<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K/A
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the Fiscal Year Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number 0-19604
AAMES FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4340340
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
350 S. GRAND AVENUE, LOS ANGELES, CALIFORNIA 90071
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (323) 210-5000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each Class Name of each exchange on which registered
<S> <C>
COMMON STOCK, PAR VALUE $0.001 NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
10.50% SENIOR NOTES DUE 2002 NEW YORK STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
SERIES C CONVERTIBLE PREFERRED STOCK
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At October 12, 1999, there were outstanding 31,016,964 shares of the
Common Stock of Registrant, and the aggregate market value of the shares held on
that date by non-affiliates of the Registrant, based on the closing price ($.75
per share) of the Registrant's Common Stock on the New York Stock Exchange was
$29,131,204. For purposes of this computation, it has been assumed that the
shares beneficially held by directors and executive officers of Registrant were
"held by affiliates"; this assumption is not to be deemed to be an admission by
such persons that they are affiliates of Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE> 2
Aames Financial Corporation
Index to Form 10-K/A
Aames Financial Corporation (the "Company") hereby amends the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1999 filed with the
Securities and Exchange Commission (the "SEC") on September 3, 1999 for the
purpose of adding Items 10, 11, 12 and 13.
<TABLE>
<CAPTION>
Item No. Page No.
- -------- --------
<S> <C> <C>
Part III
10 Directors and Executive Officers of the Registrant 3
11 Executive Compensation 6
12 Security Ownership of Certain Beneficial Owners and Management 15
13 Certain Relationships and Related Transactions 18
</TABLE>
<PAGE> 3
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
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
October 28, 1999:
<TABLE>
<CAPTION>
YEAR TERM
NAME AGE POSITION EXPIRES
- ---- ---- -------- ---------
<S> <C> <C> <C>
DIRECTORS:
George W. Coombe, Jr.(1)(2) 74 Director 2000
Steven M. Gluckstern 48 Chairman of the Board 1999
Neil B. Kornswiet 42 President and Director 2000
Adam M. Mizel 29 Director 1999
Eric C. Rahe 30 Director 2001
Mani A. Sadeghi 36 Director 1999
David A. Spuria 39 Director 1999
Georges C. St. Laurent, Jr. 63 Director 1999
Cary H. Thompson 43 Director 1999
OTHER EXECUTIVE OFFICERS:
A. Jay Meyerson(2) 52 Chief Executive Officer
David A. Sklar 46 Executive Vice President -
Finance & Chief Financial
Officer (Chief Accounting Officer)
</TABLE>
- --------------
(1) Mr. Coombe resigned from the Board of Directors effective November 1, 1999.
(2) Mr. Meyerson was appointed as Chief Executive Officer of the Company
effective October 25, 1999. The Board of Directors has appointed Mr. Meyerson to
the Board, to replace Mr. Coombe, effective November 1, 1999.
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. Mr. Coombe resigned from the Board of Directors of
the Company effective November 1, 1999.
STEVEN M. GLUCKSTERN was elected a Director and appointed Chairman of
the Board of Directors of the Company in February, 1999. Mr. Gluckstern has
served as a Chairman of the Board of Capital Z
3
<PAGE> 4
Management, Inc. and Capital Z Partners, Ltd. since July 1998, as Chairman of
Zurich Centre Group LLP since 1996 and as Chairman of Zurich Reinsurance (North
America), Inc. since 1993.
NEIL B. KORNSWIET was elected President in May 1997, and has served as
a Director since September 1996. Mr. Kornswiet was appointed Co-Chairman of the
Board in November 1997, a position he held until February 1999. Mr. Kornswiet
founded One Stop Mortgage, Inc. ("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 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.
A. JAY MEYERSON was appointed Chief Executive Officer on October 25,
1999 and has been appointed to the Board of Directors effective November 1,
1999. Mr. Meyerson served as the chief executive and chairman of KeyBank USA,
the national consumer finance business of KeyCorp from 1994 to 1997. From
January 1999 to October 1999, Mr. Meyerson was a managing director at KPMG
national financial services consulting practice.
ADAM M. MIZEL was elected a Director in February 1999. Mr. Mizel has
served as a Senior Vice President and Director of Capital Z Management, Inc. and
Capital Z Partners, Ltd. since August 1998. From April 1994 through August 1998,
Mr. Mizel served as Vice President and Managing Director at Zurich Centre
Investments, Inc.
ERIC C. RAHE was elected a Director in February 1999. Mr. Rahe has
served as a Vice President of Capital Z Management, Inc. since August 1998. From
August 1996 through July 1998, Mr. Rahe served as both an Associate and Vice
President of Insurance Partners, a private equity fund focused on the insurance
industry. From January 1994 through August 1996, Mr. Rahe was an Analyst and an
Associate at the investment-banking firm of Donaldson, Lufkin & Jenrette
Securities Corporation.
MANI A. SADEGHI was elected a Director in February 1999 and was
appointed Chief Executive Officer in May 1999 and served until October 25, 1999.
Mr. Sadeghi has served as Chief Executive Officer of Equifin Capital Partners,
LLC ("Equifin"), which provides private equity investment management and
advisory services, since June 1998. Mr. Sadeghi has also served as Group
President of AT&T Capital Corporation from September 1996 until February 1998,
as Corporate Development Officer from September 1994 to September 1996 and as
the Director of Strategic Planning and Business Development at GE Capital
Corporation from July 1992 through September 1994.
DAVID A. SPURIA was elected a Director in February 1999. Mr. Spuria has
served as General Counsel of Capital Z Partners Ltd. and Capital Z Management,
Inc. since July 1998. Mr. Spuria was a partner from January 1995 through July
1998 and an associate from March 1991 through December 1994 with the law firm of
Weil, Gotshal & Manges, LLP.
GEORGES C. ST. LAURENT, JR. has served as a Director of the Company
since November 1997. Mr. St. Laurent, who held the position of Co-Chairman of
the Board from November 1997 through February 1999, 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.
4
<PAGE> 5
CARY H. THOMPSON is the Senior Managing Director of Bear Stearns & Co.,
Inc. and has served as a Director of the Company since January 1992 and Vice
Chairman of the Board of Directors from May 1999 through July 1999. He was Chief
Operating Officer of the Company from March 1996 until May 1997, and Chief
Executive Officer of the Company from May 1997 until May 1999. From May 1994
until joining the Company, Mr. Thompson served as Managing Director-Head of
United States Financial Institutions and Media Group for NatWest Markets.
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. From December 1995 through May
1997, he was President of H.W. Electronics. Prior to that time Mr. Sklar was
Executive Vice President and Chief Financial Officer of Imperial Bancorp and
subsidiaries.
Compliance with Section 16(a)
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, 1999, all relevant Section 16(a) filing requirements were
complied with except that Mr. Kornswiet, the president and a director of the
Company, filed one late report on Form 5 with respect to his gift of Common
Stock during the 1999 fiscal year.
5
<PAGE> 6
ITEM 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 persons who served as Chief
Executive Officer of the Company during the 1999 fiscal year and each of the
other four most highly compensated executive officers of the Company who served
in such capacity at the end of the last fiscal year (the "Named Executive
Officers"):
<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 1999 $ 800,000 $ 540,000(3) -- 100,000 $ --
President(2) 1998 900,000 5,297,449 -- -- $ 40,800(4)
1997 666,042 4,408,863 -- 555,000 N/A
Cary H. Thompson 1999 $ 800,000 $ -- -- -- $ --
Vice Chairman and Former 1998 900,000 -- -- -- $ 4,800(6)
Chief Executive Officer(5) 1997 634,805 1,073,339 -- -- N/A
Barbara S. Polsky 1999 $ 290,000 $ 200,000 -- 35,000 $ --
Executive Vice President, 1998 300,000 244,000 -- 60,000 $ 13,000(8)
General Counsel and 1997 35,538 -- -- 56,350 N/A
Secretary(7)
David A. Sklar 1999 $ 241,667 $ 100,000 -- 20,000 $ --
Executive Vice President 1998 242,462 -- -- -- $ 10,000(10)
Chief Financial Officer(9) 1997 42,639 -- -- -- N/A
Mani A. Sadeghi 1999 $ -- $ -- -- -- N/A
Chief Executive 1998 N/A N/A N/A N/A N/A
Officer(11) 1997 N/A 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 1997, 1998 and
1999 was not in excess of $50,000 or 10% of the total of annual salary and
bonus reported for such Named Executive Officer.
(2) Mr. Kornswiet joined the Company in August 1996.
(3) Consists of a guaranteed cash bonus for calendar year 1999 in the amount of
$540,000 in the form of a recourse loan which will be forgiven and deemed
paid in full so long as Mr. Kornswiet remains employed by the Company
through February 10, 2000 or, if less than one year, through the date his
employment is terminated by death, disability, by Mr. Kornswiet for "Good
Reason" (as defined in his employment agreement) or by the Company without
"Cause" (as defined in his employment agreement).
(4) Consists of $36,000 in employer contributions to the Company's Deferred
Compensation Plan (which has since been terminated) and $4,800 in employer
contributions to the Company's Section 401(k) plan.
(5) Mr. Thompson joined the Company in March 1996 and served as Chief Executive
Officer from May 1997 to May 1999, prior to which time he served as Chief
Operating Officer. Mr. Thompson resigned as Chief Executive Officer in May
1999 and as Vice Chairman in July 1999 and remains a member of the Board of
Directors.
(6) Consists of employer contributions to the Company's Section 401(k) plan.
(7) Ms. Polsky joined the Company in May 1996 and resigned in October 1999.
(8) Consists of $8,200 in employer contributions to the Company's Deferred
Compensation Plan (which has since been terminated) and $4,800 in employer
contributions to the Company's Section 401(k) plan.
(9) Mr. Sklar joined the Company in May 1997.
(10) Consists of $10,000 in employer contributions to the Company's Deferred
Compensation Plan (which has since been terminated).
(11) Mr. Sadeghi, who served as the Company's Chief Executive Officer of the
Company from May 13, 1999 through October 25, 1999, is an employee of
Equifin Capital Partners, LLC ("Equifin"). Mr. Sadeghi did not receive
compensation for his services as Chief Executive Officer of the Company,
however the Company agreed to increase Equifin's quarterly management
advisory fee of $250,000 by an additional $250,000 per quarter pro-rated
for the time that Mr. Sadeghi served as Chief Executive Officer.
6
<PAGE> 7
The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended June 30, 1999 to the Named Executive
Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SHARES TOTAL OPTIONS EXERCISE PRICE APPRECIATION FOR
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(5) 100,000 10.97% $ 13.375 07/01/2008 $ 841,147 $2,131,631
Cary H. Thompson(6) -- -- -- -- -- --
Barbara S. Polsky(7) 35,000 3.84% $ 13.375 07/01/2008(7) $ 294,401(7) $ 746,071(7)
Mani A. Sadeghi(8) -- -- -- -- -- --
David A. Sklar (5) 20,000 2.19% $ 13.375 07/01/2008 $ 168,311 $ 426,326
</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 911,500 shares were granted to eligible
employees during the fiscal year ended June 30, 1999.
(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) The options granted become exercisable as to 20% on the date of grant and
20% on each anniversary of the date of grant until fully vested.
(6) On May 13, 1999, Mr. Thompson resigned as the Chief Executive Officer of
the Company.
(7) All of Ms. Polsky's options became exercisable on February 10, 1999 as a
result of a change in control provision of her employment agreement with
the Company. On October 7, 1999, Ms. Polsky resigned as the Executive Vice
President, General Counsel and Secretary of the Company. As a result of her
resignation, Ms. Polsky's vested options will expire on January 4, 2000.
(8) On October 25, 1998, Mr. Sadeghi resigned as the Chief Executive Officer of
the Company.
7
<PAGE> 8
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, 1999 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)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- -------------------- ----------------- ---------- ---------------------- -----------------
<S> <C> <C> <C> <C>
Neil B. Kornswiet -- -- 575,000/80,000 --/--
Cary Thompson -- -- 1,260,177/360,123 --/--
Barbara S. Polsky(3) -- -- 161,250/-- --/--
David A. Sklar -- -- 79,000/66,000 --/--
Mani A. Sadeghi -- -- --/-- --/--
</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, 1999 ($1.31) less the option exercise price.
(3) All of Ms. Polsky's options became exercisable on February 10, 1999 as a
result of a change in control provision of her employment agreement with
the Company. On October 7, 1999, Ms. Polsky resigned as the Executive Vice
President, General Counsel and Secretary of the Company. As a result of her
resignation, Ms. Polsky's vested options will expire on January 4, 2000.
COMPENSATION OF DIRECTORS
Each director who is not an officer of or otherwise employed by the
Company as either an employee or a consultant 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, and $1,000 for each regular or special Board meeting
attended by telephone.
EMPLOYMENT AGREEMENTS
A. Jay Meyerson was appointed by the Board of Directors as the
Company's Chief Executive Officer as of October 25, 1999. The Company is
finalizing the terms of Mr. Meyerson's employment agreement with the Company.
The Company entered into an employment agreement with Cary H. Thompson,
former Vice Chairman and Chief Executive Officer of the Company, in March 1996,
as amended (the "Original Thompson Employment Agreement") pursuant to which Mr.
Thompson was employed as Chief Executive Officer at a base salary of $900,000
per year. He was also entitled to receive, at the expense of the Company, the
use of an
8
<PAGE> 9
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 December 1998, the Company entered into a five-year employment
agreement with Mr. Thompson (the "New Thompson Employment Agreement"). The New
Thompson Employment Agreement was effective on February 10, 1999, at which time
the Original Thompson Employment Agreement was terminated. The New Thompson
Employment Agreement was terminated on May 13, 1999 when Mr. Thompson resigned
as Chief Executive Officer of the Company. The New Thompson Employment Agreement
superceded and invalidated any of Mr. Thompson's rights and benefits accruing
under all other employment, change in control, stock option and any and all
other agreements between Mr. Thompson and the Company that provide for the
payment of compensation or benefits to Mr. Thompson other than (i) benefits
provided under the Company's 401(k) plan, (ii) the use of an automobile
(including all maintenance and expenses associated therewith) at the expense of
the Company, and (iii) stock options granted to Mr. Thompson under the Company's
various stock option plans and stock options granted outside of such plans.
Under the New Thompson Employment Agreement, Mr. Thompson earned an annual base
salary of $600,000 and was entitled to receive cash bonuses after the 1999
calendar year of between 0-100% of Mr. Thompson's annual base salary. Mr.
Thompson also was entitled to receive, at the expense of the Company, (i) not
less than $2 million of standard term life insurance, (ii) medical and dental
benefits for Mr. Thompson and members of his family, (iii) a long-term
disability policy providing for payments in an amount equal to 60% of Mr.
Thompson's annual base salary, provided such policy could be obtained for a
reasonable cost, (iv) other benefits under the Company's savings, pension and
retirement plans and other benefit plans or programs maintained by the Company
for the benefit of its executives, and (v) reimbursement of reasonable business
expenses incurred in accordance with the Company's policies. Under the New
Thompson Employment Agreement, the Company was obligated to grant to Mr.
Thompson an option to purchase 2,580,162 shares of the Company's common stock
(the "Thompson Option") pursuant to the Company's 1999 Stock Option Plan. Upon
termination of employment by Mr. Thompson for "Good Reason", as defined in the
New Thompson Employment Agreement or by the Company without "Cause", as defined
in the New Thompson Employment Agreement, Mr. Thompson was entitled to receive,
subject to certain offsets based on subsequent employment, severance benefits
for a period of 12 months, payable in accordance with the Company's payroll
policy, an amount equal to (i) $2 million, if the termination occurred within
one year of the Initial Closing, (ii) $1.5 million, if the termination occurred
during the second year, (iii) $1.0 million if the termination occurred in the
third year, and (iv) $0.5 million if the termination occurred after the fourth
anniversary of the Initial Closing.
The Company is negotiating the terms of Mr. Thompson's severance which
may be different than the severance benefits due to him under the New Thompson
Employment Agreement, including the Thompson Option.
The Company entered into an employment agreement with Neil B.
Kornswiet, the Company's President on August 28, 1997 with an original
expiration date of August 27, 2002. The agreement was amended and restated and
extended for an additional two years in August 1998 (as amended, the "Original
Kornswiet Employment Agreement"). Under the Original Kornswiet Employment
Agreement, Mr. Kornswiet earned a base salary of $900,000 per year and was
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
9
<PAGE> 10
Bonus"). Mr. Kornswiet was 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 December 1998, the Company entered into a five-year employment
agreement with Neil B. Kornswiet, which superseded the Original Kornswiet
Employment Agreement (the "New Kornswiet Employment Agreement"). The New
Kornswiet Employment Agreement became effective on February 10, 1999. The New
Kornswiet Employment Agreement supersedes and invalidates any of Mr. Kornswiet's
rights and benefits accruing under all other employment, change in control and
any and all other agreements between Mr. Kornswiet and the Company and its
subsidiaries that provide for the payment of compensation or benefits to Mr.
Kornswiet other than (i) benefits provided under the Company's 401(k) plan, (ii)
the use of an automobile (including all maintenance and expenses associated
therewith) at the expense of the Company, and (iii) stock options granted to Mr.
Kornswiet under the Company's various stock option plans and, upon amendments
being adopted, certain stock options granted to, and forfeited by, employees of
One Stop which were assumed by the Company in connection with the Company's
acquisition of One Stop. Under the New Kornswiet Employment Agreement, Mr.
Kornswiet will earn an annual base salary of $600,000 and is entitled to receive
(i) payment of $1,460,000 which represents Mr. Kornswiet's June 1998 bonus which
was previously deferred by Mr. Kornswiet, (ii) a guaranteed cash bonus for
calendar year 1999 in the amount of $540,000 in the form of a recourse loan
which will be forgiven and deemed paid in full so long as Mr. Kornswiet remains
employed by the Company through the first anniversary of the effective date of
the New Kornswiet Employment Agreement or, if less than one year, through the
date his employment is terminated by death, disability, by Mr. Kornswiet for
"Good Reason" (as defined in the New Kornswiet Employment Agreement) or by the
Company without "Cause" (as defined in the New Kornswiet Employment Agreement),
(iv) a cash supplemental bonus for Mr. Kornswiet's first year of employment
payable within 2-1/2 months after the first anniversary of the effective date
subject to the Board of Directors' determination that the Company has completed
a satisfactory program of cost reductions by such anniversary date, (v) cash
bonuses after the 1999 calendar year of between 0-100% of Mr. Kornswiet's annual
base salary, with an expected bonus of $400,000 and a bonus in excess of 100% of
his annual base salary for extraordinary performance which shall be payable in
accordance with a budget approved by the Board of Directors of the Company and
the achievement of other non-financial goals adopted by the Board, (vi) a loan
equal to $1,667,000 for the purpose of purchasing shares of the Company's Series
C Convertible Preferred Stock which stock will secure repayment of the loan and
the loan shall be non-recourse provided that Mr. Kornswiet remains employed by
the Company through the date of the first anniversary of the effective date of
the New Kornswiet Employment Agreement or, if less than one year, termination of
employment based upon death, disability, by Mr. Kornswiet with good reason or by
the Company without Cause. The loan shall be paid by Mr. Kornswiet with 25% of
his aggregate cash bonus for each fiscal year that the loan remains outstanding
and becomes due and payable upon certain events including termination of his
employment with the Company. Mr. Kornswiet is also entitled to receive, at the
expense of the Company, (i) not less than $2 million of standard term life
insurance, (ii) medical and dental benefits for Mr. Kornswiet and members of his
family, (iii) a long-term disability policy providing for payments in an amount
equal to 60% of Mr. Kornswiet's annual base salary, provided such policy can be
obtained for a reasonable cost, (iv) other benefits under the Company's savings,
pension and retirement plans and other benefit plans or programs maintained by
the Company for the benefit of its executives, and (v) reimbursement of
reasonable business expenses incurred in accordance with the Company's policies.
The New Kornswiet Employment Agreement provides for a grant to Mr. Kornswiet of
options to purchase 3,214,642 shares of the Company's Common Stock pursuant to
the Company's 1999 Stock Option Plan. Upon termination of employment by Mr.
Kornswiet for Good Reason, or by the
10
<PAGE> 11
Company without Cause, Mr. Kornswiet will be entitled to receive severance
benefits for a period of 12 months, payable in accordance with the Company's
payroll policy, an amount equal to (i) $2 million, if the termination occurs
within one year of the Initial Closing, (ii) $1.5 million, if the termination
occurs during the second year, (iii) $1.0 million if the termination occurs in
the third year, and (iv) $0.5 million if the termination occurs after the fourth
anniversary of the Initial Closing. The New Kornswiet Employment Agreement
requires that, for so long as Capital Z Financial Services Fund II, L.P.
("Capital Z") or its designated purchasers, owns at least 25% of the outstanding
voting securities of the Company, Mr. Kornswiet may not sell, assign or
otherwise transfer during his employment with the Company, in any twelve month
period, more than 25% of the aggregate amount of shares of Company stock which
Mr. Kornswiet owned immediately prior to the Initial Closing, subject to waiver
by the Board of Directors in the event of extraordinary hardship.
The Company entered into a second amended and restated employment
agreement with Barbara S. Polsky, former Executive Vice President, General
Counsel and Secretary, effective June 1, 1997, with a term expiring on June 20,
2001. The agreement provided for a base salary of $300,000 per year and a
quarterly bonus under the Company's 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 or voluntary resignation in connection with 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), Ms. Polsky would 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. The Series B and Series C
Convertible Preferred Stock issued to Capital Z at the Initial Closing was a
Change in Control as defined in Ms. Polsky's employment agreement. On October 6,
1999 Ms Polsky resigned. Pursuant to her employment agreement, Ms. Polsky was
paid a $944,000 severance payment in addition to accrued salary and unused
vacation time.
The Company entered into an employment agreement with David A. Sklar,
the Company's Executive Vice President--Finance and Chief Financial Officer, on
May 12, 1997 with a term expiring on May 12, 2000. The agreement provided for a
base salary of $250,000 per year and both a discretionary bonus in any amount as
determined by the Board of directors for the 1998 fiscal year and, for years
after the 1998 fiscal year, a performance bonus under the Company's performance
bonus plan for executive officers. The agreement also provided for a bonus, on
the commencement of the term of the agreement, in the form of stock options to
purchase 125,000 shares of the Company's common stock. Mr. Sklar is also
entitled to receive a long-term disability insurance policy providing for an
annual disability payment in an amount equal to 100% of his base salary,
providing that the policy could be obtained at a reasonable cost. In the event
of a termination or voluntary resignation in connection with 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. Sklar would receive two years' base salary (at the annual rate
in effect at the time of termination) plus an amount equal to the performance
bonus paid to him for eight fiscal quarters preceding the date of termination.
In addition, all options previously granted would become immediately
exercisable. The Series B and Series C Convertible Preferred Stock issued to
Capital Z at the Initial Closing was a Change in Control as defined in Mr.
Sklar's employment agreement. On October 22, 1999 Mr. Sklar entered into a
Retention Agreement with the Company (the "Retention Agreement"). The Retention
Agreement terminated Mr. Sklar's employment agreement and waived the Change in
Control provision. The Retention Agreement further provides that, in the event
of resignation or a termination other than for "Cause") (as defined in the
Retention Agreement) within one year after the execution of the Retention
Agreement, Mr. Sklar would receive
11
<PAGE> 12
$500,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the 1999 fiscal year, executive compensation for the Company was
administered by the Compensation Committee of the Board. Dr. Melvyn Kinder and
Mr. Lee Masters, former members of the Board of Directors, and Messrs.
Gluckstern, Mizel and St. Laurent who are not, and have never been, full-time
salaried officers or employees of the Company, served as members of the
Compensation Committee during the 1998 fiscal year. The Compensation Committee
currently consists of Messrs. Gluckstern, Mizel and St. Laurent.
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 1999 fiscal year, the Compensation Committee of the Board of
Directors was comprised, through February 10, 1999 of Dr. Melvyn Kinder, Lee
Masters and Mr. St. Laurent and from February 10, 1999 through the end of the
fiscal year of Messrs. Gluckstern, Mizel and St. Laurent, none of whom are, or
were full-time, salaried officers or employees of the Company. The Board of
Directors delegated 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
administered 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 were established by the
Compensation Committee based on the recommendations of management which
considered, and applied subjectively as appropriate, individual performance and
achievement, areas of responsibility, position, the extent to which the
officers' skills were in demand or were marketed to other companies or
industries and internal and external comparability. Base salaries for other
executive officers were 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
12
<PAGE> 13
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. In February 1999, Mr. Kornswiet's employment agreement was replaced
with a new employment agreement pursuant to which Mr. Kornswiet's annual salary
was decreased to $600,000 per year.
Bonuses paid to the Company's executive officers (excluding the Chief
Executive Officer and President) were based on Company performance under the
terms of the Company's performance bonus plan. See -- "Performance Bonus Plan."
Under the terms of his then existing employment agreement, in fiscal 1999 and
through February 10, 1999, Mr. Kornswiet was entitled to a quarterly cash bonus
equal to between $1.35 million and $1.65 million depending on the retail and
broker loan production of the Company. Pursuant to the terms of his employment
agreement, Mr. Kornswiet received a guaranteed cash bonus in an amount equal to
$540,000 paid in the form of a recourse loan which will be forgiven and treated
as paid in full so long as Mr. Kornswiet remains employed by the Company through
February 10, 2000 or any earlier termination due to death, permanent disability,
by Mr. Kornswiet for "Good Reason" (as defined in the Employment Agreement) or
by the Company other than for "Cause" (as defined in the Employment Agreement).
The other employees were 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
granted options upon the recommendations of management. As of June 30, 1999, the
Company's Named Executive Officers held options to acquire 2,581,550 shares of
the Company's Common Stock.
PERFORMANCE BONUS PLAN
In November 1997 and as amended in May 1998, the Compensation Committee
adopted a Performance Bonus Plan. All executive officers, other than the Chief
Executive Officer and the President, participated in the Performance Bonus Plan.
Under the Performance Bonus Plan, bonuses were paid quarterly and were 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 received the full quarterly bonus in each
quarter where at least seventy percent of both the individual and Company
performance goals are met. Where the Company achieved at least seventy percent
of its goals, but the participant achieved less than seventy percent of his or
her goals, bonuses may be paid based on an exception basis and based upon on the
participant's percentage of achievement of his or her individual goals.
EXECUTIVE COMPENSATION--CHIEF EXECUTIVE OFFICERS
From May 7, 1997 to May 13, 1999, Mr. Thompson, served as the Company's
Chief Executive Officer. Prior to May 7, 1997, Mr. Thompson was the Chief
Operating Officer of the Company and his compensation was established under the
terms of an employment agreement entered into in March 1996 and amended in May
13
<PAGE> 14
1997 and August 1998 with the approval of the Compensation Committee. 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
Operating Officer, the Committee believes his compensation was primarily
performance based. On February 10, 1999, Mr. Thompson entered into a new
employment agreement that invalidated his previous agreement. On May 13, 1999,
Mr. Thompson resigned as the Company's Chief Executive Officer. The Company is
negotiating the terms of Mr. Thompson's severance which may be different than
the severance benefits due to him under the New Thompson Employment Agreement.
Mr. Sadeghi, a member of the Company's Board of Directors, was
appointed as Chief Executive Officer of the Company on May 13, 1999 and served
in that position until October 25, 1999. Mr. Sadeghi is an employee of Equifin,
a management consultant to the Company. As compensation for Mr. Sadeghi's
services as Chief Executive Officer, the Company paid a quarterly fee of
$250,000 to Equifin which was pro-rated for the period of time Mr. Sadeghi was
in office.
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 $1.0 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.
Compensation Committee: Steven Gluckstern, Chairman
Adam Mizel
Georges St. Laurent
<TABLE>
<CAPTION>
06/1994 06/1995 06/1996 06/1997 06/1998 06/1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Aames Financial Corporation 100.0 220.1 659.5 513.3 384.9 36.8
NYSE Stock Market (US Companies) 100.0 122.9 154.8 202.8 260.0 298.1
NYSE/AMEX/NASDAQ Stocks (SIC 6160-6199 US
Companies) Mortgage Bankers and Brokers 100.0 117.4 160.0 223.3 275.3 233.7
</TABLE>
14
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 12, 1999, certain
information relating to the ownership of the Common Stock (which includes shares
of Common Stock issuable upon conversion of Series B and Series C Convertible
Preferred Stock), Series B Convertible Preferred Stock and Series C Convertible
Preferred 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 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.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES OF CLASS
- -------------- ---------------- ----------- --------
<S> <C> <C> <C>
Common Stock Specialty Finance Partners
54 Thompson Street
New York, New York 10012 ................................... 120,840,734(1) 79.57%
Common Stock George W. Coombe, Jr. (2) .................................. 7,600(3) *
Common Stock Steven M. Gluckstern (4) ................................... --(5) *
Common Stock Neil B. Kornswiet (2) ...................................... 2,407,860(6) 7.62%
Common Stock Adam M. Mizel (4) .......................................... --(5) *
Common Stock Barbara S. Polsky (2) ...................................... 161,250(7) *
Common Stock Eric C. Rahe (4) ........................................... --(5) *
Common Stock Mani A. Sadeghi (4) ........................................ --(5) *
Common Stock David A. Sklar (2) ......................................... 83,000(8) *
Common Stock David A. Spuria (4) ........................................ --(5) *
Common Stock Georges C. St. Laurent, Jr. (2) ............................ 1,556,600(9) 4.79%
Common Stock Cary H. Thompson (2) ....................................... 1,532,191(10) 4.71%
Common Stock All executive officers, directors and nominees
as a group (11 persons) .................................... 5,748,501(11) 16.48%
Series B Convertible Specialty Finance Partners
Preferred Stock (12) 54 Thompson Street
New York, New York 10012 ................................... 26,704,000(13) 100%
Series C Convertible Specialty Finance Partners
Preferred Stock 54 Thompson Street
New York, New York 10012 ................................... 94,136,734(14) 93.11%
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES OF CLASS
- -------------- ---------------- ----------- --------
<S> <C> <C> <C>
Series C Convertible Georges C. St. Laurent, Jr. (2) ............................ 1,500,000(15) 1.48%
Preferred Stock
Series C Convertible Cary H. Thompson (2) ....................................... 250,000(16) *
Preferred Stock
Series C Convertible All executive officers, directors and nominees
Preferred Stock as a group (11 persons) (17) ............................... 1,750,000 1.73%
</TABLE>
- ----------
* Less than one percent.
(1) Consists of 120,840,734 shares of Common Stock issuable upon conversion
of Series B and Series C Convertible Preferred Stock (including
20,840,734 shares of Series C Convertible Preferred Stock which was
issued to Specialty Finance Partners ("Specialty Finance") on October
27, 1999 pursuant to Capital Z's standby commitment to purchase
unsubscribed shares in the Company's recent rights offering. Specialty
Finance is a Bermuda general partnership, 99.6% of which is owned by
Capital Z and 0.4% of which is owned by Equifin Capital. In addition,
Capital Z Management and certain of its employees, as a result of the
receipt of warrants to purchase 2,500,000 shares of Common Stock of the
Company, may be deemed to be the beneficial owner of 2,500,000 shares
of Common Stock of the Company. Capital Z has disclaimed ownership of
these shares. Specialty Finance also holds 26,704,000 shares of Series
B Convertible Preferred Stock and 94,136,734 shares of Series C
Convertible Preferred Stock.
(2) The address of each individual is in care of the Company at 350 S.
Grand Avenue, 52nd Floor, Los Angeles, California 90071.
(3) Includes 6,600 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
of June 1, 1999.
(4) The address of each individual is in care of Capital Z, 54 Thompson
Street, New York, New York 10012.
(5) Each of Messrs. Gluckstern, Mizel, Rahe, Sadeghi, and Spuria has
disclaimed beneficial ownership of the Series B and Series C
Convertible Preferred Stock held by Capital Z or Specialty Finance.
(6) Includes 595,000 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
of October 12, 1999. If computed excluding options with an exercise
price greater than $2.00 per share, Mr. Kornswiet would own 5.84% of
the class.
(7) Represents shares of Common Stock underlying options which are
currently exercisable within 60 days of October 12, 1999. All of Ms.
Polsky's options became exercisable on February 10, 1999 as a result of
a change in control provision of her employment agreement with the
Company. On October 7, 1999, Ms. Polsky resigned as the Executive Vice
President, General Counsel and Secretary of the Company. As a result of
her resignation, Ms. Polsky's vested options will expire on January 4,
2000.
(8) Represents shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
of October 12, 1999.
(9) Includes 6,600 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
of October 12, 1999, and includes 1,500,000 shares of Common Stock
issuable upon conversion of Series C Convertible Preferred Stock.
(10) Includes 1,260,291 shares of Common Stock underlying options which are
currently exercisable or which will become
16
<PAGE> 17
exercisable within 60 days of October 12, 1999 and includes 250,000
shares of Common Stock issuable upon conversion of Series C Convertible
Preferred Stock. If computed excluding options with an exercise price
greater than $2.00 per share, Mr. Thompson would own less than 1.0% of
the class.
(11) Includes 2,112,741 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days
of October 12, 1999 and includes 1,750,000 shares of Common Stock
issuable upon conversion of Series C Convertible Preferred Stock. If
computed excluding options with an exercise price greater than $2.00
per share, all executive officers, directors and nominees would own
11.31% of the class.
(12) Capital Z holds 100% of the issued and outstanding Series B Convertible
Preferred Stock. None of the Directors, nominees and Named Executive
Officers beneficially hold any shares of Series B Convertible Preferred
Stock.
(13) Convertible into 26,704,000 shares of Common Stock.
(14) Convertible into 94,136,734 shares of Common Stock.
(15) Convertible into 1,500,000 shares of Common Stock.
(16) Convertible into 250,000 shares of Common Stock.
(17) Other than in the case of Messrs. St. Laurent and Thompson, none of the
Directors, nominees or Named Executive Officers beneficially hold any
shares of Series C Convertible Preferred Stock.
17
<PAGE> 18
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the Company's current and former executives have employment
agreements or severance or termination agreements with the Company. See "Item
11--Executive Compensation-Employment Agreements."
On December 23, 1998, the Company entered into the Preferred Stock
Purchase Agreement with Capital Z, as amended (the "Preferred Stock Purchase
Agreement"), providing for an equity investment by Capital Z and its designees
of up to $126.5 million in the Company. Pursuant to the Preferred Stock Purchase
Agreement, the Company issued to Capital Z on February 10, 1999 (the "Initial
Closing") 26,704 shares of Series B Convertible Preferred Stock and 48,296
shares of Series C Convertible Preferred Stock for $1,000 per share for an
aggregate of $75 million. Georges C. St. Laurent, Jr., a Director of the
Company, pursuant to the Preferred Stock Purchase Agreement as a designee of
Capital Z, purchased 1,500 shares of Series C Convertible Preferred Stock for
$1,000 per share for an aggregate investment of $1.5 million. All of the shares
of Series B and Series C Convertible Preferred Stock were split 1,000-for-1 on
September 24, 1999.
At the Initial Closing, Capital Z transferred ownership of its Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock issued to
it at the Initial Closing to Specialty Finance, 99.6% of which is owned by
Capital Z and 0.4% of which is owned by Equifin Capital Partners, Ltd. ("Equifin
Capital").
On January 4, 1999, Capital Z Management, Inc. ("Cap Z Management"), an
affiliate of Capital Z, received, as a fee for its standby commitment to
purchase unsubscribed shares in the Company's recent rights offering (the
"Rights Offering"), a warrant to purchase 1.25 million shares of the Company's
Common Stock at an initial exercise price of $1.00 per share. In addition, on
February 10, 1999, the Company paid to Cap Z Management a $1 million transaction
fee in connection with the transactions contemplated by the Preferred Stock
Purchase Agreement. In addition, in connection with the transactions
contemplated by the Preferred Stock Purchase Agreement, the Company has paid to
Cap Z Management aggregate additional fees of $2 million and has reimbursed
Capital Z for all of its expenses incurred in connection with the negotiation
and execution of the Preferred Stock Purchase Agreement and the transactions
contemplated thereby.
On August 3, 1999, pursuant to the Preferred Stock Purchase Agreement,
Capital Z purchased 25,000 shares of Series C Convertible Preferred Stock for
$1,000 per share for an aggregate investment of $25,000,000.
On August 3, 1999, the Company issued warrants to purchase 1.25 million
shares of the Company's Common Stock at an initial exercise price of $1.00 per
share to certain employees of Capital Z Management.
On September 10, 1999 pursuant to the Preferred Stock Purchase
Agreement, the Company distributed Subscription Rights to the holders of its
Common Stock providing them the right to purchase, in the aggregate, up to
approximately 31 million shares of the Series C Convertible Preferred Stock of
the Company for $1.00 per share for an aggregate of approximately $31 million.
The Subscription Rights expired on October 6, 1999. Holders of the Company's
common stock purchase 4,159,266 shares of Series C Convertible Preferred Stock
in the offering. Capital Z purchased 20,840,734 shares of Series C Convertible
Preferred Stock on October 27, 1999 pursuant to the Standby Commitment.
18
<PAGE> 19
On February 10, 1999, pursuant to the Preferred Stock Purchase
Agreement, the Company entered into an Preferred Stock Purchase Agreement For
Management Advisory Services (the "Equifin Agreement") with Equifin, pursuant to
which the Company is obligated to pay to Equifin Management, a quarterly
management advisory fee of $250,000 for a period of five (5) years. On February
10, 1999, pursuant to the Equifin Agreement, the Company paid to Equifin
$250,000 in consideration of consulting services rendered prior to the execution
of the Equifin Agreement and as an advance for consulting services to be
rendered in the quarter ending March 31, 1999. Mani Sadeghi, who served as the
Company's Chief Executive Officer of the Company from May 13, 1999 through
October 25, 1999, is an employee of Equifin. Mr. Sadeghi did not receive
compensation for his services as Chief Executive Officer of the Company, however
the Company agreed to increase Equifin's quarterly management advisory fee by an
additional $250,000 per quarter pro-rated for the time that Mr. Sadeghi served
as Chief Executive Officer.
Each of Messrs. Gluckstern, Mizel, Rahe and Spuria, Directors of the
Company, has a direct or indirect interest in Capital Z and Cap Z Management.
Mr. Sadeghi, the Chief Executive Officer and a Director of the Company, has a
material equity interest in Equifin Management and Equifin Capital. Messrs.
Gluckstern, Mizel and Spuria are members of Capital Z Partners, Ltd., a Bermuda
corporation ("Cap Z Ltd."), which is the general partner of Capital Z Partners,
L.P. ("Cap Z Partners"), which is the general partner of Capital Z. Messrs.
Gluckstern and Mizel are limited partners of Cap Z Partners and shareholders of
Cap Z Management. Messrs. Gluckstern and Mizel are officers of Cap Z Management.
Mr. Rahe is an officer of Cap Z Management and a limited partner of Cap Z
Partners. Mr. Sadeghi is the Chief Executive Officer of Equifin Management and
Equifin Capital. Cap Z Ltd. is a preferred shareholder of Equifin Capital. Mr.
Spuria is General Counsel of Cap Z Ltd. and Cap Z Management and a limited
partner of Cap Z Partners.
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 was issued to Mr. Kornswiet. See "Executive
Compensation."
On January 26, 1998, the Board of Directors approved the Executive and
Director Loan Program (the "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 October 26, 1999) at an annual interest rate of 6.5%;
Barbara S. Polsky, executive officer, $400,500 loan amount, $339,275 outstanding
balance; David A. Sklar, executive officer, $379,300 loan amount, $ 372,835
outstanding balance; David A. Spuria, director, $777,600 loan amount, $777,022
outstanding balance; Cary Thompson $240,000 (since paid in full); Cary Thompson
1,500,000 at an interest rate of 7.375% (sold by the Company in July of 1999).
The Company discontinued the Loan Program in June 1999.
Pursuant to the terms of his employment agreement, Mr. Kornswiet
received a guaranteed cash bonus in an amount equal to $540,000 paid in the form
of a recourse loan which will be forgiven and treated as paid in full so long as
Mr. Kornswiet remains employed by the Company through February 10, 2000 or any
earlier termination due to death, permanent disability, by Mr. Kornswiet for
"Good Reason" (as defined in the
19
<PAGE> 20
Employment Agreement) or by the Company other than for "Cause" (as defined in
the Employment Agreement).
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.
On December 23, 1998, each of the Management Shareholders entered into a
Management Investment Agreement with the Company. Pursuant to the Management
Investment Agreements, Cary Thompson purchased 250 shares of Series C
Convertible Preferred Stock for $1,000 per share at the Initial Closing (250,000
shares after a 1000-for-1 stock split on September 24, 1999)
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AAMES FINANCIAL CORPORATION
(Registrant)
Dated: October 28, 1999 By: /s/ A. Jay Meyerson
------------------------------
A. Jay Meyerson
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ George W. Coombe, Jr. Director October 27, 1999
-------------------------------
George W. Coombe, Jr.
/s/ Steven M. Gluckstern Chairman of the Board October 28, 1999
-------------------------------
Steven M. Gluckstern
President, Director October __, 1999
-------------------------------
Neil B. Kornswiet
/s/ Adam M. Mizel Director October 28, 1999
-------------------------------
Adam M. Mizel
/s/ Eric Rahe Director October 26, 1999
-------------------------------
Eric Rahe
/s/ Mani A. Sadeghi Director October 28, 1999
-------------------------------
Mani A. Sadeghi
/s/ David A. Sklar Executive Vice President-Finance and October 28, 1999
------------------------------- Chief Financial Officer (Principal Financial
David A. Sklar and Accounting Officer)
/s/ Cary H. Thompson Director October 28, 1999
-------------------------------
Cary H. Thompson
/s/ Georges S. St. Laurent, Jr. Director October 27, 1999
-------------------------------
Georges S. St. Laurent, Jr.
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
/s/ David A. Spuria Director October 27, 1999
-------------------------------
David A. Spuria
</TABLE>
22
