<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
AAMES FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
AAMES FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 19, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Aames Financial Corporation (the "Company") will be held at the
Hotel Inter-Continental, 251 S. Olive Street, Los Angeles, California 90012, on
Wednesday, November 19, 1997, at 3:00 p.m., Los Angeles time, for the following
purposes:
1. To elect three Class I directors to hold office for three
years and until such directors' successors are elected;
2. To approve the adoption of the Company's 1997 Stock Option
Plan;
3. To ratify the appointment of Price Waterhouse LLP as the
Company's independent accountants for the fiscal year ending
June 30, 1998; and
4. To transact such other business as may properly come before
the Meeting and any adjournment(s) thereof.
Only stockholders of record of the Company at the close of business on
October 3, 1997 are entitled to notice of and to vote at the Meeting and
adjournment(s) thereof.
All stockholders are cordially invited to attend the Meeting in person.
However, to ensure your representation at the Meeting, you are urged to mark,
sign and return the enclosed Proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any stockholder attending the
Meeting may vote in person, even though he or she has returned a Proxy.
By Order of the Board of Directors
/s/ Barbara S. Polsky
Barbara S. Polsky
Secretary
Los Angeles, California
October 10, 1997
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE> 3
AAMES FINANCIAL CORPORATION
350 S. Grand Avenue
Los Angeles, California 90071
(213) 640-5000
-------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 19, 1997
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of Proxies by the Board of Directors of Aames Financial Corporation, a Delaware
corporation (the "Company"), for use at the 1997 Annual Meeting of Stockholders
(the "Meeting") to be held at the Hotel Inter-Continental, 251 S. Olive Street,
Los Angeles, California 90012, at 3:00 p.m., Los Angeles time, on Wednesday,
November 19, 1997, and at any adjournment(s) thereof.
It is anticipated that this Proxy Statement and the accompanying Proxy
will be mailed to stockholders on or about October 10, 1997.
At the Meeting, the stockholders of the Company will vote upon: (i) the
election of three Class I directors for a term of three years; (ii) the adoption
of the Aames Financial Corporation 1997 Stock Option Plan (the "1997 Plan");
(iii) the ratification of the appointment of Price Waterhouse LLP as the
Company's independent accountants for the fiscal year ending June 30, 1998; and
(iv) such other matters as may properly come before the Meeting and any and all
adjournments thereof.
A Proxy for use at the Meeting is enclosed. Any stockholder who
executes and delivers such Proxy has the right to revoke it at any time before
it is exercised by delivering to the Secretary of the Company an instrument
revoking it or a duly executed Proxy bearing a later date, or by attending the
Meeting and voting in person. Subject to such revocation, all shares represented
by a properly executed Proxy received in time for the Meeting will be voted by
the Proxy holders in accordance with the instructions on the Proxy. If no
instruction is specified with respect to a matter to be acted upon, the shares
represented by the Proxy will be voted (i) in favor of the election of the
nominees for director set forth herein, (ii) in favor of the adoption of the
1997 Plan, (iii) in favor of the ratification of the appointment of Price
Waterhouse LLP as the Company's independent accountants and (iv) if any other
business is properly presented at the Meeting, in accordance with the
recommendations of the Board of Directors.
The expenses of preparing, assembling, printing and mailing this Proxy
Statement and the materials used in the solicitation of Proxies will be borne by
the Company. It is contemplated that the Proxies will be solicited through the
mails, but officers, directors and regular employees of the Company may solicit
Proxies personally. Although there is no formal agreement to do so, the Company
may reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding the Proxy materials to
stockholders whose stock in the Company is held of record by such entities. In
addition, the Company may use the services of individuals or companies it does
not regularly employ in connection with the solicitation of Proxies if
management determines it advisable.
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<PAGE> 4
VOTING SECURITIES
The close of business on October 3, 1997 has been fixed as the record
date for the determination of stockholders entitled to notice of and to vote at
the Meeting and any adjournments thereof. At the record date, 27,774,575 shares
of the Company's Common Stock, par value $.001 per share (the "Common Stock"),
were outstanding. The Common Stock is the only outstanding class of securities
entitled to vote at the Meeting. At the record date, the Company had
approximately 189 stockholders of record. A stockholder is entitled to cast one
vote for each share of Common Stock held on the record date on all matters to be
considered at the Meeting. Abstentions and broker non-votes will be counted as
present for the purpose of determining if a quorum is present. Broker non-votes
occur when a broker holding customer securities in street name has not received
voting instructions from the customer on certain non-routine matters and,
therefore, is barred by rules of the New York Stock Exchange, Inc. ("NYSE") from
exercising discretionary authority to vote those securities.
In accordance with the laws of the State of Delaware and the Company's
Certificate of Incorporation and Bylaws, for election of directors, which
requires a plurality of the votes cast, only proxies and ballots indicating
votes "For all nominees," "Withhold authority to vote all nominees" or
specifying that votes be withheld from one or more designated nominees are
counted to determine the total number of votes cast, and broker non-votes are
not counted. Therefore, abstentions and broker non-votes have no effect on the
outcome of the election. For the adoption of all other proposals, which are
decided by a majority of the shares present in person or by proxy and entitled
to vote, only proxies and ballots indicating votes "For, "Against" or "Abstain"
on the proposal or providing the designated proxies with the right to vote in
their judgment and discretion on the proposal are counted to determine the
number of shares present and entitled to vote, and broker non-votes are not
counted. Thus abstentions have the same effect as a vote against a proposal but
broker non-votes have no effect on the outcome of the proposal.
ELECTION OF CLASS I DIRECTORS
In accordance with the Certificate of Incorporation and Bylaws of the
Company, the Board of Directors is divided into three classes. At each annual
meeting of stockholders, directors constituting one class are elected for
three-year terms. The Bylaws of the Company provide that the Board of Directors
shall consist of no fewer than three and no more than nine members as determined
from time to time by the Board of Directors. The Board of Directors currently
consists of three Class I directors with terms expiring in 1997, three Class II
directors with terms expiring in 1999 and three Class III directors with terms
expiring in 1998. At the Meeting, the Class I directors will be elected for a
term expiring at the year 2000 Annual Meeting. If the number of directors is
changed, any increase or decrease is to be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible.
Directors may be removed only with cause by the vote of a majority of the
stockholders then entitled to vote.
Unless otherwise instructed, the Proxy holders will vote the Proxies
received for the nominees named below. If any nominee is unable or unwilling to
serve as a director at the time of the Meeting or any adjournment thereof, the
Proxies will be voted for such other nominee(s) as shall be designated by the
current Board of Directors to fill any vacancy. The Company has no reason to
believe that such nominees will be unwilling or unable to serve if elected as
directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL
THE NOMINEES LISTED BELOW.
The Board of Directors proposes the election of the following nominees
as Class I directors:
George W. Coombe, Jr.
Neil B. Kornswiet
Georges C. St. Laurent, Jr.
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<PAGE> 5
If elected, each nominee is expected to serve until the year 2000
Annual Meeting of Stockholders. The affirmative vote of a majority of the shares
present in person or represented by Proxy at the Meeting and voting on the
election of the Class I directors is required for the election of the
above-named nominees.
MANAGEMENT
INFORMATION WITH RESPECT TO NOMINEES, CONTINUING DIRECTORS AND
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
nominees, continuing directors and executive officers of the Company as of
September 30, 1997:
<TABLE>
<CAPTION>
Year Term
Name Age Position Expires
---- --- -------- -------
<S> <C> <C> <C>
NOMINEES:
George W. Coombe, Jr. 71 Nominee N/A
Neil B. Kornswiet 40 President and Director, 1997
Chairman, Chief Executive Officer
and President of One Stop Mortgage, Inc.
("One Stop")
Georges C. St. Laurent, Jr. 61 Nominee N/A
CONTINUING DIRECTORS:
John C. Getzelman 54 Director 1999
Dennis F. Holt 61 Director 1998
Melvyn Kinder, Ph.D. 59 Director 1999
Lee Masters 45 Director 1998
Cary H. Thompson 41 Chief Executive Officer and 1999
Director
Gregory J. Witherspoon 51 Executive Vice President, 1998
Chief Financial Officer and Director
OTHER EXECUTIVE OFFICERS:
Mark E. Costello 47 Executive Vice President -
Loan Production
Mark E. Elbaum 34 Senior Vice President - Finance and
Chief Accounting Officer
Joseph Magnus 35 Executive Vice President -
Chief Credit Officer
Barbara S. Polsky 43 Executive Vice President,
General Counsel and Secretary
Daniel H. Relf 54 Executive Vice President -
Loan Services
</TABLE>
3
<PAGE> 6
The executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. There is no family relationship between
any director and any executive officer of the Company.
GEORGE W. COOMBE, JR. is a Senior Fellow at the Stanford Law School
teaching International Commercial Arbitration. From 1990 to 1995, Mr. Coombe was
a partner in the law firm of Graham & James and from 1975 to 1990, he was
Executive Vice President and General Counsel of Bank of America. From 1968 to
1975, Mr. Coombe served as Assistant General Counsel and Corporate Secretary of
General Motors Corporation.
NEIL B. KORNSWIET was elected a Director in September 1996. Mr.
Kornswiet founded One Stop in August 1995 and was its Chairman, Chief Executive
Officer and President from September 1995 through its acquisition by the Company
in August 1996. Mr. Kornswiet continues to serve as Chairman, Chief Executive
Officer and President of One Stop, now a wholly-owned subsidiary of the Company.
Mr. Kornswiet was also named an Executive Vice President of the Company in
September 1996 and President of the Company in May 1997. From 1992 to 1995, Mr.
Kornswiet was President of Quality Mortgage, a privately held mortgage banking
company. From 1983 to 1992, Mr. Kornswiet was a lawyer specializing in consumer
credit and other regulatory matters for financial institutions and mortgage
banking companies.
GEORGES C. ST. LAURENT, JR. is the former Chairman of the Board and
Chief Executive Officer of Western Bank, Oregon (1988 to 1997). Currently, Mr.
St. Laurent is a principal in various real estate, agricultural and forestry
related ventures and also serves as a director of Baxter International, Inc. and
The Perkin Elmer Corporation.
JOHN C. GETZELMAN was elected a director of the Company in July 1997.
Mr. Getzelman has been President and Chief Executive Officer of Community Bank
located in Pasadena, California since 1992. From 1988 to 1992, he served as
President and Chief Operating Officer and then Chairman and Chief Executive
Officer of the former Rainier Bank in Seattle, Washington. Prior to 1988, Mr.
Getzelman served in various domestic and international banking positions with
Security Pacific National Bank culminating as Executive Vice President and head
of International Banking.
DENNIS F. HOLT was elected a Director of the Company in December 1995.
Mr. Holt founded and is the President and Chief Executive Officer of Western
International Media Corporation, a media management company.
MELVYN KINDER, PH.D. was elected a Director of the Company in August
1996. Dr. Kinder is a clinical psychologist recognized for his innovative work
in social, family and professional relations. Dr. Kinder maintains a private
practice in Los Angeles and serves as co-director of Westbridge Psychiatric
Medical Group in Los Angeles.
LEE MASTERS was elected a director of the Company in July 1997. Since
1990, Mr. Masters has been President and Chief Executive Officer of E!
Entertainment Television, a cable programming service controlled by Comcast
Corp. and The Walt Disney Company. Prior to joining E! Entertainment Television,
he served as Executive Vice President of MTV, a subsidiary of Viacom, Inc.
CARY H. THOMPSON has served as a Director of the Company since January
1992. He was named Chief Operating Officer of the Company in March 1996 and
Chief Executive Officer of the Company in May 1997. From May 1994 until joining
the Company, Mr. Thompson served as Managing Director-Head of United States
Financial Institutions Group for NatWest Markets. From June 1989 to May 1994,
Mr. Thompson was Senior Vice President-Head of West Coast Financial Institutions
Group for Oppenheimer & Co. Mr. Thompson is also on the Board of Directors of
Fidelity National Financial, Inc., a title insurance company.
GREGORY J. WITHERSPOON is a certified public accountant and has been an
Executive Vice President of the Company since August 1994, Chief Financial
Officer of the Company since 1987 and a Director since 1991. From 1988 to 1994,
Mr. Witherspoon served as Senior Vice President - Finance and Administration of
the Company. Mr. Witherspoon joined the Company in 1987 as its Controller.
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<PAGE> 7
MARK E. COSTELLO joined the Company in March 1995 as Vice President -
Correspondent Lending. He was named Senior Vice President - Correspondent
Lending in October 1995 and Executive Vice President - Loan Production in May
1997. Prior to joining the Company, he was Director of Wholesale Lending for
Advanta Mortgage Corporation USA. From 1980 to 1993, Mr. Costello was a Vice
President with Citibank, New York, in the mortgage and consumer banking areas.
MARK E. ELBAUM is a certified public accountant and joined the Company
as Vice President - Finance in September 1992. Mr. Elbaum was named Senior Vice
President - Finance and Chief Accounting Officer in October 1995. From 1985
until joining the Company, Mr. Elbaum was an auditor with Price Waterhouse LLP,
serving as an audit manager beginning July 1990.
JOSEPH MAGNUS joined the Company in January 1997 as Senior Vice
President - Strategic Planning. In May 1997, he was named Executive Vice
President - Chief Credit Officer. Prior to joining the Company, he held various
position at Financial Guaranty Insurance Company in New York and most recently
served as Senior Risk Manager for the Research and Risk Management Department.
BARBARA S. POLSKY joined the Company in May 1996 as Senior Vice
President and General Counsel. In May 1997, she became Executive Vice President
and General Counsel and in June 1997 she was appointed Secretary of the Company.
Prior to joining the Company, Ms. Polsky was a partner in the law firm of
Manatt, Phelps & Phillips, LLP, where she specialized in financial institution
and corporate securities matters. From September 1992 to March 1994, Ms. Polsky
was a partner in the law firm of Hughes Hubbard & Reed.
DANIEL H. RELF joined the Company in July 1995 as a Vice President in
the Servicing Department and subsequently was promoted to Senior Vice President
in 1996. In May 1997, Mr. Relf was named Executive Vice President - Loan
Services. Prior to joining the Company, Mr. Relf served as Senior Vice President
- - Service Operations of Great Western Bank from 1986 to 1992.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of 11 meetings during the fiscal
year ended June 30, 1997. Among its committees, the Board of Directors has an
Audit Committee, a Compensation Committee and a Nominating Committee. During the
fiscal year ended June 30, 1997, each director attended at least 75% of the
meetings of the Board of Directors and Committees on which he served.
The Audit Committee met two times, the Compensation Committee met eight
times and the Nominating Committee met one time during the fiscal year ended
June 30, 1997. The Audit Committee's functions include recommending to the Board
of Directors the engagement of the Company's independent accountants, discussing
the scope and results of the audit with the accountants, discussing the
Company's financial accounting and reporting principles and the adequacy of the
Company's financial controls with the accountants and the Company's management,
discussing the results of internal audits with management and reviewing and
evaluating the Company's accounting policies and internal accounting controls.
The Compensation Committee reviews and approves the compensation of officers and
key employees, including the granting of awards under the Company's various
stock incentive plans. See "Report of the Compensation Committee on Executive
Compensation" attached to this Proxy Statement as Exhibit "A." The Nominating
Committee reviews the qualifications of possible candidates to serve on the
Board of Directors. The Nominating Committee does not consider nominations made
by stockholders. Currently, the members of the Audit Committee are Messrs.
Cerrell, Getzelman and Kinder, the members of the Compensation Committee are
Messrs. Cerrell, Kinder and Masters and the members of the Nominating Committee
are Messrs. Cerrell and Kinder.
COMPENSATION OF DIRECTORS
Each director who is not an officer of or otherwise employed by the
Company as either an employee or a consultant (each an "Outside Director")
receives a non-qualified option to purchase 10,000 shares of the Common Stock at
the time of the director's original appointment or election to the Board. In
addition, each Outside Director
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<PAGE> 8
is entitled to receive an annual retainer of $8,000, a fee of $3,000 for each
regular or special Board meeting attended in person, $1,500 for each regular or
special committee meeting attended in person, $1,000 for each regular or special
Board or committee meeting attended by telephone, and an option to purchase an
additional 1,500 shares of the Common Stock on each anniversary of the Outside
Director's original appointment or election to the Board.
On May 7, 1997, Gary K. Judis, the Chairman of the Board, resigned from
his positions as President and Chief Executive Officer of the Company and
entered into a severance agreement and a consulting agreement with the Company
effective that date. Under the severance agreement, Mr. Judis received a lump
sum severance payment of $900,000, lifetime coverage for himself and his spouse
under medical and dental plans comparable to those provided by the Company to
its senior executive officers, life insurance during his lifetime, title to his
company car, continued directors and officers liability coverage and the payment
of his legal fees in connection with negotiating the severance agreement.
Further, under the severance agreement, and so long as Mr. Judis remains
Chairman of the Board, he is entitled to Chairman fees of $1.0 million (payable
in installments over a 12 month period), an office, secretarial assistance and
other perquisites made available to senior executive officers of the Company. In
consideration for these payments and benefits, Mr. Judis agreed not to compete
with the Company for a period of three years, to release the Company from all
claims and to maintain the confidentiality of Company information. Mr. Judis has
decided not to stand for re-election to the Board so the benefits provided to
him as Chairman under the agreement will terminate as of the date of the
Meeting. The Company also engaged Mr. Judis as a consultant for a three year
period commencing May 7 1997. Under the consulting agreement, Mr. Judis' duties
include use of his voice in radio and television advertisements, assistance in
legislative efforts on behalf of the Company and attendance at trade shows and
conventions. Mr. Judis receives a consulting fee of $5,000 per month plus
AFTRA/SAG compensation of $5,000 per advertisement for which he provides the
voice-over. The consulting arrangement will continue after the Meeting.
CERTAIN RELATIONSHIPS
On August 28, 1996, the Company acquired One Stop, a residential
mortgage lender. Prior to the acquisition, One Stop was owned by Neil B.
Kornswiet, currently the President and a director of the Company. In the
acquisition, the Company issued approximately 3.5 million shares of the Common
Stock, 2.4 million shares of which were issued to Mr. Kornswiet. Of the total
shares issued in the acquisition, 102,750 shares were placed in escrow pursuant
to an escrow agreement as security for the indemnification of obligations of One
Stop and Neil B. Kornswiet. Those shares were released to Mr. Kornswiet on
August 28, 1997. Mr. Kornswiet continues to serve as President, Chief Executive
Officer and Chairman of the Board of Directors of One Stop. See "Executive
Compensation."
From time to time certain officers, directors and employees of the
Company, as well as members of their immediate families, act as private
investors in loan transactions originated by the Company. All such loans are
originated on terms and conditions which are no more favorable than loans
originated by the Company for other nonaffiliated private investors except that
such persons receive 75% of any prepayment fees collected by the Company on such
loans. The Company discontinued its private investor program in August 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, executive compensation for the Company was
administered by the Compensation Committee of the Board. Messrs. Cerrell and
Kinder served as members of the Compensation Committee during the 1997 fiscal
year and currently serve in such capacity along with Mr. Masters. Messrs.
Cerrell, Kinder and Masters are not, and have never been, officers or employees
of the Company.
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<PAGE> 9
REPORT OF THE COMPENSATION COMMITTEE
The Report of the Compensation Committee of the Board of Directors of
the Company, describing the compensation policies and the compensation
philosophy of the Company's executive compensation policy and certain
determinations with respect to bonuses and stock option grants for the year
ended June 30, 1997, is attached to this Proxy Statement as Exhibit "A."
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 1997, certain
information relating to the ownership of the Common Stock by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Common Stock, (ii) each of the Company's directors and
nominees, (iii) each of the Named Executive Officers (as defined under
"Executive Compensation -- Summary Compensation Table") and (iv) all of the
Company's executive officers and directors as a group. Except as may be
indicated in the footnotes to the table and subject to applicable community
property laws, each of such persons has sole voting and investment power with
respect to the shares beneficially owned. Beneficial ownership has been
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under this Rule, certain shares may be
deemed to be beneficially owned by more than one person (such as where persons
share voting power or investment power). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the shares
(for example, upon exercise of an option) within 60 days of the date as of which
the information is provided; in computing the percentage ownership of any
person, the amount of shares outstanding is deemed to include the amount of
shares beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date. The address of each
individual listed is in care of the Company, 350 S. Grand Avenue, Los Angeles
California 90071.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
---------------- ---------------- ----------------
<S> <C> <C>
Funds and institutional accounts affiliated
with Alliance Capital Management L.P.,
1345 Avenue of the Americas, New York,
New York 10105 ..................................... 2,686,864 (1) 9.58%
Funds and institutional accounts affiliated
with FMR Corp., 82 Devonshire Street,
Boston MA 02109...................................... 1,896,494 (2) 6.78%
Funds and institutional accounts affiliated
with A I M Management Group Inc., 11 Greenway
Plaza, Houston, Texas 77046 ........................... 1,893,085 (3) 6.82%
Joseph R. Cerrell ..................................... 42,750 (4) *
George W. Coombe, Jr................................... -- --
Mark E. Costello ...................................... 8,625 (5) *
John C. Getzelman...................................... -- --
Gary K. Judis ......................................... 1,839,717 (6) 6.52%
Dennis F. Holt ........................................ 15,875 (7) *
Melvyn Kinder ......................................... 19,250 (8) *
Neil B. Kornswiet ..................................... 2,277,860 (9) 8.01%
Lee Masters............................................ -- --
Barbara S. Polsky...................................... 24,500 (10) *
Georges C. St. Laurent, Jr............................. -- --
Cary H. Thompson ...................................... 554,624 (11) 1.96%
Gregory J. Witherspoon ................................ 239,856 (12) *
All executive officers, directors and nominees
as a group (16 persons) ............................. 5,047,625 (13) 17.05%
</TABLE>
- -----------------------
* Less than one percent.
7
<PAGE> 10
(1) Includes 265,339 shares of Common Stock into which $4,953,879 principal
amount of the Company's 5.5% Convertible Subordinated Debentures due
2006 (the "Debentures") beneficially owned by such funds and
institutional accounts could be converted. This information was
obtained from a Schedule 13G filed with the Securities and Exchange
Commission (the "SEC") on February 12, 1997.
(2) Includes 214,244 shares of Common Stock into which $4,000,000 principal
amount of the Debentures beneficially owned by such funds and
institutional accounts could be converted. This information was
obtained from a Schedule 13G filed with the SEC on September 10, 1997.
(3) This information was obtained from a Schedule 13G filed with the SEC on
February 12, 1997.
(4) Includes 33,376 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
after September 30, 1997 and 4,874 shares of Common Stock held in the
name of the Cerrell & Associates, Inc. Employee Profit Sharing Plan, of
which Mr. Cerrell is a Trustee and participant.
(5) Includes 3,825 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
of September 30, 1997.
(6) Includes 446,661 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
of September 30, 1997.
(7) Represents shares of Common Stock underlying options which are
currently exercisable within 60 days after September 30, 1997.
(8) Includes 11,000 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
after September 30, 1997.
(9) Includes 655,000 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
after September 30, 1997.
(10) Represents shares of Common Stock underlying options which are
currently exercisable within 60 days after September 30, 1997.
(11) Includes 537,730 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
after September 30, 1997, 1,198 shares held by Mr. Thompson as
custodian for Emily C. Thompson under the California UTMA, and 1,198
shares held by Karen L. Hellman, as custodian for Sarah C. Thompson
under the California UTMA.
(12) Includes 75,917 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days.
(13) Includes 1,833,059 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows information concerning all compensation paid
for services to the Company in all capacities during the last three fiscal years
or accrued within the current fiscal year as to the current and former Chief
Executive Officers of the Company and each of the other four most highly
compensated executive officers of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------------------------ ------------
Name and Fiscal Other Annual Stock Option All Other
Principal Position Year Salary Bonus Compensation(1) Awards(2) Compensation
- ------------------ ------ ------ ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gary K. Judis, Chairman 1997 $546,966 $3,160,797 $251,594(3) 75,000 $968,500(4)
of the Board, former 1996 490,000 4,370,000 -- 436,782 2,690
Chief Executive Officer 1995 490,000 1,422,000 -- 90,000 350
Cary H. Thompson 1997 $634,805 $1,073,339 -- -- N/A
Chief Executive Officer(5) 1996 125,000 298,000 -- 1,821,825(6) N/A
1995 N/A N/A N/A N/A N/A
Neil B. Kornswiet 1997 $666,042 $4,408,863 -- 555,000 N/A
President(7) 1996 N/A N/A -- N/A N/A
1995 N/A N/A N/A N/A N/A
Gregory J. Witherspoon 1997 $275,000 $ 364,574 -- -- 4,500(8)
Executive Vice President 1996 177,000 634,000 -- 22,500 2,690
and Chief Financial 1995 131,000 379,000 -- 45,000 350
Officer
Mark E. Costello 1997 $165,000 $ 466,968 -- 12,500 4,500(8)
Executive Vice President - 1996 130,000 201,000 -- 11,250 2,438
Loan Production(9) 1995 43,000 -- -- -- --
Barbara S. Polsky 1997 $245,000 $ 318,120 -- 10,000 N/A
Executive Vice President, 1996 35,538 -- -- 56,350 N/A
General Counsel and 1995 N/A N/A N/A N/A N/A
Secretary(10)
</TABLE>
- ----------------
(1) Except as set forth in footnote (3), the aggregate amount of all
perquisites and personal benefits received by each of the Named
Executive Officers in each of fiscal years 1995, 1996 and 1997 was not
in excess of $50,000 or 10% of the total of annual salary and bonus
reported for such Named Executive Officer.
(2) All numbers reflect the number of shares of Common Stock subject to
options granted to the named officers during the fiscal year, in each
case adjusted to reflect the three-for-two splits of the Common Stock
effected on May 17, 1996 and February 21, 1997.
(3) Consists of $143,718 in Chairman fees, $10,000 in consulting fees,
$58,937 for personal use of the Company's airplane, $24,265 in life and
disability insurance premiums and $14,674 in other perquisites.
See "Management -- Compensation of Directors."
(4) Consists of $900,000 in severance payments, the value of the Company
car ($64,000) transferred to Mr. Judis as part of his severance
arrangement and $4,500 in employer contributions to the Company's
Section 401(k) plan. See "Management -- Compensation of Directors."
9
<PAGE> 12
(5) Mr. Thompson joined the Company in March 1996 and became the Chief
Executive Officer in May 1997.
(6) Options for 25,875 shares were awarded to Mr. Thompson during fiscal
1996 in his capacity as an outside director of the Company prior to his
joining the Company as an officer.
(7) Mr. Kornswiet joined the Company in August 1996.
(8) Consists of employer contributions to the Company's Section 401(k) plan
for these persons.
(9) Mr. Costello joined the Company in March 1995.
(10) Ms. Polsky joined the Company in May 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options made during the fiscal year ended June 30, 1997 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates of Stock
Number of Total Options Exercise Price Appreciation for
Shares Underlying Granted to or Base Option Term (2)
Options Employees in Price Per Expiration -------------------------
Name Granted (3) Fiscal Year (4) Share (5) Date 5% 10%
- ---- ----------- --------------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Gary K. Judis 75,000 (6) 4.2% $27.42 1/28/07 $1,293,322 3,277,531
Cary H. Thompson -- -- -- -- -- --
Neil B. Kornswiet 450,000 (7) 25.0% 28.92 11/25/06 8,184,435 20,740,964
105,000 (8) 5.8% 23.92 12/19/06 1,579,532 4,002,844
Gregory J. Witherspoon -- -- -- -- -- --
Mark E. Costello 7,500 (9) * 27.42 1/28/07 129,332 327,753
5,000 (10) * 13.63 6/3/07 42,859 108,614
Barbara S. Polsky 10,000 (10) * 13.63 6/3/07 85,718 217,227
</TABLE>
- ---------------------
* Less than 1%
(1) All amounts shown in this table have been adjusted to reflect the
three-for-two split of the Common Stock effected on February 21, 1997.
(2) The potential realizable value is based on the assumption that the
Common Stock of the Company appreciates at the annual rate shown
(compounded annually) from the date of grant until the expiration of
the option term. These amounts are calculated pursuant to the
applicable requirements of the SEC and do not represent a forecast of
the future appreciation of the Company's Common Stock.
(3) All of the options set forth in this chart were granted for a term of
10 years.
(4) Options covering an aggregate of 1,802,157 shares were granted to
eligible employees during the fiscal year ended June 30, 1997.
(5) Options were granted at an exercise price equal to the fair market
value of the Company's Common Stock, as determined by reference to the
closing price reported on the NYSE on the last trading day prior to the
date of grant. The exercise price and tax withholding obligations
related to exercise may be paid by delivery of already owned shares,
subject to certain conditions.
(6) This option became exercisable as to 1/3 of the shares on January 28,
1997 and 1/3 of the shares on June 1, 1997. The remaining 1/3 of the
shares will become exercisable on June 1, 1998.
(7) These options became immediately exercisable on November 25, 1996.
(8) These options became immediately exercisable on December 19, 1996.
(9) This option becomes exercisable as to 1/5 of the shares on January 28,
1998 and as to 1/60 of the remaining shares on the last day of each
month thereafter until fully vested.
(10) This option became exercisable as to 1/5 of the shares on June 3, 1997.
The remaining shares vest at a rate of 20% on each anniversary of the
date of grant thereafter until fully vested.
10
<PAGE> 13
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
The following table sets forth, for each of the Named Executive
Officers, certain information regarding the exercise of stock options during the
fiscal year ended June 30, 1997 and the value of options held at fiscal year
end.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
Value of All
Number of Shares Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End(3)
----------------------- -----------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized (2) Unexercisable Unexercisable
---- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Gary K. Judis ............. -- -- 366,873/ 280,882 $2,969,513/$1,361,470
Cary H. Thompson .......... 216,525 $3,499,931 266,850/1,129,800 1,871,721/ 4,804,176
Neil B. Kornswiet ......... -- -- 550,000/ -- -- / --
Gregory J. Witherspoon..... -- -- 60,000/ 30,000 832,167/ 364,083
Mark E. Costello .......... 3,675 66,346 2,575/ 22,750 21,500/ 59,083
Barbara S. Polsky ......... -- -- 24,500/ 41,750 9,750/ 39,000
</TABLE>
- ---------------------
(1) All amounts shown in this table have been adjusted to reflect the
three-for-two split of the Common Stock effected on February 21, 1997.
(2) Represents the difference between the exercise price and the market
value on the date of exercise.
(3) Based upon the last reported sale price of the Common Stock on the NYSE
on June 30, 1997 ($18.50) less the option exercise price.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the SEC. Executive officers, directors, and
greater-than-ten percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of such forms received by it and written
representations from the Company's reporting persons that they have complied
with the relevant filing requirements, the Company believes that, during the
year ended June 30, 1997, all relevant Section 16(a) filing requirements were
complied with, except that Mr. Cerrell a director of the Company, filed two late
reports with respect to grants of options during the 1995 and 1996 fiscal years,
Cary H. Thompson, Chief Executive Officer of the Company, filed one late report
with respect to the exercise of warrants during the 1996 fiscal year and Mark E.
Elbaum, an executive officer of the Company, filed one late report with respect
to the purchase of shares of the Common Stock during fiscal 1994.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has employment or severance agreements with each of the
Named Executive Officers. See also "Management -- Compensation of Directors."
Under the Company's employment agreement with Cary H. Thompson, Chief Executive
Officer, which was amended and restated in May 1997, Mr. Thompson is entitled to
a base salary of $900,000 per year. He is also entitled to receive, at the
expense of the Company, the use of an automobile (including all maintenance and
expenses associated therewith), a standard term life insurance policy in the
amount of $1 million, a standard term accidental death policy in the amount of
$1 million, a long-term disability policy providing an annual disability payment
equal to 125% of his base salary and coverage for him and the dependent members
of his family under the Company's medical and dental policies. Pursuant to his
employment agreement, at the time he was hired, Mr. Thompson was also granted a
bonus in the form of non-qualified options to
11
<PAGE> 14
purchase 1,125,000 shares of the Common Stock and additional non-qualified
options to purchase 670,950 shares of the Common Stock to assist him in
providing for federal and state income taxes payable as a result of such bonus
options and in recognition of the fact that the Company may benefit from federal
and state tax deductions as a result. In the event of a Severance Termination
(as defined in the agreement) or a voluntary termination following a Change in
Control (generally, a 20% change in the voting power of the Common Stock,
certain changes in Board membership, a merger or complete liquidation or
dissolution of the Company), the Company is obligated to pay Mr. Thompson two
years' base salary plus an amount based on the performance bonuses previously
paid. In addition, all options that are scheduled to vest on the next
anniversary of Mr. Thompson's employment would vest as of the Severance
Termination and all options exercisable as of such date shall remain exercisable
for 12 months following such date; provided, however, in the event of certain
changes in control that are not approved by the Board of Directors, all options
shall immediately vest and remain exercisable for the entire remaining term of
the option.
On August 28, 1997, the Company entered into a five-year employment
agreement with Neil B. Kornswiet, the Company's President and One Stop's
Chairman, President and Chief Executive Officer. The agreement was amended in
May 1997. Under the agreement, as amended, Mr. Kornswiet earns a base salary of
$900,000 per year and is entitled to an annual performance bonus equal to 7.5%
of One Stop's Adjusted Pre-Tax Income (as defined in the agreement) for the
year. Mr. Kornswiet is also entitled to receive, at the expense of the Company,
the use of an automobile (including all maintenance and expenses associated
therewith), a standard term life insurance policy in the amount of $1 million, a
standard term accidental death policy in the amount of $1 million, a long-term
disability policy providing an annual disability payment equal to 125% of his
base salary and coverage for him and the dependent members of his family under
the Company's medical and dental policies. In the event of a Severance
Termination (as defined in the agreement) or a voluntary termination following a
Change in Control (defined the same as in Mr. Thompson's agreement), Mr.
Kornswiet will receive his base salary for three years (or the remaining term of
the agreement, if longer), an amount equal to the performance bonus paid to him
with respect to the three-year period prior to the date of termination (pro
rated if he has been employed for less than three years) and an amount, if any,
necessary to reimburse him on a net after-tax basis for any applicable federal
excise tax. In addition, in the event of a Change in Control not approved by the
Board of Directors, all options would become immediately vested and remain
exercisable for the entire remaining term of the option.
The Company entered into a five-year executive severance agreement with
Gregory J. Witherspoon, Executive Vice President and Chief Financial Officer, on
June 1, 1997. The agreement provides that, in the event of termination of his
employment in connection with a Change in Control (defined the same as in Mr.
Thompson's agreement), Mr. Witherspoon will be entitled to receive two years'
base salary and an amount, if any, necessary to reimburse him on a net after-tax
basis for any applicable federal excise tax. He is also entitled to receive the
severance benefit if he voluntarily resigns following a Change in Control for
Good Reason, defined to include a material reduction in his duties or base
salary.
Effective June 1, 1997, the Company entered into a two-year employment
agreement with Mark E. Costello, Executive Vice President-Loan Production. Under
the agreement, Mr. Costello is entitled to a base salary of $200,000 per year
and a quarterly bonus of up to $50,000 as determined by the Compensation
Committee, until such Committee adopts a new performance bonus plan for
executive officers. If Mr. Costello's employment is terminated without cause, he
will receive an amount equal to six months' base salary. If Mr. Costello's
employment is terminated or he voluntarily resigns for Good Reason (defined to
include a material reduction in his duties or base salary) in connection with a
Change in Control (generally, a 50% change in the voting power of the Common
Stock, certain changes in Board membership, a merger or complete liquidation or
dissolution of the Company), he will receive two years' base salary plus an
amount equal to the performance bonus paid to him with respect to the eight
fiscal quarters preceding the date of termination.
The Company entered into a second amended and restated employment
agreement with Barbara S. Polsky, Executive Vice President, General Counsel and
Secretary, effective June 1, 1997, with a term expiring on June 20, 2001. The
agreement provides for a base salary of $300,000 per year and a quarterly bonus
of $72,000 until the Compensation Committee adopts a new performance bonus plan
for executive officers. Ms. Polsky is also entitled to a long term disability
policy providing for an annual disability payment in an amount equal to 100% of
her base salary. In the event of a termination without cause, Ms. Polsky will
receive two years' base salary plus an amount
12
<PAGE> 15
equal to the performance bonus paid to her for eight fiscal quarters preceding
the date of termination. In addition, all options previously granted would
become immediately exercisable. In the event of a termination or voluntary
resignation in connection with a Change in Control (defined the same as in Mr.
Thompson's agreement), Ms. Polsky would receive the same benefits as in a
termination without cause.
SECTION 401(K) PLAN
The Company has a tax-qualified cash or deferred profit sharing plan
(the "401(k) Plan") covering all employees over the age of 21 who have completed
six months of service with the Company prior to a plan entry date. Pursuant to
the 401(k) Plan, eligible employees may make salary deferral (before-tax)
contributions of up to 25% of their compensation per plan year up to a specified
maximum contribution as determined by the Internal Revenue Service. The 401(k)
Plan also includes provisions which authorize the Company to make discretionary
contributions. Such contributions, if made, are allocated among all eligible
employees as determined under the 401(k) Plan. The trustees under the 401(k)
Plan invest the assets of each participant's account in selected investment
options at the direction of such participant.
DEFERRED COMPENSATION PLAN
In April 1997, the Company implemented a deferred compensation plan for
highly compensated employees and directors of the Company. The plan is unfunded
and non-qualified. Eligible participants may defer a portion of their
compensation (including bonuses) and receive a Company matching amount up to 4%
of their annual base salary. The Company may also make discretionary
contributions to the plan. For the 1997 fiscal year, the Company made no
matching or discretionary contributions to the plan.
13
<PAGE> 16
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change
in the cumulative return to the stockholders of the Company's Common Stock with
the cumulative return of the NYSE Stock Market (US Companies) Index and the
Index for NYSE/AMEX/NASDAQ Stocks (SIC 6160-6169 US Companies) Mortgage Bankers
and Brokers for the period commencing July 1, 1992 and ending on June 30, 1997.
The information contained in the performance graph shall not be deemed
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
<TABLE>
<CAPTION>
06/30/92 06/30/93 06/30/94 06/30/95 06/28/96 06/30/97
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aames Financial Corporation ....... 100.0 112.0 98.2 216.1 647.6 504.1
NYSE Stock Market (US Companies) .. 100.0 115.1 116.2 142.8 179.9 235.6
NYSE/AMEX/NASDAQ Stocks
(SIC 6160-6169 US Companies)...... 100.0 136.1 141.2 165.7 225.9 315.4
Mortgage Bankers and Brokers
</TABLE>
14
<PAGE> 17
PROPOSAL TO APPROVE THE ADOPTION OF THE
AAMES FINANCIAL CORPORATION 1997 STOCK OPTION PLAN
INTRODUCTION
The proposed Aames Financial Corporation 1997 Stock Option Plan (the
"1997 Plan") was adopted by the Company's Board of Directors effective as of
October 1, 1997, subject to the approval of the 1997 Plan by the stockholders of
the Company. The 1997 Plan supplements the Company's 1991, 1995 and 1996 Stock
Incentive Plans and provides for the grant of stock awards to selected
directors, officers (vice president or equivalent and higher) and consultants of
the Company and its subsidiaries. Subject to adjustment for stock splits, stock
dividends and similar events, 400,000 shares of the Common Stock will be
reserved for issuance under the 1997 Plan. The Board of Directors has also
adopted the 1997 Non-Qualified Stock Option Plan, a broad-based plan which
provides for the issuance of up to 600,000 non-qualified option shares. This
Plan became effective on October 1, 1997 and does not require stockholder
approval. The Board of Directors believes that, in light of the Company's
significant growth and the acquisition of One Stop, it is appropriate to have
additional shares available for the grant of stock awards to directors,
officers, employees and consultants.
At October 1, 1997, approximately 32 persons were eligible to
participate in the 1997 Plan. As of September 30, 1997, no awards had been
granted under the 1997 Plan. If (i) current outstanding options under the
Company's other stock option plans and arrangements were exercised (4,524,593
shares), (ii) shares of Common Stock currently available for future option grant
under the Company's other stock option plans were granted and exercised (656,275
shares), and (iii) the shares of Common Stock reserved for issuance under the
1997 Plan were granted and exercised (400,000 shares), such shares would
constitute approximately 14.1% of the then outstanding shares of Common Stock
plus the number of shares into which the Debentures are convertible.
The following sections summarize the principal features of the 1997
Plan, a copy of which is attached as Exhibit "B" to this Proxy Statement.
Although this Proxy Statement contains a summary of the principal features of
the 1997 Plan, this summary is not intended to be complete and reference should
be made to Exhibit "B" to this Proxy Statement for the complete text of the 1997
Plan.
PURPOSE
The purpose of the 1997 Plan is to advance the interests of the Company
and its stockholders by strengthening the Company's and its subsidiaries'
ability to obtain and retain the services of the types of directors, officers
and consultants who will contribute to the Company's long term success and to
provide incentives which are linked directly to increases in stock value which
will inure to the benefit of all stockholders of the Company.
ADMINISTRATION
The 1997 Plan will be administered by a committee of the Company's
Board of Directors (the "Committee") consisting of two or more directors, each
member of which is a Non-Employee Director (as defined in Rule 16b-3 promulgated
under the Exchange Act); and an Outside Director (as defined in Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code")). Subject to the
provisions of the 1997 Plan, the Committee will have full and final authority to
select the persons to whom awards will be granted thereunder, to grant the
awards and to determine the terms and conditions of the awards and the number of
shares to be issued pursuant thereto. Except as described under "--Adjustments,"
the 1997 Plan prohibits the Committee from authorizing the repricing of
underwater options without stockholder approval.
ELIGIBILITY AND NON-DISCRETIONARY GRANTS
The 1997 Plan provides that awards may be granted to Outside Directors
who are designated as eligible persons by the Board of Directors, other Outside
Directors (subject to the limitations described below), officers with the title
of vice president or the equivalent and above (including officers who are
directors) and consultants of the Company and its subsidiaries and parent
companies. Outside Directors shall be entitled to receive the following: (i) a
15
<PAGE> 18
nondiscretionary grant of a nonqualified stock option to purchase 10,000 shares
of Common Stock upon the Outside Director's election or appointment to the Board
of Directors, and (ii) for so long as the Outside Director remains on the Board
of Directors, an annual nondiscretionary grant on the date of the Company's
annual meeting of stockholders of nonqualified stock options to purchase 1,500
shares of Common Stock. See "--Adjustments." All options granted to the Outside
Directors shall have an exercise price equal to 100% of the fair market value of
the shares on the date of grant and shall vest over a three year period. Unless
designated "eligible persons," Outside Directors are not eligible for additional
grants. On the date the 1997 Plan was adopted by the Board of Directors, Messrs.
Cerrell, Getzelman, Kinder and Masters were the only Outside Directors of the
Company. Upon election at the Meeting, Messrs. Coombe and St. Laurent will be
Outside Directors.
AWARDS
The 1997 Plan authorizes the Committee to grant options for the
purchase of shares of the Common Stock. Each option will be granted at an
exercise price equal to the fair market value of the Common Stock on the trading
day before the date of grant. The maximum number of shares with respect to which
options may be granted under the 1997 Plan to any eligible person during any
fiscal year is 400,000, subject to certain adjustments to prevent dilution. All
options granted under the 1997 Plan will have terms of 10 years, except as
otherwise required by the Code.
Unless otherwise expressly determined by the Committee, awards granted
under the 1997 Plan to eligible persons will include a provision accelerating
the receipt of benefits automatically upon the occurrence of certain specified
events, including an acquisition of a specified percentage of the voting power
of the Company or a dissolution, liquidation, merger, reclassification, sale of
substantially all of the property and assets of the Company or other significant
corporate transaction.
An award under the 1997 Plan may permit the recipient to pay all or
part of the purchase price of the shares of Common Stock or other property
issuable pursuant to the award, and/or to pay all or part of the recipient's tax
withholding obligations with respect to such issuance, by delivering previously
owned shares of capital stock of the Company or other property, or by reducing
the amount of shares or other property otherwise issuable pursuant to the award.
Unless otherwise expressly determined by the Committee, all awards granted to
executive officers and directors of the Company shall provide for such rights.
If an option granted under the 1997 Plan permits the recipient to pay for the
shares issuable pursuant thereto with previously owned shares, the recipient may
be able to "pyramid" his or her previously owned shares, i.e., to exercise an
option in successive transactions, starting with a relatively small number of
shares and, by a series of exercises using shares acquired from the immediately
preceding transaction to pay the purchase price of the shares acquired in the
immediately subsequent transaction, thereby facilitating the exercise of an
option for a larger number of shares with no more investment than the original
share or shares delivered.
Other than with respect to nondiscretionary grants made to Outside
Directors, the Committee, in the exercise of its sole discretion, shall
determine the vesting schedule associated with each award; provided, however,
that, unless otherwise expressly determined by the Committee, an award granted
to an executive officer of the Company shall vest in four equal annual
installments commencing on the first anniversary of the date of grant of such
award.
The Committee, in the exercise of its sole discretion, may permit
participants in the 1997 Plan to assign or transfer their awards and their
rights and interests therein; provided, however that awards granted in the form
of incentive stock options shall only be transferable to the extent permitted by
the Code.
PLAN DURATION
Subject to its adoption by the stockholders of the Company, the 1997
Plan will become effective as of October 1, 1997; and no shares of Common Stock
may be issued under the 1997 Plan until it has been approved by the
stockholders. No awards may be granted under the 1997 Plan after October 1,
2007, although any award that was duly granted on or prior to such date may
thereafter be exercised or settled in accordance with its terms.
16
<PAGE> 19
ADJUSTMENTS
The 1997 Plan contains a provision which provides that equitable
adjustments, as determined by the Committee, shall be made in the awards and in
the maximum number of options and rights that may be granted to any eligible
person in the event of any change in the number of issued shares of Common Stock
or other securities then subject to the 1997 Plan which results from any stock
split, reverse stock split, stock dividend, recapitalization, merger,
consolidation, combination, exchange or other similar corporate change.
Adjustments in respect of stock splits and stock dividends, however, do not
apply to the initial and annual grants of options to Outside Directors.
AMENDMENTS
The Committee may amend or terminate the 1997 Plan at any time and in
any manner, subject to the following: (i) no recipient of any award may, without
his or her consent, be deprived of any of his or her rights thereunder or with
respect thereto as a result of such amendment or termination; and (ii) if any
rule or regulation promulgated by the SEC, the Internal Revenue Service or any
national securities exchange or quotation system upon which any of the Company's
securities are listed requires that any such amendment be approved by the
Company's stockholders, then such amendment will not be effective until it has
been approved by the Company's stockholders.
FEDERAL INCOME TAX TREATMENT
The following general discussion of federal income tax consequences is
only a summary of principal considerations based upon the tax laws and
regulations of the United States existing as of the date hereof, all of which
may be subject to modification or change at any time, in some cases
retroactively. This discussion is also qualified by certain exceptions and the
particular circumstances of individual optionees, which may substantially alter
or modify the consequences herein discussed. Optionees, in addition, may be
subject to state, estate or other taxation.
The 1997 Plan does not constitute a qualified retirement plan under
Section 401(a) of the Code (which generally covers trusts forming part of a
stock bonus, pension or profit sharing plan funded by the employer and/or
employee contributions which are designed to provide retirement benefits to
participants under certain circumstances) and is not subject to the Employee
Retirement Income Security Act of 1974 (the pension reform law which regulates
most types of privately funded pension, profit sharing and other employee
benefit plans).
Incentive Stock Options ("ISOs"). With respect to ISOs granted under
the 1997 Plan, an optionee generally will not recognize any income upon the
grant or the exercise of the option. Upon a subsequent disposition of the stock,
the optionee will generally recognize long-term capital gain or loss equal to
the difference between the amount paid for the stock and the amount realized on
its disposition, provided that the stock is not disposed of for at least two
years from the date the option is granted and for at least one year from the
date the stock is transferred to the optionee.
If the stock received pursuant to the exercise of an ISO is disposed of
prior to the aforementioned two-year or one-year periods (a "disqualifying
disposition"), the optionee will generally recognize ordinary compensation
income upon the making of such disqualifying disposition, in an amount equal to
the lesser of (i) the fair market value of the option shares on the exercise
date, minus the exercise price, and (ii) the amount realized on the disposition,
minus the exercise price. Any amount realized upon disposition in excess of the
fair market value of the shares on the date of exercise will generally be
treated as long-term or short-term capital gain, depending upon whether the
shares have been held for more than one year.
If an optionee exercises an ISO, in whole or in part, with previously
acquired stock of the Company, the exchange will not affect the ISO treatment of
the exercise. Upon such exchange, and except as otherwise described herein, no
gain or loss is recognized by the optionee upon delivering previously acquired
stock to the Company, and the shares of stock received by the optionee, equal in
number to the previously acquired shares of stock exchanged therefor, will have
the same tax basis and holding period for long-term capital gain purposes as
such previously acquired stock. (The optionee will not, however, be able to
utilize the prior holding period for the purpose of satisfying the ISO statutory
holding period requirements.) Shares of stock received by an optionee in excess
of the number of such previously acquired shares of stock will have a tax basis
of zero and a holding period which commences as of the date
17
<PAGE> 20
of exercise. If the exercise of an ISO is effected using stock previously
acquired through the exercise of an ISO, the exchange of such previously
acquired shares of stock will be considered a disposition of such stock for the
purpose of determining whether a disqualifying disposition has occurred.
When the optionee exercises an ISO granted under the 1997 Plan, the
difference between the exercise price paid and the then fair market value of the
stock will constitute an "item of adjustment" which may subject the optionee to
the alternative minimum tax ("AMT") imposed by Section 55 of the Code. However,
if a disqualifying disposition occurs in the year in which the option is
exercised, the maximum amount that will be included as AMT income is the gain
realized on the disposition of the stock. If there is a disqualifying
disposition in a year other than the year of exercise, the income on the
disposition will not be considered income for AMT purposes. In addition, the
basis of the stock for determining gain or loss for AMT purposes will be the
exercise price for the stock, increased by the amount that the AMT income was
increased due to the earlier exercise of the ISO.
The Company will generally not be entitled to any federal income tax
deduction with respect to ISOs granted or exercised under the 1997 Plan.
However, if the optionee makes a disqualifying disposition, then the Company
generally will be entitled to a deduction in the year of such disqualifying
disposition in an amount equal to the income includable by the optionee with
respect to the transaction.
Nonqualified Stock Options. An optionee who is granted an option to
acquire Common Stock under the 1997 Plan that does not qualify for ISO treatment
(a "nonqualified stock option") will not realize any income upon the grant of
such option, but generally will realize ordinary income when the nonqualified
stock option is exercised. The amount of income to be recognized by the optionee
is equal to the difference between the amount paid for the stock and the fair
market value of the stock received. The ordinary income received will constitute
compensation for which tax withholding may be required.
If, however, a profitable sale of the stock subject to a nonqualified
stock option under the 1997 Plan could subject the optionee to suit under
Section 16(b) of the Exchange Act, then such optionee will generally recognize
ordinary income on the date when such optionee is no longer subject to such
liability (or, if earlier, six months from the transfer of the stock to the
optionee) in an amount equal to the fair market value of the shares on such date
less the exercise price. However, the optionee may elect within thirty days of
the date of exercise to recognize ordinary income as of the date of exercise.
Shares received pursuant to the exercise of a nonqualified stock option
granted under the 1997 Plan will have a tax basis equal to their fair market
value on the exercise date or other relevant date on which ordinary income is
recognized, and the holding period for the shares received generally will begin
on the date of exercise or other relevant date. Upon the subsequent sale of such
shares, the optionee will generally recognize long-term or short-term capital
gain or loss, depending upon whether the shares have been held for more than one
year (and provided that the shares constitute capital assets in the hands of the
selling stockholder), in an amount equal to the difference between the selling
price and the stockholder's tax basis in the shares sold.
If an optionee exercises a nonqualified stock option, in whole or in
part, with previously acquired stock of the Company, the optionee will recognize
ordinary income in the amount by which the fair market value of the stock
received by the optionee exceeds the exercise price. The optionee will not
recognize gain or loss upon delivering such previously acquired stock to the
Company. Shares of stock received by an optionee, equal in number to the
previously acquired shares of stock exchanged therefor, will have the same tax
basis and holding period as such previously acquired stock. Shares of stock
received by an optionee in excess of the number of such previously acquired
shares of stock will have a tax basis equal to the fair market value of such
additional shares of stock as of the date ordinary income is received, and the
holding period for such additional shares of stock will commence as of the date
of exercise or such other relevant date.
With respect to the grant and exercise of nonqualified stock options
under the 1997 Plan, the Company generally will be entitled to a federal income
tax deduction in its tax year within which the optionee recognizes income (that
is, the taxable year of the Company in which or with which the optionee's
taxable year of income recognition ends) equal to the amount of income
recognized by the optionee.
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<PAGE> 21
Withholding. Generally, the Company will be required to make
arrangements for withholding or reporting applicable taxes with respect to
ordinary income recognized by an optionee in connection with awards made under
the 1997 Plan. Special rules will apply in cases where the recipient of an award
pays the exercise or purchase price of the award or applicable withholding tax
obligations by delivering previously owned shares or by reducing the number of
shares otherwise issuable pursuant to the award. Such delivery of shares will in
certain circumstances result in the recognition of income with respect to such
shares.
Golden Parachute Payments. The terms of the agreements pursuant to
which specific awards are made to eligible persons under the 1997 Plan may
provide for accelerated vesting or payment of an award in connection with a
change in ownership or control of the Company. In that event and depending upon
the individual circumstances of the recipient, certain amounts with respect to
such awards may constitute "excess parachute payments" under the "golden
parachute" provisions of the Code. Pursuant to these provisions, a recipient
will be subject to a 20% excise tax on any "excess parachute payment" and the
Company will be denied any deduction with respect to such payment.
BOARD RECOMMENDATION AND REQUIRED VOTE
The Board of Directors has unanimously approved the adoption of the
1997 Plan. The 1997 Plan is submitted for approval by a majority of the shares
of Common Stock present in person or represented by Proxy and entitled to vote
at the Meeting, provided that the total vote cast on the proposal represents
over 50% in interest of the Common Stock entitled to vote on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
ADOPTION OF THE AAMES FINANCIAL CORPORATION 1997 STOCK OPTION PLAN.
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP to serve as
independent accountants of the Company to audit the consolidated financial
statements of the Company and its subsidiaries for the fiscal year ending June
30, 1998. Price Waterhouse LLP has audited the Company's financial statements
annually since 1990. Representatives of Price Waterhouse LLP are expected to be
present at the Meeting, will have an opportunity to make a statement if they
desire to do so and will respond to appropriate questions from stockholders.
Approval of the ratification of appointment of Price Waterhouse LLP for
fiscal 1998 will require the affirmative vote of a majority of the shares of
Common Stock present in person or represented by Proxy and entitled to vote at
the Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF PRICE WATERHOUSE LLP.
PROPOSALS OF STOCKHOLDERS
A proper proposal submitted by a stockholder for presentation at the
Company's 1998 Annual Meeting and received at the Company's executive offices no
later than June 12, 1998, will be included in the Company's Proxy Statement and
form of Proxy relating to the 1998 Annual Meeting.
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<PAGE> 22
OTHER MATTERS
The Board of Directors is not aware of any matter to be acted upon at
the Meeting other than described in this Proxy Statement. Unless otherwise
directed, all shares represented by the persons named in the accompanying Proxy
will be voted in favor of the proposals described in this Proxy Statement. If
any other matter properly comes before the Meeting, however, the Proxy holders
will vote thereon in accordance with their best judgment.
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report to Stockholders for the fiscal year ended
June 30, 1997 was mailed to stockholders with this Proxy Statement and is not to
be considered part of the soliciting material.
REPORT ON FORM 10-K
THE COMPANY UNDERTAKES, UPON WRITTEN REQUEST, TO PROVIDE, WITHOUT
CHARGE, TO EACH PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997, AS
FILED WITH THE SEC, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO,
BUT EXCLUDING EXHIBITS THERETO. REQUESTS SHOULD BE ADDRESSED TO AAMES FINANCIAL
CORPORATION, 350 S. GRAND AVENUE, LOS ANGELES, CALIFORNIA 90071, ATTN: EXECUTIVE
VICE PRESIDENT - FINANCE.
DATED: October 10, 1997 ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Barbara S. Polsky
Barbara S. Polsky
Secretary
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<PAGE> 23
EXHIBIT "A"
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee of the Board of
Directors shall not be deemed to be incorporated by reference into any previous
filing by the Company under either the Securities Act of 1933, as amended
("Securities Act"), or the Securities Exchange Act of 1934, as amended
("Exchange Act"), that incorporates future Securities Act or Exchange Act
filings in whole or in part by reference.
During the 1997 fiscal year, the Compensation Committee of the Board of
Directors was comprised of Mr. Joseph Cerrell and Dr. Melvyn Kinder who are
non-employee directors of the Company. The Board of Directors delegates to the
Compensation Committee the responsibility for developing and administering
policies which govern the total compensation program for the executive officers
of the Company. The Committee also administers the Company's stock option plans.
The goal of the Company's executive compensation program is to retain,
motivate and reward management through the compensation policies and awards,
while aligning their interests more closely with that of the Company and
stockholders. In furtherance of this goal, the program consists of three main
components: (1) base salary; (2) bonuses which are either discretionary or based
on Company or subsidiary performance; and (3) stock options to provide long-term
incentives for performance and to align executive officer and stockholder
interests.
EXECUTIVE COMPENSATION
Base salaries for the executive officers are established by the
Compensation Committee based on the recommendations of management which
considers, and applies subjectively as appropriate, individual performance and
achievement, areas of responsibility, position, the extent to which the
officers' skills are in demand or may be marketed to other companies or
industries and internal and external comparability. The base salary for Mr.
Kornswiet was initially established under the terms of an employment agreement
entered into in connection with the Company's acquisition of One Stop, a company
of which Mr. Kornswiet was the Chief Executive Officer, President and sole
stockholder. Under the initial terms of the employment agreement, Mr. Kornswiet
was appointed Executive Vice President of the Company and Chief Executive
Officer and President of One Stop. Upon his appointment as President of the
Company in May 1997, Mr. Kornswiet's employment agreement was revised by the
Compensation Committee to increase his annual base salary from $750,000 to
$900,000.
Of the Company's nine key employees (excluding the Chief Executive
Officer), four are paid bonuses based on Company performance under the terms of
the Company's performance bonus plan. See -- "Performance Bonus Plan." Under the
terms of his employment agreement, Mr. Kornswiet is entitled to a cash bonus
equal to 7.5% of One Stop's pre-tax income. The bonus provisions included in Mr.
Kornswiet's employment agreement are akin to the bonus provisions contained in
the 1991 Compensation Arrangement (as defined below) of Mr. Gary Judis, the then
Chief Executive Officer and President of the Company. The other four key
employees are entitled to discretionary bonuses.
The Compensation Committee believes that it is important for key
employees to have long-term incentives through an equity interest in the
Company. Accordingly, from time to time, the Company has granted key employees
stock options pursuant to the Company's stock option arrangements. The Committee
grants options upon the recommendations of management. As of June 30, 1997, the
Company's nine key employees (excluding the Company's Chief Executive Officer)
held options to acquire 1,004,320 shares of the Company's Common Stock.
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<PAGE> 24
PERFORMANCE BONUS PLAN
In October 1995, the Compensation Committee adopted the Performance
Bonus Plan for executives, other than those primarily responsible for the
origination and purchase of loans, which provided for a performance-based cash
bonus equal to a specified dollar level (the "Payment Amount") for every
percentage point for which return on average equity exceeds a specified return
(the "Target ROE"). For fiscal 1997, the Target ROE was set at fifteen percent.
The Compensation Committee believed that a fifteen percent return was generally
perceived as a good return on equity for a financial services company, and only
performance in excess of a good return should be rewarded through the
performance-based compensation program. For fiscal 1997, return on average
equity was calculated based on the Company's net income as reported under
generally accepted accounting principles divided by average stockholders' equity
computed over the prior two years, excluding certain charges resulting from the
acquisition of One Stop and the relocation of the Company's headquarters. Each
Performance Bonus Plan participant was given a Payment Amount based on the
participant's contribution to, and impact upon, the success of the Company. For
fiscal 1997, the range in Payment Amounts for plan participants was from $4,000
to $15,000. In June 1997, the quarterly bonuses to be paid to Performance Bonus
Plan participants were fixed at the third fiscal quarter levels pending review
of the Plan by the Compensation Committee. The Compensation Committee, with the
assistance of an outside compensation consultant, intends to establish a bonus
plan that provides the proper incentives and appropriate levels of compensation
to participants. On management's recommendation, the Compensation Committee
determined that a bonus based on return on average equity may not provide the
appropriate management incentives for a company that historically operated on a
negative cash flow basis and requires continuous access to the capital markets.
EXECUTIVE COMPENSATION--CHIEF EXECUTIVE OFFICERS
Until his resignation on May 7, 1997, Mr. Judis served as the Company's
Chief Executive Officer. From July 1, 1996 until December 31, 1996, Mr. Judis'
compensation was based on an employment agreement entered into in 1991 (the
"1991 Compensation Arrangement") pursuant to which, in addition to a base annual
salary of $490,050, Mr. Judis received an annual bonus equal to 7.5% of the
Company's pre-tax net income (prior to his bonus and prior to any extraordinary
charges). The Compensation Committee believed that the compensation arrangements
with Mr. Judis met the Company's overall approach to performance-related
executive compensation and its goal of retaining and motivating a Chief
Executive Officer responsible for setting and implementing the strategic
direction which had enabled the Company to perform at a very high level. The
1991 Compensation Arrangement aligned management and stockholder interest by
linking a substantial portion of Mr. Judis's cash compensation to pre-tax
earnings, with the result that the Chief Executive Officer compensation improved
directly in relation to improved Company profitability.
At the Compensation Committee's meeting in November 1995, an agreement
was reached with Mr. Judis as to the terms of a new five-year employment
agreement, the compensation provisions of which became effective January 1, 1997
(the "1997 Agreement"). The Compensation Committee determined that an increase
in base salary from $490,050 to $850,000 was appropriate, as Mr. Judis's base
salary had not been increased since 1994. The performance bonus and long-term
incentive provisions incorporated into the 1997 Agreement were: (1) a
performance bonus to be determined pursuant to the Company's Performance Bonus
Plan (which was approved by the stockholders at the 1996 Annual Meeting), and
(2) the grant to Mr. Judis of stock options under the Company's stock option
plans as determined by the Compensation Committee from time to time. Under the
1997 Agreement, Mr. Judis received a performance bonus under the Company's
Performance Bonus Plan with a Payment Amount of $120,000 for each percentage
point for which return on average equity exceeded the Target ROE of fifteen
percent.
On May 7, 1997, Mr. Thompson, the Company's then Chief Operating
Officer, assumed the duties of Chief Executive Officer. Prior to May 7, 1997,
Mr. Thompson's compensation was established under the terms of an employment
agreement entered into in March 1996 with the approval of the Compensation
Committee. Under that agreement, as amended, Mr. Thompson was paid a base salary
of $500,000 and received a performance bonus under the Company's Performance
Bonus Plan with a Payment Amount of $45,000 for each percentage point for which
return on average equity exceeded the Target ROE. The employment agreement also
provided for the grant of stock options covering 1,795,950 shares. The
Compensation Committee believed that the grant of the options to Mr.
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<PAGE> 25
Thompson was necessary to attract Mr. Thompson to the Company and provided the
appropriate level of long-term incentive to foster continued strong growth in
stockholder values.
Upon his appointment as Chief Executive Officer in May 1997, Mr.
Thompson's employment agreement was revised by the Compensation Committee to
increase his base salary to $900,000. Further, at Mr. Thompson's request, the
Compensation Committee replaced the performance bonus provisions of his
agreement with a discretionary bonus subject to the approval of the Board or the
stockholders. Considering the number of stock options Mr. Thompson was granted
at the time he became Chief Executive Officer, the Committee believes his
compensation is primarily performance based.
STATEMENT REGARDING TAX POLICY COMPLIANCE
Section 162(m) of the Code limits the deductible allowable to the
Company for compensation paid to the chief executive officer and each of the
four other most highly compensated executive officers to $1 million. Qualified
performance-based compensation is excluded from this limitation if certain
requirements are met, including receipt of stockholder approval or if amounts
are paid pursuant to a written contract that was in effect on February 17, 1993
and not subsequently materially modified. Under certain circumstances, the
Compensation Committee, in its discretion, may authorize payments, such as
salary, bonuses or otherwise that may cause an executive officer's income to
exceed the deductible limits. The fiscal 1997 compensation paid to Messrs.
Thompson and Kornswiet in excess of $1 million exceeded the deductible limits.
Compensation Committee: Joseph Cerrell, Chairman
Melvyn Kinder
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<PAGE> 26
EXHIBIT "B"
AAMES FINANCIAL CORPORATION
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The name of this plan is the Aames Financial Corporation 1997 Stock
Option Plan (the "Plan"). The purpose of the Plan is to enable Aames Financial
Corporation, a Delaware corporation (the "Company"), and any parent company of
and/or any subsidiary of the Company to obtain and retain the services of the
types of directors, officers (vice president or equivalent and higher) and
consultants who will contribute to the Company's long range success and to
provide incentives which are linked directly to increases in share value which
will inure to the benefit of all stockholders of the Company.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee of the Board of Directors
of the Company (the "Committee") consisting of two or more directors, each of
whom shall be both a "Non-Employee Director," as that term is defined in Rule
16b-3(b) of the Rules and Regulations (the "Rules") of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations of
the Internal Revenue Service adopted thereunder, as such Rules and such Section
and regulations may from time to time be amended or interpreted. Members of the
Committee shall serve at the pleasure of the Board of Directors of the Company.
The Committee shall have all the powers vested in it by the terms of
the Plan, including exclusive authority, (i) to select from among eligible
directors, officers and consultants those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each eligible
director, officer and/or consultant selected; (iii) to determine the time when
Awards will be granted and to establish objectives and conditions (including,
without limitation, vesting and performance conditions), if any, for earning
Awards; (iv) to amend the terms or conditions of any outstanding Award, subject
to applicable legal restrictions and to the consent of the other party to such
Award; (v) to determine the duration and purpose of leaves of absences which may
be granted to holders of Awards without constituting termination of their
employment for purposes of their Awards; (vi) to authorize any person to
execute, on behalf of the Company, any instrument required to carry out the
purposes of the Plan; and (vii) to make any and all other determinations which
it determines to be necessary or advisable in the administration of the Plan.
The Committee shall have full power and authority to administer and interpret
the Plan and to adopt, amend and revoke such rules, regulations, agreements,
guidelines and instruments for the administration of the Plan and for the
conduct of its business as the Committee deems necessary or advisable. The
Committee's interpretation of the Plan, and all actions taken and determinations
made by the Committee pursuant to the powers vested in it hereunder, shall be
conclusive and binding on all parties concerned, including the Company, its
stockholders, any participants in the Plan and any other employee of the Company
or any parent company or any subsidiary of the Company. Notwithstanding the
foregoing, the Committee shall have no authority to reprice underwater Awards
(i.e., Awards for which the exercise price is greater than the current Fair
Market Value of the Common Stock), without the approval of the Company's
stockholders.
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is a director, officer (vice president or equivalent and
higher) or consultant of the Company, or of any current or future parent company
or subsidiary of the Company (an "Optionee"), shall be eligible to be considered
for the grant of Awards under the Plan; provided, however, that Outside
Directors who are not expressly declared to be eligible to participate in the
Plan shall only be permitted to receive the Awards described in Section 5 of the
Plan; and provided, further, that only employees of the Company and of any
current or future parent or subsidiary of the Company (who are otherwise
eligible to receive Awards under the Plan) shall be eligible to receive Awards
in the form of Incentive Stock Options (as hereinafter defined) under the Plan.
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<PAGE> 27
4. AWARDS.
(a) Stock Options. Awards authorized under the Plan shall solely
consist of options to purchase of the Common Stock, par value $0.001 per share,
of the Company (the "Common Stock"), which options may be designated Incentive
Stock Options or Non-Statutory Stock Options hereunder (as defined below).
(b) Consideration. Common Stock may be issued pursuant to an Award for
any lawful consideration as determined by the Committee, including, without
limitation, services rendered, or to the extent permitted by applicable state
law, to be rendered by the recipient of the Award, or the delivery of a
promissory note or other deferred payment obligation by the Optionee. All Awards
granted under this Plan shall be exercisable at an exercise price equal to 100%
of the Fair Market Value of a share of Common Stock on the Date of Grant.
(c) Guidelines. The Committee may adopt, amend or revoke from time to
time written policies implementing the Plan. Such policies may include, but need
not be limited to, the type, size and term of Awards to be made to participants
and the conditions for payment of such Awards; provided, however, that all
Awards granted under the Plan shall have a term of 10 years, except as otherwise
required by the Code.
(d) Terms and Conditions. Subject to Section 4(e) and the other
provisions of the Plan, the Committee, in its sole and absolute discretion,
shall determine all of the terms and conditions of each Award granted pursuant
to the Plan, which terms and conditions may include, among other things:
(i) any provision necessary for such Award to qualify as an
incentive stock option under Section 422 of the Code (an "Incentive
Stock Option"); and
(ii) a provision permitting the recipient of such Award to pay
the purchase price of the Common Stock or other property issuable
pursuant to such Award, or to pay such recipient's tax withholding
obligation with respect to such issuance, in whole or in part, by
delivering previously owned shares of capital stock of the Company
(including "pyramiding") or other property, or by reducing the number
of shares of Common Stock or the amount of other property otherwise
issuable pursuant to such Award; provided, however, that, unless
otherwise expressly determined by the Committee, all Awards granted to
Executive Officers and directors of the Company shall contain
provisions allowing for the payment of the total amount of Award
exercise prices and all tax withholding obligations by means of the
delivery of shares of capital stock of the Company and/or the reduction
of the number of shares of Common Stock or the amount of other property
otherwise issuable pursuant to an Award.
(e) Mandatory Terms and Conditions. Unless otherwise expressly
determined by the Committee, each Award shall provide that as soon as
practicable following the Committee's determination that a Change in Control of
the Company (as herein defined) is likely to occur, the Committee shall provide
each Optionee who then holds an Award with notice of such event (an
"Acceleration Notice"). Unless otherwise expressly determined by the Committee,
each Award shall further provide that, regardless of the vesting schedule
contained in an Award, each Optionee receiving an Acceleration Notice may during
the 15 calendar days following the receipt of an Acceleration Notice exercise
the Award (the "Accelerated Exercise"), in whole or in part, by delivering the
Award certificate together with the exercise price associated therewith, if any,
to the Company; provided, however, that if the Change in Control does not occur
the Optionee's Accelerated Exercise shall be of no effect and the Optionee shall
be returned his or her Award certificate together with any exercise price paid
in connection with the Accelerated Exercise (but without interest thereon).
Unless otherwise expressly determined by the Committee, for purposes of the
Plan, a "Change in Control" shall mean the occurrence of any of the following
events after the Effective Date (as herein defined):
(i) 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 50% 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
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a Change in Control: (1) any acquisition by the Company or (2) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company; or
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors of
the Company; 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 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
(iii) Approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case, unless in
connection with such reorganization, merger or consolidation; (1) more
than 50% 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; (2) 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 (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
(iv) Approval by the stockholders of the Company of (1) a
complete liquidation or dissolution of the Company or (2) 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 50% 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 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% of 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.
(f) Maximum Awards. An Optionee may be granted multiple Awards under
the Plan. However, notwithstanding any other provision of the Plan, the maximum
number of shares of Common Stock with respect to which Awards may be granted
under the Plan to any Optionee during any fiscal year shall be 400,000, subject
to adjustment as provided in Section 8 of the Plan.
(g) Suspension or Termination of Awards. If the Board of Directors of
the Company determines that an Optionee has committed an act of embezzlement,
fraud, nonpayment of any obligation owed to the Company or any subsidiary,
breach of fiduciary duty or deliberate disregard of the Company's rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of trade secret or confidential information of the
Company, engages in any conduct constituting unfair competition, or induces any
customer of the Company to breach a contract with the Company, the Committee may
terminate the Optionee's rights under any then outstanding Award. In making such
determination, the Board of Directors of the Company shall act fairly and shall
give the Optionee a
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reasonable opportunity to appear and present evidence on his or her behalf at a
hearing before a committee of the Board of Directors of the Company; and if the
Optionee is an Executive Officer, the determination of the Board of Directors of
the Company shall be subject to the approval of the Committee.
5. MANDATORY GRANTS TO OUTSIDE DIRECTORS.
(a) Mandatory Grants to Outside Directors. Notwithstanding any other
provisions of the Plan, the grant of Awards to each Outside Director shall be
subject to the following limitations of this Section 5.
(i) Upon the initial election or appointment of an Outside
Director, the Committee shall grant to such member, at the first
meeting of the Committee following the date of such election or
appointment, an award in the form of a ten-year Non-Statutory Stock
Option (as hereinafter defined) to purchase 10,000 shares of Common
Stock.
(ii) The Committee shall grant to each Outside Director who
was an Outside Director prior to the annual meeting of the Company's
stockholders, effective as of each annual meeting at the conclusion of
which the Outside Director still serves as a director of the Company,
an award in the form of a ten year Non-Statutory Stock Option to
purchase 1,500 shares of Common Stock.
(iii) All Awards granted to Outside Directors under this
Section 5 shall be exercisable at an exercise price equal to 100% of
the Fair Market Value of a share of Stock on the Date of Grant.
(iv) All Awards granted to Outside Directors under this
Section 5 will vest or become exercisable as follows: 33% of the Award
(rounded up to the nearest whole share) shall vest on the first
anniversary of the Date of Grant of the Award, and 33% of the Award
(rounded up to the nearest whole share) shall vest on the second
anniversary of the Date of Grant of the Award, and the remaining
portion of the Award shall vest on the third anniversary of the Date of
Grant of the Award.
(v) Unless otherwise provided in the Plan, all provisions
regarding the terms of Awards, other than those pertaining to the
vesting of Awards, the number of shares covered by Awards, term and
Exercise Price of Awards shall be applicable to the Award granted to
Outside Directors under this Section 5.
(b) Prohibition of Other Grants to Outside Directors. Notwithstanding
any other provisions in this Plan, the mandatory grants described in this
Section 5 shall constitute the only Awards under the Plan permitted to be made
to Outside Directors unless such persons are designated eligible persons by the
Board of Directors of the Company.
(c) Grants Under the Aames Financial Corporation 1996 and 1995 Stock
Incentive Plans. Awards granted under this Section 5 of the Plan are in lieu of
and supersede the mandatory grants established for Outside Directors under
Section 5 of the Aames Financial Corporation 1996 Stock Incentive Plan and the
Aames Financial Corporation 1995 Stock Incentive Plan.
6. SHARES AVAILABLE FOR AWARDS.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to all Awards under the Plan (including Awards in the form of
Incentive Stock Options and Non-Statutory Stock Options) shall not exceed an
aggregate of 400,000 shares of Common Stock, subject to adjustment as provided
in Section 8 of the Plan; and the aggregate number of shares of Common Stock
that may be issued pursuant to all Incentive Stock Options granted under the
Plan shall not exceed 400,000 shares, subject to adjustment as provided in
Section 8 of the Plan. Shares of Common Stock subject to the Plan may consist,
in whole or in part, of authorized and unissued shares or treasury shares. Any
shares of Common Stock subject to an Award which for any reason expires or is
terminated unexercised as to such shares shall again be available for issuance
under the Plan. For purposes of this Section 6, the aggregate number of shares
of Common Stock that may be issued at any time pursuant to Awards granted under
the Plan shall be reduced by: (i) the number of shares of Common Stock
previously issued pursuant to Awards granted under the Plan, other than shares
of Common Stock subsequently reacquired by the Company pursuant to the terms and
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conditions of such Awards and with respect to which the holder thereof received
no benefits of ownership, such as dividends; and (ii) the number of shares of
Common Stock which were otherwise issuable pursuant to Awards granted under this
Plan but which were withheld by the Company as payment of the purchase price of
the Common Stock issued pursuant to such Awards or as payment of the recipient's
tax withholding obligation with respect to such issuance.
7. VESTING.
Subject to Section 5 of the Plan, the Committee may determine that all
or a portion of an Award granted to a participant under the Plan shall be vested
at such times and upon such terms as may be selected by the Committee in its
sole discretion; provided, however, that, unless otherwise expressly determined
by the Committee, all Awards granted to Executive Officers shall provide for
vesting in four annual installments commencing on the first anniversary of the
date of the Date of Grant of such Award.
8. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of the Common
Stock or other securities then subject to the Plan by reason of any stock split,
reverse stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
(other than a regular cash dividend), then, unless the terms of such transaction
shall provide otherwise, such equitable adjustments shall be made in the Plan
and the Awards thereunder (including, without limitation, appropriate and
proportionate adjustments in (i) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Incentive
Stock Options and other Awards theretofore granted under the Plan, (ii) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock Options and other Awards thereafter granted under
the Plan and (iii) the maximum number of securities with respect to which Awards
may thereafter be granted to any Optionee in any fiscal year) as the Committee
determines are necessary or appropriate, including, if necessary, any
adjustments in the maximum number of shares referred to in Section 6 of the
Plan; provided, however, that no such adjustments shall be made in the mandatory
grants to Outside Directors made pursuant to Section 5 of the Plan in the event
of a stock split or stock dividend declared by the Company. Such adjustments
shall be conclusive and binding for all purposes of the Plan.
9. MISCELLANEOUS PROVISIONS.
(a) Definitions. As used herein, (i) "subsidiary" means any current or
future corporation which would be a "subsidiary corporation," as that term is
defined in Section 424(f) of the Code, of the Company; (ii) "Executive Officer"
means a person holding one of the offices enumerated in Rule 16a-1(f) of the
Rules; (iii) "Date of Grant" means the date on which the Committee adopts a
resolution expressly granting an Award to an eligible participant in the Plan,
or if a different date is set forth in such resolution as the Date of Grant,
then such date as set forth in such resolution (iv) "Fair Market Value" per
share at any date shall mean (a) if the Common Stock is listed on an exchange or
exchanges, or admitted for trading in a market system which provides last sale
data under Rule 11Aa3-1 of the General Rules and Regulations of the SEC under
the Exchange Act (a "Market System"), the last reported sales price per share on
the last business day prior to such date on the principal exchange on which it
is traded, or in a Market System, as applicable, or if no sale was made on such
day on such principal exchange or in such a Market System, as applicable, the
last reported sales price per share on the most recent day prior to such date on
which a sale was reported on such exchange or such Market System, as applicable;
or (b) if the Stock is not then traded on an exchange or in a Market System, the
average of the closing bid and asked prices per share for the Stock in the
over-the-counter market as quoted on NASDAQ on the day prior to such date; or
(c) if the Stock is not listed on an exchange or quoted on NASDAQ, an amount
determined in good faith by the Committee; (v) "Outside Director" means a
Director who is not (a) a current employee of the Company (or any related
entity), (b) a former employee of the Company (or any related entity) who is
receiving compensation for prior services (other than benefits under a
tax-qualified retirement plan), (c) a former officer of the Company (or any
related entity), or (d) a consultant or person otherwise receiving compensation
or other remuneration, either directly or indirectly, in any capacity other than
as a Director; and (vi) "Non-Statutory
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<PAGE> 31
Stock Option" means an Award in the form of a stock option that is not an
Incentive Stock Option; and (vii) the term "or" means "and/or."
(b) Conditions on Issuance. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is determined by Company counsel to be necessary
to the lawful issuance and sale of any security or Award, shall relieve the
Company of any liability in respect of the nonissuance or sale of such
securities as to which requisite authority shall not have been obtained.
(c) Rights as Stockholder. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant.
(d) Assignment or Transfer. Subject to the provisions of the Code
concerning Incentive Stock Options, at the discretion of the Committee, Awards
under the Plan and rights or interests therein may be assignable or transferable
by a participant.
(e) Agreements. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Committee shall from time to time adopt.
(f) Withholding Taxes. Subject to Section 4(d)(ii) of the Plan, the
Company shall have the right to deduct from all Awards hereunder paid in cash
any federal, state, local or foreign taxes required by law to be withheld with
respect to such awards and, with respect to awards paid in stock, to require the
payment (through withholding from the participant's salary or otherwise) of any
such taxes. The obligation of the Company to make delivery of Awards in cash or
Common Stock shall be subject to currency or other restrictions imposed by any
government authorities.
(g) No Rights to Award. Subject to Section 5 of the Plan, no Optionee
or other person shall have any right to be granted an Award under the Plan.
Neither the Plan nor any action taken hereunder shall be construed as giving any
Optionee any right to be retained in the employ of the Company or any of its
subsidiaries or shall interfere with or restrict in any way the rights of the
Company or any of its subsidiaries, which are hereby reserved, to discharge the
Optionee at any time for any reason whatsoever, with or without good cause.
(h) Costs and Expenses. The costs and expenses of administering the
Plan shall be borne by the Company and not charged to any Award nor to any
Optionee receiving an Award.
(i) Funding of Plan. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
10. AMENDMENTS AND TERMINATION.
(a) Amendments. The Committee may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any Awards theretofore made
under the Plan. However, with the consent of the Optionee affected, the
Committee may amend outstanding agreements evidencing Awards under the Plan in a
manner not inconsistent with the terms of the Plan.
(b) Stockholder Approval. To the extent that Rule 16b-3 of the Rules,
Section 422 of the Code, other applicable law, or the rules, regulations,
procedures or listing agreement of any national securities exchange or quotation
system, requires that any such amendment to the Plan be approved by the
stockholders of the Company, no such amendment shall be effective unless and
until it is approved by the stockholders in such a manner and to such a degree
as is required.
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<PAGE> 32
(c) Termination. Unless the Plan shall theretofore have been terminated
as above provided, the Plan (but not the awards theretofore granted under the
Plan) shall terminate on and no awards shall be granted after October 1, 2007.
11. EFFECTIVE DATE.
Subject to adoption by the stockholders of the Company, the Plan shall
be effective as of October 1, 1997 (the "Effective Date").
12. GOVERNING LAW.
The corporate law of Delaware shall govern issues related to the
validity and issuance of Common Stock. Otherwise, the Plan and any agreements
entered into thereunder shall be construed and governed by the laws of the State
of California applicable to contracts made within, and to be performed wholly
within, such state.
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<PAGE> 33
PROXY
AAMES FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 19, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of Aames Financial Corporation, a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Proxy Statement
and the Notice of the Annual Meeting of Stockholders of the Company (the
"Annual Meeting") to be held on November 19, 1997, at 3:00 p.m., Los Angeles
time, at the Hotel Inter-Continental, 251 S. Olive Street, Los Angeles,
California, and hereby further revokes all previous proxies and appoints Cary
H. Thompson, Gregory J. Witherspoon and Melvyn Kinder, as proxies of the
undersigned, with full power of substitution for and in the name of the
undersigned, at the Annual Meeting and any adjournments thereof with the same
effect as if the undersigned were present, for the following purposes:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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<PAGE> 34
Please mark
your vote as [X]
indicated in
this example
FOR all nominees listed WITHHOLD AUTHORITY
(except as marked (to vote for all the
to the contrary) nominees listed)
1. ELECTION OF DIRECTORS:
The election of the following [ ] [ ]
persons as directors of the
Company, as provided in the
Company's Proxy Statement
George W. Coombe, Jr., Neil B. Kornswiet and
Georges C. St. Laurent, Jr.
INSTRUCTION: To vote against any one nominee, write
that nominee's name in the space provided below.
___________________________________________________
FOR AGAINST ABSTAIN
2. The approval of the adoption of the Company's 1997
Stock Option Plan, as provided in the Company's [ ] [ ] [ ]
Proxy Statement.
FOR AGAINST ABSTAIN
3. The ratification of the appointment of Price
Waterhouse LLP as the Independent accountants of [ ] [ ] [ ]
the Company for fiscal 1998.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS YOU HAVE
INDICATED ABOVE. IF NO INDICATION HAS BEEN MADE, THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE ABOVE NOMINEES
AND IN FAVOR OF THE PROPOSALS AND, AS THE PROXY DEEMS
ADVISABLE, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE ANNUAL MEETING.
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY TEARING OFF THE
TOP PORTION OF THIS SHEET AND RETURNING IT IN THE
ENCLOSED POSTPAID ENVELOPE
Signature(s) ____________________________________________
Signature, if held jointly ______________________________ Date _________, 1997
(Please sign exactly as your name appears on your stock certificate.) When
signing as attorney, executor, administrator, trustee, or guardian, please give
full title. If more than one trustee, all should sign. All joint owners should
sign. If a corporation, sign in full corporation name by President or other
authorized officer. If a partnership, sign in partnership name by authorized
person. Persons signing in fiduciary capacity should indicate their full title
in such capacity.
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