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EXHIBIT 4.1

                                    EXHIBIT A

                         YOSEMITE MORTGAGE FUND II, LLC

           LIMITED LIABILITY COMPANY THIRD AMENDED OPERATING AGREEMENT




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                                  TABLE OF CONTENTS


ARTICLE 1 - ORGANIZATION OF THE LIMITED LIABILITY COMPANY....................1
     Formation...............................................................1
     Name....................................................................1
     Place of Business.......................................................1
     Purpose.................................................................1
     Articles of Organization................................................1
     Term of Existence.......................................................1
     Power of Attorney.......................................................1
     Nature of Power of Attorney.............................................2
     Admission of Members During the Offering................................2

ARTICLE 2 - DEFINITIONS......................................................2
     Acquisition and Origination Expenses....................................2
     Acquisition and Origination Fees........................................2
     Administrator...........................................................2
     Affiliate...............................................................2
     Agreement...............................................................2
     Borrower................................................................2
     California LLC law......................................................2
     Capital Contribution....................................................3
     Capital Transaction.....................................................3
     Carried Interest........................................................3
     Cash Available for Distribution.........................................3
     Cash Flow...............................................................3
     Code....................................................................3
     Company.................................................................3
     Deed(s) of Trust........................................................3
     Default Interest........................................................3
     Fiscal Year.............................................................3
     Front-End Fees..........................................................4
     Gross Asset Value.......................................................4
     Independent Expert......................................................4
     Interest................................................................4
     Investment in Mortgage Loans............................................4
     Late Payment Charges....................................................4
     Majority................................................................4
     Manager.................................................................4
     Management Fee..........................................................4
     Member..................................................................4
     Mortgage Investment(s)..................................................4
     Mortgage Loans..........................................................4
     Mortgage Servicing Fee..................................................4
     NASAA Guidelines........................................................4
     Net Income Available for Distribution...................................5
     Net Proceeds............................................................5
     Net Worth...............................................................5
     Offering................................................................5
     Organization and Offering Expenses......................................5
     Person..................................................................5
     Profits and Losses......................................................5
     Program.................................................................5
     Promotional Interest....................................................5
     Property Management Fee.................................................5
     Prospectus..............................................................5
     Regulations.............................................................6
     Reinvested Distributions................................................6
     Roll-Up.................................................................6
     Roll-Up Entity..........................................................6
     Sponsor.................................................................6
     Subscription Agreement..................................................6
     Units...................................................................6

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     Writedown...............................................................6
     Writedown Amount........................................................6
ARTICLE 3 -THE MANAGER.......................................................6
     Control in Manager......................................................6
     Limitations on Manager's Authority......................................7
     Right to Purchase Receivables and Loans.................................8
     Extent of Manager's Obligation and Fiduciary Duty.......................8
     Liability and Indemnification of Manager................................8
     Assignment by the Manager...............................................9
     Removal of Manager......................................................9
     Right to Rely on Manager...............................................10
ARTICLE 4 - INVESTMENT AND OPERATING POLICIES...............................10
     Investment in Mortgage Loans...........................................10
     Normal Limitation on Loan to Value.....................................10
     Company's Permitted Borrowing..........................................10
     Limitation on Single Loan..............................................11
     Limitation on Loans on Unimproved Property.............................11
     Limitation on Real Estate Contracts of Sale............................11
     Title Insurance and Independent Appraisal..............................11
     Insurance..............................................................11
     Purchase of Mortgage Loans from Manager................................11
     Limitation on Sales of Mortgage Loans to Manager.......................11
     No dealings with Other Affiliated Programs.............................11
     Contingency Reserves...................................................11
     No Reinvestment of Net Income Available for Distribution...............11
     Net Income Available for Distribution..................................11
     No Loans to Manager....................................................11

ARTICLE 5 - CAPITAL CONTRIBUTIONS; LOANS TO COMPANY.........................11
     Capital Contribution by Manager........................................11
     Interest...............................................................12
     Loans..................................................................12
     Time Limit.............................................................12

ARTICLE 6 - VOTING AND OTHER RIGHTS OF MEMBERS..............................12
     No Participation in Management.........................................12
     Meetings...............................................................12
     Access to Books and Records............................................13
     Representation of Company..............................................13
ARTICLE 7 - PROFITS AND LOSSES; CASH DISTRIBUTIONS..........................13
     Allocation of Profits and Losses.......................................13
     Net Income Available For Distribution..................................13
     Net Proceeds...........................................................13
     Cash Distributions Upon Dissolution....................................14
     Special Allocation Rules...............................................14
     Code Section 704(c) Allocations........................................14
     Intent of Allocations..................................................15
     Annual Valuation of Assets.............................................15
ARTICLE 8 - DISTRIBUTION REINVESTMENT PLAN..................................15
     Members' Reinvested Distributions......................................15
     Purchase of Additional Units...........................................15
     Statement of Account...................................................15
     Continued Suitability Requirements.....................................15
     Changes or Termination of the Plan.....................................15
ARTICLE 9 - BOOKS AND RECORDS, REPORTS AND RETURNS..........................15
     Books and Records......................................................15
     Annual Statements......................................................16
     Income Tax Returns.....................................................17
     Suitability Requirements...............................................17
     Fiscal Matters.........................................................17
         Fiscal Year........................................................17
         Method of Accounting...............................................17
         Adjustment of Tax Basis............................................17

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         Tax Matters Partner................................................17
ARTICLE 10 - TRANSFER OF COMPANY INTERESTS..................................17
     Interest of Manager....................................................17
     Transfer of Member's Interest..........................................17
     Further Restrictions on Transfers......................................18
ARTICLE 11 - DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A MEMBER;..........18
     Effect of Death or Legal Incompetency of a Member on the Company.......18
     Rights of Personal Representative......................................19
     Withdrawal of Members Other than Managers..............................19
     Withdrawal by Manager..................................................19
     Payment to Terminated Manager..........................................19
ARTICLE 12 - DISSOLUTION OF THE COMPANY.....................................20
     Events Causing Dissolution.............................................20
     Winding Up.............................................................20
     Order of Distribution of Assets........................................20
     No Recourse to Manager.................................................20
     Compliance With Timing Requirements of Regulations.....................20
ARTICLE 13 - ROLL-UPS.......................................................21
     Roll-Up Transactions: Appraisal........................................21
     Members' Rights in a Roll-Up...........................................21
     Limitations on Roll-Ups................................................21
ARTICLE 14 - TRANSACTIONS BETWEEN THE MANAGER, ITS AFFILIATES AND THE
  COMPANY...................................................................21
     Compensation to the Manager from the Company...........................21
         Management Fee.....................................................21
         Company Expenses...................................................22
         Promotional Interest...............................................22
         Property Management Fee............................................22
         No Insurance Service Fees..........................................22
         Mortgage Servicing Fees............................................22
         Acquisition and Origination Fees...................................22
         Late Payment Charges and Default Interest..........................22
ARTICLE 15 - MISCELLANEOUS..................................................23
     Covenant to Sign Documents.............................................23
     Notices................................................................23
     Right to Engage in Competing Business..................................23
     Amendment..............................................................23
     Entire Agreement.......................................................24
     Waiver.................................................................24
     Severability...........................................................24
     Application of California Law..........................................24
     Captions...............................................................24
     Number and Gender......................................................24
     Counterparts...........................................................24
     Waiver of Action for Partition.........................................24
     Defined Terms..........................................................24
     Binding on Assignees...................................................24

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                        THIRD AMENDED OPERATING AGREEMENT

                                       OF
                         YOSEMITE MORTGAGE FUND II, LLC
                     A California Limited Liability Company

THIS THIRD AMENDED OPERATING AGREEMENT ("AGREEMENT") was made and entered into
as of the 2nd day of December, 2002, by and among MFP Management LLC, a
California limited liability company (the "MANAGER"), and Pontes Financial
Group, Ltd., a California corporation, in its capacity as the initial member of
the Company (the "INITIAL MEMBER"), collectively with all other Persons who may
become members of the Company from time to time in accordance herewith (the
"MEMBERS"), and Yosemite Mortgage Fund II, LLC, a California limited liability
company (the "COMPANY").

                                   WITNESSETH

WHEREAS, the Manager, the Initial Member and the Company desire to enter into a
Third Amended Operating Agreement to govern the Company's operations;

NOW, WHEREFORE, in consideration for the mutual agreements, covenants and
premises set forth herein, this Third Amended Operating Agreement is hereby
adopted:

                                    ARTICLE 1
                  ORGANIZATION OF THE LIMITED LIABILITY COMPANY

         1.1. Formation. The Initial Member caused the formation of the Company
on March 19, 2001 under the provisions of California Corporations Code.

         1.2. Name. The name of the Company is YOSEMITE MORTGAGE FUND II, LLC.

         1.3. Place of Business. The principal place of business of the Company
is and will be located at 414 13th Street, Suite 400, Oakland, California 94612,
until the Manager changes it after giving the Members notice. In addition, the
Company may maintain such other offices and places of business in the United
States as the Manager may deem advisable. The Manager will file all necessary or
desirable documents to permit the Company to conduct its business lawfully in
any state or territory of the United States.

         1.4. Purpose. The primary purpose of this Company is to generate cash
flow and to distribute to the Members the Profits of the Company from its
operations. The Company will invest in and purchase first, second, wraparound,
participating and construction Mortgage Investments, and do all things
reasonably related thereto, including developing, managing and either holding
for investment or disposing of real property acquired through foreclosure,
either directly or through general partnerships or other joint ventures, all as
further provided for in this Agreement.

         1.5. Articles of Organization. The Company's Articles of Organization
have been duly executed, acknowledged and filed with the Secretary of State of
the State of California under the provisions of the California LLC law. The
Initial Member hereby approves, ratifies and confirms all of these actions. The
Manager is authorized to execute and cause to be filed Certificates of Amendment
of the Articles of Organization whenever required by the California LLC law or
this Agreement.

         1.6. Term of Existence. The Company's existence began on March 19, 2001
and, notwithstanding anything to the contrary in the Articles of Organization,
will continue until December 31, 2021, unless earlier terminated under the
provisions of this Agreement or by operation of law. A Majority may extend the
Company's term, provided that the Company remains in compliance with the NASAA
Guidelines.

         1.7. Power of Attorney. Each of the Members irrevocably constitutes and
appoints the Manager as his true and lawful attorney-in-fact, with full power
and authority for him, and in his name, place and stead, to execute,
acknowledge, publish and file:

                  1.7.1. This Agreement, the Articles of Organization, as well
         as any and all amendments thereto required under the laws of the State
         of California or of any other state, or which the Manager deems
         advisable to prepare, execute and file;

                  1.7.2. Any certificates, instruments and documents, including,
         without limitation, Fictitious Business Name Statements, as may be
         required to be filed by the Company by any governmental agency or by
         the laws of any state or other jurisdiction in which the Company is
         doing or intends to do business, or which the Manager deems advisable
         to file; and

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                  1.7.3. Any documents which may be required to effect the
         continuation of the Company, the admission of an additional or
         substituted Member, or the dissolution and termination of the Company,
         provided that the continuation, admission, substitution or dissolution
         or termination, as applicable, is in accordance with the terms of this
         Agreement.

         1.8. Nature of Power of Attorney. The grant of authority in Section
1.7:

                  1.8.1. Is a Special Power of Attorney coupled with an
         interest, is irrevocable, survives the death of the Member and shall
         not be affected by the subsequent incapacity of the Member;

                  1.8.2. May be exercised by the Manager for each member by a
         facsimile signature of or on behalf of the Manager or by listing all of
         the Members and by executing any instrument with a single signature of
         or on behalf of the Manager, acting as attorney-in-fact for all of
         them; and

                  1.8.3. Shall survive the delivery of an assignment by a Member
         of the whole or any portion of his Interest; except that where the
         assignee thereof has been approved by the Manager for admission to the
         Company as a substituted Member, the Special Power of Attorney shall
         survive the delivery of the assignment for the sole purpose of enabling
         the person to execute, acknowledge, and file any instrument necessary
         to effect the substitution.

         1.9. Admission of Members During the Offering. Upon the sale of Units
in the offering, the purchasers shall be admitted as Members not later than 15
days after the release from any impound of the purchaser's funds to the Company,
and thereafter, purchasers shall be admitted as Members not later than the last
day of the calendar month following the date their subscription was accepted by
the Company. Subscriptions will be accepted or rejected by the Company within 30
days of their receipt; if rejected, all funds will be returned to subscribers
within 10 business days.


                                   ARTICLE 2
                                   DEFINITIONS

         Unless stated otherwise, the terms set forth in this Article 2 shall,
for all purposes of this Agreement, have the following meanings:

         2.1. "Acquisition and Origination Expenses" means expenses, including
but not limited to legal fees and expenses, travel and communication expenses,
costs of appraisals, accounting fees and expenses, title insurance funded by the
Company, and miscellaneous expenses related to the evaluation, selection and
acquisition of Mortgage Investments, whether or not acquired.

         2.2. "Acquisition and Origination Fees" means the total of all fees and
commissions paid by any Person when purchasing or investing in Mortgage
Investments. Included in the computation of these fees or commissions shall be
any selection fee, mortgage placement fee, nonrecurring management fee, and any
evaluation fee, loan fee, or points paid by borrowers to the Manager or its
Affiliate, or any fee of a similar nature, however designated.

         2.3. "Administrator" means the agency or official administering the
securities law of a state in which Units are registered or qualified for offer
and sale.

         2.4. "Affiliate" means, for any Person, (a) any Person directly or
indirectly controlling, controlled by or under common control with the Person,
(b) any other Person owning or controlling ten percent (10%) or more of the
outstanding voting securities of the Person, (c) any officer, director, partner
or manager of the Person, and (d) if such other Person is an officer, director,
partner or manager, any company for which such Person acts in any similar
capacity.

         2.5. "Agreement" means this Operating Agreement, as amended from time
to time.

         2.6. "Base Amount" means the portion of the Capital Contributions
committed to Investment in Mortgage Loans, not including leverage. The Base
Amount shall be recomputed annually after the second full year of the Company's
operations by subtracting from the then fair market value of its Mortgage
Investments as determined by independent appraisals plus working capital
reserves an amount equal to the Company's outstanding debt, if any.

         2.7. "Borrower" means an obligor under a Mortgage Loan.

         2.8. "California LLC law" means the Beverly-Killea Limited Liability
Company Act, as in effect in the State of California.

         2.9. "Capital Account" means, for any Member, the Capital Account
maintained for the Member in accordance with the following provisions:

                  2.9.1. The Manager shall credit to each Member's Capital
         Account the Member's Capital Contribution, the Member's distributive
         share of Profits, any items in the nature of income or gain (from
         unexpected adjustments, allocations or distributions) that are
         specially allocated to a Member, and the amount of any Company
         liabilities that are assumed by the Member or that are secured by any
         Company property distributed to the Member.

                  2.9.2. The Manager shall debit from each Member's Capital
         Account the amount of cash and the fair market value of any Company
         property distributed to the Member under any provision of this
         Agreement, the Member's distributive share of Losses, and any items in
         the nature of expenses or losses that are specially allocated to a

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         Member and the amount of any liabilities of the Member that are assumed
         by the Company or that are secured by any property contributed by the
         Member to the Company.

         If the Gross Asset Value of a Company asset is adjusted as a result of
         a Writedown, the Manager shall concurrently adjust the Capital Accounts
         of all Members in order to reflect the aggregate net adjustment that
         would have occurred if the Company had recognized Losses equal to the
         Writedown Amount and the Losses were allocated under Article 7.

         If any interest in the Company is transferred in accordance with
Section 10.2 of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred interest.

         The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Treasury Regulation Section 1.704-1(b), and shall be interpreted and applied in
a manner consistent with the Regulation. If the Manager determines that it is
prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto, are computed in order to comply with the then existing Treasury
Regulation, the Manager may make the modification, provided that it is not
likely to have a material effect on the amounts distributable to any Member
under Articles 7 and 12 of this Agreement upon the dissolution of the Company.
The Manager shall adjust the amounts debited or credited to Capital Accounts for
(a) any property contributed to the Company or distributed to the Manager, and
(b) any liabilities that are secured by the contributed or distributed property
or that are assumed by the Company or the Manager, if the Manager determines the
adjustments are necessary or appropriate under Treasury Regulation Section
1.704-1(b)(2)(iv). The Manager shall make any appropriate modification if
unanticipated events might otherwise cause this Agreement not to comply with
Treasury Regulation Section 1.704-1(b) as provided for in Sections 7.7 and 15.4.

         2.10. "Capital Contribution" means the total investment and
contribution to the capital of the Company made by a Member (i) in cash, (ii) by
advancing expenses to non-affiliated third parties on behalf of the Company and
with the Company's authorization or (iii) by way of automatic reinvestment of
Company distributions (or deemed distributions) of capital and/or net income.
"Initial Capital Contribution" means the amount paid in cash by each Member with
his original subscription for an acquisition of Units of the Company under the
Prospectus plus, in the case of the Manager, the amount it has advanced to
non-affiliated third parties on behalf of the Company.

         2.11. "Capital Transaction" means (i) the repayment of principal or
prepayment of a Mortgage Investment, including deemed repayments of Mortgage
Investments or other dispositions thereof, to the extent classified as a return
of capital under the Code, (ii) the foreclosure, sale, exchange, condemnation,
eminent domain taking or other disposition under the Code of a Mortgage
Investment or Real Property subject to a Mortgage Investment, or (iii) the
payment of insurance or a guarantee for a Mortgage Investment.

         2.12. "Carried Interest" means an Interest held by the Manager, which
participates in all allocations and distributions, said Interest being an
expense of the Company and subject to the limitation set forth in Article 4,
below.

         2.13. "Cash Available for Distribution" means Cash Flow less all
amounts set aside for creation or restoration of reserves by the Manager.

         2.14. "Cash Flow" means cash funds provided from operations (other than
repayments of mortgage loan principal) including without limitation, interest,
points, revenue participation, participation in property appreciation, and
interest or dividends from interim investments paid to the Company after
deducting cash funds used to pay general Company expenses and debt payments.

         2.15. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and corresponding provisions of subsequent revenue laws.

         2.16. "Company" means Yosemite Mortgage Fund II, LLC, the California
limited liability company to which this Agreement pertains.

         2.17. "Deed(s) of Trust" means the lien(s) created on the Real Property
of borrowers securing their respective obligations to the Company to repay
Mortgage Investments, whether in the form of a deed of trust, mortgage or
otherwise.

         2.18. "Default Interest" means the interest charge imposed under a
Mortgage Loan that has gone into default.

         2.19. "Fiscal Year" means, subject to the provisions of Section 706 of
the Code and Section 9.6.1, (i) the period commencing on the date of formation
of the Company and ending on December 31, 2001 (ii) any subsequent 12 month
period on January 1 and ending on December 31 and (iii) the period commencing
January 1 and ending on the date on which all Company assets are distributed to
the Members under Article 12.

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         2.20. "Front-End Fees" means fees and expenses paid by any party to
acquire assets for the Company, including Organization and Offering Expenses,
Acquisition and Origination Fees, Acquisition and Origination Expenses, interest
on deferred fees and expenses, and any other similar fees, however designated by
the Manager.

         2.21. "Gross Asset Value" means, for any Company asset, the following:

                  2.21.1. The initial Gross Asset Value of any Company asset at
         the time that it is contributed by a Member to the capital of the
         Company shall be an amount equal to the fair market value of the
         Company asset (without regard to the provisions of Code Section
         7701(g)), as determined by the contributing Member and the Manager;

                  2.21.2. The Gross Asset Values of all Company assets shall be
         adjusted, as determined by the distributed Member and the Manager, to
         equal their respective fair market values upon the distribution to a
         Member by the Company of more than a de minimis amount of Company
         assets (other than money), unless all Members simultaneously receive
         distributions of undivided interests in the distributed Company assets
         in proportion to their respective Capital Accounts;

                  2.21.3. The Gross Asset Values of all Company assets shall be
         adjusted to equal their respective fair market values (as determined by
         the Manager, in its reasonable discretion) upon the termination of the
         Company for Federal income tax purposes under Code Section
         708(b)(1)(B); and

                  2.21.4. The Gross Asset Value of a Company asset shall be
         adjusted in the case of a Writedown of the Company asset in accordance
         with Sections 2.44, 2.45 and 7.8.

         2.22. "Independent Expert" means a Person with no material current or
prior business or personal relationship with the Manager, who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Company, and who is qualified to perform the
services.

         2.23. "Interest" means the Capital Accounts of Members, which are
divided into "Units."

         2.24. "Investment in Mortgage Loans" means the amount of Capital
Contributions used to make or invest in Mortgage Investments or the amount
actually paid or allocated to the purchase of Mortgage Investments, working
capital reserves allocable thereto (except that working capital reserves in
excess of three percent (3%) shall not be included), and other cash payments
such as interest and taxes.

         2.25. "Late Payment Charges" means additional charges paid by Borrowers
on delinquent interest and late payment fees.

         2.26. "Majority" means any group of Members who together hold a
majority of the total outstanding Interests of the Company as of a particular
date (or if no date is specified, the first day of the then current calendar
month).

         2.27. "Manager" means MFP Management LLC., a California limited
liability company, in that capacity, or any Person replacing MFP Management LLC
under this Agreement. For greater certainty, MFP Management LLC, in its capacity
as the Initial Member, is a distinct entity from the Manager for purposes of
this Agreement unless the context should indicate to the contrary. Manager shall
include its Affiliates, when appropriate in the context of particular
appearances in this Agreement.

         2.28. "Management Fee" means a fee paid by the Company to the Manager
or other persons for management and administration of the Company.

         2.29. "Member" means an owner of Units in the Company, unless the
instruments through which the Units were transferred to the owner did not also
convey the transferor's status as a Member.

         2.30. "Mortgage Investment(s)" means the Mortgage Loan(s) or an
interest in the Mortgage Loans that are held by the Company.

         2.31. "Mortgage Loans" means investments of the Company that are notes,
debentures, bonds and other evidences of indebtedness or obligations that are
negotiable or non-negotiable and secured or collateralized by Deeds of Trust on
Real Property.

         2.32. "Mortgage Servicing Fee" means any fee paid to the Manager or its
Affiliates for servicing or administering Mortgage Investments.

         2.33. "NASAA Guidelines" means the Mortgage Program Guidelines of the
North American Securities Administrators Association, Inc. adopted on September
10, 1996, as amended from time to time unless indicated to the contrary by the
context.

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         2.34. "Net Income Available for Distribution" means Cash Flow less
amount set aside for creation or restoration of reserves during the month;
provided that:

                  2.34.1. The operating expenses shall not include any general
         overhead expenses of the Manager; and

                  2.34.2. Net Income Available for Distribution shall not exceed
         the amount of cash on hand.

         2.35. "Net Proceeds" means the net cash proceeds (or deemed net
proceeds) from any Capital Transaction.

         2.36. "Net Worth" means the excess of total assets over total
liabilities as determined by generally accepted accounting principles
consistently applied, except that if any of the assets have been depreciated,
then the amount of the depreciation relative to any particular asset may be
added to the depreciated cost of the asset to compute total assets, provided
that the amount of depreciation may be added only to the extent that the amount
resulting after adding the depreciation does not exceed the fair market value of
the asset.

         2.37. "Offering" means the offer and sale of Units of the Company made
under the Prospectus.

         2.38. "Organization and Offering Expenses" means those expenses
incurred in connection with and preparing the Company for registration and
offering and distributing Units to the public, including sales commissions paid
to securities broker-dealers in connection with the distribution of the Units
and all advertising expenses, and they shall be reasonable and comply with all
statutes, rules and regulations imposed by any Administrator in connection with
the offering of the Units.

         2.39. "Person" means any natural person, partnership, corporation,
unincorporated association or other legal entity.

         2.40. "Profits and Losses" mean, for each Fiscal Year or any other
period, an amount equal to the Company's taxable income or loss for the Fiscal
Year or other given period, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss, or deduction required to be
stated separately under Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments (without duplication):

                  2.40.1. Any income of the Company that is exempt from federal
         income tax and not otherwise taken into account in computing Profits or
         Losses under this Section 2.30 shall be added to the taxable income or
         loss;

                  2.40.2. Any expenditures of the Company described in Section
         705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the Code
         expenditures under Treasury Regulation Section 1.704- 1(b)(2)(iv)(i),
         and not otherwise taken into account in computing Profits or Losses
         under this Section 2.34.2, shall be subtracted from the taxable income
         or loss. A-5 103

         If any Company asset has a Gross Asset Value which differs from its
adjusted cost basis, gain or loss resulting from the disposition of the Company
asset shall be computed using the Gross Asset Value (rather than adjusted cost
basis) of the Company asset.

         Notwithstanding any other provision of this Section, any items in the
nature of income, gain, expenses or losses, which are specially allocated under
Section 7.5.1, 7.5.2 and 7.6, shall not be taken into account in computing
Profits or Losses.

         2.41. "Program" means a limited or general partnership, limited
liability company, limited liability partnership, trust, joint venture,
unincorporated association or similar organization other than a corporation
formed and operated for the primary purpose of investing in mortgage loans.

         2.42. "Promotional Interest" means an entitlement to the Manager of an
interest in the Company as an additional Management Fee in the amounts specified
in Section 14.13 of the Agreement.

         2.43. "Property Management Fee" means the fee paid for day-to-day
professional property management services.

         2.44. "Prospectus" means the prospectus covering the Offering that
forms a part of the Registration Statement on either Form SB-2 or Form S-11 to
be filed under the Securities Act of 1933 with the Securities and Exchange
Commission and any supplement or amended Prospectus or new prospectus that forms
a part of a supplement or amendment to the Registration Statement filed by the
Company, unless the context should indicate to the contrary.

         2.45. "Real Property" means and includes (a) land and any buildings,
structures, and improvements, and (b) all fixtures, whether in the form of
equipment or other personal property, that is located on or used as part of
land. Real Property does not include Deeds of Trust, mortgage loans or interests
therein.

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         2.46. "Regulations" means, except where the context indicates
otherwise, the permanent, temporary, proposed, or proposed and temporary
regulations of the U.S. Department of the Treasury under the Code, as the
regulations may be lawfully changed from time to time.

         2.47. "Reinvested Distributions" means Units purchased under the
Company's Plan (as defined and described in Article 8 of this Agreement).

         2.48. "Roll-Up" means a transaction involving the acquisition, merger,
conversion, or consolidation, either directly or indirectly, of the Company and
the issuance of securities of a Roll-Up Entity. "Roll-Up" does not include a
transaction involving (i) securities of the Company, if any, listed on a
national securities exchange or quoted on the NASDAQ National Market for 12
months or (ii) conversion to corporate, trust, limited liability company, or
association form of only the Company if, as a consequence of the transaction,
there will be no significant adverse change in any of the following: (a)
Members' voting rights; (b) the term of existence of the Company; (c) Manager
compensation; (d) the Company's investment objectives.

         2.49. "Roll-Up Entity" means a company, real estate investment trust,
corporation, limited liability company, limited or general partnership or other
entity that would be created or would survive after the successful completion of
a proposed Roll-Up.

         2.50. "Sponsor" means any Person (a) directly or indirectly
instrumental in organizing, wholly or in part, a Program, or a Person who will
manage or participate in the management of a Program, and any Affiliate of any
Person, but does not include a Person whose only relation with a Program is that
of an independent property manager or other provider of services (such as
attorneys, accountants or underwriters), whose only compensation is received in
that capacity, or (b) is a "Sponsor" as otherwise defined in the NASAA
Guidelines.

         2.51. "Subscription Agreement" means the document that is an exhibit to
and part of the Prospectus that every Person who buys Units of the Company must
execute and deliver with full payment for the Units and which, among other
provisions, contains the written consent of each Member to the adoption of this
Agreement.

         2.52. "Units" mean the units of equity in the Company evidencing the
Company's Interests that are (a) issued to Members upon their admission to the
Company under the Subscription Agreement and the Prospectus or (b) transferred
to those who become substituted Members under Section 10.2 hereof. The Manager
may purchase Units on the same basis as other Members. Units purchased at
different times do not necessarily represent the same underlying amount of
Interests.

         2.53. "Writedown" means a determination by the Manager for a particular
Mortgage Investment or other Company investment (which determination has been
verified by the Company's accountants as being in conformity with generally
accepted accounting principles) that the fair market value of the investment at
the time the determination is made is less than the amount actually paid or
allocated to the purchase of the investment, which determination shall be made
by the Company and its accountants within thirty (30) days of the end of each
Fiscal Year and any Writedown shall be effective on the last day of the
preceding Fiscal Year during the term of this Agreement.

         2.54. "Writedown Amount" means, for any Mortgage Investment or other
Company investment, the amount by which, at the time that a Writedown is
determined for the Investment, the amount actually paid or allocated to the
purchase of the investment exceeds its fair market value.

                                   ARTICLE 3
                                   THE MANAGER

         3.1. Control in Manager. Subject to the provisions of Section 3.2 and
except as otherwise expressly stated elsewhere in this Agreement, the Manager
has exclusive control over the business of the Company (with all acts and
decisions being in its sole discretion except as specifically set forth in this
Agreement), including the power to assign duties, to determine how to invest the
Company's assets, to sign bills of sale, title documents, leases, notes,
security agreements, Mortgage Investments and contracts, and to assume direction
of the business operations. As Manager of the Company and its business, the
Manager has all duties generally associated with that position, including
dealing with Members, being responsible for all accounting, tax and legal
matters, performing internal reviews of the Company's investments and loans,
determining how and when to invest the Company's capital, and determining the
course of action to take for Company loans that are in default. The Manager also
has all of these powers for ancillary matters. Without limiting the generality
of the foregoing, the powers include the right (except as specifically set forth
in this Agreement, including under Section 3.2):

                  3.1.1. To evaluate potential Company investments and to expend
         the capital of the Company in furtherance of the Company's business;

                  3.1.2. To acquire, hold, lease, sell, trade, exchange, or
         otherwise dispose of all or any portion of Company property or any
         interest therein at a price and upon the terms and conditions as the
         Manager may deem proper;

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<PAGE>

                  3.1.3. To cause the Company to become a joint venturer,
         general or limited partner or member of an entity formed to own,
         develop, operate and dispose of properties owned or co-owned by the
         Company acquired through foreclosure of a Mortgage Loan;

                  3.1.4. To manage, operate and develop Company property, or to
         employ and supervise a property manager who may, or may not, be an
         Affiliate of the Manager;

                  3.1.5. To borrow money from banks and other lending
         institutions for any Company purpose, and as security therefore, to
         encumber Company property;

                  3.1.6. To repay in whole or in part, refinance, increase,
         modify, or extend, any obligation, affecting Company property;

                  3.1.7. To employ or engage from time to time, at the expense
         of the Company, Persons, including the Manager and its Affiliates,
         required for the operation of the Company's business, including
         employees, agents, independent contractors, brokers, accountants,
         attorneys, and others; to enter into agreements and contracts with such
         Persons on terms and for compensation that the Manager determines to be
         reasonable; and to give receipts, releases, and discharges for all of
         the foregoing and any matters incident thereto as the Manager may deem
         advisable or appropriate; provided, however, that any agreement or
         contract between the Company and the Manager or between the Company and
         an Affiliate of the Manager shall contain a provision that the
         agreement or contract may be terminated by the Company without penalty
         on sixty (60) days' written notice and without advance notice if the
         Manager or Affiliate who is a party to the contract or agreement
         resigns or is removed under the terms of this Agreement;

                  3.1.8. To maintain, at the expense of the Company, adequate
         records and accounts of all operations and expenditures and furnish the
         Members with annual statements of account as of the end of each
         calendar year, together with all necessary tax-reporting information;

                  3.1.9. To purchase, at the expense of the Company, liability
         and other insurance to protect the property of the Company and its
         business;

                  3.1.10. To refinance, recast, modify, consolidate, extend or
         permit the assumption of any Mortgage Loan or other investment owned by
         the Company;

                  3.1.11. To pay all expenses incurred in the operation of the
         Company;

                  3.1.12. To file tax returns on behalf of the Company and to
         make any and all elections available under the Code;

                  3.1.13. To cause the Company to be licensed under the
         California Finance Lenders Law, Division 9 of the California Finance
         code, should that licensing become necessary or desirable in the
         judgment of the Manager; and

                  3.1.14. To modify, delete, add to or correct from time to time
         any provision of this Agreement as permitted under Section 15.4 hereof.

         3.2. Limitations on Manager's Authority. The Manager has no authority
to:

                  3.2.1. Do any act in contravention of this Agreement;

                  3.2.2. Do any act which would make it impossible to carry on
         the ordinary business of the Company;

                  3.2.3. Confess a judgment against the Company;

                  3.2.4. Possess Company property or assign the rights of the
         Company in property for other than a Company purpose;

                  3.2.5. Admit a person as a Manager without the prior
         affirmative vote or consent of a Majority, or any higher vote as may be
         required by applicable law;

                  3.2.6. Voluntarily withdraw as Manager without the concurrence
         of a Majority unless its withdrawal would neither affect the tax status
         of the Company nor materially adversely affect the Members (subject to
         any delay in effectiveness of the withdrawal as set forth elsewhere
         herein);

                                        7


<PAGE>

                  3.2.7. Sell all or substantially all of the assets of the
         Company in one or a series of related transactions that is not in the
         ordinary course of business, without the concurrence of a Majority;

                  3.2.8. Amend this Agreement without the concurrence of a
         Majority, except as permitted by Section 15.4 of this Agreement;

                  3.2.9. Dissolve or terminate the Company without the
         concurrence of a Majority;

                  3.2.10. Cause the merger or other reorganization of the
         Company without the concurrence of a Majority;

                  3.2.11. Grant to any of its Affiliates or to itself an
         exclusive right to sell or otherwise dispose of any Company assets;

                  3.2.12. Receive or permit the Manager or any Affiliate of the
         Manager to receive any insurance brokerage fee or write any insurance
         policy covering the Company or any Company property;

                  3.2.13. Receive from the Company a rebate or participate in
         any reciprocal business arrangement which would circumvent the
         provisions of the NASAA Guidelines or enable the Manager or any of its
         Affiliates to do so;

                  3.2.14. Commingle the Company's assets with those of any other
         Person;

                  3.2.15. Use or permit another Person to use the Company's
         assets in any manner, except for the exclusive benefit of the Company;

                  3.2.16. Pay or award, directly or indirectly, any commissions
         or other compensation to any Person engaged by a potential investor for
         investment advice as an inducement to the advisor to advise the
         purchase of Units; provided, however, that this clause shall not
         prohibit the payment of Sales Commissions;

                  3.2.17. Make loans to the Manager or an Affiliate of the
         Manager; or

                  3.2.18. Pay, directly or indirectly, a commission or fee
         (except as otherwise set forth in Article 14 hereof) to the Manager or
         any Affiliate of the Manager in connection with the reinvestment or
         distribution of the proceeds of a Capital Transaction.

         3.3. Right to Purchase Receivables and Loans. As long as the
requirements of Article 4 are met and the Company adheres to the investment
policy described in the Prospectus, the Manager, in its sole discretion, may at
any time, but is not obligated to:

                  3.3.1. Purchase from the Company the interest receivable or
         principal on delinquent Mortgage Loans held by the Company;

                  3.3.2. Purchase from a senior lien holder the interest
         receivable or principal on mortgage loans senior to Mortgage Loans held
         by the Company; and/or

                  3.3.3. Use its own monies to cover any other costs associated
         with Mortgage Loans held by the Company such as property taxes,
         insurance and legal expenses.

         3.4. Extent of Manager's Obligation and Fiduciary Duty. The Manager
shall devote the portion of its time to the business of the Company as it
determines, in good faith, to be reasonably necessary to conduct the Company's
business. The Manager shall not be bound to devote all of its business time to
the affairs of the Company, and the Manager and its Affiliates may engage for
their own account and for the account of others in any other business ventures
and employments, including ventures and employments having a business similar or
identical or competitive with the business of the Company. The Manager has
fiduciary responsibility for the safekeeping and use of all funds and assets of
the Company, whether or not in the Manager's possession or control, and the
Manager will not employ, or permit another to employ the Company's funds or
assets in any manner except for the exclusive benefit of the Company. The
Manager will not allow the assets of the Company to be commingled with the
assets of the Manager or any other Person. The Company shall not permit a Member
to contract away the fiduciary duty owed to any Member by the Manager under
common law.

         3.5. Liability and Indemnification of Manager. Any right to
indemnification hereunder shall be subject to the following:

                  3.5.1. The Company shall not indemnify the Manager or its
         Affiliates for any liability or loss suffered by the Manager or its
         Affiliates, nor shall the Manager or its Affiliates be held harmless
         for any loss or liability suffered by the Company, unless all of the
         following conditions are met:

                                        8


<PAGE>

                           (a)      the Manager has determined, in good faith,
                                    that the course of conduct which caused the
                                    loss or liability was in the best interest
                                    of the Company;

                           (b)      the Manager or its Affiliates was acting on
                                    behalf of or performing services for the
                                    Company;

                           (c)      such liability or loss was not the result of
                                    the negligence or misconduct by the Manager
                                    or its Affiliates; and

                           (d)      such indemnification or agreement to hold
                                    harmless is recoverable only out of the
                                    assets of the Company and not from the
                                    Members.

                  3.5.2. Notwithstanding anything to the contrary contained in
         subsection 3.5.1 above, the Manager (which shall include Affiliates
         only if such Affiliates are performing services on behalf of the
         Company) and any Person acting as a broker-dealer shall not be
         indemnified for any losses, liabilities or expenses arising from an
         alleged violation of federal or state securities laws unless the
         following conditions are met:

                           (a)      there has been a successful adjudication on
                                    the merits of each count involving alleged
                                    securities law violation as to the
                                    particular indemnitee; or

                           (b)      such claims have been dismissed with
                                    prejudice on the merits by a court of
                                    competent jurisdiction as to the particular
                                    indemnitee; or

                           (c)      a court of competent jurisdiction has
                                    approved a settlement of the claims against
                                    a particular indemnitee and has determined
                                    that indemnification of the settlement and
                                    related costs should be made; and

                           (d)      in the case of subparagraph c of this
                                    subsection 3.5.2, the court of law
                                    considering the request for indemnification
                                    has been advised of the position of the
                                    Securities and Exchange Commission and the
                                    position of any state securities regulatory
                                    authority in which securities of the Company
                                    were offered or sold as to indemnification
                                    for violations of securities laws; provided
                                    that the court need only be advised of and
                                    consider the positions of the securities
                                    regulatory authorities of those states:

                                    (1)      which are specifically set forth in
                                             the Company agreement; and

                                    (2)      in which plaintiffs claim they were
                                             offered or sold Company interests.

                  3.5.3. The Company may not incur the cost of that portion of
         liability insurance which insures the Manager or its Affiliates for any
         liability as to which the Manager or its Affiliates are prohibited from
         being indemnified under this subsection.

                  3.5.4. The provision of advancement from Company funds to the
         Manager or its Affiliates for legal expenses and other costs incurred
         as a result of any legal action is permissible if the following
         conditions are satisfied:

                           (a)      the legal action relates to acts or
                                    omissions with respect to the performance of
                                    duties or services on behalf of the Company;

                           (b)      the legal action is initiated by a third
                                    party who is not a Member, or the legal
                                    action is initiated by a Member and a court
                                    of competent jurisdiction specifically
                                    approves such advancement; and

                           (c)      the Manager or its Affiliates undertake to
                                    repay the advanced funds to the Company in
                                    cases in which such Person is not entitled
                                    to indemnification under paragraph 1 of this
                                    section 3.5.

         3.6. Assignment by the Manager. The Manager's Interest in the Company
may be assigned at the discretion of the Manager, subject to Section 10.1.

         3.7. Removal of Manager. The Manager may be removed upon the following
conditions:

                  3.7.1. The Members may remove the Manager by written consent
         or vote of a Majority (excluding any Interest of the Manager being
         removed). This removal of the Manager, if there is no other Manager,
         shall not become effective for at least 120 days following the consent
         or vote of the Majority.

                  3.7.2. During the 120 day period described in Section 3.7.1,
         the Majority (excluding any Interest of the removed Manager) shall have
         the right to agree in writing to continue the business of the Company
         and, within six months following the termination date of the last

                                        9


<PAGE>

         remaining Manager, elect and admit a new Manager(s) who agree(s) to
         continue the existence of the Company.

                  3.7.3. Substitution of a new Manager, if any, shall be
         effective upon written acceptance of the duties and responsibilities of
         a Manager by the new Manager. Upon effective substitution of a new
         Manager, this Agreement shall remain in full force and effect, except
         for the change in the Manager, and business of the Company shall be
         continued by the new Manager. The new Manager shall thereupon execute,
         acknowledge and file a certificate of amendment to the Articles of
         Organization of the Company in the manner required by the California
         LLC Law.

                  3.7.4. Failure of a Majority to designate and admit a new
         Manager within the time specified herein shall dissolve the Company, in
         accordance with the provisions of Article 12 of this Agreement.

         3.8. Right to Rely on Manager. Any person dealing with the Company may
rely (without duty of further inquiry) upon a certificate signed by the Manager
as to:

                  3.8.1. The identity of the Manager or any Member;

                  3.8.2. The existence or nonexistence of any fact or facts
         which constitute a condition precedent to acts by the Manager or which
         are in any further manner germane to the affairs of the Company;

                  3.8.3. The persons who are authorized to execute and deliver
         any instrument or document of the Company; and

                  3.8.4. Any act or failure to act by the Company or any other
         matter whatsoever involving the Company or any Member.

         3.9. Transfer of the Control of the Manager. A sale or transfer of a
controlling or other interest in the Manager will not terminate the Company or
be considered the withdrawal or resignation of the Manager.

                                   ARTICLE 4
                        INVESTMENT AND OPERATING POLICIES

         4.1. Commitment of Capital Contributions. The Manager shall take all
reasonable steps to commit not less than ninety-four percent (94%), including
contingency reserves up to three percent (3%), of Capital Contributions to
Investments in Mortgage Loans, provided that under no circumstances may such
commitment decrease below the applicable percentage specified in the NASAA
Guidelines. The Company may make or purchase Mortgage Loans of such duration and
on such real property and with such additional security as the Manager in its
sole discretion shall determine, subject to the other provisions of this Article
4. These Mortgage Loans may be senior to other mortgage loans on the real
property, or junior to other mortgage loans on the real property, all in the
sole discretion of the Manager.

         4.2. Normal Limitation on Loan to Value. The Company normally shall not
make or invest in Mortgage Loans on any one property if at the time of the
acquisition of the loan the aggregate amount of all Mortgage loans outstanding
on the property, including loans of the Company, would exceed an amount equal to
seventy percent (70%) of the appraised value of the property as determined by
independent appraisal, unless (i) substantial justification exists because of
the presence of other underwriting criteria or (ii) the Prospectus describes the
departure from the normal loan to value ratios. For purposes of this Section,
the "aggregate amount of all Mortgage Loans outstanding on the property,
including the loans of the Company," shall include all interest (excluding
contingent participation in income and/or appreciation in value of the mortgaged
property), the current payment of which may be deferred pursuant to the terms of
such loans. This restriction applies to all loans, including construction loans.

         4.3. Company's Permitted Borrowing. The Company may incur indebtedness
for the purpose of making or purchasing Mortgage Loans, as determined by the
Manager, or in the following circumstances:

                  4.3.1. to prevent default under prior loans or to discharge
         them entirely if this becomes necessary to protect the Company's
         Mortgage Loans, or

                  4.3.2. to assist in the development or operation of any real
         property on which the Company has theretofore made or purchased a
         Mortgage Loan and has subsequently taken over the operation thereof as
         a result of default or to protect such Mortgage Loan.

         The total amount of indebtedness incurred by the Company shall at no
time exceed the sum of seventy percent (70%) of the aggregate fair market value
of all Company Mortgage loans. The Manager shall be prohibited from providing
financing to the company except payments made by the Manager under Section 3.3
of this Agreement.

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<PAGE>

         4.4. Limitation on Single Loan. The Company will limit any single
Mortgage Loan and Mortgage Loans on any one property, and will limit its
Mortgage Loans to any one borrower to not more than twenty percent (20%) of the
total Capital Contributions.

         4.5. Limitation on Loans on Unimproved Property. The Company may not
invest in or make Mortgage Loans on unimproved real property in an amount in
excess of twenty-five percent (25%) of the total Capital Contributions.

         4.6. Limitation on Real Estate Contracts of Sale. The Company may not
invest in real estate contracts of sale otherwise known as land sale contracts
unless such contracts are in recordable form and appropriately recorded in the
chain of title.

         4.7. Title Insurance and Independent Appraisal. The Company shall
require that a mortgagee's or owner's title insurance policy as to the priority
of a mortgage or the condition of title be obtained in connection with the
making or purchasing of each Mortgage Loan. The Company shall also receive an
independent, on-site appraisal for each property on which it makes or purchases
a Mortgage Loan. All such appraisals shall be conducted by an Independent
Expert. Such appraisals will be retained at the office of the Company and will
be available for review and duplication by any Member for a period of at least
five years after the last day that the Company holds a mortgage secured by the
subject property.

         4.8. Insurance. There shall at all times be title, fire and casualty
insurance in a amount equal to the Company's Mortgage Loans plus any outstanding
senior lien on the security property naming the company and any senior
lienholder as loss payees, and, where such senior lienholder exists, a Request
for Notice of Default shall be recorded in the county where the security
property is situated.

         4.9. Purchase of Mortgage Loans from Manager. Subject to section 4.11
below, Mortgage Loans may be purchased from the Manager or its Affiliates only
if the Manager or Affiliate acquires such loans in its own name and temporarily
holds title thereto for the purpose of facilitating the acquisition of such
loans, and provided that such loans are purchased by the Company for a price no
greater than the cost of such loans to the Manager (except compensation in
accordance with Article 14 of this Agreement), there is no other benefit arising
out of such transactions to the Manager, such loans are not in default, and
otherwise satisfy all requirements of this Article 4. Accordingly, all income
generated (except Acquisition and Origination Fees and Acquisition and
Origination Expenses associated with a Mortgage Loan so acquired) shall be
treated as belonging to the Company. The Manager shall not sell a loan to the
Company if the cost of the loan exceeds the funds reasonably anticipated to be
available to the Company to purchase the loan.

         4.10. Limitation on Sales of Mortgage Loans to Manager. The Company
shall not sell a Mortgage Loan to the Manager or an Affiliate unless all of the
following criteria are met: (i) the loan is in default; (ii) the Manager or
Affiliate pays the Company an amount in cash equal to the cost of the loan to
the Company (including all cash payments and carrying costs related thereto);
and (iii) the Manager or Affiliate assumes all of the Company's obligations and
liabilities incurred in connection with the holding of the loan by the Company.

         4.11. No dealings with Other Affiliated Programs. The Company shall not
acquire a loan from, or sell a loan to, another Program in which the Manager or
an Affiliate has an interest, or sell a foreclosed property to the Manager or an
Affiliate or to another Program in which the Manager or an Affiliate has an
interest; provided, however, that Mortgage Loans may be purchased or acquired
from PFG, Ltd. Sterling 1995 Limited Partnership and Yosemite Mortgage Fund,
LLC, as Investments in Mortgages if such transactions are fully disclosed in
the Prospectus, are made only when funds from the Offering are available to
effect the transactions, and the transactions are effected by Company upon
terms fair to the Company and at a price not in excess of appraised value.

         4.12. Contingency Reserves. The Company will maintain a contingency
reserve in an aggregate amount of at least three percent (3%) of the aggregate
Capital Accounts of the Members.

         4.13. No Reinvestment of Net Income Available for Distribution. The
Company will not reinvest Net Income Available for Distribution, unless it is
Members' Reinvested Distributions under Article 8 of this Agreement.

         4.14. No Loans to Manager. No loans may be made by the Company to the
Manager or an Affiliate except as provided in Article 3.5 of this Agreement.

                                   ARTICLE 5
                     CAPITAL CONTRIBUTIONS; LOANS TO COMPANY

         5.1. Capital Contribution by Manager. The Manager may but shall not be
required to contribute to the capital of the Company any amount as it deems
appropriate

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<PAGE>

         5.2. Contributions of Other Members. Members other than the Manager
shall acquire Units in accordance with the terms of the Subscription Agreement
or any future subscription materials approved by the Manager. The names,
addresses, date of admissions and Capital Contributions of the Members shall be
set forth in a schedule maintained by the Manager. The Manager shall update the
schedule to reflect the then-current ownership of Units (and Interests) without
any further need to obtain the consent of any Member, and the schedule, as
revised from time to time by the Manager, shall be presumed correct absent
manifest error. Any member shall have a right to inspect such schedule upon
written request to the Manager. Upon the sale of Units pursuant to the
Prospectus, the purchasers should be admitted as Members not later than 15 days
after the release of their funds from escrow to the Company, if applicable, or
not later than the last day of the calendar month following the date their
subscription for Units was accepted by the Company.

         5.3. Interest. No interest shall be paid on, or in respect of, any
contribution to Company Capital by any Member, nor shall any Member have the
right to demand or receive cash or other property in return for the Member's
Capital Contribution, subject to Article 11 hereof.

         5.4. Loans. Any Member or Affiliate of a Member may, with the written
consent of the Manager, lend or advance money to the Company. If the Manager or,
with the written consent of the Manager, any Member shall make any loans to the
Company or advance money on its behalf, the amount of any loan or advance shall
not be treated as a contribution to the capital of the Company, but shall be a
debt due from the Company. The amount of any loan or advance by a lending Member
or an Affiliate of a Member shall be repayable out of the Company's cash and
shall bear interest at a rate of not in excess of the lesser of (i) the prime
rate established, from time to time, by any major bank selected by the Manager
for loans to the bank's most creditworthy commercial borrowers, plus five
percent (5%) per annum, or (ii) the maximum rate permitted by applicable law.
None of the Members or their Affiliates shall be obligated to make any loan or
advance to the Company. This section shall be subject to the Company's
Investment Policy as it relates to transactions with the Manager or its
Affiliates.

         5.5. Time Limit. Capital Contributions received from the Offering that
have not been invested within the later of two years after the commencement of
the Offering or one year after the termination of the Offering (except for
necessary operating capital shall be distributed pro rata to the Members as a
return of capital so long as the adjusted Investment in Mortgage Loans is in
compliance with Section IV.C. of the NASAA Guidelines.


                                   ARTICLE 6
                       VOTING AND OTHER RIGHTS OF MEMBERS

         6.1. No Participation in Management. Except as expressly provided in
this Agreement, no Member shall take part in the conduct or control of the
Company's business or have any right or authority to act for or bind the
Company.

         6.2. Rights and Powers of Members. In addition to the rights of the
Members to remove and replace the Manager as provided in Section 3.7 and as
otherwise provided for in Section 3.2, the Members shall have the right to vote
upon and take any of the following actions upon the approval of a Majority,
without the concurrence of the Manager, and such approval of a Majority, without
the concurrence of the Manager, shall be required to allow or direct the Manager
to:

                  6.2.1. Dissolve and windup the Company before the expiration
         of the term of the Company;

                  6.2.2. Amend this Agreement, subject to the rights to the
         Manager granted in Section 15.4 of this Agreement and subject also to
         the concurrence of the Manager if either the distributions due to the
         Manager or the duties of the Manager are affected;

                  6.2.3. Merge the Company or sell all or substantially all of
         the assets of the Company, otherwise than in the ordinary course of its
         business.

                  6.2.4. Change the nature of the Company's business; and elect
         to continue the business of the Company other than in the circumstances
         described in Section 3.8 of this Agreement.

                  6.2.5. Elect to continue the business of the Company other
         than in the circumstances described in Section 3.8 of this Agreement.

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<PAGE>

         6.3. Meetings.

                  6.3.1. The Members may hold meetings of Members within or
         outside the State of California at any place selected by the Person or
         Persons calling the meeting. If no other place is stated, meetings
         shall be held at the Company's principal place of business as
         established in accordance with Section 1.3 of this Agreement. The
         Members may approve by written consent of a Majority any matter upon
         which the Members are entitled to vote at a duly convened meeting of
         the Members, which consents will have the same effect as a vote held at
         a duly convened meeting of the Members.

                  6.3.2. The Manager, or Members representing more than ten
         percent (10%) of the outstanding Interests for any matters on which the
         Members may vote, may call a meeting of the Company. If Members
         representing the requisite Interests present to the Manager a statement
         requesting a Company meeting, or the Manager calls the meeting, the
         Manager shall fix a date for a meeting and shall (within ten (10) days
         after receipt of a statement, if applicable) give personal or certified
         mailed notice, addressed to each Member at the respective address of
         the Member appearing on the books of the Company or given to the
         Company for the purpose of notice, not less than fifteen (15) or more
         than sixty (60) days before the date of the meeting, to all Members of
         the date, place and time of the meeting and the purpose for which it
         has been called. Unless otherwise specified, all meetings of the
         Company shall be held at 2:00 p.m. local time at the principal office
         of the Company.

                  6.3.3. Members may vote in person or by proxy. A Majority,
         whether present in person or by proxy, shall constitute a quorum at any
         meeting of Members. Any question relating to the Company which may be
         considered and acted upon by the Members may be considered and acted
         upon by vote at a Company meeting, and any vote required to be in
         writing shall be deemed given if approved by a vote by written ballot.

         6.4. Limited Liability of Members. Units are non-assessable. No Member
shall be personally liable for any of the expenses, liabilities, or obligations
of the Company or for any Losses beyond the amount of the Member's Capital
Contribution to the Company and the Member's share of any undistributed net
income and gains of the Company.

         6.5. Access to Books and Records. The Members and their designated
representatives shall have access to certain books and records of the Company
during the Company's normal business hours. An alphabetical list of the names
and addresses and business telephone numbers of all Members together with the
number of Units held by each of them will be maintained as a part of the books
and records of the Company. The Company shall make the list available on request
to any Member or his representative for a stated purpose including, without
limitation, matters relating to Members' voting rights, tender offers, and the
exercise of Members' rights under federal proxy law. A copy of the Members list
shall be mailed to any Member requesting it within ten business days of the
request, although the Company may charge a reasonable amount for the copy. The
Member list shall be updated at least quarterly to reflect changes in the
information contained therein. If the Manager neglects or refuses to exhibit,
produce or mail a copy of the Member list as requested, the Manager shall be
liable to any Member requesting the list for the costs, including attorney fees,
incurred by that Member for compelling the production of the list, and for
actual damages suffered by the Member by reason of the refusal or neglect.
However, the Company need not exhibit, produce or mail a copy of the Member list
if the actual purpose and reason for the request therefore is to secure the list
or other information for the purpose of selling the list or copies thereof, or
of using it for a commercial purpose other than in the interest of the Person as
a Member in the Company. The Manager may require the Person requesting the list
to represent that the list is not requested for any commercial purpose. The
remedies provided hereunder to Members requesting copies of the list are in
addition to, and shall not in any way limit, other remedies available to Members
under federal or the California LLC Law.

         6.6. Representation of Company. Each of the Members hereby acknowledges
and agrees that the attorneys representing the Company and the Manager and its
Affiliates do not represent and shall not be deemed under the applicable codes
of professional responsibility to have represented or be representing any or all
of the Members in any respect at any time. Each of the Members further
acknowledges and agrees that the attorneys shall have no obligation to furnish
the Members with any information or documents obtained, received or created in
connection with the representation of the Company, the Manager and its
Affiliates.

                                   ARTICLE 7
                     PROFITS AND LOSSES; CASH DISTRIBUTIONS

         7.1. Allocation of Profits and Losses. The Manager shall credit all
Company Profits to and charge all Company Losses against the Members in
proportion to their respective Interests. The Manager shall allocate to the
Members all Profits and Losses realized by the Company during any calendar
quarter as of the close of business on the last day of each calendar quarter, in
accordance with their respective Interests and in proportion to the number of
days during the calendar quarter that they owned the Interests (i.e., a weighted
average Capital Account), without regard to Profits and Losses realized for time
periods within the quarter.

         7.2. Net Income Available For Distribution. The Company shall
distribute Net Income Available for Distribution to Members according to the
allocations provided for in Section 7.1, in cash to those Members who have on
file with the Company their written election to receive cash distributions, as a
pro rata share of the total Net Income Available for Distribution. The Company
shall make these distributions each calendar quarter in proportion to the
weighted average Capital Account of each Member during the preceding calendar
quarter.

         7.3. Net Proceeds. Net Proceeds may also be distributed to Members in
cash or retained by the Company for other uses as set forth herein. Net Proceeds
will be deemed to be distributed to the Members upon receipt by the Company
thereof, regardless of whether any actual cash distributions of the Net Proceeds
occur. Immediately thereafter, there shall be a deemed re-contribution by each
Member to the extent of the deemed distribution of Net Proceeds. The Company may
use Net Proceeds to make new loans, improve or maintain properties acquired by
the Company through foreclosure or to pay operating expenses. Distributions of
Net Proceeds shall be in accordance with the allocations provided for in Section
7.1 above.

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<PAGE>

         7.4. Cash Distributions Upon Dissolution. Upon dissolution and winding
up of the Company, the Company shall thereafter distribute Net Income Available
for Distribution and Net Proceeds available for distribution, if any, to the
Members in accordance with the provisions of Section 12.3 of this Agreement.

         7.5. Special Allocation Rules.

                  7.5.1. For purposes of this Agreement, a loss or allocation
         (or item thereof) is attributable to non-recourse debt which is secured
         by Company property to the extent of the excess of the outstanding
         principal balance of the debt (excluding any portion of the principal
         balance which would not be treated as an amount realized under Section
         1001 of the Code and Treasury Regulation Section 1.1001-2 if the debt
         were foreclosed upon) over the adjusted basis of the property. This
         excess is called "Minimum Gain" (whether taxable as capital gain or as
         ordinary income) as more explicitly set forth in Treasury Regulation
         Sections 1.704-2(b)(2) and 1.704- 2(d). Notwithstanding any other
         provision of Article 7, the allocation of loss or deduction (or item
         thereof) attributable to non-recourse debt which is secured by Company
         property will be allowed only to the extent that the allocation does
         not cause the sum of the deficit Capital Account balances of the
         Members receiving the allocations to exceed the Minimum Gain determined
         at the end of the Company's taxable year to which the allocations
         relate. The balance of the losses shall be allocated to the Manager.
         Any Member with a deficit Capital Account balance resulting in whole or
         in part from allocations of loss or deduction (or item thereof)
         attributable to non-recourse debt which is secured by Company property
         shall, to the extent possible, be allocated income or gain (or item
         thereof) in an amount not less than the Minimum Gain at a time no later
         than the time at which the Minimum Gain is reduced below the sum of the
         deficit Capital Account balances. This section is intended and shall be
         interpreted to comply with the requirements of Treasury Regulation
         Section 1.704-2(f).

                  7.5.2. If any Member receives any adjustments, allocations or
         distributions, not covered by Subsection 7.5.1, so as to result in a
         deficit Capital Account, items of Company income and gain shall be
         specially allocated to the Members in an amount and manner sufficient
         to eliminate the deficit balances in his Capital Account created by the
         adjustments, allocations or distributions as quickly as possible. This
         Section shall constitute a qualified income offset under Treasury
         Regulation Section 1.704-1(b)(2)(ii).

                  7.5.3. For purposes of determining the Profits, Losses, Net
         Income Available for Distribution or any other items allocable to any
         period, these other items shall be determined on a daily, monthly, or
         other basis, as determined by the Manager using any permissible method
         under Section 706 of the Code and the Treasury Regulations thereunder.

                  7.5.4. Notwithstanding Sections 7.1 and 7.2 hereof, (i) Net
         Losses, if any, allocable to the period before the admission of any
         additional Members under Section 5.2 hereof shall be allocated
         ninety-nine percent (99.0%) to the Manager and one percent (1.0%) to
         the Initial Member, and Net Income during that same period, if any,
         shall be allocated to the Manager, and (ii) Profits or Losses allocable
         to the period commencing with the admission of any additional Members
         and all subsequent periods shall be allocated under Section 7.1.

                  7.5.5. Except as otherwise provided in this Agreement, all
         items of Company income, gain, loss, deduction, and any other
         allocations not otherwise provided for shall be divided among the
         Members in the same proportions as they share Net Income or Net Losses,
         as the case may be, for the year.

         7.6. Code Section 704(c) Allocations.

                  7.6.1. Income, gains, losses and deductions, as determined for
         Federal income tax purposes, for any Company asset which has a Gross
         Asset Value that differs from its adjusted basis for Federal income tax
         purposes shall, solely for Federal income tax purposes, be allocated
         among the Members so as to take account of any variation between the
         adjusted basis of the Company asset to the Company for Federal income
         tax purposes and its initial Gross Asset Value in accordance with Code
         Section 704(c) and the Treasury Regulations thereunder. In furtherance
         of the foregoing, it is understood and agreed that any income, gain,
         loss, or deduction attributable to Code Section 704(c) property shall
         be allocated to the Members in accordance with the traditional method
         of making Code Section 704(c) allocations, in accordance with Treasury
         Regulation Section 1.704-3(b).

                  7.6.2. If the Gross Asset Value of any Company asset is
         adjusted under Section 2.17, subsequent allocations of income, gain,
         losses and deductions, as determined for Federal income tax purposes,
         for the Company asset shall, solely for Federal income tax purposes,
         take account of any variation between the adjusted basis of the Company
         asset for Federal income tax purposes and its Gross Asset Value in the
         same manner as under Code Section 704(c) and the Treasury Regulations
         thereunder.

                  7.6.3. Allocations under this Section 7.6 are solely for
         purposes of Federal, state and local income taxes and shall not affect,
         or in any way be taken into account in computing, any Member's Capital
         Account.

                  7.6.4. Except as otherwise set forth in this Agreement, any
         elections or other decisions relating to allocations under this Section
         7.6 shall be made by the Manager, with the review and concurrence of
         the Company's accountants, in a manner that reasonably reflects the
         purpose and intention of this Agreement.

                                       14


<PAGE>

         7.7. Intent of Allocations. It is the intent of the Company that this
Agreement comply with the safe harbor test set out in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(d) and 1.704-2 and the requirements of those
Sections, including the qualified income offset and minimum gain charge-back,
which are hereby incorporated by reference. If, for whatever reasons, the
Company is advised by counsel or its accountants that the allocation provisions
of this Agreement are unlikely to be respected for federal income tax purposes,
the Manager is granted the authority to amend the allocation provisions of this
Agreement, to the minimum extent deemed necessary by counsel or its accountants
to effect the plan of Allocations and Distributions provided in this Agreement.
The Manager shall have the discretion to adopt and revise rules, conventions and
procedures as it believes appropriate for the admission of Members to reflect
Members' interests in the Company at the close of the years.

         7.8. Annual Valuation of Assets. For each of the Company's Mortgage
Investments and other investments, the Manager shall review each at the end of
each Fiscal Year and determine if a Writedown is required with respect thereto.
If the Manager determines that a Writedown is needed, The Manager shall value
the asset(s) subject to the Writedown, and cause the Company's accountants,
within thirty (30) days of the end of each Fiscal Year, to verify that the
Manager's determination was made in compliance with generally accepted
accounting principles. Any Writedown of an asset resulting from the valuation
shall be effective on the last day of the preceding Fiscal Year.

                                   ARTICLE 8
                         DISTRIBUTION REINVESTMENT PLAN

         8.1. Members' Reinvested Distributions. A Member may elect to
participate in the Company's Distribution Reinvestment Plan (the "Plan") at the
time of his purchase of Units, by electing to do so in the Subscription
Agreement executed by the Member. The Member's participation in the Plan
commences after the Company has accepted the Member's Subscription Agreement.
Subsequently, a Member may revoke any previous election or make a new election
to participate in the Plan by sending written notice to the Company. The notice
shall be effective for the calendar quarter in which the notice is received, if
received at least ten (10) days before the end of the calendar quarter.
Otherwise, the notice is effective the following quarter.

         8.2. Purchase of Additional Units. Under the Plan, participating
Members use distributions to purchase additional Units at ten dollars ($10.00)
per Unit or such Whole Units and fraction of a Unit that the reinvested
distributions will purchase at ten dollars ($10) per unit. The Manager will
credit Units purchased under the Plan to the Member's Capital Account as of the
first day of the calendar quarter following the calendar quarter in which the
Reinvested Distribution is made. If a Member revokes a previous election to
participate in the Plan, subsequent to the calendar quarter in which the Company
receives the revocation notice, the Company shall make distributions in cash to
the Member instead of reinvesting the distributions in additional in Units.

         8.3. Statement of Account. Within 30 days after the Reinvested
Distributions have been credited to Members participating in the Plan, the
Manager will mail to participating Members a statement of account describing the
Reinvested Distributions received, the number of incremental Units purchased,
the purchase price per Unit (if other than ten dollars ($10.00) per Unit), and
the total number of Units held by the Member. Before the Members' reinvestment
of distributions in the Company, if any change exists from the prior Prospectus
or other disclosure document that was provided, the Manager will also mail an
updated disclosure document to each Member fully describes the Plan, including
the minimum investment amount, the type or source of proceeds which may be
reinvested and the tax consequences of the reinvestment to the Members.

         8.4. Continued Suitability Requirements. Each Member who is a
participant in the Plan must continue to meet the investor suitability standards
described in the Subscription Agreement and Prospectus (subject to minimum
requirements of applicable securities laws) to continue to participate in
reinvestments. It is the responsibility of each Member to notify the Manager
promptly if he no longer meets the suitability standards set forth in the
Prospectus for a purchase of Units in the Offering. The Members acknowledge that
the Company is relying on this notice in issuing the Units, and each Member
shall indemnify the Company if he fails to so notify the Company and the Company
suffers any damages, losses or expenses, or any action or proceeding is brought
against the Company due to the issuance of Units to the Member.

         8.5. Changes or Termination of the Plan. The terms and conditions of
the Plan may be amended, supplemented, suspended or terminated for any reason by
the Manager at any time by mailing notice thereof at least thirty (30) days
before the effective date of the action to each participating Member at his last
address of record.

                                   ARTICLE 9
                     BOOKS AND RECORDS, REPORTS AND RETURNS

         9.1. Books and Records. The Manager shall cause the Company to keep the
following:

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<PAGE>

                  9.1.1. Complete books and records of account in which shall be
         entered fully and accurately all transactions and other matters
         relating to the Company;

                  9.1.2. The list described in Section 6.5 of this Agreement;

                  9.1.3. A copy of the filed Articles of Organization, and all
         amendments thereto;

                  9.1.4. Copies of the Company's federal, state and local income
         tax returns and reports, if any, for the six (6) most recent years;

                  9.1.5. Copies of this Agreement, including all amendments
         thereto; and

                  9.1.6. The financial statements of the Company for the three
         (3) most recent years. All books and records shall be maintained at the
         Company's principal place of business and shall be available for
         inspection and copying by, and at the sole expense of, any Member, or
         any Member's duly authorized representatives, during the Company's
         normal business hours.

         9.2. Annual Statements.

                  9.2.1. The Manager shall cause to be prepared at least
         annually, and distributed to the Members within 120 days after the end
         of the fiscal year, at the Company's expense, audited financial
         statements prepared in accordance with generally accepted accounting
         principles and accompanied by a report thereon containing an opinion of
         an independent certified public accountant. The financial statements
         will include: an audited balance sheet, statements of income or loss,
         Members' equity, and a statement of cash flows.

                  9.2.2. The Company's accountants will itemize the costs of any
         verification performed by them and may be reimbursed to the Manager by
         the Company only to the extent that the reimbursement when added to the
         costs for administrative services rendered does not exceed the
         competitive rate for the services as determined in the above paragraph.

                  9.2.3. Notwithstanding the 120-day period specified in Section
         9.2.1 above, the Manager shall cause to be prepared and distributed to
         the Members not later than 75 days after the close of each Fiscal Year
         of the Company all Company information necessary in the preparation of
         the Members' federal income tax returns. Such information will include:

                           (a)      a statement as to any transactions with the
                                    Manager or its Affiliates, and of fees,
                                    commissions, compensation and other benefits
                                    paid or accrued to the Manager or its
                                    Affiliates from the Company for the Fiscal
                                    Year completed, showing the amount paid or
                                    accrued to each recipient and the respective
                                    services performed; and

                           (b)      a report identifying distributions from (i)
                                    Cash Flow during that year, (ii) Cash Flow
                                    for prior years that had been held as
                                    reserves, (iii) Net Proceeds, (iv) lease
                                    payments on net leases with builders and
                                    sellers, and (v) reserves from the gross
                                    proceeds of the Offering originally obtained
                                    from the Members. Copies of the
                                    aforementioned financial statements and
                                    reports shall be distributed to each Member
                                    within 120 days after the close of each
                                    taxable year of the Company.

         9.3. Special and Quarterly Reports.

                  9.3.1. For each quarter in which the Company bought or
         invested in a Mortgage Loan or it or a borrower incurred origination or
         evaluation fees, and for so long as the proceeds of the Offering are
         not fully committed and/or returned to investors, at the Company's
         expense, the Manager shall cause to be prepared a special report (which
         may be included in the quarterly report described below) which shall
         contain a statement listing: (a) the amount of the Mortgage Loans
         purchased or invested in; (b) the material terms of the loans; (c) the
         identity of the borrower; and (d) the real property securing the
         Mortgage Loan and the appraised value of that real property. Copies of
         the statements shall be distributed to each Member within sixty (60)
         days after the end of the quarterly period.

                  9.3.2. The Manager will supply to each Member the information
         required by Form 10-Q (if Form 10-Q is required to be filed with the
         Securities and Exchange Commission) within 45 days of the end of each
         quarterly period.

                  9.3.3. If the Company is registered under Section 12(g) of the
         Securities Exchange Act of 1934, as amended, the Manager shall cause to
         be prepared, at Company expense, a quarterly report for each of the
         first three quarters in each Fiscal Year containing unaudited financial
         statements (consisting of a balance sheet, a statement of income or
         loss and a statement of cash flow) and a statement of other pertinent
         information regarding the Company and its activities during the period
         covered by the report. Copies of the statements and other pertinent
         information shall be distributed to each Member within 60 days after

                                       16


<PAGE>

         the close of each quarter. This report may be combined with the
         delivery of information described in the immediately preceding Section
         9.3.2, subject to the 45-day period described therein.

         9.4. Income Tax Returns. The Manager, at Company expense, shall cause
the income tax returns for the Company to be prepared and timely filed with the
appropriate authorities. The Manager, at Company expense, shall also cause to be
prepared and timely filed with and/or delivered to appropriate federal and state
regulatory and administrative bodies and/or the Members applicable, all reports
required to be filed with or delivered to those entities or Members under
applicable law, including those described in the Company's undertakings in any
securities filing. The reports shall be prepared using the accounting or
reporting basis required by the relevant regulatory bodies. The Company will
provide a copy of the reports to each Member who requests one, without expense
to the Member. The Manager, at Company expense, shall file, with the
Administrators for the states in which this Company is registered, as required
by these states, a copy of each report referred to this Article 9.

         9.5. Suitability Requirements. The Manager, at Company expense, shall
maintain for a period of at least six years a record of the documentation
indicating that a Member complies with the investment suitability standards set
forth in the Prospectus.

         9.6. Fiscal Matters.

                  9.6.1. Fiscal Year. The Company has previously adopted the
         calendar year as the Fiscal Year for tax and accounting purposes.
         Subject to the provisions of Section 706 of the Code and approval by
         the Internal Revenue Service and the applicable state taxing
         authorities, in the Manager's sole discretion and without the approval
         of a Majority, from time to time the Manager may change the Company's
         Fiscal Year to a period to be determined by the Manager.

                  9.6.2. Method of Accounting. The Company shall continue to use
         the accrual method of accounting for both income tax purposes and
         financial reporting purposes.

                  9.6.3. Adjustment of Tax Basis. Upon the transfer of an
         interest in the Company, the Company may, at the sole discretion of the
         Manager, elect under Code Section 754, to adjust the basis of the
         Company property as allowed by Sections 734(b) and 743(b) thereof.

                  9.6.4. Tax Matters Partner. The Manager shall act as the "Tax
         Matters Partner" ("TMP") and shall have all the powers and duties
         assigned to the TMP under Sections 6221 through 6234 of the Code and
         the Treasury Regulations thereunder. The Members agree to perform all
         acts necessary under Section 6231 of the Code and Treasury Regulations
         thereunder to designate the Manager as the TMP.

                                   ARTICLE 10
                          TRANSFER OF COMPANY INTERESTS

         10.1. Interest of Manager. A successor or additional Manager may be
admitted to the Company as follows:

                  10.1.1. With the consent of all managers (should there be any
         manager other than the Manager) and a Majority, a manager may at any
         time designate one or more Persons to be a successor to it or to be an
         additional manager, in each case with the participation in the
         Manager's Interest as they may agree upon, so long as the Company and
         the Members shall not be adversely affected thereby.

                  10.1.2. Upon any sale or transfer of a manager's Interest, if
         there is an additional or successor manager of the Company, the
         successor manager shall succeed to all the powers, rights, duties and
         obligations of the assigning manager hereunder, and the assigning
         manager shall thereupon be irrevocably released and discharged from any
         further liabilities or obligations of or to the Company or the Members
         accruing after the date of the transfer. The sale, assignment or
         transfer of all or any portion of the outstanding stock of the Manager,
         or of any interest therein, or an assignment of the Manager's Interests
         for security purposes only, shall not be deemed to be a sale or
         transfer of the Manager's Interests subject to the provisions of this
         Section 10.1.

         10.2. Transfer of Member's Interest. To the extent any of the following
restrictions is not necessary to the Company, in the discretion of the Manager
reasonably exercised, the Manager may eliminate or modify any restriction.
Subject to the immediately preceding sentence, no assignee of the whole or any
portion of a Member's Interest in the Company shall have the right to become a
substituted Member in place of his assignor, unless the following conditions are
first met:

                  10.2.1. No Member may transfer a fractional Unit, and no
         Member may transfer Units where, as a result of the transfer, the
         Member would thereafter, own fewer than two hundred (200) Units, except
         where the transfer occurs by operation of law;

                                       17


<PAGE>

                  10.2.2. The assignor shall designate its intention in a
         written instrument of assignment, which shall be in a form and
         substance reasonably satisfactory to the Manager;

                  10.2.3. The transferring Member shall first obtain written
         consent of the Manager to the substitution. The Manager shall not
         unreasonably withhold its consent, but the Manager will withhold its
         consent to the extent necessary to prohibit transfers that could cause
         the Company to be classified as a publicly traded partnership. The
         Manager will also withhold consent if it determines that the sale or
         transfer will otherwise jeopardize the continued ability of the Company
         to qualify as a "partnership" for federal income tax purposes or that
         the sale or transfer may violate any applicable securities laws
         (including any investment suitability standards);

                  10.2.4. The assignor and assignee named therein shall execute
         and acknowledge any other instruments as the Manager may deem necessary
         or desirable to effect the substitution, including, but not limited to,
         a power of attorney;

                  10.2.5. The assignee shall accept, adopt and approve in
         writing all of the terms and provisions of this Agreement as the same
         may have been amended;

                  10.2.6. The assignee shall pay or, at the election of the
         Manager, obligate himself to pay all reasonable expenses connected with
         the substitution, including but not limited to reasonable attorneys'
         fees associated therewith; and

                  10.2.7. The Company has received, if required by the Manager,
         a legal opinion satisfactory to the Manager that the transfer will not
         violate the registration provisions of the Securities Act of 1933, as
         amended, or any applicable state securities law, which opinion shall be
         furnished at the Member's expense. Assignments complying with the above
         shall be recognized by the Company not later than the last day of the
         calendar month in which the written notice of assignment is received by
         the Company.

                  10.2.8. The Company shall thereafter recognize the assignment
         not later than the last day of the calendar month following receipt of
         the reciprocal documentation.

         10.3. Further Restrictions on Transfers. Notwithstanding any provision
to the contrary contained in this Agreement, the following restrictions shall
also apply to any and all proposed sales, assignments and transfer of Interests,
and any proposed sale, assignment or transfer in violation of same shall be void
and of no effect:

                  10.3.1. No Member shall make any transfer or assignment of all
         or any part of his Interest if said transfer or assignment would, when
         considered with all other transfers during the same applicable twelve
         month period, cause a termination of the Company for federal or state
         income tax (if any) purposes;

                  10.3.2. Notice to California residents:

                  IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
                  SECURITY, OR ANY INTEREST THEREIN OR TO RECEIVE ANY
                  CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
                  THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
                  EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.

                  10.3.3. Appropriate legends (including the legend above) under
         applicable securities laws shall be affixed to certificates evidencing
         the Units and issued or transferred to purchasers in other states.

                  10.3.4. No Member shall make any transfer or assignment of all
         or any of his Interest if the Manager determines that the transfer or
         assignment would result in the Company being classified as a "publicly
         traded partnership" with the meaning of Section 7704(b) of the Code or
         Regulations. To prevent that:

                           (a)      The Manager will not permit trading of Units
                                    on an established securities market within
                                    the meaning of Section 7704(b);

                           (b)      The Manager will prohibit any transfer of
                                    Units which would cause the sum of
                                    percentage interest in Company capital or
                                    profits represented by Interests that are
                                    sold or otherwise disposed of during any
                                    taxable year of the Company to exceed two
                                    percent (2%) of the total Interests in
                                    Company capital or profits; and

                           (c)      The Manager will not permit any withdrawal
                                    of Units except in compliance with the
                                    provisions of this Agreement.

                                   ARTICLE 11
 DEATH, LEGAL INCOMPETENCY, OR WITHDRAWAL OF A MEMBER; WITHDRAWAL OF THE MANAGER

         11.1. Effect of Death or Legal Incompetency of a Member on the Company.
The death or legal incompetency of a Member shall not cause a dissolution of the
Company or entitle the Member or his estate to a return of his Capital Account.

                                       18


<PAGE>

         11.2. Rights of Personal Representative. On the death or legal
incompetency of a Member, his personal representative shall have all the rights
of that Member for the purpose of settling his estate or managing his property,
including the rights of assignment and withdrawal.

         11.3. Withdrawal of Members Other than Managers. With the sole
discretion of the Manager reasonably exercised, the Manager may modify,
eliminate or waive any limitation on the withdrawal rights of a member as set
forth below, on a case by case basis or by class so long as the modifying,
waiving, or elimination of the limitation does not: (a) adversely effect rights
of the other members as a whole; (b) result in the Company being classified as a
"publicly traded partnership" within the meaning of Section 7704(b) of the Code
of Regulations; or (c) result in the Company being or becoming an investment
company under the Investment Company Act of 1940. To withdraw, or partially
withdraw from the Company, a Member must give written notice thereof to the
Manager and may thereafter obtain the return, in cash, of his Capital Account,
or the portion thereof as to which he requests withdrawal, within sixty-one (61)
to ninety-one (91) days after written notice of withdrawal is delivered to the
Manager, subject to the following limitations:

                  11.3.1. Except with regard to the right of the personal
         representative of a deceased Member under Section 11.2 above, no notice
         of withdrawal shall be honored and no withdrawal made of or for any
         Units until the expiration of at least one year from the date of
         purchase of those Units in the Offering, other than purchases by way of
         automatic reinvestment of Company distributions described in Article 8
         of this Agreement;

                  11.3.2. To assure that the payments to a Member or his
         representative do not impair the capital or the operation of the
         Company, any cash payments in return of an outstanding Capital Account
         shall be made by the Company only from Net Proceeds and Capital
         Contributions;

                  11.3.3. The Member shall have the right to receive
         distributions of cash from their Capital Accounts only to the extent
         that funds described in Subsection 11.3.2 are available; the Manager
         shall not be required to establish a reserve fund for the purpose of
         funding the payments; the Manager shall not be required to use any
         other sources of Company funds other than those set forth in Section
         11.3.2; the Manager shall not be required to sell or otherwise
         liquidate any portion of the Company's Mortgage Investments or any
         other asset in order to make a cash distribution of any Capital Account
         under this Section 11.3;

                  11.3.4. Subject to Section 7.3, during the ninety (90) days
         following receipt of written notice of withdrawal from a Member, the
         Manager shall not refinance any loans of the Company or reinvest any
         Net Proceeds or Capital Contributions in new loans or other non-liquid
         investment unless and until the Company has sufficient funds available
         in cash to distribute to the withdrawing Member the amount that he is
         withdrawing from his Capital Account;

                  11.3.5. Subject to the restrictions on withdrawal contained in
         this Agreement, the amount to be distributed to any withdrawing Member
         shall be an amount equal to the amount of the Member's Capital Account
         as of the date of the distribution, as to which the Member has given a
         notice of withdrawal under this Section 11.3, notwithstanding that the
         amount may be greater or lesser than the Member's proportionate share
         of the current fair market value of the Company's net assets;

                  11.3.6. In no event shall the Manager permit the withdrawal
         during any calendar year of total amounts from the Capital Accounts of
         members that exceeds ten percent (10%) of the aggregate Interests,
         except upon the vote of the Members to dissolve the Company under this
         Agreement;

                  11.3.7. Requests by Members for withdrawal will be honored in
         the order in which they are received by the Manager. If any request may
         not be honored, due to any limitations imposed by this Section 11.3
         (except the one year holding limitation set forth in Subsection
         11.3.1), the Manager will so notify the requesting Member in writing,
         whose request, if not withdrawn by the Member, will be honored if and
         when the limitation no longer is imposed; and

                  11.3.8. If a Member's Capital Account would have a balance of
         less than ten thousand dollars ($10,000) following a requested
         withdrawal, the Manager, at its discretion, may distribute to the
         Member the entire balance in the account.

         11.4. Withdrawal by Manager. The Manager may withdraw from the Company
upon not less than 120 days written notice of the same to all Members, but only
with the affirmative vote or consent of a Majority, as noted in Section 3.2. The
withdrawing Manager shall not be liable for any debts, obligations or other
responsibilities of the Company or this Agreement arising after the effective
date of the withdrawal.

         11.5. Payment to Terminated Manager. If the business of the Company is
continued as provided elsewhere in this Agreement upon the withdrawal, removal,
dissolution, or bankruptcy of the Manager, then the Company shall pay to the
Manager a sum equal to all amounts then accrued and owing to the Manager. The
Company may terminate the Manager's interest in the Company by paying an amount

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equal to the then-present fair market value of the Manager's interest in the
Company, which the Company and Manager acknowledge is the outstanding Capital
Account as of the date of the removal, withdrawal, dissolution or bankruptcy. If
the business of the Company is not so continued, then the Manager shall receive
from the Company the sums it would have received in the course of dissolving the
Company and winding up its affairs, as provided in Section 12.2 below.

         The method of payment to any terminated Manager must be fair and must
protect the solvency and liquidity of the program. Where the termination is
voluntary, the method of payment will be deemed presumptively fair where it
provides for a non-interest bearing unsecured promissory note with principal
payable, if at all, from distributions which the terminated Manager otherwise
would have received under this Agreement had the Manager not terminated. Where
the termination is involuntary, the method of payment will be deemed
presumptively fair where it provides for an interest bearing promissory note
coming due in no less than five years with equal installments each year.

                                   ARTICLE 12
                           DISSOLUTION OF THE COMPANY

         12.1. Events Causing Dissolution. The Company shall dissolve upon
occurrence of the earlier of the following events:

                  12.1.1. The expiration of the term of the Company as stated in
         Section 1.6 of this Agreement;

                  12.1.2. Upon the written consent of the Manager and any other
         Person who is then a manager, and the affirmative vote or consent of a
         Majority;

                  12.1.3. The withdrawal, removal, dissolution or bankruptcy of
         the Manager, unless, if there is no remaining manager, a Majority agree
         in writing to continue the business of the Company and, within six
         months after the last remaining manager has ceased to be a manager,
         admit one or more managers who agree to such election and join the
         Company as managers.

         12.2. Winding Up. Upon the occurrence of an event of dissolution, the
Company shall immediately be dissolved, but shall continue until its affairs
have been wound up according to the provisions of the California LLC Law. Upon
dissolution of the Company, unless the business of the Company is continued as
provided above, the Manager will wind up the Company's affairs as follows:

                  12.2.1. No new Mortgage Investments shall be invested in or
         purchased;

                  12.2.2. The Manager(s) shall liquidate the assets of the
         Company as promptly as is consistent with recovering the fair market
         value thereof, either by sale to third parties or by servicing the
         Company's outstanding Mortgage Investments in accordance with their
         terms;

                  12.2.3. All sums of cash held by the Company as of the date of
         dissolution, together with all sums of cash received by the Company
         during the winding up process from any source whatsoever, shall be
         distributed in accordance with Section 12.3 below.

         12.3. Order of Distribution of Assets. If the Company is dissolved
under Section 12.1 above, the assets of the Company shall be distributed in
accordance with the California LLC Law.

         12.4. No Recourse to Manager. Upon dissolution and winding up under the
California LLC Law, each Member shall look solely to the assets of the Company
for the return of his Capital Account, and if the Company assets remaining after
the payment or discharge of the debts and liabilities of the Company are
insufficient to return the amounts of the Capital Account of Members, Members
shall have no recourse against the Manager or any other Member. The winding-up
of the affairs of the Company and the distribution of its assets shall be
conducted exclusively by the Manager. The Manager is hereby authorized to do any
and all acts and things authorized by law for these purposes. If the Manager
becomes insolvent or bankrupt, dissolves, withdraws or is removed by the
Members, the winding-up of the affairs of the Company and the distribution of
its assets shall be conducted by the person or entity selected by a vote of a
Majority, which person or entity is hereby authorized to do any and all acts and
things authorized by law for such purposes.

         12.5. Compliance With Timing Requirements of Regulations. If the
Company is "liquidated" within the meaning of Treasury Regulation Section 1.704-
1(b)(2)(ii)(g):

                  12.5.1. Distributions shall be made under this Article 12 (if
         such liquidation constitutes a dissolution of the Company) or Article 7
         hereof (if it does not) to the Manager and Members who have positive
         Capital Accounts in compliance with Treasury Regulation Section
         1.704-1(b)(2)(ii)(b)(2); and

                                       20


<PAGE>

                  12.5.2. if the Manager's Capital Account has a deficit balance
         (after giving effect to all contributions, distributions, and
         allocations for all taxable years, including the year during which such
         liquidation occurs), the Manager shall contribute to the capital of the
         Company the amount necessary to restore such deficit balance to zero in
         compliance with Treasury Regulation Section 1.704-1(b)(2)(ii)(b)(3).

                                   ARTICLE 13
                                    ROLL-UPS

         13.1. Roll-Up Transactions: Appraisal. If the Company proposes to enter
into a Roll-Up, an appraisal of all Company assets shall be obtained from a
competent, Independent Expert. If the appraisal will be included in a Prospectus
to offer the securities of a Roll-Up entity to the Members, the appraisal shall
be filed with the Securities and Exchange Commission and the states as an
exhibit to the Registration Statement for that offering. The Independent Expert
will appraise the assets of the Company on a consistent basis, and conduct the
appraisal based on an evaluation of the Company's assets as of a date
immediately before the announcement of the proposed Roll-Up. In performing the
appraisal, the Independent Expert shall assume an orderly liquidation of the
Company's assets over a 12-month period. The terms of the engagement of the
Independent Expert shall clearly state that the engagement is for the benefit of
the Company and its Members. The Company shall include a summary of the
Independent Expert's appraisal, indicating all material assumptions underlying
the appraisal, in a report to the Members regarding the proposed Roll-Up.

         13.2. Members' Rights in a Roll-Up. If a Roll-Up is effected as to the
Company, the Roll-Up Entity making the offer to the Company shall offer to each
Member who votes against the Roll-Up the choice of

                  13.2.1. accepting the securities of the Roll-Up Entity that
         were offered in the proposed Roll-Up, or

                  13.2.2. either (a) remaining as a Member of the Company and
         preserving its interests therein unchanged; or (b) receiving cash in an
         amount equal to the Member's pro-rata share of the appraised Net Asset
         Value of the Company.

         13.3. Limitations on Roll-Ups. The Company's ability to participate in
a Roll-Up is also subject to the following:

                  13.3.1. The Company shall not participate in any proposed
         Roll-Up which would result in Members having voting rights in the
         Roll-Up Entity which are less than those provided in Section 6.2 of
         this Agreement.

                  13.3.2. If the Roll-Up Entity is a corporation, the voting
         rights of the Members shall correspond to the voting rights provided in
         this Agreement to the extent reasonably possible.

                  13.3.3. The Company will not participate in any proposed
         Roll-Up which includes provisions which would operate to materially
         impede or frustrate the accumulation of shares, units or other equity
         interests, however denominated, by any purchaser of the securities of
         the Roll-Up Entity (except to the minimum necessary to preserve the tax
         status of the Roll-Up Entity).

                  13.3.4. The Company will not participate in any proposed
         Roll-Up which would limit the ability of a Member to exercise the
         voting rights of the securities of the Roll-Up Entity on the basis of
         the value of the Interest held by the Member.

                  13.3.5. The Company will not participate in any proposed
         Roll-Up in which the Members' rights as securities holders to access
         the records of the Roll-Up Entity will be less than those provided for
         in this Agreement or in which any of the costs of the Roll-Up
         transaction would be borne by the Company if the Roll-Up is not
         approved by necessary vote of the Members.

                                   ARTICLE 14
        TRANSACTIONS BETWEEN THE MANAGER, ITS AFFILIATES AND THE COMPANY

         14.1. Compensation to the Manager from the Company. The Manager and its
Affiliates are entitled to receive the following fees, compensation and expense
reimbursements from the Company:

                  14.1.1. Management Fee. In consideration of the management
         services rendered to the Company, the Manager is entitled to receive
         from the Company a Management Fee payable monthly, in amounts
         determined by the Manager from time to time, up to a maximum of
         three-quarters of one percent (0.75%) per annum of the Base Amount. For
         any portion of the Capital Contributions not included in the Base
         Amount, the Management Fee shall not exceed 0.5% per annum. Although
         the Management Fee is paid monthly, the maximum payment is calculated

                                       21


<PAGE>

         on annual basis; thus for example, the Management Fee in any one month
         could exceed three-quarters of one percent (0.75%) of the Base Amount
         at the end of such month, provided that the maximum annual Management
         Fee shall not exceed three-quarters of one percent (0.75%) of the Base
         Amount at the end of the Fiscal Year. In the event the Management Fee
         paid to the Manager in any year exceeds the maximum permitted for that
         year, the Manager shall promptly refund such excess to the Company. The
         Management Fee may be accrued without interest when Company funds are
         not available for its payment. Any accrued Management Fee may be paid
         from the next available Net Income Available for Distribution or Net
         Proceeds. No Management Fee may be paid from Company contingency or
         working capital reserves.

                  14.1.2. Company Expenses. All of the Company's expenses shall
         be billed directly, to the extent practicable, to and paid by the
         Company. Reimbursement to the Manager or its Affiliates for any
         expenses paid by the Manager or its Affiliates including, but not
         limited to, legal and accounting expenses, filing fees, printing costs,
         goods, services and materials used by or for the Company will be made
         from Net Income Available for Distribution immediately following the
         expenditure. Except as indicated in this Article 14, the Manager or any
         Affiliate shall not be reimbursed by the Company for services for which
         the Manager is entitled to compensation by way of a separate fee.
         Excluded from the allowable reimbursement shall be: (i) Rent or
         depreciation, utilities, capital equipment, or other administrative
         items; and (ii) Salaries, fringe benefits, travel expenses, and other
         administrative items incurred or allocated to the Manager or any
         Affiliate. The Company, however, may reimburse the Manager and any
         Affiliate for salaries (and related salary expenses, but excluding
         expenses incurred in connection with the administration of the Company)
         for non-management and non-supervisory services which could be
         performed directly for the Company by independent parties, such as
         legal, accounting, transfer agent, data processing and duplicating.
         There shall be no reimbursement for management and supervisory
         personnel (e.g., services of employees of the Manager or its Affiliates
         who oversee the work which would have been performed by an independent
         party if such party had been so engaged). The amounts charged to the
         Company shall not exceed the lesser of (a) the actual cost of such
         services, or (b) the amounts which the Company would be required to pay
         to independent parties for comparable services. Reimbursement may also
         be made for the allocable cost charged by independent parties for
         maintenance and repair of data processing and other special purpose
         equipment used for or by the Manager, regardless of whether any
         distributions are made to the Members under the provisions of Article 7
         of this Agreement.

                  14.1.3. Promotional Interest. The Manager shall be entitled to
         receive a Promotional Interest in the Company, as an additional
         Management Fee, that is equal to twenty-five percent (25%) of the
         amount of Cash Available for Distribution that exceeds twelve percent
         (12%) of Capital Contributions, for each and every Fiscal Year of the
         Partnership on a non-cumulative basis, to be payable monthly in the
         manner provided for the Management Fee under Subsection 14.1.1 of this
         Agreement.

                  14.1.4. Property Management Fee. If the Manager or an
         Affiliate performs property management services with respect to a
         foreclosed property, the fees paid to the Manager or its Affiliates
         shall be the lesser of the maximum fees set forth below in this
         subsection 14.1.4. or the fees which are competitive for similar
         services in the same geographic area. Included in such fees shall be
         bookkeeping services and fees paid to non-related Persons for property
         management services.

                                (a) In the case of a residential property, the
                                    maximum Property In Management Fee
                                    (including all rent-up, leasing, and
                                    re-leasing fees and bonuses, and leasing
                                    related services, paid to any Person) shall
                                    be five percent (5%) of the gross revenues
                                    from such property.

                                (b) In the case of individual and commercial
                                    property, except as set forth in subsection
                                    14.1.4.3. below, the maximum Property
                                    Management Fee from such leases shall be six
                                    percent (6%) of the gross revenues where the
                                    Manager or its Affiliates includes leasing,
                                    re-leasing, and leasing-related services.
                                    Conversely, the maximum Property Management
                                    Fee from such leases shall be three percent
                                    (3%) of the gross revenues where the Manager
                                    or its Affiliates do not perform leasing,
                                    re-leasing and leasing-related services with
                                    respect to the property.

                                (c) In the case of industrial and commercial
                                    properties which are leased on a long-term
                                    (10 or more years) net (or similar) basis,
                                    the maximum Property Management Fee from
                                    such leases shall be one percent (1%) of the
                                    gross revenues, except for a one-time
                                    initial leasing fee of three percent (3%) of
                                    the gross revenues on each lease payable
                                    over the first five full years of the
                                    original term of the lease.

                  14.1.5. Real Estate Brokerage Commissions. The total
         compensation paid to all Persons for the sale of a property held by the
         Company as a result of a foreclosure shall be limited to a competitive
         real estate commission, not to exceed six percent (6%) of the contract
         price for the sale of the property. If the Manager or its Affiliate
         provides a substantial amount of the services in the sales effort, it
         may receive up to one-half (1/2) of the competitive real estate
         commission, not to exceed three percent (3%), and subordinated to the
         prior payments to Members of an amount of not less than an aggregate of
         ten percent (10%) per annum cumulative of Capital Contribution. If the
         Manager or its Affiliate participates with an independent broker on
         resale, this subordination requirement shall apply only to the
         commission earned by the manager or its Affiliate.

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<PAGE>

                  14.1.6. No Insurance Service Fees. The Manager is not entitled
         to receive insurance service fees from the Company.

                  14.1.7. Mortgage Servicing Fees. The Manager and its
         Affiliates shall be entitled to be paid a Mortgage Servicing Fee on
         each Mortgage which it services, which, when added to Mortgage
         Servicing Fees paid by the Borrower of that Mortgage Loan, does not
         exceed the lesser of the customary, competitive fee for the provision
         of such mortgage services on that type of mortgage or 1.0% of the
         principal outstanding in such loan.

         14.2. Payments of Front-End Fees, Late Payment Charges, Default
Interest and Mortgage Servicing Fees by Borrowers to Manager or Affiliates.

                  14.2.1. Acquisition and Origination Fees. The Manager or its
         Affiliates shall be entitled to receive and retain all Acquisition and
         Origination Fees and Acquisition and Origination Expenses, including
         but not limited to loan brokerage fees, loan application fees, loan
         evaluation fees, and loan extension fees, paid or payable by Borrowers
         or potential Borrowers.

                  14.2.2. Mortgage Servicing Fees. The Manager or its Affiliates
         shall be entitled to receive and retain all Mortgage Servicing Fees
         paid or payable by Borrowers. The Mortgage Servicing Fee paid by the
         Borrowers shall not exceed the lesser of the customary, competitive fee
         for the provision of such mortgage services on the particular type of
         mortgage or an annual amount of 3/4 of 1% of the principal outstanding
         in such loan.

                  14.2.3. Late Payment Charges and Default Interest. The Manager
         or its Affiliates shall be entitled to receive and retain all Late
         Payment Charges and Default Interest paid by Borrowers on delinquent
         loans held by the Company, only if the Manager or its Affiliate has
         advanced to such Borrowers funds necessary for the payment of all such
         Late Payment Charges or Default Interest. If the Manager or its
         Affiliate has not advanced such funds for the payment of all Late
         Payment Charges or Default Interest, the Manager or its Affiliate shall
         be entitled to receive and retain only fifty percent (50%) of any such
         Late Payment Charge or Default Interest.

                                   ARTICLE 15
                                  MISCELLANEOUS

         15.1. Covenant to Sign Documents. Each Member covenants, for himself
and his successors and assigns, to execute, with acknowledgment or verification,
if required, any and all certificates, documents and other writings which may be
necessary or expedient to form the Company and to achieve its purposes,
including, without limitation, any amendments to the Articles of Organization
and any filings, records or publications necessary or appropriate under the laws
of any jurisdiction in which the Company shall conduct its business.

         15.2. Notices. Except as otherwise expressly provided for in this
Agreement, all notices which any Member may desire or may be required to give
any other Members shall be in writing and shall be deemed duly given when
delivered personally or when deposited in the United States mail, first-class
postage pre-paid. Notices to Members shall be addressed to the Members at the
last address shown on the Company records. Notices to the Manager or to the
Company shall be delivered to the Company's principal place of business, as set
forth in Section 1.3 above or as hereafter changed as provided herein.

         15.3. Right to Engage in Competing Business. Nothing contained in this
Agreement shall preclude any Member from purchasing or lending money upon the
security of any other property or rights therein, or in any manner investing in,
participating in, developing or managing any other venture of any kind, without
notice to the other Members, without participation by the other Members, and
without liability to them or any of them. Each Member waives any right he may
have against the Manager for using for its own benefit information received as a
consequence of the Manager's management of the affairs of the Company. This
Section 15.3 shall be subject in its entirety to the fiduciary duty of the
Manager set forth in Section 3.4.

         15.4. Amendment. This Agreement is subject to amendment by the
affirmative vote of a Majority in accordance with Section 6.2; provided,
however, that no amendment shall be permitted if the effect of such amendment
would be to increase the duties or liabilities of any Member or materially
adversely affect any Member's interest in Profits, Losses, Company assets,
distributions, management rights or voting rights, except as agreed by that
Member. In addition, and notwithstanding anything to the contrary contained in
this Agreement, the Manager shall have the right to amend this Agreement,
without the vote or consent of any of the Members, to accomplish any of the
following that do not adversely affect the Members:

                  15.4.1. to grant to Members (and not solely the Manager in its
         capacity as a Member) additional rights, remedies, powers or authority
         that may lawfully be granted to or conferred upon them;

                  15.4.2. to cure any ambiguity, to correct or supplement any
         provision which may be inconsistent with any other provision, or to
         make any other provisions for matters or questions arising under this
         Agreement which will not be inconsistent with the provisions of this
         Agreement;

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<PAGE>

                  15.4.3. to conform this Agreement to applicable laws and
         regulations, including without limitation, federal and state securities
         and tax laws and regulations, and the NASAA Guidelines;

                  15.4.4. in the form of a revision to or updating of Schedule A
         in accordance with Section 5.2 hereof; and

                  15.4.5. to elect for the Company to be governed by any
         successor to the California LLC Law, governing limited liability
         companies.

                  The Manager shall notify the Members within a reasonable time
of the adoption of any amendment.

         15.5. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes any and all prior agreements and
representations, either oral or in writing, between the parties hereto regarding
the subject matter contained herein.

         15.6. Waiver. No waiver by any party hereto or any breach of, or
default under, any provision of this Agreement by any party shall be construed
or deemed a waiver of any breach of or default under any other provision of this
Agreement, and shall not preclude any party from exercising or asserting any
rights under this Agreement for any future breach or default of the same
provision of this Agreement.

         15.7. Severability. If any term, provision, covenant or condition of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the provisions of this Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.

         15.8. Application of California Law. This Agreement and the application
or interpretation thereof shall be governed, construed, and enforced exclusively
by its terms and by the law of the State of California.

         15.9. Captions. Section titles or captions contained in this Agreement
are inserted only as a matter of convenience and for reference and in no way
define, limit, extend or describe the scope of this Agreement.

         15.10. Number and Gender. Whenever the singular form is used in this
Agreement it includes the plural when required by the context, and the masculine
gender shall include the feminine and neuter genders.

         15.11. Counterparts. This Agreement may be executed in counterparts,
any or all of which may be signed by Manager on behalf of the Members as their
attorney-in-fact.

         15.12. Waiver of Action for Partition. Each of the parties hereto
irrevocably waives during the term of the Company any right that it may have to
maintain any action for partition for any property of the Company.

         15.13. Defined Terms. All terms used in this Agreement which are
defined in the Prospectus shall have the meanings assigned to them in said
Prospectus, unless this Agreement shall provide for a specific definition in
Article 2.

         15.14. Binding on Assignees. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the successors and assigns of the respective parties hereto,
subject to the provisions of Section 10.2, which control the assignment or other
transfer of Company Interests.

                                       24


<PAGE>

NOW, THEREFORE, THIS AGREEMENT IS ENTERED INTO AS OF THE DATE FIRST
ABOVE-WRITTEN BY THE PARTIES, ACTING THROUGH THE PERSONS AUTHORIZED TO EXECUTE
THIS AGREEMENT IN THEIR BEHALF.

                       YOSEMITE MORTGAGE FUND II, LLC, Company

                                By:  MFP MANAGEMENT LLC, Manager

                                     By:        /s/  Steven M. Pontes
                                          ---------------------------------

                                          Steven M. Pontes, General Manager

                       MFP MANAGEMENT LLC, Manager

                                By:            /s/  Steven M. Pontes
                                     --------------------------------------

                                     Steven M. Pontes, General Manager

                       PONTES FINANCIAL GROUP, LTD., Initial Member
                                By:            /s/ Steven M. Pontes
                                     --------------------------------------

                                     Steven M. Pontes, President

                                       25