Document:

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                                                                 EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is between Aames Financial
Corporation, a Delaware corporation (the "COMPANY"), and Jay Meyerson (the
"EXECUTIVE"). This Agreement shall become effective (the "EFFECTIVE DATE") as of
the 25th day of October, 1999.

                                    RECITALS

                  A. As of the Effective Date, the Company is or will be engaged
primarily in originating, selling and servicing home mortgage loans.

                  B. The Company recognizes that the future growth,
profitability and success of the Company's business will be substantially and
materially enhanced by the employment of the Executive by the Company.

                  C. The Company desires to employ the Executive and the
Executive has indicated his willingness to provide his services, on the terms
and conditions set forth herein.

In consideration of the foregoing and the mutual agreements set forth below, the
parties agree as follows:

                           AGREEMENT - PRINCIPAL TERMS

         1. EMPLOYMENT AND DUTIES. The Company shall employ the Executive as its
Chief Executive Officer, and the Executive accepts such employment on the terms
and conditions of the Agreement. The Executive shall, while this Agreement
remains in effect, have the duties, responsibilities, powers, and authority
customarily associated with such position. The Executive shall report to, and
follow the direction of, the Board of Directors of the Company (the "BOARD").
During each year of the Term (as hereinafter defined), the Company shall
nominate the Executive for election as a member of the Board. In addition, the
Executive also shall perform such other and unrelated services and duties as the
Board may assign to him. The Executive shall diligently, competently, and
faithfully perform all duties, and shall devote his entire business time,
energy, attention, and skill to the performance of duties for the Company and
its affiliates and will use his best efforts to promote the interests of the
Company and its affiliates.

         2. TERM OF EMPLOYMENT. Unless sooner terminated as provided in this
Agreement, the initial term under this Agreement shall be three (3) years,
starting on the Effective Date (the "INITIAL TERM"). The term of employment
shall be renewed

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automatically for successive periods of one (1) year each (a "RENEWAL TERM")
after the expiration of the Initial Term and any subsequent Renewal Term,
unless the Board provides the Executive, or the Executive provides the Board,
with written notice to the contrary at least one hundred twenty (120) days
prior to the end of the Initial Term or any Renewal Term. The Initial Term
and any Renewal Term which has become effective as of any relevant date are
referred to as the "TERM."

         3.       COMPENSATION.

                  A. SALARY. The Company shall pay the Executive an annual
salary of $350,000 (the "BASE SALARY"), payable in substantially equal
installments in accordance with the Company's payroll policy. The amount of Base
Salary payable to Executive shall be reviewed at least annually; PROVIDED,
HOWEVER, that Executive's Base Salary shall not be reduced below $350,000 per
annum during the term of this Agreement.

                  B. PERFORMANCE BONUS; OTHER LIMITATIONS. The Executive shall
be entitled to an initial cash performance bonus for services rendered from the
Effective Date through December 31, 2000 (the "Initial Bonus") and to an annual
cash performance bonus thereafter for each complete calendar year of employment,
PROVIDED, HOWEVER, in the final year of the Initial Term, if Executive works
until the last day of the Initial Term and there is no Renewal Term, or, in the
final year of the Renewal Term, if Executive works until the last day of the
Renewal Term, the Executive shall be entitled to a pro-rata cash performance
bonus based on the ratio of (i) the days from the beginning of the last fiscal
year of the Company during which the Executive was employed until such last day
of employment, to (ii) 365. The amount of each performance bonus shall be based
on the determination of the Compensation Committee of the Board (the
"Compensation Committee") of the extent to which the performance objectives for
such year established pursuant to Exhibit A have been attained. The Compensation
Committee shall make such determination and the Company shall pay to the
Executive each year's earned performance bonus, if any, as soon as practicable
after completion of the Company's audited financial statements for the
applicable calendar year, and in no event after March 15 of the next succeeding
calendar year.

                  C. VACATION. Executive shall be entitled to 4 weeks of paid
vacation for each complete year of employment with the Company for the term of
this Agreement. Vacation shall be taken at such time or times as shall not
unreasonably interfere with the operations of the Company.

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                  D. STOCK OPTIONS. The Company shall grant to the Executive on
the Effective Date an option to purchase 3,000,000 shares of the Company's
common stock pursuant to and subject to the provisions of the Company's 1999
Stock Option Plan. Such option shall be subject to the terms of an option
agreement substantially in the form annexed hereto as EXHIBIT B.

                  E. RELOCATION EXPENSES. The Company shall promptly pay or
reimburse the Executive for all reasonable moving expenses incurred by the
Executive as a result of his relocation to California, in an amount not to
exceed $75,000, provided the Executive submits appropriate receipts or other
documentation acceptable to the Company as required by the Internal Revenue
Service to qualify as ordinary and necessary business expenses under the
Internal Revenue Code of 1986, as amended (the "Code"). For the purposes of this
Paragraph 3E, the term "moving expenses" shall include reasonable temporary
living expenses, return home trips, house hunting trips, and other customary
moving expenses.

                  F. OTHER BENEFITS. While this Agreement remains in effect, the
Executive shall participate in the Company's executive life insurance program on
the same basis as other senior executives and shall participate in all savings,
pension and retirement plans and other benefit plans or programs maintained by
the Company for the benefit of its employees in accordance with the provision of
such plans in effect from time to time.

         4. EXPENSES. The Company shall reimburse the Executive for all
reasonable business expenses, that are incurred in accordance with the Company's
policies as in effect from time to time, provided the Executive submits
appropriate receipts or other documentation acceptable to the Company and as
required by the Internal Revenue Service to qualify as ordinary and necessary
business expenses under the Code.

         5. TERMINATION. Notwithstanding anything in Paragraph 2 of this
Agreement to the contrary, the term of this Agreement and Executive's services
under this Agreement shall terminate upon the first to occur of the following
events:

                  A. At the end of the applicable Term of this Agreement.

                  B. Upon the Executive's date of death or the date the
Executive is given written notice that the Company has determined that he is
disabled. For purposes of this Agreement, the Executive shall be deemed disabled
if the Executive, as a result of illness or incapacity, shall be unable to
perform substantially his required duties for a period of 120 consecutive

                                      -3-

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days or for any aggregate period of 183 days in any twelve (12) month period.
The Company shall notify the Executive that his employment has been
terminated by written notice. The termination shall be effective on the tenth
(10th) business day after the Executive receives the notice, unless the
Executive returns to full-time performance of his duties before such tenth
(10th) business day.

                  C. On the date the Board provides the Executive with written
notice that he is being terminated for "Cause." For purposes of this Agreement,
and as reasonably determined by a majority of the full Board, the Executive
shall be deemed terminated for CAUSE if the Company terminates the Executive
after finding that the Executive: (1) shall have been determined by a court of
law to have committed any felony; (2) 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
Company or its affiliates (subsequent references to the "Company" in this
Paragraph 5C shall be deemed to refer to the Company or its affiliates); (3)
shall have engaged in an act of fraud, theft, embezzlement, or misappropriation
against the Company; (4) shall have committed one or more acts of gross
negligence or willful misconduct, either within or outside the scope of his
employment that materially impair the goodwill or business of the Company or
cause material damage to its property, goodwill, or business, or would, if
known, subject the Company to public ridicule; (5) shall have refused or failed
to a material degree to perform his duties hereunder (continuing without cure
for ten (10) days after receipt of written notice of need to cure); or (6) shall
have violated any material written Company policy provided to the Executive
during or prior to the Term and that has caused material harm to the Company;
PROVIDED, HOWEVER, that any finding made pursuant to clauses (3) through (6)
above shall be made by the Board and any such finding shall be made in good
faith and, FURTHER PROVIDED, that no termination of Executive's employment for
Cause shall be deemed to have occurred unless Executive is given notice of the
reason therefore including the allegations which may constitute reason for such
termination.

                  D. On the date the Executive terminates his employment for
"Good Reason." For purposes of this Agreement, "GOOD REASON" shall mean
termination by the Executive within ninety (90) days of learning of the acts
which are the basis for alleging Good Reason, because of the occurrence of
either of the following acts, without the Executive's consent: (1) he has been
demoted to a position of materially less stature or importance within the
Company than the position described in Paragraph 1,

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(2) a non-employee Chairman of the Company becomes an employee of the Company
and performs executive responsibilities customarily performed by the Chief
Executive Officer, or (3) the Company has failed to pay the Base Salary or
provide material compensation or benefits that are required to be provided in
this Agreement, provided that no such termination shall be treated as for
Good Reason unless the Executive shall have given the Company thirty (30)
days advance written notice of his intention to terminate his employment for
Good Reason, and the Company shall have failed to cure such acts within such
thirty (30) day period.

                  E. On the date the Executive terminates his employment for any
reason, other than Good Reason, provided that the Executive shall give the
Company thirty (30) days written notice prior to such date of his intention to
terminate this Agreement.

                  F. On the date the Company terminates the Executive's
employment for any reason, other than a reason otherwise set forth in this
Paragraph 5. Any purported termination of the Executive's employment for Cause
which is finally determined to be without Cause shall be treated for all
purposes of this Agreement as a termination pursuant to this Paragraph 5F.

         6.       COMPENSATION UPON TERMINATION.

                  A. If the Executive's services are terminated pursuant to
Paragraph 5, the Executive shall be entitled to the Base Salary through his
final date of active employment, plus any accrued but unused vacation pay.

                  B. If the Executive's services are terminated pursuant to
Paragraph 5D or 5F, the Executive shall in addition be entitled to receive (i)
his Base Salary at the rate in effect hereunder on the date of such termination
periodically, in accordance with the Company's prevailing payroll practices, for
a period of twelve months following the date of such termination (the "Severance
Term") and (ii) to the extent permissible under the Company's health and other
insurance plans, the Executive shall continue to receive any health and other
insurance benefits provided to him as of the date of such termination in
accordance with Paragraph 3F hereof during the Severance Term, including,
specifically, the $1 million life insurance policy on Executive's life. To the
extent not permissible under the terms of the Company's health and other
insurance plans as then in effect, the Company may satisfy its obligation to
provide benefit continuation by making a lump payment to the Executive equal to
the present value of the contributions that would have been made by the Company
to continue such benefits had the Executive's employment continued.

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                  C. If the Executive's employment is terminated pursuant to
Paragraph 5D or 5F following a Change in Control of the Company, as such term is
defined in Article XI(b) of the Company's 1999 Stock Option Plan, at a price per
share of Company Common Stock in excess of $2.50/share, the Company shall
continue to pay Base Salary and provide the benefit continuation described in
Paragraph 6B(ii) above to the Executive for a period of twenty-four months
instead of twelve months.

                  D. All payments of benefits under this Paragraph 6 shall be
contingent upon execution of an agreement by the Executive that releases the
Company from actions, suits, claims, proceedings, and demands related to the
period of employment and/or termination of employment.

                  E. Executive agrees that if his employment is terminated for
any reason, he shall immediately resign from all officer and director positions
he then holds with the Company and each of its parents, affiliates and
subsidiaries.

         7. OFFSET. In the event severance benefits become payable to the
Executive pursuant to Paragraph 6 above, as a result of a termination pursuant
to Paragraph 5D above, such benefits, to the extent not theretofore paid, shall
be reduced, on a dollar-for-dollar basis, by (i) any outstanding amounts owed by
Executive to the Company and (ii) the amount of any compensation for services
earned by Executive on account of his employment or consulting services with
another business or on account of his self employment, from any source, whether
paid currently or deferred, as a result of employment during the twelve-month
period following termination of employment. In such event, Executive shall
cooperate with the Company and shall provide such information to the Company as
it may reasonably require in order to calculate the amount of the reduction
described above.

         8. COBRA. If the Executive's services are terminated pursuant to
Paragraph 5, the Executive shall also be entitled to any benefits mandated under
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") or required
under the terms of any death, insurance, or retirement plan, program, or
agreement provided by the Company and to which the Executive is a party or in
which the Executive is a participant, including, but not limited to, any
short-term or long-term disability plan or program, if applicable. If the
Executive elects COBRA continuation coverage, the Company shall pay for such
health insurance coverage for the shorter of 12 months or the remaining Term at
the same rate as it pays for health insurance coverage for its active employees
(with the Executive required to pay for any employee-paid portion of such
coverage). After the expiration of the period set forth in the prior sentence

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concludes, the Executive shall be responsible for the payment of all further
premiums attributable to COBRA continuation coverage at the same rate as the
Company charges all COBRA beneficiaries. However, no provision of this Agreement
shall be construed to extend the period of time over which such COBRA
continuation coverage is required to be provided to the Executive and/or his
dependents.

         9. ARBITRATION. Any dispute between the parties hereto respecting the
meaning and intent of this Agreement or any of its terms and provisions shall be
submitted for expedited arbitration in Los Angeles, California, in accordance
with the National Rules of the American Arbitration Association for the
Resolution of Employment Disputes then in effect, and the arbitration
determination resulting from any such submission shall be final and binding upon
the parties hereto. Judgment upon any arbitration award may be entered in any
court of competent jurisdiction. The parties further agree that either party may
at any time seek provisional relief, including, but not limited to a temporary
restraining order or a preliminary injunction from any state or federal court in
California, in connection with any dispute being submitted for arbitration.

         10.      EXCLUSIVE EMPLOYMENT; CONFIDENTIALITY; NON-SOLICITATION.

                  A. Executive agrees to perform his duties, responsibilities
and obligations hereunder efficiently and to the best of his ability. Executive
also agrees that he will not engage in any other business activities, pursued
for gain, profit or other pecuniary advantage, that are competitive with the
activities of the Company. Executive agrees that all of his activities as an
employee of the Company shall be in conformity with all present and future
policies, rules and regulations and directions of the Company not inconsistent
with this Agreement.

                  B. Executive acknowledges that his employment by the Company
will bring him into close contact with many trade secrets and other confidential
affairs of the Company and its clients and customers, including, without
limitation, non-public information pertaining to ideas, knowledge, operations,
computer hardware and software, systems, costs, profits, markets, sales,
products, programs, interfaces, networks, protocols, data bases, key personnel,
pricing policies, operational methods, concepts, data, equipment, models,
compensation, suppliers, servicing, broker lists, customer lists, customers,
potential customers, rate sheets, plans, concepts, strategies, or products,
advertising, technical processes and applications and other business affairs and
methods, plans for future developments and other information not readily
available to the public or the Company's competitors

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or clients (collectively referred to hereinafter as "Information"). In
consideration of the foregoing, the Executive agrees that he: (1) will keep
secret and confidential all Information and will not use it for his own
benefit or disclose it to, or use it for the benefit of, anyone other than
the Company, either during or after his employment by the Company, except
with the prior written consent of the Company; (2) will take all reasonable
action that the Company deems necessary or appropriate to prevent
unauthorized use or disclosure of or to protect the Company's interest in
Information; (3) will deliver promptly to the Company upon termination of his
employment by the Company or at any other time the Company may so request,
all memoranda, notes, documentation, equipment, files, flowcharts, program
listings, data listings, records, reports and other tangible manifestations
of the Information (and all copies thereof), that he may then possess or have
under his control; and (4) will, unless the Company otherwise agrees in
writing, and without additional compensation, promptly disclose and, upon
request, assign to the Company all rights to work product and business
opportunities related to the present or, to the extent presented to the Board
of Directors prior to termination of employment, contemplated business of the
Company. Nothing contained herein shall be construed as restricting or
creating any liability for the disclosure, communication, or use of
Information that: (i) is or becomes publicly known through no wrongful act of
the Executive; (ii) is received by the Executive from a party who is under no
confidential obligation to the Company with respect thereto, unless such
person received the Information as a result of a breach known to the
Executive of an agreement similar to this Agreement; (iii) is independently
developed by Executive prior to the receipt of such Information, or (iv) is
disclosed as required by law or legal process. In the event that the
Executive is requested or required by law or legal process to disclose any of
the Information, Executive shall provide the Company with prompt oral and
confirming written notice, unless notice is prohibited by law (in which case
such notice shall be provided as early as may be legally permissible), of any
such request or requirement so the Company may seek a protective order or
other appropriate remedy. The Executive agrees to cooperate with Company, at
the Company's expense, in any efforts to obtain such remedies, but this
provision shall not be construed to require the Executive to undertake
litigation or other legal proceedings on his own behalf. In the event that
such protective order or other remedy is not promptly obtained, the Executive
may disclose such Information.

                  C. Executive further agrees that he will abide by the
limitations set forth in the following sentence for a period of one year from
the date of termination ("Nonsolicitation Period"). During the Nonsolicitation
Period, the Executive agrees that he

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will not, without the Company's express written consent, himself or through
any organization with which he is associated: (i) hire any person who was
employed by the Company on the Executive's date of termination of employment
or at any time within six months prior thereto or hire any agent, consultant,
or independent contractor of the Company, or of any organization with respect
to which the Company has agreed to a similar prohibition and of which the
Employee has knowledge, or induce or attempt to induce any such person to
discontinue such employment or affiliation with the Company or such
organization, as the case may be, or (ii) induce or attempt to induce any
client or customer of the Company on the date of termination to discontinue
any business relationship or to refrain from entering into a new business
relationship with the Company.

                  D. Executive confirms and acknowledges that (i) his strict
adherence to the limitations imposed upon him under Paragraphs 10 and 11 was a
material factor in the Company's agreeing to pay the Executive the cash and
equity-based compensation called for in this Agreement, (ii) the Company's
ability to maintain continuing relationships with its employees without
disruption was also a material factor in the Company's agreeing to enter into
this Agreement, (iii) his failure to adhere to the obligations imposed by
Paragraphs 10 and 11 of this Agreement will expose the Company to substantial
and irreparable harm. Accordingly, Executive agrees that the remedy at law for
any breach by him of the covenants and agreements set forth in this Paragraph 10
or in Paragraph 11 below may be inadequate and that in the event of any such
breach, the Company or its respective subsidiaries may, in addition to the other
remedies that may be available to it at law, seek injunctive relief prohibiting
him (together with all those persons associated with him) from breach of such
covenants and agreements.

         11. NON-COMPETITION. The Company's obligation to provide the
compensation due upon termination pursuant to the last sentence of Paragraph 6B
and C hereof shall be contingent upon his not, directly or indirectly, owning,
managing, operating, joining or controlling, becoming employed by or
participating in the ownership, management, operation or control of, or becoming
a consultant to or connected in any other manner with, any business, firm or
corporation which is engaged in home equity lending as a material part of its
business operations. For these purposes, Executive's ownership of securities of
a public company not in excess of one percent of any class of such securities
shall not be considered to be competition with the Company.

         12. ENTIRE AGREEMENT. This Agreement sets forth the entire and final
agreement and understanding of the Company and the Executive and contains all of
the agreements made between them

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with respect to the subject matter hereof. This Agreement supersedes any and
all other agreements, either oral or in writing, between the Company and the
Executive with respect to Executive's provision of services to the Company.
No change or modification of this Agreement shall be valid unless in writing
and signed by the Company and the Executive.

         13. ENFORCEMENT; SEVERABILITY. Should a decision be entered by a court
of competent jurisdiction that the character, duration or geographical scope of
any provision of this Agreement is unreasonable, or that any provision of this
Agreement is invalid or unenforceable for any reason, in whole or in part, then
the Company and the Executive agree that such provision shall be construed by
the court in such a manner as to impose all those restrictions on the
Executive's conduct that are reasonable in light of the circumstances and as are
necessary to assure to the Company the benefits of this Agreement and to render
the provision valid and enforceable, and this Agreement shall be construed and
enforced to the maximum extent permitted by law, as if such provision had been
originally incorporated in this Agreement as so modified, restricted, or
reformulated or as if such provision had not been originally included in this
Agreement, as the case may be. The parties further agree to seek a lawful
substitute for any provision found to be unlawful; provided, that, if the
parties are unable to agree upon a lawful substitute, the parties desire and
request that the arbitrator or other authority called upon to decide the
enforceability of this Agreement modify those provisions such that, once
modified, this Agreement will be enforceable to the maximum extent permitted by
the law in existence at the time of the requested enforcement.

         14.      MISCELLANEOUS.

                  A. NOTICES. All notices required in connection with this
Agreement shall be sufficiently given only if transmitted in writing and (i)
personally delivered, or sent by first class, registered or certified mail,
return receipt requested, postage prepaid, or by recognized overnight courier,
(ii) sent by facsimile, provided a hard copy is mailed on that date to the party
for whom such notices are intended, or (iii) sent by other means at least as
fast and reliable as first class mail. A written notice shall be deemed to have
been given to the recipient party on the earliest of (1) the date it shall be
delivered to the address required by this Agreement; (2) the date delivery shall
have been refused at the address required by this Agreement; (3) with respect to
notices sent by mail or overnight courier, the date as of which the Postal
Service or overnight courier, as the case may be, shall have indicated such
notice to be undeliverable at the address required by this Agreement; or (4)
with respect to a facsimile, the date on which the facsimile

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is sent and receipt is confirmed. Any and all notices referred to in this
Agreement, or which either party desires to give to the other shall, in the
case of the Executive, be addressed to his residence address given to the
Company by the Executive in writing for this purpose, or failing receipt of
such notice, to the last residence address on the Company's records, or in
the case of the Company, to its principal office, attention: Ralph Flick,
Esq., Counsel, with a copy to Capital Z Management, Inc., 54 Thompson Street,
New York, NY 10012, attention: David Spuria, Esq., General Counsel.

                  B. WAIVER OF BREACH. A waiver by the Company of a breach of
any provision of this Agreement by the Executive shall not operate or be
construed as a waiver of any subsequent breach by the Executive. No waiver shall
be valid unless it is in writing and signed by an authorized officer of the
Company (other than the Executive).

                  C. ASSIGNMENT. The Executive acknowledges that the services he
is to render are unique and personal. Accordingly, the Executive may not assign
any of his rights or delegate any of his duties or obligations under this
Agreement. The rights and obligations of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Company.

                  D. WITHHOLDING FOR TAXES. All payments made under this
Agreement shall be subject to applicable withholding to the extent required by
law.

                  E. CONSTRUCTION. The headings in this Agreement are inserted
for convenience only and are not to be considered a construction of the
provisions hereof. The Background recitals are incorporated in this Agreement as
an integral part hereof and shall be considered as substantive and not precatory
language.

                  F. EXECUTION OF AGREEMENT. This Agreement may be executed in
several counterparts, each of which shall be considered an original, but which
when taken together, shall constitute one agreement.

                  G. GOVERNING LAW. This Agreement shall be construed in
accordance with the laws of the State of California.

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COMPANY:                                       EXECUTIVE:

By      /S/ MANI A. SADEGHI                    /S/ A. JAY MEYERSON
   ------------------------------              ------------------------------

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                                    EXHIBIT A

                                PERFORMANCE BONUS

                  Individual and Company-based performance bonus objectives
shall be established annually by the Compensation Committee and communicated to
the Executive. Performance bonuses shall be based 50% on attainment of
individual objectives and 50% on attainment of Company objectives. The amount of
each performance bonus may range from 0% of Base Salary, for performance below
threshold objectives to 150% of Base Salary for extraordinary performance. All
earned performance bonuses shall be paid in cash.

                                       A-1<PAGE>

                                                                    EXHIBIT 10.3

January 5, 2000

Mr. Cary Thompson

Dear Cary,

         This letter will confirm our discussions over the past few months and
evidence our agreement regarding your termination of employment with Aames
Financial Corporation ("the Company"). Assuming that you find these terms
acceptable, please sign and return a copy of the letter and execute the form of
release where indicated.

         1. TERMINATION OF EMPLOYMENT. You and the Company are parties to an
existing employment agreement (the "Employment Agreement"). On May 13, 1999, you
resigned your employment with the Company as Chief Executive Officer, and you
accepted the position of Vice Chairman. As of July 16, 1999, you resigned your
employment position as Vice Chairman of the Company, and you are no longer an
employee of the Company.

         2. WAIVER AND RELEASE. You agree and acknowledge that, upon payment of
the amounts as expressly provided in this letter, you will waive any rights to
all amounts due to you under your Employment Agreement. In consideration for the
valuable consideration provided to you under this letter, you will execute the
release in favor of the Company attached hereto as Exhibit A. /s/ CHT

         3. PAYMENT PERIOD. The "Payment Period" shall mean the period beginning
on December 1, 1999 and ending on December 1, 2000.

         4. PAYMENTS. During the Payment Period, the Company shall pay you
$50,000 per month, payable in accordance with the Company's normal payroll
practices and without any right of offset under Paragraph 7 of your Employment
Agreement.

         5. STOCK OPTIONS. Notwithstanding any other provision of your
Employment Agreement, the 1999 Aames Financial Corporation Stock Option Plan
(the "Option Plan"), or stock option agreement thereunder, to the contrary, you
and the Company agree that the Company's obligations to grant you options shall
be discharged in full with the grant of 774,049 shares of the Company's common
stock (the "Options"). The Options shall be vested and exercisable on the Grant
Date and shall remain exercisable until the one year anniversary of the date you
cease to be a director of the Company. Except as otherwise specifically provided
in this Paragraph 6, your rights and obligations shall be as set forth in the
Option Plan.

         6. AUTOMOBILE. Beginning December 1, 1999, you will have the option to
purchase your Company provided automobile for $1. This option shall lapse unless
exercised prior to February 1, 2000.3

<PAGE>

         7. CONFIDENTIALITY, NONSOLICITATION AND NONCOMPETITION. This Paragraph
7 will confirm that the confidentiality, nonsolicitation, and noncompetition
provisions of paragraphs 10 and 11 of your Employment Agreement shall survive
the execution of this letter.

         8. ARBITRATION. This Paragraph 8 will confirm that the arbitration
provision of paragraph 9 of your Employment Agreement shall survive the
execution of this letter.

         9. NON-DEREGATION, PUBLIC COMMENT AND COOPERATION. You agree that,
except as required by applicable law, or compelled by process of law, neither
you, nor anyone acting on your behalf, shall hereafter (a) make any derogatory,
disparaging or critical statement about the Company, or any of the Company's
current officers, directors, employees, shareholders or lenders or any persons
who were officers, directors, employees, shareholders or lenders of the Company
since March 11, 1999 through the date hereof, or (b) without the Company's prior
written consent communicated, directly or indirectly, with the press or other
media, concerning the past or present employees or business of the Company. You
further agree that during and after the Payment Period, you will provide, upon
reasonable notice, such information and assistance to the Company as may
reasonably be requested by the Company in connection with any audit,
governmental investigation or litigation in which it or any of its affiliates is
or may become a party. The Company will reimburse you for all reasonable
out-of-pocket costs incurred by you in connection with your cooperation
hereunder.

         10.      MISCELLANEOUS.

         (a)      This letter and the provisions of your Employment Agreement
explicitly incorporated by reference herein constitutes the entire agreement
between you and the Company and supercedes all prior agreements and
understandings, oral or written, between you and the Company with respect to the
subject matter hereof, including but not limited to your Employment Agreement.

         (b)      The payments due under this Agreement shall be subject to
reduction to satisfy all federal, state and local withholding tax obligations.

         (c)      This letter shall be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflict of laws. This letter may not be amended or modified otherwise than by
a  written  agreement  executed  by  the  parties  hereto  or  their  respective
successors or legal representatives.

                                            Sincerely,

                                            /s/ MANI A. SADEGHI
                                            -----------------------------------
                                            Mani A. Sadeghi
                                            Director

<PAGE>

Agreed and Accepted

/s/ CARY H. THOMPSON                        6/5/99
---------------------------------           ------------------
Cary H. Thompson                            Date

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