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<TITLE>Aames Financial Corporation Form S-8</TITLE>
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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">UNITED
STATES<br>
AND EXCHANGE COMMISSION<br>WASHINGTON, D.C. 20549</FONT></FONT></H1>




<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">FORM S-8<br>
REGISTRATION STATEMENT<Br>
UNDER THE SECURITIES ACT OF 1933</FONT></FONT></H1>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">AAMES
FINANCIAL CORPORATION<br>(Exact Name of Registrant as Specified in Its Charter)</FONT></FONT></H1>



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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">DELAWARE<br>
(State or Other Jurisdiction of Incorporation or Organization)</FONT></FONT></H1>



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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">95-4340340<br>
(I.R.S. Employer Identification No.)</FONT></FONT></H1>



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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">350
SOUTH GRAND AVENUE, 43RD FLOOR<br>LOS ANGELES, CALIFORNIA 90071<br>
(Address of Principal Executive Offices)</FONT></FONT></H1>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">AAMES
FINANCIAL CORPORATION<br>2003
SERIES E PREFERRED STOCK OPTION PLAN<br>
(Full Title of the Plan)</FONT></FONT></H1>


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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">John F. Madden, Jr.<br>
Executive Vice President, General Counsel and Secretary<br>Aames
Financial Corporation<br>
350 South Grand Avenue, 43<SUP>rd</SUP> Floor<br>
Los Angeles, California 90071<br>(Name and Address of Agent for Service)</FONT></FONT></H1>


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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(323)
210-5000<br>
( Telephone Number, Including Area Code, of Agent for Service)</FONT></FONT></H1>


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<A NAME="A017"></A><font size=2>&nbsp; </font><br>
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&nbsp;</font></p>




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    <td width="20%"><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td width="20%"><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td width="20%"><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td width="20%"><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td width="20%"><font size="2" face="Times New Roman, Times, serif">=================</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">Title of Each Class<br>
      Securities<br>
      to be Registered<br>
      </font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Amount to be <br>
      Registered</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Proposed <br>
      Maximum Offering <br>
      Price Per Share</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Proposed <br>
      Maximum Aggregate Offering Price</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Amount of <br>
      Registration Fee</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">Series E Preferred
      <br>
      Stock, $0.001 <br>
      par value</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">26,700,000</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">$0.71(1)</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">$18,957,000</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">$1,533.63</font></td>
  </tr>
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    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">=================</font></td>
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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(1)
Calculated in accordance with Rule 457(h) solely for the purpose of computing
the amount of the registration fee based on the price at which the options may
be exercised.</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">This
  registration statement shall become effective immediately upon filing with the
  United States Securities and Exchange Commission in accordance with Section 8(a)
  of the Securities Act of 1933 and Rule 462 thereunder.</FONT></FONT></P>
<P ALIGN="LEFT">&nbsp;</P>
<P ALIGN="center"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><strong>PART
  I</strong></FONT></FONT></P>
<P ALIGN="center"><font size="2" face="Times New Roman, Times, serif"><strong>Information
  Required in Section 10(a) Prospectus</strong></font></P>
<P ALIGN="left"><font size="2" face="Times New Roman, Times, serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
  documents containing the information specified in this Part I will be sent or
  given to participants as specified by Rule 428(b)(1). Those documents and the
  documents incorporated by reference in the registration statement pursuant to
  Item 3 of Part II of this form, taken together, constitute a prospectus that
  meets the requirements of Section 10(a) of the Securities Act of 1933, as amended. </font></P>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">PART
II</FONT></FONT></H1>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Information
Required in the Registration Statement</FONT></FONT></H1>

<P><Font Face="Times New Roman" Size="2"><U>Item 3.  Incorporation of Documents by Reference.</U></font></P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
following documents filed by Aames Financial Corporation with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, are
incorporated herein by reference:</FONT></FONT> </P>



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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
Annual Report on Form 10-K for the year ended June 30, 2002;</FONT></FONT> </P></TD>
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<BR>



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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
Our Quarterly Report on Form 10-Q for the quarters ended September 30, 2002,
December 31, 2002 and March 31, 2003;</FONT></FONT> </P></TD>
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<BR>

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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
Our Current Reports on Form 8-K filed July 3, 2002, July 11, 2002, July 22,
2002, July 31, 2002, August 2, 2002, August 16, 2002, September 6, 2002,
September 23, 2002, September 30, 2002, October 7, 2002, October 8, 2002,
October 25, 2002, November 8, 2002, November 18, 2002, November 21, 2002,
November 22, 2002, November 27, 2002, December 17, 2002, January 24, 2003,
February 6, 2003, March 13, 2003, April 18, 2003, April 28, 2003, May 16, 2003,
June 2, 2003, June 6, 2003, June 10, 2003, July 2, 2003 and July 30, 2003;</FONT></FONT> </P></TD>
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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
Our Proxy Statement on Schedule 14A dated October 28, 2002; and</FONT></FONT> </P></TD>
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     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> Our
Information Statement on Schedule 14C dated August 25, 2003.</FONT></FONT> </P></TD>
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&nbsp;</font></p>





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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">All
documents filed by Aames pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference in the
registration statement and to be part hereof from the date of filing of such
documents.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document that also
is, or is deemed to be, incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part hereof.</FONT></FONT> </P>

<P><Font Face="Times New Roman" Size="2"><U>Item 4.  Description of Securities.</U></font></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Series E Preferred Stock, par value of $0.001, will rank senior to Aames common
stock, par value $0.001 per share, other classes or series of junior preferred
stock, and ranks equal to Aames Series B Convertible Preferred Stock, par value
$0.001 per share, Series C Convertible Preferred Stock, par value $0.001 per
share, and Series D Convertible Preferred Stock, par value $0.001 per share.
Upon any liquidation, dissolution or winding up of Aames, holders of Series E
Preferred Stock will be entitled to receive the stated value of $1.00 per share
of Series E Preferred Stock out of Aames&#146;s assets before payments are made
to holders of common stock or junior preferred stock. Aames may redeem all
outstanding shares of Series E Preferred Stock at any time by paying the stated
value per share. Holders of Series E Preferred Stock will be entitled to vote on
all matters on which the holders of Aames common stock vote, except that holders of Series
E Preferred Stock will not be entitled to vote for members of Aames&#146;s Board
of Directors. Holders of Series E Preferred Stock are entitled to one vote per
share of Series E Preferred Stock. Holders of the Series E Preferred Stock do
not have cumulative voting rights, preemption rights, dividend rights or
conversion rights.</FONT></FONT> </P>

<P><FONT FACE="Times New Roman"><FONT SIZE="2"><U>Item 5. Interest of Named Experts and Counsel.</U></FONT></FONT></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">None.</FONT></FONT></P>

<P><Font Face="Times New Roman" Size="2"><U>Item 6.  Indemnification of Directors and Officers.</U></font></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
145 of the Delaware General Corporation Law authorizes indemnification of
directors and officers of a Delaware corporation under certain circumstances
against expenses, judgments and the like in connection with an action, suit or
proceeding. Article Ninth of the Amended and Restated Certificate of
Incorporation of Aames provides for broad indemnification of directors and
officers.</FONT></FONT> </P>

<P><Font Face="Times New Roman" Size="2"><U>Item 7.  Exemption from Registration Claimed.</U></font></P>


<P><Font Face="Times New Roman" Size="2">Not applicable.</font></P>




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<P><FONT FACE="Times New Roman"><FONT SIZE="2"><U>Item 8. Exhibits.</U></FONT></FONT></P>


<P><Font Face="Times New Roman" Size="2">4.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Amended and Restated Certificate of Incorporation of the Registrant.</font></P>

<P><Font Face="Times New Roman" Size="2">4.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Amended and Restated Bylaws of the Registrant(1)</font></P>

<P><Font Face="Times New Roman" Size="2">4.3&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2003 Series E Preferred Stock Option Plan of the Registrant.</font></P>

<P><Font Face="Times New Roman" Size="2">5.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  Opinion of John F. Madden, Jr.</font></P>

<P><Font Face="Times New Roman" Size="2">23.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consent
  of John F. Madden, Jr. (Included in Exhibit 5.1)</font></P>

<P><Font Face="Times New Roman" Size="2">23.2&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consent of Ernst &amp; Young LLP</font></P>

<P><Font Face="Times New Roman" Size="2">24.1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Power of Attorney (included on the signature page to this registration statement).</font></P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(1)
  Incorporated by reference to exhibits to the Registrant&#146;s Annual Report
  on Form 10-K for the year ended June 30, 1999, filed September 3, 1999.</FONT></FONT>
</P>

<P><Font Face="Times New Roman" Size="2"><U>Item 9.  Undertakings.</U></font></P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(a)
The undersigned Registrant hereby undertakes:</FONT></FONT> </P>

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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(1)
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:</FONT></FONT> </P></TD>
</TR>
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<BR>

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    <td width="5%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="95%"><font size="2" face="Times New Roman, Times, serif">(i) 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.</font></td>
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  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
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    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">(ii) To reflect in the prospectus
      any facts or events arising after the effective date of the registration
      statement (or the most recent post-effective amendment thereof) which, individually
      or in the aggregate, represent a fundamental change in the information set
      forth in the registration statement. Notwithstanding the foregoing, any
      increase or decrease in volume of securities offered (if the total dollar
      value of securities offered would not exceed that which was registered)
      and any deviation from the low or high end of the estimated maximum offering
      range may be reflected in the form of prospectus filed with the Commission
      pursuant to <U>Rule 424(b)</U> (ss.230.424(b) of this chapter) if, in the aggregate,
      the changes in volume and price represent no more than a 20% change in the
      maximum aggregate offering price set forth in the &quot;Calculation of Registration
      Fee&quot; table in the effective registration statement.</font></td>
  </tr>
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    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
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    <td width="5%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="95%"><font size="2" face="Times New Roman, Times, serif">(iii) 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.</font></td>
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<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>

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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(2)
That, for the purpose of determining any liability under the Securities Act of
1933, 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.</FONT></FONT> </P></TD>
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     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(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.</FONT></FONT> </P></TD>
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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(b)
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
Registrant&#146;s annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan&#146;s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(c)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 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 the appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.</FONT></FONT> </P>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Signatures</FONT></FONT></H1>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">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-8 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 this 18th day of September, 2003.</FONT></FONT>
</P>



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&nbsp;</font></p>



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    <td width="50%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="50%"><font size="2" face="Times New Roman, Times, serif"> AAMES
      FINANCIAL CORPORATION</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">By: /s/ John F. Madden,
      Jr.</font></td>
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    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">_______________________________________</font></td>
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  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">John F. Madden, Jr.</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Executive Vice President,
      General Counsel and</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Secretary</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>



<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>

<p align=center>
<font size=2>6
</font></p>
<br><hr noShade color="black">





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<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A026"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Power
of Attorney</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Each
person whose signature appears below constitutes and appoints John F. Madden,
Jr., as his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated.</FONT></FONT> </P>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="35%"><font size="2" face="Times New Roman, Times, serif">Signature</font></td>
    <td width="32%"><font size="2" face="Times New Roman, Times, serif">Title</font></td>
    <td width="33%" valign="top"><font size="2" face="Times New Roman, Times, serif">
      Date</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif"><u>/s/&nbsp;Jenne
      K. Britell</u></font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Jenne K. Britell</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ David H. Elliott</font></u></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">David H. Elliott</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ Daniel C. Lieber</font></u></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Daniel C. Lieber</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ A. Jay Meyerson</font></u></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font size="2" face="Times New Roman, Times, serif">A. Jay Meyerson</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director and Chief
      Executive Officer (Principal Executive Officer)</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">September 18, 2003</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ Ronald J. Nicolas,
      Jr.</font></u></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font size="2" face="Times New Roman, Times, serif">Ronald J. Nicolas,
      Jr.</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Executive Vice President
      - Finance and Chief Financial Officer (Principal Financial Officer)</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">September 18, 2003</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ Eric C. Rahe</font></u></td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Eric C. Rahe</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif"><u>/s/ Mani A. Sadeghi</u></font></td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Mani A. Sadeghi</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Chairman of the Board
      of Directors</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ Robert A. Spass</font></u></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Robert A. Spass</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ Joseph R. Tomei</font></u></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Joseph R. Tomei</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ Jon D. Van
      Deuren</font></u></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr valign="top">
    <td><font size="2" face="Times New Roman, Times, serif">Jon D. Van Deuren</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Senior Vice President
      - Finance and Chief Accounting Officer (Principal Accounting Officer)</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">September 18, 2003</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><u><font size="2" face="Times New Roman, Times, serif">/s/ Stephen E.
      Wall</font></u></td>
    <td>&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">Stephen E. Wall</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">Director</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">September
      18, 2003</font></td>
  </tr>
</table>


<p align=center>
<font size=2>7
</font></p>
<br><hr noShade color="black">





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<!-- MARKER PAGE="sheet: 7; page: 7" -->




<p align=left><font size=2>
&nbsp;</font></p>


<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A039"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Exhibit
  4.1 <br>
  Amended and
Restated Certificate of Incorporation and<br>Certificates
of Designations for<br>Series B, Series C, Series D and Series E Preferred Stock</FONT></FONT></H1>

<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>


<p align=center> <font size=2>1</font></p>
<br><hr noShade color="black">

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">AMENDED
AND RESTATED<br>CERTIFICATE
OF INCORPORATION<br>OF<br>AAMES
FINANCIAL CORPORATION</FONT></FONT></H1>

<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>FIRST</u>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The name of this corporation is Aames Financial Corporation (the "Corporation").</FONT></FONT> </P>


<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>SECOND</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The address of the registered office of the Corporation in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle. The name of its
registered agent at that address is The Corporation Trust Company.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>THIRD</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purpose of the Corporation is to engage in any lawful act or activity for
which a corporation may now or hereafter be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 to the Delaware
Code (the &#147;GCL&#148;).</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>FOURTH</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The total number of shares which the Corporation shall have the authority to
issue is 600,000,000, consisting of 400,000,000 shares of common stock, par
value $0.001 per share (the &#147;Common Stock&#148;), and 200,000,000 shares of
preferred stock, par value $0.001 per share (the &#147;Preferred Stock&#148;).</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As
of April 13, 2000 (the &#147;Effective Date&#148;), each share of the
Corporation&#146;s common stock, par value $0.001 per share issued and
outstanding immediately prior to the Effective Date (the &#147;Pre-Split Common
Stock&#148;) shall automatically and without any action on the part of the
holder thereof be reclassified as and changed (the &#147;Reverse Common Stock
Split&#148;) into 0.2 of one share of common stock, par value of $0.001 per
share (the &#147;Post-Split Common Stock&#148;). Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of Pre-Split Common Stock (the &#147;Pre-Split
Certificates,&#148; whether one or more) shall be entitled to receive upon
surrender of such Pre-Split Certificates to the Corporation&#146;s Secretary for
cancellation, a certificate or certificates (the &#147;Post-Split
Certificates,&#148; whether one or more) representing the number of whole shares
of Post-Split Common Stock into which and for which the shares of Pre-Split
Common Stock formerly represented by such Pre-Split Certificates so surrendered,
are reclassified pursuant to the terms hereof. No script or fractional shares
certificates will be issued for Pre-Split Common Stock in connection with the
Reverse Common Stock Split. Any fractional share interests will be aggregated
and sold on the open market by the exchange agent selected by the Corporation.
From and after the Effective Date, Pre-Split Certificates shall represent only
the right to receive Post-Split Certificates pursuant to the provisions hereof.
If more than one Pre-Split Certificate shall be surrendered at one time for the
account of the same stockholder, the number of full shares of Post-Split Common
Stock for which the Post-Split Certificates shall be issued shall be computed on
the basis of the aggregate number of shares represented by the Pre-Split
Certificates so surrendered. If any Post-Split Certificate is to be issued in a
name other than that in which the Pre-Split Certificate surrendered for exchange
are issued, the Pre-Split Certificates so surrendered shall be properly endorsed
and otherwise in proper form for transfer, and the person or persons requesting
such exchange shall affix any requisite stock transfer tax stamps to the
Pre-Split Certificates surrendered, or provide funds for their purchase, or
establish to the satisfaction of the Corporation&#146;s Secretary that such
taxes are not payable. From and after the Effective Date the amount of capital
represented by the shares of Post-Split Common Stock into which and for which
the shares of the Pre-Split Common Stock are reclassified pursuant to the terms
hereof shall be the same as the amount of capital represented by the shares of
Pre-Split Common Stock so reclassified, until thereafter reduced or increased in
accordance with applicable law.</FONT></FONT> </P>






<p align=center>
<font size=2>2
</font></p>
<br><hr noShade color="black">




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<!-- MARKER PAGE="sheet: 1; page: 1" -->












<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Shares
  of the Preferred Stock of the Corporation may be issued from time to time in
  one or more classes or series, each of which class or series shall have such
  distinctive designation or title as shall be fixed by the Board of Directors
  of the Corporation (the &#147;Board of Directors&#148;) prior to the issuance
  of any shares thereof. Each such class or series of Preferred Stock shall have
  such voting powers, full or limited, or no voting powers, and such preferences
  and relative, participating, optional or other special rights and such qualifications,
  limitations or restrictions thereof, as shall be stated in such resolution or
  resolutions providing for the issue of such class or series of Preferred Stock
  as may be adopted from time to time by the Board of Directors prior to the issuance
  of any shares thereof pursuant to the authority hereby expressly vested in it,
  all in accordance with the laws of the State of Delaware. Attached hereto as
  Exhibits A, B, C, D and E are the Certificates of Designations for the Series
  A Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
  Preferred Stock, Series D Convertible Preferred Stock and Series E Preferred
  Stock, respectively.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>FIFTH</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All rights to vote and all voting power shall be vested in the Common Stock and
the holders thereof shall be entitled at all elections of directors to one (1)
vote per share, except for directors for which holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders. Special meetings of the stockholders for any purpose or
purposes may be called at any time only by the Board of Directors, the Chairman
of the Board or by the Chief Executive Officer or President of the Corporation.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>SIXTH</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The directors of the Corporation shall be divided into three classes, designated
Class I, Class II and Class III. The term of the initial Class I directors shall
terminate on the date of the 1994 annual meeting of stockholders; the term of
the initial Class II directors shall terminate on the date of the 1993 annual
meeting of stockholders and the term of<I> </I>the initial Class III directors
shall terminate on the date of<I> </I>the 1992 annual meeting of stockholders.
At each annual meeting of stockholders beginning in 1992, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as reasonably possible, and any
additional directors of<I> </I>any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term at any incumbent directors. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Any vacancy on the Board of Directors, howsoever resulting, shall
be filled only by a majority of the directors then in office, even if less than
a quorum, or by a sole remaining director and not by the stockholders. Any
director elected to fill a vacancy shall hold office of a term that shall
coincide with the terms of the class to which such director shall have been
elected.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Subject
to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, for cause only, by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation then entitled to vote
generally in the election of directors, considered for the purposes of this
Article SIXTH as one class.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">Notwithstanding
the foregoing, whenever the holders of any one or more classes or series of
Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Certificate of Incorporation or the resolution or resolutions adopted by the
Board of Directors pursuant to the second paragraph of Article FOURTH applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article SIXTH unless expressly provided by such terms.</FONT></FONT> </P>





<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>SEVENTH:</u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
        Elections of directors at an annual or special meeting of stockholders need not be by written ballot
unless the Bylaws of the Corporation shall otherwise provide.</FONT></FONT> </P>

<p align=center>
<font size=2>3
</font></p>
<br><hr noShade color="black">






<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 2; page: 2" -->




<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken either upon the vote of the stockholders at an annual
or special meeting duly noticed and called, as provided in the Bylaws of the
Corporation, or may be taken by written consent of the stockholders pursuant to
the GCL.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>EIGHT</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The officers of the corporation shall be chosen in such a manner, shall hold
their offices for such terms and shall carry out such duties as are determined
solely by the Board of Directors, subject to the right of the Board of Directors
to remove any officer or officers at any time with or without cause.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>NINTH</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(A) The Corporation shall indemnify to the full extent authorized or permitted
by law (as now or hereafter in effect) any person made, or threatened to be
made, a defendant or witness to any action, suit or proceeding (whether civil or
criminal or otherwise) by reason of the fact that he, his testator or intestate,
is or was a director or officer of the Corporation or by reason of the fact that
such director or officer, at the request of the Corporation, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or enterprise, in any capacity. Nothing contained herein shall affect any rights
to indemnification to which employees other than directors and officers may be
entitled by law. No amendment or repeal of this Section A of Article NINTH shall
apply to or have any effect on any right to indemnification provided hereunder
with respect to any acts or omission occurring prior to such amendment or
repeal.</FONT></FONT> </P>

<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(B)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No director of the corporation shall be
personally liable to the Corporation or its
stockholders
for monetary damages for any breach of<I> </I>fiduciary duty by such a director
as a director. Notwithstanding the foregoing sentence, a director shall be
liable to the extent provided by applicable law (i) for any breach of the
Director&#146;s duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation <I>o</I>f<I> </I>law, (iii) pursuant to Section 174 of<I>
</I>the GCL, or (iv) for any transaction from which such director derived an
improper personal benefit. No amendment to or repeal of this Section B of
Article NINTH shall apply to or have any effect on the liability or alleged
liability of<I> </I>any director of<I> </I>the Corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(C)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In furtherance and not in limitation of the powers conferred by statute:</FONT></FONT> </P>

<P><Font Face="Times New Roman" Size="2">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;
(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  the Corporation may purchase and maintain insurance on behalf of any person
who is or
was a director, officer, employee or agent of the Corporation, or is
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify against such
liabil1ty under the provisions of law; and</font></P>

<P><Font Face="Times New Roman" Size="2">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;
(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the Corporation may create a trust fund, grant a security interest and/or use
other means (including, without limitation, letters of credit, surety bonds and/or
other similar arrangements), as well as enter into contracts providing
indemnification to the full extent authorized or permitted by law and including
as part thereof provisions with respect to any or all of the foregoing to ensure
the payment of such amounts as may become necessary to effect indemnification as
provided therein, or elsewhere.</FONT></P>

<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>TENTH</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In furtherance and not in limitation of the powers conferred by statute, the Board of
Directors is expressly authorized to adopt, repeal, alter, amend or rescind the Bylaws of the
Corporation.</FONT></FONT> </P>


<p align=center>
<font size=2>4</font></p>
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<p align=left><font size=2>
&nbsp;</font></p>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>ELEVENTH</U>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.</FONT></FONT> </P>

<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2"><U>TWELFTH</u>:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;        The name and mailing address for the Incorporator
of the Corporation is as follows: Barbara
J. Gillen, 10940 Wilshire Boulevard, Suite 600, Los Angeles, California 90024-3902.</FONT></FONT> </P>


<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>



<p align=center>
<font size=2>5
</font></p>
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<p align=left><font size=2>
&nbsp;</font></p>


<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">CERTIFICATE OF DESIGNATION OF
<br>RIGHTS,
PREFERENCES AND PRIVILEGES OF<br>SERIES
A PREFERRED STOCK<br>OF<br>AAMES
FINANCIAL CORPORATION</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
1. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Designation and Amount</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shares of such
series shall be designated
as &#147;Series&nbsp;A Preferred Stock&#148; (the &#147;Series A Preferred
Stock&#148;) and the number of shares constituting the Series A Preferred Stock
shall be 500,000 shares of Series A Preferred Stock, having a par value of
$0.001 per share. Such number of shares may be increased or decreased by
resolution of the Board of Directors; <U>provided</U>, that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>Dividends and Distributions</U>.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;    Subject to the rights of the holders of any shares of any series of
Preferred Stock
(or any similar stock) ranking prior and superior to the Series A Preferred Stock
with respect to dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock, par value $0.001 per share (the
&#147;Common Stock&#148;), of the Corporation, and of any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, (i) cash dividends in an amount
per whole share (rounded to the nearest cent) equal to the Formula Number (as
defined below) then in effect, times the aggregate per share amount of all cash
dividends declared or paid on the Common Stock, and (ii) a preferential cash
dividend (a &#147;Preferential Dividend&#148;), if any, on the first day of
July, October, January and April in each year (each such date being referred to
herein as a &#147;Quarterly Dividend Payment Date&#148;), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to $1.00 per share of Series A Preferred Stock less
the per share amount of all cash dividends declared on the Series A Preferred
Stock pursuant to clause (i) of this sentence since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In addition, if the Corporation shall pay any dividend
or make any distribution on the Common Stock payable in assets, securities or
other forms of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the Corporation
shall simultaneously pay or make on each whole outstanding share of Series A
Preferred Stock, a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series A Preferred Stock to
which holders thereof are entitled pursuant to clause (i) of the first sentence
of this paragraph and the second sentence of this paragraph are hereinafter
referred to as &#147;Participating Dividends.&#148; As used herein, the
&#147;Formula Number&#148; shall be 100; provided, however, that if at any time
after June 21, 1996, the Corporation shall (i) declare or pay any dividend or
make any distribution on the Common Stock, payable in shares of Common Stock,
(ii) subdivide (by a stock split or otherwise), the outstanding shares of Common
Stock into a larger number of shares of Common Stock, or (iii) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then in each such case the Formula
Number in effect immediately prior to such event shall be adjusted to a number
determined by multiplying the Formula Number then in effect by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided further,
that, if at any time after June&nbsp;21, 1996, the Corporation shall issue any
shares of its capital stock in a merger, reclassification, or change of the
outstanding shares of Common Stock, then in each such event the Formula Number
shall be appropriately adjusted to reflect such merger, reclassification, or
change so that each share of Series A Preferred Stock continues to be the
economic equivalent of a Formula Number of shares of Common Stock prior to such
merger, reclassification or change.</FONT></FONT> </P>



<p align=center>
<font size=2>6
</font></p>
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<p align=left><font size=2>
&nbsp;</font></p>

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;    The Corporation shall declare such Participating Dividend immediately prior
to or at
the same time it declares any cash or non-cash dividend or distribution on the
Common Stock in respect of which a Participating Dividend is required to be
paid. No cash or non-cash dividend or distribution on the Common Stock in
respect of which a Participating Dividend is required shall be paid or set aside
for payment on the Common Stock unless a Participating Dividend in respect of
such dividend shall have been paid.</FONT></FONT> </P>

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Dividends shall begin to accrue and be cumulative on outstanding shares of Series A
Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue
of such shares, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
3. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Voting Rights</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The holders of shares of
Series A Preferred Stock shall
have the following voting rights.</FONT></FONT> </P>

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each holder of Series A Preferred Stock shall be entitled to a number of votes equal
>to the Formula Number then in effect, for each share of Series A Preferred Stock held
of record on each matter on which holders of the Common Stock or stockholders
generally are entitled to vote, multiplied by the maximum number of votes per
share which any holder of the Common Stock or stockholders generally then have
with respect to such matter (assuming any holding period or other requirement to
vote a greater number of shares is satisfied).</FONT></FONT> </P>

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except
as otherwise provided herein, in any other Certificate of Amendment creating
a series of Preferred Stock or any similar stock, or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.</FONT></FONT> </P>

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Except as set forth herein, or as otherwise provided by law, holders of Series A
Preferred Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Certain Restrictions</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT> </P>

<p align=center>
<font size=2>7
</font></p>
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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Whenever Preferential Dividends or Participating Dividends are in arrears or the
Corporation shall be in default in payment thereof, thereafter and until all accrued and
unpaid Participating Dividends and Preferential Dividends, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been paid
or set aside for payment in full, the Corporation shall not:</FONT></FONT> </P>

<P><Font Face="Times New Roman" Size="2">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;
(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;declare or pay dividends, or make any other distributions on or redeem or
purchase or otherwise acquire for consideration any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock.</FONT></P>

<P><Font Face="Times New Roman" Size="2">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;
(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
declare or pay dividends, or make any other distributions, on the shares of
stock ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;</FONT></P>

<P><Font Face="Times New Roman" Size="2">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;
(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; redeem or purchase or otherwise acquire for consideration shares of any stock
ranking junior or on a parity (either as to dividends or upon liquidation, dissolution
or winding up) to or with Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior or parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or</FONT></P>

<P><Font Face="Times New Roman" Size="2">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;
(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;redeem or purchase or otherwise acquire for consideration shares of Series A
Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.</FONT> </P>


<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise
acquire for consideration any shares of stock of the Corporation unless the
Corporation could, under paragraph (a) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.</FONT></font></P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Reacquired Shares</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any shares of Series A
Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Amendment or Certificate of
Designation creating a series of Preferred Stock or any similar stock or as
otherwise required by law.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Liquidation, Dissolution or Winding Up</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received an amount equal to the accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (i) $0.01 per whole share,
or (ii) an aggregate amount per share equal to the Formula Number then in effect
times the aggregate amount to be distributed per share to holders of Common
Stock, or (b) to the holders of shares of stock ranking on a party (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, unless simultaneously therewith distributions are made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of Series A Preferred Stock shares are
entitled under clause (a)(i) of this sentence and to which the holders of such
parity shares are entitled in each case upon such liquidation, dissolution or
winding up.</FONT></FONT> </P>



<p align=center>
<font size=2>8
</font></p>
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<p align=left><font size=2>
&nbsp;</font></p>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Consolidation, Merger, etc.</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If the
Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or charged into other stock or securities, cash
and/or any other property, (then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share equal to the Formula Number then in effect times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event that both this Section 7 and Section 2 appear
to apply to a transaction, this Section 7 shall control.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Effective Time of
Adjustments</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></FONT> </P>

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Adjustments to the Series A Preferred Stock required by the provisions hereof shall
be effective as of the time at which the event requiring such adjustment occurs.</FONT></FONT> </P>


<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation shall give prompt written notice to each holder of a share of Series
A Preferred Stock of the effect on any such shares of any adjustment to the
dividend rights or rights upon liquidation, dissolution or winding up of the
Corporation required by the provisions hereof. Notwithstanding the foregoing
sentence, the failure of the Corporation to give such notice shall not affect
the validity of or the force or effect of or the requirement for such
adjustment.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>No Redemption</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The shares of Series A
Preferred Stock shall not be
redeemable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
10. <U>Rank</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Unless otherwise provided in the Certificate of Incorporation
or a Certificate of Designation relating to a subsequent series of Preferred
Stock of the Corporation, the Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation&#146;s Preferred Stock.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Fractional Shares</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Series A Preferred
Stock shall be issuable
upon exercise of the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-hundredth
(1/100<SUP>th</SUP>) of a share or any integral multiple of such fraction which
shall entitle the holder, in proportion to such holder&#146;s fractional shares,
to receive dividends, exercise voting rights, participate in distributions and
to have the benefit of all other rights of holders of Series A Preferred Stock.
In lieu of fractional shares, the Corporation, prior to the first issuance of a
share or a fraction of a share of Series A Preferred Stock, may elect (1) to
make a cash payment as provided in the Rights Agreement for fractions of a share
other than one one-hundredth (1/100<SUP>th</SUP>) of a share or any integral
multiple thereof, or (2) to issue depository receipts evidencing such authorized
fraction of a share of Series A Preferred Stock pursuant to an appropriate
agreement between the Corporation and a depository selected by the Corporation;
provided that such agreement shall provide that the holders of such depository
receipts shall have the rights, privileges and preferences to which they are
entitled as holders of the Series A Preferred Stock.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Section
12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Amendment</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Certificate of
Incorporation of the Corporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.</FONT></FONT> </P>


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</font></p>
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<p align=left><font size=2>
&nbsp;</font></p>




<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">CERTIFICATE
OF THE VOTING POWERS, DESIGNATIONS,<br>PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL<br>OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,<Br>LIMITATIONS
OR RESTRICTIONS THEREOF, OF<br>SERIES
B CONVERTIBLE PREFERRED STOCK OF<br>AAMES
FINANCIAL CORPORATION</FONT></FONT></H1>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">I.
Designation and Amount</FONT></FONT></H1>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
designation of this series of shares shall be &#147;Series B Convertible
Preferred Stock&#148; (the &#147;Series B Preferred Stock&#148;) par value
$0.001 per share; the initial stated value per share shall be $1,000.00 (the
&#147;Initial Stated Value&#148;); and the number of shares constituting such
series shall be 29,704,000. The number of shares of the Series B Preferred Stock
may be decreased from time to time by a resolution or resolutions of the Board
of Directors; provided, however, that such number shall not be decreased below
the aggregate number of shares of the Series B Preferred Stock then outstanding.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">II.
Rank</FONT></FONT></H1>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  With respect to dividends, the Series&nbsp;B Preferred Stock shall rank (i)&nbsp;senior
  to each other class or series of Preferred Stock, except for the Series&nbsp;C
  Convertible Preferred Stock, par value $0.001 per share, of the Corporation
  (the &#147;Series&nbsp;C Preferred Stock&#148;) and the Series&nbsp;D Convertible
  Preferred Stock, par value $0.001 per share, of the Corporation (the &#147;Series&nbsp;D
  Preferred Stock&#148;); (ii)&nbsp;on a parity with the Series&nbsp;C Preferred
  Stock and the Series&nbsp;D Preferred Stock; and (iii)&nbsp;senior to the Corporation&#146;s
  Common Stock, par value $0.001 per share (the &#147;Common Stock&#148;), and,
  except as specified above, all other classes and series of capital stock of
  the Corporation hereafter issued by the Corporation. With respect to dividends,
  all equity securities of the Corporation to which the Series&nbsp;B Preferred
  Stock ranks senior, including the Common Stock, are collectively referred to
  herein as the &#147;Junior Dividend Securities&#148;; all equity securities
  of the Corporation with which the Series&nbsp;B Preferred Stock ranks on a parity,
  including the Series&nbsp;C Preferred Stock and the Series&nbsp;D Preferred
  Stock, are collectively referred to herein as the &#147;Parity Dividend Securities&#148;;
  and all equity securities of the Corporation (other than convertible debt securities)
  to which the Series&nbsp;B Preferred Stock ranks junior, with respect to dividends,
  are collectively referred to herein as the &#147;Senior Dividend Securities.&#148;</FONT></FONT>
</P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  With respect to the distribution of assets upon liquidation, dissolution or
  winding up of the Corporation, whether voluntary or involuntary, the Series&nbsp;B
  Preferred Stock shall rank (i)&nbsp;senior to each other class or series of
  Preferred Stock of the Corporation, except for the Series&nbsp;C Preferred Stock,
  the Series&nbsp;D Preferred Stock and the Series E Preferred Stock,
  par value $0.001 per share, of the Corporation (the &#147;Series E Preferred
  Stock&#148;); (ii)&nbsp;on
  a parity with the Series&nbsp;C Preferred Stock, the Series&nbsp;D Preferred
  Stock and
  the Series E Preferred Stock; and (iii)&nbsp;senior
  to the Common Stock, and, except as specified above, all other classes and series
  of capital stock of the Corporation hereafter issued by the Corporation. With
  respect to the distribution of assets upon liquidation, dissolution or winding
  up of the Corporation, whether voluntary or involuntary, all equity securities
  of the Corporation to which the Series&nbsp;B Preferred Stock ranks senior,
  including the Common Stock, are collectively referred to herein as &#147;Junior
  Liquidation Securities&#148;; all equity securities of the Corporation (other
  than convertible debt securities) to which the Series&nbsp;B Preferred Stock
  ranks on parity, including the Series&nbsp;C Preferred Stock, the Series&nbsp;D
  Preferred Stock and the Series E Preferred Stock, are collectively referred
  to herein as &#147;Parity Liquidation Securities&#148;; and all equity securities
  of the Corporation to which the Series&nbsp;B Preferred Stock ranks junior are
  collectively referred to herein as &#147;Senior Liquidation Securities.&#148;</FONT></FONT>
</P>


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</font></p>
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<p align=left><font size=2>
&nbsp;</font></p>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  The Series B Preferred Stock shall be subject to the creation of Junior Dividend
  Securities and Junior Liquidation Securities (collectively, &#147;Junior Securities&#148;),
  but no Parity Dividend Securities or Parity Liquidation Securities (collectively,
  &#147;Parity Securities&#148;) (other than the Series C Preferred Stock, Series
  D Preferred Stock and Series E Preferred Stock) or Senior Dividend Securities
  or Senior Liquidation Securities (collectively, &#147;Senior Securities&#148;)
  shall be created except in accordance with the terms hereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">III.
Dividends</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Dividends</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Subject to the terms of paragraph D below, shares of Series B
Preferred Stock shall accumulate dividends at a rate of 6.5% per annum (the
&#147;Dividend Rate&#148;), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a &#147;Dividend Payment Date&#148;), to
holders of record (the &#147;Registered
Holders&#148;) as they appear on the stock record books of the Corporation on
the fifteenth day prior to the relevant Dividend Payment Date; provided,
however, that during the Accrual Period (as defined in Article IX hereof) the
Corporation shall have the option to accrue such dividends, which dividends, to
the extent so accrued, shall compound quarterly. Dividends shall accrue and
accumulate on $1.00 for each share of Series B Preferred Stock. Dividends shall
be paid only when, as and if declared by the Board of Directors out of funds at
the time legally available for the payment of dividends. Dividends shall begin
to accumulate on outstanding shares of Series B Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Accumulation</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dividends on the Series B Preferred Stock shall be
cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the &#147;Arrearage&#148;) at
125% of the stated dividend rate (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional dividends in respect
of any Arrearage shall be deemed to accumulate from day to day whether or not
earned or declared until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date, and shall constitute an additional Arrearage
from and after any Dividend Payment Date to the extent not paid on such Dividend
Payment Date. References in any Article herein to dividends that have
accumulated or that have been deemed to have accumulated with respect to the
Series B Preferred Stock shall include the amount, if any, of any Arrearage
together with any dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences. Additional
dividends in respect of any Arrearage may be declared and paid at any time, in
whole or in part, without reference to any regular Dividend Payment Date, to
Registered Holders as they appear on the stock record books of the Corporation
on such record date as may be fixed by the Board of Directors (which record date
shall be no less than 10 days prior to the corresponding payment date).
Dividends in respect of any Arrearage shall be paid in cash.</FONT></FONT> </P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Method of Payment</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid on the shares of Series B Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of Series B Preferred Stock
shall be allocated pro rata on a share-by-share basis among all such shares then
outstanding. After the Second Anniversary Date, dividends that are declared and
paid in an amount less than the full amount of dividends accumulated on the
Series B Preferred Stock (and on any Arrearage) shall be applied first to the
earliest dividend which has not theretofore been paid. All cash payments of
dividends on the shares of Series B Preferred Stock shall be made in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IV.
Liquidation Preference</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;       INTENTIONALLY OMITTED
</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Liquidation Preference</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The holders of the outstanding shares of Series B
Preferred Stock
shall be entitled to receive out of the assets of the Corporation, whether such
assets are capital or surplus of any nature, an amount per share equal to the
sum of the dividends, if any, accumulated or deemed to have accumulated thereon
to the date of final distribution to such holders, whether or not such dividends
are declared; and $1.00 per share of Series B Preferred Stock, before any
payment shall be made or any assets distributed to the holders of any Junior
Liquidation Securities. After any such payment in full, the holders of Series B
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;       <U>Parity Securities</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All the assets of the Corporation available for distribution to stockholders after the liquidation preferences of
any Senior Liquidation Securities shall be distributed ratably (in proportion
to the full distributable amounts to which holders of Series B Preferred Stock and Parity Liquidation Securities,
if any, are respectively entitled upon such dissolution, liquidation or winding up) among the holders of the
then-outstanding shares of Series B Preferred Stock and Parity Liquidation Securities, if any, when such assets
are
not sufficient to pay in full the aggregate amounts payable thereon.</FONT></FONT> </P>


<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Merger Not a Liquidation</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation&#146;s assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series B Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation&#146;s
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series B Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">V.
Redemption</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       INTENTIONALLY OMITTED</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       <U>Optional Redemption.</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Commencing on the earlier to occur of (x) the
tenth anniversary of the Issue
 Date and (y) the date on which fewer than 25% of the shares of Series B Preferred Stock issued on the Issue Date
remain outstanding, and at all times thereafter, the Corporation may, at its option, redeem all (but not less than
all) outstanding shares of Series B Preferred Stock on a date specified by the Corporation (the "Optional
Redemption Date") by paying the Redemption Price therefor in cash out of funds legally available for such
purpose.</FONT></FONT> </P>



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<font size=2>12
</font></p>
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<p align=left><font size=2>
&nbsp;</font></p>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Notice and Redemption Procedures</U>. Notice of the redemption of shares of
Series B Preferred Stock pursuant to paragraph B of this Article V (a
&#147;Notice of Redemption&#148;) shall be sent to the holders of record of the
shares of Series B Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder&#146;s address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, which date shall be set forth in such notice (the
&#147;Redemption Date&#148;); provided that failure to give such Notice of
Redemption to any holder, or any defect in such Notice of Redemption to any
holder shall not affect the validity of the proceedings for the redemption of
any shares of Series B Preferred Stock held by any other holder. In order to
facilitate the redemption of shares of Series B Preferred Stock, the Board of
Directors may fix a record date for the determination of the holders of shares
of Series B Preferred Stock to be redeemed not more than 30 days prior to the
date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, each holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Redemption
Price for such shares. From and after the Optional Redemption Date, all
dividends on shares of Series B Preferred Stock shall cease to accumulate and
all rights of the holders thereof as holders of Series B Preferred Stock shall
cease and terminate, except to the extent the Corporation shall default in
payment thereof on the Optional Redemption Date.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Deposit of Funds</U>. <B> </B>The Corporation shall, on or prior to the
Optional Redemption Date, pursuant to paragraph C of this Article V, deposit
with its transfer agent or other redemption agent in the Borough of Manhattan,
The City of New York having a capital and surplus of at least $500,000,000
selected by the Board of Directors, as a trust fund for the benefit of the
holders of the shares of Series B Preferred Stock to be redeemed, cash that is
sufficient in amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption, with irrevocable instructions and authority to such
transfer agent or other redemption agent to pay to the respective holders of
such shares, as evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price for such shares upon surrender of their
respective share certificates. Such deposit shall be deemed to constitute full
payment of the Redemption Price for such shares to the holders, and from and
after the date of such deposit, all rights of the holders of the shares of
Series B Preferred Stock that are to be redeemed as stockholders of the
Corporation with respect to such shares, except the right to receive the
Redemption Price upon the surrender of their respective certificates, shall
cease and terminate. No dividends shall accumulate on any shares of Series B
Preferred Stock after the Optional Redemption Date for such shares (unless the
Corporation shall fail to deposit cash sufficient to redeem all such shares). In
case holders of any shares of Series B Preferred Stock called for redemption
shall not, within two years after such deposit, claim the cash deposited for
redemption thereof, such transfer agent or other redemption agent shall, upon
demand, pay over to the Corporation the balance so deposited. Thereupon, such
transfer agent or other redemption agent shall be relieved of all responsibility
to the holders thereof and the sole right of such holders, with respect to
shares to be redeemed, shall be to receive the Redemption Price as general
creditors of the Corporation. Any interest accrued on any funds so deposited
shall belong to the Corporation, and shall be paid to it from time to time on
demand.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VI.
Restrictions on Dividends</FONT></FONT></H1>


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</font></p>
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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">So long
as any shares of the Series B Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Securities or make any payment on account of,
or set apart for payment money for a sinking or other similar fund for, the
repurchase, redemption or other retirement of, any Junior Securities or Parity
Securities or any warrants, rights or options exercisable for or convertible
into any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities), or
make any distribution in respect of the Junior Securities, either directly or
indirectly, and whether in cash, obligations or shares of the Corporation or
other property (other than distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Securities or Parity Securities or any warrants, rights, calls
or options exercisable for or convertible into any Junior Securities or Parity
Securities (other than the repurchase, redemption or other retirement of
debentures or other debt securities that are convertible or exchangeable into
any Junior Securities or Parity Securities or the repurchase, redemption or
other retirement of Junior Securities or Parity Securities in exchange for
Junior Securities or Parity Securities) unless prior to or concurrently with
such declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, all accumulated and unpaid
dividends on shares of the Series B Preferred Stock not paid on the dates
provided for in paragraph A of Article III hereof (including Arrearages and
accumulated dividends thereon) shall have been paid, except that when dividends
are not paid in full as aforesaid upon the shares of Series B Preferred Stock,
all dividends declared on the Series B Preferred Stock and any series of Parity
Dividend Securities shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series B Preferred Stock and such series of
Parity Dividend Securities shall in all cases bear to each other the same ratio
that accumulated dividends (including interest accrued on or additional
dividends accumulated in respect of such accumulated dividends) on the shares of
Series B Preferred Stock and such Parity Dividend Securities bear to each other.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VII.
Voting Rights</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The holders of Series B Preferred Stock shall be entitled to the number of votes
per share of Series B Preferred Stock equal to the number of shares of Common
Stock for which such share of Series B Preferred Stock is then convertible
pursuant to Article VIII at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
So long as any shares of the Series&nbsp;B Preferred Stock are outstanding,
(i)&nbsp;each share of Series&nbsp;B Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock; and
(ii)&nbsp;the shares of Series&nbsp;B Preferred Stock shall vote together with
shares of Common Stock (and any shares of Series&nbsp;C Preferred Stock,
Series&nbsp;D Preferred Stock and Series E Preferred Stock entitled to vote) as
a single class.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At each annual meeting of the stockholders of the Corporation, the holders of
Series B Preferred Stock, voting as a separate class, shall have the right to
elect, by the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series B Preferred Stock, four members of a separate class of directors, each of
whom shall serve until the next annual meeting of the stockholders of the
Corporation or until his or her successor is elected and qualified. Such vote or
consent shall be taken in accordance with the procedures specified in paragraph
F below.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series&nbsp;B Preferred Stock, Series&nbsp;C Preferred Stock, Series&nbsp;D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i)&nbsp;authorize, create or issue, or increase the
authorized amount of, (x)&nbsp;any Senior Securities or Parity Securities or
(y)&nbsp;any class or series of capital stock or any security convertible into
or exercisable for any class or series of capital stock, redeemable mandatorily
or redeemable at the option of the holder thereof at any time on or prior to the
Redemption Date (whether or not only upon the occurrence of a specified event)
or (ii)&nbsp;enter into any Transaction (as defined in paragraph&nbsp;H of
Article&nbsp;VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph&nbsp;F below.</FONT></FONT> </P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series&nbsp;B Preferred Stock, Series&nbsp;C Preferred Stock, Series&nbsp;D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i)&nbsp;amend, alter or repeal any provision of the
Certificate of Incorporation or the Bylaws, if the amendment, alteration or
repeal alters or changes the powers, preferences or special rights of the
Series&nbsp;B Preferred Stock so as to affect them materially and adversely or
(ii)&nbsp;authorize or take any other action if such action alters or changes
any of the rights of the Series&nbsp;B Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph&nbsp;F below.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The foregoing rights of holders of shares of Series&nbsp;B Preferred Stock to
take any actions as provided in this Article&nbsp;VII may be exercised at any
annual meeting of stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment thereof, or by the
written consent, delivered to the Secretary of the Corporation, of the holders
of the minimum number of shares required to take such action, if action by
written consent of stockholders of the Corporation is then permitted.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Chairman of the Board of the Corporation may call, and upon written request of
holders of record of 35% of the outstanding shares of Series&nbsp;B Preferred
Stock, if the holders of Series&nbsp;B Preferred Stock are to vote separately as
a single class, or the holders of record of 35% of the outstanding shares of
Series&nbsp;B Preferred Stock, Series&nbsp;C Preferred Stock, Series&nbsp;D
Preferred Stock and Series E Preferred Stock, if the holders of shares of
Series&nbsp;B Preferred Stock are to vote as a class with the holders of shares
of any Series&nbsp;C Preferred Stock, Series&nbsp;D Preferred Stock and Series E
Preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation shall call, a special meeting of the holders of shares
entitled to vote as provided herein. Such meeting shall be held within
30&nbsp;days after delivery of such request to the Secretary, at the place and
upon the notice provided by law and in the By-laws of the Corporation for the
holding of meetings of stockholders.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">At
each meeting of stockholders at which the holders of shares of Series&nbsp;B
Preferred Stock shall have the right, voting separately as a single class, to
elect directors of the Corporation as provided in paragraph C above, or as a
class with the holders of shares of any Series&nbsp;C Preferred Stock,
Series&nbsp;D Preferred Stock and Series E Preferred Stock, to take any action,
the presence in person or by proxy of the holders of record of one-third of the
total number of shares of Series&nbsp;B Preferred Stock, if the holders of
shares of Series&nbsp;B Preferred Stock are to vote separately as a single
class, or the holders of record of one-third of the total number of shares of
Series&nbsp;B Preferred Stock, Series&nbsp;C Preferred Stock, Series&nbsp;D
Preferred Stock and Series E Preferred Stock, if the holder of shares of
Series&nbsp;B Preferred Stock are to vote as a class with the holders of shares
of Series&nbsp;C Preferred Stock, Series&nbsp;D Preferred Stock and Series E
Preferred Stock, then outstanding and entitled to vote on the matter shall be
necessary and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="3%">&nbsp;</TD>
     <TD><P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(A)
the absence of a quorum of the holders of shares of Series&nbsp;B Preferred
Stock, if the holders of Series&nbsp;B Preferred Stock are to vote separately as
a single class, shall not prevent the election of directors other than those to
be elected by the holders of shares of Series&nbsp;B Preferred Stock, and the
absence of a quorum of the holders of shares of any other class or series of
capital stock shall not prevent the election of directors to be elected by the
holders of shares of Series&nbsp;B Preferred Stock or the taking of any action
as provided in this Article&nbsp;VII; and</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="3%">&nbsp;</TD>
     <TD><P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(B)
in the absence of a quorum of the holders of shares of Series&nbsp;B Preferred
Stock, if the holders of Series&nbsp;B Preferred Stock are to vote separately as
a single class, or the holders of shares of Series&nbsp;B Preferred Stock,
Series&nbsp;C Preferred Stock, Series&nbsp;D Preferred Stock and Series E
Preferred Stock, if the holders of Series&nbsp;B Preferred Stock are to vote as
a class with the holders of shares of Series&nbsp;C Preferred Stock,
Series&nbsp;D Preferred Stock and Series E Preferred Stock, a majority of the
holders of such shares present in person or by proxy shall have the power to
adjourn the meeting as to the actions to be taken by the holders of shares of
Series&nbsp;B Preferred Stock or the holders of Series&nbsp;B Preferred Stock,
Series&nbsp;C Preferred Stock, Series&nbsp;D Preferred Stock and Series E
Preferred Stock, as the case may be, from time to time and place to place
without notice other than announcement at the meeting until a quorum shall be
present.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>


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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
taking of any action as provided in this Article&nbsp;VII by the holders of
shares of Series&nbsp;B Preferred Stock voting separately as a single class or
together with the holders of shares of Series&nbsp;B Preferred Stock,
Series&nbsp;C Preferred Stock, Series&nbsp;D Preferred Stock and Series E
Preferred Stock as a single class, as the case may be, each such holder shall
have one vote for each share of such stock standing in his name on the transfer
books of the Corporation as of any record dated fixed for such purpose or, if no
such date be fixed, at the close of business on the Business Day next preceding
the day on which notice is given, or if notice if waived, at the close of
business on the Business Day next preceding the day on which the meeting is
held.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
case any vacancy shall occur among the directors elected by the holders of
shares of Series&nbsp;B Preferred Stock, as provided in paragraph&nbsp;C above,
such vacancy may be filled for the unexpired portion of the term by vote of the
remaining directors theretofore elected by such holders (if there is a remaining
director), or the last remaining director&#146;s successor in office. If any
such vacancy is not so filled within 20&nbsp;days after the creation thereof or
if all directors so elected by the holders of Series&nbsp;B Preferred Stock
shall cease to serve as directors before their terms shall expire, the holders
of the Series&nbsp;B Preferred Stock then outstanding and entitled to vote for
such directors may, by written consent as herein provided (if action by written
consent is permitted), or at a special meeting of such holders called as
provided herein, elect successors to hold office for the unexpired terms of the
directors whose places shall be vacant.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Any
director elected by the holders of shares of Series&nbsp;B Preferred Stock
voting separately as a single class may be removed from office with or without
cause by the vote or written consent (if action by written consent is permitted)
of the holders of at least a majority of the outstanding shares of Series&nbsp;B
Preferred Stock. A special meeting of the holders of shares of Series&nbsp;B
Preferred Stock may be called in accordance with the procedures set forth in
this paragraph&nbsp;F.</FONT></FONT> </P>


<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">G.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       The Corporation shall not enter into any agreement or issue any security that prohibits, conflicts
or is inconsistent with, or would be breached by, the Corporation's performance of its obligations
hereunder.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VIII.
Conversion</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
holders of the Series B Preferred Stock shall have conversion rights as follows:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each share of Series B Preferred Stock shall be convertible at the direction of,
and by notice to the Corporation from, the holders of a majority of the
outstanding shares of Series B Preferred Stock, at any time, at the office of
the Corporation or any transfer agent for such Series, into one (1) fully paid
and nonassessable share of Common Stock subject&nbsp;to adjustment from time to
time as provided below (as so adjusted, the &#147;conversion ratio&#148;),
<U>provided</U> ,that any conversion pursuant to this paragraph A of less than
all of the outstanding shares of Series B Preferred Stock shall be on a pro rata
basis amongst all holders of Series B Preferred Stock.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the holders of a majority of the outstanding shares of Series B Preferred
Stock give notice of conversion under paragraph A above, the Corporation shall
notify all other record holders of Series B Preferred Stock (a &#147;Conversion
Notice&#148;). Following receipt of a Conversion Notice, the holders of Series B
Preferred Stock shall surrender the certificate or certificates therefor duly
endorsed, at the office of the Corporation or of any transfer agent for such
Series, and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such Conversion Notice
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date. The issuance
of certificates or shares of Common Stock upon conversion of shares of Series B
Preferred Stock shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance.</FONT></FONT> </P>


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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No fractional shares shall be issued upon conversion of any shares of Series B
Preferred Stock and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share, and the holder of Series B Preferred
Stock shall be paid in cash for any fractional share.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case at any time or from time to time the Corporation shall pay any dividend
or make any other distribution to the holders of its Common Stock or other class
of securities, or shall offer for subscription pro rata to the holders of its
Common Stock or other class of securities any additional shares of stock of any
class or any other right, or there shall be any capital reorganization or
reclassification of the Common Stock of the Corporation or consolidation or
merger of the Corporation with or into another corporation, or any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, then, in
any one or more of said cases the Corporation shall give at least 20 days&#146;
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holders of the Series&nbsp;B
Preferred Stock at the addresses of each as shown on the books of the
Corporation maintained by the Transfer Agent thereof of the date on which
(i)&nbsp;the books of the Corporation shall close or a record shall be taken for
such stock dividend, distribution or subscription rights or (ii)&nbsp;such
reorganization, reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the case may be,
provided that in the case of any Transaction to which paragraph&nbsp;H applies
the Corporation shall give at least 30 days&#146; prior written notice as
aforesaid. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance or participate in
such dissolution, liquidation or winding up, as the case may be. Failure to give
such notice shall not invalidate any action so taken.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series B Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
B Preferred Stock, then in addition to such other remedies as shall be available
to the holder of Series B Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any notice required by the provisions of paragraph D to be given the holders of
shares of Series B Preferred Stock shall be deemed given if sent by facsimile
transmission, by telex, or if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.</FONT></FONT> </P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">G.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The conversion ratio shall be subject to adjustment from time to time as follows:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case the Corporation shall at any time or from time to time after the Issue
Date (A)&nbsp;pay a dividend or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock, (B)&nbsp;subdivide the outstanding
shares of Common Stock into a larger number of shares of Common Stock,
(C)&nbsp;combine the outstanding shares of Common Stock into a smaller number of
shares or (D)&nbsp;issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case, the
conversion ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Series&nbsp;B Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or other
securities of the Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such shares of Series&nbsp;B Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause (i) shall
become effective (x)&nbsp;in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y)&nbsp;in the case of any such subdivision, reclassification
or combination, at the close of business on the day upon which such corporate
action becomes effective.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the case the Corporation shall, after the Issue Date, issue shares of Common
Stock at a price per share, or securities convertible into or exchangeable for
shares of Common Stock (&#147;Convertible Securities&#148;) having a
&#147;Conversion Price&#148; (as defined below) less than the Current Market
Price (for a period of 15 consecutive trading days prior to such date), then,
and in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series&nbsp;B Preferred Stock shall be entitled to receive,
upon the conversion thereof, the number of shares of Common Stock determined by
multiplying (A)&nbsp;the applicable conversion ratio on the day immediately
prior to such date by (B)&nbsp;a fraction, the numerator of which shall be the
sum of (1)&nbsp;the number of shares of Common Stock outstanding on the date on
which such shares or Convertible Securities are issued and (2)&nbsp;the number
of additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x)&nbsp;the number of shares of Common Stock outstanding on such date and
(y)&nbsp;the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock so
issued, or the number of shares of Common Stock which the aggregate of the
Conversion Price of such Convertible Securities so issued, would purchase at
such Current Market price on such date. An adjustment made pursuant to this
clause (ii) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this clause (ii), the
aggregate consideration receivable by the Corporation in connection with the
issuance of any securities shall be deemed to be the sum of the aggregate
offering price to the public (before deduction of underwriting discounts or
commissions and expenses payable to third parties), and the &#147;Conversion
Price&#148; of any Convertible Securities is the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither (A)
the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
paragraph&nbsp;G, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series&nbsp;B Preferred Stock, the Series&nbsp;C Preferred Stock and the
Warrants) nor (B) the issuance of shares of Common Stock pursuant thereto shall
be deemed to constitute an issuance of Common Stock or Convertible Securities by
the Corporation to which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or converted and for
which an adjustment shall have been made pursuant to this clause (ii), the
Conversion Price computed upon the original issue thereof shall upon expiration
be recomputed as if the only additional shares of Common Stock issued were such
shares of Common Stock (if any) actually issued upon exercise or conversion of
such Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion. Notwithstanding anything to the contrary in this Article VIII,
Subsection G(ii), effective July 12, 2000, the conversion ratio shall be
adjusted to eliminate as an adjustment to the &#147;conversion ratio&#148;, any
adjustment arising from (x) the issuance of Series C Preferred Stock and the
issuance of warrants to purchase shares of Series C Preferred Stock (including
the future exercise of such warrants) pursuant to the Preferred Stock Purchase
Agreement, by and between Aames Financial Corporation and Specialty Finance
Partners, dated as of May 19, 2000, as amended, or (y) the issuance of Series D
Preferred Stock issued in exchange for the Series C Preferred Stock, and any
warrants for the purchase of Series D Preferred Stock (including the future
exercise of such warrants) issued in exchange for the warrant to purchase Series
C Preferred Stock, referred to in clause (x) of this sentence.</FONT></FONT> </P>



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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case the Corporation shall at any time or from time to time after the Issue
Date declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin-off), on its Common Stock, other than
(A)&nbsp;regular quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before extraordinary
items of the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such dividend is paid or
(B)&nbsp;dividends or distributions of shares of Common Stock which are referred
to in clause (i) of this paragraph&nbsp;G, then, and in each such case, the
conversion ratio shall be adjusted so that the holder of each share of
Series&nbsp;B Preferred Stock shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying
(1)&nbsp;the applicable conversion ratio on the day immediately prior to the
record date fixed for the determination of stockholders entitled to receive such
dividend or distribution by (2)&nbsp;a fraction, the numerator of which shall be
the then Current Market Price per share of Common Stock for the period of 20
Trading Days preceding such record date, and the denominator of which shall be
such Current Market Price per share of Common Stock for the period of 20 Trading
Days preceding such record date, less the Fair Market Value (as defined in
Article&nbsp;IX) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series&nbsp;B Preferred Stock)
of such dividend or distribution; <U>provided</U>, <U>however</U>, that in the
event of a distribution of shares of capital stock of a Subsidiary of the
Corporation (a &#147;Spin-Off&#148;) made to holders of shares of Common Stock,
the numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the current market price per share of the
Common Stock for the period of 20 Trading Days proceeding such 35th Trading Day.
An adjustment made pursuant to this clause (iii) shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
<U>provided</U>, <U>however</U>, if the proviso to the preceding sentence
applies, then such adjustment shall be made and be effective as of such 35th
Trading Day after the effective date of such Spin-Off.</FONT></FONT> </P>



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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For purposes of this paragraph&nbsp;G, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The term &#147;dividend&#148;, as used in this paragraph&nbsp;G shall mean a
dividend or other distribution upon stock of the Corporation except pursuant to
the Rights Agreement (as defined in Article&nbsp;IX). Notwithstanding anything
in this Article&nbsp;VIII to the contrary, the conversion ratio shall not be
adjusted as a result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Anything in this paragraph&nbsp;G to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least one-hundredth of
one share of Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the conversion ratio by at least
one-hundredth of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The certificate of any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Corporation (which may be the
firm of independent public accountants regularly employed by the Corporation)
shall be presumptively correct for any computation made under this
paragraph&nbsp;G.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the Corporation shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph&nbsp;G or in the
conversion ratio then in effect shall be required by reason of the taking of
such record.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(ix)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There shall be no adjustment of the conversion ratio in case of the issuance of
any stock of the Corporation in a merger, reorganization, acquisition or other
similar transaction except as set forth in paragraph&nbsp;G(i), G(ii) and H of
this Article&nbsp;VIII.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">H.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case of any reorganization or reclassification of outstanding shares of
Common Stock (other than a reclassification covered by paragraph&nbsp;G(i) of
this Article&nbsp;VIII, or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a &#147;Transaction&#148;), each share of Series&nbsp;B Preferred Stock
then outstanding shall thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to consummation of such Transaction,
the kind and amount of shares of stock and other securities and property
receivable (including cash) upon the consummation of such Transaction by a
holder of that number of shares of Common Stock into which one share of
Series&nbsp;B Preferred Stock was convertible immediately prior to such
Transaction (including, on a pro rata basis, the cash, securities or property
received by holders of Common Stock in any tender or exchange offer that is a
step in such Transaction). In case securities or property other than Common
Stock shall be issuable or deliverable upon conversion as aforesaid, then all
reference in this paragraph&nbsp;H shall be deemed to apply, so far as
appropriate and as nearly as may be, to such other securities or property.</FONT></FONT> </P>




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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">I.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon any adjustment of the conversion ratio then in effect and any increase or
decrease in the number of shares of Common Stock issuable upon the operation of
the conversion set forth in Article&nbsp;VIII, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the
Series&nbsp;B Preferred and Common Stock, a certificate signed by the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the conversion ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion set forth in this Article&nbsp;VIII.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IX.
Additional Definitions</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
the purposes of this Certificate of Designations of Series B Preferred Stock,
the following terms shall have the meanings indicated:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Accrual
Period&#148; means the end of the first quarterly period following the Second
Anniversary Date.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Business
Day&#148; means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Bylaws&#148;
means the Bylaws of the Corporation, as amended.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Current
Market Price&#148;, when used with reference to shares of Common Stock or other
securities on any date, shall mean the closing price per share of Common Stock
or such other securities on such date and, when used with reference to shares of
Common Stock or other securities for any period shall mean the average of the
daily closing prices per share of Common Stock or such other securities for such
period. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. National Market System or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock or
such other securities selected by the Board of Directors of the Corporation. If
the Common Stock or such other securities are not publicly held or so listed or
publicly traded, &#147;Current Market Price&#148; shall mean the Fair Market
Value per share of Common Stock or of such other securities as determined in
good faith by the Board of Directors of the Corporation based on an opinion of
an independent investment banking firm with an established national reputation
as a valuer of securities, which opinion may be based on such assumption as such
firm shall deem to be necessary and appropriate.</FONT></FONT> </P>




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</font></p>
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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Exchange
Act&#148; means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Fair
Market Value&#148; shall mean the amount which a willing buyer would pay a
willing seller in an arm&#146;s-length transaction.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Issue
Date&#148; shall mean the first date on which shares of Series B Preferred Stock
are issued.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Person&#148;
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Redemption
Price&#148; of a share of Class B Preferred Stock shall mean the sum of the
dividends, if any, accumulated or deemed to have accumulated thereon to the
Optional Redemption Date, whether or not such dividends are declared <U>plus</U>
$1.00 per share of Series B Preferred Stock, subject to adjustment for splits,
reclassifications, recombinations or other similar events.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Rights&#148;
shall mean any rights to purchase securities of the Corporation issued pursuant
to any Rights Agreement.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Rights
Agreement&#148; shall mean the Rights Agreement, dated as of June 21, 1996,
between the Company and Wells Fargo Bank as rights agent, and all amendments,
supplements and replacements thereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Second
Anniversary Date&#148; means the second anniversary of the Issue Date.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Subsidiary&#148;
means, as to any Person, any other Person of which more than 50% of the shares
of the common stock, preferred stock or other voting interests are owned or
controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person and one
or more of its subsidiaries.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Trading
Day&#148; means a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange a Business Day.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">X.
Miscellaneous</FONT></FONT></H1>

<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Notices</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Any notice referred to herein shall be in writing and, unless
first-class mail shall be
specifically permitted for such notices under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation of receipt by telecopy or telex)
or five days after transmittal by registered or certified mail, postage prepaid,
addressed as follows:</font></font></P>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(i)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD Width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to the Corporation, to its office at 2 California Plaza, 350 South Grand
Avenue, Los Angeles, California 90071 (Attention: General Counsel)</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%">&nbsp;&nbsp;&nbsp;</TD>
     <TD WIDTH="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
or to the transfer agent for the Series B Preferred Stock;</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(ii)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to a holder of the Series B Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for the Series B Preferred Stock); or</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>


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<font size=2>22
</font></p>
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<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=Right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(iii)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
to such other address as the Corporation or such holder, as the case may be,
shall have designated by notice similarly given.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Reacquired Shares</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any shares of Series B Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series B Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;       <U>Enforcement</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Any registered holder
of shares of Series B Preferred Stock may proceed to protect
and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate of
Designations or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Taxes</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series B Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series B Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Agent</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series B Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series B Preferred Stock.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
 F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Record Dates</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  In the event that the Series
B Preferred Stock shall be registered under either the
Securities Act of 1933, as amended, or the Exchange Act, the Corporation shall establish appropriate record dates
with respect to payments and other actions to be made with respect to the Series B Preferred Stock.</FONT></FONT>
</P>




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<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">CERTIFICATE
OF THE VOTING POWERS, DESIGNATIONS,<br>PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL<br>OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,<br>LIMITATIONS
OR RESTRICTIONS THEREOF, OF<br>SERIES
C CONVERTIBLE PREFERRED STOCK OF<br>AAMES
FINANCIAL CORPORATION</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Scotch Rule Single" -->
<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">I.
Designation and Amount</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
designation of this series of shares shall be &#147;Series C Convertible
Preferred Stock&#148; (the &#147;Series C Preferred Stock&#148;) par value
$0.001 per share; the initial stated value per share shall be $1,000.00 (the
&#147;Initial Stated Value&#148;); and the number of shares constituting such
series shall be 34,530,486. The number of shares of the Series C Preferred Stock
may be decreased from time to time by a resolution or resolutions of the Board
of Directors; provided, however, that such number shall not be decreased below
the aggregate number of shares of the Series C Preferred Stock then outstanding.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">As
of April 13, 2000 (the &#147;Effective Date&#148;), each share of the
Corporation&#146;s Series C Convertible Preferred Stock, par value of $0.001 per
share issued and outstanding immediately prior to the Effective Date (the
&#147;Pre-Split Series C Preferred Stock&#148;) shall automatically and without
any action on the part of the holder thereof be reclassified as and changed (the
&#147;Reverse Series C Preferred Stock Split&#148;) into 0.2 of one share of
Post-Split Series C Convertible Preferred Stock, par value $0.001 per share
(&#147;Post-Split Series C Preferred Stock&#148;). Each holder of a certificate
or certificates which immediately prior to the Effective Date represented
outstanding shares of Pre-Split Series C Preferred Stock (the &#147;Pre-Split
Series C Preferred Certificates,&#148; whether one or more) shall be entitled to
receive upon surrender of such Pre-Split Series C Preferred Certificates to the
Corporation&#146;s Secretary for cancellation, a certificate or certificates
(the &#147;Post-Split Series C Certificates,&#148; whether one or more)
representing the number of whole shares of Post-Split Series C Preferred Stock
into which and for which the shares of Pre-Split Series C Preferred Stock
formerly represented by such Pre-Split Series C Preferred Certificates so
surrendered, are reclassified pursuant to the terms hereof. No script or
fractional shares certificates will be issued for Pre-Split Series C Preferred
Stock in connection with the Reverse Series C Preferred Stock Split. Any
fractional share interests will be aggregated and sold on the open market by the
exchange agent selected by the Corporation. From and after the Effective Date,
Pre-Split Series C Certificates shall represent only the right to receive
Post-Split Series C Certificates pursuant to the provisions hereof. If more than
one Pre-Split Series C Certificate shall be surrendered at one time for the
account of the same stockholder, the number of full shares of Post-Split Series
C Preferred Stock for which the Post-Split Series C Certificates shall be issued
shall be computed on the basis of the aggregate number of shares represented by
the Pre-Split Series C Certificates so surrendered. If any Post-Split Series C
Certificate is to be issued in a name other than that in which the Pre-Split
Series C Certificate surrendered for exchange are issued, the Pre-Split Series C
Certificates so surrendered shall be properly endorsed and otherwise in proper
form for transfer, and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Pre-Split Series C
Certificates surrendered, or provide funds for their purchase, or establish to
the satisfaction of the Corporation&#146;s Secretary that such taxes are not
payable. From and after the Effective Date the amount of capital represented by
the shares of Post-Split Series C Preferred Stock into which and for which the
shares of the Pre-Split Series C Preferred Stock are reclassified pursuant to
the terms hereof shall be the same as the amount of capital represented by the
shares of Pre-Split Series C Preferred Stock so reclassified, until thereafter
reduced or increased in accordance with applicable law.</FONT></FONT> </P>


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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">II.
Rank</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  With respect to dividends, the Series&nbsp;C Preferred Stock shall rank (i)&nbsp;senior
  to each other class or series of Preferred Stock, except for the Series&nbsp;B
  Convertible Preferred Stock, par value $0.001 per share, of the Corporation
  (the &#147;Series&nbsp;B Preferred Stock&#148;) and the Series&nbsp;D Convertible
  Preferred Stock, par value $0.001 per share, of the Corporation (the &#147;Series&nbsp;D
  Preferred Stock&#148;); (ii)&nbsp;on a parity with the Series&nbsp;B Preferred
  Stock and the Series&nbsp;D Preferred Stock; and (iii)&nbsp;senior to the Corporation&#146;s
  Common Stock, par value $0.001 per share (the &#147;Common Stock&#148;), and,
  except as specified above, all other classes and series of capital stock of
  the Corporation hereafter issued by the Corporation. With respect to dividends,
  all equity securities of the Corporation to which the Series&nbsp;C Preferred
  Stock ranks senior, including the Common Stock, are collectively referred to
  herein as the &#147;Junior Dividend Securities&#148;; all equity securities
  of the Corporation with which the Series&nbsp;C Preferred Stock ranks on a parity,
  including the Series&nbsp;B Preferred Stock and the Series&nbsp;D Preferred
  Stock, are collectively referred to herein as the &#147;Parity Dividend Securities&#148;;
  and all equity securities of the Corporation (other than convertible debt securities)
  to which the Series&nbsp;C Preferred Stock ranks junior, with respect to dividends,
  are collectively referred to herein as the &#147;Senior Dividend Securities.&#148;</FONT></FONT>
</P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  With respect to the distribution of assets upon liquidation, dissolution or
  winding up of the Corporation, whether voluntary or involuntary, the Series&nbsp;C
  Preferred Stock shall rank (i)&nbsp;senior to each other class or series of
  Preferred Stock, except for the Series&nbsp;B Preferred Stock, the Series&nbsp;D
  Preferred Stock </FONT><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
  and the Series E Preferred Stock, par value $0.001 per share, of the Corporation
  (the &#147;Series E Preferred Stock&#148;)</FONT></FONT><FONT SIZE="2">; (ii)&nbsp;on
  a parity with the Series&nbsp;B Preferred Stock, Series&nbsp;D Preferred Stock
  and Series E Preferred Stock; and (iii)&nbsp;senior to the Common Stock, and,
  except as specified above, all other classes and series of capital stock of
  the Corporation hereafter issued by the Corporation. With respect to the distribution
  of assets upon liquidation, dissolution or winding up of the Corporation, whether
  voluntary or involuntary, all equity securities of the Corporation to which
  the Series&nbsp;C Preferred Stock ranks senior, including the Common Stock,
  are collectively referred to herein as &#147;Junior Liquidation Securities&#148;;
  all equity securities of the Corporation (other than convertible debt securities)
  to which the Series&nbsp;C Preferred Stock ranks on parity, including the Series&nbsp;B
  Preferred Stock, the Series&nbsp;D Preferred Stock and the Series E Preferred
  Stock, are collectively referred to herein as &#147;Parity Liquidation Securities&#148;;
  and all equity securities of the Corporation to which the Series&nbsp;C Preferred
  Stock ranks junior are collectively referred to herein as &#147;Senior Liquidation
  Securities.&#148;</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  The Series C Preferred Stock shall be subject to the creation of Junior Dividend
  Securities and Junior Liquidation Securities (collectively, &#147;Junior Securities&#148;),
  but no Parity Dividend Securities or Parity Liquidation Securities (collectively,
  &#147;Parity Securities&#148;) (other than the Series B Preferred Stock, Series
  D Preferred Stock and Series E Preferred Stock) or Senior Dividend Securities
  or Senior Liquidation Securities (collectively, &#147;Senior Securities&#148;)
  shall be created except in accordance with the terms hereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">III.
Dividends</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Dividends</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Subject to the terms of paragraph D below, shares of Series C
Preferred Stock shall accumulate dividends at a rate of 6.5% per annum (the
&#147;Dividend Rate&#148;), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a
&#147;Dividend Payment Date&#148;), to holders of record (the &#147;Registered
Holders&#148;) as they appear on the stock record books of the Corporation on
the fifteenth day prior to the relevant Dividend Payment Date; provided,
however, that during the Accrual Period (as defined in Article IX hereof) the
Corporation shall have the option to accrue such dividends, which dividends, to
the extent so accrued, shall compound quarterly. Dividends shall accrue and
accumulate on $5.00 for each share of Series C Preferred Stock. Dividends shall
be paid only when, as and if declared by the Board of Directors out of funds at
the time legally available for the payment of dividends. Dividends shall begin
to accumulate on outstanding shares of Series C Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.</FONT></FONT> </P>


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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Accumulation</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dividends on the Series C Preferred Stock shall be
cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the &#147;Arrearage&#148;) at
125% of the stated dividend rate (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional dividends in respect
of any Arrearage shall be deemed to accumulate from day to day whether or not
earned or declared until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date, and shall constitute an additional Arrearage
from and after any Dividend Payment Date to the extent not paid on such Dividend
Payment Date. References in any Article herein to dividends that have
accumulated or that have been deemed to have accumulated with respect to the
Series C Preferred Stock shall include the amount, if any, of any Arrearage
together with any dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences. Additional
dividends in respect of any Arrearage may be declared and paid at any time, in
whole or in part, without reference to any regular Dividend Payment Date, to
Registered Holders as they appear on the stock record books of the Corporation
on such record date as may be fixed by the Board of Directors (which record date
shall be no less than 10 days prior to the corresponding payment date).
Dividends in respect of any Arrearage shall be paid in cash.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Method of Payment</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dividends paid on the shares of Series C Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of Series C Preferred Stock
shall be allocated pro rata on a share-by-share basis among all such shares then
outstanding. After the Second Anniversary Date, dividends that are declared and
paid in an amount less than the full amount of dividends accumulated on the
Series C Preferred Stock (and on any Arrearage) shall be applied first to the
earliest dividend which has not theretofore been paid. All cash payments of
dividends on the shares of Series C Preferred Stock shall be made in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IV.
Liquidation Preference</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Head Sub 2" -->

<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;
INTENTIONALLY OMITTED</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Liquidation Preference</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The holders of the outstanding shares of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of the dividends, if any, accumulated or deemed to
have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and $5.00 per share of Series C
Preferred Stock, before any payment shall be made or any assets distributed to
the holders of any Junior Liquidation Securities. After any such payment in
full, the holders of Series C Preferred Stock shall not, as such, be entitled to
any further participation in any distribution of assets of the Corporation.</FONT></FONT> </P>



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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Parity Securities</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  All the assets
of the Corporation available for distribution to
  stockholders after the liquidation preferences of any Senior Liquidation Securities shall be distributed ratably
(in proportion to the full distributable amounts to which holders of Series C Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution, liquidation or winding up) among
the holders of the then-outstanding shares of Series C Preferred Stock and Parity Liquidation Securities, if any,
when such assets are not sufficient to pay in full the aggregate amounts payable thereon.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Merger Not a Liquidation</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation&#146;s assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series C Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation&#146;s
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series C Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">V.
Redemption</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
INTENTIONALLY OMITTED</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       <U>Optional Redemption</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Commencing on the earlier to occur of (x) the
tenth anniversary of the
Issue Date and (y) the date on which fewer than 25% of the shares of Series C Preferred Stock issued on the Issue
Date remain outstanding, and at all times thereafter, the Corporation may, at its option, redeem all (but not
less than all) outstanding shares of Series C Preferred Stock on a date specified by the Corporation (the
"Optional Redemption Date") by paying the Redemption Price therefor in cash out funds legally available for such
purpose.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Notice and Redemption Procedures</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notice of the redemption of shares of
Series C Preferred Stock pursuant to paragraph B of this Article V (a
&#147;Notice of Redemption&#148;) shall be sent to the holders of record of the
shares of Series C Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder&#146;s address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, which date shall be set forth in such notice (the
&#147;Redemption Date&#148;); provided that failure to give such Notice of
Redemption to any holder, or any defect in such Notice of Redemption to any
holder shall not affect the validity of the proceedings for the redemption of
any shares of Series C Preferred Stock held by any other holder. In order to
facilitate the redemption of shares of Series C Preferred Stock, the Board of
Directors may fix a record date for the determination of the holders of shares
of Series C Preferred Stock to be redeemed not more than 30 days prior to the
date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, each holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Redemption
Price for such shares. From and after the Optional Redemption Date, all
dividends on shares of Series C Preferred Stock shall cease to accumulate and
all rights of the holders thereof as holders of Series C Preferred Stock shall
cease and terminate, except to the extent the Corporation shall default in
payment thereof on the Optional Redemption Date.</FONT></FONT> </P>



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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Deposit of Funds</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation shall, on or prior to the
Optional Redemption Date, pursuant to paragraph C of this Article V, deposit
with its transfer agent or other redemption agent in the Borough of Manhattan,
The City of New York having a capital and surplus of at least $500,000,000
selected by the Board of Directors, as a trust fund for the benefit of the
holders of the shares of Series C Preferred Stock to be redeemed, cash that is
sufficient in amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption, with irrevocable instructions and authority to such
transfer agent or other redemption agent to pay to the respective holders of
such shares, as evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price upon surrender of their respective share
certificates. Such deposit shall be deemed to constitute full payment of the
Redemption Price for such shares to the holders, and from and after the date of
such deposit, all rights of the holders of the shares of Series C Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. No dividends shall
accumulate on any shares of Series C Preferred Stock after the Optional
Redemption Date, for such shares (unless the Corporation shall fail to deposit
cash sufficient to redeem all such shares). In case holders of any shares of
Series C Preferred Stock called for redemption shall not, within two years after
such deposit, claim the cash deposited for redemption thereof, such transfer
agent or other redemption agent shall, upon demand, pay over to the Corporation
the balance so deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders thereof and the
sole right of such holders, with respect to shares to be redeemed, shall be to
receive the Redemption Price as general creditors of the Corporation. Any
interest accrued on any funds so deposited shall belong to the Corporation, and
shall be paid to it from time to time on demand.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VI.
Restrictions on Dividends</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">So long
as any shares of the Series C Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Securities or make any payment on account of,
or set apart for payment money for a sinking or other similar fund for, the
repurchase, redemption or other retirement of, any Junior Securities or Parity
Securities or any warrants, rights or options exercisable for or convertible
into any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities), or
make any distribution in respect of the Junior Securities, either directly or
indirectly, and whether in cash, obligations or shares of the Corporation or
other property (other than distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Securities or Parity Securities or any warrants, rights, calls
or options exercisable for or convertible into any Junior Securities or Parity
Securities (other than the repurchase, redemption or other retirement of
debentures or other debt securities that are convertible or exchangeable into
any Junior Securities or Parity Securities or the repurchase, redemption or
other retirement of Junior Securities or Parity Securities in exchange for
Junior Securities or Parity Securities) unless prior to or concurrently with
such declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, all accumulated and unpaid
dividends on shares of the Series C Preferred Stock not paid on the dates
provided for in paragraph A of Article III hereof (including Arrearages and
accumulated dividends thereon) shall have been paid, except that when dividends
are not paid in full as aforesaid upon the shares of Series C Preferred Stock,
all dividends declared on the Series C Preferred Stock and any series of Parity
Dividend Securities shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series C Preferred Stock and such series of
Parity Dividend Securities shall in all cases bear to each other the same ratio
that accumulated dividends (including interest accrued on or additional
dividends accumulated in respect of such accumulated dividends) on the shares of
Series C Preferred Stock and such Parity Dividend Securities bear to each other.</FONT></FONT> </P>



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<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VII.
Voting Rights</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The holders of Series C Preferred Stock shall be entitled to the number of votes
per share of Series C Preferred Stock equal to the number of shares of Common
Stock for which such share of Series C Preferred Stock is then convertible
pursuant to Article VIII at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration, other than the election of directors.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
So long as any shares of the Series&nbsp;C Preferred Stock are outstanding,
(i)&nbsp;each share of Series&nbsp;C Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock, other than
the election of directors; and (ii)&nbsp;the shares of Series&nbsp;C Preferred
Stock shall vote together with shares of Common Stock, shares of Series&nbsp;B
Preferred Stock, shares of the Series&nbsp;D Preferred Stock and shares of
Series E Preferred Stock, as a single class.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series&nbsp;C Preferred Stock, Series&nbsp;B Preferred Stock, Series&nbsp;D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i)&nbsp;authorize, create or issue, or increase the
authorized amount of, (x)&nbsp;any Senior Securities or Parity Securities or
(y)&nbsp;any class or series of capital stock or any security convertible into
or exercisable for any class or series of capital stock, redeemable mandatorily
or redeemable at the option of the holder thereof at any time on or prior to the
Redemption Date (whether or not only upon the occurrence of a specified event)
or (ii)&nbsp;enter into any Transaction (as defined in paragraph&nbsp;H of
Article&nbsp;VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph&nbsp;E below.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series&nbsp;C Preferred Stock, Series&nbsp;B Preferred Stock, Series&nbsp;D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i)&nbsp;amend, alter or repeal any provision of the
Certificate of Incorporation or the Bylaws, if the amendment, alteration or
repeal alters or changes the powers, preferences or special rights of the
Series&nbsp;C Preferred Stock so as to affect them materially and adversely or
(ii)&nbsp;authorize or take any other action if such action alters or changes
any of the rights of the Series&nbsp;C Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph&nbsp;E below.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The foregoing rights of holders of shares of Series&nbsp;C Preferred Stock to
take any actions as provided in this Article&nbsp;VII may be exercised at any
annual meeting of stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment thereof, or by the
written consent, delivered to the Secretary of the Corporation, of the holders
of the minimum number of shares required to take such action, if action by
written consent of stockholders of the Corporation is then permitted.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Chairman of the Board of the Corporation may call, and upon written request of
holders of record of 35% of the outstanding shares of Series&nbsp;C Preferred
Stock, Series&nbsp;B Preferred Stock, Series&nbsp;D Preferred Stock and Series E
Preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation shall call, a special meeting of the holders of shares
entitled to vote as provided herein. Such meeting shall be held within
30&nbsp;days after delivery of such request to the Secretary, at the place and
upon the notice provided by law and in the By-laws of the Corporation for the
holding of meetings of stockholders.</FONT></FONT> </P>


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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">At
each meeting of stockholders at which the holders of shares of Series&nbsp;C
Preferred Stock shall have the right to take any action, the presence in person
or by proxy of the holders of record of one-third of the total number of shares
of Series&nbsp;C Preferred Stock, Series&nbsp;B Preferred Stock, Series&nbsp;D
Preferred Stock and Series E Preferred Stock then outstanding and entitled to
vote on the matter shall be necessary and sufficient to constitute a quorum. At
any such meeting or at any adjournment thereof:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="3%">&nbsp;</TD>
     <TD><P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(A)
the absence of a quorum of the holders of shares of Series&nbsp;C Preferred
Stock shall not prevent the election of directors to be elected by the holders
of shares of Series&nbsp;B Preferred Stock or the taking of any action as
provided in this Article&nbsp;VII; and</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="3%">&nbsp;</TD>
     <TD><P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(B)
in the absence of a quorum of the holders of shares of Series&nbsp;C Preferred
Stock, Series&nbsp;B Preferred Stock, Series&nbsp;D Preferred Stock and Series E
Preferred Stock, a majority of the holders of such shares present in person or
by proxy shall have the power to adjourn the meeting as to the actions to be
taken by the holders of shares of Series&nbsp;C Preferred Stock, Series&nbsp;B
Preferred Stock, Series&nbsp;D Preferred Stock and Series E Preferred Stock,
from time to time and place to place without notice other than announcement at
the meeting until a quorum shall be present.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
taking of any action as provided in this Article&nbsp;VII by the holders of
shares of Series&nbsp;C Preferred Stock, Series&nbsp;B Preferred Stock,
Series&nbsp;D Preferred Stock and Series E Preferred Stock, each such holder
shall have one vote for each share of such stock standing in his name on the
transfer books of the Corporation as of any record dated fixed for such purpose
or, if no such date be fixed, at the close of business on the Business Day next
preceding the day on which notice is given, or if notice if waived, at the close
of business on the Business Day next preceding the day on which the meeting is
held.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation shall not enter into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the Corporation's performance of its obligations
hereunder.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VIII.
Conversion</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
holders of the Series C Preferred Stock shall have conversion rights as follows:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each share of Series C Preferred Stock shall be convertible at the direction of,
and by notice to the Corporation from, (i) the holder thereof or (ii) the
holders of a majority of the outstanding shares of Series C Preferred Stock, at
any time, at the office of the Corporation or any transfer agent for such
Series, into one 1) fully paid and nonassessable shares of Common Stock subject
(x) to adjustment from time to time as provided below (as so adjusted, the
&#147;conversion ratio&#148;), <U>provided</U>, that any conversion pursuant to
clause (ii) above of less than all of the outstanding shares of Series C
Preferred Stock shall be on a pro rata basis amongst all holders of Series C
Preferred Stock.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If a holder of Series C Preferred Stock gives notice (an &#147;Optional
Conversion Notice&#148;) of conversion under paragraph A above, such holder
shall surrender with such Optional Conversion Notice the duly endorsed
certificate or certificates for the Series C Preferred Stock being converted, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. If the holders of a majority of the
outstanding shares of Series C Preferred Stock give notice of conversion under
paragraph A above, the Corporation shall notify all other record holders of
Series C Preferred Stock (a &#147;Mandatory Conversion Notice&#148;). Following
receipt of a Mandatory Conversion Notice, the holders of Series C Preferred
Stock shall surrender the certificate or certificates therefor duly endorsed, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable after the surrender of a Series C Preferred Stock certificate or
certificates pursuant to an Optional Conversion Notice or Mandatory Conversion
Notice, issue and deliver at such office to such holder, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such Optional Conversion Notice or Mandatory Conversion
Notice, as applicable, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
The issuance of certificates or shares of Common Stock upon conversion of shares
of Series C Preferred Stock shall be made without charge for any issue, stamp or
other similar tax in respect of such issuance.</FONT></FONT> </P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No fractional shares shall be issued upon conversion of any shares of Series C
Preferred Stock and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share, and the holder of Series C Preferred
Stock shall be paid in cash for any fractional share.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case at any time or from time to time the Corporation shall pay any dividend
or make any other distribution to the holders of its Common Stock or other class
of securities, or shall offer for subscription pro rata to the holders of its
Common Stock or other class of securities any additional shares of stock of any
class or any other right, or there shall be any capital reorganization or
reclassification of the Common Stock of the Corporation or consolidation or
merger of the Corporation with or into another corporation, or any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, then, in
any one or more of said cases the Corporation shall give at least 20 days&#146;
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holders of the Series C Preferred
Stock at the addresses of each as shown on the books of the Corporation
maintained by the Transfer Agent thereof of the date on which (i)&nbsp;the books
of the Corporation shall close or a record shall be taken for such stock
dividend, distribution or subscription rights or (ii)&nbsp;such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that in
the case of any Transaction to which paragraph&nbsp;H applies the Corporation
shall give at least 30 days&#146; prior written notice as aforesaid. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall not invalidate
any action so taken.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series C Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series C Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
C Preferred Stock, then in addition to such other remedies as shall be available
to the holder of Series C Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any notice required by the provisions of paragraph D to be given the holders of
shares of Series C Preferred Stock shall be deemed given if sent by facsimile
transmission, by telex, or if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">G.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       The conversion ratio shall be subject to adjustment from time to time as follows:</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case the Corporation shall at any time or from time to time after the Issue
Date (A)&nbsp;pay a dividend or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock, (B)&nbsp;subdivide the outstanding
shares of Common Stock into a larger number of shares of Common Stock,
(C)&nbsp;combine the outstanding shares of Common Stock into a smaller number of
shares or (D)&nbsp;issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case, the
conversion ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Series&nbsp;C Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or other
securities of the Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such shares of Series&nbsp;C Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause (i) shall
become effective (x)&nbsp;in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y)&nbsp;in the case of any such subdivision, reclassification
or combination, at the close of business on the day upon which such corporate
action becomes effective.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the case the Corporation shall, after the Issue Date, issue shares of Common
Stock at a price per share, or securities convertible into or exchangeable for
shares of Common Stock (&#147;Convertible Securities&#148;) having a
&#147;Conversion Price&#148; (as defined below) less than the Current Market
Price (for a period of 15 consecutive trading days prior to such date), then,
and in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series&nbsp;C Preferred Stock shall be entitled to receive,
upon the conversion thereof, the number of shares of Common Stock determined by
multiplying (A)&nbsp;the applicable conversion ratio on the day immediately
prior to such date by (B)&nbsp;a fraction, the numerator of which shall be the
sum of (1)&nbsp;the number of shares of Common Stock outstanding on the date on
which such shares or Convertible Securities are issued and (2)&nbsp;the number
of additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x)&nbsp;the number of shares of Common Stock outstanding on such date and
(y)&nbsp;the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock so
issued, or the number of shares of Common Stock which the aggregate of the
Conversion Price of such Convertible Securities so issued, would purchase at
such Current Market price on such date. An adjustment made pursuant to this
clause (ii) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this clause (ii), the
aggregate consideration receivable by the Corporation in connection with the
issuance of any securities shall be deemed to be the sum of the aggregate
offering price to the public (before deduction of underwriting discounts or
commissions and expenses payable to third parties), and the &#147;Conversion
Price&#148; of any Convertible Securities is the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither (A)
the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
paragraph&nbsp;G, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series&nbsp;B Preferred Stock, the Series&nbsp;C Preferred Stock and the
Warrants) nor (B) the issuance of shares of Common Stock pursuant thereto shall
be deemed to constitute an issuance of Common Stock or Convertible Securities by
the Corporation to which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or converted and for
which an adjustment shall have been made pursuant to this clause (ii), the
Conversion Price computed upon the original issue thereof shall upon such
expiration be recomputed as if the only additional shares of Common Stock issued
were such shares of Common Stock (if any) actually issued upon exercise of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion. Notwithstanding anything to the contrary in this Article VIII,
Subsection G(ii), effective on July 12, 2000 the conversion ratio shall be
adjusted to eliminate as an adjustment to the &#147;conversion ratio&#148;, any
adjustment arising from (x) the issuance of the Series C Preferred Stock and the
issuance of warrants to purchase shares of Series C Preferred Stock (including
the future exercise of such warrants) pursuant to the Preferred Stock Purchase
Agreement, by and between Aames Financial Corporation and Specialty Finance
Partners, dated May 19, 2000, as amended, or (y) the issuance of Series D
Preferred Stock issued in exchange for the Series C Preferred Stock, and any
warrants for the purchase of Series D Preferred Stock (including the future
exercise of such warrants) issued in exchange for the warrant to purchase Series
C Preferred Stock, referrred to in clause (x) of this sentence.</FONT></FONT> </P>



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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case the Corporation shall at any time or from time to time after the Issue
Date declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin-off), on its Common Stock, other than
(A)&nbsp;regular quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before extraordinary
items of the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such dividend is paid or
(B)&nbsp;dividends or distributions of shares of Common Stock which are referred
to in clause (i) of this paragraph&nbsp;G, then, and in each such case, the
conversion ratio shall be adjusted so that the holder of each share of
Series&nbsp;C Preferred Stock shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying
(1)&nbsp;the applicable conversion ratio on the day immediately prior to the
record date fixed for the determination of stockholders entitled to receive such
dividend or distribution by (2)&nbsp;a fraction, the numerator of which shall be
the then Current Market Price per share of Common Stock for the period of 20
Trading Days preceding such record date, and the denominator of which shall be
such Current Market Price per share of Common Stock for the period of 20 Trading
Days preceding such record date less the Fair Market Value (as defined in
Article&nbsp;IX) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series&nbsp;C Preferred Stock)
of such dividend or distribution; <U>provided</U>, <U>however</U>, that in the
event of a distribution of shares of capital stock of a Subsidiary of the
Corporation (a &#147;Spin-Off&#148;) made to holders of shares of Common Stock,
the numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the current market price per share of the
Common Stock for the period of 20 Trading Days proceeding such 35th Trading Day.
An adjustment made pursuant to this clause (iii) shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
<U>provided</U>, <U>however</U>, if the proviso to the preceding sentence
applies, then such adjustment shall be made and be effective as of such 35th
Trading Day after the effective date of such Spin-Off.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For purposes of this paragraph&nbsp;G, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation.</FONT></FONT> </P>


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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The term &#147;dividend&#148;, as used in this paragraph&nbsp;G shall mean a
dividend or other distribution upon stock of the Corporation except pursuant to
the Rights Agreement (as defined in Article&nbsp;IX). Notwithstanding anything
in this Article&nbsp;VIII to the contrary, the conversion ratio shall not be
adjusted as a result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Anything in this paragraph&nbsp;G to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least one-hundredth of
one share of Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the conversion ratio by at least
one-hundredth of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The certificate of any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Corporation (which may be the
firm of independent public accountants regularly employed by the Corporation)
shall be presumptively correct for any computation made under this
paragraph&nbsp;G.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the Corporation shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph&nbsp;G or in the
conversion ratio then in effect shall be required by reason of the taking of
such record.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(ix)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There shall be no adjustment of the conversion ratio in case of the issuance of
any stock of the Corporation in a merger, reorganization, acquisition or other
similar transaction except as set forth in paragraph&nbsp;G(i), G(ii) and H of
this Article&nbsp;VIII.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Notwithstanding
anything to the contrary in this Article&nbsp;VIII, Subsection G(ii), effective
on July 12, 2000 the conversion ratio shall be adjusted to eliminate as an
adjustment to the &#147;conversion ratio&#148;, any adjustment arising from (x)
the issuance of the Series&nbsp;C Preferred Stock and the issuance of warrants
to purchase shares of Series C Preferred Stock (including the future exercise of
such warrants) pursuant to the Preferred Stock Purchase Agreement, by and
between Aames Financial Corporation and Specialty Finance Partners, dated as of
May&nbsp;19, 2000, as amended, or (y)&nbsp;the issuance of Series&nbsp;D
Preferred Stock issued in exchange for the Series&nbsp;C Preferred Stock, and
any warrants for the purchase of Series D Preferred Stock (including the future
exercise of such warrants) issued in exchange for the warrant to purchase Series
C Preferred Stock, referred to in clause&nbsp;(x) of this sentence.&#148;</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">H.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case of any reorganization or reclassification of outstanding shares of
Common Stock (other than a reclassification covered by paragraph&nbsp;G(i) of
this Article&nbsp;VIII), or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a &#147;Transaction&#148;), each share of Series C Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Transaction, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by a holder of that
number of shares of Common Stock into which one share of Series C Preferred
Stock was convertible immediately prior to such Transaction (including, on a pro
rata basis, the cash, securities or property received by holders of Common Stock
in any tender or exchange offer that is a step in such Transaction). In case
securities or property other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all reference in this paragraph&nbsp;H shall
be deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.</FONT></FONT> </P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">I.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon any adjustment of the conversion ratio then in effect and any increase or
decrease in the number of shares of Common Stock issuable upon the operation of
the conversion set forth in Article&nbsp;VIII, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the
Series&nbsp;C Preferred and Common Stock, a certificate signed by the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the conversion ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion set forth in this Article&nbsp;VIII.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IX.
Additional Definitions</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
the purposes of this Certificate of Designations of Series C Preferred Stock,
the following terms shall have the meanings indicated:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Accrual
Period&#148; means the end of the first quarterly period following the Second
Anniversary Date.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Business
Day&#148; means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Bylaws&#148;
means the Bylaws of the Corporation, as amended.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Current
Market Price&#148;, when used with reference to shares of Common Stock or other
securities on any date, shall mean the closing price per share of Common Stock
or such other securities on such date and, when used with reference to shares of
Common Stock or other securities for any period shall mean the average of the
daily closing prices per share of Common Stock or such other securities for such
period. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. National Market System or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock or
such other securities selected by the Board of Directors of the Corporation. If
the Common Stock or such other securities are not publicly held or so listed or
publicly traded, &#147;Current Market Price&#148; shall mean the Fair Market
Value per share of Common Stock or of such other securities as determined in
good faith by the Board of Directors of the Corporation based on an opinion of
an independent investment banking firm with an established national reputation
as a valuer of securities, which opinion may be based on such assumption as such
firm shall deem to be necessary and appropriate.</FONT></FONT> </P>


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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Exchange
Act&#148; means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Fair
Market Value&#148; shall mean the amount which a willing buyer would pay a
willing seller in an arm&#146;s-length transaction.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Group&#148;
has the meaning set forth in Rule 13d-5 under the Exchange Act.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Issue
Date&#148; shall mean the first date on which shares of Series C Preferred Stock
are issued.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Person&#148;
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Redemption
Price&#148; of a share of Series C Preferred Stock shall mean the sum of the
dividends, if any, accumulated or deemed to have accumulated thereon to the
Optional Redemption Date, whether or not such dividends are declared <U>plus</U>
$5.00 per share of Series C Preferred Stock, subject to adjustment for splits,
reclassifications, recombinations or similar events.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Rights&#148;
shall mean any rights to purchase securities of the Corporation issued pursuant
to any Rights Agreement.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Rights
Agreement&#148; shall mean the Rights Agreement, dated as of June 21, 1996,
between the Company and Wells Fargo Bank as rights agent, and all amendments,
supplements and replacements thereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Second
Anniversary Date&#148; means the second anniversary of the Issue Date.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Subsidiary&#148;
means, as to any Person, any other Person of which more than 50% of the shares
of the common stock, preferred stock or other voting interests are owned or
controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person and one
or more of its Subsidiaries.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Trading
Day&#148; means a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange a Business Day.</FONT></FONT> </P>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">X.
Miscellaneous</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
      <U> Notices</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Any notice referred to herein shall be in writing and,
unless first-class mail shall
be specifically permitted for such notices under the terms hereof, shall be deemed to have been given upon
personal delivery thereof, upon transmittal of such notice by telecopy (with confirmation of receipt by telecopy
or telex) or five days after transmittal by registered or certified mail, postage prepaid, addressed as
follows:</font></font></p>



<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(i)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD Width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to the Corporation, to its office at 2 California Plaza, 350 South Grand
Avenue, Los Angeles, California 90071 (Attention: General Counsel)</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2>36
</font></p>
<br><hr noShade color="black">





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<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%">&nbsp;&nbsp;&nbsp;</TD>
     <TD WIDTH="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
or to the transfer agent for the Series C Preferred Stock;</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(ii)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD Width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to a holder of the Series C Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for the Series C Preferred Stock); or</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(iii)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD Width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
to such other address as the Corporation or such holder, as the case may be,
shall have designated by notice similarly given.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Reacquired Shares</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any shares of Series C Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series C Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.</FONT></FONT> </P>



<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Enforcement</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Any registered holder of shares of Series C Preferred Stock
may proceed to
protect and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in
equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this
Certificate of Designations or in aid of the exercise of any power granted herein, or to enforce any other proper
remedy.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Taxes</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series C Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series C Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Agent</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series C Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series C Preferred Stock.</FONT></FONT> </P>

<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;<U>Record Dates</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  In the event that the
Series C Preferred Stock shall be registered under either
the Securities Act of 1933, as amended, or the Exchange Act, the Corporation shall establish appropriate record
dates with respect to payments and other actions to be made with respect to the
Series C Preferred Stock.</font></font></p>



<p align=center>
<font size=2>37
</font></p>
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<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">CERTIFICATE
OF THE VOTING POWERS, DESIGNATIONS,<br>PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL<br>OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,<br>LIMITATIONS
OR RESTRICTIONS THEREOF, OF<br>SERIES
D CONVERTIBLE PREFERRED STOCK OF<br>AAMES
FINANCIAL CORPORATION</FONT></FONT></H1>

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<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">I.
Designation and Amount</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
designation of this series of shares shall be &#147;Series D Convertible
Preferred Stock&#148; (the &#147;Series D Preferred Stock&#148;) par value
$0.001 per share; the stated value per share shall be $0.85 (the &#147;Stated
Value&#148;); and the number of shares constituting such series shall be
108,565,514. The number of shares of the Series D Preferred Stock may be
decreased from time to time by a resolution or resolutions of the Board of
Directors; provided, however, that such number shall not be decreased below the
aggregate number of shares of the Series D Preferred Stock then outstanding.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">II.
Rank</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  With respect to dividends, the Series D Preferred Stock shall rank (i) senior
  to each other class or series of Preferred Stock, except for the Series B Convertible
  Preferred Stock, par value $0.001 per share, of the Corporation (the &#147;Series
  B Preferred Stock&#148;) and the Series C Convertible Preferred Stock, par value
  $0.001 per share, of the Corporation (the &#147;Series C Preferred Stock&#148;);
  (ii) on a parity with the Series B Preferred Stock and the Series C Preferred
  Stock; and (iii) senior to the Corporation&#146;s Common Stock, par value $0.001
  per share (the &#147;Common Stock&#148;), and, except as specified above, all
  other classes and series of capital stock of the Corporation hereafter issued
  by the Corporation. With respect to dividends, all equity securities of the
  Corporation to which the Series D Preferred Stock ranks senior, including the
  Common Stock, are collectively referred to herein as the &#147;Junior Dividend
  Securities&#148;; all equity securities of the Corporation with which the Series
  D Preferred Stock ranks on a parity, including the Series B Preferred Stock
  and the Series C Preferred Stock, are collectively referred to herein as the
  &#147;Parity Dividend Securities&#148;; and all equity securities of the Corporation
  (other than convertible debt securities) to which the Series D Preferred Stock
  ranks junior, with respect to dividends, are collectively referred to herein
  as the &#147;Senior Dividend Securities.&#148;</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  With respect to the distribution of assets upon liquidation, dissolution or
  winding up of the Corporation, whether voluntary or involuntary, the Series
  D Preferred Stock shall rank (i) senior to each other class or series of Preferred
  Stock, except for the Series B Preferred Stock, the Series C Preferred Stock
  </FONT><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"> and the Series
  E Preferred Stock, par value $0.001 per share, of the Corporation (the &#147;Series
  E Preferred Stock&#148;)</FONT></FONT><FONT SIZE="2">; (ii) on a parity with
  the Series B Preferred Stock, the Series C Preferred Stock and the Series E
  Preferred Stock; and (iii) senior to the Common Stock, and, except as specified
  above, all other classes and series of capital stock of the Corporation hereafter
  issued by the Corporation. With respect to the distribution of assets upon liquidation,
  dissolution or winding up of the Corporation, whether voluntary or involuntary,
  all equity securities of the Corporation to which the Series D Preferred Stock
  ranks senior, including the Common Stock, are collectively referred to herein
  as &#147;Junior Liquidation Securities&#148;; all equity securities of the Corporation
  (other than convertible debt securities) to which the Series D Preferred Stock
  ranks on parity, including the Series B Preferred Stock, the Series C Preferred
  Stock and the Series E Preferred Stock, are collectively referred to herein
  as &#147;Parity Liquidation Securities&#148;; and all equity securities of the
  Corporation to which the Series D Preferred Stock ranks junior are collectively
  referred to herein as &#147;Senior Liquidation Securities.&#148;</FONT></FONT>
</P>





<p align=center>
<font size=2>38
</font></p>
<br><hr noShade color="black">





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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
  The Series D Preferred Stock shall be subject to the creation of Junior Dividend
  Securities and Junior Liquidation Securities (collectively, &#147;Junior Securities&#148;),
  but no Parity Dividend Securities or Parity Liquidation Securities (collectively,
  &#147;Parity Securities&#148;) (other than the Series B Preferred Stock, Series
  C Preferred Stock and Series E Preferred Stock) or Senior Dividend Securities
  or Senior Liquidation Securities (collectively, &#147;Senior Securities&#148;)
  shall be created except in accordance with the terms hereof.</FONT></FONT> </P>


<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">III.
Dividends</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Dividends</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the terms of paragraph D below, shares of Series D
Preferred Stock shall accumulate dividends at a rate of 6.5% per annum (the
&#147;Dividend Rate&#148;), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a
&#147;Dividend Payment Date&#148;), to holders of record (the &#147;Registered
Holders&#148;) as they appear on the stock record books of the Corporation on
the fifteenth day prior to the relevant Dividend Payment Date; provided,
however, that during the Accrual Period (as defined in Article IX hereof) the
Corporation shall have the option to accrue such dividends, which dividends, to
the extent so accrued, shall compound quarterly. Dividends shall accrue and
accumulate on the Stated Value of each share of Series D Preferred Stock.
Dividends shall be paid only when, as and if declared by the Board of Directors
out of funds at the time legally available for the payment of dividends.
Dividends shall begin to accumulate on outstanding shares of Series D Preferred
Stock from the date of issuance and shall be deemed to accumulate from day to
day whether or not earned or declared until paid. Dividends shall accumulate on
the basis of a 360-day year consisting of twelve 30-day months (four 90-day
quarters) and the actual number of days elapsed in the period for which payable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Accumulation</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends on the Series D Preferred Stock shall be
cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the &#147;Arrearage&#148;) at
125% of the stated dividend rate (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional dividends in respect
of any Arrearage shall be deemed to accumulate from day to day whether or not
earned or declared until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date, and shall constitute an additional Arrearage
from and after any Dividend Payment Date to the extent not paid on such Dividend
Payment Date. References in any Article herein to dividends that have
accumulated or that have been deemed to have accumulated with respect to the
Series D Preferred Stock shall include the amount, if any, of any Arrearage
together with any dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences. Additional
dividends in respect of any Arrearage may be declared and paid at any time, in
whole or in part, without reference to any regular Dividend Payment Date, to
Registered Holders as they appear on the stock record books of the Corporation
on such record date as may be fixed by the Board of Directors (which record date
shall be no less than 10 days prior to the corresponding payment date).
Dividends in respect of any Arrearage shall be paid in cash.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Method of Payment</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid on the shares of Series D Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of Series D Preferred Stock
shall be allocated pro rata on a share-by-share basis among all such shares then
outstanding. After February 10, 2001, dividends that are declared and paid in an
amount less than the full amount of dividends accumulated on the Series D
Preferred Stock (and on any Arrearage) shall be applied first to the earliest
dividend which has not theretofore been paid. All cash payments of dividends on
the shares of Series D Preferred Stock shall be made in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.</FONT></FONT> </P>


<p align=center>
<font size=2>39
</font></p>
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<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IV.
Liquidation Preference</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Liquidation
Preference</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The holders of the outstanding shares of Series D Preferred
Stock shall be entitled to receive out of the assets of the Corporation, whether
such assets are capital or surplus of any nature, an amount per share equal to
the sum of the dividends, if any, accumulated or deemed to have accumulated
thereon to the date of final distribution to such holders, whether or not such
dividends are declared; and $0.85 per share of Series D Preferred Stock, before
any payment shall be made or any assets distributed to the holders of any Junior
Liquidation Securities. After any such payment in full, the holders of Series D
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       <U>Parity Securities</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  All the assets of the Corporation available for
distribution to
stockholders after the liquidation preferences of any Senior Liquidation Securities shall be distributed ratably
(in proportion to the full distributable amounts to which holders of Series D Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution, liquidation or winding up) among
the holders of the then-outstanding shares of Series D Preferred Stock and Parity Liquidation Securities, if any,
when such assets are not sufficient to pay in full the aggregate amounts payable thereon.
</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Merger Not a Liquidation</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation&#146;s assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series D Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation&#146;s
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series D Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">V.
Redemption</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       <U>Optional Redemption</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Commencing on the earlier to occur of (x) the
February 10, 2009 and (y)
the date on which fewer than 25% of the shares of Series D Preferred Stock issued on the Issue Date remain
outstanding, and at all times thereafter, the Corporation may, at its option, redeem all (but not less than all)
outstanding shares of Series D Preferred Stock on a date specified by the Corporation (the "Optional Redemption
Date") by paying the Redemption Price therefor in cash out funds legally available for such
purpose.</FONT></FONT> </P>




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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Notice and Redemption Procedures</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notice of the redemption of shares of
Series D Preferred Stock pursuant to paragraph A of this Article V (a
&#147;Notice of Redemption&#148;) shall be sent to the holders of record of the
shares of Series D Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder&#146;s address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, as applicable, which date shall be set forth in such
notice (the &#147;Redemption Date&#148;); provided that failure to give such
Notice of Redemption to any holder, or any defect in such Notice of Redemption
to any holder shall not affect the validity of the proceedings for the
redemption of any shares of Series D Preferred Stock held by any other holder.
In order to facilitate the redemption of shares of Series D Preferred Stock, the
Board of Directors may fix a record date for the determination of the holders of
shares of Series D Preferred Stock to be redeemed not more than 30 days prior to
the date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, as applicable, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date, as applicable, all dividends on shares of Series D Preferred Stock shall
cease to accumulate and all rights of the holders thereof as holders of Series D
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Optional Redemption Date, as applicable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Deposit of Funds</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation shall, on or prior to the
Optional Redemption Date, as applicable, pursuant to paragraph B of this Article
V, deposit with its transfer agent or other redemption agent in the Borough of
Manhattan, The City of New York having a capital and surplus of at least
$500,000,000 selected by the Board of Directors, as a trust fund for the benefit
of the holders of the shares of Series D Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption, with irrevocable instructions and authority to
such transfer agent or other redemption agent to pay to the respective holders
of such shares, as evidenced by a list of such holders certified by an officer
of the Corporation, the Redemption Price upon surrender of their respective
share certificates. Such deposit shall be deemed to constitute full payment of
the Redemption Price for such shares to the holders, and from and after the date
of such deposit, all rights of the holders of the shares of Series D Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. No dividends shall
accumulate on any shares of Series D Preferred Stock after the Optional
Redemption Date, as applicable, for such shares (unless the Corporation shall
fail to deposit cash sufficient to redeem all such shares). In case holders of
any shares of Series D Preferred Stock called for redemption shall not, within
two years after such deposit, claim the cash deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand, pay over to
the Corporation the balance so deposited. Thereupon, such transfer agent or
other redemption agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to shares to be
redeemed, shall be to receive the Redemption Price as general creditors of the
Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VI.
Restrictions on Dividends</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">So long
as any shares of the Series D Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Securities or make any payment on account of,
or set apart for payment money for a sinking or other similar fund for, the
repurchase, redemption or other retirement of, any Junior Securities or Parity
Securities or any warrants, rights or options exercisable for or convertible
into any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities), or
make any distribution in respect of the Junior Securities, either directly or
indirectly, and whether in cash, obligations or shares of the Corporation or
other property (other than distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Securities or Parity Securities or any warrants, rights, calls
or options exercisable for or convertible into any Junior Securities or Parity
Securities (other than the repurchase, redemption or other retirement of
debentures or other debt securities that are convertible or exchangeable into
any Junior Securities or Parity Securities or the repurchase, redemption or
other retirement of Junior Securities or Parity Securities in exchange for
Junior Securities or Parity Securities) unless prior to or concurrently with
such declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, all accumulated and unpaid
dividends on shares of the Series D Preferred Stock not paid on the dates
provided for in paragraph A of Article III hereof (including Arrearages and
accumulated dividends thereon) shall have been paid, except that when dividends
are not paid in full as aforesaid upon the shares of Series D Preferred Stock,
all dividends declared on the Series D Preferred Stock and any series of Parity
Dividend Securities shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series D Preferred Stock and such series of
Parity Dividend Securities shall in all cases bear to each other the same ratio
that accumulated dividends (including interest accrued on or additional
dividends accumulated in respect of such accumulated dividends) on the shares of
Series D Preferred Stock and such Parity Dividend Securities bear to each other.</FONT></FONT> </P>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VII.
Voting Rights</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The holders of Series D Preferred Stock shall be entitled to the number of votes
per share of Series D Preferred Stock equal to the number of shares of Common
Stock for which such share of Series D Preferred Stock is then convertible
pursuant to Article VIII at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration, other than the election of directors.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
So long as any shares of the Series D Preferred Stock are outstanding, (i) each
share of Series D Preferred Stock shall entitle the holder thereof to vote on
all matters voted on by holders of Common Stock, other than the election of
directors; and (ii) the shares of Series D Preferred Stock shall vote together
with shares of Common Stock and shares of Series B Preferred Stock, the Series C
Preferred Stock and the Series E Preferred Stock as a single class.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series D Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series E Preferred Stock, voting together as a single class, the Corporation
shall not (i) authorize, create or issue, or increase the authorized amount of,
(x) any Senior Securities or Parity Securities or (y) any class or series of
capital stock or any security convertible into or exercisable for any class or
series of capital stock, redeemable mandatorily or redeemable at the option of
the holder thereof or (ii) enter into any Transaction (as defined in paragraph H
of Article VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series D Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series E Preferred Stock, voting together as a single class, the Corporation
shall not (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the Bylaws, if the amendment, alteration or repeal alters or
changes the powers, preferences or special rights of the Series D Preferred
Stock so as to affect them materially and adversely or (ii) authorize or take
any other action if such action alters or changes any of the rights of the
Series D Preferred Stock in any respect or otherwise would be inconsistent with
the provisions of this Certificate of Designations and the holders of any class
or series of the capital stock of the Corporation is entitled to vote thereon.
Such vote or consent shall be taken in accordance with the procedures specified
in paragraph E below.</FONT></FONT> </P>




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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The foregoing rights of holders of shares of Series D Preferred Stock to take
any actions as provided in this Article&nbsp;VII may be exercised at any annual
meeting of stockholders or at a special meeting of stockholders held for such
purpose as hereinafter provided or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action, if action by written
consent of stockholders of the Corporation is then permitted.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
Chairman of the Board of the Corporation may call, and upon written request of
holders of record of 35% of the outstanding shares of Series D Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series E Preferred Stock,
addressed to the Secretary of the Corporation at the principal office of the
Corporation shall call, a special meeting of the holders of shares entitled to
vote as provided herein. Such meeting shall be held within 30 days after
delivery of such request to the Secretary, at the place and upon the notice
provided by law and in the By-laws of the Corporation for the holding of
meetings of stockholders.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">At
each meeting of stockholders at which the holders of shares of Series D<B>
</B>Preferred Stock shall have the right to take any action, the presence in
person or by proxy of the holders of record of one-third of the total number of
shares of Series D Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series E Preferred Stock then outstanding and entitled to vote on the
matter shall be necessary and sufficient to constitute a quorum. At any such
meeting or at any adjournment thereof:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="3%">&nbsp;</TD>
     <TD><P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(A)
the absence of a quorum of the holders of shares of Series D Preferred Stock
shall not prevent the election of directors to be elected by the holders of
shares of Series B Preferred Stock or the taking of any action as provided in
this Article&nbsp;VII; and</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="3%">&nbsp;</TD>
     <TD><P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(B)
in the absence of a quorum of the holders of shares of Series D Preferred Stock,
Series C Preferred Stock and Series B Preferred Stock, a majority of the holders
of such shares present in person or by proxy shall have the power to adjourn the
meeting as to the actions to be taken by the holders of shares of Series D
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series E
Preferred Stock, from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
taking of any action as provided in this Article&nbsp;VII by the holders of
shares of Series D Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series E Preferred Stock, each such holder shall have one vote for
each share of such stock standing in his name on the transfer books of the
Corporation as of any record dated fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice if waived, at the close of business on the
Business Day next preceding the day on which the meeting is held.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       The Corporation shall not enter into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the Corporation's performance of its obligations
hereunder.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VIII.
Conversion</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
holders of the Series D Preferred Stock shall have conversion rights as follows:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A.
Each share of Series D Preferred Stock shall be convertible at the direction of,
and by notice to the Corporation from, (i) the holder thereof or (ii) the
holders of a majority of the outstanding shares of Series D Preferred Stock, at
any time, at the office of the Corporation or any transfer agent for such
Series, into one (1) fully paid and nonassessable share of Common Stock subject
to adjustment from time to time as provided below (as so adjusted, the
&#147;conversion ratio&#148;), <U>provided</U>, that any conversion pursuant to
clause (ii) above of less than all of the outstanding shares of Series D
Preferred Stock shall be on a pro rata basis amongst all holders of Series D
Preferred Stock.</FONT></FONT> </P>



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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If a holder of Series D Preferred Stock gives notice (an &#147;Optional
Conversion Notice&#148;) of conversion under paragraph A above, such holder
shall surrender with such Optional Conversion Notice the duly endorsed
certificate or certificates for the Series D Preferred Stock being converted, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. If the holders of a majority of the
outstanding shares of Series D Preferred Stock give notice of conversion under
paragraph A above, the Corporation shall notify all other record holders of
Series D Preferred Stock (a &#147;Mandatory Conversion Notice&#148;). Following
receipt of a Mandatory Conversion Notice, the holders of Series D Preferred
Stock shall surrender the certificate or certificates therefor duly endorsed, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable after the surrender of a Series D Preferred Stock certificate or
certificates pursuant to an Optional Conversion Notice or Mandatory Conversion
Notice, issue and deliver at such office to such holder, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such Optional Conversion Notice or Mandatory Conversion
Notice, as applicable, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the recordholder or holders of such shares of Common Stock as of such date.
The issuance of certificates or shares of Common Stock upon conversion of shares
of Series D Preferred Stock shall be made without charge for any issue, stamp or
other similar tax in respect of such issuance.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No fractional shares shall be issued upon conversion of any shares of Series D
Preferred Stock and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share, and the holder of Series D Preferred
Stock shall be paid in cash for any fractional share.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case at any time or from time to time the Corporation shall pay any dividend
or make any other distribution to the holders of its Common Stock or other class
of securities, or shall offer for subscription pro rata to the holders of its
Common Stock or other class of securities any additional shares of stock of any
class or any other right, or there shall be any capital reorganization or
reclassification of the Common Stock of the Corporation or consolidation or
merger of the Corporation with or into another corporation, or any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, then, in
any one or more of said cases the Corporation shall give at least 20 days&#146;
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holders of the Series D Preferred
Stock at the addresses of each as shown on the books of the Corporation
maintained by the Transfer Agent thereof of the date on which (i)&nbsp;the books
of the Corporation shall close or a record shall be taken for such stock
dividend, distribution or subscription rights or (ii)&nbsp;such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that in
the case of any Transaction to which paragraph&nbsp;H applies the Corporation
shall give at least 30 days&#146; prior written notice as aforesaid. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall not invalidate
any action so taken.</FONT></FONT> </P>


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<p align=left><font size=2>
<a href="#TOC">
Table of Contents</a></font></p>


<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series D Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series D Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
D Preferred Stock, then in addition to such other remedies as shall be available
to the holder of Series D Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Any notice required by the provisions of paragraph D to be given the holders of
shares of Series D Preferred Stock shall be deemed given if sent by facsimile
transmission, by telex, or if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">G.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
       The conversion ratio shall be subject to adjustment from time to time as follows:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT
FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(i)
In case the Corporation shall at any time or from time to time after the Issue
Date (A)&nbsp;pay a dividend or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock, (B)&nbsp;subdivide the outstanding
shares of Common Stock into a larger number of shares of Common Stock,
(C)&nbsp;combine the outstanding shares of Common Stock into a smaller number of
shares or (D)&nbsp;issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case, the
conversion ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Series D Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock or other securities
of the Corporation which such holder would have owned or have been entitled to
receive after the happening of any of the events described above, had such
shares of Series D Preferred Stock been surrendered for conversion immediately
prior to the happening of such event or the record date therefor, whichever is
earlier. An adjustment made pursuant to this clause (i) shall become effective
(x)&nbsp;in the case of any such dividend or distribution, immediately after the
close of business on the record date for the determination of holders of shares
of Common Stock entitled to receive such dividend or distribution, or
(y)&nbsp;in the case of any such subdivision, reclassification or combination,
at the close of business on the day upon which such corporate action becomes
effective.</FONT></FONT> </P>

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<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT
FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(ii)
In the case the Corporation shall, after the Issue Date, issue shares of Common
Stock at a price per share, or securities convertible into or exchangeable for
shares of Common Stock (&#147;Convertible Securities&#148;) having a
&#147;Conversion Price&#148; (as defined below) less than the Current Market
Price (for a period of 15 consecutive trading days prior to such date), then,
and in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series D Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (A)&nbsp;the applicable conversion ratio on the day immediately
prior to such date by (B)&nbsp;a fraction, the numerator of which shall be the
sum of (1)&nbsp;the number of shares of Common Stock outstanding on the date on
which such shares or Convertible Securities are issued and (2)&nbsp;the number
of additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x)&nbsp;the number of shares of Common Stock outstanding on such date and
(y)&nbsp;the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock so
issued, or the number of shares of Common Stock which the aggregate of the
Conversion Price of such Convertible Securities so issued, would purchase at
such Current Market price on such date. An adjustment made pursuant to this
clause (ii) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this clause (ii), the
aggregate consideration receivable by the Corporation in connection with the
issuance of any securities shall be deemed to be the sum of the aggregate
offering price to the public (before deduction of underwriting discounts or
commissions and expenses payable to third parties), and the &#147;Conversion
Price&#148; of any Convertible Securities is the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither (A)
the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
paragraph&nbsp;G, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series&nbsp;B Preferred Stock, the Series D Preferred Stock and the
Warrants) nor (B) the issuance of shares of Common Stock pursuant thereto shall
be deemed to constitute an issuance of Common Stock or Convertible Securities by
the Corporation to which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or converted and for
which an adjustment shall have been made pursuant to this clause (ii), the
Conversion Price computed upon the original issue thereof shall upon such
expiration be recomputed as if the only additional shares of Common Stock issued
were such shares of Common Stock (if any) actually issued upon exercise of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT
FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(iii)
In case the Corporation shall at any time or from time to time after the Issue
Date declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin-off), on its Common Stock, other than
(A)&nbsp;regular quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before extraordinary
items of the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such dividend is paid or
(B)&nbsp;dividends or distributions of shares of Common Stock which are referred
to in clause (i) of this paragraph&nbsp;G, then, and in each such case, the
conversion ratio shall be adjusted so that the holder of each share of Series D
Preferred Stock shall be entitled to receive, upon the conversion thereof, the
number of shares of Common Stock determined by multiplying (1)&nbsp;the
applicable conversion ratio on the day immediately prior to the record date
fixed for the determination of stockholders entitled to receive such dividend or
distribution by (2)&nbsp;a fraction, the numerator of which shall be the then
Current Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, and the denominator of which shall be such Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date less the Fair Market Value (as defined in
Article&nbsp;IX) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series D Preferred Stock) of
such dividend or distribution; <U>provided</U>, <U>however</U>, that in the
event of a distribution of shares of capital stock of a Subsidiary of the
Corporation (a &#147;Spin-Off&#148;) made to holders of shares of Common Stock,
the numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the current market price per share of the
Common Stock for the period of 20 Trading Days proceeding such 35th Trading Day.
An adjustment made pursuant to this clause (iii) shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
<U>provided</U>, <U>however</U>, if the proviso to the preceding sentence
applies, then such adjustment shall be made and be effective as of such 35th
Trading Day after the effective date of such Spin-Off.</FONT></FONT> </P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
For purposes of this paragraph&nbsp;G, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The term &#147;dividend&#148;, as used in this paragraph&nbsp;G shall mean a
dividend or other distribution upon stock of the Corporation except pursuant to
the Rights Agreement (as defined in Article&nbsp;IX). Notwithstanding anything
in this Article&nbsp;VIII to the contrary, the conversion ratio shall not be
adjusted as a result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(vi)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Anything in this paragraph&nbsp;G to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least one-hundredth of
one share of Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the conversion ratio by at least
one-hundredth of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(vii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The certificate of any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Corporation (which may be the
firm of independent public accountants regularly employed by the Corporation)
shall be presumptively correct for any computation made under this
paragraph&nbsp;G.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(viii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the Corporation shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph&nbsp;G or in the
conversion ratio then in effect shall be required by reason of the taking of
such record.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">(ix)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There shall be no adjustment of the conversion ratio in case of the issuance of
any stock of the Corporation in a merger, reorganization, acquisition or other
similar transaction except as set forth in paragraph&nbsp;G(i), G(ii) and H of
this Article&nbsp;VIII.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">H.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In case of any reorganization or reclassification of outstanding shares of
Common Stock (other than a reclassification covered by paragraph&nbsp;G(i) of
this Article&nbsp;VIII), or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a &#147;Transaction&#148;), each share of Series D Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Transaction, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by a holder of that
number of shares of Common Stock into which one share of Series D Preferred
Stock was convertible immediately prior to such Transaction (including, on a pro
rata basis, the cash, securities or property received by holders of Common Stock
in any tender or exchange offer that is a step in such Transaction). In case
securities or property other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all reference in this paragraph&nbsp;H shall
be deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.</FONT></FONT> </P>





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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">I.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon any adjustment of the conversion ratio then in effect and any increase or
decrease in the number of shares of Common Stock issuable upon the operation of
the conversion set forth in Article&nbsp;VIII, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series D
Preferred and Common Stock, a certificate signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the conversion ratio then in effect following such
adjustment and the increased or decreased number of shares issuable upon the
conversion set forth in this Article&nbsp;VIII.</FONT></FONT> </P>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IX.
Additional Definitions</FONT></FONT></H1>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
the purposes of this Certificate of Designations of Series D Preferred Stock,
the following terms shall have the meanings indicated:</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Accrual
Period&#148; means the end of the first quarterly period following February 10,
2001.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Business
Day&#148; means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Bylaws&#148;
means the Bylaws of the Corporation, as amended.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Current
Market Price&#148;, when used with reference to shares of Common Stock or other
securities on any date, shall mean the closing price per share of Common Stock
or such other securities on such date and, when used with reference to shares of
Common Stock or other securities for any period shall mean the average of the
daily closing prices per share of Common Stock or such other securities for such
period. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. National Market System or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock or
such other securities selected by the Board of Directors of the Corporation. If
the Common Stock or such other securities are not publicly held or so listed or
publicly traded, &#147;Current Market Price&#148; shall mean the Fair Market
Value per share of Common Stock or of such other securities as determined in
good faith by the Board of Directors of the Corporation based on an opinion of
an independent investment banking firm with an established national reputation
as a valuer of securities, which opinion may be based on such assumption as such
firm shall deem to be necessary and appropriate.</FONT></FONT> </P>



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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Exchange
Act&#148; means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Fair
Market Value&#148; shall mean the amount which a willing buyer would pay a
willing seller in an arm&#146;s-length transaction.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Group&#148;
has the meaning set forth in Rule 13d-5 under the Exchange Act.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Issue
Date&#148; shall mean the first date on which shares of Series D Preferred Stock
are issued.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Person&#148;
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Redemption
Price&#148; of a share of Series D Preferred Stock shall mean the sum of the
dividends, if any, accumulated or deemed to have accumulated thereon to the
Optional Redemption Date, as applicable, whether or not such dividends are
declared <U>plus</U> $0.85 per share of Series D Preferred Stock, to adjustment
for splits, reclassifications, recombinations or similar events.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Rights&#148;
shall mean any rights to purchase securities of the Corporation issued pursuant
to any Rights Agreement.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Rights
Agreement&#148; shall mean the Rights Agreement, dated as of June 21, 1996,
between the Company and Wells Fargo Bank as rights agent, and all amendments,
supplements and replacements thereof.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Stated
Value&#148; shall be equal to $0.85.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Subsidiary&#148;
means, as to any Person, any other Person of which more than 50% of the shares
of the common stock, preferred stock or other voting interests are owned or
controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person and one
or more of its Subsidiaries.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&#147;Trading
Day&#148; means a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange a Business Day.</FONT></FONT> </P>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">X.
Miscellaneous</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notices</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Any notice referred to herein
shall be in writing and, unless first-class mail shall
be specifically permitted for such notices under the terms hereof, shall be deemed to have been given upon
personal delivery thereof, upon transmittal of such notice by telecopy (with confirmation of receipt by telecopy
or telex) or five days after transmittal by registered or certified mail, postage prepaid, addressed as
follows:</font></font></p>


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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(i)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD Width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to the Corporation, to its office at 2 California Plaza, 350 South Grand
Avenue, Los Angeles, California 90071 (Attention: General Counsel)</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%">&nbsp;&nbsp;&nbsp;</TD>
     <TD WIDTH="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
or to the transfer agent for the Series D Preferred Stock;</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(ii)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD Width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to a holder of the Series D Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for the Series D Preferred Stock); or</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD Align=right WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">&nbsp;(iii)&nbsp;&nbsp;</FONT></FONT></TD>
     <TD Width="90%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
to such other address as the Corporation or such holder, as the case may be,
shall have designated by notice similarly given.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">B..&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Reacquired Shares</U>..&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
 Any shares of Series D Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series D Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.</FONT></FONT> </P>



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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Enforcement</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any registered holder of shares of Series D Preferred Stock
may proceed to
protect and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in
equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this
Certificate of Designations or in aid of the exercise of any power granted herein, or to enforce any other proper
remedy.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Taxes</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series D Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series D Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.</FONT></FONT> </P>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT
SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Agent</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series D Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series D Preferred Stock.</FONT></FONT> </P>


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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Record Dates</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  In the event that the Series
D Preferred Stock shall be registered under either
the Securities Act of 1933, as amended, or the Exchange Act, the Corporation shall establish appropriate record
dates with respect to payments and other actions to be made with respect to the Series D Preferred
Stock.</FONT></FONT></p>




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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">CERTIFICATE
OF THE VOTING POWERS, DESIGNATIONS,<br>PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL<br>OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,<br>LIMITATIONS
OR RESTRICTIONS THEREOF, OF<br>SERIES
E PREFERRED STOCK OF<br>AAMES
FINANCIAL CORPORATION</FONT></FONT></H1>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">I.
Designation and Amount</FONT></FONT></H1>

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<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
designation of this series of shares shall be &#147;Series E Preferred
Stock&#148; (the &#147;Series E Preferred Stock&#148;) par value $0.001 per
share; the stated value per share shall be $1.00 (the &#147;Stated Value&#148;);
and the number of shares constituting such series shall be 26,700,000. The
number of shares of the Series E Preferred Stock may be decreased from time to
time by a resolution or resolutions of the Board of Directors; provided,
however, that such number shall not be decreased below the aggregate number of
shares of the Series E Preferred Stock then outstanding.</FONT></FONT> </P>

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<A NAME="A008"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">II.
Rank</FONT></FONT></H1>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
With respect to the distribution of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the Series E
Preferred Stock shall rank (i) senior to each other class or series of preferred
stock, except for the Series B Convertible Preferred Stock, par value $0.001 per
share, of the Corporation (the &#147;Series B Preferred Stock&#148;), the Series
C Convertible Preferred Stock, par value $0.001 per share, of the Corporation
(the &#147;Series C Preferred Stock&#148;) and the Series D Convertible
Preferred Stock, par value $0.001 per share, of the Corporation (the
&#147;Series D Preferred Stock&#148;); (ii) on a parity with the Series B
Preferred Stock, the Series C Preferred Stock and Series D Preferred Stock; and
(iii) senior to the Common Stock, and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
all equity securities of the Corporation to which the Series E Preferred Stock
ranks senior, including the Common Stock, are collectively referred to herein as
&#147;Junior Liquidation Securities&#148;; all equity securities of the
Corporation (other than convertible debt securities) to which the Series E
Preferred Stock ranks on parity, including the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock, are collectively
referred to herein as &#147;Parity Liquidation Securities&#148;; and all equity
securities of the Corporation to which the Series E Preferred Stock ranks junior
are collectively referred to herein as &#147;Senior Liquidation
Securities.&#148;</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Series E Preferred Stock shall be subject to the creation of Junior Liquidation
Securities, but no Parity Liquidation Securities (other than the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) or
Senior Liquidation Securities shall be created except in accordance with the
terms hereof.</FONT></FONT> </P>

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<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">III.
Dividends</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
holders of Series E Preferred Stock shall not be entitled to receive dividends.</FONT></FONT> </P>



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<A NAME="A010"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IV.
Liquidation Preference</FONT></FONT></H1>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Liquidation Preference</U>. The holders of the outstanding shares of Series E
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to $1.00 per share of Series E Preferred Stock, before any
payment shall be made or any assets distributed to the holders of any Junior
Liquidation Securities. After any such payment in full the holders of Series E
Preferred Stock shall not be entitled to any further participation in any
distribution of assets of the Corporation.</FONT></FONT> </P>

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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U> Parity
Securities</U>.  All the assets of the Corporation available for distribution to stockholders after the liquidation preferences of any Senior Liquidation Securities shall be distributed ratably
(in proportion to the full distributable amounts to which holders of Series E Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution, liquidation or winding up) among
the holders of the then-outstanding shares of Series E Preferred Stock and Parity Liquidation Securities, if any,
when such assets are not sufficient to pay in full the aggregate amounts payable thereon.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Merger Not a Liquidation</U>.<B> </B>Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation&#146;s assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series E Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation&#146;s
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series E Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A011"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">V.
Redemption</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Optional
Redemption</U>. The Corporation may, at its option, redeem all (but not less than all)
outstanding shares of Series E Preferred Stock on a date specified by the Corporation
(the &quot;Optional Redemption  Date&quot;) by paying the Redemption Price therefor in
cash out funds legally available for such purpose.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Notice and Redemption Procedures</U>. Notice of the redemption of shares of
Series E Preferred Stock pursuant to paragraph A of this Article V (a
&#147;Notice of Redemption&#148;) shall be sent to the holders of record of the
shares of Series E Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder&#146;s address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, as applicable, which date shall be set forth in such
notice (the &#147;Redemption Date&#148;); provided that failure to give such
Notice of Redemption to any holder, or any defect in such Notice of Redemption
to any holder shall not affect the validity of the proceedings for the
redemption of any shares of Series E Preferred Stock held by any other holder.
In order to facilitate the redemption of shares of Series E Preferred Stock, the
Board of Directors may fix a record date for the determination of the holders of
shares of Series E Preferred Stock to be redeemed not more than 30 days prior to
the date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, as applicable, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date all rights of the holders thereof as holders of Series E Preferred Stock
shall cease and terminate, except to the extent the Corporation shall default in
payment thereof on the Optional Redemption Date.</FONT></FONT> </P>



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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Deposit of Funds</U>.<B> </B>The Corporation shall, on or prior to the
Optional Redemption Date, as applicable, pursuant to paragraph B of this Article
V, deposit with its transfer agent or other redemption agent in the Borough of
Manhattan, The City of New York having a capital and surplus of at least
$500,000,000 selected by the Board of Directors, as a trust fund for the benefit
of the holders of the shares of Series E Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption, with irrevocable instructions and authority to
such transfer agent or other redemption agent to pay to the respective holders
of such shares, as evidenced by a list of such holders certified by an officer
of the Corporation, the Redemption Price upon surrender of their respective
share certificates. Such deposit shall be deemed to constitute full payment of
the Redemption Price for such shares to the holders, and from and after the date
of such deposit, all rights of the holders of the shares of Series E Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. In case holders of
any shares of Series E Preferred Stock called for redemption shall not, within
two years after such deposit, claim the cash deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand, pay over to
the Corporation the balance so deposited. Thereupon, such transfer agent or
other redemption agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to shares to be
redeemed, shall be to receive the Redemption Price as general creditors of the
Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VI.
Restrictions on Dividends</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">So
long as any shares of the Series E Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Liquidation Securities or make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the repurchase, redemption or other retirement of, any Junior Liquidation
Securities or Parity Liquidation Securities or any warrants, rights or options
exercisable for or convertible into any Junior Liquidation Securities or Parity
Liquidation Securities (other than the repurchase, redemption or other
retirement of debentures or other debt securities that are convertible or
exchangeable into any Junior Liquidation Securities or Parity Liquidation
Securities), or make any distribution in respect of the Junior Liquidation
Securities, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than distributions or
dividends in Junior Liquidation Securities to the holders of Junior Liquidation
Securities), and shall not permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase or redeem any Junior
Liquidation Securities or Parity Liquidation Securities or any warrants, rights,
calls or options exercisable for or convertible into any Junior Liquidation
Securities or Parity Liquidation Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Liquidation Securities or Parity
Liquidation Securities or the repurchase, redemption or other retirement of
Junior Liquidation Securities or Parity Liquidation Securities in exchange for
Junior Liquidation Securities or Parity Liquidation Securities) unless prior to
or concurrently with such declaration, payment, setting apart for payment,
repurchase, redemption or other retirement or distribution, as the case may be,
all shares of the Series E Preferred Stock have been redeemed as provided for in
paragraph A of Article V hereof.</FONT></FONT> </P>




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<A NAME="A013"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VII.
Voting Rights</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
holders of Series E Preferred Stock shall be entitled to one vote per share of
Series E Preferred Stock at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration, other than the election of directors.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">B. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;So
long as any shares of the Series E Preferred Stock are outstanding, (i) each
share of Series E Preferred Stock shall entitle the holder thereof to vote on
all matters voted on by holders of Common Stock, other than the election of
directors; and (ii) the shares of Series E Preferred Stock shall vote together
with shares of Common Stock and shares of Series B Preferred Stock, the Series C
Preferred Stock and Series D Preferred Stock as a single class.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series E Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, voting together as a single class, the Corporation
shall not (i) authorize, create or issue, or increase the authorized amount of,
(x) any Senior Liquidation Securities or Parity Liquidation Securities or (y)
any class or series of capital stock or any security convertible into or
exercisable for any class or series of capital stock, redeemable mandatorily or
redeemable at the option of the holder thereof or (ii) enter into any
Transaction. Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series E Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, voting together as a single class, the Corporation
shall not (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the Bylaws, if the amendment, alteration or repeal alters or
changes the powers, preferences or special rights of the Series E Preferred
Stock so as to affect them materially and adversely or (ii) authorize or take
any other action if such action alters or changes any of the rights of the
Series E Preferred Stock in any respect or otherwise would be inconsistent with
the provisions of this Certificate of Designations and the holders of any class
or series of the capital stock of the Corporation is entitled to vote thereon.
Such vote or consent shall be taken in accordance with the procedures specified
in paragraph E below.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
foregoing rights of holders of shares of Series E Preferred Stock to take any
actions as provided in this Article&nbsp;VII may be exercised at any annual
meeting of stockholders or at a special meeting of stockholders held for such
purpose as hereinafter provided or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action, if action by written
consent of stockholders of the Corporation is then permitted.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">At
each meeting of stockholders at which the holders of shares of Series E<B>
</B>Preferred Stock shall have the right to take any action, the presence in
person or by proxy of the holders of record of one-third of the total number of
shares of Series E Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock then outstanding and entitled to vote on the
matter shall be necessary and sufficient to constitute a quorum. At any such
meeting or at any adjournment thereof:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="5%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(A)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
the absence of a quorum of the holders of shares of Series E Preferred Stock
shall not prevent the election of directors to be elected by the holders of
shares of Series B Preferred Stock or the taking of any action as provided in
this Article&nbsp;VII; and</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>



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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD WIDTH="5%">&nbsp;</TD>
     <TD><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(B)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
in the absence of a quorum of the holders of shares of Series E Preferred Stock,
Series D Preferred Stock, Series C Preferred Stock and Series B Preferred Stock,
a majority of the holders of such shares present in person or by proxy shall
have the power to adjourn the meeting as to the actions to be taken by the
holders of shares of Series E Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock, from time to time and place to
place without notice other than announcement at the meeting until a quorum shall
be present.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
taking of any action as provided in this Article&nbsp;VII by the holders of
shares of Series E Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, each such holder shall have one vote for
each share of such stock standing in his name on the transfer books of the
Corporation as of any record dated fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice if waived, at the close of business on the
Business Day next preceding the day on which the meeting is held.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Corporation shall not enter into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the Corporation's performance
of its obligations  hereunder.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A014"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">VIII.
Conversion</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
holders of the Series E Preferred Stock shall not have conversion rights.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A015"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">IX.
Additional Definitions</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">For
the purposes of this Certificate of Designations of Series E Preferred Stock,
the following terms shall have the meanings indicated:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Business
Day&#148; means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Bylaws&#148;
means the Bylaws of the Corporation, as amended.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Exchange
Act&#148; means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Person&#148;
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Redemption
Price&#148; of a share of Series E Preferred Stock shall mean the $1.00 per
share of Series E Preferred Stock,, subject to adjustment for splits,
reclassifications, recombinations or similar events.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&#147;Transaction&#148;
means any reorganization or reclassification of outstanding shares of Common
Stock or any consolidation or merger of the Corporation with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">X.
Miscellaneous</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Notices</U>.  Any notice referred to herein shall be in writing and, unless
first-class mail shall  be specifically permitted for such notices under the terms
hereof, shall be deemed to have been given upon  personal delivery thereof, upon
transmittal of such notice by telecopy (with confirmation of receipt by telecopy  or
telex) or five days after transmittal by registered or certified mail, postage prepaid,
addressed as follows:</FONT></FONT> </P>



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<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(i)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="72%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to the Corporation, to its office at 2 California Plaza,<br> 350 South Grand
Avenue, Los Angeles, California 90071<br>(Attention: General Counsel)<br>&nbsp;<Br>or to the transfer agent for the Series E Preferred Stock;</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>



<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(ii)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="72%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
if to a holder of the Series E Preferred Stock, to such holder at the address
of<Br>
such holder as listed in the stock record books of the Corporation (which
may<br>
include the records of any transfer agent for the Series E Preferred Stock); or</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
<TR VALIGN="TOP">
     <TD ALIGN="RIGHT" WIDTH="25%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(iii)</FONT></FONT></TD>
     <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
     <TD WIDTH="72%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
to such other address as the Corporation or such holder, as the case may be,
shall<Br> have designated by notice similarly given.</FONT></FONT> </P></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Reacquired Shares</U>. Any shares of Series E Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series E Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Enforcement</U>.
Any registered holder of shares of Series E Preferred Stock may proceed to  protect and
enforce its rights and the rights of such holders by any available remedy by proceeding
at law or in  equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in this  Certificate of Designations or in aid of the
exercise of any power granted herein, or to enforce any other proper  remedy.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Taxes</U>. Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series E Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series E Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<U>Transfer Agent</U>. The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series E Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series E Preferred Stock.</FONT></FONT> </P>


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<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Record
Dates</U>.  In the event that the Series E Preferred Stock shall be registered under
either the  Securities Act of 1933, as amended, or the Exchange Act, the Corporation
shall establish appropriate record dates  with respect to payments and other actions to
be made with respect to the Series E Preferred Stock.</FONT></FONT> </P>

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<!-- MARKER PAGE="sheet: 6; page: 6" -->
<p align=left><font size=2> &nbsp;</font></p>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A028"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">EXHIBIT
  4.3</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A029"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">AAMES
  FINANCIAL CORPORATION</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A030"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2003
  SERIES E PREFERRED STOCK OPTION PLAN</FONT></FONT></H1>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<p align=center>&nbsp; </p>
<br>
<hr noShade color="black">

<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">AAMES
  FINANCIAL CORPORATION</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A002"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">2003
  SERIES E PREFERRED STOCK OPTION PLAN</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A003"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  I.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">PURPOSE</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">This
  2003 Series E Preferred Stock Option Plan (the &#147;Plan&#148;) is intended
  as an incentive and to encourage stock ownership by officers and outside directors
  of Aames Financial Corporation (the &#147;Company&#148;) in order to increase
  their proprietary interest in the Company&#146;s success and to encourage them
  to remain in the service of the Company.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  term &#147;Company,&#148; when used in the Plan with reference to eligibility
  and employment, shall include the Company and its subsidiaries. The word &#147;subsidiary,&#148;
  when used in the Plan, shall mean any subsidiary of the Company within the meaning
  of Section 424(f) of the Internal Revenue Code of 1986, as amended (the &#147;Code&#148;).</FONT></FONT>
</P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">It
  is intended that options granted under this Plan will be &#147;non-qualified
  stock options&#148; that do not qualify under Section 422 of the Code.</FONT></FONT>
</P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  II.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ADMINISTRATION</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  Plan shall be administered by the Compensation Committee (the &#147;Committee&#148;)
  of the Board of Directors of the Company (the &#147;Board&#148;) which shall
  consist of not less than three members, one member appointed by the Board and
  two members appointed by Capital Z Financial Services Fund II, L.P. (&#147;Capital
  Z&#148;) during any period that Capital Z and/or its designated purchasers under
  the Preferred Stock Purchase Agreement by and among the Company and Capital
  Z, dated as of the 23rd day of December, 1998 (the &#147;Purchase Agreement&#148;)
  own at least 25% of the outstanding voting securities of the Company. Subject
  to the provisions of the Plan, the Committee shall have sole authority, in its
  absolute discretion: (a) to determine which of the eligible officers and outside
  directors of the Company shall be granted options; (b) to authorize the granting
  of nonqualified options; (c) to determine the times when options shall be granted
  and the number of shares to be optioned; (d) to determine the option price of
  the shares subject to each option; (e) to determine the time or times when each
  option becomes exercisable, the duration of the exercise period and any other
  restrictions on the exercise of options issued hereunder; (f) to prescribe the
  form or forms of the option agreements under the Plan (which forms shall be
  consistent with the terms of the Plan but need not be identical); (g) to adopt,
  amend and rescind such rules and regulations as, in its opinion, may be advisable
  in the administration of the Plan; and (h) to construe and interpret the Plan,
  the rules and regulations and the option agreements under the Plan and to make
  all other determinations deemed necessary or advisable for the administration
  of the Plan. All decisions, determinations and interpretations of the Committee
  shall be final and binding on all optionees.</FONT></FONT> </P>
<p align=center>1</p>
<br>
<hr noShade color="black">

<p align=left>
  <!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  III.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">STOCK</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  stock to be optioned under the Plan shall be shares of authorized but unissued
  Series E Preferred Stock of the Company, par value $0.001 per share (the &#147;Stock&#148;).
  Under the Plan, the total number of shares of Stock which may be purchased pursuant
  to options granted hereunder shall not exceed, in the aggregate, 26,700,000
  shares, except as such number of shares shall be adjusted in accordance with
  the provisions of ARTICLE X hereof. The number of shares of Stock available
  for grant of options under the Plan shall be decreased by the sum of the number
  of shares with respect to which options have been issued and are then outstanding
  and the number of shares issued upon exercise of options. In the event that
  any outstanding option under the Plan for any reason expires, is terminated
  or is canceled prior to the end of the period during which options may be granted,
  the shares of Stock called for by the unexercised portion of such option may
  again be subject to an option under the Plan.</FONT></FONT> </P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  IV.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ELIGIBILITY
  OF PARTICIPANTS</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Subject
  to ARTICLE VII options may be granted to officers and outside directors who
  the Committee determines shall receive options under the Plan. A director is
  an &#147;outside director&#148; if the individual would be an &#147;outside
  director&#148; within the meaning of Treasury Regulation Section 1.162-27(e)(3)
  under Section 162(m) of the Code and a &#147;non-employee director&#148; within
  the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
  Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;).</FONT></FONT>
</P>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  V.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">OPTION
  EXERCISE PRICE</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Subject
  to ARTICLE VII, except as otherwise provided by the Committee in the option
  agreement, the option exercise price of each option granted under the Plan shall
  be $0.71.</FONT></FONT> </P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  VI.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">EXERCISE
  AND TERMS OF OPTIONS</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Subject
  to this ARTICLE VI, the Committee shall determine the dates after which options
  may be exercised, in whole or in part. If an option is exercisable in installments,
  such installments or portions thereof which become exercisable shall remain
  exercisable until exercise or expiration of the option.</FONT></FONT> </P>
<p align=center>2</p>
<br>
<hr noShade color="black">

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Unless
  otherwise provided in the option agreement or agreed to by the Committee at
  the time of exercise, each optionee shall enter into a binding agreement with
  the Company at the time of grant pursuant to which such optionee agrees not
  to sell, assign or otherwise transfer more than 25% of the Stock purchased pursuant
  to an option in any given year except in connection with a Change in Control,
  as described in ARTICLE X. Appropriate legends shall be placed on the stock
  certificates evidencing shares issued upon exercise of options to reflect such
  transfer restrictions.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Any
  other provision of the Plan to the contrary notwithstanding, no option shall
  be exercised after the date ten years from the date of grant of such option
  (the &#147;Termination Date&#148;).</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">If
  prior to the Termination Date, an optionee shall cease to be in the Company&#146;s
  service for any reason, the option shall expire on the date of the individual&#146;s
  cessation of service.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Upon
  any merger or reorganization or other business combination in which the Company
  shall not be the surviving corporation, or a dissolution or liquidation of the
  Company, or a sale of all or substantially all of the Company&#146;s assets,
  all outstanding options shall terminate and the Company shall cause the optionees
  to be paid an amount equal to the difference, if any, obtained after subtracting
  (a) the aggregate fair market value of the Stock subject to options held by
  the optionees at the time of such transaction that have become vested and exercisable
  by the terms of the Plan and the applicable option agreements either as a result
  of or prior to such transaction, as determined by the Committee in good faith
  from (b) the aggregate exercise price of such options.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Notwithstanding
  the foregoing provisions of this ARTICLE VI or the terms of any option agreement,
  the Committee may in its sole discretion accelerate the exercisability of any
  option granted hereunder. Any such acceleration shall not affect the terms and
  conditions of any such option other than with respect to exercisability.</FONT></FONT>
</P>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  VII.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">PAYMENT
  FOR SHARES</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Payment
  for shares of Stock purchased under an option granted hereunder shall be made
  in full upon exercise of the option, by certified or bank cashier&#146;s check
  payable to the order of the Company or by any other means determined by the
  Committee. Subject to ARTICLE XIV, the Stock purchased shall upon exercise and
  payment be promptly delivered; provided, however, that the Committee may, in
  its discretion, require that an optionee pay to the Company, at the time of
  exercise, such amount as the Company deems necessary to satisfy its obligation
  to withhold Federal, state or local income or other taxes incurred by reason
  of the exercise or the transfer of shares thereupon.</FONT></FONT> </P>
<p align=center>3</p>
<br>
<hr noShade color="black">


<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  VIII.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">NON-TRANSFERABILITY
  OF OPTION RIGHTS</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Unless
  the Committee shall provide otherwise, no option shall be transferable, and
  during the lifetime of the optionee, the option shall be exercisable only by
  him, except that options may be transferred to, and exercised by, Capital Z
  Financial Services Fund II, L.P., Capital Z Management LLC, or an affiliate
  of either entity.</FONT></FONT> </P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  IX.</FONT></FONT></H1>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ADJUSTMENT
  FOR RECAPITALIZATION, MERGER, ETC.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  aggregate number of shares of Stock which may be purchased pursuant to options
  granted hereunder, the number of shares of Stock covered by each outstanding
  option and the price per share thereof in each such option shall be appropriately
  adjusted for any increase or decrease in the number of outstanding shares of
  stock resulting from a stock split or other subdivision or consolidation of
  shares of Stock or for other capital adjustments or payments of stock dividends
  or distributions or other increases or decreases in the outstanding shares of
  Stock without receipt of consideration by the Company. Any adjustment shall
  be conclusively determined by the Committee.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">In
  the event of any change in the outstanding shares of Stock by reason of any
  recapitalization, merger, consolidation, spin-off, combination or exchange of
  shares or other corporate change, or any distributions to common shareholders
  other than ordinary cash dividends, the Committee shall make such substitution
  or adjustment, if any, as it deems to be equitable, as to the number or kind
  of shares of Stock or other securities issued or reserved for issuance pursuant
  to the Plan, and the number or kind of shares of Stock or other securities covered
  by outstanding options, and the option price thereof.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  foregoing adjustments and the manner of application of the foregoing provisions
  shall be determined by the Committee in its sole discretion. Any such adjustment
  may provide for the elimination of any fractional share which might otherwise
  become subject to an option.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  X.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">EFFECT
  OF CHANGE IN CONTROL</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(a)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        Except to the extent otherwise provided in a particular option agreement
        or in paragraph (c) below, in the event of a &#147;Change in Control,&#148;
        notwithstanding any unsatisfied performance or service requirement established
        in the option agreement, such option shall become fully exercisable immediately
        prior to the Change in Control with respect to 100 percent of the shares
        subject to such option.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<p align=center> <font size=2>4</font></p>
<br>
<hr noShade color="black">

<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(b)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        For purposes of the Plan, a Change in Control shall be deemed to occur
        if, after the effective date of the Plan (described in ARTICLE XVII),
        a Capital Z Realization Event occurs and:</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(i)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        any &#147;person&#148; (as that term is used in Sections 13 and 14(d)(2)
        of the Securities Exchange Act of 1934, as amended (the &#147;Exchange
        Act&#148;)), other than Capital Z or any of its affiliates, is or becomes
        the beneficial owner (as that term is used in Section 13(d) of the Exchange
        Act), directly or indirectly, of 50% or more of either the outstanding
        shares of Common Stock or the combined voting power of the Company&#146;s
        then outstanding voting securities entitled to vote generally,</FONT></FONT>
      </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(ii)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        the Company is merged, consolidated or reorganized into or with another
        corporation or another legal entity and, as a result of such merger, consolidation
        or reorganization, less than 50% of the combined voting power of the then-outstanding
        securities of such corporation or entity immediately after such transaction
        is held in the aggregate by the holders of the combined voting power of
        the securities of the Company entitled to generally in the election of
        directors of the Company immediately prior to such transaction,</FONT></FONT>
      </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(iii)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        individuals who constitute the Board at the beginning of such period cease
        for any reason to constitute at least a majority thereof, unless the election
        or the nomination for election by the Company&#146;s shareholders of each
        new director was approved by a vote of at least three-quarters (3/4) of
        the directors then still in office who were directors at the beginning
        of the period, or</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman In 1" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="6%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(iv)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="91%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        the Company undergoes a liquidation or dissolution or a sale of all or
        substantially all of the assets of the Company.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">&nbsp;</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        No merger, consolidation or corporate reorganization in which the owners
        of the combined voting power of the Company&#146;s then outstanding voting
        securities entitled to vote generally prior to said combination, own 50%
        or more of the resulting entity&#146;s outstanding voting securities shall,
        by itself, be considered a Change in Control.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(c)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        A &#147;Capital Z Realization Event&#148; shall be deemed to occur when,
        in connection with any of the events described in subparagraph (b)(i)
        through (iv) above, Capital Z contemporaneously exchanges all of its equity
        securities in the Company for cash or other liquid assets.</FONT></FONT>
      </P></TD>
  </TR>
</TABLE>
<BR>
<p align=center>5</p>
<br>
<hr noShade color="black">

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XI.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">NO
  OBLIGATION TO EXERCISE OPTION</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Granting
  of an option shall impose no obligation on the recipient to exercise such option.</FONT></FONT>
</P>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XII.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A019"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">USE
  OF PROCEEDS</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  proceeds received from the sale of Stock pursuant to the Plan shall be used
  for general corporate purposes.</FONT></FONT> </P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XIII.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A020"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">RIGHTS
  AS A STOCKHOLDER</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">An
  optionee or a transferee of an option shall have no rights as a stockholder
  with respect to any share covered by his option until he shall have become the
  holder of record of such share, and he shall not be entitled to any distributions
  or other rights in respect of such share for which the record date is prior
  to the date on which he shall have become the holder of record thereof. Notwithstanding
  anything herein to the contrary, the Committee, in its sole discretion, may
  restrict the transferability of all or any number of shares issued under the
  Plan upon the exercise of an option by legending the stock certificate as it
  deems appropriate.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A021"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XIV.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A022"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">RIGHTS
  TO CONTINUED SERVICE</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Nothing
  in the Plan or in any option granted hereunder shall confer on any optionee
  any right to continue in the service of the Company or any of its subsidiaries,
  or to interfere in any way with the right of the Company or any of its subsidiaries
  to terminate the optionee&#146;s service at any time for any reason.</FONT></FONT>
</P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XV.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">COMPLIANCE
  WITH LAW</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  Company is relieved from any liability for the non-issuance or non-transfer
  (or any delay in issuance or transfer) of any shares of Stock subject to options
  under the Plan which results from the inability (or delay) of the Company in
  obtaining, from any regulatory body having jurisdiction, all requisite authority
  to issue or transfer shares of Stock of the Company upon exercise of the options
  under the Plan if counsel for the Company deems such authority necessary for
  the lawful issuance or transfer of such shares under the Plan.</FONT></FONT>
</P>
<p align=center>6</p>
<br>
<hr noShade color="black">

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Each
  option granted under the Plan is subject to the condition that, if at any time
  the Committee determines, in its discretion, that the listing, registration
  or qualification of shares of Stock issuable upon exercise of options is required
  by any securities exchange or under any state or Federal law, or that the consent
  or approval of any governmental regulatory body is necessary or desirable as
  a condition of, or in connection with, the grant of options or the issuance
  of shares of Stock, no shares of Stock shall be issued, in whole or in part,
  unless such listing, registration, qualification, consent or approval has been
  effected or obtained free of any conditions or with such conditions as are acceptable
  to the Committee.</FONT></FONT> </P>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Appropriate
  legends may be placed on the stock certificates evidencing shares of Stock issued
  upon exercise of options to reflect the provisions of this ARTICLE XV.</FONT></FONT>
</P>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XVI.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">CANCELLATION
  OF OPTIONS</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  Committee, in its discretion, may, with the consent of any optionee, cancel
  any outstanding option hereunder.</FONT></FONT> </P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XVII.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">EFFECTIVE
  DATE AND EXPIRATION DATE OF PLAN</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  Plan is effective as of September 18, 2003. The expiration date of the Plan, after
  which no option may be granted hereunder, shall be September 18, 2013.</FONT></FONT>
</P>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XVIII.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<A NAME="A027"></A>
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">AMENDMENT
  OR DISCONTINUANCE OF PLAN</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">The
  Board may, without the consent of the Company&#146;s stockholders or optionees
  under the Plan, at any time terminate the Plan entirely and at any time or from
  time to time amend or modify the Plan, provided that no such action shall adversely
  affect options theretofore granted hereunder without the optionee&#146;s consent.</FONT></FONT>
</P>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">ARTICLE
  XIX.</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Head Major" -->
<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">MISCELLANEOUS</FONT></FONT></H1>
<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(a)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        Options shall be evidenced by option agreements (which need not be identical)
        in such forms as the Committee may from time to time approve. Such agreements
        shall conform to the terms and conditions of the Plan and may provide
        that the grant of any option under the Plan and Stock acquired pursuant
        to the Plan shall also be subject to such other conditions (whether or
        not applicable to the option or Stock received by any other optionee)
        as the Committee determines appropriate, including, without limitation,
        provisions to assist the optionee in financing the purchase of Stock through
        the exercise of options, provisions for the forfeiture of, or restrictions
        on, resale or other disposition of shares under the Plan, and provisions
        to comply with Federal and state securities laws and Federal and state
        income tax withholding requirements.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<p align=center>7</p>
<br>
<hr noShade color="black">

<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(b)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        If the Committee shall find that any person to whom any amount is payable
        under the Plan is unable to care for his affairs because of illness or
        accident, or is a minor, or has died, then any payment due to such person
        or his estate (unless a prior claim therefor has been made by a duly appointed
        legal representative) may, if the Committee so directs the Company, be
        paid to his spouse, child, relative, an institution maintaining or having
        custody of such person, or any other person deemed by the Committee to
        be a proper recipient on behalf of such person otherwise entitled to payment.
        Any such payment shall be a complete discharge of the liability of the
        Committee and the Company therefor.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(c)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        No member of the Committee shall be personally liable by reason of any
        contract or other instrument executed by such member or on his behalf
        in his capacity as a member of the Committee nor for any mistake of judgment
        made in good faith, and the Company shall indemnify and hold harmless
        each member of the Committee and each other employee, officer or director
        of the Company to whom any duty or power relating to the administration
        or interpretation of the Plan may be allocated or delegated, against any
        cost or expense (including counsel fees) or liability (including any sum
        paid in settlement of a claim) arising out of any act or omission to act
        in connection with the Plan unless arising out of such person&#146;s own
        fraud or bad faith; provided, however, that approval of the Board shall
        be required for the payment of any amount in settlement of a claim against
        any such person. The foregoing right of indemnification shall not be exclusive
        of any other rights of indemnification to which such persons may be entitled
        under the Company&#146;s Certificate of Incorporation or By-Laws, as a
        matter of law, or otherwise, or any power that the Company may have to
        indemnify them or hold them harmless.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(d)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        The Plan shall be governed by and construed in accordance with the internal
        laws of the State of Delaware without reference to the principles of conflicts
        of law thereof.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(e)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        No provision of the Plan shall require the Company, for the purpose of
        satisfying any obligations under the Plan, to purchase assets or place
        any assets in a trust or other entity to which contributions are made
        or otherwise to segregate any assets, nor shall the Company maintain separate
        bank accounts, books, records or other evidence of the existence of a
        segregated or separately maintained or administered fund for such purposes.
        optionees shall have no rights under the Plan other than as unsecured
        general creditors of the Company.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<p align=center>&nbsp; </p>
<br>
<hr noShade color="black">

<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(f)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        Each member of the Committee and each member of the Board shall be fully
        justified in relaying, acting or failing to act, and shall not be liable
        for having so relied, acted or failed to act in good faith, upon any report
        made by the independent public accountant of the Company and upon any
        other information furnished in connection with the Plan by any person
        or persons other than such member.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(g)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        Except as otherwise specifically provided in the relevant plan document,
        no payment under the Plan shall be taken into account in determining any
        benefits under any pension, retirement, profit-sharing, group insurance
        or other benefit plan of the Company.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<!-- MARKER FORMAT-SHEET="Para Hang Roman" -->
<TABLE WIDTH="100%" CELLPADDING="0" CELLSPACING="0">
  <TR VALIGN="TOP">
    <TD ALIGN="RIGHT" WIDTH="3%"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">(h)</FONT></FONT></TD>
    <TD ALIGN="LEFT" WIDTH="3%">&nbsp;</TD>
    <TD WIDTH="94%"><P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">
        The expenses of administering the Plan shall be borne by the Company.
        Masculine pronouns and other words of masculine gender shall refer to
        both men and women.</FONT></FONT> </P></TD>
  </TR>
</TABLE>
<BR>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<p align=center>8</p>
<br>
<hr noShade color="black">

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="3">Exhibit
  5.1 <br>&nbsp;<br>&nbsp;<br>
  Opinion of John F. Madden Jr.</FONT></FONT></H1>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="3">Exhibit
  23.1 <br>&nbsp;<br>&nbsp;<br>
  Consent of John F. Madden Jr.</FONT></FONT></H1>

<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>



<p align=center>
<font size=2>
</font></p>
<br><hr noShade color="black">





<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 58; page: 58" -->



<H1 ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">EXHIBIT
5.1 and Exhibit 23.1</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">September
16, 2003</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Aames
Financial Corporation<Br>350 South Grand Avenue, 43<SUP>rd</SUP> Floor<br>Los Angeles,
California 90071</FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Ladies
and Gentlemen:</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">At
your request, I, John F. Madden, Jr., Executive Vice President, General Counsel
and Secretary of Aames Financial Corporation, a Delaware corporation (the
&#147;Company&#148;) has examined the Registration Statement on Form S-8 to
which this letter is attached as exhibit 5.1 (the &#147;Registration
Statement&#148;), filed by the Company with respect to the registration under
the Securities Act of 1933, as amended (the &#147;Act&#148;) of 26,700,000
shares of the Company&#146;s Series E Preferred Stock, par value $0.001 per
share (the &#147;Shares&#148;) issuable pursuant to the Company&#146;s 2003
Series E Preferred Stock Option Plan (the &#147;Plan&#148;).</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">I have
examined the Company&#146;s Certificate of Incorporation, Certificate of
Designation for the Shares, Bylaws, the Plan and such other corporate records,
certificates, documents and matters of law as I have deemed necessary to render
this opinion.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Based
on the foregoing I am of the opinion, as of the date hereof, that the Shares
have been duly authorized and, upon issuance and sale in conformity with and
pursuant to the Plan, will be validly issued, fully paid and non-assessable.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">I
consent to the use of this opinion as an exhibit to the Registration Statement
and to use of my name in the Prospectus constituting a part thereof.</FONT></FONT> </P>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="50%"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td width="50%" valign="top"><font size="2" face="Times New Roman, Times, serif">Respectfully
      submitted,</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">/s/ John
      F. Madden, Jr.</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">John
      F. Madden, Jr.</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">Executive
      Vice President, General Counsel and Secretary</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td valign="top"><font size="2" face="Times New Roman, Times, serif">Aames
      Financial Corporation</font></td>
  </tr>
  <tr>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
    <td><font size="2" face="Times New Roman, Times, serif">&nbsp;</font></td>
  </tr>
</table>


<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>

<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>


<p align=center>
<font size=2>1
</font></p>
<br><hr noShade color="black">





<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 59; page: 59" -->


<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="3">Exhibit
 23.2 <br>&nbsp;<br>&nbsp;<br>
CONSENT OF
ERNST &amp; YOUNG LLP, INDEPENDENT AUDITORS</FONT></FONT></H1>

<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<hr noShade color="black">
<P><font face="Times New Roman"  Size="2">&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>






<!-- *************************************************************************** -->
<!-- MARKER PAGE="sheet: 60; page: 60" -->





<!-- MARKER FORMAT-SHEET="Head Sub 1" -->

<P ALIGN="Right"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2"><B>Exhibit
23.2</B></FONT></FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major" -->

<H1 ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">CONSENT
OF INDEPENDENT AUDITORS</FONT></FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" -->
<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">We
consent to the incorporation by reference in the Registration Statement (Form
S-8) for the registration of 26,700,000 shares of Series E Preferred Stock of
our report dated August 20, 2002 with respect to the consolidated financial
statements of Aames Financial Corporation included in its Annual Report (Form
10-K) for the year ended June 30, 2002, filed with the Securities and Exchange
Commission.</FONT></FONT> </P>

<!-- MARKER FORMAT-SHEET="Para" -->
<P ALIGN="LEFT">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">/s/
ERNST &amp; YOUNG LLP</FONT></FONT> </P>


<!-- MARKER FORMAT-SHEET="Head Minor" -->

<P ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif"><FONT SIZE="2">Los
Angeles, California<br>September 16, 2003</FONT></FONT></P>

<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
<P><font face="Times New Roman"  Size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></P>
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Aames Financial Corporation Form S-8
UNITED
STATES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AAMES
FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
95-4340340
(I.R.S. Employer Identification No.)
350
SOUTH GRAND AVENUE, 43RD FLOOR
LOS ANGELES, CALIFORNIA 90071
(Address of Principal Executive Offices)
AAMES
FINANCIAL CORPORATION
2003
SERIES E PREFERRED STOCK OPTION PLAN
(Full Title of the Plan)
John F. Madden, Jr.
Executive Vice President, General Counsel and Secretary
Aames
Financial Corporation
350 South Grand Avenue, 43
rd
Floor
Los Angeles, California 90071
(Name and Address of Agent for Service)
(323)
210-5000
( Telephone Number, Including Area Code, of Agent for Service)
=================
=================
=================
=================
=================
Title of Each Class
Securities
to be Registered
Amount to be
Registered
Proposed
Maximum Offering
Price Per Share
Proposed
Maximum Aggregate Offering Price
Amount of
Registration Fee
=================
=================
=================
=================
=================
Series E Preferred
Stock, $0.001
par value
26,700,000
$0.71(1)
$18,957,000
$1,533.63
=================
=================
=================
=================
=================
(1)
Calculated in accordance with Rule 457(h) solely for the purpose of computing
the amount of the registration fee based on the price at which the options may
be exercised.
This
  registration statement shall become effective immediately upon filing with the
  United States Securities and Exchange Commission in accordance with Section 8(a)
  of the Securities Act of 1933 and Rule 462 thereunder.
PART
  I
Information
  Required in Section 10(a) Prospectus
The
  documents containing the information specified in this Part I will be sent or
  given to participants as specified by Rule 428(b)(1). Those documents and the
  documents incorporated by reference in the registration statement pursuant to
  Item 3 of Part II of this form, taken together, constitute a prospectus that
  meets the requirements of Section 10(a) of the Securities Act of 1933, as amended.
PART
II
Information
Required in the Registration Statement
Item 3.  Incorporation of Documents by Reference.
The
following documents filed by Aames Financial Corporation with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, are
incorporated herein by reference:
•
Annual Report on Form 10-K for the year ended June 30, 2002;
•
Our Quarterly Report on Form 10-Q for the quarters ended September 30, 2002,
December 31, 2002 and March 31, 2003;
•
Our Current Reports on Form 8-K filed July 3, 2002, July 11, 2002, July 22,
2002, July 31, 2002, August 2, 2002, August 16, 2002, September 6, 2002,
September 23, 2002, September 30, 2002, October 7, 2002, October 8, 2002,
October 25, 2002, November 8, 2002, November 18, 2002, November 21, 2002,
November 22, 2002, November 27, 2002, December 17, 2002, January 24, 2003,
February 6, 2003, March 13, 2003, April 18, 2003, April 28, 2003, May 16, 2003,
June 2, 2003, June 6, 2003, June 10, 2003, July 2, 2003 and July 30, 2003;
•
Our Proxy Statement on Schedule 14A dated October 28, 2002; and
•
Our
Information Statement on Schedule 14C dated August 25, 2003.
2
All
documents filed by Aames pursuant to Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act, prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference in the
registration statement and to be part hereof from the date of filing of such
documents.
Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein or in any other subsequently filed document that also
is, or is deemed to be, incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part hereof.
Item 4.  Description of Securities.
The
Series E Preferred Stock, par value of $0.001, will rank senior to Aames common
stock, par value $0.001 per share, other classes or series of junior preferred
stock, and ranks equal to Aames Series B Convertible Preferred Stock, par value
$0.001 per share, Series C Convertible Preferred Stock, par value $0.001 per
share, and Series D Convertible Preferred Stock, par value $0.001 per share.
Upon any liquidation, dissolution or winding up of Aames, holders of Series E
Preferred Stock will be entitled to receive the stated value of $1.00 per share
of Series E Preferred Stock out of Aames's assets before payments are made
to holders of common stock or junior preferred stock. Aames may redeem all
outstanding shares of Series E Preferred Stock at any time by paying the stated
value per share. Holders of Series E Preferred Stock will be entitled to vote on
all matters on which the holders of Aames common stock vote, except that holders of Series
E Preferred Stock will not be entitled to vote for members of Aames's Board
of Directors. Holders of Series E Preferred Stock are entitled to one vote per
share of Series E Preferred Stock. Holders of the Series E Preferred Stock do
not have cumulative voting rights, preemption rights, dividend rights or
conversion rights.
Item 5. Interest of Named Experts and Counsel.
None.
Item 6.  Indemnification of Directors and Officers.
Section
145 of the Delaware General Corporation Law authorizes indemnification of
directors and officers of a Delaware corporation under certain circumstances
against expenses, judgments and the like in connection with an action, suit or
proceeding. Article Ninth of the Amended and Restated Certificate of
Incorporation of Aames provides for broad indemnification of directors and
officers.
Item 7.  Exemption from Registration Claimed.
Not applicable.
3
Item 8. Exhibits.
4.1        
  Amended and Restated Certificate of Incorporation of the Registrant.
4.2        
  Amended and Restated Bylaws of the Registrant(1)
4.3         2003 Series E Preferred Stock Option Plan of the Registrant.
5.1        
  Opinion of John F. Madden, Jr.
23.1        Consent
  of John F. Madden, Jr. (Included in Exhibit 5.1)
23.2        Consent of Ernst & Young LLP
24.1        Power of Attorney (included on the signature page to this registration statement).
(1)
  Incorporated by reference to exhibits to the Registrant's Annual Report
  on Form 10-K for the year ended June 30, 1999, filed September 3, 1999.
Item 9.  Undertakings.
(a)
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:
(i) 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.
(ii) To reflect in the prospectus
      any facts or events arising after the effective date of the registration
      statement (or the most recent post-effective amendment thereof) which, individually
      or in the aggregate, represent a fundamental change in the information set
      forth in the registration statement. Notwithstanding the foregoing, any
      increase or decrease in volume of securities offered (if the total dollar
      value of securities offered would not exceed that which was registered)
      and any deviation from the low or high end of the estimated maximum offering
      range may be reflected in the form of prospectus filed with the Commission
      pursuant to
Rule 424(b)
(ss.230.424(b) of this chapter) if, in the aggregate,
      the changes in volume and price represent no more than a 20% change in the
      maximum aggregate offering price set forth in the "Calculation of Registration
      Fee" table in the effective registration statement.
4
(iii) 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 any liability under the Securities Act of
1933, 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.
(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.
(b)
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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.
(c)
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 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 the appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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-8 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 this 18th day of September, 2003.
5
AAMES
      FINANCIAL CORPORATION
By: /s/ John F. Madden,
      Jr.
_______________________________________
John F. Madden, Jr.
Executive Vice President,
      General Counsel and
Secretary
6
Power
of Attorney
Each
person whose signature appears below constitutes and appoints John F. Madden,
Jr., as his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated.
Signature
Title
Date
/s/ Jenne
      K. Britell
Jenne K. Britell
Director
September
      18, 2003
/s/ David H. Elliott
David H. Elliott
Director
September
      18, 2003
/s/ Daniel C. Lieber
Daniel C. Lieber
Director
September
      18, 2003
/s/ A. Jay Meyerson
A. Jay Meyerson
Director and Chief
      Executive Officer (Principal Executive Officer)
September 18, 2003
/s/ Ronald J. Nicolas,
      Jr.
Ronald J. Nicolas,
      Jr.
Executive Vice President
      - Finance and Chief Financial Officer (Principal Financial Officer)
September 18, 2003
/s/ Eric C. Rahe
Eric C. Rahe
Director
September
      18, 2003
/s/ Mani A. Sadeghi
Mani A. Sadeghi
Chairman of the Board
      of Directors
September
      18, 2003
/s/ Robert A. Spass
Robert A. Spass
Director
September
      18, 2003
/s/ Joseph R. Tomei
Joseph R. Tomei
Director
September
      18, 2003
/s/ Jon D. Van
      Deuren
Jon D. Van Deuren
Senior Vice President
      - Finance and Chief Accounting Officer (Principal Accounting Officer)
September 18, 2003
/s/ Stephen E.
      Wall
Stephen E. Wall
Director
September
      18, 2003
7
Exhibit
  4.1
Amended and
Restated Certificate of Incorporation and
Certificates
of Designations for
Series B, Series C, Series D and Series E Preferred Stock
1
AMENDED
AND RESTATED
CERTIFICATE
OF INCORPORATION
OF
AAMES
FINANCIAL CORPORATION
FIRST
:     
The name of this corporation is Aames Financial Corporation (the "Corporation").
SECOND
:     
The address of the registered office of the Corporation in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle. The name of its
registered agent at that address is The Corporation Trust Company.
THIRD
:     
The purpose of the Corporation is to engage in any lawful act or activity for
which a corporation may now or hereafter be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 to the Delaware
Code (the "GCL").
FOURTH
:     
The total number of shares which the Corporation shall have the authority to
issue is 600,000,000, consisting of 400,000,000 shares of common stock, par
value $0.001 per share (the "Common Stock"), and 200,000,000 shares of
preferred stock, par value $0.001 per share (the "Preferred Stock").
As
of April 13, 2000 (the "Effective Date"), each share of the
Corporation's common stock, par value $0.001 per share issued and
outstanding immediately prior to the Effective Date (the "Pre-Split Common
Stock") shall automatically and without any action on the part of the
holder thereof be reclassified as and changed (the "Reverse Common Stock
Split") into 0.2 of one share of common stock, par value of $0.001 per
share (the "Post-Split Common Stock"). Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of Pre-Split Common Stock (the "Pre-Split
Certificates," whether one or more) shall be entitled to receive upon
surrender of such Pre-Split Certificates to the Corporation's Secretary for
cancellation, a certificate or certificates (the "Post-Split
Certificates," whether one or more) representing the number of whole shares
of Post-Split Common Stock into which and for which the shares of Pre-Split
Common Stock formerly represented by such Pre-Split Certificates so surrendered,
are reclassified pursuant to the terms hereof. No script or fractional shares
certificates will be issued for Pre-Split Common Stock in connection with the
Reverse Common Stock Split. Any fractional share interests will be aggregated
and sold on the open market by the exchange agent selected by the Corporation.
From and after the Effective Date, Pre-Split Certificates shall represent only
the right to receive Post-Split Certificates pursuant to the provisions hereof.
If more than one Pre-Split Certificate shall be surrendered at one time for the
account of the same stockholder, the number of full shares of Post-Split Common
Stock for which the Post-Split Certificates shall be issued shall be computed on
the basis of the aggregate number of shares represented by the Pre-Split
Certificates so surrendered. If any Post-Split Certificate is to be issued in a
name other than that in which the Pre-Split Certificate surrendered for exchange
are issued, the Pre-Split Certificates so surrendered shall be properly endorsed
and otherwise in proper form for transfer, and the person or persons requesting
such exchange shall affix any requisite stock transfer tax stamps to the
Pre-Split Certificates surrendered, or provide funds for their purchase, or
establish to the satisfaction of the Corporation's Secretary that such
taxes are not payable. From and after the Effective Date the amount of capital
represented by the shares of Post-Split Common Stock into which and for which
the shares of the Pre-Split Common Stock are reclassified pursuant to the terms
hereof shall be the same as the amount of capital represented by the shares of
Pre-Split Common Stock so reclassified, until thereafter reduced or increased in
accordance with applicable law.
2
Shares
  of the Preferred Stock of the Corporation may be issued from time to time in
  one or more classes or series, each of which class or series shall have such
  distinctive designation or title as shall be fixed by the Board of Directors
  of the Corporation (the "Board of Directors") prior to the issuance
  of any shares thereof. Each such class or series of Preferred Stock shall have
  such voting powers, full or limited, or no voting powers, and such preferences
  and relative, participating, optional or other special rights and such qualifications,
  limitations or restrictions thereof, as shall be stated in such resolution or
  resolutions providing for the issue of such class or series of Preferred Stock
  as may be adopted from time to time by the Board of Directors prior to the issuance
  of any shares thereof pursuant to the authority hereby expressly vested in it,
  all in accordance with the laws of the State of Delaware. Attached hereto as
  Exhibits A, B, C, D and E are the Certificates of Designations for the Series
  A Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
  Preferred Stock, Series D Convertible Preferred Stock and Series E Preferred
  Stock, respectively.
FIFTH
:     
All rights to vote and all voting power shall be vested in the Common Stock and
the holders thereof shall be entitled at all elections of directors to one (1)
vote per share, except for directors for which holders of any one or more classes
or series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders. Special meetings of the stockholders for any purpose or
purposes may be called at any time only by the Board of Directors, the Chairman
of the Board or by the Chief Executive Officer or President of the Corporation.
SIXTH
:     
The directors of the Corporation shall be divided into three classes, designated
Class I, Class II and Class III. The term of the initial Class I directors shall
terminate on the date of the 1994 annual meeting of stockholders; the term of
the initial Class II directors shall terminate on the date of the 1993 annual
meeting of stockholders and the term of
the initial Class III directors
shall terminate on the date of
the 1992 annual meeting of stockholders.
At each annual meeting of stockholders beginning in 1992, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as reasonably possible, and any
additional directors of
any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term at any incumbent directors. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Any vacancy on the Board of Directors, howsoever resulting, shall
be filled only by a majority of the directors then in office, even if less than
a quorum, or by a sole remaining director and not by the stockholders. Any
director elected to fill a vacancy shall hold office of a term that shall
coincide with the terms of the class to which such director shall have been
elected.
Subject
to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, for cause only, by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation then entitled to vote
generally in the election of directors, considered for the purposes of this
Article SIXTH as one class.
Notwithstanding
the foregoing, whenever the holders of any one or more classes or series of
Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Certificate of Incorporation or the resolution or resolutions adopted by the
Board of Directors pursuant to the second paragraph of Article FOURTH applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article SIXTH unless expressly provided by such terms.
SEVENTH:
Elections of directors at an annual or special meeting of stockholders need not be by written ballot
unless the Bylaws of the Corporation shall otherwise provide.
3
Any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken either upon the vote of the stockholders at an annual
or special meeting duly noticed and called, as provided in the Bylaws of the
Corporation, or may be taken by written consent of the stockholders pursuant to
the GCL.
EIGHT
:     
The officers of the corporation shall be chosen in such a manner, shall hold
their offices for such terms and shall carry out such duties as are determined
solely by the Board of Directors, subject to the right of the Board of Directors
to remove any officer or officers at any time with or without cause.
NINTH
:     
(A) The Corporation shall indemnify to the full extent authorized or permitted
by law (as now or hereafter in effect) any person made, or threatened to be
made, a defendant or witness to any action, suit or proceeding (whether civil or
criminal or otherwise) by reason of the fact that he, his testator or intestate,
is or was a director or officer of the Corporation or by reason of the fact that
such director or officer, at the request of the Corporation, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or enterprise, in any capacity. Nothing contained herein shall affect any rights
to indemnification to which employees other than directors and officers may be
entitled by law. No amendment or repeal of this Section A of Article NINTH shall
apply to or have any effect on any right to indemnification provided hereunder
with respect to any acts or omission occurring prior to such amendment or
repeal.
(B)     No director of the corporation shall be
personally liable to the Corporation or its
stockholders
for monetary damages for any breach of
fiduciary duty by such a director
as a director. Notwithstanding the foregoing sentence, a director shall be
liable to the extent provided by applicable law (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation
o
f
law, (iii) pursuant to Section 174 of
the GCL, or (iv) for any transaction from which such director derived an
improper personal benefit. No amendment to or repeal of this Section B of
Article NINTH shall apply to or have any effect on the liability or alleged
liability of
any director of
the Corporation for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
(C)     
In furtherance and not in limitation of the powers conferred by statute:
(i)       the Corporation may purchase and maintain insurance on behalf of any person
who is or
was a director, officer, employee or agent of the Corporation, or is
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify against such
liabil1ty under the provisions of law; and
(ii)     the Corporation may create a trust fund, grant a security interest and/or use
other means (including, without limitation, letters of credit, surety bonds and/or
other similar arrangements), as well as enter into contracts providing
indemnification to the full extent authorized or permitted by law and including
as part thereof provisions with respect to any or all of the foregoing to ensure
the payment of such amounts as may become necessary to effect indemnification as
provided therein, or elsewhere.
TENTH
:     
In furtherance and not in limitation of the powers conferred by statute, the Board of
Directors is expressly authorized to adopt, repeal, alter, amend or rescind the Bylaws of the
Corporation.
4
ELEVENTH
:     
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
TWELFTH
:             The name and mailing address for the Incorporator
of the Corporation is as follows: Barbara
J. Gillen, 10940 Wilshire Boulevard, Suite 600, Los Angeles, California 90024-3902.
5
CERTIFICATE OF DESIGNATION OF
RIGHTS,
PREFERENCES AND PRIVILEGES OF
SERIES
A PREFERRED STOCK
OF
AAMES
FINANCIAL CORPORATION
Section
1.
Designation and Amount
.      The shares of such
series shall be designated
as "Series A Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock
shall be 500,000 shares of Series A Preferred Stock, having a par value of
$0.001 per share. Such number of shares may be increased or decreased by
resolution of the Board of Directors;
provided
, that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less than
the number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section
2.
Dividends and Distributions
.
(a)         Subject to the rights of the holders of any shares of any series of
Preferred Stock
(or any similar stock) ranking prior and superior to the Series A Preferred Stock
with respect to dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock, par value $0.001 per share (the
"Common Stock"), of the Corporation, and of any other junior stock,
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, (i) cash dividends in an amount
per whole share (rounded to the nearest cent) equal to the Formula Number (as
defined below) then in effect, times the aggregate per share amount of all cash
dividends declared or paid on the Common Stock, and (ii) a preferential cash
dividend (a "Preferential Dividend"), if any, on the first day of
July, October, January and April in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to $1.00 per share of Series A Preferred Stock less
the per share amount of all cash dividends declared on the Series A Preferred
Stock pursuant to clause (i) of this sentence since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In addition, if the Corporation shall pay any dividend
or make any distribution on the Common Stock payable in assets, securities or
other forms of noncash consideration (other than dividends or distributions
solely in shares of Common Stock), then, in each such case, the Corporation
shall simultaneously pay or make on each whole outstanding share of Series A
Preferred Stock, a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series A Preferred Stock to
which holders thereof are entitled pursuant to clause (i) of the first sentence
of this paragraph and the second sentence of this paragraph are hereinafter
referred to as "Participating Dividends." As used herein, the
"Formula Number" shall be 100; provided, however, that if at any time
after June 21, 1996, the Corporation shall (i) declare or pay any dividend or
make any distribution on the Common Stock, payable in shares of Common Stock,
(ii) subdivide (by a stock split or otherwise), the outstanding shares of Common
Stock into a larger number of shares of Common Stock, or (iii) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then in each such case the Formula
Number in effect immediately prior to such event shall be adjusted to a number
determined by multiplying the Formula Number then in effect by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided further,
that, if at any time after June 21, 1996, the Corporation shall issue any
shares of its capital stock in a merger, reclassification, or change of the
outstanding shares of Common Stock, then in each such event the Formula Number
shall be appropriately adjusted to reflect such merger, reclassification, or
change so that each share of Series A Preferred Stock continues to be the
economic equivalent of a Formula Number of shares of Common Stock prior to such
merger, reclassification or change.
6
(b)         The Corporation shall declare such Participating Dividend immediately prior
to or at
the same time it declares any cash or non-cash dividend or distribution on the
Common Stock in respect of which a Participating Dividend is required to be
paid. No cash or non-cash dividend or distribution on the Common Stock in
respect of which a Participating Dividend is required shall be paid or set aside
for payment on the Common Stock unless a Participating Dividend in respect of
such dividend shall have been paid.
(c)     
    Dividends shall begin to accrue and be cumulative on outstanding shares of Series A
Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue
of such shares, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section
3.
Voting Rights
.      The holders of shares of
Series A Preferred Stock shall
have the following voting rights.
(a)     
Each holder of Series A Preferred Stock shall be entitled to a number of votes equal
>to the Formula Number then in effect, for each share of Series A Preferred Stock held
of record on each matter on which holders of the Common Stock or stockholders
generally are entitled to vote, multiplied by the maximum number of votes per
share which any holder of the Common Stock or stockholders generally then have
with respect to such matter (assuming any holding period or other requirement to
vote a greater number of shares is satisfied).
(b)     Except
as otherwise provided herein, in any other Certificate of Amendment creating
a series of Preferred Stock or any similar stock, or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
(c)     
    Except as set forth herein, or as otherwise provided by law, holders of Series A
Preferred Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section
4.
Certain Restrictions
.
7
(a)     
    Whenever Preferential Dividends or Participating Dividends are in arrears or the
Corporation shall be in default in payment thereof, thereafter and until all accrued and
unpaid Participating Dividends and Preferential Dividends, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have been paid
or set aside for payment in full, the Corporation shall not:
(i)     declare or pay dividends, or make any other distributions on or redeem or
purchase or otherwise acquire for consideration any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock.
(ii)     
declare or pay dividends, or make any other distributions, on the shares of
stock ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled;
(iii)      redeem or purchase or otherwise acquire for consideration shares of any stock
ranking junior or on a parity (either as to dividends or upon liquidation, dissolution
or winding up) to or with Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior or parity stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv)     redeem or purchase or otherwise acquire for consideration shares of Series A
Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred
Stock, except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(b)     
The Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise
acquire for consideration any shares of stock of the Corporation unless the
Corporation could, under paragraph (a) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
Section
5.
Reacquired Shares
.      Any shares of Series A
Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the Certificate of
Incorporation, or in any other Certificate of Amendment or Certificate of
Designation creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section
6.
Liquidation, Dissolution or Winding Up
.     
Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received an amount equal to the accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (i) $0.01 per whole share,
or (ii) an aggregate amount per share equal to the Formula Number then in effect
times the aggregate amount to be distributed per share to holders of Common
Stock, or (b) to the holders of shares of stock ranking on a party (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, unless simultaneously therewith distributions are made ratably
on the Series A Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of Series A Preferred Stock shares are
entitled under clause (a)(i) of this sentence and to which the holders of such
parity shares are entitled in each case upon such liquidation, dissolution or
winding up.
8
Section
7.
Consolidation, Merger, etc.
If the
Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or charged into other stock or securities, cash
and/or any other property, (then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share equal to the Formula Number then in effect times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event that both this Section 7 and Section 2 appear
to apply to a transaction, this Section 7 shall control.
Section
8.
Effective Time of
Adjustments
.
(a)     
Adjustments to the Series A Preferred Stock required by the provisions hereof shall
be effective as of the time at which the event requiring such adjustment occurs.
(b)     
The Corporation shall give prompt written notice to each holder of a share of Series
A Preferred Stock of the effect on any such shares of any adjustment to the
dividend rights or rights upon liquidation, dissolution or winding up of the
Corporation required by the provisions hereof. Notwithstanding the foregoing
sentence, the failure of the Corporation to give such notice shall not affect
the validity of or the force or effect of or the requirement for such
adjustment.
Section
9.
No Redemption
.      The shares of Series A
Preferred Stock shall not be
redeemable.
Section
10.
Rank
.      Unless otherwise provided in the Certificate of Incorporation
or a Certificate of Designation relating to a subsequent series of Preferred
Stock of the Corporation, the Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section
11.
Fractional Shares
.      The Series A Preferred
Stock shall be issuable
upon exercise of the Rights issued pursuant to the Rights Agreement in whole
shares or in any fraction of a share that is one one-hundredth
(1/100
th
) of a share or any integral multiple of such fraction which
shall entitle the holder, in proportion to such holder's fractional shares,
to receive dividends, exercise voting rights, participate in distributions and
to have the benefit of all other rights of holders of Series A Preferred Stock.
In lieu of fractional shares, the Corporation, prior to the first issuance of a
share or a fraction of a share of Series A Preferred Stock, may elect (1) to
make a cash payment as provided in the Rights Agreement for fractions of a share
other than one one-hundredth (1/100
th
) of a share or any integral
multiple thereof, or (2) to issue depository receipts evidencing such authorized
fraction of a share of Series A Preferred Stock pursuant to an appropriate
agreement between the Corporation and a depository selected by the Corporation;
provided that such agreement shall provide that the holders of such depository
receipts shall have the rights, privileges and preferences to which they are
entitled as holders of the Series A Preferred Stock.
Section
12.
Amendment
.      The Certificate of
Incorporation of the Corporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
9
CERTIFICATE
OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL
OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS
OR RESTRICTIONS THEREOF, OF
SERIES
B CONVERTIBLE PREFERRED STOCK OF
AAMES
FINANCIAL CORPORATION
I.
Designation and Amount
The
designation of this series of shares shall be "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock") par value
$0.001 per share; the initial stated value per share shall be $1,000.00 (the
"Initial Stated Value"); and the number of shares constituting such
series shall be 29,704,000. The number of shares of the Series B Preferred Stock
may be decreased from time to time by a resolution or resolutions of the Board
of Directors; provided, however, that such number shall not be decreased below
the aggregate number of shares of the Series B Preferred Stock then outstanding.
II.
Rank
A.     
  With respect to dividends, the Series B Preferred Stock shall rank (i) senior
  to each other class or series of Preferred Stock, except for the Series C
  Convertible Preferred Stock, par value $0.001 per share, of the Corporation
  (the "Series C Preferred Stock") and the Series D Convertible
  Preferred Stock, par value $0.001 per share, of the Corporation (the "Series D
  Preferred Stock"); (ii) on a parity with the Series C Preferred
  Stock and the Series D Preferred Stock; and (iii) senior to the Corporation's
  Common Stock, par value $0.001 per share (the "Common Stock"), and,
  except as specified above, all other classes and series of capital stock of
  the Corporation hereafter issued by the Corporation. With respect to dividends,
  all equity securities of the Corporation to which the Series B Preferred
  Stock ranks senior, including the Common Stock, are collectively referred to
  herein as the "Junior Dividend Securities"; all equity securities
  of the Corporation with which the Series B Preferred Stock ranks on a parity,
  including the Series C Preferred Stock and the Series D Preferred
  Stock, are collectively referred to herein as the "Parity Dividend Securities";
  and all equity securities of the Corporation (other than convertible debt securities)
  to which the Series B Preferred Stock ranks junior, with respect to dividends,
  are collectively referred to herein as the "Senior Dividend Securities."
B.     
  With respect to the distribution of assets upon liquidation, dissolution or
  winding up of the Corporation, whether voluntary or involuntary, the Series B
  Preferred Stock shall rank (i) senior to each other class or series of
  Preferred Stock of the Corporation, except for the Series C Preferred Stock,
  the Series D Preferred Stock and the Series E Preferred Stock,
  par value $0.001 per share, of the Corporation (the "Series E Preferred
  Stock"); (ii) on
  a parity with the Series C Preferred Stock, the Series D Preferred
  Stock and
  the Series E Preferred Stock; and (iii) senior
  to the Common Stock, and, except as specified above, all other classes and series
  of capital stock of the Corporation hereafter issued by the Corporation. With
  respect to the distribution of assets upon liquidation, dissolution or winding
  up of the Corporation, whether voluntary or involuntary, all equity securities
  of the Corporation to which the Series B Preferred Stock ranks senior,
  including the Common Stock, are collectively referred to herein as "Junior
  Liquidation Securities"; all equity securities of the Corporation (other
  than convertible debt securities) to which the Series B Preferred Stock
  ranks on parity, including the Series C Preferred Stock, the Series D
  Preferred Stock and the Series E Preferred Stock, are collectively referred
  to herein as "Parity Liquidation Securities"; and all equity securities
  of the Corporation to which the Series B Preferred Stock ranks junior are
  collectively referred to herein as "Senior Liquidation Securities."
10
C.     
  The Series B Preferred Stock shall be subject to the creation of Junior Dividend
  Securities and Junior Liquidation Securities (collectively, "Junior Securities"),
  but no Parity Dividend Securities or Parity Liquidation Securities (collectively,
  "Parity Securities") (other than the Series C Preferred Stock, Series
  D Preferred Stock and Series E Preferred Stock) or Senior Dividend Securities
  or Senior Liquidation Securities (collectively, "Senior Securities")
  shall be created except in accordance with the terms hereof.
III.
Dividends
A.
Dividends
.      Subject to the terms of paragraph D below, shares of Series B
Preferred Stock shall accumulate dividends at a rate of 6.5% per annum (the
"Dividend Rate"), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a "Dividend Payment Date"), to
holders of record (the "Registered
Holders") as they appear on the stock record books of the Corporation on
the fifteenth day prior to the relevant Dividend Payment Date; provided,
however, that during the Accrual Period (as defined in Article IX hereof) the
Corporation shall have the option to accrue such dividends, which dividends, to
the extent so accrued, shall compound quarterly. Dividends shall accrue and
accumulate on $1.00 for each share of Series B Preferred Stock. Dividends shall
be paid only when, as and if declared by the Board of Directors out of funds at
the time legally available for the payment of dividends. Dividends shall begin
to accumulate on outstanding shares of Series B Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.
B.
Accumulation
.      Dividends on the Series B Preferred Stock shall be
cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at
125% of the stated dividend rate (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional dividends in respect
of any Arrearage shall be deemed to accumulate from day to day whether or not
earned or declared until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date, and shall constitute an additional Arrearage
from and after any Dividend Payment Date to the extent not paid on such Dividend
Payment Date. References in any Article herein to dividends that have
accumulated or that have been deemed to have accumulated with respect to the
Series B Preferred Stock shall include the amount, if any, of any Arrearage
together with any dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences. Additional
dividends in respect of any Arrearage may be declared and paid at any time, in
whole or in part, without reference to any regular Dividend Payment Date, to
Registered Holders as they appear on the stock record books of the Corporation
on such record date as may be fixed by the Board of Directors (which record date
shall be no less than 10 days prior to the corresponding payment date).
Dividends in respect of any Arrearage shall be paid in cash.
11
C.
Method of Payment
.      Dividends paid on the shares of Series B Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of Series B Preferred Stock
shall be allocated pro rata on a share-by-share basis among all such shares then
outstanding. After the Second Anniversary Date, dividends that are declared and
paid in an amount less than the full amount of dividends accumulated on the
Series B Preferred Stock (and on any Arrearage) shall be applied first to the
earliest dividend which has not theretofore been paid. All cash payments of
dividends on the shares of Series B Preferred Stock shall be made in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
IV.
Liquidation Preference
A.            INTENTIONALLY OMITTED
B.
Liquidation Preference
.      The holders of the outstanding shares of Series B
Preferred Stock
shall be entitled to receive out of the assets of the Corporation, whether such
assets are capital or surplus of any nature, an amount per share equal to the
sum of the dividends, if any, accumulated or deemed to have accumulated thereon
to the date of final distribution to such holders, whether or not such dividends
are declared; and $1.00 per share of Series B Preferred Stock, before any
payment shall be made or any assets distributed to the holders of any Junior
Liquidation Securities. After any such payment in full, the holders of Series B
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.
C.
Parity Securities
.     
All the assets of the Corporation available for distribution to stockholders after the liquidation preferences of
any Senior Liquidation Securities shall be distributed ratably (in proportion
to the full distributable amounts to which holders of Series B Preferred Stock and Parity Liquidation Securities,
if any, are respectively entitled upon such dissolution, liquidation or winding up) among the holders of the
then-outstanding shares of Series B Preferred Stock and Parity Liquidation Securities, if any, when such assets
are
not sufficient to pay in full the aggregate amounts payable thereon.
D.
Merger Not a Liquidation
.     Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series B Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series B Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
V.
Redemption
A.     
       INTENTIONALLY OMITTED
B.
Optional Redemption.
Commencing on the earlier to occur of (x) the
tenth anniversary of the Issue
 Date and (y) the date on which fewer than 25% of the shares of Series B Preferred Stock issued on the Issue Date
remain outstanding, and at all times thereafter, the Corporation may, at its option, redeem all (but not less than
all) outstanding shares of Series B Preferred Stock on a date specified by the Corporation (the "Optional
Redemption Date") by paying the Redemption Price therefor in cash out of funds legally available for such
purpose.
12
C.
Notice and Redemption Procedures
. Notice of the redemption of shares of
Series B Preferred Stock pursuant to paragraph B of this Article V (a
"Notice of Redemption") shall be sent to the holders of record of the
shares of Series B Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder's address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, which date shall be set forth in such notice (the
"Redemption Date"); provided that failure to give such Notice of
Redemption to any holder, or any defect in such Notice of Redemption to any
holder shall not affect the validity of the proceedings for the redemption of
any shares of Series B Preferred Stock held by any other holder. In order to
facilitate the redemption of shares of Series B Preferred Stock, the Board of
Directors may fix a record date for the determination of the holders of shares
of Series B Preferred Stock to be redeemed not more than 30 days prior to the
date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, each holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Redemption
Price for such shares. From and after the Optional Redemption Date, all
dividends on shares of Series B Preferred Stock shall cease to accumulate and
all rights of the holders thereof as holders of Series B Preferred Stock shall
cease and terminate, except to the extent the Corporation shall default in
payment thereof on the Optional Redemption Date.
D.
Deposit of Funds
.
The Corporation shall, on or prior to the
Optional Redemption Date, pursuant to paragraph C of this Article V, deposit
with its transfer agent or other redemption agent in the Borough of Manhattan,
The City of New York having a capital and surplus of at least $500,000,000
selected by the Board of Directors, as a trust fund for the benefit of the
holders of the shares of Series B Preferred Stock to be redeemed, cash that is
sufficient in amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption, with irrevocable instructions and authority to such
transfer agent or other redemption agent to pay to the respective holders of
such shares, as evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price for such shares upon surrender of their
respective share certificates. Such deposit shall be deemed to constitute full
payment of the Redemption Price for such shares to the holders, and from and
after the date of such deposit, all rights of the holders of the shares of
Series B Preferred Stock that are to be redeemed as stockholders of the
Corporation with respect to such shares, except the right to receive the
Redemption Price upon the surrender of their respective certificates, shall
cease and terminate. No dividends shall accumulate on any shares of Series B
Preferred Stock after the Optional Redemption Date for such shares (unless the
Corporation shall fail to deposit cash sufficient to redeem all such shares). In
case holders of any shares of Series B Preferred Stock called for redemption
shall not, within two years after such deposit, claim the cash deposited for
redemption thereof, such transfer agent or other redemption agent shall, upon
demand, pay over to the Corporation the balance so deposited. Thereupon, such
transfer agent or other redemption agent shall be relieved of all responsibility
to the holders thereof and the sole right of such holders, with respect to
shares to be redeemed, shall be to receive the Redemption Price as general
creditors of the Corporation. Any interest accrued on any funds so deposited
shall belong to the Corporation, and shall be paid to it from time to time on
demand.
VI.
Restrictions on Dividends
13
So long
as any shares of the Series B Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Securities or make any payment on account of,
or set apart for payment money for a sinking or other similar fund for, the
repurchase, redemption or other retirement of, any Junior Securities or Parity
Securities or any warrants, rights or options exercisable for or convertible
into any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities), or
make any distribution in respect of the Junior Securities, either directly or
indirectly, and whether in cash, obligations or shares of the Corporation or
other property (other than distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Securities or Parity Securities or any warrants, rights, calls
or options exercisable for or convertible into any Junior Securities or Parity
Securities (other than the repurchase, redemption or other retirement of
debentures or other debt securities that are convertible or exchangeable into
any Junior Securities or Parity Securities or the repurchase, redemption or
other retirement of Junior Securities or Parity Securities in exchange for
Junior Securities or Parity Securities) unless prior to or concurrently with
such declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, all accumulated and unpaid
dividends on shares of the Series B Preferred Stock not paid on the dates
provided for in paragraph A of Article III hereof (including Arrearages and
accumulated dividends thereon) shall have been paid, except that when dividends
are not paid in full as aforesaid upon the shares of Series B Preferred Stock,
all dividends declared on the Series B Preferred Stock and any series of Parity
Dividend Securities shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series B Preferred Stock and such series of
Parity Dividend Securities shall in all cases bear to each other the same ratio
that accumulated dividends (including interest accrued on or additional
dividends accumulated in respect of such accumulated dividends) on the shares of
Series B Preferred Stock and such Parity Dividend Securities bear to each other.
VII.
Voting Rights
A.     
The holders of Series B Preferred Stock shall be entitled to the number of votes
per share of Series B Preferred Stock equal to the number of shares of Common
Stock for which such share of Series B Preferred Stock is then convertible
pursuant to Article VIII at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration.
B.     
So long as any shares of the Series B Preferred Stock are outstanding,
(i) each share of Series B Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock; and
(ii) the shares of Series B Preferred Stock shall vote together with
shares of Common Stock (and any shares of Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock entitled to vote) as
a single class.
C.     
At each annual meeting of the stockholders of the Corporation, the holders of
Series B Preferred Stock, voting as a separate class, shall have the right to
elect, by the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series B Preferred Stock, four members of a separate class of directors, each of
whom shall serve until the next annual meeting of the stockholders of the
Corporation or until his or her successor is elected and qualified. Such vote or
consent shall be taken in accordance with the procedures specified in paragraph
F below.
D.     
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i) authorize, create or issue, or increase the
authorized amount of, (x) any Senior Securities or Parity Securities or
(y) any class or series of capital stock or any security convertible into
or exercisable for any class or series of capital stock, redeemable mandatorily
or redeemable at the option of the holder thereof at any time on or prior to the
Redemption Date (whether or not only upon the occurrence of a specified event)
or (ii) enter into any Transaction (as defined in paragraph H of
Article VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph F below.
14
E.     
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the Bylaws, if the amendment, alteration or
repeal alters or changes the powers, preferences or special rights of the
Series B Preferred Stock so as to affect them materially and adversely or
(ii) authorize or take any other action if such action alters or changes
any of the rights of the Series B Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph F below.
F.     
The foregoing rights of holders of shares of Series B Preferred Stock to
take any actions as provided in this Article VII may be exercised at any
annual meeting of stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment thereof, or by the
written consent, delivered to the Secretary of the Corporation, of the holders
of the minimum number of shares required to take such action, if action by
written consent of stockholders of the Corporation is then permitted.
The
Chairman of the Board of the Corporation may call, and upon written request of
holders of record of 35% of the outstanding shares of Series B Preferred
Stock, if the holders of Series B Preferred Stock are to vote separately as
a single class, or the holders of record of 35% of the outstanding shares of
Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, if the holders of shares of
Series B Preferred Stock are to vote as a class with the holders of shares
of any Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation shall call, a special meeting of the holders of shares
entitled to vote as provided herein. Such meeting shall be held within
30 days after delivery of such request to the Secretary, at the place and
upon the notice provided by law and in the By-laws of the Corporation for the
holding of meetings of stockholders.
At
each meeting of stockholders at which the holders of shares of Series B
Preferred Stock shall have the right, voting separately as a single class, to
elect directors of the Corporation as provided in paragraph C above, or as a
class with the holders of shares of any Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, to take any action,
the presence in person or by proxy of the holders of record of one-third of the
total number of shares of Series B Preferred Stock, if the holders of
shares of Series B Preferred Stock are to vote separately as a single
class, or the holders of record of one-third of the total number of shares of
Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, if the holder of shares of
Series B Preferred Stock are to vote as a class with the holders of shares
of Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, then outstanding and entitled to vote on the matter shall be
necessary and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:
(A)
the absence of a quorum of the holders of shares of Series B Preferred
Stock, if the holders of Series B Preferred Stock are to vote separately as
a single class, shall not prevent the election of directors other than those to
be elected by the holders of shares of Series B Preferred Stock, and the
absence of a quorum of the holders of shares of any other class or series of
capital stock shall not prevent the election of directors to be elected by the
holders of shares of Series B Preferred Stock or the taking of any action
as provided in this Article VII; and
(B)
in the absence of a quorum of the holders of shares of Series B Preferred
Stock, if the holders of Series B Preferred Stock are to vote separately as
a single class, or the holders of shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, if the holders of Series B Preferred Stock are to vote as
a class with the holders of shares of Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, a majority of the
holders of such shares present in person or by proxy shall have the power to
adjourn the meeting as to the actions to be taken by the holders of shares of
Series B Preferred Stock or the holders of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, as the case may be, from time to time and place to place
without notice other than announcement at the meeting until a quorum shall be
present.
15
For
taking of any action as provided in this Article VII by the holders of
shares of Series B Preferred Stock voting separately as a single class or
together with the holders of shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock as a single class, as the case may be, each such holder shall
have one vote for each share of such stock standing in his name on the transfer
books of the Corporation as of any record dated fixed for such purpose or, if no
such date be fixed, at the close of business on the Business Day next preceding
the day on which notice is given, or if notice if waived, at the close of
business on the Business Day next preceding the day on which the meeting is
held.
In
case any vacancy shall occur among the directors elected by the holders of
shares of Series B Preferred Stock, as provided in paragraph C above,
such vacancy may be filled for the unexpired portion of the term by vote of the
remaining directors theretofore elected by such holders (if there is a remaining
director), or the last remaining director's successor in office. If any
such vacancy is not so filled within 20 days after the creation thereof or
if all directors so elected by the holders of Series B Preferred Stock
shall cease to serve as directors before their terms shall expire, the holders
of the Series B Preferred Stock then outstanding and entitled to vote for
such directors may, by written consent as herein provided (if action by written
consent is permitted), or at a special meeting of such holders called as
provided herein, elect successors to hold office for the unexpired terms of the
directors whose places shall be vacant.
Any
director elected by the holders of shares of Series B Preferred Stock
voting separately as a single class may be removed from office with or without
cause by the vote or written consent (if action by written consent is permitted)
of the holders of at least a majority of the outstanding shares of Series B
Preferred Stock. A special meeting of the holders of shares of Series B
Preferred Stock may be called in accordance with the procedures set forth in
this paragraph F.
G.     
       The Corporation shall not enter into any agreement or issue any security that prohibits, conflicts
or is inconsistent with, or would be breached by, the Corporation's performance of its obligations
hereunder.
VIII.
Conversion
The
holders of the Series B Preferred Stock shall have conversion rights as follows:
A.     
Each share of Series B Preferred Stock shall be convertible at the direction of,
and by notice to the Corporation from, the holders of a majority of the
outstanding shares of Series B Preferred Stock, at any time, at the office of
the Corporation or any transfer agent for such Series, into one (1) fully paid
and nonassessable share of Common Stock subject to adjustment from time to
time as provided below (as so adjusted, the "conversion ratio"),
provided
,that any conversion pursuant to this paragraph A of less than
all of the outstanding shares of Series B Preferred Stock shall be on a pro rata
basis amongst all holders of Series B Preferred Stock.
B.     
If the holders of a majority of the outstanding shares of Series B Preferred
Stock give notice of conversion under paragraph A above, the Corporation shall
notify all other record holders of Series B Preferred Stock (a "Conversion
Notice"). Following receipt of a Conversion Notice, the holders of Series B
Preferred Stock shall surrender the certificate or certificates therefor duly
endorsed, at the office of the Corporation or of any transfer agent for such
Series, and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such Conversion Notice
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date. The issuance
of certificates or shares of Common Stock upon conversion of shares of Series B
Preferred Stock shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance.
16
C.     
No fractional shares shall be issued upon conversion of any shares of Series B
Preferred Stock and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share, and the holder of Series B Preferred
Stock shall be paid in cash for any fractional share.
D.     
In case at any time or from time to time the Corporation shall pay any dividend
or make any other distribution to the holders of its Common Stock or other class
of securities, or shall offer for subscription pro rata to the holders of its
Common Stock or other class of securities any additional shares of stock of any
class or any other right, or there shall be any capital reorganization or
reclassification of the Common Stock of the Corporation or consolidation or
merger of the Corporation with or into another corporation, or any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, then, in
any one or more of said cases the Corporation shall give at least 20 days'
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holders of the Series B
Preferred Stock at the addresses of each as shown on the books of the
Corporation maintained by the Transfer Agent thereof of the date on which
(i) the books of the Corporation shall close or a record shall be taken for
such stock dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale or conveyance,
dissolution, liquidation or winding up shall take place, as the case may be,
provided that in the case of any Transaction to which paragraph H applies
the Corporation shall give at least 30 days' prior written notice as
aforesaid. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance or participate in
such dissolution, liquidation or winding up, as the case may be. Failure to give
such notice shall not invalidate any action so taken.
E.     
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series B Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
B Preferred Stock, then in addition to such other remedies as shall be available
to the holder of Series B Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
F.     
Any notice required by the provisions of paragraph D to be given the holders of
shares of Series B Preferred Stock shall be deemed given if sent by facsimile
transmission, by telex, or if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.
17
G.     
The conversion ratio shall be subject to adjustment from time to time as follows:
(i)     
In case the Corporation shall at any time or from time to time after the Issue
Date (A) pay a dividend or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock, (B) subdivide the outstanding
shares of Common Stock into a larger number of shares of Common Stock,
(C) combine the outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case, the
conversion ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Series B Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or other
securities of the Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such shares of Series B Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause (i) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification
or combination, at the close of business on the day upon which such corporate
action becomes effective.
(ii)     
In the case the Corporation shall, after the Issue Date, issue shares of Common
Stock at a price per share, or securities convertible into or exchangeable for
shares of Common Stock ("Convertible Securities") having a
"Conversion Price" (as defined below) less than the Current Market
Price (for a period of 15 consecutive trading days prior to such date), then,
and in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series B Preferred Stock shall be entitled to receive,
upon the conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the applicable conversion ratio on the day immediately
prior to such date by (B) a fraction, the numerator of which shall be the
sum of (1) the number of shares of Common Stock outstanding on the date on
which such shares or Convertible Securities are issued and (2) the number
of additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x) the number of shares of Common Stock outstanding on such date and
(y) the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock so
issued, or the number of shares of Common Stock which the aggregate of the
Conversion Price of such Convertible Securities so issued, would purchase at
such Current Market price on such date. An adjustment made pursuant to this
clause (ii) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this clause (ii), the
aggregate consideration receivable by the Corporation in connection with the
issuance of any securities shall be deemed to be the sum of the aggregate
offering price to the public (before deduction of underwriting discounts or
commissions and expenses payable to third parties), and the "Conversion
Price" of any Convertible Securities is the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither (A)
the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
paragraph G, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series B Preferred Stock, the Series C Preferred Stock and the
Warrants) nor (B) the issuance of shares of Common Stock pursuant thereto shall
be deemed to constitute an issuance of Common Stock or Convertible Securities by
the Corporation to which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or converted and for
which an adjustment shall have been made pursuant to this clause (ii), the
Conversion Price computed upon the original issue thereof shall upon expiration
be recomputed as if the only additional shares of Common Stock issued were such
shares of Common Stock (if any) actually issued upon exercise or conversion of
such Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion. Notwithstanding anything to the contrary in this Article VIII,
Subsection G(ii), effective July 12, 2000, the conversion ratio shall be
adjusted to eliminate as an adjustment to the "conversion ratio", any
adjustment arising from (x) the issuance of Series C Preferred Stock and the
issuance of warrants to purchase shares of Series C Preferred Stock (including
the future exercise of such warrants) pursuant to the Preferred Stock Purchase
Agreement, by and between Aames Financial Corporation and Specialty Finance
Partners, dated as of May 19, 2000, as amended, or (y) the issuance of Series D
Preferred Stock issued in exchange for the Series C Preferred Stock, and any
warrants for the purchase of Series D Preferred Stock (including the future
exercise of such warrants) issued in exchange for the warrant to purchase Series
C Preferred Stock, referred to in clause (x) of this sentence.
18
(iii)     
In case the Corporation shall at any time or from time to time after the Issue
Date declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin-off), on its Common Stock, other than
(A) regular quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before extraordinary
items of the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such dividend is paid or
(B) dividends or distributions of shares of Common Stock which are referred
to in clause (i) of this paragraph G, then, and in each such case, the
conversion ratio shall be adjusted so that the holder of each share of
Series B Preferred Stock shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying
(1) the applicable conversion ratio on the day immediately prior to the
record date fixed for the determination of stockholders entitled to receive such
dividend or distribution by (2) a fraction, the numerator of which shall be
the then Current Market Price per share of Common Stock for the period of 20
Trading Days preceding such record date, and the denominator of which shall be
such Current Market Price per share of Common Stock for the period of 20 Trading
Days preceding such record date, less the Fair Market Value (as defined in
Article IX) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series B Preferred Stock)
of such dividend or distribution;
provided
,
however
, that in the
event of a distribution of shares of capital stock of a Subsidiary of the
Corporation (a "Spin-Off") made to holders of shares of Common Stock,
the numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the current market price per share of the
Common Stock for the period of 20 Trading Days proceeding such 35th Trading Day.
An adjustment made pursuant to this clause (iii) shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
provided
,
however
, if the proviso to the preceding sentence
applies, then such adjustment shall be made and be effective as of such 35th
Trading Day after the effective date of such Spin-Off.
19
(iv)     
For purposes of this paragraph G, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation.
(v)     
The term "dividend", as used in this paragraph G shall mean a
dividend or other distribution upon stock of the Corporation except pursuant to
the Rights Agreement (as defined in Article IX). Notwithstanding anything
in this Article VIII to the contrary, the conversion ratio shall not be
adjusted as a result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.
(vi)     
Anything in this paragraph G to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least one-hundredth of
one share of Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the conversion ratio by at least
one-hundredth of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.
(vii)     
The certificate of any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Corporation (which may be the
firm of independent public accountants regularly employed by the Corporation)
shall be presumptively correct for any computation made under this
paragraph G.
(viii)     
If the Corporation shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph G or in the
conversion ratio then in effect shall be required by reason of the taking of
such record.
(ix)     
There shall be no adjustment of the conversion ratio in case of the issuance of
any stock of the Corporation in a merger, reorganization, acquisition or other
similar transaction except as set forth in paragraph G(i), G(ii) and H of
this Article VIII.
H.     
In case of any reorganization or reclassification of outstanding shares of
Common Stock (other than a reclassification covered by paragraph G(i) of
this Article VIII, or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series B Preferred Stock
then outstanding shall thereafter be convertible into, in lieu of the Common
Stock issuable upon such conversion prior to consummation of such Transaction,
the kind and amount of shares of stock and other securities and property
receivable (including cash) upon the consummation of such Transaction by a
holder of that number of shares of Common Stock into which one share of
Series B Preferred Stock was convertible immediately prior to such
Transaction (including, on a pro rata basis, the cash, securities or property
received by holders of Common Stock in any tender or exchange offer that is a
step in such Transaction). In case securities or property other than Common
Stock shall be issuable or deliverable upon conversion as aforesaid, then all
reference in this paragraph H shall be deemed to apply, so far as
appropriate and as nearly as may be, to such other securities or property.
20
I.     
Upon any adjustment of the conversion ratio then in effect and any increase or
decrease in the number of shares of Common Stock issuable upon the operation of
the conversion set forth in Article VIII, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the
Series B Preferred and Common Stock, a certificate signed by the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the conversion ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion set forth in this Article VIII.
IX.
Additional Definitions
For
the purposes of this Certificate of Designations of Series B Preferred Stock,
the following terms shall have the meanings indicated:
"Accrual
Period" means the end of the first quarterly period following the Second
Anniversary Date.
"Business
Day" means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Bylaws"
means the Bylaws of the Corporation, as amended.
"Current
Market Price", when used with reference to shares of Common Stock or other
securities on any date, shall mean the closing price per share of Common Stock
or such other securities on such date and, when used with reference to shares of
Common Stock or other securities for any period shall mean the average of the
daily closing prices per share of Common Stock or such other securities for such
period. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. National Market System or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock or
such other securities selected by the Board of Directors of the Corporation. If
the Common Stock or such other securities are not publicly held or so listed or
publicly traded, "Current Market Price" shall mean the Fair Market
Value per share of Common Stock or of such other securities as determined in
good faith by the Board of Directors of the Corporation based on an opinion of
an independent investment banking firm with an established national reputation
as a valuer of securities, which opinion may be based on such assumption as such
firm shall deem to be necessary and appropriate.
21
"Exchange
Act" means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.
"Fair
Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Issue
Date" shall mean the first date on which shares of Series B Preferred Stock
are issued.
"Person"
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Redemption
Price" of a share of Class B Preferred Stock shall mean the sum of the
dividends, if any, accumulated or deemed to have accumulated thereon to the
Optional Redemption Date, whether or not such dividends are declared
plus
$1.00 per share of Series B Preferred Stock, subject to adjustment for splits,
reclassifications, recombinations or other similar events.
"Rights"
shall mean any rights to purchase securities of the Corporation issued pursuant
to any Rights Agreement.
"Rights
Agreement" shall mean the Rights Agreement, dated as of June 21, 1996,
between the Company and Wells Fargo Bank as rights agent, and all amendments,
supplements and replacements thereof.
"Second
Anniversary Date" means the second anniversary of the Issue Date.
"Subsidiary"
means, as to any Person, any other Person of which more than 50% of the shares
of the common stock, preferred stock or other voting interests are owned or
controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person and one
or more of its subsidiaries.
"Trading
Day" means a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange a Business Day.
X.
Miscellaneous
A.
Notices
.       Any notice referred to herein shall be in writing and, unless
first-class mail shall be
specifically permitted for such notices under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation of receipt by telecopy or telex)
or five days after transmittal by registered or certified mail, postage prepaid,
addressed as follows:
(i)
if to the Corporation, to its office at 2 California Plaza, 350 South Grand
Avenue, Los Angeles, California 90071 (Attention: General Counsel)
or to the transfer agent for the Series B Preferred Stock;
(ii)
if to a holder of the Series B Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for the Series B Preferred Stock); or
22
(iii)
to such other address as the Corporation or such holder, as the case may be,
shall have designated by notice similarly given.
B.
Reacquired Shares
.      Any shares of Series B Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series B Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.
C.
Enforcement
.       Any registered holder
of shares of Series B Preferred Stock may proceed to protect
and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any provision in this Certificate of
Designations or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
D.
Transfer Taxes
.      Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series B Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series B Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E.
Transfer Agent
.       The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series B Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series B Preferred Stock.
F.
Record Dates
.       In the event that the Series
B Preferred Stock shall be registered under either the
Securities Act of 1933, as amended, or the Exchange Act, the Corporation shall establish appropriate record dates
with respect to payments and other actions to be made with respect to the Series B Preferred Stock.
23
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
AAMES
FINANCIAL CORPORATION
I.
Designation and Amount
The
designation of this series of shares shall be "Series C Convertible
Preferred Stock" (the "Series C Preferred Stock") par value
$0.001 per share; the initial stated value per share shall be $1,000.00 (the
"Initial Stated Value"); and the number of shares constituting such
series shall be 34,530,486. The number of shares of the Series C Preferred Stock
may be decreased from time to time by a resolution or resolutions of the Board
of Directors; provided, however, that such number shall not be decreased below
the aggregate number of shares of the Series C Preferred Stock then outstanding.
As
of April 13, 2000 (the "Effective Date"), each share of the
Corporation's Series C Convertible Preferred Stock, par value of $0.001 per
share issued and outstanding immediately prior to the Effective Date (the
"Pre-Split Series C Preferred Stock") shall automatically and without
any action on the part of the holder thereof be reclassified as and changed (the
"Reverse Series C Preferred Stock Split") into 0.2 of one share of
Post-Split Series C Convertible Preferred Stock, par value $0.001 per share
("Post-Split Series C Preferred Stock"). Each holder of a certificate
or certificates which immediately prior to the Effective Date represented
outstanding shares of Pre-Split Series C Preferred Stock (the "Pre-Split
Series C Preferred Certificates," whether one or more) shall be entitled to
receive upon surrender of such Pre-Split Series C Preferred Certificates to the
Corporation's Secretary for cancellation, a certificate or certificates
(the "Post-Split Series C Certificates," whether one or more)
representing the number of whole shares of Post-Split Series C Preferred Stock
into which and for which the shares of Pre-Split Series C Preferred Stock
formerly represented by such Pre-Split Series C Preferred Certificates so
surrendered, are reclassified pursuant to the terms hereof. No script or
fractional shares certificates will be issued for Pre-Split Series C Preferred
Stock in connection with the Reverse Series C Preferred Stock Split. Any
fractional share interests will be aggregated and sold on the open market by the
exchange agent selected by the Corporation. From and after the Effective Date,
Pre-Split Series C Certificates shall represent only the right to receive
Post-Split Series C Certificates pursuant to the provisions hereof. If more than
one Pre-Split Series C Certificate shall be surrendered at one time for the
account of the same stockholder, the number of full shares of Post-Split Series
C Preferred Stock for which the Post-Split Series C Certificates shall be issued
shall be computed on the basis of the aggregate number of shares represented by
the Pre-Split Series C Certificates so surrendered. If any Post-Split Series C
Certificate is to be issued in a name other than that in which the Pre-Split
Series C Certificate surrendered for exchange are issued, the Pre-Split Series C
Certificates so surrendered shall be properly endorsed and otherwise in proper
form for transfer, and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Pre-Split Series C
Certificates surrendered, or provide funds for their purchase, or establish to
the satisfaction of the Corporation's Secretary that such taxes are not
payable. From and after the Effective Date the amount of capital represented by
the shares of Post-Split Series C Preferred Stock into which and for which the
shares of the Pre-Split Series C Preferred Stock are reclassified pursuant to
the terms hereof shall be the same as the amount of capital represented by the
shares of Pre-Split Series C Preferred Stock so reclassified, until thereafter
reduced or increased in accordance with applicable law.
24
II.
Rank
A.     
  With respect to dividends, the Series C Preferred Stock shall rank (i) senior
  to each other class or series of Preferred Stock, except for the Series B
  Convertible Preferred Stock, par value $0.001 per share, of the Corporation
  (the "Series B Preferred Stock") and the Series D Convertible
  Preferred Stock, par value $0.001 per share, of the Corporation (the "Series D
  Preferred Stock"); (ii) on a parity with the Series B Preferred
  Stock and the Series D Preferred Stock; and (iii) senior to the Corporation's
  Common Stock, par value $0.001 per share (the "Common Stock"), and,
  except as specified above, all other classes and series of capital stock of
  the Corporation hereafter issued by the Corporation. With respect to dividends,
  all equity securities of the Corporation to which the Series C Preferred
  Stock ranks senior, including the Common Stock, are collectively referred to
  herein as the "Junior Dividend Securities"; all equity securities
  of the Corporation with which the Series C Preferred Stock ranks on a parity,
  including the Series B Preferred Stock and the Series D Preferred
  Stock, are collectively referred to herein as the "Parity Dividend Securities";
  and all equity securities of the Corporation (other than convertible debt securities)
  to which the Series C Preferred Stock ranks junior, with respect to dividends,
  are collectively referred to herein as the "Senior Dividend Securities."
B.     
  With respect to the distribution of assets upon liquidation, dissolution or
  winding up of the Corporation, whether voluntary or involuntary, the Series C
  Preferred Stock shall rank (i) senior to each other class or series of
  Preferred Stock, except for the Series B Preferred Stock, the Series D
  Preferred Stock
and the Series E Preferred Stock, par value $0.001 per share, of the Corporation
  (the "Series E Preferred Stock")
; (ii) on
  a parity with the Series B Preferred Stock, Series D Preferred Stock
  and Series E Preferred Stock; and (iii) senior to the Common Stock, and,
  except as specified above, all other classes and series of capital stock of
  the Corporation hereafter issued by the Corporation. With respect to the distribution
  of assets upon liquidation, dissolution or winding up of the Corporation, whether
  voluntary or involuntary, all equity securities of the Corporation to which
  the Series C Preferred Stock ranks senior, including the Common Stock,
  are collectively referred to herein as "Junior Liquidation Securities";
  all equity securities of the Corporation (other than convertible debt securities)
  to which the Series C Preferred Stock ranks on parity, including the Series B
  Preferred Stock, the Series D Preferred Stock and the Series E Preferred
  Stock, are collectively referred to herein as "Parity Liquidation Securities";
  and all equity securities of the Corporation to which the Series C Preferred
  Stock ranks junior are collectively referred to herein as "Senior Liquidation
  Securities."
C.     
  The Series C Preferred Stock shall be subject to the creation of Junior Dividend
  Securities and Junior Liquidation Securities (collectively, "Junior Securities"),
  but no Parity Dividend Securities or Parity Liquidation Securities (collectively,
  "Parity Securities") (other than the Series B Preferred Stock, Series
  D Preferred Stock and Series E Preferred Stock) or Senior Dividend Securities
  or Senior Liquidation Securities (collectively, "Senior Securities")
  shall be created except in accordance with the terms hereof.
III.
Dividends
A.
Dividends
.      Subject to the terms of paragraph D below, shares of Series C
Preferred Stock shall accumulate dividends at a rate of 6.5% per annum (the
"Dividend Rate"), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a
"Dividend Payment Date"), to holders of record (the "Registered
Holders") as they appear on the stock record books of the Corporation on
the fifteenth day prior to the relevant Dividend Payment Date; provided,
however, that during the Accrual Period (as defined in Article IX hereof) the
Corporation shall have the option to accrue such dividends, which dividends, to
the extent so accrued, shall compound quarterly. Dividends shall accrue and
accumulate on $5.00 for each share of Series C Preferred Stock. Dividends shall
be paid only when, as and if declared by the Board of Directors out of funds at
the time legally available for the payment of dividends. Dividends shall begin
to accumulate on outstanding shares of Series C Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.
25
B.
Accumulation
.      Dividends on the Series C Preferred Stock shall be
cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at
125% of the stated dividend rate (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional dividends in respect
of any Arrearage shall be deemed to accumulate from day to day whether or not
earned or declared until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date, and shall constitute an additional Arrearage
from and after any Dividend Payment Date to the extent not paid on such Dividend
Payment Date. References in any Article herein to dividends that have
accumulated or that have been deemed to have accumulated with respect to the
Series C Preferred Stock shall include the amount, if any, of any Arrearage
together with any dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences. Additional
dividends in respect of any Arrearage may be declared and paid at any time, in
whole or in part, without reference to any regular Dividend Payment Date, to
Registered Holders as they appear on the stock record books of the Corporation
on such record date as may be fixed by the Board of Directors (which record date
shall be no less than 10 days prior to the corresponding payment date).
Dividends in respect of any Arrearage shall be paid in cash.
C.
Method of Payment
.      Dividends paid on the shares of Series C Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of Series C Preferred Stock
shall be allocated pro rata on a share-by-share basis among all such shares then
outstanding. After the Second Anniversary Date, dividends that are declared and
paid in an amount less than the full amount of dividends accumulated on the
Series C Preferred Stock (and on any Arrearage) shall be applied first to the
earliest dividend which has not theretofore been paid. All cash payments of
dividends on the shares of Series C Preferred Stock shall be made in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
IV.
Liquidation Preference
A.    
INTENTIONALLY OMITTED
B.
Liquidation Preference
.      The holders of the outstanding shares of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of the dividends, if any, accumulated or deemed to
have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and $5.00 per share of Series C
Preferred Stock, before any payment shall be made or any assets distributed to
the holders of any Junior Liquidation Securities. After any such payment in
full, the holders of Series C Preferred Stock shall not, as such, be entitled to
any further participation in any distribution of assets of the Corporation.
26
C.
Parity Securities
.       All the assets
of the Corporation available for distribution to
  stockholders after the liquidation preferences of any Senior Liquidation Securities shall be distributed ratably
(in proportion to the full distributable amounts to which holders of Series C Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution, liquidation or winding up) among
the holders of the then-outstanding shares of Series C Preferred Stock and Parity Liquidation Securities, if any,
when such assets are not sufficient to pay in full the aggregate amounts payable thereon.
D.
Merger Not a Liquidation
.     Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series C Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series C Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
V.
Redemption
A.     
INTENTIONALLY OMITTED
B.
Optional Redemption
.       Commencing on the earlier to occur of (x) the
tenth anniversary of the
Issue Date and (y) the date on which fewer than 25% of the shares of Series C Preferred Stock issued on the Issue
Date remain outstanding, and at all times thereafter, the Corporation may, at its option, redeem all (but not
less than all) outstanding shares of Series C Preferred Stock on a date specified by the Corporation (the
"Optional Redemption Date") by paying the Redemption Price therefor in cash out funds legally available for such
purpose.
C.
Notice and Redemption Procedures
.      Notice of the redemption of shares of
Series C Preferred Stock pursuant to paragraph B of this Article V (a
"Notice of Redemption") shall be sent to the holders of record of the
shares of Series C Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder's address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, which date shall be set forth in such notice (the
"Redemption Date"); provided that failure to give such Notice of
Redemption to any holder, or any defect in such Notice of Redemption to any
holder shall not affect the validity of the proceedings for the redemption of
any shares of Series C Preferred Stock held by any other holder. In order to
facilitate the redemption of shares of Series C Preferred Stock, the Board of
Directors may fix a record date for the determination of the holders of shares
of Series C Preferred Stock to be redeemed not more than 30 days prior to the
date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, each holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Redemption
Price for such shares. From and after the Optional Redemption Date, all
dividends on shares of Series C Preferred Stock shall cease to accumulate and
all rights of the holders thereof as holders of Series C Preferred Stock shall
cease and terminate, except to the extent the Corporation shall default in
payment thereof on the Optional Redemption Date.
27
D.
Deposit of Funds
.     The Corporation shall, on or prior to the
Optional Redemption Date, pursuant to paragraph C of this Article V, deposit
with its transfer agent or other redemption agent in the Borough of Manhattan,
The City of New York having a capital and surplus of at least $500,000,000
selected by the Board of Directors, as a trust fund for the benefit of the
holders of the shares of Series C Preferred Stock to be redeemed, cash that is
sufficient in amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption, with irrevocable instructions and authority to such
transfer agent or other redemption agent to pay to the respective holders of
such shares, as evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price upon surrender of their respective share
certificates. Such deposit shall be deemed to constitute full payment of the
Redemption Price for such shares to the holders, and from and after the date of
such deposit, all rights of the holders of the shares of Series C Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. No dividends shall
accumulate on any shares of Series C Preferred Stock after the Optional
Redemption Date, for such shares (unless the Corporation shall fail to deposit
cash sufficient to redeem all such shares). In case holders of any shares of
Series C Preferred Stock called for redemption shall not, within two years after
such deposit, claim the cash deposited for redemption thereof, such transfer
agent or other redemption agent shall, upon demand, pay over to the Corporation
the balance so deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders thereof and the
sole right of such holders, with respect to shares to be redeemed, shall be to
receive the Redemption Price as general creditors of the Corporation. Any
interest accrued on any funds so deposited shall belong to the Corporation, and
shall be paid to it from time to time on demand.
VI.
Restrictions on Dividends
So long
as any shares of the Series C Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Securities or make any payment on account of,
or set apart for payment money for a sinking or other similar fund for, the
repurchase, redemption or other retirement of, any Junior Securities or Parity
Securities or any warrants, rights or options exercisable for or convertible
into any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities), or
make any distribution in respect of the Junior Securities, either directly or
indirectly, and whether in cash, obligations or shares of the Corporation or
other property (other than distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Securities or Parity Securities or any warrants, rights, calls
or options exercisable for or convertible into any Junior Securities or Parity
Securities (other than the repurchase, redemption or other retirement of
debentures or other debt securities that are convertible or exchangeable into
any Junior Securities or Parity Securities or the repurchase, redemption or
other retirement of Junior Securities or Parity Securities in exchange for
Junior Securities or Parity Securities) unless prior to or concurrently with
such declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, all accumulated and unpaid
dividends on shares of the Series C Preferred Stock not paid on the dates
provided for in paragraph A of Article III hereof (including Arrearages and
accumulated dividends thereon) shall have been paid, except that when dividends
are not paid in full as aforesaid upon the shares of Series C Preferred Stock,
all dividends declared on the Series C Preferred Stock and any series of Parity
Dividend Securities shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series C Preferred Stock and such series of
Parity Dividend Securities shall in all cases bear to each other the same ratio
that accumulated dividends (including interest accrued on or additional
dividends accumulated in respect of such accumulated dividends) on the shares of
Series C Preferred Stock and such Parity Dividend Securities bear to each other.
28
VII.
Voting Rights
A.     
The holders of Series C Preferred Stock shall be entitled to the number of votes
per share of Series C Preferred Stock equal to the number of shares of Common
Stock for which such share of Series C Preferred Stock is then convertible
pursuant to Article VIII at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration, other than the election of directors.
B.     
So long as any shares of the Series C Preferred Stock are outstanding,
(i) each share of Series C Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock, other than
the election of directors; and (ii) the shares of Series C Preferred
Stock shall vote together with shares of Common Stock, shares of Series B
Preferred Stock, shares of the Series D Preferred Stock and shares of
Series E Preferred Stock, as a single class.
C.     
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series C Preferred Stock, Series B Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i) authorize, create or issue, or increase the
authorized amount of, (x) any Senior Securities or Parity Securities or
(y) any class or series of capital stock or any security convertible into
or exercisable for any class or series of capital stock, redeemable mandatorily
or redeemable at the option of the holder thereof at any time on or prior to the
Redemption Date (whether or not only upon the occurrence of a specified event)
or (ii) enter into any Transaction (as defined in paragraph H of
Article VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.
D.     
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series C Preferred Stock, Series B Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, voting together as a single class,
the Corporation shall not (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the Bylaws, if the amendment, alteration or
repeal alters or changes the powers, preferences or special rights of the
Series C Preferred Stock so as to affect them materially and adversely or
(ii) authorize or take any other action if such action alters or changes
any of the rights of the Series C Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of the
Corporation is entitled to vote thereon. Such vote or consent shall be taken in
accordance with the procedures specified in paragraph E below.
E.     
The foregoing rights of holders of shares of Series C Preferred Stock to
take any actions as provided in this Article VII may be exercised at any
annual meeting of stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment thereof, or by the
written consent, delivered to the Secretary of the Corporation, of the holders
of the minimum number of shares required to take such action, if action by
written consent of stockholders of the Corporation is then permitted.
The
Chairman of the Board of the Corporation may call, and upon written request of
holders of record of 35% of the outstanding shares of Series C Preferred
Stock, Series B Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation shall call, a special meeting of the holders of shares
entitled to vote as provided herein. Such meeting shall be held within
30 days after delivery of such request to the Secretary, at the place and
upon the notice provided by law and in the By-laws of the Corporation for the
holding of meetings of stockholders.
29
At
each meeting of stockholders at which the holders of shares of Series C
Preferred Stock shall have the right to take any action, the presence in person
or by proxy of the holders of record of one-third of the total number of shares
of Series C Preferred Stock, Series B Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock then outstanding and entitled to
vote on the matter shall be necessary and sufficient to constitute a quorum. At
any such meeting or at any adjournment thereof:
(A)
the absence of a quorum of the holders of shares of Series C Preferred
Stock shall not prevent the election of directors to be elected by the holders
of shares of Series B Preferred Stock or the taking of any action as
provided in this Article VII; and
(B)
in the absence of a quorum of the holders of shares of Series C Preferred
Stock, Series B Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, a majority of the holders of such shares present in person or
by proxy shall have the power to adjourn the meeting as to the actions to be
taken by the holders of shares of Series C Preferred Stock, Series B
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
from time to time and place to place without notice other than announcement at
the meeting until a quorum shall be present.
For
taking of any action as provided in this Article VII by the holders of
shares of Series C Preferred Stock, Series B Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, each such holder
shall have one vote for each share of such stock standing in his name on the
transfer books of the Corporation as of any record dated fixed for such purpose
or, if no such date be fixed, at the close of business on the Business Day next
preceding the day on which notice is given, or if notice if waived, at the close
of business on the Business Day next preceding the day on which the meeting is
held.
F.     
The Corporation shall not enter into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the Corporation's performance of its obligations
hereunder.
VIII.
Conversion
The
holders of the Series C Preferred Stock shall have conversion rights as follows:
A.     
Each share of Series C Preferred Stock shall be convertible at the direction of,
and by notice to the Corporation from, (i) the holder thereof or (ii) the
holders of a majority of the outstanding shares of Series C Preferred Stock, at
any time, at the office of the Corporation or any transfer agent for such
Series, into one 1) fully paid and nonassessable shares of Common Stock subject
(x) to adjustment from time to time as provided below (as so adjusted, the
"conversion ratio"),
provided
, that any conversion pursuant to
clause (ii) above of less than all of the outstanding shares of Series C
Preferred Stock shall be on a pro rata basis amongst all holders of Series C
Preferred Stock.
B.     
If a holder of Series C Preferred Stock gives notice (an "Optional
Conversion Notice") of conversion under paragraph A above, such holder
shall surrender with such Optional Conversion Notice the duly endorsed
certificate or certificates for the Series C Preferred Stock being converted, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. If the holders of a majority of the
outstanding shares of Series C Preferred Stock give notice of conversion under
paragraph A above, the Corporation shall notify all other record holders of
Series C Preferred Stock (a "Mandatory Conversion Notice"). Following
receipt of a Mandatory Conversion Notice, the holders of Series C Preferred
Stock shall surrender the certificate or certificates therefor duly endorsed, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable after the surrender of a Series C Preferred Stock certificate or
certificates pursuant to an Optional Conversion Notice or Mandatory Conversion
Notice, issue and deliver at such office to such holder, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such Optional Conversion Notice or Mandatory Conversion
Notice, as applicable, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
The issuance of certificates or shares of Common Stock upon conversion of shares
of Series C Preferred Stock shall be made without charge for any issue, stamp or
other similar tax in respect of such issuance.
30
C.     
No fractional shares shall be issued upon conversion of any shares of Series C
Preferred Stock and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share, and the holder of Series C Preferred
Stock shall be paid in cash for any fractional share.
D.     
In case at any time or from time to time the Corporation shall pay any dividend
or make any other distribution to the holders of its Common Stock or other class
of securities, or shall offer for subscription pro rata to the holders of its
Common Stock or other class of securities any additional shares of stock of any
class or any other right, or there shall be any capital reorganization or
reclassification of the Common Stock of the Corporation or consolidation or
merger of the Corporation with or into another corporation, or any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, then, in
any one or more of said cases the Corporation shall give at least 20 days'
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holders of the Series C Preferred
Stock at the addresses of each as shown on the books of the Corporation
maintained by the Transfer Agent thereof of the date on which (i) the books
of the Corporation shall close or a record shall be taken for such stock
dividend, distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that in
the case of any Transaction to which paragraph H applies the Corporation
shall give at least 30 days' prior written notice as aforesaid. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall not invalidate
any action so taken.
E.     
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series C Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series C Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
C Preferred Stock, then in addition to such other remedies as shall be available
to the holder of Series C Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
F.     
Any notice required by the provisions of paragraph D to be given the holders of
shares of Series C Preferred Stock shall be deemed given if sent by facsimile
transmission, by telex, or if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.
G.     
       The conversion ratio shall be subject to adjustment from time to time as follows:
31
(i)     
In case the Corporation shall at any time or from time to time after the Issue
Date (A) pay a dividend or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock, (B) subdivide the outstanding
shares of Common Stock into a larger number of shares of Common Stock,
(C) combine the outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case, the
conversion ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Series C Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock or other
securities of the Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such shares of Series C Preferred Stock been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause (i) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification
or combination, at the close of business on the day upon which such corporate
action becomes effective.
(ii)     
In the case the Corporation shall, after the Issue Date, issue shares of Common
Stock at a price per share, or securities convertible into or exchangeable for
shares of Common Stock ("Convertible Securities") having a
"Conversion Price" (as defined below) less than the Current Market
Price (for a period of 15 consecutive trading days prior to such date), then,
and in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series C Preferred Stock shall be entitled to receive,
upon the conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the applicable conversion ratio on the day immediately
prior to such date by (B) a fraction, the numerator of which shall be the
sum of (1) the number of shares of Common Stock outstanding on the date on
which such shares or Convertible Securities are issued and (2) the number
of additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x) the number of shares of Common Stock outstanding on such date and
(y) the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock so
issued, or the number of shares of Common Stock which the aggregate of the
Conversion Price of such Convertible Securities so issued, would purchase at
such Current Market price on such date. An adjustment made pursuant to this
clause (ii) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this clause (ii), the
aggregate consideration receivable by the Corporation in connection with the
issuance of any securities shall be deemed to be the sum of the aggregate
offering price to the public (before deduction of underwriting discounts or
commissions and expenses payable to third parties), and the "Conversion
Price" of any Convertible Securities is the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither (A)
the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
paragraph G, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series B Preferred Stock, the Series C Preferred Stock and the
Warrants) nor (B) the issuance of shares of Common Stock pursuant thereto shall
be deemed to constitute an issuance of Common Stock or Convertible Securities by
the Corporation to which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or converted and for
which an adjustment shall have been made pursuant to this clause (ii), the
Conversion Price computed upon the original issue thereof shall upon such
expiration be recomputed as if the only additional shares of Common Stock issued
were such shares of Common Stock (if any) actually issued upon exercise of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion. Notwithstanding anything to the contrary in this Article VIII,
Subsection G(ii), effective on July 12, 2000 the conversion ratio shall be
adjusted to eliminate as an adjustment to the "conversion ratio", any
adjustment arising from (x) the issuance of the Series C Preferred Stock and the
issuance of warrants to purchase shares of Series C Preferred Stock (including
the future exercise of such warrants) pursuant to the Preferred Stock Purchase
Agreement, by and between Aames Financial Corporation and Specialty Finance
Partners, dated May 19, 2000, as amended, or (y) the issuance of Series D
Preferred Stock issued in exchange for the Series C Preferred Stock, and any
warrants for the purchase of Series D Preferred Stock (including the future
exercise of such warrants) issued in exchange for the warrant to purchase Series
C Preferred Stock, referrred to in clause (x) of this sentence.
32
(iii)     
In case the Corporation shall at any time or from time to time after the Issue
Date declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin-off), on its Common Stock, other than
(A) regular quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before extraordinary
items of the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such dividend is paid or
(B) dividends or distributions of shares of Common Stock which are referred
to in clause (i) of this paragraph G, then, and in each such case, the
conversion ratio shall be adjusted so that the holder of each share of
Series C Preferred Stock shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying
(1) the applicable conversion ratio on the day immediately prior to the
record date fixed for the determination of stockholders entitled to receive such
dividend or distribution by (2) a fraction, the numerator of which shall be
the then Current Market Price per share of Common Stock for the period of 20
Trading Days preceding such record date, and the denominator of which shall be
such Current Market Price per share of Common Stock for the period of 20 Trading
Days preceding such record date less the Fair Market Value (as defined in
Article IX) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series C Preferred Stock)
of such dividend or distribution;
provided
,
however
, that in the
event of a distribution of shares of capital stock of a Subsidiary of the
Corporation (a "Spin-Off") made to holders of shares of Common Stock,
the numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the current market price per share of the
Common Stock for the period of 20 Trading Days proceeding such 35th Trading Day.
An adjustment made pursuant to this clause (iii) shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
provided
,
however
, if the proviso to the preceding sentence
applies, then such adjustment shall be made and be effective as of such 35th
Trading Day after the effective date of such Spin-Off.
(iv)     
For purposes of this paragraph G, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation.
33
(v)     
The term "dividend", as used in this paragraph G shall mean a
dividend or other distribution upon stock of the Corporation except pursuant to
the Rights Agreement (as defined in Article IX). Notwithstanding anything
in this Article VIII to the contrary, the conversion ratio shall not be
adjusted as a result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.
(vi)     
Anything in this paragraph G to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least one-hundredth of
one share of Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the conversion ratio by at least
one-hundredth of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.
(vii)     
The certificate of any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Corporation (which may be the
firm of independent public accountants regularly employed by the Corporation)
shall be presumptively correct for any computation made under this
paragraph G.
(viii)     
If the Corporation shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph G or in the
conversion ratio then in effect shall be required by reason of the taking of
such record.
(ix)     
There shall be no adjustment of the conversion ratio in case of the issuance of
any stock of the Corporation in a merger, reorganization, acquisition or other
similar transaction except as set forth in paragraph G(i), G(ii) and H of
this Article VIII.
"Notwithstanding
anything to the contrary in this Article VIII, Subsection G(ii), effective
on July 12, 2000 the conversion ratio shall be adjusted to eliminate as an
adjustment to the "conversion ratio", any adjustment arising from (x)
the issuance of the Series C Preferred Stock and the issuance of warrants
to purchase shares of Series C Preferred Stock (including the future exercise of
such warrants) pursuant to the Preferred Stock Purchase Agreement, by and
between Aames Financial Corporation and Specialty Finance Partners, dated as of
May 19, 2000, as amended, or (y) the issuance of Series D
Preferred Stock issued in exchange for the Series C Preferred Stock, and
any warrants for the purchase of Series D Preferred Stock (including the future
exercise of such warrants) issued in exchange for the warrant to purchase Series
C Preferred Stock, referred to in clause (x) of this sentence."
H.     
In case of any reorganization or reclassification of outstanding shares of
Common Stock (other than a reclassification covered by paragraph G(i) of
this Article VIII), or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series C Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Transaction, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by a holder of that
number of shares of Common Stock into which one share of Series C Preferred
Stock was convertible immediately prior to such Transaction (including, on a pro
rata basis, the cash, securities or property received by holders of Common Stock
in any tender or exchange offer that is a step in such Transaction). In case
securities or property other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all reference in this paragraph H shall
be deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
34
I.     
Upon any adjustment of the conversion ratio then in effect and any increase or
decrease in the number of shares of Common Stock issuable upon the operation of
the conversion set forth in Article VIII, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the
Series C Preferred and Common Stock, a certificate signed by the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the conversion ratio then in
effect following such adjustment and the increased or decreased number of shares
issuable upon the conversion set forth in this Article VIII.
IX.
Additional Definitions
For
the purposes of this Certificate of Designations of Series C Preferred Stock,
the following terms shall have the meanings indicated:
"Accrual
Period" means the end of the first quarterly period following the Second
Anniversary Date.
"Business
Day" means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Bylaws"
means the Bylaws of the Corporation, as amended.
"Current
Market Price", when used with reference to shares of Common Stock or other
securities on any date, shall mean the closing price per share of Common Stock
or such other securities on such date and, when used with reference to shares of
Common Stock or other securities for any period shall mean the average of the
daily closing prices per share of Common Stock or such other securities for such
period. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. National Market System or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock or
such other securities selected by the Board of Directors of the Corporation. If
the Common Stock or such other securities are not publicly held or so listed or
publicly traded, "Current Market Price" shall mean the Fair Market
Value per share of Common Stock or of such other securities as determined in
good faith by the Board of Directors of the Corporation based on an opinion of
an independent investment banking firm with an established national reputation
as a valuer of securities, which opinion may be based on such assumption as such
firm shall deem to be necessary and appropriate.
35
"Exchange
Act" means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.
"Fair
Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Group"
has the meaning set forth in Rule 13d-5 under the Exchange Act.
"Issue
Date" shall mean the first date on which shares of Series C Preferred Stock
are issued.
"Person"
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Redemption
Price" of a share of Series C Preferred Stock shall mean the sum of the
dividends, if any, accumulated or deemed to have accumulated thereon to the
Optional Redemption Date, whether or not such dividends are declared
plus
$5.00 per share of Series C Preferred Stock, subject to adjustment for splits,
reclassifications, recombinations or similar events.
"Rights"
shall mean any rights to purchase securities of the Corporation issued pursuant
to any Rights Agreement.
"Rights
Agreement" shall mean the Rights Agreement, dated as of June 21, 1996,
between the Company and Wells Fargo Bank as rights agent, and all amendments,
supplements and replacements thereof.
"Second
Anniversary Date" means the second anniversary of the Issue Date.
"Subsidiary"
means, as to any Person, any other Person of which more than 50% of the shares
of the common stock, preferred stock or other voting interests are owned or
controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person and one
or more of its Subsidiaries.
"Trading
Day" means a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange a Business Day.
X.
Miscellaneous
A.
Notices
.       Any notice referred to herein shall be in writing and,
unless first-class mail shall
be specifically permitted for such notices under the terms hereof, shall be deemed to have been given upon
personal delivery thereof, upon transmittal of such notice by telecopy (with confirmation of receipt by telecopy
or telex) or five days after transmittal by registered or certified mail, postage prepaid, addressed as
follows:
(i)
if to the Corporation, to its office at 2 California Plaza, 350 South Grand
Avenue, Los Angeles, California 90071 (Attention: General Counsel)
36
or to the transfer agent for the Series C Preferred Stock;
(ii)
if to a holder of the Series C Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for the Series C Preferred Stock); or
(iii)
to such other address as the Corporation or such holder, as the case may be,
shall have designated by notice similarly given.
B.
Reacquired Shares
.      Any shares of Series C Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series C Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.
C.
Enforcement
.       Any registered holder of shares of Series C Preferred Stock
may proceed to
protect and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in
equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this
Certificate of Designations or in aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
D.
Transfer Taxes
.      Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series C Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series C Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E.
Transfer Agent
.      The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series C Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series C Preferred Stock.
F.
Record Dates
.       In the event that the
Series C Preferred Stock shall be registered under either
the Securities Act of 1933, as amended, or the Exchange Act, the Corporation shall establish appropriate record
dates with respect to payments and other actions to be made with respect to the
Series C Preferred Stock.
37
CERTIFICATE
OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL
OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS
OR RESTRICTIONS THEREOF, OF
SERIES
D CONVERTIBLE PREFERRED STOCK OF
AAMES
FINANCIAL CORPORATION
I.
Designation and Amount
The
designation of this series of shares shall be "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock") par value
$0.001 per share; the stated value per share shall be $0.85 (the "Stated
Value"); and the number of shares constituting such series shall be
108,565,514. The number of shares of the Series D Preferred Stock may be
decreased from time to time by a resolution or resolutions of the Board of
Directors; provided, however, that such number shall not be decreased below the
aggregate number of shares of the Series D Preferred Stock then outstanding.
II.
Rank
A.     
  With respect to dividends, the Series D Preferred Stock shall rank (i) senior
  to each other class or series of Preferred Stock, except for the Series B Convertible
  Preferred Stock, par value $0.001 per share, of the Corporation (the "Series
  B Preferred Stock") and the Series C Convertible Preferred Stock, par value
  $0.001 per share, of the Corporation (the "Series C Preferred Stock");
  (ii) on a parity with the Series B Preferred Stock and the Series C Preferred
  Stock; and (iii) senior to the Corporation's Common Stock, par value $0.001
  per share (the "Common Stock"), and, except as specified above, all
  other classes and series of capital stock of the Corporation hereafter issued
  by the Corporation. With respect to dividends, all equity securities of the
  Corporation to which the Series D Preferred Stock ranks senior, including the
  Common Stock, are collectively referred to herein as the "Junior Dividend
  Securities"; all equity securities of the Corporation with which the Series
  D Preferred Stock ranks on a parity, including the Series B Preferred Stock
  and the Series C Preferred Stock, are collectively referred to herein as the
  "Parity Dividend Securities"; and all equity securities of the Corporation
  (other than convertible debt securities) to which the Series D Preferred Stock
  ranks junior, with respect to dividends, are collectively referred to herein
  as the "Senior Dividend Securities."
B.     
  With respect to the distribution of assets upon liquidation, dissolution or
  winding up of the Corporation, whether voluntary or involuntary, the Series
  D Preferred Stock shall rank (i) senior to each other class or series of Preferred
  Stock, except for the Series B Preferred Stock, the Series C Preferred Stock
and the Series
  E Preferred Stock, par value $0.001 per share, of the Corporation (the "Series
  E Preferred Stock")
; (ii) on a parity with
  the Series B Preferred Stock, the Series C Preferred Stock and the Series E
  Preferred Stock; and (iii) senior to the Common Stock, and, except as specified
  above, all other classes and series of capital stock of the Corporation hereafter
  issued by the Corporation. With respect to the distribution of assets upon liquidation,
  dissolution or winding up of the Corporation, whether voluntary or involuntary,
  all equity securities of the Corporation to which the Series D Preferred Stock
  ranks senior, including the Common Stock, are collectively referred to herein
  as "Junior Liquidation Securities"; all equity securities of the Corporation
  (other than convertible debt securities) to which the Series D Preferred Stock
  ranks on parity, including the Series B Preferred Stock, the Series C Preferred
  Stock and the Series E Preferred Stock, are collectively referred to herein
  as "Parity Liquidation Securities"; and all equity securities of the
  Corporation to which the Series D Preferred Stock ranks junior are collectively
  referred to herein as "Senior Liquidation Securities."
38
C.     
  The Series D Preferred Stock shall be subject to the creation of Junior Dividend
  Securities and Junior Liquidation Securities (collectively, "Junior Securities"),
  but no Parity Dividend Securities or Parity Liquidation Securities (collectively,
  "Parity Securities") (other than the Series B Preferred Stock, Series
  C Preferred Stock and Series E Preferred Stock) or Senior Dividend Securities
  or Senior Liquidation Securities (collectively, "Senior Securities")
  shall be created except in accordance with the terms hereof.
III.
Dividends
A.
Dividends
.      Subject to the terms of paragraph D below, shares of Series D
Preferred Stock shall accumulate dividends at a rate of 6.5% per annum (the
"Dividend Rate"), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a
"Dividend Payment Date"), to holders of record (the "Registered
Holders") as they appear on the stock record books of the Corporation on
the fifteenth day prior to the relevant Dividend Payment Date; provided,
however, that during the Accrual Period (as defined in Article IX hereof) the
Corporation shall have the option to accrue such dividends, which dividends, to
the extent so accrued, shall compound quarterly. Dividends shall accrue and
accumulate on the Stated Value of each share of Series D Preferred Stock.
Dividends shall be paid only when, as and if declared by the Board of Directors
out of funds at the time legally available for the payment of dividends.
Dividends shall begin to accumulate on outstanding shares of Series D Preferred
Stock from the date of issuance and shall be deemed to accumulate from day to
day whether or not earned or declared until paid. Dividends shall accumulate on
the basis of a 360-day year consisting of twelve 30-day months (four 90-day
quarters) and the actual number of days elapsed in the period for which payable.
B.
Accumulation
.      Dividends on the Series D Preferred Stock shall be
cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at
125% of the stated dividend rate (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional dividends in respect
of any Arrearage shall be deemed to accumulate from day to day whether or not
earned or declared until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date, and shall constitute an additional Arrearage
from and after any Dividend Payment Date to the extent not paid on such Dividend
Payment Date. References in any Article herein to dividends that have
accumulated or that have been deemed to have accumulated with respect to the
Series D Preferred Stock shall include the amount, if any, of any Arrearage
together with any dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences. Additional
dividends in respect of any Arrearage may be declared and paid at any time, in
whole or in part, without reference to any regular Dividend Payment Date, to
Registered Holders as they appear on the stock record books of the Corporation
on such record date as may be fixed by the Board of Directors (which record date
shall be no less than 10 days prior to the corresponding payment date).
Dividends in respect of any Arrearage shall be paid in cash.
C.
Method of Payment
.      Dividends paid on the shares of Series D Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of Series D Preferred Stock
shall be allocated pro rata on a share-by-share basis among all such shares then
outstanding. After February 10, 2001, dividends that are declared and paid in an
amount less than the full amount of dividends accumulated on the Series D
Preferred Stock (and on any Arrearage) shall be applied first to the earliest
dividend which has not theretofore been paid. All cash payments of dividends on
the shares of Series D Preferred Stock shall be made in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
39
IV.
Liquidation Preference
A.
Liquidation
Preference
.      The holders of the outstanding shares of Series D Preferred
Stock shall be entitled to receive out of the assets of the Corporation, whether
such assets are capital or surplus of any nature, an amount per share equal to
the sum of the dividends, if any, accumulated or deemed to have accumulated
thereon to the date of final distribution to such holders, whether or not such
dividends are declared; and $0.85 per share of Series D Preferred Stock, before
any payment shall be made or any assets distributed to the holders of any Junior
Liquidation Securities. After any such payment in full, the holders of Series D
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.
C.
Parity Securities
.       All the assets of the Corporation available for
distribution to
stockholders after the liquidation preferences of any Senior Liquidation Securities shall be distributed ratably
(in proportion to the full distributable amounts to which holders of Series D Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution, liquidation or winding up) among
the holders of the then-outstanding shares of Series D Preferred Stock and Parity Liquidation Securities, if any,
when such assets are not sufficient to pay in full the aggregate amounts payable thereon.
D.
Merger Not a Liquidation
.     Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series D Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series D Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
V.
Redemption
A.
Optional Redemption
.       Commencing on the earlier to occur of (x) the
February 10, 2009 and (y)
the date on which fewer than 25% of the shares of Series D Preferred Stock issued on the Issue Date remain
outstanding, and at all times thereafter, the Corporation may, at its option, redeem all (but not less than all)
outstanding shares of Series D Preferred Stock on a date specified by the Corporation (the "Optional Redemption
Date") by paying the Redemption Price therefor in cash out funds legally available for such
purpose.
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B.
Notice and Redemption Procedures
.      Notice of the redemption of shares of
Series D Preferred Stock pursuant to paragraph A of this Article V (a
"Notice of Redemption") shall be sent to the holders of record of the
shares of Series D Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder's address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, as applicable, which date shall be set forth in such
notice (the "Redemption Date"); provided that failure to give such
Notice of Redemption to any holder, or any defect in such Notice of Redemption
to any holder shall not affect the validity of the proceedings for the
redemption of any shares of Series D Preferred Stock held by any other holder.
In order to facilitate the redemption of shares of Series D Preferred Stock, the
Board of Directors may fix a record date for the determination of the holders of
shares of Series D Preferred Stock to be redeemed not more than 30 days prior to
the date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, as applicable, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date, as applicable, all dividends on shares of Series D Preferred Stock shall
cease to accumulate and all rights of the holders thereof as holders of Series D
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Optional Redemption Date, as applicable.
C.
Deposit of Funds
.     The Corporation shall, on or prior to the
Optional Redemption Date, as applicable, pursuant to paragraph B of this Article
V, deposit with its transfer agent or other redemption agent in the Borough of
Manhattan, The City of New York having a capital and surplus of at least
$500,000,000 selected by the Board of Directors, as a trust fund for the benefit
of the holders of the shares of Series D Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption, with irrevocable instructions and authority to
such transfer agent or other redemption agent to pay to the respective holders
of such shares, as evidenced by a list of such holders certified by an officer
of the Corporation, the Redemption Price upon surrender of their respective
share certificates. Such deposit shall be deemed to constitute full payment of
the Redemption Price for such shares to the holders, and from and after the date
of such deposit, all rights of the holders of the shares of Series D Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. No dividends shall
accumulate on any shares of Series D Preferred Stock after the Optional
Redemption Date, as applicable, for such shares (unless the Corporation shall
fail to deposit cash sufficient to redeem all such shares). In case holders of
any shares of Series D Preferred Stock called for redemption shall not, within
two years after such deposit, claim the cash deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand, pay over to
the Corporation the balance so deposited. Thereupon, such transfer agent or
other redemption agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to shares to be
redeemed, shall be to receive the Redemption Price as general creditors of the
Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.
VI.
Restrictions on Dividends
So long
as any shares of the Series D Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Securities or make any payment on account of,
or set apart for payment money for a sinking or other similar fund for, the
repurchase, redemption or other retirement of, any Junior Securities or Parity
Securities or any warrants, rights or options exercisable for or convertible
into any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities), or
make any distribution in respect of the Junior Securities, either directly or
indirectly, and whether in cash, obligations or shares of the Corporation or
other property (other than distributions or dividends in Junior Securities to
the holders of Junior Securities), and shall not permit any corporation or other
entity directly or indirectly controlled by the Corporation to purchase or
redeem any Junior Securities or Parity Securities or any warrants, rights, calls
or options exercisable for or convertible into any Junior Securities or Parity
Securities (other than the repurchase, redemption or other retirement of
debentures or other debt securities that are convertible or exchangeable into
any Junior Securities or Parity Securities or the repurchase, redemption or
other retirement of Junior Securities or Parity Securities in exchange for
Junior Securities or Parity Securities) unless prior to or concurrently with
such declaration, payment, setting apart for payment, repurchase, redemption or
other retirement or distribution, as the case may be, all accumulated and unpaid
dividends on shares of the Series D Preferred Stock not paid on the dates
provided for in paragraph A of Article III hereof (including Arrearages and
accumulated dividends thereon) shall have been paid, except that when dividends
are not paid in full as aforesaid upon the shares of Series D Preferred Stock,
all dividends declared on the Series D Preferred Stock and any series of Parity
Dividend Securities shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series D Preferred Stock and such series of
Parity Dividend Securities shall in all cases bear to each other the same ratio
that accumulated dividends (including interest accrued on or additional
dividends accumulated in respect of such accumulated dividends) on the shares of
Series D Preferred Stock and such Parity Dividend Securities bear to each other.
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VII.
Voting Rights
A.     
The holders of Series D Preferred Stock shall be entitled to the number of votes
per share of Series D Preferred Stock equal to the number of shares of Common
Stock for which such share of Series D Preferred Stock is then convertible
pursuant to Article VIII at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration, other than the election of directors.
B.     
So long as any shares of the Series D Preferred Stock are outstanding, (i) each
share of Series D Preferred Stock shall entitle the holder thereof to vote on
all matters voted on by holders of Common Stock, other than the election of
directors; and (ii) the shares of Series D Preferred Stock shall vote together
with shares of Common Stock and shares of Series B Preferred Stock, the Series C
Preferred Stock and the Series E Preferred Stock as a single class.
C.     
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series D Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series E Preferred Stock, voting together as a single class, the Corporation
shall not (i) authorize, create or issue, or increase the authorized amount of,
(x) any Senior Securities or Parity Securities or (y) any class or series of
capital stock or any security convertible into or exercisable for any class or
series of capital stock, redeemable mandatorily or redeemable at the option of
the holder thereof or (ii) enter into any Transaction (as defined in paragraph H
of Article VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.
D.     
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series D Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series E Preferred Stock, voting together as a single class, the Corporation
shall not (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the Bylaws, if the amendment, alteration or repeal alters or
changes the powers, preferences or special rights of the Series D Preferred
Stock so as to affect them materially and adversely or (ii) authorize or take
any other action if such action alters or changes any of the rights of the
Series D Preferred Stock in any respect or otherwise would be inconsistent with
the provisions of this Certificate of Designations and the holders of any class
or series of the capital stock of the Corporation is entitled to vote thereon.
Such vote or consent shall be taken in accordance with the procedures specified
in paragraph E below.
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E.     
The foregoing rights of holders of shares of Series D Preferred Stock to take
any actions as provided in this Article VII may be exercised at any annual
meeting of stockholders or at a special meeting of stockholders held for such
purpose as hereinafter provided or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action, if action by written
consent of stockholders of the Corporation is then permitted.
The
Chairman of the Board of the Corporation may call, and upon written request of
holders of record of 35% of the outstanding shares of Series D Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series E Preferred Stock,
addressed to the Secretary of the Corporation at the principal office of the
Corporation shall call, a special meeting of the holders of shares entitled to
vote as provided herein. Such meeting shall be held within 30 days after
delivery of such request to the Secretary, at the place and upon the notice
provided by law and in the By-laws of the Corporation for the holding of
meetings of stockholders.
At
each meeting of stockholders at which the holders of shares of Series D
Preferred Stock shall have the right to take any action, the presence in
person or by proxy of the holders of record of one-third of the total number of
shares of Series D Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series E Preferred Stock then outstanding and entitled to vote on the
matter shall be necessary and sufficient to constitute a quorum. At any such
meeting or at any adjournment thereof:
(A)
the absence of a quorum of the holders of shares of Series D Preferred Stock
shall not prevent the election of directors to be elected by the holders of
shares of Series B Preferred Stock or the taking of any action as provided in
this Article VII; and
(B)
in the absence of a quorum of the holders of shares of Series D Preferred Stock,
Series C Preferred Stock and Series B Preferred Stock, a majority of the holders
of such shares present in person or by proxy shall have the power to adjourn the
meeting as to the actions to be taken by the holders of shares of Series D
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series E
Preferred Stock, from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.
For
taking of any action as provided in this Article VII by the holders of
shares of Series D Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series E Preferred Stock, each such holder shall have one vote for
each share of such stock standing in his name on the transfer books of the
Corporation as of any record dated fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice if waived, at the close of business on the
Business Day next preceding the day on which the meeting is held.
F.     
       The Corporation shall not enter into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the Corporation's performance of its obligations
hereunder.
VIII.
Conversion
The
holders of the Series D Preferred Stock shall have conversion rights as follows:
A.
Each share of Series D Preferred Stock shall be convertible at the direction of,
and by notice to the Corporation from, (i) the holder thereof or (ii) the
holders of a majority of the outstanding shares of Series D Preferred Stock, at
any time, at the office of the Corporation or any transfer agent for such
Series, into one (1) fully paid and nonassessable share of Common Stock subject
to adjustment from time to time as provided below (as so adjusted, the
"conversion ratio"),
provided
, that any conversion pursuant to
clause (ii) above of less than all of the outstanding shares of Series D
Preferred Stock shall be on a pro rata basis amongst all holders of Series D
Preferred Stock.
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B.     
If a holder of Series D Preferred Stock gives notice (an "Optional
Conversion Notice") of conversion under paragraph A above, such holder
shall surrender with such Optional Conversion Notice the duly endorsed
certificate or certificates for the Series D Preferred Stock being converted, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. If the holders of a majority of the
outstanding shares of Series D Preferred Stock give notice of conversion under
paragraph A above, the Corporation shall notify all other record holders of
Series D Preferred Stock (a "Mandatory Conversion Notice"). Following
receipt of a Mandatory Conversion Notice, the holders of Series D Preferred
Stock shall surrender the certificate or certificates therefor duly endorsed, at
the office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or certificates
for shares of Common Stock are to be issued. The Corporation shall, as soon as
practicable after the surrender of a Series D Preferred Stock certificate or
certificates pursuant to an Optional Conversion Notice or Mandatory Conversion
Notice, issue and deliver at such office to such holder, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such Optional Conversion Notice or Mandatory Conversion
Notice, as applicable, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the recordholder or holders of such shares of Common Stock as of such date.
The issuance of certificates or shares of Common Stock upon conversion of shares
of Series D Preferred Stock shall be made without charge for any issue, stamp or
other similar tax in respect of such issuance.
C.     
No fractional shares shall be issued upon conversion of any shares of Series D
Preferred Stock and the number of shares of Common Stock to be issued shall be
rounded down to the nearest whole share, and the holder of Series D Preferred
Stock shall be paid in cash for any fractional share.
D.     
In case at any time or from time to time the Corporation shall pay any dividend
or make any other distribution to the holders of its Common Stock or other class
of securities, or shall offer for subscription pro rata to the holders of its
Common Stock or other class of securities any additional shares of stock of any
class or any other right, or there shall be any capital reorganization or
reclassification of the Common Stock of the Corporation or consolidation or
merger of the Corporation with or into another corporation, or any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, then, in
any one or more of said cases the Corporation shall give at least 20 days'
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holders of the Series D Preferred
Stock at the addresses of each as shown on the books of the Corporation
maintained by the Transfer Agent thereof of the date on which (i) the books
of the Corporation shall close or a record shall be taken for such stock
dividend, distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale or conveyance, dissolution,
liquidation or winding up shall take place, as the case may be, provided that in
the case of any Transaction to which paragraph H applies the Corporation
shall give at least 30 days' prior written notice as aforesaid. Such notice
shall also specify the date as of which the holders of the Common Stock of
record shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall not invalidate
any action so taken.
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Table of Contents
E.     
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series D Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series D Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
D Preferred Stock, then in addition to such other remedies as shall be available
to the holder of Series D Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
F.     
Any notice required by the provisions of paragraph D to be given the holders of
shares of Series D Preferred Stock shall be deemed given if sent by facsimile
transmission, by telex, or if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his, her or its address
appearing on the books of the Corporation.
G.     
       The conversion ratio shall be subject to adjustment from time to time as follows:
(i)
In case the Corporation shall at any time or from time to time after the Issue
Date (A) pay a dividend or make a distribution, on the outstanding shares
of Common Stock in shares of Common Stock, (B) subdivide the outstanding
shares of Common Stock into a larger number of shares of Common Stock,
(C) combine the outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case, the
conversion ratio in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted so that the holder of any
shares of Series D Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number of shares of Common Stock or other securities
of the Corporation which such holder would have owned or have been entitled to
receive after the happening of any of the events described above, had such
shares of Series D Preferred Stock been surrendered for conversion immediately
prior to the happening of such event or the record date therefor, whichever is
earlier. An adjustment made pursuant to this clause (i) shall become effective
(x) in the case of any such dividend or distribution, immediately after the
close of business on the record date for the determination of holders of shares
of Common Stock entitled to receive such dividend or distribution, or
(y) in the case of any such subdivision, reclassification or combination,
at the close of business on the day upon which such corporate action becomes
effective.
45
(ii)
In the case the Corporation shall, after the Issue Date, issue shares of Common
Stock at a price per share, or securities convertible into or exchangeable for
shares of Common Stock ("Convertible Securities") having a
"Conversion Price" (as defined below) less than the Current Market
Price (for a period of 15 consecutive trading days prior to such date), then,
and in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series D Preferred Stock shall be entitled to receive, upon the
conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the applicable conversion ratio on the day immediately
prior to such date by (B) a fraction, the numerator of which shall be the
sum of (1) the number of shares of Common Stock outstanding on the date on
which such shares or Convertible Securities are issued and (2) the number
of additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x) the number of shares of Common Stock outstanding on such date and
(y) the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock so
issued, or the number of shares of Common Stock which the aggregate of the
Conversion Price of such Convertible Securities so issued, would purchase at
such Current Market price on such date. An adjustment made pursuant to this
clause (ii) shall be made on the next Business Day following the date on which
any such issuance is made and shall be effective retroactively immediately after
the close of business on such date. For purposes of this clause (ii), the
aggregate consideration receivable by the Corporation in connection with the
issuance of any securities shall be deemed to be the sum of the aggregate
offering price to the public (before deduction of underwriting discounts or
commissions and expenses payable to third parties), and the "Conversion
Price" of any Convertible Securities is the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities (before deduction of underwriting discounts or
commissions and expenses payable to third parties) plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon the
conversion, exchange or exercise of any such Convertible Securities. Neither (A)
the issuance of any shares of Common Stock (whether treasury shares or newly
issued shares) pursuant to a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of Common Stock
requiring an adjustment in the conversion ratio pursuant to clause (i) of this
paragraph G, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series B Preferred Stock, the Series D Preferred Stock and the
Warrants) nor (B) the issuance of shares of Common Stock pursuant thereto shall
be deemed to constitute an issuance of Common Stock or Convertible Securities by
the Corporation to which this clause (ii) applies. Upon expiration of any
Convertible Securities which shall not have been exercised or converted and for
which an adjustment shall have been made pursuant to this clause (ii), the
Conversion Price computed upon the original issue thereof shall upon such
expiration be recomputed as if the only additional shares of Common Stock issued
were such shares of Common Stock (if any) actually issued upon exercise of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion.
(iii)
In case the Corporation shall at any time or from time to time after the Issue
Date declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
Subsidiaries by way of dividend or spin-off), on its Common Stock, other than
(A) regular quarterly dividends payable in cash in an aggregate amount not
to exceed 15% of net income from continuing operations before extraordinary
items of the Corporation, determined in accordance with generally accepted
accounting principles, during the period (treated as one accounting period)
commencing on July 1, 1998, and ending on the date such dividend is paid or
(B) dividends or distributions of shares of Common Stock which are referred
to in clause (i) of this paragraph G, then, and in each such case, the
conversion ratio shall be adjusted so that the holder of each share of Series D
Preferred Stock shall be entitled to receive, upon the conversion thereof, the
number of shares of Common Stock determined by multiplying (1) the
applicable conversion ratio on the day immediately prior to the record date
fixed for the determination of stockholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the then
Current Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, and the denominator of which shall be such Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date less the Fair Market Value (as defined in
Article IX) per share of Common Stock (as determined in good faith by the
Board of Directors of the Corporation, a certified resolution with respect to
which shall be mailed to each holder of shares of Series D Preferred Stock) of
such dividend or distribution;
provided
,
however
, that in the
event of a distribution of shares of capital stock of a Subsidiary of the
Corporation (a "Spin-Off") made to holders of shares of Common Stock,
the numerator of such fraction shall be the sum of the Current Market Price per
share of Common Stock for the period of 20 Trading Days preceding the 35th
Trading Day after the effective date of such Spin-Off and the Current Market
Price of the number of shares (or the fraction of a share) of capital stock of
the Subsidiary which is distributed in such Spin-Off in respect of one share of
Common Stock for the period of 20 Trading Days preceding such 35th Trading Day
and the denominator of which shall be the current market price per share of the
Common Stock for the period of 20 Trading Days proceeding such 35th Trading Day.
An adjustment made pursuant to this clause (iii) shall be made upon the opening
of business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or distribution;
provided
,
however
, if the proviso to the preceding sentence
applies, then such adjustment shall be made and be effective as of such 35th
Trading Day after the effective date of such Spin-Off.
46
(iv)     
For purposes of this paragraph G, the number of shares of Common Stock at
any time outstanding shall not include any shares of Common Stock then owned or
held by or for the account of the Corporation.
(v)     
The term "dividend", as used in this paragraph G shall mean a
dividend or other distribution upon stock of the Corporation except pursuant to
the Rights Agreement (as defined in Article IX). Notwithstanding anything
in this Article VIII to the contrary, the conversion ratio shall not be
adjusted as a result of any dividend, distribution or issuance of securities of
the Corporation pursuant to the Rights Agreement.
(vi)     
Anything in this paragraph G to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided, shall
have resulted in a change of the conversion ratio by at least one-hundredth of
one share of Common Stock, and when the cumulative net effect of more than one
adjustment so determined shall be to change the conversion ratio by at least
one-hundredth of one share of Common Stock, such change in conversion ratio
shall thereupon be given effect.
(vii)     
The certificate of any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Corporation (which may be the
firm of independent public accountants regularly employed by the Corporation)
shall be presumptively correct for any computation made under this
paragraph G.
(viii)     
If the Corporation shall take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof legally
abandon its plan to pay or deliver such dividend or distribution, then
thereafter no adjustment in the number of shares of Common Stock issuable upon
exercise of the right of conversion granted by this paragraph G or in the
conversion ratio then in effect shall be required by reason of the taking of
such record.
(ix)     
There shall be no adjustment of the conversion ratio in case of the issuance of
any stock of the Corporation in a merger, reorganization, acquisition or other
similar transaction except as set forth in paragraph G(i), G(ii) and H of
this Article VIII.
H.     
In case of any reorganization or reclassification of outstanding shares of
Common Stock (other than a reclassification covered by paragraph G(i) of
this Article VIII), or in case of any consolidation or merger of the
Corporation with or into another corporation, or in the case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each share of Series D Preferred Stock then
outstanding shall thereafter be convertible into, in lieu of the Common Stock
issuable upon such conversion prior to consummation of such Transaction, the
kind and amount of shares of stock and other securities and property receivable
(including cash) upon the consummation of such Transaction by a holder of that
number of shares of Common Stock into which one share of Series D Preferred
Stock was convertible immediately prior to such Transaction (including, on a pro
rata basis, the cash, securities or property received by holders of Common Stock
in any tender or exchange offer that is a step in such Transaction). In case
securities or property other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all reference in this paragraph H shall
be deemed to apply, so far as appropriate and as nearly as may be, to such other
securities or property.
47
I.     
Upon any adjustment of the conversion ratio then in effect and any increase or
decrease in the number of shares of Common Stock issuable upon the operation of
the conversion set forth in Article VIII, then, and in each such case, the
Corporation shall promptly deliver to the registered holders of the Series D
Preferred and Common Stock, a certificate signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation setting forth in reasonable detail the
event requiring the adjustment and the method by which such adjustment was
calculated and specifying the conversion ratio then in effect following such
adjustment and the increased or decreased number of shares issuable upon the
conversion set forth in this Article VIII.
IX.
Additional Definitions
For
the purposes of this Certificate of Designations of Series D Preferred Stock,
the following terms shall have the meanings indicated:
"Accrual
Period" means the end of the first quarterly period following February 10,
2001.
"Business
Day" means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Bylaws"
means the Bylaws of the Corporation, as amended.
"Current
Market Price", when used with reference to shares of Common Stock or other
securities on any date, shall mean the closing price per share of Common Stock
or such other securities on such date and, when used with reference to shares of
Common Stock or other securities for any period shall mean the average of the
daily closing prices per share of Common Stock or such other securities for such
period. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Common
Stock or such other securities are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Common Stock or such other securities are
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last quoted sale price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. National Market System or such other securities are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Common Stock or
such other securities selected by the Board of Directors of the Corporation. If
the Common Stock or such other securities are not publicly held or so listed or
publicly traded, "Current Market Price" shall mean the Fair Market
Value per share of Common Stock or of such other securities as determined in
good faith by the Board of Directors of the Corporation based on an opinion of
an independent investment banking firm with an established national reputation
as a valuer of securities, which opinion may be based on such assumption as such
firm shall deem to be necessary and appropriate.
48
"Exchange
Act" means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.
"Fair
Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Group"
has the meaning set forth in Rule 13d-5 under the Exchange Act.
"Issue
Date" shall mean the first date on which shares of Series D Preferred Stock
are issued.
"Person"
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Redemption
Price" of a share of Series D Preferred Stock shall mean the sum of the
dividends, if any, accumulated or deemed to have accumulated thereon to the
Optional Redemption Date, as applicable, whether or not such dividends are
declared
plus
$0.85 per share of Series D Preferred Stock, to adjustment
for splits, reclassifications, recombinations or similar events.
"Rights"
shall mean any rights to purchase securities of the Corporation issued pursuant
to any Rights Agreement.
"Rights
Agreement" shall mean the Rights Agreement, dated as of June 21, 1996,
between the Company and Wells Fargo Bank as rights agent, and all amendments,
supplements and replacements thereof.
"Stated
Value" shall be equal to $0.85.
"Subsidiary"
means, as to any Person, any other Person of which more than 50% of the shares
of the common stock, preferred stock or other voting interests are owned or
controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person and one
or more of its Subsidiaries.
"Trading
Day" means a day on which the principal national securities exchange on
which the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange a Business Day.
X.
Miscellaneous
A.
Notices
.       Any notice referred to herein
shall be in writing and, unless first-class mail shall
be specifically permitted for such notices under the terms hereof, shall be deemed to have been given upon
personal delivery thereof, upon transmittal of such notice by telecopy (with confirmation of receipt by telecopy
or telex) or five days after transmittal by registered or certified mail, postage prepaid, addressed as
follows:
(i)
if to the Corporation, to its office at 2 California Plaza, 350 South Grand
Avenue, Los Angeles, California 90071 (Attention: General Counsel)
or to the transfer agent for the Series D Preferred Stock;
49
(ii)
if to a holder of the Series D Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Corporation (which may
include the records of any transfer agent for the Series D Preferred Stock); or
(iii)
to such other address as the Corporation or such holder, as the case may be,
shall have designated by notice similarly given.
B..
Reacquired Shares
..     
 Any shares of Series D Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series D Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.
C.
Enforcement
.       Any registered holder of shares of Series D Preferred Stock
may proceed to
protect and enforce its rights and the rights of such holders by any available remedy by proceeding at law or in
equity to protect and enforce any such rights, whether for the specific enforcement of any provision in this
Certificate of Designations or in aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
D.
Transfer Taxes
.      Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series D Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series D Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E.
Transfer Agent
.      The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series D Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series D Preferred Stock.
F.
Record Dates
.       In the event that the Series
D Preferred Stock shall be registered under either
the Securities Act of 1933, as amended, or the Exchange Act, the Corporation shall establish appropriate record
dates with respect to payments and other actions to be made with respect to the Series D Preferred
Stock.
50
CERTIFICATE
OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL
OR
OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS
OR RESTRICTIONS THEREOF, OF
SERIES
E PREFERRED STOCK OF
AAMES
FINANCIAL CORPORATION
I.
Designation and Amount
The
designation of this series of shares shall be "Series E Preferred
Stock" (the "Series E Preferred Stock") par value $0.001 per
share; the stated value per share shall be $1.00 (the "Stated Value");
and the number of shares constituting such series shall be 26,700,000. The
number of shares of the Series E Preferred Stock may be decreased from time to
time by a resolution or resolutions of the Board of Directors; provided,
however, that such number shall not be decreased below the aggregate number of
shares of the Series E Preferred Stock then outstanding.
II.
Rank
A.        
With respect to the distribution of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the Series E
Preferred Stock shall rank (i) senior to each other class or series of preferred
stock, except for the Series B Convertible Preferred Stock, par value $0.001 per
share, of the Corporation (the "Series B Preferred Stock"), the Series
C Convertible Preferred Stock, par value $0.001 per share, of the Corporation
(the "Series C Preferred Stock") and the Series D Convertible
Preferred Stock, par value $0.001 per share, of the Corporation (the
"Series D Preferred Stock"); (ii) on a parity with the Series B
Preferred Stock, the Series C Preferred Stock and Series D Preferred Stock; and
(iii) senior to the Common Stock, and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
all equity securities of the Corporation to which the Series E Preferred Stock
ranks senior, including the Common Stock, are collectively referred to herein as
"Junior Liquidation Securities"; all equity securities of the
Corporation (other than convertible debt securities) to which the Series E
Preferred Stock ranks on parity, including the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock, are collectively
referred to herein as "Parity Liquidation Securities"; and all equity
securities of the Corporation to which the Series E Preferred Stock ranks junior
are collectively referred to herein as "Senior Liquidation
Securities."
B.         The
Series E Preferred Stock shall be subject to the creation of Junior Liquidation
Securities, but no Parity Liquidation Securities (other than the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) or
Senior Liquidation Securities shall be created except in accordance with the
terms hereof.
III.
Dividends
The
holders of Series E Preferred Stock shall not be entitled to receive dividends.
51
IV.
Liquidation Preference
A.
Liquidation Preference
. The holders of the outstanding shares of Series E
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to $1.00 per share of Series E Preferred Stock, before any
payment shall be made or any assets distributed to the holders of any Junior
Liquidation Securities. After any such payment in full the holders of Series E
Preferred Stock shall not be entitled to any further participation in any
distribution of assets of the Corporation.
B.
Parity
Securities
.  All the assets of the Corporation available for distribution to stockholders after the liquidation preferences of any Senior Liquidation Securities shall be distributed ratably
(in proportion to the full distributable amounts to which holders of Series E Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution, liquidation or winding up) among
the holders of the then-outstanding shares of Series E Preferred Stock and Parity Liquidation Securities, if any,
when such assets are not sufficient to pay in full the aggregate amounts payable thereon.
C.
Merger Not a Liquidation
.
Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's assets for
cash, securities or other property to a Person or Persons shall be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series E Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series E Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to holders of record as they appear on the stock record books of
the Corporation as of the date such notices are first mailed.
V.
Redemption
A.
Optional
Redemption
. The Corporation may, at its option, redeem all (but not less than all)
outstanding shares of Series E Preferred Stock on a date specified by the Corporation
(the "Optional Redemption  Date") by paying the Redemption Price therefor in
cash out funds legally available for such purpose.
B.
Notice and Redemption Procedures
. Notice of the redemption of shares of
Series E Preferred Stock pursuant to paragraph A of this Article V (a
"Notice of Redemption") shall be sent to the holders of record of the
shares of Series E Preferred Stock to be redeemed by first class mail, postage
prepaid, at each such holder's address as it appears on the stock record
books of the Corporation not more than 120 nor fewer than 90 days prior to the
Optional Redemption Date, as applicable, which date shall be set forth in such
notice (the "Redemption Date"); provided that failure to give such
Notice of Redemption to any holder, or any defect in such Notice of Redemption
to any holder shall not affect the validity of the proceedings for the
redemption of any shares of Series E Preferred Stock held by any other holder.
In order to facilitate the redemption of shares of Series E Preferred Stock, the
Board of Directors may fix a record date for the determination of the holders of
shares of Series E Preferred Stock to be redeemed not more than 30 days prior to
the date the Notice of Redemption is mailed. On or after the Optional Redemption
Date, as applicable, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date all rights of the holders thereof as holders of Series E Preferred Stock
shall cease and terminate, except to the extent the Corporation shall default in
payment thereof on the Optional Redemption Date.
52
C.
Deposit of Funds
.
The Corporation shall, on or prior to the
Optional Redemption Date, as applicable, pursuant to paragraph B of this Article
V, deposit with its transfer agent or other redemption agent in the Borough of
Manhattan, The City of New York having a capital and surplus of at least
$500,000,000 selected by the Board of Directors, as a trust fund for the benefit
of the holders of the shares of Series E Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption, with irrevocable instructions and authority to
such transfer agent or other redemption agent to pay to the respective holders
of such shares, as evidenced by a list of such holders certified by an officer
of the Corporation, the Redemption Price upon surrender of their respective
share certificates. Such deposit shall be deemed to constitute full payment of
the Redemption Price for such shares to the holders, and from and after the date
of such deposit, all rights of the holders of the shares of Series E Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. In case holders of
any shares of Series E Preferred Stock called for redemption shall not, within
two years after such deposit, claim the cash deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand, pay over to
the Corporation the balance so deposited. Thereupon, such transfer agent or
other redemption agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to shares to be
redeemed, shall be to receive the Redemption Price as general creditors of the
Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.
VI.
Restrictions on Dividends
So
long as any shares of the Series E Preferred Stock are outstanding, the Board of
Directors shall not declare, and the Corporation shall not pay or set apart for
payment any dividend on any Junior Liquidation Securities or make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the repurchase, redemption or other retirement of, any Junior Liquidation
Securities or Parity Liquidation Securities or any warrants, rights or options
exercisable for or convertible into any Junior Liquidation Securities or Parity
Liquidation Securities (other than the repurchase, redemption or other
retirement of debentures or other debt securities that are convertible or
exchangeable into any Junior Liquidation Securities or Parity Liquidation
Securities), or make any distribution in respect of the Junior Liquidation
Securities, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than distributions or
dividends in Junior Liquidation Securities to the holders of Junior Liquidation
Securities), and shall not permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase or redeem any Junior
Liquidation Securities or Parity Liquidation Securities or any warrants, rights,
calls or options exercisable for or convertible into any Junior Liquidation
Securities or Parity Liquidation Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Liquidation Securities or Parity
Liquidation Securities or the repurchase, redemption or other retirement of
Junior Liquidation Securities or Parity Liquidation Securities in exchange for
Junior Liquidation Securities or Parity Liquidation Securities) unless prior to
or concurrently with such declaration, payment, setting apart for payment,
repurchase, redemption or other retirement or distribution, as the case may be,
all shares of the Series E Preferred Stock have been redeemed as provided for in
paragraph A of Article V hereof.
53
VII.
Voting Rights
A.         The
holders of Series E Preferred Stock shall be entitled to one vote per share of
Series E Preferred Stock at each meeting of stockholders of the Corporation with
respect to any and all matters presented to the stockholders of the Corporation
for their action and consideration, other than the election of directors.
B.         So
long as any shares of the Series E Preferred Stock are outstanding, (i) each
share of Series E Preferred Stock shall entitle the holder thereof to vote on
all matters voted on by holders of Common Stock, other than the election of
directors; and (ii) the shares of Series E Preferred Stock shall vote together
with shares of Common Stock and shares of Series B Preferred Stock, the Series C
Preferred Stock and Series D Preferred Stock as a single class.
C.        
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of a majority of the outstanding shares of
Series E Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, voting together as a single class, the Corporation
shall not (i) authorize, create or issue, or increase the authorized amount of,
(x) any Senior Liquidation Securities or Parity Liquidation Securities or (y)
any class or series of capital stock or any security convertible into or
exercisable for any class or series of capital stock, redeemable mandatorily or
redeemable at the option of the holder thereof or (ii) enter into any
Transaction. Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.
D.        
Without the written consent (if action by written consent is permitted) or
affirmative vote of the holders of at least a majority of the outstanding shares
of Series E Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, voting together as a single class, the Corporation
shall not (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the Bylaws, if the amendment, alteration or repeal alters or
changes the powers, preferences or special rights of the Series E Preferred
Stock so as to affect them materially and adversely or (ii) authorize or take
any other action if such action alters or changes any of the rights of the
Series E Preferred Stock in any respect or otherwise would be inconsistent with
the provisions of this Certificate of Designations and the holders of any class
or series of the capital stock of the Corporation is entitled to vote thereon.
Such vote or consent shall be taken in accordance with the procedures specified
in paragraph E below.
E.         The
foregoing rights of holders of shares of Series E Preferred Stock to take any
actions as provided in this Article VII may be exercised at any annual
meeting of stockholders or at a special meeting of stockholders held for such
purpose as hereinafter provided or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action, if action by written
consent of stockholders of the Corporation is then permitted.
At
each meeting of stockholders at which the holders of shares of Series E
Preferred Stock shall have the right to take any action, the presence in
person or by proxy of the holders of record of one-third of the total number of
shares of Series E Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock then outstanding and entitled to vote on the
matter shall be necessary and sufficient to constitute a quorum. At any such
meeting or at any adjournment thereof:
(A)        
the absence of a quorum of the holders of shares of Series E Preferred Stock
shall not prevent the election of directors to be elected by the holders of
shares of Series B Preferred Stock or the taking of any action as provided in
this Article VII; and
54
(B)        
in the absence of a quorum of the holders of shares of Series E Preferred Stock,
Series D Preferred Stock, Series C Preferred Stock and Series B Preferred Stock,
a majority of the holders of such shares present in person or by proxy shall
have the power to adjourn the meeting as to the actions to be taken by the
holders of shares of Series E Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock, from time to time and place to
place without notice other than announcement at the meeting until a quorum shall
be present.
For
taking of any action as provided in this Article VII by the holders of
shares of Series E Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock, each such holder shall have one vote for
each share of such stock standing in his name on the transfer books of the
Corporation as of any record dated fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice if waived, at the close of business on the
Business Day next preceding the day on which the meeting is held.
F.        
The Corporation shall not enter into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the Corporation's performance
of its obligations  hereunder.
VIII.
Conversion
The
holders of the Series E Preferred Stock shall not have conversion rights.
IX.
Additional Definitions
For
the purposes of this Certificate of Designations of Series E Preferred Stock,
the following terms shall have the meanings indicated:
"Business
Day" means any day, other than a Saturday, Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Bylaws"
means the Bylaws of the Corporation, as amended.
"Exchange
Act" means the U.S. Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, from time to time.
"Person"
means any individual, corporation, company, association, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Redemption
Price" of a share of Series E Preferred Stock shall mean the $1.00 per
share of Series E Preferred Stock,, subject to adjustment for splits,
reclassifications, recombinations or similar events.
"Transaction"
means any reorganization or reclassification of outstanding shares of Common
Stock or any consolidation or merger of the Corporation with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety.
X.
Miscellaneous
A.
Notices
.  Any notice referred to herein shall be in writing and, unless
first-class mail shall  be specifically permitted for such notices under the terms
hereof, shall be deemed to have been given upon  personal delivery thereof, upon
transmittal of such notice by telecopy (with confirmation of receipt by telecopy  or
telex) or five days after transmittal by registered or certified mail, postage prepaid,
addressed as follows:
55
(i)
if to the Corporation, to its office at 2 California Plaza,
350 South Grand
Avenue, Los Angeles, California 90071
(Attention: General Counsel)
or to the transfer agent for the Series E Preferred Stock;
(ii)
if to a holder of the Series E Preferred Stock, to such holder at the address
of
such holder as listed in the stock record books of the Corporation (which
may
include the records of any transfer agent for the Series E Preferred Stock); or
(iii)
to such other address as the Corporation or such holder, as the case may be,
shall
have designated by notice similarly given.
B.
Reacquired Shares
. Any shares of Series E Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation Law. All such shares of Series E Preferred
Stock shall upon their cancellation and upon the filing of an appropriate
certificate with the Secretary of State of the State of Delaware, become
authorized but unissued shares of Preferred Stock, par value $0.001 per share,
of the Corporation and may be reissued as part of another series of Preferred
Stock, par value $0.001 per share, of the Corporation subject to the conditions
or restrictions on issuance set forth herein.
C.
Enforcement
.
Any registered holder of shares of Series E Preferred Stock may proceed to  protect and
enforce its rights and the rights of such holders by any available remedy by proceeding
at law or in  equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in this  Certificate of Designations or in aid of the
exercise of any power granted herein, or to enforce any other proper  remedy.
D.
Transfer Taxes
. Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series E Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series E Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E.
Transfer Agent
. The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series E Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series E Preferred Stock.
56
F.
Record
Dates
.  In the event that the Series E Preferred Stock shall be registered under
either the  Securities Act of 1933, as amended, or the Exchange Act, the Corporation
shall establish appropriate record dates  with respect to payments and other actions to
be made with respect to the Series E Preferred Stock.
57
EXHIBIT
  4.3
AAMES
  FINANCIAL CORPORATION
2003
  SERIES E PREFERRED STOCK OPTION PLAN
AAMES
  FINANCIAL CORPORATION
2003
  SERIES E PREFERRED STOCK OPTION PLAN
ARTICLE
  I.
PURPOSE
This
  2003 Series E Preferred Stock Option Plan (the "Plan") is intended
  as an incentive and to encourage stock ownership by officers and outside directors
  of Aames Financial Corporation (the "Company") in order to increase
  their proprietary interest in the Company's success and to encourage them
  to remain in the service of the Company.
The
  term "Company," when used in the Plan with reference to eligibility
  and employment, shall include the Company and its subsidiaries. The word "subsidiary,"
  when used in the Plan, shall mean any subsidiary of the Company within the meaning
  of Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
It
  is intended that options granted under this Plan will be "non-qualified
  stock options" that do not qualify under Section 422 of the Code.
ARTICLE
  II.
ADMINISTRATION
The
  Plan shall be administered by the Compensation Committee (the "Committee")
  of the Board of Directors of the Company (the "Board") which shall
  consist of not less than three members, one member appointed by the Board and
  two members appointed by Capital Z Financial Services Fund II, L.P. ("Capital
  Z") during any period that Capital Z and/or its designated purchasers under
  the Preferred Stock Purchase Agreement by and among the Company and Capital
  Z, dated as of the 23rd day of December, 1998 (the "Purchase Agreement")
  own at least 25% of the outstanding voting securities of the Company. Subject
  to the provisions of the Plan, the Committee shall have sole authority, in its
  absolute discretion: (a) to determine which of the eligible officers and outside
  directors of the Company shall be granted options; (b) to authorize the granting
  of nonqualified options; (c) to determine the times when options shall be granted
  and the number of shares to be optioned; (d) to determine the option price of
  the shares subject to each option; (e) to determine the time or times when each
  option becomes exercisable, the duration of the exercise period and any other
  restrictions on the exercise of options issued hereunder; (f) to prescribe the
  form or forms of the option agreements under the Plan (which forms shall be
  consistent with the terms of the Plan but need not be identical); (g) to adopt,
  amend and rescind such rules and regulations as, in its opinion, may be advisable
  in the administration of the Plan; and (h) to construe and interpret the Plan,
  the rules and regulations and the option agreements under the Plan and to make
  all other determinations deemed necessary or advisable for the administration
  of the Plan. All decisions, determinations and interpretations of the Committee
  shall be final and binding on all optionees.
1
ARTICLE
  III.
STOCK
The
  stock to be optioned under the Plan shall be shares of authorized but unissued
  Series E Preferred Stock of the Company, par value $0.001 per share (the "Stock").
  Under the Plan, the total number of shares of Stock which may be purchased pursuant
  to options granted hereunder shall not exceed, in the aggregate, 26,700,000
  shares, except as such number of shares shall be adjusted in accordance with
  the provisions of ARTICLE X hereof. The number of shares of Stock available
  for grant of options under the Plan shall be decreased by the sum of the number
  of shares with respect to which options have been issued and are then outstanding
  and the number of shares issued upon exercise of options. In the event that
  any outstanding option under the Plan for any reason expires, is terminated
  or is canceled prior to the end of the period during which options may be granted,
  the shares of Stock called for by the unexercised portion of such option may
  again be subject to an option under the Plan.
ARTICLE
  IV.
ELIGIBILITY
  OF PARTICIPANTS
Subject
  to ARTICLE VII options may be granted to officers and outside directors who
  the Committee determines shall receive options under the Plan. A director is
  an "outside director" if the individual would be an "outside
  director" within the meaning of Treasury Regulation Section 1.162-27(e)(3)
  under Section 162(m) of the Code and a "non-employee director" within
  the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
  Securities Exchange Act of 1934, as amended (the "Exchange Act").
ARTICLE
  V.
OPTION
  EXERCISE PRICE
Subject
  to ARTICLE VII, except as otherwise provided by the Committee in the option
  agreement, the option exercise price of each option granted under the Plan shall
  be $0.71.
ARTICLE
  VI.
EXERCISE
  AND TERMS OF OPTIONS
Subject
  to this ARTICLE VI, the Committee shall determine the dates after which options
  may be exercised, in whole or in part. If an option is exercisable in installments,
  such installments or portions thereof which become exercisable shall remain
  exercisable until exercise or expiration of the option.
2
Unless
  otherwise provided in the option agreement or agreed to by the Committee at
  the time of exercise, each optionee shall enter into a binding agreement with
  the Company at the time of grant pursuant to which such optionee agrees not
  to sell, assign or otherwise transfer more than 25% of the Stock purchased pursuant
  to an option in any given year except in connection with a Change in Control,
  as described in ARTICLE X. Appropriate legends shall be placed on the stock
  certificates evidencing shares issued upon exercise of options to reflect such
  transfer restrictions.
Any
  other provision of the Plan to the contrary notwithstanding, no option shall
  be exercised after the date ten years from the date of grant of such option
  (the "Termination Date").
If
  prior to the Termination Date, an optionee shall cease to be in the Company's
  service for any reason, the option shall expire on the date of the individual's
  cessation of service.
Upon
  any merger or reorganization or other business combination in which the Company
  shall not be the surviving corporation, or a dissolution or liquidation of the
  Company, or a sale of all or substantially all of the Company's assets,
  all outstanding options shall terminate and the Company shall cause the optionees
  to be paid an amount equal to the difference, if any, obtained after subtracting
  (a) the aggregate fair market value of the Stock subject to options held by
  the optionees at the time of such transaction that have become vested and exercisable
  by the terms of the Plan and the applicable option agreements either as a result
  of or prior to such transaction, as determined by the Committee in good faith
  from (b) the aggregate exercise price of such options.
Notwithstanding
  the foregoing provisions of this ARTICLE VI or the terms of any option agreement,
  the Committee may in its sole discretion accelerate the exercisability of any
  option granted hereunder. Any such acceleration shall not affect the terms and
  conditions of any such option other than with respect to exercisability.
ARTICLE
  VII.
PAYMENT
  FOR SHARES
Payment
  for shares of Stock purchased under an option granted hereunder shall be made
  in full upon exercise of the option, by certified or bank cashier's check
  payable to the order of the Company or by any other means determined by the
  Committee. Subject to ARTICLE XIV, the Stock purchased shall upon exercise and
  payment be promptly delivered; provided, however, that the Committee may, in
  its discretion, require that an optionee pay to the Company, at the time of
  exercise, such amount as the Company deems necessary to satisfy its obligation
  to withhold Federal, state or local income or other taxes incurred by reason
  of the exercise or the transfer of shares thereupon.
3
ARTICLE
  VIII.
NON-TRANSFERABILITY
  OF OPTION RIGHTS
Unless
  the Committee shall provide otherwise, no option shall be transferable, and
  during the lifetime of the optionee, the option shall be exercisable only by
  him, except that options may be transferred to, and exercised by, Capital Z
  Financial Services Fund II, L.P., Capital Z Management LLC, or an affiliate
  of either entity.
ARTICLE
  IX.
ADJUSTMENT
  FOR RECAPITALIZATION, MERGER, ETC.
The
  aggregate number of shares of Stock which may be purchased pursuant to options
  granted hereunder, the number of shares of Stock covered by each outstanding
  option and the price per share thereof in each such option shall be appropriately
  adjusted for any increase or decrease in the number of outstanding shares of
  stock resulting from a stock split or other subdivision or consolidation of
  shares of Stock or for other capital adjustments or payments of stock dividends
  or distributions or other increases or decreases in the outstanding shares of
  Stock without receipt of consideration by the Company. Any adjustment shall
  be conclusively determined by the Committee.
In
  the event of any change in the outstanding shares of Stock by reason of any
  recapitalization, merger, consolidation, spin-off, combination or exchange of
  shares or other corporate change, or any distributions to common shareholders
  other than ordinary cash dividends, the Committee shall make such substitution
  or adjustment, if any, as it deems to be equitable, as to the number or kind
  of shares of Stock or other securities issued or reserved for issuance pursuant
  to the Plan, and the number or kind of shares of Stock or other securities covered
  by outstanding options, and the option price thereof.
The
  foregoing adjustments and the manner of application of the foregoing provisions
  shall be determined by the Committee in its sole discretion. Any such adjustment
  may provide for the elimination of any fractional share which might otherwise
  become subject to an option.
ARTICLE
  X.
EFFECT
  OF CHANGE IN CONTROL
(a)
Except to the extent otherwise provided in a particular option agreement
        or in paragraph (c) below, in the event of a "Change in Control,"
        notwithstanding any unsatisfied performance or service requirement established
        in the option agreement, such option shall become fully exercisable immediately
        prior to the Change in Control with respect to 100 percent of the shares
        subject to such option.
4
(b)
For purposes of the Plan, a Change in Control shall be deemed to occur
        if, after the effective date of the Plan (described in ARTICLE XVII),
        a Capital Z Realization Event occurs and:
(i)
any "person" (as that term is used in Sections 13 and 14(d)(2)
        of the Securities Exchange Act of 1934, as amended (the "Exchange
        Act")), other than Capital Z or any of its affiliates, is or becomes
        the beneficial owner (as that term is used in Section 13(d) of the Exchange
        Act), directly or indirectly, of 50% or more of either the outstanding
        shares of Common Stock or the combined voting power of the Company's
        then outstanding voting securities entitled to vote generally,
(ii)
the Company is merged, consolidated or reorganized into or with another
        corporation or another legal entity and, as a result of such merger, consolidation
        or reorganization, less than 50% of the combined voting power of the then-outstanding
        securities of such corporation or entity immediately after such transaction
        is held in the aggregate by the holders of the combined voting power of
        the securities of the Company entitled to generally in the election of
        directors of the Company immediately prior to such transaction,
(iii)
individuals who constitute the Board at the beginning of such period cease
        for any reason to constitute at least a majority thereof, unless the election
        or the nomination for election by the Company's shareholders of each
        new director was approved by a vote of at least three-quarters (3/4) of
        the directors then still in office who were directors at the beginning
        of the period, or
(iv)
the Company undergoes a liquidation or dissolution or a sale of all or
        substantially all of the assets of the Company.
No merger, consolidation or corporate reorganization in which the owners
        of the combined voting power of the Company's then outstanding voting
        securities entitled to vote generally prior to said combination, own 50%
        or more of the resulting entity's outstanding voting securities shall,
        by itself, be considered a Change in Control.
(c)
A "Capital Z Realization Event" shall be deemed to occur when,
        in connection with any of the events described in subparagraph (b)(i)
        through (iv) above, Capital Z contemporaneously exchanges all of its equity
        securities in the Company for cash or other liquid assets.
5
ARTICLE
  XI.
NO
  OBLIGATION TO EXERCISE OPTION
Granting
  of an option shall impose no obligation on the recipient to exercise such option.
ARTICLE
  XII.
USE
  OF PROCEEDS
The
  proceeds received from the sale of Stock pursuant to the Plan shall be used
  for general corporate purposes.
ARTICLE
  XIII.
RIGHTS
  AS A STOCKHOLDER
An
  optionee or a transferee of an option shall have no rights as a stockholder
  with respect to any share covered by his option until he shall have become the
  holder of record of such share, and he shall not be entitled to any distributions
  or other rights in respect of such share for which the record date is prior
  to the date on which he shall have become the holder of record thereof. Notwithstanding
  anything herein to the contrary, the Committee, in its sole discretion, may
  restrict the transferability of all or any number of shares issued under the
  Plan upon the exercise of an option by legending the stock certificate as it
  deems appropriate.
ARTICLE
  XIV.
RIGHTS
  TO CONTINUED SERVICE
Nothing
  in the Plan or in any option granted hereunder shall confer on any optionee
  any right to continue in the service of the Company or any of its subsidiaries,
  or to interfere in any way with the right of the Company or any of its subsidiaries
  to terminate the optionee's service at any time for any reason.
ARTICLE
  XV.
COMPLIANCE
  WITH LAW
The
  Company is relieved from any liability for the non-issuance or non-transfer
  (or any delay in issuance or transfer) of any shares of Stock subject to options
  under the Plan which results from the inability (or delay) of the Company in
  obtaining, from any regulatory body having jurisdiction, all requisite authority
  to issue or transfer shares of Stock of the Company upon exercise of the options
  under the Plan if counsel for the Company deems such authority necessary for
  the lawful issuance or transfer of such shares under the Plan.
6
Each
  option granted under the Plan is subject to the condition that, if at any time
  the Committee determines, in its discretion, that the listing, registration
  or qualification of shares of Stock issuable upon exercise of options is required
  by any securities exchange or under any state or Federal law, or that the consent
  or approval of any governmental regulatory body is necessary or desirable as
  a condition of, or in connection with, the grant of options or the issuance
  of shares of Stock, no shares of Stock shall be issued, in whole or in part,
  unless such listing, registration, qualification, consent or approval has been
  effected or obtained free of any conditions or with such conditions as are acceptable
  to the Committee.
Appropriate
  legends may be placed on the stock certificates evidencing shares of Stock issued
  upon exercise of options to reflect the provisions of this ARTICLE XV.
ARTICLE
  XVI.
CANCELLATION
  OF OPTIONS
The
  Committee, in its discretion, may, with the consent of any optionee, cancel
  any outstanding option hereunder.
ARTICLE
  XVII.
EFFECTIVE
  DATE AND EXPIRATION DATE OF PLAN
The
  Plan is effective as of September 18, 2003. The expiration date of the Plan, after
  which no option may be granted hereunder, shall be September 18, 2013.
ARTICLE
  XVIII.
AMENDMENT
  OR DISCONTINUANCE OF PLAN
The
  Board may, without the consent of the Company's stockholders or optionees
  under the Plan, at any time terminate the Plan entirely and at any time or from
  time to time amend or modify the Plan, provided that no such action shall adversely
  affect options theretofore granted hereunder without the optionee's consent.
ARTICLE
  XIX.
MISCELLANEOUS
(a)
Options shall be evidenced by option agreements (which need not be identical)
        in such forms as the Committee may from time to time approve. Such agreements
        shall conform to the terms and conditions of the Plan and may provide
        that the grant of any option under the Plan and Stock acquired pursuant
        to the Plan shall also be subject to such other conditions (whether or
        not applicable to the option or Stock received by any other optionee)
        as the Committee determines appropriate, including, without limitation,
        provisions to assist the optionee in financing the purchase of Stock through
        the exercise of options, provisions for the forfeiture of, or restrictions
        on, resale or other disposition of shares under the Plan, and provisions
        to comply with Federal and state securities laws and Federal and state
        income tax withholding requirements.
7
(b)
If the Committee shall find that any person to whom any amount is payable
        under the Plan is unable to care for his affairs because of illness or
        accident, or is a minor, or has died, then any payment due to such person
        or his estate (unless a prior claim therefor has been made by a duly appointed
        legal representative) may, if the Committee so directs the Company, be
        paid to his spouse, child, relative, an institution maintaining or having
        custody of such person, or any other person deemed by the Committee to
        be a proper recipient on behalf of such person otherwise entitled to payment.
        Any such payment shall be a complete discharge of the liability of the
        Committee and the Company therefor.
(c)
No member of the Committee shall be personally liable by reason of any
        contract or other instrument executed by such member or on his behalf
        in his capacity as a member of the Committee nor for any mistake of judgment
        made in good faith, and the Company shall indemnify and hold harmless
        each member of the Committee and each other employee, officer or director
        of the Company to whom any duty or power relating to the administration
        or interpretation of the Plan may be allocated or delegated, against any
        cost or expense (including counsel fees) or liability (including any sum
        paid in settlement of a claim) arising out of any act or omission to act
        in connection with the Plan unless arising out of such person's own
        fraud or bad faith; provided, however, that approval of the Board shall
        be required for the payment of any amount in settlement of a claim against
        any such person. The foregoing right of indemnification shall not be exclusive
        of any other rights of indemnification to which such persons may be entitled
        under the Company's Certificate of Incorporation or By-Laws, as a
        matter of law, or otherwise, or any power that the Company may have to
        indemnify them or hold them harmless.
(d)
The Plan shall be governed by and construed in accordance with the internal
        laws of the State of Delaware without reference to the principles of conflicts
        of law thereof.
(e)
No provision of the Plan shall require the Company, for the purpose of
        satisfying any obligations under the Plan, to purchase assets or place
        any assets in a trust or other entity to which contributions are made
        or otherwise to segregate any assets, nor shall the Company maintain separate
        bank accounts, books, records or other evidence of the existence of a
        segregated or separately maintained or administered fund for such purposes.
        optionees shall have no rights under the Plan other than as unsecured
        general creditors of the Company.
(f)
Each member of the Committee and each member of the Board shall be fully
        justified in relaying, acting or failing to act, and shall not be liable
        for having so relied, acted or failed to act in good faith, upon any report
        made by the independent public accountant of the Company and upon any
        other information furnished in connection with the Plan by any person
        or persons other than such member.
(g)
Except as otherwise specifically provided in the relevant plan document,
        no payment under the Plan shall be taken into account in determining any
        benefits under any pension, retirement, profit-sharing, group insurance
        or other benefit plan of the Company.
(h)
The expenses of administering the Plan shall be borne by the Company.
        Masculine pronouns and other words of masculine gender shall refer to
        both men and women.
8
Exhibit
  5.1
Opinion of John F. Madden Jr.
Exhibit
  23.1
Consent of John F. Madden Jr.
EXHIBIT
5.1 and Exhibit 23.1
September
16, 2003
Aames
Financial Corporation
350 South Grand Avenue, 43
rd
Floor
Los Angeles,
California 90071
Ladies
and Gentlemen:
At
your request, I, John F. Madden, Jr., Executive Vice President, General Counsel
and Secretary of Aames Financial Corporation, a Delaware corporation (the
"Company") has examined the Registration Statement on Form S-8 to
which this letter is attached as exhibit 5.1 (the "Registration
Statement"), filed by the Company with respect to the registration under
the Securities Act of 1933, as amended (the "Act") of 26,700,000
shares of the Company's Series E Preferred Stock, par value $0.001 per
share (the "Shares") issuable pursuant to the Company's 2003
Series E Preferred Stock Option Plan (the "Plan").
I have
examined the Company's Certificate of Incorporation, Certificate of
Designation for the Shares, Bylaws, the Plan and such other corporate records,
certificates, documents and matters of law as I have deemed necessary to render
this opinion.
Based
on the foregoing I am of the opinion, as of the date hereof, that the Shares
have been duly authorized and, upon issuance and sale in conformity with and
pursuant to the Plan, will be validly issued, fully paid and non-assessable.
I
consent to the use of this opinion as an exhibit to the Registration Statement
and to use of my name in the Prospectus constituting a part thereof.
Respectfully
      submitted,
/s/ John
      F. Madden, Jr.
John
      F. Madden, Jr.
Executive
      Vice President, General Counsel and Secretary
Aames
      Financial Corporation
1
Exhibit
 23.2
CONSENT OF
ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Exhibit
23.2
CONSENT
OF INDEPENDENT AUDITORS
We
consent to the incorporation by reference in the Registration Statement (Form
S-8) for the registration of 26,700,000 shares of Series E Preferred Stock of
our report dated August 20, 2002 with respect to the consolidated financial
statements of Aames Financial Corporation included in its Annual Report (Form
10-K) for the year ended June 30, 2002, filed with the Securities and Exchange
Commission.
/s/
ERNST & YOUNG LLP
Los
Angeles, California
September 16, 2003
1