<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Aames Financial Corporation
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Shares, par value $0.001
- --------------------------------------------------------------------------------
(Title of Class of Securities)
00253A 2
- --------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
Capital Z Management, Inc.
One Chase Manhattan Plaza, 44th Floor
New York, New York 10005
Attention: Mr. David A. Spuria
Tel. No. (212) 898-8700
Copy to :
Thomas M. Cerabino, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
(212) 728-8000
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 10, 1998
- --------------------------------------------------------------------------------
(Date of Event which Requires
Filing of this Schedule)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following: |_|
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in prior cover page.
Page 1 of 5
<PAGE>
This Amendment No. 1 to Schedule 13D with respect to Aames Financial
Corporation is being filed by Capital Z Financial Services Fund II, L.P.,
Capital Z Partners, L.P., Capital Z Partners, Ltd., and Capital Z Management,
Inc. (collectively, the "Reporting Persons") to amend the Schedule 13D (the
"Schedule 13D") originally filed by the Reporting Persons on December 23, 1998.
Capitalized terms used but not defined herein have the meanings assigned to such
terms in the Schedule 13D.
Item 4. Purpose of Transaction.
Item 4 of Schedule 13D is hereby amended by adding the following before
the last paragraph of such item:
On February 10, 1999, Capital Z purchased 26,704 shares of Series B
Convertible Preferred Stock and 49,796 shares of Series C Convertible Preferred
Stock of the Company pursuant to the terms of the Preferred Stock Purchase
Agreement executed on December 23, 1998, as amended on February 10, 1999 (the
"Amendment"). In addition, the Company issued to Capital Z Management, Inc. a
warrant to purchase up to 3 million shares of Common Stock at an exercise price
of $1.00 per share (the "Contingent Warrant"). The Contingent Warrant is
exercisable only if the Recapitalization is not completed prior to June 30,
1999.
The foregoing descriptions of the Amendment and the Contingent Warrant are
qualified in their entirety by reference to the Amendment and the Contingent
Warrant which are attached hereto as
Page 2 of 5
<PAGE>
Exhibit 1 and Exhibit 2, respectively, and are incorporated herein by reference.
Item 7. Material to be Filed as Exhibits.
1. Amendment No. 1 to Preferred Stock Purchase Agreement, dated as of February
10, 1999, by and between Aames Financial Corporation and Capital Z
Financial Services Fund II, L.P.
2. Contingent Warrant, dated February 10, 1999.
Page 3 of 5
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 19, 1999
CAPITAL Z FINANCIAL SERVICES
FUND II, L.P., a Bermuda limited partnership
By: Capital Z Partners, L.P., a Bermuda limited
Partnership, its General Partner
By: Capital Z Partners, Ltd., a Bermuda
corporation, its General Partner
By: /s/ David A. Spuria
-----------------------
Name: David A. Spuria
Title: General Counsel
CAPITAL Z PARTNERS, L.P.,
a Bermuda limited partnership
By: Capital Z Partners, Ltd., a Bermuda
corporation, its General Partner
By: /s/ David A. Spuria
-----------------------
Name: David A. Spuria
Title: General Counsel
CAPITAL Z PARTNERS, LTD.,
a Bermuda corporation
By: /s/ David A. Spuria
-----------------------
Name: David A. Spuria
Title: General Counsel
CAPITAL Z MANAGEMENT, INC.,
a Bermuda corporation
By: /s/ David A. Spuria
-----------------------
Name: David A. Spuria
Title: General Counsel
Page 4 of 5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title
- ----------- -----
<S> <C>
99.1 Amendment No. 1 to Preferred Stock Purchase
Agreement, dated as of February 10, 1999, by and
between Aames Financial Corporation and Capital Z
Financial Services Fund II, L.P.
99.2 Contingent Warrant, dated February 10, 1999.
</TABLE>
Page 5 of 5
<PAGE>
AMENDMENT NO. 1
TO
PREFERRED STOCK PURCHASE AGREEMENT
This AMENDMENT, dated as of February 10, 1999, to that certain Preferred
Stock Purchase Agreement dated as of December 23, 1998, is made and entered into
between Aames Financial Corporation, a Delaware corporation (the "Company"), and
Capital Z Financial Services Fund II, L.P., a Bermuda limited partnership
("Capital Z").
RECITALS
WHEREAS, the parties hereto have entered into a Preferred Stock Purchase
Agreement dated as of December 23, 1998 (the "Stock Purchase Agreement"); and
WHEREAS, such parties desire to amend the Stock Purchase Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. Capitalized terms used herein that are defined in
the Stock Purchase Agreement are used herein as so defined.
ARTICLE II.
AMENDMENTS
The Stock Purchase Agreement is hereby amended as follows:
(a) Section 2.2 is amended in its entirety by replacing such section with
the following:
"Section 2.2. Issuance, Sale and Purchase of Senior Preferred Stock.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, and in reliance upon the representations and warranties
hereinafter set forth, at the Initial Closing, the Company will issue,
sell, and deliver to the Purchaser (including the Designated Purchasers),
and the Purchaser will purchase from the Company, (i) 26,704 shares of
Series B Preferred Stock and (ii) 49,796 shares of Series C Preferred
Stock. The purchase price per share of Senior Preferred Stock shall equal
$1,000.00 (the "Purchase Price").
<PAGE>
(b) The Senior Preferred Stock shall be issued to Capital Z and to its
Designated Purchaser as follows:
26,704 shares of Series B Preferred Stock to Capital Z;
48,296 shares of Series C Preferred Stock to Capital Z; and
1,500 shares of Series C Preferred Stock to Georges St. Laurent."
(b) Section 2.5(b) is amended by deleting the last sentence thereof and
replacing such sentence with the following:
"At the earlier to occur of (i) the day the Recapitalization is consummated
and (ii) June 30, 1999, the Purchaser may, at its option, (I) if on the day
the Recapitalization is consummated, exchange up to 3,000,000 shares of
Series C Preferred Stock acquired at the Initial Closing or (II) if on June
30, 1999, exchange up to 3,000 shares of Series C Preferred Stock acquired
at the Initial Closing, in either case for an equivalent number of shares
of Series B Preferred Stock; provided, that, immediately following such
exchange, the total number of outstanding shares of Series B Preferred
Stock do not represent more than 49.99% of the total voting power of the
Company entitled to vote for the election of directors of the Company."
(c) Section 4.4 is amended by adding the following sentences at the end of
such section:
"Notwithstanding the prior sentence, in the event that the Company is
unable to cause the Existing Rights Agreement to be amended by the Initial
Closing, the Company shall cause the Existing Rights Agreement to be so
amended promptly after the Initial Closing Date. At the request of Capital
Z, the Company will promptly take all actions necessary to redeem the
Existing Rights."
(d) The Series B Certificate of Designations (Exhibit A to the Stock
Purchase Agreement) is amended in its entirety by replacing such Series B
Certificate of Designations with the Series B Certificate of Designations
attached to this Amendment as Exhibit A.
(e) The Series C Certificate of Designations (Exhibit B to the Stock
Purchase Agreement) is amended in its entirety by replacing such Series C
Certificate of Designations with the Series C Certificate of Designations
attached to this Amendment as Exhibit B.
(f) The Contingent Warrant (Exhibit E to the Stock Purchase Agreement) is
amended in its entirety by replacing such
-2-
<PAGE>
Contingent Warrant with the Contingent Warrant attached to this Amendment as
Exhibit C.
ARTICLE III.
MISCELLANEOUS PROVISIONS
Section 3.1. Counterparts. For the convenience of the parties, any number
of counterparts of this Amendment may be executed by any one or more of the
parties hereto, and each such executed counterpart shall be, and shall be deemed
to be, an original, but all of which together shall constitute one and the same
instrument.
Section 3.2. Ratification. The Stock Purchase Agreement, as amended hereby,
is hereby ratified and confirmed.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed to be effective as of the 10th day of February, 1999.
AAMES FINANCIAL CORPORATION
By:/s/ Cary H. Thompson
-----------------------
Name: Cary H. Thompson
Title: Chief Executive Office
CAPITAL Z FINANCIAL SERVICES FUND II, L.P.,
By its General Partner
CAPITAL Z PARTNERS, L.P.,
By its General Partner
CAPITAL Z PARTNERS, LTD.
By: /s/ Adam M. Mizel
---------------------
Name: Adam M. Mizel
Title: Partner
-4-
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
AAMES FINANCIAL CORPORATION, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation (the "Board of Directors") pursuant to authority of the Board
of Directors as required by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
Series B Convertible Preferred Stock:
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 100,000. 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"); (ii) on a parity with the Series C
Preferred Stock; and (iii) senior to the Corporation's Common Stock, par value
$.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
<PAGE>
Securities"; all equity securities of the Corporation with which the Series B
Preferred Stock ranks on a parity, including 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 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;
(ii) on a parity with the Series C 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, 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."
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) 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. Prior to the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Initial Stated Value of each share of Series
B Preferred Stock. Following the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Post-Recapitalization Stated Value of 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
2
<PAGE>
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.
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.
D. Special Dividend Rights.
1. In addition to the dividend rights set forth in paragraph A above,
prior to the consummation of the Recapitalization, the holders of shares of
Series B Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for such purpose, cash
dividends in an amount per whole share (rounded to the nearest cent) equal to
the Formula Number then in effect times the aggregate per share amount of all
cash dividends declared or paid on the Common Stock. If, prior to the
consummation of the Recapitalization, the Corporation shall pay any dividend or
make any distribution on the Common Stock payable in assets, securities or other
forms of non-cash consideration, then, in each such
3
<PAGE>
case, the Corporation shall simultaneously pay or make on each whole outstanding
share of the Series B 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
B Preferred Stock pursuant to this paragraph are hereinafter referred to as
"Participating Dividends." The Corporation shall declare each 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
Participation Dividend in respect of such dividend shall be have been paid.
Nothing contained in this paragraph D shall obligate the Company to declare or
pay any dividend or other distribution on the Common Stock or (except pursuant
to paragraph A of this Article III or in connection with a dividend or
distribution on the Common Stock as provided in this paragraph D) the Series B
Preferred Stock.
2. If the Recapitalization is not consummated prior to June 30, 1999,
the Dividend Rate shall be deemed to be 15% per annum during the period
commencing on such date and ending on the date the Recapitalization is
consummated.
IV. Liquidation Preference
A. Prior to the Recapitalization. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
occurring prior to the consummation of the Recapitalization, the holders of
then-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 (i) 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
(ii) the Initial Stated Value thereof, before any payment shall be made or any
assets distributed to the holders of any Junior Liquidation Securities (the
"Initial Preferred Distribution"). After the Initial Preferred Distribution has
been made, the holders of Series B Preferred Stock shall be entitled to share
pro rata with the holders of Common Stock in the distribution of any remaining
assets of the Corporation on the basis of each whole outstanding share of the
Series B Preferred Stock receiving an amount equal to the Formula Number then in
effect times such distribution on each share of the Common Stock. The
distributions on the Series B Preferred Stock pursuant to the immediately
preceding sentence of this paragraph A are hereinafter referred to as
"Participating Liquidation Distributions." No distribution on the Common Stock
in respect of which a Participating Liquidation Distribution is required shall
be paid or set aside for payment on the Common Stock unless a Participating
Liquidation Distribution in respect of such distribution is concurrently paid.
B. After the Recapitalization. Subsequent to the consummation of the
Recapitalization, 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 (i) the dividends, if any, accumulated or deemed to have accumulated
thereon to the date of final distribution to such holders, whether or
4
<PAGE>
not such dividends are declared; and (ii) the Post-Recapitalization Stated Value
thereof, before any payment shall be made or any assets distributed to the
holders of any Junior Liquidation Securities. After any such payment in full
after the consummation of the Recapitalization, 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.
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
5
<PAGE>
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
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
6
<PAGE>
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. On or prior to the consummation of the Recapitalization, the holders
of Series B Preferred Stock shall be entitled to one thousand (1,000) votes per
share of Series B 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. After the consummation of
the Recapitalization, 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 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
7
<PAGE>
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. The initial directors shall be Steven M. Gluckstern, Adam M. Mizel,
Mani Sadeghi and David Spuria.
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 and Series C 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 F below.
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 and Series C 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 and Series C 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, 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 or as a class with the
8
<PAGE>
holders of shares of any Series C Preferred Stock, to elect directors of the
Corporation as provided in paragraph C above or 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
and Series C 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, 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 and Series C 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, 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 and Series C 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.
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 and Series C
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
9
<PAGE>
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 thousand (1,000) 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") and (y) (prior to the
consummation of the Recapitalization) to limitations resulting from the
available number of shares of Common Stock which may be reserved for
issuance upon such conversion, 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. After consummation of the
Recapitalization, the number "1,000" in this paragraph shall be "1",
subject to adjustment as provided in paragraph VIII.G.
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
10
<PAGE>
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 B 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 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. From and after the Recapitalization, 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
11
<PAGE>
availableto 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.
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
12
<PAGE>
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.
(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
13
<PAGE>
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.
(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
14
<PAGE>
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
15
<PAGE>
(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.
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.
"Beneficially Own" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof, except that a Person
shall be deemed to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have
correlative meanings.
"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
16
<PAGE>
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.
"Equity Securities" of any Person means any and all common stock,
preferred stock and any other class of capital stock of, and any partnership or
limited liability company interests of such Person or any other similar
interests of any Person that is not a corporation, partnership or limited
liability company.
"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.
"Formula Number" shall mean one thousand (1,000) prior to consummation
of the Recapitalization, provided, however, that if at any time prior to the
consummation of the Recapitalization, 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 prior to the consummation of the Recapitalization 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 B
17
<PAGE>
Preferred Stock continues to be the economic equivalent of a Formula Number of
shares of Common Stock immediately prior to such merger, reclassification, or
change.
"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 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.
"Post-Recapitalization Stated Value" shall be equal to $1.00.
"Recapitalization" means the amendment of the Corporation's Certificate
of Incorporation to increase the authorized shares of Common Stock from
50,000,000 to 400,000,000, and the authorized shares of Preferred Stock from
1,000,000 to 200,000,000, and the subsequent one thousand-for-one split of
Series B Preferred Stock and Series C Preferred Stock.
"Redemption Price" of a share of Class B Preferred Stock shall mean the
sum of (a) the dividends, if any, accumulated or deemed to have accumulated
thereon to the Optional Redemption Date, whether or not such dividends are
declared plus (b) either (i) the Initial Stated Value thereof (if the
Recapitalization has not been consummated prior to June 30, 1999) or (ii) the
Post-Recapitalization Stated Value thereof (if the Recapitalization has been
consummated prior to June 30, 1999), in each case 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 Voting Securities 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.
18
<PAGE>
"Voting Securities" means, (i) with respect to the Company, the Equity
Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
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
(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
19
<PAGE>
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.
20
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its ______________ and attested by its Assistant
Secretary, this ___ day of February , 1999.
AAMES FINANCIAL CORPORATION
By:__________________________
Name:
Title:
[Corporate Seal]
ATTEST:
_______________________
21
<PAGE>
EXHIBIT B
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
AAMES FINANCIAL CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation (the "Board of Directors") pursuant to authority of
the Board of Directors as required by Section 151 of the Delaware General
Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
Series C Convertible Preferred Stock:
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
100,000. 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.
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"); (ii) on a parity with the Series B
Preferred Stock; and (iii) senior to the Corporation's Common Stock, par value
$.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
<PAGE>
Securities"; all equity securities of the Corporation with which the Series C
Preferred Stock ranks on a parity, including the Series B 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; (ii) on a parity
with the Series B 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, 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) 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. Prior to the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Initial Stated Value of each share of Series
B Preferred Stock. Following the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Post-Recapitalization Stated Value of 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 C Preferred Stock from the date of issuance and shall be deemed
to accumulate from day to day
2
<PAGE>
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 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.
D. Special Dividend Rights.
1. In addition to the dividend rights set forth in paragraph A
above, prior to the consummation of the Recapitalization, the holders of shares
of Series C Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, cash dividends in an amount per whole share (rounded to the nearest
cent) equal to the Formula Number then in effect times the aggregate per share
amount of all cash dividends declared or paid on the Common Stock. If, prior to
the consummation of the Recapitalization, the Corporation shall pay any dividend
or make any distribution on the Common Stock payable in assets, securities or
other forms of non-cash consideration, then, in each such
3
<PAGE>
case, the Corporation shall simultaneously pay or make on each whole outstanding
share of the Series C 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
C Preferred Stock pursuant to this paragraph D are hereinafter referred to as
"Participating Dividends." The Corporation shall declare each 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
Participation Dividend in respect of such dividend shall be have been paid.
Nothing contained in this paragraph D shall obligate the Company to declare or
pay any dividend or other distribution on the Common Stock or (except pursuant
to paragraph A of this Article III or in connection with a dividend or
distribution on the Common Stock as provided in this paragraph D) the Series B
Preferred Stock.
2. If the Recapitalization is not consummated prior to June 30,
1999, the Dividend Rate shall be deemed to be 15% per annum during the period
commencing on such date and ending on the date the Recapitalization is
consummated.
IV. Liquidation Preference
A. Prior to the Recapitalization. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
occurring prior to the consummation of the Recapitalization, the holders of
then-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 (i) 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
(ii) the Initial Stated Value thereof, before any payment shall be made or any
assets distributed to the holders of any Junior Liquidation Securities (the
"Initial Preferred Distribution"). After the Initial Preferred Distribution has
been made, the holders of Series C Preferred Stock shall be entitled to share
pro rata with the holders of Common Stock in the distribution of any remaining
assets of the Corporation on the basis of each whole outstanding share of the
Series C Preferred Stock receiving an amount equal to the Formula Number then in
effect times such distribution on each share of the Common Stock. The
distributions on the Series C Preferred Stock pursuant to the immediately
preceding sentence of this paragraph A are hereinafter referred to as
"Participating Liquidation Distributions." No distribution on the Common Stock
in respect of which a Participating Liquidation Distribution is required shall
be paid or set aside for payment on the Common Stock unless a Participating
Liquidation Distribution in respect of such distribution is concurrently paid.
B. After the Recapitalization. Subsequent to the consummation of
the Recapitalization, 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 (i) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or
4
<PAGE>
not such dividends are declared; and (ii) the Post-Recapitalization Stated Value
thereof, before any payment shall be made or any assets distributed to the
holders of any Junior Liquidation Securities. After any such payment in full
after the consummation of the Recapitalization, 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.
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
5
<PAGE>
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.
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
6
<PAGE>
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.
VII. Voting Rights
A. On or prior to the consummation of the Recapitalization, the
holders of Series C Preferred Stock shall be entitled to one thousand (1,000)
votes per share of Series C 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. After the consummation of the Recapitalization, 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 and shares of Series B 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 and Series B 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
7
<PAGE>
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 C Preferred Stock and Series B 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 and Series B 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 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 and Series B 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 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
8
<PAGE>
taken by the holders of shares of Series C Preferred Stock and Series
B 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 and Series B 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 thousand (1,000) 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")
and (y) (prior to the consummation of the Recapitalization) to
limitations resulting from the available number of shares of
Common Stock which may be reserved for issuance upon such
conversion, 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. After consummation of the
Recapitalization, the number "1,000" in this paragraph shall be
"1", subject to adjustment as provided in paragraph VIII.G.
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
9
<PAGE>
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 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 C
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 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,
10
<PAGE>
liquidation or winding up, as the case may be. Failure to give
such notice shall not invalidate any action so taken.
E. From and after the Recapitalization, 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:
(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.
11
<PAGE>
(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
12
<PAGE>
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 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
13
<PAGE>
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.
(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.
14
<PAGE>
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.
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.
15
<PAGE>
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.
"Beneficially Own" with respect to any securities means having
"beneficial ownership" of such securities (as determined pursuant to Rule 13d-3
under the Exchange Act as in effect on the date hereof, except that a Person
shall be deemed to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or after the
passage of time). The terms "Beneficial Ownership" and "Beneficial Owner" have
correlative meanings.
"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.
16
<PAGE>
"Equity Securities" of any Person means any and all common stock,
preferred stock and any other class of capital stock of, and any partnership or
limited liability company interests of such Person or any other similar
interests of any Person that is not a corporation, partnership or limited
liability company.
"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.
"Formula Number" shall mean one thousand (1,000) prior to
consummation of the Recapitalization; provided, however, that if at any time
prior to the consummation of the Recapitalization, 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 prior to the consummation
of the Recapitalization 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 C Preferred Stock continues to be the economic equivalent of a Formula
Number of shares of Common Stock immediately prior to such merger,
reclassification, or change.
"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.
"Post-Recapitalization Stated Value" shall be equal to $1.00.
"Recapitalization" means the amendment of the Corporation's
Certificate of Incorporation to increase the authorized shares of Common Stock
from 50,000,000 to 400,000,000, and the authorized shares of Preferred Stock
from 1,000,000 to 200,000,000, and the subsequent one thousand-for-one split of
Series C Preferred Stock and Series B Preferred Stock.
17
<PAGE>
"Redemption Price" of a share of Series C Preferred Stock shall
mean the sum of (a) the dividends, if any, accumulated or deemed to have
accumulated thereon to the Optional Redemption Date, whether or not such
dividends are declared plus (b) either (i) the Initial Stated Value thereof (if
the Recapitalization has not been consummated prior to June 30, 1999) or (ii)
the Post-Recapitalization Stated Value thereof (if the Recapitalization has been
consummated prior to June 30, 1999), in each case 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 Voting Securities 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.
"Voting Securities" means, (i) with respect to the Company, the
Equity Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
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 C Preferred
Stock;
18
<PAGE>
(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.
19
<PAGE>
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.
20
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed
on behalf of the Corporation by its ______________ and attested by its Assistant
Secretary, this ___ day of February __, 1999.
AAMES FINANCIAL CORPORATION
By:__________________________
Name:
Title:
[Corporate Seal]
ATTEST:
__________________________
21
<PAGE>
EXHIBIT C
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
FORM OF
CONTINGENT WARRANT
To Purchase Common Stock of
AAMES FINANCIAL CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS.......................................................1
ARTICLE 2. EXERCISE OF WARRANT...............................................4
Section 2.1. Manner of Exercise..........................................4
Section 2.2. Payment of Taxes............................................6
Section 2.3. Fractional Shares...........................................6
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION................................6
Section 3.1. Transfer....................................................6
Section 3.2. Division and Combination....................................7
Section 3.3. Expenses....................................................7
Section 3.4. Maintenance of Books........................................7
ARTICLE 4. ADJUSTMENTS......................................................7
Section 4.1. Stock Dividends, Subdivisions,
Combinations and Reclassifications..........................7
Section 4.2. Issuance of Additional Shares of Common Stock or
Convertible Securities......................................8
Section 4.3. Certain Other Distributions.................................9
Section 4.4. Other Provisions Applicable to
Adjustments Under This Section.............................10
Section 4.5. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets.....................12
Section 4.6. Notices....................................................12
Section 4.7. Certificates...............................................13
ARTICLE 5. NO IMPAIRMENT....................................................13
ARTICLE 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY...........................................14
ARTICLE 7. STOCK AND WARRANT TRANSFER BOOKS.................................14
ARTICLE 8. RESTRICTIONS ON TRANSFERABILITY..................................14
Section 8.1. Restrictive Legend........................................15
Section 8.2. Transfers.................................................15
Section 8.3. Termination of Restrictions...............................16
ARTICLE 9. SUPPLYING INFORMATION...........................................16
ARTICLE 10. LOSS OR MUTILATION..............................................16
ARTICLE 11. OFFICE OF THE COMPANY...........................................17
ARTICLE 12. REGISTRATION RIGHTS.............................................17
ARTICLE 13. LIMITATION OF LIABILITY.........................................17
i
<PAGE>
ARTICLE 14. REPRESENTATION OF HOLDER........................................17
ARTICLE 15. MISCELLANEOUS...................................................17
Section 15.1. Nonwaiver and Expenses..............................17
Section 15.2. No Rights As Stockholder............................18
Section 15.3. Notice Generally....................................18
Section 15.4. Successors and Assigns..............................18
Section 15.5. Amendment...........................................19
Section 15.6. Severability........................................19
Section 15.7. Headings............................................19
Section 15.8. Governing Law.......................................19
Section 15.9. Mutual Waiver of Jury Trial.........................19
ii
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
WARRANT
To Purchase 3,000,000 Shares of Common Stock of
AAMES FINANCIAL CORPORATION
THIS IS TO CERTIFY THAT Capital Z Management, Inc., or its
registered assigns, is entitled, subject to the provisions of the last sentence
of this paragraph, at any time after June 30, 1999 and prior to December 31,
2004 (the "Expiration Date"), to purchase from Aames Financial Corporation, a
Delaware corporation (the "Company"), 3,000,000 shares of common stock, par
value $0.001 per share, of the Company (the "Common Stock"), subject to
adjustment as provided herein, in whole or in part, including fractional parts,
at a purchase price of $1.00 per share (the "Exercise Price"), subject to
adjustment as set forth herein, all on the terms and conditions and pursuant to
the provisions hereinafter set forth. Capitalized terms not otherwise defined
herein are used as defined in the Preferred Stock Purchase Agreement.
Notwithstanding anything to the contrary set forth in this Warrant, (i) this
Warrant shall not be exercisable by the holder hereof if the Recapitalization is
completed prior to June 30, 1999 and (ii) if the Recapitalization is not
completed prior to June 30, 1999, this Warrant shall be exercisable by the
holder hereof into the greater of (x) 1,221,398 shares of Common Stock and (y)
such number of shares of Common Stock as may be available for issuance by the
Company, up to a maximum of 3,000,000 shares of Common Stock.
ARTICLE 1.
DEFINITIONS
-----------
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Issue Date, other than Warrant Stock.
<PAGE>
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Z" shall have the meaning set forth in the first paragraph
hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in the first paragraph
hereof.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Conversion Price" shall have the meaning set forth in Section 4.2
hereof.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Market Price" shall mean, when used with reference to shares
of Common Stock or other securities on any date, 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
2
<PAGE>
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.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Exercise Price" shall have the meaning set forth in the first
paragraph hereof.
"Expiration Date" shall have the meaning set forth in the first
paragraph hereof.
"Fair Market Value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in
effect.
"holder" shall mean, as the context requires, the Person in
whose name this Warrant is registered on the books of the Company maintained for
such purpose and/or the Person holding any Warrant Stock.
"Issue Date" shall mean the date on which this Warrant is issued.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, corporation or other entity and shall include any
successor (by merger or otherwise) of such entity.
"Preferred Stock Purchase Agreement" shall mean the Preferred Stock
Purchase Agreement, dated as of December 23, 1998 between the Company and
Capital Z, as amended.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of the date hereof, between the Company and Capital
Z, as amended.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 8.1(a).
3
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Subsidiary" shall mean any corporation of which an aggregate of more
than 50% of the outstanding stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by the Company
and/or one or more Subsidiaries of the Company.
"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.
"Transaction" shall have the meaning set forth in Section 4.5 hereof.
"transfer" shall mean any transfer, sale, encumbrance, hypothecation or
other disposition of this Warrant or any Warrant Stock or of any interest in
either thereof.
"Transfer Notice" shall have the meaning set forth in Section 8.2.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Exercise Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holder of this Warrant upon the exercise thereof.
ARTICLE 2.
EXERCISE OF WARRANT
-------------------
Section 2.1. Manner of Exercise. From and after the date hereof and
------------------
until 5:00 P.M., New York time, on the Expiration Date, the holder may exercise
this Warrant for all or any part of the number of shares of Common Stock
purchasable hereunder.
4
<PAGE>
In order to exercise this Warrant, in whole or in part, the holder
shall deliver to the Company at its office at 2 California Plaza, 350 South
Grand Avenue, Los Angeles, California 90071, or at the office or agency
designated by the Company pursuant to Section 11, (i) a written notice of the
holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (ii) payment of the Warrant
Price in the manner provided below, and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as Exhibit A, duly executed by or on behalf of the holder. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as such holder
shall request in the notice and shall be registered in the name of the holder
or, subject to Section 8, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the notice, together
with the cash, check or checks and/or securities, if any, and this Warrant, are
received by the Company as described above and all taxes required to be paid by
the holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to the holder a new Warrant evidencing the rights of the
holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of the holder, appropriate notation may be made on
this Warrant and the same returned to the holder.
Payment of the Warrant Price shall be made at the option of
the holder by cash, wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, or certified or official bank
check, or by transfer to the Company of shares of Series B Preferred Stock or
Series C Preferred Stock, or any combination thereof. In the event of the
application shares of Series B Preferred Stock or Series C Preferred Stock to
the payment of the Warrant Price, the amount to be credited to the payment of
the Warrant Price shall be the Initial Stated Value per share, in the case of
any such application prior to the consummation of the
5
<PAGE>
Recapitalization, or the Post-Recapitalization Stated Value per share, in the
case of any such application after the consummation of the Recapitalization, in
each case, plus an amount per share equal to all accrued and unpaid dividends
thereon, whether or not declared, to the date of such exercise, provided that no
such credit shall be made with respect to any such dividends if the holder of
such shares held such shares on the record date therefor.
Section 2.2. Payment of Taxes. The Company shall pay all expenses in
----------------
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery of the Warrant Shares, unless
such tax or charge is imposed by law upon the holder, in which case such taxes
or charges shall be paid by the holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of the holder, and in
such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
Section 2.3. Fractional Shares. The Company shall not be required to
-----------------
issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which the holder of this Warrant would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash adjustment
in respect of such final fraction in an amount equal to the same fraction of the
Current Market Price per share of Common Stock on the date of exercise.
ARTICLE 3.
TRANSFER, DIVISION AND COMBINATION
----------------------------------
Section 3.1. Transfer. Subject to compliance with Section 8, transfer
--------
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 11, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by the holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making
of such transfer. Upon such surrender and, if required, such payment, the
Company shall, subject to Section 8, execute and deliver a new Warrant or
Warrants in the name(s) of the assignee or assignees and in the denomination(s)
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled. A Warrant, if properly assigned in
compliance with Section 8, may be exercised by a new holder for the purchase
of shares of Common Stock without having a new Warrant issued.
6
<PAGE>
Section 3.2. Division and Combination. Subject to Section 8, this
------------------------
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 8, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
Section 3.3. Expenses. The Company shall prepare, issue and deliver at
--------
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
Section 3.4. Maintenance of Books. The Company agrees to maintain, at
--------------------
its aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
ARTICLE 4.
ADJUSTMENTS
-----------
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give the holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
Section 4.1. Stock Dividends, Subdivisions, Combinations and
-----------------------------------------------
Reclassifications. If the Company 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 Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock,
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or
(d) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the holder
of any Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Common Stock or other
7
<PAGE>
securities of the Company which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Warrant been exercised immediately prior to the happening of such event
or the record date therefor, whichever is earlier. An adjustment made pursuant
to this Section 4.1 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.
Section 4.2. Issuance of Additional Shares of Common Stock or
------------------------------------------------
Convertible Securities. In the case the Corporation shall, after the Issue Date,
- ----------------------
issue or sell:
(a) Additional Shares of Common Stock at a price per share, or
(b) Convertible Securities having a Conversion Price per share,
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 number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby shall be adjusted
so that the holder of each Warrant evidenced hereby shall be entitled to
receive, upon the exercise thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby 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 Company 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 the Current Market Price on such date.
An adjustment made pursuant to this Section 4.2 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 Section 4.2, the aggregate consideration receivable
by the Company 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
8
<PAGE>
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 Company 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 number of shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby pursuant to Section 4.1,
or pursuant to any employee benefit plan or program of the Company 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 Company to which this
Section 4.2 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 Section 4.2, 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.
Section 4.3. Certain Other Distributions. In case the Company
---------------------------
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 Company 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 Company, determined in accordance
with GAAP, during the period (treated as one accounting period) commencing
on July 1, 1998, and ending on the date such dividend is paid, or
9
<PAGE>
(b) dividends or distributions of shares of Common Stock which are
referred to in Section 4.1,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby shall be adjusted so that the holder
of each share of each Warrant evidenced thereby shall be entitled to receive,
upon the exercise thereof, the number of shares of Common Stock determined by
multiplying (1) the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby 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 the Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceeding such record date, less the Fair Market Value per share of Common
Stock (as determined in good faith by the Board of Directors of the Company, a
certified resolution with respect to which shall be mailed to the holder of the
Warrants evidenced hereby) of such dividend or distribution; provided, however,
that in the event of a distribution of shares of capital stock of a Subsidiary
of the Company (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 Section 4.3 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.
Section 4.4. Other Provisions Applicable to Adjustments Under This
-----------------------------------------------------
Section. The following provisions shall be applicable to the making of
- -------
adjustments provided for in this Section 4:
(a) For purposes of this Section 4, 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 Company.
10
<PAGE>
(b) The term "dividend", as used in this Section 4 shall mean a
dividend or other distribution upon stock of the Company except pursuant to
the Rights Agreement. Notwithstanding anything in this Section 4 to the
contrary, the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby shall not be adjusted as a result of any
dividend, distribution or issuance of securities of the Company pursuant to
the Rights Agreement.
(c) Notwithstanding anything in this Section 4 to the contrary, the
Company shall not be required to give effect to any adjustment in the
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby 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 in the number of shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby 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
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby by at least one-hundredth of one share of Common Stock,
such change in the number of shares of Common Stock issuable upon exercise
of the Warrants evidenced hereby shall thereupon be given effect.
(d) The certificate of any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company
(which may be the firm of independent public accountants regularly employed
by the Company) shall be presumptively correct for any computation made
under this Section 4.
(e) If the Company 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, no adjustment in the number of shares of
Common Stock issuable upon exercise of the Warrants evidenced hereby shall
be required by reason of the taking of such record.
(f) There shall be no adjustment of the number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby in case of
the issuance of any stock of the Company in a merger, reorganization,
acquisition or other similar transaction except as set forth in Sections
4.1, 4.2 and 4.5.
(g) Notwithstanding anything herein to the contrary, the Company
agrees not to enter into any transaction which, by reason of any adjustment
hereunder, would cause the
11
<PAGE>
Exercise Price to be less than the par value per share of Common Stock.
(h) Upon each adjustment to the number of shares of Common Stock
issuable upon exercise of the Warrants pursuant to Sections 4.1, 4.2 or
4.3, the Exercise Price effective immediately prior to the making of such
adjustment shall thereafter be adjusted to be the amount obtained by (i)
multiplying (A) the applicable number of shares of Common Stock issuable
upon exercise of the Warrants immediately prior to such adjustment by (B)
the Exercise Price in effect immediately prior to such adjustment and (ii)
dividing the product so obtained by the number of shares of Common Stock
issuable upon exercise of the Warrants immediately after such adjustment.
Section 4.5. Reorganization, Reclassification, Merger, Consolidation or
----------------------------------------------------------
Disposition of Assets. In case of any reorganization or reclassification of
- ---------------------
outstanding shares of Common Stock (other than a reclassification covered by
Section 4.1), or in case of any consolidation or merger of the Company with or
into another corporation, or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety (each of the foregoing being referred to as a "Transaction"), each such
Warrant then outstanding shall thereafter be exercisable for, in lieu of the
Common Stock issuable upon such exercise prior to consummation of the
Transaction, the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of the Transaction by
a holder of that number of shares of Common Stock issuable upon exercise of such
Warrant immediately prior to the 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 the Transaction).
Section 4.6. Notices to Warrantholders. In case at any time or from
-----------
time to time, prior to the Expiration Date, the Company shall pay any dividend
or make any other distribution to the holders of its Common Stock, or shall
offer for subscription pro rata to the holders of its Common Stock 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
Company or consolidation or merger of the Company with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the
Company, then, in any one or more of said cases the Company 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 holder of the
Warrants evidenced hereby at its address as shown on the books of the Company
maintained by the Transfer Agent thereof of the date on which (i) the books of
the
12
<PAGE>
Company 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 Section 4.5 applies the Company 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.
Section 4.7. Certificates. Upon any adjustment of the number of shares
------------
of Common Stock issuable upon exercise of the Warrants evidenced hereby or of
the Exercise Price, then, and in each such case, the Company shall promptly
deliver to the holders of the Warrants and the 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 Company setting
forth in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or decreased
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby and the Exercise Price then in effect following such
adjustment.
ARTICLE 5.
NO IMPAIRMENT
-------------
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
holder of the Warrant against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price immediately prior to such increase in par value, (b) take all such action
as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than as
provided herein) upon the exercise of this Warrant, and (c) use its best efforts
to obtain all such authorizations, exemptions or consents from any public
regulatory
13
<PAGE>
body having jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant.
Upon the request of the holder of the Warrant, the Company will at any
time during the period this Warrant is outstanding acknowledge in writing, in
form satisfactory to the holder of this Warrant, the continuing validity of this
Warrant and the obligations of the Company hereunder.
ARTICLE 6.
RESERVATION AND AUTHORIZATION OF
COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
--------------------------------------
The Company covenants and agrees that, until the Expiration Date, the
Company shall at all times reserve and keep available for issue upon the
exercise of Warrants such number of its authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of Common Stock which shall be so issuable, when issued
upon exercise of Warrants and payment therefor in accordance with the terms of
such Warrant, shall be duly and validly issued, fully paid and nonassessable and
free and clear of any liens, claims and restrictions (other than as provided
herein). No stockholder of the Company has or shall have any preemptive rights
to subscribe for such shares of Common Stock.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
ARTICLE 7.
STOCK AND WARRANT TRANSFER BOOKS
--------------------------------
The Company will not at any time, except upon dissolution, liquidation
or winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
ARTICLE 8.
RESTRICTIONS ON TRANSFERABILITY
-------------------------------
The Warrants and the Warrant Stock shall not be transferred before
satisfaction of the conditions specified in this Section 8, which conditions are
intended to ensure compliance with the provisions of the Securities Act and
state securities laws with respect to the Transfer of any Warrant or any Warrant
Stock. The holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 8.
14
<PAGE>
Section 8.1. Restrictive Legend.
------------------
(a) Except as otherwise provided in this Section 8, each certificate
for Warrant Stock initially issued upon the exercise of this Warrant, and
each certificate for Warrant Stock issued to any subsequent transferee of
any such certificate, shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws
of any state and are subject to the conditions specified in a certain
Warrant dated February 10, 1999, originally issued by Aames Financial
Corporation. The shares represented by this certificate may not be
transferred in violation of such Act and laws, the rules and
regulations thereunder or the provisions of the Warrant. A copy of the
form of said Warrant is on file with the Secretary of Aames Financial
Corporation. The holder of this certificate, by acceptance of this
certificate, agrees to be bound by the provisions of such Warrant."
(b) Except as otherwise provided in this Section 8, each Warrant shall
be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state and may not be sold or otherwise
transferred in the absence of such registration or an exemption
therefrom under such Act and under any such applicable state laws, or
in violation of the provisions of this Warrant."
Section 8.2. Transfers. Prior to any transfer or attempted
---------
transfer of any Warrants or any shares of Restricted Common Stock, the holder of
such Warrants or Restricted Common Stock shall give notice (a "Transfer Notice")
to the Company of such holder's intention to effect such transfer, describing
the manner and circumstances of the proposed transfer, and obtain from counsel a
written opinion addressed and reasonably satisfactory to the Company that the
proposed transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act and applicable state
securities laws. After receipt of the Transfer Notice and written opinion, the
Company shall, within two Business Days thereof, so notify the holder of such
Warrants or such Restricted Common Stock and such holder shall thereupon be
entitled to transfer such warrants or such Restricted Common Stock, in
15
<PAGE>
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such transfer
shall bear the restrictive legend set forth in Section 8.1(a), and each Warrant
issued upon such transfer shall bear the restrictive legend set forth in Section
8.1(b), unless in the written opinion of counsel addressed to the Company such
legend is not required in order to ensure compliance with the Securities Act.
Section 8.3. Termination of Restrictions. Notwithstanding the foregoing
---------------------------
provisions of Section 8, the restrictions imposed by this Section 8 upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 8.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) as to the Warrant Stock and Restricted
Common Stock, when and so long as the resale of such security shall have been
effectively registered under the Securities Act and disposed of pursuant
thereto, or (ii) as to the Warrant, Warrant Stock and Restricted Common Stock,
when the holder of the Warrant, Warrant Stock or Restricted Common Stock shall
have delivered to the Company the written opinion of counsel addressed and
reasonably satisfactory to the Company stating that such legend is not required
in order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the holder thereof shall be entitled to receive
from the Company, at the Company's expense (except for any transfer taxes), a
new certificate representing such Common Stock not bearing the restrictive
legend set forth in Section 8.1(a).
ARTICLE 9.
SUPPLYING INFORMATION
---------------------
The Company shall cooperate with the holder of the Warrant and the
holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such holder or reasonably necessary for such holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
ARTICLE 10.
LOSS OR MUTILATION
------------------
Upon receipt by the Company from any holder of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft, destruction
or mutilation of this Warrant and indemnity reasonably satisfactory to it and in
case of mutilation upon surrender and cancellation hereof, the Company will
execute
16
<PAGE>
and deliver in lieu hereof a new Warrant of like tenor to the holder; provided,
in the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
ARTICLE 11.
OFFICE OF THE COMPANY
---------------------
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
ARTICLE 12.
REGISTRATION RIGHTS
-------------------
The Warrant Stock issuable upon exercise of this Warrant are
entitled to the benefits of the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 11 and shall
furnish copies thereof to the holder upon request.
ARTICLE 13.
LIMITATION OF LIABILITY
-----------------------
No provision hereof, in the absence of affirmative action by the holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of the holder hereof, shall give rise to any liability of the holder
for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
ARTICLE 14.
REPRESENTATION OF HOLDER
------------------------
The holder represents that it is acquiring the Warrant and the Warrant
Stock for the purpose of investment and not with a view to the resale or
distribution hereof or thereof; provided, that the disposition of holder's
property shall at all times be and remain within its control.
ARTICLE 15.
MISCELLANEOUS
-------------
Section 15.1. Nonwaiver and Expenses. No course of dealing or any delay
----------------------
or failure to exercise any right hereunder on the part of the parties shall
operate as a waiver of such right or otherwise prejudice the parties' rights,
powers or remedies. If the Company fails to comply with any provision of this
Warrant, the Company shall pay to the holder such amounts as shall be sufficient
to cover any costs and expenses including,
17
<PAGE>
but not limited to, reasonable attorneys' fees incurred by the holder in
collecting any amounts due pursuant hereto or in otherwise enforcing any of its
rights, powers or remedies hereunder.
Section 15.2. No Rights As Stockholder. The Person in whose name this
------------------------
Warrant is registered shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered holder of this Warrant shall
not be entitled to any rights whatsoever as a stockholder of the Company except
as herein provided.
Section 15.3. Notice Generally. Any notice, demand, request, consent,
----------------
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to the holder, at its last known address appearing on the
books of the Company maintained for such purpose.
(b) If to the Company:
Aames Financial Corporation
2 California Plaza
350 South Grand Avenue
Los Angeles, California 90071
Attention: Cary Thompson
Fax No.: (323) 210-4537
with a copy to:
Troop Steuber Pasich Reddick & Tobey
2029 Century Park East
Los Angeles, California 90067
Attention: C. N. Franklin Reddick, Esq.
Fax No.: (310) 728-2204
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or three (3) Business Days
after the same shall have been deposited in the United States mail.
Section 15.4. Successors and Assigns. Subject to the provisions of
----------------------
Sections 3.1 and 8, (i) this Warrant and the rights
18
<PAGE>
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of the holder, and (ii)
the provisions of this Warrant are intended to be for the benefit of all holders
from time to time of this Warrant, and shall be enforceable by any such holders.
Section 15.5. Amendment. The Warrants may be modified or amended or the
---------
provisions thereof waived with the written consent of the Company and the
holders of the majority of the portion of this Warrant then outstanding.
Section 15.6. Severability. Wherever possible, each provision of this
------------
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
Section 15.7. Headings. The headings used in this Warrant are
--------
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
Section 15.8. Governing Law. This Warrant shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without giving
effect to conflicts of law principles thereof.
Section 15.10. Mutual Waiver of Jury Trial. BECAUSE DISPUTES
---------------------------
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS WARRANT.
19
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer on _______________, 1998.
AAMES FINANCIAL CORPORATION
By:________________________
Name:
Title:
20
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of AAMES
FINANCIAL CORPORATION and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to -------------- whose address is -------------- and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
- ---------------------- (Name of Registered Owner)
- ---------------------- (Signature of Registered owner)
- ---------------------- (Street Address)
- ---------------------- (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ---------- attorney-in-fact
to register such transfer on the books of AAMES FINANCIAL CORPORATION maintained
for the purpose, with full power of substitution in the premises.
Dated:
-------------------------
Name:
-------------------------
Signature:
---------------------
Witness:
----------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXECUTION COPY
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
CONTINGENT WARRANT
To Purchase Common Stock of
AAMES FINANCIAL CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS.......................................................1
ARTICLE 2. EXERCISE OF WARRANT...............................................4
Section 2.1. Manner of Exercise..........................................4
Section 2.2. Payment of Taxes............................................6
Section 2.3. Fractional Shares...........................................6
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION................................6
Section 3.1. Transfer....................................................6
Section 3.2. Division and Combination....................................7
Section 3.3. Expenses....................................................7
Section 3.4. Maintenance of Books........................................7
ARTICLE 4. ADJUSTMENTS......................................................7
Section 4.1. Stock Dividends, Subdivisions,
Combinations and Reclassifications..........................7
Section 4.2. Issuance of Additional Shares of Common Stock or
Convertible Securities......................................8
Section 4.3. Certain Other Distributions.................................9
Section 4.4. Other Provisions Applicable to
Adjustments Under This Section.............................10
Section 4.5. Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets.....................12
Section 4.6. Notices....................................................12
Section 4.7. Certificates...............................................13
ARTICLE 5. NO IMPAIRMENT....................................................13
ARTICLE 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY...........................................14
ARTICLE 7. STOCK AND WARRANT TRANSFER BOOKS.................................14
ARTICLE 8. RESTRICTIONS ON TRANSFERABILITY..................................14
Section 8.1. Restrictive Legend........................................15
Section 8.2. Transfers.................................................15
Section 8.3. Termination of Restrictions...............................16
ARTICLE 9. SUPPLYING INFORMATION...........................................16
ARTICLE 10. LOSS OR MUTILATION..............................................16
ARTICLE 11. OFFICE OF THE COMPANY...........................................17
ARTICLE 12. REGISTRATION RIGHTS.............................................17
ARTICLE 13. LIMITATION OF LIABILITY.........................................17
i
<PAGE>
ARTICLE 14. REPRESENTATION OF HOLDER........................................17
ARTICLE 15. MISCELLANEOUS...................................................17
Section 15.1. Nonwaiver and Expenses..............................17
Section 15.2. No Rights As Stockholder............................18
Section 15.3. Notice Generally....................................18
Section 15.4. Successors and Assigns..............................18
Section 15.5. Amendment...........................................19
Section 15.6. Severability........................................19
Section 15.7. Headings............................................19
Section 15.8. Governing Law.......................................19
Section 15.9. Mutual Waiver of Jury Trial.........................19
ii
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.
WARRANT
To Purchase 3,000,000 Shares of Common Stock of
AAMES FINANCIAL CORPORATION
THIS IS TO CERTIFY THAT Capital Z Management, Inc., or its
registered assigns, is entitled, subject to the provisions of the last sentence
of this paragraph, at any time after June 30, 1999 and prior to December 31,
2004 (the "Expiration Date"), to purchase from Aames Financial Corporation, a
Delaware corporation (the "Company"), 3,000,000 shares of common stock, par
value $0.001 per share, of the Company (the "Common Stock"), subject to
adjustment as provided herein, in whole or in part, including fractional parts,
at a purchase price of $1.00 per share (the "Exercise Price"), subject to
adjustment as set forth herein, all on the terms and conditions and pursuant to
the provisions hereinafter set forth. Capitalized terms not otherwise defined
herein are used as defined in the Preferred Stock Purchase Agreement.
Notwithstanding anything to the contrary set forth in this Warrant, (i) this
Warrant shall not be exercisable by the holder hereof if the Recapitalization is
completed prior to June 30, 1999 and (ii) if the Recapitalization is not
completed prior to June 30, 1999, this Warrant shall be exercisable by the
holder hereof into the greater of (x) 1,221,398 shares of Common Stock and (y)
such number of shares of Common Stock as may be available for issuance by the
Company, up to a maximum of 3,000,000 shares of Common Stock.
ARTICLE 1.
DEFINITIONS
-----------
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Issue Date, other than Warrant Stock.
<PAGE>
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Z" shall have the meaning set forth in the first paragraph
hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in the first paragraph
hereof.
"Company" shall have the meaning set forth in the first paragraph
hereof.
"Conversion Price" shall have the meaning set forth in Section 4.2
hereof.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for Additional
Shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Market Price" shall mean, when used with reference to shares
of Common Stock or other securities on any date, 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
2
<PAGE>
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.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Exercise Price" shall have the meaning set forth in the first
paragraph hereof.
"Expiration Date" shall have the meaning set forth in the first
paragraph hereof.
"Fair Market Value" shall mean the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in
effect.
"holder" shall mean, as the context requires, the Person in
whose name this Warrant is registered on the books of the Company maintained for
such purpose and/or the Person holding any Warrant Stock.
"Issue Date" shall mean the date on which this Warrant is issued.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, corporation or other entity and shall include any
successor (by merger or otherwise) of such entity.
"Preferred Stock Purchase Agreement" shall mean the Preferred Stock
Purchase Agreement, dated as of December 23, 1998 between the Company and
Capital Z, as amended.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of the date hereof, between the Company and Capital
Z, as amended.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 8.1(a).
3
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.
"Subsidiary" shall mean any corporation of which an aggregate of more
than 50% of the outstanding stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether,
at the time, stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time, directly or indirectly, owned legally or beneficially by the Company
and/or one or more Subsidiaries of the Company.
"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.
"Transaction" shall have the meaning set forth in Section 4.5 hereof.
"transfer" shall mean any transfer, sale, encumbrance, hypothecation or
other disposition of this Warrant or any Warrant Stock or of any interest in
either thereof.
"Transfer Notice" shall have the meaning set forth in Section 8.2.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Exercise Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holder of this Warrant upon the exercise thereof.
ARTICLE 2.
EXERCISE OF WARRANT
-------------------
Section 2.1. Manner of Exercise. From and after the date hereof and
------------------
until 5:00 P.M., New York time, on the Expiration Date, the holder may exercise
this Warrant for all or any part of the number of shares of Common Stock
purchasable hereunder.
4
<PAGE>
In order to exercise this Warrant, in whole or in part, the holder
shall deliver to the Company at its office at 2 California Plaza, 350 South
Grand Avenue, Los Angeles, California 90071, or at the office or agency
designated by the Company pursuant to Section 11, (i) a written notice of the
holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (ii) payment of the Warrant
Price in the manner provided below, and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as Exhibit A, duly executed by or on behalf of the holder. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as such holder
shall request in the notice and shall be registered in the name of the holder
or, subject to Section 8, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the notice, together
with the cash, check or checks and/or securities, if any, and this Warrant, are
received by the Company as described above and all taxes required to be paid by
the holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to the holder a new Warrant evidencing the rights of the
holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of the holder, appropriate notation may be made on
this Warrant and the same returned to the holder.
Payment of the Warrant Price shall be made at the option of
the holder by cash, wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, or certified or official bank
check, or by transfer to the Company of shares of Series B Preferred Stock or
Series C Preferred Stock, or any combination thereof. In the event of the
application shares of Series B Preferred Stock or Series C Preferred Stock to
the payment of the Warrant Price, the amount to be credited to the payment of
the Warrant Price shall be the Initial Stated Value per share, in the case of
any such application prior to the consummation of the
5
<PAGE>
Recapitalization, or the Post-Recapitalization Stated Value per share, in the
case of any such application after the consummation of the Recapitalization, in
each case, plus an amount per share equal to all accrued and unpaid dividends
thereon, whether or not declared, to the date of such exercise, provided that no
such credit shall be made with respect to any such dividends if the holder of
such shares held such shares on the record date therefor.
Section 2.2. Payment of Taxes. The Company shall pay all expenses in
----------------
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery of the Warrant Shares, unless
such tax or charge is imposed by law upon the holder, in which case such taxes
or charges shall be paid by the holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of the holder, and in
such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
Section 2.3. Fractional Shares. The Company shall not be required to
-----------------
issue a fractional share of Common Stock upon exercise of this Warrant. As to
any fraction of a share which the holder of this Warrant would otherwise be
entitled to purchase upon such exercise, the Company shall pay a cash adjustment
in respect of such final fraction in an amount equal to the same fraction of the
Current Market Price per share of Common Stock on the date of exercise.
ARTICLE 3.
TRANSFER, DIVISION AND COMBINATION
----------------------------------
Section 3.1. Transfer. Subject to compliance with Section 8, transfer
--------
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 11, together with a written assignment of this Warrant substantially in
the form of Exhibit B hereto duly executed by the holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making
of such transfer. Upon such surrender and, if required, such payment, the
Company shall, subject to Section 8, execute and deliver a new Warrant or
Warrants in the name(s) of the assignee or assignees and in the denomination(s)
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled. A Warrant, if properly assigned in
compliance with Section 8, may be exercised by a new holder for the purchase
of shares of Common Stock without having a new Warrant issued.
6
<PAGE>
Section 3.2. Division and Combination. Subject to Section 8, this
------------------------
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the holder or its agent or attorney. Subject to compliance with
Section 3.1 and with Section 8, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
Section 3.3. Expenses. The Company shall prepare, issue and deliver at
--------
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
Section 3.4. Maintenance of Books. The Company agrees to maintain, at
--------------------
its aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
ARTICLE 4.
ADJUSTMENTS
-----------
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give the holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
Section 4.1. Stock Dividends, Subdivisions, Combinations and
-----------------------------------------------
Reclassifications. If the Company 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 Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock,
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or
(d) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the holder
of any Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Common Stock or other
7
<PAGE>
securities of the Company which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Warrant been exercised immediately prior to the happening of such event
or the record date therefor, whichever is earlier. An adjustment made pursuant
to this Section 4.1 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.
Section 4.2. Issuance of Additional Shares of Common Stock or
------------------------------------------------
Convertible Securities. In the case the Corporation shall, after the Issue Date,
- ----------------------
issue or sell:
(a) Additional Shares of Common Stock at a price per share, or
(b) Convertible Securities having a Conversion Price per share,
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 number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby shall be adjusted
so that the holder of each Warrant evidenced hereby shall be entitled to
receive, upon the exercise thereof, the number of shares of Common Stock
determined by multiplying (A) the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby 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 Company 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 the Current Market Price on such date.
An adjustment made pursuant to this Section 4.2 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 Section 4.2, the aggregate consideration receivable
by the Company 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
8
<PAGE>
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 Company 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 number of shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby pursuant to Section 4.1,
or pursuant to any employee benefit plan or program of the Company 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 Company to which this
Section 4.2 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 Section 4.2, 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.
Section 4.3. Certain Other Distributions. In case the Company
---------------------------
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 Company 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 Company, determined in accordance
with GAAP, during the period (treated as one accounting period) commencing
on July 1, 1998, and ending on the date such dividend is paid, or
9
<PAGE>
(b) dividends or distributions of shares of Common Stock which are
referred to in Section 4.1,
then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby shall be adjusted so that the holder
of each share of each Warrant evidenced thereby shall be entitled to receive,
upon the exercise thereof, the number of shares of Common Stock determined by
multiplying (1) the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby 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 the Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceeding such record date, less the Fair Market Value per share of Common
Stock (as determined in good faith by the Board of Directors of the Company, a
certified resolution with respect to which shall be mailed to the holder of the
Warrants evidenced hereby) of such dividend or distribution; provided, however,
that in the event of a distribution of shares of capital stock of a Subsidiary
of the Company (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 Section 4.3 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.
Section 4.4. Other Provisions Applicable to Adjustments Under This
-----------------------------------------------------
Section. The following provisions shall be applicable to the making of
- -------
adjustments provided for in this Section 4:
(a) For purposes of this Section 4, the number of shares of Common
Stock at any time outstanding shall not
10
<PAGE>
include any shares of Common Stock then owned or held by or for the account
of the Company.
(b) The term "dividend", as used in this Section 4 shall mean a
dividend or other distribution upon stock of the Company except pursuant to
the Rights Agreement. Notwithstanding anything in this Section 4 to the
contrary, the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby shall not be adjusted as a result of any
dividend, distribution or issuance of securities of the Company pursuant to
the Rights Agreement.
(c) Notwithstanding anything in this Section 4 to the contrary, the
Company shall not be required to give effect to any adjustment in the
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby 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 in the number of shares of Common Stock
issuable upon exercise of the Warrants evidenced hereby 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
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby by at least one-hundredth of one share of Common Stock,
such change in the number of shares of Common Stock issuable upon exercise
of the Warrants evidenced hereby shall thereupon be given effect.
(d) The certificate of any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company
(which may be the firm of independent public accountants regularly employed
by the Company) shall be presumptively correct for any computation made
under this Section 4.
(e) If the Company 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, no adjustment in the number of shares of
Common Stock issuable upon exercise of the Warrants evidenced hereby shall
be required by reason of the taking of such record.
(f) There shall be no adjustment of the number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby in case of
the issuance of any stock of the Company in a merger, reorganization,
acquisition or other similar transaction except as set forth in Sections
4.1, 4.2 and 4.5.
11
<PAGE>
(g) Notwithstanding anything herein to the contrary, the Company
agrees not to enter into any transaction which, by reason of any adjustment
hereunder, would cause the Exercise Price to be less than the par value per
share of Common Stock.
(h) Upon each adjustment to the number of shares of Common Stock
issuable upon exercise of the Warrants pursuant to Sections 4.1, 4.2 or
4.3, the Exercise Price effective immediately prior to the making of such
adjustment shall thereafter be adjusted to be the amount obtained by (i)
multiplying (A) the applicable number of shares of Common Stock issuable
upon exercise of the Warrants immediately prior to such adjustment by (B)
the Exercise Price in effect immediately prior to such adjustment and (ii)
dividing the product so obtained by the number of shares of Common Stock
issuable upon exercise of the Warrants immediately after such adjustment.
Section 4.5. Reorganization, Reclassification, Merger, Consolidation or
----------------------------------------------------------
Disposition of Assets. In case of any reorganization or reclassification of
- ---------------------
outstanding shares of Common Stock (other than a reclassification covered by
Section 4.1), or in case of any consolidation or merger of the Company with or
into another corporation, or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety (each of the foregoing being referred to as a "Transaction"), each such
Warrant then outstanding shall thereafter be exercisable for, in lieu of the
Common Stock issuable upon such exercise prior to consummation of the
Transaction, the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of the Transaction by
a holder of that number of shares of Common Stock issuable upon exercise of such
Warrant immediately prior to the 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 the Transaction).
Section 4.6. Notices to Warrantholders. In case at any time or from
-----------
time to time, prior to the Expiration Date, the Company shall pay any dividend
or make any other distribution to the holders of its Common Stock, or shall
offer for subscription pro rata to the holders of its Common Stock 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
Company or consolidation or merger of the Company with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the
Company, then, in any one or more of said cases the Company 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)
12
<PAGE>
to the registered holder of the Warrants evidenced hereby at its address as
shown on the books of the Company maintained by the Transfer Agent thereof of
the date on which (i) the books of Company 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 Section 4.5 applies the
Company 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.
Section 4.7. Certificates. Upon any adjustment of the number of shares
------------
of Common Stock issuable upon exercise of the Warrants evidenced hereby or of
the Exercise Price, then, and in each such case, the Company shall promptly
deliver to the holders of the Warrants and the 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 Company setting
forth in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or decreased
number of shares of Common Stock issuable upon exercise of the Warrants
evidenced hereby and the Exercise Price then in effect following such
adjustment.
ARTICLE 5.
NO IMPAIRMENT
-------------
The Company shall not by any action including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of the
holder of the Warrant against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price immediately prior to such increase in par value, (b) take all such action
as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock, free and
clear of any liens, claims, encumbrances and restrictions (other than as
provided herein) upon the exercise of this
13
<PAGE>
Warrant, and (c) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
under this Warrant.
Upon the request of the holder of the Warrant, the Company will at any
time during the period this Warrant is outstanding acknowledge in writing, in
form satisfactory to the holder of this Warrant, the continuing validity of this
Warrant and the obligations of the Company hereunder.
ARTICLE 6.
RESERVATION AND AUTHORIZATION OF
COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
--------------------------------------
The Company covenants and agrees that, until the Expiration Date, the
Company shall at all times reserve and keep available for issue upon the
exercise of Warrants such number of its authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of Common Stock which shall be so issuable, when issued
upon exercise of Warrants and payment therefor in accordance with the terms of
such Warrant, shall be duly and validly issued, fully paid and nonassessable and
free and clear of any liens, claims and restrictions (other than as provided
herein). No stockholder of the Company has or shall have any preemptive rights
to subscribe for such shares of Common Stock.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
ARTICLE 7.
STOCK AND WARRANT TRANSFER BOOKS
--------------------------------
The Company will not at any time, except upon dissolution, liquidation
or winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
ARTICLE 8.
RESTRICTIONS ON TRANSFERABILITY
-------------------------------
The Warrants and the Warrant Stock shall not be transferred before
satisfaction of the conditions specified in this Section 8, which conditions are
intended to ensure compliance with the provisions of the Securities Act and
state securities laws with respect to the Transfer of any Warrant or any Warrant
Stock. The holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 8.
14
<PAGE>
Section 8.1. Restrictive Legend.
------------------
(a) Except as otherwise provided in this Section 8, each certificate
for Warrant Stock initially issued upon the exercise of this Warrant, and
each certificate for Warrant Stock issued to any subsequent transferee of
any such certificate, shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or the securities laws
of any state and are subject to the conditions specified in a certain
Warrant dated February 10, 1999, originally issued by Aames Financial
Corporation. The shares represented by this certificate may not be
transferred in violation of such Act and laws, the rules and
regulations thereunder or the provisions of the Warrant. A copy of the
form of said Warrant is on file with the Secretary of Aames Financial
Corporation. The holder of this certificate, by acceptance of this
certificate, agrees to be bound by the provisions of such Warrant."
(b) Except as otherwise provided in this Section 8, each Warrant shall
be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and the securities represented hereby have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state and may not be sold or otherwise
transferred in the absence of such registration or an exemption
therefrom under such Act and under any such applicable state laws, or
in violation of the provisions of this Warrant."
Section 8.2. Transfers. Prior to any transfer or attempted
---------
transfer of any Warrants or any shares of Restricted Common Stock, the holder of
such Warrants or Restricted Common Stock shall give notice (a "Transfer Notice")
to the Company of such holder's intention to effect such transfer, describing
the manner and circumstances of the proposed transfer, and obtain from counsel a
written opinion addressed and reasonably satisfactory to the Company that the
proposed transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act and applicable state
securities laws. After receipt of the Transfer Notice and written opinion, the
Company shall, within two Business Days thereof, so notify the holder of such
Warrants or such Restricted Common Stock and such holder shall thereupon be
entitled to transfer such warrants or such Restricted Common Stock, in
15
<PAGE>
accordance with the terms of the Transfer Notice. Each certificate, if any,
evidencing such shares of Restricted Common Stock issued upon such transfer
shall bear the restrictive legend set forth in Section 8.1(a), and each Warrant
issued upon such transfer shall bear the restrictive legend set forth in Section
8.1(b), unless in the written opinion of counsel addressed to the Company such
legend is not required in order to ensure compliance with the Securities Act.
Section 8.3. Termination of Restrictions. Notwithstanding the foregoing
---------------------------
provisions of Section 8, the restrictions imposed by this Section 8 upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 8.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) as to the Warrant Stock and Restricted
Common Stock, when and so long as the resale of such security shall have been
effectively registered under the Securities Act and disposed of pursuant
thereto, or (ii) as to the Warrant, Warrant Stock and Restricted Common Stock,
when the holder of the Warrant, Warrant Stock or Restricted Common Stock shall
have delivered to the Company the written opinion of counsel addressed and
reasonably satisfactory to the Company stating that such legend is not required
in order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the holder thereof shall be entitled to receive
from the Company, at the Company's expense (except for any transfer taxes), a
new certificate representing such Common Stock not bearing the restrictive
legend set forth in Section 8.1(a).
ARTICLE 9.
SUPPLYING INFORMATION
---------------------
The Company shall cooperate with the holder of the Warrant and the
holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such holder or reasonably necessary for such holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.
ARTICLE 10.
LOSS OR MUTILATION
------------------
Upon receipt by the Company from any holder of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft, destruction
or mutilation of this Warrant and indemnity reasonably satisfactory to it and in
case of mutilation upon surrender and cancellation hereof, the Company will
execute
16
<PAGE>
and deliver in lieu hereof a new Warrant of like tenor to the holder; provided,
in the case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
ARTICLE 11.
OFFICE OF THE COMPANY
---------------------
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
ARTICLE 12.
REGISTRATION RIGHTS
-------------------
The Warrant Stock issuable upon exercise of this Warrant are
entitled to the benefits of the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 11 and shall
furnish copies thereof to the holder upon request.
ARTICLE 13.
LIMITATION OF LIABILITY
-----------------------
No provision hereof, in the absence of affirmative action by the holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of the holder hereof, shall give rise to any liability of the holder
for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
ARTICLE 14.
REPRESENTATION OF HOLDER
------------------------
The holder represents that it is acquiring the Warrant and the Warrant
Stock for the purpose of investment and not with a view to the resale or
distribution hereof or thereof; provided, that the disposition of holder's
property shall at all times be and remain within its control.
ARTICLE 15.
MISCELLANEOUS
-------------
Section 15.1. Nonwaiver and Expenses. No course of dealing or any delay
----------------------
or failure to exercise any right hereunder on the part of the parties shall
operate as a waiver of such right or otherwise prejudice the parties' rights,
powers or remedies. If the Company fails to comply with any provision of this
Warrant, the Company shall pay to the holder such amounts as
17
<PAGE>
shall be sufficient to cover any costs and expenses including, but not limited
to, reasonable attorneys' fees incurred by the holder in collecting any amounts
due pursuant hereto or in otherwise enforcing any of its rights, powers or
remedies hereunder.
Section 15.2. No Rights As Stockholder. The Person in whose name this
------------------------
Warrant is registered shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered holder of this Warrant shall
not be entitled to any rights whatsoever as a stockholder of the Company except
as herein provided.
Section 15.3. Notice Generally. Any notice, demand, request, consent,
----------------
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to the holder, at its last known address appearing on the
books of the Company maintained for such purpose.
(b) If to the Company:
Aames Financial Corporation
2 California Plaza
350 South Grand Avenue
Los Angeles, California 90071
Attention: Cary Thompson
Fax No.: (323) 210-4537
with a copy to:
Troop Steuber Pasich Reddick & Tobey
2029 Century Park East
Los Angeles, California 90067
Attention: C. N. Franklin Reddick, Esq.
Fax No.: (310) 728-2204
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or three (3) Business Days
after the same shall have been deposited in the United States mail.
18
<PAGE>
Section 15.4. Successors and Assigns. Subject to the provisions of
----------------------
Sections 3.1 and 8, (i) this Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors of the Company and the
successors and assigns of the holder, and (ii) the provisions of this Warrant
are intended to be for the benefit of all holders from time to time of this
Warrant, and shall be enforceable by any such holders.
Section 15.5. Amendment. The Warrants may be modified or amended or the
---------
provisions thereof waived with the written consent of the Company and the
holders of the majority of the portion of this Warrant then outstanding.
Section 15.6. Severability. Wherever possible, each provision of this
------------
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
Section 15.7. Headings. The headings used in this Warrant are
--------
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.
Section 15.8. Governing Law. This Warrant shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without giving
effect to conflicts of law principles thereof.
Section 15.10. Mutual Waiver of Jury Trial. BECAUSE DISPUTES
---------------------------
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS WARRANT.
19
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer on _______________, 1998.
AAMES FINANCIAL CORPORATION
By: /s/ Cary H. Thompson
------------------------
Name: Cary H. Thompson
Title: Chief Executive Officer
20
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of AAMES
FINANCIAL CORPORATION and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to -------------- whose address is -------------- and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
- ---------------------- (Name of Registered Owner)
- ---------------------- (Signature of Registered owner)
- ---------------------- (Street Address)
- ---------------------- (City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ---------- attorney-in-fact
to register such transfer on the books of AAMES FINANCIAL CORPORATION maintained
for the purpose, with full power of substitution in the premises.
Dated:
-------------------------
Name:
-------------------------
Signature:
---------------------
Witness:
----------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
