Executive Severance Agreement

AAMES FINANCIAL CORPORATION
EXECUTIVE SEVERANCE AGREEMENT


AGREEMENT, dated as of June 1, 1997, by and between Aames Financial Corporation, a Delaware corporation located at 350 South Grand Avenue, Los Angeles, California 90071 ("Corporation"), and Greg Witherspoon ("Executive").


WHEREAS, the Compensation Committee of the Board of Directors ("Committee") has determined that it would be in the best interest of the Corporation and its stockholders to reinforce and encourage the continued attention and dedication of the Executive as a member of the Corporation's management without the distractions occasioned from the possibility of an abrupt change in control of the Corporation;


WHEREAS, to induce Executive to give his continued attention and dedication to his assigned duties in the event of a change in control of the Corporation, the Corporation desires to provide Executive with certain benefits and inducements;


WHEREAS, the Executive is willing to continue serving the Corporation in accordance with the provisions of this Agreement.


NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:


1. Operation of Agreement.


This Agreement sets forth the severance compensation which the Corporation agrees it will pay to the Executive if the Executive's employment with the Corporation terminates under one of the circumstances described herein in connection with or following a Change in Control of the Corporation (as defined herein). No compensation shall be payable under this Agreement unless and until: (i) there shall have been a Change in Control of the Corporation and (ii) the Executive's employment by the Corporation shall have been terminated in accordance with Section 4. To the extent that the provisions of this Agreement, or the benefits provided hereunder, conflict with any provisions of any existing employment agreement between the Executive and the Corporation, this Agreement shall supersede any such provisions in any such employment agreement.


2. Term.


This Agreement shall terminate, except to the extent that any obligation of the Corporation hereunder remains unpaid as of such time, upon the earliest of: (i) five (5) years from the date hereof if a Change in Control of the Corporation has not occurred within such 5-year period; (ii) the termination of the Executive's employment with the Corporation based on death or Permanent Disability (as defined in Section


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4(b)), by the Corporation, or by the Executive other than for Good Reason (as defined in Section 4(d)); (iii) two (2) years from the date of a Change in Control of the Corporation if the Executive has not terminated his employment for Good Reason as of such time; and (iv) prior to a Change in Control, in the discretion of the Board of Directors ("Board"), upon the Executive's ceasing to be an executive officer of the Corporation.


3. Change in Control.


For purposes of this Agreement, a Change in Control of the Corporation shall mean the occurrence of any of the following:


(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act ("Rule 13d-3")) of 20% or more of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); provided, however, that neither of the following acquisitions shall constitute a Change in Control: (1) any acquisition by the Corporation or (2) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation; or


(b) Individuals who, as of the date hereof, constitute the Board of Directors of the Corporation (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors of the Corporation; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by the stockholders of the Corporation, shall be approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; or


(c) Approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, unless in connection with such reorganization, merger or consolidation; (1) more than 60% of the combined voting power of the then outstanding voting securities of the corporation resulting from such reorganization, merger or consolidation, which may be the Corporation (the "Resulting Corporation") entitled to vote generally in the election of directors (the "Resulting Corporation Voting Securities") shall then be owned beneficially, directly or indirectly, by all or substantially all of the Persons who were the beneficial owners of Outstanding Voting Securities immediately prior to such reorganization, merger or consolidation, in substantially the same proportions as their respective ownerships of Outstanding Voting Securities immediately prior to such reorganization, merger or consolidation; (2) no Person (excluding the Corporation, any employee benefit plan (or related trust) of the Corporation, the Resulting Corporation and any Person beneficially owning, immediately


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prior to such reorganization, merger or consolidation, directly or indirectly, 20% or more of the combined voting power of Outstanding Voting Securities) shall own beneficially, directly or indirectly, 20% or more of the combined voting power of the Resulting Corporation Voting Securities; and (3) at least a majority of the members of the Board shall have been members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or


(d) Approval by the stockholders of the Corporation of (1) a complete liquidation or dissolution of the Corporation or (2) sale or other disposition of all or substantially all of the assets of the Corporation, other than to a corporation (the "Buyer") with respect to which (x) following such sale or other disposition, more than 60% of the combined voting power of securities of Buyer entitled to vote generally in the election of directors ("Buyer Voting Securities"), shall be owned beneficially, directly or indirectly, by all or substantially all of the persons who were beneficial owners of the Outstanding Voting Securities immediately prior to such sale or other disposition, in substantially the same proportion as their respective ownership of Outstanding Voting Securities, immediately prior to such sale or other disposition; (y) no Person (excluding the Corporation and any employee benefit plan (or related trust) of the Corporation or Buyer and any Person that shall immediately prior to such sale or other disposition own beneficially, directly or indirectly, 20% or more of the combined voting power of Outstanding Voting Securities), shall own beneficially, directly or indirectly, 20% or more of the combined voting power of the Buyer Voting Securities; and (z) at least a majority of the members of the board of directors of Buyer shall have been members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition or assets of the Corporation.


4. Termination Following Change in Control.


(a) If a Change in Control of the Corporation shall have occurred while the Executive is still an employee of the Corporation, (or the Board adopts a resolution to the effect that a potential Change in Control for purposes of this Agreement has occurred), then the Executive shall be entitled to the compensation provided in Section 5 upon the termination of the Executive's employment by the Corporation or by the Executive, unless such termination is as a result of: (i) the Executive's death; (ii) the Executive's Permanent Disability (as defined in Section 4(b) below); (iii) the Executive's termination by the Corporation for Cause (as defined in Section 4(c) below); or (iv) the Executive's decision to terminate employment other than for Good Reason (as defined in Section 4(d) below).


(b) Permanent Disability. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from his duties with the Corporation on a full-time basis for six (6) months and within thirty (30) days after written notice of termination is thereafter given by the Corporation, the Executive shall not have returned to the full-time performance of the Executive's duties, the


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Corporation may terminate this Agreement based on the Executive's "Permanent Disability."


(c) Cause. For purposes of this Agreement, the termination of the Executive's employment shall be deemed to have been for "Cause" only if termination of his employment shall have been the result of an act of fraud, embezzlement, gross dishonesty or similar conduct by Executive involving the Corporation; any action by Executive involving the arrest of Executive, for violation of any criminal statute consisting of a felony if the Board reasonably determines that the continuation of Executive's employment after such event would have an adverse impact on the operations or reputation of the Corporation in the financial community; or continued insubordination or refusal by Executive to perform his duties hereunder in any manner deemed to be reasonably satisfactory to the CEO. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause under this clause unless and until there shall have been delivered to the Executive a Notice of Termination (as defined in Section 4(f)).


(d) Good Reason. The Executive may terminate his employment by the Corporation for Good Reason at any time following a Change in Control during the term of this Agreement. For purposes of this Agreement, "Good Reason" shall mean any of the following:


(i) the assignment to the Executive of any duties materially inconsistent with, or any substantial diminution of, the Executive's positions, duties, responsibilities and status with the Corporation immediately prior to a Change in Contr ...