As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-85241
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
---------------------
AAMES FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 95-4340340
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
350 SOUTH GRAND AVENUE, 52ND FLOOR
LOS ANGELES, CALIFORNIA 90071
(323) 210-5000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------
BARBARA S. POLSKY, ESQ.
EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
AAMES FINANCIAL
CORPORATION
350 SOUTH GRAND AVENUE, 52ND FLOOR
LOS ANGELES, CALIFORNIA 90071
(323) 210-5000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
--------------------
Copies to:
C.N. FRANKLIN REDDICK, III, ESQ.
TROOP STEUBER PASICH REDDICK & TOBEY, LLP
2029 CENTURY PARK EAST, 24TH FLOOR
LOS ANGELES, CALIFORNIA 90067
(310) 728-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
- -----------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE (2) FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUBSCRIPTION RIGHTS (1) $0 $0
- -----------------------------------------------------------------------------------------
SERIES C CONVERTIBLE PREFERRED $31,016,964 $8,622.72
STOCK
- -----------------------------------------------------------------------------------------
COMMON STOCK(3) (4) (4)
- -----------------------------------------------------------------------------------------
<FN>
(1)EVIDENCING THE RIGHT TO SUBSCRIBE FOR THE SERIES C CONVERTIBLE PREFERRED
STOCK DESCRIBED BELOW. PURSUANT TO RULE 457(G), NO SEPARATE REGISTRATION FEE
IS REQUIRED FOR THE SUBSCRIPTION RIGHTS SINCE THEY ARE BEING REGISTERED IN
THE SAME REGISTRATION STATEMENT AS THE SERIES C CONVERTIBLE PREFERRED STOCK
UNDERLYING THE SUBSCRIPTION RIGHTS.
(2)CALCULATED IN ACCORDANCE WITH RULE 457(O) BASED ON THE ESTIMATED MAXIMUM
AGGREGATE OFFERING PRICE OF THE SERIES C CONVERTIBLE PREFERRED STOCK. THE
REGISTRANT WILL OFFER ONE SUBSCRIPTION RIGHT FOR EACH SHARE OF COMMON STOCK
OUTSTANDING ON THE RECORD DATE FOR THE OFFERING. THE PROPOSED MAXIMUM
AGGREGATE OFFERING PRICE STATED ABOVE IS BASED ON THE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING ON AUGUST 9, 1999.
(3)INCLUDES CERTAIN PREFERRED STOCK PURCHASE RIGHTS OF THE REGISTRANT,
EXERCISABLE UPON THE OCCURRENCE OF CERTAIN EVENTS. SEE "DESCRIPTION OF
CAPITAL STOCK?ANTI-TAKEOVER PROVISIONS" IN THE PROSPECTUS WHICH
CONSTITUTES A PART OF THIS REGISTRATION STATEMENT.
(4)SUCH INDETERMINATE NUMBER OF SHARES OF COMMON STOCK AS SHALL BE ISSUABLE
UPON THE CONVERSION OF THE SERIES C CONVERTIBLE PREFERRED STOCK BEING
REGISTERED HEREUNDER. NO SEPARATE CONSIDERATION WILL BE RECEIVED BY THE
REGISTRANT UPON CONVERSION OF THE SERIES C CONVERTIBLE PREFERRED STOCK AND,
ACCORDINGLY, NO ADDITIONAL REGISTRATION FEE IS PAYABLE PURSUANT TO RULE
457(I).
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
==============================================================================
Page 2
<PAGE>
- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED SEPTEMBER__, 1999
PROSPECTUS
AAMES FINANCIAL CORPORATION
SUBSCRIPTION RIGHTS TO PURCHASE
UP TO 31,016,964 SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK
UP TO 31,016,964 SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK
UP TO 31,016,964 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF
SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK
$1.00 PER SHARE
We are distributing subscription rights to purchase an aggregate of
31,016,964 shares of Series C Convertible Preferred Stock to the holders of our
common stock. You may not transfer your subscription rights. You will receive
one subscription right for each share of our common stock that you held on
September 7, 1999. Each subscription right entitles you to purchase one share of
Series C Convertible Preferred Stock for $1.00 per share. The subscription
rights are exercisable beginning on the date of this prospectus and continuing
until 5:00 p.m. New York City Time on September 29, 1999.
If less than 25 million shares of Series C Convertible Preferred Stock are
purchased in this rights offering, Capital Z Financial Services Fund II, L.P., a
major stockholder of Aames, will purchase the difference, up to 25 million
shares of unregistered Series C Convertible Preferred Stock, for $1.00 per
share, pursuant to its December 23, 1998 agreement with Aames.
THE SERIES C CONVERTIBLE PREFERRED STOCK
DIVIDEND RATE: 6.5% per year, which we may accrue and not pay in cash until
June 30, 2001. Restrictions related to our debt will preclude us
from paying cash dividends on the Series C Convertible Preferred
Stock and all other shares of our capital stock for the foreseeable
future.
VOTING: The Series C Convertible Preferred Stock will vote with the common
stock on an as-converted basis, EXCEPT THAT HOLDERS OF THE SERIES C
CONVERTIBLE PREFERRED STOCK ARE NOT ENTITLED TO VOTE FOR OUR
DIRECTORS.
CONVERSION: You may convert each share of Series C Convertible Preferred Stock
held by you into one share of common stock at any time. Also, the
holders of a majority of the outstanding shares of Series C
Convertible Preferred Stock may direct the conversion of all
holders' shares of Series C Convertible Preferred Stock into common
stock at any time.
REDEMPTION: We may redeem all of the outstanding shares of Series C Convertible
Preferred Stock at any time on or after February 10, 2009, or
earlier if fewer than 25% of the shares of Series C Convertible
Preferred Stock issued to Capital Z Financial Services Fund II, L.P.
and its designated investor on February
10, 1999 are outstanding.
PRIORITY: The Series C Convertible Preferred Stock will be senior to all of
our common and preferred stock, except that the Series C Convertible
Preferred Stock will be equal in seniority to our Series B
Convertible Preferred Stock.
We have filed an application to list the Series C Convertible Preferred
Stock for trading on the New York Stock Exchange under the symbol "AAMPR." Our
common stock is traded on the New York Stock Exchange under the symbol "AAM." On
September ___, 1999, the closing sale price of the common stock on the New York
Stock Exchange was $________ per share.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SUBSCRIPTION PRICE PROCEEDS TO US (BEFORE
EXPENSES)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE $1.00 $1.00
- ----------------------------------------------------------------------------------------
TOTAL $31,016,964 $31,016,964
- ----------------------------------------------------------------------------------------
</TABLE>
THE SERIES C CONVERTIBLE PREFERRED STOCK INVOLVES A HIGH DEGREE OF RISK
AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 15.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is ______________, 1999.
Page 3
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................2
Risk Factors..............................................................7
Where You Can Find More Information......................................14
A Warning About Forward-Looking Statements...............................15
Aames Financial Corporation..............................................16
The Capital Z Financing..................................................17
Use of Proceeds..........................................................18
Determination of the Subscription Price..................................18
The Rights Offering......................................................18
Description of the Series C Convertible Preferred Stock..................24
Description of Capital Stock.............................................26
Certain Federal Income Tax Consequences..................................28
Plan of Distribution.....................................................31
Legal Matters............................................................31
Experts..................................................................31
</TABLE>
Page 1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
important information that you should consider before exercising your
subscription rights. You should carefully read the entire prospectus.
AAMES FINANCIAL CORPORATION
We are a consumer finance company primarily engaged in the business of
originating, purchasing, selling and servicing home equity mortgage loans
secured by single family residences. Our principal market is borrowers whose
financing needs are not being met by traditional mortgage lenders for a variety
of reasons, including the need for specialized loan products or credit histories
that may limit the borrowers' access to credit. The residential mortgage loans
that we originate and purchase, which include fixed and adjustable rate loans,
are generally used by borrowers to consolidate indebtedness or to finance other
consumer needs rather than to purchase homes.
We originate and purchase loans nationally through three production
channels--retail, broker and correspondent. In recent quarters, we have
emphasized our core retail and broker loan production channels and decreased our
reliance on correspondent purchases. During the year ended June 30, 1999, we
originated and purchased $2.19 billion of mortgage loans.
We retain the servicing on the loans that we originate or purchase and
securitize. At June 30, 1999, our servicing portfolio was $3.84 billion, which
includes $413 million of loans serviced by others. In April 1999, we entered
into a sub-servicing arrangement with a loan servicing company with respect to
$388 million of loans primarily to reduce the burden on our cash resources
caused by our obligation to advance interest on delinquent loans in our
servicing portfolio
As a fundamental part of our business and financing strategy, we sell our
loans to third party investors in the secondary market. We maximize
opportunities in our loan disposition transactions by selling our loan
production through a combination of securitizations and whole loan sales,
depending on market conditions, profitability and cash flows. We sold $1.89
billion of loans during the year ended June 30, 1999. Of the total amount of
loans sold during the year ended June 30, 1999, $650 million were sold in
securitizations. We did not complete a securitization during the quarters ended
December 31, 1998, March 31, 1999 and June 30, 1999. We did complete a
securitization of $400 million of mortgage loans in August 1999.
We were formed in 1991. Our executive offices are located at 350 South
Grand Avenue, 52nd Floor, Los Angeles, California 90071, and our telephone
number is (323) 210-5000.
THE CAPITAL Z FINANCING
In February 1999, Capital Z Financial Services Fund II, L.P., through a
partnership majority-owned by it, invested $75 million in Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock, representing 69.6% of
our total equity and voting power after the investment. Concurrently with this
investment, persons designated by Capital Z purchased $1.5 million and Cary
Thompson, our former Chief Executive Officer, purchased $250 thousand of the
Series C Convertible Preferred Stock, pursuant to a management investment
agreement with us. In August 1999, Capital Z, through a partnership
majority-owned by it, purchased an additional $25 million of Series C
Convertible Preferred Stock. On September 13, 1999, we will hold our 1998 annual
stockholders meeting. At that meeting, our stockholders will consider, among
other things, proposed amendments to our certificate of incorporation to
increase the number of shares of our authorized common and preferred stock and
to effect a 1,000-for-1 forward stock split of our outstanding Series B and
Series C Convertible Preferred Stock. After giving effect to these proposed
amendments to our certificate of incorporation, Capital Z will beneficially own
26,704,000 shares of Series B Convertible Preferred Stock and 73,296,000 shares
of Series C Convertible Preferred Stock which were purchased by Capital Z at an
effective purchase price of $1.00 per share.
Page 2
<PAGE>
Subject to the proposed amendments to our certificate of incorporation,
Capital Z has agreed, if less than 25 million shares of Series C Convertible
Preferred Stock are purchased in the rights offering, to purchase the
difference, up to 25 million shares of Series C Convertible Preferred Stock, for
$1.00, pursuant to its December 23, 1998 agreement with us.
THE RIGHTS OFFERING
THE SUBSCRIPTION RIGHTS
DISTRIBUTION OF SUBSCRIPTION RIGHTS
We are distributing to each of our common stockholders, at no charge, one
subscription right for each share of common stock that you owned as of the close
of business on September 7, 1999. The subscription rights will be evidenced by
nontransferable Right Certificates.
SUBSCRIPTION RIGHTS
Each subscription right entitles you to purchase one share of Series C
Convertible Preferred Stock for $1.00. When you "exercise" a subscription right,
that means you choose to purchase the Series C Convertible Preferred Stock that
the subscription right entitles you to purchase. You may exercise any number of
your subscription rights, or you may choose not to exercise any subscription
rights. You cannot sell or give your subscription rights to anyone else--only
you can exercise them.
EXPIRATION DATE; AMENDMENT AND TERMINATION
The subscription rights will expire at 5:00 p.m., New York City time, on
September 29, 1999. We may extend the expiration date for any reason. If we
extend the rights offering, we may accept the subscriptions received as of
September 29, 1999. We may amend or terminate the rights offering for any
reason. If we terminate the rights offering, we will promptly return all
subscription payments. We will not pay interest on, or deduct any amounts from,
subscription payments returned if we terminate the rights offering. Subscription
rights that remain unexercised at the expiration time will expire and will no
longer be exercisable.
TRANSFERABILITY
You cannot sell or give your subscription rights to any person.
RISK FACTORS
The exercise of subscription rights involves certain risks. Exercising
subscription rights means making an additional equity investment in us and
should be carefully considered as you would with any other equity investment.
Among other things, you should consider the risks described under the heading
"Risk Factors" beginning on page 7.
STANDBY
COMMITMENT Subject to the proposed amendments to our certificate of
incorporation, Capital Z has agreed, if less than 25 million shares of Series C
Convertible Preferred Stock are purchased in the rights offering, to purchase
the difference, up to 25 million shares of Series C Convertible Preferred Stock,
for $1.00 per share.
RECORD DATE
September 7, 1999, at 5:00 p.m., New York City time.
CONDITIONS TO THE RIGHTS OFFERING
The consummation of the rights offering is conditioned upon the adoption of the
proposed amendments to our certificate of incorporation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Generally, you will not recognize taxable income in connection with the
distribution or exercise of the subscription rights. You may recognize a gain or
loss upon the sale of shares of Series C Convertible Preferred Stock acquired
through exercise of the
Page 3
<PAGE>
subscription right. You will not recognize taxable
income on conversion of the Series C Convertible Preferred Stock acquired
through exercise of the subscription rights. You may recognize a gain or loss
upon the sale of shares of common stock acquired through conversion of the
Series C Convertible Preferred Stock.
SERIES C CONVERTIBLE PREFERRED STOCK
CONVERSION
Each share of Series C Convertible Preferred Stock is convertible into one share
of common stock. Each holder of Series C Convertible Preferred Stock may convert
its shares at any time. All of the Series C Convertible Preferred Stock is
convertible at the direction of the holder or holders of a majority of the
outstanding shares of Series C Convertible Preferred Stock.
DIVIDENDS
Dividends on the Series C Convertible Preferred Stock will be cumulative and
will accrue at an annual rate of 6.5% on the $1 stated value of each share of
Series C Convertible Preferred Stock. Dividends will be payable quarterly in
cash on March 31, June 30, September 30 and December 31 of each year, except
that we may accrue and not pay dividends through June 30, 2001. We will pay
dividends on the Series C Convertible Preferred Stock only if declared by our
Board of Directors out of funds legally available to pay dividends. Restrictions
related to our debt will preclude us from paying cash dividends on the Series C
Convertible Preferred Stock and all other shares of our capital stock for the
foreseeable future.
PRIORITY
The Series C Convertible Preferred Stock will rank senior in right to dividends
and payment upon liquidation to all classes and series of our common and
preferred stock, except that the Series C Convertible Preferred Stock will be
equal in rank to the Series B Convertible Preferred Stock.
VOTING
The Series C Convertible Preferred Stock will vote in all matters on which our
common stockholders vote on an as-converted basis with the common stock, EXCEPT
THAT THE SERIES C CONVERTIBLE PREFERRED STOCK WILL NOT BE ENTITLED TO VOTE FOR
OUR DIRECTORS.
REDEMPTION
We may redeem all of the outstanding shares of Series C Convertible Preferred
Stock at any time on or after February 10, 2009, or earlier if fewer than 25% of
the shares of Series C Convertible Preferred Stock issued on February 10, 1999
are outstanding.
MECHANICS OF THE OFFERING
PROCEDURE FOR EXERCISING SUBSCRIPTION RIGHTS
You may exercise subscription rights by properly completing and signing your
rights certificate. You must deliver to the subscription agent your rights
certificate with payment of the subscription price of $1.00 for each share of
Series C Convertible Preferred Stock subscribed for on or prior to the date and
time when the rights offering expires or is extended subject to our right to
accept subscriptions received on or prior to September 29, 1999. If you use the
United States mail to send your rights certificate, we recommend that you use
insured, registered mail. We will not pay interest on subscription payments.
Funds paid by uncertified personal checks may take five business days or more to
clear. If you wish to pay the subscription price for Series C Convertible
Preferred Stock by uncertified personal check, we urge you to make payment
sufficiently in advance of the expiration date to ensure that your payment is
received and clears in time. We urge you
Page 4
<PAGE>
to consider using a certified or cashier's check, money order or wire transfer
of funds to avoid missing the opportunity to exercise your subscription rights.
IN ORDER TO EXERCISE YOUR SUBSCRIPTION RIGHTS, YOU MUST EXERCISE THEM BEFORE
THEY EXPIRE. ONCE YOU EXERCISE YOUR SUBSCRIPTION RIGHTS, YOU CANNOT REVOKE YOUR
SUBSCRIPTION.
PERSONS HOLDING COMMON STOCK AND DESIRING TO EXERCISE SUBSCRIPTION RIGHTS
THROUGH OTHERS
If you hold shares of our common stock through a broker, dealer or other
nominee, we will send your rights certificate to your broker, dealer or nominee.
Your broker, dealer or nominee will notify you of the rights offering. If you
wish to exercise your subscription rights, you will need to have your broker,
dealer or nominee act for you. You should contact them and request that they
take the necessary and proper actions to exercise your subscription rights.
HOW FOREIGN AND CERTAIN OTHER STOCKHOLDERS CAN EXERCISE SUBSCRIPTION RIGHTS
We will not mail rights certificates to you if you are a stockholder with an
address outside the United States or if you have an Army Post Office (APO) or
Fleet Post Office (FPO) address. Instead, the subscription agent will hold
rights certificates for your account. To exercise your subscription rights, you
must notify the subscription agent on or prior to 11:00 a.m., New York City
time, on September 29, 1999, and establish to the satisfaction of the
subscription agent that your exercise is permitted under applicable law.
ISSUANCE OF SERIES C CONVERTIBLE PREFERRED STOCK
We will issue certificates representing shares of Series C Convertible Preferred
Stock purchased pursuant to the exercise of subscription rights as soon as
practicable after the expiration of the rights offering.
SUBSCRIPTION AGENT
ChaseMellon Shareholder Services, L.L.C. is acting as the subscription agent in
connection with the rights offering.
INFORMATION AGENT
ChaseMellon Consulting Services is acting as information agent in connection
with the rights offering. ChaseMellon's telephone number is 1-888-566-9472.
LISTING
We have filed an application to list the Series C Convertible Preferred Stock
and the underlying common stock for trading on the New York Stock Exchange. We
have proposed to list the Series C Convertible Preferred Stock under the symbol
"AAMPR." Our common stock is listed on the NYSE under the symbol "AAM."
USE OF PROCEEDS
We will receive approximately between $24 million and $30 million from the
rights offering, after paying estimated offering expenses of $1 million. We will
use the proceeds from the rights offering and the investment by Capital Z for
general corporate purposes. See "Use of Proceeds."
Page 5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The selected consolidated financial and other data as of and for the years
ended June 30, 1999, 1998, 1997, 1996 and 1995 are derived from our audited
consolidated financial statements that are incorporated in this prospectus by
reference. You should read the following data with the more detailed information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended June
30, 1999.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA AND RATIOS)
STATEMENT OF INCOME DATA:
Revenue:
<S> <C> <C> <C> <C> <C>
Gain on sale of loans..................... $ 44,855 120,828 135,421 71,255 15,870
Valuation (write-down) of interest-only
strips.................................... (186,45) 19,495 (18,950) - -
Commissions............................... 33,034 27,664 29,250 21,564 15,799
Loan service.............................. 49,900 51,642 31,131 20,394 8,791
Interest income and fees.................. 42,509 46,860 37,679 15,215 7,940
-------- -------- -------- -------- --------
Total revenue, including write-down... (16,153) 266,489 214,531 128,428 48,400
Total expenses............................ 261,996 213,683 205,071 89,541 37,788
-------- -------- -------- -------- --------
Income (loss) before income taxes......... (278,14) 52,806 9,460 38,887 10,612
Provision (benefit) for income taxes...... (30,182) 25,243 7,982 17,814 4,828
======== ======= ====== ======== ========
Net income (loss)......................... (247,96) 27,563 1,478 21,073 5,784
======== ======== ======== ======== ========
Net income (loss) per share (diluted)..... (8.00) 0.87 0.05 0.82 0.43
======== ======== ======== ======== ========
Weighted average number of shares
outstanding (in thousands) (diluted).. 31,000 35,749 28,371 27,248 13,532
======== ======== ======== ======== ========
Cash dividends declared per share....... $ 0.03 .13 .13 .13 .13
======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES (1) (0.09) 2.17 1.28 4.08 4.27
CASH FLOW DATA:
Provided by (used in) operating activities $(466,96) (49,661) (280,07) (241,07) (43,375)
Used in investing activities.............. (5,229) (5,163) (8,864) (5,885) (988)
Provided by financing activities 480,637 40,244 291,898 250,540 48,209
Net increase (decrease) in cash and cash
equivalents............................... 8,442 (14,580) 2,961 3,582 3,846
AT JUNE 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ---------- --------
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 20,764 12,322 26,902 23,941 20,359
Interest-only strips and mortgage
servicing rights.......................... 353,255 522,632 360,892 167,740 50,421
Total assets.............................. 1,021,097 815,187 717,595 401,524 108,084
-------- -------- ------- -------- --------
10.5% Senior Notes due 2002............... 17,250 23,000 23,000 23,000 23,000
9.125% Senior Notes due 2003.............. 150,000 150,000 150,000 -- --
5.5% Convertible Subordinated Debentures
due 2006.................................. 113,970 113,990 113,990 115,000 --
Other long-term debt...................... -- -- -- 45 144
-------- -------- ------- -------- --------
Total long-term debt................. 281,220 286,990 286,990 138,045 23,144
Stockholders' equity...................... 145,556 304,051 239,755 120,461 75,797
<FN>
(1) The ratio of earnings to fixed charges was computed by dividing income
before income taxes and interest expense, including amortization of deferred
financing costs, during the period by interest cost incurred. The 1999 ratio
does not include nonrecurring charges of $194 million in the second fiscal
quarter and $37 million in the third fiscal quarter. The 1999 ratio would be
(5.41) had it not been adjusted for the nonrecurring charges. The deficiency for
one-to-one coverage in the fiscal year ended June 30, 1999 was $47 million.
</FN>
</TABLE>
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<PAGE>
RISK FACTORS
Investment in the Series C Convertible Preferred Stock covered by this
prospectus involves a substantial degree of risk. You should carefully consider
the following factors, together with the other information contained in this
prospectus, before exercising your subscription rights to purchase the Series C
Convertible Preferred Stock that we are offering.
IF OUTSIDE SOURCES OF CASH ARE NOT SUFFICIENT, OUR ABILITY TO MAKE AND
SERVICE LOANS WILL BE IMPAIRED AND OUR REVENUES WILL SUFFER.
We operate on a negative cash flow basis, which means our cash
expenditures exceed our cash earnings. Therefore, we need continued access to
short- and long-term external sources of cash to fund our operations.
Our primary uses of cash include:
o mortgage loan originations and purchases before their securitization
and sale;
o fees, expenses and hedging costs, if any, incurred for the
securitization of loans;
o cash reserve accounts or overcollateralization required in the
securitization and sale of loans;
o tax payments generally due on recognition of non-cash gain on sale
recorded in the securitizations;
o ongoing administrative and other operating expenses;
o interest and principal payments under our credit facilities and
other existing indebtedness;
o cash advances made on delinquent loans included in our loan
servicing portfolio; and
o costs of expanding our loan production units.
Our primary sources of cash are expected to be cash from the Rights
Offering, warehouse and repurchase facilities, transactions by which we monetize
our servicing advance receivables, securitizations and whole loan sales.
Our primary and potential sources of cash as described in the paragraph
above should be sufficient to fund our cash requirements through at least the
next 12 months, but only if our future operations are consistent with our
current growth expectations. If available at all, the type, timing and terms of
financing selected by us will be dependent upon our cash needs, the availability
of other financing sources, limitations under debt covenants and the prevailing
conditions in the financial markets. However, we are not sure that these sources
of cash will be available when needed. Even if the sources of cash are
available, the providers of cash may impose terms that are not favorable to us.
As a result of the limitations described above, we may be restricted in the
amount of loans that we will be able to produce and dispose of.
OUR RIGHT TO SERVICE LOANS MAY BE TERMINATED BECAUSE OF THE HIGH
DELINQUENCIES AND LOSSES ON THE LOANS IN OUR SERVICING PORTFOLIO.
If, at any measuring date, the delinquencies or losses with respect to any
of our securitization trusts credit-enhanced by monoline insurance were to
exceed the delinquency or loss limits applicable to that trust, our rights to
service the loans in the affected trust may be terminated.
A substantial majority of our servicing portfolio consists of loans
securitized by us and sold to real estate mortgage investment conduits or owner
trusts in securitization transactions. Generally, the agreement entered into in
connection with these securitizations contains specified limits on
delinquencies, which means loans past due 90, or in some cases past due 60, days
or more, and losses that may be incurred in each trust. Losses occur when the
cash we receive from the sale of
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foreclosed properties, less sales expenses, is less than the principal balances
of the loans previously secured by those properties and related interest and
servicing advances. See below.
A majority of our securitization transactions were credit-enhanced by an
insurance policy issued by a monoline insurance company. That insurance policy
protects the securitization investor against certain losses. The monoline
insurance company can terminate us as servicer if delinquencies or losses are
over a specified limit.
At June 30, 1999, the dollar volume of loans delinquent more than 90 days
in our 10 securitization trusts formed in December 1992 and during the period
from March 1995 to March 1997 exceeded the permitted limit in the related
securitization agreements.
We have implemented various plans to lower the delinquency rates in our
future trusts, including diversifying the loans we originate and purchase to
include higher credit grade loans. The delinquency rate at June 30, 1999 was
15.7% and at June 30, 1998 was 15.6%.
Four of the ten trusts referred to above, which represent in the aggregate
16.0% of the dollar volume of our servicing portfolio, exceeded loss limits at
June 30, 1999. The limit that has been exceeded provides that losses may not
exceed a certain threshold, which ranges from .50% to .77% of the original pool
balances in the relevant securitization trusts, on a rolling 12 month basis.
Although the monoline insurance company has the right to terminate
servicing with respect to the trusts that exceed the delinquency and loss
limits, no servicing rights have been terminated and we believe that it is
unlikely that we will be terminated as servicer. We cannot be sure, however,
that our servicing rights with respect to the mortgage loans in such trusts, or
any other trusts which exceed the specified delinquency or loss limits in future
periods, will not be terminated.
HIGH DELINQUENCIES ON THE LOANS IN OUR SERVICING PORTFOLIO MAY HURT OUR
CASH FLOWS.
High delinquency rates hurt our cash flows. When delinquency rates exceed
the limit specified in the securitization agreement, our right to receive cash
from the trust is delayed. When delinquency rates exceed the specified amount,
we are required to use the cash flows from the trust to make accelerated
payments of principal on the certificates or bonds issued by the trust. These
accelerated payments increase the overcollateralization levels. The
overcollateralization level represents the amount that the principal balance of
the loans in the trust exceeds the principal balance of the certificates or
bonds issued by the trust. We do not receive distributions from the trust until
after the required overcollateralization levels are met. Generally, provisions
in the securitization agreements have the effect of requiring the
overcollateralization amount to be increased up to approximately twice the level
otherwise required when the delinquency rates do not exceed the specified limit.
As of June 30, 1999, we were required to maintain an additional $89.3 million in
overcollateralization amounts as a result of the level of the delinquency rates
above that which would have been required to be maintained if the applicable
delinquency rates had been below the specified limit. Of this amount, at June
30, 1999, $47.5 million remains to be added to the overcollateralization amounts
from future spread income on the loans held by these trusts.
High delinquency rates also negatively affect our cash flows because we
act as servicer of the loans in the trust. As the servicer, we are required to
use our cash to advance to the trust past due interest.
HIGH DELINQUENCIES AND LOSSES MAY HURT OUR EARNINGS.
Higher delinquency and loss levels may also affect our reported earnings.
We apply certain assumptions with respect to expected losses on loans in a
securitization trust to determine the amount of non-cash gain on sale that we
record at the closing of a securitization transaction. If actual losses exceed
those assumptions, we may be required to take a charge to earnings. The charge
to earnings would result in an adjustment to the carrying value of the
interest-only strips recorded on our balance sheet.
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OUR LOANS ARE SUBJECT TO HIGHER RISKS OF DELINQUENCY AND LOSS THAN THOSE
MADE BY CONVENTIONAL MORTGAGE SOURCES.
Loans made to borrowers in the lower credit grades have historically
resulted in a higher risk of delinquency and loss than loans made to borrowers
who use conventional mortgage sources. We believe that the underwriting criteria
and collection methods we use permit us to mitigate the higher risks inherent in
loans made to these borrowers. However, we cannot be sure that those criteria or
methods will protect us against those risks.
All of our loans are collateralized by residential property. The value of
the property collateralizing our loans may not be sufficient to cover the
principal amount of the loans in the event of liquidation. Losses not covered by
the underlying properties could have a material adverse effect on our results of
operations and financial condition. In addition, historical loss rates affect
the assumptions used by us in computing our non-cash gain on sale. If actual
losses exceed those assumptions, we may be required to take a charge to
earnings.
Adjustable rate loans account for a substantial portion of the mortgage
loans that we originate or purchase. Substantially all of the adjustable rate
mortgages include a "teaser" rate, i.e., an initial interest rate significantly
below the fully indexed interest rate at origination. Although these loans are
underwritten at the indexed rate as of the first adjustment date,
credit-impaired borrowers may encounter financial difficulties as a result of
increases in the interest rate over the life of the loan.
IF WE ARE UNABLE TO MAINTAIN ADEQUATE FINANCING SOURCES, OUR ABILITY TO
MAKE MORTGAGE LOANS WILL BE IMPAIRED AND OUR REVENUES WILL SUFFER.
We use cash draws under credit facilities, referred to as warehouse and
repurchase facilities, to fund new originations and purchases of mortgage loans
before securitization or sale. We currently have three committed lines with
aggregate borrowing capacity of $590 million and one $100 million uncommitted
warehouse line. We recently entered into a transaction pursuant to which we sold
certain accounts receivable representing servicing advances we had previously
made and engaged an investment bank to make a substantial portion of future
servicing advances on substantially all of the loans in our servicing portfolio.
As servicer of the loans we securitize, we are required to advance, "loan," to
the trusts delinquent interest. In addition, as servicer, we advance to the
trusts foreclosure related expenses, and certain tax and insurance remittances
relating to loans serviced. To the extent that we are unable to maintain
existing credit facilities, arrange new warehouse, repurchase or other credit
facilities or obtain additional commitments to sell whole loans for cash, we may
have to curtail making loans. This would have a material adverse effect on our
financial position and results of operations and jeopardize our ability to
continue to operate as a going concern.
OUR BUSINESS OPERATIONS MAY BE INTERRUPTED IF WE EXPERIENCE UNEXPECTED
YEAR 2000 PROBLEMS.
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This Year 2000 problem could result in
data corruption, system failures or disruptions of operations. We are subject to
potential Year 2000 problems affecting our products and services, our internal
systems and the systems of third parties on whom we rely. As part of our overall
systems enhancement program, we are using both internal and external resources
to identify, correct, reprogram or replace, and test our systems for Year 2000
compliance. One of our financing facilities requires us to be Year 2000
compliant by September 30, 1999. It is anticipated that all of our Year 2000
compliance efforts will be completed on time. We use third-party equipment,
software and content that may not be Year 2000 compliant. Although we have
received assurances from third parties that they are Year 2000 compliant, we
generally do not independently verify their Year 2000 compliance. If third
parties on whom we rely are not Year 2000 compliant, our business could be
adversely affected later this year.
Certain state regulatory authorities have imposed early deadlines for Year
2000 compliance. We are unable to meet those deadlines. If we are unable to
satisfy those regulators that our Year 2000 compliance effort is adequate, our
license to conduct business in a state could be revoked or not renewed.
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We have recently installed and are testing a Year 2000 compliant loan
origination system that is expected to add approximately $2.0 million per year
to our technology costs over the next three years. Other technology enhancements
are being reviewed but, to date, the costs for those enhancements have not been
determined.
FASTER THAN EXPECTED PREPAYMENT RATES ON OUR LOANS WILL HURT EARNINGS.
If actual prepayments occur more quickly than was projected at the time
loans were sold, the carrying value of the interest-only strips may have to be
adjusted through a charge to earnings in the period of adjustment. The rate of
prepayment of loans may be affected by a variety of economic and other factors.
We estimate prepayment rates based on our expectations of future prepayment
rates, which are based, in part, on the historic performance of our loans and
other considerations.
OUR OPERATIONS MAY BE HURT BY A SUBSTANTIAL AND SUSTAINED INCREASE OR
DECREASE IN INTEREST RATES.
A substantial and sustained increase in long-term interest rates could,
among other things:
o decrease the demand for consumer credit;
o adversely affect our ability to make loans; and
o reduce the average size of loans we underwrite.
A significant decline in long-term interest rates could increase the level
of loan prepayments. An increase in prepayments would decrease the size of, and
servicing income from, our servicing portfolio. Our expectations as to
prepayment are used to determine the amount of non-cash gain on sale recorded at
the closing of a securitization transaction. An increase in prepayment rates
could result in a charge to earnings if the rate is faster than originally
expected.
A substantial and sustained increase in short-term interest rates could,
among other things,
o increase our borrowing costs, most of which are tied to those rates;
and
o reduce the gains recorded by us upon the securitization and sale of
loans.
IN AN INCREASING INTEREST RATE ENVIRONMENT, OUR EARNINGS COULD SUFFER
BECAUSE OF ADJUSTABLE RATE LOANS THAT WE SECURITIZED.
The value of our interest-only strips created as a result of the
securitization of adjustable rate mortgage loans is subject to so-called basis
risk. Basis risk arises when the adjustable rate mortgage, including fixed
initial rate mortgage, loans in a securitization trust bear interest based on an
index or adjustment period that is different from the certificates or bonds
issued by the trust. In the absence of effective hedging, or loss mitigation,
strategies, in a period of increasing interest rates, the value of the
interest-only strips would be adversely affected because the interest rates on
the certificates or bonds issued by a securitization trust could adjust faster
than the interest rates on our adjustable rate mortgage loans in the trust.
Adjustable rate mortgage loans are typically subject to periodic and lifetime
interest rate caps, which limit the amount an adjustable rate mortgage loan's
interest rate can change during any given period. In a period of rapidly
increasing interest rates, the value of the interest-only strips could be
adversely affected in the absence of effective hedging strategies because the
interest rates on the certificates or bonds issued by a securitization trust
could increase without limitation by caps, while the interest rates on our
adjustable rate mortgage loans would be so limited.
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A PROLONGED INTERRUPTION OR REDUCTION IN THE SECONDARY MARKET WOULD HURT
OUR FINANCIAL PERFORMANCE.
We must be able to sell loans we make in the securitization and whole loan
market to generate cash proceeds to pay down our warehouse and repurchase
facilities and fund new loans. Our ability to sell loans in the securitization
and whole loan markets on acceptable terms is essential for the continuation of
our loan origination and purchase operations. The value of and market for our
loans are dependent upon a number of factors, including general economic
conditions, interest rates and governmental regulations. Adverse changes in
these factors may affect our ability to securitize or sell whole loans for
acceptable prices within a reasonable period of time.
To facilitate the sale of certificates or bonds issued by the
securitization trust, we must obtain investment grade ratings for the
certificates or bonds. To obtain those credit ratings, we credit-enhance the
securitization trust. The overcollateralization amount is one form of credit
enhancement. Additionally, we either obtain an insurance policy to protect
holders of the certificates or bonds against certain losses, or sell
subordinated interests in the securitization trusts.
Our financial position and results of operations would be materially
affected if investors were unwilling to purchase interests in our securitization
trusts or monoline insurance companies were unwilling to provide financial
guarantee insurance for the certificates or bonds sold. Other accounting, tax or
regulatory changes could also adversely affect our securitization program.
We rely on institutional purchasers, such as investment banks, financial
institutions and other mortgage lenders, to purchase our loans in the whole loan
market. We cannot be sure that the purchasers will be willing to purchase loans
on satisfactory terms or that the market for such loans will continue. Our
results of operations and financial condition could be materially adversely
affected if we could not successfully identify whole loan purchasers or
negotiate favorable terms for loan purchases.
IF WE ARE UNABLE TO SELL A SIGNIFICANT PORTION OF OUR LOANS ON AT LEAST A
QUARTERLY BASIS, OUR EARNINGS WOULD BE SIGNIFICANTLY AFFECTED.
Any delay in the sale of a significant portion of our loan production
beyond a quarter-end would postpone the recognition of gain on sale related to
such loans until their sale and would likely result in losses for the quarter.
Our loan disposition strategy calls for substantially all of our production to
be sold in the secondary market each quarter. However, market and other
considerations, including the conformity of loan pools to monoline insurance
company and rating agency requirements, could affect the timing of the sale
transactions.
CHANGES IN THE VOLUME AND COST OF OUR BROKER LOANS MAY DECREASE OUR LOAN
PRODUCTION.
We depend on independent mortgage brokers for the origination and purchase
of our broker loans, which constitute a significant portion of our loan
production. Our future results of operations and financial condition may be
vulnerable to changes in the volume and cost of our broker loans resulting from,
among other things, competition from other lenders and purchasers of such loans.
These independent mortgage brokers negotiate with multiple lenders for each
prospective borrower. We compete with these lenders for the independent brokers'
business on pricing, service, loan fees, costs and other factors. Our
competitors also seek to establish relationships with such brokers, who are not
obligated by contract or otherwise to do business with us.
OUR COMPETITORS IN THE MORTGAGE BANKING MARKET ARE OFTEN LARGER AND HAVE
GREATER FINANCIAL RESOURCES THEN WE DO, WHICH WILL MAKE IT DIFFICULT FOR US TO
SUCCESSFULLY COMPETE.
We face intense competition in the business of originating, purchasing and
selling mortgage loans. Competition among industry participants can take many
forms, including convenience in obtaining a loan, customer service, marketing
and distribution channels, amount and term of the loan, loan origination fees
and interest rates. Many of our competitors are substantially larger and have
considerably greater financial, technical and marketing resources than we do.
Our competitors
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in the industry include other consumer finance companies, mortgage banking
companies, commercial banks, investment banks, credit unions, thrift
institutions, credit card issuers and insurance companies. In the future, we may
also face competition from government-sponsored entities, such as FNMA and
FHLMC. These government-sponsored entities may enter the subprime mortgage
market and target potential customers in our highest credit grades, who
constitute a significant portion of our customer base.
The historical level of gains realized on the sale of subprime mortgage
loans could attract additional competitors into this market. Certain large
finance companies and conforming mortgage originators have announced their
intention to originate, or have purchased companies that originate and purchase,
subprime mortgage loans, and some of these large mortgage companies, thrifts and
commercial banks have begun offering subprime loan products to customers similar
to our targeted borrowers. In addition, establishing a broker-sourced loan
business requires a substantially smaller commitment of capital and human
resources than a direct-sourced loan business. This relatively low barrier to
entry permits new competitors to enter this market quickly and compete with our
broker lending business.
Additional competition may lower the rates we can charge borrowers and
increase the cost to purchase loans, which could potentially lower the gain on
future loan sales or securitizations. Increased competition may also reduce the
volume of our loan origination and loan sales and increase the demand for our
experienced personnel and the potential that such personnel will leave for
competitors.
Competitors with lower costs of capital have a competitive advantage over
us. During periods of declining rates, competitors may solicit our customers to
refinance their loans. In addition, during periods of economic slowdown or
recession, our borrowers may face financial difficulties and be more receptive
to the offers of our competitors to refinance their loans.
Our correspondent and broker programs depend largely on independent
mortgage bankers and brokers and other financial institutions for the purchases
of new loans. Our competitors also seek to establish relationships with the same
sources.
BECAUSE A SIGNIFICANT AMOUNT OF THE LOANS WE SERVICE ARE IN CALIFORNIA,
OUR OPERATIONS COULD BE HURT BY ECONOMIC DOWNTURNS OR NATURAL DISASTERS IN THE
STATE.
At June 30, 1999, 21.4% of the loans we serviced were collateralized by
residential properties located in California. Because of this concentration in
California, our financial position and results of operations have been and are
expected to continue to be influenced by general trends in the California
economy and its residential real estate market. Residential real estate market
declines may adversely affect the values of the properties collateralizing
loans. If the principal balances of our loans, together with any primary
financing on the mortgaged properties, equal or exceed the value of the
mortgaged properties, we could incur higher losses on sales of properties
collateralizing foreclosed loans. In addition, California historically has been
vulnerable to certain natural disaster risks, such as earthquakes and
erosion-caused mudslides, which are not typically covered by the standard hazard
insurance policies maintained by borrowers. Uninsured disasters may adversely
impact our ability to recover losses on properties affected by such disasters
and adversely impact our results of operations.
THE RISKS ASSOCIATED WITH OUR BUSINESS BECOME MORE ACUTE IN ANY ECONOMIC
SLOWDOWN OR RECESSION.
Periods of economic slowdown or recession may be accompanied by decreased
demand for consumer credit and declining real estate values. Any material
decline in real estate values reduces the ability of borrowers to use home
equity to support borrowings. Material declines in real estate values also
weakens collateral coverage and increases the possibility of a loss in the event
of liquidation. Further, delinquencies, foreclosures and losses generally
increase during economic slowdowns or recessions. Because of our focus on
credit-impaired borrowers, the actual rates of delinquencies, foreclosures and
losses on such loans could be higher than those generally experienced in the
mortgage lending industry. In addition, in an economic slowdown or recession,
our servicing costs may increase. Any sustained period of increased
delinquencies, foreclosure, losses or increased costs could adversely affect our
ability to securitize or sell loans in the secondary market and could increase
the cost of these transactions.
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EVEN AFTER WE SELL OUR LOANS, WE REMAIN SUBJECT TO RISKS FROM
DELINQUENCIES AND LOSSES ON THE LOANS WE SERVICE.
Although we sell substantially all the mortgage loans which we originate
or purchase, we retain some degree of credit risk on substantially all loans
sold where we continue to service those loans. During the period of time that
loans are held before sale, we are subject to the various business risks
associated with the lending business including the risk of borrower default, the
risk of foreclosure and the risk that a rapid increase in interest rates would
result in a decline in the value of loans to potential purchasers. Cash flows
from the securitization trust are represented by the interest rate earned on the
loans in the trust over the amount of interest paid by the trust to the holders
of the certificates or bonds issued by the trust, plus certain monoline and
servicing fees. The agreements governing our securitization program require us
to credit-enhance the securitization trust by either establishing deposit
accounts or building overcollateralization levels. Deposit accounts are
established by maintaining a portion of the excess cash flows in a trust deposit
account. Overcollateralization levels are built up by applying these excess cash
flows to reduce the principal balances of the certificates or bonds issued by
the trust. Those amounts are available to fund losses realized on loans held by
such trust. We continue to be subject to the risks of default and foreclosure
following securitization and the sale of loans to the extent excess cash flows
are required to be maintained in the deposit account or applied to build up
overcollateralization, as opposed to being distributed to us.
When borrowers are delinquent in making monthly payments on loans included
in a securitization trust, as servicer of the loans in the trust, we are
required to advance interest payments with respect to such delinquent loans.
These advances require funding from our capital resources, but have priority of
repayment from collections or recoveries on the loans in the related pool in the
succeeding month.
WE MAY BE REQUIRED TO REPURCHASE LOANS OR INDEMNIFY INVESTORS IF WE BREACH
REPRESENTATIONS AND WARRANTIES.
In the ordinary course of our business, we are subject to claims made
against us by borrowers and private investors arising from, among other things,
losses that are claimed to have been incurred as a result of alleged breaches of
fiduciary obligations, misrepresentations, errors and omissions of our employees
and officers, incomplete documentation and failures to comply with various laws
and regulations applicable to our business. In addition, agreements governing
our securitization program and whole loan sales require us to commit to
repurchase or replace loans which do not conform to our representations and
warranties at the time of sale. We believe that liability with respect to any
currently asserted claims or legal actions is not likely to be material to our
financial position or results of operations. However, any claims asserted in the
future may result in legal expenses or liabilities which could have a material
adverse effect on our financial position and results of operations.
IF WE ARE UNABLE TO COMPLY WITH MORTGAGE BANKING RULES AND REGULATIONS,
OUR ABILITY TO MAKE MORTGAGE LOANS MAY BE RESTRICTED.
Our operations are subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and are subject
to various laws and judicial and administrative decisions imposing requirements
and restrictions on part or all of our operations. Failure to comply with these
requirements can lead to loss of approved status, certain rights of rescission
for mortgage loans, class action lawsuits and administrative enforcement action.
Our consumer lending activities are subject to various federal laws and
regulations, as well as other state statutes and regulations. We are also
subject to the rules and regulations of, and examinations by, state regulatory
authorities with respect to originating, processing, underwriting, selling,
securitizing and servicing loans. These rules and regulations, among other
things, impose licensing obligations on us, establish eligibility criteria for
mortgage loans, prohibit discrimination, govern inspections and appraisals of
properties and credit reports on loan applicants, regulate assessment,
collection, foreclosure and claims handling, investment and interest payments on
escrow balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Because our business is highly regulated, the laws, rules and
regulations applicable to us are subject to regular modification and change.
There are currently proposed various laws, rules and regulations which, if
adopted, could impact us.
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CHANGES IN THE MORTGAGE INTEREST DEDUCTION COULD HURT OUR FINANCIAL
PERFORMANCE.
Members of Congress and government officials have from time-to-time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of our loans are made to borrowers for the
purpose of consolidating consumer debt or financing other consumer needs, the
competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by us.
WE WILL BE UNABLE TO PAY DIVIDENDS ON OUR CAPITAL STOCK FOR THE
FORESEEABLE FUTURE.
The indentures governing certain of our outstanding indebtedness as well
as our other credit agreements limit our ability to pay cash dividends on our
capital stock. Under the most restrictive of these limitations, we will be
prevented from paying cash dividends on our capital stock, including the Series
C Convertible Preferred Stock, for the foreseeable future.
THE CONCENTRATED OWNERSHIP OF OUR VOTING STOCK BY OUR CONTROLLING
STOCKHOLDER MAY HAVE AN ADVERSE EFFECT ON YOUR ABILITY TO INFLUENCE THE
DIRECTION AAMES FINANCIAL CORPORATION WILL TAKE.
Following completion of the Rights Offering, Capital Z will beneficially
own Senior Preferred Stock representing 61.1% of our combined voting power,
other than in the election of directors, if all the Series C Convertible
Preferred Stock offered in the Rights Offering are purchased by our common
stockholders and 78.2% of our combined voting power, other than in the election
of directors, if none of the Series C Convertible Preferred Stock offered in the
Rights Offering is purchased by our common stockholders and 25 million shares of
the Series C Convertible Preferred Stock are purchased by Capital Z pursuant to
Capital Z's agreement, if less than 25 million shares of Series C Convertible
Preferred Stock are purchased by our common stockholders in the rights offering,
to purchase the difference, up to 25 million shares of Series C Convertible
Preferred Stock. As a result of its beneficial ownership, Capital Z has, and
will continue to have, sufficient voting power to determine our direction and
policies. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission. You can read and copy these documents at the SEC's Public
Reference Room, located at 450 Fifth Street, NW, Room 1024, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference room. Our SEC filings are also available on the SEC's Website
at "http://www.sec.gov." You can also read our SEC filings at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" in this prospectus the
information we file with the SEC, which means that we can disclose important
information to you by referring to the documents containing that information.
The information incorporated by reference is an important part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings made with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
until the expiration of the rights offering made by this prospectus:
o Our Annual Report on Form 10-K for the year ended June 30, 1999.
o Our Current Report on Form 8-K dated July 1, 1999, filed with the
SEC on July 8, 1999.
o Our Current Report on Form 8-K dated August 26, 1999, filed with the
SEC on August 31, 1999.
o Our Proxy Statement on Schedule 14A dated August 6, 1999.
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o Description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC on October 22, 1991.
o Description of our Series C Convertible Preferred Stock contained in
our Registration Statement on Form 8-A filed with the SEC on
September 3, 1999.
o Description of our preferred stock purchase rights contained in our
Registration Statement on Form 8-A filed with the SEC on July 12,
1996.
This prospectus is part of a registration statement we filed with the SEC.
You may request a copy of the above information incorporated by reference, at no
cost, by writing to or calling:
David A. Sklar
Executive Vice President and Chief Financial Officer
Aames Financial Corporation
350 South Grand Avenue, 52nd Floor
Los Angeles, California 90071
(323) 210-5000
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement to this prospectus. We have not
authorized anyone else to provide you with different information. We will not
offer to sell the Series C Convertible Preferred Stock in any state where the
offer is not permitted. You should not assume that the information in this
prospectus or any supplement to this prospectus is accurate as of any date other
than the date on the cover page of this prospectus or any supplement.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains or may incorporate by reference statements that
constitute "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933.
The words "expect," "estimate," "anticipate," "predict," "believe," and similar
expressions and variations of such words are intended to identify
forward-looking statements. Such statements appear in a number of places in this
prospectus and include statements regarding our intent, belief or current
expectations with respect to, among other things:
o market conditions in the securitization, capital, credit and whole
loan markets and their future impact on our operations;
o trends affecting our liquidity position, including, but not limited
to, our access to warehouse and other credit facilities and our
ability to effect whole loan sales;
o the impact of the various cash savings plans and other restructuring
strategies that we are considering;
o our on-going efforts in improving our equity position;
o trends affecting our financial condition and results of operations;
o our plans to address the Year 2000 problem; and
o our business and liquidity strategies.
We caution you not to put undue reliance on such forward-looking
statements. Such forward-looking statements are not guarantees of our future
performance and involve risks and uncertainties. Our actual results may differ
materially from those projected in this prospectus, for the reasons, among
others, discussed in this prospectus under the caption "Risk Factors." We
undertake no obligation to publicly revise these forward-looking statements to
reflect events or circumstances
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that arise after the date of this prospectus. In addition to the risks and
uncertainties discussed below, our filings with the Securities and Exchange
Commission contain additional information concerning risks and uncertainties
that would cause actual results to differ materially from those projected or
suggested in our forward-looking statements. You should carefully review the
risk factors discussed in this prospectus and the documents that are
incorporated by reference into this prospectus.
AAMES FINANCIAL CORPORATION
GENERAL
We are a consumer finance company primarily engaged in the business of
originating, purchasing, selling, and servicing home equity mortgage loans
secured by single family residences. Upon our formation in 1991, we acquired
Aames Home Loan, a home equity lender founded in 1954. In August 1996, we
acquired One Stop Mortgage, Inc., which originates mortgage loans primarily
through a broker network. In August 1999, One Stop began operating under the
name "Aames Home Loan."
Our principal market is borrowers whose financing needs are not being met
by traditional mortgage lenders for a variety of reasons, including the need for
specialized loan products or credit histories that may limit such borrowers'
access to credit. We believe these borrowers continue to represent an
underserved niche of the home equity loan market and present an opportunity to
earn a superior return for the risk assumed. The residential mortgage loans that
we originate and purchase, which include fixed and adjustable rate loans, are
generally used by borrowers to consolidate indebtedness or to finance other
consumer needs rather than to purchase homes.
We originate and purchase loans nationally through three production
channels--retail, broker and correspondent. In recent quarters, we have
emphasized our core retail and broker loan production channels and decreased our
reliance on correspondent purchases. During the year ended June 30, 1999, we
originated and purchased $2.19 billion of mortgage loans. We underwrite and
appraise every loan that we originate and we generally review appraisals and
re-underwrite all loans that we purchase.
We retain the servicing on the loans that we originate or purchase and
securitize. At June 30, 1999, our servicing portfolio was $3.84 billion, which
includes $413 million of loans serviced by others. In April 1999, we entered
into a sub-servicing arrangement with a loan servicing company with respect to
$388 million of loans primarily to reduce the burden on our cash resources
caused by our obligation to advance interest on delinquent loans in our
servicing portfolio.
As a fundamental part of our business and financing strategy, we sell our
loans to third party investors in the secondary market. We maximize
opportunities in our loan disposition transactions by selling our loan
production through a combination of securitizations and whole loan sales,
depending on market conditions, profitability and cash flows. We sold $1.89
billion of loans during the year ended June 30, 1999. Of the total amount of
loans sold during the year ended June 30, 1999, $650 million were sold in
securitizations. We did not complete a securitization during the quarters ended
December 31, 1998, March 31, 1999 and June 30, 1999. We did complete a
securitization of $400 million of mortgage loans in August 1999. The gain on
sale recognized was lower than historical gains due to market conditions at the
time of the securitization, higher margins paid by the Company on the
certificates issued by the securitization trust and the Company's adoption of
the revised assumptions during the quarter ended December 31, 1998.
THE CAPITAL Z FINANCING
In February 1999, Capital Z (through a partnership majority-owned by
Capital Z) invested $75 million in our Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock, representing 69.6% of our total equity and
voting power after the investment. Concurrently with this investment, persons
designated by Capital Z purchased $1.5 million, and Cary Thompson, our former
Chief Executive Officer, purchased $250 thousand, of the Series C Convertible
Preferred Stock pursuant to the terms of a management investment agreement with
Capital Z. The Series B Convertible Preferred Stock and the Series C Convertible
Preferred Stock are described in this prospectus as the "Senior Preferred
Stock."
In August 1999, Capital Z (through a partnership majority-owned by Capital
Z) purchased $25 million of additional Series C Convertible Preferred Stock (the
"Additional Investment") which, together with the $75 million invested on
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February 1999, represented 75.3% of the total equity and voting power. The $100
million investment in Aames by Capital Z is described in this prospectus as the
"Capital Z Financing."
On September 13, 1999, we will hold our 1998 annual stockholders meeting.
At that meeting, our stockholders will consider, among other things, proposed
amendments to our certificate of incorporation to increase the number of shares
of our authorized common and preferred stock and a 1,000-for-1 forward stock
split of our outstanding Senior Preferred Stock (the "Recapitalization"). After
giving effect to the Recapitalization, Capital Z will beneficially own
26,704,000 shares of Series B Convertible Preferred Stock and 73,296,000 shares
of Series C Convertible Preferred Stock, which were purchased in the Capital Z
Financing at an effective purchase price of $1.00 per share.
The Capital Z Financing represented the first and second stage of a
three-stage investment. Subject to the Recapitalization, the third stage
consists of the rights offering that we are making pursuant to this prospectus,
in which our common stockholders will have the opportunity to purchase in the
aggregate up to approximately 31 million shares of Series C Convertible
Preferred Stock for $1.00 per share. Subject to the Recapitalization, if the
common stockholders do not purchase at least 25 million shares of Series C
Convertible Preferred Stock in the rights offering, Capital Z will purchase the
difference, up to 25 million shares of unregistered Series C Convertible
Preferred Stock, for a purchase price of $1.00 per share, pursuant to its
December 23, 1998 agreement with Aames (the "Standby Commitment").
On January 4, 1999, we issued to Capital Z Management, Inc., an affiliate
of Capital Z, a warrant to purchase 1.25 million shares of our common stock at
an initial exercise price of $1.00 per share as a fee for the Standby
Commitment, and, on August 3, 1999, we issued to designees of Capital Z
additional warrants to purchase an aggregate of 1.25 million shares of our
common stock at an initial exercise price of $1.00 per share as a fee for the
Additional Investment. In addition, on February 10, 1999, we paid to Capital Z
Management a $1 million transaction fee in connection with the transactions
contemplated by the purchase agreement with Capital Z and issued to Capital Z
Management an additional warrant to purchase up to 3 million shares of our
common stock at an initial exercise price of $1.00 per share, which is
exercisable only if the Recapitalization is not completed by September 30, 1999.
In addition, in connection with the transactions contemplated by the purchase
agreement with Capital Z, we have paid to Capital Z Management aggregate
additional fees of $2 million and have agreed to reimburse Capital Z Management
for all of its expenses incurred in connection with the negotiation and
execution of the purchase agreement with Capital Z and the transactions
contemplated thereby.
On February 10, 1999, we also entered into an Agreement For Management
Advisory Services with Equifin Capital Management, LLC, pursuant to which we
must pay to Equifin Management a quarterly management advisory fee of $250,000
for a period of five (5) years, which, on July 16, 1999, was increased by
$250,000 so long as Mr. Mani Sadeghi, Chief Executive Officer of Equifin
Management, serves as interim Chief Executive Officer of Aames. As required by
this management agreement, on February 10, 1999, we paid to Equifin Management
$250,000 in consideration of consulting services rendered prior to the execution
of the management agreement and as an advance for consulting services to be
rendered in the quarter ending March 31, 1999.
Equifin Capital is an affiliate of Capital Z.
Effective February 10, 1999, Melvyn Kinder, Lee Masters and John C.
Getzelman resigned from our Board of Directors. Currently our Board of Directors
consists of nine Directors divided into two groups. One group, consisting of
four Directors (the "Series B Directors"), are elected annually by the holders
of the Series B Convertible Preferred Stock, voting as a single class. The other
group of Directors, consisting of five directors (the "Common Stock Directors"),
one of whom was nominated by Capital Z, are elected by the holders of the common
stock and the holders of the Series B Convertible Preferred Stock, voting
together as a single class, for staggered three year terms. The holders of the
Series C Convertible Preferred Stock are not entitled to vote with respect to
the election of Directors.
As of August 3, 1999, Capital Z beneficially owned Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock representing 100% of
the voting rights entitled to elect the Series B Directors, 46.3% of the voting
rights entitled to elect the Common Stock Directors, and 75.3% of the voting
rights entitled to vote with respect to all other matters. Following completion
of the rights offering, Capital Z will beneficially own Senior Preferred Stock
representing 61.1% of our combined voting power if all the Series C Convertible
Preferred Stock offered in the rights offering are purchased by our common
stockholders and 78.2% of our combined voting power if none of the Series C
Convertible Preferred Stock offered in the rights offering is purchased by our
common stockholders and 25 million shares are purchased by Capital Z pursuant to
the Standby Commitment.
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USE OF PROCEEDS
After deducting the expenses, we will receive between approximately $24
million and $30 million from the rights offering and the Standby Commitment. We
will use the proceeds from the rights offering for general corporate purposes.
DETERMINATION OF THE SUBSCRIPTION PRICE
The subscription price of the subscription rights is equal to the price
per share for the Senior Preferred Stock paid by Capital Z in the Capital Z
Financing, after giving effect to the 1,000-for-1 split of the Senior Preferred
Stock. The price for the Senior Preferred Stock in the Capital Z Financing was
established through negotiations between us and Capital Z. On December 23, 1998,
the date we entered into the preferred stock purchase agreement with Capital Z,
the closing sale price on the New York Stock Exchange for our common stock was
$2.50 per share. On September 2, 1999, the closing sale price on the New York
Stock Exchange for our common stock was $1.3125 per share. The subscription
price in the rights offering is not necessarily related to our assets, book
value or net worth or any other established criteria of value, and may not be
indicative of the fair value of the Series C Convertible Preferred Stock to be
offered in the rights offering.
THE RIGHTS OFFERING
THE SUBSCRIPTION RIGHTS
We are issuing subscription rights to shareholders who owned our common
stock at the close of business on September 7, 1999. Beneficial owners of shares
of our common stock held in the name of Cede & Co. as nominee for the Depository
Trust Company, or in the name of any other depository or nominee, on the record
date for this rights offering will also receive subscription rights. You may not
transfer your subscription rights to others.
You will receive one subscription right for each share of our common stock
that you held on September 7, 1999. Each subscription right entitles you to
purchase one share of Series C Convertible Preferred Stock for $1.00 per share.
The subscription rights will be evidenced by subscription certificates (see
Appendix A) which will be mailed to shareholders other than foreign shareholders
whose record addresses are outside the United States. The United States includes
the 50 states, the District of Columbia, United States Territories and
Possessions.
The subscription rights issued to foreign stockholders will be held by the
subscription agent for their account until instructions are received to exercise
those subscription rights. Foreign stockholders may exercise their subscription
rights only if it is permissible to do so under applicable foreign securities
laws.
Any shares of Series C Convertible Preferred Stock acquired by officers,
directors and other persons who are "affiliates" of Aames, as that term is
defined under the Securities Act of 1933, may only be resold in accordance with
Rule 144 under the Securities Act of 1933 or pursuant to an effective
registration statement under the Securities Act. In general, under Rule 144, as
currently in effect, an "affiliate" of Aames is entitled to sell within any
three month period, a number of shares of Series C Convertible Preferred Stock
that does not exceed the greater of one percent of the then outstanding Series C
Convertible Preferred Stock or the average weekly reported trading volume of the
Series C Convertible Preferred Stock during the four calendar weeks preceding
the sale. Sales under Rule 144 are also subject to certain restrictions in the
manner of sale, notice requirements and the availability of current public
information about us.
SUBSCRIPTION PRICE
To exercise your subscription rights, you must pay the subscription price
of $1.00 per share of Series C Convertible Preferred Stock, payable in cash,
check, bank draft, money order or wire transfer to the designated account as
explained more fully below under "Exercise of Subscription Rights." The
subscription price was established through negotiations between us and Capital Z
and was intended to permit the common stockholders to participate in the
refinancing of Aames on the same terms as Capital Z. The subscription price in
the rights offering is not necessarily related to our assets, book value or net
worth or any other established criteria of value, and may not be indicative of
the fair value of the Series C Convertible Preferred Stock to be offered in the
rights offering. We cannot assure you that the Series C Convertible Preferred
Stock will
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trade at prices equal to or greater than the subscription price. Nor can we
assure you that you will be able to sell your shares of Series C Convertible
Preferred Stock purchased in the rights offering at a price equal to or greater
than the Subscription Price.
We announced the rights offering on December 23, 1998. The last reported
sale price per share of our common stock on the New York Stock Exchange on
December 23, 1998 and September 2, 1999 was $2.50 and $1.3125, respectively.
EXPIRATION; EXTENSION
You may exercise your subscription rights at any time before 5:00 p.m.,
New York City time, on September 29, 1999.
We may extend the time for exercising the subscription rights. If we
extend the rights offering, we may accept subscriptions received on or prior to
September 29, 1999. If you do not exercise your subscription rights before the
time they expire, then your subscription rights will be null and void. We will
not be obligated to honor your exercise of subscription rights if the
subscription agent receives the documents relating to your exercise after the
time the subscription rights expire, regardless of when you transmitted the
documents, except when you have timely transmitted the documents pursuant to the
guaranteed delivery procedures described below.
If we terminate the rights offering, we will promptly return all of your
subscription payments to you, without interest.
If we elect to extend the date the subscription rights expire, we will
issue a press release announcing the extension before the first trading day on
the New York Stock Exchange after the most recently announced expiration date.
See "-- Amendments and Termination."
CONDITIONS OF THE RIGHTS OFFERING
The consummation of the rights offering is conditioned upon the completion
of the Recapitalization.
EXERCISE OF SUBSCRIPTION RIGHTS
You may exercise your subscription rights by delivering the following to
the subscription agent at or before the time the subscription rights expire:
o Your properly completed and executed rights certificate evidencing
those subscription rights; and
o Your payment in full of the subscription price for each share of
Series C Convertible Preferred Stock subscribed for pursuant to your
subscription rights.
Your payment of the subscription price must be made by either:
o Check or bank draft drawn upon a U.S. bank or postal, telegraphic,
or express money order payable to ChaseMellon Shareholder Services
L.L.C., as subscription agent; or
o Wire transfer of immediately available funds to the account
maintained by the subscription agent for such purpose at The Chase
Manhattan Bank, New York, NY, ABA No. 021000021, Attn: Chase Mellon
Shareholder Service Reorg Account: 323-213057 (marked: "Aames
Financial Corporation").
Your payment of the subscription price will be deemed to have been
received by the subscription agent only upon:
o Clearance of any uncertified check;
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o Receipt by the subscription agent of any certified check or bank
draft drawn upon a U.S. bank or any postal, telegraphic or express
money order; or
o Receipt of collected funds in the subscription agent's account
designated above.
YOU SHOULD NOTE THAT FUNDS PAID BY UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR. IF YOU WISH TO PAY THE SUBSCRIPTION PRICE BY
AN UNCERTIFIED PERSONAL CHECK, WE URGE YOU TO MAKE PAYMENT SUFFICIENTLY IN
ADVANCE OF THE TIME THE SUBSCRIPTION RIGHTS EXPIRE TO ENSURE THAT YOUR PAYMENT
IS RECEIVED AND CLEARS BY THAT TIME. WE URGE YOU TO CONSIDER USING A CERTIFIED
OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS TO AVOID MISSING THE
OPPORTUNITY TO EXERCISE YOUR SUBSCRIPTION RIGHTS.
You should deliver the rights certificate and payment of the
subscription price,
IF BY MAIL TO:
ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301
South Hackensack, NJ 07606
Attn: Reorganization Department
IF BY HAND DELIVERY TO:
ChaseMellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, NY 10271
Attn: Reorganization Department
IF BY OVERNIGHT COURIER TO:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road - Mail Drop-Reorg
Ridgefield Park, NJ 07660
Attn: Reorganization Department
You may call the information agent at 1-888-566-9472.
If you do not indicate the number of subscription rights being exercised,
or do not forward full payment of the aggregate subscription price for the
number of subscription rights that you indicate are being exercised, then you
will be deemed to have exercised the subscription rights that may be exercised
for the aggregate subscription price payment you delivered to the subscription
agent. If we do not apply your full subscription price payment to your purchase
of shares of Series C Convertible Preferred Stock or if the Recapitalization is
not completed prior to the expiration or termination of the rights offering, we
will return the excess amount to you by mail without interest or deduction as
soon as practicable after the date the subscription rights expire or terminate.
The subscription agent will hold your payment of the subscription price in
a segregated account with other payments received from holders of subscription
rights until we issue to you your shares of Series C Convertible Preferred
Stock.
If you are a broker, a trustee or a depositary for securities who holds
shares of our common stock for the account of others (a "Nominee Record Date
Holder"), you should notify the respective beneficial owners of such shares of
the subscription rights as soon as possible to find out your beneficial owners'
intentions. You should obtain instructions from the beneficial owner with
respect to the subscription rights, as set forth in the instructions distributed
by Nominee Record Date Holders to beneficial owners. If the beneficial owner so
instructs, you should complete the appropriate rights certificates and submit
them to the subscription agent with the proper payment.
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If you are a beneficial owner of shares of our common stock or
subscription rights that you hold through a Nominee Record Date Holder, you
should contact the Nominee Record Date Holder and request the Nominee Record
Date Holder to effect transactions in accordance with your instructions.
You should read and follow the instructions accompanying the rights
certificates carefully. If you want to exercise your subscription rights, you
must send your rights certificates to the subscription agent. YOU SHOULD NOT
SEND THE RIGHTS CERTIFICATES TO THE COMPANY.
YOU ARE RESPONSIBLE FOR THE METHOD OF DELIVERY OF RIGHTS CERTIFICATES AND
PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT. IF YOU SEND THE
RIGHTS CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE BY MAIL, WE RECOMMEND
THAT YOU SEND THEM BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED. YOU SHOULD ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE TIME THE
SUBSCRIPTION RIGHTS EXPIRE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR, WE STRONGLY URGE YOU TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER
OF FUNDS.
We will decide all questions concerning the timeliness, validity, form and
eligibility of your exercise of subscription rights. Our decisions will be final
and binding. We, in our sole discretion, may waive any defect or irregularity,
or permit a defect or irregularity to be corrected within such time as we may
determine. We may reject the exercise of any of your subscription rights because
of any defect or irregularity. Your subscription will not be deemed to have been
received or accepted until all irregularities have been waived by us or cured by
you within such time we decide, in our sole discretion.
Neither we nor the subscription agent will be under any duty to notify you
of a defect or irregularity. We will not be liable for failing to give you such
notice. We reserve the right to reject your exercise of subscription rights if
your exercise is not in accordance with the terms of the rights offering or in
proper form. We will also not accept your exercise of subscription rights if our
issuance of shares of Series C Convertible Preferred Stock pursuant to your
exercise could be deemed unlawful or materially burdensome. See "--Regulatory
Limitation."
SUBSCRIPTION AGENT AND INFORMATION AGENT
We have appointed ChaseMellon Shareholder Services L.L.C. as subscription
agent for the rights offering. We will pay the fees and expenses of the
subscription agent. We also have agreed to indemnify the subscription agent from
certain liabilities which it may incur in connection with the rights offering.
We have appointed ChareMellon Consulting Services as information agent for the
rights offering. You may call the information agent at 1-888-566-9482 with any
questions that you have regarding this rights offering.
NO REVOCATION
Once you have exercised your subscription rights, you may not revoke your
exercise.
FRACTIONAL SHARES
We will not issue any fractional shares of Series C Convertible Preferred
Stock. You may not exercise a subscription right in part.
IF YOU DO NOT EXERCISE YOUR SUBSCRIPTION RIGHTS BEFORE THE SPECIFIED
EXPIRATION TIME, YOUR SUBSCRIPTION RIGHTS WILL EXPIRE AND WILL NO LONGER BE
EXERCISABLE.
DTC PARTICIPANTS
We expect that your exercise of your subscription rights may be made
through the facilities of The Depository Trust Company.
AMENDMENTS AND TERMINATION
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We may extend the rights offering and the period for exercising your
subscription rights. If we extend the rights offering, we may accept
subscriptions received on or prior to September 29, 1999. We may amend the terms
of the rights offering or withdraw or terminate the rights offering at any time
prior to the expiration time of the rights offering. We will not pay any
interest on or deduct any amounts from subscription payments returned to you if
we terminate the rights offering.
NO RECOMMENDATIONS TO RIGHTS HOLDERS
We are not making any recommendation as to whether or not you should
exercise your subscription rights. You should make your decision based on your
own assessment of your best interests. None of our Board of Directors, our
officers or any other person is making any recommendations as to whether or not
you should exercise your subscription rights.
FOREIGN AND CERTAIN OTHER STOCKHOLDERS
We will not mail rights certificates to holders on the record date for the
rights offering whose addresses are outside the United States or who have an
Army Post Office (APO) or Fleet Post Office (FPO) address. Instead, we will have
the subscription agent hold such rights certificates for the holders' accounts.
To exercise their subscription rights, the holders must notify the subscription
agent prior to 11:00 a.m., New York City time, on September 29, 1999, three
business days prior to the date the subscription rights expire, and must
establish to the satisfaction of the subscription agent that such exercise is
permitted under applicable law.
REGULATORY LIMITATION
We will not be required to issue shares of Series C Convertible Preferred
Stock pursuant to the rights offering to you if, in our opinion, you would be
required to obtain prior clearance or approval from any state or federal
regulatory authorities to own or control such shares if, at the time the
subscription rights expire, you have not obtained such clearance or approval.
ISSUANCE OF SERIES C CONVERTIBLE PREFERRED STOCK
The subscription agent will issue to you certificates representing shares
of Series C Convertible Preferred Stock you purchase pursuant to the rights
offering as soon as practicable after the time the subscription rights expire.
Your payment of the subscription price will be retained by the
subscription agent, and will not be delivered to us, until your subscription is
accepted and you are issued your stock certificates. We will not pay you any
interest on funds paid to the subscription agent, regardless of whether such
funds are applied to the subscription price or returned to you. You will have no
rights as a stockholder of the Company with respect to shares of Series C
Convertible Preferred Stock subscribed for until certificates representing such
shares are issued to you. Unless otherwise instructed in the rights
certificates, your certificates for shares issued pursuant to your exercise of
subscription rights will be registered in your name.
If the rights offering is not completed for any reason, the subscription
agent will promptly return, without interest, all funds received by it.
SHARES OF SENIOR PREFERRED STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
Assuming that we issue all of the shares of Series C Convertible Preferred
Stock offered in the rights offering, approximately 106,062,964 shares of Series
C Convertible Preferred Stock and 26,704,000 shares of Series B Convertible
Preferred Stock will be issued and outstanding. Based on the number of shares of
Series C Convertible Preferred Stock purchased by Capital Z in the Capital Z
Financing, our issuance of shares in the rights offering would result (on a pro
forma basis as of the date of this prospectus) in a 41.3% increase in the number
of outstanding shares of Series C Convertible Preferred Stock.
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OTHER MATTERS
We are not making the rights offering in any state or other jurisdiction
in which it is unlawful to do so. We will not sell or accept an offer to
purchase Series C Convertible Preferred Stock from you if you are a resident of
any such state or other jurisdiction. We may delay the commencement of the
rights offering in certain states or other jurisdictions in order to comply with
the laws of such states or other jurisdictions. We do not expect that there will
be any changes in the terms of the rights offering. However, we may decide, in
our sole discretion, not to modify the terms of the rights offering as may be
requested by certain states or other jurisdictions. If that happens and you are
a resident of that state, you will not be eligible to participate in the rights
offering.
DESCRIPTION OF THE SERIES C CONVERTIBLE PREFERRED STOCK
The following description is a summary of the material provisions of the
Series C Convertible Preferred Stock and the Certificate of Designations
relating to the Series C Convertible Preferred Stock. It does not restate the
Certificate of Designations in its entirety. We urge you to read the Certificate
of Designations relating to the Series C Convertible Preferred Stock because the
Certificate of Designations, and not this description, defines your rights as
the holder of the Series C Convertible Preferred Stock. The Certificate of
Designations is included as an exhibit to the registration statement that
includes this prospectus.
RANKING
The Series C Convertible Preferred Stock will, with respect to dividends
and the distribution of assets upon liquidation, dissolution or winding up of
Aames, rank
o senior to each other class or series of our preferred stock (except
for the Series B Convertible Preferred Stock), our common stock, and
all other classes and series of our capital stock that we may issue
in the future. These securities are collectively referred to as
"Junior Stock"; and
o equal to the Series B Convertible Preferred Stock.
DIVIDENDS
The holders of the Series C Convertible Preferred Stock will be entitled
to receive, when, as and if dividends are declared by our Board of Directors out
of legally available funds, cumulative dividends according to the following
terms:
o dividends will be declared in preference to dividends on any Junior
Stock;
o dividends will be paid at an annual rate of 6.5% on the $1 per share
stated value of the Series C Convertible Preferred Stock;
o dividends will be paid in cash; and
o from the issue date of the Series C Convertible Preferred Stock
until June 30, 2001 (the "Accrual Period"), we may elect not to pay
cash dividends on the Series C Convertible Preferred Stock. Any
dividends not paid during this period will accrue and compound
quarterly.
Dividends on the Series C Convertible Preferred Stock will be cumulative
and will accumulate on the basis of a 360-day year consisting of twelve 30-day
months and the actual number of days elapsed in the period for which dividends
are payable. Additional dividends will accumulate at 125% of the stated dividend
rate of the Series C Convertible Preferred Stock on the amount of any dividends
that are not timely paid. No such additional dividends will accrue during the
Accrual Period.
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As long as any shares of Series C Convertible Preferred Stock are
outstanding, we may not declare, pay or set apart for payment any dividends,
distributions or other payments (including for repurchase, redemption or
retirement) with respect to any Junior Stock unless all accumulated dividends on
the Series C Convertible Preferred Stock are paid. If dividends are not paid in
full on the Series C Convertible Preferred Stock, dividends on the Series C
Convertible Preferred Stock and the Series B Convertible Preferred Stock will be
declared and paid ratably in proportion to the respective amounts of accumulated
and unpaid dividends on the Series C Convertible Preferred Stock and the Series
B Convertible Preferred Stock. Restrictions related to our debt will preclude us
from paying cash dividends on the Series B Convertible Preferred Stock, the
Series C Convertible Preferred Stock and all other shares of our capital stock
for the foreseeable future.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution or winding up of Aames, holders of the
Series C Convertible Preferred Stock will be entitled to receive accumulated and
unpaid dividends and the stated value of their shares out of our available
assets before any payments are made on Junior Stock. If liquidation payments are
not made in full on the outstanding Series C Convertible Preferred Stock, we
will make distributions ratably on the Series C Convertible Preferred Stock and
Series B Convertible Preferred Stock in proportion to their respective full
distributive shares. After the holders of the Series C Convertible Preferred
Stock are paid the full amount of their accumulated dividends and the stated
value of their shares, the holders will not be entitled to any further
liquidation distributions.
CONVERSION
Each share of Series C Convertible Preferred Stock is convertible into one
share of common stock, subject to the Recapitalization, subject to adjustment as
described below. Each holder of Series C Convertible Preferred Stock may convert
its shares of Series C Convertible Preferred Stock into common stock at any
time. Additionally, the holder or holders of a majority of the outstanding
shares of Series C Convertible Preferred Stock can require the conversion of all
outstanding shares of Series C Convertible Preferred Stock at any time.
The initial conversion ratio is one share of Series C Convertible
Preferred Stock for one share of common stock. The conversion ratio will be
subject to adjustments as the result of certain events, including:
o the payment of dividends (and other distributions) in common stock
on the outstanding shares of common stock;
o subdivisions, combinations, and reclassifications of common stock;
o the issuance of common stock at a price per share less than the
then-current market price, or the issuance of securities convertible
into or exchangeable for shares of common stock at a conversion
price less than the then-current market price of the common stock;
and
o our declaration, ordering, paying or making a dividend or
distributions on common stock, other than regular quarterly cash
dividends on common stock in an aggregate amount not to exceed 15%
of net income from continuing operations before extraordinary items
during the period commencing on July 1, 1998, and ending on the date
such dividend is paid.
In the case of any reorganization or reclassification of outstanding
shares of common stock (other than a reclassification described above) or in the
case of any consolidation or merger to which we are a party or the transfer of
substantially all of our assets, each share of Series C Convertible Preferred
Stock then outstanding would become convertible only into the kind and amount of
securities, cash and other property that is receivable upon the occurrence of
such event by a holder of the number of shares of common stock into which such
share of Series C Convertible Preferred Stock was convertible immediately prior
to such event.
No fractional shares of common stock will be issued upon conversion of the
Series C Convertible Preferred Stock. Instead, we will pay a cash adjustment for
any fractional share.
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REDEMPTION
We may redeem the Series C Convertible Preferred Stock at any time on and
after the earlier of (1) February 10, 2009 and (2) the date on which fewer than
25% of the shares of Series C Convertible Preferred Stock issued on February 10,
1999 remain outstanding. The redemption price will be equal to all accumulated
and unpaid dividends on the outstanding shares of Series C Convertible Preferred
Stock and the stated value of such shares.
Notice of redemption of the Series C Convertible Preferred Stock will be
mailed to each holder of record of the shares to be redeemed by first class
mail, postage prepaid at such holder's address as the same appears on our stock
record books not fewer 90 or more than 120 days prior to the redemption date.
The notice sent to each holder of Series C Convertible Preferred Stock will
state: (1) the redemption date; (2) the place or places where certificates for
such shares of Series C Convertible Preferred Stock are to be surrendered for
cash; and (3) the then-current conversion ratio into shares of common stock.
From and after the redemption date, dividends on the shares of Series C
Convertible Preferred Stock will cease to accumulate or accrue, such shares will
no longer be deemed to be outstanding and all rights of the holders of such
shares will cease (except the right to receive the cash payable upon such
redemption without interest thereon).
VOTING
The Series C Convertible Preferred Stock will vote on all matters on which
our common stockholders vote on an as-converted basis with the common stock,
EXCEPT THAT THE SERIES C CONVERTIBLE PREFERRED STOCK WILL NOT BE ENTITLED TO
VOTE FOR MEMBERS OF OUR BOARD OF DIRECTORS.
DESCRIPTION OF CAPITAL STOCK
Prior to the adoption of certain of the proposals presented to our
stockholders at the 1998 Annual Meeting, the total number of shares that we are
authorized to issue is 51 million, consisting of 50 million shares of common
stock, par value $0.001 per share, and 1 million shares of preferred stock, par
value $0.001 per share. Assuming the adoption of the proposals by our
stockholders at the 1998 Annual Meeting, we will prior to the closing of the
rights offering, be authorized to issue 600 million shares, consisting of 400
million shares of common stock, par value $0.001 per share, and 200 million
shares of preferred stock, par value $0.001 per share. The following statements
are brief summaries of certain provisions relating to our capital stock.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share
held of record on all matters to be voted on by the stockholders. Our common
stockholders are entitled to receive ratably dividends when, as and if declared
by our Board of Directors out of funds legally available for the declaration of
dividends. In the event of a liquidation, dissolution or winding up of Aames,
our common stockholders are entitled, subject to the rights of holders of
preferred stock that we have issued (including the Senior Preferred Stock), to
share ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision is made for each class of stock, if
any, having preference over the common stock. The holders of common stock, as
such, have no conversion, preemptive or other subscription rights and there are
no redemption provisions applicable to the common stock. We distribute periodic
reports and other information, including notices of annual meetings and special
meetings of our stockholders, to record holders of common stock to the addresses
indicated on our stock records.
PREFERRED STOCK
GENERAL. Our Board of Directors has the authority to issue the authorized
and unissued preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, our
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which adversely affect the voting power or other rights of the holders of the
common stock.
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<PAGE>
SENIOR PREFERRED STOCK. We have three designated series of preferred
stock, Series A Preferred Stock, Series B Convertible Preferred Stock and Series
C Convertible Preferred Stock. The 500,000 designated shares of Series A
Preferred Stock have been reserved for issuance in connection with the Rights
Plan (described below). There are no shares of Series A Preferred Stock
outstanding. The material terms and provisions of the Series C Convertible
Preferred Stock are summarized above under the heading "Description of the
Series C Convertible Preferred Stock." The terms of the Series B Convertible
Preferred Stock and the Series C Convertible Preferred Stock are identical,
except for voting rights to elect our directors. Our Board of Directors is
divided into two classes. One class of four directors are elected annually by
the holders of the Series B Convertible Preferred Stock, voting as a single
class. The other class of five directors are elected by the holders of our
common stock and the Series B Convertible Preferred Stock, voting together as a
single class, for staggered three-year terms. HOLDERS OF THE SERIES C
CONVERTIBLE PREFERRED STOCK ARE NOT ENTITLED TO VOTE TO ELECT DIRECTORS.
ANTI-TAKEOVER PROVISIONS
Our Certificate of Incorporation and Bylaws include a number of provisions
which may have the effect of discouraging persons from pursuing non-negotiated
takeover attempts. These provisions include a classified Board of Directors, the
inability of stockholders to take action by written consent without a meeting,
the inability of stockholders to call for a special meeting of stockholders
under certain circumstances without the approval of our Board of Directors and
the inability of stockholders to remove directors without cause.
Each share of our outstanding common stock also evidences one stock
purchase right (a "Right") pursuant to the terms and conditions of a
Stockholders' Rights Plan that we adopted in June 1996 (as amended, the "Rights
Plan"). In general, the Rights will not be exercisable, or transferable, apart
from the common stock, until the tenth day after a person or group (other than
an "Exempt Person" as defined in the Rights Plan) either: (1) acquires
beneficial ownership of 15% or more of the outstanding common stock; or (2)
commences a tender offer or an exchange offer to acquire beneficial ownership of
15% or more of the outstanding common stock; or (3) who previously acquired 15%
or more of the common stock in a transaction approved by our Board of Directors
increases its ownership of common stock by more than 1%; or (4) files a
registration statement with the SEC with respect to an exchange offer to acquire
15% or more of the common stock; or (5) who beneficially owns 10% or more of the
outstanding common stock is declared an "Adverse Person" by the Board of
Directors.
Following a triggering event described above, each Right will be converted
into a right to purchase from the Company, for the exercise price (as defined in
the Rights Plan), that number of one one-hundredth (1/100th) of a share of our
Series A Preferred Stock (or, in certain circumstances, common stock, cash,
property or other of our securities) having a market value of twice the exercise
price. Further, if after the Rights become exercisable, Aames or a majority of
its assets or earning power is acquired by merger, consolidation, transfer, sale
or otherwise, each Right will be converted into the right to purchase that
number of shares of common stock of the surviving entity or (in certain
circumstances) its parent corporation, having a market value of twice the
exercise price. In general, no Adverse Person, nor the person or group whose
purchase transaction or tender or exchange offer triggers the exercisability of
the Rights, nor any of that person's or group's transferees, may exercise Rights
held by them. Each Right, at the option of the holder of the Right, also may be
exercised without the payment of cash. In such case, the Right's holder will
receive securities having a value equal to the difference between the value of
the securities that would have been issuable upon payment of the exercise price
and the exercise price. At any time prior to the tenth day following a
triggering event described in (1) through (5) of the prior paragraph, the Board
of Directors may redeem all outstanding Rights at a price of $0.001 per Right,
and may amend the Rights Agreement and the Rights in any and all respects. The
Rights will expire on the earlier of the date of their redemption or June 20,
2006.
On December 23, 1998, we amended the Rights Plan to provide that Capital Z
and its affiliates and associates are Exempt Persons under the Rights Plan.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Because we are a Delaware corporation, Delaware law may have an effect on
your rights as a stockholder. In particular, Section 203 of the Delaware General
Corporation Law prohibits certain transactions between a Delaware
Page 26
<PAGE>
corporation and an "interested stockholder." An interested stockholder is
defined as a person who, together with any affiliates or associates of such
person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. This provision prohibits
certain business combinations between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder becomes an interested stockholder. The term "business combination"
is broadly defined to include mergers, consolidations, sales or other
dispositions of assets having a total value in excess of 10% of the consolidated
assets of the corporation, and certain transactions that would increase the
interested stockholder's proportionate share ownership in the corporation.
This prohibition is effective unless:
o The business combination is approved by the corporation's board of
directors prior to the time the interested stockholder becomes an
interested stockholder;
o The interested stockholder acquired at least 85% of the voting stock
of the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in
which it becomes an interested stockholder; or
o The business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
For purposes of Section 203, our Board of Directors has approved of
Capital Z's acquisition of Senior Preferred Stock in the Capital Z Financing and
pursuant to the Standby Commitment. Because of this approval, we may engage in
the future in any "business combination" with Capital Z.
TRANSFER AGENT
The Company's transfer agent and registrar for its common stock is
ChaseMellon Shareholder Services LLC.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income
tax matters that you should consider with respect to the subscription rights.
This summary describes provisions of the Internal Revenue Code of 1986, as
amended, Treasury regulations under the Code, judicial authority and
administrative rulings and practice. This summary only speaks as of the date of
this prospectus, and any such authority could change, possibly with retroactive
effect.
Moreover, this summary does not discuss all aspects of federal income
taxation that may be relevant to you, especially if you are subject to special
treatment under the federal income tax laws. For example, if you are a bank,
dealer in securities, life insurance company, tax-exempt organization or foreign
taxpayer, this discussion may not cover all relevant tax issues. Also we have
not discussed applicable tax consequences if you hold our common stock as part
of a hedging, straddle, constructive sale, conversion or other risk reduction
transaction. This summary also does not address any aspect of state, local or
foreign tax laws.
This summary is only applicable to you if you hold common stock, and/or
will hold the subscription rights and any shares of Series C Convertible
Preferred Stock you acquire upon the exercise of subscription rights, as capital
assets (generally, property held for investment) within the meaning of Section
1221 of the Code. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE RIGHTS OFFERING TO YOU.
ISSUANCE OF THE SUBSCRIPTION RIGHTS
If you hold common stock on the record date for the rights offering, you
should not be required to recognize taxable income upon the receipt of the
subscription rights.
Page 27
<PAGE>
In general, a distribution by a corporation to its stockholders of rights
to acquire stock in the distributing corporation is not taxable. An exception to
this general rule applies in the case of a distribution which constitutes a
"disproportionate distribution" with respect to any class or classes of stock of
the corporation. A distribution of stock rights constitutes a "disproportionate
distribution" if it is a part of a distribution or a series of distributions
(including deemed distributions) that has the effect of (1) the receipt of
property (including cash) by some stockholders and (2) an increase in the
proportionate interests of other stockholders in the assets or earnings and
profits of the distributing corporation. The rights offering should not result
in a disproportionate distribution because you will not receive any property in
the offering other than Series C Convertible Preferred Stock that you may
purchase by exercising your subscription rights.
We intend to treat the distribution of subscription rights as a nontaxable
distribution. If the Internal Revenue Service were to take a contrary position
with respect to this matter, by deeming the distribution of subscription rights
to constitute a taxable distribution, a person receiving subscription rights
would recognize a dividend, taxable as ordinary income, in an amount equal to
the fair market value of the subscription rights received, but only to the
extent of our current and accumulated earnings and profits. To the extent the
deemed distribution exceeds our current and accumulated earnings and profits,
such excess would be treated first as a nontaxable recovery of adjusted tax
basis in the common stock with respect to which the subscription rights were
distributed and then as gain from the sale or exchange of the common stock. A
person's tax basis in a subscription right received in a taxable distribution
would equal the fair market value of the subscription right as of the date of
distribution of the subscription right. A person's holding period in the
subscription rights would begin on the day following the date of distribution of
the subscription rights.
Except as provided above, the following discussion assumes that the
distribution of the subscription rights will be treated as a nontaxable
distribution.
BASIS AND HOLDING PERIOD OF THE SUBSCRIPTION RIGHTS
Generally, if you hold common stock on the record date for the rights
offering, your basis in the subscription rights received by you will be zero.
If, however, either
o the fair market value of the subscription rights, if exercised, on
the date we issue the subscription rights is 15% or more of the fair
market value (on that same date) of our common stock; or
o you properly elect under Section 307 of the Code in your federal
income tax return to allocate part of the basis of your common stock
to the subscription rights;
then your basis in your shares of common stock will be allocated between the
common stock and the subscription rights in proportion to the fair market values
of each on the date we issue the subscription rights.
The holding period of your subscription rights will include your holding
period (as of the date of issuance) for the common stock with respect to which
we distributed the subscription rights to you.
EXPIRATION OF THE SUBSCRIPTION RIGHTS
If your basis in your subscription rights is zero, and you allow your
subscription rights to expire unexercised, you will not recognize any gain or
loss.
If you have a basis in your subscription rights and you allow your
subscription rights to expire unexercised, you will recognize a loss equal to
the basis of those subscription rights. Any loss you recognize on the expiration
of your subscription rights will be a capital loss if the Series C Convertible
Preferred Stock obtainable by you after the exercise of the subscription rights
would be a capital asset.
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<PAGE>
EXERCISE OF THE SUBSCRIPTION RIGHTS; BASIS AND HOLDING PERIOD OF ACQUIRED
SHARES
You will not recognize any gain or loss upon the exercise of your
subscription rights. Your basis in each share of Series C Convertible Preferred
Stock you acquire through exercise of your subscription rights will equal the
sum of the subscription price you paid to exercise your subscription rights and
your basis, if any, in the subscription rights. Your holding period for the
Series C Convertible Preferred Stock you acquire through exercise of your
subscription rights will begin on the date you exercise your subscription
rights.
SALE OR EXCHANGE OF SERIES C CONVERTIBLE PREFERRED STOCK
If you sell or exchange shares of Series C Convertible Preferred Stock,
you will generally recognize gain or loss on the transaction. The gain or loss
you recognize is equal to the difference between the amount you realize on the
transaction and your basis in your shares you sold. Such gain or loss generally
will be capital gain or loss so long as you held the shares as a capital asset
at the time of the sale or exchange. Gain or loss from an asset held for more
than one year will generally be taxable as long term capital gain or loss. If
you recognize any such long term capital gain, the Internal Revenue Service will
generally tax such gain at a maximum rate of 20%.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under the backup withholding rules of the Code, you may be subject to 31%
backup withholding with respect to payments made pursuant to the rights
offering. You will not be subject to backup withholding if you:
o Are a corporation or fall within certain other exempt categories
and, when required, demonstrate that fact; or
o Provide a correct taxpayer identification number and certify under
penalty of perjury that your taxpayer identification number is
correct and that you are not subject to backup withholding because
you previously failed to report all dividends and interest income.
Any amount withheld under these rules will be credited against your
federal income tax liability. We may require you to establish your exemption
from backup withholding or make other arrangements with respect to the payment
of backup withholding.
THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. YOU SHOULD CONSULT
YOUR OWN TAX ADVISORS REGARDING THE CONSEQUENCES OF THE RIGHTS OFFERING TO YOUR
PARTICULAR TAX SITUATION, INCLUDING STATE AND LOCAL INCOME AND OTHER TAX LAWS.
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<PAGE>
PLAN OF DISTRIBUTION
We are making this rights offering directly to you, the holders of our
common stock. We will pay the fees and expenses of ChaseMellon Shareholder
Services L.L.C. as subscription agent, and we have also agreed to indemnify the
subscription agent from any liability that it may incur in connection with the
rights offering, including liabilities under the Securities Act.
LEGAL MATTERS
Troop Steuber Pasich Reddick & Tobey, LLP, Los Angeles, California, has
rendered to us a legal opinion as to the validity of the subscription rights,
the Series C Convertible Preferred Stock and the underlying common stock covered
by this prospectus.
EXPERTS
The consolidated financial statements of Aames Financial Corporation
appearing in Aames Financial Corporation's Annual Report (Form 10-K) for the
year ended June 30, 1999, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements for the years ended June 30, 1998
and 1997 of Aames Financial Corporation incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended June 30, 1999
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given the authority of said firm as experts in
auditing and accounting.
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<PAGE>
- -------------------------------------------------------------------------------
No dealer, salesman or other person is authorized to give oral or written
information about this offering that is not included in this prospectus. If
given or made, such information or representation must not be relied upon as
having been authorized by Aames Financial Corporation. This prospectus does not
constitute an offer to sell, or the solicitation of an offer to buy, Series C
Convertible Preferred Stock in any jurisdiction. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of Aames Financial
Corporation since the date of this prospectus.
- --------------------------------------------------------------------------------
--------------------
AAMES FINANCIAL CORPORATION
PROSPECTUS
SERIES C CONVERTIBLE PREFERRED STOCK
_____________, 1999
--------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering are as follows:
<TABLE>
<CAPTION>
Amount
-------------
<S> <C>
Registration Fee Under Securities Act of 1933....... $ 8,622.72
NYSE Listing Fee ................................... $ 444,500.00
Legal Fees and Expenses............................. $ 200,000.00
Subscription Agent Fee ............................. $ 50,000.00
Accounting Fees and Expenses........................ $ 75,000.00
Miscellaneous Expenses.............................. $ 250,000.00
TOTAL............................................... $1,028,122.72
============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has adopted provisions in its Certificate of Incorporation
which limit the liability of directors. As permitted by applicable provisions of
the Delaware General Corporation law (the "Delaware Law"), directors will not be
liable to the Company for monetary damages arising from a breach of their
fiduciary duty as directors in certain circumstances. Such limitation does not
affect liability for any breach of a director's duty to the Company or its
stockholders (i) with respect to approval by the director of any transaction
from which he derives an improper personal benefit, (ii) with respect to acts or
omissions involving an absence of good faith, that he believes to be contrary to
the best interests of the Company or its stockholders, that involve intentional
misconduct or knowing and culpable violation of law, that constitute an
unexcused pattern of inattention that amounts to an abdication of his duty to
the Company or its stockholders, or that show a reckless disregard for his duty
to the Company or its stockholders in circumstances in which he was or should
have been aware, in the ordinary course of performing his duties, of a risk of
serious injury to the Company or its stockholders, or (iii) based on
transactions between the Company and its directors or other corporations with
interrelated directors or on improper distributions, loans or guarantees under
applicable sections of the Delaware Law. Such limitation of liability also does
not affect the availability of equitable remedies such as injunctive relief or
rescission. The Company's Bylaws provide that the Company must indemnify its
directors and officers to the full extent permitted by the Delaware Law,
including circumstances in which indemnification is otherwise discretionary
under the Delaware Law, and the Company has entered into indemnification
agreements (the "Indemnification Agreements") with its directors providing such
indemnity. The Indemnification Agreements constitute binding agreements between
the Company and each of the other parties thereto, thus preventing the Company
from modifying its indemnification policy in a way that is adverse to any person
who is a party to an Indemnification Agreement.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the above statutory provisions or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
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<PAGE>
ITEM 16. EXHIBITS
See the Exhibit Index of this Registration Statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of the appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on September 3,
1999.
AAMES FINANCIAL CORPORATION
(Registrant)
By: /s/ BARBARA S. POLSKY
--------------------------------
Barbara S. Polsky
Executive Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Interim Chief Executive
* Officer and Director September 3, 1999
------------------------------------
Mani A. Sadeghi
* President and Director September 3, 1999
------------------------------------
Neil B. Kornswiet
Chief Financial Officer
(Principal Financial
* and Accounting Officer) September 3, 1999
------------------------------------
David A. Sklar
* Chairman of the Board September 3, 1999
------------------------------------
Steven M. Gluckstern
* Director September 3, 1999
------------------------------------
David A. Spuria
* Director September 3, 1999
------------------------------------
Eric C. Rahe
* Director September 3, 1999
------------------------------------
Adam M. Mizel
* Director September 3, 1999
------------------------------------
George W. Coombe, Jr.
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<PAGE>
* Director September 3, 1999
------------------------------------
Cary H. Thompson
* Director September 3, 1999
------------------------------------
Georges C. St. Laurent
* By: /s/ BARBARA S. POLSKY
------------------------------------
Barbara S. Polsky
Attorney-in-Fact
</TABLE>
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<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
No. Item
<S> <C>
3.1 Certificate of the Voting Powers, Designations, Preferences and Relative,
Participating, Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series C Convertible Preferred
Stock of the Registrant, as filed with the Secretary of State of the State
of Delaware on February 10, 1999 (1)
4.1 Form of Specimen Certificate for Rights of the Registrant
5.1 Opinion of Troop Steuber Pasich Reddick & Tobey, LLP (2)
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Troop Steuber Pasich Reddick & Tobey, LLP (included as part of
Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
99.1 Form of Instructions to Stockholders as to use of Subscription Rights
99.2 Form of Letter to Stockholders who are record holders
99.3 Form of Letter to Stockholders who are beneficial holders
99.4 Form of Subscription Agent Agreement by and between Aames Financial
Corporation and Chase Mellon Shareholder Services LLC.
- -----------------------------------
<FN>
(1)Incorporated herein by reference to Exhibit 3.4 of the Registrant's
Quarterly Report on Form 10-Q, filed with the Commission on February 22,
1999.
(2) Previously Filed
</FN>
</TABLE>
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<PAGE>
EXHIBIT 4.1
- -------------------------- ------------------------- -----------------------
Shares Eligible to Number of Rights Record Date Shares
Subscribe
AAMES FINANCIAL CORPORATION
SUBSCRIPTION CERTIFICATE FOR SHARES OF
SERIES C CONVERTIBLE PREFERRED STOCK
VOID IF NOT EXERCISED AT OR BEFORE 5:00 P.M.
(EASTERN STANDARD TIME)
SEPTEMBER 29, 1999
EXPIRATION DATE: SEPTEMBER 29, 1999
THIS SUBSCRIPTION CERTIFICATE MAY BE USED TO SUBSCRIBE FOR SHARES OF SERIES C
CONVERTIBLE PREFERRED STOCK. THIS SUBSCRIPTION CERTIFICATE IS NOT
TRANSFERABLE AND THE RIGHTS EVIDENCED BY THIS SUBSCRIPTION CERTIFICATE MAY
NOT BE ASSIGNED.
AAMES FINANCIAL CORPORATION (THE "COMPANY") IS CONDUCTING A RIGHTS
OFFERING WHICH ENTITLES HOLDERS OF THE COMPANY'S COMMON STOCK, $0.001 PAR VALUE
PER SHARE (THE "COMMON STOCK"), AS OF THE CLOSE OF BUSINESS ON SEPTEMBER 7, 1999
(THE "RECORD DATE"), TO PURCHASE ONE SHARE OF SERIES C CONVERTIBLE PREFERRED
STOCK FOR EVERY SHARE OF COMMON STOCK HELD ON THE RECORD DATE. SET FORTH ABOVE
IS THE NUMBER OF SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK THAT YOU ARE
ENTITLED TO PURCHASE AT A SUBSCRIPTION PRICE OF $1.00 PER SHARE
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE RIGHTS
OFFERING, PLEASE REFER TO THE PROSPECTUS DATED SEPTEMBER ___, 1999 (THE
"PROSPECTUS"), WHICH IS INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM CHASEMELLON CONSULTING SERVICES,
THE INFORMATION AGENT (TOLL FREE 1-888-566-9472).
To subscribe for shares of Series C Convertible Preferred Stock, a
stockholder must present to ChaseMellon Shareholder Services, L.L.C., the
Subscription Agent, prior to 5:00 p.m., Eastern Standard Time, on September 29,
1999, a properly completed and executed copy of this Subscription Agreement,
together with a money order or check drawn on a bank located in the United
States of America and payable to "ChaseMellon Shareholder Services, L.L.C.," as
Subscription Agent, or a wire transfer of funds for an amount equal to the
number of shares subscribed for multiplied by $1.00. ANY RIGHTS NOT EXERCISED
PRIOR TO THE EXPIRATION DATE WILL BE NULL AND VOID. ANY SUBSCRIPTION FOR SHARES
OF SERIES C CONVERTIBLE PREFERRED STOCK IN THE RIGHTS OFFERING MADE HEREBY IS
IRREVOCABLE.
IMPORTANT: COMPLETE FORMS ON REVERSE.
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<PAGE>
PLEASE FILL IN ALL APPLICABLE INFORMATION
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
SUBSCRIPTION AGENT
A. Subscription Privilege: (No. of Shares) X 1.00 (Subscription
------------
Price) = $
------------
B. Method of Payment (Check one):
[ ] Check or bank draft drawn on a U.S. bank or money order payable to
ChaseMellon Shareholder Services, L.L.C., as Subscription Agent
[ ] Wire transfer directed to The Chase Manhattan Bank, New York, NY,
ABA No. 021000021
Attn: ChaseMellon Shareholder Service Reorg Account: 323-213057
(Aames Financial Corporation)
SECTION I
TO SUBSCRIBE: I HEREBY IRREVOCABLY SUBSCRIBE FOR THE NUMBER OF SHARES OF SERIES
C CONVERTIBLE PREFERRED STOCK FOR THE PRICE INDICATED AS THE TOTAL OF A AND B
HEREON UPON THE TERMS AND CONDITIONS SPECIFIED IN THE PROSPECTUS RELATED HERETO,
RECEIPT OF WHICH IS ACKNOWLEDGED. I HEREBY AGREE THAT IF I FAIL TO PAY FOR THE
SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK FOR WHICH I HAVE SUBSCRIBED,
AAMES FINANCIAL CORPORATION MAY EXERCISE ANY OF THE REMEDIES SET FORTH IN THE
PROSPECTUS.
- --------------------------------------------------------------------------------
Signature of Subscriber(s)
Address for delivery of Series C Convertible Preferred Stock:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address
If permanent change of address, check here [ ]
Please give your telephone number:
( )
--------------------------------------------------------------------------
Tax I.D. Number or Social Security Number:
Page 7
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of Aames Financial
Corporation of our report dated August 6, 1998, except as to the information
presented in Note 2 for which the date is as of August 5, 1999, appearing on
page F-9 of the Company's Annual Report on Form 10-K for the year ended June 30,
1999. We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PricewaterhouseCoopers LLP
Los Angeles, CA
September 1, 1999
Page 8
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 (No. 333-85241) and related Prospectus of
Aames Financial Corporation for the registration of 31,016,964 shares of its
Series C Convertible Preferred Stock and to the incorporation by reference of
our report dated August 26, 1999, with respect to the consolidated financial
statements of Aames Financial Corporation included in the Annual Report (Form
10-K) for the year ended June 30, 1999, filed with the Securities and Exchange
Commission.
Ernst & Young LLP
Los Angeles, California
September 1, 1999
Page 9
EXHIBIT 99.1
Form of Instructions to Stockholders
AAMES FINANCIAL CORPORATION
RIGHTS OFFERING
INSTRUCTIONS FOR COMPLETING THE SUBSCRIPTION AGREEMENT
The enclosed Subscription Agreement entitles you to purchase the number of
shares of Series C Convertible Preferred Stock, par value $0.001 per share (the
"Series C Preferred Stock"), of Aames Financial Corporation (the "Company") as
set forth in the Subscription Agreement.
To subscribe for shares of Series C Preferred Stock, you must present to
ChaseMellon Shareholder Services, L.L.C. (the "Subscription Agent") prior to
5:00 p.m., Eastern Daylight Savings time, on September 29, 1999, a properly
completed and executed Subscription Agreement and a money order or check drawn
on a bank located in the United States of America and payable to "ChaseMellon
Shareholder Services, L.L.C." or a wire transfer of funds for an amount equal to
the number of shares subscribed for multiplied by $1.00, the subscription price.
As soon as practical following the Expiration Date and after payment for
any shares of Series C Preferred Stock subscribed for has cleared (which
clearance may take up to 5 days from receipt of the payment), subscribers will
receive from the Subscription Agent stock certificates for the number of shares
of Series C Preferred Stock acquired.
Page 10
EXHIBIT 99.2
Form of Letter to Common Stockholders (Record)
AAMES FINANCIAL CORPORATION
350 South Grand Avenue
Los Angeles, CA 90071
September __, 1999
Dear Stockholder:
On behalf of the Board of Directors of Aames Financial Corporation
(the"Company"), we are pleased to provide details on the Company's rights
offering to purchase shares of the Company's Series C Convertible Preferred
Stock, par value $0.001 per share (the "Series C Preferred Stock"). The shares
of Series C Preferred Stock are being offered at the subscription price of $1.00
per share.
Each beneficial owner of the Company's common stock, par value $0.001 per
share (the "Common Stock") has the right to purchase one share of Series C
Preferred Stock for each share of the Common Stock that they owned on September
7, 1999. All fractional shares will be rounded up to the nearest whole number.
Enclosed are copies of the following documents:
1. the Prospectus;
2. the "Instructions for Completing the Subscription Agreement";
3. the Subscription Agreement; and
4. a return envelope addressed to ChaseMellon Shareholder Services,
L.L.C., the Subscription Agent.
The enclosed Prospectus describes the rights offering and the procedure to
follow if you choose to exercise your rights. Please read the Prospectus and
other enclosed materials carefully.
Your prompt action is requested. The rights offering will expire at 5:00
p.m., on September 29, 1999, unless extended by the Company in its sole
discretion (the "Expiration Date").
To exercise your rights, a properly completed and executed Subscription
Agreement and payment in full for all of the shares purchased must be delivered
to the Subscription Agent as indicated in the Prospectus prior to 5:00 p.m.,
Eastern Daylight Savings Time, on the Expiration Date.
Additional copies of the enclosed materials may be obtained from our
information agent ChaseMellon Consulting Services. Their toll-free telephone
number is 1-888-566-9472.
We are pleased to offer you this opportunity and hope that you will
consider a further investment in the Company.
Sincerely,
AAMES FINANCIAL CORPORATION
Page 11
EXHIBIT 99.3
Form of Letter to Common Stockholders (Beneficial)
AAMES FINANCIAL CORPORATION
RIGHTS OFFERING
To Our Clients:
Enclosed for your consideration is a prospectus, dated September ____,
1999 (the "Prospectus"), and an instruction form (the "Instruction Form")
relating to the rights offering by Aames Financial Corporation (the "Company")
of rights to purchase shares of its Series C Convertible Preferred Stock, par
value $0.001 per share ("Series C Preferred Stock"), to holders of record
("Holders") of its common stock, par value $0.001 per share (the "Common Stock")
on September 7, 1999 (the "Record Date").
Pursuant to the rights offering, each Holder is entitled to purchase one
share of Series C Preferred Stock for every share of Common Stock held by such
Holder on the Record Date at the subscription price of $1.00 per share (the
"Subscription Privilege"). Holders are entitled to subscribe for all or any
portion of the shares underlying their Basic Subscription Privilege.
The materials enclosed are being forwarded to you as the beneficial owner
of shares of Common Stock carried by us in your account but not registered in
your name. Exercises of the Subscription Privilege may only be made by us as the
Holder of record and pursuant to your instructions.
Accordingly, we request instructions as to whether you wish us to
subscribe for any Shares for which you are entitled to subscribe for pursuant to
the terms and conditions set forth in the enclosed Prospectus. HOWEVER, WE URGE
YOU TO READ THESE DOCUMENTS CAREFULLY BEFORE INSTRUCTING US TO EXERCISE ANY
SUBSCRIPTION RIGHTS.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exercise the subscription rights on your behalf in
accordance with the provisions of the rights offering. The rights offering will
expire at 5:00 p.m., Eastern Daylight Savings Time, on September 29, 1999,
unless extended by the Company in its sole discretion. ONCE YOU HAVE EXERCISED
YOUR SUBSCRIPTION RIGHTS, YOU MAY NOT REVOKE YOUR ELECTION FOR ANY REASON.
If you wish to have us exercise, on your behalf, your right to purchase
shares of Series C Preferred Stock for which you are entitled to subscribe,
please so instruct us by completing, executing, detaching and returning to us,
and not the Subscription Agent, the attached Instruction Form along with proper
payment for the number of shares for which you are subscribing at the
subscription price.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE OFFERING SHOULD BE
DIRECTED TO CHASEMELLON CONSULTING SERVICES, THE INFORMATION AGENT, AT THE
FOLLOWING TELEPHONE NUMBER: (888) 566-9472.
Page 12
<PAGE>
Aames Financial Corporation
Instructions To Subscribe for Series C Preferred Stock
Pursuant to Rights Offering
The undersigned acknowledges receipt of your letter and the enclosed
materials referred to therein relating to the offering of rights to purchase
shares of Series C Convertible Preferred Stock, par value $0.001 (the "Series C
Preferred Stock"), of Aames Financial Corporation (the "Company").
This will instruct you on whether to purchase the Series C Preferred Stock
distributed with respect to the Company's common stock, par value $0.001 per
share (the "Common Stock") held by you for the account of the undersigned,
pursuant to the terms and conditions set forth in the Prospectus.
[ ] Please do not exercise my rights to purchase shares of Series C
Preferred Stock of the Company.
[ ] Please exercise my rights to purchase _______ shares of the Series C
Preferred Stock of the Company as set forth below:
NUMBER OF SHARES SUBSCRIPTION PRICE PAYMENT
Subscription
Privilege __________________ $1.00 = $______________
Payment in the following amount is enclosed: $____________________
Signature(s) of Beneficial Owner:
Date: _______________________ ____________________________________
Address: ____________________ Print Name:______________________
_____________________________ Title or Capacity:_______________
(if applicable)
Telephone (day):________________
(evening):________________
Page 13
EXHIBIT 99.4
FORM OF SUBSCRIPTION AGENT AGREEMENT
Date:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Rd.
Ridgefield Park, NJ 07660
Attn: REORGANIZATION DEPARTMENT
Gentlemen:
Aames Financial Corporation, a Delware corporation (the "Company")
is making an offer to issue (the "Subscription Offer") to the holders of
record the Company's outstanding shares of Common Stock par value $0.001 per
share (the "Common Stock"), at the close of business on September 7, 1999
(the "Record Date"), the right to subscribe for and purchase (each a "Right")
shares of the Series Convertible Preferred Stock (the "Series C Preferred
Stock") at a purchase price of 1.00 per share of Series C Preferred Stock
(the "Subscription Price"), payable by cashier's or certified check, upon the
terms and conditions set forth herein. The term "Subscribed" shall mean
submitted for purchase from the Company by a stockholder in accordance with
the terms of the Subscription Offer, and the term "Subscription" shall mean
any such submission. The Subscription Offer will expire at 5:00 PM, New York
City Time, on September 29, 1999 (the "Expiration Time"), unless the Company
shall have extended the period of time for which the Subscription Offer is
open, in which event the term "Expiration Time" shall mean the latest time
and date at which the Subscription Offer, as so extended by the Company from
time to time, shall expire.
The Company filed a Registration Statement relating to the Series
C Preferred Stock with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, on AUGUST 13, 1999. Said Registration
Statement was declared effective on . The terms of the Series C Preferred
Stock are more fully described in the Prospectus forming part of the
Registration Statement as it was declared effective, and the accompanying
Letter of Instruction. Copies of the Prospectus, and the Letter of
Instruction are annexed hereto as Exhibit 1, Exhibit 2 and Exhibit 3,
respectively. All terms used and not defined herein shall have the same
meaning as in the Prospectus. Promptly after the Record Date, the Company
will provide you with a list of holders of Common Stock as of the Record Date
(the "Record Stockholders List").
The Rights are evidenced by nontransferable Rights Certificates
(the "Rights Certificates"), a copy of the form of which is annexed hereto as
Exhibit 4. The Rights Certificates entitle the holders to subscribe, upon
payment of the Subscription Price, for shares of Series C Convertible
Preferred Stock at the rate of one share for each Right evidenced by a Right
Certificate (the "Subscription Privilege"). No fractional subscription rights
will be distributed. Reference is made to the prospectus for a complete
description of the Subscription Privilege .
The Company hereby appoints you as Subscription Agent (the
"Subscription Agent") for the Subscription Offer and agrees with you as
follows:
1) As Subscription Agent, you are authorized and directed to:
(A) Issue the Rights Certificates in accordance with this
Agreement in the names of the holders of the Common Stock of record on the
Record Date, keep such records as are necessary for the purpose of recording
such issuance, and furnish a copy of such records to the Company. The Rights
Certificates may be signed on behalf of the Subscription Agent by the manual
or facsimile signature of a Vice President or Assistant Vice President of the
Subscription Agent, or by the manual signature of any of its other authorized
officers.
(B) Promptly after you receive the Record Stockholders List:
Page 14
<PAGE>
(a) mail or cause to be mailed, by first class mail, to each
holder of Common Stock of record on the Record Date whose address
of record is within the United States and Canada, (i) a Rights
Certificates evidencing the Rights to which such stockholder is
entitled under the Subscription Offer, (ii) a copy of the
Prospectus, (iii) a Letter of Instruction and (iv) a return
envelope addressed to the Subscription Agent; and
(b) mail or cause to be mailed, by air mail, to each holder of
Common Stock of record on the Record Date whose address of record
is outside the United States and Canada, or is an A.P.O. or F.P.O.
address (i) a copy of the Prospectus and (ii) a Letter of
Instruction (different from the Letter of Instruction sent to
stockholders whose address of record is within the United States
and Canada). You shall refrain from mailing Right certificates
issuable to any holder of Common Stock of record on the Record
Date whose address of record is outside the United States and
Canada, or is an A.P.O. or F.P.O. address, and hold such Rights
Certificates for the account of such stockholder subject to such
stockholder making satisfactory arrangements with the Subscription
Agent for the exercise or other disposition of the Rights
evidenced thereby, and follow the instructions of such stockholder
for the exercise, sale or other disposition of such Rights if such
instructions are received at or before 11:00 a.m., New York City
Time, on .
(C) [reserved]
(D) Accept Subscriptions upon the due exercise (including payment
of the Subscription Price) on or prior to the Expiration Time of Rights in
accordance with the terms of the Rights Certificates and the Prospectus.
(E) Subject to the next sentence, accept Subscriptions from
stockholders whose Rights Certificates are alleged to have been lost, stolen
or destroyed upon receipt by you of an affidavit of theft, loss or
destruction and a bond of indemnity in form and substance satisfactory to
you, accompanied by payment of the Subscription Price for the total number of
shares of Series C Convertible Preferred Stock Subscribed for. Upon receipt
of such affidavit and bond of indemnity and compliance with any other
applicable requirements, stop orders shall be placed on said Rights
Certificates and you shall withhold delivery of the shares of Series C
Preferred Stock Subscribed for until after the Rights Certificates have
expired and it has been determined that the Rights evidenced by the Rights
Certificates have not otherwise been purported to have been exercised or
otherwise surrendered.
(F) Accept Subscriptions, without further authorization or
direction from the Company, without procuring supporting legal papers or
other proof of authority to sign (including without limitation proof of
appointment of a fiduciary or other person acting in a representative
capacity), and without signatures of co-fiduciaries, co-representatives or
any other person:
(a) if the Rights Certificate is registered in the name of a
fiduciary and is executed by and the Series C Preferred Stock is
to be issued in the name of such fiduciary;
(b) if the Rights Certificate is registered in the name of joint
tenants and is executed by one of the joint tenants, provided the
certificate representing the Series C Preferred Stock is issued in
the names of, and is to be delivered to, such joint tenants;
(c) if the Right Certificate is registered in the name of a
corporation and is executed by a person in a manner which appears
or purports to be done in the capacity of an officer, or agent
thereof, provided the Series C preferred stock is to be issued in
the name of such corporation; or
(d) if the Right Certificates is registered in the name of an
individual and is executed by a person purporting to act as such
individual's executor, administrator or personal representative,
provided, the Series C Preferred Stock is to be registered in the
name of the subscriber as executor or administrator of the estate
of the deceased registered holder and there is no evidence
indicating the subscriber is not the duly authorized
representative that he purports to be.
(G) [reserved]
(H) Accept Subscriptions even though unaccompanied by Rights
Certificates, under the circumstances and in compliance with the terms and
conditions set forth in the Prospectus under the heading "THE RIGHTS
OFFERING--Exercise of Subscription Rights".
Page 15
<PAGE>
(I) Refer to the Company for specific instructions as to
acceptance or rejection, Subscriptions received after the Expiration Time,
Subscriptions not authorized to be accepted pursuant to this Paragraph 1, and
Subscriptions otherwise failing to comply with the requirements of the
Prospectus and the terms and conditions of the Rights Certificates.
(J) Upon acceptance of a Subscription:
(a) hold all monies received in a special account for the benefit
of the Company. Promptly following the Expiration Time you shall
distribute to the Company the funds in such account and issue
certificates for shares of Series C Convertible Preferred Stock
issuable with respect to Subscriptions which have been accepted.
(b) advise the Company daily by telecopy and confirm by letter to
Ralph Flick, Esq. (the "Company Representative"), as to the total
number of shares of Series C Preferred Stock Subscribed for, total
number of Rights sold, total number of Rights partially Subscribed
for and the amount of funds received, with cumulative totals for
each; and in addition advise the Company Representative, by
telephone 323-210-4931,confirmed by telecopy, of the amount of
funds received identified in accordance with (a) above, deposited,
available or transferred in accordance with paragraph (a) above,
with cumulative totals; and
(c) as promptly as possible but in any event on or before 3:30
p.m., New York City Time, on the first full business day following
the Expiration Time, advise the Company Representative in
accordance with (b) above of the number of shares Subscribed for,
the number of Subscription guarantees received and the number of
shares of Series C Preferred Stock unsubscribed for.
(K) Upon completion of the Subscription Offer, you shall
requisition certificates from the Transfer Agent for the Common
Stock for shares of Series C Preferred Stock Subscribed for.
2) The Rights Certificates shall be issued in registered form
only. The Company shall appoint and have in office at all times a Transfer
Agent and Registrar for the Rights Certificates, satisfactory to you, which
shall keep books and records of the registration and transfers and exchanges
of Rights Certificates (such books and records are hereinafter called the
"Series C Preferred Stock Register"). The Company shall promptly notify the
Transfer Agent and Registrar of the exercise of any Rights Certificates. The
Company shall promptly notify you of any change in the Transfer Agent and
Registrar of the Rights Certificates.
3) You will follow your regular procedures to attempt to reconcile
any discrepancies between the number of shares of Series C Preferred Stock
that any Rights certificates may indicate are to be issued to a stockholder
and the number that the Record Stockholders List indicates may be issued to
such stockholder. In any instance where you cannot reconcile such
discrepancies by following such procedures, you will consult with the Company
for instructions as to the number of shares of Series C Convertible Preferred
Stock, if any, you are authorized to issue. In the absence of such
instructions, you are authorized not to issue any shares of Series C
Convertible Preferred Stock to such stockholder.
4) You will examine the Rights Certificates received by you as
Subscription Agent to ascertain whether they appear to you to have been
completed and executed in accordance with the applicable Letter of
Instruction. In the event you determine that any Rights Certificate does not
appear to you to have been properly completed or executed, or where the
Rights Certificates do not appear to you to be in proper form for
Subscription, or any other irregularity in connection with the Subscription
appears to you to exist, you will follow, where possible, your regular
procedures to attempt to cause such irregularity to be corrected. You are not
authorized to waive any irregularity in connection with the Subscription,
unless you shall have received from the Company the Rights Certificate which
was delivered, duly dated and signed by an authorized officer of the Company,
indicating that any irregularity in such Rights Certificates has been cured
or waived and that such Rights Certificate has been accepted by the Company.
If any such irregularity is neither corrected nor waived, you will return to
the subscribing stockholder (at your option by either first class mail under
a blanket surety bond or insurance protecting you and the Company from losses
or liabilities arising out of the non-receipt or nondelivery of Rights
Certificates or by registered mail insured separately for the value of such
Rights Certificates) to such stockholder's address as set forth in the
Subscription any Rights Certificates surrendered in connection therewith and
any other documents received with such Rights Certificates, and a letter of
notice to be furnished by the Company explaining the reasons for the return
of the Rights Certificates and other documents.
Page 16
<PAGE>
5) Each document received by you relating to your duties hereunder
shall be dated and time stamped when received.
6) (a) For so long as this Agreement shall be in effect, the
Company will reserve for issuance and keep available free from preemptive
rights a sufficient number of shares of Series C Preferred Stock to permit
the exercise in full of all Rights issued pursuant to the Subscription Offer.
Subject to the terms and conditions of this Agreement, you will request the
Transfer Agent for the Common Stock to issue certificates evidencing the
appropriate number of shares of Series C Preferred Stock as required from
time to time in order to effectuate the Subscriptions.
(b) The Company shall take any and all action, including without
limitation obtaining the authorization, consent, lack of objection,
registration or approval of any governmental authority, or the taking of any
other action under the laws of the United States of America or any political
subdivision thereof, to insure that all shares of Series C Preferred Stock
issuable upon the exercise of the Rights Certificates at the time of delivery
of the certificates therefor (subject to payment of the Subscription Price)
will be duly and validly issued and fully paid and nonassessable shares of
Common Stock, free from all preemptive rights and taxes, liens, charges and
security interests created by or imposed upon the Company with respect
thereto.
(c) The Company shall from time to time take all action necessary
or appropriate to obtain and keep effective all registrations, permits,
consents and approvals of the Securities and Exchange Commission and any
other governmental agency or authority and make such filings under Federal
and state laws which may be necessary or appropriate in connection with the
issuance, sale, transfer and delivery of Rights Certificates or Series C
Preferred Stock issued upon exercise of Rights Certificates.
7) [reserved]
8) Should any issue arise regarding federal income tax reporting
or withholding, you will take such action as the Company instructs you in
writing.
9) The Company may terminate this Agreement at any time by so
notifying you in writing. You may terminate this Agreement upon 30 days'
prior notice to the Company. Upon any such termination, you shall be relieved
and discharged of any further responsibilities with respect to your duties
hereunder. Upon payment of all your outstanding fees and expenses, you will
forward to the Company or its designee promptly any Rights Certificates or
other document relating to your duties hereunder that you may receive after
your appointment has so terminated. Sections 10, 12, and 13 of this Agreement
shall survive any termination of this Agreement.
10) As agent for the Company hereunder you:
(a) shall have no duties or obligations other than those
specifically set forth herein or as may subsequently be
agreed to in writing by you and the Company;
(b) shall have no obligation to issue any shares of Series C
Preferred Stock unless the Company shall have provided a
sufficient number of certificates for such Series C
Preferred Stock;
(c) shall be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value, or
genuineness of any Rights Certificates surrendered to you
hereunder or shares of Series C Preferred Stock issued in
exchange therefor, and will not be required to or be
responsible for and will make no representations as to, the
validity, sufficiency, value or genuineness of the
Subscription Offer;
(d) shall not be obligated to take any legal action hereunder;
if, however, you determine to take any legal action
hereunder, and where the taking of such action might, in
your judgment, subject or expose you to any expense or
liability you shall not be required to act unless you shall
have been furnished with an indemnity satisfactory to you;
(e) may rely on and shall be fully authorized and protected in
acting or failing to act upon any certificate, instrument,
opinion, notice, letter, telegram, telex, facsimile
transmission or other document or security delivered to you
and believed by you to be genuine and to have been signed by
the proper party or parties;
Page 17
<PAGE>
(f) shall not be liable or responsible for any recital or
statement contained in the Prospectus or any other documents
relating thereto;
(g) shall not be liable or responsible for any failure on the
part of the Company to comply with any of its covenants and
obligations relating to the Subscription Offer, including
without limitation obligations under applicable securities
laws;
(h) may rely on and shall be fully authorized and protected in
acting or failing to act upon the written, telephonic or
oral instructions with respect to any matter relating to you
acting as Subscription Agent covered by this Agreement (or
supplementing or qualifying any such actions) of officers of
the Company;
(i) may consult with counsel satisfactory to you, including C.N.
Franklin Reddick III, Esq., Troop Steuber Pasich Reddick &
Tobey, LLP, and the advice of such counsel shall be full and
complete authorization and protection in respect of any
action taken, suffered, or omitted by you hereunder in good
faith and in accordance with the advice of such counsel;
(j) may perform any of your duties hereunder either directly or
by or through agents or attorneys and you shall not be
liable or responsible for any misconduct or negligence on
the part of any agent or attorney appointed with reasonable
care by you hereunder; and
(k) are not authorized, and shall have no obligation, to pay any
brokers, dealers, or soliciting fees to any person.
11) In the event any question or dispute arises with respect to
the proper interpretation of the Subscription Offer or your duties hereunder
or the rights of the Company or of any stockholders surrendering Rights
Certificates pursuant to the Subscription Offer, you shall not be required to
act and shall not be held liable or responsible for your refusal to act until
the question or dispute has been judicially settled (and, if appropriate, you
may file a suit in interpleader or for a declaratory judgment for such
purpose) by final judgment rendered by a court of competent jurisdiction,
binding on all parties interested in the matter which is no longer subject to
review or appeal, or settled by a written document in form and substance
satisfactory to you and executed by the Company and each such stockholder and
party. In addition, you may require for such purpose, but shall not be
obligated to require, the execution of such written settlement by all the
stockholders and all other parties that may have an interest in the
settlement.
12) Any instructions given to you orally, as permitted by any
provision of this Agreement, shall be confirmed in writing by the Company as
soon as practicable. You shall not be liable or responsible and shall be
fully authorized and protected for acting, or failing to act, in accordance
with any oral instructions which do not conform with the written confirmation
received in accordance with this Section.
13) Whether or not any Rights Certificates are surrendered to you,
for your services as Subscription Agent hereunder, the Company shall pay to
you compensation in accordance with the fee schedule attached as Exhibit A
hereto, together with reimbursement for out-of-pocket expenses, including
reasonable fees and disbursements of counsel.
14) The Company covenants to indemnify and hold you and your officers,
directors, employees, agents, contractors, subsidiaries and affiliates harmless
from and against any loss, liability, damage or expense (including without
limitation any loss, liability, damage or expense incurred for accepting Rights
Certificates tendered without a signature guarantee and the fees and expenses of
counsel) incurred (a) without gross negligence or bad faith or (b) as a result
of your acting or failing to act upon the Company's instructions, arising out of
or in connection with the Subscription Offer, this Agreement or the
administration of your duties hereunder, including without limitation the costs
and expenses of defending and appealing against any action, proceeding, suit or
claim in the premises. You shall promptly notify the Company of any action,
proceeding, suit or claim by letter or telex or facsimile transmission confirmed
by letter. The Company shall be entitled to participate at its own expense in
the defense of any such action, proceeding, suit or claim. Anything in this
agreement to the contrary notwithstanding, in no event shall you be liable for
special, indirect or consequential loss or damages of any kind whatsoever
(including but not limited to lost profits), even if you have been advised of
the likelihood of such loss or damage and regardless of the form of action. Any
liability of yours will be limited to the amount of fees paid by the Company
hereunder.
Page 18
<PAGE>
15) If any provision of this Agreement shall be held illegal,
invalid, or unenforceable by any court, this Agreement shall be construed and
enforced as if such provision had not been contained herein and shall be
deemed an Agreement among us to the full extent permitted by applicable law.
16) The Company represents and warrants that (a) it is duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation, (b) the making and consummation of the
Subscription Offer and the execution, delivery and performance of all
transactions contemplated thereby (including without limitation this
Agreement) have been duly authorized by all necessary corporate action and
will not result in a breach of or constitute a default under the certificate
of incorporation or bylaws of the Company or any indenture, agreement or
instrument to which it is a party or is bound, (c) this Agreement has been
duly executed and delivered by the Company and constitutes the legal, valid,
binding and enforceable obligation of it, (d) the Subscription Offer will
comply in all material respects with all applicable requirements of law and
(e) to the best of its knowledge, there is no litigation pending or
threatened as of the date hereof in connection with the Subscription Offer.
17) In the event that any claim of inconsistency between this
Agreement and the terms of the Subscription Offer arise, as they may from
time to time be amended, the terms of the Subscription Offer shall control,
except with respect to the duties, liabilities and rights, including
compensation and indemnification of you as Subscription Agent, which shall be
controlled by the terms of this Agreement.
18) Set forth in Exhibit B hereto is a list of the names and
specimen signatures of the persons authorized to act for the Company under
this Agreement. The Secretary of the Company shall, from time to time,
certify to you the names and signatures of any other persons authorized to
act for the Company under this Agreement.
19) Except as expressly set forth elsewhere in this Agreement, all
notices, instructions and communications under this Agreement shall be in
writing, shall be effective upon receipt and shall be addressed, if to the
Company, to its address set forth beneath its signature to this Agreement,
or, if to the Subscription Agent, to ChaseMellon Shareholder Services,
L.L.C., 85 challenger Road, Ridgefield Park NJ, Attention: Reorganization
Department, or to such other address as a party hereto shall notify the other
parties.
20) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
conflict of laws rules or principles, and shall inure to the benefit of and
be binding upon the successors and assigns of the parties hereto; provided
that this Agreement may not be assigned by any party without the prior
written consent of all other parties.
21) No provision of this Agreement may be amended, modified or
waived, except in a written document signed by both parties.
Please acknowledge receipt of this letter and confirm your
agreement concerning your appointment as Subscription Agent, and the
arrangements herein provided, by signing and returning the enclosed copy
hereof, whereupon this Agreement and your acceptance of the terms and
conditions herein provided shall constitute a binding Agreement between us.
Very truly yours,
(Company)
By:
------------------------------------
Name:
Title:
Address for notices:
Accepted as of the date
above first written:
Page 19
<PAGE>
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
AS SUBSCRIPTION AGENT
By:
Name:
Title:
Page 20
