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EXHIBIT 10.5
AAMES FINANCIAL CORPORATION
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT, dated as of June 1, 1997, by and between Aames Financial
Corporation, a Delaware corporation located at 000 Xxxxx Xxxxx Xxxxxx, Xxx
Xxxxxxx, Xxxxxxxxxx 00000 ("Corporation"), and Xxxx Xxxxxxxxxxx ("Executive").
WHEREAS, the Compensation Committee of the Board of Directors
("Committee") has determined that it would be in the best interest of the
Corporation and its stockholders to reinforce and encourage the continued
attention and dedication of the Executive as a member of the Corporation's
management without the distractions occasioned from the possibility of an abrupt
change in control of the Corporation;
WHEREAS, to induce Executive to give his continued attention and
dedication to his assigned duties in the event of a change in control of the
Corporation, the Corporation desires to provide Executive with certain benefits
and inducements;
WHEREAS, the Executive is willing to continue serving the Corporation in
accordance with the provisions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and obligations hereinafter set forth, the parties hereto
hereby agree as follows:
1. Operation of Agreement.
This Agreement sets forth the severance compensation which the
Corporation agrees it will pay to the Executive if the Executive's employment
with the Corporation terminates under one of the circumstances described herein
in connection with or following a Change in Control of the Corporation (as
defined herein). No compensation shall be payable under this Agreement unless
and until: (i) there shall have been a Change in Control of the Corporation and
(ii) the Executive's employment by the Corporation shall have been terminated in
accordance with Section 4. To the extent that the provisions of this Agreement,
or the benefits provided hereunder, conflict with any provisions of any existing
employment agreement between the Executive and the Corporation, this Agreement
shall supersede any such provisions in any such employment agreement.
2. Term.
This Agreement shall terminate, except to the extent that any
obligation of the Corporation hereunder remains unpaid as of such time, upon the
earliest of: (i) five (5) years from the date hereof if a Change in Control of
the Corporation has not occurred within such 5-year period; (ii) the termination
of the Executive's employment with the Corporation based on death or Permanent
Disability (as defined in Section
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4(b)), by the Corporation, or by the Executive other than for Good Reason (as
defined in Section 4(d)); (iii) two (2) years from the date of a Change in
Control of the Corporation if the Executive has not terminated his employment
for Good Reason as of such time; and (iv) prior to a Change in Control, in the
discretion of the Board of Directors ("Board"), upon the Executive's ceasing to
be an executive officer of the Corporation.
3. Change in Control.
For purposes of this Agreement, a Change in Control of the
Corporation shall mean the occurrence of any of the following:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (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 Corporation 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: (1) any acquisition by the Corporation or (2) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any corporation controlled by the Corporation; or
(b) Individuals who, as of the date hereof, constitute the Board
of Directors of the Corporation (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of the Corporation;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election or nomination for election by the stockholders of the
Corporation, shall be approved by a vote of at least a majority of the directors
then comprising 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 Corporation of a
reorganization, merger or consolidation, in each case, unless in connection with
such reorganization, merger or consolidation; (1) 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
Corporation (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; (2) no Person (excluding the Corporation, any employee benefit
plan (or related trust) of the Corporation, the Resulting Corporation and any
Person beneficially owning, immediately
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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 (3) 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 Corporation of (1) a
complete liquidation or dissolution of the Corporation or (2) sale or other
disposition of all or substantially all of the assets of the Corporation, 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 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 Corporation and any employee
benefit plan (or related trust) of the Corporation 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 of the 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 Corporation.
4. Termination Following Change in Control.
(a) If a Change in Control of the Corporation shall have occurred
while the Executive is still an employee of the Corporation, (or the Board
adopts a resolution to the effect that a potential Change in Control for
purposes of this Agreement has occurred), then the Executive shall be entitled
to the compensation provided in Section 5 upon the termination of the
Executive's employment by the Corporation or by the Executive, unless such
termination is as a result of: (i) the Executive's death; (ii) the Executive's
Permanent Disability (as defined in Section 4(b) below); (iii) the Executive's
termination by the Corporation for Cause (as defined in Section 4(c) below); or
(iv) the Executive's decision to terminate employment other than for Good Reason
(as defined in Section 4(d) below).
(b) Permanent Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties with the Corporation on a full-time basis for six (6)
months and within thirty (30) days after written notice of termination is
thereafter given by the Corporation, the Executive shall not have returned to
the full-time performance of the Executive's duties, the
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Corporation may terminate this Agreement based on the Executive's "Permanent
Disability."
(c) Cause. For purposes of this Agreement, the termination of the
Executive's employment shall be deemed to have been for "Cause" only if
termination of his employment shall have been the result of an act of fraud,
embezzlement, gross dishonesty or similar conduct by Executive involving the
Corporation; any action by Executive involving the arrest of Executive, for
violation of any criminal statute consisting of a felony if the Board reasonably
determines that the continuation of Executive's employment after such event
would have an adverse impact on the operations or reputation of the Corporation
in the financial community; or continued insubordination or refusal by Executive
to perform his duties hereunder in any manner deemed to be reasonably
satisfactory to the CEO. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for Cause under this clause unless and until
there shall have been delivered to the Executive a Notice of Termination (as
defined in Section 4(f)).
(d) Good Reason. The Executive may terminate his employment by
the Corporation for Good Reason at any time following a Change in Control during
the term of this Agreement. For purposes of this Agreement, "Good Reason" shall
mean any of the following:
(i) the assignment to the Executive of any duties
materially inconsistent with, or any substantial diminution of, the Executive's
positions, duties, responsibilities and status with the Corporation immediately
prior to a Change in Control, or a significant adverse alteration in the nature
of the Executive's reporting responsibilities, titles, or offices as in effect
immediately prior to a Change in Control, or any removal of the Executive from
any such positions, except in connection with a termination of the employment of
the Executive for Cause, Permanent Disability, or as a result of the Executive's
death or by the Executive other than for Good Reason;
` (ii) a reduction by the Corporation in the Executive's
base salary in effect immediately prior to a Change in Control;
(iii) failure by the Corporation to continue in effect
(without substitution of a substantially equivalent plan) any compensation
plan, bonus or incentive plan, stock purchase plan, stock option plan,
life insurance plan, health plan, disability plan or other benefit plan or
arrangement in which the Executive is participating at the time of a
Change in Control, or the taking of any action by the Corporation which
would adversely affect Executive's participation in or materially reduce
Executive's benefits under any of such plans;
(iv) any material breach by the Corporation of any
provision of this Agreement;
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(v) following a Change in Control, the Executive is
excluded (without substitution of a substantially equivalent plan) from
participation in any incentive, compensation, stock option, health, dental,
insurance, pension or other benefit plan generally made available to persons at
Executive's level of responsibility in the Corporation;
(vi) without the Executive's express written consent,
the requirement by the Corporation that the Executive's principal place of
employment be relocated more than twenty-five (25) miles from his place of
employment prior to the Change in Control; or
(vii) the Corporation's failure to obtain a satisfactory
agreement from any successor to assume and agree to perform the Corporation's
obligations under this Agreement, as contemplated in Section 7(a) hereof.
(e) Notice of Good Reason. If Executive believes that he is
entitled to terminate his employment with the Corporation for Good Reason, as
defined in Section 4(d) above, he may apply in writing to the Corporation for
confirmation of such entitlement prior to the Executive's actual separation from
employment, by following the claims procedure set forth in Section 10 hereof.
Executive shall continue to receive all compensation and benefits he was
receiving at the time of such submission throughout the resolution of the matter
pursuant to the procedures set forth in Section 10 hereof. If the Executive's
request for a termination of employment for Good Reason is denied under both the
request and appeal procedures set forth in Sections 10(b) and (c) hereof, then
the parties shall use their best efforts to resolve the claim within ninety (90)
days after the claim is submitted to binding arbitration pursuant to Section
10(d).
(f) Notice of Termination. Any termination of the Executive's
employment by the Corporation or by the Executive (other than termination based
on the Executive's death) following a Change in Control shall be communicated by
a written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. For purposes of this Agreement, no purported termination shall be
effective without the delivery of such Notice of Termination.
(g) Date of Termination. "Date of Termination" following a Change
in Control shall mean (i) if the Executive is terminated by his death, the date
of his death, (ii) if the Executive's employment is terminated due to a
Permanent Disability, thirty (30) days after the Notice of Termination is given
(provided that the Executive shall not have returned to the performance of his
duties on a full-time basis during such period), (iii) if the Executive's
employment is terminated pursuant to a termination for Cause, the date
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specified in the Notice of Termination, and (iv) if the Executive's employment
is terminated for any other reason, the date shall be the later of thirty (30)
days after termination as provided by the Notice of Termination or the date of
the final resolution of the arbitration and claims procedures set forth in
Section 10 hereof, unless otherwise agreed by the Executive and Corporation or
otherwise provided in this Agreement.
5. Termination Benefits.
If the Executive shall be terminated from employment with the
Corporation as described in Section 4(a) such that Executive is entitled to the
compensation set forth in this Section 5, then the Executive shall be entitled
to receive the following severance benefits:
(a) Severance Payment. In lieu of any further payments to the
Executive including any payments to which the Executive would be entitled under
any existing employment agreement, the Corporation shall pay as severance pay to
the Executive an amount equal to the compensation that Executive would have
received for a twenty-four (24) month period (the "payment period") at an
annualized rate equal to the higher of the rate in effect immediately prior to
the Change in Control or the rate in effect on the date of the Notice of
Termination. Such cash payment shall be payable in a single sum, within 10
business days following the Executive's Date of Termination.
(b) Incentive Awards. The Executive shall receive a cash payment
in a single sum, within 10 business days following the Executive's Date of
Termination, in the amount equal to the bonus paid to the Executive with respect
to the eight fiscal quarters preceding the Date of Termination (or if the
Executive has been participating in such bonus plan for less than two years, the
amount of the incentive award paid to Executive under such plan 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 participated
in such plan before the Date of Termination). The method of calculating any
bonus under such plan shall be adjusted and/or weighted in such manner as is
appropriate and equitable to reflect partial year results and the Corporation's
historical operating results, including rates of growth and seasonability.
(c) Gross-Up Payments. In the event that any payment or the value
of any benefit received or to be received by the Executive pursuant to the terms
of this Agreement (the "Agreement Payments") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
comparable federal, state or local excise tax (such excise tax, together with
any interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), as determined as provided below, the Corporation shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of the Excise Tax on Agreement
Payments and any federal, state and local income tax and Excise Tax upon the
payment provided for by this Section 5(d), and any interest,
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penalties or additions to tax payable by the Executive with respect thereto,
shall be equal to the total present value of the Agreement Payments at the time
such Payments are to be made. The intent of the parties is that the Corporation
shall be solely responsible for, and shall pay, any Excise Tax on any Agreement
Payments and Gross-Up Payment and any income and employment taxes (including,
without limitation, penalties and interest) imposed on any Gross-Up Payments as
well as any loss of deduction caused by the Gross-Up Payment.
6. No Mitigation.
The Executive shall not be required to mitigate the amount of any
payments provided for by this Agreement by seeking employment or otherwise, nor
shall the amount of any cash payments or benefit provided under this Agreement
be reduced by any compensation or benefit earned by the Executive after his Date
of Termination.
7. Successors.
(a) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation, by agreement
in form and substance reasonably satisfactory to the Executive, to expressly
assume and agree to perform the obligations of the Corporation under this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform this Agreement if no such succession had taken place.
Failure of the Corporation to obtain such agreement prior to the effective date
of any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Corporation in the same amount and on the
same terms as he would be entitled to receive hereunder if he terminated his
employment for Good Reason following a Change in Control, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Corporation" shall mean the Corporation as hereinabove defined and
any successor to its business and/or assets as aforesaid, which successor
executes and delivers the agreement provided for in this Section 7(a) or which
otherwise becomes bound by the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die after his
termination while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
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8. Notices.
Any notice required or permitted by this Agreement shall be in
writing, delivered by hand, or sent by registered or certified mail, return
receipt requested, or by recognized courier service (regularly providing proof
of delivery), addressed to the Committee and the Corporation at the
Corporation's then principal office, or to the Executive at the address set
forth under the Executive's signature below, as the case may be, or to such
other address or addresses as any party hereto may from time to time specify in
writing for the purpose in a notice given to the other parties in compliance
with this Section 8. Notices shall be deemed given when received.
9. Limitation on Rights.
(a) This Agreement shall not be deemed to create a contract of
employment between the Corporation and the Executive and shall create no right
in the Executive to continue in the Corporation's employment for any specific
period of time, or to create any other rights in the Executive or obligations on
the part of the Corporation, except as set forth herein. Except as set forth
herein, this Agreement shall not restrict the right of the Corporation to
terminate the Executive, or restrict the right of the Executive to terminate his
employment.
(b) This Agreement shall not be construed to exclude the
Executive from participation in any other compensation or benefit programs in
which he is specifically eligible to participate either prior to or following
the execution of this Agreement, or any such programs that generally are
available to other executive personnel of the Corporation, nor shall it affect
the kind and amount of other compensation to which the Executive is entitled.
10. Administrator and Claims Procedure.
(a) The Administrator for purposes of this Agreement shall be the
Board of Directors of the Corporation. The Board shall have the right to
designate one or more Corporation employees as the Administrator at any time.
The Corporation shall give the Executive written notice of any change in the
Administrator, or in the address or telephone number of the same.
(b) The Executive, or other person claiming through the
Executive, must file a written claim for benefits with the Administrator as a
prerequisite to the payment of benefits under this Agreement. The Administrator
shall make all determinations as to the right of any person to receive benefits
under subsections (b) and (c) of this Section 10. Any denial by the
Administrator of a claim for benefits by the Executive, his heirs or personal
representative ("the claimant") shall be stated in writing by the Administrator
and delivered or mailed to the claimant within 10 days after receipt of the
claim, unless special circumstances require an extension of time for processing
the
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claim. If such an extension is required, written notice of the extension shall
be furnished to the claimant prior to the termination of the initial 10-day
period. In no event shall such extension exceed a period of 10 days from the end
of the initial period. Any notice of denial shall set forth the specific reasons
for the denial, specific reference to pertinent provisions of this Agreement
upon which the denial is based, a description of any additional material or
information necessary for the claimant to perfect his claim, with an explanation
of why such material or information is necessary, and any explanation of claim
review procedures, written to the best of the Administrator's ability in a
manner that may be understood without legal or actuarial counsel.
(c) A claimant whose claim for benefits has been wholly or
partially denied by the Administrator may request, within 10 days following the
date of such denial, in a writing addressed to the Administrator, a review of
such denial. The claimant shall be entitled to submit such issues or comments in
writing or otherwise as he shall consider relevant to a determination of his
claim, and he may include a request for a hearing in person before the
Administrator. Prior to submitting his request, the claimant shall be entitled
to review such documents as the Administrator shall agree are pertinent to his
claim. The claimant may, at all stages of review, be represented by counsel,
legal or otherwise, of his choice, provided that the fees and expenses of such
counsel shall be borne by the claimant, unless the claimant is successful, in
which case, such costs shall be borne by the Corporation. All requests for
review shall be promptly resolved. The Administrator's decision with respect to
any such review shall be set forth in writing and shall be mailed to the
claimant not later than 10 days following receipt by the Administrator of the
claimant's request unless special circumstances, such as the need to hold a
hearing, require an extension of time for processing, in which case the
Administrator's decision shall be so mailed not later than 20 days after receipt
of such request.
(d) A claimant who has followed the procedure in subsections (b)
and (c) of this section, but who has not obtained full relief on his claim for
benefits, may, within 60 days following his receipt of the Administrator's
written decision on review, apply in writing to the Administrator for expedited
and binding arbitration of his claim before an arbitrator in Los Angeles County,
California, in accordance with the commercial arbitration rules of the American
Arbitration Association, as then in effect, or pursuant to such other form of
alternative dispute resolution as the parties may agree (collectively, the
"arbitration"). The arbitrator's sole authority shall be to interpret and apply
the provisions of this Agreement; he shall not change, add to, or subtract from,
any of its provisions. The arbitrator shall have the power to compel attendance
of witnesses at the hearing. Any court having jurisdiction may enter a judgment
based upon such arbitration. The arbitrator shall be appointed by mutual
agreement of the Corporation and the claimant pursuant to the applicable
commercial arbitration rules. The arbitrator shall be a professional person with
a reputation in the community for expertise in employee benefit matters and who
is unrelated to the claimant and any employees of the Corporation. All decisions
of the arbitrator shall be final and binding on the claimant and the
Corporation.
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11. Legal Fees and Expenses.
If any dispute arises between the parties with respect to the
interpretation or performance of this Agreement, the prevailing party in any
arbitration or proceeding shall be entitled to recover from the other party its
attorneys' fees, arbitration or court costs and other expenses incurred in
connection with any such proceeding. Amounts, if any, paid to Executive under
this Section 11 shall be in addition to all other amounts due to Executive
pursuant to this Agreement.
12. Non-Alienation of Benefits.
Except insofar as this provision may be contrary to applicable
law, no sale, transfer, alienation, assignment, pledge, collateralization or
attachment of any benefits under this Agreement shall be valid or recognized by
the Corporation.
13. ERISA.
This Agreement is an unfunded compensation arrangement for a
member of a select group of the Corporation's management and any exemptions
under the Employee Retirement Income Security Act of 1974, as amended, as
applicable to such an arrangement, shall be applicable to this Agreement.
14. Executive Acknowledgment.
Executive acknowledges that he has consulted with or has had the
opportunity to consult with independent counsel of his choice concerning this
Agreement, that he has read and understands this Agreement and is fully aware of
its legal effect.
15. Miscellaneous.
This Agreement contains the entire agreement of the parties
relating to the subject matter hereof and supersedes any prior written or oral
agreements or understandings relating to the subject matter hereof. No
modification, amendment or waiver of a breach of this Agreement shall be valid
unless in writing and signed by or on behalf of the parties hereto. A waiver of
the breach of any term or condition of this Agreement shall not be deemed to
constitute a waiver of any subsequent breach of the same or any other term or
condition. This Agreement is intended to be performed in accordance with, and
only to the extent permitted by, all applicable laws, ordinances, rules and
regulations. If any provisions of this Agreement, or the application thereof to
any person or circumstance, shall, for any reason and to any extent, be held
invalid or unenforceable, such invalidity and unenforceability shall not affect
the remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. Subject to the provisions of Section 5(d), the compensation
provided to the Executive
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pursuant to this Agreement shall be subject to any withholdings and deductions
required by any applicable tax laws. The headings in this Agreement are inserted
for convenience of reference only and shall not be a part of or control or
affect the meaning of any provision hereof. For purposes hereof, the masculine
gender shall be deemed to include the feminine gender, as appropriate. This
Agreement may be executed in one or more counterparts and each counterpart shall
be deemed an original but all counterparts together shall constitute one
instrument.
16. Governing Law.
This Agreement shall be governed and construed in accordance with
the internal laws of the State of California. The parties agree that any suit or
proceeding arising out of this Agreement shall be brought and maintained
exclusively in the federal or state courts located in such state, and each of
the parties hereby irrevocably submits to the exclusive jurisdiction and venue
of such courts.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
EXECUTIVE: AAMES FINANCIAL
CORPORATION:
/s/ Xxxx Xxxxxxxxxxx By:/s/ Xxxx X. Xxxxxxxx
-------------------------------- --------------------------------
Xxxx Xxxxxxxxxxx Xxxx X. Xxxxxxxx
Address: Chief Executive Officer
00000 Xxxxxxxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
