Severance Agreement

SEVERANCE AGREEMENT


This Severance Agreement (the "Agreement") is by and between Aames Financial Corporation ("Aames"), for itself and for all of its affiliated, related and subsidiary companies, licensees, joint venturers and partnerships, as well as their respective directors, officers, partners, employees, agents, attorneys, successors and assigns, past and present, and each of them, (collectively, "Aames"), on the one hand, and Gary K. Judis, for himself and his agents, representatives, heirs and assigns (collectively, "Mr. Judis"), on the other hand.


In consideration of the promises, mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, Aames and Mr. Judis agree as follows:


1. SEVERANCE OF EMPLOYMENT RELATIONSHIP. Aames and Mr. Judis agree and acknowledge that Mr. Judis shall voluntarily resign, under Section 7(a) of the Amended and Restated Employment Agreement dated September 12, 1996 between Aames and Mr. Judis (the "Employment Agreement"), as President and Chief Executive Officer of Aames effective May 7, 1997 (the "Effective Date"). Mr. Judis' letter of resignation shall be in the form attached hereto as Exhibit A (the "Letter of Resignation"). Effective on the Effective Date, the Employment Agreement shall be terminated and Mr. Judis shall continue to serve as Chairman of the Board and commence his duties as a consultant to Aames pursuant to that certain Consulting Agreement between Aames and Mr. Judis of even date herewith (the "Consulting Agreement"). Mr. Judis hereby confirms his agreement and understanding that as of the Effective Date (a) he will become a consultant to Aames and (b) he has received all compensation, expense reimbursements and other benefits (other than stock options granted to Mr. Judis prior to the date hereof and currently outstanding) to which he may be entitled to receive under the Employment Agreement through the Effective Date, other than Base Salary (as defined in the Employment Agreement) through the Effective Date and reimbursement of expenses incurred prior to the Effective Date.


2. CONSIDERATION. In consideration of the covenants and undertakings set forth in this Agreement, and concurrently with the execution of this Agreement, Aames and Mr. Judis agree to the following:


(a) Mr. Judis will receive a lump sum severance payment in the amount of $900,000 upon execution of this Agreement;


(b) For a period of 12 months from the date hereof, Mr. Judis will receive board fees of $1 million (payable monthly) for serving as Chairman of the Board and he shall be entitled to maintain his current office and secretary which shall be the office and secretary of the Chairman, and to receive such other perquisites with respect to travel arrangements and use of Company credit cards that are made available by the Company to other senior executive officers of the Company, provided that such fees and perquisites shall terminate in the event he is 2 removed from the Board of Directors for cause or his position as Chairman terminates as a result of his voluntary resignation, death or disability;


(c) Mr. Judis will receive from Aames lifetime coverage for himself and his spouse under medical and dental plans comparable to those provided by Aames to its senior executive officers;


(d) The life insurance policy provided to Mr. Judis under Section 5(f) of the Employment Agreement will be maintained throughout Mr. Judis' life;


(e) Title to Mr. Judis' current company car will be transferred to him upon execution of this Agreement;


(f) Aames will continue to maintain directors and officers liability insurance in an amount at least equal to the amount in effect as of the date hereof (i.e., $100 million); and


(g) All reasonable legal fees incurred by Mr. Judis in connection with the negotiation of this Agreement will be paid by Aames.


3. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Mr. Judis hereby agrees that he will not disclose to any person or otherwise use or exploit any proprietary or confidential information, including, without limitation, trade secrets, processes, records of research, proposals, reports, methods, processes, techniques, computer software or programming, or budgets or other financial information, regarding Aames, its business, properties, customers or affairs (collectively, "Confidential Information") obtained by him at any time during his employment by Aames. Notwithstanding anything herein to the contrary, the term "Confidential Information" shall not include information which (a) is or becomes generally available to the public other than as a result of disclosure by Mr. Judis in violation of this Agreement; (b) is or becomes available to Mr. Judis on a non-confidential basis from a source other than Aames, provided that such source is not known by Mr. Judis to be furnishing such information in violation of a confidentiality agreement with or other obligation of secrecy to Aames; (c) has been made available, or is made available, on an unrestricted basis to a third party by Aames, by an individual authorized to do so; or (d) is known by Mr. Judis prior to its disclosure to him. Mr. Judis may use and disclose Confidential Information to the extent necessary to assert any right or defend against any claim arising under this Agreement or pertaining to Confidential Information or its use, to the extent necessary to comply with any applicable statute, constitution, treaty, rule, regulation, ordinance or order, whether of the United States, any state thereof, or any other jurisdiction applicable to Mr. Judis, or if Mr. Judis receives a request to disclose all or any part of the information contained in the Confidential Information under the terms of a subpoena, order, civil investigative demand or similar process issued by a court of competent jurisdiction or by a governmental body or agency, whether of the United States or any state thereof, or any other jurisdiction applicable to Mr. Judis. If Mr. Judis is served with any subpoena, court order or other legal process seeking disclosure of any Confidential Information, Mr. Judis shall promptly notify the Board


2 3 of Directors at the address set forth below, but in no event more than 48 hours after receipt of same. Except in the performance of his duties hereunder, Mr. Judis agrees not to remove any documents, records or other information from the premises of Aames or any of its subsidiaries or affiliates containing any such Confidential Information and acknowledges that such documents, records and other information are the exclusive property of Aames or its subsidiaries or affiliates. The confidentiality obligations imposed on Mr. Judis by the terms of this Agreement shall be continuing.


4. NON-COMPETITION AND NON-SOLICITATION. Mr. Judis agrees that for a period of three years from the date hereof, he will not directly or indirectly (a) own, manage, ...