AAMES FINANCIAL CORP/DE, DEF 14A, 2000-02-04

AAMES FINANCIAL CORP/DE
DEF 14A, 2000-02-04
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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
</TABLE>

<TABLE>
<C> <S>
AAMES FINANCIAL CORPORATION
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>

Payment of Filing Fee (Check the appropriate box):

<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
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[LOGO]

February 2, 2000

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Aames Financial Corporation (the "Meeting"), which will be held at The Hotel
Inter-Continental, 251 S. Olive Street, Los Angeles, California 90012, on
Friday, March 3, 2000. The Meeting will begin promptly at 10:00 a.m.

The accompanying Proxy Statement, which you are urged to read carefully
provides important information regarding matters that will be considered and
voted upon at the Meeting. In addition to electing Series B Directors and Common
Stock Directors of the Company and ratifying the appointment of the independent
auditors, stockholders will be asked to consider and vote upon an amendment to
the Company's Certificate of Incorporation to effect a one-for-five reverse
stock split of the shares of the Company's common stock and Series C Convertible
Preferred Stock and an amendment to the Company's Certificate of Incorporation
to enable stockholders to act by written consent as permitted by Delaware law.
Your Board of Directors unanimously recommends that stockholders vote for all of
the proposals and nominees.

You are requested to complete, date and sign the enclosed proxy card and
promptly return it in the enclosed envelope, whether or not you plan to attend
the Meeting. If you do attend the Meeting, you may vote in person even if you
have submitted a proxy card. REGARDLESS OF THE NUMBER OF SHARES YOU OWN OR
WHETHER YOU PLAN TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AND VOTED.

On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR all of the proposals and nominees.

Sincerely,

[SIGNATURE]Steven M. Gluckstern

Chairman of the Board
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AAMES FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 3, 2000

TO THE STOCKHOLDERS:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Aames Financial Corporation (the "Company") will be held at the
Hotel Inter-Continental, 251 S. Olive Street, Los Angeles, California 90012, on
Friday, March 3, 2000, at 10:00 a.m., Los Angeles time, for the following
purposes:

1. Reverse Common Stock Split Proposal. To approve an amendment to the
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation") to effect a one-for-five reverse stock split of the
shares of the Company's Common Stock;

2. Reverse Series C Preferred Stock Split Proposal. To approve an amendment
to the Certificate of Incorporation to effect a one-for-five reverse
stock split of the shares of the Company's Series C Convertible Preferred
stock;

3. Stockholder Action by Written Consent Proposal. To approve an amendment
to the Certificate of Incorporation to enable stockholders to act by
written consent as permitted by Delaware law;

4. Election of Series B Directors. To elect four Series B Directors to hold
office until the 2000 Annual Meeting of Stockholders and thereafter until
such directors' successors are duly elected and qualified;

5. Election of Common Stock Directors. To elect two Class II Common Stock
Directors to hold office for three years and until such directors'
successors are duly elected and qualified;

6. Ratification of Accountants. To ratify the appointment of Ernst & Young
LLP as the Company's independent accountants for the fiscal year ending
June 30, 2000; and

7. Other Business. To transact such other business as may properly come
before the Meeting and any adjournment(s) thereof.

Only stockholders of record of the Company at the close of business on
January 21, 2000 are entitled to notice of and to vote at the Meeting and
adjournment(s) thereof.

All stockholders are cordially invited to attend the Meeting in person.
However, to ensure your representation at the Meeting, you are urged to mark,
sign and return the enclosed Proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any stockholder attending the
Meeting may vote in person, even though he or she has returned a Proxy.

By Order of the Board of Directors

[SIGNATURE]
David A. Sklar
Secretary

Los Angeles, California
February 2, 2000

IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
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AAMES FINANCIAL CORPORATION

350 South Grand Avenue, 52nd Floor
Los Angeles, California 90071
(323) 210-5000

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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 3, 2000

INTRODUCTION

This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors (the "Board of Directors") of Aames Financial
Corporation, a Delaware corporation (the "Company"), for use at the 1999 Annual
Meeting of Stockholders (the "Meeting") to be held at the Hotel
Inter-Continental, 251 S. Olive Street, Los Angeles, California 90012, at
10:00 a.m., Los Angeles time, on Friday, March 3, 2000, and at any
adjournment(s) thereof.

It is anticipated that this Proxy Statement and the accompanying Proxy will
be mailed to stockholders on or about February 2, 2000.

At the Meeting, the stockholders of the Company will vote upon: (i) the
proposal to amend the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation") to effect a one-for-five reverse stock split of
the shares of Common Stock, par value $0.001 per share (the "Common Stock") of
the Company (the "Reverse Common Stock Split"); (ii) the proposal to amend the
Certificate of Incorporation to effect a one-for-five reverse stock split of the
shares of Series C Convertible Preferred stock, par value $0.001 per share (the
"Series C Preferred Stock") of the Company (the "Reverse Series C Preferred
Stock Split"); (iii) the proposal to amend the Certificate of Incorporation to
enable stockholders to act by written consent as permitted by Delaware law (the
"Stockholder Action by Written Consent Proposal"); (iv) the election of four
Series B Directors for terms of one year each (the "Series B Nominees");
(v) the election of two Class II Common Stock Directors for a term of three
years each (the "Class II Nominees"); (vi) the ratification of the appointment
of Ernst & Young LLP as the Company's independent accountants for the fiscal
year ending June 30, 2000; and (vii) such other matters as may properly come
before the Meeting and any and all adjournments thereof.

A Proxy for use at the Meeting is enclosed. Any stockholder who executes and
delivers such Proxy has the right to revoke it at any time before it is
exercised by delivering to the Secretary of the Company an instrument revoking
it or a duly executed Proxy bearing a later date, or by attending the Meeting
and voting in person. Subject to such revocation, all shares represented by a
properly executed Proxy received in time for the Meeting will be voted by the
Proxy holders in accordance with the instructions on the Proxy. If no
instruction is specified with respect to a matter to be acted upon, the shares
represented by the Proxy will be voted, if applicable: (i) for the Reverse
Common Stock Split; (ii) for the Reverse Series C Preferred Stock Split;
(iii) for the Stockholder Action by Written Consent Proposal; (iv) for the
election of the Series B Nominees; (v) for the election of the Class II
Nominees; (vi) for the ratification of the appointment of Ernst & Young LLP as
the Company's independent accountants for the fiscal year ending June 30, 2000;
and (vii) if any other business is properly presented at the Meeting, in
accordance with the recommendations of the Board of Directors.

The expenses of preparing, assembling, printing and mailing this Proxy
Statement and the materials used in the solicitation of Proxies will be borne by
the Company. It is contemplated that the Proxies will be solicited through the
mails, but officers, directors and regular employees of the Company may solicit
Proxies personally. Although there is no formal agreement to do so, the Company
may

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reimburse banks, brokerage houses and other custodians, nominees and fiduciaries
for their reasonable expenses in forwarding the Proxy materials to stockholders
whose stock in the Company is held of record by such entities. In addition, the
Company may use the services of individuals or companies it does not regularly
employ in connection with the solicitation of Proxies if management determines
it advisable.

VOTING SECURITIES

The close of business on January 21, 2000, has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to notice of
and to vote at the Meeting and any adjournments thereof. As of the Record Date,
31,044,870 shares of the Common Stock, no shares of the Company's Series A
Preferred Stock, par value $0.001 per share, 26,704,000 shares of Series B
Convertible Preferred Stock, par value $0.001 per share (the "Series B Preferred
Stock" and, together with the Series C Preferred Stock, the "Series B and
Series C Preferred Stock") and 101,101,700 shares of Series C Preferred Stock
were outstanding.

As of such date, the Company had approximately 338 holders of record of its
Common Stock, one holder of record of its Series B Preferred Stock and 61
holders of record of its Series C Preferred Stock.

A majority of the outstanding shares of the Company entitled to vote,
including one-third of the total number of shares of Series B Preferred Stock
and one-third of the total number of shares of Series C Preferred Stock, must be
represented in person or by proxy at the Meeting in order to constitute a quorum
for the transaction of business. A stockholder is entitled to cast one vote for
each share of Common Stock, Series B and Series C Preferred Stock held on the
Record Date for each proposal for which he or she is entitled to vote.

Approval of the Reverse Common Stock Split requires (i) the affirmative vote
of a majority of the votes entitled to be cast by holders of all outstanding
shares of Common Stock and all outstanding shares of Series B and Series C
Preferred Stock, voting together as a single class, and (ii) the affirmative
vote of a majority of the votes entitled to be cast by the holders of all
outstanding shares of Common Stock, voting together as a single class.

Approval of the Reverse Series C Preferred Stock Split requires (i) the
affirmative vote of the holders of a majority of the outstanding shares of
Series C Preferred Stock, voting together as a single class, (ii) the
affirmative vote of a majority of the votes entitled to be cast by holders of
all outstanding shares of Common Stock and all outstanding shares of Series B
and Series C Preferred Stock, voting together as a single class and (iii) the
affirmative vote of a majority of the votes entitled to be cast by holders of
all outstanding shares of Series B and Series C Preferred Stock, voting together
as a single class.

Approval of the Stockholder Action by Written Consent Proposal requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of all outstanding shares of Common Stock and all outstanding shares
of Series B and Series C Preferred Stock, voting together as a single class.

The election of each of the Series B Nominees requires the affirmative vote
of the holders of a majority of the outstanding shares of Series B Preferred
Stock, voting together as a single class. Holders of Common Stock and holders of
Series C Preferred Stock are not entitled to vote in the election of the
Series B Nominees.

The election of the Class II Nominees requires the affirmative vote of a
majority of the votes cast by holders of Common Stock and Series B Preferred
Stock who are present and voting (either in person or by proxy) at the Meeting,
voting together as a single class. Holders of Series C Preferred Stock are not
entitled to vote in the election of the Class II Nominees.

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Ratification of the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending June 30, 2000 requires the
affirmative vote of a majority of the votes cast by holders of outstanding
shares of Common Stock and outstanding shares of Series B and Series C Preferred
Stock, which are present (either in person or by proxy) at the Meeting, voting
together as a single class.

Abstentions and broker non-votes will be counted as present for the purpose
of determining if a quorum is present. Broker non-votes occur when a broker
holding customer securities in street name has not received voting instructions
from the customer on certain non-routine matters and, therefore, is barred by
rules of the New York Stock Exchange, Inc. ("NYSE") from exercising
discretionary authority to vote those securities.

In accordance with the laws of the State of Delaware and the Company's
Certificate of Incorporation and Bylaws, as amended (the "Bylaws"): (i) with
respect to the adoption of the Reverse Common Stock Split, the Reverse Series C
Preferred Stock Split, the Stockholder Action by Written Consent Proposal and
the election of the Series B Nominees, which are decided by the affirmative vote
of a majority of the votes entitled to be cast by the holders of all outstanding
shares of stock entitled to vote on such matters, abstentions and broker
non-votes have the same effect as a vote against such proposals; (ii) with
respect to the election of each Class II Nominee, which requires a majority of
the votes cast, only proxies and ballots indicating votes "For all nominees," or
those proxies and ballots that do not withhold authority to vote for such
nominee, are counted to determine the total number of votes cast, and proxies
that withhold authority to vote for such nominee as well as broker non-votes are
not counted. Therefore, proxies and ballots that withhold authority to vote for
such nominee as well as broker non-votes have no effect on the outcome of the
election; (iii) with respect to the ratification of the Company's independent
accountants and the adoption of all other proposals, which are decided by a
majority of the shares present in person or by proxy and entitled to vote, only
proxies and ballots indicating votes "For," "Against" or "Abstain" on the
proposal or providing the designated proxies with the right to vote in their
judgment and discretion on the proposal are counted to determine the number of
shares present and entitled to vote, and broker non-votes are not counted. Thus
abstentions have the same effect as a vote against a proposal but broker
non-votes have no effect on the outcome of the proposal.

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PROPOSAL TO APPROVE THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO EFFECT A ONE-FOR-FIVE REVERSE STOCK SPLIT
OF THE SHARES OF THE COMMON STOCK

GENERAL

The Board of Directors has unanimously adopted a resolution approving,
declaring advisable and recommending to the Company's stockholders for their
approval, the Reverse Common Stock Split which is an amendment to
Article Fourth of the Certificate of Incorporation authorizing a one-for-five
reverse stock split of the shares of Common Stock issued and outstanding.

The form of the proposed amendment to effect the Reverse Common Stock Split
is annexed to this Proxy Statement as Annex "A" (the "Reverse Common Stock Split
Amendment"). The Reverse Common Stock Split Amendment will effect a one-for-five
reverse stock split of the shares of Common Stock issued and outstanding, but
will not change the number of authorized shares, the number of treasury shares
held by the Company, or the par value of Common Stock.

REASONS FOR THE REVERSE COMMON STOCK SPLIT

As of the Record Date the Company had 31,044,870 shares of Common Stock
outstanding and traded on the NYSE. As of the Record Date the closing price of
the Common Stock was $0.75 per share. As part of its recapitalization, the
Company issued 127,809,700 shares of Series B and Series C Preferred Stock over
the course of the past twelve months. The Series C Preferred Stock is currently
not listed. The Company believes that the Reverse Common Stock Split is
appropriate given the significant impact of the recapitalization on the
Company's equity capital base and will also help to facilitate several important
objectives: (i) a potential listing of the shares of Series C Preferred Stock on
the NYSE, (assuming approval of the Reverse Series C Preferred Stock Split
Proposal); (ii) maintenance of the Common Stock's listing on the NYSE; and
(iii) increase attractiveness of the Common Stock to the investment community,
segments of which do not invest in low-priced stock as a matter of policy or
practice.

The Company has an objective of listing the Series C Preferred Stock on the
NYSE. The Company submitted an application to the NYSE to list the Series C
Preferred Stock in September 1999 (the "Preferred Stock Listing Application").
The initial listing requirements of the NYSE include, among other things, that
the Common Stock maintain a minimum bid price of $5.00 per share. As the average
price of the Common Stock was below $5.00 per share in September 1999, the
Preferred Stock Listing Application was denied by the NYSE. In the event that
the price of the Common Stock increases and maintains a minimum bid price of
$5.00 per share in the future, the Company intends to resubmit the Preferred
Stock Listing Application to the NYSE. While the Company believes that the
Reverse Common Stock Split will cause the trading price of the Common Stock to
rise, there can be no assurance that the market price of the Common Stock will
rise in proportion to the reduction in the number of outstanding shares
resulting from the Reverse Common Stock Split or will maintain a minimum bid
price of $5.00 per share.

Although NYSE rules do not specify a minimum trading price to maintain
listing on the NYSE, the NYSE may determine to delist a security due to an
abnormally low selling price. On August 5, 1999, the NYSE notified the Company
in writing (the "NYSE Letter") that the average price of the Common Stock was
below $5.00 per share. The NYSE Letter notified the Company that the NYSE's
minimum stock price requirement is an average of $1.00 per share over a thirty
trading-day period. The NYSE Letter further stated that if the price of the
Common Stock did not meet the minimum stock price requirement that the Company
would receive official notification after which the Company would be given six
months to meet the requirement or be subject to suspension or delisting
procedures. On December 2, 1999, the NYSE provided official written notice to
the Company (the "NYSE Official Notice") that the Company was below the minimum
stock price criterion for the thirty trading-days ended October 29, 1999.
Pursuant to the NYSE Official Notice, the Company has six months from the

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date of the NYSE Official Notice to raise the price of the Common Stock above
$1.00 per share in both average and absolute value or the NYSE would suspend the
Company's listing and apply to the Securities and Exchange Commission (the
"SEC") for delisting. The thirty trading-day average closing price of the Common
Stock was below $1.00 per share from October 7, 1999 through November 9, 1999
and was below $1.00 per share from December 28, 1999 through January 31, 2000.
The closing sale price of the Common Stock on the Record Date was $0.75 per
share and the thirty trading-day average closing price was $0.82 as of the
Record Date.

The Board of Directors has determined that it is in the best interests of
the Company's stockholders to promote the continued listing of the Common Stock
on the NYSE. In addition, the Company believes that a higher stock price may
increase investor interest and reduce resistance of brokerage firms to recommend
the purchase of the Common Stock. Certain institutional investors have internal
policies preventing the purchase of low-priced stocks and many brokerage houses
do not permit low-priced stocks to be used as collateral for margin accounts.
Further, a variety of brokerage house policies and practices tend to discourage
brokers within those firms from dealing in low-priced stocks. Moreover, the
Board of Directors believes that the perception of the investment community may
be negative toward common stock that sells at an abnormally low price and that
the Reverse Common Stock Split may improve the perception of the Common Stock as
an investment.

While the Company believes that the Reverse Common Stock Split will cause
the trading price of the Common Stock to rise, there can be no assurance that
the market price of the Common Stock will rise in proportion to the reduction in
the number of outstanding shares resulting from the Reverse Common Stock Split.

POTENTIAL EFFECTS OF THE REVERSE COMMON STOCK SPLIT

Pursuant to the Reverse Common Stock Split, each holder of five shares of
Common Stock, immediately prior to the effectiveness of the Reverse Common Stock
Split (the "Old Common Stock") would become the holder of one share of Common
Stock, after consummation of the Reverse Common Stock Split (the "New Common
Stock").

Although the Reverse Common Stock Split, will not, by itself, impact the
Company's assets or properties, the Reverse Common Stock Split could result in a
decrease in the aggregate market value of the Company's equity capital. The
Board of Directors believes that this risk is outweighed by the likelihood that
the trading price of the Common Stock will increase and the benefits of
promoting the continued listing of the Common Stock on the NYSE.

If approved, the Reverse Common Stock Split will result in some stockholders
owning "odd-lots" of less than 100 shares of Common Stock. Brokerage commissions
and other costs of transactions in odd-lots are generally higher than the costs
of transactions in "round-lots" of even multiples of 100 shares.

The Company will not issue fractional shares in connection with the Reverse
Common Stock Split. Instead, each holder of shares of Old Common Stock not
evenly divisible by five as of the Effective Date (as described below) of the
Reverse Common Stock Split will, in lieu of receiving fractional shares, have
the option for 60 days after such Effective Date (as described below) to either
(a) purchase from other stockholders otherwise entitled to fractional shares a
sufficient fractional share interest to "round-up" to a full share of New Common
Stock, to the extent such fractions of shares are available from other
stockholders, at a price equal to the product of (x) the fractional shares to
which a holder would otherwise be entitled, multiplied by (y) five times the
closing sale price per share of the Old Common Stock as listed on the NYSE on
the business day prior to the Effective Date (as described below), or (b) sell
such holder's fractional share interest to other stockholders at the same price
(the "Common Fractional Share Program"). Any stockholder who fails to make one
of the aforementioned elections within 60 days after the Effective Date (as
described below) shall be deemed to have elected to sell such fractional shares.

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If stockholders wish to purchase more fractional share interests than those
which have been offered for sale and not rounded up by other stockholders, the
desire of some stockholders to purchase additional fractional share interests
will not be met. The Exchange Agent (as described below) will, on a first-come,
first-served basis, in order of receipt, match the transmittal forms of
stockholders wishing to purchase fractional share interests with those of
stockholders wishing to sell their fractional share interests. It is in the
interests of stockholders who wish to purchase fractional interests to execute
and return the transmittal form to the Exchange Agent (as described below) at
the earliest practicable date after receipt of such form by the stockholders
after the effective date of the Reverse Common Stock Split. See "The Common
Fractional Share Program," below.

The Certificate of Incorporation provides for, upon the reverse split of the
Common Stock, the automatic adjustment of the ratio used to calculate the number
of shares of Common Stock into which the Series B Preferred Stock is convertible
(the "Conversion Ratio"). The Certificate of Incorporation further provides that
the holder of each share of the Series B Preferred Stock may cast a number of
votes at a meeting of stockholders equal to the number of shares of Common Stock
into which the Series B Preferred Stock is convertible. Therefore, immediately
upon the effectiveness of the Reverse Common Stock Split, the Conversion Ratio
will be automatically be adjusted such that each share of Series B Preferred
Stock, which is currently convertible into one share of Common Stock, will
thereafter be convertible into 0.2 shares of Common Stock and each share of
Series B Preferred Stock, which currently entitles the holder thereof to cast
one vote, will thereafter entitle the holder thereof to cast 0.2 votes in each
matter in which the Series B Preferred Stock is entitled to vote. After the
Reverse Common Stock Split, the Series B Preferred Stock will continue to accrue
a dividend of 6.5%, and will continue to have the same liquidation rights, based
upon its stated value of $1.00 per share.

The Certificate of Incorporation provides for the accrual of a dividend and
a liquidation preference for the Series C Preferred Stock based upon the stated
value of the Series C Preferred Stock. Immediately upon the effectiveness of the
Reverse Series C Stock Split, the stated value of the Series C Preferred Stock
will be adjusted from $1.00 per share to $5.00 per share (the "Stated Value
Adjustment") while the par value will remain $0.001 per share. As a result of
the Stated Value Adjustment, the aggregate dividend, and aggregate liquidation
preference, attributable to the Series C Preferred Stock will be the same as it
was prior to the Reverse Common Stock Split. The redemption price of the Series
B Preferred Stock and the Series C Preferred Stock automatically adjusts for the
Reverse Series C Preferred Stock Split.

SHARES OF COMMON STOCK ISSUED AND OUTSTANDING

The Company is currently authorized to issue a maximum of 400,000,000 shares
of Common Stock. As of the Record Date, there were 31,044,870 shares of Common
Stock issued and outstanding. Although the number of authorized shares of Common
Stock will not change as a result of the Reverse Common Stock Split, the number
of shares of Common Stock issued and outstanding will be reduced to a number
that will be approximately equal to the number of shares of Common Stock issued
and outstanding immediately prior to the effectiveness of the Reverse Common
Stock Split, divided by five.

With the exception of the number of shares issued and outstanding, the
rights and preferences of the shares of Common Stock, as well as the par value
of the Common Stock prior and subsequent to the Reverse Common Stock Split, will
remain the same. It is not anticipated that the financial condition of the
Company, the percentage ownership of management, the number of the Company's
stockholders, or any aspect of the Company's business would materially change as
a result of the Reverse Common Stock Split.

THE COMMON STOCK IS CURRENTLY REGISTERED UNDER SECTION 12(B) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT") AND, AS A
RESULT, THE COMPANY IS SUBJECT TO THE PERIODIC REPORTING AND OTHER REQUIREMENTS
OF THE EXCHANGE ACT. THE PROPOSED REVERSE COMMON STOCK SPLIT WILL NOT AFFECT THE
REGISTRATION OF THE COMMON STOCK UNDER THE EXCHANGE ACT.

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INCREASE OF SHARES OF COMMON STOCK AVAILABLE FOR FUTURE ISSUANCE

As a result of the Reverse Common Stock Split, there will be a reduction in
the number of shares of Common Stock issued and outstanding, and an associated
increase in the number of authorized shares that are unissued and available for
future issuance after the Reverse Common Stock Split (the "Increased Available
Common Shares"). The Board of Directors could issue the Increased Available
Common Shares for any proper corporate purpose, including, among others, future
financing transactions, without stockholder approval.

Because the Reverse Common Stock Split will create the Increased Available
Common Shares, the Reverse Common Stock Split may be construed as having an
anti-takeover effect. Although neither the Board of Directors nor the management
of the Company views the Reverse Common Stock Split as an anti-takeover measure,
the Company could use the Increased Available Common Shares to frustrate persons
seeking to effect a takeover or otherwise gain control of the Company.

EFFECTIVENESS OF THE REVERSE COMMON STOCK SPLIT

The Reverse Common Stock Split, if approved by the Company's stockholders,
would become effective upon the filing with the Secretary of State of the State
of Delaware of a Certificate of Amendment of the Certificate of Incorporation
which will amend Article Fourth of the Certificate of Incorporation in
substantially the form attached to this Proxy Statement as Annex "A" (the
"Effective Date"). It is expected that such filing will take place on or shortly
after the date of the Annual Meeting, assuming the stockholders approve the
Reverse Common Stock Split. However, the exact timing of the filing of the
Reverse Common Stock Split Amendment will be determined by the Board of
Directors based upon its evaluation as to when such action will be most
advantageous to the Company and its stockholders, and the Board of Directors
reserves the right to delay filing the Reverse Common Stock Split Amendment for
up to twelve months following stockholder approval thereof. In addition, the
Board of Directors reserves the right, notwithstanding stockholder approval and
without further action by the stockholders, to elect not to proceed with the
Reverse Common Stock Split Amendment if, at any time prior to filing the Reverse
Common Stock Split Amendment, the Board of Directors, in its sole discretion,
determines that it is no longer in the best interests of the Company and its
stockholders.

Commencing on the Effective Date, each Old Common Stock certificate will be
deemed for all corporate purposes to evidence ownership of the reduced number of
shares of New Common Stock resulting from the Reverse Common Stock Split and the
right, if applicable, to participate in the Common Fractional Share Program (as
described below) in lieu of fractional shares. As soon as practicable after the
Effective Date, stockholders will be notified as to the effectiveness of the
Reverse Common Stock Split and instructed as to how and when to surrender their
certificates representing shares of Old Common Stock in exchange for
certificates representing shares of New Common Stock (and the right, if
applicable, to participate in the Common Fractional Share Program (as described
below) in lieu of fractional shares). The Company intends to use ChaseMellon
Shareholder Services, L.L.C. as its exchange agent (the "Exchange Agent") in
effecting the exchange of certificates following the effectiveness of the
Reverse Common Stock Split. The Company may retain one or more additional
individuals or firms to assist the Exchange Agent with the exchange of
certificates or with the implementation of the Common Fractional Share Program
(as described below).

On the Effective Date, the interest of each stockholder of record who owns
fewer than five shares of Common Stock will thereby be terminated, and he, she
or it will have no right to vote as a stockholder or share in the assets or any
future earnings of the Company.

THE COMMON FRACTIONAL SHARE PROGRAM

No fractional shares of New Common Stock will be issued as a result of the
Reverse Common Stock Split, and fractional share interests will not entitle the
holder thereof to exercise any right of a

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stockholder with respect thereto. In lieu of issuing certificates evidencing
fractional shares, each stockholder whose holdings on the Effective Date are not
evenly divisible by five will be given the option, exercisable within 60 days
after the Effective Date, of either (a) purchasing from other stockholders
otherwise entitled to fractional shares a sufficient fractional share interest
to "round-up" to a full share of New Common Stock, to the extent such fractions
of shares are available from other stockholders, at a price equal to the product
of (x) the fractional shares to which a holder would otherwise be entitled,
multiplied by (y) five times the closing sale price per share of the Old Common
Stock as listed on the NYSE on the business day prior to the Effective Date, or
(b) selling such stockholder's fractional share interest to other stockholders
at the same price.

The Exchange Agent, or such other person (including the Company) as shall be
designated by the executive officers of the Company, will act as agent for the
stockholders in connection with the purchase and sale of fractional share
interests for the purpose of combining such interests into whole shares. The
transmittal form, which will be sent to stockholders after the Effective Date of
the Reverse Common Stock Split, will ask each stockholder otherwise entitled to
fractions of shares of New Common Stock to designate whether such stockholder
wishes to (a) sell such stockholder's fractional share interest, or
(b) purchase a sufficient fractional share interest from other stockholders to
round-up such stockholder's fractional share interest to a whole share of New
Common Stock. The transmittal form will specify the form of payment which must
accompany the transmittal form in order for an election to round-up to be
effective.

The Exchange Agent will, on a first-come, first-served basis, in order of
receipt, match the transmittal forms of stockholders wishing to purchase
fractional share interests with those of stockholders wishing to sell their
fractional share interests. It is in the interests of stockholders who wish to
purchase fractional interests to execute and return the transmittal form to the
Exchange Agent at the earliest practicable date after receipt of such form by
the stockholders. If stockholders wish to purchase more fractional share
interests than those which have been offered for sale by other stockholders, the
desire of some stockholders to purchase additional fractional share interests
will not be met. Stockholders will not be permitted to purchase a larger
fractional share interest than is necessary to round-up to the next highest
whole number of shares of New Common Stock.

The period during which stockholders will be able to make the aforementioned
election will expire 60 days after the Effective Date. Any stockholder whose
transmittal form is not received by the Exchange Agent within such period will
be deemed to have elected to sell any fractional share interest held by such
stockholder. Any fractional share interests not purchased by other stockholders
will be aggregated and sold on the open market by the Exchange Agent.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN FEDERAL INCOME TAX CONSEQUENCES
AND IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE APPLICABLE
TREASURY REGULATIONS PROMULGATED THEREUNDER, JUDICIAL AUTHORITY AND CURRENT
ADMINISTRATIVE RULINGS AND PRACTICES IN EFFECT ON THE DATE OF THIS PROXY
STATEMENT. THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND DOES NOT DISCUSS
CONSEQUENCES THAT MAY APPLY TO SPECIAL CLASSES OF TAXPAYERS (E.G., NON-RESIDENT
ALIENS, BROKER-DEALERS OR INSURANCE COMPANIES). STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR CONSEQUENCES TO THEM.

No gain or loss will be recognized by the Company as a result of the Reverse
Common Stock Split. The receipt of New Common Stock solely in exchange for Old
Common Stock generally will not result in recognition of gain or loss to the
stockholders. The adjusted tax basis of a stockholder's New Common Stock will be
the same as the adjusted tax basis of the shares of Old Common Stock exchanged
therefor, and the holding period of the New Common Stock will include the
holding period of the Old Common Stock exchanged therefor. The receipt of cash
by a stockholder in exchange for

8
<PAGE>

Old Common Stock, however, will be a taxable transaction for federal income tax
purposes, as described below.

A stockholder owning fewer than five shares who does not "round-up" to a
full share of New Common Stock will receive only cash in the transaction. This
receipt of cash will generally result in the recognition of gain or loss equal
to the difference between the cash received and the stockholder's adjusted tax
basis in the surrendered Common Stock. Assuming the Old Common Stock is held as
a capital asset, the gain or loss recognized will be capital gain or loss, which
will be long-term capital gain or loss if the stockholder's holding period for
the Common Stock exceeds one year.

A stockholder who owns five or more shares of Old Common Stock, but who does
not hold a number of shares of Old Common Stock that is evenly divisible by five
and does not "round-up" will receive both shares of New Common Stock and cash in
lieu of fractional shares of New Common Stock. The federal income tax treatment
of the cash received will be the same as described above, unless it is
determined that the Reverse Common Stock Split has the "effect of the
distribution of a dividend" under the Code (taking into account the constructive
ownership rules). If it is determined that the Reverse Common Stock Split has
such an effect, the cash received in lieu of fractional shares of New Common
Stock will be treated as a dividend to the extent of the stockholder's ratable
share of the Company's undistributed earnings and profits, and the balance of
the cash will be treated as received in exchange for property. Taxable gain or
loss will be realized on this exchange for property in an amount equal to the
difference between the portion of the cash not treated as a dividend and the
stockholder's adjusted tax basis in the Common Stock exchanged for cash. The
Code provisions that dictate whether the cash received will have the "effect of
the distribution of a dividend" are complex and are beyond the scope of this
discussion.

In the event a stockholder decides to "round-up" a fractional share
interest, the amount paid to accomplish the "round-up" will generally be added
to the stockholder's tax basis in the fractional shares.

APPRAISAL RIGHTS

Appraisal rights are not available under the Delaware General Corporation
Law or under the Company's Certificate of Incorporation or Bylaws in connection
with the proposal to approve the Reverse Common Stock Split.

VOTE REQUIRED

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
AMEND THE CERTIFICATE OF INCORPORATION IN ORDER TO EFFECT THE ONE-FOR-FIVE
REVERSE COMMON STOCK SPLIT OF SHARES OF COMMON STOCK ISSUED AND OUTSTANDING.

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<PAGE>
PROPOSAL TO APPROVE THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO EFFECT A ONE-FOR-FIVE REVERSE STOCK SPLIT
OF THE SHARES OF THE SERIES C PREFERRED STOCK

GENERAL

The Board of Directors has also unanimously adopted a resolution approving,
declaring advisable and recommending to the Company's stockholders for their
approval, the Reverse Series C Preferred Stock Split which is an amendment to
Article Fourth of the Certificate of Incorporation authorizing a one-for-five
reverse stock split of the shares of Series C Preferred Stock issued and
outstanding as well as to adjust the stated value of the Series C Preferred
Stock and correct a typographical error.

The form of the proposed amendment to effect the Reverse Series C Preferred
Stock Split is annexed to this Proxy Statement as Annex "A" (the "Reverse
Series C Preferred Stock Split Amendment"). The Reverse Series C Preferred Stock
Split Amendment will effect a one-for-five reverse stock split of the shares of
Series C Preferred Stock issued and outstanding, but will not change the number
of authorized shares or the par value of Series C Preferred Stock. The Reverse
Series C Preferred Stock Split Amendment will also amend the Certificate of
Incorporation to adjust the stated value of the Series C Preferred Stock
commensurate with the Series C Preferred Stock Split and will correct a
typographical error in the Certificate of Incorporation with respect to the
Series C Preferred Stock the form of which is annexed to this Proxy Statement as
Annex "B".

REASONS FOR THE REVERSE SERIES C PREFERRED STOCK SPLIT

The Common Stock currently is listed on the NYSE. The Company filed the
Preferred Stock Listing Application in September 1999 to list the shares of
Series C Preferred Stock. However, the initial listing requirements of the NYSE
require, among other things, that the stock covered by the listing application
maintain a minimum bid price of $5.00 per share. As the Series C Preferred Stock
was not publicly traded, the NYSE considered the recent trading prices of the
Common Stock, which were below $5.00 per share in September 1999, and denied the
Preferred Stock Listing Application. The closing sale price of the Common Stock
on the Record Date was $0.75 per share. In the event that in the future the
price of the Common Stock increases and maintains a minimum bid price of $5.00
per share, the Company intends to resubmit the Preferred Stock Listing
Application with the NYSE. While the Company believes that the Reverse Common
Stock Split will cause the trading price of the Common Stock to rise, there can
be no assurance that the market price of the Common Stock will rise in
proportion to the reduction in the number of outstanding shares resulting from
the Reverse Common Stock Split or will maintain a minimum bid price of $5.00 per
share.

The Board of Directors has determined that it is in the best interests of
the Company's stockholders to promote the listing of the Series C Preferred
Stock on the NYSE. In addition, the Company believes that the listing of the
Series C Preferred Stock on the NYSE may increase investor interest in the
purchase of Series C Preferred Stock. The Series C Preferred Stock is currently
convertible into Common Stock on a share for share basis, and if the Reverse
Common Stock Split and the Reverse Series C Preferred Stock Split are approved,
the New Series C Preferred Stock (as defined below) will be convertible into New
Common Stock on a share for share basis. As the Series C Preferred Stock is
currently convertible into Common Stock on a share for share basis, the Company
believes the Reverse Series C Preferred Stock Split (together with the Reverse
Common Stock Split) will cause the value of the Series C Preferred Stock to
rise, (together with the trading price of the Common Stock); however, there can
be no assurance that the value of the Series C Preferred Stock will rise in
proportion to the reduction in the number of outstanding shares resulting from
the Reverse Series C Preferred Stock Split or in proportion to the rise, if any,
in the trading price of the Common Stock.

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<PAGE>
POTENTIAL EFFECTS OF THE REVERSE SERIES C PREFERRED STOCK SPLIT.

Pursuant to the Reverse Series C Preferred Stock Split, each holder of five
shares of Series C Preferred Stock immediately prior to the effectiveness of the
Reverse Series C Preferred Stock Split (the "Old Series C Preferred Stock"),
would become the holder of one share of Series C Preferred Stock after
consummation of the Reverse Series C Preferred Stock Split (the "New Series C
Preferred Stock").

Although the Reverse Series C Preferred Stock Split, will not, by itself,
impact the Company's assets or properties, the Reverse Series C Preferred Stock
Split could result in a decrease in the aggregate market value of the Company's
equity capital. The Board of Directors believes that this risk is outweighed by
the likelihood that the value price of the Series C Preferred Stock will
increase and the benefits of promoting the proposed listing of the Series C
Preferred Stock on the NYSE.

If approved, the Reverse Series C Preferred Stock Split will result in some
stockholders owning "odd-lots" of less than 100 shares of Series C Preferred
Stock. Brokerage commissions and other costs of transactions in odd-lots are
generally higher than the costs of transactions in "round-lots" of even
multiples of 100 shares.

The Company will not issue fractional shares in connection with the Reverse
Series C Preferred Stock Split. Instead, each holder of shares of Old Common
Stock not evenly divisible by five as of the Effective Date of the Reverse
Common Stock Split will, in lieu of receiving fractional shares, have the option
for 60 days after such Effective Date to either (a) purchase from other
stockholders otherwise entitled to fractional shares a sufficient fractional
share interest to 'round-up' to a full share of New Series C Preferred Stock, to
the extent such fractions of shares are available from other stockholders, at a
price equal to the product of (x) the fractional shares to which a holder would
otherwise be entitled, multiplied by (y) five times the closing sale price per
share of the Old Common Stock as listed on the NYSE on the business day prior to
the Effective Date, or (b) sell such holder's fractional share interest to other
stockholders at the same price (the "Series C Fractional Share Program"). Any
stockholder who fails to make one of the aforementioned elections within 60 days
after the Effective Date shall be deemed to have elected to sell such fractional
shares.

If stockholders wish to purchase more fractional share interests than those
which have been offered for sale and not rounded up by other stockholders, the
desire of some stockholders to purchase additional fractional share interests
will not be met. The Exchange Agent will, on a first-come, first-served basis,
in order of receipt, match the transmittal forms of stockholders wishing to
purchase fractional share interests with those of stockholders wishing to sell
their fractional share interests. It is in the interests of stockholders who
wish to purchase fractional interests to execute and return the transmittal form
to the Exchange Agent at the earliest practicable date after receipt of such
form by the stockholders after the effective date of the Reverse Common Stock
Split. See "The Series C Fractional Share Program."

The Certificate of Incorporation provides for, upon the reverse split of the
Common Stock, the automatic adjustment of the Conversion Ratio (the ratio used
to calculate the number of shares of Common Stock into which the Series B
Preferred Stock is convertible). The Certificate of Incorporation further
provides that the holder of each share of the Series B Preferred Stock may cast
a number of votes at a meeting of stockholders equal to the number of shares of
Common Stock into which the Series B Preferred Stock is convertible. Therefore,
immediately upon the effectiveness of the Reverse Common Stock Split, the
Conversion Ratio will be automatically be adjusted such that each share of
Series B Preferred Stock, which is currently convertible into one share of
Common Stock, will thereafter be convertible into 0.2 shares of Common Stock and
each share of Series B Preferred Stock, which currently entitles the holder
thereof to cast one vote, will thereafter entitle the holder thereof to cast 0.2
votes in each matter in which the Series B Preferred Stock is entitled to vote.
After the

11
<PAGE>

Reverse Common Stock Split, the Series B Preferred Stock will continue to accrue
a dividend of 6.5%, and will continue to have the same liquidation rights, based
upon its stated value of $1.00 per share.

The Certificate of Incorporation provides for the accrual of a dividend and
a liquidation preference for the Series C Preferred Stock based upon the stated
value of the Series C Preferred Stock. Immediately upon the effectiveness of the
Reverse Series C Stock Split, the Stated Value Adjustment will become effective
(pursuant to which the stated value of the Series C Preferred Stock will be
adjusted from $1.00 per share to $5.00 per share while the par value will remain
$0.001 per share). As a result of the Stated Value Adjustment, the aggregate
dividend, and aggregate liquidation preference, attributable to the Series C
Preferred Stock will be the same as it was prior to the Reverse Common Stock
Split. The redemption price of the Series B Preferred Stock and the Series C
Preferred Stock automatically adjusts for the Reverse Series C Preferred Stock
Split.

Prior to the Effective Date, the Certificate of Incorporation will also be
amended (the "Series C Correction Amendment") to correct a typographical error
in Article III, paragraph A, lines 12 and 14 of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating, Optional or Other
Special Rights and Qualifications, Limitations or Restrictions Thereof, of
Series C Convertible Preferred Stock of the Company (the "Series C Certificate
of Designations") . The Series C Certificate of Designations currently provides
for dividends of the Series C Preferred Stock to accumulate on the relevant
stated value of the Series B Preferred Stock when it was intended for such
dividends to accrue on the relevant stated of the value Series C Preferred
Stock. This typographical error has not had an effect on dividends accumulated
to date because the relevant stated value of the Series B and Series C Preferred
Stock has been the same. However, upon the filing of the Reverse Series C
Preferred Stock Split Amendment, the relevant stated value of the Series C
Preferred Stock will be increased, while the relevant stated value of the Series
B Preferred Stock will not be increased necessitating the correction of this
typographical error.

SHARES OF SERIES C PREFERRED STOCK ISSUED AND OUTSTANDING

The Company is currently authorized to issue a maximum of 107,122,664 shares
of Series C Preferred Stock. As of the Record Date, there were 101,101,700
shares of Series C Preferred Stock issued and outstanding. Although the number
of authorized shares of Series C Preferred Stock will not change as a result of
the Reverse Series C Preferred Stock Split, the number of shares of Series C
Preferred Stock issued and outstanding will be reduced to a number that will be
approximately equal to the number of shares of Series C Preferred Stock issued
and outstanding immediately prior to the effectiveness of the Reverse Series C
Preferred Stock Split, divided by five.

With the exception of the number of shares issued and outstanding, the
rights and preferences of the shares of Series C Preferred Stock, as well as the
par value of the Series C Preferred Stock, prior and subsequent to the Reverse
Series C Preferred Stock Split, will remain the same. It is not anticipated that
the financial condition of the Company, the percentage ownership of management,
the number of the Company's stockholders, or any aspect of the Company's
business would materially change as a result of the Reverse Series C Preferred
Stock Split.

THE SERIES C PREFERRED STOCK ISSUED PURSUANT TO THE RIGHTS OFFERING IS
CURRENTLY REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT. THE PROPOSED
REVERSE SERIES C PREFERRED STOCK SPLIT WILL NOT AFFECT THE REGISTRATION OF THE
SERIES C PREFERRED STOCK ISSUED PURSUANT TO THE RIGHTS OFFERING UNDER THE
EXCHANGE ACT.

INCREASE OF SHARES OF SERIES C PREFERRED STOCK AVAILABLE FOR FUTURE ISSUANCE

As a result of the Reverse Series C Preferred Stock Split, there will be a
reduction in the number of shares of Series C Preferred Stock issued and
outstanding, and an associated increase in the number of authorized shares that
are unissued and available for future issuance after the Reverse Series C

12
<PAGE>
Preferred Stock Split (the "Increased Available Series C Preferred Shares").
Currently, the Company's Certificate of Incorporation requires the approval of
the holders of Series B and Series C Preferred Stock at a duly held meeting of
the stockholders to issue shares of Series C Preferred Stock (including the
Increased Available Series C Preferred Shares). However, if the Stockholder
Action by Written Consent Proposal is approved, the stockholders could approve
issuance of the Increased Available Series C Preferred Shares by non-unanimous
written consent without holding a meeting of the stockholders for any proper
corporate purpose, including, among others, future financing transactions. As
the holder of a majority of the outstanding shares of Series B and Series C
Preferred Stock, a partnership controlled by Capital Z Financial Services Fund
II, L.P. ("Capital Z") could approve the issuance of the Increased Available
Series C Preferred Shares for any proper corporate purpose, including, among
others, future financing transactions, without holding a stockholder's meeting.

Because the Reverse Series C Preferred Stock Split will create the Increased
Available Series C Preferred Shares, the Reverse Series C Preferred Stock Split
may be construed as having an anti-takeover effect. Although neither the Board
of Directors nor the management of the Company views the Reverse Series C
Preferred Stock Split as an anti-takeover measure, the Company could use the
Increased Available Series C Preferred Shares (with approval by the holders of
the Series B and Series C Preferred Stock) to frustrate persons seeking to
effect a takeover or otherwise gain control of the Company.

EFFECTIVENESS OF THE REVERSE SERIES C PREFERRED STOCK SPLIT

The Reverse Series C Preferred Stock Split, if approved by the Company's
stockholders, would become effective on the Effective Date upon the filing with
the Secretary of State of the State of Delaware of a Certificate of Amendment of
the Certificate of Incorporation which will amend Article Fourth of the
Certificate of Incorporation in substantially the form attached to this Proxy
Statement as Annex "A." Prior to the filing of the Reverse Series C Preferred
Stock Split Amendment the Company will file, with the Secretary of State of the
State of Delaware, a Certificate of Amendment of the Certificate of
Incorporation which will amend the Series C Certificate of Designations in
substantially the form attached to this Proxy Statement as Annex "B". It is
expected that such filings will take place on or shortly after the date of the
Annual Meeting, assuming the stockholders approve the Reverse Series C Preferred
Stock Split. However, the exact timing of the filing of the Reverse Series C
Preferred Stock Split Amendment will be determined by the Board of Directors
based upon its evaluation as to when such action will be most advantageous to
the Company and its stockholders, and the Board of Directors reserves the right
to delay filing the Reverse Series C Preferred Stock Split Amendment for up to
twelve months following stockholder approval thereof. In addition, the Board of
Directors reserves the right, notwithstanding stockholder approval and without
further action by the stockholders, to elect not to proceed with the Reverse
Series C Preferred Stock Split Amendment if, at any time prior to filing the
Reverse Series C Preferred Stock Split Amendment, the Board of Directors, in its
sole discretion, determines that it is no longer in the best interests of the
Company and its stockholders. The Company intends to file the Series C
Correction Amendment regardless of whether the Board of Directors decides to
file the Reverse Series C Preferred Stock Split Amendment.

Commencing on the Effective Date, each Old Series C Preferred Stock
certificate will be deemed for all corporate purposes to evidence ownership of
the reduced number of shares of New Series C Preferred Stock resulting from the
Reverse Series C Preferred Stock Split and the right, if applicable, to
participate in the Series C Fractional Share Program (as described below) in
lieu of fractional shares. As soon as practicable after the Effective Date,
stockholders will be notified as to the effectiveness of the Reverse Series C
Preferred Stock Split and instructed as to how and when to surrender their
certificates representing shares of Old Series C Preferred Stock in exchange for
certificates representing shares of New Series C Preferred Stock (and the right,
if applicable, to

13
<PAGE>

participate in the Series C Fractional Share Program (as described below) in
lieu of fractional shares). The Company intends to use the Exchange Agent in
effecting the exchange of certificates following the effectiveness of the
Reverse Series C Preferred Stock Split. The Company may retain one or more
additional individuals or firms to assist the Exchange Agent with the exchange
of certificates or with the implementation of the Series C Fractional Share
Program (as described below).

On the Effective Date, the interest of each stockholder of record who owns
fewer than five shares of Series C Preferred Stock will thereby be terminated,
and he, she or it will have no right to vote as a stockholder or share in the
assets or any future earnings of the Company.

THE SERIES C FRACTIONAL SHARE PROGRAM

No fractional shares of New Series C Preferred Stock will be issued as a
result of the Reverse Series C Preferred Stock Split, and fractional share
interests will not entitle the holder thereof to exercise any right of a
stockholder with respect thereto. In lieu of issuing certificates evidencing
fractional shares, each stockholder whose holdings on the Effective Date are not
evenly divisible by five will be given the option, exercisable within 60 days
after the Effective Date, of either (a) purchasing from other stockholders
otherwise entitled to fractional shares a sufficient fractional share interest
to 'round-up' to a full share of New Series C Preferred Stock, to the extent
such fractions of shares are available from other stockholders, at a price equal
to the product of (x) the fractional shares to which a holder would otherwise be
entitled, multiplied by (y) five times the closing sale price per share of the
Old Common Stock as listed on the NYSE on the business day prior to the
Effective Date, or (b) selling such stockholder's fractional share interest to
other stockholders at the same price.

The Exchange Agent, or such other person (including the Company) as shall be
designated by the executive officers of the Company, will act as agent for the
stockholders in connection with the purchase and sale of fractional share
interests for the purpose of combining such interests into whole shares. The
transmittal form, which will be sent to stockholders after the Effective Date of
the Reverse Series C Preferred Stock Split, will ask each stockholder otherwise
entitled to fractions of shares of New Series C Preferred Stock to designate
whether such stockholder wishes to (a) sell such stockholder's fractional share
interest, or (b) purchase a sufficient fractional share interest from other
stockholders to round-up such stockholder's fractional share interest to a whole
share of New Series C Preferred Stock. The transmittal form will specify the
form of payment which must accompany the transmittal form in order for an
election to round-up to be effective.

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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES

No gain or loss will be recognized by the Company as a result of the Reverse
Series C Preferred Stock Split. The receipt of New Series C Preferred Stock
solely in exchange for Old Series C Preferred Stock generally will not result in
recognition of gain or loss to the stockholders. The adjusted tax basis of a
stockholder's New Series C Preferred Stock will be the same as the adjusted tax
basis of the shares of Old Series C Preferred Stock exchanged therefor, and the
holding period of the New Series C Preferred Stock will include the holding
period of the Old Series C Preferred Stock exchanged therefor. The receipt of
cash by a stockholder in exchange for Old Series C Preferred Stock, however,
will be a taxable transaction for federal income tax purposes, as described
below.

A stockholder owning fewer than five shares who does not "round-up" to a
full share of New Series C Preferred Stock will receive only cash in the
transaction. This receipt of cash will generally result in the recognition of
gain or loss equal to the difference between the cash received and the
stockholder's adjusted tax basis in the surrendered Series C Preferred Stock.
Assuming the Old Series C Preferred Stock is held as a capital asset, the gain
or loss recognized will be capital gain or loss, which will be long-term capital
gain or loss if the stockholder's holding period for the Series C Preferred
Stock exceeds one year.

A stockholder who owns five or more shares of Old Series C Preferred Stock,
but who does not hold a number of shares of Old Series C Preferred Stock that is
evenly divisible by five and does not "round-up" will receive both shares of New
Series C Preferred Stock and cash in lieu of fractional shares of New Series C
Preferred Stock. The federal income tax treatment of the cash received will be
the same as described above, unless it is determined that the Reverse Series C
Preferred Stock Split has the "effect of the distribution of a dividend" under
the Code (taking into account the constructive ownership rules). If it is
determined that the Reverse Series C Preferred Stock Split has such an effect,
the cash received in lieu of fractional shares of New Series C Preferred Stock
will be treated as a dividend to the extent of the stockholder's ratable share
of the Company's undistributed earnings and profits, and the balance of the cash
will be treated as received in exchange for property. Taxable gain or loss will
be realized on this exchange for property in an amount equal to the difference
between the portion of the cash not treated as a dividend and the stockholder's
adjusted tax basis in the Series C Preferred Stock exchanged for cash. The Code
provisions that dictate whether the cash received will have the "effect of the
distribution of a dividend" are complex and are beyond the scope of this
discussion.

APPRAISAL RIGHTS

Appraisal rights are not available under the Delaware General Corporation
Law or under the Certificate of Incorporation or Bylaws in connection with the
proposal to approve the Reverse Series C Preferred Stock Split Amendment.

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VOTE REQUIRED

Approval of the Reverse Series C Preferred Stock Split requires (i) the
affirmative vote of the holders of a majority of the outstanding shares of
Series C Preferred stock, (ii) the affirmative vote of a majority of the votes
entitled to be cast by holders of all outstanding shares of Common Stock and all
outstanding shares of Series B and Series C Preferred Stock, voting together as
a single class, and (iii) the affirmative vote of a majority of the votes
entitled to be cast by holders of all outstanding shares of Series B and
Series C Preferred Stock, voting together as a single class.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
AMEND THE CERTIFICATE OF INCORPORATION IN ORDER TO EFFECT THE ONE-FOR-FIVE
REVERSE STOCK SPLIT OF SHARES OF SERIES C PREFERRED STOCK ISSUED AND
OUTSTANDING.

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PROPOSAL TO APPROVE THE AMENDMENT TO THE COMPANY'S AMENDED CERTIFICATE
OF INCORPORATION TO ENABLE STOCKHOLDERS TO ACT BY WRITTEN CONSENT

GENERAL

The Board of Directors has unanimously adopted a resolution approving,
declaring advisable and recommending to the Company's stockholders for their
approval, an amendment to Article Seventh of the Certificate of Incorporation
which would remove a provision which prohibits action by written consent of the
stockholders of the Company (the "Written Consent Amendment").

EFFECT OF APPROVAL OF THE STOCKHOLDER ACTION BY WRITTEN CONSENT PROPOSAL

Pursuant to Delaware law, unless otherwise provided in the Certificate of
Incorporation, any action that is required to be taken or that may be taken at
an annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, are signed by the holders of outstanding
stock representing not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, unless a company's certificate
of incorporation specifically provides otherwise. If stockholders take corporate
action without a meeting by less than unanimous written consent, prompt notice
of such action must be given to stockholders who did not consent in writing and
who, if the action had been taken at a meeting, would have been entitled to
notice of such meeting. The Certificate of Incorporation currently prohibits
action by written consent. The proposed Written Consent Amendment would remove
the prohibition contained in the Certificate of Incorporation and would permit
action by stockholders by written consent pursuant to Delaware law.

The Written Consent Amendment, if approved by the Company's stockholders,
would become effective upon the filing with the Secretary of State of the State
of Delaware of a Certificate of Amendment of the Certificate of Incorporation
which will amend Article Seventh of the Certificate of Incorporation in
substantially the form attached to this Proxy Statement as Annex "C." It is
expected that such filing will take place on or shortly after the date of the
Annual Meeting, assuming the stockholders approve the Stockholder Action by
Written Consent Proposal. However, the exact timing of the filing of the Written
Consent Amendment will be determined by the Board of Directors based upon its
evaluation as to when such action will be most advantageous to the Company and
its stockholders, and the Board of Directors reserves the right to delay filing
the Written Consent Amendment for up to twelve months following stockholder
approval thereof. In addition, the Board of Directors reserves the right,
notwithstanding stockholder approval and without further action by the
stockholders, to elect not to proceed with the Written Consent Amendment if, at
any time prior to filing the Written Consent Amendment, the Board of Directors,
in its sole discretion, determines that it is no longer in the best interests of
the Company and its stockholders.

The provisions authorizing action by stockholders by written consent allows
the stockholders of the Company to take action without incurring the expense or
delay of holding a meeting of stockholders, but has the effect of limiting the
opportunity of all stockholders to participate in the discussion of any proposed
action.

If the Stockholder Action by Written Consent Proposal is approved, Capital
Z, as holder of a majority of shares of Series B and Series C Preferred Stock
will be able to remove directors or take any other actions that require the
approval of the holders of the Series B and Series C Preferred Stock either
voting together as a class or together as a class with the holders of the Common
Stock (other than actions which, under Delaware law, require a separate vote of
each class).

The Company intends to issue shares of, or securities convertible into
shares of, Series C Preferred Stock to certain management investors, lenders,
consultants or other third parties that the Company

17
<PAGE>

does business with from time to time. The Certificate of Incorporation currently
prohibits such issuance of stock without the affirmative vote of a majority of
the holders of Series B and Series C Preferred Stock, voting together as a
single class at a meeting of stockholders. If the Stockholder Action by Written
Consent Proposal is approved, the Company will be able to issue shares of
Series C and Series B Preferred Stock to these consultants and members of
management with the written consent of stockholders pursuant to Delaware law.

VOTE REQUIRED

The affirmative vote of the holders of a majority of the votes entitled to
be cast by holders of all outstanding shares of Common Stock and all outstanding
shares of Series B and Series C Preferred Stock, voting together as a single
class.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO ENABLE STOCKHOLDERS
TO ACT BY WRITTEN CONSENT.

18
<PAGE>
ELECTION OF SERIES B DIRECTORS

The Bylaws provide that the Board of Directors shall consist of no fewer
than three and no more than nine members as determined from time to time by the
Board of Directors. The Board of Directors currently consists of nine directors
divided into two groups. One group consists of four directors who are elected by
the holders of the Series B Preferred Stock (the "Series B Directors") and the
other group consists of five directors who are elected by the holders of the
Common Stock and the holders of the Series B Preferred Stock, voting together as
a single class (the "Common Stock Directors"). The Common Stock Directors are
further divided into three classes with staggered terms: Class I, consisting of
two Directors, with terms expiring at the 2000 Annual Meeting of Stockholders,
Class II, consisting of two Directors, with terms expiring at the Meeting, and
Class III, consisting of one Director (which is a nominee of Capital Z), with a
term expiring at the 2001 Annual Meeting of Stockholders. At each annual meeting
of stockholders, all of the Series B Directors are elected for one-year terms
and Common Stock Directors constituting one of the classes with staggered terms
are elected for three-year terms.

The Company has agreed to nominate four designees of the holders of
Series B Preferred Stock to be elected as the Series B Directors at each annual
meeting of stockholders. The nominees for election as Series B Directors
identified below have been designated by Capital Z, the Company's largest
stockholder and the holder of all of the outstanding shares of Series B
Preferred Stock.

At the Meeting, the Series B Nominees will be elected for terms expiring at
the next Annual Meeting of Stockholders. Series B Directors may be removed
without cause by the vote of a majority of the holders of Series B Preferred
Stock then entitled to vote.

Unless otherwise instructed, the Proxy holders will vote the Proxies
received for the nominees named below. If the nominee(s) are unable or unwilling
to serve as directors at the time of the Meeting or any adjournment thereof, the
Proxies will be voted for such other nominee as shall be designated by the
holders of Series B Preferred Stock to fill any vacancy. The Company has no
reason to believe that such nominees will be unwilling or unable to serve if
elected as a director.

The election of each of the Series B Nominees requires the affirmative vote
of the holders of a majority of the outstanding shares of Series B Preferred
Stock. Holders of Common Stock and holders of Series C Preferred Stock are not
entitled to vote in the election of the Series B Nominees.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW.

The Board of Directors proposes the election of the Series B Nominees as
follows:

Steven M. Gluckstern
Adam M. Mizel
Mani A. Sadeghi
David A. Spuria

If elected, the nominees are expected to serve until the next Annual Meeting
of Stockholders.

CAPITAL Z AND THE BOARD OF DIRECTORS

If each of the Series B Nominees are elected at the Meeting, and Mr. Rahe, a
Class III Common Stock Director nominated by Capital Z continues to serve as a
director, affiliates of Capital Z will occupy five of the nine positions on the
Company's Board of Directors and, thus, will control the management and
operations of the Company.

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<PAGE>
ELECTION OF TWO CLASS II COMMON STOCK DIRECTORS

The Bylaws of the Company provide that the Board of Directors shall consist
of no fewer than three and no more than nine members as determined from time to
time by the Board of Directors. The Board of Directors currently consists of
nine directors divided into two groups. One group consists of four Series B
Directors who are elected by the holders of the Series B Preferred Stock and the
other group consists of five Common Stock Directors who are elected by the
holders of the Common Stock and the holders of the Series B Preferred Stock,
voting together as a single class. The Common Stock Directors are further
divided into three classes with staggered terms: Class I, consisting of two
Directors, with terms expiring at the 2000 Annual Meeting of Stockholders,
Class II, consisting of two Directors, with terms expiring at the Meeting, and
Class III, consisting of one Director (which is a nominee of Capital Z), with a
term expiring at the 2001 Annual Meeting of Stockholders. At each annual meeting
of stockholders, all of the Series B Directors are elected for one-year terms
and Common Stock Directors constituting one of the classes with staggered terms
are elected for three-year terms.

At the Meeting, the Class II Nominees will be elected for terms expiring at
the 2002 Annual Meeting of Stockholders. The Common Stock Directors may be
removed only for cause with the vote of a majority of the votes entitled to be
cast by the holders of Common Stock and Series B Preferred Stock, voting
together as a single class.

Unless otherwise instructed, the Proxy holders will vote the Proxies
received for the nominees named below. If the nominees are unable or unwilling
to serve as directors at the time of the Meeting or any adjournment thereof, the
Proxies will be voted for such other nominees as shall be designated by the
current Board of Directors to fill any vacancy. The Company has no reason to
believe that either of the nominees will be unwilling or unable to serve if
elected as a director.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW.

The Board of Directors proposes the election of the Class II Nominees as
follows:

Georges C. St. Laurent
Cary H. Thompson

If elected, the nominees are expected to serve until the 2002 Annual Meeting
of Stockholders.

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<PAGE>
MANAGEMENT

INFORMATION WITH RESPECT TO NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS

The following table sets forth certain information with respect to the
nominees, continuing directors and executive officers of the Company as of
January 15, 2000:

<TABLE>
<CAPTION>
YEAR TERM
NAME AGE POSITION EXPIRES
- ---- --- -------- ---------
<S> <C> <C> <C>
NOMINEES:
Steven M. Gluckstern................... 48 Chairman of the Board 1999(1)
Adam M. Mizel.......................... 29 Director 1999(1)
Mani A. Sadeghi........................ 36 Director 1999(1)
David A. Spuria........................ 39 Director 1999(1)
Georges C. St. Laurent, Jr............. 63 Director 1999(1)
Cary H. Thompson....................... 43 Director 1999(1)

CONTINUING DIRECTORS:
A. Jay Meyerson (2).................... 52 Chief Executive Officer and Director 2000
David Elliott(3)....................... 58 Director 2000
Eric C. Rahe........................... 30 Director 2001

OTHER EXECUTIVE OFFICERS:
David A. Sklar......................... 47 Executive Vice President - Finance &
Chief Financial Officer (Chief
Accounting Officer) and Secretary
</TABLE>

- ------------------------

(1) Term expires at the Meeting on March 3, 2000.

(2) Mr. Meyerson was appointed as Chief Executive Officer of the Company
effective October 25, 1999 and as a member of the Board of Directors
effective November 1, 1999.

(3) Mr. Elliott was appointed to the Board on December 2, 1999.

The executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. There is no family relationship between
any director and any executive officer of the Company.

DAVID H. ELLIOTT was elected a Director of the Company in December 1999.
Mr. Elliott is chairman of the executive committee of the board of directors of
MBIA Inc., a New York Stock Exchange-listed company, and the world's leading
provider of financial guarantee insurance. He served as chairman of the board of
MBIA Inc. and its largest operating company, MBIA Insurance Corporation from
1994 until his retirement in May, 1999 and as chief executive officer of MBIA
Inc. and MBIA Insurance Corporation from 1992 until his retirement in January,
1999. Mr. Elliot also serves as a director of Orion Capital Corporation.

STEVEN M. GLUCKSTERN was elected a Director and appointed Chairman of the
Board of Directors of the Company in February, 1999. Mr. Gluckstern has served
as a Chairman of the Board of Capital Z Management, Inc. and Capital Z Partners,
Ltd. since July 1998, as Chairman of Zurich Centre Group LLP since 1996 and as
Chairman of Zurich Reinsurance (North America), Inc. since 1993.

A. JAY MEYERSON was appointed Chief Executive Officer on October 25, 1999
and has been appointed to the Board of Directors effective November 1, 1999.
Mr. Meyerson served as the chief executive and chairman of KeyBank USA, the
national consumer finance business of KeyCorp from

21
<PAGE>
1994 to 1997. From January 1999 to October 1999, Mr. Meyerson was a managing
director at KPMG national financial services consulting practice.

ADAM M. MIZEL was elected a Director in February 1999. Mr. Mizel has served
as a Senior Vice President and Director of Capital Z Management, Inc. and
Capital Z Partners, Ltd. since August 1998. From April 1994 through
August 1998, Mr. Mizel served as Vice President and Managing Director at Zurich
Centre Investments, Inc.

ERIC C. RAHE was elected a Director in February 1999. Mr. Rahe has served as
a Vice President of Capital Z Management, Inc. since August 1998. From
August 1996 through July 1998, Mr. Rahe served as both an Associate and Vice
President of Insurance Partners, a private equity fund focused on the insurance
industry. From January 1994 through August 1996, Mr. Rahe was an Analyst and an
Associate at the investment-banking firm of Donaldson, Lufkin & Jenrette
Securities Corporation.

MANI A. SADEGHI was elected a Director in February 1999 and was appointed
Chief Executive Officer in May 1999 and served until October 25, 1999.
Mr. Sadeghi has served as Chief Executive Officer of Equifin Capital Partners,
LLC ("Equifin Capital") and Equifin Capital Management, LLC ("Equifin
Management"), which provides private equity investment management and advisory
services, since June 1998. Mr. Sadeghi also served as Group President of AT&T
Capital Corporation from September 1996 until February 1998, as Corporate
Development Officer from September 1994 to September 1996 and as the Director of
Strategic Planning and Business Development at GE Capital Corporation from
July 1992 through September 1994.

DAVID A. SKLAR joined the Company in May 1997 as Executive Vice
President-Finance. In November 1997, he was named Executive Vice
President-Finance and Chief Financial Officer. From December 1995 through
May 1997, he was President of H.W. Electronics. Prior to that time Mr. Sklar was
Executive Vice President and Chief Financial Officer of Imperial Bancorp and
subsidiaries.

DAVID A. SPURIA was elected a Director in February 1999. Mr. Spuria has
served as General Counsel of Capital Z Partners Ltd. and Capital Z
Management, Inc. since July 1998. Mr. Spuria was a partner from January 1995
through July 1998 and an associate from March 1991 through December 1994 with
the law firm of Weil, Gotshal & Manges, LLP.

GEORGES C. ST. LAURENT, JR. has served as a Director of the Company since
November 1997. Mr. St. Laurent, who held the position of Co-Chairman of the
Board from November 1997 through February 1999, is the former Chairman of the
Board and Chief Executive Officer of Western Bank, Oregon (1988 to 1997).
Currently, Mr. St. Laurent is a principal in various real estate, agricultural
and forestry related ventures and also serves as a director of Baxter
International, Inc. and The Perkin Elmer Corporation.

CARY H. THOMPSON is the Senior Managing Director of Bear Stearns &
Co., Inc. and has served as a Director of the Company since January 1992 and
Vice Chairman of the Board of Directors from May 1999 through July 1999. He was
Chief Operating Officer of the Company from March 1996 until May 1997, and Chief
Executive Officer of the Company from May 1997 until May 1999. From May 1994
until joining the Company, Mr. Thompson served as Managing Director-Head of
United States Financial Institutions and Media Group for NatWest Markets. Mr.
Thompson is also on the Board of Directors of Fidelity National Financial, Inc.,
a title insurance company.

BOARD MEETINGS AND COMMITTEES

The Board of Directors held a total of 13 meetings during the fiscal year
ended June 30, 1999. Among its committees, the Board of Directors has an Audit
Committee, a Compensation Committee and a Stock Option Committee. During the
fiscal year ended June 30, 1999, each director attended at least 75% of the
meetings of the Board of Directors and Committees on which he served.

22
<PAGE>

The Audit Committee met 5 times, the Compensation Committee met 5 times and
the Stock Option Committee did not meet during the fiscal year ended June 30,
1999. The Audit Committee's functions include recommending to the Board of
Directors the engagement of the Company's independent accountants, discussing
the scope and results of the audit with the accountants, discussing the
Company's financial accounting and reporting principles and the adequacy of the
Company's financial controls with the accountants and the Company's management,
discussing the results of internal audits with management and reviewing and
evaluating the Company's accounting policies and internal accounting controls.
The Compensation Committee reviews, approves and recommends to the Board of
Directors all short-term compensation and compensation plans for officers with
the title of Senior Vice President and above as well as approves and authorizes
as to employees, grants under the Corporation's stock option plan. See "Report
of the Compensation Committee." In addition, a Stock Option Committee has been
established with the authority to grant options to the Chief Executive Officer
and to the four highest compensated officers other than the Chief Executive
Officer. Grants made by the Stock Option Committee are subject to ratification
by the Compensation Committee. At fiscal year-end June 30, 1999, the members of
the Audit Committee were George W. Coombe and Mr. St. Laurent, the members of
the Compensation Committee were Messrs. Gluckstern, Mizel and St. Laurent and
the members of the Stock Option Committee were Messrs. Coombe and St. Laurent.
On November 1, 1999, Mr. Coombe resigned from the Board of Directors and the
Audit and Stock Option Committees. On December 2, 1999, the Board appointed
David Elliott to the Audit and Stock Option Committees.

COMPENSATION OF DIRECTORS

Each director who is not an employee of the Company is entitled to receive
an annual retainer of $8,000, a fee of $2,000 for each regular or special Board
meeting attended in person, $500 for each regular or special committee meeting
attended in person or by telephone, and $1,000 for each regular or special Board
meeting attended by telephone.

CERTAIN RELATIONSHIPS

Certain of the Company's current and former executives have employment
agreements or severance or termination agreements with the Company. See
"Executive Compensation-Employment Agreements."

On December 23, 1998, the Company entered into the Preferred Stock Purchase
Agreement with Capital Z, as amended (the "Preferred Stock Purchase Agreement"),
providing for an equity investment by Capital Z and its designees of up to
$126.5 million in the Company. Pursuant to the Preferred Stock Purchase
Agreement, the Company issued to Capital Z on February 10, 1999 (the "Initial
Closing") 26,704 shares of Series B Preferred Stock and 48,296 shares of
Series C Preferred Stock for $1,000 per share for an aggregate of $75 million.
Georges C. St. Laurent, Jr., a Director of the Company, pursuant to the
Preferred Stock Purchase Agreement as a designee of Capital Z, purchased 1,500
shares of Series C Preferred Stock for $1,000 per share for an aggregate
investment of $1.5 million.

At the Initial Closing, Capital Z transferred ownership of its Series B
Preferred Stock and Series C Preferred Stock issued to it at the Initial Closing
to Specialty Finance, 99.6% of which is owned by Capital Z and 0.4% of which is
owned by Equifin Capital.

On January 4, 1999, Capital Z Management, Inc. ("Cap Z Management"), an
affiliate of Capital Z, received, as a fee for Capital Z's commitment (the
"Standby Commitment") to purchase an amount of Series C Preferred Stock equal to
25 million shares less the number of shares of Series C Preferred Stock
purchased by the Company's Common Stockholders in its recent Rights Offering (as
described below), a warrant to purchase 1.25 million shares of the Company's
Common Stock at an

23
<PAGE>
initial exercise price of $1.00 per share. In addition, on February 10, 1999,
the Company paid to Cap Z Management a $1 million transaction fee in connection
with the transactions contemplated by the Preferred Stock Purchase Agreement. In
addition, in connection with the transactions contemplated by the Preferred
Stock Purchase Agreement, the Company has paid to Cap Z Management aggregate
additional fees of $2 million and has reimbursed Capital Z for all of its
expenses incurred in connection with the negotiation and execution of the
Preferred Stock Purchase Agreement and the transactions contemplated thereby.

On August 3, 1999, pursuant to the Preferred Stock Purchase Agreement,
Capital Z purchased 25,000 shares of Series C Preferred Stock for $1,000 per
share for an aggregate investment of $25,000,000.

On August 3, 1999, the Company issued warrants to purchase 1.25 million
shares of the Company's Common Stock at an initial exercise price of $1.00 per
share to certain employees of Capital Z Management, including warrants to
purchase: 184,153 shares to Steven Gluckstern, the Chairman of the Board of the
Company; 92,075 shares to Adam Mizel, a Director of the Company; 3,125 shares to
Mani Sadeghi a Director of the Company, and; 12,450 shares to David Spuria, a
Director of the Company.

On September 30, 1999, the Company effected a 1,000-for-1 forward stock
split of its Series B Preferred Stock and its Series C Preferred Stock.

On September 10, 1999 pursuant to the Preferred Stock Purchase Agreement,
the Company distributed nontransferable subscription rights (the "Rights") to
the holders of its Common Stock providing them the right to purchase one share
of Series C Preferred Stock for every share of Common Stock held by them as of
September 7, 1999 for $1.00 per share (the "Rights Offering"). The Rights
expired on October 6, 1999. Holders of the Company's common stock purchased
4,159,266 shares of Series C Preferred Stock in the Rights Offering. Capital Z
purchased 20,840,734 shares of Series C Preferred Stock on October 27, 1999
pursuant to the Standby Commitment.

On February 10, 1999, pursuant to the Preferred Stock Purchase Agreement,
the Company entered into an Preferred Stock Purchase Agreement For Management
Advisory Services (the "Equifin Agreement") with Equifin Management, pursuant to
which the Company is obligated to pay to Equifin Management, a quarterly
management advisory fee of $250,000 for a period of five (5) years. On
February 10, 1999, pursuant to the Equifin Agreement, the Company paid to
Equifin $250,000 in consideration of consulting services rendered prior to the
execution of the Equifin Agreement and as an advance for consulting services to
be rendered in the quarter ending March 31, 1999. Mani Sadeghi, who served as
the Company's Chief Executive Officer of the Company from May 13, 1999 through
October 25, 1999, is the Chief Executive Officer and a member of Equifin
Management and Equifin Capital. Mr. Sadeghi did not receive compensation for his
services as Chief Executive Officer of the Company; however the Company agreed
to increase Equifin Management's quarterly management advisory fee by an
additional $250,000 per quarter pro-rated for the time that Mr. Sadeghi served
as Chief Executive Officer.

Each of Messrs. Gluckstern, Mizel, Rahe and Spuria, Directors of the
Company, has a direct or indirect interest in Capital Z and Cap Z Management.
Mr. Sadeghi, the Chief Executive Officer and a Director of the Company, has a
material equity interest in Equifin Management and Equifin Capital.
Messrs. Gluckstern, Mizel and Spuria are members of Capital Z Partners, Ltd., a
Bermuda corporation ("Cap Z Ltd."), which is the general partner of Capital Z
Partners, L.P. ("Cap Z Partners"), which is the general partner of Capital Z.
Messrs. Gluckstern and Mizel are limited partners of Cap Z Partners and
shareholders of Cap Z Management. Messrs. Gluckstern and Mizel are officers of
Cap Z Management. Mr. Rahe is an officer of Cap Z Management and a limited
partner of Cap Z Partners. Mr. Sadeghi is the Chief Executive Officer of Equifin
Management and Equifin Capital. Cap Z Ltd. is

24
<PAGE>
a preferred shareholder of Equifin Capital. Mr. Spuria is General Counsel of Cap
Z Ltd. and Cap Z Management and a limited partner of Cap Z Partners.

On January 26, 1998, the Board of Directors approved the Executive and
Director Loan Program (the "Loan Program") under which directors and executive
officers of the Company were entitled to obtain a mortgage loan from the Company
at the Company's cost of funds (plus 25 basis points) as determined by an
approved, independent investment banking firm. All loans made under the
Executive and Director Loan Program were fixed rate, fully amortized, 15- or
30-year loans with no prepayment penalties and were underwritten to the
Company's underwriting guidelines in effect at the time of the loan.
Participants in this program were not charged any loan fees except for those
fees or costs charged by third parties. The following executive officers and
directors have mortgage loans with the Company for the following principal
amount and outstanding balance (as of December 1, 1999) at an annual interest
rate of 6.5% (unless noted otherwise); Barbara S. Polsky, executive officer,
$400,500 loan amount, $399,874 highest balance during fiscal year, $339,275
outstanding balance; David A. Sklar, executive officer, $379,300 loan amount,
$378,266 highest balance during fiscal year, $372,835 outstanding balance; David
A. Spuria, director, $777,600 loan amount at an interest rate of 6.7%, $777,600
highest balance during fiscal year, $777,022 outstanding balance; Cary Thompson
$240,500 loan amount, $240,500 highest balance during fiscal year, (since paid
in full); Cary Thompson $1,500,000 loan amount at an interest rate of 7.375%,
$1,500,000 highest balance during fiscal year, (sold by the Company in July of
1999). The Company discontinued the Loan Program in June 1999.

On December 23, 1998, Mr. Kornswiet entered into a Management Investment
Agreement with the Company, pursuant to which Mr. Kornswiet was obligated to
purchase 1.67 million shares of Series C Preferred Stock for $1.00 per share.
Mr. Kornswiet had not purchased those shares at the time his employment with the
Company was terminated.

On December 23, 1998, Mr. Thompson entered into a Management Investment
Agreement with the Company, pursuant to which Mr. Thompson purchased 250 shares
of Series C Preferred Stock for $1,000 per share at the Initial Closing (250,000
shares after a 1000-for-1 stock split on September 30, 1999).

On October 22, 1999 David Sklar, the Company's Executive Vice
President--Finance and Chief Financial Officer entered into a Retention
Agreement with the Company pursuant to which Mr. Sklar agreed to purchase a
minimum of $100,000 of Series C Preferred Stock on a mutually agreed upon date.

The Company entered into a Management Investment Agreement with Mr.
Meyerson, effective October 25, 1999 pursuant to which Mr. Meyerson agreed to
purchase, on a mutually agreed upon date, 500,000 shares of Series C Preferred
Stock (the "Meyerson Shares") for $1.00 per share, of which 50% will be financed
by the Company pursuant to a secured note. The Company cannot currently issue
shares of Series C Preferred Stock without the approval of the holders of the
Series B and Series C Preferred Stock, voting together as a class at a meeting
of stockholders. However, if the Stockholder Action by Written Consent Proposal
is approved by the stockholders, the Company intends to seek the written consent
of the holders of Series B and Series C Preferred Stock for the issuance of the
Meyerson Shares as soon as practicable after the Meeting.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the 1999 fiscal year, executive compensation for the Company was
administered by the Compensation Committee of the Board of Directors. During the
1999 fiscal year, the Compensation Committee of the Board of Directors was
comprised, through February 10, 1999, of Dr. Melvyn Kinder, Lee Masters and
Mr. St. Laurent and, from February 10, 1999 through the end of the fiscal year,
of Messrs. Gluckstern, Mizel and St. Laurent, none of whom are, or were
full-time, salaried officers or employees of the Company. The Compensation
Committee currently consists of Messrs. Gluckstern, Mizel and St. Laurent.

25
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE

The following report of the Compensation Committee of the Board of Directors
shall not be deemed to be incorporated by reference into any previous filing by
the Company under either the Securities Act of 1933, as amended ("Securities
Act"), or the Exchange Act, that incorporates future Securities Act or Exchange
Act filings in whole or in part by reference.

The Board of Directors delegated to the Compensation Committee the
responsibility for developing and administering policies which govern the total
compensation program for the Named Executive Officers of the Company. The
Committee also administered the Company's stock option plans.

The goal of the Company's executive compensation program is to retain,
motivate and reward management through the compensation policies and awards,
while aligning their interests more closely with that of the Company and
stockholders. In furtherance of this goal, the program consists of three main
components: (1) base salary; (2) bonuses which are either discretionary or based
on individual and Company performance; and (3) stock options to provide
long-term incentives for performance and to align executive officer and
stockholder interests.

EXECUTIVE COMPENSATION--OTHER THAN CHIEF EXECUTIVE OFFICERS

Base salaries for the Named Executive Officers were established by the
Compensation Committee based on the recommendations of management which
considered, and applied subjectively as appropriate, individual performance and
achievement, areas of responsibility, position, the extent to which the
officers' skills were in demand or were marketed to other companies or
industries and internal and external comparability. Base salaries for other
executive officers were established by the Chief Executive Officer who applies
the same criteria.

Mr. Kornswiet's salary from July 1, 1998 until the Initial Closing was
$900,000 per year, as set by the Compensation Committee upon his appointment as
President of the Company in May 1997 pursuant to an employment agreement dated
as of August 28, 1997, as amended (the "Original Kornswiet Employment
Agreement"). In December 1998, the Company entered into an employment agreement
with Mr. Kornswiet, effective February 10, 1999, which superceded the Original
Kornswiet Employment Agreement (the "New Kornswiet Employment Agreement").
Pursuant to the New Kornswiet Employment Agreement, Mr. Kornswiet's annual
salary was decreased to $600,000 per year. Under the terms of the Old Kornswiet
Employment Agreement, from July 1, 1998 through February 10, 1999,
Mr. Kornswiet was entitled to a quarterly cash bonus equal to between $1.35
million and $1.65 million depending on the retail and broker loan production of
the Company. Pursuant to the terms of the New Kornswiet Employment Agreement,
Mr. Kornswiet received a guaranteed cash bonus in an amount equal to $540,000
paid in the form of a recourse loan which the New Kornswiet Employment Agreement
provided would be forgiven and treated as paid in full so long as Mr. Kornswiet
remained employed by the Company through February 10, 2000 or any earlier
termination due to death, permanent disability, by Mr. Kornswiet for "Good
Reason" (as defined in the New Kornswiet Employment Agreement) or by the Company
other than for "Cause" (as defined in the New Kornswiet Employment Agreement).
On November 30, 1999 Mr. Kornswiet resigned as a director. Mr. Kornswiet is no
longer employed by the Company and the Company is negotiating the terms and
conditions of Mr. Kornswiet's departure.

The Compensation Committee believes that it is important for key employees
to have long-term incentives through an equity interest in the Company.
Accordingly, from time to time, the Company has granted key employees stock
options pursuant to the Company's stock option arrangements. The Committee
granted options upon the recommendations of management. As of June 30, 1999, the
Company's Named Executive Officers held options to acquire 2,581,550 shares of
the Company's Common Stock.

26
<PAGE>
PERFORMANCE BONUS PLAN

In November 1997 and as amended in May 1998, the Compensation Committee
adopted a Performance Bonus Plan. All executive officers, other than the Chief
Executive Officer and the President, participated in the Performance Bonus Plan.
Under the Performance Bonus Plan, bonuses were paid quarterly and were tied to
(i) the achievement by each participant of certain predetermined goals
established annually by the Chief Executive Officer subject, in the case of the
Named Executive Officers, to approval by the Compensation Committee, (ii) the
achievement by the Company of net income goals established annually by the Chief
Executive Officer and presented to the Board of Directors, and (iii) maximum
levels of bonus for each individual established annually by the Chief Executive
Officer subject, in the case of the Named Executive Officers, to approval by the
Compensation Committee. Participants received the full quarterly bonus in each
quarter where at least seventy percent of both the individual and Company
performance goals are met. Where the Company achieved at least seventy percent
of its goals, but the participant achieved less than seventy percent of his or
her goals, bonuses may be paid based on an exception basis and based upon on the
participant's percentage of achievement of his or her individual goals.

EXECUTIVE COMPENSATION--CHIEF EXECUTIVE OFFICERS

From May 7, 1997 to May 13, 1999, Mr. Thompson, served as the Company's
Chief Executive Officer. From July 1, 1998 until the Initial Closing,
Mr. Thompson's base salary, established under the terms of an employment
agreement dated as of March 1996, as amended (the "Original Thompson Employment
Agreement") with the approval of the Compensation Committee, was $900,000. The
Original Thompson Employment Agreement also provided for a discretionary bonus
subject to the approval of the Board or the stockholders. Considering the number
of stock options Mr. Thompson was granted at the time he became Chief Operating
Officer, the Committee believes his compensation was primarily performance
based. In December 1998, Mr. Thompson entered into an employment agreement,
effective February 10, 1999, which superceded the Original Thompson Employment
Agreement (the "New Thompson Employment Agreement"). Pursuant to the New
Thompson Employment Agreement, Mr. Thompson's annual salary was decreased to
$600,000 per year. On May 13, 1999, Mr. Thompson resigned as the Company's Chief
Executive Officer. The Company negotiated a severance agreement with
Mr. Thompson pursuant to which he will provide services to the Company from
October 15, 1999 through October 15, 2000 for $50,000 per month. In addition,
the Compensation Committee granted Mr. Thompson options to purchase 774,049
shares of Common Stock. Mr. Thompson was also given the option to purchase for
$1 the automobile provided by the Company for Mr. Thompson's use while he served
as Chief Executive Officer.

Mr. Sadeghi, a member of the Company's Board of Directors, was appointed as
Chief Executive Officer of the Company on May 13, 1999 and served in that
position until October 25, 1999. Mr. Sadeghi is an employee of Equifin
Management, a management consultant to the Company. As compensation for
Mr. Sadeghi's services as Chief Executive Officer, the Company paid a quarterly
fee of $250,000 to Equifin Management which was pro-rated for the period of time
Mr. Sadeghi was in office.

A. Jay Meyerson was appointed by the Board of Directors as the Company's
Chief Executive Officer as of October 25, 1999. Mr. Meyerson's compensation is
based upon the an employment agreement, effective October 25, 1999 (the
"Meyerson Employment Agreement") pursuant to which Mr. Meyerson will receive a
salary of $350,000 per year plus a bonus of between 0% and 150% based upon the
achievement of personal and Company goals as determined by the Compensation
Committee. In addition, Mr. Meyerson received options to purchase 3,000,000
shares of the Company's Common Stock. The Compensation Committee believed that
the grant of options to Mr. Meyerson was necessary to attract Mr. Meyerson to
the Company and provided the appropriate level of long-term incentive to foster
growth in stockholder values.

27
<PAGE>
STATEMENT REGARDING TAX POLICY COMPLIANCE

Section 162(m) of the Code limits the deductible allowable to the Company
for compensation paid to the chief executive officer and each of the four other
most highly compensated executive officers to $1.0 million. Qualified
performance-based compensation is excluded from this limitation if certain
requirements are met, including receipt of stockholder approval or if amounts
are paid pursuant to a written contract that was in effect on February 17, 1993
and not subsequently materially modified. Under certain circumstances, the
Compensation Committee, in its discretion, may authorize payments, such as
salary, bonuses or otherwise that may cause an executive officer's income to
exceed the deductible limits.

<S> <C>
Compensation Committee: Steven Gluckstern, Chairman
Adam Mizel
Georges St. Laurent
</TABLE>

28
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth, as of January 15, 2000, certain information
relating to the ownership of the Common Stock (which includes shares of Common
Stock issuable upon the exercise of stock options and warrants and conversion of
Series B and Series C Preferred Stock), Series B Preferred Stock and Series C
Preferred Stock by (i) each person known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of the Common Stock, (ii) each
of the Company's directors and nominees, (iii) each of the Named Executive
Officers (as defined under "Executive Compensation -- Summary Compensation
Table") and (iv) all of the Company's executive officers and directors as a
group. Except as may be indicated in the footnotes to the table and subject to
applicable community property laws, each of such persons has sole voting and
investment power with respect to the shares beneficially owned. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act. Under this Rule, certain shares may be deemed to be beneficially owned by
more than one person (such as where persons share voting power or investment
power). In addition, shares are deemed to be beneficially owned by a person if
the person has the right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is provided; in
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in the
following table does not necessarily reflect the person's actual voting power at
any particular date.

<TABLE>
<CAPTION>
NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES OF CLASS
- -------------- ---------------- ----------- --------
<S> <C> <C> <C>
Common Stock Specialty Finance Partners
54 Thompson Street
New York, New York 10012.............. 123,340,734(1) 79.89 %
Common Stock David H. Elliott (2).................. 5,000 *
Common Stock Steven M. Gluckstern (3).............. 184,153(4) *
Common Stock Neil B. Kornswiet (2)................. 2,407,860(5) 7.61 %
Common Stock A. Jay Meyerson (2)................... 112,500(6) *
Common Stock Adam M. Mizel (3)..................... 92,075(8) *
Common Stock Barbara S. Polsky (2)................. --(7) *
Common Stock Eric C. Rahe (3)...................... 18,675(4) *
Common Stock Mani A. Sadeghi (3)................... 3,125(4) *
Common Stock David A. Sklar (2).................... 109,250(8) *
Common Stock David A. Spuria (3)................... 12,450(4) *
Common Stock Georges C. St. Laurent, Jr. (2)....... 1,606,600(9) 4.93 %
Common Stock Cary H. Thompson (2).................. 1,920,807(10) 5.83 %
Common Stock All executive officers, directors and
nominees as a group (12 persons).... 6,472,495(11) 18.17 %

Series B Specialty Finance Partners
Preferred Stock (12) 54 Thompson Street
New York, New York 10012.............. 26,704,000(13) 100 %

Series C Specialty Finance Partners
Preferred Stock 54 Thompson Street
New York, New York 10012.............. 94,136,734(14) 93.06 %

Series C Georges C. St. Laurent, Jr. (2)....... 1,550,000(15) 1.53 %
Preferred Stock

Series C Cary H. Thompson (2).................. 250,000(16) *
Preferred Stock

Series C All executive officers, directors and
Preferred Stock nominees as a group (11 persons)
(17)................................ 1,800,000 1.78 %
</TABLE>

- ------------------------

* Less than one percent.

(1) Consists of 123,340,734 shares of Common Stock issuable upon conversion of
Series B and Series C Preferred Stock. Specialty Finance is a Bermuda
general partnership, 99.6% of which is owned by Capital Z and 0.4% of
which is owned by Equifin Capital. In addition, Capital Z Management and
certain of its employees, as a result of the receipt of warrants to
purchase 2,500,000 shares of Common Stock of the

29
<PAGE>
Company, may be deemed to be the beneficial owner of 2,500,000 shares of
Common Stock of the Company. Capital Z has disclaimed ownership of these
shares. Specialty Finance also holds 26,704,000 shares of Series B
Preferred Stock and 94,136,734 shares of Series C Preferred Stock.

(2) The address of each individual is in care of the Company at 350 S. Grand
Avenue, 52nd Floor, Los Angeles, California 90071.

(3) The address of each individual is in care of Capital Z, 54 Thompson
Street, New York, New York 10012.

(4) Represents shares of Common Stock underlying warrants which are currently
exercisable. Each of Messrs. Gluckstern, Mizel, Rahe, Sadeghi, and Spuria
has disclaimed beneficial ownership of the Series B and Series C Preferred
Stock held by Capital Z or Specialty Finance.

(5) Includes 595,000 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
January 15, 2000. Mr. Kornswiet's employment with the Company ended during
the first quarter of fiscal 2000. The Company is in discussions with
Mr. Kornswiet regarding terms and conditions of his departure which may
affect the number of exercisable options and the expiration date of such
options.

(6) Represents shares of Common Stock underlying options which are currently
exercisable or which will become exercisable within 60 days of
January 15, 2000. If the Fair Market Value of the Common Stock (as defined
in the Company's 1999 Stock Option Plan) reaches certain price targets, an
additional 337,500 options could vest within the next 60 days.
Mr. Meyerson was appointed as the Company's Chief Executive Officer on
October 25, 1999 and as a member of the Board of Directors on November 1,
1999.

(7) On October 7, 1999, Ms. Polsky resigned as the Executive Vice President,
General Counsel and Secretary of the Company.

(8) Represents shares of Common Stock underlying options which are currently
exercisable or which will become exercisable within 60 days of
January 15, 2000. If the Fair Market Value of the Common Stock (as defined
in the Company's 1999 Stock Option Plan) reaches certain price targets, an
additional 78,750 options could vest within the next 60 days.

(9) Includes 6,600 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
January 15, 2000, and includes 1,550,000 shares of Common Stock issuable
upon conversion of Series C Preferred Stock.

(10) Includes 1,648,907 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
January 15, 2000 and includes 250,000 shares of Common Stock issuable upon
conversion of Series C Preferred Stock. If computed excluding options with
an exercise price greater than $2.00 per share, Mr. Thompson would own
less than 1.0% of the class. If the Fair Market Value of the Common Stock
(as defined in the Company's 1999 Stock Option Plan) reaches certain price
targets, an additional 87,080 options could vest within the next 60 days.

(11) Includes 4,582,735 shares of Common Stock underlying options or warrants
which are currently exercisable or which will become exercisable within 60
days of January 15, 2000 and includes 1,800,000 shares of Common Stock
issuable upon conversion of Series C Preferred Stock.

(12) Capital Z holds 100% of the issued and outstanding Series B Preferred
Stock. None of the Directors, nominees and Named Executive Officers
beneficially hold any shares of Series B Preferred Stock.

(13) Convertible into 26,704,000 shares of Common Stock.

(14) Convertible into 94,136,734 shares of Common Stock.

(15) Convertible into 1,550,000 shares of Common Stock.

(16) Convertible into 250,000 shares of Common Stock.

(17) Other than in the case of Messrs. St. Laurent and Thompson, none of the
Directors, nominees or Named Executive Officers beneficially hold any
shares of Series C Preferred Stock.

30
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table shows information concerning all compensation paid for
services to the Company in all capacities during the last three fiscal years or
accrued within the current fiscal year as to the persons who served as Chief
Executive Officer of the Company during the 1999 fiscal year and each of the
other four most highly compensated executive officers of the Company who served
in such capacity at the end of the last fiscal year (the "Named Executive
Officers"):

<TABLE>
<CAPTION>
LONG TERM
-------------
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------------- -------------
FISCAL OTHER ANNUAL STOCK OPTION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS COMPENSATION
- --------------------------- -------- -------- ---------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neil B. Kornswiet............... 1999 $800,000 $ 540,000(3) -- 100,000 $ --
President(2) 1998 900,000 5,297,449 -- -- $40,800(4)
1997 666,042 4,408,863 -- 555,000 N/A

Cary H. Thompson................ 1999 $800,000 $ -- -- -- $ --
Vice Chairman and Former 1998 900,000 -- -- -- $ 4,800(6)
Chief Executive Officer(5) 1997 634,805 1,073,339 -- -- N/A

Barbara S. Polsky............... 1999 $290,000 $ 200,000 -- 35,000 $ --
Executive Vice President, 1998 300,000 244,000 -- 60,000 $13,000(8)
General Counsel and 1997 35,538 -- -- 56,350 N/A
Secretary(7)

David A. Sklar.................. 1999 $241,667 $ 100,000 -- 20,000 $ --
Executive Vice President 1998 242,462 -- -- -- $10,000(10)
Chief Financial Officer(9) 1997 42,639 -- -- -- N/A

Mani A. Sadeghi................. 1999 $ -- $ -- -- -- N/A
Chief Executive 1998 N/A N/A N/A N/A N/A
Officer(11) 1997 N/A N/A N/A N/A N/A
</TABLE>

- ------------------------

(1) The aggregate amount of all perquisites and personal benefits received by
each of the Named Executive Officers in each of fiscal years 1997, 1998
and 1999 was not in excess of $50,000 or 10% of the total of annual salary
and bonus reported for such Named Executive Officer.

(2) Mr. Kornswiet joined the Company in August 1996 and his employment ended
in the first quarter of fiscal 2000.

(3) Consists of a guaranteed cash bonus for calendar year 1999 in the amount
of $540,000 in the form of a recourse loan which would have been forgiven
and deemed paid in full had Mr. Kornswiet remained employed by the Company
through February 10, 2000 or, if his employment been terminated sooner,
through the date his employment is terminated by death, disability, by
Mr. Kornswiet for "Good Reason" (as defined in his employment agreement)
or by the Company without "Cause" (as defined in his employment
agreement).

(4) Consists of $36,000 in employer contributions to the Company's Deferred
Compensation Plan (which has since been terminated) and $4,800 in employer
contributions to the Company's Section 401(k) plan.

(5) Mr. Thompson joined the Company in March 1996 and served as Chief
Executive Officer from May 1997 to May 1999, prior to which time he served
as Chief Operating Officer. Mr. Thompson resigned as Chief Executive
Officer in May 1999 and as Vice Chairman in July 1999 and remains a member
of the Board of Directors.

(6) Consists of employer contributions to the Company's Section 401(k) plan.

(7) Ms. Polsky joined the Company in May 1996 and resigned in October 1999.

(8) Consists of $8,200 in employer contributions to the Company's Deferred
Compensation Plan (which has since been terminated) and $4,800 in employer
contributions to the Company's Section 401(k) plan.

(9) Mr. Sklar joined the Company in May 1997.

(10) Consists of $10,000 in employer contributions to the Company's Deferred
Compensation Plan (which has since been terminated).

(11) Mr. Sadeghi, who served as the Company's Chief Executive Officer of the
Company from May 13, 1999 through October 25, 1999, is the Chief Executive
Officer and a member of Equifin Capital Capital and Equifin Management.
Mr. Sadeghi did not receive compensation for his services as Chief
Executive Officer of the Company, however the Company agreed to increase
Equifin Management's quarterly management advisory fee of $250,000 by an
additional $250,000 per quarter pro-rated for the time that Mr. Sadeghi
served as Chief Executive Officer.

31
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information regarding grants of stock
options made during the fiscal year ended June 30, 1999 to the Named Executive
Officers.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN OR BASE OPTION TERM(1)
OPTIONS FISCAL PRICE PER EXPIRATION ---------------------------
NAME GRANTED(2) YEAR(3) SHARE(4) DATE 5% 10%
- ---- ---------- ------------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Neil B. Kornswiet(5)...... 100,000 10.97% $13.375 07/01/2008 $841,147 $2,131,631
Cary H. Thompson(6)....... -- -- -- -- -- --
Barbara S. Polsky(7)...... 35,000 3.84% $13.375 07/01/2008(7) $294,401(7) $ 746,071(7)
Mani A. Sadeghi(8)........ -- -- -- -- -- --
David A. Sklar (5)........ 20,000 2.19% $13.375 07/01/2008 $168,311 $ 426,326
</TABLE>

- ------------------------

(1) The potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the option term.
These amounts are calculated pursuant to the applicable requirements of the
SEC and do not represent a forecast of the future appreciation of the
Company's Common Stock.

(2) All of the options set forth in this chart were granted for a term of 10
years.

(3) Options covering an aggregate of 911,500 shares were granted to eligible
employees during the fiscal year ended June 30, 1999.

(4) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by reference to the closing price
reported on the NYSE on the last trading day prior to the date of grant. The
exercise price and tax withholding obligations related to exercise may be
paid by delivery of already owned shares, subject to certain conditions.

(5) The options granted become exercisable as to 20% on the date of grant and
20% on each anniversary of the date of grant until fully vested.

(6) On May 13, 1999, Mr. Thompson resigned as the Chief Executive Officer of the
Company.

(7) All of Ms. Polsky's options became exercisable on February 10, 1999 as a
result of a change in control provision of her employment agreement with the
Company. On October 7, 1999, Ms. Polsky resigned as the Executive Vice
President, General Counsel and Secretary of the Company. As a result of her
resignation, Ms. Polsky's vested options expired on January 4, 2000.

(8) On October 25, 1999, Mr. Sadeghi resigned as the Chief Executive Officer of
the Company.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS

The following table sets forth, for each of the Named Executive Officers,
certain information regarding the exercise of stock options during the fiscal
year ended June 30, 1999 and the value of options held at fiscal year end:

32
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)

<TABLE>
<CAPTION>
VALUE OF ALL
UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
OPTIONS AT FISCAL YEAR-END(2)
SHARES ACQUIRED VALUE YEAR-END/ EXECISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- --------------- --------- ---------------------- -------------------
<S> <C> <C> <C> <C>
Neil B. Kornswiet(3)................ -- -- 575,000 / 80,000 --/--
Cary Thompson....................... -- -- 1,260,177 / 360,123 --/--
Barbara S. Polsky(4)................ -- -- 161,250 / -- --/--
David A. Sklar...................... -- -- 79,000 / 66,000 --/--
Mani A. Sadeghi..................... -- -- -- / -- --/--
</TABLE>

- ------------------------

(1) All amounts shown in this table have been adjusted to reflect the
three-for-two split of the Common Stock effected on February 21, 1997.

(2) Based upon the last reported sale price of the Common Stock on the NYSE on
June 30, 1999 ($1.31) less the option exercise price.

(3) Mr. Kornswiet's employment with the Company ended during the first quarter
of fiscal 2000. The Company is in discussions with Mr. Kornswiet regarding
the terms and conditions of his departure, which may affect the number of
exercisable options and the expiration date of such options.

(4) All of Ms. Polsky's options became exercisable on February 10, 1999 as a
result of a change in control provision of her employment agreement with the
Company. On October 7, 1999, Ms. Polsky resigned as the Executive Vice
President, General Counsel and Secretary of the Company. As a result of her
resignation, Ms. Polsky's vested options expired on January 4, 2000.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's executive officers,
directors and persons who own more than ten percent of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the SEC. Executive officers, directors, and greater-than-ten
percent stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it and written representations from the
Company's reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the year ended June 30, 1999,
all relevant Section 16(a) filing requirements were complied with except that
Mr. Kornswiet, the president and a director of the Company, filed one
inadvertently late report on Form 5 with respect to a gift of Common Stock
during the 1999 fiscal year.

EMPLOYMENT AND SEVERANCE AGREEMENTS

A. Jay Meyerson was appointed by the Board of Directors as the Company's
Chief Executive Officer as of October 25, 1999. The Company entered into the
Meyerson Employment Agreement, effective October 25, 1999. The Meyerson
Employment Agreement has a three year term with automatic renewal for successive
one-year terms unless the Board of Directors provides 120-day advance written
notice prior to the end of a term. Pursuant to the Meyerson Employment
Agreement, Mr. Meyerson will receive (i) a minimum salary of $350,000 per year
("Base Salary"), subject to annual review by the Board of Directors, (ii) a
bonus ranging between 0% and 150% of Base Salary based upon the achievement of
individual and Company goals, as determined by the Compensation Committee of the
Board of Directors, for the period through December 31, 2000, and for each

33
<PAGE>

calendar year thereafter, (iii) four weeks of paid vacation, (iv) options to
purchase 3,000,000 shares of the Company's Common Stock, (iv) reimbursement of
relocation expenses not to exceed $75,000, (v) other benefits under the
Company's savings, pension and retirement plans and other benefit plans or
programs maintained by the Company for the benefit of its executives, and
(vi) reimbursement of reasonable business expenses incurred in accordance with
the Company's policies. Pursuant to the Meyerson Employment Agreement,
Mr. Meyerson is entitled to receive, upon termination of the Meyerson Employment
Agreement: (i) at the end of the applicable term and by the Company upon
notification of disability or for cause or by Mr. Meyerson for reasons other
than Good Reason (as Defined in the Meyerson Employment Agreement), the Base
Salary through the final date of active employment, plus any accrued but unused
vacation pay, (ii) by Mr. Meyerson, for Good Reason (as defined in the Meyerson
Employment Agreement) or by the Company for reasons other than Cause or
disability, the Base Salary in effect at the time of termination for a period of
twelve months following termination (the "Severance Term") plus either continued
coverage under the Company's health and other insurance programs and including
specifically the $1 million life insurance policy or a lump sum payment equal to
the present value of such health benefits for the Severance Term ("Termination
Severance") or (iii) following a Change in Control of the Company (as defined in
the Company's 1999 Stock Option Plan) at a price per share of the Company's
Common Stock in excess of $2.50 per share by Mr. Meyerson for Good Reason (as
defined in the Meyerson Employment Agreement) or by the Company for reasons
other than Cause or disability, the Base Salary in effect at the time of
termination for a period of twenty-four months following termination (the
"Change in Control Severance Term") plus either continued coverage under the
Company's health and other insurance programs and including specifically the $1
million life insurance policy or a lump sum payment equal to the present value
of such health benefits for the Change in Control Severance Term ("Change in
Control Severance"). Both the Termination Severance and the Change in Control
Severance are subject to offset equal to any amounts owed by Mr. Meyerson to the
Company and the amount of any compensation for services earned by Mr. Meyerson
on account of any employment or self-employment during the first twelve months
after termination.

In March 1996 the Company entered into the Original Thompson Employment
Agreement pursuant to which Mr. Thompson was employed as Chief Executive Officer
at a base salary of $900,000 per year. He was also entitled to receive, at the
expense of the Company, the use of an automobile (including all maintenance and
expenses associated therewith), a standard term life insurance policy in the
amount of $1 million, a standard term accidental death policy in the amount of
$1 million, under certain circumstances, a long-term disability policy providing
an annual disability payment equal to 125% of his base salary and coverage for
him and the dependent members of his family under the Company's medical and
dental policies.

In December 1998, the Company entered into New Thompson Employment
Agreement. The New Thompson Employment Agreement was effective on February 10,
1999, at which time the Original Thompson Employment Agreement was terminated.
The New Thompson Employment Agreement was terminated on May 13, 1999 when
Mr. Thompson resigned as Chief Executive Officer of the Company. The New
Thompson Employment Agreement superceded and invalidated any of Mr. Thompson's
rights and benefits accruing under all other employment, change in control,
stock option and any and all other agreements between Mr. Thompson and the
Company that provide for the payment of compensation or benefits to
Mr. Thompson other than (i) benefits provided under the Company's 401(k) plan,
(ii) the use of an automobile (including all maintenance and expenses associated
therewith) at the expense of the Company, and (iii) stock options granted to
Mr. Thompson under the Company's various stock option plans and stock options
granted outside of such plans. Under the New Thompson Employment Agreement,
Mr. Thompson earned an annual base salary of $600,000 and was entitled to
receive cash bonuses after the 1999 calendar year of between 0-100% of
Mr. Thompson's annual base salary. Mr. Thompson also was entitled to receive, at
the expense of the Company, (i) not less than $2 million of standard term life
insurance, (ii) medical and dental benefits for Mr. Thompson

34
<PAGE>

and members of his family, (iii) a long-term disability policy providing for
payments in an amount equal to 60% of Mr. Thompson's annual base salary,
provided such policy could be obtained for a reasonable cost, (iv) other
benefits under the Company's savings, pension and retirement plans and other
benefit plans or programs maintained by the Company for the benefit of its
executives, and (v) reimbursement of reasonable business expenses incurred in
accordance with the Company's policies. Under the New Thompson Employment
Agreement, the Company was obligated to grant to Mr. Thompson an option to
purchase 2,580,162 shares of the Company's common stock (the "Thompson Option")
pursuant to the Company's 1999 Stock Option Plan. Upon termination of employment
by Mr. Thompson for "Good Reason", as defined in the New Thompson Employment
Agreement or by the Company without "Cause", as defined in the New Thompson
Employment Agreement, Mr. Thompson was entitled to receive, subject to certain
offsets based on subsequent employment, severance benefits for a period of 12
months, payable in accordance with the Company's payroll policy, an amount equal
to (i) $2 million, if the termination occurred within one year of the Initial
Closing, (ii) $1.5 million, if the termination occurred during the second year,
(iii) $1.0 million if the termination occurred in the third year, and (iv) $0.5
million if the termination occurred after the fourth anniversary of the Initial
Closing. On May 13, 1999, Mr. Thompson resigned as the Company's Chief Executive
Officer. The Company negotiated a severance and consulting agreement with
Mr. Thompson pursuant to which he will receive (i) $50,000 per month for his
services to the Company from October 15, 1999 through October 15, 2000,
(ii) options to purchase 774,049 shares of Common Stock and (iii) the options to
purchase for $1 the automobile provided by the Company for Mr. Thompson's use
while he served as Chief Executive Officer.

Under the Original Kornswiet Employment Agreement, Mr. Kornswiet earned a
base salary of $900,000 per year and was entitled to an annual performance bonus
equal to between $1.35 million and $1.65 million depending on the retail and
broker loan production of the Company (the "Performance Bonus"). Mr. Kornswiet
was also entitled to receive, at the expense of the Company, the use of an
automobile (including all maintenance and expenses associated therewith), a
standard term life insurance policy in the amount of $1 million, a standard term
accidental death policy in the amount of $1 million, under certain
circumstances, a long-term disability policy providing an annual disability
payment equal to 125% of his base salary and coverage for him and the dependent
members of his family under the Company's medical and dental policies.

In December 1998, the Company entered into the New Kornswiet Employment
Agreement with a five-year term with Mr. Kornswiet, which superseded the
Original Kornswiet Employment Agreement. The New Kornswiet Employment Agreement
became effective on February 10, 1999. The New Kornswiet Employment Agreement
superseded and invalidated any of Mr. Kornswiet's rights and benefits accruing
under all other employment, change in control and any and all other agreements
between Mr. Kornswiet and the Company and its subsidiaries that provided for the
payment of compensation or benefits to Mr. Kornswiet other than (i) benefits
provided under the Company's 401(k) plan, (ii) the use of an automobile
(including all maintenance and expenses associated therewith) at the expense of
the Company, and (iii) stock options granted to Mr. Kornswiet under the
Company's various stock option plans and, upon amendments being adopted, certain
stock options granted to, and forfeited by, employees of One Stop which were
assumed by the Company in connection with the Company's acquisition of One Stop.
The New Kornswiet Employment Agreement provided Mr. Kornswiet an annual base
salary of $600,000 and entitled him to receive (i) payment of $1,460,000 which
represented his June 1998 bonus which was previously deferred by Mr. Kornswiet,
(ii) a guaranteed cash bonus for calendar year 1999 in the amount of $540,000 in
the form of a recourse loan which would be forgiven and deemed paid in full so
long as Mr. Kornswiet remained employed by the Company through February 10, 2000
or any earlier termination due to death, disability, termination by
Mr. Kornswiet for "Good Reason" (as defined in the New Kornswiet Employment
Agreement) or by the Company without "Cause" (as defined in the New Kornswiet
Employment Agreement), (iv) a cash supplemental bonus for Mr. Kornswiet's first
year of employment

35
<PAGE>

payable within 2-1/2 months after the first anniversary of the effective date
subject to the Board of Directors' determination that the Company has completed
a satisfactory program of cost reductions by such anniversary date, (v) cash
bonuses after the 1999 calendar year of between 0-100% of his annual base
salary, (vi) a loan equal to $1,667,000 for the purpose of purchasing shares of
the Company's Series C Preferred Stock which stock would have secured repayment
of the loan and the loan would have been non-recourse provided that
Mr. Kornswiet remained employed by the Company through February 10, 2000 or, if
terminated earlier based upon death, disability, by Mr. Kornswiet with good
reason or by the Company without Cause. The loan would have been payable by
Mr. Kornswiet with 25% of his aggregate cash bonus for each fiscal year that the
loan remained outstanding and became due and payable upon certain events
including termination of his employment with the Company. The New Kornswiet
Employment Agreement also provided Mr. Kornswiet, at the expense of the Company,
(i) not less than $2 million of standard term life insurance, (ii) medical and
dental benefits for Mr. Kornswiet and members of his family, (iii) a long-term
disability policy providing for payments in an amount equal to 60% of
Mr. Kornswiet's annual base salary, provided such policy could be obtained for a
reasonable cost, (iv) other benefits under the Company's savings, pension and
retirement plans and other benefit plans or programs maintained by the Company
for the benefit of its executives, and (v) reimbursement of reasonable business
expenses incurred in accordance with the Company's policies. The New Kornswiet
Employment Agreement provided for a grant to Mr. Kornswiet of options to
purchase 3,214,642 shares of the Company's Common Stock pursuant to the
Company's 1999 Stock Option Plan. The New Kornswiet Employment Agreement
provided that upon termination for Good Reason, or by the Company without Cause,
Mr. Kornswiet would be entitled to receive severance benefits for a period of 12
months, payable in accordance with the Company's payroll policy, an amount equal
to (i) $2 million, if the termination occured within one year of the Initial
Closing and lesser amounts if it occurred subsequently but prior to the
termination of the New Kornswiet Employment Agreement. The New Kornswiet
Employment Agreement required that, for so long as Capital Z or its designated
purchasers, owns at least 25% of the outstanding voting securities of the
Company, Mr. Kornswiet could not sell, assign or otherwise transfer during his
employment with the Company, in any twelve month period, more than 25% of the
aggregate amount of shares of Company stock which Mr. Kornswiet owned
immediately prior to the Initial Closing, subject to waiver by the Board of
Directors in the event of extraordinary hardship. On November 30, 1999
Mr. Kornswiet resigned as a director. Mr. Kornswiet is no longer employed by the
Company and the Company is negotiating the terms and conditions of
Mr. Kornswiet's departure.

The Company entered into a second amended and restated employment agreement
with Barbara S. Polsky, former Executive Vice President, General Counsel and
Secretary, effective June 1, 1997, with a term expiring on June 20, 2001. The
agreement provided for a base salary of $300,000 per year and a quarterly bonus
under the Company's performance bonus plan for executive officers. Ms. Polsky
was entitled to a long-term disability policy providing for an annual disability
payment in an amount equal to 100% of her base salary. In the event of a
termination or voluntary resignation in connection with a Change in Control
(generally, a 20% change in the voting power of the Common Stock, certain
changes in Board membership, a merger or complete liquidation or dissolution of
the Company), Ms. Polsky would receive two years' base salary plus an amount
equal to the performance bonus paid to her for eight fiscal quarters preceding
the date of termination. In addition, all options previously granted would
become immediately exercisable. The Series B and Series C Preferred Stock issued
to Capital Z at the Initial Closing was a Change in Control as defined in
Ms. Polsky's employment agreement. On October 6, 1999 Ms Polsky resigned.
Pursuant to her employment agreement, Ms. Polsky was paid a $944,000 severance
payment in addition to accrued salary and unused vacation time.

The Company entered into an employment agreement with David A. Sklar, the
Company's Executive Vice President--Finance and Chief Financial Officer, on
May 12, 1997 with a term expiring on May 12, 2000. The agreement provided for a
base salary of $250,000 per year and both a

36
<PAGE>
discretionary bonus in any amount as determined by the Board of directors for
the 1998 fiscal year and, for years after the 1998 fiscal year, a performance
bonus under the Company's performance bonus plan for executive officers. The
agreement also provided for a bonus, on the commencement of the term of the
agreement, in the form of stock options to purchase 125,000 shares of the
Company's common stock. Mr. Sklar is also entitled to receive a long-term
disability insurance policy providing for an annual disability payment in an
amount equal to 100% of his base salary, providing that the policy could be
obtained at a reasonable cost. In the event of a termination or voluntary
resignation in connection with a Change in Control (generally, a 20% change in
the voting power of the Common Stock, certain changes in Board membership, a
merger or complete liquidation or dissolution of the Company), Mr. Sklar would
receive two years' base salary (at the annual rate in effect at the time of
termination) plus an amount equal to the performance bonus paid to him for eight
fiscal quarters preceding the date of termination. In addition, all options
previously granted would become immediately exercisable. The Series B and
Series C Preferred Stock issued to Capital Z at the Initial Closing was a Change
in Control as defined in Mr. Sklar's employment agreement. On October 22, 1999
Mr. Sklar entered into a Retention Agreement with the Company (the "Retention
Agreement"). The Retention Agreement terminated Mr. Sklar's employment agreement
and waived the Change in Control provision. The Retention Agreement further
provides that, in the event of resignation or a termination other than for
"Cause") (as defined in the Retention Agreement) within one year after the
execution of the Retention Agreement, Mr. Sklar would receive $500,000.

SECTION 401(K) PLAN

The Company has a tax-qualified cash or deferred profit sharing plan (the
"401(k) Plan") covering all employees over the age of 21 who have completed six
months of service with the Company prior to a plan entry date. Pursuant to the
401(k) Plan, eligible employees may make salary deferral (before-tax)
contributions of up to 15% of their compensation per plan year up to a specified
maximum contribution as determined by the Internal Revenue Service. The 401(k)
Plan also includes provisions which authorize the Company to make discretionary
contributions. Such contributions, if made, are allocated among all eligible
employees as determined under the 401(k) Plan. No discretionary contributions
were made by the Company for the calendar year 1998. The trustees under the
401(k) Plan invest the assets of each participant's account in selected
investment options at the direction of such participant.

DEFERRED COMPENSATION PLAN

In April 1997, the Company implemented a deferred compensation plan for
highly compensated employees and directors of the Company (the "Deferred
Compensation Plan"). The Deferred Compensation Plan was terminated on June 30,
1999. The plan was unfunded and non-qualified. Eligible participants were able
to defer a portion of their compensation (including bonuses) and receive a
Company matching amount up to 4% of their annual base salary. The Company also
had the option to make discretionary contributions to the Deferred Compensation
Plan. For the 1997 calendar year, the Company made matching but not
discretionary contributions to the Deferred Compensation Plan of which
Mr. Kornswiet received $36,000, Ms. Polsky received $8,200 and Mr. Sklar
received $10,000. For the 1998 calendar year, the Company made matching, but not
discretionary contributions to the Deferred Compensation Plan none of which was
paid to any of the Named Executive Officers.

37
<PAGE>
PERFORMANCE GRAPH

Set forth below is a line graph comparing the annual percentage change in
the cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of the NYSE Stock Market (US Companies) Index and the Index
for NYSE/AMEX/NASDAQ Stocks (SIC 6160-6169 US Companies) Mortgage Bankers and
Brokers for the period commencing July 1, 1994 and ending on June 30, 1999. The
information contained in the performance graph shall not be deemed "soliciting
material" or to be "filed" with the SEC, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference into such filing. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
AAMES FINANCIAL CORP. NYSE STOCK MARKET NYSE/AMEX/NASDAQ
<S> <C> <C> <C>
06/1994 100.0 100.0 100.0
06/1995 220.1 122.9 117.4
06/1996 659.5 154.8 160.0
06/1997 513.3 202.8 223.3
06/1998 384.9 260.0 275.3
06/1999 36.8 298.1 233.7
</TABLE>

<TABLE>
<CAPTION>
06/1994 06/1995 06/1996 06/1997 06/1998 06/1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Aames Financial Corporation 100.0 220.1 659.5 513.3 384.9 36.8
NYSE Stock Market (US Companies) 100.0 122.9 154.8 202.8 260.0 298.1
NYSE/AMEX/NASDAQ Stocks (SIC 6160-6199 US
Companies) Mortgage Bankers and Brokers 100.0 117.4 160.0 223.3 275.3 233.7
</TABLE>

38
<PAGE>
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT ACCOUNTANTS

Effective February 22, 1999, the Company dismissed PricewaterhouseCoopers
LLP ("PwC") as its independent public accountants. The Audit Committee of the
Board of Directors approved this action. During the two most recent fiscal years
and through February 22, 1999, there were no disagreements with PwC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope and procedures which disagreement, if not resolved to the
satisfaction of PwC, would have caused PwC to make reference to the subject
matter of the disagreement(s) in their reports. PwC audited the consolidated
balance sheets of the Company at June 30, 1998 and 1997, and the related
statement of operations, stockholders' equity and cash flows, for the fiscal
years ended June 30, 1998 and June 30, 1997 (collectively, the "Financial
Statements"). PwC's reports on the Financial Statements did not contain an
adverse opinion or disclaimer of opinions, nor were they qualified or modified
as to uncertainty, audit scope or accounting principles.

The Board of Directors has appointed Ernst & Young LLP to serve as
independent accountants of the Company to audit the consolidated financial
statements of the Company and its subsidiaries for the fiscal year ending
June 30, 2000. Ernst & Young LLP audited the financial statements of the Company
and its subsidiaries for the fiscal year-ended June 30, 1999. Representatives of
Ernst & Young LLP are expected to be present at the Meeting, will have an
opportunity to make a statement if they desire to do so and will respond to
appropriate questions from stockholders.

The ratification of the appointment of Ernst & Young LLP as the Company's
independent accountants will require the affirmative vote of a majority of the
votes cast by the holders of outstanding shares of Common Stock and Series B and
Series C Preferred Stock, who are present (either in person or by Proxy) at the
Meeting, voting together as a single class.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE

RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP.

PROPOSALS OF STOCKHOLDERS

SEC rules and regulations provide that if the date of the Company's 2000
Annual Meeting is advanced or delayed more than 30 days from the date of the
1999 Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2000 Annual Meeting must be received by the Company within a
reasonable time before the Company begins to print and mail the proxy materials
for the 2000 Annual Meeting. Upon determination by the Company that the date of
the 2000 Annual Meeting will be advanced or delayed by more than 30 days from
the date of the 1999 Annual Meeting, the Company will disclose such change in
the earliest possible quarterly report on Form 10-Q. Please address your
proposals to Aames Financial Corporation, 350 S. Grand Ave., 52nd Floor, Los
Angeles, California 90071, Attention: Corporate Secretary.

OTHER MATTERS

The Board of Directors is not aware of any matter to be acted upon at the
Meeting other than described in this Proxy Statement. Unless otherwise directed,
all shares represented by the persons named in the accompanying Proxy will be
voted in favor of the proposals described in this Proxy Statement. If any other
matter properly comes before the Meeting, however, the Proxy holders will vote
thereon in accordance with their best judgment.

ANNUAL REPORT TO STOCKHOLDERS

The Company's Annual Report to Stockholders for the fiscal year ended
June 30, 1999 was mailed to stockholders on October 14, 1999.

39
<PAGE>
REPORT ON FORM 10-K

THE COMPANY UNDERTAKES, UPON WRITTEN REQUEST, TO PROVIDE, WITHOUT CHARGE, TO
EACH PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1999, AS FILED
WITH THE SEC, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, BUT
EXCLUDING EXHIBITS THERETO. REQUESTS SHOULD BE ADDRESSED TO AAMES FINANCIAL
CORPORATION, 350 S. GRAND AVENUE, LOS ANGELES, CALIFORNIA 90071, ATTN: EXECUTIVE
VICE PRESIDENT--FINANCE.

<S> <C>
DATED: February 2, 2000 ON BEHALF OF THE BOARD OF DIRECTORS
[SIGNATURE]
David Sklar
Secretary
</TABLE>

40
<PAGE>
ANNEX "A"

PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE CERTIFICATE OF INCORPORATION THE
COMPANY

Upon approval of both the Reverse Common Stock Split Proposal and the
Reverse Series C Preferred Stock Split Proposal, the first paragraph of
Article Fourth of the Certificate of Incorporation would be amended to read as
follows:

"FOURTH: The total number of shares which the Corporation shall have the
authority to issue is 600,000,000, consisting of 400,000,000 shares of
common stock, par value $0.001 per share (the "Common Stock") and
200,000,000 shares of preferred stock, par value $0.001 per share (the
"Preferred Stock").

Simultaneously with the effective date of this amendment (the "EFFECTIVE
DATE"), each share of the Corporation's common stock, par value $0.001 per
share issued and outstanding immediately prior to the Effective Date (the
"PRE-SPLIT COMMON STOCK") shall automatically and without any action on the
part of the holder thereof be reclassified as and changed (the "Reverse
Common Stock Split") into 0.2 of one share of common stock, par value of
$0.001 per share (the "POST-SPLIT COMMON STOCK"). Each holder of a
certificate or certificates which immediately prior to the Effective Date
represented outstanding shares of Pre-Split Common Stock (the "PRE-SPLIT
CERTIFICATES," whether one or more) shall be entitled to receive upon
surrender of such Pre-Split Certificates to the Corporation's Secretary for
cancellation, a certificate or certificates (the "POST-SPLIT CERTIFICATES,"
whether one or more) representing the number of whole shares of Post-Split
Common Stock into which and for which the shares of Pre-Split Common Stock
formerly represented by such Pre-Split Certificates so surrendered, are
reclassified pursuant to the terms hereof. No script or fractional shares
certificates will be issued for Pre-Split Common Stock in connection with
the Reverse Common Stock Split. Each holder of shares of Old Common Stock
not divisible by five as of the effective date of the Reverse Common Stock
Split will, in lieu of receiving fractional shares, have the option for
60 days after such effective date to either (a) purchase from other
stockholders otherwise entitled to fractional shares a sufficient fractional
share interest to 'round-up' to a full share of New Common Stock, to the
extent such fractions of shares are available from other stockholders, at a
price equal to the product of (x) the fractional shares to which a holder
would otherwise be entitled, multiplied by (y) five times the closing sale
price per share of the Old Common Stock as listed on the New York Stock
Exchange ("NYSE") on the business day prior to the Effective Date, or
(b) sell such holder's fractional share interest to other stockholders at
the same price (the "Fractional Share Program"). The period during which
stockholders will be able to make the aforementioned election will expire 60
days after the Effective Date. Any stockholder whose transmittal form is not
received by the Exchange Agent selected by the Corporation within such
period will be deemed to have elected to sell any fractional share interest
held by such stockholder. Any fractional share interests not purchased by
other stockholders will be aggregated and sold on the open market by the
Exchange Agent. From and after the Effective Date, Pre-Split Certificates
shall represent only the right to receive Post-Split Certificates pursuant
to the provisions hereof. If more than one Pre-Split Certificate shall be
surrendered at one time for the account of the same stockholder, the number
of full shares of Post-Split Common Stock for which the Post-Split
Certificates shall be issued shall be computed on the basis of the aggregate
number of shares represented by the Pre-Split Certificates so surrendered.
If any Post-Split Certificate is to be issued in a name other than that in
which the Pre-Split Certificate surrendered for exchange are issued, the
Pre-Split Certificates so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person or persons requesting
such exchange shall affix any requisite stock transfer tax stamps to the
Pre-Split Certificates surrendered, or provide funds for their purchase, or
establish to the satisfaction of the Corporation's Secretary that such taxes
are not payable. From and after the Effective Date the amount of capital
represented by the shares of Post-Split Common Stock into which and for
which the shares of the Pre-Split Common Stock are

A-1
<PAGE>

reclassified pursuant to the terms hereof shall be the same as the amount of
capital represented by the shares of Pre-Split Common Stock so reclassified,
until thereafter reduced or increased in accordance with applicable law;

Simultaneously with the Effective Date, each share of the Corporation's
Series C Convertible Preferred Stock, par value of $0.001 per share issued
and outstanding immediately prior to the Effective Date (the "PRE-SPLIT
SERIES C PREFERRED STOCK") shall automatically and without any action on the
part of the holder thereof be reclassified as and changed (the "REVERSE
SERIES C PREFERRED STOCK SPLIT") into 0.2 of one share of Post-Split
Series C Convertible Preferred Stock, par value $0.001 per share
("POST-SPLIT SERIES C PREFERRED STOCK"). Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of Pre-Split Series C Preferred Stock (the "PRE-SPLIT
SERIES C PREFERRED CERTIFICATES," whether one or more) shall be entitled to
receive upon surrender of such Pre-Split Series C Preferred Certificates to
the Corporation's Secretary for cancellation, a certificate or certificates
(the "POST-SPLIT SERIES C CERTIFICATES," whether one or more) representing
the number of whole shares of Post-Split Series C Preferred Stock into which
and for which the shares of Pre-Split Series C Preferred Stock formerly
represented by such Pre-Split Series C Preferred Certificates so
surrendered, are reclassified pursuant to the terms hereof. No script or
fractional shares certificates will be issued for Pre-Split Series C
Preferred Stock in connection with the Reverse Series C Preferred Stock
Split. Each holder of shares of Old Series C Preferred Stock not divisible
by five as of the effective date of the Reverse Series C Preferred Stock
Split will, in lieu of receiving fractional shares, have the option for
60 days after such effective date to either (a) purchase from other
stockholders otherwise entitled to fractional shares a sufficient fractional
share interest to 'round-up' to a full share of New Series C Preferred
Stock, to the extent such fractions of shares are available from other
stockholders, at a price equal to the product of (x) the fractional shares
to which a holder would otherwise be entitled, multiplied by (y) five times
the closing sale price per share of the Old Common Stock as listed on the
NYSE on the business day prior to the Effective Date, or (b) sell such
holder's fractional share interest to other stockholders at the same price
(the "Fractional Share Program"). The period during which stockholders will
be able to make the aforementioned election will expire 60 days after the
Effective Date. Any stockholder whose transmittal form is not received by
the Exchange Agent selected by the Corporation within such period will be
deemed to have elected to sell any fractional share interest held by such
stockholder. Any fractional share interests not purchased by other
stockholders will be aggregated and sold on the open market by the Exchange
Agent. From and after the Effective Date, Pre-Split Series C Certificates
shall represent only the right to receive Post-Split Series C Certificates
pursuant to the provisions hereof. If more than one Pre-Split Series C
Certificate shall be surrendered at one time for the account of the same
stockholder, the number of full shares of Post-Split Series C Preferred
Stock for which the Post-Split Series C Certificates shall be issued shall
be computed on the basis of the aggregate number of shares represented by
the Pre-Split Series C Certificates so surrendered. If any Post-Split
Series C Certificate is to be issued in a name other than that in which the
Pre-Split Series C Certificate surrendered for exchange are issued, the
Pre-Split Series C Certificates so surrendered shall be properly endorsed
and otherwise in proper form for transfer, and the person or persons
requesting such exchange shall affix any requisite stock transfer tax stamps
to the Pre-Split Series C Certificates surrendered, or provide funds for
their purchase, or establish to the satisfaction of the Corporation's
Secretary that such taxes are not payable. From and after the Effective Date
the amount of capital represented by the shares of Post-Split Series C
Preferred Stock into which and for which the shares of the Pre-Split
Series C Preferred Stock are reclassified pursuant to the terms hereof shall
be the same as the amount of capital represented by the shares of Pre-Split
Series C Preferred Stock so reclassified, until thereafter reduced or
increased in accordance with applicable law;

The Corporation's Series A Preferred Stock and Series B Preferred Stock
shall not be affected by the filing of this Amendment."

A-2
<PAGE>

ANNEX "B"

PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION TO
AMEND THE TERMS OF THE SERIES C CERTIFICATE OF DESIGNATIONS

Upon approval of both the Reverse Common Stock Split Proposal and the
Reverse Series C Preferred Stock Split Proposal, the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating, Optional or Other
Special Rights, and Qualifications, Limitations or Restrictions thereof, of
Series C Convertible Preferred Stock of the Corporation would be amended as
follows: (i) the references to Series B Preferred Stock in the twelfth and
fourteenth lines of Paragraph A of Section III shall be corrected to instead
refer to Series C Preferred Stock; and (ii) the definition of
"Post-Recapitalization Stated Value" shall be amended by inserting immediately
after "$1.00" and before the period at the end of the sentence "; provided,
however, that from and after the effective date of the Reverse Series C
Preferred Stock Split approved by the stockholders of the Company at the 1999
Annual Meeting of Stockholders (the "Reverse Series C Preferred Stock Split")
the Post-Recapitalization Stated Value shall be equal to $5.00, subject to
subsequent adjustments for splits, reclassifications, recombinations or similar
events".

B-1
<PAGE>

ANNEX "C"

PROPOSED AMENDMENT TO
ARTICLE SEVENTH OF THE COMPANY'S
CERTIFICATE OF INCORPORATION

CURRENT CERTIFICATE OF INCORPORATION

The second paragraph of Article Seventh of the Certificate of
Incorporation currently reads
as follows:

"Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or special meeting duly noticed and called, as
provided in the Bylaws of the Corporation and may not be taken by written
consent of the stockholders pursuant to the GCL"

AMENDMENT UPON APPROVAL OF THE STOCKHOLDER ACTION BY WRITTEN CONSENT PROPOSAL

"Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or special meeting duly noticed and called, as
provided in the Bylaws of the Corporation and may be taken by written
consent of the stockholders pursuant to the GCL"

C-1
<PAGE>

PROXY
(Common Stock)

AAMES FINANCIAL CORPORATION

ANNUAL MEETING OF STOCKHOLDERS
MARCH 3, 2000

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder(s) of Common Stock of Aames Financial
Corporation, a Delaware corporation (the Company), hereby acknowledge(s)
receipt of the Proxy Statement and the Notice of the Annual Meeting of
Stockholders of the Company (the Annual Meeting) to be held on March 3, 2000,
at 10:00 a.m., Los Angeles time, at the Hotel Inter-Continental, 251 S. Olive
Street, Los Angeles, California, and hereby further revokes all previous
proxies and appoints John F. Madden, Jr., David A. Sklar and Ralph W. Flick
as proxies of the undersigned, with full power of substitution for and in the
name of the undersigned, at the Annual Meeting and any adjournment(s) thereof
with the same effect as if the undersigned were present, for the following
purposes:

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

- --------------------------------------------------------------------------------
FOLD AND DETACH HERE

<PAGE>
- --------------------------------------------------------------------------------

Please mark
your votes as /X/
indicated in
this example

COMMON STOCK
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To approve the amendment to the Company's
Certificate of Incorporation to effect a / / / / / /
one-for-five reverse stock split of the shares
of the Company's common stock.

2. To approve the amendment to the Company's
Certificate of Incorporation to effect a / / / / / /
one-for-five reverse stock split of the shares of
the Company's Series C Convertible Preferred stock.

3. To approve the amendment to the Company's
Certificate of Incorporation to / / / / / /
enable stockholders to act by written consent
as permitted pursuant to Delaware law.

FOR the WITHHOLD
4. ELECTION OF CLASS II COMMON STOCK DIRECTORS: nominees listed authority to
The election of the following persons as (except as vote for the
directors of the Company, as provided in the marked to the nominees listed
Company's Proxy Statement: contrary)

Cary H. Thompson / / / /
Georges C. St. Laurent / / / /

Instruction: To withhold your vote from any of the
nominees, write the name of the nominee or nominees below:

_________________________________________

5. The ratification of the appointment of FOR AGAINST ABSTAIN
Ernst & Young LLP as the independent / / / / / /
accountants for the fiscal year ending
June 30, 2000.
</TABLE>

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS YOU HAVE INDICATED
ABOVE. IF NO INDICATION HAS BEEN MADE, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR THE ABOVE NOMINEES AND IN FAVOR OF THE PROPOSALS AND, AS THE
PROXY DEEMS ADVISABLE, ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING.

YOUR VOTE IS IMPORTANT TO THE COMPANY.

PLEASE SIGN AND RETURN YOUR PROXY BY TEARING OFF THE TOP PORTION OF THIS
SHEET AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

Signature(s)_____________, Signature, if held jointly __________Date __, 2000
(Please sign exactly as your name appears on your stock certificate.) When
signing as attorney, executor, administrator, trustee or guardian, please
give full title. If more than one trustee, all should sign. All joint owners
should sign. If a corporation, sign in full corporation name by President or
other authorized officer. If a partnership, sign in partnership name by
authorized person. Persons signing in a fiduciary capacity should indicate
their full title in such capacity.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>

- ------------------------------------------------------------------------------
PROXY
(Series B Convertible Preferred Stock)

AAMES FINANCIAL CORPORATION

ANNUAL MEETING OF STOCKHOLDERS
MARCH 3, 2000

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder(s) of Common Stock of Aames Financial
Corporation, a Delaware corporation (the "Company"), hereby acknowledge(s)
receipt of the Proxy Statement and the Notice of the Annual Meeting of
Stockholders of the Company (the "Annual Meeting") to be held on March 3,
2000, at 10:00 a.m., Los Angeles time, at the Hotel Inter-Continental, 251 S.
Olive Street, Los Angeles, California, and hereby further revokes all
previous proxies and appoints John F. Madden, Jr., David A. Sklar and Ralph
W. Flick as proxies of the undersigned, with full power of substitution for
and in the name of the undersigned, at the Annual Meeting and any
adjournment(s) thereof with the same effect as if the undersigned were
present, for the following purposes:

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

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FOLD AND DETACH HERE

<PAGE>

- ------------------------------------------------------------------------------
Please mark your votes as indicated in this example / X /

SERIES B CONVERTIBLE PREFERRED STOCK

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To approve the amendment to the Company's Certificate of Incorporation to / / / / / /
effect a one-for-five reverse stock split of the shares of the Company's
common stock.

2. To approve the amendment to the Company's Certificate of Incorporation to / / / / / /
effect a one-for-five reverse stock split of the shares of the Company's
Series C Convertible Preferred stock.

3. To approve the amendment to the Company's Certificate of Incorporation to / / / / / /
enable stockholders to act by written

4. ELECTION OF SERIES B DIRECTORS: The election of the following persons as
Series B Directors of the Company, as provided in the Company's Proxy
Statement:

</TABLE>

Steven M. Gluckstern
Adam M. Mizel
Eric C. Rahe
Mani A. Sadeghi
David A. Spuria

<TABLE>

<S> <C> <C>
INSTRUCTION: To withhold your vote from any of the nominees, FOR the nominees listed WITHHOLD authority
write the name of the nominee or nominees below: (except as marked to the to vote for the
contrary) nominees listed
- -------------------------------------------------------- / / / /

FOR the nominees listed WITHHOLD authority
5. ELECTION OF CLASS II COMMON STOCK DIRECTORS: The election of (except as marked to the to vote for the
the following persons as directors of the Company, as provided in the contrary) nominees listed
Company's Proxy Statement: / / / /

Cary H. Thompson
Georges C. St. Laurent

</TABLE>

INSTRUCTION: To withhold your vote from any of the nominees,
write the name of the nominee or nominees below:

- --------------------------------------------------------

<TABLE>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
6. The ratification of the appointment of Ernst & Young LLP as the Company's / / / / / /
independent accountants for the fiscal year ending June 30, 2000

</TABLE>

YOUR VOTE IS IMPORTANT TO THE COMPANY.

PLEASE SIGN AND RETURN YOUR PROXY BY TEARING OFF THE TOP PORTION OF THIS
SHEET AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

Signature(s) , Signature, if held jointly
Date , 2000 (Please sign exactly as your name appears on your
stock certificate.) When signing as attorney, executor, administrator,
trustee or guardian, please give full title. If more than one trustee, all
should sign. All joint owners should sign. If a corporation, sign in full
corporation name by President or other authorized officer. If a partnership,
sign in partnership name by authorized person. Persons signing in a fiduciary
capacity should indicate their full title in such capacity.
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE

<PAGE>

PROXY
(Series C Convertible Preferred Stock)

AAMES FINANCIAL CORPORATION

ANNUAL MEETING OF STOCKHOLDERS
MARCH 3, 2000

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned holder(s) of Series C Convertible Preferred Stock of
Aames Financial Corporation, a Delaware corporation (the "Company"), hereby
acknowledge(s) receipt of the Proxy Statement and the Notice of the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held on
March 3, 2000, at 10:00 a.m., Los Angeles time, at the Hotel
Inter-Continental, 251 S. Olive Street, Los Angeles, California, and hereby
further revokes all previous proxies and appoints John F. Madden, Jr., David
A. Sklar and Ralph W. Flick as proxies of the undersigned, with full power of
substitution for and in the name of the undersigned, at the Annual Meeting
and any adjournment(s) thereof with the same effect as if the undersigned
were present, for the following purposes:

(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)

- -------------------------------------------------------------------------------
FOLD AND DETACH HERE

<PAGE>

Please mark
your votes as / X /
indicated in
this example

SERIES C CONVERTIBLE PREFERRED STOCK
FOR AGAINST ABSTAIN
1. To approve the amendment to the Company's
Certificate of Incorporation to effect a / / / / / /
one-for-five reverse stock split of the
shares of the Company's common stock.

2. To approve the amendment to the Company's
Certificate of Incorporation to effect a / / / / / /
one-for-five reverse stock split of the
shares of the Company's Series C Convertible
Preferred stock.

3, To approve the amendment to the Company's
Certificate of Incorporation to enable / / / / / /
stockholders to act by written consent as
permitted pursuant to Delaware law

4. The ratification of the appointment of
Ernst & Young LLP as the independent / / / / / /

THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED AS YOU HAVE
INDICATED ABOVE. IF NO INDICATION
HAS BEEN MADE, THE SHARES
REPRESENTED BY THIS PROXY WILL BE
VOTED IN FAVOR OF THE PROPOSALS AND,
AS THE PROXY DEEMS ADVISABLE, ON
SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE ANNUAL MEETING.

YOUR VOTE IS IMPORTANT TO THE COMPANY.

PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS
SHEET AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.

Signature(s) , Signature, if held jointly
--------------------- -------------------

Date , 2000 (Please sign exactly as your name appears on your stock
certificate.) When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If more than one trustee, all should sign.
All joint owners should sign. If a corporation, sign in full corporation name
by President or other authorized officer. If a partnership, sign in
partnership name by authorized person. Persons signing in a fiduciary
capacity should indicate their full title in such capacity.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE