<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 DECEMBER 18, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting" or "Annual Meeting") of Aames Financial Corporation (the "Company")
will be held at the Hotel Inter-Continental, 251 S. Olive Street, Los Angeles,
California 90012, on Friday, December 18, 1998, at 3:00 p.m., Los Angeles time,
for the following purposes:
1. To elect one Class III director to hold office for three years and until
such director's successor is elected;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending June 30, 1999; and
3. 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 22, 1998 are entitled to notice of and to vote at the Meeting and any
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 29, 1998
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, 52ND FLOOR
LOS ANGELES, CALIFORNIA 90071
(323) 210-5000
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 18, 1998
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 1998 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 Friday,
December 18, 1998, and at any adjournment(s) thereof. The Board of Directors has
adopted a set of corporate governance principles regarding the roles of
directors, board structure, committee meetings and other governance issues. A
copy of the Corporate Governance Guidelines is available upon written request
submitted to:
Aames Financial Corporation
350 South Grand Avenue, 52nd Floor
Los Angeles, California 90071
ATTN: Corporate Secretary
It is anticipated that this Proxy Statement and the accompanying Proxy will
be mailed to stockholders on or about October 29, 1998.
At the Meeting, the stockholders of the Company will vote upon: (i) the
election of one Class III director to hold office for three years; (ii) the
ratification of the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending June 30, 1999; and (iii) such
other matters as may properly come before the Meeting and any adjournment(s)
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
nominee for director set forth herein, (ii) in favor of the ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants and (iii) 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 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.
1
<PAGE> 4
VOTING SECURITIES
The close of business on October 22, 1998 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Meeting and any adjournment(s) thereof. As of September 30, 1998, 31,015,763
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. As of such date, the Company had
approximately 225 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 the nominee listed," "Withhold Authority" 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 III DIRECTOR
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 number of directors is
currently fixed at seven. The Board of Directors currently consists of three
Class I directors with terms expiring in 2000, three Class II directors with
terms expiring in 1999 and one Class III director with a term expiring in 1998.
At the Meeting, the Class III director will be elected for a term expiring at
the year 2001 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 but in no case
will a decrease in the number of directors shorten the term of any incumbent
directors. 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 nominee 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
THE NOMINEE LISTED BELOW.
The Board of Directors proposes the election of the following nominee as a
Class III director:
Lee Masters (also known as Jarl Mohn)
If elected, the nominee is expected to serve until the year 2001 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 III director is required for the election of the
above-named nominee.
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<PAGE> 5
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, 1998:
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE POSITION EXPIRES
---- --- -------- ---------
<S> <C> <C> <C>
NOMINEES:
Lee Masters.......................... 45 Director 1998
CONTINUING DIRECTORS:
George W. Coombe, Jr................. 73 Director 2000
John C. Getzelman.................... 55 Director 1999
Melvyn Kinder, Ph.D.................. 59 Director 1999
Neil B. Kornswiet.................... 41 Co-Chairman of the Board and President and 2000
Chairman, Chief Executive Officer and
President of One Stop Mortgage, Inc. ("One
Stop")
Georges C. St. Laurent, Jr........... 62 Co-Chairman of the Board 2000
Cary H. Thompson..................... 41 Chief Executive Officer and Director 1999
OTHER EXECUTIVE OFFICERS:
Mark E. Costello..................... 48 Executive Vice President -- Loan Production
Joseph A. Magnus..................... 36 Executive Vice President -- Chief Credit
Officer
Barbara S. Polsky.................... 44 Executive Vice President, General Counsel
and Secretary
Daniel H. Relf....................... 55 Executive Vice President -- National Loan
Servicing
David A. Sklar....................... 45 Executive Vice President -- Finance and
Chief Financial Officer (Chief Accounting
Officer)
</TABLE>
The executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. There are no family relationships between
any director and any executive officer of the Company.
LEE MASTERS was elected a director of the Company in July 1997. In
September 1998 Mr. Masters was named as president and chief executive, effective
January 1, 1999, of a new cable and interactive television company being formed
by Liberty Media Corp., the programming arm of Tele-Communications Inc. From
1990 until September 1998, Mr. Masters was 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.
GEORGE W. COOMBE, JR. was elected a director of the Company in November
1997. Currently Mr. Coombe 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.
JOHN C. GETZELMAN was elected a director of the Company in July 1997.
Currently, Mr. Getzelman is President and Chief Executive Officer of Crown
American Bank located in Inglewood, California. From 1992 to 1998, Mr. Getzelman
served as President and Chief Executive Officer of Community Bank located in
Pasadena, California. 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.
3
<PAGE> 6
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, California and also serves as co-director of Westbridge
Psychiatric Medical Group in Los Angeles.
NEIL B. KORNSWIET was elected a director in September 1996 and appointed
Co-Chairman of the Board in November 1997. 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 served
as 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., appointed Co-Chairman of the Board in November
1997, 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.
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.
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.
JOSEPH A. 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
positions 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 an 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 institutions
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 -- National Loan
Servicing. Prior to joining the Company, Mr. Relf served as Senior Vice
President -- Service Operations of Great Western Bank from 1986 to 1992.
DAVID A. SKLAR joined the Company in May 1997 as Executive Vice
President -- Finance. In November 1997, he was named Executive Vice
President -- Finance and Chief Financial Officer. Prior to joining the Company
he was Executive Vice President and Chief Financial Officer of Imperial Bancorp
and subsidiaries.
4
<PAGE> 7
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of 14 meetings during the fiscal year
ended June 30, 1998. 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, 1998, each director, with the exception of Lee
Masters, attended at least 75% of the meetings of the Board of Directors and
committees on which he served.
The Audit Committee met five times, the Compensation Committee met seven
times and the Nominating Committee did not meet during the fiscal year ended
June 30, 1998. 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 as well as 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, approves and recommends
to the Board of Directors all short-term compensation and compensation plans for
the Chief Executive Officer (and President, if not the Chief Executive Officer)
of the Company, and the Named Executive Officers (as defined under "Executive
Compensation -- Summary Compensation Table") as well as approves and authorizes
grants under the Company's stock option 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. Getzelman, Coombe and St. Laurent, the members of the Compensation
Committee are Dr. Kinder and Messrs. Masters and St. Laurent and the members of
the Nominating Committee are Dr. Kinder and Mr. St. Laurent.
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 Outside Director's original appointment or election to the Board. In
addition, each Outside Director is entitled to receive an annual retainer of
$8,000, a fee of $2,000 for each regular or special Board meeting attended in
person, $500 for each regular or special committee meeting attended in person or
by telephone, $1,000 for each regular or special Board meeting attended by
telephone, and an option to purchase an additional 1,500 shares of the Company's
Common Stock as of each annual meeting at the conclusion of which the Outside
Director still serves as a director of the Company.
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 Co-Chairman of the Board of the Company. In the
acquisition, the Company issued approximately 3.5 million shares of the
Company's 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 One Stop. See
"Executive Compensation."
On January 26, 1998, the Board of Directors approved the Executive and
Director Loan Program under which directors and executive officers of the
Company are entitled to obtain a mortgage loan from the Company at the Company's
cost of funds (plus 25 basis points) as determined by an approved, independent
investment banking firm. All loans made under the Executive and Director Loan
Program are fixed rate, fully amortized, 15- or 30-year loans with no prepayment
penalties and are underwritten to the Company's underwriting guidelines in
effect at the time of the loan. Participants in this program are not charged any
loan fees except for those fees or costs charged by third parties. The following
executive officers and directors have home refinance loans with the Company for
the following principal amount and outstanding balance (as of
5
<PAGE> 8
October 19, 1998) at an interest rate of 6.5%: Mark E. Costello, executive
officer, $325,000 loan amount, $315,795 outstanding balance; Melvyn Kinder,
director, $400,000 loan amount, $397,427 outstanding balance; John C. Getzelman,
director, $642,000 loan amount, $638,470 outstanding balance; Barbara S. Polsky,
executive officer, $400,500 loan amount, $397,924 outstanding balance; David A.
Sklar, executive officer, $379,300 loan amount, $377,215 outstanding balance;
Cary H. Thompson, executive officer and director, $240,500 loan amount, $240,500
outstanding balance.
From time to time certain officers, directors and employees of the Company,
as well as members of their immediate families, acted 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. Kinder, Masters
and St. Laurent who are not, and have never been, officers or employees of the
Company, served as members of the Compensation Committee during the 1998 fiscal
year.
REPORT OF THE COMPENSATION COMMITTEE
The Report of the Compensation Committee of the Board of Directors of the
Company, describing the compensation policies and philosophy of the Company and
certain determinations with respect to bonuses and stock option grants for the
year ended June 30, 1998, is attached to this Proxy Statement as Exhibit "A."
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 1998, 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
6
<PAGE> 9
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
Kingdon Capital Management Corporation
152 West 57th Street
New York, New York 10019............................ 2,289,100(1) 7.38%
Thirty-Five East Investments LLC
35 East 62nd Street
New York, New York.................................. 2,225,865(2) 7.18%
Turtle Creek Revocable Trust
200 Crescent Court, Suite 1350
Dallas, Texas 75201................................. 556,466(2) 1.79%
George W. Coombe, Jr................................ 4,300(3) *
Mark E. Costello.................................... 35,875(4) *
John C. Getzelman................................... 3,829(5) *
Melvyn Kinder Ph.D.................................. 21,995(6) *
Neil B. Kornswiet................................... 2,397,860(7) 7.73%
Joseph A. Magnus.................................... 38,000(5) *
Lee Masters......................................... 3,829(5) *
Barbara S. Polsky................................... 68,750(5) *
Georges C. St. Laurent, Jr. ........................ 53,300(8) *
Cary H. Thompson.................................... 922,488(9) 2.97%
All executive officers, directors and nominees as a
group (12 persons)................................ 3,608,612(10) 11.63%
</TABLE>
- ---------------
* Less than one percent.
(1) This information was obtained from a Schedule 13G filed with the Securities
and Exchange Commission (the "SEC") on August 24, 1998.
(2) This information was obtained from a Schedule 13D filed with the SEC on
March 19, 1998. Thirty-Five East Investments LLC and Turtle Creek Revocable
Trust filed jointly, however each disclaimed beneficial ownership in any
shares of Common Stock beneficially owned by the other.
(3) Includes 3,300 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
September 30, 1998.
(4) Includes 31,075 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
September 30, 1998.
(5) Represents shares of Common Stock underlying options which are currently
exercisable or which will become exercisable within 60 days of September
30, 1998.
(6) Includes 13,745 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
September 30, 1998.
(7) Includes 575,000 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
September 30, 1998.
(8) Includes 3,300 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
September 30, 1998.
(9) Includes 900,588 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
September 30, 1998.
(10) Includes 1,697,302 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
September 30, 1998.
7
<PAGE> 10
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 Chief Executive Officer
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 COMPENSATION
------------------ ------ -------- ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Neil B. Kornswiet............ 1998 $900,000 $3,837,449(2) -- -- $40,800(3)
President(4) 1997 666,042 4,408,863 -- 555,000 N/A
1996 N/A N/A -- N/A N/A
Cary H. Thompson............. 1998 $900,000 $ -- -- -- $ 4,800(5)
Chief Executive Officer(6) 1997 634,805 1,073,339 -- -- N/A
1996 125,000 298,000 -- 1,821,825 N/A
Barbara S. Polsky............ 1998 $300,000 $ 194,000(2) -- 60,000 $13,000(7)
Executive Vice President, 1997 245,000 318,120 -- 10,000 N/A
General Counsel and 1996 35,538 -- -- 56,350 N/A
Secretary(8)
Mark E. Costello............. 1998 $200,000 $ 224,188(9) -- 30,000 $12,800(10)
Executive Vice President -- 1997 165,000 466,968 -- 12,500 4,500(5)
Loan Production 1996 130,000 201,000 -- 11,250 2,438(5)
Joseph Magnus................ 1998 $180,000 $ 220,000(11) -- 30,000 $10,116(12)
Executive Vice President -- 1997 69,641 109,058 -- -- N/A
Chief Credit Officer(13) 1996 N/A N/A -- N/A N/A
</TABLE>
- ---------------
(1) The aggregate amount of all perquisites and personal benefits received by
each of the Named Executive Officers in each of fiscal years 1996, 1997 and
1998 was not in excess of $50,000 or 10% of the total of annual salary and
bonus reported for such Named Executive Officer.
(2) Named Executive Officer has agreed to waive receipt of June 30, 1998 bonus.
(3) Consists of $36,000 in employer contributions to the Company's Deferred
Compensation Plan and $4,800 in employer contributions to the Company's
Section 401(k) Plan.
(4) Mr. Kornswiet joined the Company in August 1996.
(5) Consists of employer contributions to the Company's Section 401(k) Plan.
(6) Mr. Thompson joined the Company in March 1996 and became the Chief
Executive Officer in May 1997.
(7) Consists of $8,200 in employer contributions to the Company's Deferred
Compensation Plan and $4,800 in employer contributions to the Company's
Section 401(k) Plan.
(8) Ms. Polsky joined the Company in May 1996.
(9) Includes fiscal fourth quarter ended June 30, 1998 bonus of $54,188 which
Mr. Costello has agreed to defer.
(10) Consists of $8,000 in employer contributions to the Company's Deferred
Compensation Plan and $4,800 in employer contributions to the Company's
Section 401(k) Plan.
(11) Includes fiscal fourth quarter ended June 30, 1998 bonus of $50,000 which
Mr. Magnus has agreed to defer.
(12) Consists of $6,400 in employer contributions to the Company's Deferred
Compensation Plan and $3,716 in employer contributions to the Company's
Section 401(k) Plan.
(13) Mr. Magnus joined the Company in January 1997.
8
<PAGE> 11
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, 1998 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<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(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED(2) FISCAL YEAR(3) SHARE(4) DATE 5% 10%
---- ----------------- -------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Neil B. Kornswiet....... -- -- -- -- -- --
Cary H. Thompson........ -- -- -- -- -- --
Barbara S. Polsky(5).... 60,000 6.63% $13.44 11/18/2007 $506,896 $1,284,805
Mark E. Costello(5)..... 30,000 3.32% $13.44 11/18/2007 $253,448 $ 642,402
Joseph A. Magnus(5)..... 30,000 3.32% $13.44 11/18/2007 $253,448 $ 642,402
</TABLE>
- ---------------
(1) 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.
(2) All of the options set forth in this chart were granted for a term of 10
years.
(3) Options covering an aggregate of 904,300 shares were granted to eligible
employees during the fiscal year ended June 30, 1998.
(4) 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.
(5) These options became exercisable as to 20% of the shares on November 18,
1997. The remaining shares vest at a rate of 20% on each anniversary of the
date of grant thereafter until fully vested.
9
<PAGE> 12
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, 1998 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(2)(3)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- --------------- -------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
Neil B. Kornswiet.............. -- -- 550,000/ -- -- / --
Cary Thompson.................. -- -- 900,303/719,997 $2,168,494/$1,012,500
Barbara S. Polsky.............. -- -- 49,750/ 76,500 $ 4,200/$ 15,600
Mark Costello.................. -- -- 18,075/ 37,250 $ 33,038/$ 7,800
Joseph A. Magnus............... -- -- 25,000/ 52,500 $ 2,340/$ 8,160
</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) Based upon the last reported sale price of the Common Stock on the NYSE on
June 30, 1998 ($13.75) less the option exercise price.
(3) As of September 30, 1998, none of the options outstanding were in-the-money.
The closing price on September 30, 1998 was $6.06.
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 it has complied with all relevant
Section 16(a) filing requirements during the year-ended June 30, 1998.
EMPLOYMENT AND SEVERANCE AGREEMENTS
On August 28, 1997, the Company entered into a five-year employment
agreement with Neil B. Kornswiet, the Company's Co-Chairman of the Board and
President and One Stop's Chairman, President and Chief Executive Officer. The
agreement was amended and restated and extended for an additional two years in
August 1998. 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
between $1.35 million and $1.65 million depending on the retail and broker loan
production of the Company (the "Performance Bonus"). 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, under certain circumstances, 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 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) Mr. Kornswiet will receive
10
<PAGE> 13
$30 million minus the amount of any Performance Bonus previously paid (the
"Performance Severance Payment"). In the event of a Severance Termination (as
defined in the agreement) or a voluntary termination following a Change in
Control, Mr. Kornswiet will receive his base salary for three years (or the
remaining term of the agreement, if longer), the Performance Severance Payment
to the extent not previously paid 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, all options would become immediately vested
and remain exercisable for the entire remaining term of the option.
The Company has employment 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 entered into in March 1996 and amended in May 1997 and August 1998,
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, under certain circumstances, 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 purchase 1,125,000 shares of the Company's
Common Stock and additional non-qualified options to purchase 670,950 shares of
the Company's 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 (defined the same as in
Mr. Kornswiet's agreement), 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 vest as of the Severance Termination and remain
exercisable for 12 months following such date. In addition, in the event of a
Change in Control, all options would become immediately vested and remain
exercisable for the entire remaining term of the option.
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 under the
Company's performance bonus plan for executive officers. See "Report of the
Compensation Committee on Executive Compensation." 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
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.
Kornswiet's agreement), Ms. Polsky would receive the same benefits as in a
termination without cause.
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 under the Company's performance bonus plan for
executive officers. See "Report of the Compensation Committee on Executive
Compensation." 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 an amended and restated employment agreement with
Joseph Magnus, Executive Vice President -- Chief Credit Officer, effective June
1, 1997 with a term expiring on January 15, 2000. The agreement provides for a
base salary of $160,000 per year and a quarterly bonus under the
11
<PAGE> 14
Company's performance bonus plan for executive officers. If Mr. Magnus'
employment is terminated without cause, he will receive an amount equal to six
months' base salary. If Mr. Magnus' 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 (defined the same as in
Mr. Kornswiet's Agreement), 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. In addition, all of the
options granted over the term shall become immediately exercisable as of the
date of such termination and shall remain so for a period of 12 months
thereafter.
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 1998 fiscal year, the Company made no
matching or discretionary contributions to the plan. In October, 1998, the
Company suspended contributions to the Deferred Compensation Plan.
12
<PAGE> 15
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, 1993 and ending on June 30, 1998. 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.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Aames Financial NY Stock
Corporation Exchange Index Peer Group
<S> <C> <C> <C>
Jun-93 100.00 100.00 100.00
Jun-94 87.73 98.42 91.54
Jun-95 193.01 117.16 128.34
Jun-96 578.01 144.20 187.59
Jun-97 449.72 185.64 216.97
Jun-98 337.35 232.33 243.50
</TABLE>
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers 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, 1999. PricewaterhouseCoopers LLP has audited the Company's financial
statements annually since 1990. Representatives of PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP
for fiscal 1999 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 PRICEWATERHOUSECOOPERS LLP.
13
<PAGE> 16
PROPOSALS OF STOCKHOLDERS
A proper proposal submitted by a stockholder for presentation at the
Company's 1999 Annual Meeting and received at the Company's executive offices no
later than June 12, 1999, will be included in the Company's Proxy Statement and
form of Proxy relating to the 1999 Annual Meeting. In addition, in the event a
stockholder proposal is not received by the Company by August 26, 1999, the
Proxy to be solicited by the Board of Directors for the 1999 Annual Meeting will
confer discretionary authority on the holders of the Proxy to vote the shares if
the proposal is presented at the 1999 Annual Meeting without any discussion of
the proposal in the Proxy Statement for such meeting. SEC rules and regulations
provide that if the date of the Company's 1999 Annual Meeting is advanced or
delayed more than 30 days from the date of the 1998 Annual Meeting, stockholder
proposals intended to be included in the proxy materials for the 1999 Annual
Meeting must be received by the Company within a reasonable time before the
Company begins to print and mail the proxy materials for the 1999 Annual
Meeting. Upon determination by the Company that the date of the 1999 Annual
Meeting will be advanced or delayed by more than 30 days from the date of the
1998 Annual Meeting, the Company will disclose such change in the earliest
possible quarterly report on Form 10-Q. Please address your proposals to Aames
Financial Corporation, 350 S. Grand Ave., 52nd Floor, Los Angeles, California
90071, Attention: Corporate Secretary.
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, 1998 was mailed to stockholders on October 14, 1998.
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, 1998, 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, 51ST FLOOR, LOS ANGELES, CALIFORNIA 90071,
ATTN: EXECUTIVE VICE PRESIDENT -- FINANCE.
DATED: October 29, 1998 ON BEHALF OF THE BOARD OF DIRECTORS
/s/ BARBARA S. POLSKY
Barbara S. Polsky
Secretary
14
<PAGE> 17
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 1998 fiscal year, the Compensation Committee of the Board of
Directors was comprised of Dr. Melvyn Kinder, Georges St. Laurent and Lee
Masters 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 Named
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 individual and Company 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 Named 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. Base salaries for other
executive officers are established by the Chief Executive Officer who applies
the same criteria. 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.
Bonuses paid to the Company's executive officers (excluding the Chief
Executive Officer and President) are 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 between $1.35 million and $1.65 million depending on the retail
and broker loan production of the Company. The other 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, 1998, the
Company's six key employees (excluding the Company's Chief Executive Officer)
held options to acquire 971,575 shares of the Company's Common Stock.
A-1
<PAGE> 18
PERFORMANCE BONUS PLAN
In October 1995, the Compensation Committee adopted a performance bonus
plan (the "Old 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"). 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. 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 1998, the range in Payment
Amounts for Old Performance Bonus Plan participants was from $4,000 to $15,000.
Commencing June 1997 through the fiscal quarter-ended December 31, 1997, the
quarterly bonuses paid to Old Performance Bonus Plan participants were fixed at
the third 1997 fiscal quarter levels pending review of the Old Performance Bonus
Plan by the Compensation Committee. In November 1997 and as amended in May 1998,
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 and adopted the New Performance Bonus Plan. All
executive officers, other than the Chief Executive Officer and the President,
participate in the New Performance Bonus Plan. Under the New Performance Bonus
Plan, bonuses are paid quarterly and are tied to (i) the achievement by each
participant of certain predetermined goals established annually by the Chief
Executive Officer subject, in the case of the Named Executive Officers, to
approval by the Compensation Committee, (ii) the achievement by the Company of
net income goals established annually by the Chief Executive Officer and
presented to the Board of Directors, and (iii) maximum levels of bonus for each
individual established annually by the Chief Executive Officer subject, in the
case of the Named Executive Officers, to approval by the Compensation Committee.
Participants receive the full quarterly bonus in each quarter where at least
seventy percent of the individual and Company performance goals are met. Where
the Company achieves at least seventy percent of its goals, but the participant
achieves less than seventy percent of his or her goals, bonuses may be paid
based on the participant's percentage of achievement of his or her individual
goals.
EXECUTIVE COMPENSATION -- CHIEF EXECUTIVE OFFICER
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 and amended in May 1997 and August 1998
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. 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 Internal Revenue 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
A-2
<PAGE> 19
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 1998 compensation paid to Mr. Kornswiet
in excess of $1 million exceeded the deductible limits.
Compensation Committee:
Melvyn Kinder, Chairman
Lee Masters
Georges St. Laurent
A-3
<PAGE> 20
PROXY
AAMES FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 18, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of Aames Financial Corporation, a Delaware
corporation (the "Company"), hereby acknowledge(s) receipt of the Proxy
Statement and the Notice of the Annual Meeting of Stockholders of the Company
(the "Annual Meeting") to be held on December 18, 1998, 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
Barbara S. Polsky, David A. Sklar and Ralph W. Flick as proxies of the
undersigned, with full power of substitution for and in the name of the
undersigned, at the Annual Meeting and any adjournment(s) thereof with the same
effect as if the undersigned were present, for the following purposes:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 21
Please mark
your vote as [X]
indicated in
this example.
FOR the nominee
listed (except WITHHOLD AUTHORITY
as marked to (to vote for all
the contrary the nominees listed)
1. ELECTION OF DIRECTORS
The election of the following [ ] [ ]
person as a director of the
Company, as provided in the
Company's Proxy Statement.
Lee Masters
INSTRUCTION: To vote against any one nominee,
write that nominee's name in the space provided
below:
_______________________________________________
FOR AGAINST ABSTAIN
2. The ratification of the appointment [ ] [ ] [ ]
of PricewaterhouseCoopers LLP as the
independent accountants of the
Company for fiscal 1999.
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 NOMINEE AND IN FAVOR
OF THE ABOVE PROPOSAL 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 POSTAGE-PAID ENVELOPE.
Signature(s)____________________ Signature, if held jointly____________________
Date ___________________, 1998
(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 then 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 a fiduciary capacity should indicate their full
title in such capacity.
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