EXHIBIT 10.3

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT, made and entered into as of November 3, 2004 (the “Signing
Date”), by and among A. Jay Meyerson (the “Executive”), Aames Investment
Corporation (the “Parent Company”), and Aames Financial Corporation (the
“Employer”);

 

WITNESSETH THAT:

 

WHEREAS, the parties desire to enter into this Agreement pertaining to the
employment of the Executive by the Employer;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, it is hereby covenanted and agreed by the Executive, the Parent
Company, and the Employer as follows:

 

1. Performance of Services. The Executive’s employment with the Employer shall
be subject to the following:

 

(a) Subject to the terms of this Agreement, the Employer hereby agrees to employ
the Executive during the Agreement Term (as defined below). During the Agreement
Term, the Executive shall serve as the President and Chief Executive Officer of
the Parent Company.

 

(b) During the Agreement Term, while the Executive is employed by the Employer,
the Board of Directors of the Parent Company (the “Board”) shall use its best
efforts to cause the Executive to be elected as a member of the Board.

 

(c) During the Agreement Term, while the Executive is employed by the Employer,
his main office shall be at the Parent Company’s headquarters in Los Angeles
County, California. However, if the Parent Company relocates its headquarters to
Orange County, California, the parties agree that the Executive’s main office
will be relocated to such headquarters in Orange County, California.

 

(d) During the Agreement Term, while the Executive is employed by the Employer,
the Executive shall devote his full time, energies and talents to serving as
President and Chief Executive Officer of the Employer and of the Parent
Corporation.

 

(e) The Executive agrees that he shall perform his duties faithfully and
efficiently subject to the directions of the Board. The Executive’s duties may
include providing services for the Parent Company and the Subsidiaries (as
defined below), as determined by the Board; provided that the Executive shall
not, without his consent, be assigned tasks that would be inconsistent with
those of President and Chief Executive Officer of the Parent Company. The
Executive shall report to the Board and shall have such authority, power,
responsibilities and duties as are inherent in his positions (and the
undertakings applicable to his positions) and necessary to carry out his
responsibilities and the duties required of him hereunder.

 

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(f) Notwithstanding the foregoing provisions of this paragraph 1, during the
Agreement Term, the Executive may devote reasonable time to activities other
than those required under this Agreement, including the supervision of his
personal investments, and activities involving professional, charitable,
community, educational, religious and similar types of organizations, speaking
engagements, membership on the boards of directors of other organizations, and
similar types of activities, to the extent that, in the judgment of the Board,
such other activities do not inhibit or prohibit the performance of the
Executive’s duties under this Agreement, or conflict in any material way with
the business of the Parent Company or any Subsidiary; provided, however, that
the Executive shall not serve on the board of any business, hold any other
position with any business, or otherwise engage in any business activity,
without the consent of the Board.

 

(g) Subject to the terms of this Agreement, the Executive shall not be required
to perform services under this Agreement during any period that he is Disabled.
The Executive shall be considered “Disabled” during any period in which he has a
physical or mental disability which renders him incapable, after reasonable
accommodation, of performing his duties under this Agreement. In the event of a
dispute as to whether the Executive is Disabled or Permanently Disabled, the
Board may refer the same to a licensed practicing physician of the Board’s
choice, and reasonably acceptable to the Executive, and the Executive agrees to
submit to such tests and examinations as such physician shall deem appropriate.
During the period in which the Executive is Disabled, the Board may appoint a
temporary replacement to assume the Executive’s responsibilities.

 

(h) The Agreement shall become effective on the “Effective Date,” which shall be
the date of the closing of the initial public offering of the common stock of
the Parent Company (the “Public Offering Date”), if the Executive is employed by
the Employer on that date. However, if the Executive is not employed by the
Employer on the Public Offering Date, this Agreement will be void.

 

(i) The “Agreement Term” shall be the period beginning on the Effective Date and
ending on the three year anniversary of the Effective Date. Thereafter, as of
the date the Agreement Term (as it may be extended from time to time under this
paragraph) would otherwise end, the Agreement Term will be automatically
extended for 12 months, unless one party to this Agreement provides notice of
non-renewal to each of the others at least 90 days before the day that would be
the last day of the Agreement Term in the absence of such renewal. A Notice of
Termination shall be deemed to constitute a notice of non-renewal under this
paragraph (i) to be effective as of the earliest date permitted under this
paragraph (i).

 

(j) For purposes of this Agreement, the term “Subsidiary” shall mean any
corporation, partnership, joint venture or other entity during any period in
which at least a fifty percent interest in such entity is owned, directly or
indirectly, by the Parent Company (or a successor to the Parent Company),
including the Employer.

 

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2. Compensation. Subject to the terms of this Agreement, during the Agreement
Term, while the Executive is employed by the Employer, the Employer shall
compensate him for his services as follows:

 

(a) Salary. The Executive shall receive, for each 12-consecutive month period
beginning on the Effective Date and each anniversary thereof, in substantially
equal monthly or more frequent installments, an annual base salary of not less
than $425,000 (the “Salary”). The Executive’s Salary rate shall be reviewed
annually by the Compensation Committee of the Board at the same time as such
review is performed for other senior officers of the Parent Company, while the
Executive is employed by the Employer, to determine whether an increase in the
amount of Salary is appropriate. In no event shall the Salary of the Executive
be reduced to an amount that is less than the amount specified in this paragraph
(a), or to an amount that is less than the amount that he was previously
receiving.

 

(b) Bonus. The Executive shall participate in an annual bonus program. The bonus
program shall provide for an annual bonus payment of $650,000 if target level of
performance is achieved (“target bonus”), adjusted based upon actual performance
pursuant to the Parent Company’s Executive Bonus Plan. Subject to the preceding
sentence, the amount of the bonus may be less if the actual level of performance
is less than the target level of performance, and subject to the preceding
sentence, may be more (but not less) if the actual level of performance is
greater than the target level. The performance goals for the year shall be
established by the Compensation Committee in its sole discretion after
consultation with the Executive. The level of performance achievement by the
Executive for each year shall be reviewed by the Compensation Committee of the
Board as set forth under the Parent Company’s Executive Bonus Plan. The target
bonus shall be reviewed by the Compensation Committee of the Board at the same
time as such review is performed for other senior officers of the Parent
Company, while the Executive is employed by the Employer, to determine whether
an increase in the target bonus is appropriate. In no event shall the target
bonus of the Executive be reduced to an amount that is less than the amount
specified in this paragraph (b).

 

(c) Options and Restricted Stock. As of the Effective Date:

 

  (i) The Executive shall be granted shares of restricted stock subject to the
vesting schedule at the rate of 25% per year, if the Executive is then employed
by the Employer, subject to terms of this Agreement. The Executive will receive
32% of the initial restricted stock grant.

 

  (ii) In exchange for surrender and cancellation of Executive’s options to
purchase 3,850,000 shares of Aames Financial Corporation common stock granted on
October 25, 1999, August 4, 2000, December 29, 2000 and February 7, 2002, the
Executive shall be granted restricted stock units of the Parent Company. With
respect to each option, the total number of units so granted will equal (A) the
amount by which the per share consideration that would have been received by
Aames Financial common shareholders had the holders of Aames Financial Series B
convertible preferred stock and Series C convertible preferred stock received

 

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the stated value of such shares in the merger (“Stated Value Adjustment”),
exceeds the option exercise price, multiplied by (B) the number of shares
covered by the option, divided by (C) the initial public offering price of
common stock of the Parent Company. Schedule A provides a summary of restricted
stock units and value based on minimum, middle and maximum valuation based upon
the stated Value Adjustment. Schedule A is attached to and forms a part of this
agreement.

 

(d) Other Fringe Benefits. Except as otherwise specifically provided to the
contrary in this Agreement, the Executive shall be provided with the welfare
benefits and other fringe benefits to the same extent and on the same terms as
those benefits are provided by the Parent Company or the Employer from time to
time to the Parent Company’s other senior officers; provided, however, that if
any such benefits are adjusted to reflect an officer’s position, the Executive’s
benefits shall be adjusted in a manner commensurate with his position. The
Executive shall also be entitled to the perquisites that are customarily
provided in connection with his position. Notwithstanding the above, in lieu of
providing additional life insurance for the Executive, the Employer shall pay
the annual premiums in an amount not to exceed $25,000 annually, on Executive’s
life insurance policies in amounts not to exceed $1,000,000.00. However, neither
the Parent Company nor the Employer shall be required to provide a benefit under
this paragraph (d) if such benefit would duplicate (or otherwise be of the same
type as) a benefit specifically required to be provided under another provision
of this Agreement. The Executive shall complete all forms and physical
examinations, and otherwise take all other similar actions to secure coverage
and benefits described in this paragraph 2, to the extent determined to be
necessary or appropriate by the Employer.

 

(e) Expenses. The Executive is authorized to incur reasonable expenses for
entertainment, traveling, meals, lodging and similar items in promoting the
business of the Parent Company or the Subsidiaries. The Employer will reimburse
the Executive for all reasonable expenses so incurred, provided that such
expenses are incurred and accounted for in accordance with the reasonable
policies and procedures established by the Employer, and further provided that
such expenses are subject to review by the Audit Committee of the Board.

 

(f) Indemnification and Insurance. The Parent Company and the Employer will, to
the maximum extent permitted by law, defend, indemnify and hold harmless the
Executive and the Executive’s heirs, estate, executors and administrators
against any costs, losses, claims, suits, proceedings, damages or liabilities to
which the Executive may become subject which arise out of, are based upon or
relate to the Executive’s employment by the Employer and services provided to
the Parent Company and its Subsidiaries (and any predecessor company to the
Parent Company and the Subsidiaries), or the Executive’s service as an officer
or member of the Board of Directors of the Parent Company or any Subsidiary (or
any predecessor company), including without limitation reimbursement for any
legal or other expenses reasonably incurred by the Executive in connection with
investigation and defending against any such costs, losses, claims, suits,
proceedings, damages or liabilities. The Parent Company and/or the Employer
shall maintain directors and officers liability insurance in commercially
reasonable amounts (as reasonably

 

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determined by the Board), and the Executive shall be covered under such
insurance to the same extent as other senior officers and directors of the
Parent Company; provided, however, that neither the Parent Company nor the
Employer shall be required to maintain such insurance coverage unless the Board
determines that it is obtainable at reasonable cost.

 

3. Termination. The Executive’s employment with the Employer during the
Agreement Term may be terminated by the Employer or the Executive without any
breach of this Agreement only under the circumstances described in paragraphs
3(a) through 3(f):

 

(a) Death. The Executive’s employment hereunder will terminate upon his death.

 

(b) Permanent Disability. The Employer may terminate the Executive’s employment
during any period in which he is Permanently Disabled. The Executive shall be
considered “Permanently Disabled” during any period in which he is Disabled;
provided, however, that the Executive shall not be considered to be “Permanently
Disabled” unless the Executive has a physical or mental disability which renders
the Executive incapable, after reasonable accommodation, of performing any
substantial portion of the Executive’s duties under this Agreement on a
permanent, full-time basis, and such disability is reasonably expected by the
Board to continue for at least 120 days.

 

(c) Cause. The Employer may terminate the Executive’s employment hereunder at
any time for Cause. For purposes of this Agreement, the term “Cause” exists when
the Executive shall have (i) 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 Executive shall have been arrested or indicted for
violation of any criminal statute constituting a felony, provided the Board
reasonably determines that the continuation of the Executive’s employment after
such event would have an adverse impact on the operation or reputation of the
Parent Company or its affiliates; (ii) committed one or more acts of gross
negligence or willful misconduct, either within or outside the scope of his
employment that, in the good faith opinion of the Board, materially impair the
goodwill or business of the Parent Company or cause material damage to its
property, goodwill, or business, or would, if known, subject the Parent Company
to public ridicule; (iii) refused or failed to a material degree to perform his
duties; (iv) violated any material written Company policy generally applicable
to senior officers of the Parent Company that is provided to the Executive
during or prior to the term of employment; or (v) the continued failure by the
Executive to substantially perform his duties with the Parent Company (other
than any such failure resulting from the Executive’s being Disabled), within a
reasonable period of time after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically identifies
the manner in which the Board believes that the Executive has not substantially
performed his duties.

 

(d) Constructive Discharge. If (I) the Executive provides written notice to the
Parent Company of the occurrence of Good Reason (as defined below) within a
reasonable time (not to exceed 60 days) after the Executive has knowledge of the
circumstances constituting Good Reason, which notice specifically identifies the
circumstances which

 

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the Executive believes constitute Good Reason; (II) the Parent Company fails to
notify the Executive of the Parent Company’s intended method of correction
within a reasonable period of time (not to exceed 60 days) after the Parent
Company receives the notice, or the Parent Company fails to correct the
circumstances within a reasonable period of time (not to exceed 60 days) after
such notice; and (III) the Executive resigns within a reasonable time (not to
exceed 60 days) after receiving the Parent Company’s response, if such notice
does not indicate an intention to correct such circumstances, or within a
reasonable time (not to exceed 60 days) after the Parent Company fails to
correct such circumstances; then the Executive shall be considered to have been
subject to a Constructive Discharge by the Parent Company. Notwithstanding the
foregoing provisions of this paragraph (d), the Executive shall not be deemed to
have been subject to a “Constructive Discharge” unless the Executive remains in
the employ of the Employer (at the location where he was employed immediately
prior to the occurrence of the events constituting Good Reason)for the period
requested by the Employer (not to exceed 90 days after the Executive provides
written notice in accordance with clause (I) above). “Good Reason” means the
occurrence of: (i) the assignment to the Executive of any duties materially
inferior to those of the Executive’s position and status as set forth in
paragraph 1, any material reduction in the authority or responsibility of the
Executive or other substantial reduction in the terms and conditions of the
Executive’s employment, a change in Executive’s reporting relationship from the
reporting relationship required in accordance with paragraph 1, or the failure
of the Executive to be elected or reelected to the Board; (ii) a reduction by
the Employer in the Executive’s annual base salary or any material adverse
change in the terms or conditions of Executive’s aggregate annual bonus from
that in effect on the date thereof, if any, which change is not pursuant to a
program applicable to all comparably situated officers of the Parent Company;
(iii) the relocation of the Executive’s principal place of employment to a
location outside of Orange County or Los Angeles County, California (which
location is more than fifty (50) miles from the Executive’s principal
residence); (iv) the failure of the Employer or the Parent Company, as
applicable, to obtain a satisfactory agreement from any successor to assume and
agree to perform this Agreement; or (v) any material breach of this Agreement by
the Parent Company or the Employer not described in clauses (i) through (iv)
next above. Notwithstanding the provisions of paragraph 1(a), the Board may
elect an individual other than the Executive as the President of the Parent
Company, which shall not be a breach of this Agreement, and shall not constitute
Good Reason under this paragraph 3(d); provided that the election of the
President is approved by the Executive and the President reports to the
Executive.

 

(e) Termination by Executive. The Executive may terminate his employment
hereunder at any time for any reason by giving the Parent Company prior written
Notice of Termination, which Notice of Termination shall be effective not less
than 60 days after it is given to the Parent Company, provided that nothing in
this Agreement shall require the Executive to specify a reason for any such
termination. However, to the extent that the procedures specified in paragraph
3(d) are required, the procedures of this paragraph (e) may not be used in lieu
of the procedures required under paragraph 3(d).

 

(f) Termination by Employer. The Employer may terminate the Executive’s
employment hereunder at any time for any reason, by giving the Executive prior
written Notice of

 

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Termination, which Notice of Termination shall be effective immediately, or such
later time as is specified in such notice. The Employer shall not be required to
specify a reason for the termination under this paragraph (f), provided that
termination of the Executive’s employment by the Employer shall be deemed to
have occurred under this paragraph (f) only if it is not for reasons described
in paragraph 3(b), 3(c), 3(d), or 3(e).

 

(g) Notice of Termination. Any termination of the Executive’s employment by the
Employer or the Executive (other than a termination pursuant to paragraph 3(a))
must be communicated by a written Notice of Termination to the other party
hereto (if by the Executive, to the Employer or the Parent Company, as provided
above). For purposes of this Agreement, a “Notice of Termination” means a dated
notice which indicates the Date of Termination (not earlier than the date on
which the notice is provided), and which indicates the specific termination
provision in this Agreement relied on and which sets forth in reasonable detail
the facts and circumstances, if any, claimed to provide a basis for termination
of the Executive’s employment under the provision so indicated.

 

(h) Date of Termination. “Date of Termination” means the last day the Executive
is employed by the Employer (including any successor to the Employer as
determined in accordance with paragraph 16). If the Executive becomes employed
by an entity into which the Employer is merged, or the purchaser of
substantially all of the assets of the Employer, or a successor to such entity
or purchaser, the Executive shall not be treated as having terminated employment
for purposes of this Agreement until such time as the Executive terminates
employment with the successor (including, without limitation, the merged entity
or purchaser), provided that the new employer agrees in writing to assume this
Agreement and be substituted for the Employer under this Agreement.

 

(i) Effect of Termination. If, on the Date of Termination, the Executive is a
member of the Board of Directors of the Parent Company, or any of the
Subsidiaries, or holds any other position with the Parent Company and the
Subsidiaries, the Executive shall resign from all such positions as of the Date
of Termination.

 

4. Rights Upon Termination. The Executive’s right to payment and benefits under
this Agreement for periods after his Date of Termination shall be determined in
accordance with the following provisions of this paragraph 4:

 

(a) General. If the Executive’s Date of Termination occurs during the Agreement
Term for any reason, the Employer shall pay to the Executive:

 

  (i) The Executive’s Salary for the period ending on the Date of Termination.

 

  (ii) Payment for unused vacation days, as determined in accordance with
Employer policy as in effect from time to time.

 

  (iii) If the Date of Termination occurs after the end of a performance period
and prior to the payment of the performance bonus (as described in paragraph
2(b)) for the period, the Executive shall be paid such bonus amount at the
regularly scheduled time.

 

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  (iv) The Executive and any of his dependents shall be eligible for COBRA
continuation coverage (as described in section 4980B of the Internal Revenue
Code of 1986, as amended) to the extent required by applicable law.

 

  (v) Any other payments or benefits to be provided to the Executive by the
Parent Company or a Subsidiary pursuant to any employee benefit plans or
arrangements established or adopted by the Parent Company or a Subsidiary
(including, without limitation, any rights to indemnification from the Parent
Company or a Subsidiary (or from a third-party insurer for directors and
officers liability coverage) with respect to any costs, losses, claims, suits,
proceedings, damages or liabilities to which the Executive may become subject
which arise out of, are based upon or relate to the Executive’s employment by
the Employer or the Executive’s service as an officer or member of the Board of
Directors of the Parent Company or any Subsidiary), to the extent such amounts
are due from the Parent Company or any Subsidiary in accordance with the terms
of such plans or arrangements.

 

Except as may otherwise be expressly provided to the contrary in this Agreement,
nothing in this Agreement shall be construed as requiring the Executive to be
treated as employed by the Parent Company or any Subsidiary for purposes of any
employee benefit plan or arrangement following the Executive’s Date of
Termination.

 

(b) Resignation and Termination for Cause. If the Executive’s Date of
Termination occurs during the Agreement Term under circumstances described in
paragraph 3(c) (relating to the Executive’s termination for Cause), or paragraph
3(e) (relating to the Executive’s resignation), then, except as otherwise
expressly provided in this Agreement or otherwise agreed in writing by the
Parent Company or the Employer, respectively, the Parent Company and the
Employer shall have no obligation to make payments under the Agreement for
periods after the Executive’s Date of Termination.

 

(c) Death or Disability. If the Executive’s Date of Termination occurs during
the Agreement Term under circumstances described in paragraph 3(a) (relating to
Executive’s death) or paragraph 3(b) (relating to Executive’s being Permanently
Disabled), then, in addition to the amounts payable in accordance with paragraph
4(a), and in lieu of payment of a bonus for the year in which the Date of
Termination occurs, the Executive shall receive payment equal to $650,000
subject to a pro-rata reduction for the portion of the bonus performance period
following the Date of Termination, which amount shall be payable in a lump sum
as soon as practicable (but not more than 15 days) after the Date of
Termination.

 

(d) Termination without Cause and Constructive Discharge. If the Executive’s
Date of Termination occurs during the Agreement Term under circumstances
described in paragraph 3(d) (relating to Constructive Discharge) or paragraph
3(f) (relating to termination by the Employer without Cause), then, in addition
to the amounts payable in accordance with paragraph 4(a):

 

  (i) The Executive shall receive from the Employer for the thirty-six (36)
month period (the “Severance Period”), the Salary amount described in paragraph
2(a),

 

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as in effect on his Date of Termination, in monthly or more frequent
installments as is required under that paragraph. In the event of the
Executive’s death during the Severance Period, the Employer shall continue to
make payments under this paragraph (d) to the Executive’s estate.

 

  (ii) In lieu of payment of a bonus for the year in which the Date of
Termination occurs, the Executive shall receive payment equal to $650,000
subject to a pro-rata reduction for the portion of the bonus performance period
following the Date of Termination, which amount shall be payable in a lump sum
as soon as practicable (but not more than 15 days) after the Date of
Termination.

 

  (iii) For the 36-month period following the Executive’s Date of Termination,
the Employer shall pay the annual premiums, in an amount not to exceed $25,000
annually, on the Executive’s life insurance policies in amounts not to exceed
$1,000,000.00.

 

(e) Options and Restricted Stock. If the Executive’s Date of Termination occurs
during the Agreement Term under circumstances described paragraph 3(d) (relating
to Constructive Discharge) or paragraph 3(f) (relating to termination by the
Employer without Cause):

 

  (i) Any outstanding restricted stock and restricted stock units granted to the
Executive prior to the Date of Termination shall vest as of the Date of
Termination.

 

  (ii) The exercise restrictions with respect to stock options granted to the
Executive shall lapse, and the options shall become vested and exercisable as of
the Date of Termination. The portion of any stock option granted to the
Executive that is exercisable immediately prior to the Date of Termination, as
well as the portion of any stock option that becomes exercisable by reason of
this paragraph (ii) shall remain exercisable for 180 days after the Date of
Termination, but in no event later than the date fixed for expiration of the
option (determined without regard to Executive’s termination of employment).

 

Nothing in this Agreement shall be construed to permit the Executive to purchase
or sell securities of the Parent Company in violation of securities rules or
other applicable rules.

 

(f) Supplemental Payments. If (i) the Executive’s Date of Termination occurs at
or after the end of the Agreement Term; (ii) during the Executive’s period of
employment he devoted reasonable efforts to implementation of a program for
succession of leadership of the Parent Company after his Date of Termination
and, pursuant to such succession program, the Executive made best efforts to
present one or more qualified candidates to the Board for such leadership
positions(s), with Executive’s performance to be reasonably evaluated by the
Board based on evaluation of process taken to identify and present qualified
successor; (iii) the Executive agrees to provide reasonable consultation
services to the Parent Company and/or the Employer (not to exceed 200 hours per
year) for three years after his Date of Termination; and (iv) the Executive is
not entitled to benefits under paragraph (d) above; then:

 

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  (i) Beginning with the calendar month following the month in which the
Executive’s Date of Termination occurs, the Executive will receive equal monthly
Supplemental Payments from the Employer for a period of 36 months at the rate of
$350,000 per year. For purposes of this paragraph (i), services rendered as a
member of the Board shall be counted toward the hours of service required of the
Executive, and compensation set forth in the preceding sentence shall, in part,
constitute compensation for services as a director and shall be in lieu of any
separate directors fees for performing services as a director (although the
Executive shall be entitled to reimbursement of out of pocket expenses as a
director to the same extent as other directors). In the event of the Executive’s
death during the Severance Period, the Employer shall continue to make the
Supplemental Payments under this paragraph (f) to the Executive’s estate.

 

  (ii) For purposes of determining the vesting of outstanding restricted stock
and restricted stock units granted to the Executive that are not vested on the
Date of Termination, the Executive be treated as though he continues to be
employed by the Employer after the Date of Termination until such restricted
stock and restricted stock units vest, provided that for purposes of determining
such vesting, the Executive’s employment will be deemed to terminate at the time
the Executive ceases to provide services in accordance with this paragraph (f)
if such cessation is by reason of death, disability, or voluntary resignation,
and further provided that the Executive will become fully vested in all
restricted stock and restricted stock units at the time he ceases to perform
services in accordance with this paragraph (f) if such cessation occurs either
at or after the end of the 36-month period following the Date of Termination or
by reason of termination by the Employer for any reason.

 

  (iii) For purposes of determining the vesting of outstanding stock options
granted to the Executive that are not vested and exercisable on the Date of
Termination, the Executive be treated as though he continues to be employed by
the Employer after the Date of Termination until such options vest and become
exercisable, provided that for purposes of determining such vesting and
exercisability, the Executive’s employment will be deemed to terminate at the
time the Executive ceases to provide services in accordance with this paragraph
(f) if such cessation is by reason of death, disability, or voluntary
resignation, and further provided that all such options will become fully vested
and exercisable at the time he ceases to perform services in accordance with
this paragraph (f) if such cessation occurs either at or after the end of the
36-month period following the Date of Termination or by reason of termination by
the Employer for any reason. The portion of each such option shall remain
exercisable for 180 days after that portion becomes vested.

 

  (iv) For the 36-month period following the Executive’s Date of Termination,
the Employer shall pay the annual premiums, in an amount not to exceed $25,000
annually, on the Executive’s life insurance policies in amounts not to exceed
$1,000,000.00.

 

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(g) Medical Benefits. If the Executive’s Date of Termination occurs during the
Agreement Term under circumstances described in paragraph 3(a) (relating to
Executive’s death), paragraph 3(b) (relating to Executive’s being Permanently
Disabled), paragraph 3(d) (relating to Constructive Discharge), or paragraph
3(f) (relating to termination by the Employer without Cause), or if the
Executive’s Date of Termination occurs after the three-year anniversary of the
Effective Date (regardless of the reason for such termination), then for the
period beginning on the Date of Termination, and ending on the Executive’s 65th
birthday (with respect to the Executive) and ending on the 65th birthday of the
Executive’s wife as of the Signing Date (with respect to the Executive’s wife),
the Employer shall continue health and dental insurance benefits to the
Executive and/or the Executive’s wife (determined as of the Signing Date, and
regardless of whether both survive after that date) which are concurrently being
provided to active senior officers (and their spouses) of the Parent Company
during that period, and the Employer shall pay all premiums for such coverage.

 

(h) Other Plans. Except as may be otherwise specifically provided in an
amendment of this paragraph (h) adopted in accordance with paragraph 12, the
Executive’s rights under this paragraph 4 shall be in lieu of any benefits that
may be otherwise payable to or on behalf of the Executive pursuant to the terms
of any severance pay arrangement of the Parent Company or any Subsidiary
including any agreement with Aames Financial Corporation or any other, similar
arrangement of the Parent Company or any Subsidiary providing benefits upon
involuntary termination of employment including any agreement with Aames
Financial Corporation. This paragraph (h) shall not be construed to adversely
affect the Executive’s rights under the terms of any option on stock of the
Parent Company or any other award based on the stock of the Parent Company.

 

5. Duties on Termination. Subject to the terms and conditions of this Agreement,
during the period beginning on the date of delivery of a Notice of Termination,
and ending on the Date of Termination, the Executive shall continue to perform
his duties as set forth in this Agreement, and shall also perform such services
for the Parent Company and the Employer as are necessary and appropriate for a
smooth transition to the Executive’s successor, if any. Notwithstanding the
foregoing provisions of this paragraph 5, the Parent Company and the Employer
may suspend the Executive from performing his duties under this Agreement
(including, without limitation, his duties as a member of the Board of Directors
of the Parent Company or any Subsidiary) following the delivery of a Notice of
Termination providing for the Executive’s resignation, or delivery by the
Employer of a Notice of Termination providing for the Executive’s termination of
employment for any reason; provided, however, that during the period of
suspension (which shall end on the Date of Termination), the Executive shall
continue to be treated as employed by the Employer for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.

 

6. Mitigation, Alienation, and Set-Off. The Executive shall not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise. The Employer shall be entitled to set off against
amounts payable to the Executive any amounts owed to the Parent Company and the
Subsidiaries by the Executive, but neither the Parent Company, the Employer, nor
the Subsidiaries shall be entitled to set off against the amounts payable to the
Executive under this Agreement any amounts earned by the Executive in

 

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other employment after termination of his employment with the Employer, or any
amounts which might have been earned by the Executive in other employment had he
sought such other employment. This Agreement is personal to the Executive and
may not be assigned by the Executive without the written consent of the
Employer. Except as otherwise provided in this paragraph, the interests of the
Executive under this Agreement are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Executive or the Executive’s beneficiary.
However, to the extent that rights or benefits under this Agreement otherwise
survive the Executive’s death, the Executive’s heirs and estate shall succeed to
such rights and benefits pursuant to the Executive’s will or the laws of descent
and distribution; provided that the Executive shall have the right at any time
and from time to time, by notice delivered to the Employer, to designate or to
change the beneficiary or beneficiaries with respect to such benefits.

 

7. Confidential Information. The Executive agrees that, during the Agreement
Term, and at all times thereafter:

 

(a) Except as may be required by the lawful order of a court or agency of
competent jurisdiction, except as necessary to carry out his duties to the
Parent Company and its Subsidiaries, or except to the extent that the Executive
has express authorization from the Parent Company, the Executive agrees to keep
secret and confidential indefinitely, all Confidential Information, and not to
disclose the same, either directly or indirectly, to any other person, firm, or
business entity, or to use it in any way. The Executive shall, during the
continuance of the Executive’s employment, use the Executive’s best endeavors to
prevent the unauthorized publication or misuse of any Confidential Information.

 

(b) To the extent that any court or agency seeks to have the Executive disclose
Confidential Information, he shall promptly inform the Parent Company, and he
shall take reasonable steps to prevent disclosure of Confidential Information
until the Parent Company has been informed of such requested disclosure, and the
Parent Company has an opportunity to respond to such court or agency. To the
extent that the Executive obtains information on behalf of the Parent Company or
any of the Subsidiaries that may be subject to attorney-client privilege as to
the Parent Company’s attorneys, the Executive shall take reasonable steps to
maintain the confidentiality of such information and to preserve such privilege.

 

(c) Nothing in the foregoing provisions of this paragraph 7 shall be construed
so as to prevent the Executive from using, in connection with his employment for
himself or an employer other than the Parent Company or any of the Subsidiaries,
knowledge which was acquired by him during the course of his employment with the
Employer and the Subsidiaries and its affiliates, and which is generally known
to persons of his experience in other companies in the same industry.

 

(d) For purposes of this Agreement, the term “Confidential Information” shall
include all non-public information (including, without limitation, information
regarding litigation and pending litigation) concerning the Parent Company and
the Subsidiaries which was acquired by or disclosed to the Executive during the
course of his employment with the Employer and its affiliates, or during the
course of his consultation with the Parent

 

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Company and the Employer and their affiliates prior to the commencement of his
employment and following his Date of Termination (regardless of whether
consultation is pursuant to paragraph 10). For purposes of this Agreement, the
term “Confidential Information” shall also include all non-public information
concerning any other company that was shared with the Parent Company or a
Subsidiary subject to an agreement to maintain the confidentiality of such
information.

 

(e) This paragraph 7 shall not be construed to unreasonably restrict the
Executive’s ability to disclose confidential information in an arbitration
proceeding or a court proceeding in connection with the assertion of, or defense
against any claim of breach of this Agreement. If there is a dispute between the
Parent Company or the Employer and the Executive as to whether information may
be disclosed in accordance with this paragraph (e), the matter shall be
submitted to the arbitrators or the court (whichever is applicable) for
decision.

 

8. Non-Disparagement. The Executive agrees that, while he is employed by the
Employer, and after his Date of Termination, he shall not make any false,
defamatory or disparaging statements about the Parent Company and the
Subsidiaries, or the officers or directors of the Parent Company or the
Subsidiaries that are reasonably likely to cause material damage to the Parent
Company or the Subsidiaries, or the officers or directors of the Parent Company
or the Subsidiaries. While the Executive is employed by the Employer, and after
his Date of Termination, the Parent Company agrees, on behalf of itself and the
Subsidiaries, that neither the officers nor the directors of the Parent Company
or the Subsidiaries shall make any false, defamatory or disparaging statements
about the Executive that are reasonably likely to cause material damage to the
Executive.

 

9. Restrictions on Solicitation. For a period of twenty four (24) months after
the Date of Termination, the Executive will not: (i) hire any person who was
employed by the Parent Company or the Subsidiaries on such Date of Termination
or at any time within six months prior thereto or hire any agent, consultant, or
independent contractor of the Parent Company or the Subsidiaries, or of any
organization with respect to which the Parent Company or its Subsidiaries has
agreed to a similar prohibition and of which the Executive has knowledge, or
induce or attempt to induce any such person to discontinue such employment or
affiliation with the Parent Company or the Subsidiaries or such organization, as
the case may be, or (ii) induce or attempt to induce any client or customer of
the Parent Company or the Subsidiaries on the date of termination to discontinue
any business relationship or to refrain from entering into a new business
relationship with the Parent Company or the Subsidiaries, including, without
limitation, the solicitation or interference with any borrowers or brokers who
have submitted loans or loan applications to the Parent Company or the
Subsidiaries.

 

10. Assistance with Claims. The Executive agrees that, for the period beginning
on the Effective Date, and continuing for a reasonable period after the
Executive’s Date of Termination, the Executive will assist the Parent Company
and the Subsidiaries in the defense of any claims that may be made against the
Parent Company and the Subsidiaries, and will assist the Parent Company and the
Subsidiaries in the prosecution of any claims that may be made by the Parent

 

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Company or the Subsidiaries, to the extent that such claims may relate to
services performed by the Executive for the Parent Company and the Subsidiaries.
The Executive agrees to promptly inform the Parent Company if he becomes aware
of any lawsuits involving such claims that may be filed against the Parent
Company or any Subsidiary. The Employer and the Parent Company agrees to provide
legal counsel to the Executive in connection with such assistance (to the extent
legally permitted), and to reimburse the Executive for all of the Executive’s
reasonable out-of-pocket expenses associated with such assistance, including
travel expenses. For periods after the Executive’s employment with the Employer
terminates, the Employer agrees to provide reasonable compensation to the
Executive for such assistance. The Executive also agrees to promptly inform the
Parent Company if he is asked to assist in any investigation of the Parent
Company or the Subsidiaries (or their actions) that may relate to services
performed by the Executive for the Parent Company or the Subsidiaries,
regardless of whether a lawsuit has then been filed against the Parent Company
or the Subsidiaries with respect to such investigation.

 

11. Equitable Remedies. The Executive acknowledges that the Parent Company would
be irreparably injured by a violation of paragraph 7, 8, or 9, and he agrees
that the Parent Company, in addition to any other remedies available to it for
such breach or threatened breach, shall be entitled to a preliminary injunction,
temporary restraining order, or other equivalent relief, restraining the
Executive from any actual or threatened breach of paragraph 7, paragraph 8, or
paragraph 9. If a bond is required to be posted in order for the Parent Company
to secure an injunction or other equitable remedy, the parties agree that said
bond need not be more than a nominal sum. The Parent Company acknowledges that
the Executive would be irreparably injured by a violation of paragraph 8, and
agrees that the Executive, in addition to any other remedies available to him
for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, restraining
the Parent Company from any actual or threatened breach of paragraph 8. If a
bond is required to be posted in order for the Executive to secure an injunction
or other equitable remedy, the parties agree that said bond need not be more
than a nominal sum.

 

12. Amendment. This Agreement may be amended or cancelled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.

 

13. Applicable Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of California, without regard to the
conflict of law provisions of any state. All disputes shall be arbitrated or
litigated (whichever is applicable) in Los Angeles, California.

 

14. Severability. The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of any other provision
of this Agreement, and this Agreement will be construed as if such invalid or
unenforceable provision were omitted (but only to the extent that such provision
cannot be appropriately reformed or modified).

 

15. Waiver of Breach. No waiver by any party hereto of a breach of any provision
of this Agreement by any other party, or of compliance with any condition or
provision of this Agreement to be performed by such other party, will operate or
be construed as a waiver of any

 

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subsequent breach by such other party of any similar or dissimilar provisions
and conditions at the same or any prior or subsequent time. The failure of any
party hereto to take any action by reason of such breach will not deprive such
party of the right to take action at any time while such breach continues.

 

16. Successors. This Agreement shall be binding upon, and inure to the benefit
of, the Parent Company and the Employer and their successors and assigns and
upon any person acquiring, whether by merger, consolidation, purchase of assets
or otherwise, all or substantially all of the Parent Company’s and the
Employer’s, assets and business, respectively, and the successor shall be
substituted for the Parent Company or the Employer, respectively, under this
Agreement. The Parent Company and the Employer, as applicable, will require any
successor to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Parent Company and the Employer, as
applicable, would be required to perform it if no such assignment or succession
had taken place. For the avoidance of doubt, it is recited that, for purposes of
paragraphs 7 through 11, reference to the Parent Company and the Subsidiaries
includes reference to their predecessors and successors.

 

17. Notices. Notices and all other communications provided for in this Agreement
shall be in writing and shall be delivered personally or sent by registered or
certified mail, return receipt requested, postage prepaid, or sent by facsimile
or prepaid overnight courier to the parties at the addresses set forth below (or
such other addresses as shall be specified by the parties by like notice). Such
notices, demands, claims and other communications shall be deemed given:

 

(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;

 

(b) in the case of certified or registered U.S. mail, five days after deposit in
the U.S. mail; or

 

(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;

 

provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that are
to be delivered by the U.S. mail or by overnight service are to be delivered to
the addresses set forth below:

 

to the Parent Company:

 

Aames Investment Corporation

350 S. Grand Avenue, 43rd Floor

Los Angeles, CA 90071

 

to the Employer:

 

Aames Financial Corporation

350 S. Grand Avenue, 43rd Floor

Los Angeles, CA 90071

 

or to the Executive:

 

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A. Jay Meyerson

121 Northstar Mall

Marina Del Rey, CA 90292

 

All notices to the Parent Company shall be directed to the attention of General
Counsel of the Parent Company, with a copy to the Secretary of the Parent
Company. Each party, by written notice furnished to the other party, may modify
the applicable delivery address, except that notice of change of address shall
be effective only upon receipt.

 

18. Survival of Agreement. Except as otherwise expressly provided in this
Agreement, the rights and obligations of the parties to this Agreement shall
survive the termination of the Executive’s employment with the Employer.

 

IN WITNESS THEREOF, the Executive has hereunto set his hand, and the Parent
Company and the Employer have caused these presents to be executed in their
names, all as of the Signing Date.

 

Executive

/s/ A. Jay Meyerson  

 

Aames Investment Corporation /s/ Pat Gonyea  

 

Aames Financial Corporation /s/ Pat Gonyea  

 

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