<PAGE>
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
File No. 001-13660
<TABLE>
<S> <C>
Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14c-5(d)(2))
/X/ Definitive Information Statement
</TABLE>
<TABLE>
<S> <C>
AAMES FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
</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 14c-5(g) and
0-11.
(1) Title of each class of securities to which transaction
applies:
N/A
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(2) Aggregate number of securities to which transaction
applies:
N/A
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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):
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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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:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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</TABLE>
Notes:
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AAMES FINANCIAL CORPORATION
INFORMATION STATEMENT
JUNE 22, 2000
------------------------
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY
------------------------
INTRODUCTION
This Information Statement is furnished in connection with the prior action
taken by the holders of (i) a majority of shares of Series B Convertible
Preferred Stock, par value $0.001 (the "SERIES B PREFERRED STOCK") and Series C
Convertible Preferred Stock, par value $0.001 (the "SERIES C PREFERRED STOCK"
and, together with the Series B Preferred Stock, the "SERIES B AND SERIES C
PREFERRED STOCK"), together as a single class, entitled to vote on certain
corporate matters relating to Aames Financial Corporation, a Delaware
corporation (the "COMPANY"), and (ii) a majority of the combined shares of the
Company's common stock, par value $0.001 per share (the "COMMON STOCK"), and the
Series B and Series C Preferred Stock, together as a single class, entitled to
vote on certain corporate matters relating to the Company. This information
statement is furnished in compliance with Section 14(c) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
This Information Statement is for your information only. The Board of
Directors is not soliciting any proxies or consents from any stockholders in
connection with the proposals described herein. The holders of a majority of the
shares required to approve all of the proposals described herein have consented
in writing to such proposals. The action described in the proposals will take
effect, with no further action on the part of any stockholders, on the date
20 days from the date on which this Information Statement is mailed (the "NOTICE
EFFECTIVE DATE"). This Information Statement is being mailed on or about
June 22, 2000, to all holders of Common Stock and Series C Preferred Stock who
did not consent to any of the proposals described herein.
The principal executive offices of the Company are located at 350 S. Grand
Avenue, 52(nd) Floor, Los Angeles, California 90071 and its telephone number is
(323) 210-5000.
BACKGROUND
On May 19, 2000 the Company entered into an agreement (the "STOCK PURCHASE
AGREEMENT") with Specialty Finance Partners ("SFP"), the Company's largest
stockholder which is controlled by Capital Z Financial Services Fund II, L.P.
("CAPITAL Z"), for the sale of $50 million of the Company's Series C Convertible
Preferred Stock for the lesser of $0.90 per share, or the average market trading
price for the five days prior to the date on which the first shares are sold to
SFP pursuant to the Stock Purchase Agreement (the "PRICE"), plus the issuance of
warrants to purchase an additional 5 million shares of Series C Convertible
Preferred Stock at the Price (the transaction with SFP is referred to in this
Information Statement as the "SFP INVESTMENT"). The Price was set at $0.85 per
share on June 7, 2000 (see below).
In addition to normal closing conditions, the SFP Investment is subject to
several conditions including (i) a fairness opinion to be delivered by a
nationally recognized investment banking firm, (ii) the receipt by the Company
of waivers from certain of the Company's financing providers, and (iii) a
material adverse change provision in the Stock Purchase Agreement. The Company
is also in
1
<PAGE>
negotiations with an affiliate of Capital Z for a facility which will allow the
Company to sell, on an on-going basis, up to $75 million of residual assets over
the next 24 months.
The SFP Investment will be completed in two steps. The first 40,800,000
shares of Series C Preferred Stock (the "INITIAL SHARES") were sold, and the
warrant for 5 million shares of Series C Preferred Stock (the "SERIES C
WARRANT") was issued, on June 7, 2000 (the "INITIAL CLOSING"). At the Initial
Closing, the Price was set at $0.85 per share for an aggregate purchase price of
the Initial Shares equal to $34.7 million. As a result of an amendment to the
Stock Purchase Agreement, dated as of May 25, 2000 (the "AMENDMENT" described
below), at the additional closing which is expected to occur on or about the
Notice Effective Date (the "ADDITIONAL CLOSING"), SFP will (i) purchase an
additional 18,023,529 shares of a new class of preferred stock, the Series D
Preferred Stock, par value $0.001 per share (the "SERIES D PREFERRED STOCK") for
an aggregate purchase price equal to $15.3 million, (ii) exchange each of the
Initial Shares for one share of Series D Preferred Stock and (iii) exchange the
Series C Warrant for a warrant to purchase up to 5 million shares of Series D
Preferred Stock (the "SERIES D WARRANT").
Prior to the Initial Closing on June 7, 2000, the Company received a
fairness opinion from a nationally recognized investment banking firm and also
received all of the necessary waivers from its financing providers.
The Company also announced on May 19, 2000 that, in connection with the SFP
Investment, it will offer to all holders of its Common Stock and Series C
Convertible Preferred Stock, other than SFP and its affiliates, the right to
purchase shares of Series C Preferred Stock at the Price (the "RIGHTS
OFFERING"). As a result of the Amendment (see below), the shares offered in the
Rights Offering will be shares of Series D Preferred Stock instead of Series C
Preferred Stock.
The issuance of the shares of Series C Convertible Preferred Stock to SFP
would have normally required approval of the Company's stockholders according to
the "Stockholder Approval Policy" of the New York Stock Exchange (the
"EXCHANGE"). However, under the rules of the Exchange, the "Financial Distress
Exception" is available if the delay necessary to seek stockholder approval
would seriously jeopardize the financial viability of the Company and if the
Company's Audit Committee expressly approves the Company's reliance on such
exception. On May 12, 2000 the Audit Committee of the Board of Directors
determined that the delay necessary in securing such stockholder approval would
seriously jeopardize the financial viability of the Company. The determination
was based primarily on adverse market conditions, lack of available liquidity to
fund the Company's loan production, the lack of other available alternative
sources of liquidity and covenants in certain of the Company's warehouse and
repurchase lines and indentures relating to the Company's public debt that
require the Company to maintain certain levels of liquidity. Upon making such a
determination, the Audit Committee expressly approved the Company's omission to
seek the stockholder approval that would otherwise have been required under the
Stockholder Approval Policy and the Exchange accepted the Company's application
for reliance on the Financial Distress Exception. In reliance on the Financial
Distress Exception, the Company mailed to all of its stockholders on May 19,
2000 a letter notifying them of its intention to issue shares of Series C
Preferred Stock at the Initial Closing on, or after, May 30, 2000 to SFP without
seeking their approval.
Pursuant to the Amendment, dated as of May 25, 2000, the Company and SFP
agreed to the following changes to the SFP Investment:
- The Company agreed to reduce the designated number of shares of Series C
Preferred Stock (prior to the Additional Closing) and to designate all of
the remaining shares of the Company's preferred stock, par value $0.001
per share, which had not been previously designated as any particular
class of preferred stock (the "PREFERRED STOCK") as Series D Preferred
Stock. The Series D Preferred Stock will have the same terms as the
Series C Preferred Stock except that the Series D Preferred Stock will
have a stated value equal to $0.85 per share.
2
<PAGE>
- The stated value of the Series C Preferred Stock (the "SERIES C STATED
VALUE") is currently $5.00 per share. The Series C Stated Value is used to
calculate the dividend for the Series C Preferred Stock (which accrues at
the rate of 6.5% of the Stated Value, per annum) and is also used to
calculate the proceeds each share of Series C Preferred Stock would
receive in a liquidation or merger. SFP agreed that the Initial Shares
will be treated as if such shares have a stated value equal to $0.85 under
the Certificate of Incorporation.
- The conversion ratio of the Series B and Series C Preferred Stock is the
ratio used to determine the number of shares of Common Stock that the
holder of each share of Series B and Series C Preferred Stock is entitled
to receive upon conversion, which is currently one share of Common Stock
for each share of Series C Preferred Stock and 0.2 of one share for each
shares of Series B Preferred Stock (the "CONVERSION RATIO"). Pursuant to
the terms of the Series B and Series C Preferred Stock, and because the
Price is less than the Fair Market Value (as defined in the Certificate of
Incorporation), the SFP Investment caused an adjustment in the conversion
ratio of the Series B and Series C Preferred Stock to 1.152 shares of
Common Stock for each share of Series C Preferred Stock and 0.23 shares of
Common Stock for each share of Series B Preferred Stock (the "ADJUSTED
CONVERSION RATIO"). SFP agreed not to take advantage of the Adjusted
Conversion Ratio of the Series B and Series C Preferred Stock that results
from the SFP Investment; however, other stockholders will have the right
to convert at the Adjusted Conversion Ratio until the Certificate of
Incorporation is amended on the Notice Effective Date.
- Prior to the Additional Closing, the Company will amend its Certificate of
Incorporation to adjust the Conversion Ratio of the Series B and Series C
Preferred Stock to eliminate the effect of the SFP Investment on the
Conversion Ratio and to amend the Certificates of Designations for the
Series B and Series C Preferred Stock to reflect the issuance of the
Series D Preferred Stock.
- At the Additional Closing, SFP will exchange each of the Initial Shares
for one share of Series D Preferred Stock, exchange the Series C Warrant
for the Series D Warrant and purchase from the Company an additional
18,023,529 shares of Series D Preferred Stock for $0.85 per share for an
aggregate purchase price equal to $15.3 million.
- The stock issued in the Rights Offering will be Series D Preferred Stock
instead of Series C Preferred Stock.
3
<PAGE>
SUMMARY OF PROPOSALS
On June 7, 2000, the Company's Board of Directors (the "BOARD OF DIRECTORS")
proposed, and a majority of holders of the Company's stock entitled to cast
votes for such matters together consented, in writing, to the following
proposals:
- DESIGNATION PROPOSAL. The first proposal (which is referred to in this
Information Statement as the "DESIGNATION PROPOSAL") was to designate
103,829,400 shares of the Company's preferred stock as Series D Preferred
Stock. A more detailed description of the Designation Proposal can be
found beginning on page 5 of this Information Statement.
- STOCK ISSUANCE PROPOSAL. The second proposal (which is referred to in this
Information Statement as the "STOCK ISSUANCE PROPOSAL") was to authorize
the issuance of shares of Series D Preferred Stock to (i) complete the SFP
Investment pursuant to the Stock Purchase Agreement and the Amendment,
(ii) consummate the Rights Offering (iii) A. Jay Meyerson, the Company's
Chief Executive Officer, pursuant to a Management Investment Agreement
entered into between the Company and Mr. Meyerson on October 25, 1999, as
amended, and (iii) any person or entity as determined by the Board of
Directors, up to 8 million shares. A more detailed description of the
Stock Issuance Proposal can be found beginning on page 5 of this
Information Statement.
- CERTIFICATE OF INCORPORATION AMENDMENT PROPOSAL. The third proposal was to
amend the Certificate of Incorporation to (i) adjust the conversion ratio
of the Series B and Series C Preferred Stock to eliminate the effect of
the SFP Investment on the Conversion Ratio and (ii) to amend the
Certificates of Designations relating to the Series B and Series C
Preferred Stock to reflect the issuance of the Series D Preferred Stock. A
more detailed description of the Certificate of Incorporation Amendment
Proposal can be found beginning on page 11 of this Information Statement.
- AMENDED AND RESTATED 1999 STOCK OPTION PLAN PROPOSAL. The fourth proposal
was to approve the Amended and Restated 1999 Stock Option Plan. The
Amended and Restated 1999 Stock Option Plan authorizes the issuance of
options to purchase up to 13 million shares of Common Stock and also
includes an automatic annual grant of stock options to the Company's
non-employee directors. A more detailed description of the the Amended and
Restated 1999 Stock Option Plan Proposal can be found on page 13 of this
Information Statement.
This Information Statement is being provided to you because you are a holder
of the Common Stock and/or the Series C Preferred Stock and you did not provide
your written consent to the Designation Proposal, the Stock Issuance Proposal,
the Certificate of Incorporation Amendment Proposal, nor the Amended and
Restated 1999 Stock Option Plan Proposal (collectively, the "PROPOSALS"). Even
though you did not provide your consent, a majority of the holders of Series B
and Series C Preferred Stock did provide their consent which allows the Company
to take the actions described in the Proposals as of the Notice Effective Date.
4
<PAGE>
THE PROPOSAL
TO DESIGNATE SHARES OF
SERIES D CONVERTIBLE PREFERRED STOCK
THE PROPOSAL
TO ISSUE SHARES OF
SERIES D CONVERTIBLE PREFERRED STOCK
BACKGROUND
The Company will issue (i) 58,823,529 shares of Series D Preferred Stock
pursuant to the SFP Investment, (ii) up to approximately 19.9 million shares of
Series D Preferred Stock in the Rights Offering (if it is fully subscribed),
(iii) approximately 588,235 shares of Series D Preferred Stock to A. Jay
Meyerson, the Company's Chief Executive Officer and a director, and (iv) up to
8 million shares of Series D Preferred Stock to unknown entities at the
discretion of the Board of Directors. The Company will also be obligated to
reserve 5 million shares of Series D Preferred Stock for the conversion of the
Series D Warrant. Thus, the total number of shares of Series D Preferred Stock
which will be issued and reserved for issuance pursuant to this proposal could
be up to approximately 92.2 million shares.
Pursuant to the Company's Certificate of Incorporation, there are
200,000,000 shares of Preferred Stock which are authorized for issuance. Of
those 200,000,000 shares of Preferred Stock, 500,000 shares have been designated
as Series A Preferred Stock, 29,704,000 shares have been designated as Series B
Preferred Stock and 107,122,664 shares have been designated as Series C
Preferred Stock. The remaining 62,673,336 shares of preferred stock have not
been designated as any particular class of preferred stock.
The Board of Directors has approved the filing of a Certificate of Decrease
with the Secretary of State of the State of Delaware (the "CERTIFICATE OF
DECREASE") with respect to the Series C Preferred Stock on or before the
Additional Closing of the SFP Investment (see "Background" beginning on
page 1). The Certificate of Decrease will have the effect of decreasing the
number of shares of Preferred Stock which have been designated as Series C
Preferred Stock from 107,122,664 to 60,994,672. As a result, the number of
shares of Preferred Stock which will not have been designated as any particular
class of Preferred Stock will increase from 62,673,336 to 108,801,328 (the
"UNDESIGNATED PREFERRED SHARES"). The Certificate of Incorporation grants the
authority to file the Certificate of Decrease to the Board of Directors without
the consent of any of the Company's stockholders. The Company intends to file
the Certificate of Decrease on or before the Notice Effective Date.
On June 7, 2000, the Board of Directors designated, and the holders of the
Series B and Series C Preferred Stock, together as a single class, consented to
the designation of, the Undesignated Preferred Shares as shares of Series D
Preferred Stock (the "DESIGNATION CONSENT").
As a result of the receipt of the Designation Consent, as of Notice
Effective Date and after the filing of the Certificate of Decrease, the Company
will file a Certificate of Designations with the Secretary of State of the State
of Delaware (the "SERIES D CERTIFICATE OF DESIGNATIONS"). Upon filing of the
Series D Certificate of Designations, the Company will have 108,801,328 shares
of Series D Preferred Stock which will be designated as Series D Preferred
Stock, but which will not have yet been issued.
The Company's Certificate of Incorporation requires the Company to obtain
the consent of the holders of the Series B and Series C Preferred Stock,
together as a single class, to issue those designated but unissued shares of
Series D Preferred Stock, or securities convertible into shares of Series D
Preferred Stock.
5
<PAGE>
On June 7, 2000, the Board of Directors proposed, and the holders of the
Series B and Series C Preferred Stock, together as a single class, consented to
the future issuance of the number of shares of Series D Preferred Stock
necessary to complete the SFP Investment, the Rights Offering and to issue
588,235 shares of Series D Preferred Stock to A. Jay Meyerson, the Company's
Chief Executive Officer, pursuant to a Management Investment Agreement entered
into between the Company and Mr. Meyerson on October 25, 1999, as amended and up
to 8 million shares of Series D Preferred Stock to unknown entities at the
discretion of the Board of Directors (the "Issuance Consent"). Mr. Meyerson's
Management Investment Agreement previously required him to purchase shares of
Series C Preferred Stock; however, the Management Investment Agreement was
amended to reflect the purchase and sale of Series D Preferred Stock instead.
The Company's listing agreement with the Exchange requires stockholder
approval of the issuance to a "Related Party" of Common Stock, or securities
convertible into Common Stock in excess of five percent (if the purchase price
is for cash at fair market value) or one percent (if the purchase price is other
than for cash at fair market value) of the number of shares of Common Stock, or
of the voting power, outstanding before the issuance of such stock.
Mr. Meyerson is a "Related Party" due to his position as the Chief Executive
Officer and a director of the Company. Further, the Company intends to issue to
Mr. Meyerson $500,000 shares of Series D Preferred Stock at a purchase price
equal to $0.85 per share for a total of 588,235 shares (the "MEYERSON SHARES"),
which would require stockholder approval of such issuance.
On June 7, 2000, a majority of the holders of the Common Stock, Series B
Preferred Stock and Series C Preferred Stock consented to the issuance of the
Meyerson Shares.
EFFECT OF APPROVAL OF THE DESIGNATION PROPOSAL AND THE STOCK ISSUANCE PROPOSAL
Current holders of the Company's Series C Preferred Stock would be affected
by the Designation Proposal and the Stock Issuance Proposal in that after the
Additional Closing and the Rights Offering, the Company could have issued and
reserved up to 92.2 million shares of Series D Preferred Stock.
While the holders of Series C Preferred Stock may not vote in the elections
for the Company's directors, the holders of Series C Preferred Stock are
entitled to vote for all other matters together with the holders of the Common
Stock and Series B Preferred Stock (except where Delaware law requires a
separate class vote). The holders of Series D Preferred Stock will not be able
to vote in the election of directors and will be entitled to vote for all other
matter together with the holders of Common Stock, Series B Preferred Stock and
Series C Preferred Stock (except where Delaware law requires a separate class
vote). See "Terms of the Series C Preferred Stock" and the "Terms of the
Series D Preferred Stock" below. In addition to the 20,194,672 shares of
Series C Preferred Stock which are issued and outstanding, there are 6,214,641
shares of Common Stock issued and outstanding and 26,704,000 shares of Series B
Preferred Stock (representing 5,340,800 votes at 0.2 votes per share) for a
total voting power of 31,750,113 shares for matters other than the election of
directors.
The Series C Preferred Stock currently is, and Series D Preferred Stock upon
its designation will be, convertible, at the discretion of the holder thereof,
into shares of Common Stock. See "Terms of the Series C Preferred Stock" and
"Terms of the Series D Preferred Stock" below. There are currently 6,214,641
shares of Common Stock which have been issued and are outstanding. In the event
of an issuance of all of the 92.2 million shares of Series D Preferred Stock and
exercise of the Series C Warrant or Series D Warrant followed by the immediate
conversion of all such shares to Common Stock, the total number of shares of
Common Stock would increase to approximately 124.0 million shares.
Pursuant to the terms of the Series B and Series C Preferred Stock, and
because the Price is less than the Fair Market Value (as defined in the
Certificate of Incorporation), the sale of the Initial Shares caused the
Conversion Ratio to be adjusted to the Adjusted Conversion Ratio. Pursuant to
the
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Amendment, SFP agreed not to take advantage of the Adjusted Conversion Ratio of
the Series C Preferred Stock that resulted from the SFP Investment; however,
other holders of Series C Preferred Stock will have the right to convert at the
Adjusted Conversion Ratio until the Certificate of Incorporation is amended on
the Notice Effective Date. See "Proposal to Amend the Certificate of
Incorporation" beginning on page 11 of this Information Statement.
EFFECT ON OWNERSHIP PERCENTAGE OF SERIES C PREFERRED STOCK AND SERIES D
PREFERRED STOCK. Prior to the SFP Investment, SFP held (i) 26,704,000 shares (or
100% of the issued and outstanding shares) of Series B Preferred Stock,
(ii) 18,827,346 shares (or 93.23% of the issued and outstanding shares of that
class) of Series C Preferred Stock. After the Initial Closing and until the
Additional Closing, SFP's holdings (and percentage) of Series B Preferred Stock
will remain the same; however, SFP now holds 59,627,346 shares of Series C
Preferred Stock (or 97.76% of the issued and outstanding shares of that class),
plus warrants exercisable for an additional 5 million shares of Series C
Preferred Stock (which, in addition to the shares of Series C Preferred Stock
already owned by SFP would equal 64,627,346 shares, or 97.93% of the issued and
outstanding shares of that class). After the Additional Closing, and assuming
that no shares are issued in the Rights Offering, SFP's holdings (and
percentage) of Series B Preferred Stock would remain the same and SFP's holdings
(and percentage) of Series C Preferred Stock (assuming that SFP did not exercise
any of the Series C Warrant) would return to 18,827,346 shares (or 93.23% of the
issued and outstanding shares of that class); however, SFP would hold 58,823,529
shares of Series D Preferred Stock (or 100% of the issued and outstanding shares
of that class) plus, assuming SFP did not exercise any of the Series C Warrant,
warrants exercisable for an additional 5 million shares of Series D Preferred
Stock (which, in addition to the shares of Series D Preferred Stock already
owned by SFP by that time would equal 63,823,529 shares, or 100% of the issued
and outstanding shares of that class). The following table summarizes the
maximum effect of the SFP Investment on the ownership of the Series C Preferred
Stock and Series D Preferred Stock (assuming that SFP exercises the Series D
Warrant in full and further assuming that no shares are issued in the Rights
Offering; any subscription by stockholders in the Rights Offering would not
affect the number of shares held by SFP but would increase the number and
percentage of shares held by the other stockholders, thereby decreasing the
percentage of shares held by SFP):
<TABLE>
<CAPTION>
SERIES C
PREFERRED STOCK
---------------------
BEFORE INITIAL CLOSING AFTER INITIAL CLOSING AFTER ADDITIONAL CLOSING
----------------------- --------------------- ------------------------
SHARES % SHARES % SHARES %
----------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
SFP.............................. 18,827,346 93.23% 59,627,346 97.76% 18,827,346 93.23%
Other Stockholders............... 1,367,326 6.77% 1,367,326 2.24% 1,367,326 6.77%
---------- ------ ---------- ------ ---------- ------
TOTAL............................ 20,194,672 100.00% 60,994,672 100.00% 20,194,672 100.00%
</TABLE>
<TABLE>
<CAPTION>
SERIES D
PREFERRED STOCK
---------------------
BEFORE INITIAL CLOSING AFTER INITIAL CLOSING AFTER ADDITIONAL CLOSING
----------------------- --------------------- ------------------------
SHARES % SHARES % SHARES %
----------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
SFP.............................. -0- 0% -0- 0% 63,823,529 100%
Other Stockholders............... -0- 0% -0- 0% -0- 0%
---------- ------ ---------- ------ ---------- ------
TOTAL............................ -0- 0% -0- 0% 63,823,529 100.00%
</TABLE>
EFFECT ON GENERAL VOTING POWER. In all matters requiring stockholder
approval, other than the election of directors and other than matters that
require a class vote of any particular class or classes, the holders of all
shares of the Company's issued and outstanding classes of stock vote together,
as a single class. Prior to the Initial Closing, SFP controlled 24,168,146 votes
(or 76.12%) in such general matters (excluding beneficial ownership of any
options or warrants). After the Initial Closing, SFP will
7
<PAGE>
control 64,968,146 votes (or 89.55%) in general matters (excluding beneficial
ownership of any options or warrants). If SFP were to immediately, upon
issuance, exercise all of the 5 million warrants to purchase Series C Preferred
Stock, after the Initial Investment, but before the Additional Investment, SFP
would control 69,968,146 votes (or 90.22%) in general matters. After the
Additional Closing, SFP will control 82,991,675 votes (or 91.63%) in general
matters (excluding beneficial ownership of any options or warrants). If SFP
exercises either the Series C Warrant or the Series D Warrant in full, SFP would
control 87,991,675 votes (or 92.07%) in general matters. The following table
summarizes the effect of the SFP Investment on the voting power for general
matters (assuming that SFP does not exercise any of the warrants and also
assuming that no shares are issued in the Rights Offering; any subscription by
stockholders in the Rights Offering would not affect the number of shares held
by SFP but would increase the number and percentage of shares held by the other
stockholders, thereby decreasing the percentage of shares held by SFP):
<TABLE>
<CAPTION>
BEFORE INITIAL CLOSING AFTER INITIAL CLOSING AFTER ADDITIONAL CLOSING
----------------------- --------------------- ------------------------
SHARES % SHARES % SHARES %
----------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
SFP.............................. 24,168,146 76.12% 64,968,146 89.55% 82,991,675 91.63%
Other Stockholders............... 7,581,967 23.88% 7,581,967 10.45% 7,581,967 8.37%
---------- ------ ---------- ------ ---------- ------
TOTAL............................ 31,750,113 100.00% 72,550,113 100.00% 90,573,642 100.00%
</TABLE>
EFFECT ON VOTE FOR ELECTION OF DIRECTORS. The holders of Common Stock and
Series B Preferred Stock are entitled to vote in the election of directors of
the Company, together as a single class, for five of the Company's nine seats on
the Board of Directors. In addition, the holders of Series B Preferred Stock are
entitled to vote exclusively, as a separate class, for the other four seats on
the Company's Board of Directors. The holders of Series C Preferred Stock are
not, and the holders of Series D Preferred Stock will not be, entitled to vote
in the election of directors. Therefore, future votes for the election of
directors would not be impacted by the SFP Investment unless SFP elected to
convert some or all of its shares of Series C Preferred Stock or Series D
Preferred Stock to Common Stock before any applicable record date for such
election.
TERMS OF THE SERIES C PREFERRED STOCK
The following is a summary of the current material terms of the Series C
Preferred Stock (on the Notice Effective Date, these terms will be amended to
reflect the issuance of the Series D Preferred Stock at the Additional Closing;
see "Proposal to Amend the Certificate of Incorporation" below):
- RANK. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series C Preferred Stock and
the Series B Preferred Stock rank senior to each other class or series of
preferred stock and prior to the Common Stock and all subsequently issued
classes and series of capital stock. The Series C Preferred Stock ranks in
parity with the Series B Preferred Stock.
- LIQUIDATION. In the event of any liquidation, dissolution or winding up,
or merger, of the Company, the holders of the Series C Preferred Stock
will receive $5.00 per share (subject to appropriate adjustment for the
Reverse Stock Split, as defined below) plus all accrued but unpaid
dividends.
- DIVIDENDS. The holders of Series C Preferred Stock will receive cash
dividends at an annual rate of 6.5% of the stated value per share of
$5.00, payable quarterly in cash. The Company has the option to accrue and
not pay dividends for the first two years after issuance of the shares.
- RESTRICTIONS ON DIVIDENDS. So long as any shares of Series C Preferred
Stock and Series B Preferred Stock are outstanding, the Company may not
pay any dividends on or repurchase, redeem or retire any junior
securities.
8
<PAGE>
- VOTING RIGHTS. Each share of Series C Convertible Preferred Stock will be
entitled to one vote. The holders of the C Preferred Stock are entitled to
vote with the holders of the Common Stock and the holders of the Series B
Preferred Stock, as a single class, on all matters presented to the
holders of the Common Stock except that the holders of the Series C
Convertible Stock may not vote for the election of directors.
- RESTRICTIONS. Without the consent of the holders of the Series C Preferred
Stock and the Series B Preferred Stock, voting as a single class, the
Company may not take any of the following actions:
- authorize, create or issue, or increase the authorized amount of any
senior securities, parity securities or any security convertible into a
class or series of capital stock prior to the mandatory redemption date
of the Series B Preferred Stock;
- reorganize or reclassify outstanding shares of common stock, enter into
any consolidation or merger, or sell or convey all or substantially all
its property;
- amend, alter or repeal any provisions of our Certificate of
Incorporation or Bylaws to the extent that such action would have a
material adverse effect on the rights of the Series C Preferred Stock
or Series B Preferred Stock;
- REDEMPTION. On February 10, 2009, the Company may redeem all outstanding
shares of Series C Preferred Stock and the Series B Preferred Stock by
paying the stated value per share ($5.00 per share) plus all accrued but
unpaid dividends in cash out of funds legally available for such purpose.
- CONVERSION. Prior to the Initial Closing, each shares of Series C
Preferred Stock was convertible into one share of Common Stock. After the
Initial Closing, each share of Series C Convertible Preferred Stock is
convertible into 1.152 shares of Common Stock. After the Notice Effective
Date, and assuming no additional dilution adjustments relating to other
transactions, the Series C Preferred Stock will again be convertible into
one share of Common Stock.
TERMS OF THE SERIES D PREFERRED STOCK.
The following is a summary of the material terms of the Series D Preferred
Stock which will take effect upon the designation of the Series D Preferred
Stock on the Notice Effective Date:
- RANK. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series D Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock will rank
senior to each other class or series of preferred stock and prior to the
Common Stock and all subsequently issued classes and series of capital
stock. The Series D Preferred Stock will rank in parity with the Series B
Preferred Stock and the Series C Preferred Stock.
- LIQUIDATION. In the event of any liquidation, dissolution or winding up,
or merger, of the Company, the holders of the Series D Preferred Stock
will receive $0.85 per share plus all accrued but unpaid dividends.
- DIVIDENDS. The holders of Series D Preferred Stock will receive cash
dividends at an annual rate of 6.5% of the stated value per share of
$0.85, payable quarterly in cash. The Company will have the option to
accrue and not pay dividends until the end of the quarterly period
following February 10, 1999.
- RESTRICTIONS ON DIVIDENDS. So long as any shares of Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock are
outstanding, the Company may not pay any dividends on or repurchase,
redeem or retire any junior securities.
- VOTING RIGHTS. Each share of Series D Convertible Preferred Stock will be
entitled to one vote. The holders of the Series D Preferred Stock will be
entitled to vote with the holders of the
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<PAGE>
Common Stock, the holders of the Series B Preferred Stock, the holders of
the Series C Preferred Stock and the holders of the Series D Preferred
Stock, as a single class, on all matters presented to the holders of the
Common Stock except that the holders of the Series C Stock and the
Series D Preferred Stock may not vote for the election of directors.
- RESTRICTIONS. Without the consent of the holders of the Series B Preferred
Stock, Series C Preferred Stock and the Series D Preferred Stock, voting
as a single class, the Company will not be able to take any of the
following actions:
- authorize, create or issue, or increase the authorized amount of any
senior securities, parity securities or any security convertible into a
class or series of capital stock prior to the mandatory redemption date
of the Series D Preferred Stock;
- reorganize or reclassify outstanding shares of common stock, enter into
any consolidation or merger, or sell or convey all or substantially all
its property;
- amend, alter or repeal any provisions of our Certificate of
Incorporation or Bylaws to the extent that such action would have a
material adverse effect on the rights of the Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock;
- REDEMPTION. On February 10, 2009, the Company will have the option to
redeem all outstanding shares of Series D Preferred Stock and the
Series B Preferred Stock by paying the stated value per share ($0.85 per
share) plus all accrued but unpaid dividends in cash out of funds legally
available for such purpose.
- CONVERSION. Each share of Series D Convertible Preferred Stock will be
convertible into one share of common stock.
VOTE REQUIRED
Each of the Designation Proposal and the Stock Issuance 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 the Series B Preferred Stock and
Series C Preferred Stock, voting together as a single class. The Stock Issuance
Proposal also requires the affirmative vote of the holders of a majority of the
votes entitled to be cast of by the holders of all outstanding shares of Common
Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as
a single class. The Company has received all of the necessary approvals as a
result of receipt of the Designation Consent and the Issuance Consent.
10
<PAGE>
THE PROPOSAL
TO AMEND
THE CERTIFICATE OF INCORPORATION
BACKGROUND
The Initial Closing caused an adjustment in the Conversion Ratio of both the
Series B and Series C Preferred Stock. SFP has agreed to waive the benefits of
the Adjusted Conversion Ratios until the Additional Closing; however, until the
Additional Closing, other holders of shares of Series C Preferred Stock are able
to convert their shares into shares of Common Stock at a higher rate.
Due to the Stated Value of the Series C Preferred Stock, the Company and SFP
amended the Stock Purchase Agreement to allow for the purchase and sale of a
newly designated class of Preferred Stock, the Series D Preferred Stock. It was
intended by the Company and SFP that the Series D Preferred Stock have the same
terms as the Series C Preferred Stock except that the stated value of the
Series D Preferred Stock would be equal to $0.85 per share.
AMENDMENTS TO REFLECT THE ISSUANCE OF SERIES D PREFERRED STOCK
Several provisions of the Certificates of Designations for the Series B and
Series C Stock currently reflect the existence only of the Series B and
Series C Preferred Stock. The amendment to the Certificate of Incorporation will
amend these provisions to recognize the existence of the Series D Preferred
Stock as described in more detail below. The exact text of these amendments
appear, in their entirety, as Exhibit B attached to this Information Statement.
AMENDMENT REGARDING THE CONVERSION RATIO
Prior to the Initial Closing, holders of shares of Series B Preferred Stock
could convert each share of stock into 0.2 of a share of Common Stock and
holders of Series C Preferred Stock could convert each share of such stock into
one share of Common Stock. After the Initial Investment, each share of Series B
Preferred Stock is convertible into 0.23 of a share of Common Stock and each
share of Series C Preferred Stock is convertible into 1.152 shares of Common
Stock. The proposed amendment to the Certificate of Incorporation would
eliminate the adjustment made to the Conversion Ratio by the SFP Investment,
including any exercise by SFP of the Series C Warrant or the Series D Warrant.
EFFECT OF AMENDMENTS TO CERTIFICATE OF INCORPORATION
AMENDMENTS TO REFLECT THE ISSUANCE OF SERIES D PREFERRED STOCK. The
amendments to the Certificate of Incorporation which will reflect the issuance
of the Series D Preferred Stock are as follows:
- Article II, Subsection (A) of the Series B and Series C Certificates of
Designations will be amended to reflect that the Series D Preferred Stock
shall rank on parity with the Series B and Series C Preferred Stock and
will therefore include Series D Preferred Stock in the definition of
"Parity Security."
- Article II, Subsection (B) of the Series B and Series C Certificates of
Designations will be amended to reflect that the Series D Preferred Stock
will rank on parity with the Series B and Series C Preferred Stock upon
liquidation, dissolution or winding up of the Company.
- Article VII, Subsection (B) of the Series B and Series C Certificates of
Designations will be amended to reflect that the Series D Preferred Stock
shall vote together with the Series B and Series C Preferred Stock in all
matters other than the election of directors and that the Series D
Preferred Stock shall have no right to vote in the election of directors.
- Article VII, Subsection (D) of the Series B and Series C Certificates of
Designations will be amended to reflect that the holders of the Series D
Preferred Stock, voting together with the
11
<PAGE>
Series B and Series C Preferred Stock, will have the right to consent to
any future issuance of Preferred Stock that is senior, or ranks on parity
with, the Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock.
- Article VII, Subsection (E) of the Series B Certificate of Designations
and Article VII, Subsection (D) of the Series C Certificate of
Designations will be amended to reflect that the holders of the Series D
Preferred Stock, voting together with the Series B and Series C Preferred
Stock, will have the right to consent to any future amendments to the
Certificate of Incorporation, or other actions, that may have a material
adverse impact on the holders of the Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock.
- Article VII, Subsection (F) of the Series B Certificate of Designations
and Article VII, Subsection (E) of the Series C Certificate of
Designations will be amended to reflect that the Series D Preferred Stock
will have the same voting rights as the Series B and Series C Preferred
Stock.
AMENDMENT REGARDING THE CONVERSION RATIO. Prior to the Initial Closing, the
Series C Preferred Stock was convertible into one share of Common Stock, at the
option of the holder. Effective after the Initial Closing, the Conversion Ratio
of the Series B Preferred Stock was adjusted such that each share is now
convertible into 0.23 of a share of Common Stock and the Series C Preferred
Stock was adjusted such that each share of Series C Preferred Stock is
convertible into 1.152 shares of Common Stock. Upon the filing of a Certificate
of Amendment to the Certificate of Incorporation with the Secretary of State for
the State of Delaware, which the Company expects to occur on or about the Notice
Effective Date, Article VIII, Subsection (G)(ii) of the Series B and Series C
Certificates of Designations will be amended such that the Conversion Ratio will
be adjusted to negate the effect of the adjustment resulting from the Initial
Investment.
THUS, FOR THE PERIOD OF TIME UNTIL THE ADDITIONAL CLOSING, THE HOLDERS OF
SHARES OF SERIES C PREFERRED STOCK ARE ABLE TO CONVERT AT A RATE OF 1.152 SHARES
OF COMMON STOCK FOR EACH SHARE OF SERIES C PREFERRED STOCK AND AFTER THE DATE OF
THE ADDITIONAL CLOSING, THE EFFECT OF THIS ADJUSTMENT WILL BE ELIMINATED AND,
ASSUMING NO OTHER EVENT CAUSING AN ADJUSTMENT OCCURS DURING THAT TIME, THE RATIO
WILL AGAIN BE 1.00. Note that SFP, members of the Company's Board of Directors
and management, have waived their right to benefit from the Adjusted Conversion
Ratio during the period of time between the Initial Closing and the Additional
Closing, so only the holders of Series C Preferred Stock other than SFP, members
of the Company's Board of Directors and management will have the right to
convert at the adjusted rate. SFP is the only holder of the Series B Preferred
Stock and has agreed not to take advantage of the Adjusted Conversion Ratio.
VOTE REQUIRED
The Certificate of Incorporation Amendment 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, Series B Preferred Stock and Series D
Preferred Stock, voting together as a single class. The Company has received all
of the necessary approvals for the Certificate of Incorporation Amendment
Proposal.
12
<PAGE>
PROPOSAL TO APPROVE THE ADOPTION OF THE
AAMES FINANCIAL CORPORATION
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
INTRODUCTION
The Aames Financial Corporation 1999 Stock Option Plan (the "1999 PLAN") was
adopted by the Company's Board of Directors effective as of February 10, 1999,
as amended and as adopted by the Company's stockholders at the 1998 Annual
Meeting held in September of 1999. The 1999 Plan superseded the Company's 1991
Stock Incentive Plan, 1995 Stock Incentive Plan, 1996 Stock Incentive Plan, 1997
Stock Option Plan and 1997 Non-Qualified Stock Option Plan and provides for the
issuance of options to purchase shares of the Company's Common Stock ("Shares")
to officers, key employees and consultants of the Company and its subsidiaries.
Subject to adjustment for stock splits, stock dividends and other similar
events, the total number of Shares reserved for issuance under the 1999 Plan was
2,922,402 Shares. On June 7, 2000, the Board of Directors approved the Amended
and Restated 1999 Stock Option Plan (the "AMENDED 1999 PLAN"), subject to
approval by the Company's stockholders. The Amended 1999 Plan increases the
number of shares available from 2,922,402 to 13 million, and also provides for
the automatic annual grant of 50,000 options to the Company's outside directors.
Although this Information Statement contains a summary of the principal
features of the Amended 1999 Plan, this summary is not intended to be complete
and reference should be made to Exhibit "C" to this Information Statement for
the complete text of the Amended 1999 Plan.
PURPOSE
The Amended 1999 Plan is intended as an incentive and to encourage stock
ownership by officers and certain other key employees of the Company in order to
increase their proprietary interest in the Company's success and to encourage
them to remain in the employ of the Company.
EFFECTIVE DATE
The Amended 1999 Plan will be effective as of the Notice Effective Date. The
expiration date of the Amended 1999 Plan, after which no options may be granted,
is December 31, 2008.
ADMINISTRATION
The Amended 1999 Plan will be administered by the Compensation Committee of
the Company's Board of Directors, which will consist of not less than three
members, two of whom will be appointed by Capital Z during any period that
Capital Z and/or its designated purchasers under the Preferred Stock Purchase
Agreement own at least 25% of the outstanding voting securities of the Company.
The Committee determines which individuals may participate in the Amended 1999
Plan and the type, extent and terms of the options to be granted. In addition, a
Stock Option Committee has been established with the authority to grant options
to the Chief Executive Officer, to the four highest compensated officers other
than the Chief Executive Officer and other individuals considered insiders
within the meaning of Section 16 of the Exchange Act. Grants made by the Stock
Option Committee are subject to ratification by the Compensation Committee. (The
Compensation Committee and the Stock Option Committee depending on which
committee is taking action hereunder, respectively, is hereinafter referred to
as the "Committee.")
ELIGIBILITY AND NON-DISCRETIONARY GRANTS
The Amended 1999 Plan provides that options may be granted to officers and
other key employees of the Company (excluding members of the Committee), subject
to the limitations on incentive stock
13
<PAGE>
options. In addition, options which are not incentive stock options may be
granted to consultants or other key persons (excluding members of the Committee)
who the Committee determines should receive options under the Amended 1999 Plan.
The approximate number of individuals eligible to participate in the Amended
1999 Plan is fifty. Further, the Amended 1999 Plan will provide for the
automatic grant of 50,000 stock options per year to each of the Company's
independent directors and to members of the Committee.
TERMS OF OFFERING
The terms of options granted under the Amended 1999 Plan are determined by
the Committee. In the sole and absolute discretion of the Committee, such
options may be either "incentive stock options" within the meaning of
Section 422 of the Code ("ISOs"), or non-statutory options. However, to the
extent that the aggregate market value of the Shares with respect to which ISOs
are exercisable for the first time by any individual under the Amended 1999 Plan
and all other incentive plans of the Company and any Parent or subsidiary of the
Company during any calendar year exceeds $100,000, such options shall not be
treated as ISOs. Each option will be evidenced by an option agreement between
the Company and the optionee to whom such option is granted on such terms and
conditions as shall be determined by the Committee from time to time. The terms
of the option agreements need not be identical. Each option is, however, subject
to the following terms and conditions:
EXERCISE OF THE OPTION. The Committee determines when options granted under
the Amended 1999 Plan may be exercisable. Payment for Shares purchased under an
option granted under the Amended 1999 Plan must be made in full upon exercise of
the option, by certified bank or cashier's check payable to the order of the
Company or by any other means acceptable to the Company.
OPTION PRICE. Unless otherwise provided by the Committee in the option
agreement, the option exercise price of each option granted under the Amended
1999 Plan will not be less than the fair market value of the stock at the time
the option is granted. The ISO exercise price shall equal or exceed the fair
market value of the Shares on the date the option is granted. The exercise price
for ISOs granted to individuals beneficially holding at least 10% of the
outstanding securities of the Company shall equal or exceed 110% of the fair
market value of the Shares on the date the option is granted.
TERMINATION OF OPTIONS. All options granted under the Amended 1999 Plan
expire ten years from the date of grant, or such shorter period as is determined
by the Committee. No option is exercisable by any person after such expiration.
In the event that any outstanding option under the Plan for any reason expires,
is terminated or is canceled prior to the end of the period during which options
may be granted, the Shares called for by the unexercised portion of such option
may again be subject to an option under the Amended 1999 Plan.
NON-TRANSFERABILITY OF OPTIONS. No option granted under the Amended 1999
Plan shall be transferable except by will or the laws of descent and
distribution. During the lifetime of the optionee, the option shall be
exercisable only by him. The Committee may, however, in its sole discretion,
allow for transfer of options which are not ISOs to other persons or entities,
subject to such conditions or limitations as it may establish.
NON-TRANSFERABILITY OF UNDERLYING STOCK. Unless otherwise provided in an
option agreement or agreed to by the Compensation Committee at the time of
exercise, all option holders agree not to sell or otherwise transfer more than
25% of the Common Stock purchased pursuant to an option in any given year and in
the aggregate not to sell or otherwise transfer more than 25% of such stock
during any period commencing on the effective date of the Amended 1999 Plan.
14
<PAGE>
OTHER PROVISIONS. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Amended 1999 Plan as may be
determined by the Committee.
ADJUSTMENTS UPON CHANGES IN CONTROL
The aggregate number of shares of stock which may be purchased pursuant to
options granted under the Amended 1999 Plan, the maximum number of shares for
which options may be granted to any one person the number of shares of stock
covered by each outstanding option and the price per share thereof in each such
option shall be appropriately adjusted for any increase or decrease in the
number of outstanding shares of stock resulting from a stock split or other
subdivision or consolidation of shares of stock or for other capital adjustments
or payments of stock dividends or distributions or other increases or decreases
in the outstanding shares of stock without receipt of consideration by the
Company. Any adjustment shall be conclusively determined by the Committee.
In the event of any change in the outstanding shares of stock by reason of
any recapitalization, merger, consolidation, spin-off, combination or exchange
of shares or other corporate change, or any distributions to common shareholders
other than cash dividends, the Committee shall make such substitution or
adjustment, if any, as it deems to be equitable, as to the number or kind of
shares of stock or other securities issued or reserved for issuance pursuant to
the Plan, and the number or kind of shares of stock or other securities covered
by outstanding options, and the option price thereof.
CHANGE IN CONTROL
Except as otherwise provided in a particular option agreement, in the event
of a Change in Control (as defined in the Amended 1999 Plan), all options shall
become immediately exercisable with respect to 100% of the shares subject to
such options. Provided, however, that subject to certain exceptions, no event
shall be treated as a Change in Control unless a Capital Z Realization Event has
occurred (as defined in the Amended 1999 Plan).
MARKET VALUE
The market value of the shares of Common Stock on the New York Stock
Exchange on June 19, 2000 was $0.875 per share.
SHARES SUBJECT TO THE AMENDED 1999 PLAN
As noted above, the total number of shares of Common Stock reserved for
issuance under the Amended 1999 Plan is 13 million. No single person may receive
options for more than 6.5 million shares of Common Stock during the term of the
Amended 1999 Plan.
AMENDMENT AND TERMINATION OF THE AMENDED 1999 PLAN
The Board of Directors may, without the consent of the Company's
stockholders or optionees under the Amended 1999 Plan, at any time terminate the
Amended 1999 Plan entirely and at any time or from time to time amend or modify
the Amended 1999 Plan. No such amendment or termination shall adversely affect
options already granted under the Amended 1999 Plan without the optionee's
consent. Approval of the stockholders is required to amend the Amended 1999 Plan
for the purpose of (a) increasing the total number of Shares which may be
purchased pursuant to options granted under the Amended 1999 Plan, except
adjustments made for recapitalizations, or (b) expand the class of employees
eligible to receive options under the Plan.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief description of the federal income tax treatment
which will generally apply to options granted under the Amended 1999 Plan, based
on federal income tax laws in effect on the date of this Proxy Statement. The
exact federal income tax treatment of options will depend on the specific
circumstances of the recipient. No information is provided herein with respect
to estate, inheritance, gift, state or local tax laws, although there may be
certain tax consequences upon the receipt or exercise of an option or the
disposition of any acquired shares under those laws.
Incentive Stock Options. Generally, the optionee is not taxed and the
Company is not entitled to a deduction on the grant or the exercise of an ISO.
If the optionee sells the shares acquired upon the exercise of an ISO ("ISO
Shares") at any time after the later of (i) one year after the date of transfer
of shares to the optionee pursuant to the exercise of such ISO or (ii) two years
after the date of grant of such ISO (the "ISO Holding Period"), then the
optionee will recognize capital gain or loss equal to the difference between the
sales price and the exercise price paid for the ISO Shares, and the Company will
not be entitled to any deduction. If the optionee disposes of the ISO Shares at
any time during the ISO Holding Period, then (i) the optionee will recognize
capital gain in an amount equal to the excess, if any, of the sales price over
the fair market value of the ISO Shares on the date of exercise) the optionee
will recognize ordinary income equal to the excess, if any, of the lesser of the
sales price or the fair market value of the ISO Shares on the date of exercise,
over the exercise price paid for the ISO Shares, (iii) the optionee will
recognize capital loss equal to the excess, if any, of the exercise price paid
for the ISO Shares over the sales price of the ISO Shares and (iv) the Company
will generally be entitled to a deduction in an amount equal to the amount of
ordinary income recognized by the optionee.
For purposes of computing an optionee's "alternative minimum tax," an ISO is
treated as a non-qualified stock option, as discussed below. Thus, the amount by
which the fair market value of ISO Shares on the date of exercise (or such later
date as discussed below under "Special Rules for Insiders") exceeds the exercise
price will be included as a positive adjustment in the calculation of an
optionee's "alternative minimum taxable income" ("AMTI"). The "alternative
minimum tax" imposed on individual taxpayers is generally equal to the amount by
which 26% or 28% (depending on the optionee's AMTI) of the individual's AMTI
(reduced by certain exemption amounts) exceeds his or her regular income tax
liability for the year. A taxpayer's alternative minimum tax attributable to
this spread may be credited against the taxpayer's regular tax liability in
later years to the extent that the regular tax liability exceeds the alternative
minimum tax in any such year.
Non-qualified Stock Options. The grant of a non-qualified stock option is
generally not a taxable event for the optionee. Upon exercise of the option, the
optionee will generally recognize ordinary income in an amount equal to the
excess of the fair market value of the stock acquired upon exercise of the
non-qualified stock option ("Non-qualified Option Shares") (determined as if the
date of the exercise) over the exercise price of such option, and the Company
will be entitled to a deduction equal to such amount. See "Special Rules for
Insiders," below. A subsequent sale of the non-qualified Stock Option Shares
generally will give rise to capital gain or loss equal to the difference between
the sales price and the sum of the exercise price paid for such shares plus the
ordinary income recognized with respect to such shares. Such gain or loss will
be treated as short-term depending on the optionee's holding period for the
shares involved in the disposition. If an optionee receives a non-qualified
stock option having an exercise price that is only a small fraction of the value
of the underlying non-qualified Option Shares on the date of grant, such
optionee may be required to include the value of the option in taxable income at
the time of grant.
Special Rules for Insiders. If an optionee is a director, officer or
stockholder subject to Section 16 of the Exchange Act (an "Insider") and
exercises an option within six months of the date of grant, the timing of the
recognition of any ordinary income s hould be deferred until (and the amount of
ordinary
16
<PAGE>
income should be determined based on the fair market value (or sales price in
the case of a disposition) of the Common Stock upon the earlier of the following
two dates: (i) six months after the date of grant or (ii) a disposition of the
Common Stock, unless the Insider makes an election under Section 83(b) of the
Code (an "83(b) Election") within 30 days after exercise to recognize ordinary
income based on the value of the Common Stock on the date of exercise. In
addition, special rules apply to an Insider who exercises an option having an
exercise price greater than the fair market value of the underlying Common Stock
on the date of exercise.
Miscellaneous Tax Issues. Special rules will apply in cases where an
optionee pays the exercise price of the option or applicable withholding tax
obligations under the Amended 1999 Plan by delivering previously owned Common
Stock or by reducing the amount of Common Stock otherwise issuable pursuant to
the Option. The surrender or withholding of such shares will in certain
circumstances result in the recognition of income with respect to such shares.
The Amended 1999 Plan provides that, in the event of certain changes in
ownership or control of the Company, the right to exercise options otherwise
subject to a vesting schedule may be accelerated. In the event such acceleration
occurs and depending upon the individual circumstances of the recipient, certain
amounts with respect to such Options may constitute "excess parachute payments"
under the "golden parachute" provisions of the Code. Pursuant to these
provisions, a recipient will be subject to a 20% excise tax on any "excess
parachute payments" and the Company will be denied any deduction with respect to
such payment. It should be noted that while the Company's intent is to prevent
Section 162(m) of the Code from limiting the deductibility of options, no
advance determination will be obtained from the Internal Revenue Service in this
regard. For this reason, and because of possible unforeseen future events, it is
impossible to determine the precise extent to which the Company will be entitled
to a tax deduction in connection with the exercise of options.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors has unanimously approved the adoption of the Amended
1999 Plan. On June 7, 2000, the Company received the written affirmative vote of
a majority of votes entitled to be cast by the holders of outstanding shares of
Common Stock and Series B and Series C Convertible Preferred Stock, voting as a
single class. Therefore, the necessary vote required to approve the Amended 1999
Plan was received and the Amended 1999 Plan was approved.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 7, 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
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, (iii) each of the Company's Directors and certain of
its executive officers 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 Rule 13d-3, 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. On June 2, 2000, there were outstanding 6,214,621 shares of
Common Stock, 26,704,000 shares of Series B Preferred Stock (representing the
right to convert into 5,340,800 shares of Common Stock, and 20,194,672 shares of
Series C Preferred Stock.
<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................. 70,218,146(1)(2) 91.87%(1)
Common Stock Neil B. Kornswiet(3)..................... 612,572(4) 7.61%
Common Stock William Cook(5).......................... 40,250(2)(6) *
Common Stock David H. Elliott(5)...................... 1,000 *
Common Stock Steven M. Gluckstern(7)(8)............... 36,830(9) *
Common Stock C. John Kohler(5)........................ 21,875(2)(10) *
Common Stock John F. Madden, Jr.(5)................... 2,355(11) *
Common Stock A. Jay Meyerson(5)....................... 22,500(12) *
Common Stock Adam M. Mizel(7)......................... 18,415(9) *
Common Stock Neil Notkin(5)........................... 37,830(2)(13) *
Common Stock Eric C. Rahe(7).......................... 3,735(9) *
Common Stock Daniel H. Relf(5)........................ 32,298(2)(14) *
Common Stock Mani A. Sadeghi(7)....................... 625(9) *
Common Stock Geoffrey Sanders(5)...................... 13,875(2)(15) *
Common Stock David A. Spuria(7)....................... 2,490(9) *
Common Stock Georges C. St. Laurent, Jr.(5)........... 321,320(2)(16) 4.92%
Common Stock Cary H. Thompson(5)...................... 384,184(2)(17) 5.83%
Common Stock Joe Tomei(5)............................. 125(9) *
Common Stock All executive officers, directors and
nominees as a group (16 persons)......... 939,768(2)(18) 13.17%
Series B Specialty Finance Partners
Preferred Stock(19)(20) 54 Thompson Street
New York, New York 10012................. 26,704,000(21) 100.00%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT
TITLE OF CLASS NAME AND ADDRESS SHARES OF CLASS
-------------- ----------------------------------------- ---------- --------
<S> <C> <C> <C>
Series C Specialty Finance Partners
Preferred Stock(19) 54 Thompson Street
New York, New York 10012................. 64,627,347(22)(2) 97.91%(2)
Series C William Cook(5).......................... 30,000(23) *
Preferred Stock
Series C C. John Kohler(5)........................ 20,000(24) *
Preferred Stock
Series C Neil Notkin(5)........................... 30,000(25) *
Preferred Stock
Series C Daniel H. Relf(5)........................ 20,000(26) *
Preferred Stock
Series C Geoffrey Sanders(5)...................... 12,000(27) *
Preferred Stock
Series C Georges C. St. Laurent, Jr.(5)........... 310,000(28) *
Preferred Stock(19)
Series C Cary H. Thompson(5)...................... 50,000(29) *
Preferred Stock(19)
Series C All executive officers, directors and
Preferred Stock(19) nominees as a group (16 persons)(19)..... 472,000(30) *
</TABLE>
------------------------
* Less than one percent.
(1) Includes 5,340,800 shares of Common Stock issuable upon conversion of
26,704,000 shares of Series B Preferred Stock and 59,627,346 shares of
Common Stock issuable upon conversion of 59,627,346 shares of Series C
Preferred Stock. Includes 5 million shares of Common Stock issuable upon
conversion of 5 million shares of Series C stock issuable upon the exercise
of the Series C Warrant. In addition, SFP, as a result of the receipt of
warrants to purchase 250,000 shares of Common Stock by Capital Z
Management, Inc., may be deemed to be the beneficial owner of 250,000
shares of Common Stock. Specialty Finance Partners is a Bermuda general
partnership, 99.6% of which is owned by Capital Z Financial Services
Fund II, L.P. and 0.4% of which is owned by Equifin Capital Parters, LLC.
It is expected that, within the next 60 days, SFP will exchange 40,800,000
shares of Series C Preferred Stock for 40,800,000 shares of Series D
Preferred Stock (which has not yet been designated), exchange the Series C
Warrant for the Series D Warrant and purchase an additional 18,023,529
shares of Series D Preferred Stock.
(2) Assumes a conversion ratio of the Series C Preferred Stock of one share of
Common Stock for each share of Series C Preferred Stock. During the period
between the Initial Closing and the Additional Closing the actual
conversion ratio is 1.152 shares of Common Stock for each share of
Series C Preferred Stock.
(3) Mr. Kornswiet's address is care of Belin Rawlings & Badal, 11601 Wilshire
Boulevard, Suite 2200, Los Angeles, California 90025-1758, ATTN: Douglas
Rawlings.
(4) Includes 250,000 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000. Mr. Kornswiet's employment with the Company ended during the
first quarter of fiscal 2000.
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<PAGE>
(5) The address of each individual is in care of the Company at 350 S. Grand
Avenue, 52(nd) Floor, Los Angeles, California 90071.
(6) Includes 9,600 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 30,000
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock.
(7) The address of each individual is in care of Capital Z Partners, 54
Thompson Street, New York, New York 10012.
(8) Mr. Gluckstern is a member of the Investment Committees of Capital Z
Partners, Ltd. and Capital Z Management, Inc. and, in such capacities has
the authority to approve the disposition of investments of Capital Z and
Capital Z Financial Services Private Fund II, L.P. which are both general
partners of SFP.
(9) 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 Preferred Stock held by SFP.
(10) Includes 1,875 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 20,000
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock.
(11) Includes 2,355 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money).
(12) Represents shares of Common Stock underlying options which are currently
exercisable or which will become exercisable within 60 days of June 7,
2000. 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. Mr. Meyerson entered into an agreement with the Company
to purchase approximately 588,235 shares of Series D Preferred Stock which
will be convertible into shares of Common Stock on a one-for-one basis.
(13) Includes 7,830 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 30,000
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock.
(14) Includes 11,798 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 20,000
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock.
(15) Includes 1,875 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 12,000
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock.
(16) Includes 1,320 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 310,000
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock.
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<PAGE>
(17) Includes 329,864 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 50,000
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock.
(18) Includes 389,017 shares of Common Stock underlying options which are
currently exercisable or which will become exercisable within 60 days of
June 7, 2000 (none of which are currently in-the-money). Includes 534,221
shares of Common Stock underlying the conversion of shares of Series C
Preferred Stock and warrants to purchase Common Stock.
(19) As the shares of Preferred Stock were, on June 7, 2000, convertible into
shares of Common Stock, they are included in the Common Stock shares and
percent of class figures.
(20) Specialty Finance Partners holds 100% of the issued and outstanding
Series B Preferred Stock. None of the Directors or executive officers
beneficially hold any shares of Series B Preferred Stock.
(21) Convertible into 5,340,800 shares of Common Stock (assuming a conversion
ratio of 0.2 of one share of Common Stock for each share of Series B
Preferred Stock).
(22) Convertible into 64,627,347 shares of Common Stock (assuming a conversion
ratio of one share of Common Stock for each share of Series C Preferred
Stock).
(23) Convertible into 30,000 shares of Common Stock (assuming a conversion ratio
of one share of Common Stock for each share of Series C Preferred Stock).
(24) Convertible into 20,000 shares of Common Stock (assuming a conversion ratio
of one share of Common Stock for each share of Series C Preferred Stock).
(25) Convertible into 30,000 shares of Common Stock (assuming a conversion ratio
of one share of Common Stock for each share of Series C Preferred Stock).
(26) Convertible into 20,000 shares of Common Stock (assuming a conversion ratio
of one share of Common Stock for each share of Series C Preferred Stock).
(27) Convertible into 12,000 shares of Common Stock (assuming a conversion ratio
of one share of Common Stock for each share of Series C Preferred Stock).
(28) Convertible into 310,000 shares of Common Stock (assuming a conversion
ratio of one share of Common Stock for each share of Series C Preferred
Stock).
(29) Convertible into 50,000 shares of Common Stock (assuming a conversion ratio
of one share of Common Stock for each share of Series C Preferred Stock).
(30) Convertible into 472,000 shares of Common Stock (assuming a conversion
ratio of one share of Common Stock for each share of Series C Preferred
Stock).
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<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL
No action was taken in connection with the Proposal by the Board of
Directors or the Voting Stockholders for which the Delaware General Corporation
Law (the "DGCL"), the Company's Certificate of Incorporation, as amended (the
"CERTIFICATE OF INCORPORATION"), or the Company's Bylaws, as amended (the
"BYLAWS"), provide a right of a stockholder to dissent and obtain appraisal of
or payment for such stockholder's shares.
INTEREST OF OFFICERS AND DIRECTORS IN MATTERS TO BE ACTED UPON
Steven Gluckstern, the Chairman of the Board of Directors of the Company and
Adam Mizel, Eric Rahe and David Spuria, each a Director of the Company, are
affiliated, are investors in, or are employed by affiliates of Capital Z.
Capital Z is a general partner of SFP and owns 99.6% of SFP.
A. Jay Meyerson, the Company's Chief Executive Officer, will purchase shares
of Series D Preferred Stock pursuant to his Management Investment Agreement, as
amended. Mr. Meyerson will purchase $500,000 of shares of Series D Preferred
Stock at Fair Market Value (as defined in the Certificate of Incorporation) half
of which will be paid in cash and the other half of which will be paid for by
delivery of a note secured by the stock. Mr. Meyerson is expected to purchase
these shares on or about the Notice Effective Date.
Mani Sadeghi, a Director of the Company, is the Chief Executive Officer of,
and an investor in, Equifin Capital Partners, LLC.
Joseph Tomei, the Company's Chief Financial Officer, is also an employee
(and investor in) Equifin Capital Partners, LLC. Equifin Capital Partners, LLC
is a general partner of SFP and owns 0.4% of SFP.
Each of Messrs. Gluckstern, Mizel, Rahe, Sadeghi, Spuria and Tomei have
disclaimed beneficial ownership of the stock of the Company owned by SFP.
No other officer or director of the Company has any substantial interest in
the Proposals, except insofar as such officers or directors may be stockholders,
or holders of derivative securities, of the Company, in which case the
implementation of the Proposals will affect them in the same manner as its
affect all other stockholders, or holders of derivative securities, of the
Company. However, as a result of the Proposals the Board of Directors will have
the discretion to issue shares of, or securities convertible into shares of,
Series C Preferred Stock including to officers and/or directors of the Company.
EXECUTIVE COMPENSATION
Information with respect to the executive compensation of the Company is
incorporated herein by this reference to the Company's definitive Proxy
Statement for the Company's 1999 Annual Meeting of Stockholders which was filed
with the Securities and Exchange Commission (the "SEC") on February 4, 2000 and
mailed to all of the holders of the Common Stock, Series B Preferred Stock and
Series C Preferred Stock.
FINANCIAL AND OTHER INFORMATION
The Company's financial statements are incorporated herein by this reference
to the Company's Annual Report on Form 10-K for the fiscal year ending June 30,
1999 (filed with the SEC on September 3, 1999), the Company's Form 10-K/A filed
with the SEC on August 6, 1999 and the Company's Quarterly Report on Form 10-Q
for the quarter ending September 30, 1999 (filed with the SEC on November 15,
1999), the quarter ending December 31, 2000 (filed with the SEC on February 14,
2000) and the quarter ending March 31, 2000 (filed with the SEC on May 22,
2000).
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<PAGE>
STOCKHOLDER PROPOSALS AND SUBMISSIONS
No security holder entitled to consent has submitted to the Company a
proposal which is accompanied by notice of such security holders' intention to
present the proposal for action at a future meeting of the stockholders of the
Company.
AAMES FINANCIAL CORPORATION
/s/ John F. Madden, Jr.
John F. Madden, Jr.
SECRETARY
June 22, 2000
23
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS FOR THE
SERIES D CONVERTIBLE PREFERRED STOCK
--------------------------------------------------------------------------------
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF
SERIES D CONVERTIBLE PREFERRED STOCK OF
AAMES FINANCIAL CORPORATION
--------------------------------------------------------------------------------
AAMES FINANCIAL CORPORATION, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation (the "Board of Directors") pursuant to authority of the Board
of Directors as required by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:
SERIES D CONVERTIBLE PREFERRED STOCK:
I. DESIGNATION AND AMOUNT
The designation of this series of shares shall be "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock") par value $0.001 per share;
the stated value per share shall be $[0.90] (the "Stated Value"); and the number
of shares constituting such series shall be [121,851,622]. The number of shares
of the Series D Preferred Stock may be decreased from time to time by a
resolution or resolutions of the Board of Directors; provided, however, that
such number shall not be decreased below the aggregate number of shares of the
Series D Preferred Stock then outstanding.
II. RANK
A. With respect to dividends, the Series D Preferred Stock shall rank
(i) senior to each other class or series of Preferred Stock, except for the
Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series B Preferred Stock") and the Series C Convertible
Preferred Stock, par value $0.001 per share, of the Corporation (the "Series C
Preferred Stock"); (ii) on a parity with the Series B Preferred Stock and the
Series C Preferred Stock; and (iii) senior to the Corporation's Common Stock,
par value $.001 per share (the "Common Stock"), and, except as specified above,
all other classes and series of capital stock of the Corporation hereafter
issued by the Corporation. With respect to dividends, all equity securities of
the Corporation to which the Series D Preferred Stock ranks senior, including
the Common Stock, are collectively referred to herein as the "Junior Dividend
Securities"; all equity securities of the Corporation with which the Series D
Preferred Stock ranks on a parity, including the Series B Preferred Stock and
the Series C Preferred Stock, are
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collectively referred to herein as the "Parity Dividend Securities"; and all
equity securities of the Corporation (other than convertible debt securities) to
which the Series D Preferred Stock ranks junior, with respect to dividends, are
collectively referred to herein as the "Senior Dividend Securities."
B. With respect to the distribution of assets upon liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the
Series D Preferred Stock shall rank (i) senior to each other class or series of
Preferred Stock, except for the Series B Preferred Stock and the Series C
Preferred Stock; (ii) on a parity with the Series B Preferred Stock and the
Series C Preferred Stock; and (iii) senior to the Common Stock, and, except as
specified above, all other classes and series of capital stock of the
Corporation hereafter issued by the Corporation. With respect to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, all equity securities of the
Corporation to which the Series D Preferred Stock ranks senior, including the
Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all equity securities of the Corporation (other than convertible
debt securities) to which the Series D Preferred Stock ranks on parity,
including the Series B Preferred Stock and the Series C Preferred Stock, are
collectively referred to herein as "Parity Liquidation Securities"; and all
equity securities of the Corporation to which the Series D Preferred Stock ranks
junior are collectively referred to herein as "Senior Liquidation Securities."
C. The Series D Preferred Stock shall be subject to the creation of Junior
Dividend Securities and Junior Liquidation Securities (collectively, "Junior
Securities"), but no Parity Dividend Securities or Parity Liquidation Securities
(collectively, "Parity Securities") (other than the Series B Preferred Stock) or
Senior Dividend Securities or Senior Liquidation Securities (collectively,
"Senior Securities") shall be created except in accordance with the terms
hereof.
III. DIVIDENDS
A. DIVIDENDS. Subject to the terms of paragraph D below, shares of
Series D Preferred Stock shall accumulate dividends at a rate of 6.5% per annum
(the "Dividend Rate"), which dividends shall be paid quarterly in cash, in four
equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a "Dividend
Payment Date"), to holders of record (the "Registered Holders") as they appear
on the stock record books of the Corporation on the fifteenth day prior to the
relevant Dividend Payment Date; provided, however, that during the Accrual
Period (as defined in Article IX hereof) the Corporation shall have the option
to accrue such dividends, which dividends, to the extent so accrued, shall
compound quarterly. Dividends shall accrue and accumulate on the Stated Value of
each share of Series D Preferred Stock. Dividends shall be paid only when, as
and if declared by the Board of Directors out of funds at the time legally
available for the payment of dividends. Dividends shall begin to accumulate on
outstanding shares of Series D Preferred Stock from the date of issuance and
shall be deemed to accumulate from day to day whether or not earned or declared
until paid. Dividends shall accumulate on the basis of a 360-day year consisting
of twelve 30-day months (four 90-day quarters) and the actual number of days
elapsed in the period for which payable.
B. ACCUMULATION. Dividends on the Series D Preferred Stock shall be
cumulative, and from and after (i) any Dividend Payment Date on which any
dividend that has accumulated or been deemed to have accumulated through such
date has not been paid in full (other than by reason of the election of the
Corporation to accrue dividends during the Accrual Period); or (ii) any payment
date set for a redemption on which such redemption payment has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage") at 125% of the
stated dividend rate (or such lesser rate as may be the maximum rate that is
then permitted by applicable law). Such additional dividends in respect of any
Arrearage shall be deemed to accumulate from day to day whether or not earned or
declared until the Arrearage is paid,
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shall be calculated as of such successive Dividend Payment Date, and shall
constitute an additional Arrearage from and after any Dividend Payment Date to
the extent not paid on such Dividend Payment Date. References in any Article
herein to dividends that have accumulated or that have been deemed to have
accumulated with respect to the Series D Preferred Stock shall include the
amount, if any, of any Arrearage together with any dividends accumulated or
deemed to have accumulated on such Arrearage pursuant to the immediately
preceding two sentences. Additional dividends in respect of any Arrearage may be
declared and paid at any time, in whole or in part, without reference to any
regular Dividend Payment Date, to Registered Holders as they appear on the stock
record books of the Corporation on such record date as may be fixed by the Board
of Directors (which record date shall be no less than 10 days prior to the
corresponding payment date). Dividends in respect of any Arrearage shall be paid
in cash.
C. METHOD OF PAYMENT. Dividends paid on the shares of Series D Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on all outstanding shares of Series D Preferred Stock
shall be allocated pro rata on a share-by-share basis among all such shares then
outstanding. After February 10, 2001, dividends that are declared and paid in an
amount less than the full amount of dividends accumulated on the Series D
Preferred Stock (and on any Arrearage) shall be applied first to the earliest
dividend which has not theretofore been paid. All cash payments of dividends on
the shares of Series D Preferred Stock shall be made in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
IV. LIQUIDATION PREFERENCE
A. LIQUIDATION PREFERENCE. The holders of the outstanding shares of
Series D Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of (i) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and (ii) the Stated Value thereof,
before any payment shall be made or any assets distributed to the holders of any
Junior Liquidation Securities. After any such payment in full after the
consummation of the Recapitalization, the holders of Series D Preferred Stock
shall not, as such, be entitled to any further participation in any distribution
of assets of the Corporation.
C. PARITY SECURITIES. All the assets of the Corporation available for
distribution to stockholders after the liquidation preferences of any Senior
Liquidation Securities shall be distributed ratably (in proportion to the full
distributable amounts to which holders of Series D Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution,
liquidation or winding up) among the holders of the then-outstanding shares of
Series D Preferred Stock and Parity Liquidation Securities, if any, when such
assets are not sufficient to pay in full the aggregate amounts payable thereon.
D. MERGER NOT A LIQUIDATION. Neither a consolidation or merger of the
Corporation with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's assets for cash,
securities or other property to a Person or Persons shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV, but the holders of shares of Series D Preferred Stock shall
nevertheless be entitled from and after any such consolidation, merger or sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets to the rights provided by this Article IV following any such transaction.
Notice of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when, and the place or places
where, the amounts distributable to each holder of shares of Series D Preferred
Stock in such circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any payment date
stated therein, to
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holders of record as they appear on the stock record books of the Corporation as
of the date such notices are first mailed.
V. REDEMPTION
A. OPTIONAL REDEMPTION. Commencing on the earlier to occur of (x) the
February 10, 2009 and (y) the date on which fewer than 25% of the shares of
Series D Preferred Stock issued on the Issue Date remain outstanding, and at all
times thereafter, the Corporation may, at its option, redeem all (but not less
than all) outstanding shares of Series D Preferred Stock on a date specified by
the Corporation (the "Optional Redemption Date") by paying the Redemption Price
therefor in cash out funds legally available for such purpose.
B. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption of shares of
Series D Preferred Stock pursuant to paragraph A of this Article V (a "Notice of
Redemption") shall be sent to the holders of record of the shares of Series D
Preferred Stock to be redeemed by first class mail, postage prepaid, at each
such holder's address as it appears on the stock record books of the Corporation
not more than 120 nor fewer than 90 days prior to the Optional Redemption Date,
as applicable, which date shall be set forth in such notice (the "Redemption
Date"); provided that failure to give such Notice of Redemption to any holder,
or any defect in such Notice of Redemption to any holder shall not affect the
validity of the proceedings for the redemption of any shares of Series D
Preferred Stock held by any other holder. In order to facilitate the redemption
of shares of Series D Preferred Stock, the Board of Directors may fix a record
date for the determination of the holders of shares of Series D Preferred Stock
to be redeemed not more than 30 days prior to the date the Notice of Redemption
is mailed. On or after the Optional Redemption Date, as applicable, each holder
of the shares called for redemption shall surrender the certificate evidencing
such shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption Price for such
shares. From and after the Optional Redemption Date, as applicable, all
dividends on shares of Series D Preferred Stock shall cease to accumulate and
all rights of the holders thereof as holders of Series D Preferred Stock shall
cease and terminate, except to the extent the Corporation shall default in
payment thereof on the Optional Redemption Date, as applicable.
C. DEPOSIT OF FUNDS. The Corporation shall, on or prior to the Optional
Redemption Date, as applicable, pursuant to paragraph B of this Article V,
deposit with its transfer agent or other redemption agent in the Borough of
Manhattan, The City of New York having a capital and surplus of at least
$500,000,000 selected by the Board of Directors, as a trust fund for the benefit
of the holders of the shares of Series D Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption, with irrevocable instructions and authority to
such transfer agent or other redemption agent to pay to the respective holders
of such shares, as evidenced by a list of such holders certified by an officer
of the Corporation, the Redemption Price upon surrender of their respective
share certificates. Such deposit shall be deemed to constitute full payment of
the Redemption Price for such shares to the holders, and from and after the date
of such deposit, all rights of the holders of the shares of Series D Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. No dividends shall
accumulate on any shares of Series D Preferred Stock after the Optional
Redemption Date, as applicable, for such shares (unless the Corporation shall
fail to deposit cash sufficient to redeem all such shares). In case holders of
any shares of Series D Preferred Stock called for redemption shall not, within
two years after such deposit, claim the cash deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand, pay over to
the Corporation the balance so deposited. Thereupon, such transfer agent or
other redemption agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to shares to be
redeemed, shall be to receive the Redemption Price as general creditors of the
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Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.
VI. RESTRICTIONS ON DIVIDENDS
So long as any shares of the Series D Preferred Stock are outstanding, the
Board of Directors shall not declare, and the Corporation shall not pay or set
apart for payment any dividend on any Junior Securities or make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the repurchase, redemption or other retirement of, any Junior Securities or
Parity Securities or any warrants, rights or options exercisable for or
convertible into any Junior Securities or Parity Securities (other than the
repurchase, redemption or other retirement of debentures or other debt
securities that are convertible or exchangeable into any Junior Securities or
Parity Securities), or make any distribution in respect of the Junior
Securities, either directly or indirectly, and whether in cash, obligations or
shares of the Corporation or other property (other than distributions or
dividends in Junior Securities to the holders of Junior Securities), and shall
not permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any Junior Securities or Parity Securities
or any warrants, rights, calls or options exercisable for or convertible into
any Junior Securities or Parity Securities (other than the repurchase,
redemption or other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity Securities or
the repurchase, redemption or other retirement of Junior Securities or Parity
Securities in exchange for Junior Securities or Parity Securities) unless prior
to or concurrently with such declaration, payment, setting apart for payment,
repurchase, redemption or other retirement or distribution, as the case may be,
all accumulated and unpaid dividends on shares of the Series D Preferred Stock
not paid on the dates provided for in paragraph A of Article III hereof
(including Arrearages and accumulated dividends thereon) shall have been paid,
except that when dividends are not paid in full as aforesaid upon the shares of
Series D Preferred Stock, all dividends declared on the Series D Preferred Stock
and any series of Parity Dividend Securities shall be declared and paid pro rata
so that the amount of dividends so declared and paid on Series D Preferred Stock
and such series of Parity Dividend Securities shall in all cases bear to each
other the same ratio that accumulated dividends (including interest accrued on
or additional dividends accumulated in respect of such accumulated dividends) on
the shares of Series D Preferred Stock and such Parity Dividend Securities bear
to each other.
VII. VOTING RIGHTS
A. The holders of Series D Preferred Stock shall be entitled to the number
of votes per share of Series D Preferred Stock equal to the number of shares of
Common Stock for which such share of Series D Preferred Stock is then
convertible pursuant to Article VIII at each meeting of stockholders of the
Corporation with respect to any and all matters presented to the stockholders of
the Corporation for their action and consideration, other than the election of
directors.
B. So long as any shares of the Series D Preferred Stock are outstanding,
(i) each share of Series D Preferred Stock shall entitle the holder thereof to
vote on all matters voted on by holders of Common Stock, other than the election
of directors; and (ii) the shares of Series D Preferred Stock shall vote
together with shares of Common Stock and shares of Series B Preferred Stock and
the Series C Preferred Stock as a single class.
C. Without the written consent (if action by written consent is permitted)
or affirmative vote of the holders of a majority of the outstanding shares of
Series D Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
voting together as a single class, the Corporation shall not (i) authorize,
create or issue, or increase the authorized amount of, (x) any Senior Securities
or Parity Securities or (y) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock,
redeemable mandatorily or redeemable at the option of the holder thereof or
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(ii) enter into any Transaction (as defined in paragraph H of Article VIII).
Such vote or consent shall be taken in accordance with the procedures specified
in paragraph E below.
D. Without the written consent (if action by written consent is permitted)
or affirmative vote of the holders of at least a majority of the outstanding
shares of Series D Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, voting together as a single class, the Corporation shall not
(i) amend, alter or repeal any provision of the Certificate of Incorporation or
the Bylaws, if the amendment, alteration or repeal alters or changes the powers,
preferences or special rights of the Series D Preferred Stock so as to affect
them materially and adversely or (ii) authorize or take any other action if such
action alters or changes any of the rights of the Series D Preferred Stock in
any respect or otherwise would be inconsistent with the provisions of this
Certificate of Designations and the holders of any class or series of the
capital stock of the Corporation is entitled to vote thereon. Such vote or
consent shall be taken in accordance with the procedures specified in
paragraph E below.
E. The foregoing rights of holders of shares of Series D Preferred Stock to
take any actions as provided in this Article VII may be exercised at any annual
meeting of stockholders or at a special meeting of stockholders held for such
purpose as hereinafter provided or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action, if action by written
consent of stockholders of the Corporation is then permitted.
The Chairman of the Board of the Corporation may call, and upon written
request of holders of record of 35% of the outstanding shares of Series D
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
addressed to the Secretary of the Corporation at the principal office of the
Corporation shall call, a special meeting of the holders of shares entitled to
vote as provided herein. Such meeting shall be held within 30 days after
delivery of such request to the Secretary, at the place and upon the notice
provided by law and in the By-laws of the Corporation for the holding of
meetings of stockholders.
At each meeting of stockholders at which the holders of shares of Series D
Preferred Stock shall have the right to take any action, the presence in person
or by proxy of the holders of record of one-third of the total number of shares
of Series D Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock then outstanding and entitled to vote on the matter shall be necessary and
sufficient to constitute a quorum. At any such meeting or at any adjournment
thereof:
(A) the absence of a quorum of the holders of shares of Series D
Preferred Stock shall not prevent the election of directors to be elected by
the holders of shares of Series B Preferred Stock or the taking of any
action as provided in this Article VII; and
(B) in the absence of a quorum of the holders of shares of Series D
Preferred Stock, Series C Preferred Stock and Series B Preferred Stock, a
majority of the holders of such shares present in person or by proxy shall
have the power to adjourn the meeting as to the actions to be taken by the
holders of shares of Series D Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, from time to time and place to place without
notice other than announcement at the meeting until a quorum shall be
present.
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For taking of any action as provided in this Article VII by the holders of
shares of Series D Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, each such holder shall have one vote for each share of such
stock standing in his name on the transfer books of the Corporation as of any
record dated fixed for such purpose or, if no such date be fixed, at the close
of business on the Business Day next preceding the day on which notice is given,
or if notice if waived, at the close of business on the Business Day next
preceding the day on which the meeting is held.
F. The Corporation shall not enter into any agreement or issue any security
that prohibits, conflicts or is inconsistent with, or would be breached by, the
Corporation's performance of its obligations hereunder.
VIII. CONVERSION
The holders of the Series D Preferred Stock shall have conversion rights as
follows:
A. Each share of Series D Preferred Stock shall be convertible at the
direction of, and by notice to the Corporation from, (i) the holder
thereof or (ii) the holders of a majority of the outstanding shares of
Series D Preferred Stock, at any time, at the office of the Corporation
or any transfer agent for such Series, into one (1) fully paid and
nonassessable share of Common Stock subject to adjustment from time to
time as provided below (as so adjusted, the "conversion ratio"),
PROVIDED, that any conversion pursuant to clause (ii) above of less than
all of the outstanding shares of Series D Preferred Stock shall be on a
pro rata basis amongst all holders of Series D Preferred Stock.
B. If a holder of Series D Preferred Stock gives notice (an "Optional
Conversion Notice") of conversion under paragraph A above, such holder
shall surrender with such Optional Conversion Notice the duly endorsed
certificate or certificates for the Series D Preferred Stock being
converted, at the office of the Corporation or of any transfer agent for
such Series, and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued.
If the holders of a majority of the outstanding shares of Series D
Preferred Stock give notice of conversion under paragraph A above, the
Corporation shall notify all other record holders of Series D Preferred
Stock (a "Mandatory Conversion Notice"). Following receipt of a Mandatory
Conversion Notice, the holders of Series D Preferred Stock shall
surrender the certificate or certificates therefor duly endorsed, at the
office of the Corporation or of any transfer agent for such Series, and
shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable after the surrender of a Series D Preferred
Stock certificate or certificates pursuant to an Optional Conversion
Notice or Mandatory Conversion Notice, issue and deliver at such office
to such holder, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on
the date of such Optional Conversion Notice or Mandatory Conversion
Notice, as applicable, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the recordholder or holders of such shares of Common
Stock as of such date. The issuance of certificates or shares of Common
Stock upon conversion of shares of Series D Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of
such issuance.
C. No fractional shares shall be issued upon conversion of any shares of
Series D Preferred Stock and the number of shares of Common Stock to be
issued shall be rounded down to the nearest whole share, and the holder
of Series D Preferred Stock shall be paid in cash for any fractional
share.
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D. In case at any time or from time to time the Corporation shall pay any
dividend or make any other distribution to the holders of its Common
Stock or other class of securities, or shall offer for subscription pro
rata to the holders of its Common Stock or other class of securities any
additional shares of stock of any class or any other right, or there
shall be any capital reorganization or reclassification of the Common
Stock of the Corporation or consolidation or merger of the Corporation
with or into another corporation, or any sale or conveyance to another
corporation of the property of the Corporation as an entirety or
substantially as an entirety, or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
then, in any one or more of said cases the Corporation shall give at
least 20 days' prior written notice (the time of mailing of such notice
shall be deemed to be the time of giving thereof) to the registered
holders of the Series D Preferred Stock at the addresses of each as shown
on the books of the Corporation maintained by the Transfer Agent thereof
of the date on which (i) the books of the Corporation shall close or a
record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such reorganization, reclassification,
consolidation, merger, sale or conveyance, dissolution, liquidation or
winding up shall take place, as the case may be, provided that in the
case of any Transaction to which paragraph H applies the Corporation
shall give at least 30 days' prior written notice as aforesaid. Such
notice shall also specify the date as of which the holders of the Common
Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance or
participate in such dissolution, liquidation or winding up, as the case
may be. Failure to give such notice shall not invalidate any action so
taken.
E. The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series D Preferred Stock, such
number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of
Series D Preferred Stock, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series D Preferred Stock,
then in addition to such other remedies as shall be available to the
holder of Series D Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
F. Any notice required by the provisions of paragraph D to be given the
holders of shares of Series D Preferred Stock shall be deemed given if
sent by facsimile transmission, by telex, or if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at
his, her or its address appearing on the books of the Corporation.
G. The conversion ratio shall be subject to adjustment from time to time as
follows:
(i) In case the Corporation shall at any time or from time to time after
the Issue Date (A) pay a dividend or make a distribution, on the outstanding
shares of Common Stock in shares of Common Stock, (B) subdivide the
outstanding shares of Common Stock into a larger number of shares of Common
Stock, (C) combine the outstanding shares of Common Stock into a smaller
number of shares or (D) issue by reclassification of the shares of Common
Stock any shares of capital stock of the Corporation, then, and in each such
case, the conversion ratio in effect immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the
holder of any shares of Series D Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock
or other securities of the Corporation which such holder would have owned or
have been entitled to receive after the happening of any of the events
described above, had such shares of Series D Preferred Stock been
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surrendered for conversion immediately prior to the happening of such event
or the record date therefor, whichever is earlier. An adjustment made
pursuant to this clause (i) shall become effective (x) in the case of any
such dividend or distribution, immediately after the close of business on
the record date for the determination of holders of shares of Common Stock
entitled to receive such dividend or distribution, or (y) in the case of any
such subdivision, reclassification or combination, at the close of business
on the day upon which such corporate action becomes effective.
(ii) In the case the Corporation shall, after the Issue Date, issue
shares of Common Stock at a price per share, or securities convertible into
or exchangeable for shares of Common Stock ("Convertible Securities") having
a "Conversion Price" (as defined below) less than the Current Market Price
(for a period of 15 consecutive trading days prior to such date), then, and
in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series D Preferred Stock shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the applicable conversion ratio on the day immediately prior
to such date by (B) a fraction, the numerator of which shall be the sum of
(1) the number of shares of Common Stock outstanding on the date on which
such shares or Convertible Securities are issued and (2) the number of
additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x) the number of shares of Common Stock outstanding on such date and
(y) the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock
so issued, or the number of shares of Common Stock which the aggregate of
the Conversion Price of such Convertible Securities so issued, would
purchase at such Current Market price on such date. An adjustment made
pursuant to this clause (ii) shall be made on the next Business Day
following the date on which any such issuance is made and shall be effective
retroactively immediately after the close of business on such date. For
purposes of this clause (ii), the aggregate consideration receivable by the
Corporation in connection with the issuance of any securities shall be
deemed to be the sum of the aggregate offering price to the public (before
deduction of underwriting discounts or commissions and expenses payable to
third parties), and the "Conversion Price" of any Convertible Securities is
the total amount received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities (before deduction of
underwriting discounts or commissions and expenses payable to third parties)
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion, exchange or exercise of any
such Convertible Securities. Neither (A) the issuance of any shares of
Common Stock (whether treasury shares or newly issued shares) pursuant to a
dividend or distribution on, or subdivision, combination or reclassification
of, the outstanding shares of Common Stock requiring an adjustment in the
conversion ratio pursuant to clause (i) of this paragraph G, or pursuant to
any employee benefit plan or program of the Corporation or pursuant to any
option, warrant, right, or Convertible Security outstanding as of the date
hereof (including, but not limited to, the Rights, the Series B Preferred
Stock, the Series D Preferred Stock and the Warrants) nor (B) the issuance
of shares of Common Stock pursuant thereto shall be deemed to constitute an
issuance of Common Stock or Convertible Securities by the Corporation to
which this clause (ii) applies. Upon expiration of any Convertible
Securities which shall not have been exercised or converted and for which an
adjustment shall have been made pursuant to this clause (ii), the Conversion
Price computed upon the original issue thereof shall upon such expiration be
recomputed as if the only additional shares of Common Stock issued were such
shares of Common Stock (if any) actually issued upon exercise of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion.
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(iii) In case the Corporation shall at any time or from time to time
after the Issue Date declare, order, pay or make a dividend or other
distribution (including, without limitation, any distribution of stock or
other securities or property or rights or warrants to subscribe for
securities of the Corporation or any of its Subsidiaries by way of dividend
or spin-off), on its Common Stock, other than (A) regular quarterly
dividends payable in cash in an aggregate amount not to exceed 15% of net
income from continuing operations before extraordinary items of the
Corporation, determined in accordance with generally accepted accounting
principles, during the period (treated as one accounting period) commencing
on July 1, 1998, and ending on the date such dividend is paid or
(B) dividends or distributions of shares of Common Stock which are referred
to in clause (i) of this paragraph G, then, and in each such case, the
conversion ratio shall be adjusted so that the holder of each share of
Series D Preferred Stock shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying
(1) the applicable conversion ratio on the day immediately prior to the
record date fixed for the determination of stockholders entitled to receive
such dividend or distribution by (2) a fraction, the numerator of which
shall be the then Current Market Price per share of Common Stock for the
period of 20 Trading Days preceding such record date, and the denominator of
which shall be such Current Market Price per share of Common Stock for the
period of 20 Trading Days preceding such record date less the Fair Market
Value (as defined in Article IX) per share of Common Stock (as determined in
good faith by the Board of Directors of the Corporation, a certified
resolution with respect to which shall be mailed to each holder of shares of
Series D Preferred Stock) of such dividend or distribution; PROVIDED,
HOWEVER, that in the event of a distribution of shares of capital stock of a
Subsidiary of the Corporation (a "Spin-Off") made to holders of shares of
Common Stock, the numerator of such fraction shall be the sum of the Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding the 35th Trading Day after the effective date of such Spin-Off and
the Current Market Price of the number of shares (or the fraction of a
share) of capital stock of the Subsidiary which is distributed in such
Spin-Off in respect of one share of Common Stock for the period of 20
Trading Days preceding such 35th Trading Day and the denominator of which
shall be the current market price per share of the Common Stock for the
period of 20 Trading Days proceeding such 35th Trading Day. An adjustment
made pursuant to this clause (iii) shall be made upon the opening of
business on the next Business Day following the date on which any such
dividend or distribution is made and shall be effective retroactively
immediately after the close of business on the record date fixed for the
determination of stockholders entitled to receive such dividend or
distribution; PROVIDED, HOWEVER, if the proviso to the preceding sentence
applies, then such adjustment shall be made and be effective as of such 35th
Trading Day after the effective date of such Spin-Off.
(iv) For purposes of this paragraph G, the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock
then owned or held by or for the account of the Corporation.
(v) The term "dividend", as used in this paragraph G shall mean a
dividend or other distribution upon stock of the Corporation except pursuant
to the Rights Agreement (as defined in Article IX). Notwithstanding anything
in this Article VIII to the contrary, the conversion ratio shall not be
adjusted as a result of any dividend, distribution or issuance of securities
of the Corporation pursuant to the Rights Agreement.
(vi) Anything in this paragraph G to the contrary notwithstanding, the
Corporation shall not be required to give effect to any adjustment in the
conversion ratio unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above provided,
shall have resulted in a change of the conversion ratio by at least
one-hundredth of one share of Common Stock, and when the cumulative net
effect of more than one adjustment so
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determined shall be to change the conversion ratio by at least one-hundredth
of one share of Common Stock, such change in conversion ratio shall
thereupon be given effect.
(vii) The certificate of any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Corporation
(which may be the firm of independent public accountants regularly employed
by the Corporation) shall be presumptively correct for any computation made
under this paragraph G.
(viii) If the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then thereafter no adjustment in the number of
shares of Common Stock issuable upon exercise of the right of conversion
granted by this paragraph G or in the conversion ratio then in effect shall
be required by reason of the taking of such record.
(ix) There shall be no adjustment of the conversion ratio in case of the
issuance of any stock of the Corporation in a merger, reorganization,
acquisition or other similar transaction except as set forth in
paragraph G(i), G(ii) and H of this Article VIII.
H. In case of any reorganization or reclassification of outstanding shares
of Common Stock (other than a reclassification covered by
paragraph G(i) of this Article VIII), or in case of any consolidation or
merger of the Corporation with or into another corporation, or in the
case of any sale or conveyance to another corporation of the property of
the Corporation as an entirety or substantially as an entirety (each of
the foregoing being referred to as a "Transaction"), each share of
Series D Preferred Stock then outstanding shall thereafter be convertible
into, in lieu of the Common Stock issuable upon such conversion prior to
consummation of such Transaction, the kind and amount of shares of stock
and other securities and property receivable (including cash) upon the
consummation of such Transaction by a holder of that number of shares of
Common Stock into which one share of Series D Preferred Stock was
convertible immediately prior to such Transaction (including, on a pro
rata basis, the cash, securities or property received by holders of
Common Stock in any tender or exchange offer that is a step in such
Transaction). In case securities or property other than Common Stock
shall be issuable or deliverable upon conversion as aforesaid, then all
reference in this paragraph H shall be deemed to apply, so far as
appropriate and as nearly as may be, to such other securities or
property.
I. Upon any adjustment of the conversion ratio then in effect and any
increase or decrease in the number of shares of Common Stock issuable
upon the operation of the conversion set forth in Article VIII, then, and
in each such case, the Corporation shall promptly deliver to the
registered holders of the Series D Preferred and Common Stock, a
certificate signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was
calculated and specifying the conversion ratio then in effect following
such adjustment and the increased or decreased number of shares issuable
upon the conversion set forth in this Article VIII.
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IX. ADDITIONAL DEFINITIONS
For the purposes of this Certificate of Designations of Series D Preferred
Stock, the following terms shall have the meanings indicated:
"Accrual Period" means the end of the first quarterly period following
February 10, 2001.
"Beneficially Own" with respect to any securities means having "beneficial
ownership" of such securities (as determined pursuant to Rule 13d-3 under the
Exchange Act as in effect on the date hereof, except that a Person shall be
deemed to Beneficially Own all such securities that such Person has the right to
acquire whether such right is exercisable immediately or after the passage of
time). The terms "Beneficial Ownership" and "Beneficial Owner" have correlative
meanings.
"Business Day" means any day, other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law or executive order to close.
"Bylaws" means the Bylaws of the Corporation, as amended.
"Current Market Price", when used with reference to shares of Common Stock
or other securities on any date, shall mean the closing price per share of
Common Stock or such other securities on such date and, when used with reference
to shares of Common Stock or other securities for any period shall mean the
average of the daily closing prices per share of Common Stock or such other
securities for such period. The closing price for each day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Current Market Price" shall mean
the Fair Market Value per share of Common Stock or of such other securities as
determined in good faith by the Board of Directors of the Corporation based on
an opinion of an independent investment banking firm with an established
national reputation as a valuer of securities, which opinion may be based on
such assumption as such firm shall deem to be necessary and appropriate.
"Equity Securities" of any Person means any and all common stock, preferred
stock and any other class of capital stock of, and any partnership or limited
liability company interests of such Person or any other similar interests of any
Person that is not a corporation, partnership or limited liability company.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, from time to time.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Group" has the meaning set forth in Rule 13d-5 under the Exchange Act.
"Issue Date" shall mean the first date on which shares of Series D Preferred
Stock are issued.
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"Person" means any individual, corporation, company, association,
partnership, joint venture, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Redemption Price" of a share of Series D Preferred Stock shall mean the sum
of (a) the dividends, if any, accumulated or deemed to have accumulated thereon
to the Optional Redemption Date, as applicable, whether or not such dividends
are declared PLUS Stated Value thereof subject, to adjustment for splits,
reclassifications, recombinations or similar events.
"Rights" shall mean any rights to purchase securities of the Corporation
issued pursuant to any Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement, dated as of June 21,
1996, between the Company and Wells Fargo Bank as rights agent, and all
amendments, supplements and replacements thereof.
"Stated Value" shall be equal to $0.85.
"Subsidiary" means, as to any Person, any other Person of which more than
50% of the shares of the Voting Securities or other voting interests are owned
or controlled, or the ability to select or elect 50% or more of the directors or
similar managers is held, directly or indirectly, by such first Person and one
or more of its Subsidiaries.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange a Business Day.
"Voting Securities" means, (i) with respect to the Company, the Equity
Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.
X. MISCELLANEOUS
A. NOTICES. Any notice referred to herein shall be in writing and, unless
first-class mail shall be specifically permitted for such notices under the
terms hereof, shall be deemed to have been given upon personal delivery thereof,
upon transmittal of such notice by telecopy (with confirmation of receipt by
telecopy or telex) or five days after transmittal by registered or certified
mail, postage prepaid, addressed as follows:
(i) if to the Corporation, to its office at 2 California Plaza,
350 South Grand Avenue, Los Angeles, California 90071
(Attention: General Counsel)
or to the transfer agent for the Series D Preferred Stock;
(ii) if to a holder of the Series D Preferred Stock, to such holder at the
address of such holder as listed in the stock record books of the
Corporation (which may include the records of any transfer agent for
the Series D Preferred Stock); or
(iii) to such other address as the Corporation or such holder, as the case
may be, shall have designated by notice similarly given.
B. REACQUIRED SHARES. Any shares of Series D Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation, directly or indirectly, in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof (and shall not be deemed to be outstanding for any purpose)
and, if necessary to provide for the lawful redemption or purchase of such
shares, the capital represented by such shares shall be reduced in accordance
with the Delaware General Corporation
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Law. All such shares of Series D Preferred Stock shall upon their cancellation
and upon the filing of an appropriate certificate with the Secretary of State of
the State of Delaware, become authorized but unissued shares of Preferred Stock,
par value $0.001 per share, of the Corporation and may be reissued as part of
another series of Preferred Stock, par value $0.001 per share, of the
Corporation subject to the conditions or restrictions on issuance set forth
herein.
C. ENFORCEMENT. Any registered holder of shares of Series D Preferred Stock
may proceed to protect and enforce its rights and the rights of such holders by
any available remedy by proceeding at law or in equity to protect and enforce
any such rights, whether for the specific enforcement of any provision in this
Certificate of Designations or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to the terms of
this Certificate of Designations, the Corporation shall pay any and all
documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series D Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series D Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.
E. TRANSFER AGENT. The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series D Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send notice thereof by first-class mail, postage prepaid, to each holder of
record of shares of Series D Preferred Stock.
F. RECORD DATES. In the event that the Series D Preferred Stock shall be
registered under either the Securities Act of 1933, as amended, or the Exchange
Act, the Corporation shall establish appropriate record dates with respect to
payments and other actions to be made with respect to the Series D Preferred
Stock.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Assistant Secretary, this day of , 2000.
<TABLE>
<S> <C> <C>
AAMES FINANCIAL CORPORATION
By:
-----------------------------------------
Name:
Title:
</TABLE>
A-14
<PAGE>
EXHIBIT B
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
PROPOSED AMENDMENTS TO
THE CERTIFICATE OF INCORPORATION WITH RESPECT TO THE
SERIES B CONVERTIBLE PREFERRED STOCK AND
SERIES C CONVERTIBLE PREFERRED STOCK
ARTICLE II, SUBSECTION (A) OF THE SERIES B CERTIFICATE OF DESIGNATIONS
Article II, Subsection (A) of the Series B Certificate of Designations
currently reads as follows:
A. With respect to dividends, the Series B Preferred Stock shall rank
(i) senior to each other class or series of Preferred Stock, except for the
Series C Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series C Preferred Stock"); (ii) on a parity with the
Series C Preferred Stock; and (iii) senior to the Corporation's Common
Stock, par value $.001 per share (the "Common Stock"), and, except as
specified above, all other classes and series of capital stock of the
Corporation hereafter issued by the Corporation. With respect to dividends,
all equity securities of the Corporation to which the Series B Preferred
Stock ranks senior, including the Common Stock, are collectively referred to
herein as the "Junior Dividend Securities"; all equity securities of the
Corporation with which the Series B Preferred Stock ranks on a parity,
including the Series C Preferred Stock, are collectively referred to herein
as the "Parity Dividend Securities"; and all equity securities of the
Corporation (other than convertible debt securities) to which the Series B
Preferred Stock ranks junior, with respect to dividends, are collectively
referred to herein as the "Senior Dividend Securities."
Article II, Subsection (A) of the Series B Certificate of Designations shall
be deleted and replaced in its entirety with the following:
A. With respect to dividends, the Series B Preferred Stock shall rank
(i) senior to each other class or series of Preferred Stock, except for the
Series C Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series C Preferred Stock") and the Series D Convertible
Preferred Stock, par value $0.001 per share, of the Corporation (the
"Series D Preferred Stock"); (ii) on a parity with the Series C Preferred
Stock and the Series D Preferred Stock; and (iii) senior to the
Corporation's Common Stock, par value $.001 per share (the "Common Stock"),
and, except as specified above, all other classes and series of capital
stock of the Corporation hereafter issued by the Corporation. With respect
to dividends, all equity securities of the Corporation to which the
Series B Preferred Stock ranks senior, including the Common Stock, are
collectively referred to herein as the "Junior Dividend Securities"; all
equity securities of the Corporation with which the Series B Preferred Stock
ranks on a parity, including the Series C Preferred Stock and the Series D
Preferred Stock, are collectively referred to herein as the "Parity Dividend
Securities"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series B Preferred Stock ranks
junior, with respect to dividends, are collectively referred to herein as
the "Senior Dividend Securities."
ARTICLE II, SUBSECTION (B) OF THE SERIES B CERTIFICATE OF DESIGNATIONS
Article II, Subsection (B) of the Series B Certificate of Designations
currently reads as follows:
B. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series B Preferred Stock shall rank (i) senior to each
other class or series of Preferred Stock of the Corporation, except for the
Series C Preferred Stock; (ii) on a parity with the Series C Preferred Stock
and the Series D
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Preferred Stock; and (iii) senior to the Common Stock, and, except as
specified above, all other classes and series of capital stock of the
Corporation hereafter issued by the Corporation. With respect to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, all equity securities of the
Corporation to which the Series B Preferred Stock ranks senior, including
the Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all equity securities of the Corporation (other than
convertible debt securities) to which the Series B Preferred Stock ranks on
parity, including the Series C Preferred Stock, are collectively referred to
herein as "Parity Liquidation Securities"; and all equity securities of the
Corporation to which the Series B Preferred Stock ranks junior are
collectively referred to herein as "Senior Liquidation Securities."
Article II, Subsection (B) of the Series B Certificate of Designations shall
be deleted and replaced in its entirely with the following:
B. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series B Preferred Stock shall rank (i) senior to each
other class or series of Preferred Stock of the Corporation, except for the
Series C Preferred Stock and the Series D Preferred Stock; (ii) on a parity
with the Series C Preferred Stock and the Series D Preferred Stock; and
(iii) senior to the Common Stock, and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by
the Corporation. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, all equity securities of the Corporation to which the
Series B Preferred Stock ranks senior, including the Common Stock, are
collectively referred to herein as "Junior Liquidation Securities"; all
equity securities of the Corporation (other than convertible debt
securities) to which the Series B Preferred Stock ranks on parity, including
the Series C Preferred Stock and the Series D Preferred Stock, are
collectively referred to herein as "Parity Liquidation Securities"; and all
equity securities of the Corporation to which the Series B Preferred Stock
ranks junior are collectively referred to herein as "Senior Liquidation
Securities."
ARTICLE VII, SUBSECTION (B) OF THE SERIES B CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (B) of the Series B Certificate of Designations
currently reads as follows:
B. So long as any shares of the Series B Preferred Stock are outstanding,
(i) each share of Series B Preferred Stock shall entitle the holder thereof
to vote on all matters voted on by holders of Common Stock; and (ii) the
shares of Series B Preferred Stock shall vote together with shares of Common
Stock (and any shares of Series C Preferred Stock entitled to vote) as a
single class.
Article VII, Subsection (B) of the Series B Certificate of Designations
shall be deleted and replaced in its entirety with the following:
B. So long as any shares of the Series B Preferred Stock are outstanding,
(i) each share of Series B Preferred Stock shall entitle the holder thereof
to vote on all matters voted on by holders of Common Stock; and (ii) the
shares of Series B Preferred Stock shall vote together with shares of Common
Stock (and any shares of Series C Preferred Stock and Series D Preferred
Stock entitled to vote) as a single class.
ARTICLE VII, SUBSECTION (D) OF THE SERIES B CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (D) of the Series B Certificate of Designations
currently reads as follows:
D. Without the written consent (if action by written consent is permitted)
or affirmative vote of the holders of a majority of the outstanding shares
of Series B Preferred Stock and Series C Preferred Stock, voting together as
a single class, the Corporation shall not (i) authorize, create or
B-2
<PAGE>
issue, or increase the authorized amount of, (x) any Senior Securities or
Parity Securities or (y) any class or series of capital stock or any
security convertible into or exercisable for any class or series of capital
stock, redeemable mandatorily or redeemable at the option of the holder
thereof at any time on or prior to the Mandatory Redemption Date (whether or
not only upon the occurrence of a specified event) or (ii) enter into any
Transaction (as defined in paragraph H of Article VIII). Such vote or
consent shall be taken in accordance with the procedures specified in
paragraph F below.
Article VII, Subsection (D) of the Series B Certificate of Designations
shall be deleted and replaced in its entirety with the following:
D. Without the written consent (if action by written consent is permitted)
or affirmative vote of the holders of a majority of the outstanding shares
of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, voting together as a single class, the Corporation shall not
(i) authorize, create or issue, or increase the authorized amount of,
(x) any Senior Securities or Parity Securities or (y) any class or series of
capital stock or any security convertible into or exercisable for any class
or series of capital stock, redeemable mandatorily or redeemable at the
option of the holder thereof at any time on or prior to the Mandatory
Redemption Date (whether or not only upon the occurrence of a specified
event) or (ii) enter into any Transaction (as defined in paragraph H of
Article VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph F below.
ARTICLE VII, SUBSECTION (E) OF THE SERIES B CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (E) of the Series B Certificate of Designations
currently reads as follows:
E. Without the written consent (if action by written consent is permitted)
or affirmative vote of the holders of at least a majority of the outstanding
shares of Series B Preferred Stock and Series C Preferred Stock, voting
together as a single class, the Corporation shall not (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws, if
the amendment, alteration or repeal alters or changes the powers,
preferences or special rights of the Series B Preferred Stock so as to
affect them materially and adversely or (ii) authorize or take any other
action if such action alters or changes any of the rights of the Series B
Preferred Stock in any respect or otherwise would be inconsistent with the
provisions of this Certificate of Designations and the holders of any class
or series of the capital stock of the Corporation is entitled to vote
thereon. Such vote or consent shall be taken in accordance with the
procedures specified in paragraph F below.
Article VII, Subsection (E) of the Series B Certificate of Designations
shall be deleted and replaced in its entirety with the following:
E. Without the written consent (if action by written consent is permitted)
or affirmative vote of the holders of at least a majority of the outstanding
shares of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, voting together as a single class, the Corporation shall
not (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the Bylaws, if the amendment, alteration or repeal alters
or changes the powers, preferences or special rights of the Series B
Preferred Stock so as to affect them materially and adversely or
(ii) authorize or take any other action if such action alters or changes any
of the rights of the Series B Preferred Stock in any respect or otherwise
would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of
the Corporation is entitled to vote thereon. Such vote or consent shall be
taken in accordance with the procedures specified in paragraph F below.
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<PAGE>
ARTICLE VII, SUBSECTION (F) OF THE SERIES B CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (F) of the Series B Certificate of Designations
currently reads as follows:
F. The foregoing rights of holders of shares of Series B Preferred
Stock to take any actions as provided in this Article VII may be exercised
at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary
of the Corporation, of the holders of the minimum number of shares required
to take such action, if action by written consent of stockholders of the
Corporation is then permitted.
The Chairman of the Board of the Corporation may call, and upon written
request of holders of record of 35% of the outstanding shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of record of 35% of the
outstanding shares of Series B Preferred Stock and Series C Preferred Stock,
if the holders of shares of Series B Preferred Stock are to vote as a class
with the holders of shares of any Series C Preferred Stock, addressed to the
Secretary of the Corporation at the principal office of the Corporation
shall call, a special meeting of the holders of shares entitled to vote as
provided herein. Such meeting shall be held within 30 days after delivery of
such request to the Secretary, at the place and upon the notice provided by
law and in the By-laws of the Corporation for the holding of meetings of
stockholders.
At each meeting of stockholders at which the holders of shares of
Series B Preferred Stock shall have the right, voting separately as a single
class or as a class with the holders of shares of any Series C Preferred
Stock, to elect directors of the Corporation as provided in paragraph C
above or to take any action, the presence in person or by proxy of the
holders of record of one-third of the total number of shares of Series B
Preferred Stock, if the holders of shares of Series B Preferred Stock are to
vote separately as a single class, or the holders of record of one-third of
the total number of shares of Series B Preferred Stock and Series C
Preferred Stock, if the holder of shares of Series B Preferred Stock are to
vote as a class with the holders of shares of Series C Preferred Stock, then
outstanding and entitled to vote on the matter shall be necessary and
sufficient to constitute a quorum. At any such meeting or at any adjournment
thereof:
(A) the absence of a quorum of the holders of shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, shall not prevent the election of directors
other than those to be elected by the holders of shares of Series B
Preferred Stock, and the absence of a quorum of the holders of shares of
any other class or series of capital stock shall not prevent the election
of directors to be elected by the holders of shares of Series B Preferred
Stock or the taking of any action as provided in this Article VII; and
(B) in the absence of a quorum of the holders of shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of shares of Series B
Preferred Stock and Series C Preferred Stock, if the holders of Series B
Preferred Stock are to vote as a class with the holders of shares of
Series C Preferred Stock, a majority of the holders of such shares
present in person or by proxy shall have the power to adjourn the meeting
as to the actions to be taken by the holders of shares of Series B
Preferred Stock or the holders of Series B Preferred Stock and Series C
Preferred Stock, as the case may be, from time to time and place to place
without notice other than announcement at the meeting until a quorum
shall be present.
For taking of any action as provided in this Article VII by the holders
of shares of Series B Preferred Stock voting separately as a single class or
together with the holders of shares of Series B Preferred Stock and
Series C Preferred Stock as a single class, as the case may be, each
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<PAGE>
such holder shall have one vote for each share of such stock standing in his
name on the transfer books of the Corporation as of any record dated fixed
for such purpose or, if no such date be fixed, at the close of business on
the Business Day next preceding the day on which notice is given, or if
notice if waived, at the close of business on the Business Day next
preceding the day on which the meeting is held.
In case any vacancy shall occur among the directors elected by the
holders of shares of Series B Preferred Stock, as provided in paragraph C
above, such vacancy may be filled for the unexpired portion of the term by
vote of the remaining directors theretofore elected by such holders (if
there is a remaining director), or the last remaining director's successor
in office. If any such vacancy is not so filled within 20 days after the
creation thereof or if all directors so elected by the holders of Series B
Preferred Stock shall cease to serve as directors before their terms shall
expire, the holders of the Series B Preferred Stock then outstanding and
entitled to vote for such directors may, by written consent as herein
provided (if action by written consent is permitted), or at a special
meeting of such holders called as provided herein, elect successors to hold
office for the unexpired terms of the directors whose places shall be
vacant.
Any director elected by the holders of shares of Series B Preferred
Stock voting separately as a single class may be removed from office with or
without cause by the vote or written consent (if action by written consent
is permitted) of the holders of at least a majority of the outstanding
shares of Series B Preferred Stock. A special meeting of the holders of
shares of Series B Preferred Stock may be called in accordance with the
procedures set forth in this paragraph F.
Article VII, Subsection (F) of the Series B Certificate of Designations
shall be deleted and replaced in its entirety with the following:
F. The foregoing rights of holders of shares of Series B Preferred
Stock to take any actions as provided in this Article VII may be exercised
at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary
of the Corporation, of the holders of the minimum number of shares required
to take such action, if action by written consent of stockholders of the
Corporation is then permitted.
The Chairman of the Board of the Corporation may call, and upon written
request of holders of record of 35% of the outstanding shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of record of 35% of the
outstanding shares of Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, if the holders of shares of Series B Preferred
Stock are to vote as a class with the holders of shares of any Series C
Preferred Stock and Series D Preferred Stock, addressed to the Secretary of
the Corporation at the principal office of the Corporation shall call, a
special meeting of the holders of shares entitled to vote as provided
herein. Such meeting shall be held within 30 days after delivery of such
request to the Secretary, at the place and upon the notice provided by law
and in the By-laws of the Corporation for the holding of meetings of
stockholders.
At each meeting of stockholders at which the holders of shares of
Series B Preferred Stock shall have the right, voting separately as a single
class or as a class with the holders of shares of any Series C Preferred
Stock and Series D Preferred Stock, to elect directors of the Corporation as
provided in paragraph C above or to take any action, the presence in person
or by proxy of the holders of record of one-third of the total number of
shares of Series B Preferred Stock, if the holders of shares of Series B
Preferred Stock are to vote separately as a single class, or the holders of
record of one-third of the total number of shares of Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, if the holder
of shares of Series B Preferred Stock are to vote as a class with the
holders of shares of Series C Preferred Stock and Series D
B-5
<PAGE>
Preferred Stock, then outstanding and entitled to vote on the matter shall
be necessary and sufficient to constitute a quorum. At any such meeting or
at any adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, shall not prevent the election of directors
other than those to be elected by the holders of shares of Series B
Preferred Stock, and the absence of a quorum of the holders of shares of
any other class or series of capital stock shall not prevent the election
of directors to be elected by the holders of shares of Series B Preferred
Stock or the taking of any action as provided in this Article VII; and
(B) in the absence of a quorum of the holders of shares of Series B
Preferred Stock, if the holders of Series B Preferred Stock are to vote
separately as a single class, or the holders of shares of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
if the holders of Series B Preferred Stock are to vote as a class with
the holders of shares of Series C Preferred Stock and Series D Preferred
Stock, a majority of the holders of such shares present in person or by
proxy shall have the power to adjourn the meeting as to the actions to be
taken by the holders of shares of Series B Preferred Stock or the holders
of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, as the case may be, from time to time and place to place
without notice other than announcement at the meeting until a quorum
shall be present.
For taking of any action as provided in this Article VII by the holders
of shares of Series B Preferred Stock voting separately as a single class or
together with the holders of shares of Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock as a single class, as the case
may be, each such holder shall have one vote for each share of such stock
standing in his name on the transfer books of the Corporation as of any
record dated fixed for such purpose or, if no such date be fixed, at the
close of business on the Business Day next preceding the day on which notice
is given, or if notice if waived, at the close of business on the Business
Day next preceding the day on which the meeting is held.
In case any vacancy shall occur among the directors elected by the
holders of shares of Series B Preferred Stock, as provided in paragraph C
above, such vacancy may be filled for the unexpired portion of the term by
vote of the remaining directors theretofore elected by such holders (if
there is a remaining director), or the last remaining director's successor
in office. If any such vacancy is not so filled within 20 days after the
creation thereof or if all directors so elected by the holders of Series B
Preferred Stock shall cease to serve as directors before their terms shall
expire, the holders of the Series B Preferred Stock then outstanding and
entitled to vote for such directors may, by written consent as herein
provided (if action by written consent is permitted), or at a special
meeting of such holders called as provided herein, elect successors to hold
office for the unexpired terms of the directors whose places shall be
vacant.
Any director elected by the holders of shares of Series B Preferred
Stock voting separately as a single class may be removed from office with or
without cause by the vote or written consent (if action by written consent
is permitted) of the holders of at least a majority of the outstanding
shares of Series B Preferred Stock. A special meeting of the holders of
shares of Series B Preferred Stock may be called in accordance with the
procedures set forth in this paragraph F.
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ARTICLE VIII, SUBSECTION (G)(II) OF THE SERIES B CERTIFICATE OF DESIGNATIONS
Article VIII, Subsection (G)(ii) of the Series B Certificate of Designations
currently reads as follows:
"(ii) In the case the Corporation shall, after the Issue Date, issue
shares of Common Stock at a price per share, or securities convertible into
or exchangeable for shares of Common Stock ("Convertible Securities") having
a "Conversion Price" (as defined below) less than the Current Market Price
(for a period of 15 consecutive trading days prior to such date), then, and
in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series B Preferred Stock shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the applicable conversion ratio on the day immediately prior
to such date by (B) a fraction, the numerator of which shall be the sum of
(1) the number of shares of Common Stock outstanding on the date on which
such shares or Convertible Securities are issued and (2) the number of
additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x) the number of shares of Common Stock outstanding on such date and
(y) the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock
so issued, or the number of shares of Common Stock which the aggregate of
the Conversion Price of such Convertible Securities so issued, would
purchase at such Current Market price on such date. An adjustment made
pursuant to this clause (ii) shall be made on the next Business Day
following the date on which any such issuance is made and shall be effective
retroactively immediately after the close of business on such date. For
purposes of this clause (ii), the aggregate consideration receivable by the
Corporation in connection with the issuance of any securities shall be
deemed to be the sum of the aggregate offering price to the public (before
deduction of underwriting discounts or commissions and expenses payable to
third parties), and the "Conversion Price" of any Convertible Securities is
the total amount received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities (before deduction of
underwriting discounts or commissions and expenses payable to third parties)
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion, exchange or exercise of any
such Convertible Securities. Neither (A) the issuance of any shares of
Common Stock (whether treasury shares or newly issued shares) pursuant to a
dividend or distribution on, or subdivision, combination or reclassification
of, the outstanding shares of Common Stock requiring an adjustment in the
conversion ratio pursuant to clause (i) of this paragraph G, or pursuant to
any employee benefit plan or program of the Corporation or pursuant to any
option, warrant, right, or Convertible Security outstanding as of the date
hereof (including, but not limited to, the Rights, the Series B Preferred
Stock, the Series C Preferred Stock and the Warrants) nor (B) the issuance
of shares of Common Stock pursuant thereto shall be deemed to constitute an
issuance of Common Stock or Convertible Securities by the Corporation to
which this clause (ii) applies. Upon expiration of any Convertible
Securities which shall not have been exercised or converted and for which an
adjustment shall have been made pursuant to this clause (ii), the Conversion
Price computed upon the original issue thereof shall upon expiration be
recomputed as if the only additional shares of Common Stock issued were such
shares of Common Stock (if any) actually issued upon exercise or conversion
of such Convertible Securities and the consideration received therefor was
the consideration actually received by the Corporation for the issue of such
Convertible Securities (whether or not exercised or converted) plus the
consideration actually received by the Corporation upon such exercise of
conversion."
The following sentence shall be added to the end of Article VIII, Subsection
G(ii):
"Notwithstanding anything to the contrary in this Article VIII, Subsection
G(ii), effective on [date amendment is filed], the conversion ratio shall be
adjusted to eliminate as an adjustment to the "conversion ratio", any
adjustment arising from (X) the issuance of the Series C Preferred Stock and
the issuance of warrants to purchase shares of Series C Preferred Stock
(including the future exercise of such warrants) pursuant to the Preferred
Stock Purchase Agreement, by and between Aames Financial Corporation and
Specialty Finance Partners, dated as of May 19, 2000, as amended, or
(y) the issuance of Series D Preferred Stock issued in exchange for the
Series C Preferred Stock, and any warrants for the purchase of Series D
Preferred Stock (including the future exercise of such warrants) issued in
exchange for the warrant to purchase Series C Preferred Stock, referred to
in clause (x) of this sentence."
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ARTICLE II, SUBSECTION (A) OF THE SERIES C CERTIFICATE OF DESIGNATIONS
Article II, Subsection (A) of the Series C Certificate of Designations
currently reads as follows:
A. With respect to dividends, the Series C Preferred Stock shall rank
(i) senior to each other class or series of Preferred Stock, except for the
Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series B Preferred Stock"); (ii) on a parity with the
Series B Preferred Stock; and (iii) senior to the Corporation's Common Stock,
par value $.001 per share (the "Common Stock"), and, except as specified above,
all other classes and series of capital stock of the Corporation hereafter
issued by the Corporation. With respect to dividends, all equity securities of
the Corporation to which the Series C Preferred Stock ranks senior, including
the Common Stock, are collectively referred to herein as the "Junior Dividend
Securities"; all equity securities of the Corporation with which the Series C
Preferred Stock ranks on a parity, including the Series B Preferred Stock, are
collectively referred to herein as the "Parity Dividend Securities"; and all
equity securities of the Corporation (other than convertible debt securities) to
which the Series C Preferred Stock ranks junior, with respect to dividends, are
collectively referred to herein as the "Senior Dividend Securities."
Article II, Subsection (A) of the Series C Certificate of Designations shall
be deleted and replaced in its entirety with the following:
A. With respect to dividends, the Series C Preferred Stock shall rank
(i) senior to each other class or series of Preferred Stock, except for the
Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series B Preferred Stock") and the Series D Convertible
Preferred Stock, par value $0.001 per share, of the Corporation (the
"Series D Preferred Stock"); (ii) on a parity with the Series B Preferred
Stock and the Series D Preferred Stock; and (iii) senior to the
Corporation's Common Stock, par value $.001 per share (the "Common Stock"),
and, except as specified above, all other classes and series of capital
stock of the Corporation hereafter issued by the Corporation. With respect
to dividends, all equity securities of the Corporation to which the
Series C Preferred Stock ranks senior, including the Common Stock, are
collectively referred to herein as the "Junior Dividend Securities"; all
equity securities of the Corporation with which the Series C Preferred Stock
ranks on a parity, including the Series B Preferred Stock and the Series D
Preferred Stock, are collectively referred to herein as the "Parity Dividend
Securities"; and all equity securities of the Corporation (other than
convertible debt securities) to which the Series C Preferred Stock ranks
junior, with respect to dividends, are collectively referred to herein as
the "Senior Dividend Securities."
ARTICLE II, SUBSECTION (B) OF THE SERIES C CERTIFICATE OF DESIGNATIONS
Article II, Subsection (B) of the Series C Certificate of Designations
currently reads as follows:
B. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series C Preferred Stock shall rank (i) senior to each
other class or series of Preferred Stock, except for the Series B Preferred
Stock; (ii) on a parity with the Series B Preferred Stock; and (iii) senior
to the Common Stock, and, except as specified above, all other classes and
series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, all equity securities of the Corporation to which the Series C
Preferred Stock ranks senior, including the Common Stock, are collectively
referred to herein as "Junior Liquidation Securities"; all equity securities
of the Corporation (other than convertible debt securities) to which the
Series C Preferred Stock ranks on parity, including the Series B Preferred
Stock, are collectively referred to herein as "Parity
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Liquidation Securities"; and all equity securities of the Corporation to
which the Series C Preferred Stock ranks junior are collectively referred to
herein as "Senior Liquidation Securities."
Article II, Subsection (B) of the Series C Certificate of Designations shall
be deleted and replaced in its entirety with the following:
B. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the Series C Preferred Stock shall rank (i) senior to each
other class or series of Preferred Stock, except for the Series B Preferred
Stock and the Series D Preferred Stock; (ii) on a parity with the Series B
Preferred Stock and Series D Preferred Stock; and (iii) senior to the Common
Stock, and, except as specified above, all other classes and series of
capital stock of the Corporation hereafter issued by the Corporation. With
respect to the distribution of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, all equity
securities of the Corporation to which the Series C Preferred Stock ranks
senior, including the Common Stock, are collectively referred to herein as
"Junior Liquidation Securities"; all equity securities of the Corporation
(other than convertible debt securities) to which the Series C Preferred
Stock ranks on parity, including the Series B Preferred Stock and the
Series D Preferred Stock, are collectively referred to herein as "Parity
Liquidation Securities"; and all equity securities of the Corporation to
which the Series C Preferred Stock ranks junior are collectively referred to
herein as "Senior Liquidation Securities."
ARTICLE VII, SUBSECTION (B) OF THE SERIES C CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (B) of the Series C Certificate of Designations
currently reads as follows:
B. So long as any shares of the Series C Preferred Stock are
outstanding, (i) each share of Series C Preferred Stock shall entitle the
holder thereof to vote on all matters voted on by holders of Common Stock,
other than the election of directors; and (ii) the shares of Series C
Preferred Stock shall vote together with shares of Common Stock and shares
of Series B Preferred Stock as a single class.
Article VII, Subsection (B) of the Series C Certificate of Designations
shall be deleted and replaced in its entirety with the following:
B. So long as any shares of the Series C Preferred Stock are
outstanding, (i) each share of Series C Preferred Stock shall entitle the
holder thereof to vote on all matters voted on by holders of Common Stock,
other than the election of directors; and (ii) the shares of Series C
Preferred Stock shall vote together with shares of Common Stock, shares of
Series B Preferred Stock and shares of the Series D Preferred Stock, as a
single class.
ARTICLE VII, SUBSECTION (C) OF THE SERIES C CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (C) of the Series C Certificate of Designations
currently reads as follows:
C. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of a majority of the
outstanding shares of Series C Preferred Stock and Series B Preferred Stock,
voting together as a single class, the Corporation shall not (i) authorize,
create or issue, or increase the authorized amount of, (x) any Senior
Securities or Parity Securities or (y) any class or series of capital stock
or any security convertible into or exercisable for any class or series of
capital stock, redeemable mandatorily or redeemable at the option of the
holder thereof at any time on or prior to the Mandatory Redemption Date
(whether or not only upon the occurrence of a specified event) or
(ii) enter into any Transaction (as defined in paragraph H of
Article VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.
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Article VII, Subsection (C) of the Series C Certificate of Designations
shall be deleted and replaced in its entirety with the following:
C. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of a majority of the
outstanding shares of Series C Preferred Stock, Series B Preferred Stock and
Series D Preferred Stock, voting together as a single class, the Corporation
shall not (i) authorize, create or issue, or increase the authorized amount
of, (x) any Senior Securities or Parity Securities or (y) any class or
series of capital stock or any security convertible into or exercisable for
any class or series of capital stock, redeemable mandatorily or redeemable
at the option of the holder thereof at any time on or prior to the Mandatory
Redemption Date (whether or not only upon the occurrence of a specified
event) or (ii) enter into any Transaction (as defined in paragraph H of
Article VIII). Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.
ARTICLE VII, SUBSECTION (D) OF THE SERIES C CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (D) of the Series C Certificate of Designations
currently reads as follows:
D. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock and Series B Preferred Stock,
voting together as a single class, the Corporation shall not (i) amend,
alter or repeal any provision of the Certificate of Incorporation or the
Bylaws, if the amendment, alteration or repeal alters or changes the powers,
preferences or special rights of the Series C Preferred Stock so as to
affect them materially and adversely or (ii) authorize or take any other
action if such action alters or changes any of the rights of the Series C
Preferred Stock in any respect or otherwise would be inconsistent with the
provisions of this Certificate of Designations and the holders of any class
or series of the capital stock of the Corporation is entitled to vote
thereon. Such vote or consent shall be taken in accordance with the
procedures specified in paragraph E below.
Article VII, Subsection (D) of the Series C Certificate of Designations
shall be deleted and replaced in its entirety with the following:
D. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock, Series B Preferred Stock and
Series D Preferred Stock, voting together as a single class, the Corporation
shall not (i) amend, alter or repeal any provision of the Certificate of
Incorporation or the Bylaws, if the amendment, alteration or repeal alters
or changes the powers, preferences or special rights of the Series C
Preferred Stock so as to affect them materially and adversely or
(ii) authorize or take any other action if such action alters or changes any
of the rights of the Series C Preferred Stock in any respect or otherwise
would be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the capital stock of
the Corporation is entitled to vote thereon. Such vote or consent shall be
taken in accordance with the procedures specified in paragraph E below.
ARTICLE VII, SUBSECTION (E) OF THE SERIES C CERTIFICATE OF DESIGNATIONS
Article VII, Subsection (E) of the Series C Certificate of Designations
currently reads as follows:
E. The foregoing rights of holders of shares of Series C Preferred
Stock to take any actions as provided in this Article VII may be exercised
at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary
of the Corporation, of
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the holders of the minimum number of shares required to take such action, if
action by written consent of stockholders of the Corporation is then
permitted.
The Chairman of the Board of the Corporation may call, and upon written
request of holders of record of 35% of the outstanding shares of Series C
Preferred Stock and Series B Preferred Stock, addressed to the Secretary of
the Corporation at the principal office of the Corporation shall call, a
special meeting of the holders of shares entitled to vote as provided
herein. Such meeting shall be held within 30 days after delivery of such
request to the Secretary, at the place and upon the notice provided by law
and in the By-laws of the Corporation for the holding of meetings of
stockholders.
At each meeting of stockholders at which the holders of shares of
Series C Preferred Stock shall have the right to take any action, the
presence in person or by proxy of the holders of record of one-third of the
total number of shares of Series C Preferred Stock and Series B Preferred
Stock then outstanding and entitled to vote on the matter shall be necessary
and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series C
Preferred Stock shall not prevent the election of directors to be elected
by the holders of shares of Series B Preferred Stock or the taking of any
action as provided in this Article VII; and
(B) in the absence of a quorum of the holders of shares of Series C
Preferred Stock and Series B Preferred Stock, a majority of the holders
of such shares present in person or by proxy shall have the power to
adjourn the meeting as to the actions to be taken by the holders of
shares of Series C Preferred Stock and Series B Preferred Stock, from
time to time and place to place without notice other than announcement at
the meeting until a quorum shall be present.
For taking of any action as provided in this Article VII by the holders
of shares of Series C Preferred Stock and Series B Preferred Stock, each
such holder shall have one vote for each share of such stock standing in his
name on the transfer books of the Corporation as of any record dated fixed
for such purpose or, if no such date be fixed, at the close of business on
the Business Day next preceding the day on which notice is given, or if
notice if waived, at the close of business on the Business Day next
preceding the day on which the meeting is held.
Article VII, Subsection (E) of the Series C Certificate of Designations
shall be deleted and replaced in its entirety with the following:
E. The foregoing rights of holders of shares of Series C Preferred
Stock to take any actions as provided in this Article VII may be exercised
at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary
of the Corporation, of the holders of the minimum number of shares required
to take such action, if action by written consent of stockholders of the
Corporation is then permitted.
The Chairman of the Board of the Corporation may call, and upon written
request of holders of record of 35% of the outstanding shares of Series C
Preferred Stock, Series B Preferred Stock and Series D Preferred Stock,
addressed to the Secretary of the Corporation at the principal office of the
Corporation shall call, a special meeting of the holders of shares entitled
to vote as provided herein. Such meeting shall be held within 30 days after
delivery of such request to the Secretary, at the place and upon the notice
provided by law and in the By-laws of the Corporation for the holding of
meetings of stockholders.
At each meeting of stockholders at which the holders of shares of
Series C Preferred Stock shall have the right to take any action, the
presence in person or by proxy of the holders of record
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of one-third of the total number of shares of Series C Preferred Stock,
Series B Preferred Stock and Series D Preferred Stock then outstanding and
entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At any such meeting or at any adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series C
Preferred Stock shall not prevent the election of directors to be elected
by the holders of shares of Series B Preferred Stock or the taking of any
action as provided in this Article VII; and
(B) in the absence of a quorum of the holders of shares of Series C
Preferred Stock, Series B Preferred Stock and Series D Preferred Stock, a
majority of the holders of such shares present in person or by proxy
shall have the power to adjourn the meeting as to the actions to be taken
by the holders of shares of Series C Preferred Stock, Series B Preferred
Stock, and Series D Preferred Stock, from time to time and place to place
without notice other than announcement at the meeting until a quorum
shall be present.
For taking of any action as provided in this Article VII by the holders of
shares of Series C Preferred Stock, Series B Preferred Stock and Series D
Preferred Stock, each such holder shall have one vote for each share of such
stock standing in his name on the transfer books of the Corporation as of any
record dated fixed for such purpose or, if no such date be fixed, at the close
of business on the Business Day next preceding the day on which notice is given,
or if notice if waived, at the close of business on the Business Day next
preceding the day on which the meeting is held.
ARTICLE VIII, SUBSECTION (G)(II) OF THE SERIES C CERTIFICATE OF DESIGNATIONS
Article VIII, Subsection (G)(ii) of the Series C Certificate of Designations
current reads as follows:
(ii) In the case the Corporation shall, after the Issue Date, issue
shares of Common Stock at a price per share, or securities convertible into
or exchangeable for shares of Common Stock ("Convertible Securities") having
a "Conversion Price" (as defined below) less than the Current Market Price
(for a period of 15 consecutive trading days prior to such date), then, and
in each such case, the conversion ratio shall be adjusted so that the holder
of each share of Series C Preferred Stock shall be entitled to receive, upon
the conversion thereof, the number of shares of Common Stock determined by
multiplying (A) the applicable conversion ratio on the day immediately prior
to such date by (B) a fraction, the numerator of which shall be the sum of
(1) the number of shares of Common Stock outstanding on the date on which
such shares or Convertible Securities are issued and (2) the number of
additional shares of Common Stock issued, or into which the Convertible
Securities may convert, and the denominator of which shall be the sum of
(x) the number of shares of Common Stock outstanding on such date and
(y) the number of shares of Common Stock which the aggregate consideration
receivable by the Corporation for the total number of shares of Common Stock
so issued, or the number of shares of Common Stock which the aggregate of
the Conversion Price of such Convertible Securities so issued, would
purchase at such Current Market price on such date. An adjustment made
pursuant to this clause (ii) shall be made on the next Business Day
following the date on which any such issuance is made and shall be effective
retroactively immediately after the close of business on such date. For
purposes of this clause (ii), the aggregate consideration receivable by the
Corporation in connection with the issuance of any securities shall be
deemed to be the sum of the aggregate offering price to the public (before
deduction of underwriting discounts or commissions and expenses payable to
third parties), and the "Conversion Price" of any Convertible Securities is
the total amount received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities (before deduction of
underwriting discounts or commissions and expenses payable to third parties)
plus the minimum aggregate amount of additional consideration,
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if any, payable to the Corporation upon the conversion, exchange or exercise
of any such Convertible Securities. Neither (A) the issuance of any shares
of Common Stock (whether treasury shares or newly issued shares) pursuant to
a dividend or distribution on, or subdivision, combination or
reclassification of, the outstanding shares of Common Stock requiring an
adjustment in the conversion ratio pursuant to clause (i) of this
paragraph G, or pursuant to any employee benefit plan or program of the
Corporation or pursuant to any option, warrant, right, or Convertible
Security outstanding as of the date hereof (including, but not limited to,
the Rights, the Series B Preferred Stock, the Series C Preferred Stock and
the Warrants) nor (B) the issuance of shares of Common Stock pursuant
thereto shall be deemed to constitute an issuance of Common Stock or
Convertible Securities by the Corporation to which this clause (ii) applies.
Upon expiration of any Convertible Securities which shall not have been
exercised or converted and for which an adjustment shall have been made
pursuant to this clause (ii), the Conversion Price computed upon the
original issue thereof shall upon such expiration be recomputed as if the
only additional shares of Common Stock issued were such shares of Common
Stock (if any) actually issued upon exercise of such Convertible Securities
and the consideration received therefor was the consideration actually
received by the Corporation for the issue of such Convertible Securities
(whether or not exercised or converted) plus the consideration actually
received by the Corporation upon such exercise of conversion.
The following sentence shall be added to the end of Article VIII, Subsection
G(ii):
"Notwithstanding anything to the contrary in this Article VIII, Subsection
G(ii), effective on [date amendment is filed], the conversion ratio shall be
adjusted to eliminate as an adjustment to the "conversion ratio", any
adjustment arising from (X) the issuance of the Series C Preferred Stock and
the issuance of warrants to purchase shares of Series C Preferred Stock
(including the future exercise of such warrants) pursuant to the Preferred
Stock Purchase Agreement, by and between Aames Financial Corporation and
Specialty Finance Partners, dated as of May 19, 2000, as amended, or
(y) the issuance of Series D Preferred Stock issued in exchange for the
Series C Preferred Stock, and any warrants for the purchase of Series D
Preferred Stock (including the future exercise of such warrants) issued in
exchange for the warrant to purchase Series C Preferred Stock, referred to
in clause (x) of this sentence."
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EXHIBIT C
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
AAMES FINANCIAL CORPORATION
AMENDED AND RESTATED
1999 STOCK OPTION PLAN
(AMENDED AND RESTATED
AS OF JULY , 2000)
ARTICLE I.
PURPOSE
This Amended and Restated Stock Option Plan (the "Plan") is intended as an
incentive and to encourage stock ownership by officers and certain other key
employees of Aames Financial Corporation (the "Company") in order to increase
their proprietary interest in the Company's success and to encourage them to
remain in the employ of the Company.
The term "Company," when used in the Plan with reference to eligibility and
employment, shall include the Company and its subsidiaries. The word
"subsidiary," when used in the Plan, shall mean any subsidiary of the Company
within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is intended that certain options granted under this Plan will qualify as
"incentive stock options" under Section 422 of the Code ("incentive stock
options") and other options granted hereunder not so qualify ("non-qualified
stock options").
ARTICLE II.
ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Compensation Committee") of the Board of Directors of the Company (the "Board")
appointed by the Board which shall consist of not less than three members, two
of whom shall be appointed by Capital Z Financial Services Fund II, L.P.
("Capital Z") during any period that Capital Z and/or its designated purchasers
under the Preferred Stock Purchase Agreement by and among the Company and
Capital Z, dated as of the 23rd day of December, 1998 (the "Purchase Agreement")
own at least 25% of the outstanding voting securities of the Company (the
"Minimum Stock Ownership Threshold"). However, notwithstanding anything to the
contrary in this Section, only the Stock Option Committee (the "Stock Option
Committee") shall have the authority to grant stock options, to the Chief
Executive Officer, to the four highest compensated officers other than the Chief
Executive Officer and other individuals considered insiders within the meaning
of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and all such grants shall be effective only upon ratification by the
Compensation Committee unless otherwise determined by the Board, each of the
members of the Stock Option Committee should be an "outside director" within the
meaning of Section 162(m) of the Code and a nonemployee director within the
meaning of Rule 16b-3 under the Exchange Act. (Any member of the Board who meets
the criteria of the prior sentence is hereafter referred to as an "Outside
Director" and the Compensation Committee and the Stock Option Committee
depending on which committee is taking action hereunder, respectively, is
hereinafter referred to as the "Committee"). Subject to the provisions of the
Plan, the Committee shall have sole authority, in its absolute discretion:
(a) to determine which of the eligible employees of the Company shall be granted
options; (b) to authorize the granting of both incentive stock options and
nonqualified options; (c) to determine the times when
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options shall be granted and the number of shares to be optioned; (d) to
determine the option price of the shares subject to each option, which price
shall be not less than the minimum specified in ARTICLE V; (e) to determine the
time or times when each option becomes exercisable, the duration of the exercise
period and any other restrictions on the exercise of options issued hereunder;
(f) to prescribe the form or forms of the option agreements under the Plan
(which forms shall be consistent with the terms of the Plan but need not be
identical); (g) to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan; and (h) to
construe and interpret the Plan, the rules and regulations and the option
agreements under the Plan and to make all other determinations deemed necessary
or advisable for the administration of the Plan. All decisions, determinations
and interpretations of the Compensation Committee shall be final and binding on
all optionees.
ARTICLE III.
STOCK
The stock to be optioned under the Plan shall be shares of authorized but
unissued Common Stock of the Company, par value $.001 per share, or previously
issued shares of Common Stock reacquired by the Company (the "Stock"). Under the
Plan, the total number of shares of Stock which may be purchased pursuant to
options granted hereunder shall not exceed, in the aggregate, 12,000,000 shares,
except as such number of shares shall be adjusted in accordance with the
provisions of ARTICLE X hereof.
The number of shares of Stock available for grant of options under the Plan
shall be decreased by the sum of the number of shares with respect to which
options have been issued and are then outstanding and the number of shares
issued upon exercise of options. In the event that any outstanding option under
the Plan for any reason expires, is terminated or is canceled prior to the end
of the period during which options may be granted, the shares of Stock called
for by the unexercised portion of such option may again be subject to an option
under the Plan.
ARTICLE IV.
ELIGIBILITY OF PARTICIPANTS
Subject to ARTICLE VII in the case of incentive stock options, officers and
other key employees of the Company (excluding any person who is an outside
director) shall be eligible to receive discretionary grants of options under the
Plan. In addition, options which are not incentive stock options may be granted
to consultants or other key persons (excluding any person who is an outside
director) who the Committee determines shall receive options under the Plan. No
person may receive options for more than 5,500,000 shares of Stock during the
term of the Plan.
ARTICLE V.
OPTION EXERCISE PRICE
Subject to ARTICLE VII in the case of incentive stock options, except as
otherwise provided by the Committee in the option agreement, the option exercise
price of each option granted under the Plan shall not be less than the Fair
Market Value of Stock at the time the option is granted. Fair Market Value shall
in all cases be based on trading days occurring after the "Initial Closing Date"
as such term is defined in the Purchase Agreement. For purposes of the Plan, the
Fair Market Value on a given date means (i) if the Stock is listed on a national
securities exchange, the average of the closing sale prices reported as having
occurred on the primary exchange with which the Stock is listed and traded
during the twenty (20) trading days occurring immediately prior to such date;
(ii) if the Stock is
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not listed on any national securities exchange but is quoted in the National
Market System of the National Association of Securities Dealers Automated
Quotation System on a last sale basis, the average between the high bid price
and low ask price reported during the twenty (20) trading days occurring
immediately prior to such date; or (iii) if the Stock is not listed on a
national securities exchange nor quoted in the National Market System of the
National Association of Securities Dealers Automated Quotation System on a last
sale basis, the amount determined by the Committee to be the fair market value
based upon a good faith attempt to value the Stock accurately and computed in
accordance with applicable regulations of the Internal Revenue Service.
ARTICLE VI.
EXERCISE AND TERMS OF OPTIONS
Subject to this ARTICLE VI, the Committee shall determine the dates after
which options may be exercised, in whole or in part. If an option is exercisable
in installments, such installments or portions thereof which become exercisable
shall remain exercisable until exercise or expiration of the option.
Unless otherwise provided in the option agreement or agreed to by the
Committee at the time of exercise, each optionee shall enter into a binding
agreement with the Company at the time of grant pursuant to which such optionee
agrees (i) not to sell, assign or otherwise transfer more than 25% of the Stock
purchased pursuant to an Option in any given year and (ii) in aggregate not to
sell, assign or otherwise transfer more than 25% of the Stock purchased pursuant
to an Option over a five year period beginning on the effective date of this
Plan. Appropriate legends shall be placed on the stock certificates evidencing
shares issued upon exercise of options to reflect such transfer restrictions.
Any other provision of the Plan to the contrary notwithstanding, but subject
to ARTICLE VII in the case of incentive stock options, no option shall be
exercised after the date ten years from the date of grant of such option (the
"Termination Date").
If prior to the Termination Date, an optionee shall cease to be employed by
the Company by reason of a disability, as defined in Section 22(e)(3) of the
Code, or by reason of retirement on or after age 65 ("Retirement") the option
shall remain exercisable until the earlier of the Termination Date or one year
after the date of cessation of employment to the extent the option was
exercisable at the time of cessation of employment.
In the event of the death of an optionee prior to the Termination Date and
while employed by the Company, or while entitled to exercise an option pursuant
to the preceding paragraph or the next to last sentence of the subsequent
paragraph, the option shall remain exercisable until the earlier of the
Termination Date or one year after the date of death, by the person or person to
whom the optionee's rights under the option pass by will or the applicable laws
of descent and distribution, to the extent that the optionee was entitled to
exercise it on the date of death.
Unless otherwise provided in the option agreement, if an optionee
voluntarily terminates employment with the Company for reasons other than
(i) death, (ii) disability, (iii) Retirement, or (iv) Good Reason (as
hereinafter defined), or if an optionee's employment with the Company is
terminated for Cause (as hereinafter defined), all options previously granted to
such optionee which have not been exercised prior to such termination shall
lapse and be canceled. If the Company terminates an optionee's employment
without Cause, or if an optionee terminates his employment for Good Reason, all
options previously granted to such optionee which were vested and satisfied all
conditions to exercisability immediately prior to such termination shall
continue to be vested and exercisable for a period not extending beyond the
earlier of the Termination Date or one year after the date of such termination.
In addition, if a Change in Control (as defined in Article XI hereof) occurs
within six months from the date of termination of employment of an optionee
referred to in the preceding sentence, unvested options shall become vested and
exercisable to the same extent as if the
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Change in Control had occurred on the date of his termination of employment, and
any such options shall continue to be exercisable until the earlier of the
Termination Date or the first anniversary of optionee's termination of
employment.
In the case of any optionee who has an employment agreement with the
Company, it shall be a condition to exercise of an option that the optionee not
have engaged in any material and knowing or intentional breach of his employment
agreement. After the expiration of the exercise period described in any of the
preceding four paragraphs hereof, options shall terminate together with all of
the optionee's rights thereunder, to the extent not previously exercised.
For purposes of the Plan, the Company shall have "Cause" to terminate an
optionee's employment if the Company has cause to terminate the optionee's
employment under any existing employment agreement between the optionee and the
Company or, in the absence of an employment agreement between the optionee and
the Company, if the Company terminates the optionee after the Company reasonably
determines that the optionee: (1) shall have been determined by a court of law
to have committed any felony including, but not limited to, a felony involving
fraud, theft, misappropriation, dishonesty, embezzlement, or any other crime
involving moral turpitude, or if the optionee shall have been arrested or
indicted for violation of any criminal statute constituting a felony, provided
the Company reasonably determines that the continuation of the optionee's
employment after such event would have an adverse impact on the operation or
reputation of the Company or its affiliates (subsequent references to the
"Company" in this paragraph shall be deemed to refer to the Company or its
affiliates); (2) shall have committed one or more acts or gross negligence or
willful misconduct that, in the good faith opinion of the Company, materially
impair the goodwill or business of the Company or cause material damage to its
property, goodwill, or business, or would, if known, subject the Company to
public ridicule; (3) shall have refused or failed to a material degree to
perform his duties hereunder (continuing without cure for ten (10) days after
receipt of written notice of need to cure); (4) shall have violated any material
written Company policy provided to the Executive during or prior to the Term
(continuing without cure for ten (10) days after receipt of written notice of
need to cure) and that has caused material harm to the Company; or (5) knew, or
should have known, that the Company materially, and knowingly or intentionally
breached any representation, warranty, or covenant under the Purchase Agreement
or, if the optionee has an employment agreement with the Company, the optionee
shall have materially and intentionally or knowingly breached any provision of
such employment agreement.
For purposes of the Plan, in the case of an optionee who is not an employee
of the Company, references to employment herein shall be deemed to refer to such
person's relationship to the Company.
Upon any merger or reorganization or other business combination in which the
Company shall not be the surviving corporation, or a dissolution or liquidation
of the Company, or a sale of all or substantially all of the Company's assets,
all outstanding options shall terminate; PROVIDED, HOWEVER, that the Company
shall cause either (i) the optionees to be paid an amount equal to the
difference between (A) the aggregate fair market value (determined in accordance
with ARTICLE V of the Plan) of the Stock subject to options held by the
optionees at the time of such transaction that have become vested and
exercisable by the terms of the Plan and the applicable option agreements
(either as a result of or prior to such transaction) and (B) the aggregate
exercise price of such options, or (ii) the surviving or resulting corporation
to grant the optionees substitute options to purchase its shares on such terms
and conditions, both as to the number of shares and otherwise, which the
Committee shall deem appropriate.
Notwithstanding the foregoing provisions of this ARTICLE VI or the terms of
any option agreement, the Committee may in its sole discretion accelerate the
exercisability of any option granted hereunder. Any such acceleration shall not
affect the terms and conditions of any such option other than with respect to
exercisability.
ARTICLE VII.
SPECIAL PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS ONLY
To the extent the aggregate fair market value (determined as of the time the
option is granted) of the Stock with respect to which any options granted
hereunder which are intended to be incentive stock options may be exercisable
for the first time by the optionee in any calendar year (under this Plan or any
other stock option plan of the Company or any parent or subsidiary thereof)
exceeds $100,000, such options, but only to the degree of such excess, shall not
be considered incentive stock options but rather shall be non-qualified stock
options.
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No incentive stock option may be granted to an individual who, at the time
the option is granted, owns directly, or indirectly within the meaning of
Section 424(d) of the Code, stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary thereof, unless such option (i) has an option price of at least
110 percent of the fair market value of the Stock on the date of the grant of
such option; and (ii) cannot be exercised more than five years after the date it
is granted.
Each optionee who receives an incentive stock option must agree to notify
the Company in writing immediately after the optionee makes a disqualifying
disposition of any Stock acquired pursuant to the exercise of an incentive stock
option. A disqualifying disposition is any disposition (including any sale) of
such Stock before the later of (a) two years after the date the optionee was
granted the incentive stock option or (b) one year after the date the optionee
acquired Stock by exercising the incentive stock option.
ARTICLE VIII.
PAYMENT FOR SHARES
Payment for shares of Stock purchased under an option granted hereunder
shall be made in full upon exercise of the option, by certified or bank
cashier's check payable to the order of the Company or by any other means
determined by the Committee. The Stock purchased shall thereupon be promptly
delivered; PROVIDED, HOWEVER, that the Committee may, in its discretion, require
that an optionee pay to the Company, at the time of exercise, such amount as the
Company deems necessary to satisfy its obligation to withhold Federal, state or
local income or other taxes incurred by reason of the exercise or the transfer
of shares thereupon.
ARTICLE IX.
NON-TRANSFERABILITY OF OPTION RIGHTS
No option shall be transferable except by will or the laws of descent and
distribution. During the lifetime of the optionee, the option shall be
exercisable only by him. The Committee may, however, in its sole discretion,
allow for transfer of options which are not incentive stock options to other
persons or entities, subject to such conditions or limitations as it may
establish.
ARTICLE X.
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
The aggregate number of shares of Stock which may be purchased pursuant to
options granted hereunder, the maximum number of shares for which options may be
granted to any one person the number of shares of Stock covered by each
outstanding option and the price per share thereof in each such option shall be
appropriately adjusted for any increase or decrease in the number of outstanding
shares of stock resulting from a stock split or other subdivision or
consolidation of shares of Stock or for other capital adjustments or payments of
stock dividends or distributions or other increases or decreases in the
outstanding shares of Stock without receipt of consideration by the Company. Any
adjustment shall be conclusively determined by the Committee.
In the event of any change in the outstanding shares of Stock by reason of
any recapitalization, merger, consolidation, spin-off, combination or exchange
of shares or other corporate change, or any distributions to common shareholders
other than cash dividends, the Committee shall make such substitution or
adjustment, if any, as it deems to be equitable, as to the number or kind of
shares of Stock or other securities issued or reserved for issuance pursuant to
the Plan, and the number or kind
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of shares of Stock or other securities covered by outstanding options, and the
option price thereof. In instances where another corporation or other business
entity is being acquired by the Company, and the Company has assumed outstanding
employee option grants and/or the obligation to make future or potential grants
under a prior existing plan of the acquired entity, similar adjustments are
permitted at the discretion of the Committee. The Committee shall notify
optionees of any intended sale of all or substantially all of the Company's
assets within a reasonable time prior to such sale.
In the event of a merger of the Company with or into another corporation or
entity, or the sale of substantially all or the assets of the Company, each
outstanding stock option shall be assumed or an equivalent stock option
substituted by the successor corporation or entity or a parent or subsidiary of
the successor corporation or entity. In the event that the successor corporation
or entity refuses to assume or substitute for any stock option, then such stock
option shall terminate as of the date of the closing of the merger or sale. For
the purposes of this paragraph, a stock option shall be considered assumed if,
following the merger or sale of assets, the stock option confers the right to
purchase or receive, for each share of stock subject to the stock option,
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of the common stock of the Company for each share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or entity or its parent or subsidiary, the Committee may, with the
consent of the successor corporation or entity, provide for the consideration to
be received upon the exercise of the stock option, to be solely common stock of
the successor corporation or entity or its parent or subsidiary equal in fair
market value to the per share consideration received by holders of the common
stock of the Company in the merger or sale of assets.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Committee in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an option.
ARTICLE XI.
EFFECT OF CHANGE IN CONTROL
(a) Except to the extent otherwise provided in a particular option
agreement or in paragraph (c) below, in the event of a "Change in Control,"
notwithstanding any unsatisfied service requirement established in the
option agreement, such option shall become fully exercisable immediately
prior to the Change in Control with respect to 100 percent of the shares
subject to such option.
(b) For purposes of the Plan, a Change in Control shall, subject to
subsection (c) below, be deemed to occur if, after the date the conditions
of Article XVIII have been satisfied (i) any "person" (as that term is used
in Sections 13 and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than Capital Z or any of its
affiliates, is or becomes the beneficial owner (as that term is used in
Section 13(d) of the Exchange Act), directly or indirectly, of 50% or more
of either the outstanding shares of Common Stock or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally, (ii) the Company is merged, consolidated or reorganized into or
with another corporation or another legal entity and, as a result of such
merger, consolidation or reorganization, less than 50% of the combined
voting power of the then-outstanding securities of such corporation or
entity immediately after such transaction is held in the aggregate by the
holders of the combined voting power of the securities of the Company
entitled to generally in the election of directors of the Company
immediately prior to such transaction, (iii) individuals who constitute the
Board at the beginning of such period
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cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by the Company's shareholders of
each new director was approved by a vote of at least three-quarters of the
directors then still in office who were directors at the beginning of the
period or (iv) the Company undergoes a liquidation or dissolution or a sale
of all or substantially all of the assets of the Company. No merger,
consolidation or corporate reorganization in which the owners of the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally prior to said combination, own 50% or more of the
resulting entity's outstanding voting securities shall, by itself, be
considered a Change in Control.
(c) Notwithstanding any other provision of this Plan, unless (i) an
optionee terminates his employment for Good Reason, or (ii) is terminated by
the Company without Cause, in either case within one year after a Change in
Control (as defined in subsection (b) above), no event shall be treated as a
Change in Control unless all equity securities of the Company then held by
Capital Z are contemporaneously exchanged for cash or other liquid assets,
which Capital Z is free to sell on a basis reasonably likely to result in
receipt of cash proceeds equal to or greater than the price payable to
shareholders upon a Change in Control (such event is referred to as a
"Capital Z Realization Event" and such price is referred to as the "Change
in Control Price"). If an optionee's employment is terminated by the Company
without Cause or by the optionee for Good Reason within one year after a
Change in Control (as defined in subsection (b) above), the event shall be
treated as both a Change in Control and a Capital Z Realization Event with
respect to such optionee and acceleration of vesting shall occur to the
extent the performance conditions established in the option agreement were
satisfied as of the date of the Change in Control.
ARTICLE XII.
NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the recipient to
exercise such option.
ARTICLE XIII.
USE OF PROCEEDS
The proceeds received from the sale of Stock pursuant to the Plan shall be
used for general corporate purposes.
ARTICLE XIV.
RIGHTS AS A STOCKHOLDER
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any share covered by his option until he shall have
become the holder of record of such share, and he shall not be entitled to any
dividends or distributions or other rights in respect of such share for which
the record date is prior to the date on which he shall have become the holder of
record thereof.
Notwithstanding anything herein to the contrary, the Committee, in its sole
discretion, may restrict the transferability of all or any number of shares
issued under the Plan upon the exercise of an option by legending the stock
certificate as it deems appropriate.
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ARTICLE XV.
EMPLOYMENT RIGHTS
Nothing in the Plan or in any option granted hereunder shall confer on any
optionee any right to continue in the employ of the Company or any of its
subsidiaries, or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the optionee's employment at any time for any
reason, whether or not for Cause.
ARTICLE XVI.
COMPLIANCE WITH LAW
The Company is relieved from any liability for the nonissuance or
non-transfer or any delay in issuance or transfer of any shares of Stock subject
to options under the Plan which results from the inability of the Company to
obtain or in any delay in obtaining from any regulatory body having
jurisdiction, all requisite authority to issue or transfer shares of Stock of
the Company either upon exercise of the options under the Plan or shares of
Stock issued as a result of such exercise if counsel for the Company deems such
authority necessary for lawful issuance or transfer of any such shares,
Appropriate legends may be placed on the stock certificates evidencing shares
issued upon exercise of options to reflect such transfer restrictions.
Each option granted under the Plan is subject to the requirement that if at
any time the Committee determines, in its discretion, that the listing,
registration or qualification of shares of Stock issuable upon exercise of
options is required by any securities exchange or under any state or Federal
law, or that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of Stock, no shares of Stock shall be issued,
in whole or in part, unless such listing, registration, qualification, consent
or approval has been effected or obtained free of any conditions or with such
conditions as are acceptable to the Committee.
ARTICLE XVII.
CANCELLATION OF OPTIONS
The Committee, in its discretion, may, with the consent of any optionee,
cancel any outstanding option hereunder.
ARTICLE XVIII.
EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
The Plan is effective as of the Initial Closing Date, subject to
(i) approval by the stockholders of the Company in a manner which complies with
Section 162(m) and Section 422(b)(1) of the Code and the Treasury Regulations
thereunder, such approval to occur at the next meeting of stockholders of the
Company, and (ii) the consummation, on or prior to Setember 30, 1999, of the
"Recapitalization," as such term is defined in the Purchase Agreement. The
expiration date of the Plan, after which no option may be granted hereunder,
shall be December 31, 2008.
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ARTICLE XIX.
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of the Company's stockholders or
optionees under the Plan, at any time terminate the Plan entirely and at any
time or from time to time amend or modify the Plan, provided that no such action
shall adversely affect options theretofore granted hereunder without the
optionee's consent, and provided further that no such action by the Board,
without approval of the stockholders, may (a) increase the total number of
shares of Stock which may be purchased pursuant to options granted under the
Plan, except as contemplated in ARTICLE X, or (b) expand the class of employees
eligible to receive options under the Plan.
ARTICLE XX.
MANDATORY GRANTS TO OUTSIDE DIRECTORS
Notwithstanding any other provisions of the Plan, Outside Directors shall
receive mandatory grants of nonqualified stock options under the Plan as
follows:
(a) Upon the initial election or appointment of an Outside Director, the
Committee shall grant to such member, at the first meeting of the Committee
following the date of such election or appointment, an award in the form of
a ten year nonqualified stock option to purchase 50,000 shares of Stock.
(b) The Committee shall grant to each Outside Director, effective as of
each annual meeting of the Company's stockholders at the conclusion of which
the Outside Director still serves as a director of the Company, an award in
the form of a ten year nonqualified stock option to purchase 50,000 shares
of Stock.
(c) All stock options granted to Outside Directors under this ARTICLE XX
shall have an exercise price equal to 100% of Fair Market Value of a share
of Stock on the date the stock option is granted.
(d) All stock options granted to Outside Directors under this ARTICLE XX
will vest or become exercisable as follows: 20% of the stock option (rounded
up to the nearest whole share) shall vest on the first anniversary of the
date of grant of the stock option and 20% of the stock option (rounded up to
the nearest whole share) shall vest on each such anniversary thereafter
until fully vested.
(e) The vesting schedule of all stock options granted to Outside
Directors under this ARTICLE XX shall accelerate in the event of a Change in
Control based upon a per-share price of the Change in Control transaction
similar to the acceleration provision in other stock options granted at that
time.
(f) Unless otherwise provided in the Plan, all provisions regarding the
terms of stock options, other than those pertaining to vesting of stock
options, the number of shares covered by the stock options, term and
exercise price of stock options shall be applicable to the stock options
granted to Outside Directors under this ARTICLE XX.
ARTICLE XXI.
MISCELLANEOUS
(a) Options shall be evidenced by option agreements (which need not be
identical) in such forms as the Committee may from time to time approve.
Such agreements shall conform to the
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terms and conditions of the Plan and may provide that the grant of any
option under the Plan and Stock acquired pursuant to the Plan shall also be
subject to such other conditions (whether or not applicable to the option or
Stock received by any other optionee) as the Committee determines
appropriate, including, without limitation, provisions to assist the
optionee in financing the purchase of Stock through the exercise of options,
provisions for the forfeiture of, or restrictions on, resale or other
disposition of shares under the Plan, and provisions to comply with Federal
and state securities laws and Federal and state income tax withholding
requirements.
(b) If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness
or accident, or is a minor, or has died, then any payment due to such person
or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative) may, if the Committee so directs the
Company, be paid to his spouse, child, relative, an institution maintaining
or having custody of such person, or any other person deemed by the
Committee to be a proper recipient on behalf of such person otherwise
entitled to payment. Any such payment shall be a complete discharge of the
liability of the Committee and the Company therefor.
(c) No member of the Committee shall be personally liable by reason of
any contract or other instrument executed by such member or on his behalf in
his capacity as a member of the Committee nor for any mistake of judgment
made in good faith, and the Company shall indemnify and hold harmless each
member of the Committee and each other employee, officer or director of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or
bad faith; provided, however, that approval of the Board shall be required
for the payment of any amount in settlement of a claim against any such
person. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under
the Company's Certificate of Incorporation or By-Laws, as a matter of law,
or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
(d) The Plan shall be governed by and construed in accordance with the
internal laws of the State of Delaware without reference to the principles
of conflicts of law thereof.
(e) No provision of the Plan shall require the Company, for the purpose
of satisfying any obligations under the Plan, to purchase assets or place
any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate
bank accounts, books, records or other evidence of the existence of a
segregated or separately maintained or administered fund for such purposes.
optionees shall have no rights under the Plan other than as unsecured
general creditors of the Company, except that insofar as they may have
become entitled to payment of additional compensation by performance of
services, they shall have the same rights as other employees under general
law.
(f) Each member of the Committee and each member of the Board shall be
fully justified in relaying, acting or failing to act, and shall not be
liable for having so relied, acted or failed to act in good faith, upon any
report made by the independent public accountant of the Company and upon any
other information furnished in connection with the Plan by any person or
persons other than such member.
(g) References to "Good Reason" as used herein shall relate only to
optionees who have employment agreements with the Company, and in such
cases, shall have the same meaning as set forth in such employment
agreement. If the optionee does not have an employment agreement with the
Company, or has an employment agreement that does not use the term Good
Reason, then provisions relating to such term shall not apply.
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(h) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in
determining any benefits under any pension, retirement, profit-sharing,
group insurance or other benefit plan of the Company.
(i) The expenses of administering the Plan shall be borne by the
Company.
Masculine pronouns and other words of masculine gender shall refer to both
men and women.
* * *
As adopted by the Board of Directors of
Aames Financial Corporation as of June 7, 2000
and Amended and Restated as of July , 2000
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