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                                                                    EXHIBIT 3.4


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                 CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
                PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
                  OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS,
                     LIMITATIONS OR RESTRICTIONS THEREOF, OF
                     SERIES C CONVERTIBLE PREFERRED STOCK OF
                           AAMES FINANCIAL CORPORATION

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               AAMES FINANCIAL CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation (the "Board of Directors") pursuant to authority of
the Board of Directors as required by Section 151 of the Delaware General
Corporation Law:

               RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors in accordance with the provisions of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of the
Corporation's previously authorized preferred stock, par value $0.001 per share
(the "Preferred Stock"), and hereby states the designation and number thereof,
and fixes the voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof, as follows:

                      SERIES C CONVERTIBLE PREFERRED STOCK:

                            I. DESIGNATION AND AMOUNT

               The designation of this series of shares shall be "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock") par value $0.001
per share; the initial stated value per share shall be $1,000.00 (the "Initial
Stated Value"); and the number of shares constituting such series shall be
100,000. The number of shares of the Series C Preferred Stock may be decreased
from time to time by a resolution or resolutions of the Board of Directors;
provided, however, that such number shall not be decreased below the aggregate
number of shares of the Series C Preferred Stock then outstanding.

                                    II. RANK

               A. With respect to dividends, the Series C Preferred Stock shall
rank (i) senior to each other class or series of Preferred Stock, except for the
Series B Convertible Preferred Stock, par value $0.001 per share, of the
Corporation (the "Series B Preferred Stock"); (ii) on a parity with the Series B
Preferred Stock; and (iii) senior to the Corporation's Common Stock, par value
$.001 per share (the "Common Stock"), and, except as specified above, all other
classes and series of capital stock of the Corporation hereafter issued by the
Corporation. With respect to dividends, all equity securities of the Corporation
to which the Series C Preferred Stock ranks senior, including the Common Stock,
are collectively referred to herein as the



 
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"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."

               B. With respect to the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the Series C Preferred Stock shall rank (i) senior to each other class or series
of Preferred Stock, except for the Series B Preferred Stock; (ii) on a parity
with the Series B Preferred Stock; and (iii) senior to the Common Stock, and,
except as specified above, all other classes and series of capital stock of the
Corporation hereafter issued by the Corporation. With respect to the
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, all equity securities of the
Corporation to which the Series C Preferred Stock ranks senior, including the
Common Stock, are collectively referred to herein as "Junior Liquidation
Securities"; all equity securities of the Corporation (other than convertible
debt securities) to which the Series C Preferred Stock ranks on parity,
including the Series B Preferred Stock, are collectively referred to herein as
"Parity Liquidation Securities"; and all equity securities of the Corporation to
which the Series C Preferred Stock ranks junior are collectively referred to
herein as "Senior Liquidation Securities."

               C. The Series C Preferred Stock shall be subject to the creation
of Junior Dividend Securities and Junior Liquidation Securities (collectively,
"Junior Securities"), but no Parity Dividend Securities or Parity Liquidation
Securities (collectively, "Parity Securities") (other than the Series B
Preferred Stock) or Senior Dividend Securities or Senior Liquidation Securities
(collectively, "Senior Securities") shall be created except in accordance with
the terms hereof.

                                 III. DIVIDENDS

               A. DIVIDENDS. Subject to the terms of paragraph D below, shares
of Series C Preferred Stock shall accumulate dividends at a rate of 6.5% per
annum (the "Dividend Rate"), which dividends shall be paid quarterly in cash, in
four equal quarterly installments on the last day of March, June, September and
December of each year, or if any such date is not a Business Day, the Business
Day next preceding such day (each such date, regardless of whether any dividends
have been paid or declared and set aside for payment on such date, a "Dividend
Payment Date"), to holders of record (the "Registered Holders") as they appear
on the stock record books of the Corporation on the fifteenth day prior to the
relevant Dividend Payment Date; provided, however, that during the Accrual
Period (as defined in Article IX hereof) the Corporation shall have the option
to accrue such dividends, which dividends, to the extent so accrued, shall
compound quarterly. Prior to the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Initial Stated Value of each share of Series
B Preferred Stock. Following the consummation of the Recapitalization, dividends
shall accrue and accumulate on the Post-Recapitalization Stated Value of each
share of Series B Preferred Stock. Dividends shall be paid only when, as and if
declared by the Board of Directors out of funds at the time



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legally available for the payment of dividends. Dividends shall begin to
accumulate on outstanding shares of Series C Preferred Stock from the date of
issuance and shall be deemed to accumulate from day to day whether or not earned
or declared until paid. Dividends shall accumulate on the basis of a 360-day
year consisting of twelve 30-day months (four 90-day quarters) and the actual
number of days elapsed in the period for which payable.

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

               C. METHOD OF PAYMENT. Dividends paid on the shares of Series C
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable on all outstanding shares of Series C Preferred
Stock shall be allocated pro rata on a share-by-share basis among all such
shares then outstanding. After the Second Anniversary Date, dividends that are
declared and paid in an amount less than the full amount of dividends
accumulated on the Series C Preferred Stock (and on any Arrearage) shall be
applied first to the earliest dividend which has not theretofore been paid. All
cash payments of dividends on the shares of Series C Preferred Stock shall be
made in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.

               D. SPECIAL DIVIDEND RIGHTS.

               1. In addition to the dividend rights set forth in paragraph A
above, prior to the consummation of the Recapitalization, the holders of shares
of Series C Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, cash dividends in an amount per whole share (rounded to the nearest
cent) equal to the Formula Number then in effect times the aggregate per share
amount of all



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cash dividends declared or paid on the Common Stock. If, prior to the
consummation of the Recapitalization, the Corporation shall pay any dividend or
make any distribution on the Common Stock payable in assets, securities or other
forms of non-cash consideration, then, in each such case, the Corporation shall
simultaneously pay or make on each whole outstanding share of the Series C
Preferred Stock a dividend or distribution in like kind equal to the Formula
Number then in effect times such dividend or distribution on each share of the
Common Stock. The dividends and distributions on the Series C Preferred Stock
pursuant to this paragraph D are hereinafter referred to as "Participating
Dividends." The Corporation shall declare each Participating Dividend
immediately prior to or at the same time it declares any cash or non-cash
dividend or distribution on the Common Stock in respect of which a Participating
Dividend is required to be paid. No cash or non-cash dividend or distribution on
the Common Stock in respect of which a Participating Dividend is required shall
be paid or set aside for payment on the Common Stock unless a Participation
Dividend in respect of such dividend shall be have been paid. Nothing contained
in this paragraph D shall obligate the Company to declare or pay any dividend or
other distribution on the Common Stock or (except pursuant to paragraph A of
this Article III or in connection with a dividend or distribution on the Common
Stock as provided in this paragraph D) the Series B Preferred Stock.

               2. If the Recapitalization is not consummated prior to June 30,
1999, the Dividend Rate shall be deemed to be 15% per annum during the period
commencing on such date and ending on the date the Recapitalization is
consummated.

                           IV. LIQUIDATION PREFERENCE

               A. PRIOR TO THE RECAPITALIZATION. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
occurring prior to the consummation of the Recapitalization, the holders of
then-outstanding shares of Series C Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets are capital or surplus
of any nature, an amount per share equal to the sum of (i) the dividends, if
any, accumulated or deemed to have accumulated thereon, to the date of final
distribution to such holders, whether or not such dividends are declared; and
(ii) the Initial Stated Value thereof, before any payment shall be made or any
assets distributed to the holders of any Junior Liquidation Securities (the
"Initial Preferred Distribution"). After the Initial Preferred Distribution has
been made, the holders of Series C Preferred Stock shall be entitled to share
pro rata with the holders of Common Stock in the distribution of any remaining
assets of the Corporation on the basis of each whole outstanding share of the
Series C Preferred Stock receiving an amount equal to the Formula Number then in
effect times such distribution on each share of the Common Stock. The
distributions on the Series C Preferred Stock pursuant to the immediately
preceding sentence of this paragraph A are hereinafter referred to as
"Participating Liquidation Distributions." No distribution on the Common Stock
in respect of which a Participating Liquidation Distribution is required shall
be paid or set aside for payment on the Common Stock unless a Participating
Liquidation Distribution in respect of such distribution is concurrently paid.




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               B. AFTER THE RECAPITALIZATION. Subsequent to the consummation of
the Recapitalization, the holders of the outstanding shares of Series C
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an amount
per share equal to the sum of (i) the dividends, if any, accumulated or deemed
to have accumulated thereon to the date of final distribution to such holders,
whether or not such dividends are declared; and (ii) the Post-Recapitalization
Stated Value thereof, before any payment shall be made or any assets distributed
to the holders of any Junior Liquidation Securities. After any such payment in
full after the consummation of the Recapitalization, the holders of Series C
Preferred Stock shall not, as such, be entitled to any further participation in
any distribution of assets of the Corporation.

               C. PARITY SECURITIES. All the assets of the Corporation available
for distribution to stockholders after the liquidation preferences of any Senior
Liquidation Securities shall be distributed ratably (in proportion to the full
distributable amounts to which holders of Series C Preferred Stock and Parity
Liquidation Securities, if any, are respectively entitled upon such dissolution,
liquidation or winding up) among the holders of the then-outstanding shares of
Series C Preferred Stock and Parity Liquidation Securities, if any, when such
assets are not sufficient to pay in full the aggregate amounts payable thereon.

               D. MERGER NOT A LIQUIDATION. Neither a consolidation or merger of
the Corporation with or into any other Person or Persons, nor a sale,
conveyance, lease, exchange or transfer of all or part of the Corporation's
assets for cash, securities or other property to a Person or Persons shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Article IV, but the holders of shares of Series C Preferred
Stock shall nevertheless be entitled from and after any such consolidation,
merger or sale, conveyance, lease, exchange or transfer of all or part of the
Corporation's assets to the rights provided by this Article IV following any
such transaction. Notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to each holder of
shares of Series C Preferred Stock in such circumstances shall be payable, shall
be given by first-class mail, postage prepaid, mailed not less than 30 days
prior to any payment date stated therein, to holders of record as they appear on
the stock record books of the Corporation as of the date such notices are first
mailed.

                                  V. REDEMPTION

               A. INTENTIONALLY OMITTED

               B. OPTIONAL REDEMPTION. Commencing on the earlier to occur of (x)
the tenth anniversary of the Issue Date and (y) the date on which fewer than 25%
of the shares of Series C Preferred Stock issued on the Issue Date remain
outstanding, and at all times thereafter, the Corporation may, at its option,
redeem all (but not less than all) outstanding shares of Series C Preferred
Stock on a date specified by the Corporation (the "Optional Redemption Date") by
paying the Redemption Price therefor in cash out funds legally available for
such purpose.

               C. NOTICE AND REDEMPTION PROCEDURES. Notice of the redemption of
shares of Series C Preferred Stock pursuant to paragraph B of this Article V (a
"Notice of Redemption")



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shall be sent to the holders of record of the shares of Series C Preferred Stock
to be redeemed by first class mail, postage prepaid, at each such holder's
address as it appears on the stock record books of the Corporation not more than
120 nor fewer than 90 days prior to the Optional Redemption Date, which date
shall be set forth in such notice (the "Redemption Date"); provided that failure
to give such Notice of Redemption to any holder, or any defect in such Notice of
Redemption to any holder shall not affect the validity of the proceedings for
the redemption of any shares of Series C Preferred Stock held by any other
holder. In order to facilitate the redemption of shares of Series C Preferred
Stock, the Board of Directors may fix a record date for the determination of the
holders of shares of Series C Preferred Stock to be redeemed not more than 30
days prior to the date the Notice of Redemption is mailed. On or after the
Optional Redemption Date, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date, all dividends on shares of Series C Preferred Stock shall cease to
accumulate and all rights of the holders thereof as holders of Series C
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Optional Redemption Date.

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




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                          VI. RESTRICTIONS ON DIVIDENDS

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

                               VII. VOTING RIGHTS

               A. On or prior to the consummation of the Recapitalization, the
holders of Series C Preferred Stock shall be entitled to one thousand (1,000)
votes per share of Series C Preferred Stock at each meeting of stockholders of
the Corporation with respect to any and all matters presented to the
stockholders of the Corporation for their action and consideration, other than
the election of directors. After the consummation of the Recapitalization, the
holders of Series C Preferred Stock shall be entitled to the number of votes per
share of Series C Preferred Stock equal to the number of shares of Common Stock
for which such share of Series C Preferred Stock is then convertible pursuant to
Article VIII at each meeting of stockholders of the Corporation with respect to
any and all matters presented to the stockholders of the Corporation for their
action and consideration, other than the election of directors.




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               B. So long as any shares of the Series C Preferred Stock are
outstanding, (i) each share of Series C Preferred Stock shall entitle the holder
thereof to vote on all matters voted on by holders of Common Stock, other than
the election of directors; and (ii) the shares of Series C Preferred Stock shall
vote together with shares of Common Stock and shares of Series B Preferred Stock
as a single class.

               C. Without the written consent (if action by written consent is
permitted) or affirmative vote of the holders of a majority of the outstanding
shares of Series C Preferred Stock and Series B Preferred Stock, voting together
as a single class, the Corporation shall not (i) authorize, create or issue, or
increase the authorized amount of, (x) any Senior Securities or Parity
Securities or (y) any class or series of capital stock or any security
convertible into or exercisable for any class or series of capital stock,
redeemable mandatorily or redeemable at the option of the holder thereof or (ii)
enter into any Transaction (as defined in paragraph H of Article VIII). Such
vote or consent shall be taken in accordance with the procedures specified in
paragraph E below.

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

               E. The foregoing rights of holders of shares of Series C
Preferred Stock to take any actions as provided in this Article VII may be
exercised at any annual meeting of stockholders or at a special meeting of
stockholders held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action, if action by written consent of stockholders of the Corporation is
then permitted.

               The Chairman of the Board of the Corporation may call, and upon
written request of holders of record of 35% of the outstanding shares of Series
C Preferred Stock and Series B Preferred Stock, addressed to the Secretary of
the Corporation at the principal office of the Corporation shall call, a special
meeting of the holders of shares entitled to vote as provided herein. Such
meeting shall be held within 30 days after delivery of such request to the
Secretary, at the place and upon the notice provided by law and in the By-laws
of the Corporation for the holding of meetings of stockholders.

               At each meeting of stockholders at which the holders of shares of
Series C Preferred Stock shall have the right to take any action, the presence
in person or by proxy of the



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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.

               F. The Corporation shall not enter into any agreement or issue
any security that prohibits, conflicts or is inconsistent with, or would be
breached by, the Corporation's performance of its obligations hereunder.

                                VIII. CONVERSION

               The holders of the Series C Preferred Stock shall have conversion
rights as follows:

        A.     Each share of Series C Preferred Stock shall be convertible at
               the direction of, and by notice to the Corporation from, (i) the
               holder thereof or (ii) the holders of a majority of the
               outstanding shares of Series C Preferred Stock, at any time, at
               the office of the Corporation or any transfer agent for such
               Series, into one thousand (1,000) fully paid and nonassessable
               shares of Common Stock subject (x) to adjustment from time to
               time as provided below (as so adjusted, the "conversion ratio")
               and (y) (prior to the consummation of the Recapitalization) to
               limitations resulting from the available number of shares of
               Common Stock which may be reserved for issuance upon such
               conversion, provided, that any conversion pursuant to clause (ii)
               above of less than all of the outstanding shares of Series C
               Preferred Stock shall be on a pro rata basis amongst all holders
               of Series C Preferred Stock. After consummation of the
               Recapitalization, the number "1,000" in this paragraph shall be
               "1", subject to adjustment as provided in paragraph VIII.G.




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        B.     If a holder of Series C Preferred Stock gives notice (an
               "Optional Conversion Notice") of conversion under paragraph A
               above, such holder shall surrender with such Optional Conversion
               Notice the duly endorsed certificate or certificates for the
               Series C Preferred Stock being converted, at the office of the
               Corporation or of any transfer agent for such Series, and shall
               state therein the name or names in which the certificate or
               certificates for shares of Common Stock are to be issued. If the
               holders of a majority of the outstanding shares of Series C
               Preferred Stock give notice of conversion under paragraph A
               above, the Corporation shall notify all other record holders of
               Series C Preferred Stock (a "Mandatory Conversion Notice").
               Following receipt of a Mandatory Conversion Notice, the holders
               of Series C Preferred Stock shall surrender the certificate or
               certificates therefor duly endorsed, at the office of the
               Corporation or of any transfer agent for such Series, and shall
               state therein the name or names in which the certificate or
               certificates for shares of Common Stock are to be issued. The
               Corporation shall, as soon as practicable after the surrender of
               a Series C Preferred Stock certificate or certificates pursuant
               to an Optional Conversion Notice or Mandatory Conversion Notice,
               issue and deliver at such office to such holder, or to the
               nominee or nominees of such holder, a certificate or certificates
               for the number of shares of Common Stock to which such holder
               shall be entitled as aforesaid. Such conversion shall be deemed
               to have been made immediately prior to the close of business on
               the date of such Optional Conversion Notice or Mandatory
               Conversion Notice, as applicable, and the person or persons
               entitled to receive the shares of Common Stock issuable upon such
               conversion shall be treated for all purposes as the recordholder
               or holders of such shares of Common Stock as of such date. The
               issuance of certificates or shares of Common Stock upon
               conversion of shares of Series C Preferred Stock shall be made
               without charge for any issue, stamp or other similar tax in
               respect of such issuance.

        C.     No fractional shares shall be issued upon conversion of any
               shares of Series C Preferred Stock and the number of shares of
               Common Stock to be issued shall be rounded down to the nearest
               whole share, and the holder of Series C Preferred Stock shall be
               paid in cash for any fractional share.

        D.     In case at any time or from time to time the Corporation shall
               pay any dividend or make any other distribution to the holders of
               its Common Stock or other class of securities, or shall offer for
               subscription pro rata to the holders of its Common Stock or other
               class of securities any additional shares of stock of any class
               or any other right, or there shall be any capital reorganization
               or reclassification of the Common Stock of the Corporation or
               consolidation or merger of the Corporation with or into another
               corporation, or any sale or conveyance to another corporation of
               the property of the Corporation as an entirety or substantially
               as an entirety, or there shall be a voluntary or involuntary
               dissolution, liquidation or winding up of the Corporation, then,
               in any one or more of said cases the Corporation shall give at
               least 20 days' prior written notice (the time of mailing of such
               notice shall be deemed to be the time of giving thereof) to the
               registered holders of the Series C



                                       10
<PAGE>   11


               Preferred Stock at the addresses of each as shown on the books of
               the Corporation maintained by the Transfer Agent thereof of the
               date on which (i) the books of the Corporation shall close or a
               record shall be taken for such stock dividend, distribution or
               subscription rights or (ii) such reorganization,
               reclassification, consolidation, merger, sale or conveyance,
               dissolution, liquidation or winding up shall take place, as the
               case may be, provided that in the case of any Transaction to
               which paragraph H applies the Corporation shall give at least 30
               days' prior written notice as aforesaid. Such notice shall also
               specify the date as of which the holders of the Common Stock of
               record shall participate in said dividend, distribution or
               subscription rights or shall be entitled to exchange their Common
               Stock for securities or other property deliverable upon such
               reorganization, reclassification, consolidation, merger, sale or
               conveyance or participate in such dissolution, liquidation or
               winding up, as the case may be. Failure to give such notice shall
               not invalidate any action so taken.

        E.     From and after the Recapitalization, the Corporation shall at all
               times reserve and keep available out of its authorized but
               unissued shares of Common Stock, solely for the purpose of
               effecting the conversion of the shares of Series C Preferred
               Stock, such number of its shares of Common Stock as shall from
               time to time be sufficient to effect the conversion of all
               outstanding shares of Series C Preferred Stock, and if at any
               time the number of authorized but unissued shares of Common Stock
               shall not be sufficient to effect the conversion of all then
               outstanding shares of Series C Preferred Stock, then in addition
               to such other remedies as shall be available to the holder of
               Series C Preferred Stock, the Corporation will take such
               corporate action as may, in the opinion of its counsel, be
               necessary to increase its authorized but unissued shares of
               Common Stock to such number of shares as shall be sufficient for
               such purposes.

        F.     Any notice required by the provisions of paragraph D to be given
               the holders of shares of Series C Preferred Stock shall be deemed
               given if sent by facsimile transmission, by telex, or if
               deposited in the United States mail, postage prepaid, and
               addressed to each holder of record at his, her or its address
               appearing on the books of the Corporation.

        G.     The conversion ratio shall be subject to adjustment from time to
               time as follows:

                     (i) In case the Corporation shall at any time or from time
               to time after the Issue Date (A) pay a dividend or make a
               distribution, on the outstanding shares of Common Stock in shares
               of Common Stock, (B) subdivide the outstanding shares of Common
               Stock into a larger number of shares of Common Stock, (C) combine
               the outstanding shares of Common Stock into a smaller number of
               shares or (D) issue by reclassification of the shares of Common
               Stock any shares of capital stock of the Corporation, then, and
               in each such case, the conversion ratio in effect immediately
               prior to such event or the record date therefor, whichever is
               earlier, shall be adjusted so that the holder of any shares of



                                       11
<PAGE>   12



               Series C Preferred Stock thereafter surrendered for conversion
               shall be entitled to receive the number of shares of Common Stock
               or other securities of the Corporation which such holder would
               have owned or have been entitled to receive after the happening
               of any of the events described above, had such shares of Series C
               Preferred Stock been surrendered for conversion immediately prior
               to the happening of such event or the record date therefor,
               whichever is earlier. An adjustment made pursuant to this clause
               (i) shall become effective (x) in the case of any such dividend
               or distribution, immediately after the close of business on the
               record date for the determination of holders of shares of Common
               Stock entitled to receive such dividend or distribution, or (y)
               in the case of any such subdivision, reclassification or
               combination, at the close of business on the day upon which such
               corporate action becomes effective.

                     (ii) In the case the Corporation shall, after the Issue
               Date, issue shares of Common Stock at a price per share, or
               securities convertible into or exchangeable for shares of Common
               Stock ("Convertible Securities") having a "Conversion Price" (as
               defined below) less than the Current Market Price (for a period
               of 15 consecutive trading days prior to such date), then, and in
               each such case, the conversion ratio shall be adjusted so that
               the holder of each share of Series C Preferred Stock shall be
               entitled to receive, upon the conversion thereof, the number of
               shares of Common Stock determined by multiplying (A) the
               applicable conversion ratio on the day immediately prior to such
               date by (B) a fraction, the numerator of which shall be the sum
               of (1) the number of shares of Common Stock outstanding on the
               date on which such shares or Convertible Securities are issued
               and (2) the number of additional shares of Common Stock issued,
               or into which the Convertible Securities may convert, and the
               denominator of which shall be the sum of (x) the number of shares
               of Common Stock outstanding on such date and (y) the number of
               shares of Common Stock which the aggregate consideration
               receivable by the Corporation for the total number of shares of
               Common Stock so issued, or the number of shares of Common Stock
               which the aggregate of the Conversion Price of such Convertible
               Securities so issued, would purchase at such Current Market price
               on such date. An adjustment made pursuant to this clause (ii)
               shall be made on the next Business Day following the date on
               which any such issuance is made and shall be effective
               retroactively immediately after the close of business on such
               date. For purposes of this clause (ii), the aggregate
               consideration receivable by the Corporation in connection with
               the issuance of any securities shall be deemed to be the sum of
               the aggregate offering price to the public (before deduction of
               underwriting discounts or commissions and expenses payable to
               third parties), and the "Conversion Price" of any Convertible
               Securities is the total amount received or receivable by the
               Corporation as consideration for the issue or sale of such
               Convertible Securities (before deduction of underwriting
               discounts or commissions and expenses payable to third parties)
               plus the minimum aggregate amount of additional consideration, if
               any, payable to the Corporation upon the conversion, exchange or
               exercise of any such Convertible Securities. Neither (A)



                                       12
<PAGE>   13


               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.

                     (iii) In case the Corporation shall at any time or from
               time to time after the Issue Date declare, order, pay or make a
               dividend or other distribution (including, without limitation,
               any distribution of stock or other securities or property or
               rights or warrants to subscribe for securities of the Corporation
               or any of its Subsidiaries by way of dividend or spin-off), on
               its Common Stock, other than (A) regular quarterly dividends
               payable in cash in an aggregate amount not to exceed 15% of net
               income from continuing operations before extraordinary items of
               the Corporation, determined in accordance with generally accepted
               accounting principles, during the period (treated as one
               accounting period) commencing on July 1, 1998, and ending on the
               date such dividend is paid or (B) dividends or distributions of
               shares of Common Stock which are referred to in clause (i) of
               this paragraph G, then, and in each such case, the conversion
               ratio shall be adjusted so that the holder of each share of
               Series C Preferred Stock shall be entitled to receive, upon the
               conversion thereof, the number of shares of Common Stock
               determined by multiplying (1) the applicable conversion ratio on
               the day immediately prior to the record date fixed for the
               determination of stockholders entitled to receive such dividend
               or distribution by (2) a fraction, the numerator of which shall
               be the then Current Market Price per share of Common Stock for
               the period of 20 Trading Days preceding such record date, and the
               denominator of which shall be such Current Market Price per share
               of Common Stock for the period of 20 Trading Days preceding such
               record date less the Fair Market Value (as defined in Article IX)
               per share of Common Stock (as determined in good faith by the
               Board of Directors of the Corporation, a certified resolution
               with



                                       13
<PAGE>   14


               respect to which shall be mailed to each holder of shares of
               Series C Preferred Stock) of such dividend or distribution;
               provided, however, that in the event of a distribution of shares
               of capital stock of a Subsidiary of the Corporation (a
               "Spin-Off") made to holders of shares of Common Stock, the
               numerator of such fraction shall be the sum of the Current Market
               Price per share of Common Stock for the period of 20 Trading Days
               preceding the 35th Trading Day after the effective date of such
               Spin-Off and the Current Market Price of the number of shares (or
               the fraction of a share) of capital stock of the Subsidiary which
               is distributed in such Spin-Off in respect of one share of Common
               Stock for the period of 20 Trading Days preceding such 35th
               Trading Day and the denominator of which shall be the current
               market price per share of the Common Stock for the period of 20
               Trading Days proceeding such 35th Trading Day. An adjustment made
               pursuant to this clause (iii) shall be made upon the opening of
               business on the next Business Day following the date on which any
               such dividend or distribution is made and shall be effective
               retroactively immediately after the close of business on the
               record date fixed for the determination of stockholders entitled
               to receive such dividend or distribution; provided, however, if
               the proviso to the preceding sentence applies, then such
               adjustment shall be made and be effective as of such 35th Trading
               Day after the effective date of such Spin-Off.

                     (iv) For purposes of this paragraph G, the number of shares
               of Common Stock at any time outstanding shall not include any
               shares of Common Stock then owned or held by or for the account
               of the Corporation.

                     (v) The term "dividend", as used in this paragraph G shall
               mean a dividend or other distribution upon stock of the
               Corporation except pursuant to the Rights Agreement (as defined
               in Article IX). Notwithstanding anything in this Article VIII to
               the contrary, the conversion ratio shall not be adjusted as a
               result of any dividend, distribution or issuance of securities of
               the Corporation pursuant to the Rights Agreement.

                     (vi) Anything in this paragraph G to the contrary
               notwithstanding, the Corporation shall not be required to give
               effect to any adjustment in the conversion ratio unless and until
               the net effect of one or more adjustments (each of which shall be
               carried forward), determined as above provided, shall have
               resulted in a change of the conversion ratio by at least
               one-hundredth of one share of Common Stock, and when the
               cumulative net effect of more than one adjustment so determined
               shall be to change the conversion ratio by at least one-hundredth
               of one share of Common Stock, such change in conversion ratio
               shall thereupon be given effect.

                     (vii) The certificate of any firm of independent public
               accountants of recognized standing selected by the Board of
               Directors of the Corporation (which may be the firm of
               independent public accountants regularly employed by the



                                       14
<PAGE>   15



               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 C Preferred
               Stock then outstanding shall thereafter be convertible into, in
               lieu of the Common Stock issuable upon such conversion prior to
               consummation of such Transaction, the kind and amount of shares
               of stock and other securities and property receivable (including
               cash) upon the consummation of such Transaction by a holder of
               that number of shares of Common Stock into which one share of
               Series C Preferred Stock was convertible immediately prior to
               such Transaction (including, on a pro rata basis, the cash,
               securities or property received by holders of Common Stock in any
               tender or exchange offer that is a step in such Transaction). In
               case securities or property other than Common Stock shall be
               issuable or deliverable upon conversion as aforesaid, then all
               reference in this paragraph H shall be deemed to apply, so far as
               appropriate and as nearly as may be, to such other securities or
               property.

        I.     Upon any adjustment of the conversion ratio then in effect and
               any increase or decrease in the number of shares of Common Stock
               issuable upon the operation of the conversion set forth in
               Article VIII, then, and in each such case, the Corporation shall
               promptly deliver to the registered holders of the Series C
               Preferred and Common Stock, a certificate signed by the President
               or a Vice President and by the Treasurer or an Assistant
               Treasurer or the Secretary or an Assistant Secretary of the
               Corporation setting forth in reasonable detail the event
               requiring the adjustment and the method by which such adjustment
               was calculated and specifying the conversion ratio then in effect
               following such adjustment and




                                       15
<PAGE>   16


               the increased or decreased number of shares issuable upon the
               conversion set forth in this Article VIII.


                           IX. ADDITIONAL DEFINITIONS

               For the purposes of this Certificate of Designations of Series C
Preferred Stock, the following terms shall have the meanings indicated:

               "Accrual Period" means the end of the first quarterly period
following the Second Anniversary Date.

               "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





                                       16
<PAGE>   17


Corporation based on an opinion of an independent investment banking firm with
an established national reputation as a valuer of securities, which opinion may
be based on such assumption as such firm shall deem to be necessary and
appropriate.

               "Equity Securities" of any Person means any and all common stock,
preferred stock and any other class of capital stock of, and any partnership or
limited liability company interests of such Person or any other similar
interests of any Person that is not a corporation, partnership or limited
liability company.

               "Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, from time to
time.

               "Fair Market Value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.

               "Formula Number" shall mean one thousand (1,000) prior to
consummation of the Recapitalization; provided, however, that if at any time
prior to the consummation of the Recapitalization, the Corporation shall (i)
declare or pay any dividend or make any distribution on the Common Stock,
payable in shares of Common Stock; (ii) subdivide (by a stock split or
otherwise) the outstanding shares of Common Stock into a larger number of shares
of Common Stock; or (iii) combine (by a reverse stock split or otherwise) the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then in each such case the Formula Number in effect immediately prior to
such event shall be adjusted to a number determined by multiplying the Formula
Number then in effect by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that, if prior to the consummation
of the Recapitalization the Corporation shall issue any shares of its capital
stock in a merger, reclassification, or change of the outstanding shares of
Common Stock, then in each such event the Formula Number shall be appropriately
adjusted to reflect such merger, reclassification, or change so that each share
of Series C Preferred Stock continues to be the economic equivalent of a Formula
Number of shares of Common Stock immediately prior to such merger,
reclassification, or change.

               "Group" has the meaning set forth in Rule 13d-5 under the
Exchange Act.

               "Issue Date" shall mean the first date on which shares of Series
C Preferred Stock are issued. "Person" means any individual, corporation,
company, association, partnership, joint venture, trust or unincorporated
organization, or a government or any agency or political subdivision thereof.

               "Post-Recapitalization Stated Value" shall be equal to $1.00.




                                       17
<PAGE>   18


               "Recapitalization" means the amendment of the Corporation's
Certificate of Incorporation to increase the authorized shares of Common Stock
from 50,000,000 to 400,000,000, and the authorized shares of Preferred Stock
from 1,000,000 to 200,000,000, and the subsequent one thousand-for-one split of
Series C Preferred Stock and Series B Preferred Stock.

               "Redemption Price" of a share of Series C Preferred Stock shall
mean the sum of (a) the dividends, if any, accumulated or deemed to have
accumulated thereon to the Optional Redemption Date, whether or not such
dividends are declared plus (b) either (i) the Initial Stated Value thereof (if
the Recapitalization has not been consummated prior to June 30, 1999) or (ii)
the Post-Recapitalization Stated Value thereof (if the Recapitalization has been
consummated prior to June 30, 1999), in each case subject to adjustment for
splits, reclassifications, recombinations or similar events.

               "Rights" shall mean any rights to purchase securities of the
Corporation issued pursuant to any Rights Agreement.

               "Rights Agreement" shall mean the Rights Agreement, dated as of
June 21, 1996, between the Company and Wells Fargo Bank as rights agent, and all
amendments, supplements and replacements thereof.

               "Second Anniversary Date" means the second anniversary of the
Issue Date.

               "Subsidiary" means, as to any Person, any other Person of which
more than 50% of the shares of the Voting Securities or other voting interests
are owned or controlled, or the ability to select or elect 50% or more of the
directors or similar managers is held, directly or indirectly, by such first
Person and one or more of its Subsidiaries.

               "Trading Day" means a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange a Business Day.

               "Voting Securities" means, (i) with respect to the Company, the
Equity Securities of the Company entitled to vote generally for the election of
directors of the Company, and (ii) with respect to any other Person, any
securities of or interests in such Person entitled to vote generally for the
election of directors or any similar managing person of such Person.

                                X. MISCELLANEOUS

               A. NOTICES. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be deemed to have been given upon personal
delivery thereof, upon transmittal of such notice by telecopy (with confirmation
of receipt by telecopy or telex) or five days after transmittal by registered or
certified mail, postage prepaid, addressed as follows:




                                       18
<PAGE>   19


                  (i)    if to the Corporation, to its office at 2 California
                         Plaza, 350 South Grand Avenue, Los Angeles, California
                         90071 (Attention: General Counsel)

                         or to the transfer agent for the Series C 
                         Preferred Stock;

                  (ii)   if to a holder of the Series C Preferred Stock, to such
                         holder at the address of such holder as listed in the
                         stock record books of the Corporation (which may
                         include the records of any transfer agent for the
                         Series C Preferred Stock); or

                  (iii)  to such other address as the Corporation or such
                         holder, as the case may be, shall have designated by
                         notice similarly given.

               B. REACQUIRED SHARES. Any shares of Series C Preferred Stock
redeemed, purchased or otherwise acquired by the Corporation, directly or
indirectly, in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption or purchase of
such shares, the capital represented by such shares shall be reduced in
accordance with the Delaware General Corporation Law. All such shares of Series
C Preferred Stock shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State of Delaware,
become authorized but unissued shares of Preferred Stock, par value $0.001 per
share, of the Corporation and may be reissued as part of another series of
Preferred Stock, par value $0.001 per share, of the Corporation subject to the
conditions or restrictions on issuance set forth herein.

               C. ENFORCEMENT. Any registered holder of shares of Series C
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protect and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.

               D. TRANSFER TAXES. Except as otherwise agreed upon pursuant to
the terms of this Certificate of Designations, the Corporation shall pay any and
all documentary, stamp or similar issue or transfer taxes and other governmental
charges that may be imposed under the laws of the United States of America or
any political subdivision or taxing authority thereof or therein in respect of
any issue or delivery of Common Stock on conversion of, or other securities or
property issued on account of, shares of Series C Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue or transfer and
delivery of any certificate for Common Stock or other securities or property in
a name other than that in which the shares of Series C Preferred Stock so
exchanged, or on account of which such securities were issued, were registered
and no such issue or delivery shall be made unless and until the Person
requesting such issue has paid to the Corporation the amount of any such tax or
has established to the satisfaction of the Corporation that such tax has been
paid or is not payable.




                                       19
<PAGE>   20

               E. TRANSFER AGENT. The Corporation may appoint, and from time to
time discharge and change, a transfer agent for the Series C Preferred Stock.
Upon any such appointment or discharge of a transfer agent, the Corporation
shall send notice thereof by first-class mail, postage prepaid, to each holder
of record of shares of Series C Preferred Stock.

               F. RECORD DATES. In the event that the Series C Preferred Stock
shall be registered under either the Securities Act of 1933, as amended, or the
Exchange Act, the Corporation shall establish appropriate record dates with
respect to payments and other actions to be made with respect to the Series C
Preferred Stock.






                                       20
<PAGE>   21

               IN WITNESS WHEREOF, this Certificate of Designations is executed
on behalf of the Corporation by its Executive Vice President, General Counsel
and Secretary and attested by its Assistant Secretary, this 10th day of
February   , 1999.


                                      AAMES FINANCIAL CORPORATION



                                      By:     /s/  Barbara S. Polsky
                                              ---------------------------------
                                      Name:   Barbara S. Polsky
                                      Title:  Executive Vice President, General
                                              Counsel and Secretary


[Corporate Seal]

ATTEST:



/s/  John F. Madden, Jr.   
---------------------------------
John F. Madden Jr.
Assistant Secretary







                                       21