-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PcPVCkWLbFJcrxifZf6y7GZFJtwnld6f53maV7O3OjXEYUwQj2S5jZFas+CBHuma t8SEoVN8Ny8RHjmYp2tzEQ== 0001011438-96-000010.txt : 19960724 0001011438-96-000010.hdr.sgml : 19960724 ACCESSION NUMBER: 0001011438-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960703 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AAMES FINANCIAL CORP/DE CENTRAL INDEX KEY: 0000879957 STANDARD INDUSTRIAL CLASSIFICATION: 6163 IRS NUMBER: 954340340 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13660 FILM NUMBER: 96590842 BUSINESS ADDRESS: STREET 1: 3731 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90010 BUSINESS PHONE: 2133516100 MAIL ADDRESS: STREET 1: 3731 WILSHIRE BLVD 10TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90010 10-Q 1 FORM 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) ------ of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 or Transition Report Pursuant to Section 13 or 15(d) ------ of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission File Number 0-19604 ------- AAMES FINANCIAL CORPORATION (Exact name of Registrant as specified in its charter) Delaware 95-4340340 ________ ___________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3731 WILSHIRE BOULEVARD, 10TH FLOOR, LOS ANGELES, CALIFORNIA 90010 ------------------------------------------------------------------ (Address of Registrant's principal executive offices including ZIP Code) (213) 351-6100 ---------------- (Registrant's telephone number including area code) NO CHANGE ---------------------------------------------------- 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 March 31, 1996, Registrant had 8,992,367 shares of common stock outstanding. TABLE OF CONTENTS ITEM PAGE NO. PART I Financial Information 3 - 16 1. Financial Statements 3 - 7 2. Management's Discussion and Analysis of Financial Condition 8 - 16 PART II Other Information 17 6. Exhibits and Reports on Form 8-K 17 Signature Page 18 PART I - FINANCIAL INFORMATION Item 1. Financial Statements AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended March 31, March 31, ------------------------ ------------------------- 1996 1995 1996 1995 Revenue: Excess servicing gain $20,976,000 $6,718,000 $48,889,000 $15,130,000 Commissions 4,214,000 3,579,000 14,430,000 12,645,000 Loan service 5,371,000 2,157,000 13,172,000 5,775,000 Fees and other 2,654,000 1,909,000 7,819,000 5,894,000 ----------- ---------- ----------- ----------- Total revenue 33,215,000 14,363,000 84,310,000 39,444,000 ----------- ---------- ----------- ----------- Expenses: Compensation and related expenses 8,451,000 4,597,000 22,603,000 13,252,000 Sales and advertising costs 4,943,000 2,580,000 12,430,000 6,831,000 General and administrative expense 3,828,000 1,782,000 8,926,000 5,291,000 Interest expense 2,326,000 1,274,000 5,303,000 2,297,000 ----------- ---------- ----------- ----------- Total expenses 19,548,000 10,233,000 49,262,000 27,671,000 ----------- ---------- ----------- ----------- Income before income taxes 13,667,000 4,130,000 35,048,000 11,773,000 Provision for income taxes 5,732,000 1,730,000 14,713,000 4,886,000 ----------- ---------- ----------- ----------- Net income $7,935,000 $2,400,000 $20,335,000 $6,887,000 =========== ========== =========== =========== Net income per share: Primary $0.85 $0.41 $2.19 $1.18 =========== ========== =========== =========== Fully Diluted $0.80 $0.41 $2.15 $1.18 =========== ========== =========== =========== Weighted average number of shares outstanding: Primary 9,359,000 5,878,000 9,294,000 5,829,000 =========== ========== =========== =========== Fully Diluted 10,272,000 5,878,000 9,599,000 5,829,000 =========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements. AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, June 30, 1996 1995 --------- -------- ASSETS Cash and cash equivalents $42,814,000 $20,359,000 Loans held for sale, at cost which approximates market 62,085,000 23,775,000 Accounts receivable, less allowance for doubtful accounts of $425,000 and $360,000 6,077,000 6,090,000 Excess servicing receivable 95,155,000 42,078,000 Mortgage servicing rights 6,899,000 Residual assets 32,613,000 14,882,000 Equipment and improvements, net 4,208,000 2,063,000 Prepaid assets and other 12,828,000 5,376,000 ------------ ------------ Total assets $262,679,000 $114,623,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Amounts outstanding under warehouse agreements $ $ Notes payable and obligations under capital leases 138,071,000 23,144,000 Accounts payable and accrued expenses 7,565,000 6,141,000 Accrued compensation and related expenses 2,953,000 1,703,000 Income taxes payable 14,055,000 3,588,000 ------------ ------------ Total liabilities 162,644,000 34,576,000 ------------ ------------ Stockholders' equity: Preferred Stock, par value $.001 per share, 1,000,000 shares authorized; none outstanding Common Stock, par value $.001 per share 50,000,000 and 10,000,000 shares authorized; 8,992,367, and 8,813,979 shares outstanding 9,000 9,000 Additional paid-in capital 63,534,000 61,869,000 Retained earnings 36,492,000 18,169,000 ------------ ------------ Total stockholders' equity 100,035,000 80,047,000 ------------ ------------ Total liabilities and stockholders' equity $262,679,000 $114,623,000 ============ ============
The accompanying notes are an integral part of these financial statements. AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, -------------------------- 1996 1995 ------------ ----------- Operating activities: Net income $20,335,000 $6,887,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 640,000 430,000 Deferred income taxes 10,938,000 2,555,000 Deferred rent (100,000) (62,000) Loans originated or purchased (571,082,000) (262,665,000) Principal collected and proceeds from sale of mortgage loans 532,772,000 259,372,000 Provision for losses on receivables Excess servicing gain (61,900,000) (21,518,000) Excess servicing amortization 8,823,000 2,932,000 Mortgage servicing rights (7,294,000) Mortgage servicing rights amortization 395,000 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable 78,000 803,000 Prepaid expenses and other (7,452,000) (2,993,000) Residual assets (17,731,000) (6,779,000) (Decrease) increase in: Accounts payable and accrued expenses 1,392,000 (860,000) Accrued compensation and related expenses 1,250,000 348,000 Income taxes payable (471,000) (821,000) ------------ ------------ Net cash used in operating activities (89,407,000) (22,371,000) ------------ ------------ Investing activities: Purchases of property and equipment (2,715,000) (736,000) ------------ ------------ Net cash used in investing activities (2,715,000) (736,000) ------------ ------------ Financing activities: Proceeds from sale of stock or exercise of options 1,665,000 18,000 Proceeds from borrowing 115,000,000 20,500,000 Amounts outstanding under warehouse agreements (4,358,000) Dividends paid (2,015,000) (1,306,000) Payments on bank notes and long term debt (73,000) (309,000) ------------ ------------ Net cash provided by financing activities 114,577,000 14,545,000 ------------ ------------ Net (decrease) increase in cash 22,455,000 (8,562,000) Cash and cash equivalents at beginning of period 20,359,000 16,513,000 ------------ ------------ Cash and cash equivalents at end of period $42,814,000 $7,951,000 ============ ============
The accompanying notes are an integral part of these financial statements. AAMES FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION - - ------------------------------ The 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 consolidated financial statements include the accounts of Aames Financial Corporation 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, 1996 are not necessarily indicative of the results expected for the full fiscal year. NOTE 2: IMPLEMENTATION OF NEW ACCOUNTING STANDARD - - -------------------------------------------------- In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing Rights," which amends SFAS No. 65. The Company elected to adopt SFAS No. 122 for fiscal year 1996, including an adjustment of $933,000 or $0.10 per share to its originally reported earnings for its first fiscal quarter. SFAS No. 122 prohibits retroactive application to fiscal years prior to adoption. Accordingly, certain information appearing in the Company's financial statements for fiscal 1995 and before are based on the prior standard and such results are not directly comparable to the results for fiscal 1996 with respect to the specific items covered by SFAS No. 65 as amended by SFAS No. 122. The effect of adopting SFAS No. 122 was to increase the net income of the Company as reported in the Company's financial statements for the three and nine months ended March 31, 1996 by $1.4 million or $0.14 per weighted average share and $3.6 million or $0.37 per weighted average share, respectively, each on a fully diluted basis. SFAS No. 122 amends SFAS No. 65 by requiring mortgage banking enterprises, such as the Company, to recognize mortgage servicing rights ("MSR's") as assets separate from the mortgage loans to which the MSR's relate. Under SFAS No. 65, the Company had allocated the entire cost of originating or purchasing a mortgage loan to the carrying value of such mortgage loan. SFAS No. 122 requires the Company to allocate the total cost of originating or purchasing a mortgage loan between the mortgage loan asset and the related MSR asset based on their respective fair values. To the extent that a portion of the total cost of originating or purchasing mortgage loans has been allocated to the MSR's related to such loans, relatively greater gains were recognized on the securitization and sale of mortgage loans because of the reduction of the Company's basis in such loans as a result of such allocations. However, the Company's basis in the MSR's is amortized over the lives of the loans to which the MSR's relate, reducing servicing income in future periods. AAMES FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2: IMPLEMENTATION OF NEW ACCOUNTING STANDARD (continued) To determine the fair value of MSR's, the Company estimates the expected future net servicing revenue based on common industry assumptions (since market prices for MSR's under comparable servicing sales contracts are not available to the Company), as well as on the Company's historical experience. In determining servicing value impairment at March 31, 1996, the mortgage loans in the Company's servicing portfolio related to the capitalized MSR's were segregated by their predominant risk factors. The Company has determined those risk factors to be loan type (fixed or adjustable), investor type and date of origination. Such loans were then valued, using the same model as was used originally to determine their fair value at the date of their origination or purchase, using current assumptions. The calculated value was then compared to the book value to determine if a reserve for impairment was required. The Company determined that no reserve for impairment was required as of March 31, 1996. AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995 GENERAL The results of operations for the three and nine months ended March 31, 1996 reflect the substantial growth of the Company's purchased loan programs and the expansion of its retail loan office network. During fiscal 1994 the Company implemented its first purchased loan program under which it purchases closed mortgage loans on a flow basis from qualified mortgage banking correspondents. In October 1995, the Company initiated a second purchased loan program under which it purchases closed mortgage loans which are offered in the secondary market on a bulk basis. The amount of loans purchased by the Company from unaffiliated originators ("PURCHASED LOANS") under its purchased loan programs has grown substantially from $19.7 million in fiscal 1994, to $60.5 million and $130 million for the three and nine months ended March 31, 1995, respectively, and to $171 million and $388 million for the three and nine months ended March 31, 1996, respectively. The growth of these purchased loan programs has contributed significantly to the Company's increased revenue and earnings. The Company opened its first retail loan office outside California in Nevada in August 1993 and currently operates 20 loan offices in Arizona, Colorado, Florida, Illinois, Indiana, Michigan, Minnesota, Nevada, Ohio, Oregon, Pennsylvania, Utah and Washington. The Company's goal is to accelerate the pace of its nationwide expansion by opening an additional 10 to 13 retail loan offices during the remainder of calendar 1996 in five to seven new states. The Company selects areas for retail loan office expansion pursuant to certain demographic statistics and other criteria developed by the Company which are intended to identify the most attractive markets for the Company's products. The Company also regularly reviews the performance of its existing loan offices to determine their continued profitability. For the three and nine months ended March 31, 1996, the Company's total revenue increased to $33.2 million and $84.3 million, up 131% and 114%, respectively, when compared to the corresponding periods in the prior year. In addition, the Company's total expenses as a percentage of total revenue declined. As a result, the Company's net income increased 231% and 195%, respectively, for the three and nine months ended March 31, 1996, when compared to the corresponding periods in the prior year. AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995 (continued) REVENUE The following table sets forth information regarding the components of the Company's revenue for the three and nine months ended March 31, 1996 and 1995: Three Months Ended Nine Months Ended March 31, March 31, ------------------ ----------------- 1996 1995 1996 1995 ---- ---- ---- ---- (In thousands) (In thousands) Excess servicing gain $20,976 $ 6,718 $48,889 $15,130 Commissions 4,214 3,579 14,430 12,645 Loan service: Servicing spread 3,958 1,458 9,382 3,266 Prepayment fees 798 367 2,138 1,423 Late charges and other servicing fees 615 332 1,652 1,086 Fees and other: Closing 515 445 1,731 1,519 Appraisal 274 201 791 737 Underwriting 308 232 1,120 766 Interest income 1,345 741 3,497 1,766 Other 212 290 680 1,106 ------- ------- ------- ------- Total revenue $33,215 $14,363 $84,310 $39,444 ======= ======= ======= ======= Excess servicing gain for the three and nine months ended March 31, 1996 increased to $21.0 million and $48.9 million, up 212% and 223%, respectively, when compared to the corresponding periods in the prior year. These increases were largely the result of more loans having been securitized and sold during the most recent periods. During the three and nine months ended March 31, 1996, the Company securitized and sold in the secondary market $201 million and $488 million of loans, respectively, compared to $91.3 million and $216 million for the corresponding periods in the prior year. The increases in the amount of loans securitized and sold in the secondary market were attributable to the Company's purchase of $171 million and $388 million of Purchased Loans during the three and nine months ended March 31, 1996, respectively, as well as to a greater volume of mortgage loans originated through the Company's retail loan office network ("RETAIL LOANS") in these periods. The weighted average servicing spread on all loans securitized and sold by the Company during the three and nine months ended March 31, 1996 was 5.08% and 4.91%, respectively, compared to 4.0% and 3.39%, respectively, for the corresponding periods in the prior year. The improvement in weighted average servicing spread resulted from a more favorable interest rate environment at the time the Company completed its most recent securitizations. AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995 (continued) Commissions for the three and nine months ended March 31, 1996 increased to $4.2 million and $14.4 million, up 18% and 14%, respectively, when compared to the corresponding periods in the prior year. Commission revenue is primarily a function of the volume of Retail Loan originations and sales and the weighted average commission rate charged on such loans. Retail Loan originations for the three and nine months ended March 31, 1996 totaled $48.3 million and $149 million, up 60% and 37%, respectively, from $30.2 million and $109 million for the corresponding periods in the prior year. During the three and nine months ended March 31, 1996, the weighted average commission rates charged on Retail Loans decreased from 9.82% to 7.06% and 9.0% to 8.27%, respectively, when compared to the same periods in the prior year. The decrease in the weighted average commission rate was due to competitive pressures in the industry and the Company's expansion into states where market conditions dictate lower commission rates. The increase in volume of Retail Loan originations for the three and nine months ended March 31, 1996 was primarily attributable to the success of the Company's newer retail loan offices. Commissions for the three months ended March 31, 1996 include $851,000 of commissions related to Retail Loans originated before, but sold during, the three months ended March 31, 1996, and do not include $784,000 of commissions related to Retail Loans originated during the three months ended, and held for sale at, March 31, 1996. The Company also originates mortgage loans through its retail loan office network which generally neither meet the criteria for inclusion in the Company's securitization program nor are well suited for sale to private investors ("BROKERED LOANS"). Commissions on and the volume of Brokered Loans are significantly lower than those for Retail Loans and therefore did not have a material impact on the financial results of the Company over these periods. Loan service revenue for the three and nine months ended March 31, 1996 increased to $5.4 million and $13.2 million, up 149% and 128%, respectively, from the corresponding periods in the prior year. Loan service revenue consists of net servicing spread earned on the principal balances of the loans in the Company's loan servicing portfolio (i.e., the cash received by the Company in the form of retained servicing spread (including the normal servicing fee) less the amortization of the excess servicing receivable and mortgage servicing rights related to SFAS No. 122), in addition to prepayment fees, late charges and other fees retained by the Company in connection with the servicing of loans. The increase in loan service revenue was due primarily to the greater size of the portfolio of loans serviced. The Company's loan servicing portfolio increased to $1.0 billion at March 31, 1996, up 92% from the March 31, 1995 balance. AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995 (continued) The following table sets forth delinquency and foreclosure experience of Retail Loans and Purchased Loans included in the Company's servicing portfolio for the periods indicated. Nine Months Ended Year Ended March 31, June 30, ------------------- ---------------- 1996 1995 1995 1994 Dollar amount of delinquent loans to loans serviced (period end) (1)(2)(3) 1 Month 4.87% 4.60% 3.88% 3.78% 2 Months 1.80% 1.90% 1.56% 1.61% 3 + Months Not foreclosed (4) 8.11% 5.20% 5.00% 6.71% Foreclosed (5) 0.90% 1.90% 1.47% 3.58% Dollar amount of loans foreclosed to loans serviced (period end)(2)(3) 0.42% 1.40% 1.08% 3.02% Number of loans foreclosed 102 117 159 215 Principal amount at time of foreclosure of foreclosured loans(3) (in thousands) $ 4,157 $ 4,858 $ 6,565 $11,528 (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 originated or purchased by the Company and serviced as of the end of the periods indicated. The total outstanding principal balance of such loans serviced by the Company as of the end of any indicated period includes many loans that will not have been outstanding long enough to give rise to some or all of the indicated periods of delinquency (3) Does not include loans for which only the servicing rights were purchased by the Company. (4) Loans for which foreclosure proceedings have not concluded. (5) Properties acquired following a foreclosure sale and still serviced by the Company at period end. For the quarter ended March 31, 1996, losses on mortgage loans securitized and sold by the Company amounted to 0.056% on an annualized basis. From the inception of the Company's securitization program through March 31, 1996, losses on mortgage loans securitized and sold by the Company have totaled $692,000. The Company has securitized and sold in the secondary market $52.5 million of loans in fiscal 1993, $107 million in fiscal 1994, $317 million in fiscal 1995 and $488 million during the nine months ended March 31, 1996. Although the significant growth in the Company's securitization program may result in increased losses, management believes that adequate reserves for such losses have been established. (See LIQUIDITY AND CAPITAL RESOURCES below.) AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995 (continued) Fees and other revenue for the three and nine months ended March 31, 1996 increased to $2.7 million and $7.8 million, up 39% and 33%, respectively, from the corresponding periods in the prior year. Fees and other revenue consist primarily of fees received by the Company in the form of closing, appraisal and underwriting fees, plus interest income. Interest income increased due to interest earned on a larger aggregate amount of loans held by the Company during the period from the origination or purchase of the loans until their securitization and sale. EXPENSES The following table sets forth the components of the Company's expenses for the three and nine months ended March 31, 1996 and 1995: Three Months Ended Nine Months Ended March 31, March 31, ------------------ ----------------- 1996 1995 1996 1995 ---- ---- ---- ---- (In thousands) (In thousands) Compensation and related expenses $ 8,451 $ 4,597 $22,603 $13,252 Sales and advertising costs 4,943 2,580 12,430 6,831 General and administrative expenses 3,828 1,782 8,926 5,291 Interest expense 2,326 1,274 5,303 2,297 --------- --------- --------- --------- Total expenses $19,548 $10,233 $49,262 $27,671 ========= ========= ========= ========= As a result of the Company's rapid growth, total expenses for the three and nine months ended March 31, 1996 increased to $19.5 million and $49.3 million, up 91% and 78%, respectively, when compared to the corresponding periods in the prior year. However, total expenses as a percentage of total revenue decreased to 59% and 58% for the three and nine months ended March 31, 1996, down from 71% and 70%, respectively, for the comparable periods last year. Compensation and related expenses for the three and nine months ended March 31, 1996 increased to $8.5 million and $22.6 million, up 84% and 71%, respectively, when compared to the corresponding periods in the prior year. These increases were the result of the addition of new personnel and increased commissions and bonuses paid to certain employees. Compensation and related expenses for the three months ended March 31, 1996 include $693,000 of deferred compensation related to loans originated but not sold in the previous quarter and do not include $674,000 of deferred compensation related to loans originated during the three months ended, and held for sale at, March 31, 1996. AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995 (continued) Sales and advertising costs for the three and nine months ended March 31, 1996 increased to $4.9 million and $12.4 million, up 92% and 82%, respectively, when compared to the corresponding periods in the prior year. The increased advertising was due primarily to the Company's expansion in a number of states. General and administrative costs for the three and nine months ended March 31, 1996 increased to $3.8 and $8.9 million, up 115% and 69%, respectively, when compared to the corresponding periods in the prior year. These increases resulted primarily from start-up expenses related to the expansion of the Company's retail loan office network, as well as increased professional and insurance expenses. Because of growth and the addition of new personnel and management's expectation of continued Company expansion, a decision was made, subsequent to the close of the quarter, to relocate the corporate headquarters office in the second half of fiscal 1997. As a result, general and administrative expenses in the fourth quarter of fiscal 1996 will increase because of a one-time charge-off for abandonment of the remaining term of the Company's existing headquarters lease. Management does not expect such amount to exceed $2.0 million. Also as a result of its nationwide expansion, the Company entered into an airplane lease during the quarter which will result in an increase in general and administrative expenses not to exceed $550,000 in each quarter throughout the term of the lease. Interest expense for the three and nine months ended March 31, 1996 increased to $2.3 million and $5.3 million, up 83% and 131%, respectively, when compared to the corresponding periods in the prior year. These increases were due to interest paid on $115 million aggregate principal amount of the Company's 5.5% Convertible Subordinated Debentures due 2006 issued in February 1996 and on $23.0 million aggregate principal amount of the Company's 10.5% Senior Notes due 2002 issued in March 1995. Interest expense also increased as a result of increased borrowings under warehouse credit facilities used to fund the origination and purchase of loans prior to their securitization and sale in the secondary MARKET. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES The Company's operations require continued access to short-term and long- term sources of cash. The Company's operating cash requirements include the funding of (i) loan originations and purchases prior to their securitization and sale, (ii) over-collateralization amounts in connection with the securitization and sale of loans, (iii) tax payments due on the recognition of excess servicing gain, (iv) fees and expenses incurred in connection with the securitization and sale of loans and (v) ongoing administrative and other operating expenses. Adequate credit facilities and other sources of fundings, including the ability of the Company to sell loans in the secondary market, are essential to the continuation of the Company's ability to originate and purchase loans. During the nine months ended March 31, 1996 and 1995, the Company used cash in the AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (continued) approximate amounts of $571 million and $263 million, respectively, for loan originations and purchases. During the nine months ended March 31, 1996 and 1995, the Company received cash from the proceeds of the securitization and sale of loans and principal collected on loans of $533 million and $259 million, respectively. After utilizing available working capital, the Company borrows money under its warehouse credit facilities to fund its loan originations and purchases, then repays such borrowings as loans are securitized and sold. Upon the securitization and sale of loans and the subsequent repayment of short-term borrowings, the Company's warehouse credit facilities then become available to fund additional loan originations and purchases. The Company has a $100 million warehouse line of credit provided by an investment banking firm. This facility, which is secured by certain loans originated or purchased by the Company, bears interest at the rate of 0.875% over one-month LIBOR, is subject to periodic renewal by the lender and currently expires on June 14, 1996. In addition, the Company has a $100 million committed warehouse facility funded by a syndicate of six commercial banks. This facility is secured by certain loans originated or purchased by the Company, currently bears interest at the rate of 0.875% over one-month LIBOR and is renewable annually. The current commitment expires on December 26, 1996. Management expects, although there can be no assurance, that these facilities will continue to be available in the future. As indicated above, the Company's ability to continue to originate and purchase loans is dependent, in part, upon its ability to securitize and sell loans in the secondary market in order to generate cash proceeds for new originations and purchases. The value of and market for the Company's loans are dependent upon a number of factors, including general economic conditions, interest rates and governmental regulations. Adverse changes in such factors may affect the Company's ability to purchase or sell loans for acceptable prices within reasonable periods of time. A prolonged, substantial reduction in the size of the secondary market for loans of the types originated and purchased by the Company may adversely affect the Company's ability to securitize and sell loans with a consequent adverse impact on the Company's profitability and ability to fund future originations and purchases. In addition, in order to gain access to the secondary market, the Company has relied on monoline insurance companies to provide financial guarantee insurance on the senior interests in the real estate mortgage investment conduit ("REMIC") trusts established by the Company. The Company has not attempted to structure a pool of loans for securitization and sale in the secondary market based solely on the internal credit enhancements of the pool of loans or the Company's limited credit. Any substantial reduction in the size or availability of the secondary market for the Company's loans or the unwillingness of monoline insurance companies to provide financial guarantee insurance for the senior interests in REMIC trusts could have a material adverse effect on the Company's financial position and results of operations. The form of pooling and servicing agreement for the REMIC trusts generally provides that the monoline insurance company insuring the senior interests in each REMIC may terminate the Company's AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (continued) servicing rights, if among other things, the principal amount of loans included in the REMIC trust which are delinquent for 90 days or more (including properties acquired upon foreclosure and not sold) exceeds 11.5% of the aggregate principal amount of the loans included in such trust. At March 31, 1996, five of the Company's 16 REMIC trusts exceeded the foregoing delinquency standard, although no servicing rights have been terminated. There can be no assurance that delinquency rates with respect to these REMIC trusts will not exceed this standard in the future or, if exceeded, that the Company's servicing rights with respect to the mortgage loans in such trusts would not be terminated. As a result of increasing loan originations and purchases and its growing securitization program, the Company has operated, and expects to continue to operate, on a negative cash flow basis. The Company completed its first securitization transaction in the fourth quarter of fiscal 1992 and has completed a securitization transaction in each of its fiscal quarters since that time. The Company securitized and sold in the secondary market $201 million and $488 million of loans in the three and nine months ended March 31, 1996, respectively, compared to $91.3 million and $216 million in the corresponding periods of the prior year. The Company used $89.4 million and $22.4 million of cash in operations during the nine months ended March 31, 1996 and 1995, respectively. In connection with securitization transactions completed during these periods, the Company was required to provide credit enhancements in the form of over-collateralization amounts. In addition, during the life of the related REMIC trusts, the Company subordinates a portion of the excess servicing spread otherwise due to it to the rights of holders of senior interests as a credit enhancement to support the sale of the senior interests. In connection with the securitizations effected during the three and nine months ended March 31, 1996, the initial over-collateralization amounts were $1.8 million and $3.8 million, respectively. The terms of the REMIC trusts generally require that all excess servicing spread otherwise payable to the Company during the early months of the trusts be used to repay the senior interests in order to increase over- collateralization to specified maximums (or, in the case of certain earlier securitizations, to increase cash reserve accounts). The accumulated amounts of such over-collateralization requirements and cash reserve accounts were $32.6 million at March 31, 1996 and are reflected on the Company's balance sheet as "Residual assets." In addition, the increasing use of securitization transactions as a funding source by the Company has resulted in a significant increase in the amount of excess servicing gain recognized by the Company. During the three and nine months ended March 31, 1996, the Company recognized excess servicing gain in the amount of $21.0 million and $48.9 million, respectively, compared to $6.7 million and $15.1 million for the corresponding periods in the prior year. The recognition of excess servicing gain has a negative impact on the cash flow of the Company since the Company is required to pay federal and state income taxes on excess servicing gain in the period recognized, although the Company does not receive the cash representing the gain until later periods as the related loans are repaid or otherwise collected. The Company has funded these cash requirements primarily from the sale of its equity and debt securities and from bank borrowings. In December 1991 and July 1993, the Company effected public offerings of its common stock with net proceeds to the Company aggregating $21.0 million. In March 1995, the Company completed an offering of its 10.5% Senior Notes due 2002 with net proceeds to the AAMES FINANCIAL CORPORATION ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION (continued) Company of $22.0 million. In June 1995, the Company effected an additional public offering of its common stock with net proceeds to the Company of $40.0 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 million. The Company had cash and cash equivalents of approximately $42.8 million at March 31, 1996. Of this sum, $21.7 million was held in a restricted account in connection with the Company's most recent securitization, which amount was released to the Company in April 1996. Because the Company expects to continue to operate on a negative cash flow basis for the foreseeable future, it anticipates that it will need to effect additional debt or equity financings regularly. The type, timing and terms of financing selected by the Company will be dependent upon the Company's needs and availability of financing sources and prevailing conditions in the financial markets. OUTLOOK Except for the historical information contained herein, the matters discussed herein are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements, including those discussed in the Company's Annual Report on Form 10-K for the year ended June 30, 1995 and under the caption, "Risk Factors," in the Company's Registration Statement (No. 33-91640) filed with the Securities and Exchange Commission. AAMES FINANCIAL CORPORATION OTHER INFORMATION PART II 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 - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.27 Employment Agreement, dated as of January 1, 1997, between the Registrantand Gary K. Judis. 10.28 Employment Agreement, dated as of March 11, 1996, between the Registrant and Cary H. Thompson. 10.29 Indenture, dated as of February 26, 1996, by and between the Registrant and The Chase Manhattan Bank, N.A., as trustee. 10.30 Aircraft Lease Agreement, dated as of March 8, 1996, between C.I.T. Leasing Corporation, as lessor, and Oxford Aviation Corporation, Inc. ("OXFORD"), as lessee. Oxford is a wholly owned subsidiary of the Registrant. 10.31 Corporate Guaranty Agreement, dated as of March 8, 1996, between the Registrant, as guarantor, and C.I.T. Leasing Corporation in connection with Exhibit 10.30. 27.01 Financial Data Schedule (b) Reports on Form 8-K: Current Report on Form 8-K dated January 23, 1996. 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. AAMES FINANCIAL CORPORATION Date: May 15, 1996 By:/s/ Gregory J. Witherspoon -------------------------------- Gregory J. Witherspoon Executive Vice President - Finance and Chief Financial Officer By:/s/ Mark E. Elbaum -------------------------------------- Mark E. Elbaum Senior Vice President - Finance and Principal Accounting Officer EX-10.27 2 EXHIBIT - EMPLOYMENT AGREEMENT FOR GARY K. JUDIS EXHIBIT 10.27 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (this "Agreement") is made and entered into as of November 30, 1995 by and between AAMES FINANCIAL CORPORATION, a Delaware corporation (the "Company'), and Gary K. Judis, an individual ("Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Executive and the Company wish to provide for the terms and conditions of Executive's employment as Chief Executive Officer, President and Chairman of the Board of the Company. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as set forth below. 1. PRIOR EMPLOYMENT AGREEMENT. The Company and Executive are parties to that certain Executive Employment Agreement, dated as of December 22, 1991, (the "Prior Agreement"). Paragraph 3 of the Prior Agreement shall govern the compensation and benefits payable to Executive through December 31, 1996 (the term under the Prior Agreement). Sections 4 and 5 of this Agreement shall become effective on January 1, 1997; PROVIDED, HOWEVER, Sections 4(c), 4(d), 5(f) and 5(g) shall be effective from and after the date hereof. All other sections of this Agreement shall be effective from and after the date hereof. 2. EMPLOYMENT AND DUTIES. The Company hereby employs Executive to serve as Chief Executive Officer, President and Chairman of the Board of the Company, with the powers and duties customarily accorded to such positions, including those powers and duties set forth in the Bylaws of the Company for such office and such other duties consistent therewith as may be assigned to Executive from time to time by the Board of Directors of the Company (the "Board"). Executive shall report to the Board. Executive shall endeavor in good faith to perform his duties in an efficient, faithful and business-like manner. During the term of his employment, it is intended that Executive also serve as a Director on the Board of Directors of the Company (the "Board") and the Company will take action within its powers to include Executive among the slate of directors proposed to be nominated by the Board at any applicable stockholders meeting. 3. TERM. The initial term of this Agreement shall begin on the date hereof and shall expire on June 30, 2001 unless terminated earlier as set forth in Section 7 hereof or by mutual agreement of the parties hereto (the "Initial Term"). At the expiration of the Initial Term and each anniversary thereafter, the term of this Agreement shall automatically be extended for an additional year (the "Extension Term") unless either party shall have given written notice to the other party at least ninety days prior to the end of the Initial Term or the Extension Term, as the case may be, that it does not desire to extend the term of this Agreement. If Executive's employment under this Agreement is extended for an Extension Term, it shall thereafter or during any Extension Term be terminable (other than upon expiration) only as provided in Section 7 or by mutual agreement of the parties hereto. 4. COMPENSATION. (a) BASE SALARY. During the term of this Agreement, Executive shall be paid a base salary (the "Base Salary"), payable in accordance with the Company's normal payroll practices. During the Company's 1997 fiscal year, Executive's Base Salary shall be $850,000. The annual Base Salary payable to Executive shall be reviewed at least annually; PROVIDED, HOWEVER, that Executive's Base Salary shall not be reduced below $850,000 per annum during the term of this Agreement. (b) PERFORMANCE BONUS. Commencing with the Company's 1997 fiscal year, Executive shall be entitled to participate in the Company's performance bonus plan for executive officers. Under such plan, executives of the Company are currently paid on a quarterly basis a performance bonus (the "Performance Bonus") measured by return on average equity during the relevant period. For the last two fiscal quarters of fiscal 1997, Executive shall be entitled to an annual Performance Bonus in the amount of $60,000 (the "Payment Amount") for every percentage point for which return on average equity exceeds 15% for the fiscal year (the "Target ROE"). The Performance Bonus will be paid quarterly based on each quarter's results with an adjustment at the end of the fiscal year based upon the audited financial statements of the Company. The annual Performance Bonus for fiscal 1997 as computed above shall be reduced by one-half for the 1997 fiscal year as a whole, reflecting the effective date of this provision occurring one-half way through the 1997 fiscal year. The computations and payment of the Performance Bonus shall be as provided in the Company's performance bonus plan. The Payment Amount and Target ROE for fiscal years following fiscal 1997 shall be as determined by the Board's compensation committee prior to the commencement of any fiscal year. Notwithstanding anything to the contrary contained hereon, Executive shall be entitled to receive a Performance Bonus in a minimum amount of $100,000 ($50,000 for the last six months of fiscal 1997) during each fiscal year during the term of this Agreement. (c) STOCK BONUS. Executive shall be entitled to continue to receive stock options (the "Options") under the Company's stock option plans with annual awards to be determined by the Compensation Committee of the Board, but in any case in amounts consistent with awards granted prior to the date hereof. (d) TAX BONUS. The Options shall provide for the payment to Executive of a bonus (the "Tax Bonus") equal to an amount that when reduced by any withholding taxes or taxes otherwise payable by Executive with respect to the Tax Bonus will equal the taxes payable by Executive as a result of the recognition of ordinary income on exercise of such options or on the disposition of any underlying share. Notwithstanding the foregoing, in no event shall the Tax Bonus exceed the net tax savings recognized by the Company as a result of the exercise of the Option, the disposition of the underlying shares and the payment of the Tax Bonus. In the event the Company does not realize a tax savings in the year of exercise as a result of a tax loss or the benefit of a net operating loss, the maximum amount of the Tax Bonus shall be computed by multiplying the aggregate expense recognized by the Company as a result of the exercise of the option, the disposition of the underlying shares and the payment of the Tax Bonus by the highest applicable corporate tax rate for federal tax purposes. 5. OTHER EXECUTIVE BENEFITS. During the term of this Agreement, the Company shall provide to Executive benefits commensurate with his position, including each of the following benefits: (a) MEDICAL AND DENTAL COVERAGE. During the term hereof, the Company shall pay all medical and dental expenses incurred by Executive on behalf of Executive and his immediate family, regardless of whether such expenses are in excess of those converted under any medical or dental plans maintained b the Company. (b) VACATION. Executive shall be entitled to five (5) weeks during each year of employment with the Company thereafter for the term of this Agreement. (c) BUSINESS EXPENSES. The Company will pay or reimburse Executive for any out-of-pocket expenses incurred by Executive in the course of providing his services hereunder, which comply with the Company's travel and expense policies adopted from time to time by the Board for the executive officers. In the case of out-of-town travel, Executive shall be entitled to be reimbursed for first class air fare, transfers, accommodations and restaurants for himself and his spouse when she accompanies him. Such reimbursement shall be made by the Company in the same manner and within the same time period as applicable to the other executive officers of the Company. (d) AUTOMOBILE. The Company shall provide Executive with the use of a luxury automobile of his choice. On the earlier of significant damage or destruction or attaining two years of age, the Company shall replace such automobile with a new automobile selected by Executive. The Company shall pay all costs of insurance, repair, maintenance and operation of such automobile. (e) BENEFIT PLANS. Executive shall be entitled to participate in any pension, profit-sharing, stock option, stock purchase or other benefit plan of the Company now existing or hereafter adopted for the benefit of employees generally or the senior executives of the Company. (f) LIFE INSURANCE. Provided the following policies may be obtained at a reasonable cost, the Company shall provide Executive with a $1,000,000 standard term life insurance policy and a $1,000,000 standard term accidental death policy. (g) DISABILITY. Provided the following policy may be obtained at a reasonable cost, the Company shall provide Executive with a long-term disability policy which provides for an annual disability payment in an amount equal to 125% of Executive's Base Salary. 6. CONFIDENTIAL INFORMATION. (a) NON-DISCLOSURE. Executive hereby agrees, during the term of this Agreement, he will not disclose to any person or otherwise use or exploit any proprietary or confidential information, including, without limitation, trade secrets, processes, records of research, proposals, reports, methods, processes, techniques, computer software or programming, or budgets or other financial information, regarding the Company, its business, properties, customers or affairs (collectively, "Confidential Information") obtained by him at any time during the term, except to the extent required by Executive's performance of assigned duties for the Company. Notwithstanding anything herein to the contrary, the term "Confidential Information" shall not include information which (i) is or becomes generally available to the public other than as a result of disclosure by Executive in violation of this Agreement, (ii) is or becomes available to Executive on a non-confidential basis from a source other than the Company, provided that such source is not known by Executive to be furnishing such information in violation of a confidentiality agreement with or other obligation of secrecy to the Company, (iii) has been made available, or is made available, on an unrestricted basis to a third party by the Company, by an individual authorized to do so or (iv) is known by Executive prior to its disclosure to Executive. Executive may use and disclose Confidential Information to the extent necessary to assert any right or defend against any claim arising under this Agreement or pertaining to Confidential Information or its use, to the extent necessary to comply with any applicable statute, constitution, treaty, rule, regulation, ordinance or order, whether of the United States, any state thereof, or any other jurisdiction applicable to Executive, or if Executive receives a request to disclose all or any part of the information contained in the Confidential Information under the terms of a subpoena, order, civil investigative demand or similar process issued by a court of competent jurisdiction or by a governmental body or agency, whether of the United States or any state thereof, or any other jurisdiction applicable to Executive. (b) INJUNCTIVE RELIEF. Executive agrees that the remedy at law for any breach by him of the covenants and agreements set forth in this Section 5 may be inadequate and that in the event of any such breach, the Company may, in addition to the other remedies that may be available to it at law, seek injunctive relief prohibiting him (together with all those persons associated with him) from the breach of such covenants and agreements. 7. TERMINATION. (a) TERMINATION BY COMPANY FOR "CAUSE" OR VOLUNTARILY BY EXECUTIVE. The Company may terminate this Agreement for "Cause" effective immediately upon written notice thereof to Executive. For purposes of this Agreement, "Cause" shall mean and be limited to the following events: (i) an act of fraud, embezzlement or similar conduct by Executive involving the Company; (ii) any action by Executive involving the arrest of Executive for violation of any criminal statute constituting a felony if the Board reasonably determines that the continuation of Executive's employment after such event would have a adverse impact on the operations or reputation of the Company in the financial community; or (iii) a continuing, repeated willful failure or refusal by Executive to perform his duties; PROVIDED, HOWEVER, that this Agreement may not be terminated under this subclause (iii) unless Executive shall have first received written notice from the Board advising Executive of the specific acts or omissions alleged to constitute a failure or refusal to perform and such failure or refusal to perform continues after Executive shall have had a reasonable opportunity to correct the acts or omissions cited in such notice. In the event of termination for "Cause" or voluntarily by Executive other than as permitted in Sections 7(b)(i) and (ii) and 7(c), (x) Executive shall be entitled to receive that portion of the Base Salary and all benefits accrued through the date of termination and (y) all Options that have become exercisable as of the date of termination shall become and shall remain so for a period of 90 days. (b) TERMINATION BY COMPANY OTHER THAN FOR "CAUSE." i) DEATH. Provided that notice of termination has not previously been given under any Section hereof, if Executive shall die during the term of this Agreement, this Agreement and all of the Company's obligations hereunder shall terminate, except that Executive's estate or designated beneficiaries shall be entitled to receive (A) all earned and unpaid Base Salary through the date of termination; (B) the Base Salary and Performance Bonus and all benefits with respect to the then current contract year which would have been payable or provided to Executive had the term ended two years following the last day of the month in which Executive's death occurred; and (C) all other benefits that may be due to Executive or Executive's estate or beneficiaries under the general provisions of any benefit plan, stock incentive plan or other plan in which Executive is then a participant, which benefits shall continue to be provided for a period of two years following the date of death. In addition, all stock options that have become exercisable as of the date of death shall remain so for a period of twelve (12) months. ii) DISABILITY. Provided that notice of termination has not previously been given under any Section hereof, if Executive becomes ill or is injured or disabled during the term such that Executive fails to perform all or substantially all of the duties to be rendered hereunder and such failure continues for a period in excess of 26 consecutive weeks (a "Disability"), the Company shall continue to employ Executive under this Agreement for two years from the date of the Disability (which one year period shall commence at the beginning of the 26 week period referred to herein) and shall continue to pay Executive the Base Salary in effect on the date of the Disability (determined at the beginning of the 26 week period referred to herein), the Performance Bonus and all benefits then in effect; provided, that (A) the Company may relieve Executive of his duties and responsibilities hereunder to the extent permitted by law and (B) any long-term disability payments received by Executive under any disability insurance plan made available to Executive by the Company if the premiums were paid by the Company shall be deducted from the salary and bonus payments otherwise required to be paid to Executive hereunder. If during the term and subsequent to the Disability commencement date (which shall be at any time following the end of the 26 week period referred to herein) Executive shall fully recover, the Company shall have the right (exercisable within 60 days after receipt of notice from Executive of such recovery), but not the obligation, to restore Executive to full-time service at full compensation. If the Company elects not to restore Executive to full-time service, Executive shall be entitled to obtain other employment. If Executive is not restored to full-time employment with the Company, all stock options that have become exercisable as of the date of Disability (determined at the end of the 26 week period referred to herein) shall remain so for a period of 12 months. iii) WITHOUT CAUSE. If the Company elects to terminate Executive for any reason whatsoever other than as provided in Section 7(a) or if the Company causes a Defacto Termination of Executive (as defined below) (each a "Severance Termination"), Executive shall receive the "Separation Package." As used herein, the "Separation Package" shall consist of three years' Base Salary (at the annual rate in effect at the date of the Severance Termination) plus an amount equal to the Performance Bonus actually paid to Executive with respect to the eight fiscal quarters preceding the date of the Severance Termination (or if the date of the Severance Termination occurs before January 1, 2000, the total amount payable with respect to Base Salary and Performance Bonus shall be the actual amount paid to Executive (base salary and bonus) over the three year period prior to the date of Severance Termination). In addition, all Options which are scheduled to vest during the 12 months following the date of the Severance Termination shall vest as of such date. Further, all options which have become exercisable as of the date of the Severance Termination (including those which do so as a result of the provisions of the preceding sentence) shall remain so for a period of 12 months. In the event of a Severance Termination, Executive will also be provided with reasonable office space and secretarial support as well as the same mailing address and telephone number which Executive had during the term for up to six months, and the Company shall pay the costs of outplacement services with a provider of its choice at a level appropriate to Executive's title and position as requested by Executive. For purposes of this paragraph, a "Defacto Termination" shall include any of the following events: (i) the Company shall fail to pay or shall reduce the Base Salary, Performance Bonus or other benefits provided herein, except as permitted hereunder, or shall otherwise breach any material provision hereof which breach is not cured within 10 days after receipt of notice thereof from Executive; (ii) the Company shall fail to cause Executive to remain the Chief Operating Officer of the Company; (iii) Executive shall not be continuously afforded the authority, powers, responsibilities and privileges contemplated in Section 1 above (whether or not accompanied by a change in title); (iv) the Company shall require Executive's primary services to be rendered in an area other than the Company's principal offices in the Los Angeles metropolitan area; or (v) after a Change in Control (as defined below), the Company increases the base salary for senior executives of the Company generally without similarly increasing the Base Salary of Executive. For purposes of clause (iii), Executive shall be deemed not to have been continuously afforded the authority, powers, responsibilities and privileges contemplated in Section 1 above if there shall occur any reduction in the scope, level or nature of Executive's employment hereunder, or any demotion, any phasing out or assignment to others, of the duties contemplated herein. (c) CHANGE IN CONTROL. i) Following a Change in Control, this Agreement shall continue to be binding upon the Company and Executive shall be entitled to the payments provided for in this Section 7 in the event of termination resulting from death, disability, cause, or a Separation Termination, all as provided for in Section 7(a) and 7(b). ii) Executive may (but shall not be obligated to) terminate this Agreement effective 30 days after the giving of such notice given at any time within two years following a Change in Control. In the event that Executive elects to terminate this Agreement pursuant to this Section 7(c)(ii), Executive shall be entitled to the following payments: (A) If the Change in Control is effected to an Adverse Person (as defined below), then Executive shall be entitled to and receive the Severance Package. In addition, all Options then held by Executive which are not yet vested shall vest as of the date of the Severance Termination. Further, all options that have become exercisable as of the date of the Severance Termination (including those which do so as a result of the provisions of the preceding sentence) shall remain so for the entire remaining term of the Options. (B) If the Change in Control is effected to a person other than an Adverse Person, Executive shall be entitled to receive the Severance Package. In addition, all Options which are scheduled to vest during the 12 months following the termination date shall vest as of the date of such termination. Further, all options that have become exercisable as of the date of such termination (including those which do so as a result of the provisions of the preceding sentence) shall remain so for a period of 12 months. (d) TERMINATION BY EXECUTIVE. Executive may (but shall not be obligated to) terminate this Agreement effective 30 days after the giving of such notice given at any time within two years following a Change in Control (as defined herein) or upon the occurrence of any of the following events: (i) the Company shall fail to pay or shall reduce the Base Salary, Performance Bonus or other benefits provided herein, except as permitted hereunder, or shall otherwise breach any material provision hereof which breach is not cured within 10 days after receipt of notice thereof from Executive; (ii) the Company shall fail to cause Executive to remain the Chief Executive Officer of the Company; (iii) Executive shall not be continuously afforded the authority, powers, responsibilities and privileges contemplated in Section 1 above (whether or not accompanied by a change in title); (iv) the Company shall require Executive's primary services to be rendered in an area other than the Company's principal offices in the Los Angeles metropolitan area; or (v) after a Change in Control, the Company increases the base salary for senior executives of the Company generally without similarly increasing the Base Salary of Executive. For purposes of clause (iii), Executive shall be deemed not to have been continuously afforded the authority, powers, responsibilities and privileges contemplated in Section 1 above if there shall occur any reduction in the scope, level or nature of Executive's employment hereunder, or any demotion, any phasing out or assignment to others, of the duties contemplated herein. As full payment of any amounts due and owing to Executive if termination occurs under this section, if Executive elects to terminate the Agreement as a result of a Change in Control or for any other reason set forth in clauses (i) through (v) above, then Executive shall have no further obligation to perform services for the Company but shall be entitled to receive from the Company the Severance Package (as defined above). In addition, all Options which would vest as of the next scheduled vesting date shall become immediately exercisable and all vested options shall remain exercisable for the balance of their 10-year term. (e) PAYMENT OF TERMINATION AMOUNTS. Executive may elect to have all amounts to be paid to Executive pursuant to this Section 7 payable (i) over the remaining term of this Agreement or for such shorter period as expressly provided for herein, as applicable, or (ii) in a lump sum within 30 days following termination; PROVIDED, HOWEVER, in the case of death or disability, the Performance Bonus component shall be payable at such time as performance-based bonuses are paid to similarly situated employees of the Company and only if the specified Target ROE for the applicable periods are actually met. In the event Executive elects to be paid pursuant to clause (i), Executive agrees promptly to notify the Company in writing of Executive's acceptance of full-time employment; within 15 days after receipt of such notice, the Company shall pay Executive in a lump sum any amounts which remain otherwise due to Executive hereunder. (f) STOCK AND SIMILAR RIGHTS. Except with regard to the vesting and exercise dates of Options as set forth in this Section 7, Executive's rights under any other agreement or plan under which stock options, restricted stock or similar awards are granted shall be determined in accordance with the terms and provisions of such plans or agreements. (g) NO MITIGATION OR OFFSET. Payment of any sum under this Section 7 shall not be subject to any claim of mitigation nor shall the Company be entitled to any right of offset with respect thereto. (h) OTHER INSURANCE POLICIES. Upon any termination of Executive's employment, and upon reimbursement of the Company of all amounts paid by the Company in connection with such policies, Executive shall have the right to purchase or otherwise direct the disposition or assignment of any disability insurance policy on him held by the Company (excluding only group disability insurance policies) upon the payment of One Dollar ($1.00) as the total consideration for each such policy. 8. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events which occur after the date hereof: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act ("Rule 13d-3")) of 20% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); PROVIDED, HOWEVER, that neither of the following acquisitions shall constitute a Change in Control; (i) any acquisition by the Company or (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the stockholders of the Company, shall be approved by a vote of a least a majority of the directors then compromising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (c) Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation: (i) more than 60% of the combined voting power of the then outstanding voting securities of the corporation resulting from such reorganization, merger, or consolidation, which may be the Company (the "Resulting Corporation") entitled to vote generally in the election of directors (the "Resulting Corporation Voting Securities") shall then be owned beneficially, directly or indirectly, by all or substantially all of the Persons who were the beneficial owners of Outstanding Voting Securities immediately prior to such reorganization, merger or consolidation, in substantially the same proportions as their respective ownerships of Outstanding Voting Securities immediately prior to such reorganization, merger, or consolidation; (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, the Resulting Corporation, and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the combined voting power of Outstanding Voting Securities) shall own beneficially, directly or indirectly 20% or more of the combined voting power of the Resulting Corporation Voting Securities; and (iii) at least a majority of the members of the Board shall have been members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the stockholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation (the "Buyer") with respect to which (x) following such sale or other disposition, more than 60% of the combined voting power of securities of Buyer entitled to vote generally in the election of directors ("Buyer Voting Securities"), shall be owned beneficially, directly or indirectly, by all or substantially all of the Persons who were the beneficial owners of the Outstanding Voting Securities immediately prior to such sale or other disposition, in substantially the same proportion as their respective ownership of Outstanding Voting Securities, immediately prior to such sale or other disposition; (y) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or Buyer and any Person that shall immediately prior to such sale or other disposition own beneficially, directly or indirectly, 20% or more of the combined voting power of Outstanding Voting Securities), shall own beneficially, directly or indirectly, 20% or more of the combined voting power or, Buyer Voting Securities; and (z) at least a majority of the members of the board of directors of Buyer shall have been members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition or assets of the Company. For purposes of this Agreement, an Adverse Person shall mean any person which acquires control of the Company in a transaction involving a Change of Control other than a transaction which, before the time of the transaction, has been approved by the Board of Directors of the Company. 9. INSURANCE. During the term, the Company shall maintain, at no cost to Executive, officers and directors liability insurance that would cover Executive in an amount of no less than $45,000,000. 10. GENERAL PROVISIONS. (a) NOTICES. All notices, requirements, requests, demands, claims or other communications hereunder shall be in writing. Any notice, requirement, request, demand, claim or other communication hereunder shall be deemed duly given (i) if personally delivered, when so delivered, (ii) if mailed, two (2) business days after having been set by registered or certified mail, return-receipt requested, postage prepaid and addressed to the intended recipient as set forth below, (iii) if given by telecopier, once such notice or other communication is transmitted to the telecopier number specified below, and the appropriate telephonic confirmation is received, provided that such notice or other communication is promptly thereafter mailed in accordance with the provisions of clause (ii) above or (iv) if sent through an overnight delivery service under circumstances by which such service guarantees next day delivery, the date following the date so sent: IF TO THE COMPANY, TO: AAMES FINANCIAL CORPORATION 3731 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90010 ATTN: CHIEF OPERATING OFFICER IF TO EXECUTIVE TO: GARY K. Judis ------------------------------- ------------------------------- ------------------------------- Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. (b) ASSIGNMENT. This Agreement and the benefits hereunder are personal to the Company and are not assignable or transferable, nor may be the services to be performed hereunder be assigned by the Company to any person, firm or corporation; PROVIDED HOWEVER, that this Agreement and the benefits hereunder may be assigned by the Company to any corporation into which the Company may be merged or consolidated, and this Agreement and the benefits hereunder will automatically be deemed assigned to any such corporation, subject, however, to Executive's right to terminate this Agreement to the extent provided in Section 7. In the event of any assignment of this Agreement to any corporation acquiring all or substantially all of the assets of the Company or to any other corporation into which the Company may be merged or consolidated, the responsibilities and duties assigned to Executive by such successor corporation shall be the responsibilities and duties of, and compatible with the status of, a senior executive officer of such successor corporation. The Company may delegate any of its obligations hereunder to any subsidiary of the Company, provided that such delegation shall not relieve the Company of any of its obligations hereunder. Executive may not assign its rights hereunder or delegate his duties hereunder to any Person. (c) AFTRA\SAG COMPENSATION. Executive has from time to time provided the voice for certain radio and television advertisements of the Company in the past and may continue to do so in the future. In this connection, Executive is a member of American Federation of Television and Radio Actors and the Screen Actors Guild. In addition to the other compensation provided to Executive hereunder, Executive shall be paid a one- time fee of $1,500 per advertisement for which he provides the voice over during the term hereunder. (d) COMPLETE AGREEMENT. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes and cancels any and all previous written or oral negotiations, commitments, understandings, agreements and any other writings or communications in respect of such subject matter. (e) AMENDMENTS. This Agreement may be modified, amended, superseded or terminated only by a writing duly signed by both parties. (f) SEVERABILITY. Any provision of this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provision of this Agreement invalid, illegal or unenforceable in any other jurisdiction. (g) NO WAIVER. Any waiver by either party of a breach of any provisions of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of either party to insist upon strict adherence to any term of this Agreement on one or more occasions shall be considered a waiver or to deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (h) BINDING EFFECT. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto and their permitted assigns, successors and legal representatives. (i) COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same document. (j) GOVERNING LAW. This Agreement has been negotiated and entered into in the State of California and shall be construed in accordance with the laws of the State of California. (k) ARBITRATION. The parties hereby expressly agree that any controversy or claim relating to this Agreement, including the construction, enforcement or application of the terms hereof, shall be submitted to arbitration in Los Angeles, California by the American Arbitration Association in accordance with the Commercial Arbitration Rules of such association. The arbitrator shall be a retired judge of the Los Angeles Superior Court or other party acceptable to the parties and the rules of evidence shall apply. The costs of the arbitrator shall be borne equally. Each party shall be responsible for its own attorneys' fees and costs. However, the arbitrator shall have the right to award costs and expenses (including actual attorneys' fees) to the prevailing party as well as equitable relief. The award of the arbitrator shall be final and binding and shall be enforceable in any court of competent jurisdiction. Nothing in this paragraph shall preclude the parties from seeking an injunction or other equitable relief from a court of competent jurisdiction under appropriate circumstances. (l) HEADINGS. The headings included in this Agreement are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and Executive has executed the same as of the day and year first above written. AAMES FINANCIAL CORPORATION By: /s/ Gary K. Judis ------------------------------------------- Its: ------------------------------------------- /s/ Gary K. Judis ----------------------------------------------- GARY K. JUDIS EX-10.28 3 EXHIBIT - EMPLOYMENT AGREEMENT FOR CARY H. THOMPSON EXHIBIT 10.28 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (this "Agreement") is made and entered into as of March 11, 1996 by and between AAMES FINANCIAL CORPORATION, a Delaware corporation (the "Company'), and CARY H. THOMPSON, an individual ("Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Executive and the Company wish to provide for the terms and conditions of Executive's employment as Chief Operating Officer of the Company. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as set forth below. 1. EMPLOYMENT AND DUTIES. The Company hereby employs Executive to serve as Chief Operating Officer of the Company, with the powers and duties customarily accorded to such position, including those powers and duties set forth in the Bylaws of the Company for such office and such other duties consistent therewith as may be assigned to Executive from time to time by the Chief Executive Officer (the "CEO") of the Company. Initially, Executive's managerial and supervisorial duties shall be limited to those departments and operations as determined by the CEO and subsequently expanded to include other departments and operations as directed by the CEO. Executive shall report to the CEO; PROVIDED, HOWEVER, so long as Gary Judis is employed by the Company in any capacity, Executive shall report only to Gary Judis. Executive shall endeavor in good faith to perform his duties in an efficient, faithful and business-like manner. During the term of his employment, it is intended that Executive also serve as a Director on the Board of Directors of the Company (the "Board") and the Company will take action within its powers to include Executive among the slate of directors proposed to be nominated by the Board at any applicable stockholders meeting. 2. TERM. The initial term of this Agreement shall begin as soon as practicable following the date hereof but in any event prior to March 15, 1996. The initial term shall expire on June 30, 2001 unless terminated earlier as set forth in Section 6 hereof or by mutual agreement of the parties hereto (the "Initial Term"). At the expiration of the Initial Term and each anniversary thereafter, the term of this Agreement shall automatically be extended for an additional year (the "Extension Term") unless either party shall have given written notice to the other party at least ninety days prior to the end of the Initial Term or the Extension Term, as the case may be, that it does not desire to extend the term of this Agreement. If Executive's employment under this Agreement is extended for an Extension Term, it shall thereafter or during any Extension Term be terminable (other than upon expiration) only as provided in Section 6 or by mutual agreement of the parties hereto. 3. COMPENSATION. (a) BASE SALARY. During the term of this Agreement, Executive shall be paid a base salary (the "Base Salary"), payable in accordance with the Company's normal payroll practices. During the first year of the term of this Agreement, Executive's Base Salary shall be $400,000. The annual Base Salary 1 payable to Executive shall be reviewed at least annually; PROVIDED, HOWEVER, that Executive's Base Salary shall not be reduced below $400,000 per annum during the term of this Agreement. (b) PERFORMANCE BONUS. Executive shall be entitled to participate in the Company's performance bonus plan for executive officers. Under such plan, executives of the Company are currently paid on a quarterly basis a performance bonus (the "Performance Bonus") measured by return on average equity during the relevant period. For fiscal 1996, Executive shall be entitled to an annual Performance Bonus in the amount of $30,000 (the "Payment Amount") for every percentage point for which return on average equity exceeds 15% for the fiscal year (the "Target ROE"). The Performance Bonus will be paid quarterly based on each quarter's results with an adjustment at the end of the fiscal year based upon the audited financial statements of the Company. If the Executive is employed for less than the full fiscal year, his Performance Bonus will be adjusted pro rata based upon the actual period of employment. The computations and payment of the Performance Bonus shall be as provided in the Company's performance bonus plan. The Payment Amount and Target ROE for fiscal years following fiscal 1996 shall be as determined by the Board's compensation committee prior to the commencement of any fiscal year. (c) STOCK BONUS. On the commencement of the Initial Term, the Company shall grant Executive non-qualified options to purchase 500,000 shares of the Company's Common Stock (the "Options"). Of such Options, 100,000 shall vest immediately upon grant and an additional 100,000 shall vest on each anniversary of the commencement of the Initial Term. The Options will be exercisable at an exercise price equal to $25-7/8 (the Closing Price of the Company's Common Stock on the New York Stock Exchange on January 17, 1996, the date the Board of Directors of the Company approved this offer of employment be made to Executive). Once vested, the Options will remain exercisable by Executive, whether or not Executive remains employed by the Company, until the tenth anniversary of the date of the initial grant (subject to the effect, if any, of Section 6(a)(x) below). The Company shall register the shares of Common Stock issuable upon exercise of the Options and shall use its best efforts to maintain a current registration statement under the Securities Act of 1933, as amended, in respect of such shares. In the event the Company does not realize a tax savings in the year of exercise as a result of a tax loss or the benefit of a net operating loss, the maximum amount of the Tax Bonus shall be computed by multiplying the aggregate expense recognized by the Company as a result of the exercise of the option, the disposition of the underlying shares and the payment of the Tax Bonus by the highest applicable corporate tax rate for federal tax purposes. The Options shall be issued under the Company's stock incentive plans maintained for its executives and shall contain standard anti-dilution mechanisms to adjust for stock dividends, stock splits, reverse stock splits, recapitalizations, consolidations and mergers as are provided for therein. (d) TAX BONUS. The Options shall provide for the payment to Executive of a bonus (the "Tax Bonus") equal to an amount that when reduced by any withholding taxes or taxes otherwise payable by Executive with respect to the Tax Bonus will equal the taxes payable by Executive as a result of the recognition of ordinary income on exercise of such options or on the disposition of any underlying share. The Tax Bonus shall be based on the maximum marginal combined federal and state income tax rate applicable to individuals (the "Individual Tax Rate"), except that if the maximum marginal combined federal and state income tax rate applicable to corporations (the "Corporate Tax Rate") is less than the "Individual Tax Rate" for the year in 2 which the Company is entitled to a deduction as a result of the exercise of the Option or disposition of the underlying shares, the Tax Bonus shall be computed based on the Corporate Tax Rate. If as a result of a change in the law the Company is not entitled to a deduction on the exercise of the Option or disposition of the underlying shares, the Corporate Tax Rate shall be deemed to be zero. 4. OTHER EXECUTIVE BENEFITS. During the term of this Agreement, the Company shall provide to Executive benefits commensurate with his position, including each of the following benefits: (a) MEDICAL AND DENTAL COVERAGE. The Company agrees to provide coverage to Executive and dependent members of his family under the same medical and dental plans as may be maintained from time to time in the discretion of the Company's Board for the benefit of the CEO and the dependent members of his family. (b) VACATION. Executive shall be entitled to four (4) weeks of paid vacation during Executive's first year of employment with the Company and shall be entitled to five (5) weeks during each year of employment with the Company thereafter for the term of this Agreement. In each case, such entitlement shall accrue pro rata over the contract year and shall be taken at such time or times as shall not unreasonably interfere with the operations of the Company. (c) BUSINESS EXPENSES. The Company will pay or reimburse Executive for any out-of-pocket expenses incurred by Executive in the course of providing his services hereunder, which comply with the Company's travel and expense policies adopted from time to time by the Board for the CEO. Such reimbursement shall be made by the Company in the same manner and within the same time period as applicable to the other executive officers of the Company. (d) AUTOMOBILE. The Company shall provide Executive with the use of a luxury automobile that is selected by Executive and approved by the CEO. On the earlier of significant damage or destruction or attaining three years of age, the Company shall replace such automobile with a new automobile selected by Executive and approved by the CEO. The Company shall pay all costs of insurance, repair, maintenance and operation of such automobile. (e) BENEFIT PLANS. Executive shall be entitled to participate in any pension, profit-sharing, stock option, stock purchase or other benefit plan of the Company now existing or hereafter adopted for the benefit of employees generally or the senior executives of the Company. (f) LIFE INSURANCE. Provided the following policies may be obtained at a reasonable cost, the Company shall provide Executive with a $1,000,000 standard term life insurance policy and a $1,000,000 standard term accidental death policy. (g) DISABILITY. Provided the following policy may be obtained at a reasonable cost, the Company shall provide Executive with a long-term disability policy which provides for an annual disability payment in an amount equal to 125% of Executive's Base Salary. 5. CONFIDENTIAL INFORMATION. (a) NON-DISCLOSURE. Executive hereby agrees, during the term of this Agreement, he will not disclose to any person or otherwise use or 3 exploit any proprietary or confidential information, including, without limitation, trade secrets, processes, records of research, proposals, reports, methods, processes, techniques, computer software or programming, or budgets or other financial information, regarding the Company, its business, properties, customers or affairs (collectively, "Confidential Information") obtained by him at any time during the term, except to the extent required by Executive's performance of assigned duties for the Company. Notwithstanding anything herein to the contrary, the term "Confidential Information" shall not include information which (i) is or becomes generally available to the public other than as a result of disclosure by Executive in violation of this Agreement, (ii) is or becomes available to Executive on a non-confidential basis from a source other than the Company, provided that such source is not known by Executive to be furnishing such information in violation of a confidentiality agreement with or other obligation of secrecy to the Company, (iii) has been made available, or is made available, on an unrestricted basis to a third party by the Company, by an individual authorized to do so or (iv) is known by Executive prior to its disclosure to Executive. Executive may use and disclose Confidential Information to the extent necessary to assert any right or defend against any claim arising under this Agreement or pertaining to Confidential Information or its use, to the extent necessary to comply with any applicable statute, constitution, treaty, rule, regulation, ordinance or order, whether of the United States, any state thereof, or any other jurisdiction applicable to Executive, or if Executive receives a request to disclose all or any part of the information contained in the Confidential Information under the terms of a subpoena, order, civil investigative demand or similar process issued by a court of competent jurisdiction or by a governmental body or agency, whether of the United States or any state thereof, or any other jurisdiction applicable to Executive. (b) INJUNCTIVE RELIEF. Executive agrees that the remedy at law for any breach by him of the covenants and agreements set forth in this Section 5 may be inadequate and that in the event of any such breach, the Company may, in addition to the other remedies that may be available to it at law, seek injunctive relief prohibiting him (together with all those persons associated with him) from the breach of such covenants and agreements. 6. TERMINATION. (a) TERMINATION BY COMPANY FOR "CAUSE" OR VOLUNTARILY BY EXECUTIVE. The Company may terminate this Agreement for "Cause" effective immediately upon written notice thereof to Executive. For purposes of this Agreement, "Cause" shall mean and be limited to the following events: (i) an act of fraud, embezzlement or similar conduct by Executive involving the Company; (ii) any action by Executive involving the arrest of Executive for violation of any criminal statute constituting a felony if the Board reasonably determines that the continuation of Executive's employment after such event would have a adverse impact on the operations or reputation of the Company in the financial community; or (iii) a continuing, repeated willful failure or refusal by Executive to perform his duties; PROVIDED, HOWEVER, that this Agreement may not be terminated under this subclause (iii) unless Executive shall have first received written notice from the Board advising Executive of the specific acts or omissions alleged to constitute a failure or refusal to perform and such failure or refusal to perform continues after Executive shall have had a reasonable opportunity to correct the acts or omissions cited in such notice. In the event of termination for "Cause," or voluntarily by Executive 4 other than as permitted in Sections 6(b)(i) and 6(b(ii) and 6(c), (x) Executive shall be entitled to receive that portion of the Base Salary and all benefits accrued through the date of termination and (y) all Options that have become exercisable as of the date of termination shall remain so for a period of 90 days. (b) TERMINATION BY COMPANY OTHER THAN FOR "CAUSE." i) DEATH. Provided that notice of termination has not previously been given under any Section hereof, if Executive shall die during the term of this Agreement, this Agreement and all of the Company's obligations hereunder shall terminate, except that Executive's estate or designated beneficiaries shall be entitled to receive (A) all earned and unpaid Base Salary through the date of termination; (B) the Base Salary, Performance Bonus, and all benefits with respect to the then current contract year which would have been payable or provided to Executive had the term ended one year following the last day of the month in which Executive's death occurred; and (C) all other benefits that may be due to Executive or Executive's estate or beneficiaries under the general provisions of any benefit plan, stock incentive plan or other plan in which Executive is then a participant, which benefits shall continue to be provided for a period of one year following the date of death. In addition, of the Options which are scheduled to vest on the next anniversary of the commencement of the Initial Term, a percentage of such number of Options shall vest at the date of death determined by dividing the number of days which have elapsed since the last such anniversary by the number 365 and multiplying the result by 100. Further, all Options that have become exercisable as of the date of death (including those which do so as a result of the provisions of the preceding sentence) shall remain so for a period of twelve (12) months. ii) DISABILITY. Provided that notice of termination has not previously been given under any Section hereof, if Executive becomes ill or is injured or disabled during the term such that Executive fails to perform all or substantially all of the duties to be rendered hereunder and such failure continues for a period in excess of 26 consecutive weeks (a "Disability"), the Company shall continue to employ Executive under this Agreement for one year from the date of the Disability (which one year period shall commence at the beginning of the 26 week period referred to herein) and shall continue to pay Executive the Base Salary in effect on the date of the Disability (determined at the beginning of the 26 week period referred to herein), the Performance Bonus and all benefits then in effect; provided, that (A) the Company may relieve Executive of his duties and responsibilities hereunder to the extent permitted by law and (B) any long-term disability payments received by Executive under any disability insurance plan made available to Executive by the Company if the premiums were paid by the Company shall be deducted from the salary and bonus payments otherwise required to be paid to Executive hereunder. If during the term and subsequent to the Disability commencement date (which shall be at any time following the end of the 26 week period referred to herein) Executive shall fully recover, the Company shall have the right (exercisable within 60 days after receipt of notice from Executive of such recovery), but not the obligation, to restore Executive to full-time service at full compensation. If the Company elects not to restore Executive to full-time service, Executive shall be entitled to obtain other employment. If Executive is not restored to full-time employment with the Company, all stock options that have become exercisable as of the 5 date of Disability (determined at the end of the 26 week period referred to herein) shall remain so for a period of 12 months. iii) WITHOUT CAUSE. If the Company elects to terminate Executive for any reason whatsoever other than as provided in Section 6(a) or if the Company causes a Defacto Termination of Executive (as defined below) (each a "Severance Termination"), Executive shall receive the "Separation Package." As used herein, the "Separation Package" shall consist of two years' Base Salary (at the annual rate in effect at the date of the Severance Termination) plus an amount equal to the Performance Bonus actually paid to Executive with respect to the eight fiscal quarters preceding the date of the Severance Termination (or if Executive has been employed for less than two years, the amount of Performance Bonus paid to Executive for the entire period of employment multiplied by a fraction, the numerator of which is the number eight and the denominator of which is the actual number of fiscal quarters for which Executive was employed by the Company). In addition, all Options which are scheduled to vest on the next anniversary of the commencement of the Initial Term shall vest as of the date of the Severance Termination. Further, all options that have become exercisable as of the date of such termination (including those which do so as a result of the provisions of the preceding sentence) shall remain so for a period of 12 months. In the event of a Severance Termination, Executive will also be provided with reasonable office space and secretarial support as well as the same mailing address and telephone number which Executive had during the term for up to six months, and the Company shall pay the costs of outplacement services with a provider of its choice at a level appropriate to Executive's title and position as requested by Executive. For purposes of this paragraph, a "Defacto Termination" shall include any of the following events: (i) the Company shall fail to pay or shall reduce the Base Salary, Performance Bonus or other benefits provided herein, except as permitted hereunder, or shall otherwise breach any material provision hereof which breach is not cured within 10 days after receipt of notice thereof from Executive; (ii) the Company shall fail to cause Executive to remain the Chief Operating Officer of the Company; (iii) Executive shall not be continuously afforded the authority, powers, responsibilities and privileges contemplated in Section 1 above (whether or not accompanied by a change in title); (iv) the Company shall require Executive's primary services to be rendered in an area other than the Company's principal offices in the Los Angeles metropolitan area; or (v) after a Change in Control (as defined below), the Company increases the base salary for senior executives of the Company generally without similarly increasing the Base Salary of Executive. For purposes of clause (iii), Executive shall be deemed not to have been continuously afforded the authority, powers, responsibilities and privileges contemplated in Section 1 above if there shall occur any reduction in the scope, level or nature of Executive's employment hereunder, or any demotion, any phasing out or assignment to others, of the duties contemplated herein. (c) CHANGE IN CONTROL. i) Following a Change in Control, this Agreement shall continue to be binding upon the Company and Executive shall be entitled to the payments provided for in this Section 6 in the event of termination resulting from death, disability, cause, or a Separation Termination, all as provided for in Section 6(a) and 6(b). 6 ii) Executive may (but shall not be obligated to) terminate this Agreement effective 30 days after the giving of such notice given at any time within two years following a Change in Control. In the event that Executive elects to terminate this Agreement pursuant to this Section 6(c)(ii), Executive shall be entitled to the following payments: (A) If the Change in Control is effected to an Adverse Person (as defined below), then Executive shall be entitled to and receive the Severance Package. In addition, all Options then held by Executive which are not yet vested shall vest as of the date of the Severance Termination. Further, all options that have become exercisable as of the date of the Severance Termination (including those which do so as a result of the provisions of the preceding sentence) shall remain so for the entire remaining term of the Options. (B) If the Change in Control is effected to a person other than an Adverse Person, Executive shall be entitled to receive the Severance Package. In addition, all Options which are scheduled to vest during the 12 months following the termination date shall vest as of the date of such termination. Further, all options that have become exercisable as of the date of such termination (including those which do so as a result of the provisions of the preceding sentence) shall remain so for a period of 12 months. (d) PAYMENT OF TERMINATION AMOUNTS. Executive may elect to have all amounts to be paid to Executive pursuant to this Section 6 payable (i) over the remaining term of this Agreement or for such shorter period as expressly provided for herein, as applicable, or (ii) in a lump sum within 30 days following termination. PROVIDED, HOWEVER, in the case of death or disability the Performance Bonus component shall be payable at such time as performance- based bonuses are paid to similarly situated employees of the Company and only if the specified Target ROE for the applicable periods are actually met. In the event Executive elects to be paid pursuant to clause (i), Executive agrees promptly to notify the Company in writing of Executive's acceptance of full- time employment; within 15 days after receipt of such notice, the Company shall pay Executive in a lump sum any amounts which remain otherwise due to Executive hereunder. (e) STOCK AND SIMILAR RIGHTS. Except with regard to the vesting and exercise dates of Options as set forth in this Section 6, Executive's rights under any other agreement or plan under which stock options, restricted stock or similar awards are granted shall be determined in accordance with the terms and provisions of such plans or agreements. (f) NO MITIGATION OR OFFSET. Payment of any sum under this Section 6 shall not be subject to any claim of mitigation nor shall the Company be entitled to any right of offset with respect thereto. (g) OTHER INSURANCE POLICIES. Upon any termination of Executive's employment, and upon reimbursement of the Company of all amounts paid by the Company in connection with such policies, Executive shall have the right to purchase or otherwise direct the disposition or assignment of any disability insurance policy on him held by the Company (excluding only group disability insurance policies) upon the payment of One Dollar ($1.00) as the total consideration for each such policy. 7. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events which occur after the date hereof: 7 (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act ("Rule 13d-3")) of 20% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); PROVIDED, HOWEVER, That neither of the following acquisitions shall constitute a Change in Control; (i) any acquisition by the Company or (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the stockholders of the Company, shall be approved by a vote of a least a majority of the directors then compromising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or (c) Approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation: (i) more than 60% of the combined voting power of the then outstanding voting securities of the corporation resulting from such reorganization, merger, or consolidation, which may be the Company (the "Resulting Corporation") entitled to vote generally in the election of directors (the "Resulting Corporation Voting Securities") shall then be owned beneficially, directly or indirectly, by all or substantially all of the Persons who were the beneficial owners of Outstanding Voting Securities immediately prior to such reorganization, merger or consolidation, in substantially the same proportions as their respective ownerships of Outstanding Voting Securities immediately prior to such reorganization, merger, or consolidation; (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, the Resulting Corporation, and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the combined voting power of Outstanding Voting Securities) shall own beneficially, directly or indirectly 20% or more of the combined voting power of the Resulting Corporation Voting Securities; and (iii) at least a majority of the members of the Board shall have been members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) Approval by the stockholders of the Company of (x) a complete liquidation or dissolution of the Company or (y) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation (the "Buyer") with respect to which (i) following such sale or other disposition, more than 60% of the combined voting power of securities of Buyer entitled to vote generally in the election of directors ("Buyer Voting Securities"), shall be owned beneficially, directly or indirectly, by all or substantially all of the Persons who were the beneficial owners of the Outstanding Voting Securities immediately prior to such sale or other disposition, in substantially the same proportion as their respective ownership of Outstanding Voting Securities, immediately prior to such sale or other disposition; (ii) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or Buyer and any Person that shall 8 immediately prior to such sale or other disposition own beneficially, directly or indirectly, 20% or more of the combined voting power of Outstanding Voting Securities), shall own beneficially, directly or indirectly, 20% or more of the combined voting power or, Buyer Voting Securities; and (z) at least a majority of the members of the board of directors of Buyer shall have been members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition or assets of the Company. For purposes of this Agreement, an Adverse Person shall mean any person which acquires control of the Company in a transaction involving a Change of Control other than a transaction which, before the time of the transaction, has been approved by the Board of Directors of the Company. 8. INSURANCE. During the term, the Company shall maintain, at no cost to Executive, officers and directors liability insurance that would cover Executive in an amount of no less than $45,000,000. 9. GENERAL PROVISIONS. (a) NOTICES. All notices, requirements, requests, demands, claims or other communications hereunder shall be in writing. Any notice, requirement, request, demand, claim or other communication hereunder shall be deemed duly given (i) if personally delivered, when so delivered, (ii) if mailed, two (2) business days after having been set by registered or certified mail, return-receipt requested, postage prepaid and addressed to the intended recipient as set forth below, (iii) if given by telecopier, once such notice or other communication is transmitted to the telecopier number specified below, and the appropriate telephonic confirmation is received, provided that such notice or other communication is promptly thereafter mailed in accordance with the provisions of clause (ii) above or (iv) if sent through an overnight delivery service under circumstances by which such service guarantees next day delivery, the date following the date so sent: IF TO THE COMPANY, TO: AAMES FINANCIAL CORPORATION 3731 Wilshire Boulevard Los Angeles, California 90010 Attn: Chief Executive Officer IF TO EXECUTIVE TO: Cary H. Thompson 1944 Fairburn Avenue Los Angeles, California 90025 Any party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other party notice in the manner herein set forth. (b) ASSIGNMENT. This Agreement and the benefits hereunder are personal to the Company and are not assignable or transferable, nor may be the services to be performed hereunder be assigned by the Company to any person, firm or corporation; PROVIDED HOWEVER, that this Agreement and the benefits hereunder may be assigned by the Company to any corporation into which the Company may be merged or consolidated, and this Agreement and the benefits 9 hereunder will automatically be deemed assigned to any such corporation, subject, however, to Executive's right to terminate this Agreement to the extent provided in Section 6. In the event of any assignment of this Agreement to any corporation acquiring all or substantially all of the assets of the Company or to any other corporation into which the Company may be merged or consolidated, the responsibilities and duties assigned to Executive by such successor corporation shall be the responsibilities and duties of, and compatible with the status of, a senior executive officer of such successor corporation. The Company may delegate any of its obligations hereunder to any subsidiary of the Company, provided that such delegation shall not relieve the Company of any of its obligations hereunder. Executive may not assign its rights hereunder or delegate his duties hereunder to any Person. (c) COMPLETE AGREEMENT. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes and cancels any and all previous written or oral negotiations, commitments, understandings, agreements and any other writings or communications in respect of such subject matter. (d) AMENDMENTS. This Agreement may be modified, amended, superseded or terminated only by a writing duly signed by both parties. (e) SEVERABILITY. Any provision of this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provision of this Agreement invalid, illegal or unenforceable in any other jurisdiction. (f) NO WAIVER. Any waiver by either party of a breach of any provisions of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of either party to insist upon strict adherence to any term of this Agreement on one or more occasions shall be considered a waiver or to deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (g) BINDING EFFECT. This Agreement shall be binding on, and shall inure to the benefit of, the parties hereto and their permitted assigns, successors and legal representatives. (h) COUNTERPARTS. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same document. (i) GOVERNING LAW. This Agreement has been negotiated and entered into in the State of California and shall be construed in accordance with the laws of the State of California. (j) ARBITRATION. The parties hereby expressly agree that any controversy or claim relating to this Agreement, including the construction, enforcement or application of the terms hereof, shall be submitted to arbitration in Los Angeles, California by the American Arbitration Association in accordance with the Commercial Arbitration Rules of such association. The arbitrator shall be a retired judge of the Los Angeles Superior Court or other party acceptable to the parties and the rules of evidence shall apply. The 10 costs of the arbitrator shall be borne equally. Each party shall be responsible for its own attorneys' fees and costs. However, the arbitrator shall have the right to award costs and expenses (including actual attorneys' fees) to the prevailing party as well as equitable relief. The award of the arbitrator shall be final and binding and shall be enforceable in any court of competent jurisdiction. Nothing in this paragraph shall preclude the parties from seeking an injunction or other equitable relief from a court of competent jurisdiction under appropriate circumstances. (k) HEADINGS. The headings included in this Agreement are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer and Executive has executed the same as of the day and year first above written. AAMES FINANCIAL CORPORATION By: /s/ Gary K. Judis ---------------------- Gary K. Judis Its: Chief Executive Officer /s/ Cary H. Thompson -------------------- CARY H. THOMPSON 11 EX-10.29 4 INDENTURE EXHIBIT 10.29 EXECUTION COPY ------------------ AAMES FINANCIAL CORPORATION, Issuer, and THE CHASE MANHATTAN BANK, N.A., Trustee ------------------ INDENTURE ------------------ U.S.$115,000,000 5 1/2% Convertible Subordinated Debentures due 2006 ------------------ Dated as of February 26, 1996 1 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions.. . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . 9 SECTION 1.3. Rules of Construction . . . . . . . . . . . . . . . . . .10 ARTICLE II THE SECURITIES SECTION 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . .11 SECTION 2.2. Execution and Authentication. . . . . . . . . . . . . . .13 SECTION 2.3. Registrar and Paying Agent. . . . . . . . . . . . . . . .14 SECTION 2.4. Paying Agent to Hold Assets in Trust. . . . . . . . . . .15 SECTION 2.5. Securityholder Lists. . . . . . . . . . . . . . . . . . .15 SECTION 2.6. Transfer and Exchange; Restrictions on Transfer . . . . .16 SECTION 2.7. Exchange. . . . . . . . . . . . . . . . . . . . . . . . .22 SECTION 2.8. Replacement Securities. . . . . . . . . . . . . . . . . .24 SECTION 2.9. Outstanding Securities. . . . . . . . . . . . . . . . . .25 SECTION 2.10. Treasury Securities . . . . . . . . . . . . . . . . . . .25 SECTION 2.11. Temporary Securities. . . . . . . . . . . . . . . . . . .25 SECTION 2.12. Cancellation. . . . . . . . . . . . . . . . . . . . . . .26 SECTION 2.13. Payment . . . . . . . . . . . . . . . . . . . . . . . . .26 SECTION 2.14. Defaulted Interest. . . . . . . . . . . . . . . . . . . .28 SECTION 2.15. Computation of Interest . . . . . . . . . . . . . . . . .28 ARTICLE III REDEMPTION SECTION 3.1. Right of Redemption . . . . . . . . . . . . . . . . . . .29 SECTION 3.2. Effect of Notice of Redemption. . . . . . . . . . . . . .31 SECTION 3.3. Deposit of Redemption Price . . . . . . . . . . . . . . .31 SECTION 3.4. Securities Redeemed in Part . . . . . . . . . . . . . . .32 ARTICLE IV COVENANTS SECTION 4.1. Payment of Securities . . . . . . . . . . . . . . . . . .33 SECTION 4.2. Maintenance of Office or Agency . . . . . . . . . . . . .33 SECTION 4.3. Corporate Existence . . . . . . . . . . . . . . . . . . .34 SECTION 4.4. Payment of Taxes and Other Claims . . . . . . . . . . . .35 SECTION 4.5. Maintenance of Properties and Insurance . . . . . . . . .35 SECTION 4.6. Compliance Certificate; Notice of Default . . . . . . . .36 SECTION 4.7. Reports . . . . . . . . . . . . . . . . . . . . . . . . .36 SECTION 4.8. Limitation on Status as Investment Company. . . . . . . .36 SECTION 4.9. Waiver of Stay, Extension or Usury Laws . . . . . . . . .37 SECTION 4.10. Rule 144A Information Requirement . . . . . . . . . . . .37 2 ARTICLE V SUCCESSOR CORPORATION SECTION 5.1. Limitation on Merger, Sale or Consolidation . . . . . . .38 SECTION 5.2. Successor Corporation Substituted . . . . . . . . . . . .38 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES SECTION 6.1. Events of Default . . . . . . . . . . . . . . . . . . . .39 SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment .40 SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee. . . . . . . . . . . . . . . . . . . . . . .42 SECTION 6.4. Trustee May File Proofs of Claim. . . . . . . . . . . . .42 SECTION 6.5. Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . . . . .43 SECTION 6.6. Priorities. . . . . . . . . . . . . . . . . . . . . . . .43 SECTION 6.7. Limitation on Suits . . . . . . . . . . . . . . . . . . .44 SECTION 6.8. Unconditional Right of Holders to Receive Principal, Premium, Interest and Additional Amounts . . . . . .44 SECTION 6.9. Rights and Remedies Cumulative. . . . . . . . . . . . . .44 SECTION 6.10. Delay or Omission Not Waiver. . . . . . . . . . . . . . .45 SECTION 6.11. Control by Holders. . . . . . . . . . . . . . . . . . . .45 SECTION 6.12. Waiver of Past Default. . . . . . . . . . . . . . . . . .45 SECTION 6.13. Undertaking for Costs . . . . . . . . . . . . . . . . . .45 SECTION 6.14. Restoration of Rights and Remedies. . . . . . . . . . . .46 SECTION 6.15. Enforcement of Rights of Conversion by Holders. . . . . .46 ARTICLE VII TRUSTEE SECTION 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . .47 SECTION 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . .48 SECTION 7.3. Individual Rights of Trustee. . . . . . . . . . . . . . .49 SECTION 7.4. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . .49 SECTION 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . .49 SECTION 7.6. Reports by Trustee to Holders . . . . . . . . . . . . . .49 SECTION 7.7. Compensation and Indemnity. . . . . . . . . . . . . . . .50 SECTION 7.8. Replacement of Trustee. . . . . . . . . . . . . . . . . .51 SECTION 7.9. Successor Trustee by Merger, Etc. . . . . . . . . . . . .52 SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . .52 SECTION 7.11. Preferential Collection of Claims Against Company . . . .52 ARTICLE VIII SATISFACTION AND DISCHARGE SECTION 8.1. Satisfaction and Discharge of Indenture . . . . . . . . .53 SECTION 8.2. Repayment to the Company. . . . . . . . . . . . . . . . .53 3 ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1. Supplemental Indentures Without Consent of Holders. . . .54 SECTION 9.2. Amendments, Supplemental Indentures and Waivers with Consent of Holders . . . . . . . . . . . . . . . . .54 SECTION 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . .55 SECTION 9.4. Revocation and Effect of Consents . . . . . . . . . . . .55 SECTION 9.5. Notation on or Exchange of Securities . . . . . . . . . .56 SECTION 9.6. Trustee to Sign Amendments, Etc.. . . . . . . . . . . . .56 ARTICLE X MEETINGS SECTION 10.1. Meetings and Votes of Holders . . . . . . . . . . . . . .57 SECTION 10.2. Action by Holders . . . . . . . . . . . . . . . . . . . .60 ARTICLE XI AGENTS SECTION 11.1. Offices, Resignation, Successors, Etc. of Agents; Paying, Conversion and Transfer Agencies. . . .61 ARTICLE XII SUBORDINATION SECTION 12.1. Securities Subordinated to Senior Indebtedness. . . . . .63 SECTION 12.2. No Payment on Securities in Certain Circumstances . . . .63 SECTION 12.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization. . . . . . . . . . . .65 SECTION 12.4. Securityholders to Be Subrogated to Rights of Holders of Senior Indebtedness. . . . . . . . . .66 SECTION 12.5. Obligations of the Company Unconditional. . . . . . . . .66 SECTION 12.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . . . . . .67 SECTION 12.7. Application by Trustee of Assets Deposited with It. . . .67 SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness . . . . . . . . . . .68 SECTION 12.9. Securityholders Authorize Trustee to Effectuate Subordination of Securities. . . . . . . . . . . . .68 SECTION 12.10. Right of Trustee to Hold Senior Indebtedness68 SECTION 12.11. Article XII Not to Prevent Events of Default. . . . . . .69 SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . .69 4 ARTICLE XIII CONVERSION OF SECURITIES SECTION 13.1. Conversion Privilege. . . . . . . . . . . . . . . . . . .70 SECTION 13.2. Exercise of Conversion Privilege. . . . . . . . . . . . .70 SECTION 13.3. Fractional Interests. . . . . . . . . . . . . . . . . . .71 SECTION 13.4. Adjustment of Conversion Price. . . . . . . . . . . . . .67 SECTION 13.5. Notice of Certain Events. . . . . . . . . . . . . . . . .72 SECTION 13.6. Continuation of Conversion Privilege in Case of Reclassification, Change, Merger, Consolidation or Sale of Assets. . . . . . .73 SECTION 13.7. Taxes on Conversion . . . . . . . . . . . . . . . . . . .74 SECTION 13.8. Company to Provide Stock. . . . . . . . . . . . . . . . .74 SECTION 13.9. Disclaimer of Responsibility for Certain Matters. . . . .75 SECTION 13.10. Return of Funds Deposited for Redemption of Converted Securities . . . . . . . . . . . . . . . .75 XIV MISCELLANEOUS SECTION 14.1. TIA Controls. . . . . . . . . . . . . . . . . . . . . . .76 SECTION 14.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . .76 SECTION 14.3. Communications by Holders with Other Holders. . . . . . .77 SECTION 14.4. Certificate and Opinion as to Conditions Precedent. . . .77 SECTION 14.5. Statements Required in Certificate or Opinion . . . . . .77 SECTION 14.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . .78 SECTION 14.7. Legal Holidays. . . . . . . . . . . . . . . . . . . . . .78 SECTION 14.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .78 SECTION 14.9. Governing Law . . . . . . . . . . . . . . . . . . . . . .78 SECTION 14.10. Agent for Service of Process. . . . . . . . . . . . . . .79 SECTION 14.11. No Adverse Interpretation of Other Agreements . . . . . .79 SECTION 14.12. No Recourse Against Others. . . . . . . . . . . . . . . .80 SECTION 14.13. Successors. . . . . . . . . . . . . . . . . . . . . . . .80 SECTION 14.14. Duplicate Originals . . . . . . . . . . . . . . . . . . .80 SECTION 14.15. Severability. . . . . . . . . . . . . . . . . . . . . . .80 SECTION 14.16. Table of Contents, Headings, Etc. . . . . . . . . . . . .80 SECTION 14.17. Qualification of Indenture. . . . . . . . . . . . . . . .80 SECTION 14.18. Registration Rights . . . . . . . . . . . . . . . . . . .81 EXHIBITS Exhibit A - Form of Security . . . . . . . . . . . . . . . . . . . . . A-1 Exhibit B - Form of Regulation S Global Security . . . . . . . . . . . B-1 5 INDENTURE, dated as of February 26, 1996, between AAMES FINANCIAL CORPORATION, a Delaware corporation (the "Company"), and THE CHASE MANHATTAN BANK, N.A., as Trustee. Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 5 1/2% Convertible Subordinated Debentures due 2006 and the Coupons: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions. "Acceleration Notice" shall have the meaning specified in Section 6.2. "Accredited Investor Securities" shall have the meaning specified in Section 2.1(b). "Additional Amounts" shall have the meaning specified in Section 2 of the form of Registered Security and Bearer Security attached hereto as Exhibit A. "Affiliate" means (i) any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, (ii) any spouse, immediate family member, or other relative who has the same principal residence of any person described in clause (i) above, and (iii) any trust in which any person described in clause (i) or (ii) above has a beneficial interest. For purposes of this definition, the term "control" means the power to direct the management and policies of a person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise. "Agent" shall have the meaning set forth in Section 2.3. "Authorized Newspaper" means a leading newspaper, in an official language of the country of publication or in the English language, customarily published on each Business Day whether or not published on Saturdays, Sundays or holidays, and of general circulation in the place in connection with which the term is used or in the financial community of such place. If by reason of the temporary or permanent suspension of publication of any newspaper or by reason of any other cause it shall be impossible to make publication of such notice in an Authorized Newspaper as herein provided, then such publication or other notice in lieu thereof as shall be made by the Trustee shall constitute sufficient publication of such notice, if such publication or other notice shall, so far as may be possible, approximate the terms and conditions of the publication in lieu of which it is given. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal, state or foreign law for the relief of debtors. "Bearer Securities" shall have the meaning set forth in Section 2.1(c). "Board of Directors" means, with respect to any person, the Board of Directors of such person or any committee of the Board of Directors of such person authorized, with respect to any particular matter, to exercise the power of the Board of Directors of such person. 6 "Board Resolution" means, with respect to any person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such person to have been duly adopted by the Board of Directors or any authorized committee thereof and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means, with respect to any act to be performed hereunder or under the Securities, each Monday, Tuesday, Wednesday, Thursday or Friday that is not a day on which banking institutions in the place where such act is to occur are authorized or obligated by applicable law, regulation or executive order to close. "Capitalized Lease Obligation" means rental obligations under a lease that are required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations, as determined in accordance with GAAP. "Capital Stock" means, with respect to any corporation, any and all shares, interests, rights to purchase (other than convertible or exchangeable Indebtedness), warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that corporation. "Cash" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Cedel" means Cedel Bank, societe anonyme. "Change of Control" means (i) any merger or consolidation of the Company with or into any person or any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the assets of the Company, on a consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction, any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) is or becomes the "beneficial owner," directly or indirectly, of more than 50% of the total voting power in the aggregate normally entitled to vote in the election of directors, managers, or trustees, as applicable, of the transferee or surviving entity, (ii) any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) is or becomes the "beneficial owner," directly or indirectly, of more than 50% of the total voting power in the aggregate normally entitled to vote in the election of directors of the Company, or (iii) during any period of 12 consecutive months after the Closing Date, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the Board of Directors of the Company then in office. For purposes of this definition, (i) the terms "person" and "group" shall have the meanings used for purposes of Rules 13d-3 and 13d-5 of the Exchange Act as in effect on the Closing Date, whether or not applicable; and (ii) the term "beneficial owner" 7 shall have the meaning used in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Closing Date, where or not applicable, except that a "person" shall not be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time or upon the occurrence of certain events. "Change of Control Notice Date" shall have the meaning specified in Section 3.1. "Closing Date" means February 26, 1996, or such other time on the same or such other date, not later than 5:00 p.m., London time, on the fifth Business Day in London thereafter, as the Managers and the Company may agree. "Closing Price" means for any day the last reported sales price of the Common Stock, regular way, or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices for the Common Stock, regular way, in either case on the New York Stock Exchange, Inc. or, if the Common Stock is not listed or admitted to trading on such exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the closing sale price quoted on the Nasdaq National Market, or if not so quoted, as determined by the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission. "Common Depositary" means The Chase Manhattan Bank, N.A. (London Office), as depositary for Cedel and the Euroclear Operator. "Common Stock" means the Company's common stock, par value $0.001 per share, or as such stock may be reconstituted from time to time. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to the Indenture, and thereafter means such successor. "Conversion Agent" means The Chase Manhattan Bank, N.A., in its capacity as Conversion Agent pursuant to its appointment as such under Section 2.3, and its successor or successors as such conversion agent qualified and appointed in accordance with Section 11.1. "Conversion Price" shall have the meaning specified in Section 13.1. "Conversion Shares" shall have the meaning specified in Section 13.1. "Coupon" means any interest coupon appertaining to any security. "Current Market Price" means, on any date, the average of the Closing Prices for the 15 consecutive Trading Days during which the principal trading market for the Common Stock is open commencing 25 Trading Days before the day in question. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event or condition that is, or after notice or passage 8 of time or both would be, an Event of Default. "Defaulted Interest" shall have the meaning specified in Section 2.14. "Depositary" means, with respect to the Securities issuable or issued in whole or in part in global form, the person specified in Section 2.3 as the Depositary with respect to the Securities, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "DTC" means The Depository Trust Company. "Euroclear Operator" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. "Event of Default" shall have the meaning specified in Section 6.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Commission thereunder. "Exchange Date" shall have the meaning specified in Section 2.7(d). "GAAP" means United States generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board ("FASB") or in such other statements by such other entity as approved by a significant segment of the accounting profession which are in effect in the United States; provided, however, that for purposes of determining compliance with covenants in the Indenture, "GAAP" means such generally accepted accounting principles which are in effect as of the Closing Date. "Holder" or "Securityholder" means, with respect to a Registered Security, the person in whose name a Registered Security is registered on the Registrar's books and, with respect to a Bearer Security, the bearer of such Bearer Security and, with respect to a Coupon, the bearer thereof. "Holder Redemption Date" means a date not less than 30 nor more than 60 days after a Change of Control Notice Date (except as otherwise required by law). "Indebtedness" of any person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of any such person, (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such person or only to a portion thereof), (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except such as would constitute trade payables to trade creditors in the ordinary course of business that are not more than 90 days past their original due date, (iv) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (v) for the payment of money relating to a Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or a reimbursement obligation of such person with respect to any letter of credit; (b) all net obligations of such person under Interest Swap and Hedging Obligations; (c) all liabilities of others of the kind described in the preceding clause (a) or (b) that such person has guaranteed or that is otherwise its legal liability and all obligations to purchase, redeem or 9 acquire any Capital Stock; and (d) any and all deferrals, renewals, extensions, refinancings, refunding (whether direct or indirect) of any liability of the kind described in any of the preceding clauses (a), (b) or (c), or this clause (d), whether or not between or among the same parties. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Interest Payment Date" means the stated due date of an installment of interest on the Securities. "Interest Record Date" means an Interest Record Date specified in the Securities whether or not such Interest Record Date is a Business Day. "Interest Swap and Hedging Obligation" means any obligation of any person pursuant to any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate exchange agreement, currency exchange agreement or any other agreement or arrangement designed to protect against fluctuations in interest rates or currency values, including, without limitation, any arrangement whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a fixed or floating rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or floating rate of interest on the same notional amount. "Junior Securities" of any Person means any Capital Stock and any Indebtedness of such Person that is (i) subordinated in right of payment to the Securities and has no scheduled installment of principal due, by redemption, sinking fund payment or otherwise, on or prior to the Stated Maturity of the Securities and (ii) subordinated in right of payment to all Senior Indebtedness at least to the same extent as the Securities. "Lien" means any mortgage, lien, pledge, charge, security interest or other encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement and any lease deemed to constitute a security interest and any option or other agreement to give any security interest). "London Office" shall have the meaning specified in Section 2.3. "Managers" means NatWest Securities Limited, Lehman Brothers Inc. and Piper Jaffray Inc. and the subscribers named on Schedule I to the Subscription Agreement. "Notice of Default" shall have the meaning specified in Section 6.1(d). "Obligations" means any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Senior Indebtedness. "Officer" means, with respect to the Company, the Chief Executive Officer, the President, any Executive Vice President, Senior Vice President or Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of the Company. "Officers' Certificate" means, with respect to the Company, a certificate signed by one or more Officers or one or more Officers and an Assistant 10 Secretary of the Company and otherwise complying with the requirements of Sections 14.4 and 14.5, if applicable. "Opinion of Counsel" means a written opinion from legal counsel (who, unless otherwise specified, may be an employee of the Company) who is reasonably acceptable to the Trustee and which complies with the requirements of Sections 14.4 and 14.5, if applicable. "Paying Agent" means The Chase Manhattan Bank, N.A., in its capacity as Paying Agent pursuant to its appointment as such under Section 2.3, and its successor or successors as such paying agent qualified and appointed in accordance with Section 11.1, and any additional Paying Agents appointed by the Company as described in Section 2.3. "Payment Blockage Period" means the period ending 179 days after the Payment Notice is delivered as set forth in Section 12.2(b). "Payment Default" shall have the meaning specified in Section 12.2. "Payment Notice" shall have the meaning specified in Section 12.2. "Person" or "person" means any corporation, individual, limited liability company, joint stock company, joint venture, partnership, unincorporated association, governmental regulatory entity, country, state or political subdivision thereof, trust, municipality or other entity. "Principal" of any Indebtedness means the principal of such Indebtedness plus, without duplication, any applicable premium on such Indebtedness. "Principal Corporate Trust Office" shall have the meaning specified in Section 2.3. "Property" means any right or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "QIBs" shall have the meaning specified in Section 2.1(b). "Redemption Date," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to Article III of this Indenture and Section 3 in the form of Security. "Redemption Price," when used with respect to any Security to be redeemed, means the redemption price for such redemption pursuant to Section 3 in the form of Security, which shall include, without duplication, in each case, accrued and unpaid interest and Additional Amounts, if any, to and including the Redemption Date. "Registered Accredited Investor Securities" shall have the meaning specified in Section 2.1(e). "Registered Regulation S Securities" shall have the meaning specified in Section 2.1(c). "Registered Securities" shall have the meaning specified in Section 2.1(c). 11 "Registrar" shall have the meaning specified in Section 2.3. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of February 16, 1996, by and among the Company and the persons listed on Schedule I thereto, as such agreement may be amended, modified or supplemented from time to time in accordance with the terms thereof. "Regulation S Global Security" shall have the meaning specified in Section 2.1(c). "Resale Restriction Termination Date" shall have the meaning specified in Section 2.6(i). "Restricted Common Stock" shall have the meaning specified in Section 13.6(b). "Restricted Security" shall have the meaning specified in Section 2.1(f). "Rule 144A Global Security" shall have the meaning specified in Section 2.1(d). "Rule 144A Securities" shall have the meaning specified in Section 2.1(b). "Securities" means, collectively, the 5 1/2% Convertible Subordinated Debentures due 2006, as supplemented from time to time in accordance with the terms hereof, issued under this Indenture and "Security" means any of the Securities. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Securities Custodian" means the Trustee, as custodian with respect to the Securities in global form, or any successor entity thereto. "Security Register" shall have the meaning specified in Section 2.3. "Senior Indebtedness" of the Company means any principal, premium, if any, and interest or other monetary obligation on (i) any Indebtedness of the Company (other than the Securities and indebtedness ranking PARI PASSU with or subordinate to the Securities pursuant to the terms of the instrument creating or evidencing such indebtedness, but including guarantees given by the Company), whether outstanding on the date of this Indenture or thereafter. In no event shall Senior Indebtedness include (a) indebtedness of the Company owed or owing to any subsidiary of the Company or any officer, director or employee of the Company or any subsidiary thereof or (b) any liability for taxes owed or owing by the Company. "Significant Subsidiary" shall have the meaning assigned to that term under Regulation S-X promulgated by the Commission, as in effect on the date of this Indenture. "Stated Maturity," when used with respect to any Security, means March 15, 2006. "Subscription Agreement" means that certain Subscription Agreement, dated February 16, 1996, by and among the Company and the Managers named in Schedule I thereto, as such agreement may be amended, modified or supplemented from time 12 to time in accordance with the terms thereof. "Subsidiary" with respect to any person, means (i) a corporation a majority of whose Capital Stock with voting power normally entitled to vote in the election of directors is at the time, directly or indirectly, owned by such person, by such person and one or more Subsidiaries of such person or by one or more Subsidiaries of such person, (ii) a partnership in which such person or a Subsidiary of such person is, at the time, a general partner, or (iii) any other person (other than a corporation) in which such person, one or more Subsidiaries of such person, or such person and one or more Subsidiaries of such person, directly or indirectly, at the date of determination thereof has at least majority ownership interest. "TIA" means the Trust Indenture Act of 1939, as amended. "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the New York Stock Exchange (or, if the Common Stock is not listed or admitted to trading thereon, on the principal national securities exchange on which the Common Stock is listed or admitted to trading). "Transfer Agent" shall have the meaning specified in Section 4.2(b). "Transfer Notice" means the certification set forth on the reverse of each Security. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Trust Officer" means any officer within the corporate trust administration (or any successor group) of the Trustee or any other officer of the Trustee customarily performing functions similar to those performed by the Persons who at that time shall be such officers, and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom such trust matter is referred because of such person's knowledge of and familiarity with the particular subject. "U.S. Government Obligations" means direct noncallable obligations of, or noncallable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. SECTION 1.2. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities. "indenture securityholder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. 13 "obligor" on the indenture securities means the Company and any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and not otherwise defined herein have the meanings assigned to them thereby. SECTION 1.3. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (7) including shall be deemed to mean "including, without limitation,"; and (8) references to Sections or Articles refer to such Section or Article in this Indenture, unless stated otherwise. ARTICLE II THE SECURITIES SECTION 2.1. Form and Dating. (a) The Company has, by a Subscription Agreement, dated February 16, 1996 (the "Subscription Agreement"), by and among the Company and the several managers named in Schedule I thereto (the "Managers"), agreed to issue and sell to the Managers up to U.S.$115,000,000 aggregate principal amount of its 5 1/2% Convertible Subordinated Debentures due 2006. (b) Pursuant to the Subscription Agreement, the Managers may resell the Securities to (i) persons who are not "U.S. Persons" (as such term is defined in Regulation S promulgated by the Commission pursuant to the Securities Act) in transactions that meet the requirements of Regulation S, (ii) "qualified institutional buyers" (as such term is defined in Rule 144A promulgated by the Commission pursuant to the Securities Act and hereinafter referred to as "QIBs") in reliance on Rule 144A (the Securities that are resold by the Managers pursuant to Rule 144A being hereinafter referred to as the "Rule 144A Securities"), and (iii) institutional "accredited investors" (within the meaning of Rule 501(a)(1), (2), (3) or (7) promulgated by the Commission pursuant to the Securities Act) (the Securities that are resold by the Managers 14 to institutional "accredited investors" being hereinafter referred to as the "Accredited Investor Securities"). (c) The Securities will initially be issued in the form of a temporary global debenture in bearer form without coupons or conversion rights in the aggregate principal amount of the entire issue of Securities less the aggregate principal amount of the Rule 144A Securities and Accredited Investor Securities concurrently issued, substantially in the form of Exhibit B hereto (the "Regulation S Global Security"). As hereinafter provided, the Regulation S Global Security may subsequently be exchanged for Securities in printed definitive form either as (i) bearer Securities ("Bearer Securities") in denominations of U.S.$1,000 and U.S.$10,000 and with interest Coupons attached thereto, representing the semi-annual interest payable thereon, or (ii) fully registered Securities ("Registered Regulation S Securities") in denominations of U.S.$1,000 and integral multiples thereof, without interest Coupons attached thereto. Bearer Securities shall be substantially in the form of Exhibit A hereto, including the Coupons set forth therein but excluding the bracketed legends, the bracketed schedule and the information appearing therein that relates to the Registered Securities only. Registered Regulation S Securities shall be substantially in the form of Exhibit A hereto excluding the bracketed legends. The Securities which are not Bearer Securities or the Regulation S Global Security are hereinafter collectively referred to as the "Registered Securities." (d) The Rule 144A Securities will initially be issued in the form of a global security in the aggregate principal amount of the Rule 144A Securities, which security shall be in substantially the form of Exhibit A hereto, including the bracketed legends relating to clearance and settlement through The Depository Trust Company and restrictions on transfer imposed under the Securities Act and including the bracketed schedule but excluding the Coupons, and is hereinafter referred to as the "Rule 144A Global Security." (e) The Accredited Investor Securities will initially be issued in fully registered form in denominations of U.S.$1,000 and integral multiples thereof, which Securities shall be in substantially the form of Exhibit A hereto, excluding the bracketed legend relating to clearance and settlement through The Depository Trust Company and excluding the bracketed legend relating to restrictions on transfer imposed under the Securities Act, the Coupons and the bracketed schedule, and are hereinafter collectively referred to as "Registered Accredited Investor Securities." (f) During the period beginning on the Closing Date and ending on the date which is three years after the Closing Date (or such shorter period as shall be permitted as a result of an amendment to the rules under the Securities Act in respect thereof), all Rule 144A Securities and all Accredited Investor Securities, and all Securities issued upon registration of transfer of or in exchange for such Securities, shall be "Restricted Securities" and shall be subject to the restrictions on transfer in Section 2.6 hereof; provided, however, that the term "Restricted Securities" shall not include (i) Registered Securities which are issued upon transfer of or in exchange for either Bearer Securities or Registered Regulation S Securities or (ii) Registered Securities as to which such restrictions on transfer have been terminated in accordance with Section 2.6(i) hereof. All Restricted Securities shall bear the legend required by Section 2.6(h) hereof. (g) The Registered Securities, the Bearer Securities and the Regulation S Global Security shall contain such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this 15 Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistent herewith, be determined by the officer of the Company executing such Securities, as evidenced by his execution of such Securities. (h) The Company in issuing the Securities shall use CUSIP numbers, and the Trustee may use such CUSIP numbers in any notice of redemption with respect to the Securities. The Company shall obtain one CUSIP number for the Rule 144A Securities and one for the Registered Securities that are not Restricted Securities. In addition, the Company shall obtain an ISIN number and a Common Code for the Regulation S Global Security, the Bearer Securities and the Registered Regulation S Securities. (i) In compliance with United States tax laws and regulations, Bearer Securities may not be offered or sold during the 40-day period beginning on the Closing Date, or at any time if part of a Manager's unsold allotment, to a person who is within the United States or to a United States person other than (a) foreign branches of United States financial institutions if such institutions agree in writing to comply with the requirements of Section 165(j)(3)(A), (B), or (C) of the Code, and the regulations thereunder, (b) United States offices of exempt distributors, or (c) United States offices of international organizations or foreign central banks. United States tax laws and regulations also require that Bearer Securities not be delivered within the United States. (j) The Securities and the Trustee's certificate of authentication, in respect thereof, shall be substantially in the forms included in Exhibits A and B hereto, as applicable. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company shall approve the forms of the Securities and any notation, legend or endorsement on them. Any such notations, legends or endorsements not contained in the forms of Debentures attached as Exhibits A and B hereto shall be delivered in writing to the Trustee. Each Security shall be dated the date of its authentication, except that Bearer Securities shall be dated February 26, 1996. (k) The terms and provisions contained in the forms of Securities shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.2. Execution and Authentication. An authorized Officer of the Company shall sign each Security and each Coupon for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security or a related Coupon was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security and such Coupon shall be valid nevertheless and the Company shall nevertheless be bound by the terms of the Securities, the Coupons and this Indenture. A Security and the related Coupons shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security but such signature shall be conclusive evidence that the Security has been authenticated pursuant to the terms of this Indenture. 16 The Trustee shall authenticate the Securities for original issue in the aggregate principal amount of up to U.S.$115,000,000 upon a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed U.S.$115,000,000, except as otherwise provided herein. Upon the written order of the Company in the form of an Officers' Certificate, the Trustee shall authenticate Securities in substitution of Securities originally issued to reflect any name change of the Company. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company, any Affiliate of the Company, or any of their respective Subsidiaries. SECTION 2.3. Registrar and Paying Agent. The Company hereby appoints The Chase Manhattan Bank, N.A., at present having its principal corporate trust office at 4 Chase MetroTech Center, Third Floor, Brooklyn, New York 11245 (together with such other offices as the Trustee may designate for such purposes, the "Principal Corporate Trust Office"), as its Trustee in respect of the Securities upon the terms and subject to the conditions herein set forth (The Chase Manhattan Bank, N.A. and its successor or successors as such Trustee qualified and appointed in accordance with Section 7.8 hereof are herein called the "Trustee"). The Trustee shall have the powers and authority granted to and conferred upon it herein and in the Securities, and such further powers and authority, acceptable to it, to act on behalf of the Company as the Company may hereafter grant to or confer upon it in writing. The Company hereby appoints the Principal Corporate Trust Office of The Chase Manhattan Bank, N.A. in The City of New York and the London office of The Chase Manhattan Bank, N.A. located at Woolgate House, Coleman Street, London EC2P 2HD, England (together with such other offices as the Trustee may designate for such purposes, the "London Office"), as its Paying Agent in respect of the Securities upon the terms and subject to the conditions herein set forth. The Paying Agent shall have the powers and authority granted to and conferred upon it herein and in the Securities, and such further powers and authority, acceptable to it, to act on behalf of the Company as the Company may hereafter grant to or confer upon it in writing. The Company may appoint one or more additional Paying Agents from time to time and may authorize the Paying Agent to cooperate with one or more additional Paying Agents. As used herein, "paying agencies" shall mean paying agencies maintained by the Company as provided in Section 4.2 hereof. The Company hereby appoints the Principal Corporate Trust Office of The Chase Manhattan Bank, N.A. and the London Office of The Chase Manhattan Bank, N.A. (together with such other offices as the Trustee may designate for such purposes) as its Conversion Agent in respect of the Securities upon the terms and subject to the conditions herein set forth, and the Registrar, the Paying Agent, the Conversion Agent, the Transfer Agents (as defined in Section 4.2 hereof) and the Trustee are sometimes herein referred to severally as an 17 "Agent" and, collectively, as the "Agents"). The Conversion Agent shall have the powers and authority granted to and conferred upon it herein and in the Securities, and such further powers and authority, acceptable to it, to act on behalf of the Company as the Company may hereafter grant to or confer upon it in writing. As used herein, "conversion agencies" shall mean conversion agencies maintained by the Company as provided in Section 4.2 hereof. The Company shall cause to be kept at the Principal Corporate Trust Office of the Trustee a register (the register maintained in such office being herein referred to as the "Security Register") in which, subject to such reasonable regulations as the Trustee may prescribe, the Company shall provide for the registration of Registered Securities and of transfers of Registered Securities. The Trustee is hereby appointed Registrar ("Registrar") for the purpose of registering Registered Securities and transfers of Registered Securities as herein provided. The Company may have one or more co-Registrars. The Company shall enter into an appropriate written agency agreement with any Agent not a party to this Indenture, which agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall promptly notify the Trustee in writing of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Rule 144A Global Securities. The Company initially appoints the Trustee to act as Securities Custodian with respect to the Rule 144A Global Securities. SECTION 2.4. Paying Agent to Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, premium, if any, interest on or Additional Amounts with respect to, the Securities (whether such assets have been distributed to it by the Company or any other obligor on the Securities), and shall notify the Trustee in writing of any Default in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any Payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent (if other than the Company or an Affiliate of the Company) shall have no further liability for such assets. SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders of Registered Securities. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before the third Business Day preceding each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee reasonably may require of the names and addresses of Holders of Registered Securities. 18 SECTION 2.6. Transfer and Exchange; Restrictions on Transfer. (a) Upon surrender for registration of transfer of any Registered Security at any office or agency designated for such purpose by the Company pursuant to Section 4.2 hereof, the Company shall execute, and the Trustee shall authenticate, register and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture; provided, however, that, with respect to any Registered Security that is a Restricted Security, the Trustee shall not register the transfer of such Security unless the conditions in Section 2.6(b) hereof shall have been satisfied. The Holder of each Restricted Security, by such Holder's acceptance thereof, agrees to be bound by the transfer restrictions set forth herein and in the legend on such Restricted Security. (b) Whenever any Restricted Security is presented or surrendered for registration of transfer or exchange for a Registered Security registered in a name other than that of the Holder, no registration of transfer or exchange shall be made unless: (i) The registered holder presenting such Restricted Security for transfer shall have certified to the Trustee in writing that such registered holder is transferring such Restricted Security to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder (or a successor provision); (ii) The registered holder presenting such Restricted Security for transfer shall have certified to the Trustee in writing that the registered holder is transferring such Restricted Security outside the United States in a transaction meeting the requirements of Rule 904 of Regulation S under the Securities Act; (iii) (A) The registered holder presenting such Restricted Security for transfer shall have certified to the Trustee in writing that such registered holder is transferring such Restricted Security to an institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in a transaction not involving any general solicitation or general advertising; and (B) a broker or dealer registered under Section 15 of the Exchange Act shall have certified to the Trustee in writing that: (x) each person who will become a beneficial owner of the Restricted Security upon transfer is an institutional "accredited investor" (as such term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act); (y) no general solicitation or general advertising was made or used by such broker or dealer in connection with the offer and sale of such Restricted Security to such person(s); and (z) such institutional accredited investor has been informed that the Securities have not been registered under the Securities Act and are subject to the restrictions on transfer set forth in the Securities and this Indenture; (iv) The registered holder presenting such Restricted Security for transfer shall have certified to the Trustee in writing that the registered holder is transferring the Registered Security to the Company; or 19 (v) The registered holder presenting such Restricted Security for transfer shall have delivered an opinion of counsel acceptable in form and substance to the Company, that the transfer is being made pursuant to another available exemption from, or a transaction not otherwise subject to, the registration requirements of the Securities Act. For purposes of this Section 2.6(b), any such certification to the Trustee in writing shall be in the form of the Transfer Notice set forth on the reverse of such Security. In the case of a transfer pursuant to the foregoing clauses (ii), (iii) or (v) above, the Company may require that the registered holder deliver an opinion of counsel, certifications or other information acceptable to it in form and substance. (c) Bearer Securities may, at the option of the holder thereof, be exchanged for an equal aggregate principal amount of Registered Regulation S Securities in denominations of $1,000 and integral multiples thereof without Coupons and/or Bearer Securities of authorized denominations, upon surrender of the Bearer Securities to be exchanged at any office or agency outside the United States designated for such purpose by the Company pursuant to Section 4.2 hereof, with all unmatured Coupons and all matured Coupons in default thereto appertaining. If such Holder is unable to produce any such unmatured Coupon or Coupons or matured Coupon or Coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company in an amount equal to the face amount of such missing Coupon or Coupons or the surrender of such missing Coupon or Coupons may be waived by the Company if there be furnished to it and the Trustee such security or indemnity as it may require to save it, the Trustee, the Paying Agent and any paying agency harmless. If thereafter the Holder of such Security shall surrender to any paying agency any such missing Coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment from the Company; provided, however, that, except as otherwise provided in the form of Bearer Security set forth in Exhibit A hereto, interest represented by Coupons shall be payable only upon presentation and surrender of those Coupons outside of the United States, its territories and its possessions. Bearer Securities and Coupons are transferable upon delivery. (d) Registered Securities may, at the option of the holder thereof, be exchanged for Registered Securities of any other authorized denominations and of a like aggregate principal amount, upon surrender of the Registered Securities to be exchanged at any office or agency designated for such purpose by the Company pursuant to Section 4.2 hereof. Registered Securities shall not be exchangeable for Bearer Securities. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the holder making the exchange is entitled to receive. If the Registered Security so surrendered for exchange is a Registered Accredited Investor Security and the Holder thereof requests in writing that such Registered Accredited Investor Security be exchanged for an interest in the Rule 144A Global Security, such Registered Accredited Investor Security will be exchangeable into an equal aggregate principal amount of beneficial interests in the Rule 144A Global Security; provided, however, that, if such Registered Accredited Investor Security is a Restricted Security, such exchange may only be made if such Holder certifies to the Trustee in writing that such Holder is a QIB by completing the Transfer Notice on the reverse of such Security. Upon any exchange as provided in the immediately preceding sentence, the Trustee shall cancel such Registered 20 Accredited Investor Security and cause, or direct any custodian for the Rule 144A Global Security to cause, in accordance with the standing instructions and procedures existing between the Depositary and any such custodian, the aggregate principal amount of Securities represented by the Rule 144A Global Security to be increased accordingly. If no Rule 144A Global Securities are then outstanding, the Company shall issue and the Trustee shall authenticate a new Rule 144A Global Security in the appropriate principal amount. (e) Any person having a beneficial interest in a Rule 144A Global Security may upon request exchange such beneficial interest for a Registered Security only as provided in this paragraph. Upon receipt by the Company and the Trustee of (i) written instructions (or such other form of instructions as is customary) on behalf of any person having a beneficial interest in a Rule 144A Global Security and (ii) in the case of a Restricted Security, the following additional information and documents (all of which may be submitted by facsimile): (A) if such beneficial interest is being transferred to the person designated as being the beneficial owner, a certification to that effect from such person; or (B) if such beneficial interest is being transferred to a person other than the person designated as being the beneficial owner, a certification from such person that the provisions of Section 2.6(b) hereof have been satisfied; in which case the Trustee or any custodian for the Rule 144A Global Security, at the direction of the Trustee shall, in accordance with the standing instructions and procedures existing between the Depositary and such custodian, cause the aggregate principal amount of the Rule 144A Global Security to be reduced accordingly and, following such reduction, the Company shall execute and the Trustee shall authenticate and deliver to the transferee a Registered Security in the appropriate principal amount and, if such Registered Security is a Restricted Security, including the appropriate legend. Registered Securities issued in exchange for a beneficial interest in the Rule 144A Global Security pursuant to this paragraph shall be registered in such names and in such authorized denominations as the Trustee shall be instructed in writing. The Trustee shall deliver such Registered Securities to the persons in whose names such Securities are so registered. (f) Notwithstanding any other provision of this Indenture (other than the provisions set forth in Section 2.6(e) hereof), the Rule 144A Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (g) If at any time either (i) the Depositary for the Rule 144A Global Security notifies the Company and the Company notifies the Trustee in writing that the Depositary is unwilling or unable to continue as Depositary for the Rule 144A Global Security and a successor Depositary for the Rule 144A Global Security is not appointed by the Company within 90 days after delivery of such notice, or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Registered Securities under this Indenture, then the Company shall execute, and the Trustee shall authenticate and deliver, Registered Securities in an aggregate principal amount equal to the principal amount of the Rule 144A Global Security in 21 exchange for such Rule 144A Global Security (registered in the names and denominations specified by the Depositary). (h) Each certificate evidencing Restricted Securities shall bear a legend in substantially the following form: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF THE COMPANY THAT: (I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS SHALL BE PERMITTED AS A RESULT OF AN AMENDMENT TO THE RULES UNDER THE SECURITIES ACT IN RESPECT THEREOF) AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) IN A TRANSACTION ARRANGED BY A BROKER OR DEALER REGISTERED UNDER THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (WITHIN THE MEANING OF SUBPARAGRAPHS (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT) THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. IF ANY RESALE OR OTHER TRANSFER OF THIS SECURITY IS PROPOSED TO BE MADE PURSUANT TO CLAUSE II(E) ABOVE PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS SHALL BE PERMITTED AS A RESULT OF AN AMENDMENT TO THE RULES UNDER THE SECURITIES ACT IN RESPECT THEREOF) AFTER THE DATE OF ORIGINAL ISSUANCE HEREOF, THE TRANSFEROR SHALL DELIVER A LETTER FROM THE TRANSFEREE CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY. ANY OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSES (II)(D), (E) AND (F) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY AND THE TRUSTEE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO THEM 22 IN FORM AND SUBSTANCE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. (i) The restrictions imposed by Section 2.6(b) upon the transferability of any particular Restricted Security shall cease and terminate (i) when such Restricted Security has been (x) sold pursuant to an effective registration statement under the Securities Act or (y) transferred pursuant to Rule 144 under the Securities Act (or any successor provisions thereto), unless the holder is an affiliate of the Company within the meaning of said Rule 144 (or such successor provision) or (ii) upon the date which is three years (or such shorter period as shall be permitted as a result of an amendment to the rules under the Securities Act in respect thereof) after the later of the date of original issue and the last date on which the Company or any Affiliate of the Company was the owner of such Restricted Security (or any predecessor security)(the "Resale Restriction Termination Date"). Any Restricted Security as to which such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon surrender of such Restricted Security for exchange to the Trustee in accordance with the provisions of this Section 2.6(i) (accompanied, in the event that such restrictions on transfer have terminated by reason of a transfer pursuant to Rule 144 (or any successor provision), by an opinion of counsel reasonably acceptable to the Company, addressed to the Company and the Trustee and in form and scope satisfactory to the Company, to the effect that the transfer of such Restricted Security has been made in compliance with Rule 144 (or such successor provision)), be exchanged for a new Registered Security, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by Section 2.6(h) hereof. The Company shall promptly inform the Trustee in writing of the effective date of any registration statement registering the Securities under the Securities Act. (j) The transfer and exchange of the Rule 144A Global Security or beneficial interest therein shall be effected through the Depositary, in accordance with this Indenture and the procedures of the Depositary therefor, which shall include restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. (k) At such time as all beneficial interests in the Rule 144A Global Security have either been exchanged for Registered Securities, redeemed, repurchased or cancelled, the Rule 144A Global Security shall be returned to or retained and cancelled by the Trustee. At any time prior to such cancellation, if any beneficial interest in the Rule 144A Global Security is exchanged for Registered Securities, redeemed, repurchased or cancelled, the principal amount of Securities represented by the Rule 144A Global Security shall be reduced accordingly and an endorsement shall be made on the Rule 144A Global Security, by the Trustee or any custodian therefor, at the direction of the Trustee, to reflect such reduction. (l) All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same obligations, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. (m) Every Registered Security presented for registration of transfer or surrendered for exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company, the Trustee and the Transfer Agent to which such Security is presented or surrendered and the Registrar, duly executed by the Holder thereof or his attorney duly authorized 23 in writing. All such instruments shall comply with the applicable provisions of this Section 2.6. The registration of the transfer of a Registered Security by the Registrar shall be deemed to be the written acknowledgment of such transfer on behalf of the Company. (n) No service charge shall be made for any registration of transfer or exchange, but the Company or the Transfer Agent may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 2.7 hereof or not involving any registration of transfer. (o) Neither the Company nor the Trustee nor any of the offices or agencies designated for the purposes specified in Section 4.2 hereof nor any Transfer Agent shall be required (i) to exchange Bearer Securities for Registered Securities during the period between the close of business on any Interest Record Date and the opening of business on the next succeeding Interest Payment Date, (ii) to exchange any Bearer Security (or portion thereof) for a Registered Security if the Company shall determine and inform the Trustee in writing that, as a result thereof, the Company may incur adverse consequences under the federal income tax laws and regulations (including proposed regulations) of the United States in effect or proposed at the time of such exchange, or (iii) in the event of a redemption in part, (A) to register the transfer or exchange of Registered Securities or to exchange any Bearer Securities for Registered Securities during a period of 15 days immediately preceding the date notice is given pursuant to Section 3.1 hereof and Section 3(e) of the Registered Securities and the Bearer Securities identifying the serial numbers of any Securities to be redeemed, or (B) to register the transfer or exchange of any Registered Security so selected for redemption in whole or in part, except portions not being redeemed of Securities being redeemed in part, or (C) to exchange any Bearer Security called for redemption; provided, however, that a Bearer Security called for redemption may be exchanged, on the terms and conditions set forth above, for a Registered Security that is simultaneously surrendered, with written instruction for payment on the Redemption Date, unless the Redemption Date is between the close of business on any Interest Record Date and the close of business on the next succeeding Interest Payment Date, in which case such exchange may only be made prior to the Interest Record Date immediately preceding the Redemption Date. SECTION 2.7. Exchange. (a) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company in accordance with this Indenture to the Trustee for authentication together with an Officers' Certificate of the Company directing such authentication, and the Trustee shall thereupon authenticate and make such Securities available for delivery upon and in accordance with the written order of the Company. No Security shall be valid or enforceable for any purpose unless and until the certificate of authentication thereon shall have been manually signed by a duly authorized signatory of the Trustee and such duly executed certificate of authentication on any Security shall be conclusive evidence that the Security has been duly authenticated and delivered hereunder. (b) The Regulation S Global Security, the Rule 144A Global Security and the Registered Accredited Investor Securities will be issued upon payment to the Company or its order in United States dollars by wire transfer to a United States dollar account designated by the Company, at 3:00 p.m., London time, on 24 the "Closing Date." Such payment will be made (1) upon authorization from the Managers, (2) against delivery as provided in Section 2.7(c) hereof of the amount, if any, of Rule 144A Securities and Accredited Investor Securities as the Managers may request and as they shall direct, and (3) against the delivery of the Regulation S Global Security for the balance of the Securities to the Common Depositary. The Regulation S Global Security shall be held on deposit with the Common Depositary for the accounts of the Euroclear Operator and Cedel, for credit to the Managers' respective Securities Clearance Accounts (or to such other accounts as NatWest Securities Limited may have specified) with the Euroclear Operator or Cedel. (c) On the Closing Date, the Company shall execute and deliver to (i) the Managers, at the offices of Andrews & Kurth L.L.P., in The City of New York, temporary Registered Accredited Investor Securities (which shall have been duly authenticated by the Trustee and which may be in typewritten form) in respect of the Accredited Investor Securities and (ii) the Depositary, at its office in New York, the Rule 144A Global Security (which shall have been duly authenticated by the Trustee and which may be in typewritten form) in respect of the Rule 144A Securities. On or before the Exchange Date (as defined in Section 2.7(d)), the Company will execute and deliver to the Trustee at the Principal Corporate Trust Office, Registered Accredited Investor Securities in the aggregate principal amount of the Registered Accredited Investor Securities outstanding. At the request of a Holder of temporary Registered Accredited Investor Securities, the Trustee shall deliver to such Holder Registered Accredited Investor Securities in exchange for an equal aggregate principal amount of temporary Registered Accredited Investor Securities. (d) On or before the Exchange Date, the Company will execute and deliver to the Trustee, at its office in London, definitive Registered Regulation S Securities and Bearer Securities in the aggregate principal amount outstanding in the Regulation S Global Security and in such proportion of Registered Regulation S Securities to Bearer Securities as the Trustee may specify. "Exchange Date" means the date following the expiration of the 40-day period commencing on the Closing Date. On or after the Exchange Date, the Regulation S Global Security may be surrendered to the Trustee at its London office to be exchanged, as a whole or in part, for definitive Bearer Securities without charge, and the Trustee shall authenticate and deliver, in exchange for such Regulation S Global Security or the portions thereof to be exchanged, an equal aggregate principal amount of definitive Bearer Securities, but only upon presentation to the Trustee at its London Office of a certificate of the Euroclear Operator or Cedel with respect to the Regulation S Global Security or portions thereof being exchanged, to the effect that it has received a certificate or certificates satisfactory to it with respect to Non-U.S. Person beneficial ownership on the part of the Holders of the Securities accepted for clearance through Euroclear or Cedel, as appropriate, dated no earlier than 15 days prior to the Exchange Date and signed by the person appearing in its records as the owner of the Regulation S Global Security or portions thereof being exchanged. Similarly, after the Exchange Date, portions of the Regulation S Global Security may be exchanged for an equal aggregate principal amount of definitive Registered Regulation S Securities upon presentation to the Trustee at its office in London of a request for such exchange accompanied by a certification of Non-U.S. beneficial ownership. (e) The definitive Securities and Coupons shall be printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the Officers executing such 25 Securities and Coupons, as evidenced by such execution. (f) Bearer Securities and Registered Securities may only be issued in exchange for interests in the Temporary Regulation S Global Security upon receipt of certification of non-U.S. beneficial ownership and undertakings not to resell the related security in the United States or in contravention of restrictions on resale to U.S. Persons. Bearer Securities will be delivered only outside the United States, its territories or its possessions. (g) The delivery to the Trustee by the Euroclear Operator or Cedel of any certificate referred to above may be relied upon by the Company and the Trustee as conclusive evidence that a corresponding certificate or certificates has or have been delivered to the Euroclear Operator or Cedel pursuant to the terms of this Indenture. (h) Upon any such exchange of a portion of the Regulation S Global Security for a definitive Bearer Security or Securities or a definitive Registered Regulation S Security or Securities, the Regulation S Global Security shall be endorsed by the Trustee to reflect the reduction of its principal amount by an amount equal to the aggregate principal amount of such definitive Security or Securities. Until so exchanged in full for definitive Securities, the Regulation S Global Security shall in all respects be entitled to the same benefits under this Indenture as definitive Securities authenticated and delivered hereunder, except that neither the Holder thereof nor the beneficial owners of the Regulation S Global Security shall be entitled to receive payment of interest thereon or exercise conversion rights with respect thereto. SECTION 2.8. Replacement Securities. If a mutilated Security or a Security with a mutilated Coupon appertaining thereto is surrendered to the Trustee or if the Holder of a Security or Coupon claims and submits to the Trustee an affidavit or other evidence, satisfactory to the Trustee, to the effect that the Security or Coupon has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate and deliver, in lieu of any such lost, destroyed or wrongfully taken Security or in exchange for the Security to which a lost, destroyed or wrongfully taken Coupon appertains (with all appurtenant Coupons not lost, destroyed or wrongfully taken) a replacement Security with Coupons corresponding to the Coupons, if any, appertaining to such lost, destroyed or wrongfully taken Security or to the Security to which such lost, destroyed or wrongfully taken Coupon appertains, if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security or Coupon is replaced. The Company may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Security or Coupon. In case any such lost, destroyed or wrongfully taken Security or Coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security or Coupon; provided, however, that principal of and any premium and interest on Bearer Securities shall, except as otherwise provided in the Bearer Securities, be payable only at an office or agency located outside the United States and its possessions. Every replacement Security or Coupon is an additional obligation of the 26 Company. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons. SECTION 2.9. Outstanding Securities. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee (including any Security represented by a Rule 144A Global Security or a Regulation S Global Security) except those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Security effected by the Trustee hereunder and those described in this Section 2.9 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security, except as provided in Section 2.10 hereof. If a Security is replaced pursuant to Section 2.8 hereof (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.8 hereof. If on a Redemption Date the Paying Agent (other than the Company or an Affiliate of the Company) holds Cash or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Securities payable on that date in accordance with Section 3.3 hereof and payment of the Securities called for redemption is not otherwise prohibited pursuant to Article XII hereof or otherwise, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. SECTION 2.10. Treasury Securities. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, amendment, supplement, waiver or consent, Securities owned by the Company or an Affiliate of the Company shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, amendment, supplement, waiver or consent, only Securities that the Trustee actually knows are so owned shall be disregarded. SECTION 2.11. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company reasonably and in good faith considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as permanent Securities authenticated and delivered hereunder, except as provided in Section 2.7(h) hereof. SECTION 2.12. Cancellation. 27 The Company at any time may deliver Securities or Coupons to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities or Coupons surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent (other than the Company or an Affiliate of the Company), and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Securities or Coupons surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.8 hereof, the Company may not issue new Securities or Coupons to replace Securities or Coupons that have been paid or delivered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 2.12, except as expressly permitted in the form of Securities and as permitted by this Indenture. SECTION 2.13. Payment. (a) The Company will pay or cause to be paid to the Paying Agent the amounts, at the times and for the purposes, set forth herein and in the text of the Securities, and the Company hereby authorizes and directs the Paying Agent to make payment of the principal of, premium, if any, and interest on and Additional Amounts, if any, on the Securities from such payments. (b) At least 15 days prior to the date on which any payment of Additional Amounts shall be required to be made pursuant to Section 2 of the Securities, the Company will furnish the Paying Agent, each other paying agency of the Company and the Trustee with a certificate of one of its duly authorized officers instructing the Paying Agent and each other paying agency of the Company as to the amounts required (i) to be deducted or withheld for or on account of any taxes described in Section 2 of the Securities from a payment to be made on that date and (ii) to be paid to each holder of Securities or Coupons as Additional Amounts pursuant to that paragraph. If the foregoing amounts are not uniform for all Holders, then the Company's certificate shall specify by country of residence or other factor the amounts required to be deducted or withheld and to be paid as Additional Amounts for each Holder or class of Holders of the Securities or Coupons. In the absence of its receipt of any such certificate from the Company, the Paying Agent may make payment without deduction or withholding. The Company hereby agrees to indemnify the Paying Agent, each other paying agency of the Company and the Trustee for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or willful misconduct on their part, arising out of or in connection with actions taken or omitted by any of them in reliance on any certificate furnished pursuant to this Section. (c) Interest on any Registered Security that is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Security is registered at the close of business on the Interest Record Date even if such Registered Security is cancelled after such Interest Record Date. In case a Bearer Security is surrendered for exchange for a Registered Security after the close of business on any Interest Record Date and before the opening of business on the next succeeding Interest Payment Date, the Trustee shall not be required to perform such transfer or exchange of such Security. (d) If a Registered Security is converted after the close of business on an Interest Record Date and before the opening of business on the next succeeding Interest Payment Date, the interest due on such Interest Payment Date shall be paid on such Interest Payment Date to the person in whose name 28 that Security is registered at the close of business on that Interest Record Date. (e) In order to provide for the payment of the principal of, premium, if any, and interest on the Securities (and Additional Amounts, if any, with respect thereto) as the same shall become due and payable, the Company shall pay to the Paying Agent to accounts specified by the Paying Agent, in cash or same day funds, the following amounts (and the Company shall give notice to the Trustee at least one full Business Day prior to the date payment is due to the Paying Agent as to the means of such payment), to be held and applied by the Paying Agent as hereinafter set forth: (i) The Company shall pay to the Paying Agent on the Business Day immediately prior to each Interest Payment Date an amount sufficient to pay the interest due on (and Additional Amounts, if any, on) all the Securities outstanding on such Interest Payment Date, and the Paying Agent shall apply the amounts so paid to it to the payment of such interest (and Additional Amounts, if any) on such Interest Payment Date. (ii) If the Company shall elect, or shall be required, to redeem all or any part of the Securities in accordance with Section 3.1 hereof, the Company will pay to the Paying Agent (other than the Company or an Affiliate of the Company) on the Business Day immediately prior to the Redemption Date thereof an amount sufficient (with any amount then held by the Paying Agent and available for the purpose) to pay the Redemption Price of the Securities called for redemption or entitled to be redeemed, together with accrued interest thereon (and Additional Amounts, if any, with respect thereto) to the Redemption Date fixed for redemption and not paid pursuant to clause (e)(i) of this Section 2.13, and the Paying Agent shall apply such amount to the payment of the Redemption Price and accrued interest (and Additional Amounts, if any) in accordance with the terms of Article III hereof. (iii) On the Business Day immediately prior to the Stated Maturity of the Securities, the Company shall pay to the Paying Agent an amount which, together with any amounts then held by the Paying Agent, and available for payment thereof, shall be equal to the entire amount of principal and interest (and Additional Amounts, if any) to be due on such maturity date on all the Securities then outstanding, and the Paying Agent shall apply such amount to the payment of the principal of and interest on (and Additional Amounts, if any, on) the Securities in accordance with the terms of the Securities. SECTION 2.14. Defaulted Interest. Any interest on any Registered Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date plus, to the extent lawful, any interest payable on the defaulted interest (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered holder on the relevant Interest Record Date, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may make payment of any Defaulted Interest to the Holder of a Registered Security on a subsequent record date established by notice given by mail by or on behalf of the Company to such Holder not less than 15 days preceding such subsequent record date, such record date to be not less 29 than 10 days preceding the date of payment of such Defaulted Interest. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner shall be deemed reasonably practicable by the Trustee. Any Defaulted Interest payable in respect of any Bearer Security shall be payable pursuant to such procedures as may be satisfactory to the Trustee in such manner that there is no discrimination between the Holders of Registered Securities and Bearer Securities, and notice of the payment date therefor shall be given by the Trustee, in the name and at the expense of the Company, in the manner provided in Section 14.2 hereof. Subject to the foregoing provisions of this Section 2.14, each Security delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 2.15. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE III REDEMPTION SECTION 3.1. Right of Redemption. If, under the circumstances described in Section 3 of the Registered Securities and Bearer Securities, the Company shall elect or be required to redeem the outstanding Securities, the following provisions shall be applicable: (a) Except in the case of redemption pursuant to Section 3(d) of the Registered Securities and the Bearer Securities (in which case notice shall be given by the Company as provided in subsection (c) of this Section 3.1), the Company shall, at least 75 days (or such shorter period as shall be reasonably acceptable to the Trustee) before the date designated for such redemption, give written notice to the Agents of its election to redeem the outstanding Securities on the Redemption Date specified in such notice and state in such notice that the conditions precedent to such redemption have occurred and describe them, and shall request the Trustee to arrange for publication and mailing of the notice specified in clause (b) below. (b) In the case the Company shall give notice to the Agents of its election to redeem the Securities, the Trustee shall cause to be given to Holders on behalf of and at the expense of the Company a notice of redemption in accordance with Section 14.2 hereof. The Trustee shall send a copy of such notice of redemption to the Company, the Paying Agent (if different from the Trustee) and each other paying agency of the Company. In the case of a redemption in whole, notice will be given once not more than 60 nor less than 30 days prior to the Redemption Date. In the case of a partial redemption, notice will be given twice, the first such notice to be given not more than 60 nor less than 45 days prior to the Redemption Date and the second such notice 30 to be given not more than 45 and not less than 30 days prior to the Redemption Date. The Trustee shall notify the Company promptly of the portions of outstanding Securities to be called for redemption as determined pursuant to Section 3(a) of the Registered Securities and Bearer Securities. (c) Under the circumstances described in Section 3(d) of the Registered Securities and Bearer Securities concerning the redemption of outstanding Securities at the option of the Holders thereof, the following provisions shall be applicable: (i) The Company shall give notice to the Trustee of the occurrence of a Change of Control immediately upon the occurrence of such Change of Control or, if later, immediately upon learning of the occurrence of such Change of Control (provided, that the Company shall be deemed to have knowledge of any information contained in any Statement on Schedule 13D or 13G filed with the Commission). Such notice shall state: A. The Holder Redemption Date in respect of such Change of Control; B. The Redemption Price as set forth in Section 3(d) of the Registered Securities and Bearer Securities; C. The place or places of payment of the Registered Securities and Bearer Securities; and D. Such other information as the Company shall deem advisable. (ii) The Trustee shall cause to be given to the Holders on behalf of the Company a notice of entitlement to redeem in accordance with the provisions of Section 14.2 hereof. Such notice shall be given on behalf and at the expense of the Company and shall be given not later than 30 days after the later of the Exchange Date, the date of the occurrence of a Change of Control or the date of receipt of notice by the Trustee from the Company of such Change of Control (the date on which such notice is given by the Trustee shall be the "Change of Control Notice Date"). (iii) Upon the deposit of any of the Registered Securities or Bearer Securities with the agency designated by the Company as the place for payment of the Registered Securities and Bearer Securities together with a duly signed and completed Redemption Notice in the form set forth on the reverse of the Bearer Securities and Registered Securities, all in accordance with the provisions of Section 3 of the Registered Securities and Bearer Securities, the Holder of such Registered Security and Bearer Security shall be entitled to receive a non-transferable receipt evidencing such deposit. (iv) The Trustee shall notify the Company on each Business Day in the five Business Days prior to the Holder Redemption Date for outstanding Securities to be redeemed under this Section 3.1(c) of the amount required to redeem such Securities. (d) Notices relating to the redemption of Securities whether at the option of the Company or the Holder thereof shall specify: the Redemption Date or the Holder Redemption Date, as the case may be; the Redemption Price; the place or places of payment; that payment will be made upon presentation and surrender of the Securities to be redeemed, together, in the case of a Bearer Security, with all appurtenant Coupons, if any, maturing subsequent to the 31 Redemption Date; that interest accrued to the Redemption Date will be paid as specified in such notice; that on and after said date interest thereon will cease to accrue; that the Holder will have the right to convert such Holder's Securities until the close of business on the fifth day (or if such day is not a Business Day, the next succeeding Business Day) preceding the related Redemption Date or Holder Redemption Date, as the case may be; and such other information as the Company may wish to include. In the case of a redemption by the Company at the option of the Holder of a Security, the notices given by the Trustee informing a Holder of such Holder's entitlement to redeem shall also specify that a Holder electing redemption will be entitled to revoke its election by delivering a written notice of such revocation, together with the Holder's nontransferable receipt for such Security, to the agency designated by the Company as the place for the payment of the Securities to be so redeemed not later than the Holder Redemption Date in the case of a redemption pursuant to Section 3(d) of the Registered Securities and Bearer Securities. In the case of a redemption in part at the option of the Company, notices shall specify the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities outstanding after such partial redemption. The first notice shall specify the last date on which exchanges or transfers of Securities may be made (in accordance with Section 2.6(o) hereof), and the second notice shall specify the serial numbers of the Securities and the portions thereof called for redemption. In the case of a redemption in whole or in part by the Company, notices shall specify the date the conversion privilege expires in accordance with Section 4(a) of the Registered Securities and Bearer Securities. Such notices shall also state that the conditions precedent, if any, to such redemption have occurred and, in the case of a redemption pursuant to Section 3(d) of the Registered Securities and Bearer Securities, the last day for surrender of the Securities being redeemed. SECTION 3.2. Effect of Notice of Redemption. Once notice of redemption is made in accordance with Section 3.1 hereof, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price, including accrued and unpaid interest and Additional Amounts, if any, to the Redemption Date. Upon surrender to the Trustee or Paying Agent, such Securities called for redemption shall be paid at the Redemption Price, including accrued and unpaid interest and Additional Amounts, if any, to the Redemption Date; provided that if the Redemption Date is after a regular Interest Record Date and on or prior to the corresponding Interest Payment Date, the accrued interest to the Redemption Date and Additional Amounts, if any, shall be payable on the Redemption Date to the Holder of the redeemed Securities registered on the relevant Interest Record Date; and provided, further, that if a Redemption Date is not a Business Day, payment shall be made on the next succeeding Business Day and no interest or Additional Amounts shall accrue for the period from such Redemption Date to such succeeding Business Day. SECTION 3.3. Deposit of Redemption Price. On the Business Day immediately prior to the Redemption Date, the Company shall deposit with the Paying Agent (other than the Company or an Affiliate of the Company) Cash sufficient to pay the Redemption Price of, including accrued and unpaid interest on, and Additional Amounts with respect to, all Securities to be redeemed on such Redemption Date (other than Securities or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation). The Paying Agent shall promptly return to the Company any Cash so deposited which is not required for that purpose upon the written request of the Company. 32 If the Company complies with the preceding paragraph and the other provisions of this Article III and payment of the Securities called for redemption is not prohibited under Article XII hereof or otherwise, interest and Additional Amounts on the Securities to be redeemed will cease to accrue on the applicable Redemption Date, whether or not such Securities are presented for payment. Notwithstanding anything herein to the contrary, if any Security surrendered for redemption in the manner provided in the Securities shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest and Additional Amounts shall continue to accrue and be paid from the Redemption Date until such payment is made on the unpaid principal, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate and in the manner provided in Section 4.1 hereof and the Security. SECTION 3.4. Securities Redeemed in Part. Upon surrender of a Security that is to be redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder, without service charge to the Holder, a new Security or Securities equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV COVENANTS SECTION 4.1. Payment of Securities. The Company shall punctually pay the principal of, premium, if any, interest on, and Additional Amounts, if any, with respect to, the Securities on the dates and in the manner provided in the Securities, as applicable. An installment of principal of, premium, if any, interest on, or Additional Amounts, if any, with respect to, the Securities shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds for the benefit of the Holders on that date Cash deposited and designated for and sufficient to pay the installment. The Company shall pay interest on overdue principal and on overdue installments of interest at the rate specified in the Securities compounded semi-annually, to the extent lawful. SECTION 4.2. Maintenance of Office or Agency. (a) So long as any of the Registered Securities remain outstanding or until monies for the payment of all principal of, premium, if any, and interest on (and Additional Amounts with respect to) all outstanding Securities shall have been made available at the office of the Paying Agent and shall have been returned to the Company as provided in Section 8.2 hereof, the Company will maintain in The City of New York, an office or agency where the Registered Securities may be presented or surrendered for payment, an office or agency where the Securities may be surrendered for conversion as provided in this Indenture and an office or agency where notices and demands to or upon the Company with respect to the Registered Securities or this Indenture may be served, in each case which office or agency shall be a bank or trust company organized, in good standing and doing business under the laws of the United States of America or of any State of the United States of America. So long as any Bearer Securities remain outstanding or until monies for the payment of all principal of, premium, if any, and interest on (and Additional Amounts with 33 respect to) all outstanding Bearer Securities shall have been made available at the office of the Paying Agent and shall have been returned to the Company as provided in Section 8.2 hereof, the Company will maintain, in at least one city in Western Europe, which shall be Luxembourg so long as the Securities are listed on the Luxembourg Stock Exchange, an office or agency where Bearer Securities may be surrendered for payment or conversion pursuant to Section 2.6 hereof and where notices and demands to or upon the Company in respect of the Bearer Securities of that series or of this Indenture may be served. The Company now intends to maintain additional agencies (subject to applicable laws and regulations) where Bearer Securities and Coupons may be surrendered for payment, where Registered Securities may be surrendered for payment and where Securities may be surrendered for conversion in London, England, and during such period to keep the Agents advised of the names and locations of such agencies. Unless the Company shall otherwise notify each of the Agents in writing, the sole such paying agencies and conversion agencies shall be the agencies specified in the Securities. (b) So long as there shall be Securities outstanding or until monies for the payment of all principal of, premium, if any, and interest on (and Additional Amounts with respect to) all outstanding Securities shall have been made available at the office of the Paying Agent and shall have been returned to the Company as provided in Section 8.2 hereof, the Company shall maintain a Security Registrar and additional transfer agencies (each, a "Transfer Agent" and, collectively, the "Transfer Agents") (i) where Registered Securities may be surrendered for registration of transfer or for exchange for Registered Securities in The City of New York and (ii) in at least one city in Western Europe, which shall be Luxembourg so long as the Securities are listed on the Luxembourg Stock Exchange, where Registered Securities may be surrendered for purposes of such transfer or exchange, and where Bearer Securities may be delivered in exchange for Bearer Securities or for Registered Securities. Consistent with applicable laws and regulations, including the provisions of the federal income tax laws of the United States, such agencies may be the same agencies as or different agencies from those maintained by the Company pursuant to Section 4.2(a). The Company hereby appoints the London Office of The Chase Manhattan Bank, N.A. and Chase Manhattan Bank Luxembourg S.A., 5 Rue Plaetis, L-2338 Luxembourg, as Transfer Agents for such transfers and exchanges. The registration of transfer or exchange of Registered Securities shall only be made by the Trustee in The City of New York. (c) The Company will give to the Trustee written notice of the locations of such offices or agencies and of any change in the locations thereof. If at any time the Company shall fail to maintain any such offices or agencies or shall fail to give such notice of the location or of any change in the locations thereof, presentations, surrenders, notices and demands in respect of Registered Securities may be made or served at the principal corporate trust office of the Trustee in The City of New York and in respect of Bearer Securities may be made or served at the principal office of the Trustee in London, England at which at any particular time its corporate trust business shall be administered. SECTION 4.3. Corporate Existence. Subject to Article V hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate or other existence of each of its Significant Subsidiaries in accordance with the respective organizational documents of each of them and the rights (charter and statutory) and corporate franchises of the 34 Company and each of its Significant Subsidiaries; provided, however, that the Company shall not be required to preserve, with respect to itself, any right or franchise, and with respect to any of its Significant Subsidiaries, any such existence, right or franchise, if (a) the Board of Directors of the Company shall reasonably determine (evidenced by a Board Resolution certified by the Secretary of the Company and delivered to the Trustee) that the preservation thereof is no longer desirable in the conduct of the business of such entity and (b) the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 4.4. Payment of Taxes and Other Claims. Except with respect to immaterial items, the Company shall, and shall cause each of its Subsidiaries to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon the Company or any of its Subsidiaries or any of their respective properties and assets and (ii) all lawful claims, whether for labor, materials, supplies, services or anything else, which have become due and payable and which by law have or may become a Lien upon the property and assets of the Company or any of its Subsidiaries; provided, however, that neither the Company nor any Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves have been established in accordance with GAAP. SECTION 4.5. Maintenance of Properties and Insurance. The Company shall cause all material properties used or useful to the conduct of its business and the business of each of its Subsidiaries to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in their reasonable judgment may be necessary, so that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section 4.5 shall prevent the Company or any Subsidiary from discontinuing any operation or maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is (a), in the reasonable judgment of the Board of Directors of the Company (evidenced by a Board Resolution certified by the Secretary of the Company and delivered to the Trustee), desirable in the conduct of the business of such entity and (b) not disadvantageous in any material respect to the Holders. The Company shall provide, or cause to be provided, for itself and each of its Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the reasonable, good faith opinion of the Company is adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner, with (except for self-insurance) reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the reasonable, good faith opinion of the Company and adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner for entities similarly situated in the industry, unless failure to provide such insurance (together with all other such failures) would not have a material 35 adverse effect on the financial condition or results of operations of the Company or such Subsidiary. SECTION 4.6. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee within 120 days after the end of its fiscal year an Officers' Certificate complying with Section 314(a)(4) of the TIA and stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, whether or not the signer knows of any failure by the Company or any Subsidiary of the Company to comply with any conditions or covenants in this Indenture and, if such signor does know of such a failure to comply, the certificate shall describe such failure with particularity. The Officers' Certificate shall also notify the Trustee should the relevant fiscal year end on any date other than the current fiscal year end date. (b) The Company shall, so long as any of the Securities are outstanding, deliver to the Trustee, promptly upon becoming aware of any Default, Event of Default or fact which would prohibit the making of any payment to or by the Trustee in respect of the Securities, an Officers' Certificate specifying such Default, Event of Default or fact and what action the Company is taking or proposes to take with respect thereto. The Trustee shall not be deemed to have knowledge of any Default, any Event of Default or any such fact unless one of its Trust Officers receives written notice thereof from the Company or any of the Holders. SECTION 4.7. Reports. Whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the Trustee and to each Holder identified to the Company, and to prospective purchasers of Securities identified to the Company by NatWest Securities Limited, within 15 days after it is or would have been required to file such with the Commission, annual and quarterly consolidated financial statements substantially equivalent to financial statements that would have been included in reports filed with the Commission if the Company was subject to the requirements of Section 13 or 15(d) of the Exchange Act, including, with respect to annual information only, a report thereon by the Company's certified independent public accountants as such would be required in such reports to the Commission and, in each case, together with a management's discussion and analysis of financial condition and results of operations which would be so required. SECTION 4.8. Limitation on Status as Investment Company. Neither the Company nor any of its Subsidiaries shall become an "investment company" (as that term is defined in the Investment Company Act of 1940, as amended), or otherwise become subject to regulation under the Investment Company Act. SECTION 4.9. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or 36 take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of, premium of, interest on, or Additional Amounts with respect to, the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.10. Rule 144A Information Requirement. The Company shall furnish to the Holders or beneficial holders of the Securities or the underlying Common Stock and prospective purchasers of Securities or the underlying Common Stock designated by the Holders of Securities or the underlying Common Stock, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time as the Securities are no longer "restricted securities" within the meaning of Rule 144 under the Securities Act. ARTICLE V SUCCESSOR CORPORATION SECTION 5.1. Limitation on Merger, Sale or Consolidation. (a) The Company shall not, directly or indirectly, consolidate with or merge with or into another Person or sell, lease, convey or transfer all or substantially all of its assets (computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another Person or group of affiliated Persons, unless (i) either (A) in the case of a merger or consolidation, the Company is the surviving entity or (B) the resulting, surviving or transferee entity is a corporation organized under the laws of the United States, any state thereof or the District of Columbia and expressly assumes by supplemental indenture all of the obligations of the Company in connection with the Securities and the Indenture; (ii) no Default or Event of Default shall exist or shall occur immediately before or after giving effect on a pro forma basis to such transaction; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and, if a supplemental indenture is required, such supplemental indenture comply with the Indenture and that all conditions precedent relating to such transactions have been satisfied. (b) For purposes of clause (a) of this Section 5.1, the sale, lease, conveyance, assignment, transfer, or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute all or substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 5.2. Successor Corporation Substituted. Upon any consolidation or merger or any sale, lease, conveyance or transfer of all or substantially all of the assets of the Company in accordance 37 with the foregoing, the successor corporation formed by such consolidation or into which the Company is merged or to which such sale, lease, conveyance or transfer is made, shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor corporation had been named therein as the Company, and when a successor corporation duly assumes all of the obligations of the Company pursuant hereto and pursuant to the Securities, the predecessor (except in the case of a lease) shall be released from such obligations (except with respect to any obligations that arise from or as a result of such transaction). ARTICLE VI EVENTS OF DEFAULT AND REMEDIES SECTION 6.1. Events of Default. "Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be caused voluntarily or involuntarily or effected, without limitation, by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the failure by the Company to pay any installment of interest or Additional Amounts (as described in Section 2 of the Securities) with respect to any of the Securities as and when due and payable and the continuance of any such failure for a period of 30 days after the date when due; (b) the failure by the Company to pay all or any part of the principal, or premium, if any, on the Securities when and as the same becomes due and payable at maturity or upon redemption, by acceleration or otherwise; (c) the failure by the Company to perform any conversion of the Securities required under this Indenture and the continuance of such failure for a period of 60 days; (d) the failure by the Company duly to perform or observe any other term, covenant or agreement contained in any of the Securities or in this Indenture for a period of 60 days after the date on which written notice of such failure, requiring the Company to remedy the same and stating that such notice is a "Notice of Default" hereunder, shall first have been given to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Securities at the time outstanding; provided, however, that, in the event the Company shall within the aforesaid period of 60 days commence legal action in a court of competent jurisdiction seeking a determination that the Company had not failed to duly perform or observe the term or terms, covenant or covenants or agreement or agreements specified in the aforesaid notice, such failure shall not be an Event of Default unless the same continues for a period of 10 days after the date of any final determination to the effect that the Company had failed to duly perform or observe one or more of such terms, covenants or agreements; (e) the entry, by a court having jurisdiction in the premises, of a decree or order for relief in respect of the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding under any 38 applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or such subsidiary or for any substantial part of the property of either of them or ordering the winding-up or liquidation of the affairs of its and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (f) the commencement by the Company or a Significant Subsidiary of the Company of a voluntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or its consent to the entry of an order for relief in an involuntary case under any such law or to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or such subsidiary or any substantial part of its property, or its making of any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due; (g) the Company shall default in the payment of the principal of, premium, if any, or interest when due on any Indebtedness of the Company or any of its Significant Subsidiaries that extends beyond any applicable grace period with respect thereto, or an acceleration so that the same shall be or become due and payable prior to the date on which the same would otherwise have become due and payable of any Indebtedness of the Company or any of its Significant Subsidiaries with an aggregate principal balance in excess of U.S. $10,000,000, and such failure to pay shall not have been remedied or cured by the Company or such Significant Subsidiary or waived by the holders of such Indebtedness; or (h) the entry, by a court having jurisdiction over the Company or any Significant Subsidiary of the Company of a final judgment, decree or order against any of them in an amount in excess of U.S. $2,000,000 at any one time and that is not satisfied, stayed, bonded or discharged within 60 days. Notwithstanding the 60-day period and notice requirement contained in Section 6.1(d) above, with respect to a default under Section 3(d) of the Securities the 60-day period referred to in Section 6.1(d) shall be deemed to have begun as of the date the Change of Control notice is required to be sent in the event that the Company has not complied with the provisions of Section 3 of the Securities and the Trustee or Holders of at least 25% in principal amount of the outstanding Securities thereafter give the Notice of Default referred to in Section 6.1(d) to the Company and, if applicable, the Trustee. SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment. If an Event of Default occurs and is continuing, then within five Business Days after the Company becomes aware of such Event of Default the Company will provide written notice to the Trustee describing such Event of Default and the date on which it occurred. The Trustee will give notice of such Event of Default to the Holders of the Securities within 90 days after its receipt of written notice thereof from the Company. If an Event of Default occurs and is continuing, unless the principal of all of the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of then outstanding Securities, by a notice in writing to the Company (and to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all of the principal of the Securities, including in each case accrued interest thereon and Additional Amounts, if any, 39 with respect thereto, to be due and payable immediately. If an Event of Default specified in Section 6.1(e) or (f) relating to the Company or any SignificantSubsidiary occurs, all principal, accrued interest thereon and Additional Amounts, if any, with respect thereto will be immediately due and payable on all outstanding Securities without any declaration or other act on the part of the Trustee or the Holders. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided in this Article VI, the Holders of not less than a majority in aggregate principal amount of then outstanding Securities, by written notice to the Company and the Trustee, may rescind, on behalf of all Holders, any such declaration of acceleration if: (a) the Company has paid or deposited with the Trustee Cash sufficient to pay: (1) all overdue interest on, and Additional Amounts, if any, with respect to, all Securities; (2) the principal of (and premium, if any, applicable to) any Securities which would then be due otherwise than by such declaration of acceleration, and interest thereon at the rate borne by the Securities; (3) to the extent that payment of such interest is lawful, interest upon overdue interest and Additional Amounts, if any, at the rate borne by the Securities; and (4) all sums paid or advanced by the Trustee hereunder and the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (b) all Events of Default, other than the non-payment of the principal of, premium, if any, interest on and Additional Amounts, if any, with respect to Securities that have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.12 hereof, including, if applicable, any Event of Default relating to the covenants contained in Section 3(d) of the Registered Securities and the Bearer Securities. Notwithstanding the previous sentence of this Section 6.2, no waiver shall be effective against any Holder for any Event of Default or Default with respect to any covenant or provision which cannot be modified or amended without the consent of the Holder of each outstanding Security affected thereby, unless all such affected Holders agree, in writing, to waive such Event of Default or other event. No such waiver shall cure or waive any subsequent Default or Event of Default or impair any right consequent thereon. SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if an Event of Default in payment of principal, premium, interest or Additional Amounts specified in Section 6.1(a) or (b) occurs and is continuing, the Company shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, premium (if any), interest, Additional Amounts and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any), 40 Additional Amounts and on any overdue interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including compensation to, and expenses, disbursements and advances of, the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust in favor of the Holders, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effective to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 6.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, interest or Additional Amounts) shall be entitled and empowered, by intervention in such proceeding or otherwise to take any and all actions under the TIA, including: (1) to file and prove a claim for the whole amount of principal (and premium, if any), interest and Additional Amounts owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel) and of the Holders allowed in such judicial proceeding, and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to themaking of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment, or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to 41 vote in respect of the claim of any Holder in any such proceeding. SECTION 6.5. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust in favor of the Holders, and any recovery of judgment shall, after provision for the payment of compensation to, and expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 6.6. Priorities. Any money collected by the Trustee pursuant to this Article VI shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium (if any), interest or Additional Amounts, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the Trustee in payment of all amounts due pursuant to Section 7.7 hereof; SECOND: To the holders of Senior Indebtedness of the Company to the extent provided in Article XII hereof; THIRD: To the Holders in payment of the amounts then due and unpaid for principal of, premium (if any), interest on and Additional Amounts with respect to, the Securities in respect or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium (if any), interest and Additional Amounts, respectively; and FOURTH: To whosoever may be lawfully entitled thereto, the remainder, if any. The Trustee may fix a record date and payment date for any payment by it to Holders pursuant to this Section. SECTION 6.7. Limitation on Suits. No Holder of any Security shall have any right to order or direct the Trustee to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of then outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities to be incurred or reasonably probable to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of then outstanding Securities; it being understood and intended that no one or 42 more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 6.8. Unconditional Right of Holders to Receive Principal, Premium, Interest and Additional Amounts. Notwithstanding any other provision of this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of, and premium (if any), interest on and Additional Amounts with respect to, such Security when due (including, in the case of redemption, the Redemption Price on the applicable Redemption Date) and to institute suit for the enforcement of any such payment after such respective dates, and such rights shall not be impaired without the consent of such Holder. SECTION 6.9. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 2.8 hereof, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.10. Delay or Omission Not Waiver. No delay or omission by the Trustee or by any Holder of any Security to exercise any right or remedy arising upon any Event of Default shall impair the exercise of any such right or remedy or constitute a waiver of any such Event of Default. Every right and remedy given by this ArticleVI or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 6.11. Control by Holders. The Holder or Holders of no less than a majority in aggregate principal amount of then outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee, provided, that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee shall not determine that the action so directed would be unjustly prejudicial to the Holders not taking part in such direction or would subject the Trustee to any liability, and (3) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.12. Waiver of Past Default. Subject to Section 6.8 hereof, the Holder or Holders of not less than a majority in aggregate principal amount of the outstanding Securities may, on 43 behalf of all Holders, prior to the declaration of acceleration of the maturity of the Securities, waive any past default hereunder and its consequences, except a default (A) in the payment of the principal of, premium, if any, interest on, or Additional Amounts with respect to, any Security not yet cured as specified in Section 6.1(a) or (b), or (B) in respect of a covenant or provision hereof which, under Article IX hereof, cannot be modified or amended without the consent of the Holder of each outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair the exercise of any right arising therefrom. SECTION 6.13. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted to be taken by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 6.13 shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in aggregate principal amount of then outstanding Securities, or to any suit instituted by any Holder for enforcement of the payment of principal of, premium (if any), interest on or Additional Amounts with respect to, any Security on or after the Stated Maturity of such Security (including, in the case of redemption, on or after the Redemption Date).SECTION 6.14. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.15. Enforcement of Rights of Conversion by Holders. Anything in this Indenture to the contrary notwithstanding, the Holder of any Security, without reference to and without the consent of either the Trustee or the Holder of any other Security, in his own behalf and for his own benefit may enforce, and may institute and maintain any proceedings suitable to enforce, his right to convert his Security into Common Stock as provided in Article XIII. 44 ARTICLE VII TRUSTEE The Trustee hereby accepts the trust imposed upon it by this Indenture and covenants and agrees to perform the same, as herein expressed. SECTION 7.1. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no others, and no covenants or obligations shall be implied in or read into this Indenture which are adverse to the Trustee. (2) In the absence of willful misconduct on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph (c) does not limit the effect of paragraph (b) of this Section 7.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.11 hereof. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or at the request, order or direction of the Holders or in the exercise of any of its rights or powers if it shall have reasonable grounds forbelieving that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section 7.1. 45 (f) The Trustee shall not be liable for interest on any assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 7.2. Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 14.4 and 14.5 hereof, if applicable. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or the written advice of counsel. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders, pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (g) Unless otherwise specifically provided for in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (h) The Trustee shall have no duty to inquire as to the performance of the Company's covenants in Article IV hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Section 6.1(a) or (b), or (ii) any Default or Event of Default of which a Trust Officer of the Trustee shall have received written notification from the Company or any Holder or obtained actual knowledge. SECTION 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company, any of its Subsidiaries, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11 hereof. 46 SECTION 7.4. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities and it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities, other than the Trustee's certificate of authentication, or the use or application of any funds received by a Paying Agent other than the Trustee. SECTION 7.5. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall give to Securityholders in accordance with Section 14.2 notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal (or premium, if any) of, interest on or Additional Amounts with respect to, any Security (including the payment of the Redemption Price on the Redemption Date), the Trustee may withhold the notice if and so long as a Trust Officer in good faith determines that withholding the notice is in the interest of the Securityholders. SECTION 7.6. Reports by Trustee to Holders. Within 60 days after each June 30 beginning with the June 30 following the date of this Indenture, the Trustee shall, if required by Section 313(a) of the TIA, transmit to the Holders a brief report dated as of such June 30 that complies with Section 313(a) of the TIA. The Trustee also shall comply with Section 313(b) and 313(c) of the TIA. The Company shall promptly notify the Trustee in writing if the Securities become listed on any stock exchange or automatic quotation system. A copy of each report at the time of its mailing to Securityholders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Securities are listed. Reports pursuant to this Section 7.6 shall be transmitted by mail: (1) to all holders of Registered Securities as the names and addresses of such Holders appear in the Security Register; and (2) toother Holders of Securities as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for such purpose. SECTION 7.7. Compensation and Indemnity. The Company agrees to pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents, accountants, experts and counsel. The Company agrees to indemnify the Trustee and each of its officers, directors, attorneys-in-fact and agents for, and hold it harmless against, any claim, demand, expense (including but not limited to reasonable compensation, disbursements and expenses of the Trustee's agents and counsel), loss or liability incurred by it without negligence or willful misconduct on its part, arising out of or in connection with the administration of this trust and its rights or duties hereunder including the reasonable costs and expenses of 47 defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall provide reasonable cooperation at the Company's expense in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel; provided, that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and in the Trustee's sole reasonable determination there is no conflict of interest between the Company and the Trustee in connection with such defense. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all assets held or collected by the Trustee, in its capacity as Trustee, except assets held in trust prior to any Event of Default to pay principal and premium, if any, of or interest on, or Additional Amounts with respect to, particular Securities. Without limiting any of the rights available to the Trustee under applicable law, when the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(e) or (f) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. The Company's obligations under this Section 7.7 and any lien arising hereunder shall survive the resignation or removal of the Trustee, the discharge of the Company's obligations pursuant to Article VIII of this Indenture and any rejection or termination of this Indenture under any Bankruptcy Law. SECTION 7.8. Replacement of Trustee. The Trustee may resign by so notifying the Company in writing. The Holder or Holders of a majority in principal amount of then outstanding Securities may remove the Trustee by so notifying the Company and the Trustee in writing and may appoint a successor trustee with the Company's consent. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged bankrupt or insolvent; (c) a receiver, custodian, or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holder or Holders of a majority in principal amount of then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that and provided that all sums owing to the retiring Trustee provided for in Section 7.7 have been paid, the retiring Trustee shall transfer all property held by it as trustee to the successor Trustee, subject to the lien provided in Section 48 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. a successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holder or Holders of at least 10% in principal amount of then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder who has been a bonafide holder of a Security for at least 6 months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee.SECTION 7.9. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of Section 310(a)(1), (2) and (5) of the TIA. The Trustee shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with Section 310(b) of the TIA, subject to the penultimate paragraph thereof. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with Section 311(a) of the TIA, excluding any creditor relationship listed in Section 311(b) of the TIA. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the TIA to the extent indicated. ARTICLE VIII SATISFACTION AND DISCHARGE SECTION 8.1. Satisfaction and Discharge of Indenture. If (a) the Company shall deliver to the Trustee for cancellation all Securities theretofore authenticated other than (1) any Securities which shall have been lost, destroyed or wrongfully taken and which shall have been replaced or paid as provided in Section 2.08 or (2) any Securities for the payment of the principal of which money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 8.2, and not theretofore cancelled, or (b) all the Securities not theretofore cancelled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee, in trust, funds (other than funds repaid by the Trustee to 49 the Company in accordance with Section 8.2) sufficient to pay at maturity or upon redemption all of such Securities (other than any Securities which shall have been lost, destroyed or wrongfully taken and which shall have been replaced or paid as provided in Section 2.08) not theretofore cancelled or delivered to the Trustee for cancellation, including principal of and premium, if any, and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to rights of registration of transfer and exchange of Securities and rights to receive payments thereon and the other rights of the holders of Securities, as beneficiaries hereof with respect to the amounts, if any, so deposited with the Trustee, all of which shall survive, and except that the Company's obligations under this Article, Sections 6.15 and 7.7 and Article XIII shall survive until the Securities are no longer outstanding), and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel complying with Sections 14.4 and 14.5 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses theretofore and thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Securities. SECTION 8.2. Repayment to the Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, for the payment of the principal of, premium, if any, interest on or Additional Amounts with respect to any Security and remaining unclaimed for two years after such principal, premium, if any, interest or Additional Amounts has become due and payable shall be paid to the Company on its request; and the Holder of such Security shall thereafter look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1. Supplemental Indentures Without Consent of Holders. Without the consent of any Holder, the Company, when authorized by Board Resolutions, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to cure any ambiguity, defect, or inconsistency, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided, that the Company has delivered to the Trustee an Opinion of Counsel stating that such action pursuant to this clause (1) does not adversely affect the interests of any Holder; (2) to create additional covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company or to make any other change that does not adversely affect the rights of any Holder, provided, that the Company has delivered to the Trustee an Opinion of Counsel stating that such change pursuant to this clause (2) does not adversely affect the rights of any Holder; (3) to provide for collateral for or guarantors of the Securities; (4) to evidence the succession of another Person to the Company and the assumption by any such successor of the obligations of the Company herein and in the Securities in accordance with Article V; (5) to comply with the TIA; 50 or (6) to comply with Section 13.6. SECTION 9.2. Amendments, Supplemental Indentures and Waivers with Consent of Holders. Subject to Section 6.8 and the last sentence of this paragraph, with the consent (evidenced as provided in Section 10.2 hereof) of the Holders of not less than a majority in aggregate principal amount of then outstanding Securities, by written act of said Holders delivered to the Company and the Trustee, the Company, when authorized by Board Resolutions, and the Trustee may amend or supplement this Indenture or the Securities or enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or the Securities or of modifying in any manner the rights of the Holders under this Indenture or the Securities. Subject to Section 6.8 and the last sentence of this paragraph, the Holder or Holders of not less than a majority in aggregate principal amount of then outstanding Securities may, in writing, waive compliance by the Company with any provision of this Indenture or the Securities. Notwithstanding any of the above, however, no such amendment, supplemental indenture or waiver shall, without the consent of the Holder of each outstanding Security affected thereby: (1) change the Stated Maturity of any Security or reduce the principal amount thereof or the rate (or extend the time for payment) of interest thereon or any premium payable upon the redemption thereof or Additional Amounts with respect thereto, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon or Additional Amounts with respect thereto is payable, or impair the right to institute suit for the enforcement of any such payment or the conversion of any Security on or after the due date thereof (including, in the case of redemption, on or after the Redemption Date), or reduce the Redemption Price, or alter redemption or Change in Control provisions in a manner adverse to the Holders; (2) reduce the percentage in principal amount of the outstanding Securities, the consent ofwhose Holders is required for any such amendment, supplemental indenture or waiver provided for in the Indenture; (3) modify any of the provisions of Article XII hereof in a manner adverse to the Holders; (4) adversely affect the right of such Holder to convert Securities; or (5) modify any of the waiver provisions, except to increase any required percentage or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each outstanding Security affected thereby. It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall give to the Holders in accordance with Section 14.2 a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. After an amendment, supplement or waiver under this Section 9.2 becomes effective, it shall bind each Holder. In connection with any amendment, supplement or waiver under this Article IX, the Company may, but shall not be obligated to, offer to any Holder who consents to such amendment, supplement or waiver, or (at the option of the Company) to all Holders, consideration for consent to such amendment, supplement or waiver. 51 SECTION 9.3. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.4. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of his Security by written notice to the Company or the Person designated by the Company as the Person to whom consents should be sent if such revocation is received by the Company or such Person before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Securities have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be the date so fixed by the Company notwithstanding the provisions of the TIA. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date, and only those Persons (or their duly designated proxies), shall be entitled to revoke any consent previously given, whether or not such Persons continue tobe Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder; provided, that any such waiver shall not impair or affect the right of any Holder to receive payment of principal and premium of and interest on and Additional Amounts with respect to a Security, on or after the respective dates set for such amounts to become due and payable expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.5. Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee or require the Holder to put an appropriate notation on the Security. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Any failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment, supplement or waiver. SECTION 9.6. Trustee to Sign Amendments, Etc. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized 52 pursuant to this Article IX is authorized or permitted by this Indenture. ARTICLE X MEETINGS SECTION 10.1. Meetings and Votes of Holders. (a) A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Section 10.1 for any of the following purposes: (i) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any Default hereunder and its consequences, or to take any other action authorized to be taken by Holders of Securities pursuant to Article IX hereof; or (ii) to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Securities under any other provision of this Indenture, the Registered Securities and Bearer Securities or under applicable law. (b) Meetings of Holders of Securities may be held at such place or places in The City of New York or London as the Trustee or, in case of its failure to act, the Company or the Holders calling the meeting shall from time to time determine. (c) The Trustee may at any time call a meeting of Holders of Securities to be held at such time and at such place in any of the locations designated in Section 10.1(b) hereof as the Trustee shall determine. Notice of every meeting of Holders shall be made as specified in Section 14.2 hereof, except that such notice shall set forth the time and the place of such meeting, in general terms the action proposed to be taken at such meeting and a general description of regulations applicable to such meeting and shall be published at least three times in the publications specified in such Section 14.2, the first publication to be not less than 21 nor more than 180 days prior to the date fixed for the meeting. (d) In case at any time the Company or the Holders of at least 25% in aggregate principal amount of the Securities shall have requested the Trustee to call a meeting of the Holders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have given the first notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount above specified may determine the time and the place in either of the locations designated in Section 10.1(b) hereof for such meeting and may call such meeting to take any action authorized in Section 10.1(a) hereof by giving notice thereof as provided in Section 10.1(c) hereof. (e) To be entitled to vote at any meeting of Holders of Securities, a person shall be (i) a Holder of one or more Securities, or (ii) a person appointed by an instrument in writing as proxy for a Holder or Holders of Securities by such Holder or Holders, which proxy need not be a Holder of Securities. The only persons who shall be entitled to be present or to speak at any meeting of Holders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. (f) The persons entitled to vote a majority in principal amount of the outstanding Securities shall constitute a quorum for the transaction of all business specified in Section 10.1(a) hereof. No business shall be transacted in the absence of a 53 quorum unless a quorum is represented when the meeting is called to order. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of the Holders of Securities (as provided in Section 10.1(d) hereof), be dissolved. In any other case the meeting shall be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting (except pursuant to Section 10.1(j)) shall be given as provided in Section 10.1(c) hereof except that such notice need be published only once but must be given not less than five days prior to the date on which the meeting is scheduled to be reconvened. Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum the persons entitled to vote 25% in principal amount of the Securities shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the aggregate principal amount of the Securities that shall constitute a quorum. At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by Section 6.8 and the last sentence of the first paragraph of Section 9.2 hereof) shall be effectively passed and decided if passed or decided by the persons entitled to vote a majority in principal amount of the Securities represented and voting at such meeting, provided that such amount shall be not less than 25% in principal amount of the Securities outstanding. Any Holder of a Security who has executed an instrument in writing appointing a person as his proxy shall be deemed to be present for the purposes of determining a quorum and be deemed to have voted; provided, however, that such Holder shall be considered as present or voting only with respect to the matters covered by such instrument in writing. Any resolution passed or decision taken at any meeting of the Holders of Securities duly held in accordance with this Section 10.1 shall be binding on all the Holders of Securities whether or not present or represented at the meeting. (g) Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to proof of the holding of Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Bearer Securities shall be proved by the production of the Bearer Securities or by a certificate executed, as depositary, by, and the appointment of any proxy shall be proved by having the signature of the person executing the proxy witnessed or guaranteed by, in each case, any trust company, bank or banker satisfactory to the Trustee. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified herein or other proof. The holding of Registered Securities shall be proved by the registry books maintained in accordance with Section 2.3 hereof or by a certificate or certificates of the Trustee in its capacity as the Company's agent for the maintenance of such books. (h) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by the Holders of Securities as provided in Section 10.1(d) hereof, in which case the Company or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority in principal amount of the Securities represented at the meeting and entitled to vote. 54 (i) At any meeting each Holder or proxy shall be entitled to one vote for each U.S.$1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Securities challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote, except as a Holder or proxy. (j) Any meeting of Holders of Securities duly called pursuant to Section 10.1(c) or 10.1(d) hereof at which a quorum is present may be adjourned from time to time by vote of the Holders (or proxies for the Holders) of a majority in principal amount of the Securities represented at the meeting and entitled to vote; and the meeting may be held as so adjourned without further notice. (k) The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the serial number or numbers of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was published as provided in Section 10.1(c) or 10.1(d) hereof and, if applicable, Section 10.1(f) hereof. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting, and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the copy delivered to the Trustee to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. SECTION 10.2. Action by Holders. Subject to Section 14.6, whenever in this Indenture it is provided that the Holders of a specified percentage in aggregate principal amount of the Securities may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action) the fact that at the time of taking any such action the Holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Holders in person or by agent or proxy appointed inwriting, or (b) by the record of Holders voting in favor thereof at any meeting of such Holders duly called and held in accordance with the provisions of Section 10.1 hereof, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Holders. 55 ARTICLE XI AGENTS SECTION 11.1.Offices, Resignation, Successors, Etc. of Agents; Paying, Conversion and Transfer Agencies. (a) Each of the Agents may at any time resign as such Agent by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective; provided, however, that such date shall never be less than 90 days after receipt of such notice by the Company unless the Company agrees to accept less notice. Each of the Agents hereunder may be removed at any time by the filing with it of any instrument in writing signed on behalf of the Company and specifying such removal and the date when it is intended to become effective. Such resignation or removal shall take effect upon the date of the appointment by the Company, as hereinafter provided, of a successor Conversion Agent, Transfer Agent or Paying Agent, as the case may be, and the acceptance of such appointment by such successor Agent. Upon its resignation or removal, each of the Agents shall be entitled to the payment by the Company of its compensation for the services rendered hereunder and to the reimbursement of all reasonable out-of-pocket expenses incurred in connection with the services rendered hereunder by such Agent. (b) In case at any time any of the Agents shall resign, or shall be removed, or shall be incapable of acting, or shall file a voluntary petition as a debtor under Chapter 7 or 11 of Title 11 of the United States Code or have an order for relief entered against it as a debtor under Chapter 7 or 11 of Title 11 of the United States Code or make an assignment for the benefit of its creditors or consent to the appointment of a receiver of all or any substantial part of its property, or shall admit in writing its inability to pay or meet its debts as they mature, or if an order of any court shall be entered approving any petition filed by or against any of the Agents under any legislation similar to the provisions of Title 11 of the United States Code, or if a receiver of it or of all or any substantial part of its property shall be appointed, or if any public officer shall take charge or control of it or of its property or affairs, for the purpose of rehabilitation, conservation or liquidation, a successor Agent, qualified as aforesaid, shall be appointed by the Company by an instrument in writing. Upon the appointment as aforesaid of a successor Agent and acceptance by it of such appointment, the Agent so superseded shall cease to be such Agent hereunder. If no successor Agent shall have been so appointed by the Company and shall have accepted appointment as hereinafter provided, any Holder of a Security, on behalf of itself and all others similarly situated, or any Agent may petition any court of competent jurisdiction for the appointment of a successor Agent and shall promptly notify the Company of such action. (c) Any successor Conversion Agent, Transfer Agent or Paying Agent appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder, and thereupon such successor Agent, without any further act, deed or conveyance, shall become vested with all the authority, rights, powers, trusts, immunities, duties and obligations of such predecessor with like effect as if originally named as such Agent hereunder, and such predecessor, upon payment of its charges and disbursements then unpaid, shall thereupon become obligated to transfer, deliver and pay over, and such successor Agent shallbe entitled to receive, all monies, securities or other property on deposit with or held by 56 such predecessor, as such Agent hereunder and any such predecessor removed pursuant to the second sentence of Section 11.1(a) shall be entitled to repayment of all costs associated with the transfer and delivery thereof. (d) Any corporation or bank into which any of the Agents hereunder may be merged or converted, or any corporation or bank with which such Agent may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which such Agent shall be a party, or any corporation or bank to which such Agent shall sell or otherwise transfer all or substantially all the assets and business of such Agent, shall be the successor to such Agent under this Indenture without the execution or filing of any document or any further act on the part of any of the parties hereto. ARTICLE XII SUBORDINATION SECTION 12.1. Securities Subordinated to Senior Indebtedness. The Company and each Holder, by its acceptance of Securities, agree that (a) the payment of the principal of and interest on, or Additional Amounts with respect to, the Securities and (b) any other payment in respect of the Securities, including on account of the acquisition or redemption of the Securities by the Company (including, without limitation, pursuant to Section 3(d) of the Registered Securities and the Bearer Securities) is subordinated, to the extent and in the manner provided in this Article XII, to the prior payment in full of all Senior Indebtedness of the Company, and all other Obligations in respect thereof, whether outstanding at the date of this Indenture or thereafter created, incurred, assumed or guaranteed, and that these subordination provisions are for the benefit of the holders of Senior Indebtedness. This Article XII shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, and such provisions are made for the benefit of the holders of Senior Indebtedness, and such holders are made obligees hereunder and any one or more of them may enforce such provisions. To the extent any provision of this Article XII conflicts or is inconsistent with any other provision of this Indenture, the provisions of this Article XII shall govern and supersede such inconsistent or conflicting provision. SECTION 12.2. No Payment on Securities in Certain Circumstances. (a) No payment may be made by the Company on account of the principal of, premium, if any, interest on, or Additional Amounts with respect to, the Securities, or to acquire any of the Securities (including redemptions of Securities at the option of the Holder) for cash or property (other than Junior Securities), or on account of the redemption provisions of the Securities, (i) upon the maturity of any Senior Indebtedness of the Company by lapse of time, acceleration (unless waived) or otherwise, unless and until all principal of, premium, if any, and interest on such Senior Indebtedness and all other Obligations in respect thereof are first paid in full (or such payment is duly provided for), or (ii) in the event of default in the payment of any principal of, premium, if any, or interest on, or any other Obligation in respect of, any Senior Indebtedness of the Company when it becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise (a 57 "Payment Default"), unless and until such Payment Default has been cured or waived by the holders of such Senior Indebtedness or otherwise has ceased to exist. (b) Upon (i) the happening of an event of default (other than a Payment Default) that permits the holders of any Senior Indebtedness or their representative immediately to accelerate its maturity and (ii) written notice of such event of default given to the Company and the Trustee by the requisite holders of such Senior Indebtedness or their representative (a "Payment Notice"), then, unless and until such event of default has been cured or waived by the requisite holders of suchSenior Indebtedness or otherwise has ceased to exist, no payment (by set-off or otherwise) may be made by or on behalf of the Company on account of the principal of, premium, if any, interest on, or Additional Amounts with respect to, the Securities, or to acquire or repurchase any of the Securities for cash or property, or on account of the redemption provisions of the Securities, in any such case other than payments made with Junior Securities of the Company. Notwithstanding the foregoing, unless (I) the Senior Indebtedness in respect of which such event of default exists has been declared due and payable in its entirety within the Payment Blockage Period, and (II) such declaration has not been rescinded or waived by the requisite holders of such Senior Indebtedness, at the end of the Payment Blockage Period, the Company shall be required to pay all sums not paid to the Holders of the Securities during the Payment Blockage Period due to the foregoing prohibitions and to resume, subject to this Article XII, all other payments as and when due on the Securities. Any number of Payment Notices may be given; provided, however, that (A) not more than one Payment Notice shall be given within a period of any 360 consecutive days, and (B) no default that existed upon the date of such Payment Notice or the commencement of such Payment Blockage Period (whether or not such event of default is on the same issue of Senior Indebtedness) shall be made the basis for the commencement of any other Payment Blockage Period. (c) In furtherance of the provisions of Section 12.1, in the event that, notwithstanding the foregoing provisions of this Section 12.2, any payment or distribution of assets of the Company (other than Junior Securities) shall be received by the Trustee or the Holders or any Paying Agent at a time when such payment or distribution is prohibited by the provisions of this Section 12.2, then such payment or distribution shall be received and held in trust by the Trustee or such Holders or Paying Agent (or, if the Company or any Affiliate of the Company is acting as its own Paying Agent, money for any such payment or distribution shall be segregated or held in trust) for the benefit of the holders of Senior Indebtedness of the Company, and shall be paid or delivered by the Trustee or such Holders or such Paying Agent, as the case may be, to the holders of Senior Indebtedness of the Company remaining unpaid or unprovided for or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Indebtedness of the Company may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness of the Company held or represented by each, for application to the payment of all Senior Indebtedness of the Company in full after giving effect to any concurrent payment and distribution to the holders of such Senior Indebtedness, but only to the extent that as to any holder of such Senior Indebtedness, as promptly as practical following receipt by such holder of written notice from the Trustee to the holders of such Senior Indebtedness that such prohibited payment has been received by the Trustee, Holder(s) or Paying Agent (or has been segregated as provided above), such holder (or a representative therefor) notifies the Trustee of the amounts then due and owing on such Senior 58 Indebtedness, if any, held by such holder and only the amounts specified in such notices to the Trustee shall be paid to the holders of such Senior Indebtedness. SECTION 12.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization. Upon any distribution of assets of the Company upon any dissolution, winding up, total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar proceeding or upon assignment for the benefit of creditors or any marshalling of assets or liabilities: (a) the holders of all Senior Indebtedness of the Company shall first be entitled to receive payments in full (or have such payment duly provided for) before the Holders are entitled to receive any payment on account of the principal of, premium, if any, interest on, and Additional Amounts with respect to, the Securities (other than Junior Securities); (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (other than Junior Securities) to which the Holders or the Trustee on behalf of the Holders would be entitled (by set-off or otherwise), except for the provisions of this Article XII, shall be paid by the liquidating trustee or agent or other Person making such a payment or distribution directly to the holders of Senior Indebtedness of the Company or their representative to the extent necessary to make payment in full of all such Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (other than Junior Securities), shall be received by the Trustee or the Holders or any Paying Agent (or, if the Company or any Affiliate of the Company is acting as its own Paying Agent, money for any such payment or distribution shall be segregated or held in trust) on account of the principal of, premium, if any, interest on, or Additional Amounts with respect to, the Securities before all Senior Indebtedness of the Company is paid in full, such payment or distribution shall be received and held in trust by the Trustee or such Holder or Paying Agent (or, if the Company or any Affiliate of the Company is acting as its own Paying Agent, money for any such payment or distribution shall be segregated or held in trust) for the benefit of the holders of such Senior Indebtedness, or their respective representative, or the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Indebtedness of the Company may have been issued, ratably according to the respective amounts of such Senior Indebtedness held or represented by each, to the extent necessary to make payment as provided herein of all such Senior Indebtedness remaining unpaid after giving effect to all concurrent payments and distributions and all provisions therefor to or for the holders of such Senior Indebtedness, but only to the extent that as to any holder of such Senior Indebtedness, as promptly as practical following receipt by such holder of written notice from the Trustee to the holders of such Senior Indebtedness that such prohibited payment has been received by the Trustee, Holder(s) or Paying Agent (or has been segregated as provided above), such holder (or a representative therefor) notifies the Trustee of the amounts then due and owing on such Senior Indebtedness, if any, held by such holder and only the amounts specified in such notices to the Trustee shall be paid to the 59 holders of such Senior Indebtedness. SECTION 12.4. Securityholders to Be Subrogated to Rights of Holders of Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness of the Company as provided herein, the Holders of Securities shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness until all amounts owing on the Securities shall be paid in full, and for the purpose of such subrogation no such payments or distributions to the holders of such Senior Indebtedness by the Company, or by or on behalf of the Holders by virtue of this Article XII, which otherwise would have been made to the Holders shall, as between the Company and the Holders, be deemed to be payment by the Company on account of such Senior Indebtedness, it being understood that the provisions of this Article XII are and are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of such Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article XII shall have been applied, pursuant to the provisions of this Article XII, to the payment of amounts payable under Senior Indebtedness of the Company, then the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full. SECTION 12.5. Obligations of the Company Unconditional. Nothing contained in this Article XII or elsewhere in this Indenture or in the Securities is intended to or shall impair as between the Company and the Holders, the obligation of each such Person, which is absolute and unconditional, to pay to the Holders the principal of, premium, if any, interest on, and Additional Amounts with respect to, the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XII, of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Notwithstanding anything to the contrary in this Article XII or elsewhere in this Indenture or in the Securities, upon any distribution of assets of the Company referred to in this Article XII, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XII so long as such court has been apprised of the provisions of, or the order, decree or certificate makes reference to, the provisions of this Article XII. The Trustee shall be entitled to rely on the delivery to it of a written notice bya person representing himself to be a holder of Senior Indebtedness (or a trustee or representative on behalf of such 60 holder) to establish that such a notice has been given by a holder of Senior Indebtedness (or a trustee or representative on behalf of such holder). In the event that the Trustee determines, in good faith, that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article XII, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, as to the extent to which such person is entitled to participate in such payment or distribution, and as to other facts pertinent to the rights of such person under this Article XII, and if such evidence is not furnished, the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment. Nothing in this Article XII shall apply to the claims of, or payments to, the Trustee under or pursuant to Section 7.7. SECTION 12.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice. The Trustee or any Paying Agent (other than the Company acting as its own Paying Agent) shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee or such Paying Agent unless and until a Trust Officer of the Trustee or such Paying Agent (other than the Company acting as its own Paying Agent), as the case may be, shall have received, no later than one Business Day prior to such payment, written notice thereof from the Company or from one or more holders of Senior Indebtedness or from any representative therefor and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and such Paying Agent shall be entitled in all respects conclusively to assume that no such fact exists. SECTION 12.7. Application by Trustee of Assets Deposited with It. Any deposit of assets with the Trustee or the Agent (whether or not in trust) for the payment of principal of or interest on, or Additional Amounts with respect to, any Securities shall be subject to the provisions of Sections 12.1, 12.2, 12.3 and 12.4; provided that, if prior to one Business Day preceding the date on which by the terms of this Indenture any such assets may become distributable for any purpose (including, without limitation, the payment of either principal of or interest on any Security) the Trustee or a Paying Agent shall not have received with respect to such assets the written notice provided for in Section 12.6, then the Trustee or such Paying Agent shall have full power and authority to receive such assets and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination provisions contained in this Article XII shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, byany such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. The holders of Senior Indebtedness may extend, renew, modify or amend the terms of the Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely 61 with the Company, all without affecting the liabilities and obligations of the parties to this Indenture or the Holders. SECTION 12.9. Securityholders Authorize Trustee to Effectuate Subordination of Securities. Each Holder of the Securities by his acceptance thereof authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provisions contained in this Article XII and to protect the rights of the Holders pursuant to this Indenture, and appoints the Trustee its attorney-in-fact for such purpose, including, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors of the Company), the making of a timely filing of a claim for the unpaid balance of its Securities in the form required in said proceedings and cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Indebtedness or their representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Securities. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Indebtedness or their representative to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Indebtedness or their representative to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 12.10. Right of Trustee to Hold Senior Indebtedness. The Trustee shall be entitled to all of the rights set forth in this Article XII in respect of any Senior Indebtedness at any time held by it to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder. SECTION 12.11. Article XII Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium, if any, interest on, or Additional Amounts with respect to, the Securities by reason of any provision of this Article XII shall not be construed as preventing the occurrence of a Default or an Event of Default under Section 6.1 or in any way prevent the Holders or the Trustee from exercising any right or remedy hereunder or at law or in equity other than the right to receive payment on the Securities in accordance with the terms of this Article XII. SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable to any such holders (other than for its willful misconduct or negligence) if it shall in good faith mistakenly pay over or distribute to the Holders of Securities or the Company or any other Person, cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article XII or otherwise. Nothing in this Section 12.12 shall affect the obligation of any other such Person to hold such payment for the benefit of, and to pay such payment over 62 to, the holders of Senior Indebtedness or their representative in accordance with the provisions hereof. ARTICLE XIII CONVERSION OF SECURITIES SECTION 13.1. Conversion Privilege. Subject to and upon compliance with the provisions of this Article XIII, at the option of the Holder thereof, any outstanding Registered Security or Bearer Security or, in the case of any Registered Security or Bearer Security of a denomination other than $1,000, any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000, may be converted on or after the Exchange Date and prior to the Stated Maturity thereof, at the principal amount thereof, or of such portion thereof, into fully paid and nonassessable shares of Common Stock ("Conversion Shares") as set forth in the Registered Securities and Bearer Securities. The right to convert Securities called for redemption or delivered for repurchase will terminate at the close of business on the fifth day next preceding the Redemption Date (or if such date is not a Business Day, on the next succeeding Business Day) and will be lost if not exercised prior to that time. The price at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Price") shall be initially $42.00 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in paragraphs (c)(i), (ii), (iii), (iv), (v) and (vi) of Section 4 of the Registered Securities and Bearer Securities. SECTION 13.2. Exercise of Conversion Privilege. (a) In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, together with all unmatured Coupons (except that any Bearer Security called for redemption on March 15, 1999 need not be delivered with the Coupon that matures on that date), if any, and any matured Coupons in default appertaining thereto, if any, at the office of the Conversion Agent or any office or agency of the Company maintained for that purpose pursuant to Section 4.2 hereof, accompanied by written notice, in substantially the form set forth in the Registered Securities and the Bearer Securities, to the Company, at such office or agency that the Holder elects to convert such Security or, if less than the entire principal amount of a Registered Security or Bearer Security of a denomination other than $1,000 is to be converted, the portion thereof to be converted. Upon presentment for conversion of any Securities pursuant to this Section 13.2, the Conversion Agent shall immediately on that day notify the Company, the Trustee and the transfer agent with respect to the Common Stock (initially, First Interstate Bank of California) of such presentment. Such notice to the Company shall identify the aggregate principal amount of Securities to be converted and the number of shares of Common Stock to be issued in connection with such conversion. If less than the full principal amount of the Security or Securities presented for conversion is requested to be converted or may be converted, such notice to the Company shall also specify the amount, if any, of cash to be distributed to the presenter thereof or the aggregate principal amount of the Security or Securities to remain outstanding upon conversion. No payment or adjustment shall be made upon any conversion on account of any dividends on the Common Stock issued upon conversion. If a Registered Security is converted after the close of business on an Interest Record Date and before the opening of business on the next succeeding Interest Payment Date, the interest due on such Interest Payment Date shall be paid on 63 such InterestPayment Date to the person in whose name that Security is registered at the close of business on that Interest Record Date. Except as otherwise provided in this paragraph, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities surrendered for conversion or on account of any dividends or distributions on the Conversion Shares issued upon conversion. Registered Securities surrendered for conversion during the period after the close of business on any Interest Record Date next preceding any Interest Payment Date to the close of business on such Interest Payment Date shall (except in the case of Registered Securities or portions thereof which are called for redemption on March 15, 1999) be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the principal amount being surrendered for conversion. Upon receipt of such notice, the Company shall take all necessary actions in connection with the issuance, execution, authentication and delivery to the Conversion Agent of the requisite number of shares of Common Stock together with any amounts or replacement Securities representing any unconverted portion of the Security or Securities presented for conversion, and to cause the transfer agent with respect to the Common Stock to register the issuance of the same in the name of the presenter of such Security or Securities (or its nominee), whereupon the Conversion Agent shall deliver to the presenter of such Security or Securities such shares of Common Stock, amounts, if any, and replacement Securities, if any, and concurrently shall cancel the Security or Securities presented. (b) Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease (except for the right to receive the related Conversion Shares), and the person or persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall cause to be issued or delivered at such office or agency a certificate or certificates for the number of full shares of Common Stock issuable or deliverable upon conversion, together with payment, in lieu of any fraction of a share, as provided below. (c) In the case of any Registered Security or Bearer Security of a denomination other than $1,000 that is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Conversion Agent, and the Conversion Agent shall deliver to the Holder thereof, in each case at the expense of the Company, a new Security or Securities of any authorized kind or denomination as requested by such Holder, in aggregate principal amount equal to the unconverted portion of the principal amount of such Security. SECTION 13.3. Fractional Interests. No fractional shares of Common Stock shall be issued or delivered upon conversion of Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable or deliverable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or, in the case of Registered Securities or Bearer Securities of a denomination other than $1,000, specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwisebe issuable or deliverable upon conversion of any Security or Securities (or, in the case of Registered 64 Securities or Bearer Securities of a denomination other than $1,000, specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Closing Price per share of Common Stock at the close of business on the day preceding the day of conversion. SECTION 13.4. Adjustment of Conversion Price. Whenever the Conversion Price is adjusted as provided in the Registered Securities and Bearer Securities: (a) the Company shall compute the adjusted Conversion Price in accordance with the terms of the Registered Securities and Bearer Securities and shall prepare a certificate signed by the President, any Vice President or the Treasurer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Trustee and the Conversion Agent and at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 4.2 hereof; and (b) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be required, and, as soon as practicable after it is required, the Company shall promptly cause a notice setting forth the adjusted Conversion Price to be given to the Holders of the Securities as provided in Section 14.2 hereof. SECTION 13.5. Notice of Certain Events. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its retained earnings (excluding dividends payable in stock for which adjustment is made pursuant to the terms of the Registered Securities and Bearer Securities); (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company; (d) of the involuntary dissolution, liquidation or winding up of the Company; or (e) the Company proposes to take any other action which would require an adjustment of the Conversion Price pursuant to the Registered Securities and Bearer Securities; 65 then the Company shall cause to be filed with the Conversion Agent and at each office or agency maintained for the purpose of conversion of Securities a notice setting forth the adjusted Conversion Price and shall cause notice to be given as provided in Section 14.2 hereof except that notice need be given to the Holders once at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record date hereinafter specified, stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants is to be determined, or (y) the date on which a reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for the securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. The failure to give notice required by this Section 13.5 or any defect therein shall not affect the legality or validity of any dividend, distribution, rights, warrants, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up, or the vote on any such action. SECTION 13.6. Continuation of Conversion Privilege in Case of Reclassification, Change, Merger, Consolidation or Sale of Assets. (a) In case of any consolidation with, or merger of the Company into, any other corporation, or in case of any merger of another corporation into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), or in case of any sale or transfer of all or substantially all of the assets of the Company, the corporation formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture to the Indenture providing that the Holder of each Registered Security and Bearer Security shall have the right during the period such Security shall be convertible as specified in the Registered Securities and Bearer Securities to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, sale or transfer assuming such holder of Common Stock failed to exercise any rights of election as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer, and assuming, if such consolidation, merger, sale or transfer is prior to the period such Security shall be convertible, that the Securities were convertible at such time at the initial Conversion Price as adjusted pursuant to the terms of the Registered Securities and Bearer Securities. Such amendment shall provide for adjustments which, for events subsequent to theeffective date of such amendment, shall be as nearly equivalent as may be practicable to the adjustments provided for in the Registered Securities and the Bearer Securities. The above provisions of this Section 13.6(a) shall similarly apply to successive consolidations, mergers, sales or transfers. (b) Any Common Stock issued upon conversion of a Restricted Security ("Restricted Common Stock") at any time prior to the date which is three years (or such shorter period as shall be permitted as a result of an amendment to the rules under the Securities Act in respect thereof) after the Closing Date 66 when a registration statement in respect of such Common Stock is not effective under the Securities Act shall be subject to the restrictions on transfer set forth in Section 2.6 hereof to the same extent as the Restricted Securities which were so converted. All shares of Restricted Common Stock shall bear the legend and transfer requirements set forth on the form of Registered Security set forth as Exhibit A hereto. SECTION 13.7. Taxes on Conversion. The Company will pay any and all documentary, stamp or similar taxes in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant thereto; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the Holder of the Securities to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that such tax has been paid. The Company extends no protection with respect to any other taxes imposed in connection with conversion of Securities. SECTION 13.8. Company to Provide Stock. The Company shall reserve, free from pre-emptive rights, out of its authorized but unissued shares, sufficient shares to provide for the conversion of the Securities from time to time as such Securities are presented for conversion, provided, that nothing contained herein shall be construed to preclude the Company from satisfying its obligations in respect of the conversion of Securities by delivery of repurchased shares of Common Stock which are held in the treasury of the Company. If any shares of Common Stock to be reserved for the purpose of conversion of Securities hereunder require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued or delivered upon conversion, then the Company covenants that it will in good faith and as expeditiously as possible use its best efforts to secure such registration or approval, as the case may be, provided, however, that nothing in this Section 13.8 shall be deemed to limit in any way the obligations of the Company provided in this Article XIII. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the Common Stock, the Company will take all corporate action which may, in the Opinion of Counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Conversion Price.The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and non-assessable by the Company and free of preemptive rights. SECTION 13.9. Disclaimer of Responsibility for Certain Matters. Neither the Trustee, any agent of the Trustee, the Conversion Agent nor any agency appointed by the Company shall at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the certificate referred to in Section 13.4 hereof, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be 67 employed, in making the same. Neither the Trustee, any agent of the Trustee, the Conversion Agent nor any agency appointed by the Company shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property (including cash), which may at any time be issued or delivered upon the conversion of any Security; and neither the Trustee nor the Conversion Agent or any agency appointed by the Company makes any representation with respect thereto. Neither the Trustee, any agent of the Trustee, the Conversion Agent nor any agency appointed by the Company shall be responsible for any failure of the Company to issue, register the transfer of or deliver any shares of Common Stock or stock certificates or other securities or property (including cash) upon the surrender of any Security for the purpose of conversion or, subject to Article VIII hereof, to comply with any of the covenants of the Company contained in this Article XIII. SECTION 13.10. Return of Funds Deposited for Redemption of Converted Securities. Any funds which at any time shall have been deposited by the Company or on its behalf with the Trustee or any other Paying Agent for the purpose of paying the principal of and interest on, or Additional Amounts with respect to, any of the Securities and which shall not be required for such purposes because of the conversion of such Securities, as provided in this Article XIII, shall after such conversion be repaid to the Company by the Trustee or such other Paying Agent. ARTICLE XIV MISCELLANEOUS SECTION 14.1. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of the TIA, the imposed duties, upon qualification of this Indenture under the TIA, shall control. SECTION 14.2. Notices. All notices hereunder shall be deemed to have been given when deposited in the mail as first class mail, registered or certified, return receipt requested, postage prepaid, addressed to any party hereto as follows: The Company Aames Financial Corporation 3731 Wilshire Boulevard, 10th Floor Los Angeles, California 90010 Attn: Chief Financial Officer (with a copy to the attention of the General Counsel at the same address) The Trustee The Chase Manhattan Bank, N.A. 4 Chase MetroTech Center 3rd Floor, Institutional Trust Brooklyn, New York 11245 Attn: Institutional Trust Administration 68 The Paying Agents: The Chase Manhattan Bank, N.A. Woolgate House Coleman Street London EC2P 2HD ENGLAND Attn: Corporate Trust Administration Chase Manhattan Bank Luxembourg, S.A. 5 Rue Plaetis L-2338 Luxembourg Attn: or at any other address of which any of the foregoing shall have notified the others in writing. Notices to Holders of the Securities will be given by publication in an Authorized Newspaper in The City of New York and in London and, for so long as the Securities are listed on the Luxembourg Stock Exchange, in Luxembourg, or, if publication in either London or Luxembourg is not practical,in an Authorized Newspaper in Europe. In addition, notices to Holders of Registered Securities will be given by first-class mail to the addresses of such Holders as they appear in the register maintained by the Trustee on the fifteenth day prior to such mailing. Such notices will be deemed to have been given on the date of such publication or mailing or, if published in such newspapers on different dates, on the date of the first such publication. The Trustee shall promptly furnish to the Company, the Paying Agent and to each other paying agency of the Company a copy of each notice so published or mailed. SECTION 14.3. Communications by Holders with Other Holders. Securityholders may communicate pursuant to Section 312(b) of the TIA with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other Person shall have the protection of Section 312(c) of the TIA. SECTION 14.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (in form reasonably satisfactory to the Trustee) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (in form reasonably satisfactory to the Trustee) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 14.5. Statements Required in Certificate or Opinion. Each certificate or opinion delivered by or on behalf of the Company with respect to compliance with a condition or covenant provided for in this Indenture shall include: 69 (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 14.6. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 14.7. Legal Holidays. In any case where the date of maturity of the principal of or interest on (or Additional Amounts, if any, with respect to) the Securities or the date fixed for redemption of any Security or the last day on which a Security may be converted shall be at any place of payment (or such other act) a day other than a Business Day, then payment of principal or interest (or Additional Amounts, if any), or presentation for conversion, need not be made on such date at such place but may be made on the next succeeding Business Day at such place of payment (or such other act), with the same force and effect as if made on the date of maturity or the date fixed for redemption or such last day on which a Security may be converted, and no interest shall accrue for the period after such date. SECTION 14.8. Taxes. The Company will pay all stamp taxes and other similar duties, if any, that may be imposed by the United States of America or the United Kingdom, or any state or political subdivision thereof or taxing authority therein, with respect to the execution or delivery of this Indenture, or the issuance of the Regulation S Global Security, or the exchange from time to time of the Regulation S Global Security for Registered Securities or Bearer Securities, or with respect to the issuance or delivery of shares of Common Stock on conversion of Securities; provided, however, that the Company shall not be required to pay any tax or duty which may be payable in respect of any transfer involved in the issuance or delivery of shares of Common Stock in a name other than that of the holder of the Security or Securities to be converted, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Company the amount of any such tax or duty or has established to the satisfaction of the Company that such tax or duty has been paid; and further provided, that the Company shall not be required to pay any tax or duty that may be payable in respect of any accrued interest paid in connection with the conversion of the Securities. 70 SECTION 14.9. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITYOF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. SECTION 14.10. Agent for Service of Process. As long as any of the Securities or Coupons remain outstanding, the Company will at all times have an authorized agent in The City of New York, upon whom process may be served in any legal action or proceeding arising out of or relating to this Indenture or any Security or any Coupons appertaining thereto. Service of process upon such agent and written notice of such service mailed or delivered to the Company shall to the extent permitted by law be deemed in every respect effective service of process upon the Company in any such legal action or proceeding. The Company hereby appoints the Trustee as its agent for such purpose, and covenants and agrees that service of process in any legal action or proceeding may be made upon it at the office of the Trustee at 4 Chase MetroTech Center, 3rd Floor, Institutional Trust Administration, Brooklyn, New York 11245, U.S.A., Attention: Corporate Trust Department (or such other address in The City of New York, as may be the Principal Corporate Trust Office of the Trustee in The City of New York), unless and until the Company shall designate another agent for such purpose by written notice to the Trustee. If the Trustee receives any such service of process, it shall promptly notify the Company of such service. SECTION 14.11. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 14.12. No Recourse Against Others. No direct or indirect partner, employee, stockholder, director or officer, as such, past, present or future of the Company or any successor corporation, shall have any personal liability in respect of the obligations of the Company under the Securities or this Indenture by reason of his, her or its status as such partner, stockholder, employee, director or officer. Each Securityholder by acceptinga Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. 71 SECTION 14.13. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 14.14. Duplicate Originals. All parties may sign any number of copies or counterparts of this Indenture. Each signed copy or counterpart shall be an original, but all of them together shall represent the same agreement. SECTION 14.15. Severability. In case any one or more of the provisions in this Indenture or in the Securities shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 14.16. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and the Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 14.17. Qualification of Indenture. The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees for the Company, the Trustee and the Managers) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of the Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA. SECTION 14.18. Registration Rights. Certain Holders of the Securities are entitled to certain registration rights with respect to such Securities pursuant to, and subject to the terms of, the Registration Rights Agreement. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. AAMES FINANCIAL CORPORATION, a Delaware corporation 72 [Seal] By: ------------------------------------------- Name: Title: Attest: THE CHASE MANHATTAN BANK, N.A., as Trustee [Seal] By: ------------------------------------------- Name: Title: Attest: EXHIBIT A (FORM OF FACE OF REGISTERED SECURITY) [Unless and until it is exchanged in whole or in part for Securities in definitive form, this Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (55 Water Street, New York, New York) ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as may be requested by an authorized representative of DTC (and any payment is made to Cede & Co. or such other entity as may be requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.] [THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES AND AGREES FOR THE BENEFIT OF THE COMPANY THAT: 73 (I) IT HAS ACQUIRED A "RESTRICTED" SECURITY WHICH HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS SHALL BE PERMITTED AS A RESULT OF AN AMENDMENT TO THE RULES UNDER THE SECURITIES ACT IN RESPECT THEREOF) AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) IN A TRANSACTION ARRANGED BY A BROKER OR DEALER REGISTERED UNDER THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (WITHIN THE MEANING OF SUBPARAGRAPHS (A)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT) THAT IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. IF ANY RESALE OR OTHER TRANSFER OF THIS SECURITY IS PROPOSED TO BE MADE PURSUANT TO CLAUSE II(E) ABOVE PRIOR TO THE DATE WHICH IS THREE YEARS (OR SUCH SHORTER PERIOD AS SHALL BE PERMITTED AS A RESULT OF AN AMENDMENT TO THE RULES UNDER THE SECURITIES ACT IN RESPECT THEREOF) AFTER THE DATE OF ORIGINAL ISSUANCE HEREOF, THE TRANSFEROR SHALL DELIVER A LETTER FROM THE TRANSFEREE CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY. ANY OFFER, SALE OR OTHER DISPOSITION PURSUANT TO THE FOREGOING CLAUSES (II)(D), (E) AND (F) IS SUBJECT TO THE RIGHT OF THE ISSUER OF THIS SECURITY AND THE TRUSTEE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS OR OTHER INFORMATION ACCEPTABLE TO THEM IN FORM AND SUBSTANCE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.] 74 AAMES FINANCIAL CORPORATION (Incorporated in the State of Delaware) 5 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2006 CUSIP No. U.S.$ Aames Financial Corporation, a corporation duly incorporated and existing under the laws of the State of Delaware (the "Company"), for value received, hereby promises to pay to _______________________, or registered assigns, the principal sum of _____________ United States dollars on March 15, 2006 upon presentation and surrender hereof and to pay interest thereon, from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for (or from February 26, 1996 if no interest has been paid or duly provided for in respect of this Security), semiannually in arrears on March 15 and September 15 in each year (each an "Interest Payment Date"), commencing September 15, 1996, at the rate of 5 1/2% per annum until the principal hereof is paid or made available for payment. Interest hereon shall be calculated on the basis of a 360-day year comprised of twelve 30-day months. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture (as defined on the reverse hereof), be paid to the person in whose name this Security is registered at the close of business on the Interest Record Date for such interest payment, which shall be March 1 or September 1 (whether or not a Business Day) next preceding such Interest Payment Date. To the extent lawful, the Company shall pay interest on overdue principal and overdue installments of interest at the rate borne by this Security, compounded semi-annually. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Interest Record Date and, together with Defaulted Interest relating thereto, may be paid at any time in any lawful manner, all as more fully provided in the Indenture. Payment of interest on this Security shall be made by United States dollar check drawn on a bank in The City of New York and mailed to the person entitled thereto at his address as it shall appear in the Security Register, or (if arrangements satisfactory to the Company and the Trustee (as defined on the reverse hereof) are made) by wire transfer to a United States dollar account maintained by the payee with a bank in The City of New York; provided, however, that if such mailing is not possible and no such application shall have been made, payment of interest shall be made at the Principal Corporate Trust Office of the Trustee (as defined in the Indenture referred to below), or such other office or agency of the Company as may be designated for such purpose in The City of New York, in United States currency. Reference is hereby made to the further provisions of this Security set forth under Terms and Conditions of the Securities on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. This Security shall not become valid or enforceable for any purpose unless and until the certificate of authentication hereon shall have been manually signed by a duly authorized officer of the Trustee. IN WITNESS WHEREOF, the Company has caused this Security to be duly executed in its corporate name and under its corporate seal by the manual or facsimile signature of a duly authorized signatory. 75 AAMES FINANCIAL CORPORATION Dated: By: ------------------------------------------- Name: Title: [Corporate Seal] Attest: ------------------------------------- CERTIFICATE OF AUTHENTICATION This is one of the Securities described in the within mentioned Indenture. THE CHASE MANHATTAN BANK, N.A., as Trustee By: ---------------------------------------------------- Authorized Officer Dated: (FORM OF FACE OF BEARER SECURITY) ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED. 76 AAMES FINANCIAL CORPORATION (Incorporated in the State of Delaware) 5 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2006 No. B U.S.$ Aames Financial Corporation, a corporation duly incorporated and existing under the laws of the State of Delaware (the "Company"), for value received, hereby promises to pay to bearer upon presentation and surrender of this Security the principal sum of ______________________________ United States dollars on March 15, 2006 upon presentation and surrender hereof and to pay interest thereon, from February 26, 1996, semiannually in arrears on March 15 and September 15 in each year (each an "Interest Payment Date"), commencing September 15, 1996, at the rate of 5 1/2% per annum until the principal hereof is paid or made available for payment. Interest hereon shall be calculated on the basis of a 360-day year comprised of twelve 30-day months. To the extent lawful, the Company shall pay interest on overdue principal and overdue installments of interest of the rate borne by this Security, compounded semi-annually. Payments in respect of this Security shall be made by United States dollar check, subject to any laws or regulations applicable thereto and to the right of the Company (limited as provided in the Indenture (as defined on the reverse hereof)) to terminate the appointment of any paying agency, at the London office of The Chase Manhattan Bank, N.A. located at Woolgate House, Coleman Street, London EC2P 2HD, England, or Chase Manhattan Bank Luxembourg S.A., 5 Rue Plaetis, L-2338 Luxembourg, or at such other offices or agencies outside the United States of America, its territories or its possessions as the Company may designate, by United States dollar check drawn on a bank in The City of New York, or (if arrangements satisfactory to the Company and the Trustee (as defined on the reverse hereof) are made) by wire transfer to a United States dollar account maintained by the Holder at a bank outside the United States, its territories and its possessions. Interest on this Security shall be paid only at an office or agency located outside the United States, its territories or its possessions and, in the case of interest due on or before maturity, only upon presentation and surrender at such an office or agency of the interest coupons hereto attached as they severally mature. No payment on this Security or any coupon will be made at the Principal Corporate Trust Office of the Trustee (as defined in the Indenture referred to below) or any other paying agency maintained by the Company in the United States, nor will any payment be made by transfer to an account in, or by mail to an address in, the United States, except as may be permitted by United States tax laws and regulations in effect at the time of such payment without detriment to the Company. Notwithstanding the foregoing, payment of this Security and coupons may be made at the office of the Trustee in The City of New York if full payment at all paying agencies outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions. Reference is hereby made to the further provisions of this Security set forth under Terms and Conditions of the Securities on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Neither this Security nor any of the coupons attached hereto shall become valid or enforceable for any purpose unless and until the certificate of authentication hereon shall have been manually signed by a duly authorized officer of the Trustee. 77 IN WITNESS WHEREOF, the Company has caused this Security to be duly executed in its corporate name and under its corporate seal by the manual or facsimile signature of a duly authorized officer and coupons bearing the facsimile signature of a duly authorized signatory to be annexed hereto. AAMES FINANCIAL CORPORATION Dated: By: ------------------------------------------- Name: Title: [Corporate Seal] Attest: CERTIFICATE OF AUTHENTICATION This is one of the Securities described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, N.A., as Trustee By: ----------------------------------------------- Authorized Officer Dated: (FORM OF FACE OF COUPON ON BEARER SECURITIES) ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED. 78 AAMES FINANCIAL CORPORATION (Incorporated in the State of Delaware) 5 1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2006 No. U.S.$ Due Unless the Bearer Security to which this coupon appertains shall have been called for redemption prior to the due date hereof (unless such date of redemption is March 15, 1999) and payment thereof duly provided for or shall have been converted, Aames Financial Corporation (herein called the "Company") shall, subject to and in accordance with the terms and conditions of the Bearer Security and the Indenture dated as of February 26, 1996 between the Company and The Chase Manhattan Bank, N.A., as Trustee, pay to the bearer, on the date set forth herein upon surrender hereof, the amount shown hereon (together with any Additional Amounts in respect hereof which the Company may be required to pay according to the terms of said Bearer Security) at the paying agencies set out on the reverse hereof or at such other places outside the United States of America, its territories and its possessions as the Company may determine from time to time, by United States dollar check drawn on a bank in The City of New York, or (if arrangements satisfactory to the Company and the Trustee are made) wire transfer to a United States dollar account maintained by the bearer at a bank outside the United States of America, its territories and its possessions, being one-half year's interest then payable on said Bearer Security. AAMES FINANCIAL CORPORATION By: ------------------------------------------ Name: Title: Attest: [Reverse of Coupon] The Chase Manhattan Bank, N.A. Chase Manhattan Bank Luxembourg S.A. Woolgate House 5 Rue Plaetis Coleman Street L-2338 Luxembourg London EC2P 2HD ENGLAND 79 (FORM OF REVERSE OF REGISTERED AND BEARER SECURITIES) Terms and Conditions of the Securities 1. General. (a) This Security is one of a duly authorized issue of securities of the Company designated as its 5 1/2% Convertible Subordinated Debentures due 2006 (herein called the "Securities"), limited in aggregate principal amount to U.S.$115,000,000. The Company issued the Securities under an Indenture, dated as of February 26, 1996 (the "Indenture"), between the Company and The Chase Manhattan Bank, N.A., as trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the United States Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders of Securities are referred to the Indenture and said Act for a statement of them. The Securities are general unsecured obligations of the Company. (b) The Securities are issuable as bearer securities (the "Bearer Securities"), with interest Coupons attached, in the denominations of U.S.$1,000 and U.S.$10,000, and as registered securities (the "Registered Securities"), without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Registered Securities, and transfers thereof, shall be registered as provided in the Indenture. The holder of any Bearer Security or any Coupon and the registered holder of a Registered Security shall (to the fullest extent permitted by applicable law) be treated at all times, by all persons and for all purposes, except as provided in the Indenture, as the absolute owner of such Security or Coupon, as the case may be, regardless of any notice of ownership, theft or loss or of any writing thereon. 2. Additional Amounts. The Company will pay, as additional interest ("Additional Amounts"), to the Holder of this Security or of any Coupon appertaining hereto who is a United States Alien (as defined below) such amounts as may be necessary in order that every net payment of the principal of and premium, if any, and interest on this Security and any cash payments made in lieu of issuing shares of Common Stock upon conversion of this Security, after withholding for or on account of any present or future tax, assessment or other governmental charge imposed upon or as a result of such payment by the United States or any political subdivision or taxing authority thereof or therein, will not be less than the interest provided herein or any Coupon appertaining hereto to be then due and payable; provided, however, that the foregoing obligation to pay Additional Amounts shall not apply to any one or more of the following: 80 (a) any tax, assessment or other governmental charge which would not have been so imposed but for (i) the existence of any present or former connection between such Holder (or between a fiduciary, settlor, beneficiary, member or stockholder of, or a person holding a powerover, such Holder, if such Holder is an estate, trust, partnership or corporation) and the United States, including, without limitation, such Holder (or such fiduciary, settlor, beneficiary, member, stockholder or person holding a power) being or having been a citizen or resident or treated as a resident thereof or being or having been engaged in a trade or business therein or being or having been present therein or having or having had a permanent establishment therein, (ii) such Holder's present or former status as a personal holding company, foreign personal holding company, passive foreign investment company, foreign private foundation or other foreign tax-exempt entity or controlled foreign corporation for United States federal income tax purposes or a corporation which accumulates earnings to avoid United States federal income tax, or (iii) such Holder's status as a bank extending credit pursuant to a loan agreement entered into in the ordinary course of business; (b) any tax, assessment or other governmental charge which would not have been so imposed but for the presentation by the Holder of this Security or any Coupon appertaining hereto for payment on a date more than 10 days after the date on which such payment became due and payable or on the date on which payment thereof is duly provided, whichever occurs later; (c) any estate, inheritance, gift, sales, transfer or personal or intangible property tax or any similar tax, assessment or other governmental charge; (d) any tax, assessment or other governmental charge which would not have been imposed but for the failure to comply with certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or present or former connection with the United States of the Holder or beneficial owner of this Security or any related Coupon if such compliance is required by statute, regulation or ruling of the United States or any political subdivision or taxing authority thereof or therein as a precondition to relief or exemption from such tax, assessment or other governmental charge; (e) any tax, assessment or other governmental charge which is payable otherwise than by deduction or withholding from payments of principal of and premium, if any, or interest on this Security; (f) any tax, assessment or other governmental charge imposed on interest received by a person holding, actually or constructively, 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote; or 81 (g) any tax, assessment or other governmental charge required to be withheld by any paying agent from any payment of principal of and premium, if any, or interest on any Security or interest on any Coupon appertaining thereto if such payment can be made without such withholding by any other paying agent; nor shall Additional Amounts be paid with respect to any payment of the principal of or premium, if any, or interest on this Security (or cash in lieu of issuance of shares of Common Stock upon conversion) to a person other than the sole beneficial owner of such payment or that is a partnership or fiduciary to the extent such beneficial owner, member of such partnership or beneficiary or settlorwith respect to such fiduciary would not have been entitled to the payment of Additional Amounts had such beneficial owner, member, beneficiary or settlor been the holder of this Security or any Coupon appertaining hereto. The term "United States Alien" means any person who, for United States federal income tax purposes, is (i) a foreign corporation, (ii) a foreign partnership one or more of the members of which are, for United States federal income tax purposes, foreign corporations, non-resident alien individuals or non-resident alien fiduciaries of a foreign estate or trust, (iii) a non-resident alien individual or (iv) a non-resident alien fiduciary of a foreign estate or trust, and the term "United States" means the United States of America (including the several States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. Except as specifically provided herein and in the Indenture, the Company shall not be required to make any payment with respect to any tax, assessment or other governmental charge imposed by any government or any political subdivision or taxing authority thereof or therein. Whenever any Additional Amounts are to be paid on the Securities, the Company will give notice to the Trustee, the Paying Agent and any paying agency of the Company, all as provided in the Indenture. 3. Redemption. (a) The Company, at its option, may redeem the Securities, in whole or in part (but if in part, in aggregate principal amounts of no less than $1,000), at any time or times on and after March 15, 1999, upon notice as hereinafter prescribed, at a redemption price equal to 103% of their principal amount if redeemed during the 12-month period commencing March 15, 1999, 102% of their principal amount if redeemed during the 12-month period commencing March 15, 2000, 101% of their principal amount if redeemed during the 12-month period commencing March 15, 2001, and 100% of their principal amount if redeemed on or after March 15, 2002, in each case together with accrued and unpaid interest to the date fixed for redemption. If fewer than all of the then outstanding Securities are to be redeemed, the Securities to be redeemed will be selected by the Trustee not more than 75 days prior to the date fixed for redemption, by such method as the Trustee shall deem fair and appropriate. Provisions of this Security that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be called for redemption. 82 (b) If, at any time, the Company shall determine that as a result of any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of the United States or any political subdivision or taxing authority thereof or therein affecting taxation, or any amendment to or change in an official application or interpretation of such laws, regulations or rulings which change or amendment becomes effective on or after February 26, 1996 the Company has or will become obligated to pay to the holder of any Security or Coupon Additional Amounts and such obligation cannot be avoided by the Company taking reasonable measures available to it, then the Company may, at its election exercised at any time when such conditions continue to exist, redeem such Securities as a whole but not in part, upon notice as hereinafter prescribed, at a redemption price equal to 100% of the principal amount, together with accrued interest, if any, to the date fixed for redemption; provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obligated to pay such Additional Amounts were a payment in respect of such Securities then due; and provided further, that at thetime such notice is given, such obligation to pay such Additional Amounts remains in effect. Prior to any redemption of the Securities pursuant to the preceding paragraph, the Company shall provide the Trustee with one or more certificates (signed by the President or any Vice President and the Treasurer or the Secretary) of the Company on which the Trustee may conclusively rely to the effect that the Company is entitled to redeem such Securities pursuant to such paragraph and that the conditions precedent to the right of the Company to redeem such Securities pursuant to such paragraph have occurred and a written Opinion of Counsel (who may be an employee of the Company) stating that all legal conditions precedent to the right of the Company to redeem such Securities pursuant to such paragraph have occurred. (c) The Company shall, except as set forth in the next succeeding paragraph, redeem the Bearer Securities as a whole but not in part, upon notice as hereinafter prescribed, at 100% of their principal amount, together with interest accrued and unpaid to the date fixed for redemption, less applicable withholding taxes, if any, plus any applicable Additional Amounts payable, after the Company determines, based on a written Opinion of Counsel, that any certification, identification or information reporting requirement of any present or future United States law or regulation with regard to the nationality, residence or identity of a beneficial owner of a Bearer Security or a Coupon appertaining thereto who is a United States Alien would be applicable to a payment of principal of or interest on a Bearer Security or a Coupon appertaining thereto made outside the United States by the Company or a paying agent (other than a requirement (i) which would not be applicable to a payment made by the Company or any one of its paying agents (A) directly to the beneficial owner or (B) to a custodian, nominee or other agent of the beneficial owner, or (ii) which could be satisfied by the Holder, custodian, nominee or other agent certifying that the beneficial owner is a United States Alien, provided, however, in each case referred to in clauses (i)(B) and (ii) payment by such custodian, nominee or agent of the beneficial owner is not otherwise subject to any requirement referred to in this sentence). The Company shall make such determination and will notify the Trustee thereof in writing as soon as practicable, stating in the notice the effective date of such certification, identification, or information reporting requirement and the dates within which the redemption shall occur, and the Trustee shall give prompt notice thereof in accordance with the Indenture. The Company shall determine the Redemption Date by notice to the Trustee at least 75 days before the Redemption Date, unless shorter notice is acceptable to the Trustee. Such 83 redemption of the Securities must take place on such date, not later than one year after the publication of the initial notice of the Company's determination of the existence of such certification, identification or information reporting requirement. The Company shall not so redeem the Bearer Securities, however, if the Company shall, based on a subsequent event, determine, based on a written Opinion of Counsel (who shall not be an employee of the Company), not less than 30 days prior to the date fixed for redemption, that no such payment would be subject to any requirement described above, in which case the Company shall notify the Trustee, which shall give prompt notice of that determination in accordance with the Indenture and any earlier redemption notice shall thereupon be revoked and of no further effect. Notwithstanding the preceding paragraph, if and so long as the certification, identification or information reporting requirement referred to in the preceding paragraph would be fully satisfied by payment of United States withholding, backup withholding or similar taxes, the Company mayelect, prior to the giving of the notice of redemption, to have the provisions of this paragraph apply in lieu of the provisions of the preceding paragraph. In that event, the Company will pay such Additional Amounts (without regard to Section 2 hereof) as are necessary in order that, following the effective date of such requirements, every net payment made outside the United States by the Company or a paying agent of the principal of and interest on a Bearer Security or a Coupon appertaining thereto to a Holder who is a United States Alien (without regard to a certification, identification or information reporting requirement as to the nationality, residence or identity of such Holder), after deduction for United States withholding, backup withholding or similar taxes (other than withholding, backup withholding or similar taxes (i) which would not be applicable in the circumstances referred to in the parenthetical clauses of the first sentence of the next preceding paragraph or (ii) are imposed as a result of presentation of such Bearer Security or Coupon for payment more than 10 days after the date on which such payment becomes due and payable or on which payment thereof is duly provided for, whichever is later), will not be less than the amount provided in the Bearer Security or the Coupon to be then due and payable. If the Company elects to pay such Additional Amounts and as long as it is obligated to pay such Additional Amounts, the Company may subsequently redeem the Bearer Securities, at any time, in whole but not in part, upon not more than 60 days nor less than 30 days notice, given as hereinafter prescribed, at 100% of their principal amount, plus accrued interest to the date fixed for redemption and Additional Amounts, if any. (d) If there shall occur a Change of Control (as defined in the Indenture) with respect to the Company, then the Holder of this Security shall have the right, at such Holder's option, exercised in accordance with this Section 3(d), to require the Company to purchase this Security, in whole but not in part, on the Holder Redemption Date at a Redemption Price equal to 100% of the principal amount, together with accrued interest to the Holder Redemption Date. Notwithstanding the fact that a Security is called for redemption by the Company otherwise than pursuant to this Section 3(d), each Holder of a Security desiring to exercise the option for redemption set forth in this Section 3(d) shall, as a condition to such redemption, on or before the close of business on the fifth Business Day prior to the Holder Redemption Date, surrender the Security to be redeemed (together with all unmatured Coupons, if applicable), in whole but not in part, together with the Redemption Notice hereon duly executed at the place or places specified in the notice required by Section 3(e) and otherwise comply with the provisions of Section 3(f). A Holder of a 84 Security who has tendered a Redemption Notice (i) will be entitled to revoke its election by delivering a written notice of such revocation together with the Holder's non-transferable receipt for such Security to the office or agency of the Company designated as the place for the payment of the Securities to be so redeemed on or before the Holder Redemption Date and (ii) will retain the right to convert its Securities into shares of Common Stock of the Company on or before the close of business on the fifth day (or if such day is not a Business Day, on the next succeeding Business Day) next preceding the Holder Redemption Date. In connection with any repurchase of Securities pursuant to this Section 3(d), the Company will comply with any applicable rules and regulations promulgated by the U.S. Securities and Exchange Commission and nothing herein, including the time periods in which redemption is to occur, shall require the Company to take action which violates such applicable rules and regulations. (e) Notice of any redemption or notice in connection with a Change of Control will be given in accordance with Section 3.1 of the Indenture. (f) If (i) notice of redemption has been given in the manner set forth in Section 3.1 of the Indenture with respect to Securities to be redeemed at the option of the Company, or (ii) notice of redemption has been given by the Holder of a Security to be redeemed pursuant to Section 3(d) hereof, the Securities so to be redeemed shall become due and payable on the applicable Redemption Date specified in such notice and upon presentation and surrender of the Securities at the place or places specified in the notice given by the Company with respect to such redemption, together in the case of Bearer Securities with all appurtenant Coupons, if any, maturing subsequent to the Redemption Date, the Securities shall be paid and redeemed by the Company, at the places and in the manner and currency herein specified and at the Redemption Price together with accrued interest, if any, to the Redemption Date; provided, however, that interest due in respect of Coupons maturing on or prior to the Redemption Date shall be payable only upon the presentation and surrender of such Coupons (at an office or agency located outside of the United States of America). If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant Coupons maturing after the Redemption Date, such Security may be paid after deducting from the amount otherwise payable an amount equal to the face amount of all such missing Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if they are furnished with such security or indemnity as they may require to save each of them and each other paying agency of the Company harmless. From and after the Redemption Date, if monies for the redemption of Securities shall have been available at the principal corporate trust office of the Trustee for redemption on the Redemption Date, the Securities shall cease to bear interest, the Coupons for interest appertaining to Bearer Securities maturing subsequent to the Redemption Date shall be void, and the only right of the holders of such Securities shall be to receive payment of the Redemption Price together with accrued interest to the Redemption Date. If monies for the redemption of the Securities are not made available by the Company for payment until after the Redemption Date, the Securities shall not cease to bear interest until such monies have been so made available. 4. Conversion. (a) Subject to and upon compliance with the provisions of the Indenture, a holder of Securities is entitled, at its option, at any time on and after the Exchange Date and prior to the close of business on March 15, 2006 to convert such Security (or any portion of the principal amount thereof which is 85 U.S.$1,000 or an integral multiple thereof), at the principal amount thereof, or of such portion, into fully paid and nonassessable shares ("Conversion Shares") of common stock, par value $0.001 per share ("Common Stock"), of the Company (calculated as to each conversion to the nearest 1/1000 of a share) at a Conversion Price equal to U.S.$42.00 aggregate principal amount of Securities for each Conversion Share (the "Conversion Price") (or at the current adjusted Conversion Price if an adjustment has been made as provided herein) by surrender of the Security, together with (i) if a Bearer Security, all unmatured Coupons (except that any Bearer Security called for redemption on March 15, 1999 need not be delivered with the Coupon that matures on that date) and any matured Coupons in default appertaining thereto, or (ii) if a Registered Security (if so required by the Company or the Trustee), instruments of transfer in form satisfactory to the Company and the Trustee, duly executed by the registered holder or by his duly authorized attorney, and, in either case, (iii) the Conversion Notice hereon duly executed (x) at the Principal Corporate Trust Office of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in The City of New York, or (y) subject to any laws or regulations applicable thereto and subject to the right of the Company to terminate the appointment of any such conversion agency, at the London office of The Chase Manhattan Bank, N.A. located a 4 Chase MetroTech Center, 3rd Floor, Institutional Trust Administration, Brooklyn, New York 11245, and Chase Manhattan Bank Luxembourg S.A., 5 Rue Plaetis, L-2338 Luxembourg, or at such other offices or agencies as the Company may designate; provided, however, that if any Security or a portion thereof is called for redemption by the Company, or the holder thereof elects to have such Security redeemed in whole by the Company pursuant to Section 3(d) hereof, then in respect of such Security (or, in the case of partial redemption by the Company, such portion thereof) the right to convert such Security (or, in the case of partial redemption by the Company, such portion thereof) shall expire (unless the Company defaults in making the payment due upon redemption) at the close of business on the fifth day (or if such date is not a Business Day, on the next succeeding Business Day) next preceding the Redemption Date or the Holder Redemption Date (unless in the latter case the holder shall have first revoked his redemption election in accordance with Section 3(d) hereof). (b) In the case of any Registered Security which is converted after any Interest Record Date and on or prior to the next succeeding Interest Payment Date, interest that is payable on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest shall be paid to the person in whose name that Registered Security is registered at the close of business on such Interest Record Date. Except as otherwise provided in the immediately preceding sentence and in the parenthetical clause in Section 4(a)(i) above, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities surrendered for conversion or on account of any dividends or distributions on the Conversion Shares issued upon conversion. Registered Securities surrendered for conversion during the period after the close of business on any Interest Record Date next preceding any Interest Payment Date to the close of business on such Interest Payment Date shall (except in the case of Registered Securities or portions thereof which are called for redemption on March 15, 1999) be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the principal amount being surrendered for conversion. No fractions of shares or scrip representing fractions of shares will be issued or delivered on conversion, but instead of any fractional interest the Company shall pay a cash adjustment as provided in the Indenture. 86 (c) (i) In case at any time the Company shall pay or make a stock dividend or other distribution on any class of capital stock of the Company in shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares of Common Stock constituting such dividend or other distribution, such adjustment to become effective immediately after the opening of business on the day following the date fixed for such determination; and in the event that such dividend or other distribution is not so made, or is made in part, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect (i) if such record date has not been fixed or (ii) based on the actual number of shares actually issued, as the case may be. (ii) In case at any time the Company shall (A) subdivide its outstanding shares of Common Stock into a greater number of shares, (B) combine its outstanding shares of Common Stock into a smaller number of shares, or (C) issue by reclassification of its shares of Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation) any shares of capital stock, the Conversion Price in effect at the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the holder of any Security surrendered for conversion after such time shall be entitled to receive the aggregate number and kind of shares which, if such Security had been converted immediately prior to such time, he would have owned upon such conversion and been entitled to receive upon such subdivision, combination or reclassification. Such adjustment shall become effective immediately after the effective date of such subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event listed above shall occur. (iii) In case at any time the Company shall fix a record date for the issuance of rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share less than the Current Market Price per share of Common Stock on such record date, the Conversion Price in effect at the opening of business on the day following such record date shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such record date plus the number of shares of Common Stock (or its equivalent) which the aggregate of the offering price of the total number of shares so offered for subscription or purchase would purchase at such Current Market Price per share of Common Stock and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such record date plus the number of shares of Common Stock (or its equivalent) so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following such record date; provided, however, that no adjustment to the Conversion Price shall be made pursuant to this Section 4(c)(iii) if the holders of Securities 87 receive, or are entitled to receive upon conversion or otherwise, the same rights, options or warrants as are issued to the holders of Common Stock, on the same terms and conditions as such rights, options or warrants are so issued to the holders of Common Stock. Such reduction shall be made successively whenever such a record date is fixed; and in the event that such rights, options or warrants are not so issued, or are issued in part, or are issued but all or part of which expire unexercised, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect (i) if such record date had not been fixed or (ii) based on the actual number of rights, options or warrants actually issued, as the case may be. (iv) In case at any time the Company shall fix a record date for the making of a distribution, by dividend or otherwise, to all holders of its shares of Common Stock, of evidences of its indebtedness or assets (including securities, but excluding (x) any dividend or distribution referred to in paragraph (i) of this subsection (c) and any rights, options or warrants referred to in paragraph (iii) of this subsection (c), and (y) any dividend, return of capital or distribution paid in cash out of the retained earnings of the Company and regular quarterly dividends consistent with past practice ), then in each such case the Conversion Price in effect after such record date shall be determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the total number of outstanding shares of Common Stock multiplied by the Current Market Price per share of Common Stock on such record date, less the fair market value (as determined by a Board Resolution, whose determination shall be conclusive and described in a statement filed with the Trustee) of the portion of the assets or evidences of indebtedness so to be distributed, and of which the denominator shall be the total number of outstanding shares of Common Stock multiplied by such Current Market Price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed and shall become effective immediately after the record date for the determination of stockholders entitled to receive the distribution; and in the event that such distribution is not so made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date has not been fixed. (v) The Company may make such downward adjustments in the Conversion Price, in addition to those required by paragraphs (i), (ii), (iii) and (iv) of this section, as it considers to be advisable in order that any event treated for United States federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients. (vi) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least U.S. $0.25 in such Conversion Price; provided, however, that any adjustment which by reason of this paragraph (vi) is not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this subsection (c) shall be made to the nearest cent or to the nearest 1/1000 of a share, as the case may be. (d) Whenever the Conversion Price is adjusted and in the event of certain other corporate actions, as herein provided, the Company shall give notice, all as provided in the Indenture. (e) The Company shall use its reasonable best efforts to cause all registrations with, and to obtain any approvals by, any governmental authority under any federal or state law of the United States that may be required before 88 the Conversion Shares (or other securities issuable upon conversion of the Securities) may be lawfully issued or transferred and delivered 5. Transfer and Exchange of Securities. (a) Title to Bearer Securities and Coupons shall pass by delivery. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of Registered Securities is registrable on the Security Register upon surrender of a Registered Security for registration of transfer at the office or agency of the Trustee in The City of New York, or, subject to applicable laws and regulations, at the office of the paying agency in Luxembourg, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the holder thereof or his attorney duly authorized in writing, and thereupon one or more new Registered Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. (b) As provided in the Indenture and subject to certain limitations therein set forth, Bearer Securities (with all unmatured Coupons appertaining thereto) are exchangeable at, subject to applicable laws and regulations, the offices of the paying agencies in London and Luxembourg or as designated by the Company for such purpose pursuant to the Indenture, for an equal aggregate principal amount of Registered Securities and/or Bearer Securities of authorized denominations, and Registered Securities are exchangeable at the principal corporate trust office of the Trustee in The City of New York or, subject to applicable laws and regulations, the offices of the paying agencies in London and Luxembourg or as designated by the Company for such purpose pursuant to the Indenture, for an equal aggregate principal amount of Registered Securities of authorized denominations as requested by the Holder surrendering the same. Registered Securities will not be exchangeable for Bearer Securities. The Company shall not be required (i) to exchange Bearer Securities for Registered Securities during the period between the close of business on any Interest Record Date and the opening of business on the next succeeding Interest Payment Date, (ii) to exchange any Bearer Security (or portion thereof) for a Registered Security if the Company shall determine and inform the Trustee in writing that, as a result thereof, the Company may incur adverse consequences under the federal income tax laws and regulations (including proposed regulations) of the United States in effect or proposed at the time of such exchange, or (iii) in the event of a redemption in part, (A) to register the transfer of Registered Securities or to exchange Bearer Securities for Registered Securities during a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption; (B) to register the transfer of or exchange any such Registered Securities, or portion thereof, called for redemption; or (C) to exchange any such Bearer Securities called for redemption; provided, however, that a Bearer Security called for redemption may be exchanged for a Registered Security which is simultaneously surrendered, with written instruction for payment on the Redemption Date, unless the Redemption Date is during the period between the close of business on any Interest Record Date and the close of business on the next succeeding Interest Payment Date, in which case such exchange may only be made prior to the close of business on the Interest Record Date immediately preceding the Redemption Date. The Company also shall not be required to exchange Securities if, as a result thereof, the Company would incur adverse consequences under United States federal income tax laws in effect at the time of such exchange. In the event of redemption or conversion of a Registered Security in part only, a new 89 Registered Security or Securities for the unredeemed or unconverted portion hereof will be issued in the name of the holder thereof. (c) The costs and expenses of effecting any exchange or registration of transfer pursuant to the foregoing provisions, except for the expenses of delivery (if any) by other than regular mail and except, if the Company shall so require, the payment of a sum sufficient to cover any tax or other governmental charge or insurance charges that may be imposed in relation thereto, will be borne by the Company. (d) The Company has initially appointed the Trustee as registrar, transfer agent, paying agent and conversion agent acting through the Trustee's principal corporate trust office in The City of New York and its agents in London. The Company has also initially appointed Chase Manhattan Bank Luxembourg S.A. as a transfer agent, paying agent and conversion agent. The Company may at any time terminate the appointment of the registrar and such agents and appoint additional or other registrars and agents or approve any change in an office through which the registrar or any agent acts; provided that, until all of the Securities have been delivered to the Trustee for cancellation, or monies sufficient to pay the Securities have been made available for payment and either paid or returned to the Company as provided in the Securities and the Indenture, the Company will maintain a paying agent and a conversion agent (i) in The City of New York in the United States for the payment of the principal and interest on Registered Securities and for the surrender of Securities for conversion or redemption and (ii) in a European city that, so long as the Securities are listed on the Luxembourg Stock Exchange and such exchange shall so require, shall be Luxembourg, for the payment of the principal and interest on Securities and for the surrender of Securities for conversion or redemption. 6. Meetings of Holders. A meeting of Holders of Securities may be called at any time and from time to time in the manner and for the purposes set forth in the Indenture. The Trustee may at any time call a meeting of Holders of the Securities to be held at such time and at such place in any of such designated locations as the Trustee shall determine. Notice of every meeting of Holders shall be made as specified in the Indenture. 7. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented, and any existing Default or Event of Default or compliance with any provision may be waived, with the written consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Securities to, among other things, cure any ambiguity, defect or inconsistency, or make any other change that does not adversely affect the rights of any Holder of a Security. 8. Subordination. Payment of principal, premium, if any, interest on and Additional Amounts with respect to the Securities is subordinated, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Indebtedness. 90 9. Successors. Except as otherwise provided in the Indenture, when a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 10. Defaults and Remedies. If an Event of Default occurs and is continuing (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization in which events all principal, accrued interest and Additional Amounts, if any, with respect to the Securities will be immediately due and payable without any declaration or other act on the part of the Trustee or the Holders), then in every such case, unless the principal of all of the Securities shall have already become due and payable, either the Trustee or the Holders of 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of any continuing Default or Event of Default (except a Default in payment of principal, interest or Additional Amounts), if it determines that withholding notice is in their interest. 11. No Recourse Against Others. No stockholder, director, officer or employee, as such, past, present or future, of the Company or any successor corporation shall have any personal liability in respect of the obligations of the Company under the Securities or the Indenture by reason of his, her or its status as such stockholder, director, officer or employee. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 12. Non-Business Days. In any case where the date of maturity of the principal of or interest on (or Additional Amounts, if any, with respect thereto) the Securities or the date fixed for redemption of any Security shall be at any place of payment a day other than a Business Day, then payment of principal or interest (or Additional Amounts, if any) need not be made on such date at such place but may be made on the next succeeding Business Day at such place of payment, with the same force and effectas if made on the date of maturity or the date fixed for redemption, and no interest shall accrue for the period after such date. 13. Notices. All notices to the Holders of Securities will be published on a Business Day in Authorized Newspapers in The City of New York and in London, and, as long as the Securities are listed on the Luxembourg Stock Exchange, in an Authorized Newspaper in Luxembourg or, if either publication in London or Luxembourg is not practical, in an Authorized Newspaper in Western Europe. Notices shall be deemed to have been given on the date of publication as 91 aforesaid or, if published on different dates, on the date of the first such publication. A copy of each notice will be mailed by the Trustee, on behalf of and at the expense of the Company, by first-class mail to each holder of a Registered Security at the registered address of such holder as the same shall appear in the Security Register on the day fifteen days prior to such mailing. The Trustee shall promptly furnish to the Company, the Paying Agent and to each other paying agency of the Company a copy of each notice so published or mailed. 14. Governing Law. (a) The Indenture, this Security and any coupons appertaining hereto shall be governed by and construed in accordance with the laws of the State of New York, United States of America, without regard to principles of conflicts of laws. (b) The Company has appointed the Trustee as its agent upon whom process may be served in any legal action or proceeding relating to or arising out of this Security, the Indenture or any Coupon appertaining hereto. 15. Authentication. This Security and any Coupon appertaining thereto shall not become valid or obligatory for any purpose until the certificate of authentication hereon shall have been duly signed by the Trustee or an authenticating agent acting under the Indenture. 16. Warranty of the Issuer. Subject to Section 15 hereof, the Company hereby certifies and warrants that all acts, conditions and things required to be done and performed and to have happened precedent to the creation and issuance of this Security and any Coupons appertaining thereto, and to constitute the same legal, valid and binding obligations of the Company enforceable in accordance with their terms, have been done and performed and have happened in due and strict compliance with all applicable laws. 17. Status as United States Real Property Holding Corporation. To the best of its knowledge, as of the date of the issuance of this Security, the Company is not a "United States real property holding corporation" as defined in Section 897(c)(2) of the United States Internal Revenue Code of 1986, as amended (the "Code"). A non-United States person disposing of this Security may request from the Company a statement as to whether this Security constitutes a "United States real property interest" (as defined in Code Section 897(c)(1)) as of the date of disposition. It may be necessary to obtain a statement that this Security does not constitute a "United States real property interest" prior to the time that a tax return would otherwise be required to be filed with the United States Internal Revenue Service with respect to such disposition in order to avoid a withholding tax on such disposition. If, at any time while this Security is outstanding, the Company determines that it is at such time a "United States real property holding corporation", it shall provide notice of such determination in accordance with the provisions of Section 13 hereof. The Holder of this Security can contact the Company at 3731 Wilshire Boulevard, 10th Floor, Los Angeles, California 90010 to obtain information as to the United States income tax consequences of the classification of the Company as a "United States real property holding corporation." 92 18. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 20. Additional Rights of Holders of Restricted Securities. In addition to the rights provided to Holders of Securities under the Indenture, Holders of Restricted Securities shall have all the rights set forth in the Registration Rights Agreement. 21. Accounting Terms. All accounting terms not otherwise defined herein shall have the meanings assigned to them in accordance with generally accepted accounting principles as applied in the United States. 22. Descriptive Headings. The descriptive headings appearing herein are for convenience of reference only and shall not alter, limit or define the provisions hereof. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Request may be made to: Aames Financial Corporation 3731 Wilshire Boulevard, 10th Floor Los Angeles, California 90010 Attention: Secretary TRANSFER NOTICE FOR VALUE RECEIVED, the undersigned Holder hereby sell(s), assign(s) and transfer(s) unto ___________________________ whose taxpayer identification number is ________________ and whose address including postal/ZIP code is ____________ ____________________________________________the within Security and all rights thereunder, hereby irrevocably constituting and appointing __________________________________________ _______________________________________attorney-in-fact to transfer said Security on the books of the Company with full power of substitution in the premises. Only if a Restricted Security: In connection with the transfer of this Security, the undersigned certifies that (check one): . (a) This Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act")) in compliance with the exemption from registration under the Securities Act of 1933 provided by Rule 144A thereunder. 93 . (b) This Security is being transferred in an Offshore Transaction (as defined in Regulation S under the Securities Act) in compliance with the exemption from registration under the Securities Act provided by Regulation S thereunder. . (c) This Security is being transferred in a transaction arranged by a broker or dealer registered under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), to an institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in a transaction not involving any general solicitation or general advertising and in connection with which transfer the Company has received, if it has so requested, an opinion of counsel (satisfactory to it in form and substance) to the effect that the transfer is being made pursuant to an exemption from the registration requirements of the Securities Act. . (d) This Security is being transferred to Aames Financial Corporation. . (e) In connection with a transfer, other than those above, as to which the Company has received an opinion of counsel (satisfactory to it in form and substance) to the effect that the transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. . (f) This Security is being exchanged for a beneficial interest in the Rule 144A Global Security and the undersigned is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act). Dated: Name: By: --------------------------------------- Name: Title: NOTICE: The signature of the Holder to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without enlargement or any change whatsoever. SIGNATURE GUARANTEED TO BE COMPLETED BY A BROKER OR DEALER IF (c) ABOVE IS CHECKED: The undersigned represents and warrants that (i) it is a broker or dealer registered under Section 15 of the Exchange Act, (ii) each person which will become a beneficial owner of this Security upon transfer is an institutional investor which is an "accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act); (iii) no general solicitation or general advertising was made or used by it in connection with the offer and sale of this Security to such person(s); and (iv) each such person has been notified that this Security has not been registered under the Securities Act and is subject to the restrictions on transfer of the Security set forth herein and in the Indenture. Dated: _________________ By: ______________________________ 94 IF NONE OF THE FOREGOING BOXES IS CHECKED, THE TRUSTEE SHALL NOT BE OBLIGATED TO REGISTER THE TRANSFER OF THIS SECURITY UNLESS AND UNTIL THE CONDITIONS TO ANY SUCH TRANSFER OF REGISTRATION SET FORTH HEREIN, ON THE FACE HEREOF AND IN THE INDENTURE SHALL HAVE BEEN SATISFIED. CONVERSION NOTICE If (i) Registered Security of denomination U.S. $1,000 or (ii) Bearer Security of denomination U.S. $1,000: The undersigned holder of this Security hereby irrevocably exercises the option to convert this Security into shares of Common Stock of Aames Financial Corporation in accordance with the terms of this Security and directs that such shares be registered in the name of and delivered, together with a check in payment for any fractional share, to the undersigned unless a different name has been indicated below. If shares are to be registered in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Dated: _____________ ------------------------------------------- Signature MUST BE MEDALLION GUARANTEED IF STOCK IS TO BE ISSUED IN A NAME OTHER THAN THE REGISTERED HOLDER OF THE SECURITY If shares are to be registered in the name of and delivered to a person other than the holder, please print such person's name and address and, if this is a Restricted Security, complete Transfer Notice: ----------------------------------------- HOLDER Please print name and address of holder: CONVERSION NOTICE If (i) Registered Security of denomination greater than U.S. $1,000 or (ii) Bearer Security of denomination U.S. $10,000: The undersigned holder of this Security hereby irrevocably exercises the option to convert this Security, or portion hereof (which is U.S. $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of Aames Financial Corporation in accordance with the terms of this Security, and directs that such shares, together with a check in payment for any fractional share and any Securities representing any unconverted principal amount hereof, be delivered to and be registered (if a Registered Security) in the name of the undersigned unless a different name has been indicated below. If shares or Securities are to be registered in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. 95 Dated: ________________ ------------------------------------------- Signature MUST BE MEDALLION GUARANTEED IF THE STOCK IS TO BE ISSUED IN A NAME OTHER THAN THE REGISTERED HOLDER OF THE SECURITY If shares or Securities are to be If only a portion of the registered in the name of a Person other Securities in the name of than the holder, please print such ______________________ is to be person's name and address and, if this converted, please indicate: is a Restricted Security, complete Transfer Notice: 1. Principal Amount to be Security, complete Transfer Notice: converted: U.S.$ 2. Kind, amount and denomination of Securities representing unconverted principal amount to be issued: Bearer-U.S.$ Denominations: U.S.$ (U.S. $1,000 or $10,000) Registered-U.S.$ Denominations: U.S.$ REDEMPTION NOTICE UNDER SECTION 3(d) The undersigned holder of this Security hereby requests and instructs the Company to redeem this Security in accordance with the terms of Section 3(d) of this Security and directs that a check in payment of the redemption amount be delivered to the undersigned unless a different name has been indicated below. The undersigned understands that this request can be revoked by delivering written notice to the Paying Agent on or before the Holder Redemption Date, together with the undersigned's non-transferable receipt for such Security. Dated: ------------------------------------------- Signature MUST BE MEDALLION GUARANTEED IF CHECK IS TO BE MADE PAYABLE TO A NAME OTHER THAN THE REGISTERED HOLDER OF THE SECURITY 96 If a check in payment of the redemption amount is to be delivered to a person other than the holder, please print such person's name and address: ----------------------------------- HOLDER Please print name and address of holder: [SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES The following exchanges of a part of this Rule 144A Global Security for Registered Accredited Investor Securities have been made: Amount of Amount of Principal Signature Decrease in Increase in Amount of of Principal Principal This Global Authorized Amount Amount Security Officer of of this of this Following Trustee or Date of Global Global Such Decrease Security Exchange Security Security or Increase Registrar --------- ---------- ---------- ------------- ---------- EXHIBIT B (FORM OF REGULATION S GLOBAL SECURITY) THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OF AMERICA (INCLUDING THE STATES AND THE DISTRICT OF COLUMBIA), ITS TERRITORIES, ITS POSSESSIONS AND OTHER AREAS SUBJECT TO ITS JURISDICTION (THE "UNITED STATES") OR TO ANY CITIZEN, NATIONAL OR RESIDENT OF THE UNITED STATES OR TO ANY CORPORATION, PARTNERSHIP OR OTHER ENTITY CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF, OR TO ANY ESTATE OR TRUST THE INCOME OF WHICH IS SUBJECT TO UNITED STATES FEDERAL INCOME TAXATION REGARDLESS OF ITS SOURCE OR TO ANY OTHER PERSON DEEMED A U.S. PERSON UNDER REGULATION S UNDER THE SECURITIES ACT ("UNITED STATES PERSONS"), EXCEPT TO CERTAIN INSTITUTIONAL INVESTORS IN THE UNITED STATES IN TRANSACTIONS NOT REQUIRED TO BE REGISTERED UNDER THE SECURITIES ACT. ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES FEDERAL INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED. THIS SECURITY IS A TEMPORARY GLOBAL SECURITY, WITHOUT COUPONS, EXCHANGEABLE FOR DEFINITIVE BEARER SECURITIES WITH INTEREST COUPONS OR REGISTERED SECURITIES WITHOUT INTEREST COUPONS. THE RIGHTS ATTACHING TO THIS GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SECURITIES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON EXCEPT PURSUANT TO THE PROVISIONS HEREOF. 97 AAMES FINANCIAL CORPORATION (Incorporated in the State of Delaware) 5 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006 TEMPORARY GLOBAL DEBENTURE Aames Financial Corporation, a corporation duly incorporated and existing under the laws of the State of Delaware (the "Company"), for value received, hereby promises to pay to bearer upon presentation and surrender of this Global Security the principal sum of $_________________ United States Dollars on March 15, 2006 and to pay interest thereon, from February 26, 1996 semiannually in arrears on March 15 and September 15 in each year, commencing September 15, 1996, at the rate of 5 1/2% per annum, until the principal hereof is paid or made available for payment; provided, however, that interest on this Global Security shall be payable only after the issuance of the definitive Securities for which this Global Security is exchangeable and, in the case of definitive Securities in bearer form, only upon presentation and surrender (at an office or agency outside the United States, its territories and its possessions, except as otherwise provided in the Indenture referred to below) of the interest coupons thereto attached as they severally mature. This Global Security is one of a duly authorized issue of Securities of the Company designated as specified in the title hereof, issued and to be issued under the Indenture dated as of February 26, 1996 (the "Indenture") between the Company and The Chase Manhattan Bank, N.A., as Trustee (the "Trustee," which term includes any successor trustee under the Indenture). This Global Security is a temporary Security and is exchangeable in whole or from time to time in part without charge upon request of the holder hereof for definitive Securities in bearer form, with interest coupons attached, or in registered form, without coupons, of authorized denominations, (a) not earlier than 40 days after the date hereof and (b) as promptly as practicable following presentation of each certification called for in the Indenture for such purpose, that the beneficial owner or owners of this Global Security (or, if such exchange is only for a part of this Global Security, of such part) are not United States persons or other Persons who have purchased such Security for resale to United States persons. Definitive Securities in bearer form to be delivered in exchange for any part of this Global Security shall be delivered only outside of the United States, its territories and its possessions. Upon any exchange of a part of this Global Security for definitive Securities, the portion of the principal amount hereof so exchanged shall be endorsed by the Trustee or its agent on the Schedule of Exchanges hereto, and the principal amount hereof shall be reduced for all purposes by the amount so exchanged. Until exchanged in full for definitive Securities, this Global Security shall in all respects be entitled to the same benefits under, and subject to the same terms and conditions of, the Indenture as definitive Securities authenticated and delivered thereunder, except that neither the holder hereof nor the beneficial owners of this Global Security shall be entitled to receive payment of interest hereon or to convert this Global Security into shares of Common Stock of the Company or any other security, cash or other property. 98 THIS GLOBAL SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. All terms used in this Global Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. Unless the certificate of authentication hereon has been manually executed by an authorized signatory of the Trustee, this Global Security shall not be entitled to any benefit under the Indenture or valid or obligatory for any purpose. IN WITNESS, WHEREOF, the Company has caused this Global Security to be duly executed in its corporate name by its duly authorized signatory under its corporate seal. Dated: February 26, 1996 AAMES FINANCIAL CORPORATION By: --------------------------------- Name: _________________________________ Title: _________________________________ [Corporate Seal] Attest: 99 CERTIFICATE OF AUTHENTICATION This is one of the Securities described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, N.A., as Trustee By: -------------------------------------------------- Name: Title: 100 EX-10.30 5 LEASE EXHIBIT 10.30 EXECUTION COPY AIRCRAFT LEASE AGREEMENT Dated as of March 8, 1996 between C.I.T. LEASING CORPORATION LESSOR ------ and OXFORD AVIATION CORPORATION, INC. LESSEE ------ covering One Gulfstream Model 1159A Aircraft, Serial Number 428 and Associated Engines U.S. Registration Number N760G AIRCRAFT LEASE AGREEMENT As from time to time amended, this AIRCRAFT LEASE AGREEMENT dated as of March 8, 1996 (this "LEASE"), between C.I.T. Leasing Corporation, a Delaware corporation, together with its successors and permitted assigns, ("LESSOR"), and Oxford Aviation Corporation, Inc., a California corporation, together with its successors and permitted assigns, ("LESSEE"), having its principal place of business at 3731 Wilshire Boulevard, 10th Floor, Los Angeles, California 90010. WHEREAS, Lessor desires to purchase from Seller one Gulfstream Model 1159-A aircraft and simultaneously with such purchase, Lessee desires to lease from Lessor and Lessor is willing to lease to Lessee such aircraft on the terms and conditions set forth in this Lease. NOW, THEREFORE, in consideration of the mutual covenants herein contained, Lessor and Lessee hereby agree as follows: 1. DEFINITIONS. Unless the context otherwise requires, the following terms shall have the following meanings for all purposes of this Lease and shall be equally applicable to both the singular and the plural forms of the terms herein defined: "ACCEPTANCE DATE" means on or about March 12, 1996 and the date on which all conditions precedent set forth in Section 21 hereof have been satisfied, or waived in writing by Lessor, and Lessee has unconditionally accepted the Aircraft for lease under this Lease. "AERONAUTICAL BILL OF SALE" shall mean the bill of sale for the Aircraft on AC Form 8050-2 (for Aircraft registered in the United States) or such other form as may be acceptable to the FAA for recordation of Lessor's ownership interest in the Aircraft executed by Seller in favor of Lessor and dated the Acceptance Date. "AERONAUTICS AUTHORITY" means, as the context requires, the United States Department of Transportation, the FAA and/or the Administrator of the FAA, or any person, governmental department, bureau, commission or agency succeeding to the functions of any of the foregoing. "AFFILIATE" with respect to a specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled by" have meanings correlative to the foregoing. "AIRCRAFT" means the Airframe together with (a) the Engines, whether or not installed on the Aircraft, (b) all Parts or components thereof, (c) spare parts or ancillary equipment or devices acquired pursuant to the Purchase Agreement and furnished with the Aircraft under this Lease, (d) all Aircraft Documents, (e) all substitutions, replacements and renewals of any and all thereof, and (f) all capital improvements which may be made to, installed on or incorporated into the Aircraft, including but not limited to, those required pursuant to any Airworthiness Directive. "AIRCRAFT COST" shall mean the amount set forth in Exhibit B. "Aircraft Cost" without further reference to an Airframe or an Engine, shall mean, unless otherwise expressly provided, the Aircraft Cost of the Aircraft. "AIRCRAFT DOCUMENTS" shall mean the items delivered by Seller to Lessee and in possession of Lessee on the Acceptance Date and all other records and documentation pertaining to the Airframe, Engines and Parts delivered with the Aircraft or generated during the Basic Term, all of which shall be maintained in the English language, and such other items which may be acquired or prepared by Lessee relating to its use, operation and maintenance of the Aircraft during the term of this Lease. "AIRFRAME" means (i) the airframe described in Schedule A attached hereto and made a part hereof and any airframe which may from time to time be substituted or be a replacement for the airframe, and (ii) any and all avionics, appliances, Parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (except the Engines or engines) attached to or installed on such airframe for so long as title thereto shall be vested in Lessor in accordance with this Lease. "AIRWORTHINESS DIRECTIVE" shall mean any Airworthiness Directive issued by the FAA and applicable to aircraft, engines and appliances and Parts of the same type as the Aircraft, the Engines and the Parts. "ASSIGNMENT OF WARRANTIES" shall mean the Assignment of Warranties dated as of March 8, 1996 by and among the Lessor, the Lessee and the Seller. "BASIC RENT" shall have the meaning given to such term in Section 3.1 hereof and Exhibit C hereto. "BASIC TERM" for the Aircraft means (i) the Initial Term and (ii) any applicable renewal terms pursuant to Section 3 unless this Lease is sooner terminated pursuant to the provisions hereof. "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which banking institutions in Los Angeles, California are authorized by law to close. "CASUALTY LOSS VALUE" shall mean the amounts set forth in Exhibit D hereto. "CERTIFICATE OF ACCEPTANCE" means the Certificate of Acceptance substantially in the form attached hereto as Exhibit A, to be executed by Lessee for the purpose of acknowledging acceptance of the Aircraft. "CHARTER" shall mean Lessee, from time to time will transport passengers for revenue on an hourly or on a per flight basis under FAR Part 135. "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMITMENT FEE" shall have the meaning set forth in Section 34(b) hereof. "DEFAULT" shall mean any event or condition which, with the lapse of time or the giving of notice or both, would constitute an Event of Default. "DEFAULT RATE" shall mean interest at the rate per annum equal to eighteen percent (18%), subject to the maximum rate permitted by Law. "DEPOSIT" shall mean the amount set forth in Exhibit G hereto. "ENGINE" means (i) each of the two engines, installed on the Airframe on the Acceptance Date as described in Schedule A attached hereto and made a part hereof, whether or not from time to time thereafter no longer installed on the Airframe or installed on any other airframe or any other aircraft; and (ii) any other engine which may from time to time be substituted or be a replacement for an Engine in accordance with this Lease. "EVENT OF DEFAULT" means any of the events referred to in Section 22 hereof. "EVENT OF LOSS" with respect to the Aircraft or the Airframe or any Engine means any of the following events: (i) loss of the Aircraft or the Airframe or any Engine or of the use thereof due to theft or disappearance for a period in excess of 45 days, during the Basic Term, or existing at the expiration or earlier termination of the Basic Term, (ii) destruction, damage beyond repair, or rendition of the Aircraft or the Airframe or any Engine permanently unfit for normal use for any reason whatsoever, or (iii) the condemnation, confiscation, seizure, or requisition of use or title to the Aircraft or the Airframe or any Engine by any Governmental Authority under the power of eminent domain or otherwise for any period in excess of forty-five (45) days or existing at the expiration or earlier termination of the Basic Term. An Event of Loss with respect to any Engine shall not, without loss of the Airframe, be deemed an Event of Loss with respect to the Aircraft. "EXPIRATION DATE" shall mean the last day of the Basic Term of this Lease or such other date on which the Basic Term of this Lease may be terminated pursuant to the terms hereof. "FAA" shall mean, as the context requires, the United States Federal Aviation Administration and/or the Administrator of the United States Federal Aviation Administration, or any person, governmental department, bureau, commission or agency succeeding to the functions of either of the foregoing. "FORCE MAJEURE" shall mean any event not occasioned by the fault or negligence of a party hereto and due to or arising from any cause beyond such party's reasonable control including, without limitation, (i) acts of the public enemy, civil war, insurrection or riots, or quarantine restrictions, strikes, lockouts, or labor stoppages and/or (ii) fires, floods, explosions, earthquakes or epidemics. "GOVERNMENTAL AUTHORITY" shall mean and include (a) the FAA; (b) any national government, or political subdivision thereof or local jurisdiction therein; (c) any board, commission, department, division, organ, instrumentality, court, or agency of any entity described in (b) above, however constituted; and (d) any association, organization, or institution of which any entity described in (b) or (c) above is a member or to whose jurisdiction any such entity is subject or in whose activities any such entity is a participant but only (except for purposes of defining Law below) to the extent that any of the preceding clauses (a), (b), (c) and (d) hereof have jurisdiction over the Aircraft or its operations. "GUARANTOR" shall mean Aames Financial Corporation, together with its successors and permitted assigns. "GUARANTY" shall mean the Guaranty Agreement dated as of March 8, 1996 between Guarantor and Lessor, as may be amended in writing from time to time, and as executed concurrently with the execution of this Lease. "IMPROVEMENT" has the meaning given to such term in Section 11 hereof. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 18 hereof. "INITIAL TERM" for the Aircraft means the one hundred twenty (120) monthly periods from and including the Acceptance Date to and including the day immediately preceding the tenth anniversary date of the Acceptance Date. "LAW" shall mean and include (a) any statute, decree, constitution, regulation, order, judgment or other directive of any Governmental Authority; (b) any treaty, pact, compact or other agreement to which any Governmental Authority is a party; (c) any judicial or administrative interpretation or application of any Law described in (a) or (b) above; and (d) any amendment or revision of any Law described in (a), (b) or (c) above. "LESSEE DOCUMENTS" means this Lease, the Purchase Agreement, the Tax Indemnity Agreement, the Guaranty and the Purchase Agreement Assignment and each other document executed by Lessee pursuant to this Lease or the transactions contemplated hereby. "LESSEE FURNISHED EQUIPMENT" shall mean the Parts set forth in Appendix I to the Certificate of Acceptance. "LESSEE PERSON" shall mean Lessee or other user or Person in possession of the Aircraft, the Airframe, or any Engine, and any Affiliate, successor or assign of any of the foregoing (other than Lessor or any Affiliate, successor or assign of Lessor). "LESSOR LIEN" means any Lien on the Airframe, any Engine or any Part, equipment or appliance arising as a result of (i) claims against or affecting Lessor or any of its Affiliates that are not related to the transactions contemplated by the Lessee Documents, (ii) any act or omission of Lessor or any of its Affiliates that is not related to the transactions contemplated by the Lessee Documents or which is in violation of the terms hereof or (iii) Taxes (including claims therefor) or other claims imposed on Lessor or any of its Affiliates (including the consolidated group of taxpayers of which Lessor is part) for which Lessee is not obligated to indemnify Lessor or such Affiliate hereunder. "LIENS" means liens, mortgages, encumbrances, pledges, charges and security interests of any kind. "MAINTENANCE PROGRAM" shall mean the Manufacturer's approved maintenance program (as approved by the FAA and Lessor) as in effect from time to time for the Aircraft encompassing scheduled maintenance, conditioned monitored maintenance and on-condition maintenance of the Airframe, Engines and Parts of the Aircraft. Upon request by Lessor, a copy of such Maintenance Program shall be provided to Lessor. "MANUFACTURER" shall mean Gulfstream Aerospace Corporation together with its successors and assigns. "OPERATIVE DOCUMENTS" means the Lessee Documents, the Aeronautical Bill of Sale, the Warranty Bill of Sale, and such other documents delivered in connection with this Lease and the Purchase Agreement and the transactions contemplated hereby and thereby. "PARTS" means any and all appliances, components, parts, instruments, appurtenances, accessories, furnishings, seats, and other equipment of whatever nature (other than Engines or engines and landing gear and temporary replacement parts as provided in Section 11 hereof), which may from time to time be incorporated or installed in or attached to the Airframe or any Engine and spare parts delivered pursuant to the Purchase Agreement. "PERMITTED LIEN" means a Lien permitted by the provisions of Section 14 hereof. "PERSON" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee(s) of a trust, unincorporated organization, or government or Governmental Authority, agency or political subdivision thereof. "PROCESS AGENT" shall have the meaning set forth in Section 29 hereof. "PURCHASE AGREEMENT" shall mean the Aircraft Purchase Agreement dated as of March 7, 1996 between Seller, as seller and Lessee, as purchaser. "PURCHASE AGREEMENT ASSIGNMENT" shall mean that certain Purchase Agreement Assignment to be entered into by Lessee and Lessor, and in form and substance substantially similar to Exhibit F hereto. "PURCHASE OPTION DATE" shall have the meaning set forth in Section 8(a) hereof. "RENT" shall mean Basic Rent and Supplemental Payments. "RENT PAYMENT DATE" means the first day in each of the Rental Periods. "RENTAL PERIOD" means each of the consecutive monthly periods throughout the Basic Term as in effect under this Lease, the first such period commencing on and including the Acceptance Date and ending on the day immediately preceding the date which is one month after the Acceptance Date, and each of the remaining monthly periods commencing on and including the same day as the Acceptance Date in each such month and ending on the day immediately preceding the same day as the Acceptance Date in the next succeeding month. "REPLACEMENT" has the meaning given to such term in Section 11 hereof. "REQUIRED ALTERATION" has the meaning given to such term in Section 11 hereof. "SELLER" shall mean Marbro International together with its successors and assigns. "SUPPLEMENTAL PAYMENTS" means all amounts, liabilities and obligations which Lessee assumes or agrees to pay hereunder to Lessor or others, including, without limitation, payments of Casualty Loss Value, Termination Value and indemnities, but excluding Basic Rent. "TAX" has the meaning given to such term in Section 17 hereof. "TAX INDEMNITEE" shall mean and include Lessor and any Affiliate thereof and any of their respective officers, directors, successors, assigns, agents and servants. "TAX INDEMNITY AGREEMENT" shall mean the Tax Indemnity Agreement dated as of March 8, 1996 between Lessor and Lessee. "TAXING AUTHORITY" shall mean any federal, state or local government, political subdivision, or taxing authority in the United States of America, any government or taxing authority of or in any country or other taxing jurisdiction outside the United States of America, or any international taxing authority. "TERMINATION VALUE" shall mean those amounts determined in accordance with and as set forth in Exhibit E. "WARRANTY BILL OF SALE" shall mean the Warranty Bill of Sale relating to the Aircraft dated the Acceptance Date by Seller in favor of Lessor. 2. AGREEMENT FOR PURCHASE AND LEASE OF AIRCRAFT. (a) Subject to, and upon all of the terms and conditions of this Lease, Lessor hereby agrees to purchase from Seller the Aircraft on the Acceptance Date. Lessee shall give Lessor at least one (1) Business Day's prior notice of the Acceptance Date. The portion of the purchase price payable by Lessor to (i) Seller for the Aircraft shall be payable by Lessor to Seller by wire transfer of immediately available funds to Union Bank, 1666 San Miguel Drive, Newport Beach, California 92660, ABA Number 122000496 for credit to Account Number 4540114272 in an amount equal to the excess of (x) the Aircraft Cost over (y) the Deposit representing (a) the amount paid by Lessee as purchaser, to Seller under the Purchase Agreement and (b) the cost of the Lessee Furnished Equipment, and (ii) to Lessee shall be payable by Lessor by wire transfer of immediately available funds to Union Bank, 445 South Figueroa Street, Los Angeles, California 90071, ABA Number 122000496 for credit to Account Number 21006-59371 or to an account to be specified in writing by Lessee in an amount equal to the Deposit. Lessor agrees that simultaneously with the purchase of the Aircraft, it shall lease to Lessee and Lessee hereby agrees to lease from Lessor the Aircraft for the Basic Term hereof, which leasing shall be evidenced by the execution and delivery of the Certificate of Acceptance by Lessee. Upon delivery of the Certificate of Acceptance by Lessee to Lessor, Lessee confirms to Lessor that Lessee has irrevocably accepted the Aircraft for all purposes hereof. (b) The Acceptance Date shall not extend beyond March 12, 1996 unless mutually agreed to by Lessor and Lessee. 3. TERM. The Basic Term for the Aircraft shall commence on the Acceptance Date, and, unless sooner terminated in accordance with the provisions of this Lease, shall end on the last day of the Basic Term. Lessee may upon written notice no later than one hundred eighty (180) days prior to the end of the Initial Term or each applicable renewal term thereafter request to extend the Basic Term for an additional one year period. Such renewal is subject to Lessor's consent which consent shall be at Lessor's sole discretion. The Basic Rent for any applicable renewal term shall be the fair market rental value of the Aircraft. 4. RETURN OF AIRCRAFT. (a) RETURN. Unless Lessee shall have elected to purchase the Aircraft pursuant to Section 8 hereof or the Aircraft shall have suffered an Event of Loss, Lessee will, upon the Expiration Date, at its own expense, return the Aircraft equipped with two (2) Engines duly installed thereon by delivering the same to Lessor at any airport in the continental United States as designated by Lessor. At the time of such return (i) all Airworthiness Directives and Manufacturer's mandatory service bulletins relating to the Aircraft shall have been performed, (ii) the Aircraft shall be owned by Lessor, free and clear of all Liens (other than any Lessor Lien), and shall be duly registered with the FAA, (iii) each fuel and oil tank shall contain the same quantity of fuel and oil as was contained in the fuel and oil tanks when the Aircraft was delivered to Lessee on the Acceptance Date, or in the case of any differences in any such quantities, an appropriate adjustment shall be made by payment at the then current market price of fuel or oil, as the case may be, and (iv) the Aircraft shall be in the condition required by Section 4 (c) hereof. Until the Aircraft is returned to Lessor as provided in this Section 4 (a), all of the provisions of this Lease with respect thereto shall continue in full force and effect and Lessee shall pay all the costs and expenses in connection with or incidental to the return of the Aircraft, including without limitation Basic Rent for the Aircraft as provided in Section 5 hereof. (b) MANUALS. Upon the return of the Aircraft, in accordance with this Section 4, Lessee shall deliver to Lessor all logs, manuals and data, and all inspection, modification and overhaul records required to be maintained with respect thereto under applicable rules and regulations of the FAA and any other Governmental Authority having jurisdiction. In the event logs are missing or incomplete for operations during the Basic Term, Lessor shall have the right to cause the logs to be reconstructed at the expense of Lessee. (c) CONDITION. At the time of such return: (i) the Aircraft shall have had any distinctive marking of Lessee removed in a workmanlike manner at the expense of Lessee; (ii) the Aircraft shall be fully equipped and have installed thereon the Engines and any and all Parts as were installed or incorporated in or attached to the Aircraft as of the Acceptance Date (or such replacements therefor permitted by or required pursuant to the terms hereof); (iii) the Aircraft shall be duly certified as an airworthy aircraft by the FAA and be returned with a valid certificate of airworthiness issued under 14 C.F.R. Part 91, or its equivalent; (iv) the Aircraft shall be in the condition and repair required to be maintained by Section 7 hereof, free of all corrosion and free and clear of all Liens and the rights of any third parties; (v) Lessee shall deliver to Lessor all relevant logs, manuals and data and all inspection, modification and overhaul records required to be maintained with respect to the Aircraft and Engines under applicable rules and regulations of the FAA and any other Governmental Authority having jurisdiction; and (vi) Lessee shall return the aircraft on a Gulfstream Computerized Maintenance Program (CMP) fully paid up to the return date with all transfer fees, if any, to be paid by the Lessee. At the time of such return, (i) Lessee shall have completed within thirty (30) days prior to the return, the next required 18-month inspection, or portion thereof not previously completed, on the Airframe if such inspection is due within the next ninety (90) days, and if not in compliance with the Rolls Royce Spey Model MK 511-8 Engine recommended maintenance program for the Engines, the next anticipated periodic inspection on each Engine and (ii) the Aircraft with all material component parts shall have one half or more of the available operating hours and/or, as applicable, one half or more of the stated calendar time and cycles remaining as stated in the Code of Federal Regulations applicable to the FAA, and Manufacturer approved Maintenance Program under the auspices of FAR 91.409(f)(iii) at time of return. In the event that any of such Engines or such Aircraft does not meet the conditions set forth in the immediately preceding paragraph, Lessee shall pay Lessor an amount equal to the sum of (i) for each Engine, the product of: the then current estimated cost of the next midlife inspection (including in such estimated cost, all required replacement of Life Limited Components (as such term is defined in the Manufacturer's maintenance manual for the Aircraft and as specified by Rolls Royce for the Engines as Group A and Group B items)) multiplied by the fraction wherein the numerator shall be the remainder (zero (0) if negative) of (A) the actual number of hours of operation since the previous midlife inspection, minus (B) fifty percent (50%) of total operating hours anticipated between midlife inspections, and the denominator shall be the total operating hours anticipated between midlife inspections, plus (ii) for each Engine, the product of: the then current estimated cost of the next anticipated major overhaul (including in such estimated cost, all required replacement of Life Limited Components and as specified by Rolls Royce for the Engines as Group A and Group B items) multiplied by the fraction wherein the numerator shall be the remainder (zero (0) if negative) of (A) the actual number of hours of operation since the previous major overhaul minus (B) fifty percent (50%) of the total operating hours anticipated between major overhauls and the denominator shall be the total operating hours anticipated between major overhauls, plus (iii) the product of: the current estimated cost of the next scheduled major Airframe and pressure vessel inspection (including in such estimated cost, all required replacement of Life Limited Components) multiplied by the fraction wherein the numerator shall be the remainder (zero (0) if negative) of (A) the actual number of respective operating hours or months of operation since the previous major Airframe and pressure vessel inspection, minus (B) fifty percent (50%) of the respective total operating hours or months of operation allowable between scheduled major Airframe and pressure vessel inspection, and the denominator shall be the respective total operating hours or months of operation allowable between scheduled major Airframe and pressure vessel inspections. All of the foregoing shall be considered Supplemental Payments and shall be due upon presentation to Lessee of an invoice setting forth in reasonable detail the calculation of such amounts due including the names of all sources used for the required cost estimates. Unless both Lessor and Lessee agree to alternative source(s), the manufacturer of the Engines shall be used as the source for all cost and Engine midlife and overhaul estimates. Prior to the return of the Aircraft to Lessor, a ground evaluation and acceptance flight shall, if requested by Lessor, be conducted by Lessor or Lessor's designee and Lessee retaining operational control of the Aircraft during the acceptance flight, in accordance with procedures of the Manufacturer of the Aircraft designed for this purpose in order to determine whether or not the Aircraft is in the condition required by this Lease. All reasonable costs and expenses of any ground evaluation and acceptance flight shall be borne solely by Lessee. (d) OVERHAUL. Immediately prior to the return of the Aircraft at the expiration or termination of the Lease, Lessee, upon written request of Lessor received at least thirty (30) days in advance of the expiration or termination date, will arrange for the Airframe and each Engine to be inspected and/or overhauled. Such inspection and/or overhaul should be of the type customarily performed by a corporate operator similar to Lessor with similar airframes and engines and, except to the extent Lessee has agreed to bear such costs pursuant to paragraph (c) of this Section 4, Lessor shall pay the actual costs in connection with such inspections and/or overhaul. (e) CONDITION OF INTERIOR AND AIRFRAME EXTERIOR. Lessee agrees that on the return of the Aircraft, the interior and exterior shall be in all respects clean and free of all items of personal property not belonging to Lessor (subject to ordinary wear, tear and use of the Aircraft). Lessor shall have the right to inspect the Aircraft upon or subsequent to the expiration of the Basic Term, and to require that Lessee take, at Lessee's expense, all steps necessary to comply with the requirements of this Section 4(e). (f) INJUNCTIVE RELIEF. The provisions of this Section 4 are of the essence of this Lease, and upon application to any court of equity having jurisdiction in the premises, Lessor shall be entitled to a decree against Lessee requiring specific performance of the covenants of Lessee set forth in this Section 4. For the avoidance of doubt, nothing in this Section 4(f) shall be deemed a waiver by Lessee of its right to defend or object to any claim. (g) SURVIVAL. The provisions of Section 4(a) through (f) hereof and all of the obligations of Lessee thereunder shall survive the expiration or earlier termination of this Lease, the Basic Term, and the return of the Aircraft. 5. RENT. (a) RENT. Lessee covenants and agrees to pay to Lessor the Basic Rent as set forth in Exhibit C hereto throughout the Basic Term, payable in consecutive installments on each Rent Payment Date during the Basic Term of this Lease. Each payment of Basic Rent shall be allocable to use of the Aircraft during the Rental Period that begins on the date such payment is due. (b) SUPPLEMENTAL PAYMENTS. Lessee also agrees to pay to Lessor or to whosoever shall be entitled thereto all Supplemental Payments promptly as the same shall become due and owing, and in the event of any failure on the part of Lessee so to pay any such Supplemental Payment hereunder Lessor shall have all rights, powers and remedies provided for herein or by law or equity or otherwise in the case of nonpayment of Rent. Lessee also shall pay to Lessor or to whosoever may be entitled thereto, on demand, as Supplemental Payment to the extent permitted by applicable Law, interest at the Default Rate (i) on any part of any installment of Basic Rent not paid when due for any period for which the same shall be overdue and (ii) on any payment of Supplemental Payments (excluding interest at the Default Rate payable under clause (i) above) not paid when due until the same shall be paid. (c) METHOD OF PAYMENT. If the date that any payment of Basic Rent is due is not a Business Day the payment of Basic Rent otherwise payable on such date shall be payable on the next succeeding Business Day (unless that day falls in the next calendar month, in which case such payment shall be made on the first preceding day that is a Business Day). All payments of Rent required to be made by Lessee to Lessor hereunder shall be made in same day funds in lawful money of the United States, and shall be paid by Lessee by 12:00 noon (Pacific time) to the account at the place of payment set forth on Schedule B attached hereto (or such other account at such other location as Lessor may designate in writing to Lessee for such purpose). Time is of the essence in connection with the payment of Rent. 6. NET LEASE. This Lease is a net lease and Lessee acknowledges and agrees that Lessee's obligations hereunder, including, without limitation, its obligations to pay all Rent payable hereunder, shall be absolute and unconditional under any and all circumstances and shall be paid without notice or demand and without any abatement, reduction, diminution, setoff, withholding, defense, counterclaim or recoupment whatsoever, including, without limitation, any abatement, reduction, diminution, setoff, withholding, defense, counterclaim or recoupment due or alleged to be due to, or by reason of, any past, present or future claims which Lessee may have against Lessor, Seller, Manufacturer of the Aircraft or manufacturer of any Part, unit or component thereof, or any other Person for any reason whatsoever; nor, except as otherwise expressly provided herein, shall this Lease terminate, or the obligations of Lessee be otherwise affected, by reason of any defect in the Aircraft or any Part, unit or component thereof, the condition, design, operation or fitness for use thereof, any damage to, or any loss or destruction of, the Aircraft or any Part, unit or component thereof, any Liens or rights of others with respect to the Aircraft or any Part, unit or component thereof, any prohibition or interruption of or other restriction against Lessee's use, operation or possession of the Aircraft or any Part, unit or component thereof for any reason whatsoever, or any interference with such use, operation or possession by any Person or entity, or by reason of any failure by Lessor to perform any of its obligations herein contained, or by reason of any other indebtedness or liability, howsoever and whenever arising, of Lessor, or of Lessee to any other Person, or by reason of any insolvency, bankruptcy or similar proceedings by or against Lessor, or Lessee, or for any other reason whatsoever, whether similar or dissimilar to any of the foregoing, any present or future law to the contrary notwithstanding; it being the intention of the parties hereto that the Rent payable by Lessee hereunder shall continue to be payable in all events and in the manner and at the times herein provided, without notice or demand, unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Lease. Lessee hereby waives, to the extent permitted by applicable Law, any and all rights which he may now have or which at any time hereafter may be conferred upon it, by statute or otherwise, to terminate, cancel, quit or surrender this Lease except in accordance with the express terms hereof. Without limiting any of Lessee's rights under the next sentence, each payment of Basic Rent made by Lessee to Lessor shall be final and Lessee will not seek to recover any part of such payment from Lessor for any reason whatsoever, except for gross negligence or manifest error. Nothing in this Section shall be construed to prevent Lessee, after complying with this Section 6, from pursuing any claim he may have against Lessor or any other Person in such court of law or otherwise as Lessee may deem appropriate. 7. LESSOR'S TITLE. Title to the Aircraft shall at all times remain in Lessor and at no time during the Basic Term shall title become vested in Lessee. Lessee shall acquire no right, title or interest in or to the Aircraft, except the right to use and purchase the same pursuant to the terms of this Lease. 8. PURCHASE OPTIONS. (a) So long as no Event of Default shall have occurred and be continuing, Lessee shall have the option to purchase the Aircraft on (i) the fifth anniversary date of the Acceptance Date, (ii) the seventh anniversary of the Acceptance Date and (iii) the Expiration Date (each, a "PURCHASE OPTION DATE"), such purchase to be on an "as-is", "where-is" and "with all faults" basis, without any warranty whatsoever except with respect to title and freedom from Lessor Liens, by giving Lessor, no less than forty-five (45) days and no more than three hundred sixty-five (365) days prior to the Purchase Option Date, a written notice advising of Lessee's decision to exercise said purchase option. (b) Provided that notice is received by Lessor pursuant to Section 8(a), on the Purchase Option Date, Lessee shall upon request of Lessor purchase the Aircraft from Lessor, such purchase to be on an "as is", "where is" and "with all faults" basis, without any warranty whatsoever (except with respect to title and freedom from Lessor Liens). (c) The price payable for the Aircraft by Lessee to Lessor as a result of the exercise of the purchase option shall be equal to the applicable Termination Value (which shall not be less than 10% of the Aircraft Cost) plus any due and unpaid Rent and all applicable Taxes, if any, due and payable as a result of, or in relation to, the exercise by Lessee of the purchase option shall be the sole liability of, and payable by, Lessee. The purchase price and the Taxes referred to shall be paid by Lessee to Lessor on the Purchase Option Date. All of Lessor's right, title and interest in and to the Aircraft shall be transferred to Lessee upon full payment of the purchase price and Lessor shall (i) execute in form recordable with the FAA, a bill of sale evidencing such transfer and such documents relating to such transfer of title as Lessee may reasonably request, at Lessee's expense, (ii) cause the Aircraft to be free from all Lessors Liens and (iii) terminate any UCC financing statements filed against the Aircraft. 9. USE OF AIRCRAFT; COMPLIANCE WITH LAWS. Lessee agrees that the Aircraft will be used and operated only (a) in a passenger configuration for which Lessee is duly authorized by the Aeronautics Authority, (b) in the manner set forth in, and in accordance with, the terms, conditions and provisions of the insurance policy or policies providing the coverages specified in Section 16 hereof, and (c) in countries which (i) are not experiencing civil or external war or similar disturbance, and (ii) maintain normal diplomatic relations with the United States. In no event shall Lessee use and operate the Aircraft, or permit the Aircraft to be used and operated, for any purpose for which the Aircraft is not designed or reasonably suitable, or in any fashion that may subject the Aircraft to any Liens, other than Permitted Liens, or in any area excluded from coverage by any such insurance policy or policies. Lessee further agrees that, unless the Lessee shall have received the prior written consent of the Lessor, the Aircraft will be used and operated solely in the conduct of Lessee's and its Affiliates' business and in compliance with all applicable Laws of any federal, state, local or foreign government or Governmental Authority having jurisdiction with respect to the use, operation, maintenance, condition, airworthiness and occupancy of the Aircraft, and the use of any premises or facilities by the Aircraft, including without limitation, those of the Aeronautics Authority. Lessee will not load, use, operate, hangar or store the Aircraft, or permit the loading, using, operating, hangaring or storing of the Aircraft, negligently, abusively, improperly or in violation of this Lease or so as to void any of the insurance coverages respecting the Aircraft. Lessee shall procure and maintain in effect all licenses, certificates, permits, approvals and consents required by federal, state, local or foreign laws or by any governmental body, agency or authority (including, without limitation, the Aeronautics Authority) in connection with the delivery, use, operation, maintenance, condition, airworthiness and occupancy of the Aircraft, and the use of any premises or facilities by the Aircraft. Except as otherwise expressly permitted by the terms of this Lease, the Aircraft will at all times be and remain in the possession and control of Lessee; PROVIDED that, notwithstanding anything in this Lease to the contrary, so long as no Default or Event of Default shall have occurred and be continuing, Lessee may, without the written consent of Lessor but subject to the other provisions of this Lease, enter into any Charter of the Aircraft. Lessee will keep the Aircraft adequately protected at all times when not in use, and Lessee will not remove or permit the Aircraft to be removed from its home airport as specified in Schedule B attached hereto for periods in excess of thirty (30) days without first giving Lessor written notice designating the contemplated location of the Aircraft and obtaining Lessor's written approval thereof (which consent shall not be unreasonably withheld or delayed) and Lessee will not permanently remove the Aircraft, or permit the Aircraft to be permanently removed, from such home airport without Lessor's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. The Aircraft shall be operated only by duly licensed pilot operators currently certificated and qualified to operate the Aircraft by the Aeronautics Authority and by any other authority having jurisdiction therefor, and authorized by the terms of (in accordance with the provisions and requirements of) the insurance policy or policies providing the coverages specified in Section 16 hereof. 10. MAINTENANCE OF AIRCRAFT. Lessee, at its sole cost and expense, shall cause the Aircraft to be maintained under the Maintenance Program, and shall service, repair, maintain and overhaul the Aircraft so as to (a) keep the Aircraft in as good operating condition as when inspected by Lessee on the Acceptance Date, ordinary wear and tear from proper use thereof excepted, and (b) keep the Aircraft in such operating condition and state of maintenance as shall be in accordance with prevailing industry standards for an aircraft of the same type as the Aircraft and in accordance with the Aeronautics Authority and Manufacturer approved maintenance program, but in no event less than such operating condition and state of maintenance as may be necessary to satisfy the safety, maintenance and airworthiness requirements of the Aeronautics Authority and any other Governmental Authority, state or federal, foreign or domestic, having jurisdiction with respect thereto. Lessee covenants that in no event shall the Maintenance Program with respect to the Aircraft be inferior to, or of less quality than, its maintenance program with respect to any other aircraft of similar type owned or leased by Lessee. Lessee shall, at its cost and expense, comply with all applicable service, maintenance, repair and overhaul regulations, Airworthiness Directives and instructions of any Aeronautics Authority and all appropriate maintenance, service, repair and overhaul manuals and service bulletins published by the Manufacturer of the Airframe, Engines, accessories, equipment and Parts installed on the Aircraft; provided that any recommended service bulletins shall be performed at the next scheduled inspection to be performed on the Aircraft (such scheduled inspection not to exceed twelve (12) months from the previous scheduled inspection). All service, inspection, overhauls, maintenance, directives, repairs and improvements with respect to or affecting the Aircraft shall be made and performed only by appropriately licensed, certificated and qualified personnel, in accordance with applicable standards of any Aeronautics Authority or any other such Governmental Authority having jurisdiction with respect thereto. At its own cost and expense, Lessee shall maintain in English all records, logs and other materials required by any Aeronautics Authority or by any other Governmental Authority to be maintained in respect of the Aircraft. Lessee agrees that the Aircraft will not be maintained, used or operated in violation of any applicable Law of any government or Governmental Authority having jurisdiction or in violation of any airworthiness certificate, license or regulations relating to the Aircraft issued by any such authority. 11. REPLACEMENT OF PARTS; ALTERATIONS; MODIFICATIONS; AND ADDITIONS. (a) Lessee may, at its own cost and expense, remove in the ordinary course of maintenance, service, repair, overhaul or testing, any Part, equipment or appliance, PROVIDED, HOWEVER, that Lessee will, at its own cost and expense, replace such Part, equipment or appliance or cause such Part, equipment or appliance to be replaced, as promptly as practicable. Any such Part, equipment or appliance shall immediately be and become the property of Lessor and subject to the terms of this Lease. In case any part of the Aircraft is required to be altered or modified, or any equipment or appliance is required to be altered, added, replaced or modified on the Airframe or any Engine or in either case in order to comply with the laws, regulations, requirements, rules and orders of any government or Governmental Authority having jurisdiction over the Aircraft (a "REQUIRED ALTERATION") pursuant to Sections 9 or 10 hereof, Lessee agrees to make such Required Alteration at its own expense. Any such Required Alteration shall immediately be and become the property of Lessor and subject to the terms of this Lease. All Parts, equipment and appliances incorporated or installed in or attached to the Airframe or any Engine in connection with servicing, repairing, maintaining and overhauling the Aircraft pursuant to the requirements of Section 10 hereof (a "REPLACEMENT") shall be considered accessions to the Airframe or any such Engine, as the case may be, and shall immediately, without further act, be and become the property of Lessor and part of the Aircraft. Lessee shall purchase any Part to be replaced, altered or modified pursuant to this Section 11 in the name of Lessor. Lessee shall, upon the reasonable request by Lessor, deliver to Lessor a legal opinion in form and substance satisfactory to Lessor stating that title and ownership to such Required Alteration or Replacement have been duly conveyed to Lessor under applicable Law and any security interest of Lessor therein has been perfected under applicable Law. Lessee may, without the prior written consent of Lessor, affix or install any accessory, equipment or device on the Airframe or any Engine or make any improvement or addition thereto other than a Required Alteration or Replacement (an "IMPROVEMENT"); PROVIDED that such Improvement is readily removable without causing material damage (Lessee shall repair at its expense any damage caused by such removal) to the Airframe or any such Engine prior to the return of the Aircraft to Lessor or impairing the value, utility or condition which the Airframe or such Engine would have had if such Improvement had not been so affixed or installed. Lessee may at any time during the Basic Term remove such removable Improvement at its own expense without causing at any time during the term material damage to the Airframe or any such Engine provided that Lessee shall repair any damage caused by such removal, and upon such removal title thereto shall, without further act, vest in Lessee free and clear of all Lessor Liens. In addition, Lessee may, without the prior written consent of Lessor, remove any Part, equipment or appliance that Lessee in the proper conduct of its business determines to be obsolete or no longer suitable or appropriate for use on the Airframe or any Engine; PROVIDED that no such removal materially impairs the value, utility, useful life or condition which the Airframe or such Engine would have had if such removal had not been made and Lessee shall repair any damage caused by such removal. Except as required or permitted by the provisions of this Section 11, Lessee shall not modify the Aircraft (including the Airframe and any Engine) without the prior written consent of Lessor. (b) Lessee shall have installed at Lessee's cost and expense all of the Lessee Furnished Equipment on the Aircraft no later than ninety (90) days after the Acceptance Date. 12. REGISTRATION; DELIVERY; RECORDATION; INSIGNIA AND INSPECTION. (a) Lessee shall cause the Aircraft to be registered and shall maintain the registration of the Aircraft with the Aeronautics Authority pursuant to all applicable Laws in the United States in the name of Lessor as owner and shall not register or permit the registration of the Aircraft in any other name or under the laws of any other country. Lessee shall promptly provide Lessor with evidence of such registration, filing and recordation. Lessee agrees promptly to furnish Lessor such information as may be required to file any reports required to be filed by Lessor with any Governmental Authority as a result of Lessor's ownership of the Aircraft. (b) Upon the sale of the Aircraft to Lessor by Seller, on or prior to the Acceptance Date Lessor shall accept title to the Aircraft and the Bill of Sale therefor from Seller. On the Acceptance Date, Lessor and Lessee shall inspect the Aircraft and Lessee shall execute the Certificate of Acceptance evidencing Lessee's acceptance of the Aircraft and accept delivery of the Aircraft at Ontario, California. On the Acceptance Date, the Aircraft shall be registered with the FAA in the name of Lessor, as owner. (c) Lessee agrees, at its own cost and expense, to place such insignia, plates or other identifications on the Airframe indicating Lessor's title thereto and Lessor's interest therein, as Lessor may from time to time reasonably request; and in any event Lessee will cause to be affixed to and maintained on the Airframe, in a location adjacent to and not less prominent than the airworthiness certificate for the Aircraft would have to be affixed under FAA regulations, and on each Engine, a plate bearing the following legend in English: "PROPERTY OF AND LEASED FROM C.I.T. LEASING CORPORATION" Except as above provided, Lessee will not allow the name of any person, association or corporation to be placed on the Airframe or on any Engine as a designation that might be interpreted as a claim of ownership; PROVIDED, HOWEVER, that the Lessee may cause the Airframe to be lettered or otherwise marked in an appropriate manner for convenience of identification of the interest of the Lessee therein.. (d) At all reasonable times upon notice, Lessor shall, at Lessor's cost, have the right to inspect the Aircraft and the books, logs and records of Lessee pertaining thereto where located, which shall be at the home base airport for the Aircraft. Lessor shall not however have any duty to make such inspection and shall not incur any liability or obligation by reason of not making any such inspection. 13. ASSIGNMENT AND SUBLEASING. (a) BY LESSEE. Lessee shall not assign this Lease or any rights in or to the Aircraft or sublease or otherwise relinquish possession of the Airframe or any Engine or install any Engine, or permit any Engine to be installed, on any airframe other than the Airframe without the consent of Lessor, which consent shall not be unreasonably withheld, conditioned or delayed; PROVIDED, HOWEVER, that Lessee may, without the prior consent of Lessor deliver the Airframe or any Engine to the Manufacturer or any other applicable manufacturer thereof for testing or other similar purposes or to any approved maintenance provider for service, repair, maintenance or overhaul work on the Airframe or such Engine or for alterations or modifications in or additions to the Airframe or such Engine to the extent required or permitted by the terms hereof. Any attempted assignment not otherwise expressly permitted hereby shall be of no effect, unless Lessor first shall have consented thereto in writing. Lessor's consent to an assignment in any one or more instances shall not impose any obligation upon Lessor to consent to any other or further assignments. Lessor's consent to an assignment shall not release Lessee from any obligations with respect to this Lease unless expressly so stated in the written consent. (b) BY LESSOR. All rights of Lessor hereunder may be assigned, pledged, mortgaged, transferred or otherwise disposed of, either in whole or in part, (but subject always to the rights of Lessee under this Lease) to any Person; PROVIDED that (a) such assignment, pledge, mortgage, transfer or disposition shall in no way impair Lessee's rights and interests in the Aircraft and this Lease, (b) such assignment, pledge, mortgage, transfer or disposition shall not increase any indemnity or other obligation of Lessee hereunder, and Lessee shall have no greater obligations hereunder whether by reason of an increase in the amount of any indemnity payable hereunder or otherwise, and (c) Lessor shall reimburse Lessee for all costs and expenses, including reasonable legal fees, in connection with such assignment, pledge, mortgage, transfer or disposition; PROVIDED FURTHER, that the foregoing provision shall not be applicable or effective if any such assignment, pledge, mortgage, transfer or disposition is made pursuant to Section 8 or 23 hereof. Lessor shall give Lessee notice of any such assignment, and Lessee shall acknowledge receipt thereof in writing. 14. LIENS. Lessee will not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to the Aircraft, Airframe, or any Engine, or any Part, unit or component thereof, Lessor's title thereto, or any interest therein, except (i) the respective rights of Lessor and Lessee as provided in this Lease, (ii) the rights of Persons under agreements and arrangements to the extent permitted by the terms of Section 11 and 13(a), (iii) Lessor Liens, (iv) Liens for Taxes being contested by Lessee in good faith by appropriate proceedings in accordance with Section 17(e) hereof, and (v) materialmen's, mechanics', workmen's, repairmen's, employee's, storage or other like Liens arising in the ordinary course of business, for amounts the payment of which is either not yet delinquent or being contested by Lessee in good faith by appropriate proceedings and where, in Lessor's opinion, there is no danger of the sale, forfeiture or loss of the Aircraft, Airframe or any Engine or any part thereof. Lessee, at its own expense, will promptly pay, satisfy and otherwise take such actions as may be necessary to keep the Aircraft, Airframe and each Engine free and clear of, and to duly discharge or eliminate or bond in a manner satisfactory to Lessor, any such Lien not excepted above if the same shall arise at any time. Lessee will notify Lessor in writing promptly upon becoming aware of any tax or other Lien that shall attach to the Aircraft, Airframe or any Engine, and of the full particulars thereof. 15. LOSS, DAMAGE OR DESTRUCTION. (a) RISK OF LOSS, DAMAGE OR DESTRUCTION. Lessee hereby assumes all risk of loss, damage, theft, taking, destruction, confiscation, requisition or commandeering, partial or complete, of or to the Aircraft, however caused or occasioned, such risk to be borne by Lessee with respect to the Aircraft from the date of this Lease, and continuing until the Aircraft has been returned to Lessor in accordance with the provisions of Section 4 hereof. Lessee agrees that no occurrence specified in the preceding sentence shall impair, in whole or in part, any obligation of Lessee under this Lease, including, without limitation, the obligation to pay Rent. (b) PAYMENT OF CASUALTY LOSS VALUE UPON AN EVENT OF LOSS. If an Event of Loss occurs with respect to the Aircraft or the Airframe at any time after the date hereof and until the Expiration Date, Lessee shall promptly give Lessor written notice thereof and shall, not later than the earlier of the date (a) 15 days following the date of receipt of proceeds of insurance with respect to such Event of Loss and (b) on such date designated by Lessee occurring on or before the date ninety (90) days after the date of such Event of Loss, either (x) substitute an airframe for the Airframe in accordance with the provisions of the succeeding paragraph of this Section 15(b) and substitute an engine or engines for the Engine or Engines, if any, with respect to which such Event of Loss occurred on the date of substitution of said airframe pursuant to the terms of this Lease PROVIDED, THAT, notwithstanding anything herein to the contrary, Lessee must either (A) substitute an airframe in accordance with this Section 15 for the Airframe on or prior to the last day of the calendar year on which such Event of Loss occurs or (B) agree to indemnify Lessor for all costs, losses and expenses (including but not limited to the loss of any tax benefits) incurred directly or indirectly by Lessor in connection with the substitution of the Airframe after the last day of the calendar year on which such Event of Loss occurs, or (y) pay to Lessor on the Rent Payment Date next following the date of such Event of Loss (i) the Casualty Loss Value of the Aircraft. Upon payment in full of the amounts specified in Section 15(b)(y) above, plus all Supplemental Payments then due and payable by Lessee hereunder, (1) the obligation of Lessee to pay Basic Rent hereunder shall terminate, (2) the Basic Term and this Lease shall end, and (3) Lessor will transfer to Lessee, without recourse, representation or warranty (except as set forth in Section 19 hereof with respect to title and Lessor Liens), all of Lessor's right, title and interest in and to the Airframe and the Engines (if any) with respect to which such Event of Loss occurred, as well as all Lessor's right, title and interest in and to any Engines constituting part of the Aircraft but not installed thereon when such Event of Loss occurred. In the event of a substitution of an airframe pursuant to the preceding paragraph, Lessee shall purchase in the name of Lessor or cause to be conveyed to Lessor, as replacement for the Airframe, title to another Gulfstream 1159-A airframe, free and clear of all Liens other than any Permitted Liens and having a value, utility and remaining useful life at least equal to, and being in as good operating condition as, the Airframe, assuming that the Airframe was of the value, utility and remaining useful life and in the condition and repair required by the terms hereof immediately prior to the occurrence of such Event of Loss, and if such Event of Loss also occurred with respect to an Engine or the Engines, Lessee shall duly convey or cause to be conveyed to Lessor, in replacement for the Engine or Engines with respect to which such Event of Loss occurred, title to a number of engines equal to the number of Engines with respect to which such Event of Loss has occurred of the same or an improved make, model and manufacturer suitable for installation and use on the Airframe free and clear of all Liens other than any Permitted Liens having a value and utility at least equal to, and being in as good operating condition as, the Engine with respect to which such Event of Loss occurred, assuming that such Engine was in the condition and repair required by the terms hereof immediately prior to the occurrence of such Event of Loss. In either case, as applicable, prior to or at the time of any such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a bill of sale in form and substance satisfactory to Lessor, with respect to such replacement airframe or engines, as the case may be, (ii) cause supplements hereto, in form and substance satisfactory to Lessor, subjecting such replacement airframe or engines, as the case may be, to this Lease, to be duly executed by Lessee, (iii) furnish Lessor with such evidence of the condition of such replacement airframe or engines, as the case may be, and of compliance with the insurance provisions of Section 16 hereof with respect to the replacement airframe or engines as Lessor may reasonably request, (iv) deliver to Lessor a legal opinion in form and substance satisfactory to Lessor stating that the title and ownership to such replacement airframe or engine have been conveyed to Lessor under applicable Law and any security interest is protected under applicable Law, and (v) take such other action as Lessor may reasonably request in order that such replacement airframe or engines, as the case may be, be duly and properly titled in Lessor and leased hereunder to the same extent as the Airframe or the Engine replaced hereby. Upon full compliance by Lessee with the terms of this paragraph, Lessor will transfer to Lessee without recourse, representation or warranty, express or implied, of any nature whatsoever (except as set forth in Section 19 hereof with respect to the title and Lessor Liens), and on an "as-is, where-is" basis, all of Lessor's right, title and interest in and to the Airframe, Engine or Engines with respect to which such Event of Loss occurred, and such Airframe or Engine shall thereafter no longer be an "Airframe" or an "Engine" (as the case may be) as defined herein. Thenceforth, for all purposes hereof, such replacement airframe or such replacement engine shall be deemed the "Airframe" or an "Engine" (as the case may be) as defined herein and part of the same Aircraft as was the Airframe or the Engine or Engines. (c) EVENT OF LOSS WITH RESPECT TO AN ENGINE. Upon each occurrence of an Event of Loss with respect to an Engine only and not to the Airframe, Lessee shall give Lessor prompt written notice thereof and shall, as promptly as possible and in any event within 30 days after the occurrence of such Event of Loss, duly convey or cause to be conveyed to Lessor, as replacement for such Engine, title to another engine of the same or an improved make, model and manufacture as the Engine with respect to which such Event of Loss occurred, free and clear of all Liens other than any Permitted Liens, and having a value and utility at least equal to, and being in as good operating condition as, the Engine with respect to which such Event of Loss occurred, assuming that such Engine was in the condition and repair required by the terms hereof immediately prior to the occurrence of such Event of Loss; and, upon such conveyance, Lessee, at its own expense, will promptly (i) furnish Lessor with a bill of sale, in form and substance satisfactory to Lessor, with respect to such replacement engine, (ii) cause a supplement hereto, in form and substance satisfactory to Lessor, subjecting such replacement engine to this Lease, to be duly executed by Lessee, (iii) furnish Lessor with such evidence of the condition of such replacement engine, and of compliance with the insurance provisions of Section 16 hereof with respect to such replacement engine as Lessor may reasonably request and, (iv) furnish Lessor with a legal opinion, in form and substance satisfactory to Lessor, stating that title and ownership have been duly conveyed to Lessor under applicable Law and as to such other matters of applicable Law as Lessor may reasonably request, and (v) take such other action as Lessor may reasonably request in order that title to such replacement engine is duly conveyed to Lessor and that such replacement engine has been validly subjected to this Lease to the same extent as the Engine replaced thereby. Upon full compliance by Lessee with the terms of this paragraph (c), Lessor will transfer to Lessee without recourse, representation or warranty, express or implied, of any nature whatsoever (except as to title and freedom from Lessor Liens) and on an "as-is, where-is" basis, Lessor's title to the Engine with respect to which such Event of Loss occurred, and such Engine shall thereafter no longer be an "Engine" as defined herein. Thenceforth, for all purposes hereof, such replacement engine shall be deemed an "Engine" as defined herein and part of the Aircraft. (d) APPLICATION OF OTHER PAYMENTS UPON EVENT OF LOSS. Any payments (including, without limitation, insurance proceeds) received at any time by Lessor or by Lessee from any insurer, Governmental Authority or other party or insurer (except Lessee) as a result of the occurrence of an Event of Loss will be applied as follows: (i) (except as provided in Section 16 hereof) any such payments received at any time by Lessee shall be promptly paid to Lessor for application pursuant to the following provisions of this Section 15(d); (ii) if any such payments are received with respect to the Airframe (or the Airframe and any Engine or engines then installed thereon) that has been or is being replaced pursuant to Section 15(b), so much of such payments as shall not exceed the cost of any replacement Airframe, Engine or Engines to be purchased pursuant to Section 15(b) hereof shall be applied for payment of (or to reimburse Lessee for its payment of) such replacement Airframe, Engine or Engines; (iii) if any such payments are received with respect to the Airframe (or the Airframe and any Engine or engines then installed thereon) that have not or are not being replaced pursuant to Section 15(b) so much of such payments as shall not exceed the amount of the Casualty Loss Value, required to be paid by Lessee pursuant to Section 15(b) hereof shall be applied in reduction of Lessee's obligation to pay such amounts, if not already paid by Lessee, or, if already paid by Lessee, shall be applied to reimburse Lessee for its payment of such amounts unless an Event of Default shall have occurred and be continuing; (iv) if any such payments are received with respect to an Engine that has been or is being replaced pursuant to Section 14(c), so much of such payments as shall not exceed the cost of any replacement Engine or Engines to be purchased pursuant to Section 14(c) hereof shall be applied for payment of (or to reimburse Lessee for its payment of) such replacement Engine or Engines, unless an Event of Default shall have occurred and be continuing; and (v) the balance, if any, of such payments remaining thereafter shall be paid to Lessee, unless an Event of Default shall have occurred and be continuing. 16. INSURANCE. (a) PUBLIC LIABILITY AND PROPERTY DAMAGE LIABILITY INSURANCE. Lessee, at its own expense, shall maintain in effect comprehensive third party aircraft liability insurance against bodily injury and property damage losses arising from ground, flight and taxiing exposures, including, but not limited to, passenger legal liability, cargo liability, contractual liability and products liability insurance, during the Basic Term in an amount not less than $50,000,000 for any one accident, or series of accidents arising out of any one event, with respect to the Aircraft and Items of Equipment. Such policy shall include war and allied risks in accordance with standard market practice (currently "THE EXTENDED COVERAGE ENDORSEMENT-AVN 52A"). Any such liability insurance policy may be subject to a deductible in an amount not to exceed $50,000 per occurrence or such lesser amount as shall be equivalent to the industry standard for aircraft of the same type operated by airlines similarly situated to Lessee. All such policies shall be maintained in effect with insurers and/or reinsurers of recognized reputation and responsibility, reasonably satisfactory to Lessor. Any policies of insurance carried in accordance with this Section 16 and any policies taken out in substitution or replacement for any of such policies shall: (1) name Lessor and any Indemnified Party, together with any of their respective successors and assigns, as additional insureds; (2) provide that in respect of the interests of Lessor and any Indemnified Party such policies of insurance shall insure Lessor and such Indemnified Party regardless of any breach or violation of any warranty, declarations or conditions contained in such policies by Lessee; (3) provide that if the insurers cancel such insurance for any reason whatever, or the same is allowed to lapse for nonpayment of premium, or if there is any material change in policy terms and conditions, such cancellation, lapse or change shall not be effective until thirty (30) days after receipt by Lessor and any Indemnified Parties of written notice from such insurers of such cancellation, lapse or change (and with respect to war risk insurance, such shorter period as shall be customary on the London market for such insurance in such area of the world); (4) provide that neither Lessor nor any Indemnified Party shall have any responsibility for any premiums, commissions or calls in connection with such insurance and (5) provide that all payments shall be made in United States Dollars. Each liability policy shall (i) be primary without right of contribution from any other insurance which is carried by Lessor and (ii) expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. (b) INSURANCE AGAINST LOSS OR DAMAGE TO THE AIRCRAFT. Lessee, at its own expense, shall maintain in effect with insurers and/or reinsurers of recognized reputation and responsibility reasonably satisfactory to Lessor: (A) all-risk ground and flight aircraft hull insurance covering the Aircraft (including taxiing exposures); (B) all-risk coverage with respect to any Engines, Parts or Landing Gear while removed from the Aircraft; and (C) war risk and hijacking (including political/non-political hijacking and acts of terrorism) coverages, including, but not limited to, coverage against government confiscation, expropriations, nationalization or seizure, including the government of registry (if other than the United States). All such insurance shall be in full force and effect throughout any geographical areas at any time traversed by the Aircraft, shall be payable in Dollars in the United States and shall be in the amount of not less than the greater of (i) the applicable Casualty Loss Value which is the agreed value between Lessor and Lessee and (ii) the amount necessary to obtain a replacement aircraft of equal or greater value. Any hull insurance carried in accordance with this Section 16 shall not contain any provision for self-insured amounts or a deductible, provided that such insurance may be subject to a deductible which does not exceed $50,000 per occurrence. Each Engine, after removal, shall be insured for not less than $2,500,000 under a ground risks policy reasonably acceptable to Lessor. Any policies carried in accordance with this Section 16: (1) shall be primary without right of contribution from any other insurance which is carried by Lessor or any Indemnified Party with respect to the Aircraft; (2) shall provide that if such insurance is cancelled or materially changed for any reason whatsoever, or the same is allowed to lapse for non-payment of premium, such cancellation, change or lapse shall not be effective as to Lessor or any Indemnified Party for thirty (30) days (and, with respect to war risk insurance, seven (7) days or such shorter period as shall be customary on the London market for such insurance in such area of the world) after receipt by Lessor and any Indemnified Party of written notice from such insurers of such cancellation or lapse or material change in policy terms and conditions; (3) shall provide that partial losses of less than $50,000 shall be adjusted by and payable to Lessee (so long as no Default has occurred and is continuing hereunder), but that in the event of a greater loss the entire insurance shall be adjusted by Lessee and Lessor and payable to Lessor alone; (4) shall provide that in respect of the interest of Lessor or any Indemnified Party in such policies the insurance shall insure Lessor or such Indemnified Party regardless of any breach or violation of any warranties, declarations or conditions contained in such policies by Lessee or any other Person; (5) shall waive any rights of set off, counterclaim or deduction, whether by attachment or otherwise, and all rights of subrogation against Lessor, and any Indemnified Party, together with their respective successors, assignors, agents, officers, employees and servants; (6) shall provide that neither Lessor nor any Indemnified Party shall have any liability for any premiums, commission or calls in connection with such insurance; (7) to the extent of reinsurance, include a cut-through provision permitting Lessor and any Indemnified Party to file claims and to obtain payment directly from the reinsurers under the reinsurance policies; and (8) shall name Lessor as sole loss payee for the account of all interests. Lessor is not under any duty or obligation to verify the existence or adequacy of any insurance. Lessee may obtain additional hull insurance on the Aircraft, over and above the Casualty Loss Value hereunder, provided that it does not adversely affect the coverage required to be maintained hereunder. (c) APPLICATION OF PROCEEDS IN AN EVENT OF LOSS OF AIRCRAFT. All insurance payments received from policies maintained by Lessee as the result of the occurrence of an Event of Loss shall be applied as follows: If such payments are received with respect to the Airframe and the Engines installed thereon, Lessor and Lessee shall proceed diligently and cooperate fully with each other in the recovery of any and all proceeds of insurance applicable thereto, and such insurance proceeds shall be paid to Lessor in an amount equal to the Casualty Loss Value. (d) APPLICATION OF PROCEEDS IN THE ABSENCE OF AN EVENT OF LOSS. As between Lessor and Lessee, insurance payments with respect to any property damage to the Aircraft or any Part thereof not constituting an Event of Loss with respect thereto will be applied in payment repairs or for replacement property in accordance with the terms of Sections 10 and 11 hereof, if not already paid by Lessee (or to reimburse Lessee for such repairs or replacements already paid by Lessee), and any balance remaining after compliance with such Sections with respect to such loss shall be paid to Lessee or as otherwise directed by Lessee. Any amount which is payable to Lessee under this Section 16 shall not be paid to Lessee if at the time of such payment a Default or an Event of Default shall have occurred and be continuing, but shall be held by Lessor as security for the obligations of Lessee under this Lease and such amount shall be paid to Lessee at such time as there no longer exists any Default or Event of Default. (e) REPORTS, ETC. Lessee's insurance broker shall be required to advise Lessor in writing promptly of any default in the payment of any premium and of any other act or omission on the part of Lessee which might invalidate or render unenforceable, in whole or in part, any insurance on the Aircraft. Not less than ten (10) days prior to the Acceptance Date, and thereafter on or prior to each renewal or replacement by Lessee of the insurance required hereby, Lessee will furnish to Lessor one or more original certificates each executed and delivered by an insurance broker appointed by Lessee and approved by Lessor, which together shall describe in reasonable detail insurance carried on the Aircraft and shall certify that the insurance then maintained on the Aircraft complies with the terms of this Lease. Lessee will cause each such approved insurance broker to agree to advise Lessor in writing at least thirty (30) days (seven (7) days or such lesser period as may from time to time be applicable in the case of any war risk and allied perils coverage) prior to the non-renewal, termination or cancellation by the underwriters for any reason (including, without limitation, failure to pay the premium therefor) of any such insurance or as soon as possible in respect of "non-renewal" or automatic termination for war risk. Not less than five (5) Business Days before the expiration or termination date of any insurance required hereunder, Lessee will provide Lessor with telexed or telecopied confirmation from Lessee's insurance brokers certifying that renewal certificates of insurance evidencing the renewal or replacement of such insurance pursuant to the provisions of Article 12 hereof will be issued on the termination date of the prior certificate of insurance coverage. Within seven (7) days after such renewal, Lessee will furnish to Lessor a certificate of such insurance coverage from such insurance broker. (f) LESSOR'S ADDITIONAL INSURANCE. Lessor, at its option and at its sole expense, may obtain insurance with respect to the Aircraft; PROVIDED, that no such insurance shall have the effect of suspending, impairing, defeating, invalidating or rendering unenforceable or reducing, in whole or in part, the coverage of or the proceeds payable under any insurance required to be provided and maintained by Lessee pursuant to this Section 16. Lessee shall have no right to any proceeds of any insurance policies maintained by Lessor. (g) LESSEE'S ADDITIONAL INSURANCE. Lessee, at its option and at its sole expense, may obtain additional insurance with respect to the Aircraft; PROVIDED, that no such insurance shall have the effect of suspending, impairing, defeating, invalidating or rendering unenforceable or reducing, in whole or in part, the coverage of or the proceeds payable under any insurance required to be provided and maintained pursuant to this Section 16. Lessor shall have no right to any proceeds of any insurance policies maintained by Lessee. 17. GENERAL TAX INDEMNIFICATION (a) Lessee agrees that all payments by Lessee in connection with the transactions contemplated by this Lease shall be free of all withholdings of any nature whatsoever (including, without limitation, withholding taxes, monetary transfer fees, or similar taxes and charges), and in the event any withholding is required, Lessee shall pay the same together with such additional amount as is required so that each such payment shall be, under any circumstances and in any event, in the amount as set forth or referred to herein. Lessee shall pay, and shall hold each Tax Indemnitee harmless from liability for, any and all sales, use, business, gross or net income, personal property, license, documentation, transfer, fuel, leasing, occupational, value added, excess profits, excise, gross or net receipts, franchise, stamp, environmental and other taxes, levies, imposts, withholdings, charges, fees, assessments or duties of any nature, together with any penalties, fines, additions to tax or interest thereon imposed by any Federal, state or local government or taxing authority in the United States, or by any foreign country or any taxing authority or subdivision thereof ("Taxes"), upon or with respect to, based upon or measured by the Aircraft or any Part thereof or interest therein, or the manufacture, purchase, financing, refinancing, ownership, delivery, leasing, subleasing, registration, possession, use, location, operation (including, without limitation, landing and take-off), return, replacement, storage, transfer of title, acceptance or other disposition thereof, or the rentals, receipts or earnings arising therefrom (including, without limitation, the Rent) or otherwise with respect to or in connection with the transactions contemplated by this Lease or the other Operative Documents, and any out-of-pocket costs and expenses attributable to any of the foregoing incurred by any Tax Indemnitee; PROVIDED, HOWEVER, that Lessee shall have not such obligation with respect to (i) Taxes (other than sales, use, rental, value added and similar taxes) imposed by the Federal government of the United States upon or with respect to, based on or measured by, the net income of any Tax Indemnitee; (ii) Taxes which are net income, capital, net worth, franchise, or similar conduct of business taxes which are imposed on any Tax Indemnitee by any state or local taxing authority in the United States; (iii) Taxes imposed as a result of a voluntary transfer or other disposition by Lessor of the Aircraft or any Part thereof or interest therein, unless such transfer or other disposition occurs by reason of exercise of Lessor's remedies under this Lease after occurrence of a Default or an Event of Default; (iv) Taxes imposed as a direct and primary result of any Tax Indemnitee's gross negligence or willful misconduct; and (v) Taxes imposed as a result of Lessor's failure to file any Tax report or return in a timely or proper manner (provided Lessee has complied with Section 17(b) hereof). (b) REPORTS. In case of any report or return to be made with respect to any obligation of Lessee under this Section 17 or arising out of this Section 17, Lessee will either (i) make such report or return in such manner as will show the ownership in Lessor of the Aircraft, and send a copy of such report or return to the relevant Tax Indemnitee or (ii) notify such Tax Indemnitee of such requirement and make such report or return in such manner as shall be satisfactory to such Tax Indemnitee. Lessee shall, at its expense, duly file all required reports and returns respecting all Taxes paid or indemnified against by Lessee pursuant to Section 17(a) to the extent Lessee is permitted to do so; PROVIDED, HOWEVER, that if the same must be filed by an Tax Indemnitee, Lessee will advise such Tax Indemnitee of the necessity of filing the same and, in sufficient time before the same are due, furnish such Tax Indemnitee with a completed copy thereof and funds in the amount required to be submitted, together with any additional information and records relating thereto as such Tax Indemnitee may reasonably request. Lessee shall hold such Tax Indemnitee harmless from and against any liabilities, obligations, losses, damages, penalties, claims, actions, suits and costs arising out of any insufficiency or inaccuracy in any information in such report or return filed or supplied by Lessee. Lessee shall make available to such Tax Indemnitee such other information and records as are maintained by Lessee regarding the location, operation or use of the Aircraft. If any Tax Indemnitee reasonably requests additional information relating to any Part or the operation, use or location thereof, Lessee shall make available such other information and records as it maintains in the course of its business. (c) AFTER-TAX NATURE OF INDEMNITY. (i) Lessee agrees that, with respect to any indemnity payment under this Lease, including, without limitation, this Section 17, such indemnity payment shall include any amount necessary to hold each Tax Indemnitee harmless on an after-tax basis from all Taxes required to be paid by such Tax Indemnitee with respect to such indemnity payment under the laws of any Federal, state or local government or taxing authority in the United States, or under the laws of any taxing authority or subdivision of a foreign country. (ii) For purposes of this Section 17(c), calculations made on an after-tax basis shall be made assuming the maximum statutory rates applicable to the recipient for the relevant year, after taking into account deductions attributable to the imposition of other taxes (such as state and local taxes), which would similarly be calculated on the basis of the maximum statutory rates for which such deduction was available for the applicable year. (d) PAYMENT OF TAXES AND INDEMNITIES. Lessee shall, to the extent permissible, pay all Taxes directly and shall reimburse each Tax Indemnitee for all Taxes paid or payable by such Tax Indemnitee within 10 days of receipt of written notice that reimbursement for such amount is due. Lessee shall pay all indemnities and other amounts due hereunder within five (5) days of receipt of written notice that reimbursement for such amount is due. (e) CONTEST. If a written claim is made against any Tax Indemnitee for any Taxes for which Lessee is responsible under Section 17(a) hereof, such Tax Indemnitee shall promptly notify Lessee; PROVIDED, that, the failure to provide such notice shall not affect Lessee's obligations hereunder to such Tax Indemnitee unless such failure shall preclude the contest of such claim. If reasonably requested by Lessee in writing within 30 days after such notification, and upon determination that the amount of the claim exceeds $25,000 and that the action to be taken will not, in the sole opinion of Lessor, result in any material danger of sale, forfeiture or loss of, or the creation of any Lien on the Aircraft or any interest therein (or in the event of such material danger of sale, forfeiture, loss or lien, Lessee shall have not obtained a bond satisfactory to Lessor in Lessor's sole discretion), such Tax Indemnitee shall upon receipt of an indemnity reasonably satisfactory to it at the sole expense of Lessee (including without limitation, all reasonable costs, expenses, losses, legal and accountant's fees and disbursements, penalties and interest) in good faith contest the validity, applicability or amount of such Taxes by in such Tax Indemnitee's sole discretion (i) resisting payment thereof; (ii) not paying the same except under protest, if protest is necessary and proper; and (iii) if payment is made, using reasonable efforts to obtain a refund thereof in appropriate administrative or judicial proceedings; PROVIDED, HOWEVER, that such Tax Indemnitee shall not be required to take any action to contest a claim unless (x) Lessee provides an opinion of tax counsel of nationally recognized standing selected by Lessee and reasonably satisfactory to such Tax Indemnitee, to the effect that there is a reasonable basis under the standard set forth in ABA Formal Opinion 85-352 or any successor thereto in law and fact for contesting such proposed adjustment (which opinion shall be obtained at Lessee's sole cost and expense), (y) in the event that the subject matter of the contest is of a continuing nature and has previously been decided adversely pursuant to the contest provisions of this Section 17(e) by the highest court to which an appeal was taken, there has been a change in the law (including, without limitation, amendments to statutes or regulations, administrative rulings and court decisions) after such claim shall have been so previously decided and such Tax Indemnitee shall have received an opinion of independent tax counsel selected by such Tax Indemnitee, which opinion shall be obtained at Lessee's sole expense, to the effect that, as a result of such change it is (at least) as likely as not that the position which such Tax Indemnitee or Lessee, as the case may be, will assert in any contest of such Tax would prevail, and (z) prior to the commencement of any contest, Lessee shall have delivered to such Tax Indemnitee a written acknowledgment of its obligation to fully indemnify Lessor to the extent the contest is not successful. Any contest required pursuant to the preceding sentence shall, at the option of such Tax Indemnitee, be conducted by such Tax Indemnitee or Lessee in the name of Lessee or such Tax Indemnitee. If any contest involves payment of the Tax in question, Lessee shall either make such payment directly to the appropriate authority or advance to such Tax Indemnitee sufficient funds (on an interest-free basis) to make such payment. If a Tax Indemnitee shall obtain an actual refund or credit of all or any part of any Taxes paid by Lessee, such Tax Indemnitee shall pay to Lessee the amount of such refund or credit (taking into account any tax savings resulting therefrom), net of expenses not already paid or reimbursed by Lessee, and any interest fairly attributable thereto plus an amount equal to the Tax savings realized by such Tax Indemnitee as a result of any payment to Lessee pursuant to this paragraph; PROVIDED, HOWEVER, that such amount shall not be payable before Lessee makes all payments and indemnities to such Tax Indemnitee then due hereunder; and, PROVIDED FURTHER, HOWEVER, that the aggregate amount of all payments with respect to any Taxes made by such Tax Indemnitee pursuant to this sentence shall not exceed the aggregate amount of all payments made by Lessee to such Tax Indemnitee pursuant to this Section 17 with respect to such Taxes. Notwithstanding anything to the contrary herein, (x) if a Default or Event of Default shall have occurred and be continuing, Lessee shall not be entitled, and no Tax Indemnitee shall be obligated, to commence or to continue any contest hereunder and (y) in no event shall a Tax Indemnitee be required to appeal an adverse judicial decision to the United States Supreme Court. Lessee shall not be deemed to be in default under any of the indemnification provisions of this Article 17 while it or a Tax Indemnitee diligently prosecutes such contest pursuant to this Section 17(e). Nothing contained in this Section 17(e) shall require any Tax Indemnitee to contest or permit Lessee to contest a claim which it would otherwise be required to contest pursuant to this Section 17(e) if such Tax Indemnitee shall waive payment by Lessee of any amount that might otherwise be payable by Lessee under Section 17(a) by way of indemnity in respect of such claim. (f) AFFILIATED GROUP. The terms "Lessor" and "Tax Indemnitee" for purposes of this Section 17 shall include the affiliated group of corporations and each member thereof (within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended) of which Lessor or a Tax Indemnitee is or shall become a member if such group shall file a consolidated United States Federal income tax return. (g) SURVIVAL. The provisions of this Section 17 shall survive the expiration or termination of this Lease. 18. GENERAL INDEMNITIES. (a) Lessee hereby assumes liability for, and does hereby agree, whether or not any of the transactions contemplated hereby are consummated, to indemnify, protect, save, defend, and hold harmless each of Lessor and its respective officers, directors, stockholders, successors, assigns, agents and servants (but excluding the Manufacturer in its capacity as manufacturer of the Aircraft), (each such party being herein, for purposes of this Section 18, called an "INDEMNIFIED PARTY") on an after-tax basis from and against any and all obligations, fees, liabilities, losses, damages, penalties, claims, demands, actions, suits, judgments, costs and expenses, including legal expenses, of every kind and nature whatsoever ("LOSS") imposed on, incurred by, or asserted against any Indemnified Party, in any way relating to or arising out of (a) the manufacture, construction, ordering, purchase, acceptance or rejection, ownership, titling or retitling, registration or re-registration, delivery, leasing, releasing, possession, use, operation, maintenance, storage, removal, return, sale or other disposition of the Aircraft, or any portion thereof (including without limitation the Airframe and each Engine) and, including, without limitation, any of such as may arise from (i) loss or damage to any property or death or injury to any person, (ii) patent or latent defects in the Aircraft (whether or not discoverable by Lessee or any Indemnified Party), (iii) any claims based on strict liability in tort, and (iv) any claims based on patent, trademark or copyright infringement, or (b) this Lease, the Operative Documents or any failure on the part of Lessee to perform or comply with any of the terms of this Lease or the other Operative Documents to which it is a party. (b) Notwithstanding the preceding paragraph (a), Lessee shall not be obligated to make any payment by way of indemnity to any Indemnified Party in respect of (i) any Loss of such Indemnified Party which results from or arises out of the gross negligence or willful misconduct of such Indemnified Party, (ii) any Loss arising out of the period after the return of the Aircraft in accordance with the terms of this Lease, (iii) any Loss which arises from the creation or existence of Lessor Liens, (iv) any Loss which relates to any sale, pledge, mortgage, assignment, transfer or other disposition (whether voluntary or involuntary) by such Indemnified Party of any interest of such Indemnified Party in the Aircraft, the Airframe, any Engine or any Part, equipment or accessory other than a transfer or disposition pursuant to the exercise of remedies pursuant to Section 23 hereof or a transfer or disposition pursuant to Section 8 hereof, (v) any Tax (it being understood that Section 17 hereof and the Tax Indemnity Agreement provides for Lessee's liability with respect to Taxes), and (vi) any Loss which constitutes expenses that such Indemnified Party shall have expressly agreed in this Lease or any agreement relating hereto or thereto by which such Indemnified Party is expressly bound to bear without right of reimbursement. (c) Lessee shall give each Indemnified Party prompt notice of any occurrence, event or condition known to Lessee as a consequence of which any Indemnified Party may be entitled to indemnification hereunder. Lessee shall forthwith upon demand of any such Indemnified Party reimburse such Indemnified Party for amounts expended by it in connection with any of the foregoing or pay such amounts directly. If any Indemnified Party shall obtain a repayment of any indemnified amount paid by Lessee, such Indemnified Party shall promptly pay to Lessee the amount of such repayment together with the amount of any interest received by such Indemnified Party on account of such repayment. (d) Subject to the provisions of Section 18(c) hereof, Lessee shall pay directly to each Indemnified Party all amounts due under this Section 18 within five (5) days of the receipt of written notice by Lessee from such Indemnified Party that such payment is due. (e) Lessee shall be subrogated to an Indemnified Party's rights in any matter with respect to which Lessee has actually reimbursed such Indemnified Party for amounts expended by it or has actually paid such amounts directly pursuant to this Section 18. In case any action, suit or proceeding is brought against any Indemnified Party in connection with any claim indemnified against hereunder, such Indemnified Party will, promptly after receipt of notice of the commencement of such action, suit or proceeding, notify Lessee thereof, enclosing a copy of all papers served upon such Indemnified Party. Lessee may, and upon such Indemnified Party's request will, at Lessee's expense, resist and defend such action, suit or proceeding, or cause the same to be resisted or defended by counsel selected by Lessee and reasonably satisfactory to such Indemnified Party and in the event of any failure by Lessee to do so, Lessee shall pay all costs and expenses (including, without limitation, reasonable attorney's fees and expenses) incurred by such Indemnified Party in connection with such action, suit or proceeding. Lessor agrees that no claim which is indemnifiable hereunder shall be compromised or settled without the prior written consent of Lessee, which consent shall not be unreasonably withheld. (f) Lessee agrees that, with respect to any payment or indemnity hereunder, such payment or indemnity shall include any amount necessary to hold the Indemnitee harmless on an after-tax basis from all Taxes required to be paid by such Indemnified Party with respect to such payment or indemnity under the laws of any Federal, state or local government or Taxing Authority in the United States, or under the laws of any Taxing Authority or governmental subdivision of a foreign country. For purposes of this Section 18(f), calculations made on an after-tax basis shall be made assuming the maximum statutory rates applicable to the recipient for the relevant year, after taking into account deductions attributable to the imposition of other taxes (such as state and local taxes), which would similarly be calculated on the basis of the maximum statutory rates for which such deduction was available for the applicable year. (g) The indemnities contained in this Section 18 shall continue in full force and effect notwithstanding the expiration or other termination of this Lease, and are expressly made for the benefit of and shall be enforceable by each Indemnified Party. 19. NO WARRANTIES. LESSOR NOT BEING THE MANUFACTURER OR VENDOR OF THE AIRCRAFT, THE AIRFRAME OR ANY ENGINE OR ANY PART, MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE AIRCRAFT, THE AIRFRAME OR ANY ENGINE, ITS MERCHANTABILITY, DURABILITY, SUITABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT, AIRFRAME OR ANY ENGINE, OR THE CONFORMITY OF THE AIRCRAFT, THE AIRFRAME OR ANY ENGINE TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER RELATING THERETO, AND LESSOR HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY (WHICH DISCLAIMER LESSEE HEREBY ACKNOWLEDGES). WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSOR SHALL NOT BE LIABLE OR RESPONSIBLE FOR ANY DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN THE AIRCRAFT, THE AIRFRAME OR ANY ENGINE, OR FOR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR PROPERTY RESULTING THEREFROM, OR FOR LESSEE'S LOSS OF USE OF THE AIRCRAFT, AIRFRAME OR ANY ENGINE OR FOR ANY INTERRUPTION IN LESSEE'S BUSINESS CAUSED BY LESSEE'S INABILITY TO USE THE AIRCRAFT, AIRFRAME OR ANY ENGINE FOR ANY REASON WHATSOEVER. NOTWITHSTANDING THE FOREGOING, Lessor represents, warrants and covenants to Lessee that (i) it has full power and authority to enter into and perform this Lease and the other Lessee Documents to which it is a party, (ii) the execution, delivery and performance of this Lease and the other Lessee Documents to which it is a party have been duly authorized by all necessary action on the part of Lessor, do not require any stockholder approval or approval or consent of any trustee or holders of any debt or other obligations of Lessee, and do not contravene any provision of any applicable Law, governmental rule, regulation or order, the by-laws or other constituent documents of Lessor or any indenture, mortgage, contract or other material agreement or instrument to which Lessor is a party or by which it or any of its assets may be bound or affected, (iii) this Lease constitutes the valid and legally binding obligation of Lessor enforceable against Lessor in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity), (iv) on the Acceptance Date it will have good and marketable title to the Aircraft free and clear of all Lessor Liens and (v) so long as Lessee performs each and every covenant to be performed by it hereunder, Lessor or anyone claiming by or through Lessor shall not interfere with Lessee's quiet enjoyment and use of the Aircraft. So long and only so long as no Event of Default shall have occurred and be continuing, and so long and only so long as the Aircraft shall be subject to this Lease and Lessee shall be entitled to possession of the Aircraft hereunder, (i) Lessor authorizes Lessee, at Lessee's expense, to assert for Lessor's account, all rights and powers of Lessor under any manufacturer's, vendor's or dealer's warranty on the Aircraft, Airframe, and each Engine, and any part thereof or (ii) Lessor shall have, to the extent permitted by any such manufacturer's, vendor's or dealer's warranty, assigned such warranty to Lessee, and Lessee may in its own name seek to enforce the same against any manufacturer, vendor or dealer; PROVIDED, HOWEVER, that Lessee shall indemnify, protect, save, defend and hold harmless Lessor from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by Lessor in connection therewith, as a result of, or incident to, any action by Lessee pursuant to the foregoing authorization or assignment. 20. FINANCIAL INFORMATION. From the date of execution of this Lease and during the Basic Term of this Lease, Lessee agrees to furnish to Lessor such information as Lessor may reasonably request at any time concerning the Lessee and its affairs. 21. CONDITIONS PRECEDENT. The obligation of Lessor to purchase from Seller and lease the Aircraft to Lessee is subject to the following conditions precedent having been complied with to the satisfaction of or waived in writing by Lessor on or before the Acceptance Date (each document, instrument, certificate, opinion or other paper referred to below to be in form and substance reasonably satisfactory to Lessor): (a) The following documents set forth in clauses (i) through (xv) below shall have been duly authorized, executed and delivered by the respective party or parties thereto and shall be in full force and effect on the Acceptance Date, and an executed copy of each of the following documents shall have been delivered to Lessor: (i) the Purchase Agreement; (ii) the Purchase Agreement Assignment; (iii) this Lease; (iv) the Guaranty; (v) the Tax Indemnity Agreement; (vi) the Assignment of Warranties; (vii) a legal opinion of special FAA counsel to Lessor and in-house counsel of each of Lessee and Guarantor (the "LEGAL OPINIONS") in form and substance satisfactory to Lessor; (viii) an executed appointment of CT Corporation, New York, New York, as agent to receive service of process in New York on behalf of Lessee and Guarantor, together with an executed acceptance of such appointment by CT Corporation; (ix) a consent by Seller to the Purchase Agreement Assignment in form and substance similar to Exhibit A to the Purchase Agreement Assignment; (x) the Aeronautical Bill of Sale executed by Seller to Lessor; (xi) an FAA form Application for Registration executed by Lessor; (xii) the Warranty Bill of Sale executed by Seller to Lessor and other documents requested to be delivered by Seller pursuant to the Purchase Agreement; (xiii) the Certificate of Acceptance in the form set forth as Exhibit A to this Lease; (xiv) UCC-1 Financing Statements executed by Lessee and filed in the appropriate jurisdictions with appropriate agencies in California; and (xv) such other documentation as Lessor may reasonably require. (b) Lessor shall have received the following: (i) evidence satisfactory to Lessor confirming that this Lease has been duly filed with the FAA; (ii) copies of all necessary consents or approvals from any Governmental Authority or such other Person as to the transactions contemplated by this Lease, including but not limited to the authorization, if necessary, issued by the appropriate monetary control agency for the payments required under the terms of this Lease; (iii) evidence that Lessee has obtained such licenses, operator's certificates or other documents from each appropriate Governmental Authority as may be required to operate the Aircraft under applicable Law, including but not limited to, approval by the FAA of Lessee's Maintenance Program for the Aircraft; (iv) a copy of the Articles of Incorporation of Lessee and the Certificate of Incorporation of Guarantor and a copy of resolutions of the Board of Directors of each of Lessee and Guarantor duly authorizing the execution, delivery and performance by Lessee or Guarantor, as the case may be, of each of the Lessee Documents, to which it may be a party, and each other document required to be executed and delivered by Lessee or Guarantor, as the case may be, in accordance with any provisions under the Lessee Documents; (v) a certificate signed by a duly authorized officer of each of Lessee and Guarantor certifying that (i) the copies of the Articles of Incorporation of Lessee and the Certificate of Incorporation of Guarantor, as the case may be, and (ii) the resolutions of the Board of Directors of Lessee or Guarantor, as the case may be, are true and correct as of the Acceptance Date, and such certificate shall be in form and substance acceptable to Lessor, executed by Lessee or Guarantor, as the case may be; (vi) a certificate signed by a duly authorized officer of each of Lessee and Guarantor, dated the Acceptance Date, to the effect that (i) the representations and warranties of Lessee contained in Section 22 hereof or the representations and warranties of Guarantor contained in the Guaranty, as the case may be, are true and correct on and as of such date as though made on and as of such date, and all authorizations and approvals of, giving of notice to, and filings and recordings with, all regulatory bodies and authorities which may be conditions to the validity or enforceability of this Lease or the Guaranty, as the case may be, or Lessee's or Guarantor's performance, as the case may be of the terms thereof have been duly accomplished; and (ii) no Default or Event of Default has occurred and is continuing or would result from the lease of the Aircraft hereunder. (vii) a current certificate of existence of each of Lessee and Guarantor. (viii) such other documents and evidence with respect to Lessee or Guarantor as Lessor or its counsel may request in order to establish the consummation of the transactions contemplated by this Lease, the taking of all corporate proceedings in connection therewith and compliance with the conditions herein or therein set forth. (ix) the Basic Rent due on the first Rent Payment Date and all transaction costs due and owing pursuant to Section 34 hereof. (c) On the Acceptance Date the following statements shall be correct, and Lessor shall have received evidence reasonable satisfactory to it to the effect that: (i) Lessor has good and legal title to the Aircraft free and clear of all Liens; (ii) the Aircraft has been duly certified by the Aeronautics Authority as to type and airworthiness; (iii) the Aircraft has been duly registered in the name of Lessor as owner with the FAA; (iv) the representations and warranties of Lessee contained herein shall be true and correct on and as of the Acceptance Date as though made on and as of the Acceptance Date; (v) the representations and warranties of Guarantor contained in the Guaranty shall be true and correct on and as of the Acceptance Date as though made on and as of the Acceptance Date; (vi) all authorizations and approvals of, giving of notice to, and filings and recordings with, all regulatory bodies and authorities which may be conditions to the validity or enforceability of this Lease or Lessee's performance of the terms hereof have been duly accomplished; (vii) no event shall have occurred and be continuing which constitutes a Default or an Event of Default under this Lease; (viii) there shall not have occurred, on or after the date hereof and on or prior to the Acceptance Date, any amendment or proposed amendment having an effective date or proposed effective date on or prior to the Acceptance Date to the Code or the Treasury Regulations promulgated thereunder, that renders inaccurate or would, if enacted or made final, render inaccurate any assumption contained in Section 1 of the Tax Indemnity Agreement; (ix) there has not occurred in Lessor's reasonable judgment, any material adverse change in the business, assets, property, prospects or condition (financial or otherwise) of Lessee or Guarantor since the date of this Lease; and (x) the Aircraft shall have (x) a distress value on the Acceptance Date, and (y) a residual value on the Expiration Date both satisfactory to Lessor in its sole discretion. (d) Lessor shall have received an appraisal of Avmark with respect to the Aircraft, satisfactory in form and substance to Lessor. (e) Lessor shall have received a duly executed independent insurance and/or reinsurance broker's report, together with certificates of insurance and/or reinsurance from such broker, each satisfactory to Lessor, as to the due compliance with the terms of Section 16 herein relating to liability, hull all-risk and hull war insurance with respect to the Aircraft. (f) All approvals and consents of any trustee or holder of the indebtedness or obligation of each of Lessee and Guarantor which are required in connection with any of the transactions contemplated by the Operative Documents shall have been duly obtained and evidence thereof shall have been delivered to Lessor; all appropriate action, if any, required to have been taken in connection with any of the transactions contemplated by the Operative Documents by the Aeronautics Authority and each other Governmental Authority having jurisdiction shall have been taken, and Lessee and Guarantor shall have furnished to Lessor copies of all governmental approvals required for the execution, delivery or performance of this Lease, the Purchase Agreement Assignment, any other Operative Documents to which Lessee or the Guarantor is a party and the transactions contemplated hereby and thereby. (g) No change shall have occurred after the date of this Lease in applicable Law and no change in circumstances shall have occurred and no fact or condition shall exist which, in the reasonable opinion of Lessor, would make it illegal under applicable Law for Lessor to lease the Aircraft to Lessee. 22. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee covenants, represents and warrants to Lessor that: (a) Lessee is a corporation duly organized, validly existing and in good standing under the Laws of the State of California, and is registered, licensed or otherwise certificated or duly authorized by all appropriate authorities of the United States to engage in air transportation and is duly qualified or otherwise authorized to do business in all jurisdictions in which it intends to operate the Aircraft, except for jurisdictions where failure to so qualify or obtain authorization would not in the aggregate have a material adverse effect on the business of Lessee and would not involve any danger of the sale, forfeiture or loss of the Aircraft or impairment of the value thereof. Lessee also represents and warrants that as of the Acceptance Date it operates, and it will throughout the Basic Term continue to operate, the Aircraft in accordance with the rules and regulations of the FAA. (b) Lessee has full power and authority to enter into and perform this Lease and the other Lessee Documents to which it is a party, including the documents executed or to be executed by Lessee in connection with the Purchase Agreement Assignment and the execution, delivery and performance of this Lease and the other Lessee Documents (i) have been duly authorized by all necessary action on the part of Lessee, (ii) do not require any stockholder approval or approval or consent of any trustee or holders of any debt or other obligations of Lessee except such as have been duly obtained and (iii) do not contravene any provision of any Law, governmental rule, regulation or order, the by-laws or other constituent documents of Lessee or any indenture, mortgage, contract or other material agreement or instrument to which Lessee is a party or by which it or any of its assets may be bound or affected. (c) Neither the making nor performance by Lessee of this Lease and each other Lessee Document, including the documents to be executed by Lessee in connection with the Purchase Agreement Assignment nor the consummation of any of the transactions by Lessee contemplated hereby or thereby, nor the assignment of the Purchase Agreement to Lessor requires the consent or approval of, the giving of notice to, the registration or filing for recordation with, or the taking of any other action in respect of, any Governmental Authority of or in the United States including any instrumentality thereof. (d) Each of this Lease and each other Lessee Document, including the documents executed or to be executed by Lessee in connection with the leasing of the Aircraft constitutes or, when so executed, will constitute the valid and legally binding obligation of Lessee enforceable against Lessee in accordance with the terms thereof, except as such enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (e) There are no suits or proceedings pending or, to the knowledge of Lessee, threatened in any court or before any regulatory commission, board or other administrative or governmental agency against or affecting Lessee which relate to the transactions contemplated hereby and which, if adversely determined, would have a material adverse effect on (i) the financial condition or business of Lessee, (ii) its obligations under this Lease, or (iii) its obligations under any of the Operative Documents. Neither Lessee nor any of its Affiliates is in material default with respect to any order of any court or any regulatory commission, board or other administrative or governmental agency or body or arbitration board or tribunal. (f) Upon reliance by Lessee of the opinion of McAfee & Taft as required under Section 21(a)(vii) hereof solely as to filings and recordings with the Aeronautics Authority, except for the registration of the Aircraft and the filing of this Lease with the FAA and the filing of Uniform Commercial Code financing statements in California, no further filing or recording of any document and no other action is necessary or advisable, whether in the United States or elsewhere, in order to establish and perfect under United States federal and New York State law, Lessor's title to and interest in the Aircraft as against Lessee and any third parties claiming against or through Lessee, including trustees, custodians and other representatives or similar officials, under any bankruptcy or liquidation law or regulations, or otherwise. (g) The Aircraft (i) is not principally for use in any nation with which under United States Law, regulation or stated policy Lessee is prohibited from doing business, (ii) is not to be used principally in any nation which engages in armed conflict, declared or otherwise, and (iii) is not currently, and will not be in the future, used in violation of the Articles of Incorporation of Lessee. (h) The obligations of Lessee to pay Rent hereunder will be a direct and unconditional general obligation of Lessee, and will rank in right of payment at least PARI PASSU with all other unsecured and unsubordinated debt of Lessee, whether now or hereafter outstanding, subject to any bankruptcy, insolvency, reorganization or similar law. (i) On the Acceptance Date, Lessee has no material liabilities, contingent or otherwise, including liabilities for taxes or any unusual forward or long-term commitments, other than payments due to Lessor under this Lease, and there are no unrealized or anticipated losses from any unfavorable commitments of Lessee which may materially and adversely affect the financial condition of Lessee. (j) There is no fact peculiar to Lessee which Lessee has not disclosed to Lessor in writing which materially and adversely affects or, so far as Lessee can reasonably foresee, would materially and adversely affect the Aircraft or the property, business, prospects, profits or condition (financial or otherwise) of Lessee or would impair the ability of Lessee to perform its obligations under this Lease and the other Operative Documents. (l) The Aircraft will on the Acceptance Date be covered by the insurance required by Section 16 hereof. (m) No Default or Event of Default under this Lease has occurred and is continuing or will occur immediately after giving effect to the execution and delivery of this Lease on the Acceptance Date. Lessee is not in violation in any material respect of any term of its Articles of Incorporation, or other material agreement or instrument to which it is a party or by which it is bound. Lessee is in compliance with all laws, ordinances, governmental rules and regulations to which it is subject, the failure to comply with which would have a material and adverse effect on its operations or condition, financial or otherwise, or would impair the ability of Lessee to perform its obligations under this Lease or any other Operative Document to which Lessee is a party, and has obtained all applicable licenses, permits, franchises and other governmental authorizations material to the conduct of its business. (n) On the Acceptance Date, (i) payments by Lessee to Lessor hereunder will not be subject to income Tax, and withholding of any Tax will not be required upon any such payments to Lessor, and (ii) there is no Tax imposed by virtue of the execution or delivery of any of the Operative Documents. On the Acceptance Date, Lessor will not be obligated to collect sales tax on any payments made by Lessee to Lessor hereunder. (o) Lessee's chief executive office (as defined in the Uniform Commercial Code as in effect in the applicable jurisdiction) and principal place of business, and the place where its records concerning the Aircraft and its interest therein and all documents relating thereto are kept is in 3731 Wilshire Boulevard, 10th Floor, Los Angeles, California 90010. Lessee maintains an agent for service of process with CT Corporation, New York, New York. (p) All tax returns required to be filed by Lessee in any jurisdiction have in fact been filed, and Lessee has paid or caused to be paid all taxes, assessments, fees and other governmental charges which have become due pursuant to such returns or pursuant to any assessment received by it, and Lessee does not have any knowledge of any actual or proposed deficiency or additional assessment in conjunction therewith which either in any case or in the aggregate would be materially adverse to Lessee; and the charges, accruals and reserves on the books of Lessee in respect of federal, state, local or foreign taxes for all such years, and for the current fiscal year, make adequate provision for all unpaid tax liabilities for such periods. (q) All necessary registrations, filings and recordings of the Lease and all other documents in connection therewith have been made in order to fully protect, establish and perfect Lessor's title to, and interest in, the Aircraft and Lessor's rights and interests hereunder as against Lessee and any third parties. (r) Lessee has not, directly or indirectly, used the services of any broker, agent or finder in regard to any of the transactions contemplated hereby; and no broker's or finder's fees or commissions or management or advisory fees are, will or may become payable arising out of any actions or omissions to act on Lessee's part in connection with the transactions contemplated by this Lease or any other Operative Document to which Lessee is a party. (s) The Maintenance Program maintained by Lessee for the Aircraft and the Engines shall remain in full force and effect and complies with and shall, at all times during the Basic Term, continue to comply with all applicable Aeronautics Authority requirements applicable to a Gulfstream Model 1159-A and, in addition, all applicable FAA requirements applicable to a Gulfstream Model 1159-A. (t) Lessee is not in default in the performance of any of its obligations (i) for the payment of indebtedness for borrowed money in a principal amount in excess of One Hundred Thousand Dollars ($100,000) or of any interest or premium thereon or (ii) for the payment of rent under any lease agreement for the lease of real, personal or mixed property where the monthly rental exceeds Ten Thousand Dollars ($10,000) or where the aggregate rentals over the term thereof exceed One Hundred Thousand Dollars ($100,000). 23. EVENTS OF DEFAULT. Any of the following events shall constitute an Event of Default (whether any such event shall be voluntary or involuntary, or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) Failure of Lessee to pay within ten (10) days when due, any sum, including installments of Rent, owed by Lessee at any time to Lessor under this Lease; Lessor shall use reasonable efforts to give Lessee written notice of any payments which may become past due; PROVIDED THAT, the failure by Lessor to provide such notice to Lessee shall in no event be deemed a waiver by Lessor of any of its rights hereunder; or (b) Lessee shall fail to observe or perform any of the covenants or agreements of Lessee set forth in Sections 12 or 13(a) hereof; PROVIDED THAT, solely with respect to Lessee's failure to provide the plates indicating Lessor's ownership of the Aircraft and the Engines pursuant to Section 12 (c), such failure shall continue unremedied for thirty (30) days after written notice by Lessor to Lessee; or (c) Lessee shall fail to procure and maintain any insurance required by Article 16 hereof or shall operate the Aircraft outside the scope of the insurance coverage maintained with respect to the Aircraft; or (d) Lessee or Guarantor shall fail to perform or observe any other covenant, condition, or agreement to be performed or observed by it under this Lease, the Lessee Documents or in any agreement or certificate furnished to Lessor or an other assignee or lender in connection herewith, and such failure shall continue unremedied for thirty (30) days after written notice by Lessor to Lessee or Guarantor, as the case may be, specifying such failure and demanding the same to be remedied; or (e) Lessee or Guarantor shall become insolvent or bankrupt or make a general assignment for the benefit of creditors or consent to the appointment of a trustee or receiver; or a trustee or a receiver shall be appointed for Lessee or Guarantor or for a substantial part of its property without its consent and shall not be dismissed for a period of 90 days; or any petition for the relief, reorganization or arrangement of Lessee or Guarantor or any other petition in bankruptcy or for the liquidation, insolvency or dissolution of Lessee or Guarantor shall be filed by or against Lessee or Guarantor and, if filed against Lessee or Guarantor, shall be consented to or be pending and not dismissed for a period of 90 days; or an order for relief under any bankruptcy or insolvency law shall be entered by any court or Governmental Authority of competent jurisdiction with respect to Lessee or Guarantor; or any execution or writ or process shall be issued under any action or proceeding against Lessee or Guarantor whereby the Aircraft, the Airframe or any Engine may be taken or restrained; or (f) Lessee's or Guarantor's corporate existence shall cease; or Lessee or Guarantor shall, without Lessor's prior written consent, sell, transfer or dispose of, or pledge or otherwise encumber, all or substantially all of its assets or property, or Lessee or Guarantor shall consolidate or merge with any other entity, PROVIDED, HOWEVER, that an Event of Default shall not have occurred if (i) Lessee or Guarantor, as the case may be, is the surviving corporation of any such consolidation or merger or (ii) the parties to any such merger or consolidation include only Lessee or Guarantor and its Affiliate(s); or (g) any representation, warranty, statement or certification made by Lessee or Guarantor under any Lessee Document or in the Certificate of Acceptance or in any document or certificate furnished to Lessor, or any other assignee in connection herewith or pursuant hereto, shall prove to be untrue or incorrect when made in any material respect, or shall be breached in any material respect; or (h) either the Lease or the Guaranty shall cease to be a valid, effective and enforceable agreement. 24. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of Default and at any time thereafter so long as the same shall be continuing, Lessor may exercise one or more of the following remedies with respect to the Aircraft or any part thereof (including, without limitation, the Airframe or any Engine) as Lessor in its sole discretion shall elect: (a) Lessor, at its option, may cause Lessee, upon the written demand of Lessor and at Lessee's expense, to return promptly, and Lessee shall return promptly, the Aircraft to Lessor or its order in the manner and condition required by, and otherwise in accordance with all the provisions of, Section 4 hereof as if such Aircraft were being returned at the end of the Basic Term or, if Lessee does not so deliver such Aircraft, Lessor may terminate this Lease, without prejudice to any other remedies of Lessor hereunder. Whether or not this Lease has been so terminated, Lessor at its option shall to the fullest extent permitted by applicable Law, (i) have the right to enter the premises of Lessee or any other party to take immediate possession of the Aircraft or any part thereof and remove all or any part of the Aircraft or any part thereof by summary proceedings or otherwise, (ii) not be liable, in conversion or otherwise, for the taking of any personal property of Lessee which is in or attached to the Aircraft, the Airframe, an Engine or Part which is repossessed; PROVIDED, HOWEVER, that Lessor shall return to Lessee all personal property of Lessee or its passengers which was on the Aircraft at the time Lessor re-takes possession of the Aircraft; (iii) not be liable or responsible, in any manner, for any inadvertent damage injury to any of Lessee's property in repossessing and holding the Aircraft, the Airframe, an Engine or Part, except for that caused by or in connection with Lessor's gross negligence or willful acts; (iv) have the right to maintain possession of and dispose of the Aircraft, the Airframe, an Engine or Part on any premises owned by Lessee or under Lessee's control; (v) have the right to obtain a key to any premises at which the Aircraft, the Airframe, an Engine or Part may be located from the landlord or owner thereof; or (vi) cause Lessee, at Lessee's expense, to store, maintain, surrender and deliver possession of the Aircraft in the same manner as provided in Section 4 hereof, all without liability to Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise except damages caused by gross negligence or wilful misconduct; (b) Lessor may sell the Aircraft or any Part thereof at public or private sale, as Lessor may determine, free and clear of any rights of Lessee, in which event Lessee's obligation to pay Basic Rent hereunder with respect to the Aircraft for all Rental Periods commencing after the date of such sale shall terminate and in the event that the net sales proceeds is less than the Casualty Loss Value as of the next preceding Rent Payment Date and any Basic Rent due as of the date of such sale, Lessee shall pay Lessor the difference; (c) Lessor may hold, keep idle or lease to others the Aircraft or any Part thereof, as Lessor in its sole discretion may determine, free and clear of any rights of Lessee in which event Lessee's obligation to pay Basic Rent for any Rental Periods commencing after Lessee shall have been deprived of possession pursuant to this Section 24 shall be reduced by the net proceeds, if any, received by Lessor from leasing the Aircraft or any Part thereof to any Person other than Lessee for the same Rental Periods or any portion thereof; (d) If reasonably required by Lessor, Lessee, at its sole expense, shall assemble and make the Aircraft, the Airframe, any Engine or Part available at a place designated by Lessor in accordance with Section 4 hereof. Lessee hereby agrees that, in the event of the return to or repossession by Lessor of the Aircraft, the Airframe, any Engine or Part, any rights in any warranty (express or implied) heretofore assigned to Lessee or otherwise held by Lessee shall without further act, notice or writing be assigned or reassigned to Lessor, if assignable. Lessee shall be liable to Lessor for all reasonable expenses, disbursements, costs and fees incurred in (i) repossessing, storing, preserving, shipping, maintaining, repairing and refurbishing the Aircraft, the Airframe, any Engine or Part to the condition required by Section 4 hereof and (ii) preparing the Aircraft, the Airframe, any Engine or Part for sale or lease, advertising the sale or lease of the Aircraft, the Airframe, any Engine or Part and selling or releasing the Aircraft, the Airframe, any Engine or Part. Lessor is hereby authorized and instructed, at its option, to make reasonable expenditures which Lessor considers advisable to repair and restore the Aircraft, the Airframe, any Engine or Part to the condition required by Section 4 hereof, all at Lessee's sole expense; (e) Lessee shall be liable, except as otherwise provided above, for any and all unpaid Basic Rent and Casualty Loss Value hereunder before or during the exercise of any of the foregoing remedies and for all legal and arbitration fees (including reasonable attorneys' fees incurred in any and all judicial and other governmental proceedings or arbitration proceedings, including appellate proceedings, whether such proceedings arise before or after entry of final judgment or arbitration award) and other reasonable costs and expenses incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto, including all reasonable costs and expenses incurred in connection with the return of the Aircraft in accordance with Section 4 hereof or in placing the Aircraft in the condition required by said Section. At any sale pursuant to this Section 24, Lessee or any of its Affiliates may bid for and purchase the Aircraft. Except as otherwise expressly provided above, no remedy referred to in this Section 24 is intended to be exclusive, but each shall be cumulative (except that nothing hereunder shall entitle Lessor to duplicative remedies) and in addition to any other remedy referred to above or otherwise available to Lessor at law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not constitute the exclusive election of such remedies and shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies. No express or implied waiver by Lessor of any Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. (f) Lessor may exercise any other right or remedy which may be available to it under the New York Uniform Commercial Code or applicable Law, or proceed by appropriate court action to enforce the terms hereof to recover damages for the breach hereof. 25. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee at any time shall fail to pay to any Person any sum which Lessee is required to pay hereunder or shall fail to do or perform any other thing Lessee is required to do or perform hereunder, Lessor at its option may pay such sum or do or perform such thing, and Lessee shall reimburse Lessor on demand for the amount of such payment and for the cost and expense which may be incurred by Lessor for such acts or performance, together with interest from the date of demand until paid accrued at the Default Rate. 26. LATE CHARGES. If any installment of Basic Rent or other sum owing under this Lease shall not be paid within five (5) days from the date when due, Lessee shall pay Lessor interest on such amount at the Default Rate. Such late charge is in addition to and not in lieu of other rights and remedies of Lessor. 27. FURTHER ASSURANCES. Lessee will promptly and duly execute and deliver to Lessor such other documents and assurances, including, without limitation, such amendments to this Lease as may be reasonably required by Lessor, and Uniform Commercial Code financing statements and continuation statements, and will take such further action as Lessor may from time to time reasonably request in order to carry out more effectively the intent and purposes of this Lease and to establish and protect the rights and remedies created or intended to be created in favor of Lessor. 28. NOTICES. All notices provided for or required under the terms and provisions hereof shall be in writing, and any such notice shall be deemed given when personally delivered or if deposited in the United States mails, with proper postage prepaid, for first class registered mail, return receipt requested, when received or when sent by telecopy with electronic confirmation, addressed if to Lessor or Lessee, at their respective addresses as set forth on Schedule B hereof or at such other address as either of them shall, from time to time, designate in writing to the other. 29. GOVERNING LAW AND CONSENT TO JURISDICTION. THIS LEASE SHALL IN ALL RESPECT BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PROVISIONS THEREIN. Lessee hereby irrevocably consents that any legal action or proceeding against it or any of its assets with respect to this Lease may be brought in any jurisdiction where Lessee or any of its assets may be found, or in any court of the State of New York or any Federal court of the United States of America located in New York, New York, United States of America, or both, as Lessor may elect, and by execution and delivery of this Lease, Lessee hereby irrevocably submits to and accepts with regard to any such action or proceeding, for itself and in respect of its assets, generally and unconditionally, the jurisdiction of the aforesaid courts. Lessee hereby designates, appoints and empowers CT Corporation System at its principal office at 1633 Broadway, New York, New York 10019, as its authorized agent for service of process in the State of New York in any suit or proceeding with respect to this Lease and the other Operative Documents to which Lessee is a party (such agent being hereinafter called the "Process Agent"); PROVIDED HOWEVER, that if the Process Agent shall at any time cease to be the Process Agent, Lessee shall forthwith designate a successor Process Agent and shall give prompt notice of such designation to Lessor. A copy of any such process served on such agent shall be promptly forwarded by air courier by the person commencing such proceeding to Lessee at its address set forth in Schedule B hereof, but the failure of Lessee to receive such copies shall not affect in any way the service of such process as aforesaid. Lessee further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified first class mail, postage prepaid, to Lessee at its address set forth in Schedule B hereof. The foregoing, however, shall not limit the rights of Lessor to serve process in any other manner permitted by Law or to bring any legal action or proceeding or to obtain execution of judgment in any jurisdiction. Lessee further agrees that final judgment against Lessee in any action or proceeding in connection with this Lease shall be conclusive and may be enforced in any other jurisdiction within or outside the United States of America by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and the amount of Lessee's indebtedness. Lessee hereby irrevocably waives, to the fullest extent permitted by law, any objection which Lessee may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Lease brought in the State of New York, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in the State of New York has been brought in an inconvenient forum. 30. MISCELLANEOUS. Any provision of this Lease 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 or diminishing Lessor's rights under 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. To the extent permitted by applicable Law, Lessee hereby waives any provision of law which renders any provision of this Lease prohibited or unenforceable in any respect. No term or provision of this Lease may be amended, altered, waived, discharged or terminated orally, but only by an instrument in writing signed by a duly authorized officer or the party against which the enforcement of the amendment, alteration, waiver, discharge or termination is sought. A waiver on any one occasion shall not be construed as a waiver on a future occasion. All of the covenants, conditions and obligations contained in this Lease shall be binding upon and shall inure to the benefit of the respective successors and assigns of Lessor and (subject to the restrictions of Section 13 (a) hereof) Lessee. This Lease, the Certificate of Acceptance, and each related instrument, document, agreement and certificate collectively constitute the entire agreement of Lessor and Lessee with respect to the acquisition and leasing of the Aircraft, and cancels and supersedes any and all prior oral or written understandings with respect thereto. This Lease may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. To the extent, if any, that this Lease constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no security interest in this Lease may be created through the transfer of possession of any counterpart other than the counterpart which has been marked "Original" on the signature page thereof. 31. EFFECT OF THIS LEASE. This Lease shall become binding and effective when it shall have been executed by each of Lessor and Lessee. 32. SURVIVAL. The representations, warranties, covenants, agreements and indemnities of Lessee set forth in this Lease, and Lessee's obligations hereunder, shall survive the expiration or other termination of this Lease to the extent required for full performance and satisfaction thereof. 33. BROKERS. Each party agrees to indemnify and hold the other harmless from and against any and all claims, suits, damages, costs and expenses (including, but not limited to reasonable attorney's fees) asserted by any agent, broker or other third party for any commission or compensation of any nature whatsoever based upon the lease of the Aircraft, if such claim, damage, cost or expense arises out of any action or alleged action by the indemnifying party, its employees or agents. It is understood and agreed between the parties that this Lease has been concluded by direct negotiation without any intermediaries or agents. Lessee hereby represents and warrants that he has not been paid, agreed to pay or caused to be paid directly or indirectly in any form, any commission, percentage, contingent fee, brokerage or other similar payments of any kind, in connection with the establishment or operation of this Lease, to any employee of Lessor or to any person or entity in the United States or elsewhere. 34. TRANSACTION COSTS. (a) Whether or not the transactions contemplated hereby are consummated, Lessee shall pay all costs and expenses incurred in connection with the preparation, execution and delivery of this Lease and any other documents delivered in connection herewith, including without limitation the reasonable fees, expenses and disbursements of counsel, except as otherwise expressly set forth herein. In addition, Lessee shall be solely responsible for all costs, including reasonable attorneys' fees and expenses, incurred in registering an executed counterpart of this Lease with the FAA. (b) Notwithstanding anything herein to the contrary, Lessor hereby acknowledges that Lessee has paid to Lessor a Commitment Fee in the amount $25,000.00 (the "COMMITMENT FEE"). (c) Lessee shall pay for all sales tax imposed upon or arising out of the sale or delivery of the Aircraft under the Purchase Agreement, regardless of who is responsible therefor at law; provided, however, Lessor will cooperate with any requests made by Lessee that are not adverse to Lessor's interests to minimize such sales tax. (d) Each of Lessor and Lessee hereby agrees to pay the reasonable costs and expenses of the other party incurred in connection with the entering into or giving or withholding of any future waiver, supplement or amendment or other action with respect to the Lease or any other document delivered in connection herewith that it may request, except in the case of an Event of Default in which case all of such costs shall be at the expense of Lessee. 35. INTENT; TITLE: It is the express intent of the parties that this Lease constitute a true lease and not a sale of the Aircraft. Title to the Aircraft shall at all times remain in Lessor, and Lessee shall acquire no ownership, title, property, right, equity, or interest in the Aircraft other than its leasehold interest solely as lessee subject to all the terms and conditions hereof. The parties agree that this Lease is a "Finance Lease" as defined in Uniform Commercial Code Article 2A -- Leases ("Article 2A"). Lessee acknowledges: (a) that Lessee has selected the "Supplier" (as defined in Article 2A) and directed Lessor to purchase the Aircraft from the Supplier; (b) that Lessee has been informed in writing in this Lease, before signing this Lease, that Lessee is entitled under Article 2A to the promises and warranties, including those of any third party, provided to Lessor by the Supplier in connection with or as part of the contract by which Lessor acquired the Aircraft, and that Lessee may communicate with the Supplier and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies. To the extent permitted by applicable Law, Lessee hereby waives any and all rights and remedies conferred upon a lessee in Article 2A and any rights now or hereafter conferred by statute or otherwise which may limit or modify any of Lessor's rights or remedies under Section 24 of this Lease; PROVIDED, HOWEVER, that such waiver shall not preclude Lessee from asserting any claim of Lessee against Lessor in a separate cause of action; and PROVIDED FURTHER, that such waiver shall not affect Lessor's obligations of good faith, diligence, reasonableness and care. Notwithstanding the express intent of the parties, should a court of competent jurisdiction determine that this Agreement is not a true lease, but rather one intended as security, then solely in that event and for the expressly limited purposes thereof, Lessee shall be deemed to have hereby granted Lessor a security interest in this Lease, the Aircraft, and all accessions thereto, substitutions and replacements therefor, and all products and proceeds (including insurance proceeds) thereof; to secure the prompt payment and performance as and when due of all obligations and indebtedness of Lessee (or any Affiliate of Lessee) to Lessor, now existing or hereafter created. For the purposes of this paragraph, this Lease or a photocopy hereof may be filed as a financing statement under the Uniform Commercial Code. 36. TIME IS OF THE ESSENCE. Time and strict and punctual performance are of the essence with respect to each provision of this Lease. 37. TRUTH-IN-LEASING CLAUSE. (a) LESSEE HAS REVIEWED THE AIRCRAFT'S MAINTENANCE AND OPERATING LOGS SINCE ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS SINCE INCEPTION OF OPERATIONS. LESSEE CERTIFIES THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION REGULATIONS. (b) LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS AGREEMENT DURING THE BASIC TERM HEREOF. LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. (c) LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 91 OR PART 135, AS APPLICABLE OF THE FEDERAL AVIATION REGULATIONS OF OPERATIONS TO BE CONDUCTED UNDER THIS AGREEMENT. LESSEE UNDERSTANDS THAT AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT OFFICE, OR AIR CARRIER DISTRICT OFFICE. IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly executed by their duly authorized representatives as of the date first written above. C.I.T. LEASING CORPORATION, as Lessor By: /s/ John F.P. Lamb ---------------------------- Name: John F.P. Lamb ---------------------------- Title: General Counsel ---------------------------- OXFORD AVIATION CORPORATION, INC., a California corporation, as Lessee By: /s/ John F.P. Lamb ---------------------------- Name: John F.P. Lamb ---------------------------- Title: General Counsel ---------------------------- SCHEDULE A TO AIRCRAFT LEASE AGREEMENT DESCRIPTION OF AIRCRAFT DESCRIPTION OF AIRFRAME: Gulfstream Model 1159-A, also known as Gulfstream Aerospace 1159-A, Manufacturer's Serial Number 428 and United States Registration Number N760G, and any and all avionics, appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (except the Engines) attached to or installed on the Airframe. DESCRIPTION OF ENGINES: Two each Rolls Royce Spey MK 511-8 Engines with Serial Numbers L/H 11278 R/H 11275 (each of which engines has 750 or more rated takeoff horsepower or the equivalent thereof), installed on the Airframe. SCHEDULE B TO AIRCRAFT LEASE AGREEMENT ADDRESSES AND PAYMENT INFORMATION LOCATION OF PAYMENT OF RENT: - - --------------------------- Bank of America 1000 West Temple Street Los Angeles, California 90012 Transit #121000358 For credit to: The CIT Group/ Industrial Financing, Inc. Account # 1233-5-18855 HOME AIRPORT OF AIRCRAFT: - - ------------------------ Ontario, California NOTICE ADDRESS OF LESSOR: - - ------------------------ C.I.T. Leasing Corporation 1620 West Fountainhead Parkway Tempe, Arizona 85282 Attention: Vice-President, Credit Telecopy No. (602) 858-1488 With a copy to: The CIT Group/Industrial Financing 650 CIT Drive Livingston, New Jersey 07039 Attn: General Counsel Telecopy No. (201) 740-5148 ADDRESS OF LESSEE: - - ----------------- Oxford Aviation Corporation, Inc. 3731 Wilshire Boulevard, 10th Floor Los Angeles, California 90010 Attn: Gregory J. Witherspoon Executive Vice President - Finance Telecopy No.: 213-487-5814 with a copy to: Aames Financial Corporation 3731 Wilshire Boulevard, 10th Floor Los Angeles, California 90010 Attention: John F.P. Lamb General Counsel Attention: John F. P. Lamb, Esq. Telecopy No.: 213-380-9365 ADDRESS OF AGENT FOR SERVICE OF - - ------------------------------- PROCESS FOR LESSEE IN NEW YORK: - - ------------------------------ CT CORPORATION 1633 Broadway New York, New York 10019 Attention: Frieda Dawson EXHIBIT A TO AIRCRAFT LEASE AGREEMENT CERTIFICATE OF ACCEPTANCE THIS CERTIFICATE OF ACCEPTANCE dated March __, 1996 (this "Certificate of Acceptance) between C.I.T. LEASING CORPORATION, as Lessor ("LESSOR"), and OXFORD AVIATION CORPORATION, INC., as Lessee ("LESSEE"); W I T N E S S E T H: WHEREAS, Lessor and Lessee have heretofore entered into that certain Aircraft Lease Agreement dated as of March 8, 1996 (the "LEASE"), which provides for the execution and delivery of a Certificate of Acceptance in substantially the form hereof for the purpose of leasing the Aircraft in accordance with the terms thereof; NOW, THEREFORE, in consideration of the premises, and pursuant to Section 2 of the Lease, Lessor and Lessee hereby agree as follows: I. All capitalized terms used herein which are defined in the Lease shall have, for all purposes hereof, the respective meanings given them in the Lease. II. Lessor hereby delivers and leases to Lessee, and Lessee hereby accepts and leases from Lessor under the Lease, as hereby supplemented, the Aircraft as follows: A. Aircraft: One Gulfstream Model 1159-A, also known as Gulfstream Aerospace G-1159-A aircraft consisting of the following: 1. Airframe: Manufacturer's Serial No. 428 United States Registration Number N760G 2. Engines: Two (2) Rolls Royce Spey MK 511-8 engines (each of which engines has 750 or more rated takeoff horsepower or the equivalent thereof), installed on said Airframe, bearing, respectively the following: Engine Manufacturer's POSITION SERIAL NO. -------- ---------- 1 11278 2 11275 3. Other Stated Equipment and Manuals: Such other Equipment (if any) and Manuals as is described in Appendix I hereto. B. Maintenance Status: 1. Airframe: Total Airframe Hours: _____ Total Airframe Cycles: _____ 2. Engines: POSITION 1 ---------- Manufacturer's Serial No.: 11278 a. Total Hours: _____ b. Total Cycles: _____ POSITION 2 ---------- Manufacturer's Serial No.: 11275 a. Total Hours: _____ b. Total Cycles: _____ C. Interior Configuration: 1. Seating: 2. Lavatories: 3. Galleys: Lessee confirms that the Aircraft has been examined by its duly appointed and authorized representatives and the records conform to the information set forth above. III. The Acceptance Date of the Aircraft is the date of this Certificate of Acceptance, as set forth in the opening paragraph hereof, and the Aircraft is hereby delivered and accepted on such date at _____ a.m. ____________________ Time at __________________. IV. The amount of fuel on board the Aircraft at the time of delivery hereunder is _____________________. V. Lessee hereby confirms to Lessor that (i) Lessee has accepted the Aircraft for all purposes hereof and of the Lease, (ii) Lessee has inspected the Aircraft and the Aircraft satisfies all of the delivery conditions set forth in the Lease; and (iii) the information set forth herein and on Appendix 1 hereto pertaining to the Aircraft delivery are correct as of the date hereof. VI. All of the terms and provisions of the Lease are hereby incorporated by reference in this Certificate of Acceptance to the same extent as if fully set forth herein. VII. This Certificate of Acceptance may be executed in any number of counterparts, each of such counterparts, except as provided in Section 30 of the Lease, shall for all purposes be deemed to be an original; and all such counterparts shall together constitute but one and the same Certificate of Acceptance. VIII. THIS CERTIFICATE OF ACCEPTANCE SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PROVISIONS THEREIN. IN WITNESS WHEREOF, Lessor and Lessee have each caused this Certificate of Acceptance to be duly executed by their authorized officers on the date first above written. C.I.T. LEASING CORPORATION, Lessor By: -------------------------------------- Title: -------------------------------------- OXFORD AVIATION CORPORATION, INC., Lessee By: ------------------------------------- Title: -------------------------------------- APPENDIX I TO CERTIFICATE OF ACCEPTANCE A. AVIONICS INVENTORY* MAJOR AVIONICS EQUIPMENT MANUFACTURER MODEL - - ------------------------ ------------ ----- *The above list of Avionics Inventory is subject to further addition and descriptions by Lessor or Lessee and will be included in the Certificate of Acceptance as executed on the Acceptance Date. APPENDIX I TO CERTIFICATE OF ACCEPTANCE B. MANUALS INCLUDED WITH AIRCRAFT* *To be completed on the Acceptance Date and included on the Certificate of Acceptance as executed on such date. APPENDIX I TO CERTIFICATE OF ACCEPTANCE C. LOOSE EQUIPMENT* ITEM DESCRIPTION QUANTITY - - ---- ----------- -------- *To be completed on the Acceptance Date and included on the Certificate of Acceptance as executed on such date. APPENDIX I TO CERTIFICATE OF ACCEPTANCE D. HARD TIME COMPONENTS* *To be completed on the Acceptance Date and included on the Certificate of Acceptance as executed on such date. APPENDIX I TO CERTIFICATE OF ACCEPTANCE E. LESSEE FURNISHED EQUIPMENT* *To be attached on the Acceptance Date and included on the Certificate of Acceptance as executed on such date. [This Exhibit to be omitted from FAA Filing Copy] EXHIBIT B TO AIRCRAFT LEASE AGREEMENT AIRCRAFT COST Nine Million Two Hundred Seventy-Five Thousand Dollars ($9,275,000.00) [This Exhibit to be omitted from FAA Filing Copy] EXHIBIT C TO AIRCRAFT LEASE AGREEMENT BASIC RENT Lessee shall pay to Lessor as rental for the Aircraft ("BASIC RENT") for each Rent Period hereunder from the Acceptance Date to the Expiration Date an amount equal to $74,239.39 which shall be equal to .80042% of the Aircraft Cost. The Basic Rent shall be paid by Lessee in advance to Lessor on each Rent Payment Date. [This Exhibit to be omitted from FAA Filing Copy] EXHIBIT D TO AIRCRAFT LEASE AGREEMENT CASUALTY LOSS VALUE ON THE ATTACHED SCHEDULE [This Exhibit to be omitted from FAA Filing Copy] EXHIBIT E TO AIRCRAFT LEASE AGREEMENT TERMINATION VALUE If Lessee purchases the Aircraft pursuant to Section 8(a) hereof (i) on the fifth anniversary date of the Acceptance Date, the Termination Value shall equal to 87.156% of the Aircraft Cost which shall be in an amount equal to $8,083,737.80, (ii) on the seventh anniversary date of the Acceptance Date, the Termination Value shall equal 77.946% of the Aircraft Cost which shall be in an amount equal to $7,229,449.02, and (iii) on the Expiration Date, the Termination Value shall equal the fair market value of the Aircraft. [This Exhibit to be omitted from FAA Filing Copy] EXHIBIT G TO AIRCRAFT LEASE AGREEMENT DEPOSIT Five Hundred Thousand Dollars $500,000.00 TABLE OF CONTENTS 1. DEFINITIONS 2 ----------- 2. AGREEMENT FOR PURCHASE AND LEASE OF AIRCRAFT 8 -------------------------------------------- 3. TERM 8 ---- 4. RETURN OF AIRCRAFT 9 ------------------ 5. RENT 11 ---- 6. NET LEASE 12 --------- 7. LESSOR'S TITLE 13 -------------- 8. PURCHASE OPTIONS 13 ---------------- 9. USE OF AIRCRAFT; COMPLIANCE WITH LAWS 13 ------------------------------------- 10. MAINTENANCE OF AIRCRAFT 14 ----------------------- 11. REPLACEMENT OF PARTS; ALTERATIONS; MODIFICATIONS; AND ADDITIONS 15 --------------------------------------------------------------- 12. REGISTRATION; DELIVERY; RECORDATION; INSIGNIA AND INSPECTION 16 ------------------------------------------------------------ 13. ASSIGNMENT AND SUBLEASING 17 ------------------------- 14. LIENS 18 ----- 15. LOSS, DAMAGE OR DESTRUCTION 18 --------------------------- 16. INSURANCE 21 --------- 17. GENERAL TAX INDEMNIFICATION 24 --------------------------- 18. GENERAL INDEMNITIES 27 ------------------- 19. NO WARRANTIES 29 ------------- 20. FINANCIAL INFORMATION 30 --------------------- 21. CONDITIONS PRECEDENT 31 -------------------- 22. LESSEE'S REPRESENTATIONS AND WARRANTIES 35 --------------------------------------- 23. EVENTS OF DEFAULT 38 ----------------- 24. REMEDIES UPON DEFAULT 39 --------------------- 25. LESSOR'S RIGHT TO PERFORM FOR LESSEE 41 ------------------------------------ 26. LATE CHARGES 41 ------------ 27. FURTHER ASSURANCES 42 ------------------ 28. NOTICES 42 ------- 29. GOVERNING LAW AND CONSENT TO JURISDICTION 42 ----------------------------------------- 30. MISCELLANEOUS 43 ------------- 31. EFFECT OF THIS LEASE 43 -------------------- 32. SURVIVAL 43 -------- 33. BROKERS 44 ------- 34. TRANSACTION COSTS 44 ----------------- 35. INTENT; TITLE 44 ------------- 35. TIME IS OF THE ESSENCE 45 ---------------------- 36. TRUTH-IN-LEASING CLAUSE 45 ----------------------- SCHEDULE A. Description of Aircraft SCHEDULE B. Addresses and Payment Information EXHIBIT A. Certificate of Acceptance EXHIBIT B. Aircraft Cost EXHIBIT C. Basic Rent EXHIBIT D. Casualty Loss Value EXHIBIT E. Termination Value EXHIBIT F. Form of Purchase Agreement Assignment EXHIBIT G. Deposit EX-10.31 6 GUARANTY EXHIBIT 10.31 EXECUTION COPY CORPORATE GUARANTY AGREEMENT THIS CORPORATE GUARANTY AGREEMENT (this "Agreement") dated as of March 08, 1996, is between AAMES FINANCIAL CORPORATION, a Delaware corporation (the "Guarantor"), and C.I.T. LEASING CORPORATION, a Delaware corporation ("CIT"). W I T N E S S E T H: WHEREAS, CIT has agreed to purchase one (1) Gulfstream Model III Aircraft, manufacturer's serial number 428 (the "Aircraft"), which is subject to the Aircraft Lease Agreement dated as of March __, 1996 (the "Lease," capitalized terms used herein and not defined herein shall have the meanings set forth in the Lease) between CIT, as lessor and Oxford Aviation Corporation, Inc., as lessee (the "Lessee"); WHEREAS, the agreement by CIT to lease the Aircraft to Lessee is conditioned upon the Guarantor entering into a guaranty in the form hereof; WHEREAS, because the Guarantor will derive benefit from the transactions contemplated by the Operative Documents, the Guarantor has agreed to guarantee the Obligations on the terms set forth in this Agreement; and WHEREAS, in order to induce CIT to enter into the Lease, the Guarantor is willing to execute and deliver this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. The Guarantor absolutely, unconditionally and irrevocably guarantees, as a primary obligor and not merely as a surety, the due and punctual payment by the Lessee of any and all amounts owed to CIT (including without limitation all payments of Basic Rent and all Supplemental Payments), and the due and punctual performance of all covenants, agreements, obligations and liabilities of the Lessee, under or pursuant to the Operative Documents. All obligations of the Lessee guaranteed by the Guarantor in this Section 1 shall be collectively referred to as the "Obligations". The Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guaranty notwithstanding any extension or renewal of an Obligation. SECTION 2. The Guarantor waives presentment to, demand of payment from and protest to the Lessee of any of the Obligations, and also waives notice of acceptance of its guaranty and notice of protest for nonpayment. The obligations of the Guarantor hereunder shall not be affected by (a) the failure of CIT to assert any claim or demand or to enforce or exercise any right or remedy against the Lessee or the Guarantor under the provisions of any Operative Document or otherwise; (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of any Operative Document, or (c) the release of any security, if any, held by CIT for the Obligations or any of them. SECTION 3. The Guarantor further agrees that its guaranty hereunder constitutes a guaranty of payment when due and not of collection, and waives any right to require that any resort be had by CIT to any security, if any, held by CIT for payment of the Obligations. SECTION 4. The obligations of the Guarantor hereunder shall be absolute and unconditional and shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any setoff, counterclaim, deduction, diminution, withholding, abatement, suspension, deferment, reduction, recoupment, termination or defense (other than full and strict indefeasible satisfaction of the Obligations) whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Guarantor hereunder shall not be released, discharged or impaired or otherwise affected by any circumstance or condition whatsoever (whether or not the Lessee, the Guarantor or CIT has knowledge or notice thereof or consents thereto) which may or might in any manner or to any extent vary the risk of the Guarantor or otherwise operate as a discharge of the Guarantor as a matter of law or equity (other than the indefeasible payment in full of all the Obligations) including, without limitation: (a) any termination, amendment, modification, addition, deletion or supplement to or other change to any of the terms of any Operative Document, or any other instrument or agreement applicable to any of the parties hereto or thereto, or any assignment or transfer of any thereof, or any furnishing or acceptance of security or any additional guaranty, or any release of any security, for any Obligations or the obligations of the Guarantor hereunder or thereunder, or the failure of any security or the failure of any Person to perfect any interest in any collateral; (b) any failure, forbearance, omission or delay on the part of the Lessee or the Guarantor to conform or comply with any term of any Operative Document to which it is a party or any other instrument or agreement, or any failure to give notice to the Lessee or the Guarantor of the occurrence of an Event of Default or any Default occurring under the Lease; (c) any waiver of the payment, performance or observance of any of the obligations, conditions, covenants or agreements contained in any Operative Document, or any other waiver, consent, extension, forbearance, renewal, indulgence, compromise, release, settlement, refunding or other action or inaction under or in respect of any Operative Document or any other instrument or agreement, or under or in respect of any obligation or liability of the Lessee or the Guarantor, any exercise or non-exercise of any right, remedy, power or privilege under or in respect of any such instrument or agreement or any such obligation or liability; (d) any extension of the time for payment of the principal of or interest on any Obligation, or of the time for performance of any other obligations, covenants or agreements under or arising out of any Operative Document or the extension or the renewal of any thereof; (e) the exchange, surrender, substitution or modification of, or the furnishing of any additional collateral or security for the obligations under, any Operative Document; (f) to the extent permitted by applicable Law, any voluntary or involuntary bankruptcy, insolvency, reorganization, moratorium, arrangement, adjustment, readjustment, composition, assignment for the benefit of creditors, receivership, conservatorship, custodianship, liquidation, marshalling of assets and liabilities or similar proceedings with respect to the Lessee or the Guarantor or any other Person or any of their respective properties or creditors, or any action taken by any trustee or receiver or by any court in any such proceeding (including, without limitation, any automatic stay incident to any such proceeding); (g) any limitation on the liability or obligations of the Lessee or the Guarantor under any Operative Document or any other instrument or agreement, which may now or hereafter be imposed by any statute, regulation, rule of law or otherwise, or any discharge, termination, cancellation, frustration, irregularity, invalidity or unenforceability, in whole or in part, of any thereof; (h) any sale, lease or transfer of any of the assets of the Lessee or the Guarantor to any other Person; (i) to the extent permitted by applicable Law, any release or discharge, by operation of law, of the Lessee or the Guarantor from the performance or observance of any obligation, covenant or agreement contained in any Operative Document; (j) any suit or other action brought by any beneficiaries or creditors of, or by, the Lessee, the Guarantor or any other Person for any reason whatsoever, including without limitation any suit or action in any way attacking or involving any issue, matter or thing in respect of any Operative Document; (k) any lack or limitation of status or of power, incapacity or disability of the Lessee or the Guarantor or any trustee or agent thereof; (l) any failure, omission or delay on the part of CIT to enforce, assert or exercise any right, power or remedy conferred on it in any Operative Document, or any such failure, omission or delay on the part of CIT in connection with any Operative Document or any other action or inaction on the part of CIT; or (m) any other occurrence, circumstance, happening or event whatsoever, whether similar or dissimilar to the foregoing, whether foreseen or unforeseen and any other circumstance which might otherwise constitute a legal or equitable defense, release or discharge (including the release or discharge of the liabilities of a guarantor or surety or which might otherwise limit recourse against the Lessee or the Guarantor, whether or not the Lessee or the Guarantor shall have notice or knowledge of the foregoing). SECTION 5. The Guarantor further agrees that its guaranty hereunder shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded, invalidated, declared to be fraudulent or preferential, or must otherwise be returned, refunded, repaid or restored by CIT upon the bankruptcy or reorganization of the Lessee or the Guarantor or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Lessee or the Guarantor, or otherwise, all as though such payments had not been made. SECTION 6. In furtherance of the foregoing and not in limitation of any other right which CIT has at law or in equity against the Guarantor by virtue hereof, upon the failure of the Lessee to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, the Guarantor hereby promises to and will, upon receipt of written demand by CIT, forthwith pay, or cause to be paid, to CIT, if and as appropriate, in cash the amount of such unpaid Obligation; PROVIDED, HOWEVER, that until the indefeasible payment in full of all the Obligations, the Guarantor shall not have any right by way of subrogation or otherwise as a result of the payment of any sums hereunder. The Guarantor agrees that it will never have, and hereby waives and disclaims, any claim or right against the Lessee by way of subrogation or otherwise in respect of any payment that the Guarantor may be required to make hereunder, to the extent that such claim or right would cause the Guarantor to be a "creditor" of the Lessee for purposes of Title 11 of the United States Code, as now or hereafter amended, or any other Federal, state or other bankruptcy, insolvency, receivership or similar Law, during the period of one year prior to filing of a petition thereunder by or against the Lessee. 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 CIT, segregated from other funds of the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to CIT in the exact form received by the Guarantor (duly endorsed by the Guarantor to CIT, if required), to be applied against the Obligations, whether matured or unmatured, in such order as CIT may determine. SECTION 7. The Guarantor agrees that, as between the Guarantor, on the one hand, and CIT, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in the Operative Documents for the purposes of the Guarantor's guaranty herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in the Operative Documents, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for purposes of this Agreement. SECTION 8. The Guarantor warrants and represents that: (a) The Guarantor is a corporation duly organized, validly existing and in good standing in the State of Delaware, is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in which the character of its property or the nature of its activities make such qualifications necessary other than those jurisdictions in which the failure to be so qualified would not have a materially adverse effect on its business or the performance of its obligations under the Operative Documents to which it is a party, and has all requisite corporate power and authority and all necessary licenses and permits to carry on its business as now conducted except for matters which are not material in the aggregate, to own and operate its assets and to enter into and perform its obligations under the Operative Documents to which it is a party. (b) The Operative Documents to which the Guarantor is a party have been duly authorized, executed and delivered by the Guarantor and constitute legal, valid and binding obligations of the Guarantor enforceable against the Guarantor in accordance with the respective terms thereof, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar Laws generally affecting creditors' rights, and general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). (c) The execution and delivery by the Guarantor of the Operative Documents to which it is a party and compliance by the Guarantor with all of the provisions thereof (i) are within the corporate powers of the Guarantor and all necessary corporate action has been taken to authorize the same, and (ii) do not and will not contravene any Law, governmental rule or regulation, or any order of any court or Governmental Authority or agency applicable to or binding on the Guarantor or contravene or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, its certificate of incorporation or its by-laws or any indenture, mortgage, contract or other agreement or instrument to which the Guarantor is a party or by which the Guarantor or any of its property may be bound or affected. (d) There are no proceedings pending or, to the knowledge of the Guarantor, threatened, and to the knowledge of the Guarantor there is no existing basis for any such proceedings, against or affecting the Guarantor or any of its subsidiaries in or before any court or before any Governmental Authority or arbitration board or tribunal which has a reasonably likelihood of being adversely determined and, if adversely determined might individually or in the aggregate materially and adversely affect the business, prospects, profits or condition (financial or otherwise) of the Guarantor and its subsidiaries taken as a whole or impair the ability of the Guarantor to execute, deliver and perform its obligations under the Operative Documents to which it is a party. (e) No authorization, approval, consent or other action by, and no notice to or filing with, any Person or any Governmental Authority or regulatory body is required for the due execution, delivery and performance by the Guarantor of the Operative Documents to which it is a party. (f) The Guarantor's chief executive office (as defined in the Uniform Commercial Code as in effect in the applicable jurisdiction) and principal place of business, is 3731 Wilshire Boulevard, 10th Floor, Los Angeles, California 90010. (g) The Guarantor is solvent, able to meet its debts as they become due, and the fair market value of its assets exceeds the aggregate amount of its debts and liabilities as they become due, and the consummation of the transactions contemplated hereby and in the Operative Documents to which it is a party will not adversely affect the financial condition of the Guarantor. (h) All tax returns required to be filed by the Guarantor and its subsidiaries in any jurisdiction have in fact been filed, and each of the Guarantor and its subsidiaries has paid or caused to be paid all taxes, assessments, fees and other governmental charges which have become due pursuant to such returns or pursuant to any assessment received by it; PROVIDED, HOWEVER, that such payment shall not be required with respect to any such tax, assessment, fee or other governmental charge so long as (i) the validity, amount or applicability thereof shall be contested in good faith by appropriate proceedings and the Guarantor or such subsidiary, as applicable, shall set aside on its books adequate reserves as required by generally accepted accounting principles with respect thereto or (ii) in the case of any such tax, assessment, fee or other governmental charge, such payment may lawfully be made at a later date without incurring a material penalty or material obligation to pay interest with respect thereto. The Guarantor does not have any knowledge of any actual or proposed deficiency or additional assessment in conjunction therewith which either in any case or in the aggregate would be materially adverse to the Guarantor or any of its subsidiaries and the charges, accruals and reserves on the books of the Guarantor and its subsidiaries in respect of Federal, state, local or foreign taxes for all such years, and for the current fiscal year, make adequate provision for all unpaid tax liabilities for such periods. (i) The audited consolidated financial statements of the Guarantor and its subsidiaries as at June 30, 1995 and for the twelve-month period ended on such date and the 10-Q for the six months ended December 31, 1995, certified by the chief financial officer of the Guarantor, copies of which have heretofore been furnished to CIT, are complete and correct and present fairly the consolidated financial condition of the Guarantor and its subsidiaries as at December 31, 1995 and the consolidated results of their operations and changes in their financial position for the fiscal quarter period then ended (subject to normal year-end audit adjustments). Such financial statements, including the related schedules and notes thereto, have been prepared in accordance with generally accepted accounting principles. None of the Guarantor or any of its subsidiaries has any material contingent liability or liability for taxes, long-term lease or forward or long-term commitment except as set forth in the financial statements of the Guarantor for the fiscal quarter ended December 31, 1995 or as arising in the ordinary course of business (which liabilities, either alone nor in the aggregate, have a material adverse effect on the business, operations, assets, financial or other condition of the Guarantor and its subsidiaries taken as a whole). (j) Since December 31, 1995 there has been no material adverse change in the business, operations, assets or financial or other condition of the Guarantor and its subsidiaries taken as a whole, as such condition was reflected in the financial statements dated June 30, 1995 for the twelve (12) month period then ended. (k) The Guarantor 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. (l) All representations and warranties contained in any of the Operative Documents which were made by the Guarantor are true and correct on and as of the date hereof and will be true and correct in all material respects on the Acceptance Date as though made on such date. SECTION 9. The Guarantor covenants that it will: (a) Furnish to CIT (i) annual consolidated balance sheets and profit and loss statements of Guarantor and its subsidiaries, which financial reports of Guarantor and its subsidiaries shall be accompanied, at CIT's request, by the audit report of Guarantor's certified public accountant within one-hundred twenty (120) days after the end of each fiscal year; and (ii) quarterly during the term of this Agreement, Guarantor's 10-Q filing as filed with the Securities and Exchange Commission within ninety (90) days after the end of each fiscal quarter. (b) Furnish to CIT (i) concurrently with the delivery of the financial statements referred to in Sections 9(a)(i) and 9(a)(ii), a certificate of the chief financial officer of the Guarantor stating that, to the best of his knowledge, the Guarantor during the period covered by such financial statements has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Operative Documents to be observed, performed or satisfied by it, and that such person has obtained no knowledge of any Default or Event of Default except as specified in such certificate; and (ii) promptly, such additional financial and other information (whether concerning the Guarantor or otherwise) as CIT may from time to time reasonably request. (c) Continue to engage in business of the same general type as now conducted by it, preserve, renew and keep in full force and affect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; and comply with all contractual obligations and applicable Law except to the extent that the failure to comply therewith would not, in the aggregate, have a material adverse effect on the business, operations, property or financial or other condition of the Guarantor and its subsidiaries taken as a whole or upon its ability to perform its obligations hereunder. (d) Promptly give notice to CIT (i) of any litigation or proceeding affecting the Guarantor (A) in which the amount involved is $1,000,000 or more and not covered by insurance or (B) in which injunctive or similar relief is sought; (ii) of the occurrence of any Default or Event of Default or Event of Loss; (iii) of any (A) default or event of default under any material contractual obligation of the Guarantor, or (B) litigation, investigation or proceeding that may exist at any time between the Guarantor and any Governmental Authority that has a reasonable likelihood of being adversely determined and if adversely determined would have a material adverse effect on the business, operations, property or financial or other condition of the Guarantor; and (iv) of any material adverse change in the business, operations, property or financial or other condition of the Guarantor and its subsidiaries taken as a whole. Each such notice shall be accompanied by a statement of the President or a Vice President of the Guarantor setting forth details of the occurrence referred to therein and stating what action the Guarantor proposes to take with respect thereto. (e) Not merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or any substantial part of its assets (whether now owned or hereafter acquired) unless the surviving or resulting corporation or the Person acquiring such assets, as the case may be, (i) has the same or greater net worth (determined in accordance with generally accepted accounting principles) after such merger, consolidation or sale as the Guarantor immediately prior to such merger, consolidation or sale, (ii) assumes in writing all of the obligations and liabilities of the Guarantor under this Agreement and the other Operative Documents to which it is a party by an instrument reasonably satisfactory in form and substance to CIT (unless, in the case of a merger, the Guarantor is the surviving corporation) and (iii) delivers a written opinion of counsel addressed to CIT, which counsel shall be reasonably satisfactory to CIT, to the effect that, after giving effect to such merger, consolidation or sale, as the case may be, each Operative Document to which the Guarantor is a party will constitute the legal, valid and binding obligation of the surviving or resulting corporation or the Person acquiring such assets, as the case may be, enforceable against such corporation or Person, as the case may be, in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar Laws affecting creditors' rights generally from time to time in effect and except as enforceability may be limited by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and such opinion shall also cover such other matters as may be reasonably requested by CIT; PROVIDED, HOWEVER, nothing in this paragraph (e) shall prohibit the Guarantor from merging into or consolidating with any of its Affiliates or permitting any of its Affiliates to merge into or consolidate with it or from selling, transferring, leasing or otherwise disposing of (in one transaction or a series of transactions) all or any substantial part of its assets to any of its Affiliates. SECTION 10. The guaranties made hereunder shall survive and be in full force and effect so long as any Obligation is outstanding and has not been indefeasibly paid and shall be reinstated to the extent provided in Section 5. SECTION 11. This Agreement and the terms, covenants and conditions hereof shall be binding upon the Guarantor and its successors and shall inure to the benefit of CIT and its successors and assigns. The Guarantor shall not be permitted to assign or transfer any of its rights or obligations under this Agreement, except as expressly contemplated by this Agreement or the other Operative Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party. CIT may without notice to the Guarantor assign or otherwise transfer any and all of its rights hereunder to any other person or entity which CIT has assigned its rights to under the Operative Documents, and such other person or entity shall thereupon become vested with all the benefits in respect hereof granted to CIT herein. SECTION 12. No failure on the part of CIT to exercise, and no delay in exercising, any right, power or remedy hereunder or under any Operative Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy by CIT preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder and under the other Operative Documents are cumulative and are not exclusive of any other remedies provided by Law. CIT shall not be deemed to have waived any rights hereunder or under any other agreement or instrument unless such waiver shall be in writing and signed by CIT. SECTION 13. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF. SECTION 14. All notices and other communications provided for herein shall be in writing and shall be personally delivered or sent by registered or certified mail, postage prepaid, or by prepaid telex, TWX, telegram or telecopier (with messenger delivery specified in the case of a telegram, and in the case of a telex, TWX, telegram or telecopier, to be confirmed by registered or certified mail, postage prepaid) or by prepaid courier service, and shall be deemed to have been given (unless otherwise required by the specific provisions hereof in respect to any matter) when delivered personally or otherwise actually received at their addresses set forth beneath their respective signatures below or at such other address as any such Person may designate by notice duly given in accordance with this Section 14 to the other parties. SECTION 15. In case any one or more of the provisions contained in this Agreement should be held invalid, illegal, prohibited or unenforceable in any respect, no party hereto shall be required to comply with such provisions for so long as such provision is held to be invalid, illegal, prohibited or unenforceable and the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired. The parties shall endeavor in good-faith negotiations to replace any invalid, illegal, prohibited or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal, prohibited or unenforceable provisions. SECTION 16. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. This Agreement shall be effective with respect to the Guarantor when a counterpart which bears the signature of the Guarantor shall have been delivered to CIT. SECTION 17. No term, covenant, agreement or condition of this Agreement may be amended or compliance herewith waived (either generally or in a particular instance and either retroactively or prospectively) except by one or more written instruments signed by CIT and, in the case of any amendment, by the Guarantor, PROVIDED, HOWEVER, no such waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. SECTION 18. If an Event of Default shall have occurred and be continuing under any Operative Document, CIT is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all indebtedness at any time owing by CIT to or for the credit or the account of the Guarantor against any of and all the obligations of the Guarantor now or hereafter existing under this Agreement irrespective of whether or not CIT shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of CIT under this Section 18 are in addition to other rights and remedies (including other rights of setoff) which CIT may have. SECTION 19. If default shall be made in the performance of any of the Obligations, the Guarantor will also pay to CIT such amounts, to the extent lawful, as shall be sufficient to pay the costs and expenses of collection or of otherwise enforcing any of CIT's rights under this Agreement, including reasonable fees and disbursements of counsel. SECTION 20. The guaranties of the Guarantor hereunder are continuing guaranties and shall apply to the Obligations whenever arising. Each default in the payment or performance of any of the Obligations shall give rise to a separate claim and cause of action hereunder, and separate claims or suits may be made and brought, as the case may be, hereunder as each such default occurs. The Guarantor will from time to time deliver, upon the reasonable request of CIT, an acknowledgment, reasonably satisfactory to CIT of the Guarantor's continued liability hereunder. SECTION 21. Any legal action or proceeding against the Guarantor with respect to this Agreement or any other Operative Document may be brought in such of the courts of competent jurisdiction of the State of New York in The City of New York or in the United States District Court for the Southern District of New York as CIT or its respective successors and assigns, as the case may be, may elect, and by execution and delivery of this Agreement and the other Operative Documents to which it is a party, the Guarantor irrevocably submits to the non-exclusive jurisdiction of such courts, and to appellate courts therefrom, for purposes of legal actions and proceedings hereunder and, in the case of any such legal action or proceeding brought in the above-named New York courts, hereby irrevocably consents, during such time, to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered mail, postage prepaid, to the Guarantor at its address as provided herein, or by any other means permitted by applicable Law. If it becomes necessary for the purpose of service of process out of any such courts, the Guarantor shall take all such action as may be required to authorize a special agent to receive, for and on behalf of it, service of process in any such legal action or proceeding, and shall take all such action as may be necessary to continue said appointment in full force and effect so that the Guarantor will at all times have an agent for service of process for the above purposes in New York, New York. To the extent permitted by Law, final judgment (a certified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Guarantor to CIT) against the Guarantor in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on an unsatisfied judgment. TO THE EXTENT THAT THE GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY OF THE ABOVE-NAMED COURTS OR FROM ANY LEGAL PROCESS THEREIN, THE GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY, AND THE GUARANTOR HEREBY IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY LEGAL ACTION OR PROCEEDING BROUGHT HEREUNDER IN ANY OF THE ABOVE-NAMED COURTS (I) ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, (II) THAT IT OR ANY OF ITS PROPERTY IS IMMUNE FROM THE ABOVE DESCRIBED LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, OR OTHERWISE), (III) THAT SUCH ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT VENUE FOR THE ACTION OR PROCEEDING IS IMPROPER OR THAT THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH COURTS, OR (IV) ANY DEFENSE THAT WOULD HINDER OR DELAY THE LEVY, EXECUTION OR COLLECTION OF ANY AMOUNT TO WHICH EITHER PARTY HERETO IS ENTITLED PURSUANT TO A FINAL JUDGMENT OF ANY COURT HAVING JURISDICTION. NOTHING IN THIS SECTION 21 SHALL LIMIT ANY RIGHT OF CIT TO BRING ACTIONS, SUITS OR PROCEEDINGS IN THE COURTS OF ANY OTHER JURISDICTION. THE GUARANTOR EXPRESSLY ACKNOWLEDGES THAT THE FOREGOING WAIVER IS INTENDED TO BE IRREVOCABLE AND HEREBY WAIVES ANY RIGHT WHICH IT MAY HAVE TO REQUEST A TRIAL BY JURY IN ANY ACTION RELATING TO THE OPERATIVE DOCUMENTS. SECTION 22. The Guarantor does hereby irrevocably appoint the New York, New York office of CT Corporation as its agent for the purpose of service of process in any action, suit, or proceeding arising out of this Agreement or the subject matter hereof or any transaction contemplated herein. A copy of any such process served on such agent shall be promptly forwarded by air courier by the person commencing such proceeding to Guarantor at its address set forth on the signature page hereof, but the failure of Guarantor to receive such copies shall not affect in any way the service of such process as aforesaid. Guarantor further irrevocably consents to the service of process out 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 Guarantor at its address set forth on the signature page hereof. Nothing herein shall affect the right to serve process in any other manner permitted by Law or shall limit the right of CIT to bring proceedings against the Guarantor in the courts of any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have duly executed this Guaranty as of the day and year first above written. AAMES FINANCIAL CORPORATION By: /s/ John F.P. Lamb --------------------------------------------- Name: ------------------------------------------- Title: General Counsel Address for Notices: 3731 Wilshire Boulevard, 10th Floor Los Angeles, California 90010 Attention: Gregory J. Witherspoon Telephone: 213-351-6153 Telecopier: 213-380-9365 With a copy to: 3731 Wilshire Boulevard, 10th Floor Los Angeles, California 90010 Attention: John F. P. Lamb, Esq. General Counsel Telephone: 213-351-7577 Telecopier: 213-487-5184 C.I.T. LEASING CORPORATION By: /s/ John F.P. Lamb ------------------------------------------- Name: John F.P. Lamb Title: General Counsel. Address for Notices: 1620 West Fountainhead Parkway Suite 600 Tempe, Arizona 85282 Attention: Vice President, Credit Telecopy No.: 602-858-1496 With a copy to: The CIT Group/Industrial Financing 650 CIT Drive Livingston, New Jersey 07039 Attention: Chief Credit Officer Telecopy No. 201-740-5005 EX-27.01 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 42,814,000 0 153,997,000 425,000 62,085,000 258,471,000 6,953,000 2,745,000 262,679,000 24,644,000 138,000,000 9,000 0 0 100,026,000 262,679,000 84,310,000 84,310,000 12,430,000 12,430,000 31,529,000 0 5,303,000 35,048,000 14,713,000 20,335,000 0 0 0 20,335,000 2.19 2.15
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