<PAGE>


                                                                   EXHIBIT 10.5

THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.




                                     WARRANT

                           To Purchase Common Stock of

                           AAMES FINANCIAL CORPORATION




<PAGE>


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                            Page
<S>                                                                                                         <C>
ARTICLE 1. DEFINITIONS........................................................................................1

ARTICLE 2. EXERCISE OF WARRANT................................................................................5
     Section 2.1.  Manner of Exercise.........................................................................5
     Section 2.2.  Payment of Taxes...........................................................................6
     Section 2.3.  Fractional Shares..........................................................................6

ARTICLE 3. TRANSFER, DIVISION AND COMBINATION.................................................................6
     Section 3.1.  Transfer...................................................................................6
     Section 3.2.  Division and Combination...................................................................7
     Section 3.3.  Expenses...................................................................................7
     Section 3.4.  Maintenance of Books.......................................................................7

ARTICLE 4. ADJUSTMENTS........................................................................................7
     Section 4.1.  Stock Dividends, Subdivisions, Combinations and Reclassifications..........................8
     Section 4.2.  Issuance of Additional Shares of Common Stock or Convertible Securities....................8
     Section 4.3.  Certain Other Distributions...............................................................10
     Section 4.4.  Other Provisions Applicable to Adjustments Under This Section.............................11
     Section 4.5.  Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets..........13
     Section 4.6.  Notices...................................................................................13
     Section 4.7.  Certificates..............................................................................14

ARTICLE 5. NO IMPAIRMENT.....................................................................................14

ARTICLE 6. RESERVATION AND AUTHORIZATION OF COMMON STOCK, REGISTRATION WITH OR  APPROVAL OF ANY
             GOVERNMENTAL AUTHORITY..........................................................................15

ARTICLE 7. STOCK AND WARRANT TRANSFER BOOKS..................................................................15

ARTICLE 8. RESTRICTIONS ON TRANSFERABILITY...................................................................15
     Section 8.1.  Restrictive Legend........................................................................16
     Section 8.2.  Transfers.................................................................................16
     Section 8.3.  Termination of Restrictions...............................................................17

ARTICLE 9. SUPPLYING INFORMATION.............................................................................17

ARTICLE 10. LOSS OR MUTILATION...............................................................................18

ARTICLE 11. OFFICE OF THE COMPANY............................................................................18

ARTICLE 12. REGISTRATION RIGHTS..............................................................................18
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>                                                                                                         <C>
ARTICLE 13. LIMITATION OF LIABILITY..........................................................................18

ARTICLE 14. REPRESENTATION OF HOLDER.........................................................................18

ARTICLE 15. MISCELLANEOUS....................................................................................19
     Section 15.1.  Nonwaiver and Expenses...................................................................19
     Section 15.2.  No Rights As Stockholder.................................................................19
     Section 15.3.  Notice Generally.........................................................................19
     Section 15.4.  Successors and Assigns...................................................................20
     Section 15.5.  Amendment................................................................................20
     Section 15.6.  Severability.............................................................................20
     Section 15.7.  Headings.................................................................................21
     Section 15.8.  Governing Law............................................................................21
     Section 15.9.  Mutual Waiver of Jury Trial..............................................................21
</TABLE>

                                       ii
<PAGE>

THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER ANY SUCH
APPLICABLE STATE LAWS, OR IN VIOLATION OF THE PROVISIONS OF THIS WARRANT.

                                     WARRANT

                  To Purchase 184,153 Shares of Common Stock of

                           AAMES FINANCIAL CORPORATION

                  THIS IS TO CERTIFY THAT Steven M. Gluckstern, or his/her
registered assigns, is entitled, at any time prior to December 31, 2004 (the
"Expiration Date"), to purchase from Aames Financial Corporation, a Delaware
corporation (the "Company"), 184,153 shares of common stock, par value $0.001
per share, of the Company (the "Common Stock"), subject to adjustment as
provided herein, in whole or in part, including fractional parts, at a purchase
price of $1.00 per share (the "Exercise Price"), subject to adjustment as set
forth herein, all on the terms and conditions and pursuant to the provisions
hereinafter set forth. Capitalized terms not otherwise defined herein are used
as defined in the Preferred Stock Purchase Agreement. Notwithstanding anything
to the contrary set forth in this Warrant, this Warrant shall not be exercisable
by the holder hereof for a number of shares of Common Stock in excess of the
number of shares as are authorized but not issued on reserved for issuance at
the time of exercise.

                                   ARTICLE 1.
                                  DEFINITIONS

                  As used in this Warrant, the following terms have the
respective meanings set forth below:

                  "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Issue Date, other than Warrant
Stock.

                  "Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.

                  "Capital Z" shall have the meaning set forth in the first
paragraph hereof.


<PAGE>


                  "Commission" shall mean the Securities and Exchange
Commission.

                  "Common Stock" shall have the meaning set forth in the first
paragraph hereof.

                  "Company" shall have the meaning set forth in the first
paragraph hereof.

                  "Conversion Price" shall have the meaning set forth in Section
4.2 hereof.

                  "Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event, other than the Senior Preferred Stock and
the Contingent Warrant issued under the Preferred Stock Purchase Agreement.

                  "Current Market Price" shall mean, when used with reference to
shares of Common Stock or other securities on any date, the closing price per
share of Common Stock or such other securities on such date and, when used with
reference to shares of Common Stock or other securities for any period shall
mean the average of the daily closing prices per share of Common Stock or such
other securities for such period. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock or such other securities are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Stock or such
other securities are listed or admitted to trading or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. National Market System or such other
securities are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Common Stock or such other securities selected by the Board of Directors
of the Corporation. If the Common Stock or such other securities are not
publicly held or so listed or publicly traded,

                                       2
<PAGE>


"Current Market Price" shall mean the Fair Market Value per share of Common
Stock or of such other securities as determined in good faith by the Board of
Directors of the Corporation based on an opinion of an independent investment
banking firm with an established national reputation as a valuer of
securities, which opinion may be based on such assumption as such firm shall
deem to be necessary and appropriate.

                  "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder.

                  "Exercise Price" shall have the meaning set forth in the first
paragraph hereof.

                  "Expiration Date" shall have the meaning set forth in the
first paragraph hereof.

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

                  "GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.

                  "holder" shall mean, as the context requires, the Person in
whose name this Warrant is registered on the books of the Company maintained for
such purpose and/or the Person holding any Warrant Stock.

                  "Issue Date" shall mean the date on which this Warrant is
issued.

                  "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, corporation or other entity and shall include
any successor (by merger or otherwise) of such entity.

                  "Preferred Stock Purchase Agreement" shall mean the Preferred
Stock Purchase Agreement, dated as of December 23, between the Company and
Capital Z, as amended from time to time.

                  "Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of the date hereof, between the Company and Capital
Z.

                  "Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 8.1(a).

                                       3
<PAGE>


                  "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.

                  "Series B Preferred Stock" shall mean the Series B Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.

                  "Series C Preferred Stock" shall mean the Series C Convertible
Preferred Stock, par value $0.001 per share, to be issued pursuant to the
Preferred Stock Purchase Agreement.

                  "Subsidiary" shall mean any corporation of which an aggregate
of more than 50% of the outstanding stock having ordinary voting power to elect
a majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by the Company and/or one or more Subsidiaries of the Company.

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

                  "Transaction" shall have the meaning set forth in Section 4.5
hereof.

                  "transfer" shall mean any transfer, sale, encumbrance,
hypothecation or other disposition of this Warrant or any Warrant Stock or of
any interest in either thereof.

                  "Transfer Notice" shall have the meaning set forth in Section
8.2.

                  "Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Exercise Price as of the date of such
exercise.

                  "Warrant Stock" shall mean the shares of Common Stock
purchased by the holder of this Warrant upon the exercise thereof.

                                       4
<PAGE>


                                   ARTICLE 2.
                               EXERCISE OF WARRANT

                  Section 2.1. MANNER OF EXERCISE. From and after the date
hereof and until 5:00 P.M., New York time, on the Expiration Date, the holder
may exercise this Warrant for all or any part of the number of shares of Common
Stock purchasable hereunder.

                  In order to exercise this Warrant, in whole or in part, the
holder shall deliver to the Company at its office at 2 California Plaza, 350
South Grand Avenue, Los Angeles, California 90071, or at the office or agency
designated by the Company pursuant to Section 11, (i) a written notice of the
holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased, (ii) payment of the Warrant
Price in the manner provided below, and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Warrant as Exhibit A, duly executed by or on behalf of the holder. Upon receipt
thereof, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to the holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as such holder
shall request in the notice and shall be registered in the name of the holder
or, subject to Section 8, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date the notice, together
with the cash, check or checks and/or securities, if any, and this Warrant, are
received by the Company as described above and all taxes required to be paid by
the holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to the holder a new Warrant evidencing the rights of the
holder to purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant, or, at the request of the holder, appropriate notation may be made on
this Warrant and the same returned to the holder.

                                       5
<PAGE>


                  Payment of the Warrant Price shall be made at the option of
the holder by cash, wire transfer to an account in a bank located in the United
States designated for such purpose by the Company, or certified or official bank
check, or by transfer to the Company of shares of Series B Preferred Stock or
Series C Preferred Stock, or any combination thereof. In the event of the
application shares of Series B Preferred Stock or Series C Preferred Stock to
the payment of the Warrant Price, the amount to be credited to the payment of
the Warrant Price shall be the Initial Stated Value per share, in the case of
any such application prior to the consummation of the Recapitalization, or the
Post-Recapitalization Stated Value per share, in the case of any such
application after the consummation of the Recapitalization, in each case, plus
an amount per share equal to all accrued and unpaid dividends thereon, whether
or not declared, to the date of such exercise, provided that no such credit
shall be made with respect to any such dividends if the holder of such shares
held such shares on the record date therefor.

                  Section 2.2. PAYMENT OF TAXES. The Company shall pay all
expenses in connection with, and all taxes and other governmental charges that
may be imposed with respect to, the issue or delivery of the Warrant Shares,
unless such tax or charge is imposed by law upon the holder, in which case such
taxes or charges shall be paid by the holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of the holder, and in
such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.

                  Section 2.3. FRACTIONAL SHARES. The Company shall not be
required to issue a fractional share of Common Stock upon exercise of this
Warrant. As to any fraction of a share which the holder of this Warrant would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price per share of Common Stock on the date of
exercise.

                                   ARTICLE 3.
                       TRANSFER, DIVISION AND COMBINATION

                  Section 3.1. TRANSFER. Subject to compliance with Section 8,
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company

                                       6
<PAGE>


to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 11, together with a
written assignment of this Warrant substantially in the form of Exhibit B
hereto duly executed by the holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company
shall, subject to Section 8, execute and deliver a new Warrant or Warrants in
the name(s) of the assignee or assignees and in the denomination(s) specified
in such instrument of assignment, and shall issue to the assignor a new
Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be canceled. A Warrant, if properly assigned in
compliance with Section 8, may be exercised by a new holder for the purchase
of shares of Common Stock without having a new Warrant issued.

                  Section 3.2. DIVISION AND COMBINATION. Subject to Section 8,
this Warrant may be divided or combined with other Warrants upon presentation
hereof at the aforesaid office or agency of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued, signed by the holder or its agent or attorney. Subject to compliance
with Section 3.1 and with Section 8, as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice.

                  Section 3.3. EXPENSES. The Company shall prepare, issue and
deliver at its own expense (other than transfer taxes) the new Warrant or
Warrants under this Section 3.

                  Section 3.4. MAINTENANCE OF BOOKS. The Company agrees to
maintain, at its aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.

                                   ARTICLE 4.
                                  ADJUSTMENTS

                  The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give the holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.

                                       7
<PAGE>


                  Section 4.1. STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS AND
RECLASSIFICATIONS. If the Company shall at any time or from time to time after
the Issue Date:

                  (a)      pay a dividend or make a distribution, on the
         outstanding shares of Common Stock in Additional Shares of Common
         Stock,

                  (b)      subdivide its outstanding shares of Common Stock
         into a larger number of shares of Common Stock,

                  (c)      combine its outstanding shares of Common Stock into
         a smaller number of shares of Common Stock, or

                  (d)      issue by reclassification of its shares of Common
         Stock any shares of capital stock of the Company,

then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby immediately prior to such event or the
record date therefor, whichever is earlier, shall be adjusted so that the holder
of any Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Common Stock or other securities of the Company
which such holder would have owned or have been entitled to receive after the
happening of any of the events described above, had such Warrant been exercised
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this Section 4.1 shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.

                  Section 4.2. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK OR
CONVERTIBLE SECURITIES. In the case the Corporation shall, after the Issue Date,
issue or sell:

                  (a)      Additional Shares of Common Stock at a price per
     share, or

                  (b)      Convertible Securities having a Conversion Price
     per share,

less than the Current Market Price (for a period of 15 consecutive Trading Days
prior to such date), then, and in each such case, the number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby shall be adjusted
so that the holder of each Warrant evidenced hereby shall be

                                       8
<PAGE>


entitled to receive, upon the exercise thereof, the number of shares of
Common Stock determined by multiplying (A) the number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby on the day
immediately prior to such date by (B) a fraction, the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding on
the date on which such shares or Convertible Securities are issued and (2)
the number of Additional Shares of Common Stock issued, or into which the
Convertible Securities may convert, and the denominator of which shall be the
sum of (x) the number of shares of Common Stock outstanding on such date and
(y) the number of shares of Common Stock which the aggregate consideration
receivable by the Company for the total number of shares of Common Stock so
issued, or the number of shares of Common Stock which the aggregate of the
Conversion Price of such Convertible Securities so issued, would purchase at
the Current Market Price on such date.

                  An adjustment made pursuant to this Section 4.2 shall be made
on the next Business Day following the date on which any such issuance is made
and shall be effective retroactively immediately after the close of business on
such date. For purposes of this Section 4.2, the aggregate consideration
receivable by the Company in connection with the issuance of any securities
shall be deemed to be the sum of the aggregate offering price to the public
(before deduction of underwriting discounts or commissions and expenses payable
to third parties), and the "Conversion Price" of any Convertible Securities is
the total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities (before deduction of underwriting
discounts or commissions and expenses payable to third parties) plus the minimum
aggregate amount of additional consideration, if any, payable to the Corporation
upon the conversion, exchange or exercise of any such Convertible Securities.

                  Neither (A) the issuance of any shares of Common Stock
(whether treasury shares or newly issued shares) pursuant to a dividend or
distribution on, or subdivision, combination or reclassification of, the
outstanding shares of Common Stock requiring an adjustment in the number of
shares of Common Stock issuable upon exercise of the Warrants evidenced hereby
pursuant to Section 4.1, or pursuant to any employee benefit plan or program of
the Company or pursuant to any option, warrant, right, or Convertible Security
outstanding as of the date hereof (including, but not limited to, the Rights,
the Series B Preferred Stock, the Series C Preferred Stock and the Warrants) nor
(B) the issuance of shares of Common Stock pursuant thereto shall be deemed to
constitute an issuance of Common Stock or

                                       9
<PAGE>


Convertible Securities by the Company to which this Section 4.2 applies.

                  Upon expiration of any Convertible Securities which shall not
have been exercised or converted and for which an adjustment shall have been
made pursuant to this Section 4.2, the Conversion Price computed upon the
original issue thereof shall upon expiration be recomputed as if the only
additional shares of Common Stock issued were such shares of Common Stock (if
any) actually issued upon exercise or conversion of such Convertible Securities
and the consideration received therefor was the consideration actually received
by the Corporation for the issue of such Convertible Securities (whether or not
exercised or converted) plus the consideration actually received by the
Corporation upon such exercise of conversion.

                  Section 4.3. CERTAIN OTHER DISTRIBUTIONS. In case the Company
shall at any time or from time to time after the Issue Date declare, order, pay
or make a dividend or other distribution (including, without limitation, any
distribution of stock or other securities or property or rights or warrants to
subscribe for securities of the Company or any of its Subsidiaries by way of
dividend or spin-off), on its Common Stock, other than:

                  (a)      regular quarterly dividends payable in cash in
         an aggregate amount not to exceed 15% of net income from continuing
         operations before extraordinary items of the Company, determined in
         accordance with GAAP, during the period (treated as one accounting
         period) commencing on July 1, 1998, and ending on the date such
         dividend is paid, or

                  (b)      dividends or distributions of shares of Common
         Stock which are referred to in Section 4.1,

then, and in each such case, the number of shares of Common Stock issuable upon
exercise of the Warrants evidenced hereby shall be adjusted so that the holder
of each share of each Warrant evidenced thereby shall be entitled to receive,
upon the exercise thereof, the number of shares of Common Stock determined by
multiplying (1) the number of shares of Common Stock issuable upon exercise of
the Warrants evidenced hereby on the day immediately prior to the record date
fixed for the determination of stockholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the then Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, and the denominator of which shall be the Current
Market Price per share of Common Stock for the period of 20 Trading Days
preceding such record date, less the Fair Market Value per share of Common Stock
(as determined in good faith by the Board of Directors of the

                                       10
<PAGE>


Company, a certified resolution with respect to which shall be mailed to the
holder of the Warrants evidenced hereby) of such dividend or distribution;
PROVIDED, HOWEVER, that in the event of a distribution of shares of capital
stock of a Subsidiary of the Company (a "Spin-Off") made to holders of shares
of Common Stock, the numerator of such fraction shall be the sum of the
Current Market Price per share of Common Stock for the period of 20 Trading
Days preceding the 35th Trading Day after the effective date of such Spin-Off
and the Current Market Price of the number of shares (or the fraction of a
share) of capital stock of the Subsidiary which is distributed in such
Spin-Off in respect of one share of Common Stock for the period of 20 Trading
Days preceding such 35th Trading Day and the denominator of which shall be
the Current Market Price per share of the Common Stock for the period of 20
Trading Days proceeding such 35th Trading Day. An adjustment made pursuant to
this Section 4.3 shall be made upon the opening of business on the next
Business Day following the date on which any such dividend or distribution is
made and shall be effective retroactively immediately after the close of
business on the record date fixed for the determination of stockholders
entitled to receive such dividend or distribution; PROVIDED, HOWEVER, if the
proviso to the preceding sentence applies, then such adjustment shall be made
and be effective as of such 35th Trading Day after the effective date of such
Spin-Off.

                  Section 4.4. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER
THIS SECTION. The following provisions shall be applicable to the making of
adjustments provided for in this Section 4:

                  (a)      For purposes of this Section 4, the number of
         shares of Common Stock at any time outstanding shall not include any
         shares of Common Stock then owned or held by or for the account of the
         Company.

                  (b)      The term "dividend", as used in this Section 4
         shall mean a dividend or other distribution upon stock of the
         Company except pursuant to the Rights Agreement. Notwithstanding
         anything in this Section 4 to the contrary, the number of shares of
         Common Stock issuable upon exercise of the Warrants evidenced hereby
         shall not be adjusted as a result of any dividend, distribution or
         issuance of securities of the Company pursuant to the Rights
         Agreement.

                  (c)      Notwithstanding anything in this Section 4 to
         the contrary, the Company shall not be required to give effect to
         any adjustment in the number of shares of Common Stock issuable upon
         exercise of the Warrants evidenced hereby unless and until the net
         effect of one or more

                                       11
<PAGE>


         adjustments (each of which shall be carried forward), determined as
         above provided, shall have resulted in a change in the number of
         shares of Common Stock issuable upon exercise of the Warrants
         evidenced hereby by at least one-hundredth of one share of Common
         Stock, and when the cumulative net effect of more than one
         adjustment so determined shall be to change the number of shares of
         Common Stock issuable upon exercise of the Warrants evidenced hereby
         by at least one-hundredth of one share of Common Stock, such change
         in the number of shares of Common Stock issuable upon exercise of
         the Warrants evidenced hereby shall thereupon be given effect.

                  (d)      The certificate of any firm of independent public
         accountants of recognized standing selected by the Board of Directors
         of the Company (which may be the firm of independent public accountants
         regularly employed by the Company) shall be presumptively correct for
         any computation made under this Section 4.

                  (e)      If the Company shall take a record of the holders
         of its Common Stock for the purpose of entitling them to receive a
         dividend or other distribution, and shall thereafter and before the
         distribution to stockholders thereof legally abandon its plan to pay
         or deliver such dividend or distribution, then, no adjustment in the
         number of shares of Common Stock issuable upon exercise of the
         Warrants evidenced hereby shall be required by reason of the taking
         of such record.

                  (f)      There shall be no adjustment of the number of
         shares of Common Stock issuable upon exercise of the Warrants
         evidenced hereby in case of the issuance of any stock of the Company
         in a merger, reorganization, acquisition or other similar
         transaction except as set forth in Sections 4.1, 4.2 and 4.5.

                  (g)      Notwithstanding anything herein to the contrary,
         the Company agrees not to enter into any transaction which, by
         reason of any adjustment hereunder, would cause the Exercise Price
         to be less than the par value per share of Common Stock.

                  (h)      Upon each adjustment to the number of shares of
         Common Stock issuable upon exercise of the Warrants pursuant to
         Sections 4.1, 4.2 or 4.3, the Exercise Price effective immediately
         prior to the making of such adjustment shall thereafter be adjusted
         to be the amount obtained by (i) multiplying (A) the applicable
         number of shares of Common Stock issuable upon exercise of the
         Warrants immediately

                                       12
<PAGE>


         prior to such adjustment by (B) the Exercise Price in effect
         immediately prior to such adjustment and (ii) dividing the product
         so obtained by the number of shares of Common Stock issuable upon
         exercise of the Warrants immediately after such adjustment.

                  Section 4.5. REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION OR DISPOSITION OF ASSETS. In case of any reorganization or
reclassification of outstanding shares of Common Stock (other than a
reclassification covered by Section 4.1), or in case of any consolidation or
merger of the Company with or into another corporation, or in the case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), each such Warrant then outstanding shall thereafter be
exercisable for, in lieu of the Common Stock issuable upon such exercise prior
to consummation of the Transaction, the kind and amount of shares of stock and
other securities and property receivable (including cash) upon the consummation
of the Transaction by a holder of that number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to the Transaction (including,
on a pro rata basis, the cash, securities or property received by holders of
Common Stock in any tender or exchange offer that is a step in the Transaction).

                  Section 4.6. NOTICES TO WARRANTHOLDERS. In case at any time or
from time to time, prior to the Expiration Date, the Company shall pay any
dividend or make any other distribution to the holders of its Common Stock, or
shall offer for subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or any other right, or there shall be
any capital reorganization or reclassification of the Common Stock of the
Company or consolidation or merger of the Company with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, in any one or more of said cases the Company shall give at least 20 days'
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the registered holder of the Warrants evidenced
hereby at its address as shown on the books of the Company maintained by the
Transfer Agent thereof of the date on which (i) the books of the Company shall
close or a record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such reorganization, reclassification,
consolidation, merger, sale or conveyance, dissolution, liquidation or winding
up shall take place, as the case may be, provided that in the case of any
Transaction to which Section 4.5 applies the Company shall give

                                       13
<PAGE>


at least 30 days' prior written notice as aforesaid. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in said dividend, distribution or subscription rights or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, sale or conveyance or participate in such dissolution, liquidation or
winding up, as the case may be. Failure to give such notice shall not
invalidate any action so taken.

                  Section 4.7. CERTIFICATES. Upon any adjustment of the number
of shares of Common Stock issuable upon exercise of the Warrants evidenced
hereby or of the Exercise Price, then, and in each such case, the Company shall
promptly deliver to the holders of the Warrants and the Common Stock, a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased or
decreased number of shares of Common Stock issuable upon exercise of the
Warrants evidenced hereby and the Exercise Price then in effect following such
adjustment.

                                   ARTICLE 5.
                                  NO IMPAIRMENT

                  The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the holder of the Warrant against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of
any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock,
free and clear of any liens, claims, encumbrances and restrictions (other than
as provided herein) upon the exercise of this Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.

                                       14
<PAGE>


                  Upon the request of the holder of the Warrant, the Company
will at any time during the period this Warrant is outstanding acknowledge in
writing, in form satisfactory to the holder of this Warrant, the continuing
validity of this Warrant and the obligations of the Company hereunder.

                                   ARTICLE 6.
                        RESERVATION AND AUTHORIZATION OF
                       COMMON STOCK, REGISTRATION WITH OR
                     APPROVAL OF ANY GOVERNMENTAL AUTHORITY

                  The Company covenants and agrees that, after the
Recapitalization and until the Expiration Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of Warrants and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued, fully paid and nonassessable and free and clear of any liens,
claims and restrictions (other than as provided herein). No stockholder of the
Company has or shall have any preemptive rights to subscribe for such shares of
Common Stock.

                  Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Exercise Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.

                                   ARTICLE 7.
                        STOCK AND WARRANT TRANSFER BOOKS

                  The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.

                                   ARTICLE 8.
                         RESTRICTIONS ON TRANSFERABILITY

                  The Warrants and the Warrant Stock shall not be transferred
before satisfaction of the conditions specified in this Section 8, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and state securities laws with respect to the Transfer of any
Warrant or any Warrant Stock. The holder, by acceptance of this Warrant, agrees
to be bound by the provisions of this Section 8.

                                       15
<PAGE>


                  Section 8.1.  RESTRICTIVE LEGEND.

                  (a)      Except as otherwise provided in this Section 8,
         each certificate for Warrant Stock initially issued upon the exercise
         of this Warrant, and each certificate for Warrant Stock issued to any
         subsequent transferee of any such certificate, shall be stamped or
         otherwise imprinted with a legend in substantially the following form:

                  "The shares represented by this certificate have not been
                  registered under the Securities Act of 1933, as amended, or
                  the securities laws of any state and are subject to the
                  conditions specified in a certain Warrant dated January 4,
                  1998, originally issued by Aames Financial Corporation. The
                  shares represented by this certificate may not be transferred
                  in violation of such Act and laws, the rules and regulations
                  thereunder or the provisions of the Warrant. A copy of the
                  form of said Warrant is on file with the Secretary of Aames
                  Financial Corporation. The holder of this certificate, by
                  acceptance of this certificate, agrees to be bound by the
                  provisions of such Warrant."

                  (b)      Except as otherwise provided in this Section 8,
         each Warrant shall be stamped or otherwise imprinted with a legend in
         substantially the following form:

                  "This Warrant and the securities represented hereby have not
                  been registered under the Securities Act of 1933, as amended,
                  or the securities laws of any state and may not be sold or
                  otherwise transferred in the absence of such registration or
                  an exemption therefrom under such Act and under any such
                  applicable state laws, or in violation of the provisions of
                  this Warrant."

                  Section 8.2. TRANSFERS. Prior to any transfer or attempted
transfer of any Warrants or any shares of Restricted Common Stock, the holder of
such Warrants or Restricted Common Stock shall give notice (a "Transfer Notice")
to the Company of such holder's intention to effect such transfer, describing
the manner and circumstances of the proposed transfer, and obtain from counsel a
written opinion addressed and reasonably satisfactory to the Company that the
proposed transfer of such Warrants or such Restricted Common Stock may be
effected without registration under the Securities Act and applicable state
securities laws. After receipt of the Transfer Notice and

                                       16
<PAGE>


written opinion, the Company shall, within two Business Days thereof, so
notify the holder of such Warrants or such Restricted Common Stock and such
holder shall thereupon be entitled to transfer such warrants or such
Restricted Common Stock, in accordance with the terms of the Transfer Notice.
Each certificate, if any, evidencing such shares of Restricted Common Stock
issued upon such transfer shall bear the restrictive legend set forth in
Section 8.1(a), and each Warrant issued upon such transfer shall bear the
restrictive legend set forth in Section 8.1(b), unless in the written opinion
of counsel addressed to the Company such legend is not required in order to
ensure compliance with the Securities Act.

                  Section 8.3. TERMINATION OF RESTRICTIONS. Notwithstanding the
foregoing provisions of Section 8, the restrictions imposed by this Section 8
upon the transferability of the Warrants, the Warrant Stock and the Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) and
the legend requirements of Section 8.1 shall terminate as to any particular
Warrant or share of Warrant Stock or Restricted Common Stock (or Common Stock
issuable upon the exercise of the Warrants) (i) as to the Warrant Stock and
Restricted Common Stock, when and so long as the resale of such security shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto, or (ii) as to the Warrant, Warrant Stock and Restricted Common
Stock, when the holder of the Warrant, Warrant Stock or Restricted Common Stock
shall have delivered to the Company the written opinion of counsel addressed and
reasonably satisfactory to the Company stating that such legend is not required
in order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by this Section shall terminate as to any share of Restricted Common
Stock, as hereinabove provided, the holder thereof shall be entitled to receive
from the Company, at the Company's expense (except for any transfer taxes), a
new certificate representing such Common Stock not bearing the restrictive
legend set forth in Section 8.1(a).

                                   ARTICLE 9.
                              SUPPLYING INFORMATION

                  The Company shall cooperate with the holder of the Warrant and
the holder of Restricted Common Stock in supplying such information as may be
reasonably requested by such holder or reasonably necessary for such holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Warrant or Restricted Common Stock.

                                       17
<PAGE>


                                   ARTICLE 10.
                               LOSS OR MUTILATION

                  Upon receipt by the Company from any holder of evidence
reasonably satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it and in case of mutilation upon surrender and cancellation hereof, the
Company will execute and deliver in lieu hereof a new Warrant of like tenor to
the holder; PROVIDED, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.

                                   ARTICLE 11.
                              OFFICE OF THE COMPANY

                  As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant.

                                   ARTICLE 12.
                               REGISTRATION RIGHTS

                  The Warrant Stock issuable upon exercise of this Warrant are
entitled to the benefits of the Registration Rights Agreement. The Company shall
keep a copy of the Registration Rights Agreement, and any amendments thereto, at
the office or agency designated by the Company pursuant to Section 11 and shall
furnish copies thereof to the holder upon request.

                                   ARTICLE 13.
                             LIMITATION OF LIABILITY

                  No provision hereof, in the absence of affirmative action by
the holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
the holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

                                   ARTICLE 14.
                            REPRESENTATION OF HOLDER

                  The holder represents that it is acquiring the Warrant and the
Warrant Stock for the purpose of investment and not with a view to the resale or
distribution hereof or thereof; PROVIDED, that the disposition of holder's
property shall at all times be and remain within its control.

                                       18
<PAGE>


                                   ARTICLE 15.
                                  MISCELLANEOUS

                  Section 15.1. NONWAIVER AND EXPENSES. No course of dealing or
any delay or failure to exercise any right hereunder on the part of the parties
shall operate as a waiver of such right or otherwise prejudice the parties'
rights, powers or remedies. If the Company fails to comply with any provision of
this Warrant, the Company shall pay to the holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees incurred by the holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies
hereunder.

                  Section 15.2. NO RIGHTS AS STOCKHOLDER. The Person in whose
name this Warrant is registered shall be deemed the owner hereof and of the
Warrants evidenced hereby for all purposes. The registered holder of this
Warrant shall not be entitled to any rights whatsoever as a stockholder of the
Company except as herein provided.

                  Section 15.3. NOTICE GENERALLY. Any notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder to be
made pursuant to the provisions of this Warrant shall be sufficiently given or
made if in writing and either delivered in person with receipt acknowledged or
sent by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

                  (a)      If to the holder, at its last known address
         appearing on the books of the Company maintained for such purpose.

                                       19
<PAGE>


                  (b)        If to the Company:

                             Aames Financial Corporation
                             2 California Plaza
                             350 South Grand Avenue
                             Los Angeles, California 90071
                             Attention:  David A. Sklar
                             Fax No.: (323) 210-5276

                             with a copy to:

                             Troop Steuber Pasich Reddick & Tobey
                             2029 Century Park East
                             Los Angeles, California 90067
                             Attention:  C. N. Franklin Reddick, Esq.
                             Fax No.: (310) 728-2204

or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail.

                  Section 15.4. SUCCESSORS AND ASSIGNS. Subject to the
provisions of Sections 3.1 and 8, (i) this Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company and the successors and assigns of the holder, and (ii) the provisions of
this Warrant are intended to be for the benefit of all holders from time to time
of this Warrant, and shall be enforceable by any such holders.

                  Section 15.5. AMENDMENT. The Warrants may be modified or
amended or the provisions thereof waived with the written consent of the Company
and the holders of the majority of the portion of this Warrant then outstanding.

                  Section 15.6. SEVERABILITY. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Warrant.

                                       20
<PAGE>


                  Section 15.7. HEADINGS. The headings used in this Warrant are
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Warrant.

                  Section 15.8. GOVERNING LAW. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to conflicts of law principles thereof.

                  Section 15.10. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY
RIGHTS OR REMEDIES UNDER THIS WARRANT.

                                       21
<PAGE>


                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer on August 3, 1999.

                              AAMES FINANCIAL CORPORATION


                              By:    /s/ BARBARA S. POLSKY
                                 --------------------------------
                              Name:  Barbara S. Polsky

                              Title: Executive Vice
                                     President, Secretary and
                                     General Counsel

                                       22
<PAGE>


                                    EXHIBIT A

                                SUBSCRIPTION FORM

                 [To be executed only upon exercise of Warrant]

                  The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of _____ Shares of Common Stock of AAMES
FINANCIAL CORPORATION and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to __________________ whose address is ____________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.

                                                (Name of Registered Owner)
----------------------------------
                                                (Signature of Registered owner)
----------------------------------
                                                (Street Address)
----------------------------------
                                                (City) (State) (Zip Code)
----------------------------------

NOTICE:           The signature on this subscription must correspond with the
                  name as written upon the face of the within Warrant in every
                  particular, without alteration or enlargement or any change
                  whatsoever.


<PAGE>


                                    EXHIBIT B

                                 ASSIGNMENT FORM

                  FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:

Name and Address of Assignee                      No. of Shares of Common Stock

and does hereby irrevocably constitute and appoint ____________ attorney-in-fact
to register such transfer on the books of AAMES FINANCIAL CORPORATION maintained
for the purpose, with full power of substitution in the premises.


Dated:
      ---------------------------------
Name:
     ----------------------------------
Signature:
          -----------------------------
Witness:
        -------------------------------

NOTICE:           The signature on this assignment must correspond with the name
                  as written upon the face of the within Warrant in every
                  particular, without alteration or enlargement or any change
                  whatsoever.