References in this
Agreement to "determination", "determine" and "determined" by the Buyer shall be
conclusive absent manifest error and include good faith estimates by the Buyer
(in the case of quantitative determinations), and the good faith belief of the
Buyer (in the case of qualitative determinations). The words "hereof",
"herein", "hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise stated in this Agreement, in the computation of a period of
time from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding." The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation hereof in any respect. Section, subsection and
exhibit references are to this Agreement unless otherwise specified. As used in
this Agreement, the masculine, feminine or neuter gender shall each be deemed to
include the others whenever the context so indicates. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. Terms
not otherwise defined herein which are defined in the UCC as in effect in the
State of California on the date hereof shall have the respective meanings
ascribed to such terms therein unless the context otherwise clearly requires.
ARTICLE II
SALES AND TRANSFERS; SETTLEMENTS
SECTION 2.1 GENERAL TERMS. On the terms and conditions hereinafter set
forth, on the Closing Date, the Seller shall sell to the Buyer, and the Buyer
shall purchase from the Seller, without recourse, except as specifically set
forth herein, all right, title and interest of the Seller in, to and under the
Historical Advances.
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SECTION 2.2 PURCHASE AND SALE.
(a) The Seller hereby irrevocably sells, sets over, assigns, transfers
and conveys to the Buyer and its successors and assigns, without recourse,
except as specifically set forth herein, and the Buyer hereby accepts, purchases
and receives from the Seller, all of the Seller's right, title, and interest in
and to the Historical Advances, together with all monies due or to become due in
respect thereof.
(b) The purchase price (the "PURCHASE PRICE") for the Historical
Advances shall be $15,000,378.30, plus the Limited Partner Capital Account
Adjustment. The Buyer shall pay and transfer to the Seller on the Closing Date
the cash portion of the Purchase Price, by wire transfer of immediately
available funds, and shall make the Limited Partner Capital Account Adjustment
in favor of Seller.
(c) The Purchase shall be made, and the Purchase Price paid as set forth
above, PROVIDED that all conditions precedent to the Purchase specified in
Section 4.1 shall have been satisfied.
SECTION 2.3 INTENDED AS SALE.
(a) It is the intention of the parties hereto that the Purchase shall
constitute a sale and assignment, which sale and assignment shall be absolute,
irrevocable and without recourse except as specifically provided herein and
shall provide the Buyer with the full benefits of ownership of the Historical
Advances. In the event that the Purchase is deemed by a court contrary to the
express intent of the parties to constitute a pledge rather than a sale and
assignment of the Historical Advances, the Buyer shall be treated as having a
first-priority, perfected security interest in and to, and lien on, the
Historical Advances. The possession by the Buyer or its agent of notes and such
other goods, money or documents related thereto, and the filing of Form UCC-1,
shall be deemed to be "possession by the secured party" and "perfection by
filing", respectively, for purposes of perfecting such security interest
pursuant to the Relevant UCC. The sale and conveyance hereunder of the
Historical Advances does not constitute an assumption by the Buyer or its
successors and assigns of any obligations of the Seller to any Person in
connection with the Historical Advances or under any Scheduled Pooling and
Servicing Agreement or any other agreement or instrument relating to the
Historical Advances.
(b) In connection with the Purchase, and to reflect the sale of the
Historical Advances by the Seller, the Seller agrees to record and file on or
prior to the Closing Date, at its own expense, financing statements with respect
to the Historical Advances, suitable to reflect the transfer of accounts and
general intangibles (each as defined in Article 9 of the Relevant UCC) and
meeting the requirements of applicable state Law in such manner and in such
jurisdictions as are necessary to perfect the sale, transfer and assignment of
the Historical Advances from the Seller to the Buyer, and to deliver
file-stamped copies of such financing statements or other evidence of such
filing satisfactory to the Buyer on the Closing Date or the day thereafter. In
addition to, and without limiting the foregoing, the Seller shall, upon the
request of the Buyer, in order to accurately reflect this transaction, execute
and file such financing or continuation
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statements or amendments thereto or assignments thereof (as permitted
pursuant to Section 8.8 hereof) as may be reasonably requested by the Buyer.
(c) The Seller shall maintain its books and records, including but not
limited to any computer files and master data processing records, so that such
records that refer to Historical Advances sold hereunder shall indicate clearly
that the Seller's right, title and interest in such Historical Advances has been
sold to the Buyer. Indication of the Buyer's interest in Historical Advances
shall be deleted from or modified on the Seller's records when, and only when,
the Historical Advances shall have been paid in full or the Buyer's interest in
such Historical Advances shall have been repurchased or repaid by the Seller
hereunder.
SECTION 2.4 PROTECTION OF OWNERSHIP OF THE BUYER.
(a) The Seller agrees that from time to time, at its expense, it shall
promptly execute and deliver all additional instruments and documents and take
all additional action that the Buyer may reasonably request in order to perfect
the interests of the Buyer in, to and under, or to protect, the Historical
Advances, or to enable the Buyer to exercise or enforce any of its rights or
remedies hereunder. To the fullest extent permitted by applicable Law, the Buyer
and its successor and assigns shall be permitted to sign and file continuation
statements and amendments thereto without the Seller's signature if the Seller
shall have failed to sign such continuation statements, amendments or
assignments within five (5) Business Days after receipt of a request for such
execution from the Buyer. The Seller hereby irrevocably consents to Buyer's
execution in Seller's name of continuation statements, amendments or
assignments.
(b) At any reasonable time and from time to time at the Buyer's
reasonable request and upon seven days' prior notice to the Seller, for so long
as Seller is the Servicer under the Scheduled Pooling and Servicing Agreements,
the Seller shall permit such Person as the Buyer may designate to conduct audits
or visit and inspect the Chief Executive Office of the Seller to examine the
Records, internal controls and procedures maintained by the Seller with respect
to the Historical Advances and take copies and extracts therefrom, and to
discuss the Seller's affairs with its officers, employees and, upon notice to
the Seller, independent accountants. The Seller hereby authorizes such
officers, employees and independent accountants to discuss with the Buyer or its
designee the affairs of the Seller. Any audit provided for herein shall be
conducted in accordance with Seller's rules respecting safety and security on
its premises and without materially disrupting operations.
(c) If the Seller shall receive any payments with respect to Historical
Advances, the Seller shall hold such payments in trust and shall pay such
amounts to the applicable Scheduled Trustee in accordance with the terms of the
applicable Scheduled Pooling and Servicing Agreements.
(d) The Buyer shall have the right to do all such acts and things as it
may deem reasonably necessary to protect its interests hereunder, including,
without limitation, confirmation and verification of the existence, amount and
status of the Historical Advances.
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SECTION 2.5 MANDATORY REPURCHASE UNDER CERTAIN CIRCUMSTANCES.
(a) The Seller shall promptly repurchase from the Buyer all of the
Historical Advances for a repurchase price equal to the aggregate Outstanding
Balance of all of the Historical Advances, if, at any time, the Buyer shall
cease to have a perfected ownership interest in all of the Historical Advances
purchased hereunder, free and clear of any Lien imposed by or in respect of
Seller, or if any of the representations or warranties made by the Seller in
Sections 3.1(b), (c), (f) and (i) prove to have been false or misleading in any
material respect as of the date on which they were made, except that, with
respect to the representations and warranties in Section 3.1(f), Seller shall be
obligated to repurchase the Historical Advances as provided herein only if the
failure of such representation and warranty results in any Form UCC-1 filed with
respect to the Historical Advances not having been filed in a location effective
to perfect a security interest (with respect to general intangibles) against the
Seller under the Relevant UCC.
(b) If a Repurchase Event occurs with respect to any particular
Historical Advance, the Seller shall promptly repurchase such Historical Advance
from the Buyer for a purchase price equal to the then Outstanding Balance of
such Historical Advance.
(c) Each of the Seller and the Buyer shall promptly notify the other if
it becomes aware of or receives notice of any fact or circumstance that could or
would cause the Seller to be obligated to repurchase any Historical Advance
pursuant to this Section 2.5 or any Historical Advance is not otherwise
recoverable. The repurchase price of any Historical Advances purchased
hereunder shall be deposited by Seller into an account designated by Buyer
within two (2) Business Days of Buyer notifying Seller that a Repurchase Event
has occurred, or of Seller becoming aware that such Repurchase Event has
occurred.
(d) Upon receipt by the Buyer of the Outstanding Balance of any
Historical Advance required to be repurchased by the Seller pursuant to this
Section 2.5, the Buyer shall automatically and without further action, be deemed
to sell, transfer, assign, set-over and otherwise convey to the Seller, without
recourse, representation or warranty, all the right, title and interest of the
Buyer in and to such Historical Advance and all monies due or to become due with
respect thereto; and such repurchased Historical Advance shall be treated by the
Buyer as collected in full as of the date on which it was transferred. The
Buyer shall execute such documents and instruments of transfer or assignment and
take such other actions as shall reasonably be requested by the Seller to effect
the conveyance of such Historical Advance and all monies due or to become due
with respect thereto, pursuant to this Section 2.5. Promptly following any such
repurchase, the Seller shall update Schedule 1 to remove therefrom such
repurchased Historical Advance, and deliver the same to the Buyer as so updated.
SECTION 2.6 TRANSFERS BY BUYER. The Seller acknowledges and agrees that
the Buyer may sell, assign, encumber or otherwise dispose of the Historical
Advances.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller hereby
represents and warrants to the Buyer on and as of the Closing Date that:
(a) ORGANIZATION AND QUALIFICATION. The Seller is a corporation duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation. The Seller is duly qualified to do business as a
foreign corporation in good standing in each jurisdiction in which the ownership
of its properties or the nature of its activities (including transactions giving
rise to Historical Advances), or both, requires it to be so qualified or, if not
so qualified, the failure to so qualify would not have a material adverse effect
on its financial condition or results of operations.
(b) AUTHORITY. The Seller has the corporate power and authority to
execute and deliver this Agreement, to make the sales provided for herein and to
perform its obligations under this Agreement.
(c) EXECUTION AND BINDING EFFECT. This Agreement has been duly executed
and delivered by the Seller and, assuming the due and valid execution and
delivery hereof by the Buyer, constitutes the legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization or other similar Laws of general application relating
to or affecting the enforcement of creditors' rights generally or by general
principles of equity and will vest absolutely and unconditionally in the Buyer a
valid undivided ownership interest in the Historical Advances purported to be
assigned hereby, subject to no Liens whatsoever. Upon the filing of the
necessary financing statements under the UCC or under applicable Law as in
effect in the jurisdiction whose Law governs the perfection of the Buyer's
ownership interests in the Historical Advances, the Buyer's ownership interests
therein will be perfected under Article 9 of such UCC or under applicable Law,
prior to and enforceable against all creditors of and purchasers from the Seller
and all other Persons whatsoever (other than the Buyer and its successors and
assigns).
(d) AUTHORIZATIONS AND FILINGS. No authorization, consent, approval,
license, exemption or other action by, and no registration, qualification,
designation, declaration or filing with, any Official Body is or will be
necessary or, in the opinion of the Seller, advisable in connection with the
execution and delivery by the Seller of this Agreement, the consummation by the
Seller of the transactions herein contemplated or the performance by the Seller
of or the compliance by the Seller with the terms and conditions hereof, to
ensure the legality, validity or enforceability hereof, or to ensure that the
Buyer will have a valid undivided ownership interest in and to the Historical
Advances which is perfected and prior to all other Liens (including competing
ownership interests), other than the filing of financing statements under the
UCC in the jurisdiction of the Seller's Chief Executive Office.
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(e) ABSENCE OF CONFLICTS. Neither the execution and delivery by the
Seller of this Agreement, nor the consummation by the Seller of the transactions
herein contemplated, nor the performance by the Seller of or the compliance by
the Seller with the terms and conditions hereof, will (i) violate any Law or
(ii) conflict with or result in a breach of or a (with due notice or lapse of
time or both) default under (A) the Certificate of Incorporation or By-laws of
the Seller or (B) any agreement or instrument, including, without limitation,
any and all indentures, debentures, loans, credit agreements or other agreements
to which the Seller is a party or by which it or any of its properties (now
owned or hereafter acquired) may be subject or bound (including, without
limitation, the Scheduled Pooling and Servicing Agreements). The Seller has not
entered into any agreement with any Person prohibiting, restricting or
conditioning the assignment of any portion of the Historical Advances.
(f) LOCATION OF CHIEF EXECUTIVE OFFICE, ETC. As of the date hereof:
(i) the Seller's Chief Executive Office is located at 350 South Grand Avenue,
Los Angeles, California, 90071; (ii) the offices where the Seller keeps all of
its material Records are listed on EXHIBIT B hereto; and (iii) the Seller has,
within the last 5 years, operated only under the trade names identified in
EXHIBIT C hereto, and, within the last 5 years, has not changed its name, merged
or consolidated with any other corporation with assets over $1,000,000 or been
the subject of any proceeding under Title 11, United States Code (Bankruptcy),
except as disclosed in EXHIBIT C hereto.
(g) ACCURATE AND COMPLETE DISCLOSURE. No information furnished in
writing by the Seller to the Buyer pursuant to or in connection with this
Agreement is false or misleading in any material respect as of the date of which
such information was furnished (including by omission of material information
necessary to make such information not misleading).
(h) NO PROCEEDINGS. There are no proceedings or investigations pending,
or to the knowledge of the Seller threatened, before any Official Body (A)
asserting the invalidity of this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement, or (C)
seeking any determination or ruling that might materially and adversely affect
(i) the performance by the Seller of its obligations under this Agreement or
(ii) the validity or enforceability of this Agreement, the Scheduled Pooling and
Servicing Agreements, or any of the Historical Advances.
(i) LITIGATION. No injunction, decree or other decision has been issued
or made by any Official Body that prevents, and to the knowledge of the Seller,
no threat by any Person has been made to attempt to obtain any such decision
that would have a material adverse impact on the value of the Historical
Advances or the performance of the Seller's obligations and the exercise of its
rights under the Scheduled Pooling and Servicing Agreements, or that would
materially adversely affect the collectibility of the Historical Advances as a
whole, except as set forth on EXHIBIT A hereto.
(j) TAXES. No Lien has been filed against the Seller on all or any
material portion of its property or assets in respect of any unpaid federal,
state or local taxes.
(k) BOOKS AND RECORDS The Seller has clearly indicated on its books and
records (including any computer files) that the Historical Advances have been
sold to the Buyer. For
10
<PAGE>
accounting and tax purposes, the Seller shall treat the sale of the
Historical Advances hereunder as a sale. The Seller maintains at one or more
of the offices listed on EXHIBIT B hereto the complete records for the
Historical Advances.
(l) INVESTMENT COMPANY. The Seller is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(m) NO FRAUDULENT CONVEYANCE. The transactions contemplated by this
Agreement are being consummated by the Seller in furtherance of the Seller's
ordinary business, with no contemplation of insolvency and with no intent to
hinder, delay or defraud any of its present or future creditors. By its receipt
of the Purchase Price hereunder, the Seller shall have received reasonably
equivalent value for the Historical Advances sold or otherwise conveyed to the
Buyer under this Agreement.
(n) SOLVENCY. The Seller is solvent and will not be rendered insolvent
by the transactions contemplated herein.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE SELLER WITH RESPECT TO
THE SALE OF THE HISTORICAL ADVANCES. By selling Historical Advances to the
Buyer on the Closing Date, the Seller represents and warrants to the Buyer as of
the Closing Date (in addition to its other representations and warranties
contained herein or made pursuant hereto) that:
(a) SCHEDULED POOLING AND SERVICING AGREEMENTS. All of the Scheduled
Pooling and Servicing Agreements are in full force and effect and the Seller as
Servicer thereunder has not been terminated. Other than each Certificate
Insurer's right to terminate the applicable Scheduled Pooling and Servicing
Agreements based on Seller's failure to achieve certain delinquency and/or loss
targets, no event has occurred that would give any party to any Scheduled
Pooling and Servicing Agreement the right (including with notice or lapse of
time or both) to terminate the Seller for cause as the Servicer or Sub-Servicer
under any Scheduled Pooling and Servicing Agreement, and the Seller does not
have actual knowledge of any pending or threatened action to terminate the
Seller as Servicer or Sub-Servicer under any of the Scheduled Pooling and
Servicing Agreements.
(b) ASSIGNMENT. Subject to the execution and delivery by Greenwich
Capital Financial Products, Inc. ("Greenwich") of that certain Release of
Collateral dated as of February 24, 2000, releasing all assets conveyed pursuant
to that certain Historical Advance Purchase Agreement dated as of June 10, 1999
between Buyer and Seller, that certain Historical Advance Purchase Agreement
dated as of June 17, 1999 between Buyer and Seller and this Agreement (the
"Release"), and the execution, delivery and filing by Greenwich of the UCC-2
related to such Release, this Agreement vests in the Buyer all of the right,
title and interest in and to the Historical Advances, and constitutes a valid
sale of the Historical Advances, enforceable against, and creating an interest
prior in right to, all creditors of and purchasers from the Seller.
(c) NO LIENS. Subject to the execution and delivery by Greenwich of the
Release and the execution, delivery and filing by Greenwich of the UCC-2
related to such Release, each
11
<PAGE>
Historical Advance is owned by the Seller free and clear of any Lien (except
any Lien of the Trust under the relevant Scheduled Pooling and Servicing
Agreement), except as provided herein, and is not subject to any dispute or
other adverse claim, except as provided herein. When the Buyer purchases the
Historical Advances, it shall acquire ownership of the Historical Advances,
free and clear of any Lien, except as provided herein.
(d) FILINGS. Subject to the execution and delivery by Greenwich of the
Release and the execution, delivery and filing by Greenwich of the UCC-2
related to such Release, on or prior to the Closing Date, all financing
statements and other documents required to be recorded or filed in order to
perfect and protect the Historical Advances against all creditors of, and
purchasers from, the Seller and all other Persons whatsoever have been duly
filed in each filing office necessary for such purpose and all filing fees and
taxes, if any, payable in connection with such filings have been paid in full
and all documents required to be filed to release any Liens on the Historical
Advances shall have been filed.
(e) COLLECTION POLICY. The Seller has complied in all material respects
with the Collection Policy in regard to each Historical Advance and the related
Scheduled Pooling and Servicing Agreement. The Seller has not extended or
modified the terms of any Historical Advance or the related Scheduled Pooling
and Servicing Agreement except in accordance with the Collection Policy.
(f) BONA FIDE HISTORICAL ADVANCE. Each Historical Advance is an
obligation arising out of the making of a Monthly Advance or Servicing Advance
by the Seller or a predecessor servicer, in its capacity as a servicer of a
portfolio of mortgage loans, pursuant to a Scheduled Pooling and Servicing
Agreement. Each Historical Advance relates to a Monthly Advance or Servicing
Advance that has been made in accordance with the terms of the related Scheduled
Pooling and Servicing Agreement. Subject to the execution and delivery by
Greenwich of the Release and the execution, delivery and filing by Greenwich of
the UCC-2 related to such Release, the Seller has no knowledge of any fact that
has led it to expect that such Historical Advance will not be fully recoverable
when the related mortgage loan is brought current or is liquidated and the
Seller had a good faith basis, at the time each Historical Advance was made, to
believe that such Historical Advance would be fully recoverable.
(g) ACCURACY OF SCHEDULE. The information set forth in SCHEDULE 1
(including ANNEX A to SCHEDULE 1) and in SCHEDULE 2 hereto with respect to the
Historical Advances and the Scheduled Pooling and Servicing Agreements is true
and correct in all material respects as of the date hereof.
(h) CREDITOR APPROVAL. Subject to the execution and delivery by
Greenwich of the Release and the execution, delivery and filing by Greenwich of
the UCC-2 related to such Release, the Seller has obtained from each Person that
may have an interest in the Historical Advances (i) all approvals that are
necessary to sell and assign the Historical Advances in the manner contemplated
by this Agreement and (ii) releases of any security interests in the Historical
Advances.
ARTICLE IV
12
<PAGE>
CONDITIONS PRECEDENT
SECTION 4.1 CONDITIONS TO CLOSING. On the Closing Date, as a condition
precedent to the Buyer's obligations hereunder, all of the representations and
warranties of the Seller made herein shall be true and correct, the Seller shall
not be in breach of any of the agreements made herein, and the Seller shall
deliver to the Buyer the following documents and instruments, all of which shall
be in form and substance acceptable to the Buyer:
(a) A copy of the resolutions of the Board of Directors of the Seller,
certified as of the Closing Date by its secretary or assistant secretary
authorizing the execution, delivery and performance of this Agreement by the
Seller and approving the transactions contemplated hereby;
(b) The Certificate of Incorporation of the Seller, certified as of a
date reasonably near the Closing Date by the Secretary of State or other similar
official of the Seller's jurisdiction of incorporation;
(c) A good standing certificate for the Seller issued by the Secretary
of State or other similar official of the Seller's jurisdiction of
incorporation, certificates of qualification as a foreign corporation issued by
the Secretaries of State or other similar officials of each jurisdiction where
such qualification is material to the transactions contemplated by this
Agreement and certificates of the appropriate state official in each
jurisdiction specified by the Buyer as to the absence of any tax Liens against
the Seller under the Laws of such jurisdiction, each such certificate to be
dated a date reasonably near the Closing Date;
(d) A certificate of the secretary or an assistant secretary of the
Seller dated as of the Closing Date, certifying (i) the names and signatures of
the officers authorized on the Seller's behalf to execute, and the officers and
other employees authorized to perform, this Agreement by the Seller and (ii) a
copy of the Seller's By-laws;
(e) Executed copies of proper financing statements (Form UCC-l) naming
the Seller as seller/debtor in respect of the Historical Advances, and the
Buyer, as the purchaser/secured party, together with evidence of filing thereof
in the appropriate jurisdictions; or other similar instruments or documents as
may be necessary or, in the opinion of the Buyer, desirable under the UCC of all
appropriate jurisdictions to evidence or perfect the Buyer's ownership interests
in all of the Historical Advances;
(f) Executed copies of proper financing statements (Form UCC-3), if any,
necessary under the Laws of all appropriate jurisdictions to release all
security interests and other Liens or rights of any person in Historical
Advances previously granted by the Seller (except the Lien of a Trust under the
relevant Scheduled Pooling and Servicing Agreement);
(g) Certified copies of lien search reports dated a date reasonably near
the Closing Date listing all effective financing statements that name the Seller
(under its present name and any previous name or any trade names or "d.b.a."
name) as debtor and which are filed in jurisdictions in which the filings were
made pursuant to paragraph (e) above, together with
13
<PAGE>
copies of such financing statements (none of which shall cover any of the
Historical Advances, the Scheduled Pooling and Servicing Agreements or any
related rights);
(h) A favorable opinion or opinions of the Seller's in-house counsel,
dated the date hereof and addressed to the Buyer relating to corporate matters,
legality and validity of this Agreement, and a favorable opinion or opinions of
O'Melveny & Myers LLP, counsel to the Seller, dated the date hereof and
addressed to Buyer relating to the characterization of the transfer of the
Historical Advances in a bankruptcy case as an absolute transfer, enforceability
of this Agreement and of the Scheduled Supplements, the perfection of the
Buyer's ownership interests in the Historical Advances and such other matters as
the Buyer may reasonably request;
(i) An officer's certificate dated as of the Closing Date in a form
reasonably acceptable to the Buyer executed by a Responsible Officer of the
Seller to the effect that (i) all representations and warranties are true and
correct as of the Closing Date and (ii) all terms, covenants agreements and
conditions required to be complied with or performed on or prior to the Closing
Date have been complied with or performed on or prior to the Closing Date;
(j) Executed copies of all of the Scheduled Pooling and Servicing
Agreements, certified as true, complete and correct by an incumbent officer of
the Seller, except as noted in a certificate of such officer;
(k) Copies of all Scheduled Supplements, executed by all parties
thereto; and
(l) A true, complete, and correct list (which shall be in paper form and
may also be in the form of a computer file or tape) of the Historical Advances,
each of which shall be identified by the related Scheduled Pooling and Servicing
Agreement, loan number and Outstanding Balance, in the form of SCHEDULE 1 to
this Agreement.
ARTICLE V
COVENANTS
SECTION 5.1 COVENANTS OF THE SELLER. At all times during the term of
this Agreement, unless the Buyer shall otherwise consent in writing:
(a) ENFORCEABILITY OF OBLIGATIONS; REIMBURSEMENTS. The Seller shall
take such actions as are reasonable and within its power to ensure that, with
respect to each Historical Advance, that Buyer will receive reimbursements with
respect to such Historical Advance as promptly as practicable; PROVIDED HOWEVER,
that this subsection shall not constitute a guarantee of payment or collection.
The Seller shall enforce the right to receive reimbursement for each Historical
Advance against any and all parties to a Scheduled Pooling and Servicing
Agreement, if its usual and customary procedures do not result in such
reimbursement.
(b) FULFILLMENT OF OBLIGATIONS. The Seller shall duly observe and
perform, or cause to be observed or performed, all material obligations and
undertakings on its part to be observed and performed under or in connection
with this Agreement, the Collection Policies and
14
<PAGE>
the Scheduled Pooling and Servicing Agreements; shall do nothing to impair
the rights, title and interest of the Buyer in and to the Historical Advances
or the right or ability of the Seller or the Buyer to realize thereon.
(c) NOTICE OF RELOCATION. The Seller shall give the Buyer thirty (30)
days' prior written notice of any relocation of its Chief Executive Office if,
as a result of such relocation, the applicable provisions of the UCC of any
applicable jurisdiction or other applicable Laws would require the filing of any
amendment of any previously filed financing statement or continuation statement
or of any new financing statement. The Seller will at all times maintain its
Chief Executive Office within a jurisdiction in the United States in which
Article 9 of the UCC (1972 or later revision) is in effect as of the date hereof
or the date of any such relocation.
(d) FURTHER INFORMATION. The Seller shall furnish or cause to be
furnished to the Buyer such other information as promptly as practicable, and in
such form and detail, as the Buyer may reasonably request.
(e) FEES, TAXES AND EXPENSES. The Seller shall pay all filing fees,
stamp taxes, other taxes and expenses that are incurred or assessed on account
of or arise out of this Agreement and the documents and transactions entered
into pursuant to this Agreement.
SECTION 5.2 NEGATIVE COVENANTS OF THE SELLER. At all times during the
term of this Agreement, unless the Buyer shall otherwise consent in writing:
(a) NO CHANGES. The Seller shall not change its name, identity or
corporate structure in any manner which would make any financing statement or
continuation statement filed in connection with this Agreement or the
transactions contemplated hereby misleading within the meaning of Section
9-402(7) of the UCC of any applicable jurisdiction or other applicable Laws
unless it shall have given the Buyer at least thirty (30) days' prior written
notice thereof and unless prior thereto it shall have caused such financing
statement or continuation statement to be amended or a new financing statement
to be filed such that such financing statement or continuation statement would
not be misleading.
(b) COLLECTION POLICY. The Seller shall not make, allow or consent to
any material change in its Collection Policy without prior written notification
to the Buyer.
ARTICLE VI
TERMINATION
SECTION 6.1 TERMINATION. The Seller's obligations under this Agreement
shall continue in full force and effect until all Historical Advances have been
paid or liquidated; PROVIDED, HOWEVER, that the indemnification and payment
provisions set forth in Article VII hereof shall be continuing and shall survive
termination of this Agreement.
ARTICLE VII
INDEMNIFICATION
15
<PAGE>
SECTION 7.1 INDEMNITY.
(a) The Seller agrees to indemnify, defend and save harmless the Buyer
and any of its successors or permitted assignees (each, an "INDEMNIFIED PARTY"
and collectively, the "INDEMNIFIED PARTIES"), other than for the Indemnified
Party's own gross negligence or willful misconduct, forthwith on demand, from
and against any and all losses, claims, damages, liabilities, costs and expenses
(including, without limitation, all reasonable attorneys' fees and expenses,
expenses incurred by an Indemnified Party (or any successors thereto) and
expenses of settlement, litigation or preparation therefor) which any
Indemnified Party may incur or which may be asserted against any Indemnified
Party by any Person (whether on its own behalf or derivatively on behalf of the
Seller) arising from or incurred in connection with (i) any breach of a
representation, warranty or covenant by the Seller made or deemed made hereunder
or in connection herewith or the transactions contemplated hereby or (ii) any
action taken or, if the Seller is otherwise obligated to take action, failed to
be taken, by the Seller with respect to the Historical Advances or any of its
obligations hereunder including, without limitation, the Seller's failure to
comply with an applicable Law or regulation
(b) Promptly upon receipt by any Indemnified Party under this Section
7.1 of notice of the commencement of any suit, action, claim, proceeding or
governmental investigation against such Indemnified Party, such Indemnified
Party shall, if a claim in respect thereof is to be made against the Seller
hereunder, notify the Seller in writing of the commencement thereof. The Seller
may participate in and assume the defense and settlement of any such suit,
action, claim, proceeding or investigation at its expense, and no settlement
thereof shall be made without the approval of the Seller and the Indemnified
Party. The approval of either party will not be unreasonably withheld or
delayed.
(c) Each Indemnified Party shall use its good faith efforts to mitigate,
reduce or eliminate any losses, expenses or claims for indemnification.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 SURVIVAL. The indemnification and payment provisions of
Article VII shall be continuing and shall survive any termination of this
Agreement, subject to applicable statutes of limitation; PROVIDED, HOWEVER, that
any such indemnification or payment claim must be presented to the Seller within
thirty (30) Business Days after the Person making such claim receives notice or
otherwise becomes aware of such claim, PROVIDED, FURTHER, however, that any
failure to give such notice shall not prejudice the rights of any Indemnified
Party except to the extent Seller is actually prejudiced by such failure to give
notice.
SECTION 8.2 AMENDMENTS. Any provision of this Agreement may be waived
or amended only in a writing signed by the parties hereto.
SECTION 8.3 NOTICES. Except as provided below, all communications and
notices provided for hereunder shall be in writing (including bank wire,
telecopy or electronic
16
<PAGE>
facsimile transmission or similar writing) and shall be given to the other
party at its address or telecopy number set forth hereunder or at such other
address or telecopy number as such party may hereafter specify for the
purposes of notice to such party. Each such notice or other communication
shall be effective if given by facsimile, when such facsimile is transmitted
to the facsimile number specified in this Section 8.3 and the appropriate
written confirmation is received or, if given by any other means, when
received at the address specified in this Section 8.3. Each party further
agrees to deliver promptly to the other party a written confirmation of each
telephonic notice signed by an authorized officer of the Seller. However,
the absence of such confirmation shall not affect the validity of such notice.
If to the Buyer:
Steamboat Financial Partnership I, L.P.
c/o Random Properties Acquisition Corp. IV
600 Steamboat Road
Greenwich, CT 06830
Attn: John Anderson
Telephone: (203) 625-7941
Facsimile: (203) 618-2135
with a copy to:
Sheldon Goldfarb, Esq.
General Counsel
c/o Steamboat Financial, Inc.
600 Steamboat Road
Greenwich, CT 06830
Telephone: (203) 625-6065
Facsimile: (203) 618-2132
If to the Seller:
Aames Capital Corporation
350 South Grand Avenue
Los Angeles, CA 90071
Attention: David Sklar, CFO
Telephone: (323) 210-5276
Facsimile: (323) 210-5551
with a copy to:
John Madden, Esq.
Associate General Counsel
350 South Grand Avenue
Los Angeles, CA 90071
17
<PAGE>
Telephone: (323) 210-4871
Facsimile: (323) 210-5026
SECTION 8.4 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; PROCESS AGENT. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. The Seller and the Buyer
hereby submit to the nonexclusive jurisdiction of courts of the State of New
York located in the Borough of Manhattan and the United States District Court
for the Southern District of New York for purposes of adjudicating any claim or
controversy arising in connection with this Agreement or any of the transactions
contemplated hereby. The Seller and the Buyer hereby irrevocably waive, to the
fullest extent they may lawfully do so, any objection which they may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. Nothing in this Section 8.4 shall affect the
right of any Person to bring any action or proceeding against the Seller or the
Buyer or their respective properties in the courts of other jurisdictions. EACH
PARTY HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO ANY RELATIONSHIP ESTABLISHED IN
CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(b) THE SELLER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION AS ITS
DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, FOR AND ON BEHALF OF IT, SERVICE OF
PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT. THE
SELLER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO CT CORPORATION,
1633 BROADWAY, NEW YORK, NEW YORK, OR TO ITS ADDRESS FOR NOTICES IN SECTION 8.3,
WHICH SERVICE SHALL BECOME EFFECTIVE THREE (3) BUSINESS DAYS AFTER DEPOSIT IN
THE MAIL AND SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE BUYER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE SELLER IN
ANY OTHER JURISDICTION.
SECTION 8.5 NO IMPLIED WAIVER; CUMULATIVE REMEDIES. No course of
dealing and no delay or failure of the Buyer in exercising any right, power or
privilege under this Agreement shall affect any other or future exercise thereof
or the exercise of any other right, power or privilege; nor shall any single or
partial exercise of any such right, power or privilege or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude any
further exercise thereof or of any other right, power or privilege. The rights
and remedies of the Buyer under this Agreement are cumulative and not exclusive
of any rights or remedies which the Buyer would otherwise have.
18
<PAGE>
SECTION 8.6 NO DISCHARGE. The obligations of the Seller under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, discharged or in any way
affected by (a) any exercise or nonexercise of any right, remedy, power or
privilege under or in respect of this Agreement or applicable Law, including,
without limitation, any failure to set-off or release in whole or in part by the
Buyer of any balance of any deposit account or credit on its books in favor of
the Buyer or any waiver, consent, extension, indulgence or other action or
inaction in respect of any thereof, or (b) any other act or thing or omission or
delay to do any other act or thing which would operate as a discharge of the
Buyer as a matter of law.
SECTION 8.7 PRIOR UNDERSTANDINGS. This Agreement sets forth the entire
understanding of the parties relating to the subject matter hereof and thereof,
and supersede all prior understandings and agreements, whether written or oral
with respect to the subject matter hereof and thereof.
SECTION 8.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on
the parties hereto and their respective successors and assigns; provided,
however, that the Seller may not assign any of its rights or delegate any of its
duties hereunder without the prior written consent of the Buyer. No provision
of this Agreement shall in any manner restrict the ability of the Buyer to
assign, participate, grant security interests in, or otherwise transfer any
portion of the Historical Advances owned by the Buyer. The Seller further
agrees that notwithstanding any claim, counterclaim, right of setoff or defense
which it may have against the Buyer due to a breach by the Buyer of this
Agreement or for any other reason, and notwithstanding the bankruptcy of the
Buyer or any other event whatsoever, the Seller's sole remedy shall be a claim
against the Buyer for money damages, and in no event shall the Seller assert any
claim on or any interest in the Historical Advances or take any action which
would reduce or delay receipt of collections with respect to the Historical
Advances.
SECTION 8.09 SEVERABILITY; COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different 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
Agreement. Any provisions of this Agreement which are prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable any other provision in
such jurisdiction or such provision in any other jurisdiction.
SECTION 8.10 EXPENSES. Seller shall pay Buyer's costs and expenses
reasonably incurred in connection with Buyer's negotiation, preparation,
execution and delivery of this Agreement, including the fees and out-of-pocket
expenses of Buyer's counsel, and Buyer's costs and expenses incurred in seeking
enforcement of any of Seller's obligations hereunder.
19
<PAGE>
[Signature Page Follows]
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above set forth.
AAMES CAPITAL CORPORATION,
as Seller
By: ___________________________
Name:
Title:
STEAMBOAT FINANCIAL PARTNERSHIP I, L.P.
as Buyer
By: RANDOM PROPERTIES ACQUISITION
CORP. IV
its general partner
By: ___________________________
Name: James Esposito
Title: Senior Vice President
HISTORICAL ADVANCE PURCHASE AGREEMENT
21
<PAGE>
EXHIBIT A
SCHEDULE OF LITIGATION
None
A-1
<PAGE>
EXHIBIT B
SCHEDULE OF LOCATION OF RECORDS
Seller: 350 South Grand Avenue
Los Angeles, CA 90071
B-1
<PAGE>
EXHIBIT C
SCHEDULE OF CORPORATE NAMES,
TRADE NAMES OR ASSUMED NAMES AND SUBSIDIARIES
Corporate Name: Aames Capital Corp.
Trade Names: Aames Home Loan
Assumed Names: None
Subsidiaries: None
C-1
<PAGE>
EXHIBIT D
LIST OF RESPONSIBLE OFFICERS
Responsible Officers of Seller: A. Jay Meyerson
David K. Sklar
Jon D. Van Deuren
Steven Naberhaus
Fred Mahintorabi
John Madden
Responsible Officers of Buyer: Robert J. McGinnis
Joseph Walsh III
Kevin Piccoli
Michael Florio
Peter Sanchez
D-1
<PAGE>
SCHEDULE 1
SCHEDULE OF HISTORICAL ADVANCES
(As of the Cut-off Date)
S1-1
<PAGE>
SCHEDULE 2
SCHEDULED POOLING AND SERVICING AGREEMENTS
<TABLE>
<CAPTION>
Series Effective Date Parties
<S> <C> <C>
- --------------------------------------------------------------------------
Series 1992-2 12/10/92 Aames Home Loan as Seller &
Servicer
Bankers Trust Company of
California, N.A. as Trustee
- --------------------------------------------------------------------------
Series 1993-A 12/1/93 Aames Capital Corporation as
Seller & Servicer
Bankers Trust Company of
California, N.A. as Trustee
- --------------------------------------------------------------------------
Series 1994-A 3/1/94 same as above
- --------------------------------------------------------------------------
Series 1994-B 6/1/94 same as above
- --------------------------------------------------------------------------
Series 1994-C 9/1/94 same as above
- --------------------------------------------------------------------------
Series 1994-D 12/1/94 same as above
- --------------------------------------------------------------------------
Series 1995-A 3/1/95 same as above
- --------------------------------------------------------------------------
Series 1995-B 5/12/95 same as above
- --------------------------------------------------------------------------
Series 1995-C 9/1/95 same as above
- --------------------------------------------------------------------------
Series 1995-D 12/1/95 same as above
- --------------------------------------------------------------------------
Series 1996-A 3/1/96 same as above
- --------------------------------------------------------------------------
Series 1996-B 6/1/96 same as above
- --------------------------------------------------------------------------
Series 1996-C 9/1/96 same as above
- --------------------------------------------------------------------------
Series 1997-A 3/1/97 same as above
- --------------------------------------------------------------------------
Series 1997-B 6/1/97 same as above
Amendment #1 11/1/98 same as above
- --------------------------------------------------------------------------
Series 1997-C 9/1/97 same as above
Amendment #1 11/1/98 same as above
- --------------------------------------------------------------------------
Series 1997-D 12/1/97 same as above
Amendment #1 12/1/97 same as above
- --------------------------------------------------------------------------
Series 1998-A 3/1/98 same as above
Amendment #1 11/1/98 same as above
- --------------------------------------------------------------------------
</TABLE>
S2-1
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------
Series 1998-B 6/1/98 Aames Capital Acceptance Corp.
as Transferor
Ames Capital Corporation as
Servicer
Bankers Trust Company of
California, N.A. as Trustee
Amendment #1 11/1/98 same as above
- --------------------------------------------------------------------------
Series 1998-C 9/1/98 Aames Capital Corporation as
Seller & Servicer
Bankers Trust Company of
California, N.A. as Trustee
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
S2-2
<PAGE>
AMENDMENT NO. 2
TO THE MASTER LOAN AND SECURITY AGREEMENT
Amendment No. 2, dated as of April 4, 2000 (this "AMENDMENT"), to
the Master Loan and Security Agreement, dated as of October 29, 1999 (as
previously amended, supplemented or otherwise modified, the "EXISTING LOAN
AGREEMENT", and as amended hereby, the "LOAN AGREEMENT"), between AAMES CAPITAL
CORPORATION (the "BORROWER"), and MORGAN STANLEY DEAN WITTER MORTGAGE CAPITAL
INC., formerly MORGAN STANLEY MORTGAGE CAPITAL INC. (the "LENDER").
RECITALS
The Borrower and the Lender are parties to the Existing Loan
Agreement. Capitalized terms used but not otherwise defined herein shall have
the meanings given to them in the Existing Loan Agreement.
The Borrower and the Lender have agreed, subject to the terms and
conditions of this Amendment, that the Existing Loan Agreement be amended to
reflect certain agreed upon revisions to the terms of the Existing Loan
Agreement relating to the "Applicable Collateral Percentage".
Accordingly, the Borrower and the Lender hereby agree, in
consideration of the mutual premises and mutual obligations set forth herein,
that the Existing Loan Agreement is hereby amended as follows:
SECTION 1. AMENDMENTS.
(a) The definition of "APPLICABLE COLLATERAL PERCENTAGE"
contained in Section 1.01 of the Existing Loan Agreement is hereby
amended by adding the following new sentence at the end thereof:
"Notwithstanding the foregoing, (a) at any time when the
aggregate principal amount outstanding of all Loans made hereunder
shall be greater than or equal to $100,000,000 but less than
$150,000,000, the Applicable Collateral Percentage shall be 96%
with respect to (i) each First Lien Loan that is a Performing Loan
and has been included in the Borrowing Base for 120 days or less
and (ii) each Second Lien Loan that is a Performing Loan and has
been included in the Borrowing Base for 120 days or less and (b)
at any time when the aggregate principal amount outstanding of all
Loans made hereunder shall be greater than or equal to
$150,000,000, the Applicable Collateral Percentage shall be 97%
with respect to (i) each First Lien Loan that is a Performing Loan
and has been included in the Borrowing Base for 120 days or less
and (ii) each Second Lien Loan that is a Performing Loan and has
been included in the Borrowing Base for 120 days or less."
<PAGE>
(b) The definition of "APPLICABLE MARGIN" contained in
Section 1.01 of the Existing Loan Agreement is hereby amended by adding
the following new sentence at the end thereof:
"Notwithstanding the foregoing, at any time when the
aggregate principal amount outstanding of all Loans made hereunder
shall be greater than or equal to $150,000,000, the Applicable
Margin shall be 1.15% with respect to (i) each First Lien Loan
that is a Performing Loan and has been included in the Borrowing
Base for 120 days or less and (ii) each Second Lien Loan that is a
Performing Loan and has been included in the Borrowing Base for
120 days or less."
(c) The definition of "COLLATERAL VALUE" contained in
Section 1.01 of the Existing Loan Agreement is hereby amended by deleting
clause (b) thereof in its entirety and substituting in lieu thereof the
following new clause (b):
"(b) either (i) except as set forth in clause (ii) below,
98% of the outstanding principal balance of such Eligible Mortgage
Loan or (ii) at any time when the aggregate principal amount
outstanding of all Loans made hereunder shall be greater than or
equal to $150,000,000, 100% of the outstanding principal balance
of such Eligible Mortgage Loan, solely in the case of (A) any
Eligible Mortgage Loan which is a First Lien Loan that is a
Performing Loan and has been included in the Borrowing Base for
120 days or less and (B) any Eligible Mortgage Loan which is a
Second Lien Loan that is a Performing Loan and has been included
in the Borrowing Base for 120 days or less."
SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become
effective on the date (the "AMENDMENT EFFECTIVE DATE") on which the following
conditions precedent shall have been satisfied:
2.1 DELIVERED DOCUMENTS. On the Amendment Effective Date, the
Lender shall have received the following documents, each of which shall be
satisfactory to the Lender in form and substance:
(a) AMENDMENT. This Amendment, executed and delivered
by a duly authorized officer of the Borrower and the Lender; and
(b) OTHER DOCUMENTS. Such other documents as the Lender
or counsel to the Lender may reasonably request.
2.2 NO DEFAULT. On the Amendment Effective Date, (i) the
Borrower shall be in compliance with all the terms and provisions set forth in
the Existing Loan Agreement on its part to be observed or performed, (ii) the
representations and warranties made and restated by the Borrower pursuant to
Section 3 of this Amendment shall be true and complete on and as of such date
with the same force and effect as if made on and as of such date, and (iii) no
Default shall have occurred and be continuing on such date.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lender that it is in compliance with all the
terms and provisions set forth in
<PAGE>
the Loan Documents on its part to be observed or performed, and that no
Default has occurred or is continuing, and hereby confirms and reaffirms the
representations and warranties contained in Section 6 of the Loan Agreement.
SECTION 4. LIMITED EFFECT. Except as expressly amended and
modified by this Amendment, the Existing Loan Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms;
PROVIDED, HOWEVER, that reference therein and herein to the "Loan Documents"
shall be deemed to include, in any event, (i) the Existing Loan Agreement, (ii)
this Amendment, (iii) the Note and (iv) the Custodial Agreement. Each reference
to the Loan Agreement in any of the Loan Documents shall be deemed to be a
reference to the Loan Agreement as amended hereby.
SECTION 5. COUNTERPARTS. This Amendment may be executed by
each of the parties hereto on any number of separate counterparts, each of which
shall be an original and all of which taken together shall constitute one and
the same instrument.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO THE CHOICE OF LAW PROVISIONS THEREOF.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered as of the day and year first above written.
BORROWER
AAMES CAPITAL CORPORATION
By ________________________________
Name:
Title:
LENDER
MORGAN STANLEY DEAN WITTER
MORTGAGE CAPITAL INC.
(FORMERLY MORGAN STANLEY
MORTGAGE CAPITAL INC.)
By ________________________________
Name:
Title:
<PAGE>
EXHIBIT 11
AAMES FINANCIAL CORPORATION
LOSS PER SHARE
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
BASIC LOSS PER COMMON SHARE:
Net loss........................... $(61,465,000) (35,979,000) (108,370,000) (233,880,000)
Less: Accrued preferred
dividends........................ (2,166,000) (691,000) (5,746,000) (691,000)
------------ ------------ ------------- -------------
Net loss available to common
stockholders:.................... $(63,631,000) (36,670,000) (114,116,000) (234,571,000)
Average common shares
outstanding...................... 6,210,000 6,201,000 6,209,000 6,199,000
------------ ------------ ------------- -------------
Basic loss per common share........ $ (10.25) (5.91) (18.38) (37.84)
============ ============ ============= =============
DILUTED LOSS PER COMMON SHARE:
Net loss for calculating diluted
loss per common share............ $(63,631,000) (36,670,000) (114,116,000) (234,571,000)
Adjust net loss to add back the
after-tax amount of interest
recognized in the period
associated with the convertible
subordinated notes............... -- -- -- --
------------ ------------ ------------- -------------
Adjusted diluted net loss.......... $(63,631,000) (36,670,000) (114,116,000) (234,571,000)
------------ ------------ ------------- -------------
Average common shares
outstanding...................... 6,210,000 6,201,000 6,209,000 6,199,000
Add exercise of options and
warrants......................... -- -- -- --
Convertible subordinated notes..... -- -- -- --
------------ ------------ ------------- -------------
Diluted shares outstanding......... 6,210,000 6,201,000 6,209,000 6,199,000
------------ ------------ ------------- -------------
Diluted loss per common share...... $ (10.25) (5.91) (18.38) (37.84)
============ ============ ============= =============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> JUN-30-2000
<CASH> 19,396,000
<SECURITIES> 0
<RECEIVABLES> 374,548,000
<ALLOWANCES> 2,000,000
<INVENTORY> 383,282,000
<CURRENT-ASSETS> 775,226,000
<PP&E> 29,538,000
<DEPRECIATION> 19,303,000
<TOTAL-ASSETS> 785,461,000
<CURRENT-LIABILITIES> 453,495,000
<BONDS> 275,470,000
0
47,000
<COMMON> 6,000
<OTHER-SE> 56,443,000
<TOTAL-LIABILITY-AND-EQUITY> 785,461,000
<SALES> 71,862,000
<TOTAL-REVENUES> 71,862,000
<CGS> 21,420,000
<TOTAL-COSTS> 21,420,000
<OTHER-EXPENSES> 116,910,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,444,000
<INCOME-PRETAX> (105,912,000)
<INCOME-TAX> 2,458,000
<INCOME-CONTINUING> (108,370,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (18.38)<F1>
<EPS-DILUTED> (18.38)<F1>
<FN>
<F1>EPS reflect 1 for 5 reverse stock split (effective April 2000)
</FN>
</TABLE>
