Document:

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                                                                  EXECUTION COPY

                            AAMES CAPITAL CORPORATION

                                   as Seller,

                      AAMES CAPITAL ACCEPTANCE CORPORATION

                                  as Depositor,

                             OCWEN FEDERAL BANK FSB

                                   as Servicer

                                       and

                    BANKERS TRUST COMPANY OF CALIFORNIA, N.A.

                                   as Trustee

                         POOLING AND SERVICING AGREEMENT

                            Dated as of March 1, 2002
                           Aames Mortgage Trust 2002-1
                       Mortgage Pass-Through Certificates,
                                  Series 2002-1

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                                TABLE OF CONTENTS

                                    ARTICLE I

                                   DEFINITIONS

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<S>                <C>                                                                                        <C>
Section 1.01          Definitions.................................................................................1
Section 1.02          Interest Calculations......................................................................29

                                   ARTICLE II

            CONVEYANCE OF THE TRUST ORIGINAL ISSUANCE OF CERTIFICATES

Section 2.01          Conveyance of the Trust....................................................................29
Section 2.02          Conveyance of the Subsequent Mortgage Loans; Fixed Price Contract..........................32
Section 2.03          Acceptance by the Trustee; Repurchase or Substitution of Mortgage Loans....................35
Section 2.04          Representations and Warranties Regarding the Servicer and the Seller.......................38
Section 2.05          Representations and Warranties of the Seller Regarding the Mortgage Loans..................41
Section 2.05A         Representations and Warranties of the Depositor as to the Mortgage Loans...................51
Section 2.06          Execution and Authentication of Certificates...............................................52
Section 2.07          Reserved...................................................................................52
Section 2.08          Indemnification of the Trust...............................................................52

                                   ARTICLE III

       ADMINISTRATION AND SERVICING OF MORTGAGE LOANS; CERTIFICATE ACCOUNT

Section 3.01          The Servicer and the Sub-Servicers.........................................................52
Section 3.02          Collection of Certain Mortgage Loan Payments; Collection Account and Certificate
                      Account....................................................................................54
Section 3.03          Additional Servicing Responsibilities for the Adjustable Rate Mortgage Loans...............57
Section 3.04          Hazard Insurance Policies..................................................................57
Section 3.05          Enforcement of Due-on-Sale Clauses; Assumption and Modification Agreements.................58
Section 3.06          Realization upon Liquidated Mortgage Loans.................................................58
Section 3.07          Trustee to Cooperate; Release of Mortgage Files............................................60
Section 3.08          Servicing Compensation; Payment of Certain Expenses by the Servicer........................60
Section 3.09          Annual Statement as to Compliance..........................................................61
Section 3.10          Annual Independent Public Accountants' Servicing Report....................................61
Section 3.11          Access to Certain Documentation and Information Regarding the Mortgage Loans...............62
Section 3.12          Maintenance of Fidelity Bond and Errors and Omissions Policy...............................62
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<TABLE>
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<S>                <C>                                                                                        <C>
Section 3.13          Notices to the Rating Agencies and the Trustee.............................................62
Section 3.14          Reports of Foreclosures and Abandonment of Mortgaged Properties............................62
Section 3.15          Sub-Servicers and Sub-Servicing Agreements.................................................63
Section 3.16          Prefunding Account.........................................................................64
Section 3.17          Capitalized Interest Account...............................................................64
Section 3.18          [Reserved].................................................................................65
Section 3.19          [Reserved].................................................................................65
Section 3.20          [Reserved].................................................................................65
Section 3.21          Net Rate Cap Fund..........................................................................65
Section 3.22          Covenants and Representations Regarding Prepayment Charges.................................66
Section 3.23          Claims Upon the PMI Policy.................................................................66
Section 3.24          Advance Facility...........................................................................66

                                   ARTICLE IV

                                REMITTANCE REPORT

Section 4.01          Servicer Remittance Report.................................................................68
Section 4.02          Trustee Distribution Date Statement........................................................68

                                    ARTICLE V

                  PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS

Section 5.01          Distributions..............................................................................70
Section 5.02          Monthly Advances; Servicing Advances.......................................................72
Section 5.03          Statements to Certificateholders...........................................................74
Section 5.04          Allocation of Losses.......................................................................75

                                   ARTICLE VI

                                THE CERTIFICATES

Section 6.01          The Certificates...........................................................................76
Section 6.02          Registration of Transfer and Exchange of Certificates......................................76
Section 6.03          Mutilated, Destroyed, Lost or Stolen Certificates..........................................81
Section 6.04          Persons Deemed Owners......................................................................81
Section 6.05          Actions of Certificateholders..............................................................81

                                   ARTICLE VII

                   THE SERVICER, THE SELLER AND THE DEPOSITOR

Section 7.01          Liability of the Seller, the Depositor and the Servicer....................................82
Section 7.02          Merger or Consolidation of, or Assumption of the Obligations of the Seller, the
                      Depositor or Servicer......................................................................82
Section 7.03          Limitation on Liability of the Servicer and Others.........................................82
Section 7.04          Servicer Not to Resign.....................................................................83
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<TABLE>
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<S>                <C>                                                                                        <C>
Section 7.05          Merger or Consolidation of the Seller or Depositor.........................................84

                                  ARTICLE VIII

                                     DEFAULT

Section 8.01          Events of Default..........................................................................85
Section 8.02          Trustee to Act; Appointment of Successor...................................................86
Section 8.03          Notifications to Certificateholders........................................................87
Section 8.04          Assumption or Termination of Sub-Servicing Agreements by the Trustee or any
                      Successor Servicer.........................................................................87

                                   ARTICLE IX

                                   THE TRUSTEE

Section 9.01          Duties of the Trustee......................................................................88
Section 9.02          Certain Matters Affecting the Trustee......................................................89
Section 9.03          Trustee Not Liable for Certificates or Mortgage Loans......................................90
Section 9.04          Trustee May Own Certificates...............................................................90
Section 9.05          Payment of the Trustee's Fees and Expenses.................................................90
Section 9.06          Eligibility Requirements for the Trustee...................................................91
Section 9.07          Resignation or Removal of the Trustee......................................................91
Section 9.08          Successor Trustee..........................................................................92
Section 9.09          Merger or Consolidation of the Trustee.....................................................93
Section 9.10          Appointment of Co-Trustee or Separate Trustee..............................................93
Section 9.11          Compliance with REMIC Provisions...........................................................94
Section 9.12          Trustee May Enforce Claims Without Possession of Certificates..............................95
Section 9.13          Exercise of Trustee Powers by Certificateholders...........................................95
Section 9.14          Tax Returns................................................................................95
Section 9.15          Taxpayer Identification Number.............................................................96
Section 9.16          Miscellaneous REMIC Matters................................................................96

                                    ARTICLE X

                                   TERMINATION

Section 10.01         Termination Upon Purchase or Liquidation of All Mortgage Loans.............................98
Section 10.02         Additional Termination Requirements.......................................................100

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

Section 11.01         Amendment.................................................................................101
Section 11.02         Recordation of Agreement..................................................................102
Section 11.03         Limitation on Rights of Certificateholders................................................103
Section 11.04         Governing Law.............................................................................104
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<S>                   <C>                                                                                                    <C>
Section 11.05         Notices...................................................................................104
Section 11.06         Severability of Provisions................................................................104
Section 11.07         Assignment................................................................................104
Section 11.08         Certificates Nonassessable and Fully Paid.................................................104
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                             SCHEDULES AND EXHIBITS

Schedule I                  List of Sub-Servicers
Schedule II                 Schedule of Restricted Mortgage Loans
Exhibit A-1                 Form of Class A Certificate
Exhibit A-2                 Form of Class M Certificate
Exhibit A-3                 Form of Class B Certificate
Exhibit A-4                 [Reserved]
Exhibit B-1                 Form of Class C Certificate
Exhibit B-2                 Form of Class R Certificate
Exhibit B-3                 [Reserved]
Exhibit C                   Form of Subsequent Transfer Agreement
Exhibit D                   [Reserved]
Exhibit E                   Mortgage Loan Schedule
Exhibit F                   Form of Annual Statement as to Compliance
Exhibit G                   Form of Transfer Affidavit
Exhibit H                   Form of Payoff Notice
Exhibit I                   Form of Liquidation Report
Exhibit J                   Form of Officer's Certificate as to Charge-offs
Exhibit K                   Form of Transferor Affidavit
Exhibit L                   [Reserved]
Exhibit M                   Form of Transferor Letter
Exhibit N-1                 Form of Investment Letter [Non-Rule 144A]
Exhibit N-2                 Form of Rule 144A Letter
Exhibit O                   Mortgage Guaranty Insurance Corporation PMI Policy
Exhibit P                   List of PMI Mortgage Loans
Exhibit Q                   Subsequent Mortgage Loan Criteria
Exhibit R                   Prepayment Charge Schedule

                                       -v-

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         THIS POOLING AND SERVICING AGREEMENT (this "Agreement"), dated as of
March 1, 2002, by and among Aames Capital Corporation, as seller (in such
capacity, the "Seller"), Aames Capital Acceptance Corp., as depositor (the
"Depositor"), Ocwen Federal Bank FSB, as servicer (the "Servicer") and Bankers
Trust Company of California, N.A., as trustee (the "Trustee").

                          W I T N E S S E T H T H A T:

         In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:

                                   ARTICLE I

                                   DEFINITIONS

         Section 1.01 Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.

         Addition Notice: With respect to the transfer of Subsequent Mortgage
Loans to the Trust pursuant to Section 2.02 of this Agreement, notice of the
Seller's designation of Subsequent Mortgage Loans to be sold to the Trust and
the aggregate Subsequent Cut-off Date Principal Balance of such Subsequent
Mortgage Loans, which notice shall be given to the Trustee not later than one
Business Day prior to the related Subsequent Transfer Date.

         Adjustable Rate Mortgage Loan: Any Hybrid Loan which, upon the
expiration of its initial term bearing a fixed rate of interest, has a Mortgage
Loan Rate that is adjustable at regular periodic intervals, based on the Index
plus the related Gross Margin subject to any Minimum Rate, Maximum Rate and any
periodic limitations on adjustment from time to time, all as set forth in the
Mortgage Loan Schedule.

         Adjustment Date: With respect to any Adjustable Rate Mortgage Loan, the
date on which a change to the Mortgage Loan Rate on a Mortgage Loan becomes
effective.

         Affiliate: With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings corresponding to the foregoing.

         Agreement: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.

         Annual Statement of Compliance: The annual statement to be prepared and
delivered by the Servicer in accordance with Section 3.09.

         Applied Realized Loss Amounts: As to any Distribution Date, an amount
equal to the excess, if any, of (i) the aggregate of the Certificate Principal
Balances of the Offered

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Certificates, after giving effect to all distributions on such Distribution Date
over (ii) the Pool Balance as of the last day of the related Collection Period.

         Appraised Value: The appraised value of any Mortgaged Property based
upon the appraisal made at the time of origination of the related Mortgage Loan
or, in the case of a Mortgage Loan that is a purchase money mortgage loan, the
sales price of the related Mortgaged Property if such sales price is less than
such appraised value.

         Available Funds: With respect to the Mortgage Loans and any
Distribution Date, the sum, without duplication of the following amounts with
respect to the Mortgage Loans and the immediately preceding Collection Period:

                  (i) scheduled and unscheduled payments of principal and
         interest on the Mortgage Loans received by the Servicer, including
         amounts deposited in respect of the Closing Date Deposit (net of
         amounts representing the Monthly Servicing Fee with respect to each
         Mortgage Loan and the applicable PMI Insurer Fee to the extent
         previously paid to the Servicer and reimbursement for Monthly Advances
         and Servicing Advances);

                  (ii) Net Liquidation Proceeds and Trust Insurance Proceeds
         with respect to the Mortgage Loans (net of amounts applied to the
         restoration or repair of a Mortgaged Property);

                  (iii) amounts payable in connection with each such Mortgage
         Loan that was repurchased from the Trust, and all amounts payable in
         respect of any Mortgage Loan in connection with a substitution of a
         Qualified Replacement Mortgage Loan therefor;

                  (iv) payments from the Servicer in connection with (a) Monthly
         Advances and (b) Compensating Interest, and payments in connection with
         the termination of the Trust with respect to the Mortgage Loans as
         provided in this Agreement;

                  (v) on the Distribution Dates during and immediately following
         the Funding Period, the Capitalized Interest Requirement amount from
         the Capitalized Interest Account for the payment of interest on the
         Certificates; and

                  (vi) on the Distribution Date at or immediately following the
         end of the Funding Period, amounts remaining on deposit in the
         Prefunding Account.

         Available Funds Cap: A per annum rate equal to the weighted average Net
Loan Rate of the Mortgage Loans.

         Basic Principal Amount: With respect to any Distribution Date, an
amount equal to the sum of the following amounts (without duplication) with
respect to the Mortgage Loans and the immediately preceding Collection Period:

                                      -2-

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                  (i) each payment of principal on a Mortgage Loan received by
         the Servicer during such Collection Period, including all full and
         partial principal prepayments (net of reimbursements to the Servicer
         for Servicing Advances);

                  (ii) the Net Liquidation Proceeds and Trust Insurance Proceeds
         allocable to principal received by the Servicer with respect to any
         Mortgage Loan during such Collection Period (net of amounts applied to
         the restoration or repair of a Mortgaged Property);

                  (iii) all amounts allocable to principal payable in connection
         with each such Mortgage Loan that was repurchased from the Trust during
         such Collection Period, and all amounts allocable to principal payable
         in respect any Mortgage Loan in connection with a substitution of a
         Qualified Replacement Mortgage Loan therefor; and

                  (iv) any related amounts remaining in the Prefunding Account
         after the Funding Period.

         Bloomberg: The on-line computer based information network maintained by
Bloomberg L.P., or any successor thereto.

         Book-Entry Certificate: Any Certificate registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of the
Depository or on the books of a person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the rules
of such Depository). As of the Closing Date, only the Offered Certificates
constitute Book-Entry Certificates.

         Book-Entry Nominee:  As defined in Section 6.02(b).

         Business Day: Any day other than (a) a Saturday or a Sunday or (b) a
day on which banking institutions in the State of California or the State of New
York are required or authorized by law, executive order or governmental decree
to be closed.

         Capitalized Interest Account: The segregated account, which shall be an
Eligible Account, established and maintained pursuant to Section 3.17 and
entitled "Bankers Trust Company of California, N.A., as Trustee for Aames
Mortgage Trust 2002-1 Mortgage Pass-Through Certificates, Series 2002-1,
Capitalized Interest Account".

         Capitalized Interest Account Deposit: The amount deposited in the
Capitalized Interest Account for the benefit of the Offered Certificateholders,
which amount is $162,283.

         Capitalized Interest Requirement: With respect to each Prefunding
Distribution Date and each Class of Offered Certificates, an amount equal to (A)
interest on the remainder of the related allocated Prefunding Account Deposit at
the beginning of the related Collection Period at a rate equal to the weighted
average Pass-Through Rate at the beginning of such Collection Period, net of
reinvestment interest at a rate of 1.25% per annum minus (B) 30 days' interest
on each Subsequent Mortgage Loan transferred during the related Collection
Period that has a due date during such Collection Period.

                                      -3-

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         Certificate: Any Class A-1, Class A-2, Class A-3, Class A-4, Class M-1,
Class M-2, Class B, Class C or Class R Certificate issued pursuant to this
Agreement.

         Certificate Account: The segregated account, which shall be an Eligible
Account, established and maintained pursuant to Section 3.02(e) and entitled
"Bankers Trust Company of California, N.A., as Trustee for Aames Mortgage Trust
2002-1 Mortgage Pass-Through Certificates, Series 2002-1, Certificate Account".

         Certificateholder: The Person in whose name a Certificate is registered
in the Certificate Register, except that, solely for the purpose of taking any
action under Article Eight or giving any consent pursuant to this Agreement, any
Certificate registered in the name of the Seller or the Servicer or any Person
actually known to a Responsible Officer of the Trustee to be an Affiliate of the
Seller, the Depositor or the Servicer shall be deemed not to be outstanding and
the Percentage Interest evidenced thereby shall not be taken into account in
determining whether Holders of the requisite Percentage Interests necessary to
take any such action or effect any such consent have acted or consented unless
the Seller, the Depositor, the Servicer or any such Person is an owner of record
of all of the Certificates.

         Certificate Owner: With respect to any Book-Entry Certificate, the
Person who is the beneficial owner thereof.

         Certificate Principal Balance: With respect to any class of Offered
Certificates, the Initial Certificate Principal Balance of such Class as reduced
by all amounts in respect of principal actually distributed to the related
Certificateholders on all prior Distribution Dates, reduced in the case of any
Class of Subordinate Certificates by any Applied Realized Loss Amounts allocated
to such Class on prior Distribution Dates.

         Certificate Register: The register maintained pursuant to Section 6.02.

         Class: Any class of the Offered Certificates, the Class C Certificate,
the Class R-I Certificate or the Class R-II Certificate, as the case may be,
taken as a whole.

         Class A Certificates: The Class A-1, Class A-2, Class A-3 and Class A-4
Certificates.

         Class A-1 Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit A-1 hereto.

         Class A-1 Certificate Principal Balance: As to any Distribution Date,
the Certificate Principal Balance for the Class A-1 Certificates.

         Class A-1 Pass-Through Rate: The lesser of (x) with respect to each
Interest Period ending on or prior to the Clean-Up Call Date, 3.828% per annum,
and for each Interest Period thereafter, 4.328% per annum and (y) the Available
Funds Cap.

         Class A-2 Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit A-1 hereto.

                                      -4-

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         Class A-2 Certificate Principal Balance: As to any Distribution Date,
the Certificate Principal Balance for the Class A-2 Certificates.

         Class A-2 Pass-Through Rate: The lesser of (x) with respect to each
Interest Period ending on or prior to the Clean-Up Call Date, 5.378% per annum,
and for each Interest Period thereafter, 5.878% per annum and (y) the Available
Funds Cap.

         Class A-3 Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit A-1 hereto.

         Class A-3 Certificate Principal Balance: As to any Distribution Date,
the Certificate Principal Balance for the Class A-3 Certificates.

         Class A-3 Pass-Through Rate: The lesser of (x) with respect to each
Interest Period ending on or prior to the Clean-Up Call Date, 6.896% per annum,
and for each Interest Period thereafter, 7.396% per annum and (y) the Available
Funds Cap.

         Class A-4 Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit A-1 hereto.

         Class A-4 Certificate Principal Balance: As to any Distribution Date,
the Certificate Principal Balance for the Class A-4 Certificates.

         Class A-4 Lockout Percentage: Means the following related percentage
with respect to each of the following respective distribution dates:

         Distribution Dates                     Class A-4 Lockout Percentage
         ------------------                     ----------------------------
              1-36                                           0%
             37-60                                          45%
             61-72                                          80%
             73-84                                         100%
             85 and thereafter                             300%

         Class A-4 Pass-Through Rate: The lesser of (x) with respect to each
Interest Period ending on or prior to the Clean-Up Call Date, 6.409% per annum,
and for each Interest Period thereafter, 6.909% per annum and (y) the Available
Funds Cap.

         Class A-4 Principal Distribution Amount: Means as to any Distribution
Date the product of (x) the applicable Class A-4 Lockout Percentage for such
Distribution Date and (y) the Class A-4 Pro Rata Distribution Amount for such
Distribution Date, not to exceed the Senior Principal Distribution Amount.

         Class A-4 Pro Rata Distribution Amount: Means as to any Distribution
Date an amount equal to the product of (x) a fraction, the numerator of which
the Certificate Principal Balance of the Class A-4 Certificates immediately
prior to such Distribution Date and the denominator of which is the aggregate
Certificate Principal Balance of the Senior Certificates immediately prior

                                      -5-

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to such Distribution Date and (y) the Senior Principal Distribution Amount for
such Distribution Date.

         Class A-IO Certificate:  Not Applicable.

         Class A-IO Pass-Through Rate:  Not Applicable.

         Class B Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit A-4 hereto.

         Class B Certificate Principal Balance: As to any Distribution Date, the
Initial Certificate Principal Balance for the Class B Certificates less the
Class B Principal Distribution Amounts actually distributed to the holders of
the Class B Certificates on previous Distribution Dates and reduced by any
Applied Realized Loss Amounts allocated to such Class on prior Distribution
Dates.

         Class B Pass-Through Rate: The lesser of (x) with respect to each
Interest Period ending on or prior to the Clean-Up Call Date, 7.801% per annum,
and for each Interest Period thereafter, 8.301% per annum and (y) the Available
Funds Cap.

         Class B Principal Distribution Amount: On any Distribution Date on and
after the Stepdown Date and so long as a Trigger Event is not in effect, an
amount equal to the excess of (1) the sum of (A) the aggregate Certificate
Principal Balance of the Class A Certificates (after giving effect to the
distribution of the Senior Principal Distribution Amount on such Distribution
Date), (B) the Certificate Principal Balance of the Class M-1 Certificates
(after giving effect to the distribution of the Class M-1 Principal Distribution
Amount on such Distribution Date), (C) the Certificate Principal Balance of the
Class M-2 Certificates (after giving effect to the distribution of the Class M-2
Principal Distribution Amount on such Distribution Date) and (D) the Certificate
Principal Balance of the Class B Certificates immediately prior to such
Distribution Date, over (2) the lesser of (A) 93.70% of the Pool Balance as of
the last day of the related Collection Period and (B) the Pool Balance as of the
last day of the related Collection Period minus the OC Floor, provided, however,
that after the Certificate Principal Balances of the Class A, Class M-1 and
Class M-2 Certificates are reduced to zero, the Class B Principal Distribution
Amount for such Distribution Date will equal 100% of the Principal Distribution
Amount.

         Class C Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit B-1 hereto.

         Class C Carryforward Amount: With respect to any Distribution Date, the
amount by which the aggregate of the amount by which the Class C Distribution
Amount for each prior Distribution Date exceeded the amount actually distributed
in respect of the Class C Distribution Amount on each such date, reduced by the
aggregate of the amounts distributed in respect of the Class C Carryforward
Amount on each such prior Distribution Dates, and reduced by the aggregate of
the amounts of Applied Realized Loss Amounts that have resulted in the reduction
of the Overcollateralization Amount on each such prior Distribution Date.

                                      -6-

<PAGE>

         Class C Certificate Principal Balance: As to any Distribution Date, the
Certificate Principal Balance of the Class C Certificates.

         Class C Distribution Amount: With respect to any Distribution Date,
means the interest allocated to the Class C Certificates as separate components
in accordance with note (5) of Section 9.16(c) with respect to such Distribution
Date and additionally, with respect to the first Distribution Date, an amount
equal to the Class C Certificate Principal Balance.

         Class Interest Carryover Shortfall: With respect to any Class of
Offered Certificates on any Distribution Date, means the amount, if any, by
which (i) the Class Monthly Interest Amount on such Class for the preceding
Distribution Date plus any outstanding Class Interest Carryover Shortfall with
respect to such Class from the preceding Distribution Date (together with
interest on such outstanding Class Interest Carryover Shortfall at the related
Pass-Through Rate for the related Interest Period to the extent lawful) exceeds
(ii) the amount of interest actually distributed to the holders of such
Certificates on such Distribution Date.

         Class Interest Distribution: As to any Class of Certificates and
Distribution Date, an amount equal to the sum of (a) the related Class Monthly
Interest Amount and (b) any Class Interest Carryover Shortfall for such Class of
Certificates for such Distribution Date.

         Class M-1 Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit A-2 hereto.

         Class M-1 Certificate Principal Balance: As to any Distribution Date,
the Class Principal Balance for the Class M-1 Certificates.

         Class M-1 Pass-Through Rate: The lesser of (x) with respect to each
Interest Period ending on or prior to the Clean-Up Call Date, 6.972% per annum,
and for each Interest Period thereafter, 7.472% per annum and (y) the Available
Funds Cap.

         Class M-1 Principal Distribution Amount: As to any Distribution Date on
or after the Stepdown Date, 100% of the Principal Distribution Amount if the
Certificate Principal Balance of each Class of Class A Certificates has been
reduced to zero and a Trigger Event exists, or, if a Trigger Event is not in
effect, the excess of (1) the sum of (A) the aggregate Certificate Principal
Balance of the Class A Certificates (after giving effect to distributions of the
Senior Principal Distribution Amount for such Distribution Date) and (B) the
Certificate Principal Balance of the Class M-1 Certificates immediately prior to
such Distribution Date over (2) the lesser of (A) 76.70% of the Pool Balance as
of the last day of the related Collection Period and (B) the Pool Balance as of
the last day of the related Collection Period minus the OC Floor.

         Class M-2 Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit A-3 hereto.

         Class M-2 Certificate Principal Balance: As to any Distribution Date,
the Certificate Principal Balance for the Class M-2 Certificates.

                                      -7-

<PAGE>

         Class M-2 Pass-Through Rate: The lesser of (x) with respect to each
Interest Period ending on or prior to the Clean-Up Call Date, 7.317% per annum,
and for each Interest Period thereafter, 7.817% per annum and (y) the Available
Funds Cap.

         Class M-2 Principal Distribution Amount: As to any Distribution Date on
or after the Stepdown Date, 100% of the Principal Distribution Amount if the
aggregate Certificate Principal Balance of each of the Class A and Class M-1
Certificates has been reduced to zero and a Trigger Event exists, or, if a
Trigger Event is not in effect, the excess of (1) the sum of (A) the aggregate
Certificate Principal Balance of the Class A Certificates (after giving effect
to distributions of the Senior Principal Distribution Amount for such
Distribution Date), (B) the Certificate Principal Balance of the Class M-1
Certificates (after giving effect to distribution of the Class M-1 Principal
Distribution Amount for such Distribution Date) and (C) the Certificate
Principal Balance of the Class M-2 Certificates immediately prior to such
Distribution Date over (2) the lesser of (A) 85.70% of the Pool Balance as of
the last day of the related Collection Period and (B) the Pool Balance as of the
last day of the related Collection Period minus the OC Floor.

         Class Monthly Interest Amount: With respect to any Class and
Distribution Date, means the amount of interest due for any Class of
Certificates in respect of any Interest Period at the applicable Pass-Through
Rate on the related Certificate Principal Balance, less such Class' related
share of Interest Shortfalls. All calculations of interest will be made on the
basis of a 360-day year assumed to consist of twelve 30-day months.

         Class P Certificate:  Not Applicable.

         Class P Certificate Principal Balance:  Not Applicable.

         Class P Deposit:  Not Applicable.

         Class Principal Carryover Shortfall: As to any Class of Subordinate
Certificates and any Distribution Date, the excess, if any, of (i) the sum of
(x) the amount of the reduction in the Certificate Principal Balance of that
Class of Subordinate Certificates as a result of the application of Applied
Realized Loss Amounts and (y) the amount of such reductions on prior
Distribution Dates over (ii) the amount distributed in respect of the Class
Principal Carryover Shortfall to such Class of Subordinate Certificates on prior
Distribution Dates.

         Class R Certificate: Any one of the Certificates executed by the
Trustee on behalf of the Trust, not in its individual capacity, but solely as
Trustee, authenticated by the Trustee and in substantially the form set forth in
Exhibit B-2 hereto representing each of the Class R-I and Class R-II
Certificates.

         Class R-I Certificate: Any one of the Certificates described in Section
9.16 as representing the "residual interest" in REMIC I, as such term is defined
in Code Section 860G(a)(2). The Class R-I Certificate shall be certificated
together with the Class R-II Certificates, in the form of the Class R
Certificate.

         Class R-II Certificate: Any one of the Certificates described in
Section 9.16 as representing the "residual interest" in REMIC II, as such term
is defined in Code Section

                                      -8-

<PAGE>

860G(a)(2). The Class R-II Certificate shall be certificated together with the
Class R-I Certificates, in the form of the Class R Certificate.

         Class R-III Certificate:  Not Applicable.

         Clean-up Call Date: The first Distribution Date on which the Pool
Balance is less than 5% of the sum of the Original Pool Balance and the
Prefunding Account Deposit.

         Closing Date:  March 28, 2002.

         Closing Date Deposit:  $0.00.

         Code:  The Internal Revenue Code of 1986 as amended.

         Collection Account: The segregated account, which shall at all times be
an Eligible Account, established and maintained pursuant to Section 3.02(a) and
entitled "Ocwen Federal Bank FSB in trust for Bankers Trust Company of
California, N.A., and for the benefit of Holders of Aames Mortgage Trust 2002-1
Mortgage Pass-Through Certificates, Series 2002-1, Collection Account."
References herein to the Collection Account shall include any Sub-Servicing
Account as the context requires.

         Collection Period: As to the first Distribution Date, the period
beginning on and including March 2, 2002 and ending on and including April 1,
2002 (except that with respect to payments due and unpaid on or before March 1,
2002, only collections of principal are included). As to any Distribution Date
thereafter for collections of both interest and principal, the period beginning
on and including the second day of the calendar month immediately preceding the
month in which such Distribution Date occurs and ending on and including the
first day of the calendar month of such Distribution Date.

         Combined Loan-to-Value Ratio: With respect to a Mortgage Loan, the
ratio (expressed as a percentage) of (i) the sum of the Original Principal
Amount of such related Mortgage Loan plus the outstanding principal balance (at
the time of origination of such Mortgage Loan) of each mortgage loan secured by
the related Mortgaged Property that is senior to such Mortgage Loan, if any, to
(ii) the Appraised Value of the related Mortgaged Property determined by the
Seller at the time of origination of such Mortgage Loan.

         Company:  Aames Capital Corporation, a California corporation.

         Compensating Interest: As to any Distribution Date, an amount equal to
the lesser of (a) one-half of the related Monthly Servicing Fee for the related
Collection Period and (b) the difference between (i) 30 days' interest (at the
related Mortgage Loan Rates, net of the Servicing Fee Rate) on the Principal
Balance of each Mortgage Loan as to which a Principal Prepayment was received or
that became a Liquidated Mortgage Loan or that was otherwise charged-off (before
giving effect to any related reduction in the Principal Balance of such Mortgage
Loan) by the Servicer during the related Collection Period and (ii) the amount
of interest actually collected by the Servicer for such Mortgage Loans during
such Collection Period.

                                      -9-

<PAGE>

         Corporate Trust Office: The principal office of the Trustee at which at
any particular time its corporate trust business with respect to this Agreement
shall be principally administered, which office at the date of the execution of
this Agreement is located at 1761 East St. Andrew Place, Santa Ana, California
92705-4934, Attention: AA0201; Aames Mortgage Loan Pass-Through Certificates,
Series 2002-1.

         Cumulative Loss Event: For any Distribution Date, if Cumulative Net
Losses exceed (i) for the initial Distribution Date in each of the distribution
periods set forth below, the applicable Initial Percentage of the aggregate Pool
Balance as of the Cut-off Date and (ii) for each successive Distribution Date in
such distribution period, the applicable percentage for the previous
Distribution Date plus the related Monthly Increment for such distribution
period:

    Number of                          Initial                  Monthly
Distribution Dates                   Percentages               Increment
------------------                   -----------               ---------
    37-48                               3.50%                    0.135%
    49-60                               5.00%                    0.104%
    61-72                               6.25%                    0.063%
    73 and thereafter                   7.00%                    0.000%

         Cumulative Net Losses: As of any date of determination, the aggregate
of the Liquidation Loan Losses incurred from the Cut-Off Date through the end of
the calendar month preceding such date of determination.

         Cut-off Date: With respect to the Initial Mortgage Loans, the close of
business on March 1, 2002. With respect to the Subsequent Mortgage Loans, the
close of business on the Subsequent Cut-off Date.

         Cut-off Date Principal Balance: As to any Mortgage Loan, its Principal
Balance as of the related Cut-off Date.

         Defective Mortgage Loan: Any Mortgage Loan that is required to be
repurchased or substituted by the Seller pursuant to Section 2.03 or 2.05.

         Definitive Certificates:  As defined in Section 6.02(e).

         Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced by a
Qualified Replacement Mortgage Loan.

         Delinquency Event: As to any Distribution Date, a Delinquency Event
shall have occurred if the Three Month Delinquency Rate exceeds 50% of the
Senior Enhancement Percentage.

         Deposit Date: As to any Distribution Date, the Business Day immediately
preceding such Distribution Date.

         Depositor: Aames Capital Acceptance Corporation, a Delaware
corporation.

                                      -10-

<PAGE>

         Depository: The initial depository shall be The Depository Trust
Company, the nominee of which is Cede & Co. The Depository shall at all times be
a "clearing corporation" as defined in Section 8102(3) of the Uniform Commercial
Code of the State of California, as amended, or any successor provisions
thereto.

         Depository Participant: A broker, dealer, bank or other financial
institution or other person for which, from time to time, the Depository effects
book-entry transfers and pledges of securities deposited with such Depository.

         Determination Date: As to any Distribution Date, the last day of the
related Collection Period.

         Disqualified Organization: Any Person that is (i) the United States,
any state or any political subdivision thereof, any possession of the United
States, or any agency or instrumentality of any of the foregoing (other than an
instrumentality of a governmental unit that is a corporation if all of its
activities are subject to tax and, except in the case of the Federal Home Loan
Mortgage Corporation, a majority of its board of directors is not selected by
such governmental unit), (ii) a foreign government, international organization
or any agency or instrumentality of either of the foregoing, (iii) an
organization (except certain farmers' cooperatives described in Code Section
521) exempt from tax imposed by Chapter 1 of the Code (including the tax imposed
by Code Section 511 on unrelated business taxable income), (iv) rural electric
and telephone cooperatives described in Code Section 1381(a)(2)(C), and (v) any
other Person so designated by the Trustee based upon an Opinion of Counsel that
the holding of an ownership interest in a Class R Certificate by such Person may
cause any REMIC Pool or any Person having an ownership interest in any Class R
Certificate, other than such Person, to incur a liability for any tax imposed
under the Code that would not otherwise be imposed but for the transfer of an
ownership interest in a Class R Certificate to such Person. The terms "United
States", "state" and "international organization" shall have the meanings set
forth in Code Section 7701 or successor provisions.

         Distribution Date: The 25th day of each month or, if such day is not a
Business Day, the Business Day immediately following such 25th day, beginning
April 25, 2002.

         Eligible Account: Either (A) a segregated account or accounts
maintained with an institution the deposits of which are insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC, the
unsecured and uncollateralized debt obligations of which shall be rated "AA" or
better by Standard & Poor's or "A2" or better by Moody's and in the highest
short term rating category by Standard & Poor's and Moody's and that is either
(i) a federal savings and loan association duly organized, validly existing and
in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable banking
laws of any state, (iii) a national banking association duly organized, validly
existing and in good standing under the federal banking laws and (iv) a
principal subsidiary of a bank holding company or (B) a segregated trust account
maintained with the trust department of a federal or state chartered depository
institution or trust company, having capital and surplus of not less than
$50,000,000, acting in its fiduciary capacity, the unsecured and
uncollateralized debt obligations of which shall be rated "Baa3" or better by

                                      -11-

<PAGE>

Moody's. Any Eligible Accounts maintained with the Trustee shall conform to the
preceding clause (B).

         ERISA Plan: Any Person that is an employee benefit plan within the
meaning of Section 3(3) of ERISA or any Person that is an individual retirement
account or employee benefit plan, trust or account subject to Section 4975 of
the Code.

         ERISA Prohibited Holder:  As defined in Section 6.02(b).

         ERISA: The Employee Retirement Income Security Act of 1974, as amended.

         Event of Default:  As defined in Section 8.01.

         Excess Interest: With respect to any Distribution Date, the sum of (a)
any Excess Overcollateralization Amount for such Distribution Date and (b) the
excess of (x) the Available Funds for such Distribution Date (excluding any
amounts payable therefrom for the Trustee Fee, the Monthly Servicing Fee and the
PMI Insurer Premium) over (y) the sum for such Distribution Date of (A) the
Class Monthly Interest Amounts for the Offered Certificates, (B) any Class
Interest Carryover Shortfall for the Senior Certificates, and (C) the Basic
Principal Amount.

         Excess Overcollateralization Amount: As to any Distribution Date, the
lesser of (i) the Basic Principal Amount for such Distribution Date and (ii) the
excess, if any, of (x) the Overcollateralization Amount (assuming 100% of the
Basic Principal Amount is distributed on the Offered Certificates) over (y) the
Required Overcollateralization Amount.

         Expense Fee Rate: The sum of (i) the Servicing Fee Rate, (ii) the per
annum rate for calculating the Trustee Fee (i.e., 0.015%) and (iii) the PMI
Insurer Premium expressed as a per annum rate equal to a fraction, expressed as
a percentage, the numerator of which is the PMI Insurer Premium and the
denominator of which is the Principal Balance of the Mortgage Loans as of the
applicable Determination Date.

         FDIC: The Federal Deposit Insurance Corporation and its successors in
interest.

         FEMA: The Federal Emergency Management Agency and its successors in
interest.

         FHLMC: The Federal Home Loan Mortgage Corporation and its successors in
interest.

         Final Scheduled Distribution Date: The Final Scheduled Distribution
Date for each of the Classes of Certificates are as set forth below:

          Class                             Final Scheduled Distribution Date
          -----                             ---------------------------------
        Class A-1                                      October 2020
        Class A-2                                      June 2029
        Class A-3                                      June 2032
        Class A-4                                      January 2032
        Class M-1                                      June 2032
        Class M-2                                      June 2032
        Class B                                        June 2032

                                      -12-

<PAGE>

        Class C                                        June 2032
        Class R                                        June 2032

         FNMA: The Federal National Mortgage Association and its successors in
interest.

         Foreign Person: A Person that is not (i) a citizen or resident of the
United States, (ii) a corporation or partnership (including an entity treated as
a corporation or partnership for U.S. federal income tax purposes) created in
the United States or organized under the laws of the United States or any state
thereof or the District of Columbia (except, in the case of a partnership, as
otherwise provided by Treasury regulations), (iii) an estate that is subject to
United States federal income tax regardless of the source of its income, or (iv)
a trust whose administration may be subject to the primary supervision of a
court within the United States and for which one or more United States persons
have the authority to control all substantial decisions of the trust.

         Funding Period: The period beginning on the Closing Date and ending on
the earlier of (a) the date on which the amount on deposit in the Prefunding
Account is zero and (b) the close of business on April 30, 2002.

         Gross Margin: With respect to any Adjustable Rate Mortgage Loan, the
fixed percentage amount set forth in the related Mortgage Note, which amount is
added to the Index in accordance with the terms of the related Mortgage Note to
determine the applicable Mortgage Loan Rate.

         Holder:  A Certificateholder.

         Hybrid Loan: Any Mortgage Loan that bears interest at a fixed rate for
its initial three year period following origination, and at an adjustable rate
for the ensuring 27 years in which it remains outstanding.

         Index: With respect to any Adjustable Rate Mortgage Loan, the
applicable index for computing the Mortgage Loan Rate as specified in the
Mortgage Note.

         Initial Certificate Principal Balance: As to the Class C Certificates,
$0.00, which is equal to the initial Overcollateralization Amount as of the
Closing Date. As to the Class R Certificates, $0. As to any other Class of
Offered Certificates, the respective amount set forth below opposite such Class:

                                                         Initial Certificate
                     Class                                Principal Balance
                     -----                                -----------------
            Class A-1 Certificates                           $65,500,000
            Class A-2 Certificates                           $50,000,000
            Class A-3 Certificates                           $21,500,000
            Class A-4 Certificates                           $11,750,000
            Class M-1 Certificates                           $11,375,000
            Class M-2 Certificates                           $ 7,875,000
            Class B Certificates                             $ 7,000,000

                                      -13-

<PAGE>

         Initial Mortgage Loan: Any Mortgage Loan included in the assets of the
Trust as of the Closing Date that is indicated as such on the Mortgage Loan
Schedule.

         Insurance Proceeds: With respect to any Distribution Date, proceeds
paid by any insurer (other than the PMI Insurer) and received by the Servicer
during the related Collection Period pursuant to any insurance policy covering a
Mortgage Loan or the related Mortgaged Property, including any deductible
payable by the Servicer with respect to a blanket insurance policy pursuant to
Section 3.04 and the proceeds from any fidelity bond or errors and omission
policy pursuant to Section 3.12 (to the extent such payments compensate for
losses that would otherwise be payable to Certificateholders pursuant to this
Agreement), net of any component thereof covering any expenses incurred by or on
behalf of the Servicer and specifically reimbursable under this Agreement.

         Interest Period: The calendar month preceding the month in which such
Distribution Date occurs.

         Interest Remittance Amount: As to any Distribution Date, that portion
of the Available Funds for such Distribution Date attributable to interest
received or advanced on the Mortgage Loans.

         Interest Shortfall: As to any Distribution Date, the amount of any (i)
Prepayment Interest Shortfall and (ii) Relief Act Shortfall. On any Distribution
Date, the amount of any Interest Shortfalls will be applied to reduce the Class
Monthly Interest Amount of a Class in the following order: first, to the Class C
Certificates in reduction of the interest amounts payable to such Class on the
related Distribution Date and, to the extent the amount of such Interest
Shortfall exceeds the interest due and payable to the Class C Certificates on
such Distribution Date, thereafter to the Offered Certificates, pro rata, based
on the respective Class Monthly Interest Amount for each such Class on such
Distribution Date before giving effect to the reduction in respect of any
Interest Shortfalls.

         Investment Company Act: The Investment Company Act of 1940, as amended.

         Junior Mortgage Loan: Any Mortgage Loan secured by a Mortgage with a
lien of other than first priority.

         Late Payment Rate: With respect to any date of determination, the rate
of interest as it is publicly announced by Citibank, N.A. at its principal
office in New York, New York on its prime rate (any change in such prime rate of
interest to be effective on the date such change is announced by Citibank, N.A.)
plus 3%.

         Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage
Loan as to which the Servicer has determined, in accordance with the servicing
procedures specified herein, during the related Collection Period that all
Liquidation Proceeds that it expects to recover from or on account of such
Mortgage Loan have been recovered.

         Liquidation Expenses: Expenses that are incurred by the Servicer in
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy or from any Mortgagor. Such expenses shall include, without
limitation, legal fees and expenses, real estate

                                      -14-

<PAGE>

brokerage commissions, any unreimbursed amount expended by the Servicer pursuant
to Section 3.06 with respect to the related Mortgage Loan (including, without
limitation, amounts voluntarily advanced to correct defaults on each mortgage
loan that is senior to such Mortgage Loan), any other related and previously
unreimbursed Servicing Advances and any related and previously unreimbursed
Property Protection Expenses.

         Liquidation Loan Losses: For each Liquidated Mortgage Loan the amount,
if any, by which the Principal Balance thereof plus accrued and unpaid interest
thereon is in excess of the related Net Liquidation Proceeds with respect
thereto.

         Liquidation Proceeds: Cash (other than Insurance Proceeds) received in
connection with the liquidation of any Mortgaged Property, including payments
received under the PMI Policy, whether through trustee's sale, foreclosure sale,
condemnation, taking by eminent domain or otherwise received in respect of any
Mortgage Loan foreclosed upon as described in Section 3.06 (including, without
limitation, proceeds from the rental of the related Mortgaged Property).

         Liquidation Report: A liquidation report in the form of Exhibit I
attached hereto.

         Loan-to-Value Ratio: The Original Principal Amount of a Mortgage Loan
as a percentage of the lesser of (a) the Appraised Value and (b) the sales
price, if applicable, of the related Mortgaged Property determined by the Seller
at the time of origination of such Mortgage Loan.

         Maximum Rate: With respect to an Adjustable Rate Mortgage Loan, any
absolute maximum Mortgage Loan Rate set by provisions in the related Mortgage
Note.

         Minimum Rate: With respect to an Adjustable Rate Mortgage Loan, any
absolute minimum Mortgage Loan Rate, set by provisions in the related Mortgage
Note.

         Monthly Advance:  Defined in Section 5.02(a).

         Monthly Mortgage Payment: With respect to any Mortgage Note, the amount
of each monthly payment (other than any final balloon payment) payable under
such Mortgage Note in accordance with its terms by the Mortgagor, including one
month's accrued interest on the related Principal Balance at the then applicable
Mortgage Loan Rate, but net of any portion of such monthly payment that
represents late payment charges, prepayment or extension fees or collections
allocable to payments to be made by Mortgagors for payment of insurance premiums
or similar items.

         Monthly Servicing Fee: With respect to any Collection Period, 1/12 of
the product of the Servicing Fee Rate and the aggregate Principal Balance of the
Mortgage Loans as of the beginning of the related Collection Period (or, in the
case of the first Collection Period, the aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date). The Monthly Servicing Fee shall be
payable to the Servicer out of collections of interest received on or in respect
of the Mortgage Loans for the related Collection Period.

         Moody's: Moody's Investors Service, Inc. and its successors in
interest.

                                      -15-

<PAGE>

         Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple in real property securing
a Mortgage Loan.

         Mortgage File: The mortgage documents listed in Section 2.01 pertaining
to a particular Mortgage Loan and any additional documents required to be added
to such Mortgage File pursuant to this Agreement.

         Mortgage Loan: Each of the Mortgage Loans transferred and assigned to
the Trustee pursuant to Section 2.01 or 2.02, that from time to time comprise
part of the Trust, the Mortgage Loans originally so held being identified in the
Mortgage Loan Schedule attached hereto as Exhibit E.

         Mortgage Loan Rate: With respect to any Adjustable Rate Mortgage Loan,
the per annum rate of interest computed in accordance with the provisions of the
related Mortgage Note as the sum of the Index and the Gross Margin, subject to
any Minimum Rate, the Maximum Rate or periodic limitation on adjustments to such
rate applicable from time to time to the calculation of interest thereon. As to
any Fixed Rate Mortgage Loan, the fixed per annum rate of interest applicable to
the calculation of interest thereon specified in the related Mortgage Note.

         Mortgage Loan Schedule: As of any date, the schedule of Mortgage Loans
as amended by each subsequently delivered schedule of Subsequent Mortgage Loans.
The initial schedule of Mortgage Loans as of the related Cut-off Date is
attached hereto as Exhibit E and sets forth as to each such Mortgage Loan, among
other things, (a) its identifying number and the name of the related Mortgagor;
(b) the street address of the related Mortgaged Property including the state,
county and zip code; (c) its date of origination; (d) the original number of
months to stated maturity; (e) its original stated maturity; (f) its Original
Principal Amount; (g) its Cut-off Date Principal Balance; (h) the related
Mortgage Loan Rate as of the related Cut-off Date and, with respect to any
Adjustable Rate Mortgage Loan, the related Index, Gross Margin, Minimum Rate,
Maximum Rate and any periodic limitations on adjustment; (i) the scheduled
Monthly Mortgage Payment as of the related Cut-off Date; (j) the date in each
month on which the related Monthly Mortgage Payments are due; (k) its Combined
Loan-to-Value Ratio or the ratio, expressed as a percentage, of the Original
Principal Amount of such Mortgage Loan to the Appraised Value of the related
Mortgaged Property, as applicable; (l) the lien status of the related Mortgage
and, with respect to any Junior Mortgage Loan, the principal amount (as of the
date of origination) of all related Senior Liens; (m) whether the related
Mortgaged Property is owner-occupied or non-owner-occupied; (n) whether the
related Mortgaged Property is a single-family residence, a two- to four-family
residence, a unit in a condominium or planned unit development, or manufactured
housing; (o) whether the Mortgage Loan has been originated by an Affiliate of
the Company; (p) the related Cut-off Date (unless specified in a related
Subsequent Transfer Agreement); and (q) a code indicating if the Mortgage Loan
is covered under the PMI Policy.

         Mortgage Note: The note or other instrument evidencing the indebtedness
of a Mortgagor under the related Mortgage Loan.

         Mortgaged Property:  The underlying property securing a Mortgage Loan.

         Mortgagor:  The obligor under a Mortgage Note.

                                      -16-

<PAGE>

         Net Liquidation Proceeds: As to any Mortgage Loan, Liquidation Proceeds
net of Liquidation Expenses. If Liquidation Expenses exceed Liquidation Proceeds
as to any Mortgage Loan, Net Liquidation Proceeds shall be zero. For all
purposes of this Agreement, Net Liquidation Proceeds shall be allocated first to
accrued and unpaid interest on the related Mortgage Loan and then to the
Principal Balance thereof.

         Net Loan Rate: With respect to any Mortgage Loan as to any day, the
Mortgage Loan Rate less the Expense Fee Rate.

         Net Rate Cap Carryover: As to any Distribution Date and the Offered
Certificates, the sum of (i) the excess, if any, of the related Class Monthly
Interest Amount, calculated at the applicable Pass-Through Rate (without regard
to the Available Funds Cap), over the Class Monthly Interest Amount for such
Distribution Date, (ii) any Net Rate Cap Carryover remaining unpaid from the
prior Distribution Date and (iii) 30 days' interest on the amount in clause (ii)
calculated at the applicable Pass-Through Rate (without regard to the Available
Funds Cap).

         Net Rate Cap Fund: The Net Rate Cap Fund established and maintained as
described in Section 3.21 and entitled "Bankers Trust Company of California,
N.A., as Trustee for Aames Mortgage Trust 2002-1, Mortgage Pass-Through
Certificates, Series 2002-1, Net Rate Cap Fund."

         Non-permitted Foreign Holder:  As defined in Section 6.02(c).

         Notional Amount:  Not Applicable.

         OC Floor: An amount equal to 0.50% of the aggregate Certificate
Principal Balance of the Offered Certificates as of the Closing Date. (i.e.,
$875,000).

         Offered Certificateholder:  A holder of an Offered Certificate.

         Offered Certificates: Collectively, the Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates, Class M-1
Certificates, Class M-2 Certificates and Class B Certificates.

         Officer's Certificate: A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a Vice President of the
Seller, the Depositor or the Servicer, as the case may be, and delivered to the
Trustee or each Rating Agency, as the case may be.

         Opinion of Counsel: A written opinion of counsel reasonably acceptable
to the Trustee, who may be in-house counsel for the Seller, the Depositor or the
Servicer (except with respect to any opinion with respect to or concerning the
REMIC status of any REMIC Pool). Any expense related to obtaining an Opinion of
Counsel for an action requested by a party shall be borne by the party required
to obtain such opinion or seeking to effect the action that requires the
delivery of such Opinion of Counsel.

         Original Pool Balance: Means the aggregate outstanding principal
amounts of each Initial Mortgage Loan as of the Cut-off Date, which amount is
$132,835,928.78.

                                      -17-

<PAGE>

         Original Principal Amount: With respect to any Mortgage Loan, the
original principal amount due under the related Mortgage Note as of its date of
origination.

         Overcollateralization Amount: As of any Distribution Date, the excess
of (x) the Pool Balance as of the last day of the related Collection Period
(plus, during the Funding Period, related allocated amounts on deposit in the
Prefunding Account on such date) over (y) the aggregate Certificate Principal
Balance of the Offered Certificates (after taking into account all distributions
of principal on the Offered Certificates on such Distribution Date).

         Pass-Through Rate: The Class A-1 Pass-Through Rate, the Class A-2
Pass-Through Rate, the Class A-3 Pass-Through Rate, the Class A-4 Pass-Through
Rate, the Class M-1 Pass-Through Rate, the Class M-2 Pass Through Rate or the
Class B Pass Through Rate, as applicable.

         Payment Ahead: Any payment of one or more Monthly Mortgage Payments
remitted by a Mortgagor with respect to a Mortgage Note in excess of the Monthly
Mortgage Payment due during such Collection Period with respect to such Mortgage
Note, which sums the related Mortgagor has instructed the Servicer to apply to
Monthly Mortgage Payments due in one or more subsequent Collection Periods. A
Monthly Mortgage Payment that was a Payment Ahead shall, for purposes of
computing Available Funds, be deemed to have been received by the Servicer on
the date in the related Collection Period on which such Monthly Mortgage Payment
would have been due if such Monthly Mortgage Payment was not a Payment Ahead.

         Payoff Notice: The certification delivered by the Servicer in
connection with any payment in full of the outstanding principal balance of a
Mortgage Loan pursuant to Section 3.07, to be substantially in the form of
Exhibit H.

         Percentage Interest: With respect to any Certificate, the undivided
percentage interest (carried to eight places, rounded down) obtained by dividing
the original principal balance of such Certificate by the Initial Certificate
Principal Balance of the related Class, as applicable, and multiplying the
result by 100; provided that with respect to a Class C Certificate or a Class R
Certificate, Percentage Interest means the undivided percentage interest set
forth on the face of such Certificate, which in the aggregate shall not exceed
100%.

         Permitted Investments: One or more of the following obligations,
instruments and securities:

                  (A) direct general obligations of, or obligations fully and
         unconditionally guaranteed as to the timely payment of principal and
         interest by, the United States or any agency or instrumentality
         thereof, provided such obligations are backed by the full faith and
         credit of the United States;

                  (B) Federal Housing Administration debentures, FHLMC senior
         debt obligations and FNMA senior debt obligations, but excluding any of
         such securities whose terms do not provide for payment of a fixed
         dollar amount upon maturity or call for redemption or that are not
         rated in the highest rating category by each Rating Agency;

                  (C) federal funds, certificates of deposit, time and
                      demand deposits and
                                      -18-

<PAGE>

         banker's acceptances (in each case having original maturities of not
         more than 365 days) of any bank or trust company incorporated under the
         laws of the United States or any state thereof, provided that the
         short-term debt obligations of such bank or trust company at the date
         of acquisition thereof have been rated "A-1" or better by Standard &
         Poor's, "Prime-1" or better by Moody's;

                  (D) deposits of any bank or savings and loan association that
         has combined capital, surplus and undivided profits of at least
         $100,000,000, which deposits are held up to the applicable limits
         insured by the Bank Insurance Fund or the Savings Association Insurance
         Fund of the FDIC;

                  (E) commercial paper (having original maturities of not more
         than 180 days) that has the highest short term rating of each of
         Standard & Poor's and Moody's;

                  (F) investments in money market funds rated "AAAm" or "AAAm-G"
         by Standard & Poor's and "Aaa" by Moody's (any such money market funds
         that provide for demand withdrawals without penalty being conclusively
         deemed to satisfy any maturity requirement for Permitted Investments
         set forth herein); and

                  (G) investments approved in writing by all Rating Agencies;

provided that (1) no investment described hereunder shall evidence either the
right to receive (i) only interest with respect to obligations underlying such
instrument or (ii) both principal and interest payments derived from obligations
underlying such instrument and the principal and interest payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity of the underlying obligations; (2) no instrument described
hereunder may be purchased at a price greater than par if such instrument may be
prepaid or called at a price less than its purchase price prior to stated
maturity; (3) no investment described hereunder shall contain options or
otherwise have voting rights with respect thereto (unless such voting rights are
relinquished upon the purchase of such investment); and (4) no investment shall
mature later than the latest Final Scheduled Distribution Date or be sold or
disposed of prior to maturity. Permitted Investments shall mature not later than
the Business Day prior to the date on which such monies will be needed to make
payments, or in the case of Permitted Investments held in the Prefunding
Account, shall be available on the Business Day next succeeding the date the
Trustee receives the Addition Notice that such monies will be needed.
Notwithstanding the foregoing, with respect to investment of amounts in any
account, any of the foregoing obligations, instruments or securities will not be
Permitted Investments to the extent that an investment therein will cause the
then outstanding principal amount thereof in which such funds are then invested
to exceed $25,000,000 (such investments being valued at par).

         Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

         PMI Insurer: Mortgage Guaranty Insurance Corporation, a monoline
private insurance company organized and created under the laws of the State of
Wisconsin, or its successors in interest.

                                      -19-

<PAGE>

         PMI Insurer Premium: For any Distribution Date, the aggregate of the
premiums payable, if any, during the immediately preceding Collection Period
under each PMI Policy for any PMI Mortgage Loans, as set forth in a statement
delivered to the Trustee by the PMI Insurer with respect to such Distribution
Date.

         PMI Mortgage Loans: The list of Mortgage Loans insured by the PMI
Insurer attached hereto as Exhibit P as amended by each subsequently delivered
schedule of Subsequent Mortgage Loans insured by the PMI Insurer.

         PMI Policy: The related primary mortgage insurance policy set forth on
Exhibit O hereto with respect to the PMI Mortgage Loans and all endorsements
thereto, issued by the PMI Insurer or collective reference to such policies, as
the context requires.

         Pool Balance: As to any Distribution Date, the sum of the aggregate of
the Principal Balances of the Mortgage Loans as of the end of the related
Collection Period plus, in the case of any Distribution Date relating to a
Collection Period that includes any part of the Funding Period, any portion of
the related allocated Prefunding Account Deposit remaining on deposit in the
Prefunding Account or Certificate Account as of the last day of such Collection
Period.

         Prefunding Account: The segregated account, which shall be an Eligible
Account, established and maintained pursuant to Section 3.16 and entitled
"Bankers Trust Company of California, N.A., as Trustee for Aames Mortgage Trust
2002-1 Mortgage Pass-Through Certificates, Series 2002-1, Prefunding Account."

         Prefunding Account Deposit: The amount deposited in the Prefunding
Account on the Closing Date for the purchase of Subsequent Mortgage Loans, which
amount is $42,164,071.22.

         Prefunding Distribution Date: Each of the Distribution Dates during the
Funding Period and the Distribution Date in the month following the end of the
Funding Period.

         Prepayment Assumption: Means the prepayment assumptions described in
the Prospectus Supplement as having been used to generate the prepayment
scenarios therein described.

         Prepayment Charge: As to a Mortgage Loan, any charge paid by a
Mortgagor in connection with certain partial prepayments and all prepayments in
full made within the related Prepayment Charge Period, the Prepayment Charges
with respect to each applicable Mortgage Loan so held by the Trust being
identified in a prepayment charge schedule.

         Prepayment Charge Period: As to any Mortgage Loan, the period of time,
if any, during which a Prepayment Charge may be imposed.

         Prepayment Charge Schedule: As of any date, the list of Prepayment
Charges on the Mortgage Loans included in the Trust on such date, attached
hereto as Exhibit R (including the Prepayment Charge Summary attached thereto).
The Prepayment Charge Schedule shall set forth the following information with
respect to each Prepayment Charge:

                  (i) the Mortgage Loan identifying number;

                                      -20-

<PAGE>

                  (ii) a code indicating the term of the Prepayment Charge;

                  (iii) the state of origination of the related Mortgage Loan;

                  (iv) the date on which the first Monthly Mortgage Payment was
         due on the related Mortgage Loan;

                  (v) the term of the related Mortgage Loan;

                  (vi) the Principal Balance of the related Mortgage Loan as of
         the Cut-off Date;

                  (vii) a code indicating whether a Mortgage Loan has a
         prepayment penalty;

                  (viii) a code indicating the type of prepayment penalty;

                  (ix) a code indicating the amount, if any, of a prepayment by
         a Mortgagor that would not be subject to the prepayment penalty that
         would otherwise apply; and

                  (x) the period from the date of origination of the Mortgage
         Loan during which the prepayment penalty applies.

         Prepayment Interest Shortfall: As to any Distribution Date, the amount,
if any, by which the amount described in clause (b) of the first sentence of the
definition of Compensating Interest for such Distribution Date exceeds one-half
of the Monthly Servicing Fee (calculated with a Servicing Fee Rate of 0.50% per
annum) for such related Collection Period.

         Principal Balance: As to any Mortgage Loan and any day, the actual
outstanding principal amount thereof as of the close of business on the last day
of the preceding Collection Period (or, if prior to the last day of the
Collection Period in which the Cut-off Date occurs, as of the related Cut-off
Date, without duplication), less the following amounts, if any, received through
the last day of the preceding Collection Period (i) any Principal Payments
received in respect of such Mortgage Loan, (ii) Net Liquidation Proceeds and
Trust Insurance Proceeds allocable to principal recovered or collected in
respect of such Mortgage Loan, (iii) the portion of the Purchase Price allocable
to principal to be remitted by the Seller or the Servicer to the Trustee on the
next succeeding Deposit Date in connection with a purchase or repurchase of such
Mortgage Loan pursuant to Section 2.03, 2.05, 3.01, 3.06 or 10.01, to the extent
such amount is actually received by the Trustee on such Deposit Date and (iv)
the amount to be remitted by the Seller to the Trustee on the next succeeding
Deposit Date in connection with a substitution of a Qualified Replacement
Mortgage Loan for such Mortgage Loan pursuant to Section 2.03 or 2.05, to the
extent such amount is actually received by the Trustee on such Deposit Date.

         Principal Distribution Amount: As to any Distribution Date, the lesser
of (a) the aggregate Certificate Principal Balances immediately preceding such
Distribution Date and (b) the sum of (1) the Basic Principal Amount minus the
Excess Overcollateralization Amount and (2) the Subordination Increase Amount.

                                      -21-

<PAGE>

         Principal Payment: As to any Mortgage Loan and Collection Period, all
amounts received or, in the case of the principal portion of any Payment Ahead,
deemed to have been received by the Servicer from or on behalf of the related
Mortgagor during such Collection Period (including Principal Prepayments) that,
at the time of receipt or, in the case of any Payment Ahead, at the time such
Payment Ahead is deemed to have been received, were applied or were required to
be applied by the Servicer in reduction of the Principal Balance of such
Mortgage Loan.

         Principal Prepayment: As to any Mortgage Loan and Collection Period,
any payment by a Mortgagor or other recovery in respect of principal on a
Mortgage Loan (including Net Liquidation Proceeds) that, in the case of a
payment by a Mortgagor, is received in advance of its scheduled due date and is
not a Payment Ahead.

         Property Protection Expenses: Expenses (exclusive of overhead expenses)
reasonably paid or incurred by or for the account of the Servicer in connection
with the preservation or protection of a Mortgaged Property or the security of a
Mortgaged Property, including (a) hazard insurance policy premiums, (b) real
estate taxes and property repair, replacement, protection and preservation
expenses, (c) amounts expended to cure or prevent any default with respect to
any mortgage loan senior to the related Mortgage Loan and (d) similar expenses
reasonably paid or incurred to preserve or protect the value of such Mortgaged
Property or security (including but not limited to reasonable legal fees and
expenses).

         Prospectus: That certain Prospectus dated as of September 7, 2001
relating to the asset-backed bonds and certificates to be sold by the Company.

         Prospectus Supplement: That certain Prospectus Supplement dated as of
March 13, 2002 relating to $175,000,000 principal amount of Mortgage
Pass-Through Certificates, Series 2002-1.

         Purchase Price: With respect to (a) any Defective Mortgage Loan or (b)
any Mortgage Loan to be purchased by the Servicer pursuant to Section 3.06, an
amount equal to (i) the sum of (A) the outstanding principal balance of such
Mortgage Loan or Defective Mortgage Loan, as the case may be, as of the
beginning of the Collection Period next preceding the Deposit Date on which such
repurchase or purchase is required to occur, (B) interest computed at the
applicable Mortgage Loan Rate (less the Servicing Fee Rate if purchased by the
Servicer) on such outstanding principal balance from the date to which interest
was last paid by the Mortgagor to the last day of the Collection Period
immediately preceding the Deposit Date on which such repurchase or purchase
occurs and (C) unless purchased by the Servicer, any previously unreimbursed
Servicing Advances made on or in respect of such Defective Mortgage Loan or
Mortgage Loan, as the case may be, less (ii) any payments of principal and
interest in respect of such Defective Mortgage Loan or Mortgage Loan, as the
case may be, made by or on behalf of the related Mortgagor during such
Collection Period; provided that the Purchase Price with respect to any
Restricted Mortgage Loan to be purchased by the Servicer pursuant to Section
3.06 will be the fair market value of the related Mortgaged Property as
described in such Section 3.06.

                                      -22-

<PAGE>

         Qualified Replacement Mortgage Loan: A Mortgage Loan that is
substituted for a Deleted Mortgage Loan pursuant to Section 2.03 or Section 2.05
that must, at the end of the Collection Period preceding the date of such
substitution, (i) have an outstanding principal balance (when taken together
with any other Qualified Replacement Mortgage Loan being substituted for such
Deleted Mortgage Loan), not in excess of and not substantially less than the
unpaid principal balance of the Deleted Mortgage Loan at the end of the
Collection Period preceding the date of substitution, (ii) if the Deleted
Mortgage Loan is an Adjustable Rate Mortgage Loan, have the Mortgage Loan Rate
computed on the same basis as the Mortgage Loan Rate on the related Mortgage
Loan, utilizing the same Index and having a Gross Margin or Minimum Rate not
less than (and not more than one percentage point in excess of) the Gross Margin
and Minimum Rate applicable to the Deleted Mortgage Loan and if the Deleted
Mortgage Loan is a Fixed Rate Mortgage Loan, have a Mortgage Loan Rate not less
than (and not more than one percentage point in excess of) the Mortgage Loan
Rate of the Deleted Mortgage Loan, (iii) have a remaining term to maturity not
greater than (and not more than one year less than) that of the Deleted Mortgage
Loan, (iv) have a Combined Loan-to-Value Ratio equal to or lower than the
Combined Loan-to-Value Ratio of the Deleted Mortgage Loan, (v) satisfy the
criteria set forth from time to time in the definition "qualified replacement
mortgage" at Section 860G(a)(4) of the Code, (vi) have the same or a superior
lien priority as the Deleted Mortgage Loan, (vii) comply as of the date of
substitution with each representation and warranty set forth in Section 2.05,
(viii) have the same or better property type as the Deleted Mortgage Loan and
(ix) have the same or better occupancy status. In the event that one or more
mortgage loans are proposed to be substituted for one or more Deleted Mortgage
Loans, the foregoing tests may be met on a weighted average basis or other
aggregate basis, except that the requirements of clauses (iv) through (viii)
hereof must be satisfied as to each Qualified Replacement Mortgage Loan.

         Rating Agencies: Standard & Poor's and Moody's (each, a "Rating
Agency"). If either such agency or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical credit rating
agency, or other comparable Person, designated by the Servicer, notice of which
designation shall be given to the Trustee.

         Realized Loss: With respect to any Liquidated Mortgage Loan, the
amount, if any, by which the Principal Balance of such Mortgage Loan and accrued
and unpaid interest thereon (determined as of the Determination Date immediately
prior to such Mortgage Loan becoming a Liquidated Mortgage Loan) exceeds the Net
Liquidation Proceeds, if any, in respect of such Mortgage Loan, which amount
shall in no event exceed the Principal Balance of such Mortgage Loan (determined
as of the Determination Date immediately prior to such Mortgage Loan becoming a
Liquidated Mortgage Loan), in each case as determined by the Servicer and set
forth on a Liquidation Report and accompanying Officer's Certificate
substantially in the form of Exhibits I and J hereto.

         Record Date: As to any Distribution Date, the close of business on the
last Business Day of the calendar month immediately preceding such Distribution
Date.

         Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.

                                      -23-

<PAGE>

         Relief Act Shortfall: As to any Distribution Date, the amount of any
reduction of interest collectible on any Mortgage Loan for the related
Collection Period due to the application of the Relief Act.

         REMIC: A "real estate mortgage investment conduit" as defined in Code
Section 860D, and in particular, any of REMIC I or REMIC II as indicated by
context.

         REMIC I Interests: As defined in Section 9.16(c) and described in
Section 9.16.

         REMIC I Regular Interests: As defined in Section 9.16(c) and described
in Section 9.16.

         REMIC II Interests: As defined in Section 9.16(b) and described in
Section 9.16.

         REMIC II Regular Interests: As defined in Section 9.16(b) and described
in Section 9.16.

         REMIC Pool: With respect to REMIC II, the assets of the Trust other
than the Prefunding Account, Capitalized Interest Account, Net Rate Cap Fund and
the REMIC II Regular Interests; and, with respect to REMIC I, the REMIC II
Regular Interests.

         REMIC Provisions: Provisions of the federal income tax law relating to
REMICs that appear at Sections 860A through 860G of Part IV of Subchapter M of
Chapter 1 of Subtitle A of the Code, and related provisions, and U.S. Department
of the Treasury proposed, temporary or final regulations and rulings promulgated
thereunder, as the foregoing may be in effect from time to time.

         REO Property:  As defined in Section 5.02(a).

         Representative:  Greenwich Capital Markets, Inc.

         Required Overcollateralization Amount: As to any Distribution Date (a)
prior to the Stepdown Date, the product of (i) 3.15% and (ii) the Pool Balance
as of the Cut Off Date; and (b) on and after the Stepdown Date, the greater of
(i) the lesser of (x) the product of 3.15% of the Pool Balance as of the Cut Off
Date and (y) the product of 6.30% of the Pool Balance as of the end of the
related Collection Period and (ii) the OC Floor; provided, however, that on each
Distribution Date during the continuance of a Trigger Event, the Required
Overcollateralization Amount will equal the Required Overcollateralization
Amount in effect as of the Distribution Date immediately preceding the date on
which such Delinquency Event or Cumulative Loss Event first occurred.

         Responsible Officer: When used with respect to the Trustee, any Vice
President or Assistant Vice President, any Assistant Secretary, any Assistant
Treasurer or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and to whom,
with respect to a particular matter, such matter is referred because of such
officer's knowledge of and familiarity with the particular subject. When used
with respect to the Seller, Depositor or Servicer, the President or any Vice
President, Assistant Vice President or any Secretary or Assistant Secretary.

                                      -24-

<PAGE>

         Restricted Mortgage Loan: A Mortgage Loan that as of the Closing Date
was 60 or more days contractually delinquent.

         Restricted Mortgaged Property: With respect to any Restricted Mortgage
Loan, the Mortgaged Property securing such Restricted Mortgage Loan.

         Retained Certificates: The Class C Certificates and the Class R
Certificates.

         Securities Act:  The Securities Act of 1933, as amended.

         Seller:  The Company.

         Senior Certificates: The Class A-1, Class A-2, Class A-3 and Class A-4
Certificates.

         Senior Enhancement Percentage: As to any Distribution Date, the
percentage equivalent of a fraction, the numerator of which is the sum of (i)
the aggregate Certificate Principal Balances of the Subordinate Certificates and
(ii) the Overcollateralization Amount (in each case, prior to taking into
account the distribution of the Principal Distribution Amount on such
Distribution Date) and the denominator of which is the Pool Balance as of the
last day of the related Collection Period.

         Senior Lien: With respect to any Junior Mortgage Loan, any liens on the
related Mortgaged Property of higher priority.

         Senior Principal Distribution Amount: As to (a) any Distribution Date
prior to the Stepdown Date or during the continuance of a Trigger Event, the
lesser of (i) 100% of the Principal Distribution Amount and (ii) the aggregate
Certificate Principal Balances of the Class A Certificates, and (b) any other
Distribution Date, an amount equal to the lesser of (x) the Principal
Distribution Amount and (y) the excess, if any, of (i) the aggregate Certificate
Principal Balance of the Class A Certificates immediately prior to such
Distribution Date over (ii) the lesser of (x) the product of 63.70% and the Pool
Balance as of the last day of the related Collection Period and (y) the Pool
Balance as of the last day of the related Collection Period minus the OC Floor.

         Servicer: Ocwen Federal Bank FSB, a federally chartered savings bank,
or any successor servicer appointed as provided pursuant to this Agreement.

         Servicer Prepayment Charge Payment Amount:  Not Applicable.

         Servicer Remittance Report: The monthly report prepared by the Servicer
and delivered to the Trustee pursuant to Section 4.01.

         Servicing Advances: All reasonable and customary "out-of-pocket" costs
and expenses incurred in the performance by the Servicer of its servicing
obligation, including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Property, including without
limitation advances in respect of real estate taxes and assessments and
insurance premiums on fire, hazard and, if applicable, flood insurance policies,
(ii) the prosecution or defense of any enforcement or judicial proceedings,
including foreclosures, (iii)

                                      -25-

<PAGE>

the management and liquidation of any REO Property, (iv) compliance with the
obligations under Section 3.04 and (v) expenditures relating to the correction
of a default on any Senior Lien pursuant to Section 3.06 in connection with the
liquidation of a Mortgage Loan.

         Servicing Fee Rate: With respect to each Collection Period, 0.50% per
annum.

         Servicing Officer: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers annexed to an
Officer's Certificate furnished to the Trustee by the Servicer, as such list may
from time to time be amended.

         Sixty Day Delinquency Rate: As to any Distribution Date, the percentage
equivalent of a fraction, the numerator of which is the aggregate Principal
Balances of the Mortgage Loans that are (a) 60 or more days delinquent as of the
last day of the related Collection Period, (b) 60 or more days delinquent and in
bankruptcy as of the last day of the related Collection Period or (c) REO
Property and Mortgage Loans in foreclosure and the denominator of which is the
Pool Balance as of the last day of the related Collection Period.

         Standard & Poor's: Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., and its successors in interest.

         Startup Day:  As defined in Section 9.16(e).

         Statement to Certificateholders:  As defined in Section 5.03.

         Stepdown Date: The later to occur of (x) the earlier to occur of (i)
the Distribution Date in April 2005 and (ii) the Distribution Date on which the
aggregate Certificate Principal Balance of the Class A Certificates is reduced
to zero, and (y) the first Distribution Date on which the Pool Balance has been
reduced to 50% of the Pool Balance as of the Cut-off Date.

         Subordinate Certificates: The Class M-1, Class M-2 and Class B
Certificates.

         Subordination Deficiency: As to any Distribution Date, the excess, if
any, of (i) the Required Overcollateralization Amount for such Distribution Date
over (ii) the Overcollateralization Amount for such Distribution Date after
giving effect to the distribution of the Basic Principal Amount on such
Distribution Date (but prior to the distribution of any Subordination Increase
Amount on that Distribution Date).

         Subordination Increase Amount: As to any Distribution Date, the lesser
of (i) the Subordination Deficiency and (ii) the Excess Interest.

         Subordination Required Overcollateralization Amount:  Not Applicable.

         Subsequent Cut-off Date: With respect to any Subsequent Mortgage Loan,
the date specified as such in the related Subsequent Mortgage Loan Schedule.

                                      -26-

<PAGE>

         Subsequent Cut-off Date Principal Balance: As to any Subsequent
Mortgage Loan, the actual outstanding principal balance due thereunder from the
Mortgagor as specified in the related Addition Notice.

         Subsequent Mortgage Loan: A Mortgage Loan sold to the Trust pursuant to
Section 2.02 of this Agreement, which shall be listed on the Subsequent Mortgage
Loan Schedule attached to a Subsequent Transfer Agreement.

         Subsequent Mortgage Loan Schedule: As of any Subsequent Transfer Date,
the schedule of Subsequent Mortgage Loans as of the related Subsequent Cut-off
Date being transferred to the Trust on such Subsequent Transfer Date pursuant to
a Subsequent Transfer Agreement. Each Subsequent Mortgage Loan Schedule shall
contain information regarding the related Subsequent Mortgage Loans of the type
included in the Mortgage Loan Schedule attached hereto as Exhibit E.

         Subsequent Purchase Price: As of any Subsequent Transfer Date and with
respect to the Subsequent Mortgage Loans, an amount equal to 100% of the
Principal Balances as of the Subsequent Cut-off Date of such Subsequent Mortgage
Loans listed in the related Subsequent Transfer Agreement.

         Subsequent Transfer Agreement: With respect to any Subsequent Mortgage
Loan, the agreement pursuant to which such Subsequent Mortgage Loan is
transferred to the Trust, in substantially the form attached hereto as Exhibit
C.

         Subsequent Transfer Date: The date specified in each Subsequent
Transfer Agreement, but no later than April 30, 2002.

         Sub-Servicer: Any Person, including an Affiliate of the Servicer, with
whom the Servicer has entered into a Sub-Servicing Agreement and who satisfies
the requirements set forth in Section 3.15 hereof in respect of the
qualification of a Sub-Servicer. The Sub-Servicers with respect to any of the
Mortgage Loans as of the related Cut-off Date are listed on Schedule I attached
to this Agreement.

         Sub-Servicing Account: Any segregated account, which shall at all times
be an Eligible Account, established and maintained pursuant to Section 3.02(b)
and entitled "Bankers Trust Company of California, N.A., in trust for the
benefit of Holders of Aames Mortgage Trust 2002-1 Mortgage Pass-Through
Certificates, Series 2002-1, Collection Account". References herein to the
Collection Account shall include any Sub-Servicing Account as the context
requires.

         Sub-Servicing Agreement: A written contract between the Servicer and
any Sub-Servicer relating to the servicing and/or administration of certain
Mortgage Loans.

         Three Month Delinquency Rate: As to any Distribution Date the
arithmetic average of the Sixty Day Delinquency Rates for the three Distribution
Dates preceding such Distribution Date.

                                      -27-

<PAGE>

         Transfer Affidavit: The affidavit to be delivered by any transferee of
an interest in a Class R Certificate pursuant to Section 6.02(b), to be
substantially in the form attached hereto as Exhibit G.

         Transferor Affidavit: The affidavit to be delivered by any transferor
of an interest in a Class R Certificate pursuant to Section 6.02(b), to be
substantially in the form attached hereto as Exhibit K.

         Transition Cost: Any documented expenses reasonably incurred and
documented by Trustee in connection with a transfer of servicing from the
Servicer to a successor servicer as successor servicer pursuant to Section 8.02,
but not to exceed $5,000 with respect to any single succession.

         Trigger Event: The occurrence of either a Delinquency Event and/or a
Cumulative Loss Event.

         Trust: The trust created by this Agreement and the corpus thereof,
which consists of, to the extent described herein, the Mortgage Loans, such
assets as shall from time to time be identified or shall be required by this
Agreement to be deposited in the Collection Account, the Certificate Account,
the Prefunding Account or the Capitalized Interest Account or invested in
Permitted Investments in accordance with this Agreement, all rights under any
insurance policy covering a Mortgage Loan or the related Mortgaged Property,
including the PMI Policy, and property and any proceeds thereof that secured a
Mortgage Loan and that has been acquired by foreclosure, deed in lieu of
foreclosure or by a comparable conversion.

         Trust Insurance Proceeds: Insurance Proceeds that (a) are applied by
the Servicer to reduce the Principal Balance of the related Mortgage Loan or pay
interest due on the related Mortgage Loan and (b) not applied to the restoration
or repair of the related Mortgaged Property or released to the related Mortgagor
in accordance with the Servicer's normal servicing procedures or the terms of
the related Mortgage Loan.

         Trust Parties:  As defined in Section 5.04.

         Trustee:  Bankers Trust Company of California, N.A., a national
banking association, and its successors in interest or any successor trustee
appointed as provided pursuant to this Agreement.

         Trustee Fee: With respect to any Distribution Date, 1/12 of the product
of 0.015% and the aggregate Principal Balance of the Mortgage Loans as of the
beginning of the related Collection Period (or, in the case of the first
Distribution Date, the aggregate Principal Balance of the related Mortgage Loans
as of the Cut-off Date).

         Turbo Amount:  As defined in Section 9.16(c).

         Vice President: Any vice president, whether or not designated by a
number or a word or words added before or after the title "vice president".

                                      -28-

<PAGE>

         Voting Interest: The portion of the voting interests of all of the
Certificates which is allocated to any Certificate. As of any date of
determination, (a) 1% of all Voting Interests shall be allocated to the Class C
Certificates (such Voting Rights to be allocated among the Holders of
Certificates of such Class in accordance with their respective Percentage
Interests), (b) 1% of all Voting Interests shall be allocated to the Class R
Certificates in the aggregate, or if separate Class R-I and Class R-II
Certificates are issued, 1/2% to each such Class (such Voting Interests to be
allocated among the Holders of Certificates of each such Class in accordance
with their respective Percentage Interests), and (c) the remaining Voting
Interests shall be allocated among Holders of the Classes of Offered
Certificates in proportion to the Certificate Principal Balances of their
respective Offered Certificates on such date. Each Certificateholder of a Class
will have a Voting Interest equal to the product of the Voting Interest to which
such Class is collectively entitled and the Percentage Interest in such Class
represented by such Holder's Certificates. With respect to any provision hereof
providing for action, consent or approval of each Class of Certificates or
specified Classes of Certificates, each Certificateholder of a Class will have a
Voting Interest in such Class equal to such Holder's Percentage Interest in such
Class.

         Section 1.02 Interest Calculations. All calculations of interest at the
Mortgage Loan Rate that are made in respect of the Principal Balance of a
Mortgage Loan, shall be made on a daily basis using a 360-day year of twelve
30-day months.

         All calculations of interest on the Offered Certificates will be
computed on the basis of a 360-day year of twelve 30-day months.

ARTICLE II

                             CONVEYANCE OF THE TRUST
                        ORIGINAL ISSUANCE OF CERTIFICATES

         Section 2.01 Conveyance of the Trust. The Seller, concurrently with the
execution and delivery of this Agreement, does hereby irrevocably sell,
transfer, assign, set over and otherwise convey to the Depositor, without
recourse (except as otherwise explicitly provided for herein), all of its right,
title and interest in and to the corpus of the Trust, including specifically,
without limitation, the Mortgage Loans, the Mortgages, the Mortgage Files and
the Mortgage Notes, including all interest and principal (whether in the form of
payments by Mortgagors or other proceeds) received or deemed to be received by
the Seller on or with respect to the Mortgage Loans on or after the related
Cut-off Date net of amounts in respect of interest accrued on the Mortgage Loans
in periods prior to the related Cut-off Date, (whether in the nature of amounts
held by the Seller for application on behalf of the related Mortgagor as a
Monthly Mortgage Payment that is due on any date on or after the related Cut-off
Date or otherwise), and all right, title and interest in and to the proceeds
received on or after the related Cut-off Date of any related insurance policies.
Such delivery of the Mortgage Loans, the Mortgages, Mortgage Files and the
Mortgage Notes shall be made against payment by the Depositor of the purchase
price, previously agreed to by the Seller and Depositor, for the Mortgage Loans.
In addition, on or prior to the Closing Date the Seller shall (i) cause the PMI
Policy to be delivered to the Depositor and (ii) deposit the Closing Date
Deposit with the Depositor for deposit in the Collection Account.

                                      -29-

<PAGE>

         Immediately upon the conveyance of the corpus of the Trust referred to
in the preceding paragraph, the Depositor does hereby sell, transfer, assign,
set over and otherwise convey to the Trustee in trust for the benefit of the
Certificateholders, without recourse (except as otherwise explicitly provided
for herein), all the right, title and interest of the Depositor in and to the
Trust, the PMI Policy and the Closing Date Deposit together with the Depositor's
right to require the Seller to cure any breach of a representation or warranty
made herein by the Seller or to repurchase or substitute for any affected
Mortgage Loan in accordance herewith. The respective transfers by the Seller and
the Depositor of the Mortgage Loans shall be absolute and shall be intended by
the parties hereto to be treated as a sale by the Seller and the Depositor,
respectively.

         In the event that, notwithstanding the intent of the parties hereto to
effect a sale and assignment of the corpus of the Trust by the Seller to the
Depositor and by the Depositor to the Trustee, such sale and assignment is
deemed to constitute a pledge of security for a loan, it is the intent of this
Agreement that the Seller shall be deemed to have granted to Depositor and the
Depositor shall be deemed to have granted to the Trustee for the benefit of the
Certificateholders a first priority perfected security interest in all of the
related transferring party's right, title and interest in and to the Mortgage
Loans, the Mortgages, the Mortgage Files and the Mortgage Notes, all payments of
principal or interest on the Mortgage Loans received on or after the related
Cut-off Date net of amounts in respect of interest accrued on the Mortgage Loans
in periods prior to the related Cut-off Date, all other payments made in respect
of such Mortgage Loans on or after the related Cut-off Date and all proceeds of
any thereof, including all amounts on deposit in the Certificate Account, the
Collection Account, the Prefunding Account and the Capitalized Interest Account
and amounts invested in Permitted Investments (but excluding all investment
income with respect to the Prefunding Account and Capitalized Interest Account),
and that this Agreement shall constitute a security agreement under applicable
law. The Seller and the Depositor shall file financing statements and
continuation statements as necessary to maintain the perfection of such security
interest.

         The Company confirms to the Depositor and the Depositor confirms to the
Trustee that it has caused its computer records relating to the Initial Mortgage
Loans to indicate by a code that the Initial Mortgage Loans have been sold,
respectively, to the Depositor and to the Trustee on behalf of the Trust and
constitute part of the Trust in accordance with the terms of this Agreement. The
Company further confirms to the Depositor and the Depositor further confirms to
the Trustee that it will cause its computer records relating to each Subsequent
Mortgage Loan to indicate by a code that such Subsequent Mortgage Loan has been
sold, respectively, to the Depositor and to the Trustee on behalf of the Trust
and that it constitutes part of the Trust in accordance with the terms of this
Agreement. The Company and the Depositor each confirms that it will treat the
conveyance transactions contemplated hereby and in each Subsequent Transfer
Agreement as sales in accordance with generally accepted accounting principles
and will reflect such transactions as sales on its primary accounting records.

         In connection with the sale and assignment set forth in the second
paragraph of this Section 2.01, the Depositor does hereby deliver to or cause to
be delivered to, and deposit with or cause to be deposited with, the Trustee the
originals of the following documents or instruments with respect to each
Mortgage Loan so assigned:

                                      -30-

<PAGE>

                  (a) The original Mortgage Note, with all intervening
         endorsements sufficient to show a complete chain of endorsement to the
         Person endorsing the Mortgage Note to the Trustee, endorsed (which
         endorsement may be by manual or facsimile signature) by the Person so
         endorsing without recourse to the order of the Trustee in the following
         form: "Pay to the order of Bankers Trust Company of California, N.A.,
         in trust for the benefit of holders of Aames Mortgage Trust 2002-1
         Mortgage Pass-Through Certificates, Series 2002-1, without recourse";

                  (b) The original Mortgage with evidence of recording indicated
         thereon;

                  (c) The original assignment of the Mortgage executed by the
         Person assigning the Mortgage to the Trustee;

                  (d) Originals of all assumption, modification and substitution
         agreements in those instances where the terms or provisions of a
         Mortgage or Mortgage Note have been modified or such Mortgage or
         Mortgage Note has been assumed;

                  (e) Originals of all intervening mortgage assignments with
         evidence of recording indicated thereon sufficient to show a complete
         chain of assignment from the originator of the Mortgage Loan to the
         Person assigning such assignments to the Trustee; and

                  (f) Original lender's title insurance policy issued on the
         date of the origination of such Mortgage Loan or a true copy thereof
         or, if such original lender's title insurance policy has been lost, a
         copy thereof certified by the appropriate title insurer to be true and
         complete or, if such lender's title insurance policy has not been
         issued as of the Closing Date, a marked up commitment (binder) to issue
         such policy.

         As promptly as practicable subsequent to the Closing Date, and in any
event, within 30 days thereafter, the Company, in its capacity as initial
Sub-Servicer shall (i) affix the Trustee's name to each assignment of Mortgage,
as the assignee thereof in the following form: "Bankers Trust Company of
California, N.A., in trust for the benefit of holders of Aames Mortgage Trust
2002-1 Mortgage Pass-Through Certificates, Series 2002-1, without recourse",
(ii) cause such assignment to be in proper form for recording in the appropriate
public office for real property records, and (iii) cause to be delivered for
recording in the appropriate public office for real property records the
assignments of the Mortgages to the Trustee, except that, with respect to any
assignments of Mortgage as to which the Company, in its capacity as initial
Sub-Servicer, has not received the information required to prepare such
assignment in recordable form, the Company, in its capacity as initial
Sub-Servicer, shall be obligated to prepare and to deliver such assignment for
such recording as soon as practicable after receipt of such information and in
any event within 30 days after receipt thereof (and in no event more than one
year after the Closing Date) and that the Company need not cause to be recorded
any assignment that relates to a Mortgage Loan in any jurisdiction under the
laws of which, as evidenced by an Opinion of Counsel delivered to the Trustee at
Seller's expense to the effect that the recordation of such assignment is not
necessary to protect the Trustee's and the Certificateholders' interest in the
related Mortgage Loan.

                                      -31-

<PAGE>

         If the Depositor cannot deliver the original Mortgage or any
intervening mortgage assignment with evidence of recording thereon concurrently
with the execution and delivery of this Agreement solely because of a delay
caused by the public recording office where such original Mortgage or mortgage
assignment has been delivered for recordation, the Depositor shall deliver to
the Trustee an Officer's Certificate, with a photocopy of such Mortgage or
mortgage assignment, as the case may be, attached thereto, stating that such
original Mortgage or mortgage assignment has been delivered to the appropriate
public recording official for recordation. The Depositor shall promptly deliver
to the Trustee such original Mortgage or intervening mortgage assignment with
evidence of recording indicated thereon upon receipt thereof from the public
recording official. If the Depositor within six months from the Closing Date
shall not have received such original Mortgage or intervening mortgage
assignment from the public recording official, it shall obtain, and deliver to
the Trustee within eight months from the Closing Date, a copy of such original
Mortgage or mortgage assignment certified by such public recording official to
be a true and complete copy of such original Mortgage or mortgage assignment as
recorded by such public recording office.

         The costs relating to the delivery of the documents specified in this
Section shall be borne by the Depositor.

         The Seller shall deliver to the Depositor, within the time periods
called for by this Article II, such documents as are required to be delivered by
the Depositor to the Trustee pursuant to this Article II.

         Section 2.02 Conveyance of the Subsequent Mortgage Loans; Fixed Price
Contract. Subject to the conditions set forth in the paragraphs below, in
consideration of the Trustee's delivery on the Closing Date or related
Subsequent Transfer Dates to or upon the order of the Depositor of the
Subsequent Purchase Price of the related Subsequent Mortgage Loans from amounts
on deposit in the Prefunding Account (or other amounts payable to or upon the
order of the Depositor if such purchases of all Subsequent Mortgage Loans occur
on the Closing Date), the Seller shall, from time to time, on the Closing Date
or any Subsequent Transfer Date, sell, transfer, assign, set over and otherwise
convey without recourse to the Depositor, all right, title and interest of the
Seller in and to each Subsequent Mortgage Loan identified on the Subsequent
Mortgage Loan Schedule attached to the related Subsequent Transfer Agreement
delivered on the Closing Date or such Subsequent Transfer Date, including all of
its right, title and interest in and to principal and interest (whether in the
form of payments by Mortgagors or other proceeds) received or deemed to be
received by the Seller on each such Subsequent Mortgage Loan on and after the
related Subsequent Cut-off Date, net of amounts in respect of interest accrued
on such Subsequent Mortgage Loans in periods prior to the related Subsequent
Cut-off Date (whether in the nature of amounts held by the Seller for
application on behalf of the related Mortgagor as a Monthly Mortgage Payment
that is due on any date on or after the related Subsequent Cut-off Date or
otherwise) plus all items with respect to such Subsequent Mortgage Loan to be
delivered pursuant to Section 2.01 and other items in the related Mortgage File;
provided, however, that the Seller reserves and retains all of its right, title
and interest in and to principal (including prepayments) and interest collected
on each such Subsequent Mortgage Loan prior to the related Subsequent Cut-off
Date (except for amounts held by the Seller for application on or after the
related Subsequent Cut-off Date).

                                      -32-

<PAGE>

         Immediately upon the conveyance of the Subsequent Mortgage Loans as
referred to in the preceding paragraph, the Depositor shall sell, transfer,
assign, set over and otherwise convey without recourse to the Trustee for
benefit of the Certificateholders, all right, title and interest of the
Depositor in the Subsequent Mortgage Loans as referred to in the preceding
paragraph.

         The respective transfers by the Seller and the Depositor of the
Subsequent Mortgage Loans set forth on the Subsequent Mortgage Loan Schedule
shall be absolute and shall be intended by the parties hereto to be treated as a
sale by the Seller and the Depositor, respectively. On or before the last day of
the Funding Period, the Seller shall convey to the Depositor and the Depositor
to the Trustee pursuant to this Section 2.02 the lesser of: (i) all Mortgage
Loans then in its possession that satisfy the requirements of this Section 2.02
or (ii) the maximum principal balance of Mortgage Loans as determined by Seller
that satisfy the requirements of this Section 2.02 whose aggregate Subsequent
Purchase Price does not exceed the Prefunding Account Deposit. Subsequent
Mortgage Loans to be conveyed on a given Subsequent Transfer Date must have an
aggregate Subsequent Cut-off Date Principal Balance of not less than $500,000;
provided, however, that the Subsequent Mortgage Loans to be conveyed on the
final Subsequent Transfer Date may have an aggregate Subsequent Cut-off Date
Principal Balance of less than $500,000.

         In the event that, notwithstanding the intent of the parties hereto to
effect a sale and assignment of the Subsequent Mortgage Loans on the related
Subsequent Transfer Date by the Seller to the Depositor and by the Depositor to
the Trustee, such sale and assignment will be deemed to constitute a pledge of
security for a loan, it is the intent of this Agreement that the Seller shall be
deemed to have granted to the Depositor and the Depositor to the Trustee for the
benefit of the Certificateholders a first priority perfected security interest
in all of the related transferor's right, title and interest in and to the
Subsequent Mortgage Loans, the Mortgages, the Mortgage Files and the Mortgage
Notes, all payments of principal and interest on the Subsequent Mortgage Loans
received on or after their respective Subsequent Cut-off Dates, net of amounts
in respect of interest accrued on such Subsequent Mortgage Loans in periods
prior to the related Subsequent Cut-off Date, all other payments (provided that
the parties to this Agreement acknowledge that the Servicer is entitled to
receive all assumption fees, late payment charges, charges for checks returned
for insufficient funds, if any, and extension and other administrative charges
other than Prepayment Charges) made in respect of such Subsequent Mortgage Loans
on or after the related Subsequent Cut-off Date, and that this Agreement and the
related Subsequent Transfer Agreement shall each constitute a security agreement
with respect to the related Subsequent Mortgage Loans under applicable law. The
Seller and the Depositor shall file financing statements and continuation
statements as necessary to maintain the perfection of such security interest.

         The amount released to or upon the order of the Depositor from the
Prefunding Account on any Subsequent Transfer Date (or from other amounts
payable to the Depositor on the Closing Date) in connection with any conveyance
of Subsequent Mortgage Loans to be included shall be equal to the aggregate of
the related Subsequent Purchase Prices for such related Subsequent Mortgage
Loans to be included, which related amounts, in the aggregate, shall not exceed
the allocated Prefunding Account Deposit. The amount so released to or upon the
order of the Depositor in connection with any conveyance of Subsequent Mortgage
Loans shall, for federal income tax purposes, be considered cash contributed to
REMIC II by the Depositor and

                                      -33-

<PAGE>

used by the Trustee to acquire the related Subsequent Mortgage Loans pursuant to
a fixed price contract established pursuant to this Section 2.02.

         On each related Subsequent Transfer Date, the Seller shall transfer to
the Depositor and the Depositor shall transfer to the Trustee the Subsequent
Mortgage Loans and the other property and rights related thereto described in
the first paragraph in this section only upon the satisfaction of each of the
following conditions on or prior to the related Subsequent Transfer Date:

                  (a) the Seller or the Depositor shall provide the Trustee, the
         Servicer, the Representative and the Rating Agencies with an Addition
         Notice and shall provide any information reasonably requested by the
         Trustee, the Servicer, the Representative or the Rating Agencies with
         respect to the Subsequent Mortgage Loans;

                  (b) the Seller or the Depositor shall deliver to the Trustee,
         the Servicer, the Representative and the Rating Agencies a duly
         executed Subsequent Transfer Agreement and any other related
         documentation in the forms of the exhibits listed thereon;

                  (c) the Seller shall deposit in the Collection Account all
         collections in respect of the Subsequent Mortgage Loans received by the
         Seller and the Depositor on or after the related Subsequent Cut-off
         Date (whether in the nature of amounts held by the Seller for later
         application on behalf of the related Mortgagor in respect of a Monthly
         Payment due on or after the related Subsequent Cut-off Date or
         otherwise) except for amounts in respect of interest accrued on such
         Subsequent Mortgage Loans prior to the related Cut-off Date;

                  (d) the Seller and the Depositor each shall certify that, as
         of the Subsequent Transfer Date, neither the Seller nor the Depositor
         was insolvent, nor was made insolvent by such transfer and neither is
         aware of any pending insolvency;

                  (e) the Depositor shall certify that such addition of
         Subsequent Mortgage Loans will not result in a material adverse tax
         consequence to the Trust or the Certificateholders;

                  (f) the Funding Period shall not have expired; and

                  (g) the Subsequent Mortgage Loans shall satisfy the criteria
         set forth on page S-37 of the Prospectus Supplement and Exhibit Q
         hereto.

         In addition, the Seller or the Depositor will provide the Servicer, the
Representative, the Rating Agencies and the Trustee with data regarding all
Subsequent Mortgage Loans to be transferred to the Trust on any Subsequent
Transfer Date prior to the related Subsequent Transfer Date. On or prior to each
Subsequent Transfer Date, the following conditions shall have been satisfied
with respect to all Subsequent Mortgage Loans to be transferred to the Trust on
any Subsequent Transfer Date:

                  (A) the Depositor shall have confirmed to the Rating Agencies,
         the Representative and the Trustee, in the related Subsequent Transfer
         Agreement, the

                                      -34-

<PAGE>

         satisfaction of each condition precedent specified in this Section
         2.02;

                  (B) the Seller or the Depositor shall have delivered to the
         Rating Agencies, the Representative and the Trustee Opinions of Counsel
         with respect to the transfer of all of the Subsequent Mortgage Loans to
         the Trust on any Subsequent Transfer Date substantially in the form of
         the Opinions of Counsel delivered to the Trustee on the Closing Date
         regarding bankruptcy, corporate and tax matters;

                  (C) the Trustee shall deliver to the Rating Agencies, the
         Representative and the Depositor an Opinion of Counsel with respect to
         the enforceability of each of the Subsequent Transfer Agreements
         substantially in the form of the Opinion of Counsel delivered to the
         Seller on the Closing Date;

                  (D) the Seller shall represent and warrant that the Subsequent
         Mortgage Loans satisfy the criteria set forth in on page S-37 of the
         Prospectus Supplement and Exhibit Q hereto; and

                  (E) the Servicer shall deliver to the Depositor, the Trustee,
         the Representative and the Rating Agencies the Servicer's
         acknowledgment to service all Subsequent Mortgage Loans purchased by
         the Trust on any Subsequent Transfer Date.

         On or prior to each Subsequent Transfer Date, the Seller or the
Depositor shall provide to the Trustee, the Servicer, the Rating Agencies and
the Representative a schedule of mortgage loans that are expected to be
Subsequent Mortgage Loans. Subsequent Mortgage Loans transferred to the Trust
shall be taken only from such schedule unless the Rating Agencies shall have
informed the Seller or the Trustee prior to the applicable Subsequent Transfer
Date that the inclusion of such Subsequent Mortgage Loans would result in the
downgrade or withdrawal of the ratings assigned to the Offered Certificates;
provided, however, if any such identified mortgage loans do not satisfy the
requirements of Subsequent Mortgage Loans as set forth in this Section 2.02 or
if any such mortgage loans are rejected as Subsequent Mortgage Loans by either
of the Rating Agencies, mortgage loans acceptable to the Rating Agency or Rating
Agencies may be substituted for such defective or rejected mortgage loans. The
Depositor shall certify that the Subsequent Mortgage Loans will be transferred
to the Trust in accordance with the foregoing and that such Subsequent Mortgage
Loans satisfy the requirements of Subsequent Mortgage Loans as set forth in this
Section 2.02 as of the Closing Date.

         Subject to Section 3.16, if all of the Subsequent Mortgage Loans are
transferred to the Trust on the Closing Date, then the remaining portion of the
Prefunding Account Deposit will be deposited into the Certificate Account and
held there, without investment thereof, until the first Distribution Date. On
such first Distribution Date, such amounts will be deemed to comprise a portion
of the Principal Distribution Amount and will be distributable to the
Certificateholders.

         Section 2.03 Acceptance by the Trustee; Repurchase or Substitution of
Mortgage Loans. The Trustee acknowledges the sale and assignment to the Trust
and receipt by it of the original Mortgage Notes, Assignments and Mortgages
pursuant to this Agreement and the delivery to it of the PMI Policy, and subject
to (i) the provisions of the penultimate paragraph of Section 2.01, (ii) the
review provided for in this Section of the documents referred to in clauses

                                      -35-

<PAGE>

(a) through (f) of Section 2.01 and (iii) delivery of the Officer's Certificates
pursuant to Section 2.01, declares that it will hold the Trust in trust upon the
terms herein set forth for the use and benefit of all present and future
Certificateholders. The Trustee agrees, for the benefit of Certificateholders,
to review each Mortgage File within 45 days after the Closing Date (or, 45 days
after the Subsequent Transfer Date, with respect to the Subsequent Mortgage
Loans) to determine whether the documents described in Section 2.01(a)-(c), (e)
and (f) have been executed and received, and whether such documents relate to
the Mortgage Loans identified in the Mortgage Loan Schedule, or the Subsequent
Mortgage Loan Schedule, as applicable, and in so doing the Trustee may rely on
the purported due execution and genuineness of any such document and on the
purported genuineness of any signature thereon. If within such 45-day period the
Trustee finds any document constituting a part of a Mortgage File not to have
been executed or received or to be unrelated to the Mortgage Loans identified in
the Mortgage Loan Schedule or the Subsequent Mortgage Loan Schedule, as
applicable, the Trustee shall promptly, but in no event later than 30 days
following such finding, notify the Seller of such findings. The Seller shall
have a period of 60 days from the date of such notice to correct or cure any
such defect. Notwithstanding the second paragraph of Section 9.01, the Trustee
shall be under no duty or obligation to inspect, review or examine any such
documents, instruments, certificates or other papers to determine that they are
genuine, enforceable, or appropriate for the represented purpose or that they
have actually been recorded or that they are other than what they purport to be
on their face.

         If the Trustee has notified the Seller of a defect in a Mortgage File
that materially and adversely affects the value of the related Mortgage Loan or
the interests of the Certificateholders in the related Mortgage Loan, and such
defect remains uncured after such 60-day period following the Seller's
notification, the Seller shall, (i) in the case of a defect consisting solely of
the failure of Seller to deliver the original Mortgage or any intervening
mortgage assignment with evidence of recording thereon for reasons set forth in
Section 2.01, on the first Deposit Date occurring after the expiration of eight
months from the Closing Date, and (ii) in the case of all other defects, on the
Deposit Date occurring not later than 60 days after receipt of notice of such
defect from the Trustee either (I) repurchase the related Mortgage Loan
(including any property acquired in respect thereof and any insurance policy or
current or future insurance proceeds with respect thereto) from the Trust at a
price equal to the Purchase Price, which shall be accomplished by deposit of
monies by the Seller in the Certificate Account on such Deposit Date, or (II)
substitute one or more Qualified Replacement Mortgage Loans for the related
Mortgage Loan.

         Upon receipt by the Trustee of written confirmation from the Servicer
to the effect that the Purchase Price for a Defective Mortgage Loan (other than
a Defective Mortgage Loan that is a Deleted Mortgage Loan) has been deposited in
the Certificate Account, and upon confirmation by the Trustee that such Purchase
Price has been received by it, the Trustee shall execute and deliver such
instrument of transfer or assignment presented to it by the Seller, in each case
without recourse, as shall be necessary to vest in the Seller legal and
beneficial ownership of such repurchased Defective Mortgage Loan (including any
property acquired in respect thereof or insurance policy or current or future
insurance proceeds with respect thereto).

         Payments received with respect to Qualified Replacement Mortgage Loans
in the Collection Period prior to the Deposit Date on which such substitution
occurs will not be part of

                                      -36-

<PAGE>

the Trust and will be retained by the Seller. For the Distribution Date
following the Deposit Date on which such substitution occurs, distributions to
Certificateholders will reflect the payments received on such Deleted Mortgage
Loan in the related Collection Period representing amounts due or accrued
thereon prior to such Deposit Date, and the Seller shall thereafter be entitled
to retain all amounts subsequently received in respect of such Deleted Mortgage
Loan. In the case of a Qualified Replacement Mortgage Loan, the Mortgage File
relating thereto shall be delivered to the Trustee and the amount, if any, by
which the Principal Balance of the related Deleted Mortgage Loan as of the
related Deposit Date exceeds the Principal Balance of the Qualified Replacement
Mortgage Loan as of the first day of the related Collection Period shall be
remitted by the Seller to the Trustee for deposit in the Certificate Account on
the Deposit Date on which the substitution occurs. For purposes of this
Agreement, any such amount so deposited in the Certificate Account shall be
deemed a prepayment of the related Deleted Mortgage Loan received by the
Servicer as of the prior Determination Date. Upon receipt by the Trustee of an
Officer's Certificate of the Seller certifying that the Qualified Replacement
Mortgage Loan conforms to the requirements of this Agreement and (a) written
notification of such deposit signed by a Servicing Officer and (b) the new
Mortgage File (containing all of the documents referred to in clauses (a), (b),
(c), (d), (e) and (f) of Section 2.01), the Trustee shall release or cause to be
released to the Seller the Mortgage File related to the Deleted Mortgage Loan or
property and shall execute and deliver or cause to be executed and delivered
such instrument of transfer or assignment presented to it by the Seller, without
recourse, as shall be necessary to vest in the Seller all of the legal and
beneficial ownership of such Deleted Mortgage Loan or property and the Trustee
shall have no further responsibility with respect to said Mortgage File. In
addition, the Trustee shall assign to the Seller any of the Trustee's rights
under the PMI Policy in respect of any such Deleted Mortgage Loan released to
the Seller. It is understood and agreed that the obligation of the Seller to
substitute a Qualified Replacement Mortgage Loan for or repurchase any Defective
Mortgage Loan (or any property acquired in respect thereof or insurance policy
or current or future insurance proceeds with respect thereto) shall constitute
the sole remedy against it respecting such defect available to the
Certificateholders, the Depositor or the Trustee. Notwithstanding the foregoing,
a substitution by the Seller for a defect in a constituent document will not be
made unless the Trustee receives an Officer's Certificate certifying that the
Qualified Replacement Mortgage Loan conforms to the requirements of this
Agreement and an Opinion of Counsel that such substitution will not be a
"prohibited transaction" as defined in Section 860F(a)(2) of the Code. Any
substitution must be effected not later than two years after the Closing Date,
or within such longer period of time as may be permitted under the REMIC
Provisions for substitution of mortgage loans.

         On or prior to the 90th day after the Closing Date (or the 90th day
after the applicable Subsequent Transfer Date with respect to the Subsequent
Mortgage Loans), the Trustee shall certify to the Seller, the Depositor and the
Servicer that it has received all of the documents referred to in clauses (a)
(b), (c), (e) and (f) of Section 2.01 and that all corrections or curative
actions required to be taken by the Seller within the 60-day period referred to
in the first paragraph of this Section have been completed or effected, or the
related Mortgage Loans have been repurchased or substituted, in accordance with
the provisions of this Section or, if any deficiencies in the Mortgage Files or
other omissions of the Seller with respect to the Mortgage Files are known to
the Trustee at the time of such certification, the Trustee shall make such
certification only with respect to those Mortgage Loans as to which no such
defects or omissions are known, and shall qualify such certification with
respect to the remaining Mortgage Loans,

                                      -37-

<PAGE>

identifying the related defects or omissions. Thereafter, the Trustee shall
provide the Seller, the Depositor and the Servicer with monthly exception
reports indicating the status of any exceptions until all such exceptions have
been eliminated. Such monthly exception reports shall be distributed by the
Trustee on the related Distribution Date with the Statement to
Certificateholders.

         Section 2.04 Representations and Warranties Regarding the Servicer and
the Seller. (a) The Company, as Seller, hereby represents and warrants to the
Trustee, the Depositor, the Servicer and the Certificateholders that, as of the
Closing Date:

                           (i) The Company is a corporation duly organized,
                  validly existing and in good standing under the laws of the
                  State of California. The Company has the power and authority
                  to execute and deliver this Agreement and to perform its
                  obligations in accordance herewith; the execution, delivery
                  and performance of this Agreement (including all instruments
                  of transfer to be delivered pursuant to this Agreement) by the
                  Company and the consummation of the transactions contemplated
                  hereby have been duly and validly authorized by all necessary
                  corporate action; this Agreement evidences the valid and
                  binding obligation of the Company enforceable against the
                  Company in accordance with its terms, subject to the effect of
                  bankruptcy, insolvency, reorganization, moratorium and other
                  similar laws relating to or affecting creditors' rights
                  generally or the application of equitable principles in any
                  proceeding, whether at law or in equity; and the consummation
                  of the transactions contemplated hereby will not result in the
                  breach of any terms or provisions of the articles of
                  incorporation or by-laws of the Company or result in the
                  breach of any term or provision of, or conflict with or
                  constitute a default under or result in the acceleration of
                  any obligation under, any material agreement, indenture or
                  loan or credit agreement or other material instrument to which
                  the Company or its property is subject, or result in the
                  violation of any law, rule, regulation, order, judgment or
                  decree to which the Company or its property is subject.

                           (ii) All actions, approvals, consents, waivers,
                  exemptions, variances, franchises, orders, permits
                  authorizations, rights and licenses required to be taken,
                  given or obtained, as the case may be, by or from any federal,
                  state or other governmental authority or agency, that are
                  necessary in connection with the execution and delivery by the
                  Company of this Agreement, have been duly taken, given or
                  obtained, as the case may be, are in full force and effect,
                  are not subject to any pending proceedings or appeals
                  (administrative, judicial or otherwise) and either the time
                  within which any appeal therefrom may be taken or review
                  thereof may be obtained has expired or no review thereof may
                  be obtained or appeal therefrom taken, and are adequate to
                  authorize the consummation of the transactions contemplated by
                  this Agreement on the part of the Company and the performance
                  by the Company of its obligations under this Agreement;

                           (iii) There is no action, suit, proceeding or
                  investigation pending or, to the best of the Company's
                  knowledge, threatened against the Company other than that
                  certain litigation against the Company and one or more of its
                  subsidiaries

                                      -38-

<PAGE>

                  described in the Prospectus Supplement under "Risk
                  Factors-Litigation" that, either in any one instance or in the
                  aggregate, may result in any material adverse change in the
                  business, operations, financial condition, properties or
                  assets of the Company or in any material impairment of the
                  right or ability of the Company to carry on its business
                  substantially as now conducted, or in any material liability
                  on the part of the Company or that would draw into question
                  the validity of this Agreement or the Mortgage Loans or of any
                  action taken or to be taken in connection with the obligations
                  of the Company contemplated herein, or that would be likely to
                  impair the ability of the Company to perform under the terms
                  of this Agreement;

                           (iv) The Company is not in default with respect to
                  any order or decree of any court or any order, regulation or
                  demand of any federal, state, municipal or governmental
                  agency, which default might have consequences that would
                  materially and adversely affect the condition (financial or
                  other) or operations of the Company or its properties or might
                  have consequences that would adversely affect its performance
                  hereunder;

                           (v) The transfer, assignment and conveyance of the
                  Mortgage Loans by the Company, as Seller, pursuant to this
                  Agreement are not subject to the bulk transfer laws or any
                  similar statutory provisions in effect in any applicable
                  jurisdiction and are not being transferred with the intent to
                  hinder, delay or defraud any creditors; and

                           (vi) The collection practices used by the Company are
                  in all material respects legal, proper, prudent and customary
                  in the home equity mortgage loan servicing business.

                  (b) The Servicer hereby represents and warrants to the
         Trustee, the Depositor, the Seller and the Certificateholders that, as
         of the Closing Date:

                           (i) The Servicer is a federally chartered savings
                  bank duly organized, validly existing and in good standing
                  under the laws of the United States and has, and had at all
                  relevant times, full power to service the Mortgage Loans, to
                  own its property, to carry on its business as presently
                  conducted and to enter into and perform its obligations under
                  this Agreement. The Servicer has all necessary licenses and is
                  qualified to transact business in and is in good standing
                  under the laws of each state where a Mortgaged Property is
                  located or is otherwise exempt under applicable law from such
                  qualification or is otherwise not required under applicable
                  law to effect such qualification and no demand for such
                  qualification has been made upon the Servicer by any state
                  having jurisdiction;

                           (ii) The execution and delivery of this Agreement by
                  the Servicer and the performance by it of and compliance with
                  the terms of this Agreement will not violate the Servicer's
                  charter or by-laws or constitute a default (or an event which,
                  with notice or lapse of time or both, would constitute a
                  default) under, or result in the breach or acceleration of,
                  any material contract, agreement or other instrument

                                      -39-
<PAGE>

                  to which the Servicer is a party or which may be applicable to
                  the Servicer or any of its assets;

                           (iii) The Servicer has the full power and authority
                  to enter into and consummate all transactions contemplated by
                  this Agreement to be consummated by it, has duly authorized
                  the execution, delivery and performance of this Agreement, and
                  has duly executed and delivered this Agreement. This
                  Agreement, assuming due authorization, execution and delivery
                  by the other parties hereto, constitutes a valid, legal and
                  binding obligation of the Servicer, enforceable against it in
                  accordance with the terms hereof, except as such enforcement
                  may be limited by bankruptcy, insolvency, reorganization,
                  receivership, moratorium or other similar laws relating to or
                  affecting the rights of creditors generally, and by general
                  equity principles (regardless of whether such enforcement is
                  considered in a proceeding in equity or at law);

                           (iv) The Servicer is not in violation of, and the
                  execution and delivery of this Agreement by the Servicer and
                  the performance by it and compliance with the terms of this
                  Agreement will not constitute a violation with respect to, any
                  order or decree of any court or any order or regulation of any
                  federal, state, municipal or governmental agency having
                  jurisdiction, which violation would materially and adversely
                  affect the condition (financial or otherwise) or operations of
                  the Servicer or any of its properties or materially and
                  adversely affect the performance of any of its duties
                  hereunder;

                           (v) There are no actions or proceedings against, or
                  investigations of, the Servicer pending or, to the knowledge
                  of the Servicer, threatened, before any court, administrative
                  agency or other tribunal (A) that, if determined adversely,
                  would prohibit its entering into this Agreement, (B) seeking
                  to prevent the consummation of any of the transactions
                  contemplated by this Agreement or (C) that, if determined
                  adversely, would prohibit or materially and adversely affect
                  the performance by the Servicer of any of its obligations
                  under, or the validity or enforceability of, this Agreement;

                           (vi) No consent, approval, authorization or order of
                  any court or governmental agency or body is required for the
                  execution, delivery and performance by the Servicer of, or
                  compliance by the Servicer with, this Agreement, or for the
                  consummation of the transactions contemplated by this
                  Agreement, except for such consents, approvals, authorizations
                  and orders, if any, that have been obtained prior to the
                  Closing Date;

                           (vii) No Officer's Certificate, statement, report or
                  other document prepared by the Servicer and furnished or to be
                  furnished by it pursuant to this Agreement or in connection
                  with the transactions contemplated hereby contains any untrue
                  statement of material fact;

                                      -40-

<PAGE>

                           (viii) The Servicer believes that the Servicing Fee
                  Rate provides a reasonable level of base compensation to the
                  Servicer for servicing the Mortgage Loans on the terms set
                  forth herein; and

                           (ix) The transactions contemplated by this Agreement
                  are in the ordinary course of business of the Servicer.

                  (c) The representations and warranties set forth in this
         Section shall survive the sale and assignment of the Mortgage Loans to
         the Trust and the issuance, sale and delivery of the Certificates. Upon
         discovery of a breach of any of the foregoing representations and
         warranties that materially and adversely affects the value of such
         Mortgage Loans or the interests of the Certificateholders in such
         Mortgage Loans, the party discovering such breach shall give prompt
         written notice to the other parties. Within 60 days of its discovery or
         its receipt of notice of breach, the Company or the Servicer, as the
         case may be, shall cure such breach in all material respects.

         Section 2.05 Representations and Warranties of the Seller Regarding the
Mortgage Loans. The Seller represents and warrants to the Trustee, the
Depositor, the Servicer and the Certificateholders as of the Closing Date and,
with respect to any Subsequent Mortgage Loan, as of the Subsequent Transfer Date
(in either case except as otherwise expressly stated) that, as to each Mortgage
Loan conveyed to the Trust by it:

                           (i) The information with respect to each Mortgage
                  Loan set forth in the Mortgage Loan Schedule or Subsequent
                  Mortgage Loan Schedule is true and correct as of the related
                  Cut-off Date or related Subsequent Transfer Date;

                           (ii) All of the original or certified documentation
                  set forth in Section 2.01 (including all material documents
                  related thereto), with respect to each Mortgage Loan has been
                  or will be delivered to the Trustee on the Closing Date or as
                  otherwise provided in Section 2.01 or Section 2.02, as
                  applicable;

                           (iii) Each related Mortgaged Property is improved by
                  a one- to four-family residential dwelling owned by the
                  related Mortgagor in fee simple that is permanently affixed to
                  the land and constitutes real property under the laws of the
                  state in which the Mortgaged Property is located but shall not
                  include co-operatives or mobile homes;

                           (iv) Each Mortgage Loan is a "qualified mortgage" as
                  defined in Section 860G(a)(3) of the Code and no such Mortgage
                  Loan has a loan-to-value ratio (calculated in accordance with
                  the REMIC Provisions) in excess of 125%; none of the Mortgage
                  Loans are either "consumer credit contracts" or "purchase
                  money loans" as such terms are defined in 16 C.F.R. ss. 433;
                  with respect to each Mortgage Loan that is a "mortgage" as
                  such term is defined in 15 U.S.C. 1602(aa), no obligor has or
                  will have a claim or defense under such Mortgage Loan;

                           (v) As of the Cut-off Date, no Initial Mortgage Loan
                  has a Loan-to-Value Ratio in excess of 100%; and Mortgage
                  Loans representing not more than

                                      -41-

<PAGE>

                  2.80% of the Initial Mortgage Loans have Loan-to-Value Ratios
                  greater than 90% and less than or equal to 100%;

                           (vi) Each Mortgage Loan was originated by the Seller,
                  an Affiliate of the Seller or by an originator not affiliated
                  with the Seller authorized to originate such Mortgage Loan and
                  is being serviced by the Seller;

                           (vii) Each fixed rate Initial Mortgage Loan as of the
                  Cut-off Date bears interest at a fixed rate of at least 6.50%.
                  Each Hybrid Loan has a Minimum Rate of not less than 7.44% per
                  annum and a Mortgage Loan Rate as of the Cut-off Date of not
                  less than 7.44% per annum. The terms of each Hybrid Loan that
                  becomes an Adjustable Rate Mortgage Loan require that
                  adjustments in the related Mortgage Loan Rate be made
                  employing the related Index measured as of a date not more
                  than three months prior to the related adjustment date;

                           (viii) Each Mortgage Note provides for a schedule of
                  substantially level and equal Monthly Mortgage Payments
                  (subject, in the case of an Adjustable Rate Mortgage Loan, to
                  periodic adjustments relating to changes in the Mortgage Loan
                  Rate) that are sufficient to amortize fully the principal
                  balance of such Mortgage Note on or before its maturity date,
                  except that, Mortgage Notes with respect to Initial Mortgage
                  Loans representing not more than 1% of the initial Pool
                  Balance, provide for level and equal Monthly Mortgage Payments
                  that are sufficient to amortize fully the principal balances
                  of such Notes over a period not exceeding 30 years, with
                  "balloon" payments at stated maturity that are substantially
                  in excess of the Monthly Mortgage Payments;

                           (ix) Each Mortgage is a valid and subsisting lien of
                  record on the Mortgaged Property having the priority indicated
                  on the Mortgage Loan Schedule, subject, in the case of any
                  Junior Mortgage Loan, only to any Senior Lien or Senior Liens
                  on such Mortgaged Property and subject in all cases to the
                  exceptions to title set forth in the title insurance policy
                  with respect to the related Mortgage Loan, which exceptions
                  are generally acceptable to home equity mortgage lending
                  institutions, and such other exceptions to which similar
                  properties are commonly subject and that do not individually,
                  or in the aggregate, materially and adversely affect the
                  benefits of the security intended to be provided by such
                  Mortgage;

                           (x) Immediately prior to the sale, transfer and
                  assignment herein contemplated, the Seller held good and
                  indefeasible title to, and was the sole owner of, each
                  Mortgage Loan conveyed by the Seller subject to no liens,
                  charges, mortgages, encumbrances or rights of others, except
                  with respect to liens that will be released simultaneously
                  with such transfer and assignment; and immediately upon the
                  transfer and assignment herein contemplated, the Trustee will
                  hold good and indefeasible title to, and be the sole owner of,
                  each Mortgage Loan subject to no liens, charges, mortgages,
                  encumbrances or rights of others;

                                      -42-

<PAGE>

                           (xi) The Mortgage Loan Rate for each Adjustable Rate
                  Mortgage Loan will be adjustable on each related Adjustment
                  Date and will equal the sum, rounded upward to the nearest
                  three decimal places, of the Index plus the related Gross
                  Margin, subject to any related Minimum Rates, Maximum Rates or
                  any limitations or periodic adjustments, in each case as
                  specified in the related Mortgage Loan Schedule. No Mortgage
                  Loans are subject to negative amortization.

                           (xii) With respect to any Adjustable Rate Mortgage
                  Loan, no mortgage document in the Mortgage File contains any
                  provision permitting or requiring conversion of the Mortgage
                  Loan to a fixed interest rate nor is the Mortgage Loan Rate
                  conditioned upon Mortgagor maintaining accounts with Seller;

                           (xiii) As of the Closing Date or Subsequent Cut-off
                  Date, as appropriate (a) no Mortgage Loan had two or more
                  Monthly Mortgage Payments past due and (b) no Mortgage Loan
                  had one Monthly Mortgage Payment past due;

                           (xiv) As of the related Cut-off Date or Subsequent
                  Cut-off Date, as appropriate, there is no delinquent tax or
                  assessment lien on any Mortgaged Property, and, to the best
                  knowledge of the Seller, each Mortgaged Property is free of
                  damage and is in good repair and is not affected by hazardous
                  or toxic wastes or substances;

                           (xv) There is no offset, right of rescission,
                  counterclaim or defense, including the defense of usury, with
                  respect to any Mortgage Note or Mortgage, nor will the
                  operation of any of the terms of the Mortgage Note or the
                  Mortgage, or the exercise of any right thereunder, render
                  either the Mortgage Note or the Mortgage unenforceable in
                  whole or in part, or subject to any right to rescission,
                  set-off, counterclaim or defense, including the defense of
                  usury, and no such right of rescission, set-off, counterclaim
                  or defense has been asserted with respect thereto;

                           (xvi) As of the related Cut-off Date or Subsequent
                  Cut-off Date, as appropriate, there is no mechanic's lien or
                  claim for work, labor or material affecting any Mortgaged
                  Property that is or may be a lien prior to, or equal to or on
                  a parity with, the lien of the related Mortgage except those
                  that are insured against by any title insurance policy
                  referred to in paragraph (xvii) below;

                           (xvii) To the best of the Seller's knowledge, each
                  Mortgage Loan at the time it was made complied in all material
                  respects with applicable local, state and federal laws and
                  regulations, including, without limitation, the federal
                  Truth-in-Lending Act and other consumer protection laws, real
                  estate settlement procedure, usury, equal credit opportunity,
                  disclosure and recording laws;

                           (xviii) With respect to each Mortgage Loan, a
                  lender's title insurance policy (issued in standard form by a
                  title insurance company authorized to transact business in the
                  state where the related Mortgaged Property is located), in an
                  amount at least equal to the Original Principal Amount of such
                  Mortgage Loan

                                      -43-

                                       1
<PAGE>

                  insuring the mortgagee's interest under the related Mortgage
                  Loan as the holder of a valid lien of record on the real
                  property described in the related Mortgage (subject only to
                  exceptions of the character referred to in paragraph (viii)
                  above), was effective on the date of the origination of such
                  Mortgage Loan, and, as of the Closing Date, such policy is in
                  full force and effect and thereafter such policy shall
                  continue in full force and effect and shall inure to the
                  benefit of the Certificateholders upon consummation of the
                  transactions contemplated by this Agreement;

                           (xix) As of the related Cut-off Date or Subsequent
                  Cut-off Date, as appropriate, either (a) the improvements upon
                  each Mortgaged Property are covered by a valid and existing
                  hazard insurance policy (which may be a blanket policy) with a
                  generally acceptable carrier that provides for fire and
                  extended coverage representing coverage not less than the
                  least of (a) the outstanding principal balance of the related
                  Mortgage Loan (together, in the case of a Junior Mortgage
                  Loan, with the outstanding principal balance of the Senior
                  Lien), (b) the minimum amount required to compensate for
                  damage or loss on a replacement cost basis or (c) the full
                  insurable value of the Mortgaged Property or (b) in the case
                  of a Junior Mortgage Loan, a policy has been issued by a
                  generally acceptable carrier that will cover the full
                  Principal Balance of such Junior Mortgage Loan in the event of
                  a loss covered by a hazard typically insured against by the
                  type of policy referred to in clause (xviii)(a);

                           (xx) If any Mortgaged Property is in an area
                  identified in the Federal Register by FEMA as having special
                  flood hazards, a flood insurance policy in a form meeting the
                  requirements of the current guidelines of the Federal
                  Insurance Administration, if obtainable with respect to such
                  Mortgaged Property, is in effect with respect to such
                  Mortgaged Property with a generally acceptable carrier in an
                  amount representing coverage not less than the least of (A)
                  the outstanding principal balance of the related Mortgage Loan
                  (together, in the case of a Junior Mortgage Loan, with the
                  outstanding principal balance of the Senior Lien), (B) the
                  minimum amount required to compensate for damage or loss on a
                  replacement cost basis or (C) the maximum amount of insurance
                  that is available under the Flood Disaster Protection Act of
                  1973;

                           (xxi) Each Mortgage and Mortgage Note is the legal,
                  valid and binding obligation of the maker thereof and is
                  enforceable in accordance with its terms, except only as such
                  enforcement may be limited by bankruptcy, insolvency,
                  reorganization, moratorium or other similar laws affecting the
                  enforcement of creditors' rights generally and by general
                  principles of equity (whether considered in a proceeding or
                  action in equity or at law), and all parties to each Mortgage
                  Loan had full legal capacity to execute all documents relating
                  to such Mortgage Loan and convey the estate therein purported
                  to be conveyed; with respect to each Mortgage Loan, only one
                  original Mortgage Note exists;

                           (xxii) The Seller has caused and will cause to be
                  performed any and all acts required to be performed to
                  preserve the rights and remedies of the Trustee in

                                      -44-

<PAGE>

                  any insurance policies applicable to each Mortgage Loan,
                  including any necessary notifications of insurers, assignments
                  of policies or interests therein, and establishment of
                  co-insured, joint loss payee and mortgagee rights in favor of
                  the Trustee;

                           (xxiii) As of the Cut-off Date, Initial Mortgage
                  Loans representing no more than 1% of the Initial Mortgage
                  Loans, by aggregate Principal Balance as of the Cut-off Date,
                  are secured by Mortgaged Properties located within any single
                  zip code area;

                           (xxiv) Each original Mortgage has been recorded or is
                  in the process of being recorded, and all subsequent
                  assignments of the original Mortgage (other than the
                  assignment from the Seller to the Trustee and any assignment
                  to the Seller or an affiliate thereof) have been recorded in
                  the appropriate jurisdictions as to which no Opinion of
                  Counsel was delivered pursuant to Section 2.01 or 2.02, as
                  applicable, or such Mortgages and assignments are in the
                  process of being recorded);

                           (xxv) The terms of each Mortgage Note and each
                  Mortgage have not been impaired, altered or modified in any
                  respect, except by a written instrument that has been
                  recorded, if necessary, to protect the interest of the
                  Certificateholders and that has been delivered to the Trustee.
                  The substance of any such alteration or modification is
                  reflected on the Mortgage Loan Schedule and has been approved
                  by the primary mortgage guaranty insurer, if any;

                           (xxvi) The proceeds of each Mortgage Loan have been
                  fully disbursed, and there is no obligation on the part of the
                  mortgagee to make future advances thereunder. Any and all
                  requirements as to completion of any on-site or off-site
                  improvements and as to disbursements of any escrow funds
                  therefor either have been complied with or are not yet
                  required to be complied with but will be complied with as and
                  when required. All costs, fees and expenses incurred in making
                  or closing or recording such Mortgage Loans were paid;

                           (xxvii) No Mortgage Note is or has been secured by
                  any collateral, pledged account or other security other than
                  the lien of the corresponding Mortgage;

                           (xxviii) No Mortgage Loan was originated under a
                  buydown plan;

                           (xxix) No Mortgage Loan has a shared appreciation
                  feature or other contingent interest feature;

                           (xxx) Each Mortgaged Property consists of one or more
                  contiguous parcels of real property with a residential
                  dwelling erected thereon;

                           (xxxi) Each Mortgage Loan contains a provision for
                  the acceleration of the payment of the unpaid principal
                  balance of such Mortgage Loan in the event

                                      -45-

<PAGE>

                  the related Mortgaged Property is sold without the prior
                  consent of the mortgagee thereunder;

                           (xxxii) Any advances made to the Mortgagor after the
                  date of origination of a Mortgage Loan but prior to the
                  related Cut-off Date or Subsequent Cut-off Date, as
                  appropriate, have been consolidated with the outstanding
                  principal amount secured by the related Mortgage, and the
                  secured principal amount, as consolidated, bears a single
                  interest rate and single repayment term reflected on the
                  Mortgage Loan Schedule. The consolidated principal amount as
                  of the related Cut-off Date or Subsequent Cut-off Date, as
                  appropriate, does not exceed the original principal amount of
                  the related Mortgage Loan and is reflected as the current
                  principal amount of such Mortgage Loan on the Mortgage Loan
                  Schedule;

                           (xxxiii) To the best knowledge of the Seller, there
                  is no proceeding pending or threatened for the total or
                  partial condemnation of any Mortgaged Property, nor is such a
                  proceeding currently occurring;

                           (xxxiv) To the best knowledge of the Seller, all of
                  the improvements that were included for the purposes of
                  determining the Appraised Value of any Mortgaged Property lie
                  wholly within the boundaries and building restriction lines of
                  such Mortgaged Property, and no improvements on adjoining
                  properties encroach upon such Mortgaged Property except those
                  that are identified in the related title insurance policy and
                  affirmatively insured;

                           (xxxv) To the best knowledge of the Seller, no
                  improvement located on or being part of any Mortgaged Property
                  is in violation of any applicable zoning law or regulation,
                  all inspections, licenses and certificates required to be made
                  or issued with respect to all occupied portions of each
                  Mortgaged Property and, with respect to the use and occupancy
                  of the same, including but not limited to certificates of
                  occupancy and fire underwriting certificates, have been made
                  or obtained from the appropriate authorities and such
                  Mortgaged Property is lawfully occupied under applicable law;

                           (xxxvi) With respect to each Mortgage that is a deed
                  of trust, a trustee, duly qualified under applicable law to
                  serve as such, has been properly designated and currently so
                  serves and is named in such Mortgage, and no fees or expenses
                  are or will become payable by the Certificateholders or the
                  Trust to any trustee under any deed of trust, except in
                  connection with a trustee's sale after default by the related
                  Mortgagor;

                           (xxxvii) With respect to each Junior Mortgage Loan,
                  if any, either (A) no consent for such Mortgage Loan was
                  required by the holder of the related Senior Lien prior to the
                  making of such Mortgage Loan or (B) such consent has been
                  obtained and is contained in the related Mortgage File;

                           (xxxviii) Each Mortgage contains customary and
                  enforceable provisions that render the rights and remedies of
                  the holder thereof adequate for

                                      -46-
<PAGE>

                  the realization against the related Mortgaged Property of the
                  benefits of the security, including by trustee's sale and by
                  judicial foreclosure and there is no homestead or other
                  exemption available to the related Mortgagor that would
                  materially interfere with the right to sell the related
                  Mortgaged Property at a trustee's sale or the right to
                  foreclose upon the related Mortgaged Property;

                           (xxxix) There is no default, breach, violation or
                  event of acceleration existing under any Mortgage or the
                  related Note and no event that, with the passage of time or
                  with notice and the expiration of any grace or cure period,
                  would constitute a default, breach, violation or event of
                  acceleration; and the Seller has not waived any default,
                  breach violation or event of acceleration;

                           (xl) No instrument of release or waiver has been
                  executed in connection with any Mortgage Loan, and no
                  Mortgagor has been released, in whole or in part, except in
                  connection with an assumption agreement that has been approved
                  by the primary mortgage guaranty insurer, if any, and that has
                  been delivered to the Trustee;

                           (xli) The maturity date of each Junior Mortgage Loan,
                  if any, is at least 12 months prior to the maturity date of
                  the related Senior Lien if such Senior Lien provides for a
                  balloon payment;

                           (xlii) As of the Cut-off Date, at least 87.00% of the
                  Initial Mortgage Loans are secured by Mortgaged Properties
                  that are maintained by the related Mortgagors as primary
                  residences;

                           (xliii) There are no defaults (other than
                  delinquencies) in complying with the terms of the Mortgage,
                  and all taxes, governmental assessments, insurance premiums,
                  water, sewer and municipal charges, leasehold payments or
                  ground rents that previously became due and owing have been
                  paid, or an escrow of funds has been established in an amount
                  sufficient to pay for every such item that remains unpaid; the
                  Seller has not advanced funds, or induced, solicited or
                  knowingly received any advance of funds by a party other than
                  the Mortgagor, directly or indirectly, for the payment of any
                  amount required by the Mortgage, other than interest accruing
                  from the date of the Mortgage Note or date of disbursement of
                  the Mortgage proceeds, whichever is greater, to the date that
                  precedes by one month the due date of the first installment of
                  principal and interest;

                           (xliv) To the best of the Seller's knowledge, all
                  parties that have had any interest in the Mortgage Loan,
                  whether as mortgagee, assignee, pledgee or otherwise during
                  the period in which they held and disposed of such interest,
                  were and either are now or, in the case of subclause (1) of
                  this clause, will be within 30 days of the Closing Date or
                  Subsequent Cut-off Date, as appropriate, (1) in compliance
                  with any and all applicable licensing requirements of the laws
                  of the state wherein the Mortgaged Property is located, and
                  (2) (A) organized under the laws of such state, or (B)
                  qualified to do business in such state, or (C) federal

                                      -47-

<PAGE>

                  savings and loan associations or national banks having
                  principal offices in such state, or (D) not doing business in
                  such state so as to require qualification or licensing;

                           (xlv) No Mortgage Loan was selected by the Seller for
                  inclusion in the Trust on any basis intended to adversely
                  affect the Trust;

                           (xlvi) A full appraisal of each Mortgaged Property
                  was performed in connection with the origination of the
                  related Mortgage Loan, and such appraisal is the appraisal
                  referred to in determining the Appraised Value of such
                  Mortgaged Property;

                           (xlvii) With respect to each Junior Mortgage Loan, if
                  any, the related Senior Lien requires equal monthly payments
                  or, if such Senior Lien bears an adjustable interest rate, the
                  monthly payments for such Senior Lien may be adjusted no more
                  frequently than monthly;

                           (xlviii) With respect to any Junior Mortgage Loan
                  with a related Senior Lien that provides for negative
                  amortization or an open-end feature that permits additional
                  borrowings, the balance of such Senior Lien reflected on the
                  Mortgage Loan Schedule and used to calculate the Combined
                  Loan-to-Value Ratio for such Junior Mortgage Loan is based on
                  the maximum amount of negative amortization, deferred interest
                  or maximum amount of borrowings permitted under such Senior
                  Lien;

                           (xlix) The Company has not required the Mortgagor to
                  sign a letter in connection with the origination of any
                  Mortgage Loan in which such Mortgagor indicates its inability
                  to repay such Mortgage Loan in accordance with the terms of
                  the related Mortgage Note;

                           (l) [Reserved];

                           (li) As of the related Cut-off Date or Subsequent
                  Cut-off Date, as appropriate, no Mortgage Loan was secured by
                  more than one Mortgaged Property;

                           (lii) With respect to each Hybrid Loan, all of the
                  terms of the Mortgage pertaining to interest rate adjustments,
                  payment adjustments and adjustments of the outstanding
                  principal balance are enforceable; such adjustments will not
                  affect the priority of the Mortgage lien and all of the
                  adjustments have been properly calculated, recorded, reported
                  and applied in accordance with the Mortgage and applicable
                  law;

                           (liii) All insurance policies, other than any primary
                  mortgage insurance policies purchased by the Seller or
                  Servicer or any of its affiliates, are the valid and binding
                  obligation of the insurer and contain a standard mortgagee
                  clause naming the originator, its successors and assigns, as
                  mortgagee. Such insurance policies require prior notice to the
                  insured of termination or cancellation and no

                                      -48-
<PAGE>

                  such notice has been received, each Mortgage obligates the
                  Mortgagor thereunder to maintain all such insurance at the
                  Mortgagor's cost and expense, and upon the Mortgagor's failure
                  to do so, authorizes the holder of the Mortgage to obtain and
                  maintain such insurance at the Mortgagor's cost and expense
                  and to seek reimbursement therefor from the Mortgagor;

                           (liv) None of the Mortgage Loans is subject to a plan
                  of bankruptcy and no Mortgagor has sought protection or relief
                  under any state or federal bankruptcy or insolvency law during
                  the term of the related Mortgage;

                           (lv) At least 99.00% of the Initial Mortgage Loans
                  (by aggregate Principal Balance as of the Cut-off Date) have
                  Monthly Mortgage Payments due during the first Collection
                  Period during which such Mortgage Loan is included in the
                  Trust;

                           (lvi) All Mortgage Loans were underwritten or
                  re-underwritten in accordance with the underwriting guidelines
                  of the Company;

                           (lvii) To the knowledge of the Seller, no
                  misrepresentation, negligence, fraud or similar occurrence
                  with respect to a Mortgage Loan has taken place on the part of
                  the Mortgagor, any appraiser, any builder or developer, or any
                  other party having statutory or common law liabilities with
                  respect to the origination of the Mortgage Loan or in any
                  related application for insurance in relation to such Mortgage
                  Loan;

                           (lviii) To the knowledge of the Seller, certain
                  Mortgage Loans are secured by Mortgaged Properties upon which
                  are affixed manufactured housing or modular homes, provided
                  that it is the intent and agreement of the parties hereto that
                  this representation shall be deemed breached if any Mortgage
                  Loan is determined to be secured by a Mortgaged Property upon
                  which is affixed manufactured housing or a modular home and
                  such Mortgage Loan is subject to a foreclosure which results
                  in a Realized Loss;

                           (lix) There was no fraud involved in the origination
                  of any Mortgage Loans by the mortgagee or the Mortgagor, any
                  appraiser or any other party involved in the origination of
                  the Mortgage Loans;

                           (lx) No Mortgage Loan is 60 days or more
                  contractually delinquent as of the Cut-off Date and no
                  Subsequent Mortgage Loan will be 60 days or more contractually
                  delinquent as of its Subsequent Transfer Date (and accordingly
                  there are no Restricted Mortgage Loans required to be listed
                  in Schedule II);

                           (lxi) All requirements for the valid transfer of each
                  PMI Policy, including any assignments or notices required in
                  each PMI Policy, have been satisfied;

                           (lxii) As of the Closing Date with respect to each
                  Mortgage Loan that is subject to a PMI Policy, the Seller has
                  not taken any action, or omitted to take any

                                      -49-

<PAGE>

                  action, and there are no circumstances that would cause the
                  PMI Insurer to deny a claim with respect to such Mortgage;

                           (lxiii) As of the Cut-off Date, not more than 62.94%
                  of the Initial Mortgage Loans are "cash-out refinance"
                  Mortgage Loans (as such term is described under the Company's
                  underwriting guidelines);

                           (lxiv) The information set forth in the Prepayment
                  Charge Schedule (including the Prepayment Charge Summary
                  attached thereto) is complete, true and correct in all
                  material respects on the date or dates when such information
                  is furnished and each Prepayment Charge is permissible and
                  enforceable in accordance with its terms (except to the extent
                  that the enforceability thereof may be limited by bankruptcy,
                  insolvency, moratorium, receivership and other similar laws
                  relating to creditors' rights generally or the collectability
                  thereof may be limited due to acceleration in connection with
                  a foreclosure) under applicable state law;

                           (lxv) [Reserved];

                           (lxvi) [Reserved];

                           (lxvii) As of the Cut-off Date, none of the Initial
                  Mortgage Loans were subject to the Home Ownership and Equity
                  Protection Act of 1994 ("HOEPA") or any comparable state law;

                           (lxviii) No proceeds from any Initial Mortgage Loan
                  were used to finance single-premium credit, life and
                  disability insurance policies;

                           (lxix) No Initial Mortgage Loan imposes a prepayment
                  charge for a term in excess of five years; and

                           (lxx) All of the Mortgage Loans were originated by a
                  mortgagee approved by the Secretary of Housing and Urban
                  Development pursuant to sections 203 and 211 of the National
                  Housing Act.

         It is understood and agreed that the representations and warranties set
forth in this Section shall survive the sale and assignment of the Mortgage
Loans to the Trust and the issuance, sale and delivery of the Certificates. Upon
discovery by the Seller, the Depositor, the Servicer or a Responsible Officer of
the Trustee of a breach of any of the foregoing representations and warranties,
without regard to any limitation set forth in such representation or warranty
concerning the knowledge of the Seller as to the facts stated therein, which
breach materially and adversely affects the value of the related Mortgage Loan
or the interests of the Certificateholders in the related Mortgage Loan, the
party discovering such breach shall give prompt written notice to the Trustee
which shall inform the other parties hereto, and each of the Rating Agencies and
take such other action as it deems appropriate pursuant to Section 9.01.

         Within 60 days of its discovery or its receipt of notice of such
breach, the Seller shall use all reasonable efforts to cure such breach in all
material respects. Unless, prior to the expiration

                                      -50-

<PAGE>

of such 60-day period, such breach has been cured in all material respects or
otherwise does not exist or continue to exist, the Seller shall, not later than
the Deposit Date in the month following the related Collection Period in which
any such cure period expired, but in all events within 90 days of the earlier of
the discovery of the breach or the Seller's receipt of notice of breach (or at
the election of the Seller, an earlier Collection Period), either (I) repurchase
such Mortgage Loan (or, in the case of any representation and warranty stated
above in terms of minimum or maximum aggregate percentage amounts, repurchase
Mortgage Loans such that, after giving effect to such repurchase, the related
representation and warranty would be complied with) (including any property
acquired in respect thereof and any insurance policy or insurance proceeds with
respect thereto) from the Trust in the same manner and subject to the same
conditions as set forth in Section 2.03 or (II) remove such Mortgage Loan and
substitute in its place a Qualified Replacement Mortgage Loan (or, in the case
of any representation and warranty stated above in terms of minimum or maximum
aggregate percentage amounts, remove such Mortgage Loans and substitute in their
place Qualified Replacement Mortgage Loans such that, after giving effect to
such substitution, the related representation and warranty would be complied
with) in the same manner and subject to the same conditions as set forth in
Section 2.03. Upon making any such repurchase or substitution, the Seller shall
be entitled to receive an instrument of assignment or transfer from the Trustee,
without recourse to the Trustee, to the same extent as set forth in Section 2.03
with respect to the repurchase of or substitution for Defective Mortgage Loans
under that Section. The Seller acknowledges that, in the event of corresponding
breaches under this Section 2.05 and Section 2.05A with respect to any affected
Mortgage Loan, the Seller's obligation to cure its breach with respect to such
Mortgage Loan, or to repurchase or substitute for such Mortgage Loan, is
superior to the Depositor's obligation to cure its corresponding breach with
respect to such Mortgage Loan, or to repurchase or substitute for such Mortgage
Loan. It is understood and agreed that the obligation of the Seller to
repurchase or substitute any such Defective Mortgage Loan (or property acquired
in respect thereof or insurance policy or current or future insurance proceeds
with respect thereto) shall constitute the sole remedy against it respecting
such breach of the foregoing representations or warranties available to the
Certificateholders, the Depositor or the Trustee, as the case may be.

         Notwithstanding the foregoing, a substitution of a Mortgage Loan by the
Seller for a breach will not be made unless the Trustee receive an Officer's
Certificate of the Seller certifying that the Qualified Replacement Mortgage
Loan conforms to the requirements of this Agreement and an Opinion of Counsel
that such substitution will not be a "prohibited transaction" as defined in
Section 860F(a)(2) of the Code. Any substitution must be effected not later than
two years after the Closing Date, or within such longer period of time as may be
permitted under the REMIC Provisions for substitution of mortgage loans.

         Section 2.05A Representations and Warranties of the Depositor as to the
Mortgage Loans.

         The Depositor hereby represents and warrants to the Trustee with
respect to each Initial Mortgage Loan as of the date hereof that as of the
Closing Date and, with respect to any Subsequent Mortgage Loan, as of the
Subsequent Transfer Date, and following the transfer of the Initial Mortgage
Loans or Subsequent Mortgage Loans, as the case may be, to it by the Seller, the
Depositor had good title to the Initial Mortgage Loans or Subsequent Mortgage
Loans, as the case may be, and the Mortgage Notes were subject to no offsets,
defenses or counterclaims.

                                      -51-

<PAGE>

         The Depositor hereby assigns, transfers and conveys to the Trustee all
of its rights with respect to the Mortgage Loans including, without limitation,
the representations and warranties of the Seller made pursuant to Section 2.05
hereof, together with all rights of the Depositor to require the Seller to cure
any breach thereof or to repurchase or substitute for any affected Mortgage Loan
in accordance with this Agreement.

         The representations and warranties set forth in this Section shall
survive the sale and assignment of the Mortgage Loans to the Trustee and the
issuance, sale and delivery of the Certificates. Upon discovery of a breach of
any of the foregoing representations and warranties that materially and
adversely affects the value of such Mortgage Loans or the interests of the
Certificateholders in such Mortgage Loans, the party discovering such breach
shall give prompt written notice to the other parties. Within 60 days of its
discovery or its receipt of notice of breach, the Depositor shall cure such
breach in all material respects. Any cure of any breach or repurchase or
substitution for any affected Mortgage Loan by the Seller under Section 2.05
shall relieve the Depositor of its obligation to cure its corresponding breach
with respect to the related Mortgage Loan under this Section.

         Section 2.06 Execution and Authentication of Certificates. The Trustee
shall on behalf of the Trust, not in its individual capacity but solely as
Trustee, cause to be executed, and delivered on the Closing Date to or upon the
order of the Depositor, in exchange for the Mortgage Loans and the other assets
comprising the Trust, simultaneously with the sale, assignment and transfer to
the Trustee of the Mortgage Loans, each Class of Certificates duly executed by
the Trustee, and authenticated by the Trustee, pursuant to Section 6.01, in
authorized denominations, equaling, 100% of the Percentage Interests in each
Class, and collectively evidencing the entire ownership of the Trust.

         Section 2.07 Reserved.

         Section 2.08 Indemnification of the Trust. The Seller shall indemnify
the Trust and the Trustee for any liability incurred thereby as a result of a
breach of the representation and warranty set forth in clause (xvii) of Section
2.05 (without regard to any limitation therein relating to the knowledge of the
Seller). This indemnity obligation shall be in addition to any other obligation
the Seller may have in connection with any such breach.

                                  ARTICLE III

                 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS;
                               CERTIFICATE ACCOUNT

         Section 3.01 The Servicer and the Sub-Servicers. Acting directly or
through one or more Sub-Servicers as provided in Section 3.15, the Servicer, as
servicer, shall administer the Mortgage Loans with reasonable care, using that
degree of skill and attention that the Servicer exercises with respect to all
comparable home equity mortgage loans that it services for itself or others. The
duties of the Servicer shall include collecting and posting of all payments,
responding to inquiries of Mortgagors or by federal, state or local government
authorities with respect to the Mortgage Loans, investigating delinquencies,
reporting tax information to Mortgagors in accordance with its customary
practices and accounting for collections and

                                      -52-

<PAGE>

furnishing monthly and annual statements to the Trustee with respect to
distributions and making Monthly Advances and Servicing Advances pursuant to
Section 5.02. The Servicer shall follow its customary standards, policies and
procedures in performing its duties as Servicer, to the extent not in conflict
with the provisions of this Agreement. Notwithstanding the appointment of any
Sub-Servicer, the Servicer shall remain liable for the performance of all of the
servicing obligations and responsibilities under this Agreement. The Servicer
shall maintain all licenses and qualifications necessary to perform its
servicing obligations hereunder in the jurisdictions in which it services
Mortgage Loans. If the Servicer commences directly to service a material number
or principal amount of Mortgage Loans with related Mortgaged Properties located
in any other state, the Servicer will use its reasonable efforts promptly to
obtain, and thereafter to maintain, all licenses and qualifications necessary to
perform its servicing obligations hereunder in each such state. Each
Sub-Servicer shall maintain all licenses and qualifications necessary to perform
its servicing obligations in the states where the Mortgaged Properties to which
the applicable Sub-Servicing Agreement relates are located. The Servicer shall
cooperate with the Trustee and furnish to the Trustee such information in its
possession as may be necessary or appropriate to enable the Trustee to perform
its tax reporting duties hereunder. The Trustee shall furnish the Servicer with
any powers of attorney and other documents necessary or appropriate to enable
the Servicer to carry out its servicing and administrative duties hereunder.

         Without limiting the generality of the foregoing, the Servicer (i)
shall continue, and is hereby authorized and empowered by the Trustee, to
execute and deliver, on behalf of itself, the Certificateholders and the Trustee
or any of them, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the related Mortgaged
Properties (ii) may consent to any modification of the terms of any Mortgage
Note not expressly prohibited hereby if the effect of any such modification will
not be to materially and adversely affect the security afforded by the related
Mortgaged Property or to decrease or slow (other than as permitted by Section
3.02(a)(ii)) the timing of receipt of any payments required thereunder and (iii)
shall not consent to the placing of a lien senior to or on parity with that of
the Mortgage on the related Mortgaged Property.

         The Servicer may but shall not be obligated to sue to enforce or
collect on any of the Mortgage Loans or any insurance policy covering a Mortgage
Loan, in its own name if possible, or on behalf of the Trust. If the Servicer
commences a legal proceeding to enforce a Mortgage Loan or any such insurance
policy, the Trustee shall thereupon be deemed to have automatically assigned the
Mortgage Loan or the rights under such insurance policy to the Servicer for
purposes of collection only. If, however, in any suit or legal proceeding for
enforcement, it is held that the Servicer may not enforce or collect on a
Mortgage Loan or any insurance policy covering a Mortgage Loan on the ground
that it is not a real party in interest or a holder entitled to enforce such
Mortgage Loan or such insurance policy, as the case may be, then the Trustee
shall, upon the written request of a Servicing Officer, furnish the Servicer
with such powers of attorney and other documents as are necessary or appropriate
to enable the Servicer to enforce such Mortgage Loan or insurance policy, as the
case may be. Amounts expended by the Servicer under this paragraph shall be
considered Servicing Advances.

         The relationship of the Servicer to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that of
a joint venturer, partner or agent.

                                      -53-

<PAGE>

         The parties intend that each REMIC Pool shall constitute a REMIC, and
that the affairs of each REMIC Pool shall be conducted so as to qualify it as a
REMIC. In furtherance of such intention, (i) the Servicer covenants and agrees
that it shall act as agent (and the Servicer is hereby appointed to act as
agent) on behalf of each REMIC Pool, and that in such capacity it shall: (a) use
its best efforts to conduct the affairs of such REMIC Pool at all times that any
Certificates are outstanding so as to maintain the status thereof as a REMIC
under the REMIC Provisions; (b) not knowingly or intentionally take any action
or omit to take any action that would cause the termination of the REMIC status
of any REMIC Pool or that would subject such REMIC Pool to tax, including the
modification of a qualified mortgage that would subject such REMIC Pool to tax;
and (c) exercise reasonable care not to allow such REMIC Pool to receive income
from the performance of services or from assets not permitted under the REMIC
Provisions to be held by a REMIC, and (ii) the Holder of the Class R
Certificates covenants and agrees that it shall (a) pay the amount of any
federal income tax, including, without limitation, prohibited transaction taxes,
taxes on net income from foreclosure property, and taxes on certain
contributions to a REMIC after the Startup Day, imposed on any REMIC Pool when
and as the same shall be due and payable (but such obligation shall not prevent
the Holder of the Class R Certificates or any other appropriate Person from
contesting any such tax in appropriate proceedings and shall not prevent the
Holder of the Class R Certificates from withholding or depositing payment of
such tax, if permitted by law, pending the outcome of such proceedings); and (b)
pay the amount of any and all taxes imposed on any REMIC Pool pursuant to
Sections 24870, 24874 and 23153 of the California Revenue and Taxation Code. The
Holder of the Class R Certificates shall not be entitled to reimbursement for
any taxes paid pursuant to this Section.

         Section 3.02 Collection of Certain Mortgage Loan Payments; Collection
Account and Certificate Account.

                  (a) The Servicer shall, to the extent such procedures shall be
         consistent with this Agreement, follow such collection procedures as it
         follows from time to time with respect to home equity mortgage loans in
         its servicing portfolio that are comparable to the Mortgage Loans;
         provided that the Servicer shall always at least follow collection
         procedures that are consistent with standard industry practices.
         Consistent with the foregoing, and subject to the limitations in
         Section 3.05, the Servicer may in its discretion (i) waive any
         assumption fees, late payment charges, charges for checks returned for
         insufficient funds, if any, Prepayment Charges, or other fees that may
         be collected in the ordinary course of servicing the Mortgage Loans,
         (ii) if a Mortgagor is in default or about to be in default because of
         a Mortgagor's financial condition, arrange with the Mortgagor a
         schedule for the payment of delinquent payments due on the related
         Mortgage Loan, or (iii) modify payments of monthly principal and
         interest on any Mortgage Loan becoming subject to the terms of the
         Relief Act in accordance with the Servicer's general policies for
         comparable home equity mortgage loans subject to such Act.

                  (b) The Servicer shall establish and maintain, or cause to be
         established and maintained, one or more Eligible Accounts in the name
         of the Servicer or the Trustee, in trust for the registered holders of
         Aames Mortgage Trust 2002-1 Mortgage Pass-Through Certificates, Series
         2002-1, that in the aggregate are the Collection Account. All amounts
         held in the Collection Account shall be invested by the depository
         institution or trust company then maintaining the account at the
         written direction of the Servicer in

                                      -54-

<PAGE>

         Permitted Investments that mature not later than the Deposit Date next
         succeeding the date of investment. No Permitted Investment shall be
         sold or disposed of prior to maturity. The Servicer shall not retain
         any cash or investment in the Collection Account for a period in excess
         of 12 months and cash therein shall be considered transferred to
         Certificate Account on a first-in, first-out basis. All net income
         realized from any such investment shall be for the benefit of the
         Servicer as additional servicing compensation and shall be subject to
         its withdrawal or order from time to time.

                  (c) Subject to Section 3.02(d), the Servicer shall deposit in
         the Collection Account each of the following payments on and
         collections in respect of the Mortgage Loans as soon as practicable,
         but in no event later than the close of business on the second Business
         Day after its receipt thereof:

                           (i) all payments in respect of or allocable to
                  interest on the Mortgage Loans (including any net income from
                  REO Properties);

                           (ii) all Principal Payments;

                           (iii) all Payments Ahead;

                           (iv) all Net Liquidation Proceeds; and

                           (v) all Trust Insurance Proceeds (including, for this
                  purpose, any amounts required to be credited by the Servicer
                  pursuant to the last sentence of Section 3.04);

                  provided, however, that with respect to each Collection
         Period, the Servicer shall be permitted to retain (x) from payments in
         respect of interest on a Mortgage Loan, the Monthly Servicing Fee for
         such Mortgage Loan and (y) any reimbursed Servicing Advances and
         Monthly Advances related thereto solely in accordance with Sections
         5.02(a) and (b).

                  The Servicer shall replace such amounts previously withdrawn
         from the Collection Account and applied by the Servicer towards the
         payment of a Monthly Advance pursuant to Section 5.02(a) or towards the
         payment of a Servicing Advance pursuant to Section 5.02(b) by
         depositing into the Collection Account on or prior to the Deposit Date
         immediately following such withdrawal an amount equal to the total of
         all such amounts applied to the payment of a Servicing Advance and
         those amounts applied to the payment of a Monthly Advance required to
         be deposited pursuant to Section 5.01(b).

                  The foregoing requirements respecting deposits to the
         Collection Account are exclusive, it being understood that, without
         limiting the generality of the foregoing, the Servicer need not deposit
         in the Collection Account amounts representing fees, late payment
         charges, Prepayment Charges, charges for checks returned for
         insufficient funds, if any, or extension or other administrative
         charges paid by Mortgagors or amounts received by the Servicer for the
         account of Mortgagors for application towards the payment of taxes,
         insurance premiums, assessments and similar items. The amounts

                                      -55-

<PAGE>

         deposited in the Collection Account are subject to withdrawal by the
         Servicer, from time to time, (i) to make deposits into the Certificate
         Account pursuant to Section 3.02(e), (ii) to pay itself the Monthly
         Servicing Fee pursuant to Section 3.08 and to make Servicing Advances
         or to reimburse itself for Servicing Advances, as applicable, in either
         case in accordance with Section 5.02(b), (iii) to make Monthly Advances
         or to reimburse itself for payments of Monthly Advances, as applicable,
         in either case in accordance with Section 5.02(a) and (iv) to reimburse
         itself for expenses reimbursable pursuant to Section 7.03 hereof. In
         addition, if the Servicer deposits in the Collection Account any amount
         not required to be so deposited or any amount in respect of payments by
         Mortgagors made by checks subsequently returned for insufficient funds
         or other reason for non-payment, it may at any time withdraw such
         amount from the Collection Account, any provision herein to the
         contrary notwithstanding.

                  (d) Upon such terms as the Rating Agencies may approve, the
         Servicer may make the deposits to the Collection Account referred to in
         Section 3.02(c) on a later day than the second Business Day after
         receipt of the amounts required to be so deposited, which terms and
         later day shall be specified by the Rating Agencies and confirmed to
         the Trustee and the Servicer in writing.

                  (e) The Trustee shall establish and maintain the Certificate
         Account in the name of the Trustee, in trust for the registered holders
         of Aames Mortgage Trust 2002-1 Mortgage Pass-Through Certificates,
         Series 2002-1. The Certificate Account shall be an Eligible Account
         segregated on the books of the Trustee and held by the Trustee in
         trust, and the Certificate Account and the amounts deposited therein
         shall not be subject to any claim, liens or encumbrances of any
         creditors or depositors of the Trustee or the Company (whether made
         directly or indirectly through a liquidator, receiver or trustee in
         bankruptcy of the Trustee or the Company). At or before 2:00 p.m. New
         York City time on each Deposit Date, the Servicer shall withdraw from
         the Collection Account all amounts on deposit therein that constitute
         any portion of Available Funds for the related Distribution Date
         (including any amounts therein that are being held for distribution on
         a subsequent Distribution Date which are being applied toward the
         Monthly Advance for the related Distribution Date pursuant to Section
         5.02(a)) and remit such amounts to the Trustee for deposit in the
         Certificate Account. In addition, any Compensating Interest and Monthly
         Advances required to be made by the Servicer in respect of the related
         Distribution Date and any amounts required to be deposited into the
         Certificate Account in connection with a purchase or repurchase of any
         Mortgage Loans or any shortage on such Mortgage Loans by the Seller or
         the Servicer pursuant to Section 2.03, 2.05, 3.01, 3.06 or 10.01 or a
         substitution of a Qualified Replacement Mortgage Loan pursuant to
         Section 2.03 or 2.05, or in connection with a purchase of Mortgage
         Loans by the Servicer pursuant to Section 10.01 or in connection with
         the Servicer's failure to adjust the Mortgage Loan Rate on an
         Adjustable Rate Mortgage Loan, shall be remitted to the Trustee for
         deposit in the Certificate Account on the applicable Deposit Date. Any
         amounts held in the Certificate Account shall remain uninvested. Any
         interest paid on funds in the Certificate Account by the depository
         institution from the day that is one Business Day immediately preceding
         the related Distribution Date up to and including the related
         Distribution Date shall be for the benefit of the Trustee as additional
         trustee fee, and shall be subject to its withdrawal or order from time
         to time.

                                      -56-

<PAGE>

         Section 3.03 Additional Servicing Responsibilities for the Adjustable
Rate Mortgage Loans. The Servicer shall enforce each Adjustable Rate Mortgage
Loan and shall timely calculate, record, report and apply all Mortgage Loan Rate
adjustments in accordance with the related Mortgage Note. The Servicer's records
shall, at all times, reflect then-current Mortgage Loan Rate and Monthly
Mortgage Payment and the Servicer shall timely notify the Mortgagor of any
changes to the Mortgage Loan Rate and the Monthly Mortgage Payment. If the
Servicer fails to adjust the Mortgage Loan Rate or the Monthly Mortgage Payment
in accordance with the terms of the Mortgage Note for the related Adjustable
Rate Mortgage Loan, or if the Servicer fails to notify the related Mortgagor of
any such adjustment as required under the terms of such Mortgage Note, or if any
liability, claim or defense arises with respect to any Adjustable Rate Mortgage
Loan solely as a result of any such failure, the Servicer shall pay, from its
own funds and without right of reimbursement therefor, any shortage in amounts
collected or collectible on the related Adjustable Rate Mortgage Loan that
results. The Servicer shall deposit any amounts in respect of such shortage in
the Certificate Account on the Deposit Date with respect to the related
Collection Period.

         Section 3.04 Hazard Insurance Policies. The Servicer shall cause to be
maintained for each Mortgage Loan (including Mortgage Loans as to which the
related Mortgaged Property has been acquired by the Trust upon foreclosure, by
deed in lieu of foreclosure or comparable conversion), hazard insurance
(including flood insurance coverage, if obtainable, to the extent such property
is located in a federally designated flood area in such amount as is required
under applicable FEMA guidelines) with extended coverage in an amount that is
not less than the least of (i) the maximum insurable value from time to time of
the improvements that are a part of such property, or (ii) the combined
principal balance of such Mortgage Loan and the principal balance of each
mortgage loan senior to such Mortgage Loan at the time of such foreclosure plus
accrued interest and the good-faith estimate of the Servicer of related
Liquidation Expenses to be incurred in connection therewith; provided, further
that such hazard insurance shall be in an amount not less than such amount as is
necessary to avoid the application of any coinsurance clause contained in the
related hazard insurance policy. Each such hazard insurance policy shall contain
a standard mortgagee clause naming the originator, its successors and assigns,
as mortgagee and shall require prior notice to the insured of termination or
cancellation. The Servicer shall be under no obligation to require that any
Mortgagor maintain earthquake or other additional insurance and shall be under
no obligation itself to maintain any such additional insurance on property
acquired in respect of a Mortgage Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance. Amounts collected by the Servicer under any such policies
shall be deposited in the Collection Account or Certificate Account, as the case
may be, in accordance with Section 3.02 to the extent that they constitute Net
Liquidation Proceeds or Trust Insurance Proceeds. If the Servicer shall obtain
and maintain a blanket policy, issued by an insurer acceptable to each Rating
Agency, insuring against such hazard losses, it shall conclusively be deemed to
have satisfied its obligations as set forth in the first sentence of this
Section, it being understood and agreed that such policy may contain a
deductible clause that is in form and substance consistent with standard
industry practice, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with the first sentence of this Section, and there shall have been a
loss that would have been covered by such policy, deposit in the Collection
Account in accordance with Section

                                      -57-

<PAGE>

3.02 the amount not otherwise payable under the blanket policy because of such
deductible clause.

         Section 3.05 Enforcement of Due-on-Sale Clauses; Assumption and
Modification Agreements. In any case in which property subject to a Mortgage is
voluntarily conveyed by the Mortgagor, the Servicer shall enforce any
due-on-sale clause contained in the related Mortgage Note or Mortgage, to the
extent permitted by such Mortgage Note or Mortgage, applicable law and
governmental regulations, but only to the extent that such enforcement will not
adversely affect or jeopardize coverage under any related insurance policy or
result in legal action by the Mortgagor. Subject to the foregoing, the Servicer
may take or enter into an assumption and modification agreement from or with the
Person to whom such Mortgaged Property has been or is about to be conveyed,
pursuant to which such Person becomes liable under the related Mortgage Note and
the Mortgagor remains liable thereon or, if the Person to whom such Mortgaged
Property has been or is about to be conveyed satisfies the Servicer's
then-current underwriting standards for home equity mortgage loans similar to
the Mortgage Loans, and the Servicer in its reasonable judgment finds it
appropriate, is released from liability thereon. If the Trustee is holding the
Mortgage Files, the Servicer shall notify the Trustee that any assumption and
modification agreement has been completed by delivering to the Trustee an
Officer's Certificate certifying that such agreement is in compliance with this
Section and the Servicer shall forward to the Trustee the original of such
assumption and modification agreement. Such assumption and modification
agreement shall, for all purposes, be considered a part of the related Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any such agreement, the Mortgage Loan Rate
shall not be reduced (but may be increased), the Principal Balance of such
Mortgage Loan shall not be changed and the term of such Mortgage Loan will not
be extended beyond the existing term of such Mortgage Loan. Any fee collected by
the Servicer for entering into any such agreement shall be retained by the
Servicer as additional servicing compensation.

         Notwithstanding the foregoing paragraph of this Section 3.05 or any
other provision of this Agreement, the Servicer shall not be deemed to be in
default, breach or any other violation of its obligations hereunder by reasons
of any assumption of a Mortgage Loan, or transfer of any Mortgaged Property
without the assumption thereof, by operation of law or any assumption or
transfer that the Servicer reasonably believes it may be restricted by law from
preventing, for any reason whatsoever.

         Section 3.06 Realization upon Liquidated Mortgage Loans. Subject to the
limitations set forth in this Section 3.06 with respect to Restricted Mortgage
Loans, the Servicer, on behalf of the Trust, shall foreclose upon or otherwise
comparably convert to ownership Mortgaged Properties securing such of the
Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.02(a); provided that if the Servicer has actual knowledge
or reasonably believes that any Mortgaged Property is affected by hazardous or
toxic wastes or substances, then the Servicer shall not cause the Trust to
acquire title to such Mortgaged Property in a foreclosure or similar proceeding.
In connection with such foreclosure or other conversion, the Servicer shall
follow such practices (including, in the case of any default on a related Senior
Lien, the advancing of funds to correct such default) and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
first, second and third lien one- to four-family mortgage loan

                                      -58-

<PAGE>

servicing activities (including the procurement of a drive-by appraisal of the
related Mortgaged Property prior to foreclosure or other conversion). The
foregoing is subject to the proviso that neither the Servicer nor the Trustee
shall be required to expend its own funds in connection with any foreclosure or
towards the correction of any default on a related Senior Lien or restoration of
any Mortgaged Property unless, in the reasonable judgment of the Servicer, such
foreclosure, correction or restoration will increase Net Liquidation Proceeds
(taking into account any unreimbursed Monthly Advances made or expected to be
made with respect to such Mortgage Loan). Amounts expended by the Servicer under
this paragraph shall be considered Servicing Advances.

         To the extent the Net Liquidation Proceeds derived from any such
foreclosure or conversion exceed the unpaid Principal Balance of the related
Mortgage Loan and accrued interest thereon at the applicable Mortgage Loan Rate
to the related due date during the Collection Period in which such foreclosure
or conversion occurs (net of any related Monthly Advances or Servicing Advances
that were unreimbursed prior to the receipt of such Net Liquidation Proceeds),
such excess shall be paid to the Holder of the Class R-I Certificate.

         Neither the Trust nor the Trustee on behalf of the Trust shall complete
foreclosure proceedings with respect to any Restricted Mortgage Loan. In lieu of
foreclosure, any Restricted Mortgage Loan shall be repurchased or substituted in
accordance with and subject to the limitations contained in Section 2.05.

         Notwithstanding the foregoing, the Servicer, at its sole option, may
purchase from the Trust on any Deposit Date any Mortgage Loan as to which the
related Mortgagor has failed to make full Monthly Mortgage Payments as required
under the related Mortgage Note for three consecutive months at any time
following the Cut-off Date and prior to such Deposit Date at a price equal to
the Purchase Price by depositing such amount in the Certificate Account on such
Deposit Date pursuant to Section 3.02; provided, however, that the aggregate
Principal Balances of the Mortgage Loans purchased by the Servicer pursuant to
the exercise of the option granted in this sentence shall not exceed 3% of the
sum of the Original Pool Balance plus the amount of the Prefunding Account
Deposit and such Mortgage Loans may be purchased only in the order of the most
delinquent to the least delinquent.

         In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee, or to its nominee, on behalf of the
Certificateholders, and the Servicer shall conserve and protect each such
Mortgaged Property for the Certificateholders solely for the purpose of its
prompt disposition and sale. The Servicer shall use its best efforts to dispose
of each such Mortgaged Property as expeditiously as possible consistent with the
goal of maximizing Net Liquidation Proceeds (taking into account any
unreimbursed Monthly Advances made or expected to be made with respect to such
Mortgage Loan). Neither the Trustee nor the Servicer, acting on behalf of the
Trust, shall provide financing from the Trust to any purchaser of any such
Mortgaged Property.

         In the event that the Trust acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, such Mortgaged Property shall be only held temporarily, actively
marketed for sale and disposed of by the Servicer on behalf of the Trust no
later than the last day of the third calendar year following the year in

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which the foreclosure occurred. The Servicer shall further ensure that the
Mortgaged Property is administered so that it constitutes "foreclosure property"
within the meaning of Code Section 860G(a)(8) at all times, that the sale of
such property does not result in the receipt by any REMIC Pool of any income
from non-permitted assets as described in Code Section 860F(a)(2)(B), and that
no REMIC Pool derives any "net income from foreclosure property" within the
meaning of Code Section 860G(c)(2) with respect to such property.

         Section 3.07 Trustee to Cooperate; Release of Mortgage Files. Upon the
payment in full of the principal balance of any Mortgage Loan, if the Trustee is
holding the Mortgage Files, the Servicer shall notify the Trustee by a
certification in the form of Exhibit H hereto (which certification shall include
a statement to the effect that all amounts received in connection with such
payment which are required to be deposited to the Collection Account pursuant to
Section 3.02 have been so deposited) of a Servicing Officer. Such notification
shall be made each month at the time that the Servicer delivers its Servicer
Remittance Report to the Trustee pursuant to Section 4.01. Upon any such payment
in full, the Servicer is authorized to procure from such trustee under the
Mortgage that secured the related Mortgage Note a deed of full reconveyance
covering the related Mortgaged Property encumbered by such Mortgage, which deed,
except as otherwise provided in Section 2941(c) of the California Civil Code or
other applicable law, shall be recorded by such trustee in the office of the
County Recorder in which the Mortgage is recorded, or, as the case may be, to
procure from such trustee an instrument of satisfaction or, if the related
Mortgagor so requests, an assignment without recourse, in each case prepared by
the Servicer at its expense and executed by the Trustee, which deed of
reconveyance, instrument of satisfaction or assignment shall be delivered by the
Servicer to the Person entitled thereto, it being understood and agreed that no
expenses incurred in connection with such deed of reconveyance, assignment or
instrument of satisfaction shall be reimbursed from amounts at the time on
deposit in the Collection or Certificate Account. From time to time and as
appropriate for the servicing or foreclosure of any Mortgage Loan, the Trustee
shall, upon written request of the Servicer and delivery to the Trustee of a
trust receipt signed by a Servicing Officer, release the related Mortgage File
to the Servicer and shall execute such documents prepared by the Servicer as
shall be necessary to the prosecution of any such proceedings. Such trust
receipt shall state that the Servicer is holding the Mortgage File in trust for
the Trustee and shall obligate the Servicer to return the Mortgage File to the
Trustee when the need therefor by the Servicer no longer exists unless the
Mortgage Loan shall be liquidated, in which case, upon receipt of a certificate
of a Servicing Officer similar to that herein above specified, the trust receipt
shall be released by the Trustee to the Servicer.

         Section 3.08 Servicing Compensation; Payment of Certain Expenses by the
Servicer. The Servicer shall be entitled to receive, by withdrawal by the
Servicer from the Collection Account, or retaining prior to deposit in the
Collection Account, out of collections of interest on the Mortgage Loans for the
related Collection Period, as servicing compensation for such Collection Period,
the Monthly Servicing Fee. Additional servicing compensation shall be assumption
fees, late payment charges, Prepayment Charges, charges for checks returned for
insufficient funds, or extension and other administrative charges received by
the Servicer and any earnings on investments by the Servicer of amounts held in
the Collection Account and escrow accounts established by the Servicer on behalf
of Mortgagors (any such investments to be made in compliance with applicable
law). The Servicer is obligated to pay Compensating Interest out of the related
Monthly Servicing Fee on each Deposit Date, to the extent of one-half

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of the amount of the Monthly Servicing Fee, and shall not be entitled to
reimbursement therefor. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment of
the fees and expenses relating to the Annual Independent Public Accountant's
Servicing Report described in Section 3.10, and all other fees and expenses not
otherwise expressly stated hereunder for the account of the Certificateholders)
and shall not be entitled to reimbursement therefor except as specifically
provided herein.

         Section 3.09 Annual Statement as to Compliance.

                  (a) The Servicer will deliver to the Trustee, the Seller, the
         Depositor and each Rating Agency, on or before May 31 of each year,
         beginning with May 31, 2003, an Officer's Certificate of the Servicer
         substantially in the form set forth in Exhibit F hereto stating that
         (a) a review of the activities of the Servicer during the preceding
         calendar year (or since the Closing Date in the case of the first such
         statement) and of its performance under this Agreement has been made
         under such officer's supervision and (b) to the best of such officer's
         knowledge, based on such review, the Servicer has fulfilled all its
         material obligations under this Agreement throughout such year (or
         since the Closing Date in the case of the first such statement), or, if
         there has been a default in the fulfillment of any such obligation,
         specifying each such default known to such officer and the nature and
         status thereof.

                  (b) The Servicer shall deliver to the Trustee, the Seller, the
         Depositor and each Rating Agency, promptly after having obtained
         knowledge thereof, but in no event later than five Business Days
         thereafter, written notice by means of an Officer's Certificate of any
         event that with the giving of notice or the lapse of time, or both,
         would become an Event of Default.

         Section 3.10 Annual Independent Public Accountants' Servicing Report.
On or before May 31 of each year, beginning with May 31, 2003, the Servicer at
its expense shall cause a firm of nationally recognized independent public
accountants (who may also render other services to the Servicer) to furnish a
report to the Trustee, the Seller, the Depositor and each Rating Agency to the
effect that such firm has examined certain documents and records relating to the
servicing activities of the Servicer for the period covered by such report, and
that such examination (which will have been conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers to
the extent that the procedures in such audit guide are applicable to the
servicing obligations set forth in this Agreement), has disclosed no exceptions
or errors in records relating to the servicing activities of the Servicer that,
in the opinion of such firm, are material, except for such exceptions as shall
be set forth in such report.

         Section 3.11 Access to Certain Documentation and Information Regarding
the Mortgage Loans.

                  (a) The Servicer shall provide to Certificateholders that are
         federally insured savings associations and the FDIC and its supervisory
         agents and examiners access to the documentation regarding the Mortgage
         Loans required by applicable regulations of the Office of Thrift
         Supervision, and to the Trustee all documentation relating to the
         Mortgage Loans that is in the possession of the Servicer, such access
         being afforded

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<PAGE>

         without charge but only upon reasonable request and during normal
         business hours at the offices of the Servicer. The Servicer shall
         accurately and fully provide information regarding payment performance
         of the Mortgagors to the nationally recognized credit repositories.
         Nothing in this Section shall derogate from the obligation of the
         Servicer to observe any applicable law prohibiting disclosure of
         information regarding the Mortgagors and the failure of the Servicer to
         provide access as provided in this Section as a result of such
         obligation shall not constitute a breach of this Section.

                  (b) The Servicer shall supply information to the Trustee in
         such form as the Trustee shall reasonably request, by the start of the
         third Business Day preceding each Distribution Date, as is required in
         the Trustee's reasonable judgment to enable the Trustee to make
         required distributions and to furnish the certificates, statements and
         reports to Certificateholders required pursuant to this Agreement.

         Section 3.12 Maintenance of Fidelity Bond and Errors and Omissions
Policy. The Servicer shall during the term of its service as Servicer maintain
in force a (a) policy or policies of insurance covering errors and omissions in
the performance of its obligations as Servicer hereunder and (b) fidelity bond
in respect of its officers, employees and agents, in each case having coverage
amounts that satisfy FNMA or FHLMC requirements for mortgage loan originators
and servicers.

         Section 3.13 Notices to the Rating Agencies. In addition to the other
notices required to be given to the Rating Agencies by the provisions of this
Agreement, the Trustee shall give notice to each Rating Agency, the Depositor
and the Seller of (a) any amendment to this Agreement, (b) the final
distribution on the Offered Certificates and (c) the occurrence of an Event of
Default actually known by the Trustee and the Seller or the Servicer shall give
notice to each Rating Agency, the Trustee, the Depositor and the Seller of (i)
the repurchase, purchase or substitution, as applicable, of any Mortgage Loan
pursuant to Section 2.03, 2.05 or 3.06 by the Seller or Servicer, as the case
may be and (ii) the occurrence of an Event of Default under Section 8.01.

         Section 3.14 Reports of Foreclosures and Abandonment of Mortgaged
Properties. Each calendar year beginning in 2002 the Servicer shall make the
reports of foreclosures and abandonments of any Mortgaged Property required by
Code Section 6050J. In order to facilitate this reporting process, the Servicer,
on or before February 28th of each year, shall provide to the Internal Revenue
Service and the Trustee reports relating to each instance occurring during the
previous calendar year in which the Servicer (i) on behalf of the Trustee
acquired an interest in a Mortgaged Property through foreclosure or other
comparable conversion in full or partial satisfaction of a Mortgage Loan, or
(ii) knows or has reason to know that a Mortgaged Property has been abandoned.
The reports from the Servicer shall be in form and substance sufficient to meet
the reporting requirements imposed by such Section 6050J.

         Section 3.15 Sub-Servicers and Sub-Servicing Agreements.

                  (a) The Servicer may enter into Sub-Servicing Agreements for
         any servicing and administration of Mortgage Loans with any institution
         that is in compliance with the laws of each state necessary to enable
         it to perform its obligations under such Sub-

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<PAGE>

         Servicing Agreement. The Servicer shall give notice to the Seller, the
         Trustee, the Depositor, the Rating Agencies and the PMI Insurer of the
         appointment of any Sub-Servicer. The Servicer shall not enter into any
         Sub-Servicing Agreement that does not provide for the servicing of the
         Mortgage Loans specified therein on a basis consistent with the terms
         of this Agreement or that otherwise violates the provisions of this
         Agreement. The Servicer may enter into, and make amendments to, any
         Sub-Servicing Agreement or enter into different forms of Sub-Servicing
         Agreements; provided, however, that any such amendments or forms shall
         be consistent with and not violate the provisions of this Agreement.

                  (b) For purposes of this Agreement the Servicer shall be
         deemed to have received payments on Mortgage Loans when any
         Sub-Servicer has received such payments. With respect to the Servicer's
         obligations under Section 3.01 to make deposits in the Collection
         Account, the Servicer shall be deemed to have made such deposits when
         any Sub-Servicer has made such deposits into a Sub-Servicing Account if
         permitted by the related Sub-Servicing Agreement.

                  (c) Any Sub-Servicing Agreement and any other transactions or
         services relating to the Mortgage Loans involving a Sub-Servicer shall
         be deemed to be between the Sub-Servicer and the Servicer alone and the
         Trustee shall not be deemed a party thereto and shall have no claims,
         rights, obligations, duties or liabilities with respect to any
         Sub-Servicer, except that the Trustee shall have such claims or rights
         that arise as a result of any funds held by a Sub-Servicer in trust for
         or on behalf of the Trust. Notwithstanding the execution of any
         Sub-Servicing Agreement, the Servicer shall not be relieved of any
         liability hereunder and shall remain obligated and liable for the
         servicing and administration of the Mortgage Loans.

                  (d) The Servicer shall be entitled to terminate any
         Sub-Servicing Agreement and the rights and obligations of any
         Sub-Servicer pursuant to any Sub-Servicing Agreement in accordance with
         the terms and conditions of such Sub-Servicing Agreement. In the event
         of termination of any Sub-Servicer, all servicing obligations of such
         Sub-Servicer shall be assumed simultaneously by the Servicer without
         any act or deed on the part of such Sub-Servicer or the Servicer, and
         the Servicer either shall service directly the related Mortgage Loans
         or shall enter into a Sub-Servicing Agreement with a successor
         Sub-Servicer. The Servicer shall give written notice to the Trustee,
         the Depositor and the Seller of the termination of any Sub-Servicer.

                  (e) Any Sub-Servicing Agreement shall (i) include the
         provision that such agreement may be immediately terminated by the
         Trustee in accordance with the terms of this Agreement, in the event
         that the Servicer shall, for any reason, no longer be the Servicer
         (including termination due to an Event of Default) and (ii) clearly and
         unambiguously state that either (x) such termination is effective
         without a fee or (y) any termination fee is the sole responsibility of
         the Servicer and none of the Trust, the Trustee, the Seller, the
         Depositor or the Certificateholders has any liability therefor,
         regardless of the circumstances surrounding such termination.

         Section 3.16 Prefunding Account.

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<PAGE>

                  (a) If a Prefunding Account is specified in Article I, the
         Trustee will establish and maintain the Prefunding Account. No later
         than the Closing Date, the Trustee will deposit in the Prefunding
         Account the Prefunding Account Deposit from the proceeds of the sale of
         the Offered Certificates. Subject to this Section, upon the conveyance
         of Subsequent Mortgage Loans to the Trust on any Subsequent Transfer
         Date, the Depositor shall instruct the Trustee to withdraw from the
         Prefunding Account (i) an amount equal to the Subsequent Purchase Price
         for the Subsequent Mortgage Loans to be included in the Trust and make
         a corresponding reduction in the amount on deposit in the Prefunding
         Account, and to pay such amount to or upon the order of the Depositor
         upon satisfaction of the conditions set forth in Section 2.02 of this
         Agreement with respect to such transfer.

                  (b) The Prefunding Account will be part of the Trust but not
         part of any REMIC Pool. Amounts held in the Prefunding Account shall be
         invested at the written direction of the Seller in Permitted
         Investments of the type specified in clause (f) of the definition of
         Permitted Investments. The Trustee shall not be liable for any losses
         on amounts invested in accordance with the provisions hereof. Any
         losses realized in connection with any such investment shall be for the
         account of the Seller and the Seller shall deposit the amount of such
         loss (to the extent not offset by income from other investments) in the
         Prefunding Account immediately upon the realization of such loss. For
         federal and state income tax purposes the Seller shall be deemed to be
         the owner of the Prefunding Account. All interest and any other
         investment earnings on amounts held in the Prefunding Account shall be
         paid by the Trustee to the Seller on the Distribution Date next
         following the end of the Funding Period.

                  (c) On the Distribution Date next following the end of the
         Funding Period, any amounts remaining in the Prefunding Account (net of
         reinvestment earnings payable to the Seller) shall be deposited at such
         time into the Certificate Account for distribution in the related
         allocated amounts as part of the Principal Distribution Amount on such
         Distribution Date.

         Section 3.17 Capitalized Interest Account.

                  (a) Unless all Subsequent Mortgage Loans are purchased by the
         Trust on the Closing Date, or unless a Capitalized Interest Account is
         not specified in Article I, the Trustee shall establish and maintain
         the Capitalized Interest Account. On the Closing Date, the Trustee will
         deposit the Capitalized Interest Account Deposit in the Capitalized
         Interest Account or, if all Subsequent Mortgage Loans are purchased on
         the Closing Date, in the Certificate Account. The Trustee shall hold
         the Capitalized Interest Account Deposit for the benefit of the Offered
         Certificateholders.

                  (b) The Capitalized Interest Account will be part of the Trust
         but not part of any REMIC Pool. Amounts held in the Capitalized
         Interest Account prior to the first Deposit Date shall be invested at
         the written direction of the Seller in Permitted Investments of the
         type specified in clause (f) of the definition of Permitted
         Investments, which Permitted Investments shall mature no later than the
         Deposit Date immediately following the end of the Funding Period. The
         Trustee shall not be liable for any losses on amounts invested in
         accordance with the provisions hereof. All interest and other

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<PAGE>

         investment earnings on amounts held in the Capitalized Interest Account
         (and any other amounts remaining on deposit therein in excess of the
         amounts to be so withdrawn and deposited into the Certificate Account)
         shall be paid or released by the Trustee to the Seller on the
         Distribution Date immediately following the end of the Funding Period.
         For federal and state income tax purposes the Seller shall be deemed to
         be the owner of the Capitalized Interest Account. Any losses realized
         in connection with any such investment shall be for the account of the
         Seller and the Seller shall deposit the amount of such loss (to the
         extent not offset by income from other investments) in the Capitalized
         Interest Account immediately upon the realization of such loss.

                  (c) On each Prefunding Distribution Date, the Trustee shall
         transfer from the Capitalized Interest Account to the Certificate
         Account the Capitalized Interest Requirement, if any, for such
         Distribution Date; provided, however, that on the final Subsequent
         Transfer Date the Trustee shall (i) transfer the Capitalized Interest
         Requirement, if any, for the following Distribution Date from the
         Capitalized Interest Account to the Certificate Account, (ii) remit the
         balance of the funds on deposit in the Capitalized Interest Account to
         the Seller and (iii) close the Capitalized Interest Account.

         Section 3.18 [Reserved]

         Section 3.19 [Reserved]

         Section 3.20 [Reserved]

         Section 3.21 Net Rate Cap Fund. The Trustee will establish the Net Rate
Cap Fund on the Closing Date. On the Closing Date, the Class C
Certificateholders will deposit, or cause to be deposited, into the Net Rate Cap
Fund $10,000. On each Distribution Date as to which there is a Net Rate Cap
Carryover, the Trustee has been directed by the Class C Certificateholders to,
and therefor will, deposit into the Net Rate Cap Fund the amounts described in
Section 5.01(c)(12), rather than distributing such amounts to the Class C
Certificateholders. On each such Distribution Date, the Trustee shall hold all
such amounts for the benefit of the Offered Certificateholders, and will
distribute such amounts to the applicable Certificateholders pursuant to Section
5.01(c)(12). If no Net Rate Cap Carryover is payable on a Distribution Date, the
Trustee shall deposit into the Net Rate Cap Fund on behalf of the Class C
Certificateholders an amount such that when added to other amounts already on
deposit in the fund, the aggregate amount on deposit therein is equal to
$10,000. For federal and state income tax purposes, the Class C
Certificateholders will be deemed to be the owners of the Net Rate Cap Fund and
all amounts deposited into the Net Rate Cap Fund (other than the initial $10,000
deposit) shall be treated as amounts distributed by REMIC I with respect to the
Class C Distribution Amount and Class C Carryforward Amount. Related amounts
held in the Net Rate Cap Fund and not distributable to any Offered
Certificateholders on any Distribution Date will be invested by the Trustee in
investments designated in writing by the Class C Certificateholders having
maturities on or prior to the next succeeding Distribution Date on which such
related amounts will be distributable to the applicable Class of
Certificateholders; provided, that, if no such designation is made by the Class
C Certificateholders, all such amounts shall remain uninvested. Upon the
termination of the Trust, or the payment in full of the Offered
Certificateholders, all amounts remaining on deposit in the Net Rate Cap Fund,
including any investment earnings remaining

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<PAGE>

therein, will be released from the lien of the Trust and distributed to the
Class C Certificateholders or their designees. The Net Rate Cap Fund will be
part of the Trust but not part of any REMIC Pool and any payments to the
applicable Offered Certificateholders of related Net Rate Cap Carryover will not
be payments with respect to a "regular interest" in a REMIC within the meaning
of Code Section 860G(a)(1).

         Section 3.22 Covenants and Representations Regarding Prepayment
Charges.

                  (a) The Seller represents and warrants to the Servicer that
         the information set forth in the Prepayment Charge Schedule (including
         the prepayment charge summary attached thereto) is complete, true and
         correct in all material respects at the date or dates respecting which
         such information is furnished and each Prepayment Charge is permissible
         and enforceable in accordance with its terms (except to the extent that
         the enforceability thereof may be limited by bankruptcy, insolvency,
         moratorium, receivership and other similar laws relating to creditors'
         rights generally) under applicable state law.

                  (b) Upon discovery by the Seller, the Depositor, the Servicer
         or a Responsible Officer of the Trustee of a breach of clause (a),
         which materially and adversely affects the right of the Servicer to any
         Prepayment Charge, the party discovering such breach shall give prompt
         written notice to the other parties. Within 60 days of the earlier of
         discovery by the Seller, or receipt of notice by the Seller of a
         breach of clause (a) above, then the Seller shall cure such breach in
         all material respects. If the representation in clause (a) above is
         breached, in addition to any rights the Trustee may have hereunder, the
         Seller must pay to the Servicer the amount of the scheduled Prepayment
         Charge, less any amount previously collected by the Servicer in respect
         of such Prepayment Charge.

         Section 3.23 Claims Upon the PMI Policy. The Servicer shall, on behalf
of the Trust, prepare and file in a timely basis with the PMI Insurer, with a
copy to the Trustee, all claims that may be made under any PMI Policy with
respect to PMI Mortgage Loans. Consistent with its rights and obligations
hereunder, the Servicer shall take all actions required under each PMI Policy as
a condition to the payment of any such claim. Any amount received from the PMI
Insurer with respect to any PMI Mortgage Loan shall be deposited by the
Servicer, not later than the Business Day following receipt thereof, into the
Collection Account for distribution on the related Deposit Date into the
Certificate Account as part of Liquidation Proceeds.

         Section 3.24 Advance Facility.

                  (a) Notwithstanding anything to the contrary contained herein,
         the Servicer is hereby authorized to enter into a financing or other
         facility (an "Advance Facility") under which (l) the Servicer sells,
         assigns or pledges to another Person (an "Advancing Person") the
         Servicer's rights under this Agreement to be reimbursed for any Monthly
         Advances or Servicing Advances (collectively, "Advances") and/or (2) an
         Advancing Person agrees to fund some or all Monthly Advances or
         Servicing Advances required to be made by the Servicer pursuant to this
         Agreement. No consent of the Trustee, the Depositor, the Seller, the
         Certificateholders or any other party is required before the Servicer
         may enter into an Advance Facility. Notwithstanding the existence of
         any

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<PAGE>

         Advance Facility under which an Advancing Person agrees to fund Monthly
         Advances and/or Servicing Advances on the Servicer's behalf, the
         Servicer shall remain obligated pursuant to this Agreement to make
         Monthly Advances and Servicing Advances pursuant to and as required by
         this Agreement, and shall not be relieved of such obligations by virtue
         of such Advance Facility.

                  (b) Reimbursement amounts ("Reimbursement Amounts") shall
         consist solely of amounts in respect of Monthly Advances and/or
         Servicing Advances made with respect to the Mortgage Loans for which
         the Servicer would be permitted to reimburse itself in accordance with
         this Agreement, assuming the Servicer had made the related Monthly
         Advance(s) and/or Servicing Advance(s).

                  (c) The Servicer shall maintain and provide to any successor
         Servicer a detailed accounting on a loan-by-loan basis as to amounts
         advanced by, pledged or assigned to, and reimbursed to any Advancing
         Person. The successor Servicer shall be entitled to rely on any such
         information provided by the predecessor Servicer, and the successor
         Servicer shall not be liable for any errors in such information.

                  (d) An Advancing Person who purchases or receives an
         assignment or pledge of the rights to be reimbursed for Monthly
         Advances and/or Servicing Advances, and/or whose obligations hereunder
         are limited to the funding of Monthly Advances and/or Servicing
         Advances shall not be required to meet the criteria for qualification
         of a subservicer set forth in this Agreement.

                  (e) The documentation establishing any Advance Facility shall
         require that Reimbursement Amounts distributed with respect to each
         Mortgage Loan be allocated to outstanding unreimbursed Monthly Advances
         or Servicing Advances (as the case may be) made with respect to that
         Mortgage Loan on a "first-in, first out" (FIFO) basis. Such
         documentation shall also require the Servicer to provide to the related
         Advancing Person or its designee loan-by-loan information with respect
         to each Reimbursement Amount distributed to such Advancing Person or to
         a trustee or custodian (an "Advance Facility Trustee") on each
         Distribution Date, to enable the Advancing Person or Advance Facility
         Trustee to make the FIFO allocation of each Reimbursement Amount with
         respect to each Mortgage Loan. The Servicer shall remain entitled to be
         reimbursed by the Advancing Person or Advance Facility Trustee for all
         Monthly Advances and Servicing Advances funded by the Servicer to the
         extent the related rights to be reimbursed therefor have not been sold,
         assigned or pledged to an Advancing Person.

                  (f) Any amendment to this Section 3.24 or to any other
         provision of this Agreement that may be necessary or appropriate to
         effect the terms of an Advance Facility as described generally in this
         Section 3.24, including amendments to add provisions relating to a
         successor Servicer, may be entered into by the Trustee, the Depositor,
         the Seller and the Servicer without the consent of any
         Certificateholder, notwithstanding anything to the contrary in this
         Agreement.

                  (g) Prior to entering into an Advance Facility, the Servicer
         shall notify the lender under such facility in writing that: (a) the
         Advances financed by and/or pledged to

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<PAGE>

         the lender are obligations owed to the Servicer on a non-recourse basis
         payable only from the cash flows and proceeds received under this
         Agreement for reimbursement of such Advances only to the extent
         provided herein, and the Trustee is not otherwise obligated or liable
         to repay any Advances financed by the lender; (b) the Servicer will be
         responsible for remitting to the lender the applicable amounts
         collected by it as reimbursement for Advances funded by the lender,
         subject to the restrictions and priorities created in this Agreement;
         and (c) the Trustee shall not have any responsibility to track or
         monitor the administration of the financing arrangement between the
         Servicer and the lender. The Servicer shall pay all costs and expenses
         of the Trustee in connection with any amendment of this Section 3.24.

                                   ARTICLE IV

                                REMITTANCE REPORT

         Section 4.01 Servicer Remittance Report. With respect to each
Distribution Date, not later than the fifth Business Day prior to the related
Deposit Date the Servicer shall deliver to the Trustee, the Depositor and the
Seller a computer-readable magnetic tape or disk containing the Servicer
Remittance Report detailing the payments and collections received in respect of
the Mortgage Loans during the immediately preceding Collection Period. The
computer-readable magnetic tape or disk shall include loan-by-loan information
that specifies account number, borrower name, outstanding principal balance and
activity since the last Distribution Date. Such tape shall be in the form and
have the specifications as may be agreed to among the Servicer, the Trustee, the
Depositor and the Seller from time to time and shall include information
concerning original loan-to-value ratios, the lien positions of and number of
days contractually delinquent of the Mortgage Loans and information necessary to
calculate Delinquency Events, Cumulative Loss Events and Required
Overcollateralization Amounts.

         In addition to the foregoing, the Servicer shall provide the Trustee,
the Depositor and the Seller at the time the tape is delivered to the Trustee a
Liquidation Report and accompanying Officer's Certificate with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the related
Collection Period substantially in the form of Exhibits I and J hereto.

         Section 4.02 Trustee Distribution Date Statement. The Trustee shall,
not later than the Business Day prior to each Deposit Date, furnish by telecopy
to the Servicer, the Depositor and the Seller a statement derived from
information on the Servicer Remittance Report that sets forth the following
information for the Offered Certificates relating to the next succeeding
Distribution Date:

                  (a) the total amount of payments in respect of or allocable to
         interest on the Mortgage Loans received from the related Mortgagors by
         the Servicer during such Collection Period (including any net income
         from REO Properties received during the related Collection Period);

                  (b) the aggregate amount of all Principal Prepayments received
         from the related Mortgagors by the Servicer during such Collection
         Period;

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                  (c) the aggregate amount of all Principal Payments received
         from the related Mortgagors by the Servicer during such Collection
         Period;

                  (d) the total amount of Payments Ahead received during the
         related Collection Period;

                  (e) the aggregate of any Trust Insurance Proceeds received by
         the Servicer during such Collection Period;

                  (f) the aggregate of any Net Liquidation Proceeds received by
         the Servicer during such Collection Period;

                  (g) the total amount of Compensating Interest payments to be
         paid by the Servicer pursuant to Section 3.08;

                  (h) the aggregate Purchase Prices for (i) any Defective
         Mortgage Loans that the Seller is required to repurchase on the related
         Deposit Date pursuant to Section 2.03 or 2.05 and (ii) any Mortgage
         Loan that the Servicer is required to purchase on the related Deposit
         Date pursuant to Section 3.01 or 3.06;

                  (i) any amounts required to be deposited by the Seller on the
         related Deposit Date in connection with the substitution of a Qualified
         Replacement Mortgage Loan pursuant to Section 2.03 or 2.05;

                  (j) the amount of Monthly Advances to be made by the Servicer
         pursuant to Section 5.02(a);

                  (k) the related Monthly Servicing Fee;

                  (l) the amount of Monthly Advances reimbursable to the
         Servicer in such Collection Period pursuant to Section 5.02(a) and not
         previously reimbursed;

                  (m) the amount of any Servicing Advance made by the Servicer
         pursuant to Section 5.02(b) and not previously reimbursed;

                  (n) the amount of any Interest Shortfall for the related
         Distribution Date;

                  (o) the number and Principal Balance of Mortgage Loans that,
         as of the end of the preceding calendar month were (i) 30 or more days
         contractually delinquent, (ii) 60 or more days contractually
         delinquent, (iii) 90 or more days contractually delinquent, (iv) in
         foreclosure, (v) as to which the Mortgagor is in bankruptcy to the
         knowledge of the Servicer, or (vi) as to which the related Mortgaged
         Property was an REO Property;

                  (p) the dollar amount of (i) claims paid by the PMI Insurer
         under the PMI Policy as of the related Distribution Date as reported by
         the Servicer and (ii) the claims denied by the PMI Insurer under the
         PMI Policy as of the related Distribution Date as reported by the
         Servicer;

                                      -69-

<PAGE>

                  (q) Prepayment Charges collected for the related Distribution
         Date; and

                  (r) the Pass-Through Rates for each Class of Offered
         Certificates.

                                   ARTICLE V

                  PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS

         Section 5.01 Distributions. (a) On each Distribution Date, the Trustee
         shall distribute to each Certificateholder of record on the related
         Record Date (other than as provided in Section 10.01 respecting the
         final distribution to Certificateholders if the termination of the
         Trust is in connection with a purchase of the assets of the Trust by
         the Servicer pursuant to Section 10.01) by check or money order mailed
         to such Certificateholder at the address appearing in the Certificate
         Register, or upon written request by a Holder of a Certificate, by wire
         transfer (in the event such Certificateholder owns of record one or
         more Certificates that have principal denominations aggregating at
         least $5,000,000 and has given the Trustee, at least five Business Days
         prior to the related Record Date, written instruction for making such
         wire transfer to a bank account maintained in the United States), or by
         such other means of payment as such Certificateholder and the Trustee
         shall agree, such Certificateholder's Percentage Interest of the
         amounts (to the extent applicable to the Class of such Holder's
         Certificate) and in the following orders of priority. Notwithstanding
         such priorities, the aggregate of amounts distributed on all
         Distribution Dates in reduction of the Certificate Principal Balance of
         any Class shall not exceed the Certificate Principal Balance of such
         Class as of the Closing Date.

                  (b) On each Distribution Date, the Trustee shall withdraw the
         portion of Available Funds from the Certificate Account in such amount
         so as to pay concurrently, to the Trustee, the Trustee Fee; to the
         Servicer, the Monthly Servicing Fee and the applicable PMI Insurer
         Premium (in such amount, as shall have been calculated by the Servicer
         and notified in writing to the Trustee), if any, paid by the Servicer
         (in each case to the extent not otherwise reimbursed from the
         Collection Account); and to the PMI Insurer, the PMI Insurer Premium,
         if any (to the extent not paid by the Servicer), in each case for such
         Distribution Date.

                  (c) On each Distribution Date, after subtracting amounts
         payable toward the Trustee Fee, the Monthly Servicing Fee and the
         Primary Mortgage Insurance Premium, if any, the Trustee shall withdraw
         from the Certificate Account the balance of Available Funds for such
         Distribution Date, and make the following disbursements and transfers
         in the order of priority described below:

                  1. Concurrently, to each class of Senior Certificates, the
         related Class Interest Distribution for the applicable Distribution
         Date, allocated pro rata based on entitlement;

                  2. Sequentially, to the Class M-1, Class M-2 and Class B
         Certificates, in that order, the related Class Monthly Interest Amount
         for the applicable Distribution Date.

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<PAGE>

                  3. To the Class A Certificates, the Senior Principal
         Distribution Amount for the applicable Distribution Date, excluding any
         Subordination Increase Amount included in that amount, distributed in
         the following order of priority:

                           A. To the Class A-4 Certificates, the Class A-4
                  Principal Distribution Amount for the applicable Distribution
                  Date, excluding any Subordination Increase Amount included in
                  that amount, until the Certificate Principal Balance thereof
                  is reduced to zero; and

                           B. Sequentially, to the Class A-1, Class A-2, Class
                  A-3 and Class A-4 Certificates, in that order, until the
                  respective Certificate Principal Balances thereof have been
                  reduced to zero.

                  4. To the Class M-1 Certificates, the Class M-1 Principal
         Distribution Amount for the applicable Distribution Date, excluding any
         Subordination Increase Amount included in that amount, until its
         Certificate Principal Balance is reduced to zero.

                  5. To the Class M-2 Certificates, the Class M-2 Principal
         Distribution Amount for the applicable Distribution Date, excluding any
         Subordination Increase Amount included in that amount, until its
         Certificate Principal Balance is reduced to zero.

                  6. To the Class B Certificates, the Class B Principal
         Distribution Amount for the applicable Distribution Date, excluding any
         Subordination Increase Amount included in that amount, until its
         Certificate Principal Balance is reduced to zero.

                  On each Distribution Date, any Excess Interest shall be paid
         in the following order of priority, in each case to the extent of the
         Excess Interest remaining undistributed:

                  7. To the Offered Certificates, the Subordination Increase
         Amount for the applicable Distribution Date, allocated in the order set
         forth in clauses 3 through 6 above.

                  8. To the Class M-1 Certificates, any related (a) Class
         Interest Carryover Shortfall and then (b) Class Principal Carryover
         Shortfall.

                  9. To the Class M-2 Certificates, any related (a) Class
         Interest Carryover Shortfall and then (b) Class Principal Carryover
         Shortfall.

                  10. To the Class B Certificates, any related (a) Class
         Interest Carryover Shortfall and then (b) Class Principal Carryover
         Shortfall.

                  11. To the Trustee, in an amount equal to its reasonable
         expenses, disbursements and advances payable to the Trustee pursuant to
         Section 9.05(b) and not otherwise reimbursed to the Trustee.

                  12. To fund a distribution to Class C Certificateholders of
         the Class C Distribution Amount plus any Class C Carryforward Amount;
         provided that, pursuant to Section 3.21 hereof, on any Distribution
         Date as to which there is any unpaid Net Rate Cap Carryover, the
         Trustee will deposit from amounts that would otherwise be

                                      -71-

<PAGE>

         distributable to the Class C Certificateholders funds into the Net Rate
         Cap Fund for immediate application pursuant to this clause of the
         distribution of the related Net Rate Cap Carryover to the applicable
         Class of Offered Certificates in the same order of priority as the
         respective Class Monthly Interest Amounts are payable pursuant to
         clauses 1 and 2 above. Such deposit will constitute payment in full of
         and satisfaction of all obligations hereunder to distribute amounts
         equal to the related Net Rate Cap Carryover to the Class C
         Certificateholders, including for purposes of Section 9.16, and the
         Trustee, the Servicer and the Class C Certificateholders agree hereby
         appropriately to report any deposit of Net Rate Cap Carryover as if
         corresponding distributions had been made to the Class C
         Certificateholders for federal income tax and accounting purposes with
         respect to the Class C Distribution Amount and Class C Carryforward
         Amount. (All distributions or deemed distributions with respect to the
         Class C Distribution Amount and Class C Carryforward Amount shall be
         applied first to the interest components of such amounts and second to
         reduce the Class C Certificate Principal Balance).

                  13. To the Class R Certificates, the remainder.

                  (d) By accepting a Class C Certificate, each Class C
         Certificateholder hereby agrees to direct the Trustee, and the Trustee
         hereby is directed, to deposit into the Net Rate Cap Fund the amounts
         described in Section 3.21 on each Distribution Date as to which there
         is any Net Rate Cap Carryover rather than distributing such amounts to
         the Class C Certificateholders. By accepting a Class C Certificate,
         each Class C Certificateholder further agrees that such direction is
         given for good and valuable consideration, the receipt and sufficiency
         of which is acknowledged by such acceptance.

         Notwithstanding any of the foregoing, the aggregate of amounts
distributed on all Distribution Dates in reduction of the Certificate Principal
Balance of any Class of Certificates shall not exceed the Certificate Principal
Balance of such Class as of the Closing Date.

         Section 5.02 Monthly Advances; Servicing Advances.

                  (a) On or before each Deposit Date, the Servicer will deposit
         in the Collection Account, in same day funds, an amount, if any (a
         "Monthly Advance"), equal to the sum of (i) with respect to all
         Mortgage Loans as to which the Monthly Mortgage Payment due during the
         related Collection Period has not been received before such Deposit
         Date, the aggregate of the interest portions of each Monthly Mortgage
         Payment due during the related Collection Period (net of the aggregate
         of the Monthly Servicing Fees attributable to such Mortgage Loans),
         plus (ii) with respect to each Mortgaged Property that was acquired in
         foreclosure or similar action (each, an "REO Property") during or prior
         to the related Collection Period and as to which a final sale did not
         occur during the related Collection Period, an amount equal to the
         excess, if any, of interest on the Principal Balance of such REO
         Property at the related Mortgage Loan Rate (net of the Monthly
         Servicing Fee attributable to such REO Property) over the net income
         from such REO Property transferred to the Collection Account or the
         Certificate Account, as the case may be, for such Distribution Date;
         provided, however, that in no case will the Servicer be required to
         make advances with respect to any period or portion of any Collection
         Period following (i) the final due date with respect to any Mortgage
         Loan and (ii) to the extent

                                      -72-

<PAGE>

         that the Servicer reasonably believes that the amount of such advance
         will not be recoverable from subsequent collections on the related
         Mortgage Loan or from Liquidation Proceeds from the related Mortgage
         Loan in the event such Mortgage Loan is liquidated. The Servicer shall
         not have any obligation to make Monthly Advances relating to Relief Act
         Shortfalls.

                  The Servicer shall be permitted to fund all or a portion of
         any Monthly Advance required to be made on a Deposit Date on any
         Business Day and to reimburse itself for any Monthly Advance paid from
         the Servicer's own funds out of amounts on deposit in the Collection
         Account in respect of collections on any Mortgage Loan that are not
         required to be deposited on such Deposit Date in the Certificate
         Account as any portion of Available Funds for the related Distribution
         Date; provided, however, that the Servicer shall be required to replace
         any such amounts by deposit to the Collection Account on or before the
         next Deposit Date to the extent constituting a portion of the Available
         Funds for the related Distribution Date. The Servicer may recover
         Monthly Advances made from its own funds (i) from the Mortgagor on
         whose behalf such Monthly Advance was made and from collections on the
         related Mortgage Loan, including Liquidation Proceeds, Insurance
         Proceeds and such other amounts as may be collected by the Servicer
         from the Mortgagor or otherwise relating to the Mortgage Loan and (ii)
         in the case of a Monthly Advance that the Servicer reasonably believes
         will not be recoverable from the related Mortgage Loan, from
         collections or recoveries on any Mortgage Loan, in each case prior to
         the payment of such amounts to the Collection Account or to any other
         party to this Agreement.

                  (b) The Servicer shall from time to time during the term of
         this Agreement make such Servicing Advances as the Servicer shall deem
         appropriate or advisable under the circumstances and are required
         pursuant to the terms of this Agreement; provided, however, that in no
         case will the Servicer be required to make Servicing Advances with
         respect to any Mortgage Loan to the extent that the Servicer reasonably
         believes that the amount of such advance will not be recoverable from
         subsequent collections on the related Mortgage Loan or from Liquidation
         Proceeds from the related Mortgage Loan in the event such Mortgage Loan
         is liquidated. Servicing Advances may be paid by the Servicer out of
         amounts on deposit in the Collection Account from time to time;
         provided, however, that the Servicer shall be required to replace any
         such amounts by deposit to the Collection Account on or before the
         first Deposit Date occurring after the payment of a Servicing Advance
         with such amounts, and the amount of such deposit shall thereafter be
         considered a Servicing Advance for purposes of reimbursement under this
         Agreement. The Servicer may recover Servicing Advances made from its
         own funds (i) from the Mortgagor on whose behalf such Servicing Advance
         was made and from collections on the related Mortgage Loan, including
         Liquidation Proceeds, Insurance Proceeds and such other amounts as may
         be collected by the Servicer from the Mortgagor or otherwise relating
         to the Mortgage Loan and (ii) in the case of a Servicing Advance that
         subsequent to the date the advance was made the Servicer reasonably
         believes that such advance will not be recoverable from the related
         Mortgage Loan, from collections or recoveries on any Mortgage Loan, in
         each case prior to the payment of such amounts to the Collection
         Account or to any other party to this Agreement.

                                      -73-

<PAGE>

         Section 5.03 Statements to Certificateholders. Concurrently with each
distribution charged to the Certificate Account on a Distribution Date the
Trustee shall make available on its web site, located at
http://www-apps.gis.deutsche-bank.com/invr, a written statement (a "Statement to
Certificateholders") setting forth the following information with respect to the
Offered Certificates:

                  (a) the amount of the distribution with respect to each Class
         of Certificates (based on a Certificate in the original principal
         amount of $1,000);

                  (b) the amount of such distribution allocable to principal on
         the related Mortgage Loans, separately identifying the aggregate amount
         of any Prepayments or other recoveries of principal included therein;

                  (c) the amount of such distribution allocable to interest on
         the related Mortgage Loans identifying the aggregate amount of any
         prepayment or other recoveries of principal included therein;

                  (d) the Class Monthly Interest Amount and Class Interest
         Carryover Shortfall for each Class of Certificates;

                  (e) the outstanding Certificate Principal Balance of each
         Class of Offered Certificates (based on a Certificate in the original
         principal amount of $1,000) that will be outstanding after giving
         effect to any payment of principal on such Distribution Date;

                  (f) the aggregate of the Principal Balances of all Mortgage
         Loans after giving effect to any payments of principal on such
         Distribution Date;

                  (g) based upon information furnished by the Servicer, such
         information as may be required by Section 6049(d)(7)(C) of the Code and
         the regulations promulgated thereunder to assist the Certificateholders
         in computing their market discount;

                  (h) the total of all amounts paid by the Seller and the
         Servicer during the related Collection Period in connection with
         purchases or repurchases from the Trust of Mortgage Loans and
         substitutions for Mortgage Loans of Qualified Replacement Mortgage
         Loans;

                  (i) the weighted average Mortgage Loan Rate of the Mortgage
         Loans;

                  (j) whether a Delinquency Event or a Cumulative Loss Event has
         occurred and, if so, what event;

                  (k) the amount of any Excess Interest included in such
         distribution;

                  (l) the Overcollateralization Amount, Required
         Overcollateralization Amount and Applied Realized Loss Amount, both in
         the aggregate and with respect to each applicable Class, for such
         Distribution Date;

                  (m) the Basic Principal Amount with respect to the Mortgage
         Loans;

                                      -74-

<PAGE>

                  (n) the amount of any Net Rate Cap Carryover paid and
         remaining unpaid as of such Distribution Date;

                  (o) the Capitalized Interest Requirement and amounts remaining
         in the Prefunding Account and Capitalized Interest Account each as of
         such Distribution Date;

                  (p) the amount of any draw to be made on any PMI Policy on the
         related Distribution Date, and the amounts to be paid to the PMI
         Insurer, if any, as of such Distribution Date in respect of the PMI
         Insurer Premiums with respect to each PMI Mortgage Loan;

                  (q) the number of Mortgage Loans and the aggregate of their
         Principal Balances as a percentage of the Pool Balance, that as of the
         end of the immediately preceding calendar month are (i) 30 to 59 days
         delinquent, (ii) 60 to 89 days delinquent, (iii) 90 or more days
         delinquent, (iv) the subject of bankruptcy proceedings (to the actual
         knowledge of the Servicer), (v) in foreclosure and (vi) as to which the
         related Mortgaged Property is REO Property; and

                  (r) the Certificate Principal Balance of each Class of
         Certificates then outstanding after giving effect to all payments or
         principal on such Distribution Date.

         In the case of information furnished pursuant to subclauses (a), (b),
(c) and (d) above, the amounts shall be expressed as a dollar amount per
Certificate with a $1,000 principal denomination.

         Within 90 days after the end of each calendar year, the Trustee shall
mail such report to Greenwich Capital Markets, Inc., 600 Steamboat Road,
Greenwich, Connecticut 06830, Attention: James Raezer (which report shall
include, in addition to the information contained in reports to others
hereunder, the total amount of interest on the Mortgage Loans for the period
covered by such report), and to each Person who at any time during the calendar
year was an Offered Certificateholder, a statement for each Certificateholder
containing the information set forth in subclauses (a) through (c) above,
aggregated for such calendar year or, in the case of each Person who was an
Offered Certificateholder for a portion of such calendar year, setting forth
such information for each month thereof for the portion of the year during which
such Person was a Certificateholder. The Servicer shall provide any other
information necessary in order to report income in respect of the
Certificateholders for federal income tax purposes.

         Section 5.04 Allocation of Losses. On each Distribution Date, the
Trustee shall determine the total of the Applied Realized Loss Amounts for such
Distribution Date. The Applied Realized Loss Amount for any Distribution Date
shall be applied by reducing the Certificate Principal Balance of each Class of
Subordinate Certificates beginning with the Class of Subordinate Certificates
then outstanding with the lowest relative payment priority, in each case until
the respective Certificate Principal Balance thereof is reduced to zero. Any
Applied Realized Loss Amount allocated to a Class of Subordinate Certificates
shall be allocated among the Subordinate Certificates of such Class in
proportion to their respective Percentage Interests.

                                      -75-

<PAGE>

                                   ARTICLE VI

                                THE CERTIFICATES

         Section 6.01 The Certificates.

                  (a) The Certificates shall be substantially in the forms set
         forth in Exhibits A-1, A-2, A-3, A-4, B-1, B-2 and B-3 hereto, and
         shall, on original issue, be executed and delivered by the Trustee on
         behalf of the Trust, not individually but solely as Trustee to or upon
         the order of the Depositor concurrently with the sale and assignment to
         the Trustee of the Trust.

                  (b) The Book-Entry Certificates will be evidenced by one or
         more certificates, beneficial ownership of which will be held in
         minimum dollar denominations of $25,000 and integral multiples of
         $1,000 in excess thereof. The Class R-I Certificate and the Class R-II
         Certificate shall be issuable solely as single certificates evidencing
         the entire Percentage Interests of the Class R-I Certificates and the
         Class R-II Certificates, respectively, and the Class C Certificates
         shall be initially issued as a single certificate evidencing the entire
         Percentage Interest thereof.

                  (c) The Certificates shall be executed by manual or facsimile
         signature by the Trustee on behalf of the Trust (not in its individual
         capacity but solely as Trustee) by an authorized officer of the
         Trustee. Certificates bearing the manual or facsimile signatures of
         individuals who were, at the time when such signatures were affixed,
         authorized to sign on behalf of the Trustee shall bind the Trust,
         notwithstanding that such individuals or any of them have ceased to be
         so authorized prior to the countersigning and delivery of such
         Certificates or did not hold such offices at the date of such
         Certificate. No Certificate shall be entitled to any benefit under this
         Agreement, or be valid for any purpose, unless such Certificate shall
         have been manually authenticated by the Trustee substantially in the
         form provided for herein, and such signature upon any Certificate shall
         be conclusive evidence, and the only evidence, that such Certificate
         has been duly authenticated and delivered hereunder. All Certificates
         shall be dated the date of their authentication.

                  Section 6.02 Registration of Transfer and Exchange of
         Certificates.

         (a) The Trustee shall cause to be kept at the Corporate Trust Office a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of Certificates and of
transfers and exchanges of Certificates as herein provided.

         Upon surrender for registration or transfer of any Certificate at any
office or agency of the Trustee maintained for such purpose (as designated by
the Trustee from time to time) and upon satisfaction of the conditions set forth
in Section 6.02(b) and (c), the Trustee shall execute, authenticate and deliver,
in the name of the designated transferee or transferees, one or more new
Certificates of the same Class and of a like aggregate Percentage Interest. As
of the Closing

                                      -76-

<PAGE>

Date, the Trustee designates its office located on 648 Grassmere Park Road,
Nashville, TN 37211, Attn: Transfer Department for such purpose.

         At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of authorized denominations of the same Class and of a
like aggregate Percentage Interest, upon surrender of the Certificates to be
exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange the Trustee shall execute, authenticate and deliver the
Certificates that the Certificateholder making the exchange is entitled to
receive.

         Every Certificate presented or surrendered for transfer or exchange
shall (if so required by the Company or the Trustee) be duly endorsed by, or be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by the Holder thereof or his attorney duly authorized in
writing.

         No service charge shall be made to a Certificateholder for any transfer
or exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.

         All Certificates surrendered for transfer or exchange shall be canceled
by the Trustee in accordance with its standard procedures.

         (b) No transfer of a Class R Certificate shall be made unless, as
evidenced by an Opinion of Counsel and Transfer Affidavit delivered to the
Trustee, each in form and substance satisfactory to the Trustee, such transfer
is not subject to registration under the Securities Act or any applicable state
securities laws. Any such Opinion of Counsel and Transfer Affidavit shall not be
obtained at the expense of the Trustee, the Trust, the Seller, the Depositor or
the Servicer. The Holder of a Class R Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee, the Seller, the
Depositor and the Servicer against any liability that may result if the transfer
is not so exempt or is not made in accordance with the Securities Act and such
state laws. Neither the Seller, the Servicer, the Depositor nor the Trustee or
the Trust is under an obligation to register the Class R Certificates under the
Securities Act or any state securities law.

         The Class R Certificates, this Agreement and related documents may be
amended or supplemented from time to time to modify restrictions on and
procedures for resale and other transfer of such Class R Certificate to reflect
any change in applicable law or regulation (or the interpretation thereof) or
practices relating to the resale or transfers of restricted securities
generally.

         No legal or beneficial interest in all or any of the Class R
Certificates may be transferred directly or indirectly to: (i) a Disqualified
Organization or an agent of a Disqualified Organization (including a broker,
nominee or middleman), (ii) an entity that holds REMIC residual securities as
nominee to facilitate the clearance and settlement of such securities through
electronic book-entry changes in accounts of participating organizations (a
"Book-Entry Nominee"), (iii) an individual, corporation, partnership or other
Person unless such transferee

                                      -77-

<PAGE>

(A) is not a Foreign Person or (B) is a Foreign Person that will hold such Class
R Certificate in connection with the conduct of a trade or business within the
United States and has furnished the transferor and the Trustee with, and agrees
to periodically furnish in accordance with Treasury regulations, an effective
Internal Revenue Service Form W-8ECI (or any applicable successor form) or (C)
is a Foreign Person that has delivered (at the expense of the transferee) to
both the transferor and the Trustee an opinion of a nationally recognized tax
counsel to the effect that the transfer of the Class R Certificate to it is in
accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer of the Class R Certificate will not be
disregarded for federal income tax purposes (any such Person who is not covered
by clause (A), (B) or (C) above being referred to herein as a "Non-permitted
Foreign Holder") or (iv) to an ERISA Plan or an entity, including an insurance
company separate account or general account, whose underlying assets include
ERISA Plan assets by reason of an ERISA Plan's investment in the entity or a
Person investing the assets of an ERISA Plan or such an entity, whether as
nominee, trustee, agent or otherwise (such plan, entity or Person, an "ERISA
Prohibited Holder"), and any such purported transfer shall be void and have no
effect.

         The Trustee shall not execute, and shall not authenticate and deliver,
a new Class R Certificate and shall not accept a surrender for the registration
of transfer or register the transfer of, any Class R Certificate, unless the
transferor thereof shall have provided to the Trustee a Transfer Affidavit
substantially in the form attached as Exhibit G hereto, signed by the
transferee, to the effect that the transferee is not a Disqualified Organization
and is not a nominee for a beneficial owner of the Class R Certificate from
which the transferee has not received a substantially similar affidavit, a
Book-Entry Nominee, a Non-permitted Foreign Holder or an ERISA Prohibited
Holder. Such Transfer Affidavit shall contain (i) the consent of the transferee
to any such amendments of this Agreement as may be required to further
effectuate the foregoing restrictions on transfer of the Class R Certificates to
Disqualified Organizations, Book-Entry Nominees, Non-permitted Foreign Holders
or ERISA Prohibited Holders and (ii) a representation from the transferee that
such transferee does not have the intent or purpose to impede the assessment or
collection of any federal, state or local income taxes legally required to be
paid with respect to the Class R Certificates. Such Transfer Affidavit, if not
executed in connection with the initial issuance of the Class R Certificates,
also shall be accompanied by a Transferor Affidavit, substantially in the form
attached hereto as Exhibit K, signed by the transferor to the effect that as of
the time of the transfer, the transferor has no actual knowledge that such
affidavit is false and that the transferor does not have the intent or purpose
to impede the assessment or collection of any federal, state or local income
taxes legally required to be paid with respect to the Class R Certificate.

         Each Class R Certificate shall bear a legend referring to the foregoing
restrictions. Any Person acquiring the Class R Certificate, or beneficial
ownership thereof, agrees to give the Servicer written notice that it is a
"pass-through interest holder" within the meaning of Treasury Regulation Section
1.67-3T(a)(2)(i)(A) immediately upon acquiring the Class R Certificate, or
beneficial ownership thereof, if it is, or is acquiring the Class R Certificate
on behalf of, a "pass-through interest holder."

         Upon notice to the Servicer that any legal or beneficial interest in
any Class R Certificate has been transferred, directly or indirectly, to a
Disqualified Organization in contravention of the foregoing restrictions or to a
pass-through entity as defined in the REMIC Provisions an interest

                                      -78-

<PAGE>

of which is held by a Disqualified Organization, the Servicer agrees to furnish
to the Internal Revenue Service and to any transferor of the Class R Certificate
or such agent or such pass-through entity such information as may be required to
be delivered thereto by the Code as necessary to the application of Code Section
860E(e) and described in Treasury regulations ss.1.860D-1(b)(5)(ii), or any
successor provision, including, but not limited to, the present value of the
total anticipated excess inclusions with respect to the Class R Certificate (or
portion thereof) for periods after such transfer. Such information shall be
provided in the manner described in Treasury regulations ss.1.860E-2(a)(5), or
any successor provision. At the election of the Servicer, the cost to the
Servicer of computing and furnishing such information may be charged to the
transferor or such agent referred to above; provided, however, that the Servicer
shall in no event be excused from furnishing such information.

         The Class R Certificates, this Agreement and related documents may be
amended or supplemented from time to time to modify restrictions on and
procedures for resale and other transfer of the Class R Certificates to reflect
any change in applicable law or regulation (or the interpretation thereof) or
practices relating to the resale or transfer of restricted securities generally.

         (c) No transfer of a Class C Certificate or beneficial interest therein
shall be made unless the Trustee shall have received (i) a letter from the
transferor, substantially in the form attached hereto as Exhibit M, and (ii) a
representation letter from the transferee, substantially in the form attached
hereto as either Exhibit N-1 or Exhibit N-2, as applicable:

         Notwithstanding anything else to the contrary herein, any purported
transfer of a Class C Certificate or a beneficial interest therein to or on
behalf of an employee benefit plan subject to ERISA or to the Code or a person
acting on behalf of an ERISA Plan or using the assets of an ERISA Plan to effect
such transfer shall be void and of no effect.

         To the extent permitted under applicable law (including, but not
limited to, ERISA), the Trustee shall be under no liability to any Person for
any registration of transfer of any Class C Certificate that is in fact not
permitted by Section 6.02(c) or for making any payments due on such Certificate
to the holder thereof or taking any other action with respect to such Holder
under the provisions of this Agreement so long as the transfer was registered by
the Trustee in accordance with the foregoing requirements.

         The Class C Certificates, this Agreement and related documents may be
amended or supplemented from time to time to modify restrictions on and
procedures for resale and other transfer of such Class C Certificates to reflect
any change in applicable law or regulation (or the interpretation thereof) or
practices relating to the resale or transfers of restricted securities
generally.

         (d) The Book-Entry Certificates shall, subject to Section 6.02(e), at
all times remain registered in the name of the Depository or its nominee and at
all times: (i) registration thereof may not be transferred by the Trustee except
to another Depository; (ii) the Depository shall maintain book-entry records
with respect to the Certificate Owners and with respect to ownership and
transfers of such Certificates; (iii) ownership and transfers of registration of
the Certificates issued in book-entry form on the books of the Depository shall
be governed by

                                      -79-

<PAGE>

applicable rules established by the Depository and the rights of Certificate
Owners with respect to Book-Entry Certificates shall be governed by applicable
law and agreements between such Certificate Owners and the Depository,
Depository Participants, and indirect participating firms; (iv) the Depository
may collect its usual and customary fees, charges and expenses from its
Depository Participants; (v) the Trustee shall deal with the Depository as the
authorized representative of the Certificate Owners of the Book-Entry
Certificates for all purposes including the making of payments due on the
Book-Entry Certificates and exercising the rights of Holders of Book-Entry
Certificates under this Agreement; (vi) the Trustee may rely and shall be fully
protected in relying upon information furnished by the Depository; (vii)
Certificate Owners shall not be entitled to certificates for the Book-Entry
Certificates and (viii) the Trustee may establish a reasonable record date in
connection with solicitations of consents from or voting by holders of
Book-Entry Certificates and give notice to the Depository of such record date.

         All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures.

         (e) If (x)(i) the Depositor or the Depository advises the Trustee in
writing that the Depository is no longer willing, qualified or able to properly
discharge its responsibilities as Depository, and (ii) the Trustee or the
Depositor is unable to locate a qualified successor, (y) the Depositor at its
option advises the Trustee in writing that it elects to terminate the book-entry
system through the Depository or (z) after the occurrence of an Event of
Default, Certificate Owners representing not less than 51% of the aggregate
Certificate Principal Balance of the Book-Entry Certificates together advise the
Trustee and the Depository in writing that the continuation of a book-entry
system through the Depository is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the availability of
definitive, fully registered Certificates ("Definitive Certificates") to
Certificate Owners requesting the same. Upon surrender to the Trustee of such
Certificates by the Depository, accompanied by registration instructions from
the Depository for registration, the Trustee shall issue the Definitive
Certificates and the expense of any such issuance shall be reimbursed by the
Trust pursuant to Section 9.05. Neither the Depositor nor the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Upon the issuance
of Definitive Certificates all references herein to obligations imposed upon or
to be performed by the Depository shall be deemed applicable with respect to
such Definitive Certificates and the Certificates as Certificateholders
hereunder.

         (f) On or prior to the Closing Date, there shall be delivered to the
Trustee (as agent for the Depository) one certificate for each Class of
Book-Entry Certificates registered in the name of the Depository's nominee, Cede
& Co. The face amount of each such Certificate shall be equal to the Principal
Balance thereof. Each Certificate issued in book-entry form shall bear the
following legend:

         "Unless this Certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or
its agent for registration of

                                      -80-

<PAGE>

transfer, exchange, or payment, and any certificate issued is registered in the
name of Cede & Co. or in such other name as requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein."

         Section 6.03 Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate is surrendered to the Trustee or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (b) there is delivered to the Trustee, the Servicer, the
Depositor and the Seller such security or indemnity as may be required by them
to save each of them harmless, then, in the absence of notice to the Trustee
that such Certificate has been acquired by a bona fide purchaser, the Trustee
shall execute, authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class and Percentage Interest. Upon the issuance of any new Certificate under
this Section, the Trustee may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee) connected
therewith. Any duplicate Certificate issued pursuant to this Section shall
constitute complete and indefeasible evidence of ownership of the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.

         Section 6.04 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Servicer, the Seller, the Trustee,
the Depositor and any of their respective agents may treat the Person in whose
name any Certificate is registered as the owner of such Certificate for the
purpose of receiving distributions pursuant to Section 5.01 and for all other
purposes whatsoever, and neither the Servicer, the Seller, the Trustee, the
Depositor nor any of their respective agents shall be affected by notice to the
contrary.

         Section 6.05 Actions of Certificateholders.

                  (a) Any request, demand, authorization, direction, notice,
         consent, waiver or other action provided by this Agreement to be given
         or taken by Certificateholders may be embodied in and evidenced by one
         or more instruments of substantially similar tenor signed by such
         Certificateholders in person or by agent duly appointed in writing; and
         except as herein otherwise expressly provided, such action shall become
         effective when such instrument or instruments are delivered to the
         Trustee and, when required, to the Seller, the Depositor or the
         Servicer. Proof of execution of any such instrument or of a writing
         appointing any such agent shall be sufficient for any purpose of this
         Agreement and conclusive in favor of the Trustee, the Seller, the
         Depositor and the Servicer if made in the manner provided in this
         Section.

                  (b) The fact and date of the execution by any
         Certificateholder of any such instrument or writing may be proved in
         any reasonable manner that the Trustee deems sufficient.

                                      -81-

<PAGE>

                  (c) Any request, demand, authorization, direction, notice,
         consent, waiver or other act by a Certificateholder shall bind every
         Holder of every Certificate issued upon the registration of transfer
         thereof or in exchange therefor or in lieu thereof, in respect of
         anything done, or omitted to be done, by the Trustee, the Seller, the
         Depositor or the Servicer in reliance thereon, whether or not notation
         of such action is made upon such Certificate.

                                  ARTICLE VII

                   THE SERVICER, THE SELLER AND THE DEPOSITOR

         Section 7.01 Liability of the Seller, the Depositor and the Servicer.
The Seller, the Depositor and the Servicer shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Seller, the Depositor and the Servicer herein.

         Section 7.02 Merger or Consolidation of, or Assumption of the
Obligations of the Seller, the Depositor or Servicer. Any corporation or other
entity (i) into which the Seller, the Depositor or the Servicer may be merged or
consolidated, (ii) that may result from any merger, conversion or consolidation
to which the Seller, the Depositor or the Servicer shall be a party, or (iii)
that may succeed to all or substantially all of the business of the Seller, the
Depositor or the Servicer, which corporation or other entity shall, in any case
where an assumption shall not be effected by operation of law, execute an
agreement of assumption to perform every obligation of the Servicer under this
Agreement, shall be the successor to the Seller, the Depositor or the Servicer,
as the case may be, under this Agreement without the execution or filing of any
document or any further act by any of the parties to this Agreement; except that
if the Servicer is not the surviving entity or not otherwise effected by
operation of law, then the surviving entity shall execute and deliver to the
Trustee an agreement of assumption to perform every obligation of the Servicer
hereunder.

         Section 7.03 Limitation on Liability of the Servicer and Others.
Neither the Servicer nor any of its directors, officers, employees or agents
shall be under any liability to the Trustee, the Trust or the Certificateholders
for any action taken or for refraining from the taking of any action by the
Servicer pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Servicer or any such person
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of the duties of the
Servicer or by reason of reckless disregard of the obligations and duties of the
Servicer hereunder. The Servicer and any director, officer, employee or agent of
the Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Servicer and any director or officer or employee or agent of the
Servicer shall be indemnified by the Trust and held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss, liability or expense
incurred by reason of its willful misfeasance, bad faith or negligence in the
performance of its duties hereunder or by reason of its reckless disregard of
obligations and duties hereunder. The Servicer shall not be under any obligation
to appear in, prosecute or defend any legal action that is not incidental to its
duties to service the Mortgage Loans in accordance with this Agreement,

                                      -82-

<PAGE>

and that in its opinion may involve it in any expense or liability; provided,
however, the Servicer may undertake any such action which it may deem necessary
to protect itself, the rights of the other parties to the Agreement or the
interests of the Certificateholders. In such event, the Servicer shall be
entitled to receive prompt reimbursement of reasonable legal expenses and costs
for such action, and any liability resulting therefrom, from the Trust.

         Section 7.04 Servicer Not to Resign. Subject to the provisions of
Section 7.02 regarding the merger or consolidation of the Servicer into or with
another entity, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
duties or obligations hereunder is no longer permissible under applicable law or
regulation or are in material conflict by reason of applicable law or regulation
with any other activities carried on by it at the date of this Agreement or (ii)
upon satisfaction of each of the following conditions: (a) the Servicer has
proposed a successor servicer in accordance with the limitations of Section 8.02
(an "Approved Servicer") to the Seller, the Depositor and the Trustee in writing
and such proposed Approved Servicer is reasonably acceptable to the Seller, the
Depositor and the Trustee, (b) the Approved Servicer shall undertake the duties
of the Servicer on the same terms and conditions as set forth herein or as
otherwise agreed to by the Seller, the Depositor and the Trustee and (c) each
Rating Agency shall have delivered a letter to the Trustee prior to the
appointment of the Approved Servicer stating that the proposed appointment of
such Approved Servicer as Servicer hereunder will not result in the reduction or
withdrawal of the then current ratings of the Offered Certificates; provided,
however, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Approved Servicer
shall have assumed the Servicer's responsibilities and obligations hereunder or
the Trustee shall have designated a successor servicer in accordance with
Section 8.02. Any such resignation shall not relieve the Servicer of
responsibility for any of the obligations specified in Sections 8.01 and 8.02 as
obligations that survive the resignation or termination of the Servicer. Any
such determination permitting the resignation of the Servicer pursuant to clause
(i) above shall be evidenced by an Opinion of Counsel to such effect delivered
to the Seller, the Depositor and the Trustee. Each of the Rating Agencies shall
be given written notice of a resignation of the Servicer pursuant to this
Section.

         If, at the time the Servicer is removed or resigned and the Trustee
does not appoint a different successor servicer, then the Trustee shall become
the successor servicer.

         Upon the termination or resignation of the Servicer, the Servicer also
shall promptly (and in any event no later than 10 Business Days subsequent to
such termination or resignation) deliver or cause to be delivered to the Trustee
or successor servicer all the books and records (including, without limitation,
records kept in electronic form) that the Servicer has maintained for the
Mortgage Loans, including all tax bills, assessment notices, insurance premium
notices and all other documents as well as all original documents then in the
Servicer's possession. The Servicer may retain copies of any such books and
records.

         Any collections received by the Servicer after termination or
resignation shall be endorsed by it and remitted directly and immediately to the
Trustee or the successor servicer. The Servicer shall be entitled to be
reimbursed from the Trust at the time of termination or

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<PAGE>

resignation the Monthly Servicing Fee through the day on which it is terminated
or resigns as Servicer (which may be pro rated for a partial month).

         To the extent that the Servicer, at the time of its termination or
resignation, has therefore expended any amounts as Monthly Advances or Servicing
Advances with respect to any Mortgage Loan, which Monthly Advances or Servicing
Advances remain unreimbursed as of such date ("Unrecovered Advances") the
Servicer shall thereafter be entitled to receive from the successor servicer,
monthly, such information as may be generated by the successor servicer as may
be reasonably necessary to enable the Servicer to monitor the recovery of, and
collection efforts undertaken with respect to, the Unrecovered Advances, which
information will include details of collection activities, payment records and
trial balances. To the extent that the successor servicer receives any amounts
that relate to reimbursement for Unrecovered Advances made by the prior
Servicer, such amounts shall be remitted to the prior Servicer on the related
Distribution Date. To the extent that the Servicer, based upon the information
supplied by the successor servicer, believes that any discrepancies exist
between actual Unrecovered Advances received by the successor servicer and the
amounts forwarded to the Servicer as recovered Unrecovered Advances, the
Servicer and the successor servicer shall attempt in good faith to reconcile
such discrepancies.

         The Servicer agrees to cooperate reasonably with the successor servicer
in effecting the termination of the Servicer's servicing responsibilities and
rights hereunder and shall promptly provide to the successor servicer all
documents and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder and shall promptly also transfer to the successor
servicer all amounts that then have been or should have been deposited in the
Collection Account, or that are thereafter received with respect to the Mortgage
Loans. The successor servicer shall not be held liable by reason of any failure
to make, or any delay in making, any distribution hereunder or any portion
thereof caused by (i) the failure of the Servicer to deliver, or any delay in
delivering, cash, documents or records to it, or (ii) restrictions imposed by
any regulatory authority having jurisdiction over the Servicer.

         The Servicer which is being terminated or is resigning shall give
notice to the Mortgagors of the transfer of the servicing to the successor
servicer. Said notice shall be a joint notice of servicing transfer in the form
required by applicable law.

         Section 7.05 Merger or Consolidation of the Seller or Depositor. Any
corporation or other entity (i) into which the Seller or the Depositor may be
merged or consolidated, (ii) that may result from any merger, conversion or
consolidation to which the Seller or the Depositor shall be a party, or (iii)
that may succeed to all or substantially all of the business of the Seller or
the Depositor, which corporation or other entity shall, in any case where an
assumption shall not be effected by operation of law, execute an agreement of
assumption to perform every obligation of the Seller or the Depositor, as the
case may be, under this Agreement, shall be the successor to the Seller or the
Depositor, as the case may be, hereunder without the execution or filing of any
document or any further act by any of the parties to this Agreement, except that
if the Seller or the Depositor in any of the foregoing cases is not the
surviving entity, then the surviving entity shall execute and deliver to the
Trustee an agreement of assumption to perform every obligation of the Seller or
the Depositor, as the case may be, hereunder.

                                      -84-

<PAGE>

                                  ARTICLE VIII

                                     DEFAULT

         Section 8.01 Events of Default. If any one of the following events
(each an "Event of Default") shall occur and be continuing:

                  (a) Any failure by the Servicer to (i) make a required Monthly
         Advance on any Deposit Date or (ii) deposit in the Collection Account
         or the Certificate Account any other amount required to be deposited
         therein under this Agreement, which continues unremedied for a period
         of five Business Days after the date upon which written notice of such
         failure shall have been given to the Servicer by the Trustee or to the
         Servicer and the Trustee by Holders of Certificates evidencing Voting
         Interests represented by all Certificates aggregating not less than
         51%;

                  (b) Failure on the part of the Servicer duly to observe or
         perform in any material respect any other covenants or agreements of
         the Servicer set forth in the Certificates or in this Agreement, which
         failure (i) materially and adversely affects the Certificateholders and
         (ii) continues unremedied for a period of 30 days after the date on
         which written notice of such failure (which notice shall refer
         specifically to this Section), requiring the same to be remedied, shall
         have been given to the Servicer by the Trustee or to the Servicer and
         the Trustee by the Holders of Certificates evidencing Voting Interests
         represented by all Certificates aggregating not less than 51%;
         provided, however, that in the -------- ------- case of a failure that
         cannot be cured within thirty (30) days, the cure period may be
         extended if the Servicer can demonstrate to the reasonable satisfaction
         of the Trustee that the Servicer is diligently pursuing remedial
         action;

                  (c) The entry against the Servicer of a decree or order by a
         court or agency or supervisory authority having jurisdiction in the
         premises for the appointment of a trustee, conservator, receiver or
         liquidator in any insolvency, readjustment of debt, marshalling of
         assets and liabilities or similar proceedings, or for the winding up or
         liquidation of its affairs, and the continuance of any such decree or
         order unstayed and in effect for a period of 60 consecutive days;

                  (d) The consent by the Servicer to the appointment of a
         trustee, conservator or receiver or liquidator in any bankruptcy,
         insolvency, readjustment of debt, marshalling of assets and liabilities
         or similar proceedings of or relating to the Servicer or of or relating
         to substantially all of its property; or the Servicer shall admit in
         writing its inability to pay its debts generally as they become due,
         file a petition to take advantage of any applicable bankruptcy,
         insolvency or reorganization statute, make an assignment for the
         benefit of its creditors, or voluntarily suspend payment of its
         obligations; and

                  (e) The occurrence of any merger or consolidation of the
         Servicer described in Section 7.02 following which the Servicer does
         not have a net worth of at least $10,000,000 determined in accordance
         with generally accepted accounting principles;

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<PAGE>

then, and in each and every such case, so long as such Event of Default shall
not have been remedied by the Servicer, either the Trustee or the Holders of
Certificates evidencing Voting Interests represented by all Certificates
aggregating not less than 51%, by notice then given in writing to the Servicer,
the Depositor, the Seller and to the Trustee, may terminate all of the rights,
responsibilities and obligations of the Servicer as Servicer under this
Agreement. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Certificates or the Mortgage Loans or otherwise, shall pass to and be
vested in the successor servicer pursuant to and under this Section and Sections
7.04 and 8.02 and, without limitation, the successor servicer is hereby
authorized and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments, and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
endorsement of the Mortgage Loans and related documents, or otherwise. The
Servicer agrees to cooperate with the successor servicer in effecting the
termination of its responsibilities and rights as Servicer hereunder, including,
without limitation, the transfer to the successor servicer for the
administration by it of all cash amounts that shall at the time be held by the
Servicer that have been deposited by the Servicer in the Collection Account or
the Certificate Account or thereafter received by the Servicer with respect to
the Mortgage Loans.

         All reasonable out-of-pocket costs and expenses (including attorneys'
fees) incurred in connection with transferring the Mortgage Files to the
successor servicer, amending this Agreement if necessary to reflect the
appointment of a successor as Servicer pursuant to this Section 8.01 and
Sections 7.04 and 8.02 or otherwise in connection with the assumption by the
successor servicer of the duties of the predecessor servicer hereunder shall be
paid by the predecessor servicer upon presentation of reasonable documentation
of such costs and expenses.

         Section 8.02 Trustee to Act; Appointment of Successor. (a)On and after
the time the Servicer receives a notice of termination pursuant to Section 8.01,
the Trustee shall be the successor in all respects to the Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall succeed to all the rights, powers and privileges
of the Servicer hereunder and be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof, including without limitation, the obligation to make Monthly Advances
and to pay Compensating Interest. As compensation therefor, the Trustee shall be
entitled to such compensation as the Servicer would have been entitled to
hereunder if no such notice of termination had been given. Notwithstanding the
foregoing, if the Trustee shall be unwilling so to act, or the Trustee is
legally unable so to act, the Trustee with the consent of the Rating Agencies
may promptly appoint, or petition a court of competent jurisdiction to appoint
any established housing and home finance institution or any institution that
regularly services home equity loans that is then servicing a home equity loan
portfolio and having all licenses, permits and approvals required by applicable
law, and having a net worth of not less than $10,000,000 as the successor to the
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Servicer hereunder; provided that any such
successor servicer shall be acceptable to the Rating Agencies, and, if such
successor servicer shall not have been appointed by the Trustee, the Trustee
shall be provided 5 Business Days' prior notice of any such appointment; and
provided further that the appointment of any such successor servicer will not
result in the

                                      -86-

<PAGE>

qualification, reduction or withdrawal of the rating assigned to any subclass of
Offered Certificates by any Rating Agency. Pending appointment of a successor to
the Servicer hereunder, unless the Trustee is prohibited by law from so acting,
the Trustee shall act in such capacity as hereinabove provided. In connection
with such appointment and assumption, the Trustee may make such arrangements for
the compensation of such successor out of payments on Mortgage Loans as it and
such successor shall agree; provided, however, that no such compensation shall
be in excess of that permitted the Servicer hereunder; and provided further
that, if due to market conditions, the parties thereto shall agree to
compensation in excess of that permitted the Servicer hereunder, the Trustee
shall not be responsible for any such amounts in excess thereof. Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession. The appointment of a successor
servicer shall not affect any liability of the predecessor Servicer that may
have arisen under this Agreement prior to its termination as Servicer (including
without limitation, any liability for a deductible amount pursuant to the last
sentence of Section 3.04), nor shall any successor servicer be liable for any
acts or omissions of the predecessor Servicer or for any breach by such Servicer
or the Seller or Depositor of any of its representations or warranties contained
herein or in any related document or agreement. Each of the Rating Agencies
shall be given written notice of the appointment of a successor servicer
pursuant to this Section.

         (b) The Trustee, shall be reimbursed for Transition Costs, if any,
incurred in connection with the assumption of responsibilities of the successor
servicer, upon its delivering to the Seller and Depositor documentation of such
costs and expenses. The Trustee shall have no claim against the Servicer, any
Certificateholder, the Trust or any other party to this Agreement for any costs
and expenses incurred in effecting such succession in excess of the amount
specified in the definition of "Transition Costs."

         Section 8.03 Notifications to Certificateholders. Upon any termination
or appointment of a successor to the Servicer pursuant to this Article Eight,
the Trustee shall give prompt written notice thereof to Certificateholders at
their respective addresses appearing in the Certificate Register, the PMI
Insurer and to each Rating Agency.

         Within 60 days of obtaining actual knowledge of the occurrence of any
Event of Default that remains uncured, the Trustee shall transmit by mail to all
Certificateholders notice of such Event of Default.

         Section 8.04 Assumption or Termination of Sub-Servicing Agreements by
the Trustee or any Successor Servicer. Upon the termination of the Servicer as
servicer under this Agreement, the Trustee as successor to the Servicer
hereunder or any other successor to the Servicer hereunder may, subject to the
terms of any Sub-Servicing Agreement, in its sole and absolute discretion elect
to assume or terminate any Sub-Servicing Agreement then in force and effect
between the Servicer and the Sub-Servicer. Notwithstanding the foregoing, any
termination fee due to a Sub-Servicer because of its termination by the Trustee
hereunder shall be the responsibility of the terminated Servicer and not the
Trustee. Upon the assumption of any Sub-Servicing Agreement, the Servicer agrees
to deliver to the assuming party any and all documents and records relating to
the applicable Sub-Servicing Agreement and an accounting of amounts collected
and held by it and otherwise use its best reasonable efforts to effectuate the
orderly transfer of the Sub-Servicing Agreement.

                                      -87-

<PAGE>

                                   ARTICLE IX

                                   THE TRUSTEE

         Section 9.01 Duties of the Trustee. The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of Default
that may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. If an Event of Default of which
a Responsible Officer of the Trustee shall have actual knowledge shall have
occurred (which has not been cured) and subject to the provisions of Section
9.13, the Trustee shall exercise such of the rights and powers vested in it by
this Agreement, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.

         No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; except that:

                  (a) prior to the occurrence of an Event of Default, and after
         the curing of all such Events of Default that may have occurred, the
         duties and obligations of the Trustee shall be determined solely by the
         express provisions of this Agreement, the Trustee shall not be liable
         except for the performance of such duties and obligations as are
         specifically set forth in this Agreement, no implied covenants or
         obligations shall be read into this Agreement against the Trustee and,
         in the absence of bad faith on the part of the Trustee, the Trustee may
         conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon any certificates,
         filings or opinions furnished to the Trustee and conforming to the
         requirements of this Agreement;

                  (b) the Trustee shall not be personally liable for an error of
         judgment made in good faith by a Responsible Officer of the Trustee,
         unless it shall be proved that the Trustee was negligent in
         ascertaining the pertinent facts;

                  (c) the Trustee shall not be personally liable with respect to
         any action taken, suffered or omitted to be taken by it in good faith
         in accordance with the direction of the Holders of Certificates
         evidencing Voting Interests represented by all Certificates (or all
         affected Certificates, as appropriate) aggregating not less than 51%
         relating to the time, method and place of conducting any proceeding for
         any remedy available to the Trustee, or exercising any trust or power
         conferred upon the Trustee, under this Agreement; and

                  (d) the Trustee shall not be charged with knowledge of any
         failure by the Servicer to comply with the obligations of the Servicer
         referred to in clauses (a) and (b) of Section 8.01 unless a Responsible
         Officer obtains actual knowledge of such failure or the Trustee
         receives written notice of such failure from the Servicer or the
         Holders of Certificates evidencing Voting Interests represented by all
         Certificates aggregating not less than 51%, as the case may be; and

                  (e) the Trustee shall not be required to expend or risk its
         own funds or otherwise incur financial liability in the performance of
         any of its duties hereunder, or in the exercise of any of its rights or
         powers, if there is reasonable ground for believing that

                                      -88-

<PAGE>

         the repayment of such funds or adequate indemnity against such risk or
         liability is not reasonably assured to it, and none of the provisions
         contained in this Agreement shall in any event require the Trustee to
         perform, or be responsible for the manner of performance of, any of the
         obligations of the Servicer under this Agreement, except during such
         time, if any, as the Trustee shall be the successor to, and be vested
         with the rights, duties, powers and privileges of, the Servicer in
         accordance with the terms of this Agreement.

         Section 9.02 Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 9.01:

                  (a) The Trustee may rely and shall be protected in acting or
         refraining from acting upon any resolution, Officer's Certificate,
         certificate of auditors or any other certificate, statement,
         instrument, opinion, report, notice, request, consent, order,
         appraisal, bond or other paper or document reasonably believed by it to
         be genuine and to have been signed or presented by the proper party or
         parties;

                  (b) The Trustee may consult with counsel selected by it with
         due care and any advice obtained from such counsel or Opinion of
         Counsel shall be full and complete authorization and protection in
         respect of any action taken or suffered or omitted by it hereunder in
         good faith and in accordance with such advice or Opinion of Counsel;

                  (c) The Trustee shall be under no obligation to exercise any
         of the rights or powers vested in it by this Agreement, or to
         institute, conduct or defend any litigation hereunder or in relation
         hereto, at the request, order or direction of any of the
         Certificateholders, pursuant to the provisions of this Agreement,
         unless the Person so requesting, ordering or directing same shall have
         offered to the Trustee reasonable security or indemnity against the
         costs, expenses and liabilities that may be incurred therein or
         thereby; the right of the Trustee to perform any discretionary act
         enumerated in this Agreement shall not be construed as a duty, and the
         Trustee shall not be answerable for other than its negligence or
         willful misconduct in the performance of any such act; nothing
         contained herein shall, however, relieve the Trustee of the
         obligations, upon the occurrence of an Event of Default known to a
         Responsible Officer of the Trustee (which has not been cured), to
         exercise such of the rights and powers vested in it by this Agreement,
         subject to the provisions of Section 9.13, and to use the same degree
         of care and skill in their exercise as a prudent man would exercise or
         use under the circumstances in the conduct of his own affairs;

                  (d) The Trustee shall not be personally liable for any action
         taken, suffered or omitted by it in good faith in accordance with the
         direction of the Holders of Certificates evidencing Voting Interests
         representing all Certificates (or all affected Certificates, as
         appropriate) aggregating not less than 51%;

                  (e) Prior to the occurrence of an Event of Default and after
         the curing of all Events of Default that may have occurred, the Trustee
         shall not be bound to make any investigation into the facts or matters
         stated in any resolution, certificate, statement, instrument, opinion,
         report, notice, request, consent, order, approval, bond or other paper

                                      -89-

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         or documents, unless requested in writing to do so by the Holders of
         Certificates evidencing Voting Interests represented by all
         Certificates (or all affected Certificates, as appropriate) aggregating
         not less than 51%; provided, however, that if the payment within a
         reasonable time to the Trustee of the costs, expenses or liabilities
         likely to be incurred by it in the making of such investigation is, in
         the opinion of the Trustee, not reasonably assured to the Trustee by
         the security afforded to it by the terms of this Agreement, the Trustee
         may require reasonable indemnity against such cost, expense or
         liability as a condition to such proceeding; the reasonable expense of
         every such examination shall be paid by the Servicer or, if paid by the
         Trustee, shall be reimbursed by the Servicer upon demand; and nothing
         in this clause (e) shall derogate from the obligation of the Servicer
         to observe any applicable law prohibiting disclosure of information
         regarding the Mortgagors; and

                  (f) The Trustee may execute any of the trusts or powers
         hereunder or perform any duties hereunder either directly or by or
         through agents or attorneys or a custodian. The Trustee shall not be
         liable or responsible for the misconduct of any agent, attorney or
         custodian appointed with due care by the Trustee hereunder.

         Section 9.03 Trustee Not Liable for Certificates or Mortgage Loans. The
recitals contained herein and in the Certificates (other than the signature and
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the validity
or sufficiency of this Agreement or of the Certificates (other than the
signature and authentication of the Trustee on the Certificates and the
signature of the Trustee on this Agreement) or of any Mortgage, Mortgage Loan or
related document. The Trustee shall not be accountable for the use or
application by the Depositor of any of the Certificates or of the proceeds of
such Certificates, or for the use or application of any funds paid to the
Servicer in respect of the Mortgage Loans or deposited in or withdrawn from the
Collection Account by the Servicer.

         Section 9.04 Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights as it would have if it were not Trustee.

         Section 9.05 Payment of the Trustee's Fees and Expenses.

                  (a) On each Distribution Date, the Trust shall pay to the
         Trustee pursuant to Section 5.01(b) an amount equal to the Trustee Fee
         described in the definition thereof (including any fees and expenses of
         a co-trustee or separate trustee appointed under Section 9.10) as
         compensation for all services rendered by the Trustee (and any such
         co-trustee or separate trustee) in the execution of the trusts hereby
         created and in the exercise and performance of any of the powers and
         duties hereunder of the Trustee (and any such co-trustee or separate
         trustee).

                  (b) The Trust shall pay or reimburse to the Trustee pursuant
         to clause 11 of Section 5.01(c) its reasonable expenses, disbursements
         and advances incurred or made by the Trustee in accordance with any of
         the provisions of this Agreement (including the

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         reasonable compensation and the expenses and disbursements of its
         counsel and of all persons not regularly in its employ) except any such
         expense, disbursement or advance as may arise from its negligence or
         bad faith that is otherwise reimbursed to the Trustee pursuant to
         Section 9.05(c) or by the Seller pursuant to Section 9.05(d) below;
         provided, however, that, subject to Sections 9.01(e) and 9.02(c) and
         (e), the Trustee shall not refuse to perform any of its duties
         hereunder solely as a result of the failure of the Trust to pay or
         reimburse such expenses, disbursements or advances.

                  (c) The Servicer agrees to indemnify the Trustee from, and
         hold it harmless against, any and all losses and liabilities, damages,
         claims or expenses (including reasonable attorneys' fees) arising in
         connection with the Servicer's failure to perform its obligations
         pursuant this Agreement or the Certificates except to the extent the
         negligence, bad faith or intentional misconduct of the Trustee
         contributes to the loss, liability, damage, claim or expense.

                  (d) The Seller agrees to indemnify the Trustee from, and hold
         it harmless against, any and all losses and liabilities, damages,
         claims or expenses (including reasonable attorneys' fees) incurred in
         connection with this Agreement or the Certificates except (i) to the
         extent such amounts are otherwise reimbursable to the Trustee by the
         Servicer pursuant to clause (c) above, and (ii) to the extent the
         negligence, bad faith or intentional misconduct of the Trustee
         contributes to the loss, liability, damage, claim or expense.

                  (e) This Section 9.05 shall survive the termination of this
         Agreement or the resignation or removal of the Trustee as regards
         rights accrued prior to such resignation or removal.

         Section 9.06 Eligibility Requirements for the Trustee. The Trustee
hereunder shall at all times be a bank or other depository institution doing
business under the laws of the United States or any state thereof, authorized
under such laws to exercise corporate trust powers, having a combined capital
and surplus of at least $100,000,000 and subject to supervision or examination
by federal or state authority and rated at least BBB by Standard & Poor's and
Baa2 by Moody's. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 9.07.

         Section 9.07 Resignation or Removal of the Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Servicer and each Rating Agency. Upon receiving
such notice of resignation, the Servicer shall promptly appoint a successor
trustee satisfying the criteria set forth in Section 9.06 by written instrument,
copies of which shall be delivered to the resigning Trustee, the successor
trustee and the Servicer. If no successor trustee shall have been so appointed
and having accepted
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appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.

         If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Servicer, or if at any time the Trustee shall be legally
unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, or the Trustee shall
fail to perform its obligations under this Agreement, then the Servicer, the
Depositor or the Seller shall remove the Trustee and appoint a successor trustee
satisfying the criteria set forth in Section 9.06 by written instrument, in
duplicate, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee.

         If at any time the Trustee shall fail to duly observe or perform in any
material respect any covenants or agreements of the Trustee set forth in Section
9.01 of this Agreement, which failure (i) materially and adversely affects the
Certificateholders and (ii) continues unremedied for a period of 10 days after
the date on which written notice of such failure (which notice shall refer
specifically to this Section), requiring the same to be remedied, shall have
been given to the Trustee, the Seller, the Depositor and the Servicer by the
Holders of Certificates evidencing Voting Interests represented by all
Certificates aggregating not less than 51%, then the Servicer, the Depositor or
the Seller may remove the Trustee and appoint a successor trustee satisfying the
criteria set forth in Section 9.06 by written instrument, in duplicate, one copy
of which instrument shall be delivered to Trustee so removed and one copy to the
successor trustee.

         Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 9.08. The provisions of Section 9.05 shall survive any such
resignation or removal.

         Section 9.08 Successor Trustee. Any successor trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the Servicer
and to its predecessor Trustee an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee. The Seller, the Servicer, the Depositor and the predecessor
Trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for fully and certainly vesting and confirming in the
successor Trustee all such rights, powers, duties and obligations.

         No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance it shall be eligible under the
provisions of Section 9.06.

         Upon acceptance of appointment by a successor trustee as provided in
this Section, the Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register and to each Rating Agency. If the Servicer fails to mail
such notice within 10 days after acceptance of appointment by the

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successor trustee, the successor trustee shall cause such notice to be mailed at
the expense of the Servicer.

         Section 9.09 Merger or Consolidation of the Trustee. Any corporation
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to the business of the Trustee or substantially all of the Trustee's
trust business, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 9.06, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.

         Section 9.10 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property may at the time be located, the Servicer
and the Trustee, acting jointly, shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee or co-trustees, jointly with the Trustee, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the
Certificateholders, such title to the Trust, or any part thereof, and, subject
to the other provisions of this Section, such powers, duties, obligations,
rights, indemnities and trusts as the Servicer and the Trustee may consider
necessary or desirable. If the Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, or in
the case an Event of Default shall have occurred and be continuing, the Trustee
alone shall have the power to make such appointment. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 9.06 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 9.08. Each of the Rating Agencies shall be given written notice of the
appointment of a co-trustee or a separate trustee pursuant to this Section.

         Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:

                  (a) All rights, powers, duties and obligations conferred or
         imposed upon the Trustee shall be conferred or imposed upon and
         exercised or performed by the Trustee and such separate trustee or
         co-trustee jointly (it being understood that such separate trustee or
         co-trustee is not authorized to act separately without the Trustee
         joining in such act), except to the extent that under any law of any
         jurisdiction in which any particular act or acts are to be performed
         (whether as Trustee hereunder or as successor to the Servicer
         hereunder), the Trustee shall be incompetent or unqualified to perform
         such act or acts, in which event such rights, powers, duties and
         obligations (including the holding of title to the Trust or any portion
         thereof in any such jurisdiction) shall be exercised and performed
         singly by such separate trustee or co-trustee, but solely at the
         direction of the Trustee;

                  (b) No trustee hereunder shall be held personally liable by
         reason of any act or omission of any other trustee hereunder; and

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                  (c) The Servicer and the Trustee acting jointly may at any
         time accept the resignation of or remove any separate trustee or
         co-trustee, except that following the occurrence of an Event of Default
         that has not been cured, the Trustee, acting alone may accept the
         resignation of or remove any separate or co-trustor.

         Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and copies thereof given to each
of the Seller, the Depositor and the Servicer.

         Any separate trustee or co-trustee may, at any time, constitute the
Trustee its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.

         No appointment of any separate trustee or co-trustee shall absolve the
Trustee of its duties and obligations under this Agreement.

         Section 9.11 Compliance with REMIC Provisions. The Trustee shall
neither knowingly nor intentionally take any action or omit to take any action
in the performance of its duties hereunder that would cause any REMIC Pool to
fail to qualify as a REMIC or that would cause the imposition of a tax on any
REMIC Pool. The Trustee shall: (a) prepare and file, or cause to be prepared and
filed, such federal, state and local income tax and information returns or
reports using the calendar year as the taxable year for each REMIC Pool when and
as required by the REMIC Provisions and other applicable federal, state and
local income tax laws, which returns or reports shall be signed by the Trustee
or such other person as may be required thereby; (b) make an election, on behalf
of each REMIC Pool, to be treated as a REMIC and make the appropriate
designations, if applicable, in accordance with Section 9.16 on the federal
income tax return of the REMIC Pool for its first taxable year, in accordance
with the REMIC Provisions; (c) prepare and forward, or cause to be prepared and
forwarded, to the Certificateholders all information reports, or furnish or
cause to be furnished by telephone, mail, publication or other appropriate
method such information, as and when required to be provided to them in
accordance with the Code; (d) exercise reasonable care not to allow the creation
of any "interests" in any REMIC Pool within the meaning of Code Section
860D(a)(2) other than the interests represented by the Certificates (other than
the Class R-II Interests) in the case of REMIC I, and the REMIC II Interests in
the case of REMIC II; and (e) within 30 days of the Startup Day, furnish or
cause to be furnished to the Internal Revenue Service, on Form 8811 or as may
otherwise be required by the Code, the name, title, address, and telephone
number of the person that Certificateholders may contact for tax information
relating to their Certificates (and the Trustee shall act as the

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representative of each REMIC Pool for this purpose), together with such
additional information as may be required by such Form, and shall update such
information at the time and in the manner required by the Code. Each Class R
Certificateholder shall designate the Servicer, if permitted by the Code and
applicable law, to act as "tax matters person" for the related REMIC Pool within
the meaning of Treasury regulations Section 1.860F-4(d), and the Servicer is
hereby designated as agent of each Class R Certificateholder for such purpose
(or if the Servicer is not so permitted, the Holder of the related Class R
Certificate shall be the tax matters person in accordance with the REMIC
Provisions).

         Section 9.12 Trustee May Enforce Claims Without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceedings relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Certificateholders in respect of which such
judgment has been recovered in accordance with the terms of this Agreement.

         Section 9.13 Exercise of Trustee Powers by Certificateholders. The
Holders of Certificates evidencing Voting Interests represented by all
Certificates aggregating not less than 51%, may direct the time, method and
place of conducting any proceeding relating to the Trust or the Certificates or
for any remedy available to the Trustee with respect to the Certificates or
exercising any trust or power conferred on the Trustee with respect to the
Certificates of the Trust provided that:

                           (i) such direction shall not be in conflict with any
                  rule of law or with this Agreement;

                           (ii) the Trustee shall have been provided with
                  indemnity satisfactory to it; and

                           (iii) the Trustee may take any other action deemed
                  proper by the Trustee that is not inconsistent with such
                  direction; provided, however, that the Trustee need not take
                  any action that it reasonably determines might involve it in
                  liability unless it has been satisfactorily indemnified and,
                  with respect to actions directed by Certificateholders, may be
                  unjustly prejudicial to the Holders not so directing.

         Section 9.14 Tax Returns. The Trustee shall maintain all information in
its possession as may be required in connection with the preparation of all
federal and, if applicable, state and local income tax and information returns
of each REMIC Pool (including, but not limited to, tax reporting under the REMIC
Provisions for each REMIC Pool) and shall prepare, execute and file as required
all such returns. The Trustee shall include in the first federal income tax
return the information required to be included therein under the REMIC
Provisions, including, but not limited to, Treasury regulation ss.1.860D-1(d)(2)
and Treasury regulation ss.1.860F-4(b)(2), or any successor provisions . The
Servicer shall report all required tax information to Mortgagors in

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accordance with applicable law. To the extent directly applicable, the
Prepayment Assumption used in pricing the Offered Certificates will be used in
preparing any reports concerning or touching on interest payments made or
original issue discount with respect to the Certificates.

         Section 9.15 Taxpayer Identification Number. The Trustee shall prepare
and file with the Internal Revenue Service, on behalf of each REMIC Pool within
the time period prescribed therefor, an application on IRS Form SS-4 for such
REMIC Pool. The Trustee, upon receipt from the Internal Revenue Service of the
Notice of Taxpayer Identification Number assigned to each

         Section 9.16 Miscellaneous REMIC Matters. REMIC Pool, shall promptly
forward a copy of such notice to the Servicer.

         (a) The Trustee shall elect that REMIC I and REMIC II shall be treated
as REMICs under Section 860D of the Code, as described in Section 9.11. The
REMIC I REMIC Pool and REMIC II REMIC Pool shall constitute the assets of REMIC
I and REMIC II respectively. Any inconsistencies or ambiguities in this
Agreement or in the administration of the Trust shall be resolved in a manner
that preserves the validity of such REMIC elections.

         (b) REMIC II will be evidenced by (x) the Class II-A-1, Class II-A-2,
Class II-A-3, Class II-A-4, Class II-M-1, Class II-M-2, Class II-B and Class
II-Q Interests (the "REMIC II Regular Interests"), which will be uncertificated
and non-transferable and are hereby designated as the "regular interests" in
REMIC II and (y) the Class R-II Certificates, which are hereby designated as the
single "residual interest" in REMIC II (the REMIC II Regular Interests, together
with the Class R-II Certificates, the "REMIC II Interests"). The REMIC II
Regular Interests shall be recorded on the records of REMIC II as being issued
to and held by the Trustee on behalf of REMIC I.

         The Basic Principal Amount shall be allocated 99% to the Class II-Q
Certificate and 1% to the Class II-A-1, Class II-A-2, Class II-A-3, Class
II-A-4, Class II-M-1, Class II-M-2 and Class II-B Interests until paid in full.
The aggregate amount of the Basic Principal Amount allocated to the Class
II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-M-1, Class II-M-2 and
Class II-B Interests shall be apportioned among such classes in the same manner
as such amount is payable with respect to the Class A-1, Class A-2, Class A-3,
Class A-4, Class M-1, Class M-2 and Class B Certificates, respectively. The
Excess Overcollateralization Amount shall be allocated entirely to the Class
II-Q Certificates until paid in full.

         On any Distribution Date, any interest paid with respect to the
Mortgage Loans that is allocable to payments of principal on the Certificates
pursuant to Section 5.01(c) (7) (the "Turbo Amount") will not be payable to the
REMIC II Regular Interests. Instead, a portion of the interest payable with
respect to the Class II-Q Interest which equals 1% of the Turbo Amount will be
payable as a reduction of the principal balances of the Class II-A-1, Class
II-A-2, Class II-A-3, Class II-A-4, Class II-M-1, Class II-M-2 and Class II-B
Interests in the same manner as the Turbo Amount is allocated among the Class
A-1, Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B
Certificates, respectively (and will be accrued and added to principal on the
Class II-Q Interest).

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         Losses on the Mortgage Loans shall be applied such that after all
distributions have been made on such Distribution Date, the principal balances
of the Class II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-M-1,
Class II-M-2 and Class II-B Interests equal 1% of the principal balances of the
Class A-1, Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B
Certificates, respectively, and the principal balance of the Class II-Q Interest
equals the Pool Balance less an amount equal to the aggregate principal balances
of the Class II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-M-1,
Class II-M-2 and Class II-B Interests.

         The REMIC II Interests will have the following designations and
pass-through rates, and distributions of principal and interest thereon shall be
allocated to the Certificates in the following manner:

                                     Pass-        Allocation         Allocation
REMIC II            Initial         Through           of                 of
Interests           Balance          Rate         Principal           Interest
---------           -------          ----         ---------           --------
 II-A-1           $    655,000        (1)            (3)              (4),(5)
 II-A-2           $    500,000        (1)            (3)              (4),(5)
 II-A-3           $    215,000        (1)            (3)              (4),(5)
 II-A-4           $    117,500        (1)            (3)              (4),(5)
 II-M-1           $    113,750        (1)            (3)              (4),(5)
 II-M-2           $     78,750        (1)            (3)              (4),(5)
 II-B             $     70,000        (1)            (3)              (4),(5)
 II-Q             $173,250,000        (1)            (3)              (4),(5)
 R-II             $          0         0%             N/A              N/A(6)

---------------

(1)      The per annum Pass-Through Rate on these REMIC II Regular Interests
         shall at any time of determination equal the weighted average of the
         Net Loan Rates of the Mortgage Loans.

(2)      [Reserved].

(3)      Principal will be allocated to and apportioned among the Class A-1,
         Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B
         Certificates, in the same proportion as principal is payable with
         respect to such Certificates, except that a portion of such principal
         in an amount up to the Excess Overcollateralization Amount shall first
         be allocated as a payment of interest to the Class C Certificates, and
         all principal will be allocated to the Class C Certificates after the
         principal balances of the Class A-1, Class A-2, Class A-3, Class A-4,
         Class M-1, Class M-2 and Class B Certificates have been reduced to
         zero.

(4)      Except as provided in note (5), interest with respect to this REMIC II
         Regular Interest will be allocated among the Class A-1, Class A-2,
         Class A-3, Class A-4, Class M-1, Class

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         M-2 and Class B Certificates in the same proportion as interest is
         payable on such Certificates.

(5)      Any interest with respect to this REMIC II Regular Interest in excess
         of the product of (i) 100 times the weighted average coupon of the
         Class II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-M-1,
         Class II-M-2, Class II-B and Class II-Q Interests, where each of such
         REMIC II Regular Interests, other than the Class II-Q Interest, is
         first subject to a cap and floor equal to the Class A-1, Class A-2,
         Class A-3, Class A-4, Class M-1, Class M-2 and Class B Pass-Through
         Rates, respectively, and the Class II-Q Interest is subject to a cap
         equal to 0%, and (ii) the principal balance of this REMIC II Regular
         Interest, shall not be allocated to the Class A-1, Class A-2, Class
         A-3, Class A-4, Class M-1, Class M-2 or Class B Certificates, but will
         be allocated to the Class C Certificates. However, the Class C
         Certificates shall be subordinated to the extent provided in Section
         5.01.

(6)      On each Distribution Date, available funds, if any, remaining in REMIC
         II after payments of interest and principal, as designated above, will
         be distributed to the Class R-II Certificate. It is expected that there
         will not be any distributions on the Class R-II Certificates.

                  (c) The Offered Certificates and Class C Certificates, but
         exclusive, in each case, of any rights to receive any Net Rate Cap
         Carryover, are hereby designated as "regular interests" with respect to
         REMIC I and the Class R-I Certificate is hereby designated as the
         single "residual interest" with respect to REMIC I. The Class R-I
         Certificate shall have no pass-through rate and shall have no principal
         balance. On each Distribution Date, available funds, if any, remaining
         in REMIC I after payments of interest and principal on the regular
         interests in REMIC I will be distributed to the Class R-I Certificates.

                  (d) The Closing Date is hereby designated as the "Startup Day"
         of each of REMIC I and REMIC II within the meaning of Section
         860G(a)(9) of the Code. The "latest possible maturity date", solely for
         purposes of Treasury regulation ss.1.860G-1(a)(4)(iii), of each of the
         REMIC II Regular Interests and each of the "regular interests" with
         respect to REMIC I is June 25, 2036.

                                   ARTICLE X

                                   TERMINATION

         Section 10.01 Termination Upon Purchase or Liquidation of All Mortgage
Loans. Subject to Section 10.02, the respective obligations and responsibilities
hereunder of the Servicer, the Seller, the Depositor and the Trustee (other than
the obligation of the Trustee to make certain payments to Certificateholders
after the final Distribution Date and the obligation of the Seller to send
certain notices as hereinafter set forth) and the Trust created hereby shall
terminate with respect to all Certificates upon the last action required to be
taken by the Trustee on the final Distribution Date pursuant to this Article
following the earlier of (a) the purchase by the Servicer of all Mortgage Loans
then remaining in the Trust and all property acquired by the Trust in respect of
any such Mortgage Loan at a price equal to the sum of (x) 100% of the

                                      -98-

<PAGE>

Principal Balance of each such Mortgage Loan (other than any Mortgage Loan as to
which title to the underlying Mortgaged Property has been acquired by the Trust
and whose fair market value is included pursuant to clause (y) below) as of the
final Distribution Date and (y) the fair market value of such acquired Mortgaged
Property (determined as described below), plus accrued and unpaid interest at
the applicable Mortgage Loan Rate on the Principal Balance of each such Mortgage
Loan (including any Mortgage Loan as to which title to the underlying Mortgaged
Property has been acquired by the Trust) through the end of the Collection
Period preceding the date of repurchase and the aggregate amount of unreimbursed
Servicing Advances made in respect of any such Mortgage Loan, less any payments
of principal and interest received by the Trust during such Collection Period in
respect of each such Mortgage Loan (the "Termination Price") or (b) the final
payment or other liquidation of the Principal Balance of the last Mortgage Loan
remaining in the Trust or the disposition of all property remaining in the Trust
acquired upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan;
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, who are living on the Closing Date. The fair market
value of Mortgaged Properties pursuant to the foregoing clause (y) shall be
determined by the Servicer as of the close of business on the third Business Day
next preceding the date upon which notice of any such termination is furnished
to Certificateholders pursuant to the third paragraph of this Section 10.01.

         The right of the Servicer to purchase all outstanding Mortgage Loans
pursuant to clause (a) above is exercisable only on or after the related
Clean-up Call Date. If such right is exercised, (i) the Servicer shall remit the
Termination Price specified in this Section to the Trustee for deposit in the
Certificate Account pursuant to Section 3.02 (e) on or before the related
Deposit Date and (ii) the Trustee, if it has received the Mortgage Files
pursuant to Section 2.01, shall, promptly following remittance of such
Termination Price, release to the Servicer the Mortgage Files pertaining to the
Mortgage Loans being purchased and all other documents furnished by the Servicer
as are necessary to transfer the Trustee's interest in the Mortgage Loans to the
Servicer.

         Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
related Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation shall be given promptly by
the Trustee (upon receipt of written directions from the Servicer, which
directions shall be received by the Trustee not later than the 15th day of the
month preceding the month of such final distribution) by letter to
Certificateholders mailed not earlier than the first day and not later than the
10th day of the month of such final distribution specifying (a) the Distribution
Date upon which final distribution of the related Certificates will be made upon
presentation and surrender of Certificates at the office or agency of the
Trustee therein designated, (b) the amount of any such final distribution and
(c) that the Record Date otherwise applicable to such Distribution Date is not
applicable, distributions being made only upon presentation and surrender of
such Certificates at the office or agency of the Trustee therein specified.

         If the termination of the Trust is in connection with a purchase of the
assets of the Trust by the Servicer pursuant to clause (a) of the first
paragraph in this Section, the Trustee shall

                                      -99-

<PAGE>

cause to be distributed to Certificateholders on the final Distribution Date, an
amount equal to (i) as to the Offered Certificates, and upon presentation and
surrender thereof, to the Holders thereof in proportion to their respective
Percentage Interests the Certificate Principal Balance, and the Class Interest
Distribution applicable to such Offered Certificate and (ii) as to the Servicer,
any unpaid servicing compensation with respect to such Distribution Date (other
than amounts retained to meet claims) after application pursuant to clause (i)
above and payment to the Servicer of any amounts to which it is entitled as
reimbursement hereunder and (iii) as to the Class C Certificateholders and upon
presentation and surrender of the Class C Certificates, in proportion to their
Percentage Interests, any amounts remaining after application pursuant to
clauses (i) and (ii), up to an amount equal to the Class C Distribution Amount
and any Class C Carryforward Amount; provided, however, that if the fair market
value of any acquired property referred to in, or covered by, clause (a)(y) of
the first paragraph of this Section is less than the Principal Balance of the
related Mortgage Loan, then the excess of such Principal Balance over such fair
market value shall be allocated in reduction of the amounts otherwise
distributable on the final Distribution Date in the following order of priority:
first, to the Holders of the applicable Class R Certificates, second to the
Holders of the Class C Certificate and third to the Holders of the Offered
Certificates, sequentially, in reverse order of priority, beginning with the
Class of Offered Certificates then outstanding with the lowest relative payment
priority, in each case until the respective Certificate Principal Balance
thereof is reduced to zero. The distribution on the final Distribution Date in
connection with the purchase by the Servicer of the assets in the Trust shall be
in lieu of the distribution otherwise required to be made on such Distribution
Date in respect of each Class of Certificates. The Servicer shall provide in
writing to the Trustee the information with respect to the amounts so to be
paid.

         In the event that all of the relevant Certificateholders shall not
surrender their Certificates for final payment and cancellation on or before the
fifth day following such final Distribution Date, the Trustee shall on such date
cause all funds in the Certificate Account not distributed in the final
distribution to Certificateholders to be withdrawn therefrom and credited to the
remaining Certificateholders by holding such funds uninvested in a separate
escrow account for the benefit of such Certificateholders, and the Servicer (if
the Servicer exercised its right to purchase the assets of the Trust as provided
above) or the Trustee (in any other case) shall give a second written notice to
the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after the second notice all the Certificates shall not have been
surrendered for cancellation, any funds deposited in such escrow account and
remaining unclaimed shall be paid by the Trustee to the Servicer and thereafter
Certificateholders shall look only to the Servicer with respect to any claims in
respect of such funds.

         Section 10.02 Additional Termination Requirements. In the event the
Servicer exercises its purchase option as provided in Section 10.01(a), each
REMIC Pool shall be terminated in accordance with the following additional
requirements, and the Trustee shall receive an Opinion of Counsel to the effect
that the termination of such REMIC Pool (i) will constitute a "qualified
liquidation" of each REMIC Pool within the meaning of Code Section
860F(a)(4)(A), and (ii) will not subject such REMIC Pool to tax or cause such
REMIC Pool to fail to qualify as a REMIC at any time that any Certificates are
outstanding.

                                     -100-

<PAGE>

                           (i) Within 90 days prior to the final Distribution
                  Date set forth in the notice of intention to purchase the
                  Mortgage Loans given by the Servicer under Section 10.01, the
                  Trustee, at the direction of the Servicer, shall adopt a plan
                  of complete liquidation of each REMIC Pool on behalf of the
                  REMIC within the meaning of Code Section 860F(a)(4)(A)(8),
                  which shall be evidenced by such notice; and

                           (ii) At or after the time of adoption of such a plan
                  of complete liquidation and at or prior to the final
                  Distribution Date, the Trustee shall sell all of the assets of
                  each REMIC Pool to the Servicer, as the case may be, for cash
                  at the purchase price specified in Section 10.01 and shall
                  distribute such cash in the manner specified in Section 10.01.

                           (iii) The Holder of the Class R Certificates will be
                  deemed to have adopted a plan of liquidation on the date that
                  the Trustee, at the direction of the Servicer, has adopted
                  such plan. The Trustee shall attach a statement to the final
                  return of each REMIC Pool for which a plan of liquidation is
                  adopted by the Trustee, at the direction of the Servicer,
                  setting forth the date of adoption of the plan of liquidation.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

         Section 11.01 Amendment. This Agreement may be amended from time to
time by the Servicer, the Seller, the Depositor and the Trustee, without the
consent of any of the Certificateholders, (a) to cure any error or any ambiguity
or to correct or supplement any provisions herein which may be inconsistent with
any other provisions herein; (b) to add to the duties or obligations of the
Servicer hereunder; (c) to maintain or improve any rating then assigned by any
Rating Agency to any subclass of the Offered Certificates; (d) to add any other
provisions with respect to matters or questions arising under this Agreement, as
the case may be (including specifically amendments or supplements pursuant to
the second paragraph of Section 6.02(b)); (e) to modify, eliminate or add to any
of its provisions to such extent as shall be necessary to maintain the
qualification of each REMIC Pool as a REMIC at all times that any Certificates
are outstanding or to avoid or minimize the risk of the imposition of any tax on
any REMIC Pool pursuant to the Code that would be a claim against any REMIC
Pool, provided that in the case of this clause (e) the Trustee has received an
Opinion of Counsel addressed to the Trustee to the effect that such action is
necessary or desirable to maintain such qualification or to avoid or minimize
the risk of the imposition of any such tax; (f) to modify, eliminate or add to
the provisions of Section 6.02(c) or any other provisions hereof restricting
transfer of the Class R Certificates or (g) to modify, eliminate or add to the
provisions hereunder in order to provide for one or more third parties to effect
all or a portion of the Monthly Advances or Servicing Advances and to provide
for the reimbursement from the Trust Fund of such third party for such Monthly
Advances or Servicing Advances (i) from amounts payable to the Servicer, (ii)
from collections which the Servicer would have been permitted to otherwise
retain and (iii) from any other amounts that would otherwise be payable to the
Servicer if the Servicer had made such Monthly Advances or Servicing Advances or
from such other funds owed to the Servicer, in each

                                      -101-

<PAGE>

case as the Servicer shall agree; provided that in all such cases the Trustee
has obtained written confirmation from each Rating Agency that any such
modifications to this Agreement will not result in a qualification, reduction or
withdrawal of the rating assigned to any Class of Offered Certificates by such
Rating Agency and has received an Opinion of Counsel to the effect that any such
modifications to this Agreement do not give rise to a risk that any REMIC Pool
or any of the Certificateholders will be subject to a tax caused by a transfer
to a Disqualified Organization; provided, further, that in all such cases such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Certificateholder.

         This Agreement may also be amended from time to time by the Servicer,
the Seller, the Depositor and the Trustee and the Holders of Certificates
evidencing Voting Interests of each Class affected thereby aggregating not less
than 51%, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Agreement, or of modifying in any
manner the rights of the Holders of Certificates of such Class; provided,
however, that no such amendment shall (a) reduce in any manner the amount of, or
delay the timing of, collections of payments on Mortgage Loans or distributions
which are required to be made on any Certificate without the consent of the
Holder of such Certificate or (b) reduce the aforesaid percentage of each Class
the Holders of which are required to consent to any such amendment, without the
consent of the Holders of all Certificates of such Class then outstanding.

         Promptly after the execution of any such amendment or consent pursuant
to the next preceding paragraph, the Trustee shall furnish written notification
of the substance of such amendment to each affected Certificateholder and each
Rating Agency.

         It shall not be necessary for the consent of Certificateholders under
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable requirements as the Trustee may prescribe.

         Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Trustee may, but shall not be obligated to, enter into any such amendment
that affects the Trustee's own rights, duties or immunities under this
Agreement.

         Notwithstanding any provisions of this Section 11.01, no amendment of
this Agreement shall be permitted without the consent of Certificateholders
(other than the Seller, Depositor, its affiliates, and agents) evidencing Voting
Interests aggregating not less than 51%, unless the Trustee is provided with an
Officer's Certificate of the Seller or the Depositor that indicates that such
amendment would not have an adverse impact on the sale treatment of the Mortgage
Loans from the Seller to the Depositor or from the Depositor to the Trust under
generally accepted accounting principles and that such amendment would not
result in the consolidation of the Trust with the Seller or Depositor under
generally accepted accounting principles.

         Section 11.02 Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable

                                     -102-

<PAGE>

jurisdictions in which any or all of the Mortgaged Properties are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Seller, at its expense but only upon, determination of the
Seller accompanied by an Opinion of Counsel to the effect that such recordation
is legally required to protect the Trustee's interest in the Mortgage Loans.

         For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.

         Section 11.03 Limitation on Rights of Certificateholders. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement, the Trust or any REMIC established pursuant to Section 3.01, nor
entitle such Certificateholder's legal representatives or heirs to claim an
accounting or to take any action or commence any proceeding in any court for a
partition or winding up of the Trust or any REMIC established pursuant to this
Agreement, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.

         Except as otherwise expressly provided herein, no Certificateholder,
solely by virtue of its status as a Certificateholder, shall have any right to
vote or in any manner otherwise control the operation and management of the
Trust or any REMIC established pursuant to this Agreement, or the obligations of
the parties hereto, nor shall anything herein set forth, or contained in the
terms of the Certificates, be construed so as to constitute the
Certificateholders from time to time as partners or members of an association;
nor shall any Certificateholder be under any liability to any third person by
reason of any action taken by the parties to this Agreement pursuant to any
provision hereof.

         No Certificateholder, solely by virtue of its status as a
Certificateholder, shall have any right by virtue or by availing itself of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of default
and of the continuance thereof, as hereinbefore provided, and unless also the
Holders of Certificates evidencing Voting Interests represented by all
Certificates (or all affected Certificates, as appropriate) aggregating not less
than 51% shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted by
each Certificateholder with every other Certificateholder and the Trustee that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provision of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right under this Agreement, except in the
manner herein provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section, each and every Certificateholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.

                                     -103-

<PAGE>

         Section 11.04 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York (without regard to conflict of
laws principles and the application of the laws of any other jurisdiction), and
the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with such laws.

         Section 11.05 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to (a) in the case of the Seller, at 350 South Grand Avenue, Los
Angeles, California 90070, Attn: Chief Financial Officer, with a copy to General
Counsel; (b) in the case of the Depositor, at 350 South Grand Avenue, Los
Angeles, California 90070, Attn: Chief Financial Officer, with a copy to General
Counsel; (c) in the case of the Trustee, at the Corporate Trust Office at 1761
East St. Andrew Place, Santa Ana, California 92705-4934, Attn: AA0201; Aames
Capital Corporation, Series 2001-4; (d) in the case of the Servicer, Ocwen
Federal Bank FSB, The Forum, Suite 1002, 1675 Palm Beach Lakes Boulevard, West
Palm Beach, Florida 33401, Attention: Secretary; (e) in the case of S&P, to
Standard & Poor's, 55 Water Street, 41st Floor, New York, New York 10041, Attn:
Mortgage Surveillance Group; (f) in the case of Moody's, to Moody's Investors
Service Inc., 99 Church Street, New York, New York 10007, Attn: Residential
Mortgage Pass-Through Monitoring; (g) in the case of the PMI Insurer [Not
Applicable] or, as to each party, at such other address as shall be designated
by such party in a written notice to each other party. Any notice required or
permitted to be mailed to a Certificateholder shall be given by first class
mail, postage prepaid, at its address shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice. Any notice or other document required to
be delivered or mailed by the Trustee to any Rating Agency shall be given on a
best efforts basis and only as a matter of courtesy and accommodation and the
Trustee shall have no liability for failure to deliver such notice or document
to any such Rating Agency.

         Section 11.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.

         Section 11.07 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in this Section and Sections 7.02, 7.04 and
7.05, this Agreement may not be assigned by the Seller, the Depositor or the
Servicer without the prior written consent of the Holders of Certificates
evidencing not less than 66% of the Voting Interests of all Certificates.

         Section 11.08 Certificates Nonassessable and Fully Paid. The parties
agree that the Certificateholders shall not be personally liable for obligations
of the Trust, that the beneficial ownership interests represented by the
Certificates shall be nonassessable for any losses or expenses of the Trust or
for any reason whatsoever, and that Certificates upon execution, authentication
and delivery thereof by the Trustee pursuant to Section 2.06 are and shall be
deemed fully paid.

                               [SIGNATURES FOLLOW]

                                     -104-

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers, all as of the day and year first
above written.

                                AAMES CAPITAL CORPORATION,
                                     as Seller

                                By: /s/ Rick Holguin
                                   --------------------------------------
                                   Name:  Rick Holguin
                                   Title: Vice President

                                AAMES CAPITAL ACCEPTANCE CORPORATION,
                                     as Depositor

                                By:  /s/ Rick Holguin
                                   --------------------------------------
                                   Name:  Rick Holguin
                                   Title: Vice President

                                BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
                                   as Trustee and not in its individual capacity

                                By:  /s/ Barbara Rowe
                                   --------------------------------------
                                   Name:  Barbara Rowe
                                   Title: Associate

                                 OCWEN FEDERAL BANK FSB,
                                     as Servicer

                                By:  /s/ Richard Delgado
                                   --------------------------------------
                                   Name:  Richard Delgado
                                   Title  Vice President

                                      -105-

<PAGE>

State of California                )
                                   )      ss.:
County of Los Angeles              )

         On the 28th day of March in the year 2002, before me, the undersigned,
personally appeared ______________________, personally known to me or proved to
me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his capacity, and that by his signature on the instrument, the
individual, or the person upon behalf of which the individual acted, executed
the instrument.

                                              ----------------------------------
                                              Notary Public

[Notary Seal]

                                     -106-

<PAGE>

State of California                )
                                   )      ss.:
County of Los Angeles              )

         On the 28th day of March in the year 2002, before me, the undersigned,
personally appeared ______________________, personally known to me or proved to
me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his capacity, and that by his signature on the instrument, the
individual, or the person upon behalf of which the individual acted, executed
the instrument.

                                              ----------------------------------
                                              Notary Public

[Notary Seal]

                                     -107-

<PAGE>

State of ____________              )
                                   )      ss.:
County of ___________              )

         On the 28th day of March in the year 2002, before me, the undersigned,
personally appeared _____________________, personally known to me or proved to
me on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same in his/her capacity, and that by his/her signature on the instrument,
the individual, or the person upon behalf of which the individual acted,
executed the instrument.

                                              ----------------------------------
                                              Notary Public

[Notary Seal]

                                     -108-

<PAGE>

State of ____________              )
                                   )      ss.:
County of ___________              )

         On the 28th day of March in the year 2002, before me, the undersigned,
personally appeared ___________________, personally known to me or proved to me
on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same in his/her capacity, and that by his/her signature on the instrument,
the individual, or the person upon behalf of which the individual acted,
executed the instrument.

                                              ----------------------------------
                                              Notary Public

[Notary Seal]

                                     -109-

<PAGE>

                                   Schedule I

                              List of Sub-Servicers

None.

<PAGE>

                                   Schedule II

                      Schedule of Restricted Mortgage Loans

None.

<PAGE>

                                                                     EXHIBIT A-1

                           FORM OF CLASS A CERTIFICATE

Date of Pooling and Servicing               Initial Certificate
Agreement and Cut-off Date:                 Balance:  $
March 1, 2002

First Distribution Date:                    CUSIP No.:
April 25, 2002

Denomination:  $                            Certificate No.:  A-_

                        Class A-_ Pass-Through Rate: __%
                           AAMES MORTGAGE TRUST 2002-1
                       MORTGAGE PASS-THROUGH CERTIFICATE,
                            SERIES 2002-1, CLASS A-_

         evidencing a percentage interest in the distributions allocable to the
         Class A-_ Certificates with respect to a Trust consisting primarily of
         a pool of conventional, closed-end, fixed and adjustable rate
         residential mortgage loans, sold by Aames Capital Corporation.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
AAMES CAPITAL CORPORATION, AAMES CAPITAL acceptance CORPORATION OR THE TRUSTEE
REFERRED TO BELOW OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS CERTIFICATE IS NOT
A DEPOSIT, AND NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.

         Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York Corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the requested owner
hereof, Cede & Co. has an interest herein.

         This certifies that CEDE & CO. is the registered owner of the
Percentage Interest evidenced by this Certificate (obtained by dividing the
denomination of this Certificate shown above by the Initial Certificate
Principal Balance for such class) in a trust, the assets of which

                                     A-1-1

<PAGE>

consist primarily of a pool of conventional, closed-end, fixed and adjustable
rate residential mortgage loans (the "Mortgage Loans"), sold by Aames Capital
Acceptance Corp. (the "Depositor") into the Trust, serviced by Ocwen Federal
Bank FSB (the "Servicer," which term includes any successor Servicer under the
Agreement referred to below). The Trust was created pursuant to a Pooling and
Servicing Agreement dated as specified above (the "Agreement") among the
Depositor, Aames Capital Corporation, as seller (the "Seller"), the Servicer and
Bankers Trust Company of California, N.A., as trustee (the "Trustee"), a summary
of certain of the pertinent provisions of which is set forth hereafter. To the
extent not defined herein, the capitalized terms used herein have the meanings
assigned in the Agreement. This Certificate is issued under and is subject to
the terms, provisions and conditions of the Agreement, to which Agreement the
Holder of this Certificate by virtue of the acceptance hereof assents and by
which such Holder is bound.

         Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month (or if any such day is not a Business Day, on the
Business Day immediately following such 25th day) (the "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered at the close of business on the
applicable Record Date, in an amount equal to the product of (a) the Percentage
Interest evidenced by this Certificate and (b) the sum of the applicable
interest and principal distributable thereon, as more specifically set forth in
the Agreement.

         Except as otherwise provided in the Agreement, distributions on this
Certificate will be made by the Trustee by check or money order mailed to the
Person entitled thereto at the address appearing in the Certificate Register, or
upon written request by the Certificateholder, by wire transfer to a bank
account maintained in the United States (in the case of any Holder of
Certificates entitled to such form of payment as provided in the Agreement) or
by such other means of payment as such Person and the Trustee shall agree.
Except as otherwise provided in the Agreement, the final distribution on this
Certificate will be made in the applicable manner described above, after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for that purpose and as specified in such notice.

         This Certificate is one of a duly authorized issue of Certificates
designated as "Aames Mortgage Trust 2002-1 Mortgage Pass-Through Certificates,
Series 2002-1, Class A-_" (herein called the "Class A-_ Certificates") and
representing a beneficial ownership interest, in each case subject to the
limitations set forth in the Agreement in, among other things, the Mortgage
Loans, such assets as shall from time to time be identified or shall be required
by the Agreement to be identified as deposited in the Collection and/or
Certificate Account or invested in Permitted Investments in accordance with the
Agreement, all rights under any insurance policy covering a Mortgage Loan or the
related Mortgaged Property and property and any proceeds thereof which secured a
Mortgage Loan and which has been acquired by foreclosure, deed in lieu of
foreclosure or by a comparable conversion.

         The Class A-_ Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, as more
specifically set forth in the Agreement. The Holder of this Certificate, by its
acceptance of this Certificate, agrees that it will look solely to the funds on
deposit in the Certificate Account and that the Trustee in its individual
capacity is

                                     A-1-2

<PAGE>

not personally liable to the Certificateholders for any amount payable under
this Certificate or the Agreement or, except as expressly provided in the
Agreement, subject to any liability under the Agreement.

         This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Seller, the Depositor, the Servicer, and the rights of the Certificateholders
under the Agreement at any time by the Servicer and the Trustee and the Holders
of Certificates evidencing Voting Interests represented by all Certificates
aggregating not less than 51%. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the Holders of
any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee located at 1761 East
St. Andrew Place, Santa Ana, CA 92705-4934, attn: Trust Administration, Aames
Mortgage Trust 2002-1 (AA0201), accompanied by a written instrument of transfer
in form satisfactory to the Trustee duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of the same Class of authorized denominations evidencing the same
aggregate Percentage Interest will be issued to the designated transferee or
transferees. Certificates also may be surrendered at the office of the Trustee's
agent, DTC, located at DTC Transfer Agent Services, 55 Water Street, New York,
NY 10044.

         The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

         The Depositor and the Trustee and any of their respective agents may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Trustee nor any of their
respective agents shall be affected by any notice to the contrary.

                                     A-1-3

<PAGE>

         The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon payment to the Certificateholders, or
provision therefor, in accordance with the Agreement upon (a) the purchase by
the Servicer of all Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust at a price determined as provided in the
Agreement, or (b) the later of the final payment or other liquidation of the
last Mortgage Loan remaining in the Trust or the disposition of all property
acquired upon foreclosure or by deed in lieu of foreclosure of any Mortgage
Loan. The exercise of the right of the Servicer to purchase all the Mortgage
Loans and property in respect of Mortgage Loans will result in early retirement
of the Certificates, the right of the Servicer to purchase being subject to the
Pool Balance at the time of purchase being less than 5% of the sum of the
Original Pool Balance and the Prefunding Account Deposit.

         This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.

         This Certificate will not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned for
authenticating purposes only by any authorized officer of the Trustee.

                                     A-1-4

<PAGE>

         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:  March ___, 2002

                                      BANKERS TRUST COMPANY
                                          OF CALIFORNIA, N.A., as Trustee

                                       By:
                                          --------------------------------------
                                                 Authorized Officer

CERTIFICATE OF AUTHENTICATION:
This is one of the Certificates referred to in
the within named Agreement

By:
   --------------------------------------------
    Authorized Officer of Bankers Trust Company
    of California, N.A., as Trustee

                                     A-1-5

<PAGE>

                                                                     EXHIBIT A-2

                           FORM OF CLASS M CERTIFICATE

Date of Pooling and Servicing             Original Class M-_ Certificate
Agreement and Cut-off Date:               Balance:  $
March 1, 2002

First Distribution Date:                  CUSIP No. :
April 25, 2002

Denomination:  $                          Certificate No.:  M-_

                        Class M-_ Pass-Through Rate: __%
                           AAMES MORTGAGE TRUST 2002-1
                       MORTGAGE PASS-THROUGH CERTIFICATE,
                            SERIES 2002-1, CLASS M-_

         evidencing a percentage interest in the distributions allocable to the
         Class M-_ Certificates with respect to a Trust consisting primarily of
         a pool of conventional, closed-end, fixed and adjustable rate
         residential mortgage loans, sold by Aames Capital Corporation.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
AAMES CAPITAL CORPORATION OR THE TRUSTEE REFERRED TO BELOW OR ANY OF THEIR
RESPECTIVE AFFILIATES. THIS CERTIFICATE IS NOT A DEPOSIT, AND NEITHER THIS
CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE GUARANTEED OR INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.

         THIS CERTIFICATE IS SUBORDINATE IN RIGHT OF PAYMENT TO THE EXTENT SET
FORTH IN THE AGREEMENT REFERRED TO HEREIN.

         Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York Corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the requested owner
hereof, Cede & Co. has an interest herein.

                                      A-2-1

<PAGE>

         This certifies that CEDE & CO. is the registered owner of the
Percentage Interest evidenced by this Certificate (obtained by dividing the
denomination of this Certificate shown above by the Original Class M-_
Certificate Principal Balance) in a trust, the assets of which consist primarily
of a pool of conventional, closed-end, fixed and adjustable rate residential
mortgage loans (the "Mortgage Loans"), deposited by Aames Capital Acceptance
Corp. (the "Depositor") into the Trust, serviced by Ocwen Federal Bank FSB (the
"Servicer," which term includes any successor Servicer under the Agreement
referred to below). The Trust was created pursuant to a Pooling and Servicing
Agreement dated as specified above (the "Agreement") among the Depositor, Aames
Capital Corporation, as seller (the "Seller"), the Servicer and Bankers Trust
Company of California, N.A., as trustee (the "Trustee"), a summary of certain of
the pertinent provisions of which is set forth hereafter. To the extent not
defined herein, the capitalized terms used herein have the meanings assigned in
the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.

         Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month (or if any such day is not a Business Day, on the
Business Day immediately following such 25th day) (the "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered at the close of business on the
applicable Record Date, in an amount equal to the product of (a) the Percentage
Interest evidenced by this Certificate and (b) the sum of the applicable
interest and principal distributable thereon, as more specifically set forth in
the Agreement.

         Except as otherwise provided in the Agreement, distributions on this
Certificate will be made by the Trustee by check or money order mailed to the
Person entitled thereto at the address appearing in the Certificate Register, or
upon written request by the Certificateholder, by wire transfer to a bank
account maintained in the United States (in the case of any Holder of
Certificates entitled to such form of payment as provided in the Agreement) or
by such other means of payment as such Person and the Trustee shall agree.
Except as otherwise provided in the Agreement, the final distribution on this
Certificate will be made in the applicable manner described above, after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for that purpose and as specified in such notice.

         This Certificate is one of a duly authorized issue of Certificates
designated as "Aames Mortgage Trust 2002-1 Mortgage Pass-Through Certificates,
Series 2002-1, Class M-_" (herein called the "Class M-_ Certificates") and
representing a beneficial ownership interest, in each case subject to the
limitations set forth in the Agreement in, among other things, the Mortgage
Loans, such assets as shall from time to time be identified or shall be required
by the Agreement to be identified as deposited in the Collection and/or
Certificate Account or invested in Permitted Investments in accordance with the
Agreement, all rights under any insurance policy covering a Mortgage Loan or the
related Mortgaged Property and property and any proceeds thereof which secured a
Mortgage Loan and which has been acquired by foreclosure, deed in lieu of
foreclosure or by a comparable conversion.

                                      A-2-2

<PAGE>

         The Class M-_ Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans in the Fixed Rate
Group, as more specifically set forth in the Agreement. The Holder of this
Certificate, by its acceptance of this Certificate, agrees that it will look
solely to the funds on deposit in the Certificate Account and that the Trustee
in its individual capacity is not personally liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.

         This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Servicer, and the rights of the Certificateholders under the
Agreement at any time by the Servicer and the Trustee and the Holders of
Certificates evidencing Voting Interests represented by all Certificates
aggregating not less than 51%. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the Holders of
any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee located at 1761 East
St. Andrew Place, Santa Ana, CA 92705-4934, attn: Trust Administration, Aames
Mortgage Trust 2002-1 (AA0201), accompanied by a written instrument of transfer
in form satisfactory to the Trustee duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of the same Class of authorized denominations evidencing the same
aggregate Percentage Interest will be issued to the designated transferee or
transferees. Certificates also may be surrendered at the office of the Trustee's
agent, DTC, located at DTC Transfer Agent Services, 55 Water Street, New York,
NY 10044.

         The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

         The Depositor and the Trustee and any of their respective agents may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the

                                      A-2-3

<PAGE>

Depositor, the Trustee nor any of their respective agents shall be affected by
any notice to the contrary.

         The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon payment to the Certificateholders, or
provision therefor, in accordance with the Agreement upon (a) the purchase by
the Servicer of all Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust at a price determined as provided in the
Agreement, or (b) the later of the final payment or other liquidation of the
last Mortgage Loan remaining in the Trust or the disposition of all property
acquired upon foreclosure or by deed in lieu of foreclosure of any Mortgage
Loan. The exercise of the right of the Servicer to purchase all the Mortgage
Loans and property in respect of Mortgage Loans will result in early retirement
of the Certificates, the right of the Servicer to purchase being subject to the
Pool Balance at the time of purchase being less than 5% of the sum of the
Original Pool Balance and the Prefunding Account Deposit.

         This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.

         This Certificate will not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned for
authenticating purposes only by any authorized officer of the Trustee.

                                      A-2-4

<PAGE>

         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:  March ___, 2002

                                             BANKERS TRUST COMPANY
                                               OF CALIFORNIA, N.A., as Trustee

                                             By:
                                                --------------------------------
                                                         Authorized Officer

CERTIFICATE OF AUTHENTICATION:

This is one of the Class M-_Certificates
referred to in the within named Agreement

By:
   -------------------------------------------
   Authorized Officer of Bankers Trust Company
   of California, N.A., as Trustee

                                      A-2-5

<PAGE>

                                                                     EXHIBIT A-3

Date of Pooling and Servicing             Original Class B-_ Certificate
Agreement and Cut-off Date:               Balance:  $
March 1, 2002

First Distribution Date:                  CUSIP No. :
April 25, 2002

Denomination:  $                          Certificate No.:  B-_

                         Class B Pass-Through Rate: __%
                           AAMES MORTGAGE TRUST 2002-1
                       MORTGAGE PASS-THROUGH CERTIFICATE,
                             SERIES 2002-1, CLASS B

         evidencing a percentage interest in the distributions allocable to the
         Class B Certificates with respect to a Trust consisting primarily of a
         pool of conventional, closed-end, fixed and adjustable rate residential
         mortgage loans, sold by Aames Capital Corporation.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
AAMES CAPITAL CORPORATION, AAMES CAPITAL acceptance CORPORATION OR THE TRUSTEE
REFERRED TO BELOW OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS CERTIFICATE IS NOT
A DEPOSIT, AND NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.

         THIS CERTIFICATE IS SUBORDINATE IN RIGHT OF PAYMENT TO THE EXTENT SET
FORTH IN THE AGREEMENT REFERRED TO HEREIN.

         Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York Corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much as the requested owner
hereof, Cede & Co. has an interest herein.

         This certifies that CEDE & CO. is the registered owner of the
Percentage Interest evidenced by this Certificate (obtained by dividing the
denomination of this Certificate shown

                                      A-3-1

<PAGE>

above by the Original Class B Certificate Principal Balance) in a trust, the
assets of which consist primarily of a pool of conventional, closed-end, fixed
and adjustable rate residential mortgage loans (the "Mortgage Loans"), deposited
by Aames Capital Acceptance Corp. (the "Depositor") into the Trust, serviced by
Ocwen Federal Bank FSB (the "Servicer," which term includes any successor
Servicer under the Agreement referred to below). The Trust was created pursuant
to a Pooling and Servicing Agreement dated as specified above (the "Agreement")
among the Depositor, Aames Capital Corporation, as seller (the "Seller"), the
Servicer and Bankers Trust Company of California, N.A., as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereafter. To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Agreement. This Certificate is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.

         Pursuant to the terms of the Agreement, a distribution will be made on
the 25th day of each month (or if any such day is not a Business Day, on the
Business Day immediately following such 25th day) (the "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Certificate is registered at the close of business on the
applicable Record Date, in an amount equal to the product of (a) the Percentage
Interest evidenced by this Certificate and (b) the sum of the applicable
interest and principal distributable thereon, as more specifically set forth in
the Agreement.

         Except as otherwise provided in the Agreement, distributions on this
Certificate will be made by the Trustee by check or money order mailed to the
Person entitled thereto at the address appearing in the Certificate Register, or
upon written request by the Certificateholder, by wire transfer to a bank
account maintained in the United States (in the case of any Holder of
Certificates entitled to such form of payment as provided in the Agreement) or
by such other means of payment as such Person and the Trustee shall agree.
Except as otherwise provided in the Agreement, the final distribution on this
Certificate will be made in the applicable manner described above, after due
notice by the Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for that purpose and as specified in such notice.

         This Certificate is one of a duly authorized issue of Certificates
designated as "Aames Mortgage Trust 2002-1 Mortgage Pass-Through Certificates,
Series 2002-1, Class B" (herein called the "Class B Certificates") and
representing a beneficial ownership interest, in each case subject to the
limitations set forth in the Agreement in, among other things, the Mortgage
Loans, such assets as shall from time to time be identified or shall be required
by the Agreement to be identified as deposited in the Collection and/or
Certificate Account or invested in Permitted Investments in accordance with the
Agreement, all rights under any insurance policy covering a Mortgage Loan or the
related Mortgaged Property and property and any proceeds thereof which secured a
Mortgage Loan and which has been acquired by foreclosure, deed in lieu of
foreclosure or by a comparable conversion.

         The Class B Certificates are limited in right of payment to certain
payments on and collections in respect of the Mortgage Loans, as more
specifically set forth in the Agreement. The Holder of this Certificate, by its
acceptance of this Certificate, agrees that it will look solely

                                      A-3-2

<PAGE>

to the funds on deposit in the Certificate Account and that the Trustee in its
individual capacity is not personally liable to the Certificateholders for any
amount payable under this Certificate or the Agreement or, except as expressly
provided in the Agreement, subject to any liability under the Agreement.

         This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Servicer, and the rights of the Certificateholders under the
Agreement at any time by the Servicer and the Trustee and the Holders of
Certificates evidencing Voting Interests represented by all Certificates
aggregating not less than 51%. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the Holders of
any of the Certificates.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee located at 1761 East
St. Andrew Place, Santa Ana, CA 92705-4934, attn: Trust Administration, Aames
Mortgage Trust 2002-1 (AA0201), accompanied by a written instrument of transfer
in form satisfactory to the Trustee duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of the same Class of authorized denominations evidencing the same
aggregate Percentage Interest will be issued to the designated transferee or
transferees. Certificates also may be surrendered at the office of the Trustee's
agent, DTC, located at DTC Transfer Agent Services, 55 Water Street, New York,
NY 10044.

         The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class of authorized denominations
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same.

         No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

         The Depositor and the Trustee and any of their respective agents may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Trustee nor any of their
respective agents shall be affected by any notice to the contrary.

                                      A-3-3

<PAGE>

         The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon payment to the Certificateholders, or
provision therefor, in accordance with the Agreement upon (a) the purchase by
the Servicer of all Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust at a price determined as provided in the
Agreement, or (b) the later of the final payment or other liquidation of the
last Mortgage Loan remaining in the Trust or the disposition of all property
acquired upon foreclosure or by deed in lieu of foreclosure of any Mortgage
Loan. The exercise of the right of the Servicer to purchase all the Mortgage
Loans and property in respect of Mortgage Loans will result in early retirement
of the Certificates, the right of the Servicer to purchase being subject to the
Pool Balance at the time of purchase being less than 5% of the sum of the
Original Pool Balance and the Prefunding Account Deposit.

         This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.

         This Certificate will not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned for
authenticating purposes only by any authorized officer of the Trustee.

                                      A-3-4

<PAGE>

         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:  March ___, 2002

                                             BANKERS TRUST COMPANY
                                                OF CALIFORNIA, N.A., as Trustee

                                              By:
                                                 ------------------------------
                                                      Authorized Officer

CERTIFICATE OF AUTHENTICATION:
This is one of the Class B Certificates
referred to in the within named Agreement

By:
    -------------------------------------------
    Authorized Officer of Bankers Trust Company
    of California, N.A., as Trustee

                                      A-3-5

<PAGE>

                                                                     EXHIBIT A-4

                                   [RESERVED]

                                      A-4-1

<PAGE>

                                                                     EXHIBIT B-1

                           FORM OF CLASS C CERTIFICATE

THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE EXTENT SET FORTH IN
THE AGREEMENT REFERRED TO HEREIN.

THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 6.02(c) OF THE AGREEMENT REFERRED TO HEREIN.

NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TRANSFEREE REPRESENTS TO THE TRANSFEROR AND THE TRUSTEE THAT SUCH TRANSFEREE IS
NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED, OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"), OR A PERSON ACTING ON BEHALF OF A PLAN OR USING THE
ASSETS OF A PLAN TO EFFECT SUCH PURCHASE AND IS NOT AN INSURANCE COMPANY
PURCHASING SUCH CERTIFICATE OR INTEREST FROM FUNDS IN A GENERAL ACCOUNT OR
SEPARATE ACCOUNT (WITH CERTAIN LIMITATIONS).

                                      B-1-1

<PAGE>

Date of Pooling and Servicing            Percentage Interest: __%
Agreement and Cut-off Date:
March 1, 2002                            Certificate No.:

First Distribution Date:
April 25, 2002

                           AAMES MORTGAGE TRUST 2002-1
                       MORTGAGE PASS-THROUGH CERTIFICATE,
                             SERIES 2002-1, CLASS C

         evidencing a percentage interest in the distributions allocable to the
         Class C Certificate with respect to a Trust consisting primarily of a
         pool of conventional, closed-end, fixed and adjustable rate residential
         mortgage loans sold by Aames Capital Corporation.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
AAMES CAPITAL CORPORATION, AAMES CAPITAL ACCEPTANCE CORPORATION OR THE TRUSTEE
REFERRED TO BELOW OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS CERTIFICATE IS NOT
A DEPOSIT, AND NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.

         This certifies that ______________________ is the registered owner of
the Percentage Interest specified on the face of this Class C Certificate. This
Class C Certificate is one series of Certificates issued by a trust, the assets
of which consist primarily of a pool of conventional, closed-end, fixed rate and
adjustable rate residential mortgage loans (the "Mortgage Loans"), deposited by
Aames Capital Acceptance Corp. (the "Depositor") into the Trust, serviced by
Ocwen Federal Bank FSB (the "Servicer," which term includes any successor
Servicer under the Agreement referred to below). The Trust was created pursuant
to a Pooling and Servicing Agreement dated as specified above (the "Agreement")
among the Depositor, Aames Capital Corporation, as seller (the "Seller"), the
Servicer and Bankers Trust Company of California, N.A., as trustee (the
"Trustee"), a summary of certain of the pertinent provisions of which is set
forth hereafter. To the extent not defined herein, the capitalized terms used
herein have the meanings assigned to such terms in the Agreement. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.

         No transfer of a Class C Certificate will be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Act"), and any applicable state securities laws or is made in
accordance with such Act and laws. In the event that such a transfer is desired
to be made by the holder hereof, (i) the transferee will be required to execute
an investment letter in the form described by the Agreement and (ii) if such
transfer is

                                      B-1-2

<PAGE>

to be made, the Trustee shall require the Holder to deliver an Opinion of
Counsel acceptable to and in form and substance satisfactory to the Trustee and
the Depositor that such transfer is exempt (describing the applicable exemption
and the basis therefor) from or is being made pursuant to the registration
requirements of the Act and of any applicable state securities laws. The Holder
hereof desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee, the Depositor, the Seller and the Servicer against any
liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws. In connection with any such
transfer, the Trustee will also require an affidavit, in the form as described
in the Agreement, stating the matters set forth on the legend of this Class C
Certificate.

         The Class C Certificates are entitled to the Class C Distribution
Amount on each Distribution Date. The Class C Certificates are not entitled to
any payments on and collections in respect of the Mortgage Loans on any
Distribution Date until all other distributions on the Offered Certificates for
such Distribution Date and reimbursements of certain advances have been made in
accordance with the Agreement. The Holder of this Certificate, by its acceptance
of this Certificate, agrees that the Trustee in its individual capacity is not
personally liable to the Certificateholders for any amount payable under this
Certificate or the Agreement or, except as expressly provided in the Agreement,
subject to any liability under the Agreement.

         This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Servicer, and the rights of the Certificateholders under the
Agreement at any time by the Depositor, the Servicer and the Trustee and the
Holders of Certificates evidencing Voting Interests represented by all
Certificates aggregating not less than 51%. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of any of the Certificates.

         The Certificates are issuable only as registered Certificates without
coupons in the Percentage Interest specified in the Agreement. As provided in
the Agreement and subject to certain limitations therein set forth, Certificates
are exchangeable for a new Certificate evidencing the same aggregate Percentage
Interest, as requested by the Holder surrendering the same.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registerable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee located at 1761 East
St. Andrew Place, Santa Ana, CA 92705-4934, attn: Trust Administration, Aames
Mortgage Trust 2002-1 (AA0201), accompanied by a written instrument of transfer
in form satisfactory to the Servicer, the Trustee, and the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing together with an affidavit in the form as described in the Agreement,
and thereupon a new Certificate evidencing the same aggregate Percentage
Interest will be issued to the designated transferee or transferees.
Certificates also may be surrendered at the office of the Trustee's agent, DTC,
located at DTC Transfer Agent Services, 55 Water Street, New York, NY 10044.

                                      B-1-3

<PAGE>

         No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

         The Depositor and the Trustee and any of their respective agents may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Trustee nor any of their
respective agents shall be affected by any notice to the contrary.

         The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon payment to the Certificateholders, or
provision therefor, in accordance with the Agreement upon (a) the purchase by
the Servicer of all Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust at a price determined as provided in the
Agreement, or (b) the later of the final payment or other liquidation of the
last Mortgage Loan remaining in the Trust or the disposition of all property
acquired upon foreclosure or by deed in lieu of foreclosure of any Mortgage
Loan. The exercise of the right of the Servicer to purchase all the Mortgage
Loans and property in respect of all Mortgage Loans in the Trust will result in
early retirement of the Certificates, the right of the Servicer to purchase
being subject to the Pool Balance at the time of purchase being less than 5% of
the sum of the Original Pool Balance and the Prefunding Account Deposit..

         This Certificate constitutes a "regular interest" in a "real estate
mortgage investment conduit" as those terms are defined in Section 860G(a)(1)
and Section 860D, respectively, of the Internal Revenue Code of 1986, as
amended.

         This Certificate will not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned for
authenticating purposes only by any authorized officer of the Trustee.

                                      B-1-4

<PAGE>

         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:  March __, 2002

                                              BANKERS TRUST COMPANY
                                                 OF CALIFORNIA, N.A., as Trustee

                                              By:
                                                 -------------------------------
                                                        Authorized Officer

CERTIFICATE OF AUTHENTICATION:
This is one of the Class C Certificates referred
to in the within named Agreement

By:
   -------------------------------------------
   Authorized Officer of Bankers Trust Company
   of California, N.A., as Trustee

                                      B-1-5

<PAGE>

                                                                     EXHIBIT B-2

                           FORM OF CLASS R CERTIFICATE

         THIS CERTIFICATE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE EXTENT SET
FORTH IN THE AGREEMENT REFERRED TO HEREIN.

         THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND
LAWS OR IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM
REGISTRATION UNDER SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 6.02(b) OF THE AGREEMENT REFERRED TO
HEREIN.

         FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
"RESIDUAL INTEREST" IN EACH OF TWO "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G(A)(2) AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). A TRANSFEREE OF THIS
CERTIFICATE, BY ACCEPTANCE HEREOF, IS DEEMED TO HAVE ACCEPTED THIS CERTIFICATE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN SECTION
6.02(b) OF THE POOLING AND SERVICING AGREEMENT, AND SHALL BE REQUIRED TO FURNISH
AN AFFIDAVIT TO THE TRANSFEROR AND THE TRUSTEE TO THE EFFECT THAT (I) IT IS NOT
(i) A DISQUALIFIED ORGANIZATION, AS SUCH TERM IS DEFINED IN CODE SECTION
860E(e)(5), OR AN AGENT (INCLUDING A BROKER, NOMINEE OR OTHER MIDDLEMAN) FOR
SUCH DISQUALIFIED ORGANIZATION, (ii) AN ENTITY THAT HOLDS REMIC RESIDUAL
SECURITIES AS NOMINEE TO FACILITATE THE CLEARANCE AND SETTLEMENT OF SUCH
SECURITIES THROUGH BOOK-ENTRY CHANGES IN ACCOUNTS OF PARTICIPATING ORGANIZATIONS
(A "BOOK-ENTRY NOMINEE"), (iii) AN INDIVIDUAL, CORPORATION, PARTNERSHIP OR OTHER
PERSON UNLESS SUCH TRANSFEREE (A) IS NOT A FOREIGN PERSON OR (B) IS A FOREIGN
PERSON THAT WILL HOLD SUCH CLASS R CERTIFICATE IN CONNECTION WITH THE CONDUCT OF
A TRADE OR BUSINESS WITHIN THE UNITED STATES AND HAS FURNISHED THE TRANSFEROR
AND THE TRUSTEE WITH AN EFFECTIVE INTERNAL REVENUE SERVICE FORM 4224 OR (C) IS A
FOREIGN PERSON THAT HAS DELIVERED TO BOTH THE TRANSFEROR AND THE TRUSTEE AN
OPINION OF A NATIONALLY RECOGNIZED TAX COUNSEL TO THE EFFECT THAT THE TRANSFER
OF THE CLASS R CERTIFICATE TO IT IS IN ACCORDANCE WITH THE REQUIREMENTS OF THE
CODE AND THE REGULATIONS PROMULGATED THEREUNDER AND THAT SUCH TRANSFER OF THE
CLASS R CERTIFICATE WILL NOT BE DISREGARDED FOR FEDERAL INCOME TAX PURPOSES (ANY
SUCH PERSON WHO IS NOT COVERED BY CLAUSE (A), (B) OR (C) ABOVE BEING REFERRED TO
HEREIN AS A "NON-

                                      B-2-1

<PAGE>

PERMITTED FOREIGN HOLDER") OR (iv) ANY PERSON WHICH IS AN EMPLOYEE BENEFIT PLAN
WITHIN THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED, OR ANY PERSON WHICH IS AN INDIVIDUAL RETIREMENT ACCOUNT
OR EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT SUBJECT TO SECTION 4975 OF THE CODE
(AN "ERISA PLAN") OR AN ENTITY, INCLUDING AN INSURANCE COMPANY SEPARATE ACCOUNT
OR GENERAL ACCOUNT, WHOSE UNDERLYING ASSETS INCLUDE ERISA PLAN ASSETS BY REASON
OF AN ERISA PLAN'S INVESTMENT IN THE ENTITY, OR ANY PERSON INVESTING THE ASSETS
OF AN ERISA PLAN OR SUCH AN ENTITY, WHETHER AS NOMINEE, TRUSTEE, AGENT OR
OTHERWISE, (II) IT HAS NO INTENT OR PURPOSE TO IMPEDE THE ASSESSMENT OR
COLLECTION OF ANY FEDERAL, STATE OR LOCAL INCOME TAXES LEGALLY REQUIRED TO BE
PAID WITH RESPECT TO THE CLASS R CERTIFICATE, AND (III) IT HAS AGREED TO SUCH
AMENDMENTS TO FURTHER EFFECTUATE THE RESTRICTIONS ON TRANSFERS TO DISQUALIFIED
ORGANIZATIONS, AGENTS THEREOF, BOOK-ENTRY NOMINEES, NON-PERMITTED FOREIGN
HOLDERS OR ERISA PLANS. THE TERM "FOREIGN PERSON" MEANS A PERSON WHO IS NOT ONE
OF THE FOLLOWING: A CITIZEN OR RESIDENT OF THE UNITED STATES, A CORPORATION OR
PARTNERSHIP (OR OTHER ENTITY CLASSIFIED AS A CORPORATION OR PARTNERSHIP FOR U.S.
FEDERAL INCOME TAX PURPOSES) CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE
UNITED STATES OR ANY POLITICAL SUBDIVISION THEREOF, AN ESTATE THAT IS SUBJECT TO
U.S. FEDERAL INCOME TAX REGARDLESS OF THE SOURCE OF ITS INCOME, OR TRUST IF (i)
A COURT WITHIN THE UNITED STATES IS ABLE TO EXERCISE PRIMARY SUPERVISION OVER
THE ADMINISTRATION OF THE TRUST, AND (ii) ONE OR MORE UNITED STATES PERSONS HAVE
THE AUTHORITY TO CONTROL ALL SUBSTANTIAL DECISIONS OF THE TRUST.

         THE HOLDER OF THIS CLASS R CERTIFICATE, BY ACCEPTANCE HEREOF, IS DEEMED
TO HAVE AGREED TO THE DESIGNATION OF THE SERVICER AS ITS AGENT TO ACT AS "TAX
MATTERS PERSON" TO PERFORM THE FUNCTIONS OF A "TAX MATTERS PARTNER" FOR PURPOSES
OF SUBCHAPTER C OF CHAPTER 63 OF SUBTITLE F OF THE CODE, OR, IF SO REQUESTED BY
THE SERVICER, TO ACT AS TAX MATTERS PERSON.

                                      B-2-2

<PAGE>

Date of Pooling and Servicing              Percentage Interest: __%
Agreement and Cut-off Date:
March 1, 2002                              Certificate No.: __

First Distribution Date:
April 25, 2002

                           AAMES MORTGAGE TRUST 2002-1
                       MORTGAGE PASS-THROUGH CERTIFICATE,
                             SERIES 2002-1, CLASS R

         evidencing a percentage interest in the distributions allocable to the
         Class R Certificate with respect to a Trust consisting primarily of a
         pool of conventional, closed-end, fixed rate and adjustable rate
         residential mortgage loans sold by Aames Capital Corporation.

         THIS CERTIFICATE DOES NOT REPRESENT AN OBLIGATION OF OR INTEREST IN
AAMES CAPITAL CORPORATION, AAMES CAPITAL ACCEPTANCE CORP. OR THE TRUSTEE
REFERRED TO BELOW OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS CERTIFICATE IS NOT
A DEPOSIT, AND NEITHER THIS CERTIFICATE NOR THE UNDERLYING MORTGAGE LOANS ARE
GUARANTEED OR INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.

         This certifies that ___________________________ is the registered owner
of the Percentage Interest specified on the face of this Class R Certificate.
This Class R Certificate is one series of Certificates issued by a trust, the
assets of which consist primarily of a pool of conventional, closed-end, fixed
rate and adjustable rate residential mortgage loans (the "Mortgage Loans"),
deposited by Aames Capital Acceptance Corp. (the "Depositor") into the Trust,
serviced by Ocwen Federal Bank FSB (the "Servicer," which term includes any
successor Servicer under the Agreement referred to below). The Trust was created
pursuant to a Pooling and Servicing Agreement dated as specified above (the
"Agreement") among the Depositor, Aames Capital Corporation, as seller (the
"Seller"), the Servicer and Bankers Trust Company of California, N.A., as
trustee (the "Trustee"), a summary of certain of the pertinent provisions of
which is set forth hereafter. To the extent not defined herein, the capitalized
terms used herein have the meanings assigned to such terms in the Agreement.
This Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.

         No transfer of a Class R Certificate will be made unless such transfer
is exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Act"), and any applicable state securities laws or is made in
accordance with such Act and laws. In the event that such a transfer is desired
to be made by the holder hereof, (i) the transferee will be required to execute
an investment letter in the form described by the Agreement and (ii) if such
transfer is

                                      B-2-3

<PAGE>

to be made, the Trustee shall require the Holder to deliver an
Opinion of Counsel acceptable to and in form and substance satisfactory to the
Trustee and the Depositor that such transfer is exempt (describing the
applicable exemption and the basis therefor) from or is being made pursuant to
the registration requirements of the Act and of any applicable state securities
laws. The Holder hereof desiring to effect such transfer shall, and does hereby
agree to, indemnify the Trustee, the Depositor and the Servicer against any
liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws. In connection with any such
transfer, the Trustee will also require an affidavit, in the form as described
in the Agreement, stating the matters set forth on the legend of this Class R
Certificate.

          The Holder of the Class R Certificate, by acceptance hereof, is deemed
to have designated the Servicer, if permitted by the Code and applicable law, to
act as the "tax matters person", to perform the functions of a "tax matters
partner" for purposes of Subchapter C of Chapter 63 of Subtitle F of the Code
and if not so permitted, the Holder of the Class R Certificate, is deemed to
have agreed to act as such "tax matters person".

         The Class R Certificate is not entitled to any payments on and
collections in respect of the Mortgage Loans on any Distribution Date until all
other distributions for such Distribution Date have been made in accordance with
the Agreement. The Holder of this Certificate, by its acceptance of this
Certificate, agrees that the Trustee in its individual capacity is not
personally liable to the Certificateholders for any amount payable under this
Certificate or the Agreement or, except as expressly provided in the Agreement,
subject to any liability under the Agreement.

         This Certificate does not purport to summarize the Agreement and
reference is made to the Agreement for the interests, rights and limitations of
rights, benefits, obligations and duties evidenced hereby, and the rights,
duties and immunities of the Trustee.

         The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor, the Servicer, and the rights of the Certificateholders under the
Agreement at any time by the Depositor, the Servicer, and the Trustee and the
Holders of Certificates evidencing Voting Interests represented by all
Certificates aggregating not less than 51%. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of the Certificates.

         This Certificate is issuable only as a registered Certificate without
coupons in the Percentage Interest specified in the Agreement. As provided in
the Agreement and subject to certain limitations therein set forth, the
Certificate is exchangeable for a new Certificate evidencing the same aggregate
Percentage Interest, as requested by the Holder surrendering the same.

         As provided in the Agreement and subject to certain limitations therein
set forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the office or agency maintained by the Trustee located at 1761 East
St. Andrew Place, Santa Ana, CA 92705-4934, attn: Trust Administration, Aames
Mortgage Trust 2002-1 (AA0201), accompanied by a written instrument of transfer
in form satisfactory to the Servicer, the Trustee, and the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing together with an affidavit in

                                      B-2-4

<PAGE>

the form as described in the Agreement, and thereupon a new Certificate
evidencing the same aggregate Percentage Interest will be issued to the
designated transferee or transferees. Certificates also may be surrendered at
the office of the Trustee's agent, DTC, located at DTC Transfer Agent Services,
55 Water Street, New York, NY 10044.

         No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

         The Depositor and the Trustee and any of their respective agents may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Trustee nor any of their
respective agents shall be affected by any notice to the contrary.

         The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon payment to the Certificateholders, or
provision therefor, in accordance with the Agreement upon (a) the purchase by
the Servicer of all Mortgage Loans and all property acquired in respect of any
Mortgage Loan remaining in the Trust at a price determined as provided in the
Agreement, or (b) the later of the final payment or other liquidation of the
last Mortgage Loan remaining in the Trust or the disposition of all property
acquired upon foreclosure or by deed in lieu of foreclosure of any Mortgage
Loan. The exercise of the right of the Servicer to purchase all the Mortgage
Loans and property in respect of Mortgage Loans will result in early retirement
of the Certificates, the right of the Servicer to purchase being subject to the
Pool Balance at the time of purchase being less than 5% of the sum of the
Original Pool Balance and the Prefunding Account Deposit.

         This Certificate will not be entitled to any benefit under the
Agreement or be valid for any purpose unless manually countersigned for
authenticating purposes only by any authorized officer of the Trustee.

                                      B-2-5

<PAGE>

         IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated:  March __, 2002

                                             BANKERS TRUST COMPANY
                                                OF CALIFORNIA, N.A., as Trustee

                                             By:
                                                --------------------------------
                                                        Authorized Officer

CERTIFICATE OF AUTHENTICATION:

This is one of the Certificates referred
to in the within named Agreement

By:
   -------------------------------------------
   Authorized Officer of Bankers Trust Company
   of California, N.A., as Trustee

                                      B-2-6

<PAGE>

                                                                     EXHIBIT B-3

                                   [RESERVED]

                                      B-3-1

<PAGE>

                                                                       EXHIBIT C

                      FORM OF SUBSEQUENT TRANSFER AGREEMENT

         Pursuant to this Subsequent Transfer Agreement, dated as of
[___________ , ___] by and between Aames Capital Corporation (the "Seller"),
Aames Capital Acceptance Corporation (the "Depositor") and Bankers Trust Company
of California, N.A., in its capacity as trustee for Aames Mortgage Trust 2002-1
(the "Trustee"), and pursuant to that certain Pooling and Servicing Agreement,
dated as of March 1, 2002 (the "Pooling and Servicing Agreement"), by and among
the Seller, as seller, the Trustee, as trustee, the Depositor, as depositor, and
Ocwen Federal Bank FSB, as servicer, the Seller, the Depositor and the Trustee
agree to the sale by the Seller and the purchase by the Depositor and the
immediate sale by the Depositor and the purchase by the Trustee of additional
mortgage loans (the "Subsequent Mortgage Loans") as listed on the Mortgage Loan
Schedule attached hereto as Schedule A.

         Capitalized terms used and not defined herein shall have their
respective meanings as set forth in the Pooling and Servicing Agreement.

         Section 1.  Purchase and Conveyance of Subsequent Mortgage Loans.

         (a) The Seller does hereby sell, transfer, assign, set over and convey
to the Depositor, and the Depositor does hereby sell, transfer, assign, set over
and convey to the Trustee:

         (i)      all right, title and interest in and to the Subsequent
                  Mortgage Loans owned by it and listed on Schedule A hereto,
                  including without limitation, the related Mortgages, Mortgage
                  Files and Mortgage Notes, and all payments on, and proceeds
                  with respect to, such Subsequent Mortgage Loans received on
                  and after the Subsequent Cut-off Date except such payments and
                  proceeds as the Servicer is entitled to retain pursuant to the
                  express provisions of the Pooling and Servicing Agreement;

         (ii)     all right, title and interest in the Mortgages on the
                  properties securing the Subsequent Mortgage Loans, including
                  any related Mortgaged Property acquired by or on behalf of the
                  Trust by foreclosure or deed in lieu of foreclosure or
                  otherwise;

         (iii)    all right, title and interest in and to any rights in or
                  proceeds from any insurance policies (including title
                  insurance policies) covering the Subsequent Mortgage Loans,
                  the related Mortgaged Properties or Mortgagors and any amounts
                  recovered from third parties in respect of any Subsequent
                  Mortgage Loans that became Liquidated Mortgage Loans; and

         (iv)     the proceeds of all of the foregoing.

         (b) With respect to each Subsequent Mortgage Loan, the Seller and the
Depositor, contemporaneously with the delivery of this Agreement, have delivered
or caused to be delivered

                                       C-1

<PAGE>

to the Trustee, each item set forth in Section 2.01 of the Pooling and Servicing
Agreement. The transfer to the Trustee by the Seller and the Depositor of the
Subsequent Mortgage Loans identified on the Schedule A hereto shall be absolute
and is intended by the Seller, the Depositor, the Servicer, the Trustee and the
Certificateholders to constitute and to be treated as a sale by the Seller and
the Depositor.

         (c) The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Agreement and the Pooling and Servicing Agreement shall be
borne by the Seller.

         (d) Additional terms of the sale, including the purchase price, are set
forth on Attachment A hereto.

         Section 2.  Representations and Warranties; Conditions Precedent.

         (a) The Seller hereby affirms the representations and warranties set
forth in Section 2.05 of the Pooling and Servicing Agreement that relate to the
Subsequent Mortgage Loans as of the date hereof. The Seller and the Depositor
hereby confirm that each of the conditions set forth in Section 2.02 of the
Pooling and Servicing Agreement (except such conditions that are required to be
satisfied as of the end of the Funding Period) are satisfied as of the date
hereof.

         (b) All terms and conditions of the Pooling and Servicing Agreement are
hereby ratified and confirmed; provided however, that in the event of any
conflict the provisions of this Agreement shall control over the conflicting
provisions of the Pooling and Servicing Agreement.

         Section 3.  Recordation of Agreement.

         This Agreement is subject to recordation in all appropriate public
offices for real property records in all the counties or other comparable
jurisdictions in which any or all of the Mortgaged Properties are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer and at its expense in the event such recordation
materially and beneficially affects the interests of Certificateholders.

         For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.

         Section 4.  Governing Law.

         This Agreement shall be construed in accordance with the laws of the
State of New York (without regard to conflict of laws principles and the
application of the laws of any other jurisdiction), and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.

         Section 5.  Successors and Assigns.

         This Agreement shall inure to the benefit of and be binding upon the
Seller, the Depositor and the Trustee and their respective successors and
assigns.

                                     B-3-2

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers, all as of the day and year first
above written.

                                          AAMES CAPITAL CORPORATION,
                                           as Seller

                                         By:
                                             -----------------------------------
                                             Name:
                                             Title:

                                          AAMES CAPITAL CORPORATION,
                                            as Depositor

                                         By:
                                             -----------------------------------
                                             Name:
                                             Title:

                                          BANKERS TRUST COMPANY
                                          OF CALIFORNIA, N.A., as Trustee
                                          for Aames Mortgage Trust 2002-1, and
                                         not in its individual capacity

                                         By:
                                             -----------------------------------
                                             Name:
                                             Title:

                                     B-3-3

<PAGE>

                                   SCHEDULE A

                        SUBSEQUENT MORTGAGE LOAN SCHEDULE

                                  ATTACHMENT A

Subsequent Transfer Date:

Subsequent Cut-off Date:

Aggregate of the Principal Balances of

Subsequent Mortgage Loans:

Aggregate of the Purchase Prices of

Subsequent Mortgage Loans:

Number of Subsequent Mortgage Loans:

                                     B-3-4

<PAGE>

                                                                       EXHIBIT D

                                   [RESERVED]

                                       D-1

<PAGE>

                                                                       EXHIBIT E

                             MORTGAGE LOAN SCHEDULE

                        [On file with Seller and Trustee]

                                       E-1

<PAGE>

                                                                       EXHIBIT F

                    FORM OF ANNUAL STATEMENT AS TO COMPLIANCE

         The undersigned,                  ,                    of Ocwen Federal
Bank FSB (the "Servicer"), in its capacity as Servicer under that certain
Pooling and Servicing Agreement dated as of March 1, 2002 (the "Pooling and
Servicing Agreement") among Aames Capital Corporation, as seller, Aames Capital
Acceptance Corp., as depositor, Ocwen Federal Bank FSB, as servicer and Bankers
Trust Company of California, N.A., as trustee, does hereby certify pursuant to
Section 3.09 of the Pooling and Servicing Agreement that as of the ___ day of
____________, ____:

          (a)     a review of the activities of the Servicer for the year ended
                  March 31, ____ and of its performance under the Pooling and
                  Servicing Agreement has been made under my supervision, and

          (b)     to the best of my knowledge, based on such review, the
                  Servicer has fulfilled all of its material obligations under
                  the Pooling and Servicing Agreement throughout such year.

         IN WITNESS WHEREOF, I have hereunto signed my name as of this ____day
of ___________, ____.

                                      ------------------------------------------
                                      Name:
                                      Title:

                                      F-1

<PAGE>

                                                                       EXHIBIT G

                FORM OF AFFIDAVIT PURSUANT TO SECTION 860E(e)(4)
                OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED

STATE OF_______________________________ )
                                        ) ss.:
COUNTY OF______________________________ )

         [NAME OF OFFICER], being first duly sworn, deposes and says:

         1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of ] [the United States], on behalf of which he
makes this affidavit. Capitalized terms used but not defined herein shall have
the meanings ascribed to such terms in the Agreement as defined in the Class R
Certificate.

         2. That the Investor's Taxpayer Identification Number is [___________].

         3. That the Investor is not a "Disqualified Organization" within the
meaning of Section 860E(e)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), or an agent of a Disqualified Organization (including a broker,
nominee or middleman) and will not be a "Disqualified Organization" as of [date
of transfer], and that the Investor is not acquiring a Class R Certificate of
the Aames Mortgage Trust 2002-1 Mortgage Pass-Through Certificates, Series
2002-1 (the "Class R Certificate") for the account of, or as an agent (including
a broker, nominee or middleman) of any entity as to which the Investor has not
received an affidavit substantially in the form of this affidavit. For these
purposes, a "Disqualified Organization" means the United States, any state or
political subdivision thereof, any foreign government, any international
organization, any agency or instrumentality of any of the foregoing (other than
an instrumentality if all of its activities are subject to tax and a majority of
its board of directors is not selected by such governmental entity), any
cooperative organization furnishing electrical energy or providing telephone
service to persons in rural areas as described in Code Section 1381(a)(2)(c), or
any organization (other than a farmers' cooperative described in Code Section
521) that is exempt from federal income tax unless such organization is subject
to the tax on unrelated business income imposed by Code Section 511.

         4. That the Investor is not (i) an entity that holds Class R
Certificates as nominee to facilitate the clearance and settlement of such Class
R Certificates through electronic book-entry changes in accounts of
participating organizations (a "Book-Entry Nominee"), (ii) an individual,
corporation, partnership or other person unless such transferee (A) is not a
Foreign Person or (B) is a Foreign Person that will hold such Class R
Certificate in connection with the conduct of a trade or business within the
United States and has furnished the transferor and the Trustee with an effective
Internal Revenue Service Form 4224 or (C) is a Foreign Person that has delivered
to both the transferor and the Trustee an opinion of a nationally recognized tax
counsel to the effect that the transfer of a Class R Certificate to it is in
accordance with the requirements of the Code and the regulations promulgated
thereunder and that such transfer of a Class R Certificate will

                                      G-1

<PAGE>

not be disregarded for federal income tax purposes (any such person who is not
covered by clause (A), (B) or (C) above being referred to herein as a
"Non-permitted Foreign Holder") or (iii) a Person that is an employee benefit
plan within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, or any Person that is an individual retirement
account or employee benefit plan, trust or account subject to Section 4975 of
the Code (an "ERISA Plan") or an entity, including an insurance company separate
account or general account, whose underlying assets include ERISA Plan assets by
reason of an ERISA Plan's investment in the entity or a Person investing the
assets of an ERISA Plan or such an entity, whether as nominee, trustee, agent or
otherwise (an "ERISA Prohibited Holder").

         5. That the Investor agrees to any such amendments of the Pooling and
Servicing Agreement as may be required to further effectuate the restrictions on
transfer of the Class R Certificate to such a Disqualified Organization or a
Book-Entry Nominee or a Non-permitted Foreign Holder or an ERISA Prohibited
Holder.

         6. That the Investor has no intent or purpose to impede the assessment
or collection of any federal, state or local income taxes legally required to be
paid with respect to the Class R Certificate and will not transfer the Class R
Certificate to any Person that it has reason to believe has the intention to
impede the assessment or collection of such taxes and that the Investor
understands that, as the holder of the Class R Certificate, it may incur tax
liabilities in excess of any cash flows generated by the Class R Certificates.

         7. The Investor has been advised of, understands and acknowledges that
under the Code, a substantial tax would be imposed on a "pass-through entity"
holding a Class R Certificate if at any time during the taxable year of the
pass-through entity a Person that is a Disqualified Organization is the record
holder of an interest in such entity. (For this purpose, a "pass-through entity"
includes a regulated investment company, a real estate investment trust or
common trust fund, a partnership, trust or estate, and certain cooperatives and,
except as may be provided in Treasury Regulations, persons holding interests in
pass through entities as a nominee for another Person). A pass-through entity
shall be relieved of liability for the tax if it had received from such Person
an affidavit (in substantially the same form as this affidavit) that such Person
is not a Disqualified Organization and the entity had no actual knowledge that
the affidavit was false. The Investor will advise the Trustee and the Servicer
if it becomes a pass-through entity or if it is a pass-through entity, if any of
the interest holders are or become Disqualified Persons.

         8. The Investor has reviewed the provisions of Section 6.02 of the
Agreement and understands the legal consequences of the acquisition of a Class R
Certificate including, without limitation, the restrictions on subsequent
transfers. The Investor expressly agrees to be bound by and to abide by the
provisions of Section 6.02 of the Agreement, as such Section may be amended from
time to time.

         9. The Investor agrees to require an affidavit substantially similar to
this affidavit from any Person to whom the Investor attempts to transfer its
Class R Certificate including any Person with respect to which the Investor is
then acting as nominee, trustee or agent, and in connection with any transfer by
a Person for whom the Investor is acting as nominee, trustee or

                                      G-2

<PAGE>

agent, and the Investor will not transfer its Class R Certificate to be
transferred to any Person that the Investor knows is a Disqualified
Organization.

         10. The Investor is acquiring the Class R Certificate either (i) for
its own account or (ii) as nominee, trustee or agent for another Person and has
attached hereto an affidavit from such Person in substantially the same form as
this affidavit. If clause (ii) of the preceding sentence is applicable, such
Person is not a Disqualified Organization and the Investor has no knowledge that
any such affidavit from such Person is false.

                                      G-3

<PAGE>

         IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] and its corporate seal to be hereunto attached, attested by
its [Assistant] Secretary, this ____ day of _________, ____.

                                       [NAME OF INVESTOR]

                                       By:
                                           -------------------------------------
                                           Name:
                                           Title:

         Personally appeared before me the above-named [Name of Officer], known
or proved to me to be the same person who executed the foregoing instrument and
to be the [Title of Officer] of the Investor, and acknowledged to me that he
executed the same as his free act and deed and the free act and deed of the
Investor.

         Subscribed and sworn before me this _____day of ___________, ____.

NOTARY PUBLIC

COUNTY OF___________________________________

STATE OF____________________________________

My Commission expires the ____ day of ________, ____.

                                      G-4

<PAGE>

                                                                       EXHIBIT H

                    FORM OF NOTICE REGARDING PAYMENT IN FULL
                      OF PRINCIPAL BALANCE OF MORTGAGE LOAN

Bankers Trust Company of California, N.A.,
  as Trustee
1761 East St. Andrew Place
Santa Ana, California  92705
         Re:      Aames Mortgage Trust 2002-1
                  Mortgage Pass-Through Certificates, Series 2002-1

Ladies and Gentlemen:

         Reference is made to Section 3.07 of the Pooling and Servicing
Agreement dated as of March 1, 2002 (the "Pooling and Servicing Agreement")
among Aames Capital Corporation, as Seller, Aames Capital Acceptance Corp., as
Depositor, Ocwen Federal Bank FSB, as Servicer and Bankers Trust Company of
California, N.A., as Trustee. All capitalized terms used but not defined herein
shall have the meanings given to such terms in the Pooling and Servicing
Agreement.

         The undersigned hereby certifies that the Principal Balance of the
Mortgage Loan(s) listed on Schedule A annexed hereto has been paid in full and
that all amounts received in connection with the payment of such Mortgage
Loan(s) that were required to be deposited or credited in the Certificate
Account pursuant to Section 3.02 of the Pooling and Servicing Agreement have
been so deposited or credited.

         The undersigned further certifies that he is a Servicing Officer of the
Servicer holding the office set forth beneath his signature and that he is duly
authorized to execute this certificate on behalf of the Servicer.

                                       OCWEN FEDERAL BANK FSB

Date:                                  By:
     --------------------------           -------------------------------------
                                          Name:
                                          Title:

                                      H-1

<PAGE>

                                                                       EXHIBIT I

                           FORM OF LIQUIDATION REPORT

1.  Type of Liquidation (REO disposition/charge-off/short pay-off)
             o  Date Last Paid
             o  Date of Foreclosure
             o  Date of REO
             o  Date of REO Disposition
             o  Property Sale Price; Estimated Market Value at Disposition

2.  Liquidation Proceeds

             o  Principal Prepayment                               $
                                                                    ------------
             o  Property Sale Proceeds
                                                                    ------------
             o  Insurance Proceeds
                                                                    ------------
             o  Other (itemize)
                                                                    ------------
             o  TOTAL                                              $
                                                                    ============

    Liquidation Expenses
             o  Servicing Advances                                 $
                                                                    ------------
             o  Monthly Advances
                                                                    ------------
             o  Contingency Fees
                                                                    ------------
             o  Servicing Fees
                                                                    ------------
             o  Annual Expense Escrow Amount
                                                                    ------------
             o  Supplemental Fee (if any)
                                                                    ------------
             o  Additional Interest (if any)
                                                                    ------------
             o  Monthly Seller Fee (if any)
             o  TOTAL                                              $
                                                                    ============

3.  Net Liquidation Proceeds*
    (Total of Item 2 minus total of Item 3)                        $
                                                                    ------------

4.  Accrued and Unpaid Interest on Mortgage Loan                   $
                                                                    ------------

5.  Principal Balance of Mortgage Loan                             $
                                                                    ------------

6.  Realized Loss on Mortgage Loan (Item 4 plus Item 5 minus
    Item 3, with a Realized Loss resulting only if the total
    of this calculation is a positive number) $                    $
                                                                    ------------

*Applied first to Item 4 and then to Item 5.

                                      I-1

<PAGE>

                                                                       EXHIBIT J

                              OFFICER'S CERTIFICATE

         I, _____________________, hereby certify that I am the duly elected
_____________________ of Ocwen Federal Bank FSB acting as servicer pursuant to a
Pooling and Servicing Agreement dated as of March 1, 2002 by and among the Aames
Capital Corporation, as Seller, Aames Capital Acceptance Corp., as Depositor,
Ocwen Federal Bank FSB and Bankers Trust Company of California, N.A., as
Trustee, and further certify, to the best of my knowledge and after due inquiry
that the following, including the attached Liquidation Report, is a summary of
the facts and circumstances surrounding the "charge-off" of any Mortgage Loans
during the Collection Period from _____ 1 through _____ 30/31, ____;

[Insert the following information for each "charged-off" Mortgage Loan]

         Loan #
         Borrower Name
         Property Address
         Date of "charge-off"
         Original Principal Balance
         Outstanding Principal Balance
         Mortgage Loan Rate
         Accrued Interest at time of "charge off"
         Unreimbursed Servicing Advances at time of "charge off"
         Unreimbursed Delinquency Advances at time of "charge off"
         # of days in default at time of "charge off"
         Original Appraised Value
         Current appraised value based upon "drive by"
         Amount of outstanding first lien
         Estimate of Foreclosure Costs
                  Broker Fees
                  Legal Fees
                  Repair and Miscellaneous Expenses
         Projected Marketing Period
         Estimate of Loss on Foreclosure and Liquidation

Capitalized terms not otherwise defined herein have the meanings set forth in
the Pooling and Servicing Agreement.

                                      J-1

<PAGE>

         IN WITNESS WHEREOF, I have hereunto signed by name and affixed the seal
of the Servicer.

Dated:
      -----------------------              -------------------------------------
                                           Name:
                                           Title:

                                      J-2

<PAGE>

                                                                       EXHIBIT K

                          FORM OF TRANSFEROR AFFIDAVIT
                           [LETTERHEAD OF TRANSFEROR]

                             ----------------, ----

Bankers Trust Company of California, N.A.,
  as Trustee
1761 East St. Andrew Place
Santa Ana, California  92705
         Re:      Aames Mortgage Trust 2002-1
                  Mortgage Pass-Through Certificates, Series 2002-1

Ladies and Gentlemen:

         We have reviewed the attached affidavit of [NAME OF TRANSFEREE] and
have no actual knowledge that such affidavit is not true and has no reason to
believe that the requirements set forth in paragraph 3, paragraph 4(i) or
paragraph 4(ii) are not satisfied and have no reason to believe that the
transferee has the intention to impede the assessment or collection of any
federal, state or local taxes legally required to be paid with respect to a
Class R Certificate. In addition, we have conducted a reasonable investigation
at the time of the transfer and found that the transferee had historically paid
its debts as they came due and found no significant evidence to indicate that
the transferee will not continue to pay its debts as they become due.

                                          Very truly yours,

                                          -------------------------------------

                                          By:
                                             -----------------------------------
                                             Name:
                                             Title:

                                      K-1

<PAGE>

                                                                       EXHIBIT L

                                   [RESERVED]

                                      L-1

<PAGE>

                                                                       EXHIBIT M

Bankers Trust Company of California, N.A.,
  as Trustee
1761 East St. Andrew Place
Santa Ana, California  92705
         Re:      Aames Mortgage Trust 2002-1,
                  Mortgage Pass-Through Certificates,
                  Series, 2002-1, Class [  ] (the "Certificates")

Ladies and Gentlemen:

         In connection with our disposition of the above Certificates we certify
that (a) we understand that the Certificates have not been registered under the
Securities Act of 1933, as amended (the "Act"), and are being disposed by us in
a transaction that is exempt from the registration requirements of the Act, (b)
we have not offered or sold any Certificates to, or solicited offers to buy any
Certificates from, any person, or otherwise approached or negotiated with any
person with respect thereto, in a manner that would be deemed, or taken any
other action which would result in, a violation of Section 5 of the Act and (c)
with respect to our disposition of the Certificates, we have no knowledge that
the transferee is not a permitted transferee.

                                     Very truly yours,

                                     -------------------------------------------

                                     By:
                                        ----------------------------------------
                                        Authorized Officer

                                      M-1

<PAGE>

                                                                     EXHIBIT N-1

                    FORM OF INVESTMENT LETTER [NON-RULE 144A]

                                     [DATE]

Aames Capital Corporation, as Seller
350 South Grand Avenue
Los Angeles, California 90071

Aames Capital Acceptance Corporation, as Depositor
350 South Grand Avenue
Los Angeles, California 90071

Bankers Trust Company of California, N.A.,
  as Trustee
1761 East St. Andrew Place
Santa Ana, California  92705

         Re:      Aames Mortgage Trust 2002-1,
                  Mortgage Pass-Through Certificates,
                  Series, 2002-1, Class [  ] (the "Certificates")

Ladies and Gentlemen:

         In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the Seller
and the Depositor concerning the purchase of the Certificates and all matters
relating thereto or any additional information deemed necessary to our decision
to purchase the Certificates, (d) either (i) we are not an employee benefit plan
that is subject to the Employee Retirement Income Security Act of 1974, as
amended, or a plan that is subject to Section 4975 of the Internal Revenue Code
of 1986, as amended, nor are we acting on behalf of any such plan or (ii) the
purchaser is an insurance company which is purchasing such certificates with
funds contained in an "insurance company general account" (as such term is
defined in Section V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE
95-60")) and that the purchase and holding of such Certificates are covered
under PTCE 95-60, (e) we are acquiring the Certificates for investment for our
own account and not with a view to any distribution of such Certificates (but
without prejudice to our right at all times to sell or otherwise dispose of the
Certificates in accordance with clause (g) below), (f) we have not offered or
sold any Certificates to, or solicited offers to buy any Certificates from, any
person, or otherwise approached or

                                     N-1-2

<PAGE>

negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, and (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this Certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (2) the purchaser or
transferee of such Certificate has executed and delivered to you a certificate
to substantially the same effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Pooling and Servicing Agreement.

                                         Very truly yours,

                                         [NAME OF TRANSFEREE]

                                         By:
                                            ------------------------------------
                                                    Authorized Officer

                                     N-1-2

<PAGE>

                                                                     EXHIBIT N-2

                            FORM OF RULE 144A LETTER

                                     [DATE]

Aames Capital Corporation, as Seller
350 South Grand Avenue
Los Angeles, California 90071

Aames Capital Acceptance Corporation, as Depositor
350 South Grand Avenue
Los Angeles, California 90071

Bankers Trust Company of California, N.A.,
  as Trustee
1761 East St. Andrew Place
Santa Ana, California  92705
         Re:      Aames Mortgage Trust 2002-1,
                  Mortgage Pass-Through Certificates,
                  Series, 2002-1, Class [  ] (the "Certificates")

Ladies and Gentlemen:

         In connection with our acquisition of the above Certificates we certify
that (a) we understand that the Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are being transferred to us in a transaction that is exempt from the
registration requirements of the Act and any such laws, (b) we have had the
opportunity to ask questions of and receive answers from the Seller and the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (c) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (d) we have not, nor has
anyone acting on our behalf offered, transferred, pledged, sold or otherwise
disposed of the Certificates, any interest in the Certificates or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Certificates, any interest in the Certificates or
any other similar security from, or otherwise approached or negotiated with
respect to the Certificates, any interest in the Certificates or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or taken
any other action, that would constitute a distribution of the Certificates under
the Act or that would render the disposition of the Certificates a violation of
Section 5 of the Act or require registration pursuant thereto, nor will act, nor
has authorized or will authorize any person to act, in such manner with respect
to the Certificates, (e) we are a "qualified institutional buyer" as that term
is defined in Rule 144A under the Act and have completed either of the forms of

                                     N-2-1

<PAGE>

certification to that effect attached hereto as Annex 1 or Annex 2. We are aware
that the sale to us is being made in reliance on Rule 144A. We are acquiring the
Certificates for our own account or for resale pursuant to Rule 144A and
further, understand that such Certificates may be resold, pledged or transferred
only (i) to a person reasonably believed to be a qualified institutional buyer
that purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that the resale, pledge or transfer
is being made in reliance on Rule 144A, or (ii) pursuant to another exemption
from registration under the Act.

                                       Very truly yours,

                                       [NAME OF TRANSFEREE]

                                       By:
                                          --------------------------------------
                                                     Authorized Officer

                                     N-2-2

<PAGE>

                                                          ANNEX 1 TO EXHIBIT N-2

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

          [For Transferees Other Than Registered Investment Companies]

          The undersigned (the "Buyer") hereby certifies as follows to
the parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:

         (a) As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.

         (b) In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because (i) the Buyer owned
and/or invested on a discretionary basis $        (1) in securities (except for
the excluded securities referred to below) as of the end of the Buyer's most
recent fiscal year (such amount being calculated in accordance with Rule 144A
and (ii) the Buyer satisfies the criteria in the category marked below.

            ___   Corporation, etc. The Buyer is a corporation (other than a
                  bank, savings and loan association or similar institution),
                  Massachusetts or similar business trust, partnership, or
                  charitable organization described in Section 501(c)(3) of the
                  Internal Revenue Code of 1986, as amended.

            ___   Bank. The Buyer (a) is a national bank or banking institution
                  organized under the laws of any State, territory or the
                  District of Columbia, the business of which is substantially
                  confined to banking and is supervised by the State or
                  territorial banking commission or similar official or is a
                  foreign bank or equivalent institution, and (b) has an audited
                  net worth of at least $25,000,000 as demonstrated in its
                  latest annual financial statements, a copy of which is
                  attached hereto.

            ___   Savings and Loan. The Buyer (a) is a savings and loan
                  association, building and loan association, cooperative bank,
                  homestead association or similar institution, which is
                  supervised and examined by a State or Federal authority having
                  supervision over any such institutions or is a foreign savings
                  and loan association or equivalent institution and (b) has an
                  audited net worth of at least $25,000,000 as demonstrated in
                  its latest annual financial statements, a copy of which is
                  attached hereto.

---------------
(1)  Buyer must own and/or invest on a discretionary basis at least $100,000,000
     in securities unless Buyer is a dealer, and, in that case, Buyer must own
     and/or invest on a discretionary basis at least $10,000,000 in securities.

                                     N-2-3

<PAGE>

            ___   Broker-dealer. The Buyer is a dealer registered pursuant to
                  Section 15 of the Securities Exchange Act of 1934.

            ___   Insurance Company. The Buyer is an insurance company whose
                  primary and predominant business activity is the writing of
                  insurance or the reinsuring of risks underwritten by insurance
                  companies and which is subject to supervision by the insurance
                  commissioner or a similar official or agency of a State,
                  territory or the District of Columbia.

            ___   State or Local Plan. The Buyer is a plan established and
                  maintained by a State, its political subdivisions, or any
                  agency or instrumentality of the State or its political
                  subdivisions, for the benefit of its employees.

            ___   ERISA Plan. The Buyer is an employee benefit plan within the
                  meaning of Title I of the Employee Retirement Income Security
                  Act of 1974.

            ___   Investment Advisor. The Buyer is an investment advisor
                  registered under the Investment Advisors Act of 1940.

            ___   Small Business Investment Company. Buyer is a small business
                  investment company licensed by the U.S. Small Business
                  Administration under Section 301(c) or (d) of the Small
                  Business Investment Act of 1958.

            ___   Business Development Company. Buyer is a business development
                  company as defined in Section 202(a)(22) of the Investment
                  Advisors Act of 1940.

         (c) The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) securities issued or guaranteed by the U.S. or any
instrumentality thereof, (iv) bank deposit notes and certificates of deposit,
(v) loan participations, (vi) repurchase agreements, (vii) securities owned but
subject to a repurchase agreement and (viii) currency, interest rate and
commodity swaps.

         (d) For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph, except (i) where the Buyer reports its
securities holdings in its financial statements on the basis of their market
value, and (ii) no current information with respect to the cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934, as
amended.

                                     N-2-4

<PAGE>

         (e) The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.

         (f) Until the date of purchase of the Rule 144A Securities, the Buyer
will notify each of the parties to which this certification is made of any
changes in the information and conclusions herein. Until such notice is given,
the Buyer's purchase of the Certificates will constitute a reaffirmation of this
certification as of the date of such purchase. In addition, if the Buyer is a
bank or savings and loan is provided above, the Buyer agrees that it will
furnish to such parties updated annual financial statements promptly after they
become available.

                                       Print Name of Buyer

                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:

                                       Date:
                                            ----------------------

                                     N-2-5

<PAGE>

                                                          ANNEX 2 TO EXHIBIT N-2

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

           [For Transferees That are Registered Investment Companies]

         The undersigned (the "Buyer") hereby certifies as follows to the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates with respect to the Certificates described therein:

         (a) As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A") because Buyer is part of a
Family of Investment Companies (as defined below), is such an officer of the
Adviser.

         (b) In connection with purchases by Buyer, the Buyer is a "qualified
institutional buyer" as defined in SEC Rule 144A because (i) the Buyer is an
investment company registered under the Investment Company Act of 1940, as
amended and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used, except (i) where the Buyer or the Buyer's Family of Investment
Companies reports its securities holdings in its financial statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those securities has been published. If clause (ii) in the preceding
sentence applies, the securities may be valued at market.

                                     N-2-6

<PAGE>

           ___    The Buyer owned $ in securities (other than the excluded
                  securities referred to below) as of the end of the Buyer's
                  most recent fiscal year (such amount being calculated in
                  accordance with Rule 144A).

           ___    The Buyer is part of a Family of Investment Companies which
                  owned in the aggregate $____________ in securities (other than
                  the excluded securities referred to below) as of the end of
                  the Buyer's most recent fiscal year (such amount being
                  calculated in accordance with Rule 144A).

         (c) The term "Family of Investment Companies" as used herein means two
or more registered investment companies (or series thereof) that have the same
investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).

         (d) The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) securities issued or guaranteed by
the U.S. or any instrumentality thereof, (iii) bank deposit notes and
certificates of deposit, (iv) loan participations, (v) repurchase agreements,
(vi) securities owned but subject to a repurchase agreement and (vii) currency,
interest rate and commodity swaps.

         (e) The Buyer is familiar with Rule 144A and under-stands that the
parties listed in the Rule 144A Transferee Certificate to which this
certification relates are relying and will continue to rely on the statements
made herein because one or more sales to the Buyer will be in reliance on Rule
144A. In addition, the Buyer will only purchase for the Buyer's own account.

         (f) Until the date of purchase of the Certificates, the undersigned
will notify the parties listed in the Rule 144A Transferee Certificate to which
this certification relates of any changes in the information and conclusions
herein. Until such notice is given, the Buyer's purchase of the Certificates
will constitute a reaffirmation of this certification by the undersigned as of
the date of such purchase.

                                         Print Name of Buyer

                                         By:
                                            ------------------------------------
                                            Name:
                                            Title:

                                         IF AN ADVISER:

                                         ---------------------------------------
                                         Print Name of Buyer

                                         Date:
                                              ------------------

                                     N-2-7

<PAGE>

                                                                       EXHIBIT O

               Mortgage Guaranty Insurance Corporation PMI Policy

                   [Available from Aames Capital Corporation]

                                      O-1

<PAGE>

                                                                       EXHIBIT P

                           List of PMI Mortgage Loans

                   [Available from Aames Capital Corporation]

                                      P-1

<PAGE>

                                                                       EXHIBIT Q

                        SUBSEQUENT MORTGAGE LOAN CRITERIA

LOAN-TO-VALUE RATIO

o   Weighted average Loan-to-Value Ratio of no greater than 80.00 on the
    Subsequent Mortgage Loans;

o   Maximum Loan-to-Value Ratio of 100.00;

o   None of the Subsequent Mortgage Loans will have subordinate second liens;

o   No more than 80.00% of the Subsequent Mortgage Loans will have
    Loan-to-Value Ratios equal to or in excess of 80.00;

INTEREST RATE

o   Weighted average minimum interest rate of no less than 6.75%;

BALANCE

Maximum Loan Balance of $632,000;

LOAN TYPE

No more than 12.67% of the Subsequent Mortgage Loans will be Hybrid Loans.

                                      Q-1

<PAGE>

                                                                       EXHIBIT R

                           Prepayment Charge Schedule

                   [Available from Aames Capital Corporation]

                                      R-1<PAGE>

                    SIXTH AMENDED AND RESTATED LOAN AGREEMENT

                                  BY AND AMONG

                          G-III LEATHER FASHIONS, INC.,

                          THE LENDERS SIGNATORY HERETO

                                       AND

                               FLEET NATIONAL BANK

                      AS AGENT, COLLATERAL MONITORING AGENT

                        AND ISSUING BANK FOR SUCH LENDERS

                                 APRIL 29, 2002

<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

ARTICLE 1.        DEFINITIONS..................................................2

   Section 1.1    Definitions..................................................2
   Section 1.2    Other Definitional Provisions; Construction.................26

ARTICLE 2.        REVOLVING CREDIT FACILITY...................................26

   Section 2.1    Letters of Credit; Acceptances; Loans; Steamship
                    Guaranties; Airway Releases...............................26
   Section 2.2    Applications for Letters of Credit, Steamship Guaranties
                    and Airway Releases.......................................28
   Section 2.3    Borrowing Notice and Disbursement of Loans..................30
   Section 2.4    Notes.......................................................31
   Section 2.5    Interest....................................................31
   Section 2.6    Fees........................................................32
   Section 2.7    Payment of Loans and Acceptances; Voluntary Changes in
                    Commitment; Mandatory Prepayments.........................33
   Section 2.8    Use of Proceeds of Loans....................................34
   Section 2.9    Computations................................................35
   Section 2.10   Time and Method of Payments; Statement of Account...........36
   Section 2.11   Several Obligations.........................................36
   Section 2.12   Guaranties..................................................36
   Section 2.13   Security....................................................37
   Section 2.14   Lending Offices.............................................37
   Section 2.15   Obligations Absolute........................................37
   Section 2.16   Sharing of Payments and Set-Off Among Lenders...............38
   Section 2.17   Additional Costs; Capital Requirements......................39
   Section 2.18   Additional L/C Provisions...................................40
   Section 2.19   Pro Rata Treatment Among Lenders............................42
   Section 2.20   Non-Receipt of Funds by the Agent...........................42
   Section 2.21   Collections; Agent's Right to Notify Account Debtors
                    and Endorse the Borrower's Name...........................43
   Section 2.22   Application of Payments and Collections.....................44
   Section 2.23   Conversions of Loans........................................45
   Section 2.24   Limitation on Types of Loans................................45
   Section 2.25   Illegality..................................................46
   Section 2.26   Indemnification.............................................46
   Section 2.27   Certain Conversions Pursuant to Section 2.17................47

ARTICLE 3.        REPRESENTATIONS AND WARRANTIES..............................47

   Section 3.1    Organization................................................48
   Section 3.2    Power, Authority, Consents..................................48
   Section 3.3    No Violation of Law or Agreements...........................49
   Section 3.4    Due Execution, Validity, Enforceability.....................49

                                       i
<PAGE>

   Section 3.5    Properties, Priority of Liens...............................49
   Section 3.6    Judgments, Actions, Proceedings.............................50
   Section 3.7    No Default; Compliance With Laws............................50
   Section 3.8    Burdensome Documents........................................50
   Section 3.9    Financial Statements; Projections...........................51
   Section 3.10   Tax Returns.................................................51
   Section 3.11   Intangible Assets...........................................51
   Section 3.12   Regulation U................................................52
   Section 3.13   Name Changes, Mergers, Acquisitions; Location of
                    Collateral................................................52
   Section 3.14   Full Disclosure.............................................52
   Section 3.15   Licenses and Approvals......................................52
   Section 3.16   Labor Disputes; Collective Bargaining Agreements;
                    Employee Grievances.......................................53
   Section 3.17   Condition of Assets.........................................53
   Section 3.18   ERISA.......................................................53
   Section 3.19   Account Representations and Warranties......................54
   Section 3.20   Borrowing Base Certificates.................................55
   Section 3.21   Accounts Receivable Aging Reports; Key Item Reports.........55
   Section 3.22   Inventory Representations and Warranties....................55
   Section 3.23   Forfeiture Proceeding.......................................55
   Section 3.24   Americans with Disabilities Act.............................55
   Section 3.25   Security Documents..........................................56

ARTICLE 4.        CONDITIONS..................................................56

   Section 4.1    Conditions to Closing.......................................56
   Section 4.2    Conditions to Subsequent Loans and Issuance of L/Cs.........58

ARTICLE 5.        DELIVERY OF FINANCIAL REPORTS, DOCUMENTS AND OTHER
                    INFORMATION...............................................59

   Section 5.1    Annual Financial Statements.................................59
   Section 5.2    Semi-Annual Financial Statements; Quarterly Financial
                    Statements................................................59
   Section 5.3    Compliance Information......................................60
   Section 5.4    No Default Certificate......................................60
   Section 5.5    Rental Obligations; Capitalized Lease Obligations...........60
   Section 5.6    Accountants' Reports........................................61
   Section 5.7    Copies of Documents.........................................61
   Section 5.8    Notices of Defaults.........................................61
   Section 5.9    ERISA Notices...............................................61
   Section 5.10   Additional Information and Reports..........................62
   Section 5.11   Confidentiality of Information..............................63

ARTICLE 6.        AFFIRMATIVE COVENANTS.......................................64

   Section 6.1    Books and Records...........................................64
   Section 6.2    Inspections and Field Examinations..........................64
   Section 6.3    Maintenance and Repairs.....................................65
   Section 6.4    Continuance of Business.....................................65
   Section 6.5    Copies of Corporate Documents...............................65

                                       ii
<PAGE>

   Section 6.6    Perform Obligations.........................................65
   Section 6.7    Notice of Litigation........................................65
   Section 6.8    Insurance...................................................66
   Section 6.9    Financial Covenants.........................................66
   Section 6.10   Notice of Certain Events....................................68
   Section 6.11   Comply with ERISA...........................................68
   Section 6.12   Environmental Compliance....................................68
   Section 6.13   Management Letters..........................................68
   Section 6.14   Tax Refunds.................................................69
   Section 6.15   Additional Subsidiaries.....................................69

ARTICLE 7.        NEGATIVE COVENANTS..........................................69

   Section 7.1    Indebtedness................................................69
   Section 7.2    Liens.......................................................70
   Section 7.3    Guaranties..................................................71
   Section 7.4    Mergers; Acquisitions.......................................71
   Section 7.5    Redemptions; Distributions..................................71
   Section 7.6    Stock Issuance..............................................72
   Section 7.7    Changes in Business.........................................72
   Section 7.8    Prepayments.................................................72
   Section 7.9    Investments.................................................72
   Section 7.10   Fiscal Year.................................................74
   Section 7.11   ERISA Obligations...........................................74
   Section 7.12   Amendments of Documents.....................................74
   Section 7.13   Capital Expenditures........................................75
   Section 7.14   Capitalized Lease Obligations...............................75
   Section 7.15   Management Fees.............................................75
   Section 7.16   Transactions with Affiliates................................75
   Section 7.17   Activities Leading to Forfeiture Proceeding.................76
   Section 7.18   Rental Obligations..........................................76
   Section 7.19   Retail Stores...............................................76
   Section 7.20   License Agreements..........................................76

ARTICLE 8.        EVENTS OF DEFAULT...........................................76

   Section 8.1    Payments....................................................77
   Section 8.2    Certain Covenants...........................................77
   Section 8.3    Other Covenants.............................................77
   Section 8.4    Other Defaults..............................................77
   Section 8.5    Representations and Warranties..............................78
   Section 8.6    Bankruptcy..................................................78
   Section 8.7    Judgments...................................................79
   Section 8.8    ERISA.......................................................79
   Section 8.9    Ownership of Stock..........................................79
   Section 8.10   Management..................................................79
   Section 8.11   Liens.......................................................80
   Section 8.12   Amount of Obligations.......................................80
   Section 8.13   Forfeiture Proceedings......................................80

                                       iii
<PAGE>

   Section 8.14   Material Adverse Change.....................................80

ARTICLE 9.        AGENCY PROVISIONS...........................................80

   Section 9.1    Appointment, Powers and Immunities..........................80
   Section 9.2    Reliance....................................................81
   Section 9.3    Events of Default...........................................81
   Section 9.4    Rights as a Lender..........................................81
   Section 9.5    Indemnification.............................................82
   Section 9.6    Non-Reliance................................................82
   Section 9.7    Failure to Act..............................................83
   Section 9.8    Resignation or Removal......................................83
   Section 9.9    Sharing of Collateral and Payments..........................83
   Section 9.10   Additional Provisions as to the Collateral Monitoring
                    Agent.....................................................84

ARTICLE 10.       MISCELLANEOUS PROVISIONS....................................85

   Section 10.1   Fees and Expenses; Indemnity................................85
   Section 10.2   Taxes.......................................................87
   Section 10.3   Payments....................................................87
   Section 10.4   Survival of Agreements and Representations..................88
   Section 10.5   Lien on and Set-off of Deposits.............................88
   Section 10.6   Modifications, Consents and Waivers; Entire Agreement.......88
   Section 10.7   Remedies Cumulative.........................................89
   Section 10.8   Further Assurances..........................................89
   Section 10.9   Notices.....................................................89
   Section 10.10  Counterparts................................................91
   Section 10.11  Severability................................................91
   Section 10.12  Binding Effect; No Assignment or Delegation by Borrower.....92
   Section 10.13  Assignments and Participation by Lenders; Issuance of
                    L/Cs by Lender Affiliates.................................92
   Section 10.14  GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF
                    TRIAL BY JURY.............................................96
   Section 10.15  Limitation on Interest......................................97
   Section 10.16  Additional Agreements by Borrower and Loan Parties..........98
   Section 10.17  Release by Borrower and Loan Parties........................98

                                       iv
<PAGE>

                                    EXHIBITS

A.       Form of Note

B.       States of Incorporation and Qualification, and Capitalization and
         Ownership of Stock, of Borrower and Subsidiaries

C.       Consents, Waivers, Approvals; Violation of Agreements

D-1.     Form of Available to Sell Report ($)

D-2.     Form of Available to Sell Report (Units)

D-3.     Form of Inventory Analysis Report

D-4.     Form of Key Item Report

E.       Permitted Security Interests, Liens and Encumbrances

F.       Judgments, Actions, Proceedings

G.       Defaults; Compliance with Laws, Regulations, Agreements

H.       Burdensome Documents

I.       Patents, Trademarks, Trade Names, Service Marks, Copyrights, and
         Trade-Style Names

J.       Name Changes, Mergers, Acquisitions; Location of Collateral

K.       Labor Disputes; Collective Bargaining Agreements; Employee Grievances

L.       Pension Plans

M.       Permitted Indebtedness and Guaranties

N.       Form of Assignment and Acceptance

O.       Accounts and Inventory

P.       Borrowing Base Certificate

Q.       Form of Continuing Agreement for Issuance of Steamship Guaranties and
         Airway Releases

SCHEDULES

    1.1  Licenses

    7.9  Investments

                                       v
<PAGE>

                    SIXTH AMENDED AND RESTATED LOAN AGREEMENT

    THIS AGREEMENT, made as of the 29 day of April 2002, by and among:

    G-III LEATHER FASHIONS, INC., a New York corporation (the "Borrower");

    The lenders that have executed the signature pages hereto (individually, a
"Lender" and collectively, the "Lenders"); and

    FLEET NATIONAL BANK, a national banking association, individually ("Fleet")
and as Agent for the Lenders (in such capacity, together with its successors in
such capacity, the "Agent"), as Collateral Monitoring Agent for the Lenders (in
such capacity, together with its successors in such capacity, the "Collateral
Monitoring Agent"), and as Issuing Bank (in such capacity, together with its
successors in such capacity, the "Issuing Bank"),

                              W I T N E S S E T H:

    WHEREAS,

    (A) The Borrower, the Agent, the Collateral Monitoring Agent, the Issuing
Bank and the banks signatory thereto entered into the Fifth Amended and Restated
Loan Agreement dated as of May 31, 1999, which was amended pursuant to : (i)
Amendment No. 1 to the Fifth Amended and Restated Loan Agreement dated as of
December 20, 1999, (ii) Amendment No. 2 to the Fifth Amended and Restated Loan
Agreement dated as of March 1, 2000, (iii) Amendment No. 3 to the Fifth Amended
and Restated Loan Agreement dated as of April 7, 2000, (iv) Amendment No. 4 to
the Fifth Amended and Restated Loan Agreement dated as of May 24, 2000, (v)
Amendment No. 5 and Assignment to the Fifth Amended and Restated Loan Agreement
dated as of July 14, 2000, (vi) Amendment No. 6 to the Fifth Amended and
Restated Loan Agreement dated as of January 10, 2001, (vii) Amendment No. 7 to
the Fifth Amended and Restated Loan Agreement dated as of February 12, 2001,
(viii) Amendment No. 8 and Assignment to the Fifth Amended and Restated Loan
Agreement dated as of March 13, 2001, (ix) Amendment No. 9 to the Fifth Amended
and Restated Loan Agreement dated as of May 31, 2001, (x) Amendment No. 10 and
Assignment to the Fifth Amended and Restated Loan Agreement dated as of July 27,
2001, (xi) Amendment No. 11 and Waiver to the Fifth Amended and Restated Loan
Agreement dated as of November 27, 2001, (xii) Amendment No. 12 to the Fifth
Amended and Restated Loan Agreement dated as of November 30, 2001 and (xiii)
Amendment No. 13 and Waiver to the Fifth Amended and Restated Loan Agreement
dated as of March 18, 2002 (as so amended, the "Original Loan Agreement");

    (B) The Borrower has requested that the Lenders extend the credit facility
provided for under the Original Loan Agreement and that the Original Loan
Agreement be amended in certain respects;

    (C) The Lenders have agreed to extend the credit facility and amend the
Original Loan Agreement, subject to the agreements of the parties, all as
hereinafter set forth; and

<PAGE>

    (D) In order to effect the amendment of the Original Loan Agreement, the
Lenders, the Agent, the Collateral Monitoring Agent, the Issuing Bank and the
Borrower desire to amend and restate the Original Loan Agreement in its entirety
as set forth herein;

    NOW, THEREFORE, the parties hereto agree to amend and restate the Original
Loan Agreement (including al Exhibits and Schedules thereto) in its entirety as
follows:

    ARTICLE 1. DEFINITIONS.

         Section 1.1 Definitions.

    As used in this Agreement, the following terms shall have the following
meanings:

         "Acceptance(s)" - time drafts which (a) are drawn by the Borrower's
vendors or suppliers under L/Cs which permit such drawings and are presented to
the Agent in accordance with the terms of the relevant Time Trade L/Cs on or
before the respective expiration dates of such Time Trade L/Cs, (b) are accepted
by a Lender in accordance with the terms hereof and (c) mature no later than the
earlier of (i) 60 days after the date of issuance thereof and (ii) the
Commitment Termination Date.

         "Account" - accounts (including but not limited to accounts
receivable), revenues, income, fees and receipts whether now or hereafter
existing or now owned or hereafter acquired and wherever located, of every kind
and description, tangible or intangible, and all rights to receive the same,
whether in the form of contract rights or other rights, and the proceeds of such
rights, whether now owned or hereafter coming into existence, and all chattel
paper, instruments, general intangibles, credits, claims, demands and any other
obligations for the payment of money.

         "Account Debtor" or "account debtor" - at any time, any Person who is
obligated to the Borrower under or on account of an Account.

         "Accounts Receivable Aging Report" - a summary account receivable trial
balance showing accounts receivable of the Borrower as of the last day of the
preceding week (in the case of a weekly report) or month (in the case of a
monthly report) outstanding from the due date set forth in the invoice in the
following categories: future; current; 1-30 days; 31-60 days; 61-90 days; and 90
days and over.

         "Additional Costs" - as defined in Section 2.17(b).

         "Administrative Fee" - as defined in Section 2.6(i).

         "Advisory Fee" - as defined in Section 2.6(a).

         "Affiliate" - as to any Person, any other Person that directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control

                                       2
<PAGE>

with") shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event: (i) any Person that owns directly or
indirectly securities having 5% or more (with respect to any corporation other
than the Parent) or 15% or more (with respect to the Parent) of the ordinary
voting power for the election of directors or other governing body of a
corporation or 5% or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person; and (ii) each shareholder,
director and officer of the Borrower shall be deemed to be an Affiliate of the
Borrower.

         "Agreement" - this Sixth Amended and Restated Loan Agreement as it may
be supplemented, amended or modified from time to time.

         "Agent" - as defined in the heading hereof.

         "Airway Release(s)" - as defined in Section 2.1(e).

         "Applicable Lending Office" - with respect to each Lender, the Lending
Office designated below its name on the signature pages hereto or in the
Assignment and Acceptance pursuant to which it became a Lender hereunder, or
such other office of such Lender or of an affiliate of such Lender as such
Lender may from time to time specify to the Agent and the Borrower as the office
at which its Loans of such type are to be made and maintained.

         "Application(s)" - as defined in Section 2.2(a).

         "Asset Securitization" - with respect to any Person, a transaction
involving the sale or transfer of receivables by such Person to an SPV;
provided, however, that the Borrower may (A) establish and maintain a reserve
account containing Cash or Securities as a credit enhancement in respect of any
such sale, or (B) purchase or retain a subordinated interest in such receivables
being sold.

         "Asset Securitization Recourse Liability" - with respect to any Person,
the maximum amount of such Person's liability (whether matured or contingent)
under any agreement, note or other instrument in connection with any one or more
Asset Securitizations in which such Person has agreed to repurchase receivables
or other assets, to provide direct or indirect credit support (whether through
cash payments, the establishment of reserve accounts containing Cash or
Securities, an agreement to reimburse a provider of a letter of credit for any
draws thereunder, the purchase or retention of a subordinated interest in such
receivables or other assets, or other similar arrangements), or in which such
Person may be otherwise liable for all or a portion of any SPV's obligations
under Securities issued in connection with such Asset Securitizations.

         "Assignment and Acceptance" - an agreement in the form of Exhibit N.

         "Attributable Indebtedness" - on any date, (a) in respect of any
capital lease of any Person, the capitalized amount thereof that would appear on
a balance sheet of such Person

                                       3
<PAGE>

prepared as of such date in accordance with generally accepted accounting
principles, and (b) in respect of any Synthetic Lease Obligation, the
capitalized amount of the remaining lease payments under the relevant lease that
would appear on a balance sheet of such Person prepared as of such date in
accordance with generally accepted accounting principles if such lease were
accounted for as a capital lease.

         "Availability" - as of the date of any determination thereof, the
Borrowing Base less Outstanding Obligations; provided, however, that at no time
shall the sum of Availability and Outstanding Obligations exceed the Commitment;
and, provided, further, that in determining Availability in the issuance or
advance, as the case may be, of any Standby L/Cs, Acceptances, Loans, Steamship
Guaranties or Airway Releases, the sum of Availability and Direct Debt shall not
exceed the Direct Debt Sublimit.

         "Balihides" - P.T. Balihides, an Indonesian limited liability company.

         "Bank Swap Contract" - any Swap Contract permitted under this Agreement
whether now existing or hereafter entered into by and between the Borrower and
any Hedge Bank; provided, that each Bank Swap Contract shall (i) have a
termination date of no later than August 31, 2005 and (ii) shall be cash
collateralized on and after June 1, 2005.

         "Borrower" - as defined in the preamble hereof.

         "Borrowing Base" - as of the date of any determination thereof, an
amount up to, but not in excess of, the lesser of (i) the Borrowing Base Maximum
as of such date and (ii) the sum of:

         (A) Eighty (80%) percent of all Eligible Accounts; plus

         (B) Fifty (50%) percent of all Eligible Inventory; plus

         (C) the applicable Overadvance.

The Borrowing Base shall be subject to reduction at any time and from time to
time because of the reduction by the Collateral Monitoring Agent, in the
exercise of its discretion, of (x) the advance rates expressed as a percentage
in clauses (A) and (B) of this definition and (y) the percentage of Eligible
Accounts and/or Eligible Inventory included therein by the application of a
chargeback reserve, a reserve for credit balances in the ineligible column, a
"contra" reserve and such other appropriate reserves as the Collateral
Monitoring Agent shall establish in accordance with Section 9.10.

         "Borrowing Base Certificate" - a certificate executed by the chief
executive officer, president, chief operating officer or chief financial officer
of the Borrower substantially in the form annexed hereto as Exhibit P containing
the information set forth therein.

         "Borrowing Base Maximum" - as of any date during any period set forth
below, the amount set forth opposite such period:

                                       4
<PAGE>

                       Period                            Borrowing Base Maximum
                       ------                            ----------------------
    Closing Date to and including May 31, 2002                $65,000,000
    June 1, 2002 to and including September 30, 2002          $85,000,000
    October 1, 2002 to and including November 30, 2002        $70,000,000
    December 1, 2002 to and including the                     $45,000,000
    Commitment Termination Date

and the respective periods and amounts for each of Fiscal Year 2004, Fiscal Year
2005 and the Stub Period shall be as preliminarily determined by the Lenders and
the Borrower based on the Projections and the business plan (in each case
delivered pursuant to Section 5.10(e)) for Fiscal Year 2004, Fiscal Year 2005
and Fiscal Year 2006, respectively, and the unaudited financial statements
(delivered pursuant to Section 5.10(e)) for Fiscal Year 2003, Fiscal Year 2004
and Fiscal Year 2005, respectively, but in no event shall the periods be of
different durations or the amounts be less than the amounts for the periods
corresponding to the periods set forth above (based on the assumptions that (i)
the Closing Date occurred on May 1 and (ii) the last time period set forth above
runs from December 1 to April 30 in each Fiscal Year) unless the Lenders
determine (in their reasonable discretion) that such periods and amounts warrant
adjustment based upon such Projections, business plan or unaudited financial
statements and such preliminary determination shall become effective after
receipt and satisfactory review by the Lenders of the Financial Statements for
Fiscal Year 2004, Fiscal Year 2005 and Fiscal Year 2006, respectively.

         "Borrowing Notice" - as defined in Section 2.3.

         "Business Day" - any day other than Saturday, Sunday or any other day
on which commercial banks in New York City are authorized or required to close
under the laws of the State of New York.

         "Capital Expenditures" - for any period, the aggregate amount of all
payments made during such period by any Person directly or indirectly for the
purpose of acquiring, constructing or maintaining fixed assets, real property or
equipment that, in accordance with generally accepted accounting principles,
would be added as a debit to the fixed asset account of such Person, including,
without limitation, all amounts paid or payable during such period with respect
to interest that are required to be capitalized in accordance with generally
accepted accounting principles.

         "Capital Stock" - as to any Person, all shares, interests, partnership
interests, limited liability company interests, participations, rights in or
other equivalents (however

                                       5
<PAGE>

designated) of such Person's equity (however designated) and any rights,
warrants or options exchangeable for or convertible into such shares, interests,
participations, rights or other equity.

         "Capitalized Lease" - any lease, the obligations to pay rent or other
amounts under which constitute Capitalized Lease Obligations.

         "Capitalized Lease Obligations" - as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under generally accepted accounting principles and, for
purposes hereof, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with generally accepted accounting principles.

         "Cash" - as to any Person, such Person's cash and cash equivalents, as
defined in accordance with generally accepted accounting principles consistently
applied.

         "Closing Date" - the date of the consummation of the transactions
contemplated hereby.

         "Code" - the Internal Revenue Code of 1986, as it may be amended from
time to time, and the regulations thereunder.

         "Collateral" - as defined in the respective Security Documents.

         "Collateral Fees" - as defined in Section 2.6(g).

         "Collateral Monitoring Agent" - as defined in the preamble hereof.

         "Collection Account" - an account owned and maintained by the
Collateral Monitoring Agent for the ratable benefit of the Lenders.

         "Commitment" - Eighty-five million Dollars ($85,000,000) in the
aggregate, allocated among each of the Lenders, respectively in the amount set
forth opposite such Lender's name on the signature pages hereof under the
caption "Commitment," as such amount is reduced in accordance with the terms
hereof.

         "Commitment Termination Date" - May 31, 2005.

         "Compliance Certificate" - a certificate executed by the chief
executive officer, president, chief operating officer or chief financial officer
of the Borrower to the effect that: (i) as of the effective date of the
certificate, no Default or Event of Default under this Agreement exists or would
exist after giving effect to the action intended to be taken by the Borrower as
described in such certificate, including, without limitation, that the covenants
set forth in Section 6.9 would not be breached after giving effect to such
action, together with a calculation in reasonable detail, and in form and
substance satisfactory to the Agent and the Lenders, of such compliance, and
(ii) the representations and warranties contained in Article 3 are true and
correct

                                       6
<PAGE>

with the same effect as though such representations and warranties were made on
the date of such certificate, except for changes in the ordinary course of
business none of which, either singly or in the aggregate, have had a material
adverse effect on the business, operations or financial conditions of the
Borrower.

         "Continuing Agreement for Issuance of Steamship Guaranties and Airway
Releases" - agreement pursuant to which Steamship Guaranties and Airway Releases
are issued in the form attached hereto as Exhibit Q.

         "Corporate Guarantors" - collectively, Parent, Siena, Holdings, Retail,
Sources, License Company and G-III Brands and each other Subsidiary of Parent or
the Borrower that executes and delivers the Guarantor Security Agreement.

         "Credit Period" - the period commencing on the date hereof and ending
on the Commitment Termination Date.

         "Debt Instrument" - as defined in Section 8.4(a).

         "Default" - an event which with notice or lapse of time, or both, would
constitute an Event of Default.

         "Defined Contribution Plan" - a plan which is not covered by Title IV
of ERISA or subject to the minimum funding standards of Section 412 of the Code
and which provides for an individual account for each participant and for
benefits based solely on the amount contributed to the participant's account,
and any income, expenses, gains and losses, and any forfeitures of accounts of
other participants which may be allocated to such participant's account.

         "Direct Debt" - the aggregate principal and/or face (or stated) amount,
as applicable, of all outstanding Standby L/Cs, Acceptances, Loans, Steamship
Guaranties and Airway Releases.

         "Direct Debt Sublimit" - for each period set forth below, the amount
set forth opposite such period:

                                       7
<PAGE>

                       Period                              Direct Debt Sublimit
                       ------                              --------------------
   Closing Date to and including May 31, 2002                  $40,000,000
   June 1, 2002 to and including June 30, 2002                 $55,000,000
   July 1, 2002 to and including August 25, 2002               $70,000,000
   August 26, 2002 to and including September 27, 2002         $72,000,000
   September 28, 2002 to and including November 25, 2002       $62,000,000
   November 26, 2002 to and including December 16, 2002        $40,000,000
   December 17, 2002 to and including the                      $30,000,000
   Commitment Termination Date

and the respective periods and amounts for each of Fiscal Year 2004, Fiscal Year
2005 and the Stub Period shall be as preliminarily determined by the Lenders and
the Borrower based on the Projections and the business plan (in each case
delivered pursuant to Section 5.10(e)) for Fiscal Year 2004, Fiscal Year 2005
and Fiscal Year 2006, respectively, and the unaudited financial statements
(delivered pursuant to Section 5.10(e)) for Fiscal Year 2003, Fiscal Year 2004
and Fiscal Year 2005, respectively, but in no event shall the periods be of
different durations or the amounts be less than the amounts for the periods
corresponding to the periods set forth above (based on the assumptions that (i)
the Closing Date occurred on May 1 and (ii) the last time period set forth above
runs from December 17 to April 30 in each Fiscal Year) unless the Lenders
determine (in their reasonable discretion) that such periods and amounts warrant
adjustment based upon such Projections, business plan or unaudited financial
statements and such preliminary determination shall become effective after
receipt and satisfactory review by the Lenders of the Financial Statements for
Fiscal Year 2004, Fiscal Year 2005 and Fiscal Year 2006, respectively.

         "Dollar(s)" and "$" - lawful money of the United States of America.

         "Drawing Fee" - as defined in Section 2.6(c).

         "EBITDA" - for any period, net income of the Parent and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with generally accepted accounting principles, plus the sum of, without
duplication, (a) interest expense for such period, (b) provision for income
taxes accrued for such period, (c) depreciation, amortization and other non-

                                       8
<PAGE>

cash charges of the Parent and its Subsidiaries and (d) for any period occurring
on or after the decision by the board of directors or management of the Parent
to terminate the business of Balihides, an amount of up to $1,500,000
(representing charges taken in connection with such decision to terminate), each
to the extent deducted in determining such net income for such period, without
giving effect to extraordinary gains or losses from the sales, exchanges and
other dispositions of assets (other than from sales of Inventory in the ordinary
course of business).

         "Eligible Account" - an Account which is created by the Borrower in the
ordinary course of business, is genuine and in all respects what it purports to
be, and which meets the following requirements:

         (a) as of the date of computation of Eligible Accounts, no such Account
shall have been outstanding for more than the lesser of (i) 60 days from the due
date set forth in the invoice or (ii) 180 days from the date of the invoice
relating thereto;

         (b) the Account shall have arisen from the bona fide sale of goods or
provision of services, which goods or services have been provided to an Account
Debtor on an absolute sale basis, are not shipped or delivered or provided on a
consignment, approval, bill and hold, or sale-or-return basis, are not subject
to any repurchase or return agreement or arrangement (other than customary
business agreements for the return of defective or incorrectly shipped
merchandise) and have not been returned or rejected nor has the Account Debtor
refused to accept or revoked acceptance of such goods or services; and such sale
of goods or provision of services has been completed in accordance with the
terms and provisions contained in any documents related thereto;

         (c) the Account is evidenced by one, if any, executed original
agreement, contract, sales confirmation or document and is not evidenced by
chattel paper or an instrument of any kind, or, if the Account is evidenced by
chattel paper or an instrument, the Borrower has delivered and properly endorsed
such chattel paper or instrument to the Agent;

         (d) to the best of the Borrower's knowledge, no event described in
Section 8.6 with respect to the Account Debtor has occurred, the Agent and the
Lenders, in the exercise of their reasonable judgment, deem the Account Debtor
to be creditworthy, and not more than 50% of the aggregate unpaid amount of the
Accounts due from the Account Debtor and Affiliates of such Account Debtor shall
have been outstanding for more than 60 days from the due date set forth in the
invoice relating thereto;

         (e) the Account Debtor is located within the United States, Canada or
Mexico;

         (f) if the Account Debtor is located in Mexico, it is WalMart or Price
Club and the Account in Mexico of such Account Debtor is in an amount, in the
aggregate, not in excess of $1,000,000;

         (g) if the Account Debtor is Wilson's Leather, the Account is in an
amount, in the aggregate, not in excess of $4,000,000;

                                       9
<PAGE>

         (h) the Account is a valid, legally enforceable obligation of the
Account Debtor;

         (i) the Account does not arise out of transactions with an Affiliate
other than Wilson's Leather (subject to subsection (g) of this definition);

         (j) the Account does not arise out of the provision of trial services
or delivery of samples or trial merchandise to customers or Account Debtors;

         (k) the Account does not arise out of the sale of goods or provision of
services to a customer or Account Debtor for or on account of credits arising
out of prior sales or services to such customer or Account Debtor;

         (l) the Borrower does not have any knowledge of any disputes in excess
of $10,000 with respect to the Account nor has anything come to the attention of
the Borrower which would lead the Borrower to believe that more than $10,000 of
any such Account is in dispute and the disputed amount is excluded from the
computation of Eligible Accounts;

         (m) the amount of the face value of the Account is not subject to any
set-offs, counterclaims, retainages or holdbacks of any type other than those
set forth on the Borrowing Base Certificate which are acceptable to the Agent
and the Lenders and are excluded from the computation of Eligible Accounts, is
actually and absolutely owing to the Borrower and is not contingent for any
reason, and, except for discounts, credits or allowances allowed by the Borrower
in the ordinary course of its business for prompt payment, all of which
discounts, credits or allowances are reflected in the calculation of and have
been deducted from the face value of the invoice related thereto and in the
calculation of the Borrowing Base;

         (n) the Account is not now, and the goods or services giving rise to
the Account were not at the time of the sale or provision thereof, subject to
any Lien, claim, encumbrance or security interest except those of the Agent for
the benefit of the Lenders and those expressly permitted under this Agreement;
and

         (o) neither the United States of America, nor any state, any
subdivision, department, or agency of either thereof is the Account Debtor, but
only with respect to more than an aggregate of $500,000 in face amount of
Accounts.

Notwithstanding the foregoing, the Collateral Monitoring Agent and the Lenders
shall have the right, in the exercise of their reasonable discretion, to limit
the amount of Accounts from any Account Debtor or Affiliate of any Account
Debtor which shall be deemed to be "Eligible Accounts" hereunder.

         "Eligible Assignee" - (i) a Lender; (ii) an Affiliate of a Lender; and
(iii) subject to the prior approval of the Agent and, so long as no Event of
Default shall have occurred and be continuing, the Borrower, such approval by
the Agent or the Borrower not to be unreasonably withheld or delayed, (A) a
commercial bank organized under the laws of the United States of America, or any
State thereof, and having total assets in excess of $500,000,000; (B) a savings

                                       10
<PAGE>

association or savings bank organized under the laws of the United States of
America, or any State thereof, and having total assets in excess of
$500,000,000; (C) a commercial bank organized under the laws of any other
country that is a member of the Organization for Economic Co-operation and
Development ("OECD") or has concluded special lending arrangements with the
International Monetary Fund associated with its General Arrangements to Borrow
or of the Cayman Islands, or a political subdivision of any such country, and
having total assets in excess of $500,000,000, so long as such bank is acting
through a branch or agency located in the United States of America; (D) the
central bank of any country that is a member of the OECD; and (E) a finance
company, insurance company or other financial institution or fund (whether a
corporation, partnership, trust or other entity) that is engaged in making,
purchasing or otherwise investing in commercial loans (of a size similar to the
Loans) in the ordinary course of its business and having total assets in excess
of $500,000,000; provided, however, that neither the Borrower nor any Affiliate
of the Borrower shall qualify as an Eligible Assignee under this definition.

         "Eligible Inventory" - Inventory which: (i) constitutes finished goods
of the Borrower or Retail; (ii) is not slow moving, obsolete or unsaleable;
(iii) is currently useable or saleable in the ordinary course of the Borrower's
or Retail's business; (iv) is valued in accordance with generally accepted
accounting principles applied consistently with past practices of the Borrower
and Retail; (v) is located on the premises listed on the exhibits attached to
this Agreement or other locations permitted under the Borrower Security
Agreement or any security agreement referred to in Section 2.13, or is Inventory
in transit for sale in the ordinary course of business; (vi) is not subject to
any Lien or security interest whatsoever, except for the Liens and security
interests expressly permitted under the Borrower Security Agreement or any
security agreement referred in Section 2.13, and is not on consignment; (vii)
does not include raw materials or work-in progress; (viii) is not now stored or
shall not at any time hereafter be stored with a bailee, warehouseman, or
similar party unless pursuant to a bailment or storage agreement to which the
Agent is a party; (ix) does not include Inventory styles (A) on which the
Borrower has taken a lower of cost or market markdown; or (B) of which the
Borrower has more than a one year supply on hand; (x) includes Inventory subject
to a license agreement which was assigned to Agent on behalf of the Lenders; and
(xii) shall include finished goods Inventory consigned to the Agent under the
terms of the L/C used to acquire such Inventory; provided, however, that the
value of any such consigned Inventory shall be subject to a 13% reduction as a
reserve for duty and freight.

         "Employee Benefit Plan" - any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of the Borrower
or any of its ERISA Affiliates or (b) has at any time within the preceding six
(6) years been maintained for employees of any Loan Party or any current or
former ERISA Affiliate.

         "Environmental Laws and Regulations" - all environmental, health and
safety laws, regulations, resolutions, and ordinances applicable to the Borrower
or any other Loan Party, or any of their respective assets or properties,
including, without limitation: (i) all regulations, resolutions, ordinances,
decrees, and other similar documents and instruments of all courts and
governmental authorities, bureaus and agencies, domestic and foreign, whether
issued

                                       11
<PAGE>

by environmental regulatory agencies or otherwise, and (ii) all laws,
regulations, resolutions, ordinances and decrees relating to Environmental
Matters.

         "Environmental Liability" - any liability under any applicable law for
any release of a hazardous substance caused by the seeping, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of hazardous wastes or other chemical substances,
pollutants or contaminants into the environment, and any liability for the costs
of any clean-up or other remedial action including, without limitation, costs
arising out of security fencing, alternative water supplies, temporary
evacuation and housing and other emergency assistance undertaken by any
environmental regulatory body having jurisdiction over the Borrower or any other
Loan Party to prevent or minimize any actual or threatened release by the
Borrower or any other Loan Party of any hazardous wastes or other chemical
substances, pollutants and contaminants into the environment that would endanger
the public health or the environment.

         "Environmental Matter(s)" - a release of any toxic or hazardous waste
or other chemical substance, pollutant or contaminant into the environment or
the generation, treatment, storage or disposal of any toxic or hazardous wastes
or other chemical substances.

         "Environmental Proceeding" - any judgment, action, proceeding or
investigation pending before any court or governmental authority, bureau or
agency, including, without limitation, any environmental regulatory body, with
respect to or threatened against or affecting the Borrower or any other Loan
Party or relating to the assets or liabilities of any of them, including,
without limitation, in respect of any "facility" owned, leased or operated by
any of them under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or under any state, local or municipal
statute, ordinance or regulation in respect thereof, in connection with any
release of any toxic or hazardous waste or other chemical substance, pollutant
or contaminant into the environment, or with the generation, storage or disposal
of any toxic or hazardous wastes or other chemical substances.

         "ERISA" - the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time, and the regulations promulgated thereunder.

         "ERISA Affiliate" - as applied to any Loan Party, any corporation,
person or trade or business which is a member of a group which is under common
control with any Loan Party, who together with any Loan Party, is treated as a
single employer within the meaning of Section 414(b) - (o) of the Code and, if
applicable, Section 4001(a)(14) and (b) of ERISA.

         "Eurodollar Business Day" - Business Day on which dealings in Dollar
deposits are carried out in the London interbank market.

         "Eurodollar Loans" - Loans that bear interest at a rate based upon the
LIBOR Base Rate.

         "Event(s) of Default" - as defined in Article 8.

                                       12
<PAGE>

         "Examination Fees" - as defined in Section 2.6(h).

         "Existing Acceptances" - the aggregate amount of Acceptances
outstanding on the Closing Date.

         "Existing Obligations" - collectively, the Existing Loan and L/C
Obligations and all other indebtedness, liabilities and obligations of the
Borrower to the Lenders under the Original Loan Agreement.

         "Existing Loans" - the aggregate amount of Loans made by the Lenders
and outstanding on the Closing Date.

         "Existing Loan and L/C Obligations" - collectively, the Existing Loans
and the obligations of the Borrower and certain of its Affiliates in respect of
Existing Standby L/Cs, Existing Trade L/Cs, Existing Steamship Guaranties and
Airway Releases and Existing Acceptances.

         "Existing Standby L/Cs" - the aggregate face or stated maximum drawable
amount (and to the maximum amount when a range of amounts is specified) of
Standby L/Cs issued by the Agent outstanding on the Closing Date.

         "Existing Steamship Guaranties and Airway Releases" - the aggregate
face or stated amount of Steamship Guaranties and Airway Releases issued by the
Agent and outstanding on the Closing Date.

         "Existing Trade L/Cs" - the aggregate face or stated maximum drawable
amount (and to the maximum amount when a range of amounts is specified) of Trade
L/Cs issued by the Agent outstanding on the Closing Date.

         "Federal Funds Rate" - for any day, an interest rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published for such day (or, if such day is not a Business Day, for the
immediately preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations at approximately 10:00 a.m. (New York time) on such
day on such transactions received by the Agent from three Federal funds brokers
of recognized standing selected by the Agent in its sole discretion.

         "Fee(s)" - as defined in Section 2.6(j).

         "Financial Statements" - the audited consolidated balance sheet of the
Parent and the Subsidiaries (including the Borrower) as at January 31, 2002,
together with the related consolidated statement of income and retained earnings
and statement of cash flow for the fiscal year then ended.

                                       13
<PAGE>

         "Fiscal Year" - with respect to the Borrower, the twelve-month period
ending on January 31 of each year (so that, by way of example, Fiscal Year 2003
shall be the period commencing on February 1, 2002 and ending on January 31,
2003).

         "Fixed Charge Coverage Ratio" - at any date of determination, the ratio
of (i) EBITDA of the Parent and its Subsidiaries (including the Borrower) on a
consolidated basis in accordance with generally accepted accounting principles
to (ii) Fixed Charges, for the four fiscal quarters ending on such date or, if
such date is not the last day of a fiscal quarter, for the immediately preceding
four fiscal quarter period.

         "Fixed Charges" - for any period, the sum of, without duplication, (i)
Capital Expenditures made during such period by the Parent and its Subsidiaries
(including the Borrower), (ii) cash income taxes paid during such period by the
Parent and its Subsidiaries (including the Borrower), (iii) all interest and all
amortization of Indebtedness, amortized discount and expense on all Indebtedness
for borrowed money of the Parent and its Subsidiaries (including the Borrower)
for such period, (iv) the portion of any rents payable under Capital Leases
allocable to interest expense by the Parent and its Subsidiaries (including the
Borrower) in accordance with generally accepted accounting principles and (v)
the aggregate amount of cash dividends paid by the Parent in respect of, and
purchases by the Parent of, its capital stock during such period.

         "Fleet" - as defined in the preamble hereof.

         "Forfeiture Proceeding" - any action, proceeding or investigation
affecting the Borrower, the Parent or any of its Subsidiaries or Affiliates
before any court, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or the receipt of notice by any such party
that any of them is a suspect in or a target of any governmental inquiry or
investigation, which may result in an indictment of any of them or the seizure
or forfeiture of any of their property.

         "G-III Brands" - G-III Brands, Ltd., a Delaware corporation.

         "Global" - Global International Trading Company, a Korean corporation.

         "Governmental Acts" - as defined in Section 2.18(d).

         "Granting Bank" - as defined in Section 10.13(i).

         "Guarantee Agreement" - the Amended and Restated Guarantee Agreement
dated as of the Closing Date, in form and substance satisfactory to the Agent,
among the Guarantors, the Borrower and the Agent for the benefit of the Lenders,
the Collateral Monitoring Agent and the Issuing Bank, as amended, restated,
supplemented or otherwise modified from time to time.

         "Guarantors" - collectively, the Corporate Guarantors, Hong Kong,
Balihides, Wee Beez and Kostroma and each other Person that executes and
delivers the Guarantee Agreement.

                                       14
<PAGE>

         "Hanil Bank" - P.T. Hanil Tamara Bank.

         "Hedge Bank" - any Lender in its capacity as a party to a Bank Swap
Contract.

         "Holdings" - Indawa Holding Corp., a Delaware corporation and a
wholly-owned Subsidiary of the Parent.

         "Hong Kong" - G-III Hong Kong Ltd., a Hong Kong corporation.

         "Indebtedness" - with respect to any Person, all: (i) liabilities or
obligations, direct and contingent, which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person at the date as of
which Indebtedness is to be determined, including, without limitation,
contingent liabilities that in accordance with such principles, would be set
forth in a specific Dollar amount on the liability side of such balance sheet;
(ii) liabilities or obligations of others for which such Person is directly or
indirectly liable, by way of guaranty (whether by direct guaranty, suretyship,
discount, endorsement, take-or-pay agreement, agreement to purchase or advance
or keep in funds or other agreement having the effect of a guaranty) or
otherwise; (iii) liabilities or obligations secured by Liens on any assets of
such Person, whether or not such liabilities or obligations shall have been
assumed by it; (iv) liabilities or obligations of such Person, direct or
contingent, with respect to letters of credit issued for the account of such
Person and bankers acceptances created for such Person; (v) Asset Securitization
Recourse Liabilities to the extent, but only to the extent that such obligations
have matured; (vi) Capital Lease Obligations and Synthetic Lease Obligations of
such Person (the amount of any Capital Lease Obligation or Synthetic Lease
Obligation as of any date shall be deemed to be the amount of Attributable
Indebtedness in respect thereof as of such date); and (vii) liabilities or
obligations of such Person in respect of Bank Swap Contracts.

         "Interest Period" - with respect to any Eurodollar Loan, each period
commencing on the date such Loan is made or converted from a Prime Rate Loan or
Loans, or with respect to Eurodollar Loans, the last day of the next preceding
Interest Period with respect to such Eurodollar Loan, and ending on the same day
in the first, second or third calendar month thereafter, as the Borrower may
select as provided in Section 2.3, except that each such Interest Period that
commences on the last Eurodollar Business Day of a calendar month (or on any day
for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Eurodollar Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i) each
Interest Period that would otherwise end on a day that is not a Business Day
shall end on the next succeeding Business Day (or, in the case of an Interest
Period for Eurodollar Loans, if such next succeeding Eurodollar Business Day
falls in the next succeeding calendar month, on the next preceding Eurodollar
Business Day); (ii) each borrowing of Eurodollar Loans from the Lenders and each
conversion of Prime Rate Loans into Eurodollar Loans shall be in an amount not
less than $1,550,000 in the aggregate; (iii) any Interest Period for any type of
Loan shall end no later than the Commitment Termination Date; and (iv)
notwithstanding clause (iii) above, no Interest Period shall have a duration of
less than one month or greater than three months. In the event that the Borrower
fails to select the

                                       15
<PAGE>

duration of any Interest Period for any Loan within the time period and
otherwise as provided in Section 2.3, such Loans will be automatically converted
into a Prime Rate Loan on the last day of the preceding Interest Period for such
Loan.

         "Inventory" - inventory of any of the Loan Parties, including finished
products, goods in transit, returns and supplies, licenses as listed on Schedule
1.1 which may be amended from time to time, packaging materials and all other
items which contribute to the promotion or sale thereof and spare parts (until
affixed to the machinery or equipment to which they relate).

         "Investment" - by any Person:

         (a) the amount paid or committed to be paid, or the value of property
or services contributed or committed to be contributed, by such Person for or in
connection with the acquisition by such Person of any stock, bonds, notes,
debentures, partnership or other ownership interests or other securities of any
other Person; and

         (b) the amount of any advance, loan or extension of credit by such
Person, to any other Person, or guaranty or other similar obligation of such
Person with respect to any Indebtedness of such other Person, and (without
duplication) any amount committed to be advanced, loaned, or extended by such
Person to any other Person, or any amount the payment of which is committed to
be assured by a guaranty or similar obligation by such Person for the benefit
of, such other Person.

         "IRS" - Internal Revenue Service or any successor agency performing the
same functions.

         "Issuing Bank" - as defined in the preamble hereof.

         "Key Item Report" - is defined in Section 5.10(c)(ii).

         "Kostroma" - Kostroma Ltd., a Hong Kong corporation.

         "Latest Balance Sheet" - as defined in Section 3.9(a).

         "L/C(s)" - Trade L/Cs and/or Standby L/Cs.

         "Leases" - leases and subleases (other than Capitalized Leases),
licenses for the use of real property, easements, grants, and other attachment
rights and similar instruments under which the Borrower has the right to use
real or personal property or rights of way.

         "Lender(s)" - as defined in the preamble hereof.

         "Lender's Commitment" - the amount set forth next to each Lender's name
on the signature pages hereto.

         "Lender's Share" - with respect to any Lender, such Lender's pro rata
share determined at any time as its Lender's Commitment as a percentage of the
Commitment.

                                       16
<PAGE>

         "LIBOR Base Rate" - with respect to any Eurodollar Loan, for any
Interest Period applicable thereto, the rate per annum as determined on the
basis of the offered rates for deposits in Dollars, for a period of time
comparable to such Interest Period for such Eurodollar Loan which appears on the
Telerate page 3750 as of 11:00 a.m. London time on the day that is two (2)
Eurodollar Business Days preceding the first day of such Interest Period for
such Eurodollar Loan; provided, however, if the rate described above does not
appear on the Telerate System on any applicable interest determination date, the
LIBOR Base Rate shall be the rate (rounded upwards, if necessary, to the nearest
one hundred-thousandth of a percentage point), determined on the basis of
offered rates for deposits in Dollars for a period of time comparable to the
Interest Period for such Eurodollar Loan which are offered by four major banks
in the London interbank market at approximately 11:00 a.m. London time, on the
day that is two (2) Eurodollar Business Days preceding the first day such
Interest Period for such Eurodollar Loan as selected by the Agent. The principal
London office of each of the four major London banks will be requested to
provide a quotation of its Dollar deposit offered rate. If at least two such
quotations are provided, the rate for that date will be the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested, the rate
for that date will be determined on the basis of the rates quoted for loans in
Dollars to leading European banks for a period of time comparable to such
Interest Period for such Eurodollar Loan offered by major banks in New York City
at approximately 11:00 a.m., New York City time, on the day that is two (2)
Eurodollar Business Days preceding the first day of such Eurodollar Loan. In the
event that the Agent is unable to obtain any such quotation as provided above,
it will be deemed that the LIBOR Base Rate pursuant to a Eurodollar Loan cannot
be determined.

         "LIBOR Rate" - for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the quotient of: (a) (x) the
LIBOR Base Rate for such Loan for such Interest Period; divided by (y) 1 minus
the Reserve Requirement for such Loan for such Interest Period.

         "License Company" - G-III License Company, LLC, a Delaware limited
liability company.

         "Lien" - any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing), any conditional sale or other title retention agreement, any
lease in the nature of any of the foregoing, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction.

         "Loan(s)" - as defined in Section 2.1(d).

         "Loan Documents" - (a) this Agreement, (b) the Notes, (c) the Guarantee
Agreement, (d) the Security Documents, (e) the L/Cs, (f) the Applications, (g)
the Acceptances, (h) the Continuing Agreements for Issuance of Steamship
Guaranties and Airway Releases and (i) the Bank Swap Contracts to which any Loan
Party is a party and all other agreements executed and delivered in connection
herewith or therewith, including all amendments, modifications and supplements
of or to all such agreements.

                                       17
<PAGE>

         "Loan Party(ies)" - individually (or collectively in the case of Loan
Parties), the Borrower, the Parent, any Subsidiary, any Guarantor, and any other
Person (other than the Lenders and the Agent) which now or hereafter executes
and delivers to any Lender or the Agent any Loan Document.

         "Lockbox" - as defined in Section 2.21(b).

         "Lockbox Agreement" - as defined in Section 2.21(b).

         "Majority Lenders" - Lenders having at least 66-2/3% of the aggregate
amount of Commitments whether or not Loans or other Obligations are
outstanding hereunder; provided, however, that the vote of 100% of the Lenders
shall at all times be required for all matters not specifically to be determined
by Majority Lenders hereunder, including, but not limited to, extension of the
term, increase in Commitments, change in interest rates, release of Collateral
and/or Guarantors, any change to the definition of Majority Lenders and the
determination pursuant to Section 9.10 that certain asset based lending
provisions set forth herein are no longer required.

         "Management Fees" - for any period, all fees, emoluments or similar
compensation paid or incurred by any Person (other than any such fees,
emoluments or similar compensation, including, without limitation, usual and
customary director's fees payable by the Parent to its directors, paid to or
incurred and payable to the Borrower, the Parent or any of the Subsidiaries) in
respect of services rendered in connection with the management or supervision of
the management of such Person, other than salaries, bonuses and other
compensation paid to any full time executive employee in respect of such full
time employment.

         "Monthly Dates" - the last Business Day of each calendar month.

         "Multiemployer Plan" - a "multiemployer plan" as defined in Section
4001(a)(3) or ERISA to which any Loan Party or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions or has made, or been obligated
to make, contributions within the preceding six (6) years.

         "Note(s)" - as defined in Section 2.4.

         "Obligations" - collectively, all of the Indebtedness, liabilities and
obligations of the Borrower to the Lenders, the Agent, the Collateral Monitoring
Agent and the Issuing Bank, whether now existing or hereafter arising, whether
or not currently contemplated, including, without limitation, liabilities and
obligations to repay Loans and Acceptances and pay Fees, liabilities and
obligations with respect to L/Cs, Steamship Guaranties and Airway Releases, and
all other Indebtedness, liabilities and obligations arising under the Loan
Documents.

         "Original Borrower Security Documents" - as defined in Section 2.13(a).

         "Original Guaranties" - as defined in Section 2.12.

                                       18
<PAGE>

         "Original Guarantor Security Documents" - as defined in Section
2.13(b).

         "Original Loan Agreement" - as defined in the recitals hereto.

         "Outstanding Obligations" - the aggregate principal and/or face (or
stated) amount, as applicable, of all outstanding Obligations; provided, that
for purposes of calculating Availability, the outstanding Obligations under Bank
Swap Contracts shall be calculated by including the following percentages of
such Obligations: (i) 20% of the face amount of foreign currency exchange Bank
Swap Contracts (other than foreign currency Bank Swap Contracts related to the
Indonesian Rupiah), (ii) 25% of the face amount of foreign currency exchange
Bank Swap Contracts related to the Indonesian Rupiah and (iii) 2% of the face
amount of all other Bank Swap Contracts.

         "Outstanding L/Cs" - the aggregate face or stated maximum drawing
amount (and to the maximum amount when a range of amounts is specified) of all
outstanding L/Cs.

         "Overadvance" - for each period set forth below, the amount set forth
opposite such period:

                       Period                                  Overadvance
                       ------                                  -----------
   Closing Date to and including May 31, 2002                  $25,000,000
   June 1, 2002 to and including July 26, 2002                 $32,000,000
   July 27, 2002 to and including August 26, 2002              $27,500,000
   August 27, 2002 to and including September 29, 2002         $18,000,000
   September 30, 2002 to and including October 30, 2002         $5,000,000
   October 31, 2002 to and including the                           $-0-
   Commitment Termination Date

and the respective periods and amounts for each of Fiscal Year 2004, Fiscal Year
2005 and the Stub Period shall be as preliminarily determined by the Lenders and
the Borrower based on the Projections and the business plan (in each case
delivered pursuant to Section 5.10(e)) for Fiscal Year 2004, Fiscal Year 2005
and Fiscal Year 2006, respectively, and the unaudited financial statements
(delivered pursuant to Section 5.10(e)) for Fiscal Year 2003, Fiscal Year 2004
and Fiscal Year 2005, respectively, but in no event shall the periods be of
different durations or the amounts be less than the amounts for the periods
corresponding to the periods set forth above

                                       19
<PAGE>

unless the Lenders determine (in their reasonable discretion) that such periods
and amounts warrant adjustment based upon such Projections, business plan or
unaudited financial statements, which preliminary determination shall be made
within 70 days of receipt by the Lenders of such Projections, business plan and
unaudited financial statements and such preliminary determination shall become
effective after receipt and satisfactory review by the Lenders of the Financial
Statements for Fiscal Year 2003, Fiscal Year 2004 and Fiscal Year 2005,
respectively; provided, however, that with respect to the Overadvance at all
times (x) the then applicable Overadvance amount and all subsequent Overadvance
amounts shall be reduced by (i) 50% of all tax refunds paid to the Borrower or
the Parent (or paid to the Collection Account, in accordance with the terms
hereof), (ii) the proceeds of the sale of any assets other than in the ordinary
course of business, and (iii) 50% of the proceeds of any sale-leaseback, all of
such reductions to be effective immediately upon the Borrower's receipt (or, if
applicable, the Collateral Monitoring Agent's receipt for the account of the
Borrower) of such refunds or proceeds; but there shall be no reduction to the
then applicable Overadvance amount in the case of any sale-leaseback of newly
acquired assets, provided, that (A) the sale-leaseback transaction is closed
within 90 days of the acquisition of the assets and (B) both the acquisition and
the closing of the sale-leaseback are completed during the same Fiscal Year; and
(y) at any time when Outstanding Obligations have exceeded the Borrowing Base as
a result of (A) Accounts or Inventory believed to be Eligible Accounts or
Eligible Inventory, as the case may be, in fact being or becoming ineligible or
(B) the return of uncollected checks or other items applied to reduce Loans, the
Collateral Monitoring Agent shall have the discretion to continue to advance
Loans and to instruct the Issuing Bank to issue L/Cs, Acceptances, Steamship
Guaranties and Airway Releases, as the case may be, up to an amount which would
result in the relevant Overadvance amount specified above being exceeded by a
factor of 10% (it being understood that the Collateral Monitoring Agent shall
advise the Lenders of all such issuances and advances within 24 hours); and (z)
the applicable Overadvance amount shall be increased by the amount of (1) any
cash collateral held by the Collateral Monitoring Agent for the sole purpose of
securing such increases to the applicable Overadvance amount, and (2) any
amounts invested in U.S. government securities or money market mutual funds
backed by U.S. government securities maintained in an account with Fleet by the
Borrower or the Parent and pledged or assigned to the Agent for the benefit of
the Lenders by the Borrower or the Parent, as the case may be, as collateral
security for the Obligations pursuant to documentation satisfactory to the
Majority Lenders.

         "Parent" - G-III Apparel Group, Ltd., a Delaware corporation and the
holder of 100% of the issued and outstanding capital stock of the Borrower.

         "Payment Office" - the office of each Lender set forth on the signature
page hereof as the lending office of such Lender.

         "Payor" - as defined in Section 2.20.

         "PBGC" - Pension Benefit Guaranty Corporation or any successor entity
performing the same functions.

                                       20
<PAGE>

         "Pension Plan" - at any time an employee pension benefit plan that is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either: (i) maintained by the Borrower or any
ERISA Affiliate for employees of the Borrower, or by the Borrower for any ERISA
Affiliate, or (ii) maintained pursuant to a collective bargaining agreement or
any other arrangement under which more than one employer makes contributions and
to which the Borrower or any ERISA Affiliate is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.

         "Permitted Liens" - as to any Person: (i) pledges or deposits by such
Person under workers' compensation laws, unemployment insurance laws, social
security laws, or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness of such
Person), or leases to which such Person is a party, or deposits to secure public
or statutory obligations of such Person or deposits or pledges of Cash or United
States Government Bonds to secure surety, appeal, performance or other similar
bonds to which such Person is a party, or deposits as security for contested
taxes or import duties or for the payment of rent; (ii) Liens imposed by law, in
the aggregate, in an amount not in excess of $50,000, such as carriers',
warehousemen's, materialmen's and mechanics' liens, or Liens arising out of
judgments or awards against such Person with respect to which such Person at the
time shall currently be prosecuting an appeal or proceedings for review and for
which appropriate reserves have been allocated; (iii) Liens for taxes not yet
subject to penalties for non-payment and Liens for taxes the payment of which is
being contested as permitted by Section 6.6 and for which appropriate reserves
have been allocated; and (iv) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of, others for rights of way, highways
and railroad crossings, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use of
real properties, or Liens incidental to the conduct of the business of such
Person or to the ownership of such Person's property that were not incurred in
connection with Indebtedness of such Person, all of which Liens referred to in
the preceding clause (iv) do not in the aggregate materially detract from the
value of the properties to which they relate or materially impair their use in
the operation of the business taken as a whole of such Person, and as to all the
foregoing only to the extent arising and continuing in the ordinary course of
business.

         "Permitted Subordinated Funded Debt" - unsecured Indebtedness of the
Borrower or the Parent that is subordinated to the Obligations on terms and
conditions satisfactory to the Lenders in their sole discretion (which shall
include, without limitation, covenants not more restrictive than the covenants
set forth in this Agreement and appropriate standstill provisions) in an
aggregate outstanding principal amount not to exceed $20,000,000 at any time.

         "Person" - an individual, a corporation, a partnership, a limited
liability company, a joint venture, a trust or unincorporated organization, a
joint stock company or other similar organization, a government or any political
subdivision thereof, a court, or any other legal entity, whether acting in an
individual, fiduciary or other capacity.

         "Post-Default Rate" - (i) in respect of any Loans not paid when due
(whether at stated maturity, by acceleration or otherwise), a rate per annum
during the period commencing

                                       21
<PAGE>

on the due date until such Loans are paid in full equal to (a) if such Loans are
Prime Rate Loans, 2% above the Prime Rate as in effect from time to time for
Prime Rate Loans, or (b) if such Loans are Eurodollar Loans, 2% above the rate
of interest in effect thereon at the time of such default until the end of the
then current Interest Period therefor and, thereafter, 2% above the Prime Rate
as in effect from time to time for Prime Rate Loans; and (ii) in respect of
other amounts payable by the Borrower hereunder (other than interest) not paid
when due (whether at stated maturity, by acceleration or otherwise), a rate per
annum during the period commencing on the due date until such other amounts are
paid in full equal to 2% above the Prime Rate as in effect from time to time for
Prime Rate Loans.

         "Prime Rate" - the interest rate established from time to time by Fleet
as its prime rate. Notwithstanding the foregoing, the Borrower acknowledges that
Fleet may regularly make domestic commercial loans at rates of interest less
than the rate of interest referred to in the preceding sentence. Changes in the
rate of interest resulting from changes in the Prime Rate shall take place
immediately without notice or demand of any kind.

         "Prime Rate Loans" - Loans that bear interest at a rate based upon the
Prime Rate.

         "Projections" - the balance sheets, income statements and statements of
cash flow of the Borrower, prepared by the Borrower, as at, and for Fiscal Year
2003, Fiscal Year 2004, Fiscal Year 2005 and Fiscal Year 2006, as applicable.

         "Purchase Money Security Interest" - as defined in Section 7.2(c).

         "Regulation D" - Regulation D of the Board of Governors of the Federal
Reserve System, as the same may be amended or supplemented from time to time.

         "Regulatory Change" - as to any Lender, any change after the date of
this Agreement in United States federal, state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks including
such Lender of or under any United States federal, state, or foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.

         "Related Fund" - as defined in Section 10.13(a).

         "Required Payment" - as defined in Section 2.20.

         "Reserve Requirement" - the maximum aggregate reserve requirement
(including all basic, supplemental, marginal and other reserves) which is
imposed on member banks of the Federal Reserve System against "Euro-currency
Liabilities" as defined in Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.

         "Retail" - G-III Retail Outlets Inc., a Delaware corporation.

                                       22
<PAGE>

         "Security" - as defined in Section 2(1) of the Securities Act of 1933,
as amended; provided, however, that Asset Securitization Recourse Liabilities
shall not constitute "Securities" except (i) to the extent that such obligations
arise from the Borrower's obligation to repurchase receivables or other assets
as a result of a default in payment by the obligor thereunder or any other
default in performance by such obligor under any agreement related to such
receivables or (ii) if the Borrower shall maintain a reserve account containing
Cash or Securities in respect of any such obligations or shall retain or
purchase a subordinated interest therein to the extent of the amount of such
reserve account or subordinated interest.

         "Security Agreement" - the Amended and Restated Security Agreement
dated as of the Closing Date, in form and substance satisfactory to the Agent,
between the Borrower, the Corporate Guarantors and the Agent for the benefit of
the Lenders, the Collateral Monitoring Agent and the Issuing Bank, as amended,
restated, supplemented or otherwise modified from time to time.

         "Security Documents" - collectively, the Security Agreement and each
other security agreement, instrument or other document heretofore delivered to
the Agent or executed and delivered from time to time pursuant to Section 6.15
or 10.8 to secure any of the Obligations, in each case as amended, restated,
supplemented or otherwise modified from time to time.

         "Settlement Period" - as defined in Section 2.3(b).

         "Siena" - Siena Leather Ltd., a New York corporation.

         "Sources" - Global Apparel Sourcing, Ltd., a Delaware corporation.

         "SPC" - as defined in Section 10.13(i).

         "SPV" - with respect to any Person, a special purpose corporation or
grantor trust established solely for the purpose of purchasing receivables of
such Person for Cash in an amount equal to the fair market value of such
receivables.

         "Standby L/Cs" - as defined in Section 2.1(b)(ii) and including the
Existing Standby L/Cs which continue to be outstanding, all of which shall
provide for an expiration date no later than August 31, 2005 and shall be cash
collateralized on and after June 1, 2005 as provided in Section 2.2(f).

         "Standby L/C Fee" - as defined in Section 2.6(d).

         "Steamship Guaranties" - as defined in Section 2.1(e).

         "Stub Period" - the period from February 1, 2005 through and including
the Commitment Termination Date.

         "Subsidiary" - with respect to any Person, any corporation, limited
liability company, partnership or joint venture whether now existing or
hereafter organized or acquired:

                                       23
<PAGE>

(i) in the case of a corporation, of which a majority of the securities having
ordinary voting power for the election of directors (other than securities
having such power only by reason of the happening of a contingency) are at the
time owned by such Person and/or one or more Subsidiaries of such Person, or
(ii) in the case of a partnership, limited liability company or joint venture in
which such Person is a general partner, member or joint venturer, as the case
may be or of which a majority of the partnership or other ownership interests
are at the time owned by such Person and/or one or more of its Subsidiaries.
Unless the context otherwise requires, references in this Agreement to
"Subsidiary" or "Subsidiaries" shall be deemed to be references to a Subsidiary
or Subsidiaries of the Parent.

         "Swap Contracts" - (i) any and all rate swap transactions, basis swaps,
credit derivative transactions, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (ii) any and all
transactions of any kind, and the related confirmations, which are subject to
the terms and conditions of, or governed by, any form of master agreement
published by the International Swaps and Derivatives Association, Inc., any
International Foreign Exchange Master Agreement, or any other master agreement
(any such master agreement, together with any related schedules, a "Master
Agreement"), including any such obligations or liabilities under any Master
Agreement.

         "Synthetic Lease Obligation" - the monetary obligation of a Person
under (a) a so-called synthetic, off-balance sheet or tax retention lease, or
(b) an agreement for the use or possession of property creating obligations that
do not appear on the balance sheet of such Person but which, upon the insolvency
or bankruptcy of such Person, would be characterized as the indebtedness of such
Person (without regard to accounting treatment).

         "Tangible Net Worth" - the sum of capital surplus, earned surplus and
capital stock, less intangibles and treasury stock, all as determined in
accordance with generally accepted accounting principles consistently applied,
provided, however, for any date of determination of Tangible Net Worth occurring
on or after the decision by the board of directors or management of the Parent
to terminate the business of Balihides, there shall be added to Tangible Net
Worth an amount of up to $900,000, representing on an after-tax basis, charges
taken in connection with such decision, to the extent such charges have caused a
reduction in Tangible Net Worth.

         "Termination Event" - (a) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder; or (b) the withdrawal of
any Loan Party or any ERISA Affiliate from a Pension Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA
or was deemed such under Section 4068(f) of ERISA;

                                       24
<PAGE>

or (c) the termination of a Pension Plan, the filing of a notice of intent to
terminate a Pension Plan or the treatment of a Pension Plan amendment as a
termination under Section 4041 of ERISA; or (d) the institution of proceedings
to terminate a Pension Plan by the PBGC; or (e) any other event or condition
which would constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan;
or (f) the partial or complete withdrawal of any Loan Party or any ERISA
Affiliate from a Multiemployer Plan; or (g) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA; or (h) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Section 4241 or Section 4245 of ERISA, respectively; or (i) any event or
condition which results in the termination of a Multiemployer Plan under Section
4041A of ERISA or the institution by the PBGC of proceedings to terminate a
Multiemployer Plan under Section 4042 of ERISA.

         "Time Trade L/Cs" - Trade L/Cs issued on time terms (which shall be
limited to 60 days past sight).

         "Trade L/Cs" - sight and time letters of credit issued in favor of
beneficiaries specified by the Borrower in order to facilitate the
transportation or purchase of goods from foreign vendors by the Borrower in the
ordinary course of its business, which goods are consigned to the Issuing Bank
pursuant to the terms of the Application or otherwise, all of which (i) shall
have an expiration date of no later than August 31, 2005, (ii) shall be cash
collateralized on and after June 1, 2005 as provided in Section 2.2(f), and
(iii) shall include Existing Trade L/Cs.

         "Trademarks" - trademarks, trade names, service marks, trademark
applications, trademark registrations and rights with respect to the foregoing.

         "Transactional Fees" - as defined in Section 2.6(e).

         "UCC" - with respect to any jurisdiction, the Uniform Commercial Code
as then in effect in that jurisdiction.

         "Unpaid Drawings" - as defined in Section 2.2(c).

         "Unused Commitment" - as at any date, for each Lender, the difference,
if any, between: (a) the amount of such Lender's Commitment as in effect on such
date, minus (b) the sum of the then outstanding principal amount of all Loans
made by such Lender and such Lender's pro rata share of all Outstanding L/Cs and
outstanding Acceptances, Airway Releases and Steamship Guarantees at such time.

         "Unused Commitment Fee" - as defined in Section 2.6(b).

         "Wee Beez" - Wee Beez International Limited, a Hong Kong corporation.

         "Wilson's Leather" - Wilson's The Leather Experts Inc., a Minnesota
corporation.

                                       25
<PAGE>

         Section 1.2 Other Definitional Provisions; Construction.

         (a) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa.

         (b) The words "hereof," "hereby," "herein," and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provisions of this Agreement, the term
"hereafter" shall mean after, and the term "heretofore" shall mean before, the
date of this Agreement, and Article, Section, schedule, exhibit, annex and like
references are to this Agreement unless otherwise specified.

         (c) Any defined term which relates to a document shall include within
its definition any amendments, modifications, renewals, restatements,
extensions, supplements, or substitutions which may have been heretofore or may
be hereafter executed in accordance with the terms thereof and hereof.

         (d) References in this Agreement to particular sections of the Code,
ERISA or any other legislation shall be deemed to refer also to any successor
sections thereto or other redesignations for codification purposes.

         (e) All terms defined in the UCC and not otherwise defined or modified
herein shall have the same respective meanings as are given to such terms in the
UCC.

         (f) Any accounting terms used in this Agreement that are not
specifically defined herein shall have the meanings customarily given to them in
accordance with generally accepted accounting principles as in effect on the
date hereof, except that references in Article 5 to such principles shall be
deemed to refer to such principles as in effect on the date of the financial
statements delivered pursuant thereto.

         (g) The headings used in this Agreement and the table of contents are
for convenience only and shall not be deemed to constitute a part hereof.

         (h) All uses herein of the masculine gender or of singular or plural
terms shall be deemed to include uses of the feminine or neuter gender, or
plural or singular terms, as the context may require.

    ARTICLE 2. REVOLVING CREDIT FACILITY.

         Section 2.1  Letters of Credit; Acceptances; Loans; Steamship
                      Guaranties; Airway Releases.

         (a) During the Credit Period and upon the Borrower's application
therefor as hereinafter provided, the Issuing Bank shall, subject to the terms
and conditions hereof, for the Lenders pro rata according to their respective
commitments, issue Trade L/Cs, Standby L/Cs, Acceptances, Airway Releases and
Steamship Guaranties for the account of the Borrower. During the Credit Period
and upon the Borrower's application therefor as hereinafter provided,

                                       26
<PAGE>

the Collateral Monitoring Agent shall, subject to the terms and conditions
hereof, for the Lenders pro rata according to their respective shares of the
Commitment, advance Loans to or for the account of the Borrower.

         (b) (i) During the Credit Period, the Borrower may apply to the Issuing
Bank for the issuance by the Issuing Bank on behalf of the Lenders of one or
more Trade L/Cs for the account of the Borrower; provided, however, that (i) the
amount of any Trade L/C to be issued shall not exceed the Availability, (ii) the
aggregate amount of all Time Trade L/Cs and Acceptances outstanding at any one
time shall not exceed $3,000,000 and (iii) no Trade L/Cs shall expire on a date
later than August 31, 2005 and shall be collateralized on and after June 1, 2005
as provided in Section 2.2(f).

              (ii) During the Credit Period, the Borrower may apply to the
Issuing Bank for the issuance by the Issuing Bank on behalf of the Lenders of
one or more standby letters of credit for the account of the Borrower (each a
"Standby L/C" and, collectively, the "Standby L/Cs"); provided, however, that
(i) the amount of any Standby L/C to be issued shall not exceed the
Availability, (ii) the sum of the amount of Standby L/Cs outstanding at any one
time and the aggregate amount of drawings under Standby L/Cs during the Credit
Period shall not exceed $5,000,000, (iii) in the case of Standby L/Cs issued in
order to facilitate the transportation or purchase of goods from a foreign
vendor, the goods are consigned to the Issuing Bank pursuant to the terms of the
applicable Application or otherwise, and (iv) no Standby L/Cs shall expire on a
date later than May 31, 2005.

         (c) During the Credit Period, the Borrower may apply to the Issuing
Bank for the issuance by the Issuing Bank on behalf of the Lenders of one or
more Acceptances; provided, however, that (i) the aggregate amount of all Time
Trade L/Cs and Acceptances outstanding at any one time shall not exceed
$3,000,000, and (ii) all Acceptances shall be issued only in connection with the
presentation of drafts under outstanding Time Trade L/Cs issued in accordance
with the terms hereof.

         (d) During the Credit Period, the Borrower may apply to the Collateral
Monitoring Agent for the advance by the Collateral Monitoring Agent on behalf of
the Lenders of a loan or loans (each a "Loan" and, collectively, the "Loans"),
and subject to the terms hereof, during the Credit Period, the Borrower may
borrow, prepay, repay (provided that prepayment or repayment of Eurodollar Loans
shall be subject to the provisions of Section 2.26) and reborrow by means of
Prime Rate Loans or Eurodollar Loans, and during such period and thereafter
until the date of payment in full of all of the Loans, the Borrower may convert
Loans of one type into Loans of another type as provided in Section 2.23;
provided, however, that the amount of any Loan to be advanced shall not exceed
the Availability.

         (e) During the Credit Period, the Borrower may apply to the Issuing
Bank for the issuance by the Issuing Bank on behalf of the Lenders of one or
more steamship guaranties (each a "Steamship Guaranty" and, collectively, the
"Steamship Guaranties") or airway releases (each an "Airway Release" and,
collectively, "Airway Releases"); provided, however, that any

                                       27
<PAGE>

amount of any Steamship Guaranty or Airway Release to be issued shall not exceed
the Availability.

         (f) The parties acknowledge that as of the date hereof: (i) the
Existing Loans are in the amount of $2,242,308.19 and that such Existing Loans
are hereby extended and renewed and shall constitute "Loans" hereunder in such
amount, subject to the terms and conditions hereof; (ii) Existing Trade L/Cs are
in the amount of $6,388,887.06 and shall constitute "Trade L/Cs" hereunder in
such amount, subject to the terms and conditions hereof; (iii) Existing
Acceptances are in the amount of $0 and shall constitute "Acceptances" hereunder
in such amount, subject to the terms and conditions hereof; (iv) Existing
Standby L/Cs are in the amount of $1,080,389.50 and shall constitute "Standby
L/Cs" hereunder in such amount, subject to the terms and conditions hereof; and
(v) Existing Steamship Guaranties and Airway Releases are in the amount of
$43,364.40 and shall constitute "Steamship Guaranties" and "Airway Releases"
hereunder, as the case may be, in such amount subject to the terms and
conditions hereof.

         (g) As of the date hereof, the Lenders have adjusted the outstanding
principal amount of the Obligations owing to each Lender so that each Lender
holds no more than its Lender's Share of the Obligations after giving effect to
this Agreement.

         Section 2.2  Applications for Letters of Credit, Steamship Guaranties
                      and Airway Releases.

         (a) Subject to the provisions of Section 2.1(b), upon the execution and
delivery or electronic transmission by the Borrower simultaneously to the
Issuing Bank and the Collateral Monitoring Agent of the Issuing Bank's standard
form of application for letter of credit (individually, an "Application", and
collectively, the "Applications") and upon payment by the Borrower of the
applicable fees provided for in Section 2.6 and receipt of instructions from the
Collateral Monitoring Agent as to Availability, the Issuing Bank shall, subject
to the terms and conditions hereof, in a timely manner in accordance with its
standard operating procedures, issue an L/C for the account of the Borrower. In
the event of any conflict, discrepancy or any omission of terms provided herein
between the terms established by the Issuing Bank in its Application or
otherwise and this Loan Agreement, the terms provided herein shall prevail.

         (b) Subject to the provisions of Section 2.1(e), upon the execution and
delivery or electronic transmission by the Borrower simultaneously to the
Issuing Bank and the Collateral Monitoring Agent of an application therefor, the
Issuing Bank shall, subject to the terms and conditions hereof and receipt of
instructions from the Collateral Monitoring Agent as to Availability, in a
timely manner in accordance with its standard operating procedures, issue
Steamship Guaranties or Airway Releases. Any such Steamship Guaranties or Airway
Releases shall be subject to the terms of the Continuing Agreement for Issuance
of Steamship Guaranties and Airway Releases.

         (c) The Borrower shall reimburse the Issuing Bank in immediately
available funds at the Issuing Bank's Payment Office on the same day as demand
therefor is made by the

                                       28
<PAGE>

Issuing Bank for any payment made by the Issuing Bank under an L/C (all such
amounts so paid until paid, are hereinafter referred to as "Unpaid Drawings").

         (d) The Borrower hereby irrevocably instructs the Collateral Monitoring
Agent to advance to the Issuing Bank from any account of the Borrower with the
Collateral Monitoring Agent and, to the extent sufficient Availability exists to
advance Loans, to pay any Unpaid Drawings. In the event that at any time there
are not sufficient funds in any account of the Borrower with the Collateral
Monitoring Agent to pay any Unpaid Drawing or sufficient Availability for
payment of such Unpaid Drawing, the Collateral Monitoring Agent shall
nevertheless advance funds to pay such Unpaid Drawings and any funds advanced by
the Agent in payment thereof shall be treated as Loans, but shall be due and
payable immediately and shall bear interest which shall accrue from the date
such funds were advanced until paid in full at the Post-Default Rate.

         (e) The Borrower's obligations under this Section 2.2 to reimburse the
Issuing Bank with respect to Unpaid Drawings (including interest thereon) shall
be absolute and unconditional under any and all circumstances and irrespective
of any setoff, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Bank, including (without limitation, but subject
nonetheless to the provisions of Section 2.18) any defense based on the failure
of any drawing under the L/C to conform to the terms of such L/C or any
non-application or misapplication by the beneficiary of the L/C of the proceeds
of such drawing.

         (f) If, notwithstanding the other provisions of this Section 2.2, on
the Commitment Termination Date there are any L/Cs, Steamship Guaranties or
Airway Releases which either (x) have not expired or been terminated with the
consent of the Borrower and the respective beneficiaries thereof or (y) have
expired by their terms within the 30-day period prior to the Commitment
Termination Date and the Collateral Monitoring Agent has not yet been able to
determine whether conforming drafts have been presented on a timely basis, then
this Agreement (including, without limitation, this Section 2.2 and Section
2.18) and the respective rights, obligations and covenants of the Borrower, the
Agent, the Collateral Monitoring Agent, the Issuing Bank and the Lenders under
this Agreement and the other Loan Documents shall remain in full force and
effect until the date on which the last of the L/Cs, Steamship Guaranties or
Airway Releases expires or is terminated (with the consent of the Borrower and
the beneficiaries thereof) and all payments made by the Issuing Bank under the
L/Cs, the Acceptances, the Steamship Guaranties and Airway Releases are
reimbursed in full by the Borrower, except that the Commitment shall terminate
on the Commitment Termination Date and none of the Lenders, the Issuing Bank or
the Agent shall have any obligation after the Commitment Termination Date to
make Loans or to issue L/Cs, Acceptances, Steamship Guaranties or Airway
Releases hereunder. In addition, the Borrower shall, for the period beginning on
the day after the Commitment Termination Date and ending on the date which is
the later of (x) the last outstanding L/C, Steamship Guaranty or Airway Release
expires or is terminated and (y) the 30th day following the expiration of any
L/C, Steamship Guaranty or Airway Release which expired during the 30-day period
prior to the Commitment Termination Date, with respect to any such Indebtedness
of the Borrower, provide the Issuing Bank with (1)

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<PAGE>

collateral in the form of Cash in an amount equal to 103% of the full amount of
any such L/C, Steamship Guaranty or Airway Release or (2) a letter of
indemnification with respect to, or a letter of credit issued to secure payment
of, each such L/C, Steamship Guaranty or Airway Release from a financial
institution acceptable to the Lenders and the Agent. Upon compliance with the
provisions of the foregoing sentence, the Borrower shall, notwithstanding
anything herein to the contrary, be relieved of all other obligations under this
Agreement or the Loan Documents.

         Section 2.3 Borrowing Notice and Disbursement of Loans.

         (a) The Borrower shall give the Collateral Monitoring Agent written
notice of each borrowing and conversion of each Loan and of the duration of each
Interest Period applicable to each Eurodollar Loan (in each case, a "Borrowing
Notice"). Each Borrowing Notice shall be irrevocable and shall be effective on
the date of the related borrowing, if received by the Agent not later than 12
noon, New York City time, on the date that is:

              (i) In the case of each notice of borrowing of, or conversion
    into, Prime Rate Loans, on the date of the Borrowing Notice, subject to
    Section 2.9(c); and

              (ii) In the case of each notice of borrowing of, or conversion
    into, Eurodollar Loans, and in the case of any Eurodollar Loan the Interest
    Period of which is maturing and is intended to be continued as a Eurodollar
    Loan, three (3) Eurodollar Business Days prior to the date of the related
    borrowing or conversion or the first day of such Interest Period.

Each such notice of borrowing or conversion shall specify the amount (subject to
Section 2.1) and type of Loans to be borrowed or converted (and, in the case of
a conversion, the type of Loans to result from such conversion), the date of
borrowing or conversion (which shall be: (x) a Business Day in the case of each
borrowing of Prime Rate Loans, and (y) a Eurodollar Business Day in the case of
each borrowing of Eurodollar Loans and each conversion of or into a Eurodollar
Loan). Each such notice of the duration of an Interest Period shall specify the
Loans to which such Interest Period is to relate. The Collateral Monitoring
Agent shall notify the Lenders of the content of each such Borrowing Notice
promptly after its receipt thereof.

         (b) The Collateral Monitoring Agent shall render to each Lender
promptly after the end of each week in the case of Prime Rate Loans, on the date
of funding in the case of Eurodollar Loans, or after such shorter period as the
Agent may determine (such week, date of funding or shorter period being
hereinafter referred to as a "Settlement Period"), a summary statement of the
Outstanding Obligations and each Lender's Share thereof for such period. If, as
of the end of any Settlement Period, any Lender's Share of Loans is more than
such Lender's Share for the previous Settlement Period, then such Lender shall
transfer to the Collateral Monitoring Agent good funds for the amount of the
increase (A) on the same Business Day that notice is given by the Collateral
Monitoring Agent to the Lender if such notice is given prior to 12:00 p.m. and
(B) no later than 12:00 p.m. on the following Business Day if notice is given by
the Collateral Monitoring Agent to the Lender after 12:00 p.m.; and, on the
other hand, if any Lender's Share of Loans as of the end of any Settlement
Period is less than such Lender's Share

                                       30
<PAGE>

of Loans for the previous Settlement Period, then the Collateral Monitoring
Agent shall transfer to such Lender good funds for the amount of the decrease
(A) on the same Business Day if the Collateral Monitoring Agent's calculations
with respect to such Settlement Period are completed before 12:00 p.m. and (B)
on the next Business Day if the Collateral Monitoring Agent's calculations with
respect to such Settlement Period are completed after 12:00 p.m. Unless the
receiving party gives at least five Business Days prior written notice to the
contrary, all funds remitted by the Collateral Monitoring Agent to any Lender
hereunder, and all funds remitted by any Lender to the Collateral Monitoring
Agent hereunder, shall be sent by wire transfer to such party's respective
account as set forth on the signature pages hereof. The Collateral Monitoring
Agent agrees to mark its books and records each Settlement Period to show each
Lender's Share of the Outstanding Obligations. The failure of any Lender to make
a timely payment hereunder shall have no effect on such Lender's liability for
such payment, it being understood that each Lender shall assume the risk to the
extent of its Lender's Share of each Loan made or L/C, Acceptance, Steamship
Guaranty or Airway Release issued as and when made or issued, as the case may
be.

         Section 2.4 Notes.

         (a) The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A payable
to such Lender (each, a "Note" and collectively, the "Notes"). Each Note shall
be dated the date hereof, shall be payable to the order of each Lender on a date
not later than the Commitment Termination Date in a principal amount equal to
such Lender's Commitment as originally in effect, and shall otherwise be duly
completed. The Notes shall be payable as provided in Section 2.7.

         (b) Upon receipt of an affidavit of an officer of the Collateral
Monitoring Agent as to the loss, theft, destruction or mutilation of any Note or
any other Security Document which is not of public record, and, in the case of
any such loss, theft, destruction or mutilation, upon surrender and cancellation
of such Note or other Security Document, the Borrower shall issue, in lieu
thereof, a replacement Note or other Security Document in the same principal
amount thereof and otherwise of like tenor.

         Section 2.5 Interest.

         (a) The Borrower shall pay to the Collateral Monitoring Agent, for the
ratable benefit of the Lenders, interest on the daily balances of the Loans
outstanding during the preceding month for the period commencing on the date of
each such Loan until such Loan shall be paid in full, at the following rates per
annum:

              (i) For a Prime Rate Loan, a rate equal to the Prime Rate; and

              (ii) For a Eurodollar Loan, a rate equal to the LIBOR Rate plus
    two and one-quarter percent (2-1/4%) per annum.

         (b) Notwithstanding the foregoing, the Borrower shall pay interest on
any Loan or any installment thereof, and on any other amount payable by the
Borrower hereunder (to

                                       31
<PAGE>

the extent permitted by law) that shall not be paid in full when due (whether at
stated maturity, by acceleration or otherwise) for the period commencing on the
due date thereof until the same is paid in full at the Post-Default Rate.

         (c) Except as provided in the next sentence, accrued interest on each
Loan shall be payable: (i) not later than monthly on the Monthly Dates and (ii)
in the case of any Eurodollar Loan, upon the payment thereof or the conversion
thereof into a Prime Rate Loan (but only on the principal so paid or converted).
Interest that is payable at the Post-Default Rate shall be payable from time to
time on demand of the Collateral Monitoring Agent.

         Section 2.6 Fees.

         (a) The Borrower shall pay to the Agent, for the ratable benefit of the
Lenders, a non-refundable advisory fee (the "Advisory Fee") in the amount of
$217,000 (subject to adjustment pursuant to this subsection (a)) payable as
follows:

              (i) $70,000 payable on the Closing Date;

              (ii) $72,000 payable on February 1, 2003; and

              (iii) $75,000 payable on February 1, 2004;

provided, however, that in the event that the Borrower shall repay all
Outstanding Obligations and terminate the Commitment at any time after the
Closing Date but prior to February 1, 2004, the Borrower shall pay the fees
provided for in this Section 2.6(a), to the extent such fees shall not have been
previously paid by the Borrower, on the date of such repayment and termination.

         (b) The Borrower shall pay to the Agent, for the account of each
Lender, an unused commitment fee (the "Unused Commitment Fee") on the daily
average amount of such Lender's Unused Commitment, for the period from the date
hereof to and including the Commitment Termination Date at a rate equal to
one-quarter of one (1/4%) percent per annum on the portion of the Unused
Commitment of such Lender; provided the amount of the Unused Commitment Fee
shall not exceed $87,500 during the term of this Agreement. The accrued Unused
Commitment Fee shall be calculated every third Monthly Date commencing on July
31, 2002 and such amount shall be payable quarterly in arrears on every third
Monthly Date commencing on August 31, 2002 and on the Commitment Termination
Date.

         (c) Upon each drawing under an L/C, the Borrower shall pay to the
Issuing Bank, for the ratable benefit of the Lenders, a drawing fee (the
"Drawing Fee") computed at the rate of one eighth of one percent (1/8%) per
annum of the face amount of such drawing, but in no event shall the Drawing Fee
be less than $70.00.

         (d) Upon the execution and delivery by the Borrower of an Application
for a Standby L/C, the Borrower shall pay to the Issuing Bank, for the ratable
benefit of the Lenders, an issuance fee (the "Standby L/C Fee") computed at the
rate of one and one-half

                                       32
<PAGE>

percent (1-1/2%) per annum on the face amount of the requested Standby L/C
payable quarterly in advance on the applicable Monthly Dates.

         (e) Upon the execution and delivery by the Borrower of an Application
for any L/C, Steamship Guarantee or Airway Release (or upon any modification,
amendment, cancellation or extension thereof), the Borrower shall pay directly
to the Issuing Bank for its own account, all issuance, processing and associated
transactional charges (the "Transactional Fees") imposed by the Issuing Bank in
connection with any L/C, Steamship Guarantee or Airway Release.

         (f) Upon the execution and delivery of an Acceptance, the Borrower
shall pay to the Issuing Bank, for the ratable benefit of the Lenders, a fee
(the "Acceptance Fee") for such Acceptance equal to the discount rate of the
Agent plus two and one-half percent (2-1/2%) per annum of the principal amount
of such Acceptance for the term thereof payable monthly in advance on the
applicable Monthly Dates.

         (g) The Borrower shall pay to the Collateral Monitoring Agent for its
own account a fee of $60,000 per annum, a pro rata portion of which shall be
payable monthly in advance on the first Business Day of each calendar month
(with the first such payment to be made on June 1, 2002) (the "Collateral
Fees").

         (h) The Borrower shall pay to the Lenders within ten days following
demand therefor, reimbursement for the fees and expenses of the Collateral
Monitoring Agent's and any Lender's field examiners which accompany the
Collateral Monitoring Agent on inspections and field examinations (pursuant to
Section 6.2 or 9.10(b) or otherwise), such fees and expenses to be calculated at
such Lender's standard per diem rates (the "Examination Fees").

         (i) The Borrower shall pay to the Agent for its sole account an
administrative fee (the "Administrative Fee") in accordance with the terms of a
separate agreement between the Agent and the Borrower.

         (j) The Advisory Fee, the Unused Commitment Fee, the Drawing Fee, the
Standby L/C Fee, the Transactional Fees, the Acceptance Fee, the Collateral
Fees, the Examination Fees, the Administrative Fee and the Early Termination Fee
are hereinafter sometimes referred to individually as a "Fee" and collectively
as the "Fees".

         Section 2.7  Payment of Loans and Acceptances; Voluntary Changes in
                      Commitment; Mandatory Prepayments.

         (a) All outstanding Loans and Acceptances shall be paid in full not
later than the Commitment Termination Date.

         (b) Subject to the payment of the fee, if any, required to be paid
pursuant to the proviso to Section 2.6(a), the Borrower shall be entitled to
terminate or reduce either or both of the Commitment and the Direct Debt
Sublimit; provided that the Borrower shall give one (1) Business Day's prior
written notice of such termination or reduction to the Lenders and that any

                                       33
<PAGE>

partial reduction of the Commitment or the Direct Debt Sublimit shall be in an
aggregate amount equal to $100,000 or an integral multiple thereof. Any such
termination or reduction shall be permanent and irrevocable. Each partial
reduction of either the Commitment or the Direct Debt Sublimit shall be applied
pro rata to reduce each Lender's Share of the Commitment and the Direct Debt
Sublimit.

         (c) Notwithstanding any other provisions hereof, in the event that on
any day the Obligations shall exceed the lesser of (i) the Commitment as of such
date and (ii) Borrowing Base (including but not limited to the circumstances in
which the Collateral Monitoring Agent has exercised its discretion to continue
to make Loans and to instruct the Issuing Bank that Availability exists for the
issuance of L/Cs, Acceptances, Steamship Guaranties and Airway Releases, as
provided in the definition of "Overadvance" in Article 1) as of such date, the
Borrower (i) shall immediately upon the Collateral Monitoring Agent's request
repay the Loans and/or prepay Acceptances in an amount sufficient to reduce the
sum of the aggregate principal amount of the Obligations to an amount not
greater than the lesser of (x) the Commitment as of such date and (y) the
Borrowing Base as of such date and (ii) shall not be permitted to request the
Collateral Monitoring Agent to make any Loans or make application to the Issuing
Bank to issue Trade L/Cs, Standby L/Cs, Steamship Guaranties or Airway Releases
until such payment or repayment is made.

         (d) Within one Business Day of the receipt thereof by the Parent or any
Subsidiary (including the Borrower), the Borrower shall repay the Loans and/or
prepay Advances in an amount equal to 20% of the proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith) of
any sale or issuance of any Capital Stock of the Parent or any Subsidiary
(including the Borrower) (other than any sale or issuance of Capital Stock
described in clauses (a), (b) or (c) of Section 7.6) and 20% of any amount of
cash received by the Parent or any Subsidiary (including the Borrower) in
connection with any capital contributions and the Commitment shall be reduced in
the amount of such net proceeds or cash.

         (e) Within one Business Day of the receipt thereof by the Parent or any
Subsidiary (including the Borrower), the Borrower shall repay the Loans and/or
prepay Acceptances in an amount equal to 25% of the proceeds (net of
underwriting discounts and commissions and other reasonable costs associated
therewith) of the incurrence of any Indebtedness (other than Indebtedness
permitted by Sections 7.1(a) through 7.1(f)) by the Parent or any Subsidiary
(including the Borrower) and the Commitment shall be reduced in the amount of
such net proceeds.

         Section 2.8 Use of Proceeds of Loans.

    The proceeds of the Loans hereunder may be used by the Borrower solely for
the following:

         (a) first to repay in full all indebtedness of the Borrower under the
Original Loan Agreement, in an aggregate principal amount of $2,242,308.19;

                                       34
<PAGE>

         (b) second to pay all fees and expenses of the Agent and the Lenders
associated with the preparation, execution and delivery hereof; and

         (c) third to provide working capital for the Borrower.

         Section 2.9 Computations.

         (a) Interest on all Loans and each Fee shall be computed on the basis
of a year of 360 days and actual days elapsed (including the first day but
excluding the last) occurring in the period for which payable.

         (b) (i) For the purpose of computing interest and calculating
Availability hereunder, all payments consisting of cash or wire transfers in
immediately available funds shall be deemed received by the Collateral
Monitoring Agent: (A) on the same Business Day that such payments are deposited
in the Collection Account in the event such deposit is made on or prior to 1:00
p.m.; and (B) one Business Day following deposit thereof in the Collection
Account in the event such deposit is made after 1:00 p.m.; provided, however,
that the foregoing references to 1:00 p.m. shall be deemed to be 12:00 p.m. if
the date of such deposit is the last Business Day of the calendar month or the
Business Day before a holiday;

              (ii) For the purpose of calculating Availability hereunder, all
checks, drafts, or similar non-cash items of payment by or for the account of
the Borrower shall be deemed received by the Collateral Monitoring Agent (A) on
the same Business Day that the deposit of such payment is made in the Collection
Account in the event such deposit is made prior to 1:00 p.m.; and (B) one
Business Day following deposit thereof in the Collection Account in the event
such deposit is made after 1:00 p.m.; and

              (iii) For the purpose of computing interest and Fees, all checks,
drafts, or similar non-cash items of payment by or for the account of the
Borrower shall be deemed received by the Collateral Monitoring Agent two (2)
Business Days after deposit of such payment in the Collection Account;

provided, however, that, for purposes other than computing interest and Fees and
calculating Availability, no check, drafts, or other instruments received by the
Collateral Monitoring Agent shall constitute payment to the Collateral
Monitoring Agent unless and until such item of payment has actually been
collected by the Collateral Monitoring Agent and such collection has been
credited to the Collection Account.

         (c) On the basis of the daily Borrowing Base Certificate delivered by
the Borrower to the Collateral Monitoring Agent pursuant to Section 5.10(a), the
Collateral Monitoring Agent will determine on a daily basis the Availability and
the Borrower's compliance with the terms hereof, including but not limited to
the provisions of Section 2.7.

                                       35
<PAGE>

         Section 2.10 Time and Method of Payments; Statement of Account.

         (a) All payments of principal, interest, Fees and other amounts
(including indemnities) payable by the Borrower hereunder shall be made in
Dollars, in immediately available funds, to the Collateral Monitoring Agent at
its Payment Office not later than 12 noon, New York City time, on the date on
which such payment shall become due. With respect to all such payments, the
Collateral Monitoring Agent shall (i) advance funds in payment and treat such
advance of funds as a Loan or (ii) in the event that there is not sufficient
Availability, debit the amount of any such payment to any ordinary deposit
account of the Borrower with the Collateral Monitoring Agent. In the event that
there is neither sufficient Availability or amounts in the deposit accounts of
the Borrower with the Collateral Monitoring Agent, the Borrower shall make the
payment directly at the Collateral Monitoring Agent's Payment Office as provided
above. Additional provisions relating to payments are set forth in Section 10.3.
Each payment received by the Agent hereunder for the account of a Lender shall
be paid promptly to such Lender, in like funds, for the account of such Lender's
Applicable Lending Office for the Loan in respect of which such payment is made.
Upon its acceptance of an Assignment and Acceptance and recording of the
information contained therein in the Register pursuant to Section 10.13(d), from
and after the effective date of such Assignment and Acceptance, the Agent shall
make all payments hereunder and under the Notes in respect of the interest
assigned thereby to the Lender assignee thereunder, and the parties to such
Assignment and Acceptance shall make all appropriate adjustments in such
payments.

         (b) The Collateral Monitoring Agent shall provide the Borrower with a
statement of account on a monthly basis, and each statement of account that is
delivered by the Collateral Monitoring Agent to the Borrower that relates to the
Obligations shall be deemed correct in the absence of manifest error and shall
constitute an account stated between the Borrower and the Collateral Monitoring
Agent unless thereafter waived in writing by the Collateral Monitoring Agent or
unless, within 30 days after the Borrower's receipt of such statement, the
Borrower delivers to the Collateral Monitoring Agent, by registered or certified
mail, written objection thereto specifying the error or errors, if any,
contained in any such statement; provided, however, that any failure by the
Collateral Monitoring Agent to provide the Borrower with a statement of account
shall not affect the Obligations of the Borrower hereunder or under any Note.

         Section 2.11 Several Obligations.

    No Lender shall be responsible for the failure of the other Lenders to make
Loans to be made by such other Lenders.

         Section 2.12 Guaranties.

    The Guarantors have heretofore executed and delivered one or more guaranties
(collectively, as amended, restated, modified, supplemented and confirmed form
time to time, the "Original Guaranties") guaranteeing, without limitation, the
due payment and performance of the indebtedness, liabilities and obligations of
the Borrower and the other Guarantors under the Original Loan Agreement and the
instruments, documents and agreement executed and

                                       36
<PAGE>

delivered in connection therewith. Each of the Guarantors shall, as a condition
to the effectiveness of this Agreement, execute and deliver to the Agent for the
benefit of the Lenders, the Collateral Monitoring Agent and the Issuing Bank,
the Guarantee Agreement, which shall amend and restate the Original Guaranties.

         Section 2.13 Security.

         (a) The Borrower has heretofore granted to the Agent, for the ratable
benefit of the Lenders, the Collateral Monitoring Agent and the Issuing Bank, a
Lien on all of the Borrower's personal property pursuant to one or more security
agreements, pledge agreements and assignments (collectively, as amended,
restated, modified, supplemented and confirmed from time to time, the "Original
Borrower Security Documents"). The Borrower shall, as a condition to the
effectiveness of this Agreement, execute and deliver to the Agent for the
benefit of the Lenders, the Collateral Monitoring Agent and the Issuing Bank,
the Security Agreement, which shall amend and restate the Original Borrower
Security Documents.

         (b) The Corporate Guarantors have heretofore granted to the Agent, for
the ratable benefit of the Lenders, the Collateral Monitoring Agent and the
Issuing Bank, a Lien on all of the Corporate Guarantors' respective personal
property pursuant to one or more security agreements, pledge agreements and
assignments (collectively, as amended, restated, modified, supplemented and
confirmed from time to time, the "Original Guarantor Security Documents"). The
Corporate Guarantors shall, as a condition to the effectiveness of this
Agreement, execute and deliver to the Agent for the benefit of the Lenders, the
Collateral Monitoring Agent and the Issuing Bank, the Security Agreement, which
shall amend and restate the Original Guarantor Security Documents.

         Section 2.14 Lending Offices.

    The Loans of each type made by each Lender shall be made at such Lender's
Applicable Lending Office for Loans of such type.

         Section 2.15 Obligations Absolute.

    The obligations of the Borrower under this Agreement and the Loan Documents
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms hereof, under all circumstances
whatsoever, including, without limitation, the following circumstances:

              (i) the L/Cs, the Notes, the Loan Agreement, the other Loan
    Documents or any other agreements, instruments or documents relating thereto
    proving to be forged, fraudulent, invalid, unenforceable or insufficient in
    any respect;

              (ii) any amendment or waiver of or any consent to the departure
    from all or any of the Security Documents;

                                       37
<PAGE>

              (iii) the existence of any claim, setoff, defense or other rights
    which the Borrower may have at any time against any beneficiary or any
    transferee of any beneficiary (or any Persons or entities for whom any
    beneficiary or any such transferee may be acting), any Lender or any other
    Person, whether in connection with this Agreement, the L/Cs, the Security
    Documents, the other Loan Documents or any unrelated transaction;

              (iv) any demand presented under the L/Cs (or any endorsement
    thereon) proving to be forged, fraudulent, invalid, unenforceable or
    insufficient in any respect or any statement therein being inaccurate in any
    respect whatsoever;

              (v) payment by the Issuing Bank under any L/C against preparation
    of a demand which does not comply with the terms of such L/C, including,
    without limitation, the circumstances referred to in clause (iv) above or
    the failure of any document to bear adequate reference to such L/C;

              (vi) the use to which the L/Cs may be put or any acts or omissions
    of the Borrower or beneficiaries in connection therewith; and

              (vii) any other circumstances or happening whatsoever, whether or
    not similar to any of the foregoing, provided that such circumstances or
    happening shall not have constituted gross negligence or willful misconduct
    of the Agent or any Lender.

         Section 2.16 Sharing of Payments and Set-Off Among Lenders.

         (a) The Borrower hereby agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option, to offset balances
held by it at any of its offices against any principal of or interest on any of
the Obligations hereunder, or any Fee payable under this Agreement, that is not
paid when due (regardless of whether such balances are then due to the
Borrower), in which case it shall promptly notify the Borrower thereof, provided
that its failure to give such notice shall not affect the validity thereof.
Nothing contained herein shall require any Lender to exercise any such right or
shall affect the right of any Lender to exercise and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of the Borrower.

         (b) Each Lender:

              (i) if it shall effect payment of any principal of or interest on
    any Obligations held by it under this Agreement through the exercise of any
    rights provided for in subsection (a) above, or

              (ii) upon or following any acceleration by the Agent and the
    Lenders of the Obligations,

                                       38
<PAGE>

shall promptly purchase from the other Lenders a participation in the
Obligations held by the other Lenders in such amounts, and make such other
adjustments from time to time as shall be equitable, so that all the Lenders
shall share the benefit of such payment and the Obligations pro rata in
accordance with their respective Commitments. To such end all the Lenders shall
make appropriate adjustments among themselves (by the resale of a participation
sold or otherwise) if any payment received must be restored or any acceleration
is rescinded by the Majority Lenders. The Borrower agrees that any Lender so
purchasing a participation in the Obligations held by the other Lenders may
exercise all rights of set-off, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Obligations in the amount of such participation. The failure of any
Lender to purchase participations as provided hereunder shall not affect the
validity of the set-off as between such Lender and the Borrower.

         Section 2.17 Additional Costs; Capital Requirements.

         (a) (i) The Borrower shall pay directly to each Lender from time to
time such amounts as such Lender may determine to be necessary to compensate it
for any increase in costs incurred by such Lender which such Lender determines
are attributable to its making or maintaining any Eurodollar Loans or its
Commitment hereunder or in respect of L/Cs or any reduction in any amount
receivable by such Lender hereunder in respect of any of such Loans, Commitment
or L/Cs (such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such Lender under
this Agreement or its Note in respect of any of such Loans or in respect of L/Cs
(other than taxes imposed on the overall net income of such Lender or its
Applicable Lending Office for any of such Loans by the jurisdiction in which
such Lender has its principal office or such Applicable Lending Office); or (ii)
imposes or modifies any reserve, special deposit or similar requirements
relating to or any deposits with or other liabilities of, such Lender (including
any deposits referred to in the definition of "LIBOR Base Rate" in Article 1
hereof or in respect of L/Cs); or (iii) imposes any other conditions affecting
this Agreement in respect of the Eurodollar Loans or L/Cs. Each Lender will
notify the Borrower and the Agent of any event occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
Section 2.17(a) as promptly as practicable after it obtains knowledge thereof
and determines to request such compensation. Each Lender will furnish the
Borrower and the Agent with a certificate setting forth the basis and amount of
each request for such Lender for compensation from the Borrower under this
Section 2.17(a). The Borrower may, by notice to such Lender (with a copy to the
Agent), require that such Lender's Loans of the type with respect to which such
compensation is requested be converted into Prime Rate Loans or Eurodollar
Loans, as the case may be, in accordance with Sections 2.23 and 2.27.

              (ii) Without limiting the effect of the foregoing provisions of
this Section 2.17, in the event that, by reason of any Regulatory Change, any
Lender either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Lender which includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in this Agreement or
a category of extensions of credit or other assets of such Lender which includes
Eurodollar Loans

                                       39
<PAGE>

or (ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Agent), the obligation of such Lender
to make, and to convert Loans of any other type into, Loans of such type
hereunder shall be suspended until the date such Regulatory Change ceases to be
in effect (and all Loans of such type of such Lender then outstanding shall be
converted into Prime Rate Loans or Eurodollar Loans, as the case may be, in
accordance with Sections 2.23 and 2.27).

         (b) If any existing or future law or regulation or the interpretation
thereof by any court or administrative or governmental authority charged with
the administration thereof, or compliance by any Lender with any request or
directive (whether or not having the force of law) of any such authority, either
imposes, modifies, deems applicable or results in the application of, any
capital maintenance, capital ratio or similar requirement against loan
commitments made by any Lender and the result thereof is to impose upon such
Lender or increase any capital requirement applicable as a result of the making
or maintenance of such Lender's Commitment (which imposition of or increase in
capital requirements may be determined by the Lender's reasonable allocation of
the aggregate of such capital impositions or increases) then, upon demand by
such Lender (a copy of which demand shall be delivered to the Agent), the
Borrower shall immediately pay to the Lender from time to time specified by the
Lender, such additional fees as shall be sufficient to compensate the Lender for
such imposition of or increase in capital requirements. Such Lender will furnish
the Borrower and the Agent with a certificate setting forth the basis and amount
of each request by such Lender for compensation from the Borrower under this
Section 2.17. The Borrower may, by notice to such Lender (with a copy to the
Agent), require that such Lender's Loans of the type with respect to which such
compensation is requested be converted into Prime Rate Loans or Eurodollar
Loans, as the case may be, in accordance with Sections 2.23 and 2.27.

         (c) Determinations by any Lender for purposes of this Section 2.17 of
the effect of any Regulatory Change on its costs of making or maintaining Loans
or L/Cs or on amounts receivable by it in respect of Loans or L/Cs, and of the
additional amounts required to compensate such Lender in respect of any
Additional Costs, shall be set forth in writing in reasonable detail and shall
be conclusive, absent manifest error.

         Section 2.18 Additional L/C Provisions.

         (a) Without limiting the generality of Section 2.17, if:

              (i) any change in any law or regulation or in the interpretation
    thereof by any court or administrative or governmental authority charged or
    claiming to be charged with the administration thereof shall (1) impose,
    modify or deem applicable any reserve, special deposit, capital maintenance,
    deposit insurance premium or assessment, or similar requirement against
    letters of credit issued by or assets held by, or deposits with or for the
    account of, any Lender, (2) impose on any Lender any other condition
    regarding this Agreement or the L/Cs, or (3) subject any Lender to any tax,
    charge, fee,

                                       40
<PAGE>

    deduction or withholding of any kind whatsoever other than changes in the
    rate of tax on the over-all net income of such Lender; and

              (ii) the result of any such event shall be to increase the cost to
    any Lender of the issuance or maintenance of the L/Cs, or reduce the amount
    of principal, interest, or any fee or compensation receivable by any Lender
    in respect of the L/Cs or this Agreement;

then, upon demand of any Lender, the Borrower shall pay to the Lenders, from
time to time as specified by each of the Lenders, respectively, all additional
amounts which are necessary to compensate such Lender for such increased cost or
reduction incurred by that Lender. All payments of compensation for such
increased cost or reduction shall be accompanied by interest thereon from the
date such increased cost or reduction is incurred by any Lender until payment in
full thereof at the rate provided in Section 2.5(a) and, in the event of
non-payment by the Borrower following demand, thereafter at the Post-Default
Rate. A certificate as to such increased cost incurred by any Lender showing the
manner of calculation thereof shall be submitted by such Lender to the Borrower
and shall be conclusive (absent manifest error) as to the amount thereof. In the
event of any inconsistency between the terms of this Section 2.18 and Section
2.17, the provisions of Section 2.17 shall govern.

         (b) No Lender shall be responsible: (i) for the validity or
insufficiency of any instrument transferring or assigning or purporting to
transfer or assign the L/Cs or the rights or benefits thereunder or proceeds
thereof in whole or in part, which may prove to be invalid or ineffective for
any reason; (ii) for errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable telegraph, telex or otherwise,
whether or not they be in cipher; (iii) for any loss or delay in the
transmission or otherwise of any document or draft required in order to make a
draw under the L/Cs or of proceeds thereof; or (iv) for any consequence arising
from causes beyond the control of any Lender. None of the above shall affect,
impair, or prevent the vesting of any Lender's rights or powers hereunder.

         (c) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Lender,
under or in connection with the L/Cs or the related drafts or document(s), if
taken or omitted in good faith, shall be binding upon the Borrower and shall not
put any Lender under any resulting liability to the Borrower.

         (d) The Borrower shall at all times protect, indemnify and save
harmless each Lender from and against any and all claims, actions, suits and
other legal proceedings, and from and against any and all loss, claims, demands,
liabilities, damages, costs, charges, counsel fees and other expenses which any
Lender may, at any time, sustain or incur by reason of or in consequence of or
arising out of the issuance of the L/Cs; it being the intention of the parties
that this Agreement shall be construed and applied to protect and indemnify any
Lender against any and all risk involved in the issuance of the L/Cs, all of
which risks are hereby assumed by the Borrower, including, without limitation,
any and all risks of the acts or omissions, whether rightful or wrongful, of any
present or future de jure or de facto government or governmental

                                       41
<PAGE>

authority (all such acts and omissions, herein called the "Governmental Acts");
provided, however, that the Borrower shall not be required to indemnify any
Lender for any claims, damages, losses, liabilities, costs or expenses to the
extent, but only to the extent, caused by the willful misconduct or gross
negligence of any Lender in not honoring any demand for payment under any L/C
(after the presentation to it by the beneficiary of drawing documents strictly
complying with the terms and conditions of such L/C) except if as a result of
any Governmental Act or any other cause beyond the control of any Lender.
Notwithstanding any other provision contained in this Agreement, the obligations
of the Borrower under this Section 2.18 shall survive the termination hereof.

         Section 2.19 Pro Rata Treatment Among Lenders.

         (a) Except as otherwise provided herein: (i) each Loan advanced by the
Collateral Monitoring Agent hereunder, each other advance made by the Collateral
Monitoring Agent, the Issuing Bank or the Agent hereunder (including but not
limited to advances to protect or preserve Collateral), and each payment of any
Fee (other than Transactional Fees, Collateral Fees, the Administrative Fee and
Examination Fees) by the Borrower shall be made by or to the Collateral
Monitoring Agent, the Issuing Bank or the Agent, as the case may be, for the
account of the Lenders according to the respective Lender's Share, (ii) each
conversion of Loans of a particular type under Section 2.23 (other than
conversions provided for by Section 2.25) will be made pro rata among the
Lenders holding Loans of such type according to the respective principal amounts
of such Loans held by such Lenders, and (iii) each payment of principal of or
interest on Loans in each case will be made by or to the Collateral Monitoring
Agent, the Issuing Bank or the Agent, as the case may be, for the account of the
Lenders.

         (b) On a monthly basis, after the Collateral Monitoring Agent's receipt
of monthly interest charges pursuant to Section 2.10, and provided a Lender
shall have made all payments to the Collateral Monitoring Agent required to be
made hereunder, the Collateral Monitoring Agent shall pay to such Lender an
amount equivalent to such Lender's Share of such interest and any Fees received
during the prior month.

         Section 2.20 Non-Receipt of Funds by the Agent.

         Unless the Collateral Monitoring Agent shall have been notified by a
Lender or the Borrower (the "Payor") prior to the date notified on which such
Lender is to make payment to the Collateral Monitoring Agent of the proceeds of
a Loan to be made by it hereunder or the Borrower is to make a payment to the
Collateral Monitoring Agent for the account of one or more of the Lenders, as
the case may be (such payment being herein called the "Required Payment"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Collateral Monitoring Agent, the Collateral
Monitoring Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Collateral Monitoring Agent, the
recipient of such payment shall, on demand, repay to the Collateral Monitoring
Agent the amount made available to it together with interest thereon in respect
of

                                       42
<PAGE>

each day during the period commencing on the date such amount was so made
available by the Collateral Monitoring Agent until the date the Collateral
Monitoring Agent recovers such amount at a rate per annum equal to the Federal
Funds Rate for such day (when the recipient is a Lender) or equal to the rate of
interest applicable to such Loan (when the recipient is the Borrower).

         Section 2.21  Collections; Agent's Right to Notify Account Debtors and
                       Endorse the Borrower's Name.

         (a) The Borrower and all other Loan Parties will immediately upon
receipt of all checks, drafts, cash or other remittances (i) in payment of any
of its accounts, contract rights or general intangibles constituting part of the
Collateral, or (ii) in payment of any Collateral sold, transferred, leased or
otherwise disposed of, as permitted under Section 7.7, or (iii) in payment of,
or on account of its Accounts, contracts, contract rights, notes, drafts,
acceptances, general intangibles, choses in action and all other forms of
obligations relating to any of the Collateral so sold, transferred, or leased or
otherwise disposed of, deliver any such items to the Collateral Monitoring Agent
at the Payment Office or to the Collection Account accompanied by a remittance
report in form supplied or approved by the Collateral Monitoring Agent, such
items to be delivered to the Collateral Monitoring Agent in the same form
received, endorsed or otherwise assigned by the Borrower where necessary to
permit collection of such items and, regardless of the form of such endorsement,
the Borrower hereby waives presentment, demand, notice of dishonor, protest,
notice of protest and all other notices with respect thereto.

         (b) The Borrower and all other Loan Parties shall direct all Account
Debtors to make all payments due from them to the Borrower upon the Accounts
directly to the Collateral Monitoring Agent, the Collection Account or to a
Lockbox (each, a "Lockbox") designated by the Collateral Monitoring Agent and
maintained by the Collateral Monitoring Agent pursuant to one or more lockbox
agreements in form and substance satisfactory to the Agent (each, a "Lockbox
Agreement"), which agreements shall be executed and delivered by the Borrower at
the request of the Collateral Monitoring Agent.

         (c) In the event that, notwithstanding the provisions of Sections
2.21(a) and 2.21(b), as applicable, the Borrower (or any of its affiliates,
officers, employees, agent, or those Persons acting for or in concert with the
Borrower) shall receive any monies, checks, notes, drafts, or any other payment
relating to any Collateral or as proceeds of any Collateral, the Borrower shall
receive such monies, checks, notes, drafts and other payments as agent for the
Collateral Monitoring Agent and shall hold, or shall cause such Affiliate or
Person to hold, all such items of payment in trust as trustee of an express
trust for the Collateral Monitoring Agent and as property of the Collateral
Monitoring Agent, separate and apart from the funds of the Borrower and such
Affiliate and the Borrower (and all of its Affiliates, officers, employees,
agents and other Persons acting for or in concert with the Borrower) shall: (i)
on the first Business Day following receipt thereof, deposit such items of
payment, or cause such items of payment to be deposited, in kind, in the
Collection Account; and (ii) in addition to all reports required in Article 5,
if, as, and when requested by the Collateral Monitoring Agent, forward to the
Collateral Monitoring Agent, on a daily basis, copies of all items of payment
and of all

                                       43
<PAGE>

deposit slips related thereto, together with a collection report in form and
substance satisfactory to the Collateral Monitoring Agent.

         (d) The Borrower hereby authorizes the Collateral Monitoring Agent at
all times: (i) to open the Borrower's mail directed to the Lockbox and,
following an Event of Default, all other mail; (ii) to collect, and to verify by
mail, telephone, telegraph or otherwise, any and all amounts due to the Borrower
from Account Debtors; and (iii) to notify any or all Account Debtors that the
Accounts have been assigned to the Agent and that the Collateral Monitoring
Agent has a security interest therein. The Borrower hereby agrees that any such
notice, in the Collateral Monitoring Agent's sole discretion, may be sent on the
Borrower's stationery, in which event, if required by the Collateral Monitoring
Agent (and all Persons designated by the Collateral Monitoring Agent for that
purpose) as the Borrower's true and lawful attorney (and agent-in-fact) to
endorse the Borrower's name on any checks, notes, drafts, or any other form of
payment relating to Collateral or proceeds of Collateral that come in to the
Collateral Monitoring Agent's possession or under the Collateral Monitoring
Agent's control.

         (e) Notwithstanding Section 2.21(d) or any other provision hereof,
nothing contained in this Section 2.21, this Agreement or any other Loan
Document shall be deemed to limit or otherwise restrict the Collateral
Monitoring Agent's normal verification procedures.

         Section 2.22 Application of Payments and Collections.

         (a) All amounts received by the Collateral Monitoring Agent for the
account of the Borrower pursuant to Section 2.21 or otherwise shall, on each
Business Day, be

              (i) applied to Fees which are at such time due and unpaid; then

              (ii) applied to amounts payable pursuant to Section 2.26; then

              (iii) applied pro rata among the Lenders to reduce the amount of
    any outstanding Loans; then

              (iv) applied to prepay, in the case of liquidation only, with any
    applicable prepayment or "breakage" fee, all Acceptances;

              (v) held by the Collateral Monitoring Agent as collateral to
    secure any outstanding L/Cs, Acceptances (other than in the case of a
    liquidation), Steamship Guaranties and Airway Releases; then

              (vi) only if all Loans have been repaid, all Acceptances prepaid
    (in the case of a liquidation) and all L/Cs, Acceptances (other than in the
    case of a liquidation), Steamship Guaranties and Airway Releases are fully
    secured by amounts held by the Collateral Monitoring Agent pursuant to
    clause (iii) above, credited to the Borrower's demand deposit account
    maintained with the Agent.

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<PAGE>

         (b) Notwithstanding anything else in this Section 2.22 or in this
Agreement to the contrary, the Borrower irrevocably waives the right to direct
the application of any and all payments and collections at any time or times
hereafter received by the Collateral Monitoring Agent from or on behalf of the
Borrower. The Borrower irrevocably agrees that the Collateral Monitoring Agent
shall have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by the
Collateral Monitoring Agent or its agents against the Obligations in such manner
as the Collateral Monitoring Agent may deem advisable, notwithstanding any entry
by the Collateral Monitoring Agent upon any of its books and records.

         (c) Except as set forth in Sections 2.17 and 2.24, all payments and
repayments made shall be applied first to the Prime Rate Loans, and shall be
applied to Eurodollar Loans only to the extent any such payment exceeds the
principal amount of Prime Rate Loans outstanding at the time of such payment.

         Section 2.23 Conversions of Loans.

    The Borrower shall have the right to convert Loans of one type into Loans of
another type from time to time, provided that: (i) the Borrower shall give the
Collateral Monitoring Agent notice of each such conversion as provided in
Section 2.3; (ii) Eurodollar Loans may be converted only on the last day of an
Interest Period for such Loans; and (iii) except as required by Section 2.17, no
Prime Rate Loan may be converted into a Eurodollar Loan if on the proposed date
of conversion a Default or an Event of Default exists. The Collateral Monitoring
Agent shall use its best efforts to notify the Borrower of the effectiveness of
such conversion, and the new interest rate to which the converted Loans are
subject, as soon as practicable after the conversion; provided, however, that
any failure to give such notice shall not affect the Borrower's obligations, or
the Collateral Monitoring Agent's or the Lenders' rights and remedies, hereunder
in any way whatsoever.

         Section 2.24 Limitation on Types of Loans.

    Anything herein to the contrary notwithstanding, if, on or prior to the
determination of an interest rate for any Eurodollar Loans for any Interest
Period therefor, the Majority Lenders determine (which determination shall be
conclusive) that:

         (a) by reason of any event affecting the money markets in the United
States of America or the Eurodollar interbank market, quotations of interest
rates for the relevant deposits are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining the rate of interest
for such Loans under this Agreement; or

         (b) the rates of interest referred to in the definition of "LIBOR Base
Rate" in Article 1 upon the basis of which the rate of interest on any
Eurodollar Loans for such period is determined, do not accurately reflect the
cost to the Lenders of making or maintaining such Loans for such period,

                                       45
<PAGE>

then the Collateral Monitoring Agent shall give the Borrower and each Lender
prompt notice thereof (and shall thereafter give the Borrower and each Lender
prompt notice of the cessation, if any, of such condition), and so long as such
condition remains in effect, the Lenders shall be under no obligation to make
Loans of such type or to convert Prime Rate Loans into Eurodollar Loans and the
Borrower shall, on the last day(s) of the then current Interest Period(s) for
the outstanding Eurodollar Loans either prepay such Loans in accordance with
Section 2.7 or convert such Eurodollar Loans into Prime Rate Loans in accordance
with Section 2.21. If at any time after the Collateral Monitoring Agent gives
notice under this Section 2.24 the Majority Lenders determines that such
condition no longer exists, they shall give prompt notice of that determination,
in writing, to the Borrower. At such time as such condition no longer exists
(whether or not such notice has been given), the Borrower's right to request,
and the Lender's obligations, if any, to make Eurodollar Loans (and to convert
Prime Rate Loans into Eurodollar Loans) shall be restored.

         Section 2.25 Illegality.

    Notwithstanding any other provision in this Agreement, in the event that it
becomes unlawful for any Lender or its Applicable Lending Office to: (i) honor
its obligation to make Eurodollar Loans hereunder, or (ii) maintain Eurodollar
Loans hereunder, then such Lender shall promptly notify the Borrower thereof in
writing (with a copy to the Collateral Monitoring Agent), describing such
illegality in reasonable detail (and shall thereafter promptly notify the
Borrower and the Collateral Monitoring Agent of the cessation, if any, of such
illegality), and thereupon such Lender's obligation to make Eurodollar Loans and
to convert other types of Loans into Eurodollar Loans hereunder shall be
suspended until such time as the Lenders may again make and maintain Eurodollar
Loans and the Lenders outstanding Eurodollar Loans shall be converted into Prime
Rate Loans in accordance with Sections 2.23 and 2.27. If at any time after such
Lender gives notice under this Section 2.25 such Lender determines that it may
again make and maintain Eurodollar Loans, such Lender shall promptly give notice
of that determination, in writing, to the Borrower and the Agent, and the Agent
shall promptly transmit the notice to each other Lender. At such time as such
Lender may again make and maintain Eurodollar Loans (whether or not such notice
has been given), the Borrower's right to request, and the Lender's obligations,
if any, to make and to convert such Loans shall be restored.

         Section 2.26 Indemnification.

    The Borrower shall pay to the Collateral Monitoring Agent for the account of
each Lender, upon the request of such Lender through the Collateral Monitoring
Agent, such amount or amounts as shall compensate such Lender for any loss
(including loss of profit), cost or expense incurred by such Lender (as
reasonably determined by such Lender) as a result of:

         (a) any payment or prepayment or conversion of a Eurodollar Loan held
by such Lender on a date other than the last day of an Interest Period for such
Eurodollar Loan; or

         (b) any failure by the Borrower to borrow a Eurodollar Loan held by
such Lender on the date for such borrowing specified in the relevant Borrowing
Notice under Section 2.3;

                                       46
<PAGE>

such compensation to include, without limitation, an amount equal to the excess,
if any, of (i) the amount of interest which would have accrued on the amount so
paid, prepaid or converted or not borrowed for the period from the date of such
payment, prepayment or conversion or failure to borrow, convert or prepay to the
last day of the then current Interest Period for such Eurodollar Loan (or, in
the case of a failure to borrow, the Interest Period for such Eurodollar Loan
which would have commenced on the date of such failure to borrow) at the
applicable rate of interest for such Eurodollar Loan provided for herein over
(ii) the amount of interest (as reasonably determined by such Lender) such
Lender would have bid in the London interbank market for Dollar deposits of
amounts comparable to such principal amount and maturities comparable to such
period.

         Section 2.27 Certain Conversions Pursuant to Section 2.17.

    If the Loans of any Lender of a particular type (Loans of such type being
herein called "Affected Loans" and such type being herein called the "Affected
Type") are to be converted pursuant to Section 2.17, such Lender's Affected
Loans shall be converted into Prime Rate Loans or Eurodollar Loans of another
type (the "New Type Loans") on the last day(s) of the then current Interest
Period(s) for the Affected Loans (or, in the case of a conversion required by
Section 2.17(b) on such earlier date as such Lender may specify to the Borrower
with a copy to the Agent) and, until such Lender gives notice as provided below
that the circumstances specified in Section 2.17 which gave rise to such
conversion no longer exist:

         (a) to the extent that such Lender's Affected Loans have been so
converted, all payments and prepayments of principal which would otherwise be
applied to such Affected Loans shall be applied instead to its New Type Loans;

         (b) all Loans which would otherwise be made by such Lender as Loans of
the Affected Type shall be made instead as New Type Loans and all Loans of such
Lender which would otherwise be converted into Loans of the Affected Type shall
be converted instead into (or shall remain as) New Type Loans; and

         (c) if Loans of the Affected Type are subsequently converted into Loans
of another type (other than New Type Loans), such Lender's New Type Loans shall
be automatically converted on the conversion date into Loans of such other type
to the extent necessary so that, after giving effect thereto, all Loans held by
such Lender and the Lenders whose Loans are so converted are held pro rata (as
to principal amounts, types and, to the extent applicable, Interest Periods) in
accordance with their respective Commitments.

    ARTICLE 3. REPRESENTATIONS AND WARRANTIES.

    Each of the Borrower and the other Loan Parties hereby represents and
warrants to the Lenders, the Collateral Monitoring Agent, the Issuing Bank and
the Agent that:

                                       47
<PAGE>

         Section 3.1 Organization.

         (a) Each of the Borrower, the Parent, each Subsidiary and each other
Loan Party is duly organized and validly existing under the laws of its state or
country of organization and has the power to own its assets and to transact the
business in which it is presently engaged and in which it proposes to be
engaged. Exhibit B accurately and completely lists, as to each of the Borrower,
the Parent, each Subsidiary and each other Loan Party: (i) the state of
incorporation or organization of each such entity, and the type of legal entity
that each of them is, (ii) as to each of them that is a corporation, the classes
and number of authorized and outstanding shares of capital stock of each such
corporation, and, except with respect to the Parent, the owners of such
outstanding shares of capital stock, (iii) as to each of them that is a legal
entity other than a corporation (but not a natural person), the type and amount
of equity interests authorized and outstanding of each such entity, and, except
with respect to the Parent, the owners of such equity interests, and (iv) the
business in which each of such entities is engaged. All of the foregoing shares
or other equity interests that are issued and outstanding have been duly and
validly issued and are fully paid and non-assessable, and are owned by the
Persons referred to on Exhibit B, free and clear of any Lien except as otherwise
provided for herein. Except as set forth on Exhibit B, there are no outstanding
warrants, options, contracts or commitments of any kind entitling any Person to
purchase or otherwise acquire any shares of capital stock or other equity
interests of the Borrower or any Subsidiary or any other Loan Party other than
the Parent nor are there outstanding any securities that are convertible into or
exchangeable for any shares of capital stock or other equity interests of the
Borrower, any Subsidiary or any other Loan Party other than the Parent. Except
as set forth on Exhibit B, neither the Borrower, the Parent, any Subsidiary nor
any other Loan Party has any Subsidiary.

         (b) Each of the Borrower, the Parent, each Subsidiary and each other
Loan Party is in good standing in its state of organization and in each state in
which it is qualified to do business. There are no jurisdictions other than as
set forth on Exhibit B in which the character of the properties owned or
proposed to be owned by the Borrower, the Parent, any Subsidiary or any other
Loan Party or in which the transaction of the business of the Borrower, the
Parent, any Subsidiary or any other Loan Party as now conducted requires the
Borrower, the Parent, any Subsidiary or any other Loan Party to qualify to do
business and as to which failure so to qualify could have a material adverse
effect on the business, operations, financial condition or properties of the
Borrower, the Parent, any Subsidiary and any other Loan Party taken as a whole.

         Section 3.2 Power, Authority, Consents.

    The Borrower and each other Loan Party has the power to execute, deliver and
perform the Loan Documents to be executed by it. The Borrower has the power to
borrow hereunder and has taken all necessary corporate action to authorize the
borrowing hereunder on the terms and conditions hereof. The Borrower and each
other Loan Party has taken all necessary action, corporate or otherwise, to
authorize the execution, delivery and performance of the Loan Documents to be
executed by it. No consent or approval of any Person (including, without
limitation, any stockholder of any corporate Loan Party or any partner in any
partnership Loan Party), no consent or approval of any landlord or mortgagee, no
waiver of any Lien or right of

                                       48
<PAGE>

distraint or other similar right and no consent, license, certificate of need,
approval, authorization or declaration of any governmental authority, bureau or
agency, is or will be required in connection with the execution, delivery or
performance by the Borrower or any other Loan Party, or the validity,
enforcement or priority, of the Loan Documents or any Lien created and granted
thereunder, except as set forth on Exhibit C, each of which either has been duly
and validly obtained on or prior to the date hereof and is now in full force and
effect, or is designated on Exhibit C as waived by the Majority Lenders.

         Section 3.3 No Violation of Law or Agreements.

    The execution and delivery by the Borrower and each other Loan Party of each
Loan Document to which it is a party and performance by it hereunder and
thereunder, will not violate any provision of law and will not, except as set
forth on Exhibit C, conflict with or result in a breach of any order, writ,
injunction, ordinance, resolution, decree, or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign, or any certificate of incorporation or by-laws of the Borrower or any
other corporate Loan Party or partnership agreement or other organizational
document or instrument of any Loan Party that is not a corporation, or create
(with or without the giving of notice or lapse of time, or both) a default under
or breach of any agreement, bond, note or indenture to which the Borrower or any
other Loan Party is a party, or by which any of them is bound or any of their
respective properties or assets is affected (which default or breach would have
a material adverse effect on the business, financial conditions or operations of
the Borrower, the Parent and the Subsidiaries taken as a whole), or result in
the imposition of any Lien of any nature whatsoever upon any of the properties
or assets owned by or used in connection with the business of the Borrower or
any other Loan Party, except for the Liens created and granted pursuant to the
Security Documents.

         Section 3.4 Due Execution, Validity, Enforceability.

    This Agreement and each other Loan Document to which any Loan Party is a
party has been duly executed and delivered by the Loan Party that is a party
thereto and each constitutes the valid and legally binding obligation of the
Borrower or such other Loan Party that is a party thereto, enforceable in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws, now or hereafter in effect, relating to or affecting the enforcement of
creditors' rights generally and except that the remedy of specific performance
and other equitable remedies are subject to judicial discretion; provided,
however, that such laws shall not materially interfere with the practical
realization of the benefits of the Security Documents or the Liens created
thereby, except for: (i) possible delay, (ii) situations that may arise under
Chapters 11 and 7 of the Bankruptcy Code and applicable state bankruptcy laws,
and (iii) equitable orders of the Bankruptcy Court.

         Section 3.5 Properties, Priority of Liens.

    All of the properties and assets owned by the Borrower and each other Loan
Party that is executing a Security Document are owned by each of them,
respectively, free and clear of any Lien of any nature whatsoever, except as
provided for in the Security Documents, and as

                                       49
<PAGE>

permitted by Section 7.2. The Liens that have been created and granted by the
Security Documents constitute valid perfected first Liens on the properties and
assets covered by the Security Documents, subject to no prior or equal Lien
except as permitted by Section 7.2.

         Section 3.6 Judgments, Actions, Proceedings.

    Except as set forth on Exhibit F, there are no outstanding judgments,
actions or proceedings, including, without limitation, any Environmental
Proceeding, pending before any court or governmental authority, bureau or
agency, with respect to or, to the best of the Borrower's knowledge, threatened
against or affecting the Borrower or any other Loan Party, involving, in the
case of any court proceeding or threatened court proceeding, a claim in excess
of $100,000, nor, to the best of the Borrower's knowledge, is there any
reasonable basis for the institution of any such action or proceeding that is
probable of assertion, nor are there any such actions or proceedings in which
the Borrower or any other Loan Party is a plaintiff or complainant.

         Section 3.7 No Default; Compliance With Laws.

    Except as set forth on Exhibit G, neither the Borrower, the Parent, any
Subsidiary nor any other Loan Party is in default under any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgment to which
it is a party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it or used in the
conduct of its business is affected, which default could have a material adverse
effect on the business, operations, financial condition or properties of the
Borrower, the Parent, any Subsidiary and any other Loan Party, taken as a whole,
or on the ability of the Borrower or any other Loan Party to perform its
obligations under the Loan Documents to which it is a party. The Borrower, the
Parent, and each Subsidiary has complied and is in compliance in all respects
with all applicable laws, ordinances and regulations, resolutions, ordinances,
decrees and other similar documents and instruments of all courts and
governmental authorities, bureaus and agencies, domestic and foreign, including,
without limitation, all applicable Environmental Laws and Regulations,
non-compliance with which could have a material adverse effect on the business,
operations, financial condition or properties of the Borrower, the Parent, and
any Subsidiary, taken as a whole, or on the ability of the Borrower, the Parent
or any Subsidiary to perform its obligations under the Loan Documents to which
it is a party.

         Section 3.8 Burdensome Documents.

    Except as set forth on Exhibit H, neither the Borrower nor any of the other
Loan Parties is a party to or bound by, nor are any of the properties or assets
owned by the Borrower or any other Loan Party used in the conduct of their
respective businesses affected by, any agreement, ordinance, resolution, decree,
bond, note, indenture, order or judgment, including, without limitation, any of
the foregoing relating to any Environmental Matter, that materially and
adversely effects their respective businesses, assets or conditions, financial
or otherwise.

                                       50
<PAGE>

         Section 3.9 Financial Statements; Projections.

    (a) Each of the Financial Statements is materially accurate and complete and
presents fairly the financial position of the Borrower and the consolidated and
consolidating financial position of the Parent and the Subsidiaries, as
applicable, and each other entity to which it relates, as at its date, and has
been prepared in accordance with generally accepted accounting principles.
Neither the Borrower, the Parent, any of the Subsidiaries, nor any other entity
to which any of the Financial Statements relates, has any material obligation,
liability or commitment, direct or contingent (including, without limitation,
any Environmental Liability), that is not reflected in the Financial Statements.
There has been no material adverse change in the financial position or
operations of the Borrower, the Parent or any of its Subsidiaries or any other
entity to which any of the Financial Statements relates, taken as a whole, since
the date of the latest balance sheet included in the Financial Statements (the
"Latest Balance Sheet"). The Borrower's fiscal year is the twelve-month period
ending on January 31 in each year.

    (b) The Projections for Fiscal Year 2003 have been prepared, and the
Projections for Fiscal Years 2004, 2005 and 2006 will be prepared, on the basis
of the assumptions accompanying them and reflect as of the date thereof the
Borrower's good faith projections, after reasonable analysis, of the matters set
forth therein, based on such assumptions; provided, however, that the Lenders
and the Agent acknowledge that projections as to future events are not
statements of fact and that actual results during the period or periods covered
by such Projections may differ from the projected results.

         Section 3.10 Tax Returns.

    Each of the Borrower, the Parent and the Subsidiaries has filed all federal,
state and local tax returns required to be filed by it and has not failed to pay
any taxes, or interest and penalties relating thereto, on or before the due
dates thereof including any extensions thereof. Except to the extent that
reserves therefor are reflected in the Financial Statements: (i) there are no
material federal, state or local tax liabilities of the Borrower, the Parent or
any Subsidiary due or to become due for any tax year ended on or prior to the
date of the Latest Balance Sheet relating to such entity, whether incurred in
respect of or measured by the income of such entity, that are not properly
reflected in the Latest Balance Sheet relating to such entity, and (ii) there
are no material claims pending or, to the knowledge of the Borrower, proposed or
threatened against any of the Borrower, the Parent or any Subsidiary for past
federal, state or local taxes, except those, if any, as to which proper reserves
are reflected in the Financial Statements.

         Section 3.11 Intangible Assets.

    Each of the Borrower, the Parent, and the Subsidiaries possesses all
patents, Trademarks, trade names, copyrights and trade-style names, and rights
with respect to the foregoing, necessary to conduct its business as now
conducted without any known conflict with the patents, Trademarks, trade names,
copyrights, trade-style names and rights with respect to the foregoing, of any
other Person, and each of such patents, Trademarks, trade names, copyrights,
trade-style names and rights with respect thereto, together with any pending
applications therefor, are listed

                                       51
<PAGE>

on Exhibit I. Exhibit I sets forth all patents, Trademarks, trade names,
copyrights and trade-style names owned and used by the Borrower, the Parent and
the Subsidiaries.

         Section 3.12 Regulation U.

    No part of the proceeds received by the Borrower from the Loans will be used
directly or indirectly for: (a) any purpose other than as set forth in Section
2.8, or (b) the purpose of purchasing or carrying, or for payment in full or in
part of Indebtedness that was incurred for the purposes of purchasing or
carrying, any "margin stock", as such term is defined in ss.221.3 of Regulation
U of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter
II, Part 221.

         Section 3.13  Name Changes, Mergers, Acquisitions; Location of
                       Collateral.

         (a) Except as set forth on Exhibit J, neither the Borrower nor any
other Loan Party that is granting Liens on its assets pursuant to any Security
Document has within the six (6) year period immediately preceding the date
hereof changed its name, been the surviving entity of a merger or consolidation,
or acquired all or substantially all of the assets of any Person.

         (b) Neither the Borrower nor any other Loan Party that is granting
liens on its assets pursuant to any Security Document has granted liens (other
than statutory liens) to any person other than the Lenders on Collateral
constituting personal property which Collateral has, at any time during the
four-month period immediately preceding the date hereof, been located anywhere
other than at its location on the date hereof.

         Section 3.14 Full Disclosure.

    None of the Financial Statements, the Projections, nor any certificate,
opinion, or any other statement made or furnished in writing to the Agent or any
Lender by or on behalf of the Borrower, the Parent, any of the Subsidiaries or
any other Loan Party in connection with this Agreement or the transactions
contemplated herein, contains any untrue statement of a material fact, or omits
to state a material fact necessary in order to make the statements contained
therein or herein not misleading, as of the date such statement was made. There
is no fact known to the Borrower or the Parent that has, or would in the now
foreseeable future have, a material adverse effect on the business, prospects or
condition, financial or otherwise, of the Borrower, the Parent, any of the
Subsidiaries and any other Loan Party, taken as a whole, which fact has not been
set forth herein, in the Financial Statements, the Projections, or any
certificate or other written statement so made or furnished to the Agent or the
Lenders other than any statement with respect to matters affecting the economy
as a whole or set forth in the Parent's filings with the Securities and Exchange
Commission.

         Section 3.15 Licenses and Approvals.

    The Borrower, the Parent and each of the Subsidiaries has all necessary
licenses, permits and governmental authorizations, the absence of which would
have a material adverse effect on the business, financial condition or
operations of the Borrower, the Parent and the Subsidiaries,

                                       52
<PAGE>

taken as a whole, including, without limitation, licenses, permits and
authorizations relating to Environmental Matters, to own and operate its
properties and to carry on its business as now conducted.

         Section 3.16 Labor Disputes; Collective Bargaining Agreements; Employee
                      Grievances.

    (i) All collective bargaining agreements or other labor contracts covering
the Borrower, the Parent or any Subsidiary are set forth on Exhibit K; (ii)
except as set forth on Exhibit K, no such collective bargaining agreement or
other labor contract will expire during the term hereof; (iii) to the best of
the Borrower's knowledge, also set forth on Exhibit K are those locations where
a union or other labor organization is seeking to organize, or to be recognized
as bargaining representative for, a bargaining unit of employees of the
Borrower, the Parent or any Subsidiary; (iv) to the best of the Borrower's
knowledge, there is no pending or threatened strike, work stoppage, material
unfair labor practice claim or charge, arbitration or other material labor
dispute against or affecting the Borrower, the Parent or any Subsidiary or their
representative employees; (v) there has not been, during the five (5) year
period prior to the date hereof, a strike, work stoppage, material unfair labor
practice claim or charge, arbitration or other material labor dispute against or
affecting the Borrower, the Parent or any Subsidiary or any of their
representative employees, and (vi) there are no actions, suits, charges,
demands, claims, counterclaims or proceedings pending or, to the best of the
Borrower's knowledge, threatened against the Borrower, the Parent or any of the
Subsidiaries, by or on behalf of, or with, its employees, other than employee
grievances arising in the ordinary course of business that are not, in the
aggregate, material.

         Section 3.17 Condition of Assets.

    All of the assets and properties of the Borrower, the Parent and the
Subsidiaries, that are reasonably necessary for the operation of its business,
are in good working condition, ordinary wear and tear excepted, and are able to
serve the function for which they are currently being used.

         Section 3.18 ERISA.

         (a) Except as described in Exhibit L, neither the Borrower nor the
Parent has, and neither of them has ever had, any Pension Plan in connection
with which there could arise a direct or contingent liability of the Borrower to
the PBGC, the department of Labor or the IRS. Except as described in Exhibit
L, neither the Parent nor the Borrower is a participating employer in: (i) any
Pension Plan under which more than one employer makes contributions as described
in Sections 4063 and 4064 of ERISA, or (ii) a multiemployer plan as defined in
Section 4001(a)(3) of ERISA. With respect to any Multiemployer Plan, both the
Borrower and the Parent have paid or accrued all contributions pursuant to the
terms of the applicable collective bargaining agreement required to be paid or
accrued by it; neither the Borrower nor the Parent has had a complete withdrawal
under Section 4203 of ERISA or partial withdrawal under Section 4205 of ERISA;
and neither the Borrower nor the Parent had any mass withdrawal liability.

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<PAGE>

         (b) Neither the Borrower nor the Parent has any contingent liability
with respect to any post-retirement benefit under any Employee Benefit Plan,
other than liability for health plan continuation coverage under Code Section
4980 B.

         (c) Except as described in Exhibit L, each Employee Benefit Plan
complies, in both form and operation, in all material respects, with its terms,
ERISA and the Code including, without limitation, Code Section 4980B and to the
best of the Borrower's knowledge, no condition exists or event has occurred with
respect to any plan which would result in the incurrence by Borrower and Parent
of any material liability, fine, or penalty. Each Employee Benefit Plan and
related trust agreement is legally valid and binding and in full force and
effect to the extent not heretofore terminated. To the best of the Borrower's
knowledge, no Employee Benefit Plan is being audited or investigated by any
government agency or subject to any pending or threatened claim or suit. Neither
the Borrower nor the Parent has engaged in any transaction which would subject
it to liability under Section 4212(c) of ERISA.

         (d) Neither the Parent nor the Borrower nor any fiduciary of any
Employee Benefit Plan has engaged in any prohibited transaction under Section
406 of ERISA which would have a material adverse effect on the business,
operations or condition, financial or otherwise, of the Borrower or the Parent.
The execution, delivery and carrying out of the terms of any agreement that is
related to this transaction will not constitute a prohibited transaction under
such Section.

         (e) There are no agreements which will provide payments to any officer,
employer, shareholder or highly compensated individual which will be "parachute
payments" under Section 280G of the Code that are nondeductible to any Loan
Party and which will be subject to the tax under Section 4999 of the Code for
which any Loan Party would have a material withholding liability.

         (f) All references to the Borrower and the Parent in this Section 3.18
or in any other Section hereof relating to ERISA, shall be deemed to refer to
the Borrower, the Parent and all other entities which are considered ERISA
Affiliates.

         Section 3.19 Account Representations and Warranties.

    Except as specifically disclosed on Exhibit O, with respect to all
present and future Eligible Accounts included in the determination of the
Borrowing Base:

         (a) Each Account included in each such Borrowing Base satisfies the
definition of Eligible Accounts.

         (b) No such Account has been assigned or pledged to any other Person.

         (c) To the best of the Borrower's knowledge, there are no facts,
events, or occurrences that in any way impair the validity or enforcement of any
such Account of the Borrower or tend to reduce the amount payable thereunder
from the amount of the invoice value

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<PAGE>

shown on any schedule of accounts or on any contracts, invoices, and statements
delivered to the Agent with respect thereto.

         Section 3.20 Borrowing Base Certificates.

    The information set forth in each Borrowing Base Certificate is or will be
on the date delivered true, complete and correct, and each Account included in
each such Borrowing Base satisfies or will satisfy on the date of the applicable
Borrowing Base Certificate the requirements for Eligible Accounts set forth in
this Agreement, including without limitation the definitions applicable thereto.

         Section 3.21 Accounts Receivable Aging Reports; Key Item Reports.

    The information set forth in each Accounts Receivable Aging Report and Key
Item Report is or will be on the date thereof true, complete and correct with
respect to the subject matter thereof.

         Section 3.22 Inventory Representations and Warranties.

    Except as specifically disclosed on Exhibit O, with respect to all present
and future Eligible Inventory included in the determination of the Borrowing
Base:

         (a) All Inventory is located on the premises listed on the schedules
attached to the Borrower Security Agreement or is Eligible Inventory in transit
for sale in the ordinary course of business;

         (b) No Inventory is subject to any Lien or security interest
whatsoever, except for the Liens and security interests of the Agent and the
Lenders and those Liens or security interests set forth in Section 7.2; and

         (c) Except as specified in the Borrower Security Agreement or otherwise
permitted by this Agreement, no Eligible Inventory is now stored or shall at any
time hereafter be stored with a bailee, warehouseman, or similar party.

         Section 3.23 Forfeiture Proceeding.

    Neither the Borrower nor any of its Subsidiaries or Affiliates is engaged in
or proposes to be engaged in the conduct of any business or activity which could
result in a Forfeiture Proceeding and no Forfeiture Proceeding against any of
them is pending or threatened.

         Section 3.24 Americans with Disabilities Act.

    The Borrower, the Parent and its Subsidiaries are in compliance with all
applicable provisions of the Americans with Disabilities Act (42 U.S.C. ss.
12101-12213) and the regulations issued thereunder.

                                       55
<PAGE>

         Section 3.25 Security Documents.

         (a) The Security Agreement is effective to create in favor of the
Agent, for the ratable benefit of the Lenders, the Collateral Monitoring Agent
and the Issuing Bank, a legal, valid and enforceable security interest in the
Collateral (as defined in the Security Agreement) and, when (i) the pledged
property constituting such Collateral is delivered to the Agent, (ii) financing
statements in appropriate form are filed in the offices of the secretary of
state of the jurisdiction of organization of the Borrower and each Corporate
Guarantor or such other office specified by the UCC and (iii) all other
applicable filings under the UCC or otherwise that are required or permitted
under the Loan Documents are made, the Security Agreement shall constitute a
fully perfected Lien on, and security interest in, all right, title and interest
of the grantors thereunder in such Collateral (other than the intellectual
property or any other Collateral for which perfection of a security interest is
not governed by the UCC), in each case prior and superior in right to any other
Person, other than with respect to Liens expressly permitted by Section 7.2.

         (b) Except to the extent that the recording of an assignment or other
transfer of title to the Agent or the recording of other applicable documents in
the United States Patent and Trademark Office, the United States Copyright
Office or the filing of financing statements in the appropriate form in the
offices of the secretary of state of the jurisdiction of organization of the
Borrower and each Corporate Guarantor or such other office specified by the UCC
may be necessary for perfection, the Security Agreement shall constitute a fully
perfected Lien on, and security interest in, all right, title and interest of
the Borrower and the Corporate Guarantors in the intellectual property in which
a security interest may be perfected by filing, recording or registering a
security agreement, financing statement or analogous document in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable, in each case to the extent permitted by applicable law prior and
superior in right to any other Person, other than with respect to Liens
expressly permitted by Section 7.2.

    ARTICLE 4. CONDITIONS.

         Section 4.1 Conditions to Closing.

    The obligation of the Collateral Monitoring Agent to make Loans, and the
obligation of the Issuing Bank to issue or amend Trade L/Cs, Standby L/Cs,
Acceptances, Steamship Guaranties and Airway Releases hereunder, in each case
for the account of the Lenders, shall be subject to the fulfillment (to the
satisfaction of the Agent, the Collateral Monitoring Agent, the Issuing Bank and
the Lenders) of the following conditions precedent:

         (a) The Borrower shall have executed and delivered to each Lender its
Note;

         (b) The Borrower shall have executed and delivered to the Agent an
Application with respect to each L/C, if any, requested by it;

         (c) The Guarantors shall have executed and delivered to the Agent the
Guarantee Agreement;

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<PAGE>

         (d) The Borrower and the Corporate Guarantors shall have executed and
delivered the Security Agreement, and shall have delivered to the Agent:

              (i) To the extent not previously delivered to the Agent, any stock
    certificates or other instruments representing the capital stock or other
    equity interests pledged pursuant to such agreement owned by the Borrower or
    any such Corporate Guarantor;

              (ii) To the extent not previously delivered to the Agent, any
    promissory notes or other instruments evidencing the indebtedness assigned
    pursuant to such agreement owed or owing to the Borrower or any such
    Corporate Guarantor;

              (iii) To the extent not previously delivered to the Agent, stock
    powers and instruments of transfer, endorsed in blank, with respect to such
    stock certificates, promissory notes and other instruments; and

              (iv) All instruments and other documents, including Uniform
    Commercial Code financing statements, required by law or reasonably
    requested by the Agent to be filed, registered or recorded to create or
    perfect the Liens intended to be created under the Security Agreement;

         (e) The Borrower shall have delivered to the Agent the Continuing
Agreement for Issuance of Steamship Guaranty and Airway Releases;

         (f) The Borrower shall have delivered evidence of insurance coverage on
the Inventory and as otherwise required by the terms hereof, with endorsements
showing the Agent as co-insured and loss payee, for the ratable benefit of the
Lenders, and an undertaking by the insurance company or companies to give the
Agent not less than 30 days notice of any proposed cancellation or non-renewal;

         (g) The Borrower shall have delivered to the Agent evidence of (i)
insurance policies on the life of Morris Goldfarb required to be maintained by
the Parent pursuant to Section 6.8(c) and (ii) payment of the premium in
connection with such insurance policies covering the period through May 31,
2002.

         (h) Fulbright & Jaworski L.L.P., counsel to the Borrower, the Parent,
Siena, Retail, Holdings, Sources, License Company and G-III Brands shall have
delivered their opinion to, and in form and substance satisfactory to, the Agent
and the Lenders;

         (i) The Agent shall have received true and complete copies of the
Financial Statements and the Projections for Fiscal Year 2003, each certified as
such in a certificate executed by the president, chief operating officer or
chief financial officer of the Borrower, and the Financial Statements shall show
no material changes from the unaudited consolidated financial statements of the
Parent and its Subsidiaries (including the Borrower) as at and for the Fiscal
Year ending January 31, 2002 previously delivered to the Agent;

                                       57
<PAGE>

         (j) The Agent shall have received copies of all of the consents,
approvals and waivers referred to on Exhibit C (except only those which, as
stated on Exhibit C, shall not be delivered) including, without limitation, all
landlord waivers of distraint or similar instruments of waiver or subordination
with respect to all leased locations where Collateral is located;

         (k) The Agent shall have received such documentation and certificates
as the Agent or its counsel may reasonably request relating to the organization,
existence and good standing of each Loan Party, the authorization of the
execution, delivery and performance of each of the Loan Documents to which it is
a party and the transactions contemplated thereby, the incumbency of the
officers of such Loan Party executing any such Loan Document and any other legal
matters relating to the Loan Parties, the Loan Documents or the transactions
contemplated thereby, all in form and substance satisfactory to the Agent;

              (l) (i) The Borrower shall have complied and shall then be in
    compliance with all of the terms, covenants and conditions hereof;

                  (ii) After giving effect to the execution and delivery hereof,
    there shall exist no Default or Event of Default hereunder; and

                  (iii) The representations and warranties contained in Article
    3 shall be true and correct on the date hereof;

and the Agent shall have received a Compliance Certificate dated the date hereof
certifying, inter alia, that the conditions set forth in this Section 4.1(l) are
satisfied on such date; and

         (m) All legal matters incident to the initial closing shall be
satisfactory to counsel to the Agent and the Lenders.

         Section 4.2 Conditions to Subsequent Loans and Issuance of L/Cs.

    The obligation of the Collateral Monitoring Agent to make any Loan and the
obligation of the Issuing Bank to issue or amend a Trade L/C, Standby L/C,
Acceptance, Steamship Guaranty or Airway Release, in each case for the account
of the Lenders, subsequent to the date hereof shall be subject to the
fulfillment (to the reasonable satisfaction of the Collateral Monitoring Agent,
the Issuing Bank, the Agent and the Lenders) of the following conditions
precedent:

         (a) The Collateral Monitoring Agent shall have received a Borrowing
Base Certificate of current date;

         (b) All legal matters incident to such transaction shall be reasonably
satisfactory to counsel for, the Collateral Monitoring Agent, the Issuing Bank,
the Agent and the Lenders;

         (c) The representations and warranties contained in each Loan Document
shall be correct in all material respects on and as of such date, before and
after giving effect to

                                       58
<PAGE>

such borrowing or issuance or amendment and to the application of the proceeds
therefrom, as though made on and as of such date, other than any such
representations or warranties that, by their terms, refer to a specific date
other than the date of such borrowing, issuance or amendment, in which case, as
of such specific date; and

         (d) No event shall have occurred and shall be continuing, or would
result from such borrowing or issuance or amendment or from the application of
the proceeds therefrom, that constitutes a Default.

    ARTICLE 5. DELIVERY OF FINANCIAL REPORTS, DOCUMENTS AND OTHER INFORMATION.

    While the Commitments are outstanding, and so long as the Borrower is
indebted to any Lender, the Agent, the Collateral Monitoring Agent or the
Issuing Bank and until payment in full of the Loans and Acceptances and the
termination or expiration of all the L/Cs, Steamship Guaranties and Airway
Releases, and full and complete performance of all of its other obligations
arising hereunder, the Borrower shall deliver to the Collateral Monitoring Agent
and each Lender the following, subject to the provisions of Section 5.11:

         Section 5.1 Annual Financial Statements.

         (a) Annually, as soon as available, but in any event within 90 days
after the last day of each of its fiscal years, a consolidated and consolidating
balance sheet of the Parent and the Subsidiaries (including the Borrower) as at
such last day of the fiscal year, and consolidated and consolidating statements
of income and retained earnings and consolidated statements of cash flow of the
Parent and the Subsidiaries (including the Borrower), for such fiscal year, each
prepared in accordance with generally accepted accounting principles
consistently applied, in reasonable detail, and, as to the consolidated
statements of the Parent, certified without qualification by Ernst & Young
L.L.P. or another firm of independent certified public accountants reasonably
satisfactory to the Agent and the Lenders, and certified, as to the
consolidating statements, by the chief executive officer, president, chief
operating officer or the chief financial officer of the Parent, as fairly
presenting the financial position and the results of operations of the Parent
and the Subsidiaries (including the Borrower) as at and for the year ending on
its date and as having been prepared in accordance with generally accepted
accounting principles.

         (b) Annually, within 120 days after the last day of each of its fiscal
years, management prepared divisional income statements in reasonable detail for
the preceding fiscal year.

         Section 5.2  Semi-Annual Financial Statements; Quarterly Financial
                      Statements.

         (a) As soon as available, but in any event within 45 days after the end
of the Parent's first three (3) fiscal quarterly periods, a consolidating and
consolidated balance sheet of the Parent and the Subsidiaries (including the
Borrower) as of the last day of such quarter, a

                                       59
<PAGE>

statement of income and retained earnings and consolidating and consolidated
statements of income and retained earnings of the Parent and the Subsidiaries
(including the Borrower) as of the last day of such quarter and for the fiscal
year to date, and consolidated statements of cash flow, and on a comparative
basis figures for the corresponding period of the immediately preceding fiscal
year, all in reasonable detail, each such statement (i) to provide a specific
certification with respect to compliance with the financial covenants set forth
in Section 6.9 and (ii) to be certified in a certificate of the president, chief
operating officer or chief financial officer of the Parent as accurately
presenting the financial position and the results of operations of the Parent
and the Subsidiaries (including the Borrower), as at its date and for such
quarter and for the fiscal year to date and as having been prepared in
accordance with generally accepted accounting principles consistently applied
(subject to year-end audit adjustments).

         (b) Within 60 days after a request by the Agent from time to time, a
management prepared divisional income statement for the preceding quarter and
for the fiscal year to date and on a comparative basis figures for the
corresponding period of the immediately preceding fiscal year, all in reasonable
detail.

         Section 5.3 Compliance Information.

    Promptly after a written request therefor, such other financial data or
information evidencing compliance with the requirements hereof, the Notes and
the other Loan Documents, as any Lender may reasonably request from time to
time.

         Section 5.4 No Default Certificate.

    At the same time as it delivers the financial statements required under
the provisions of Section 5.1 and 5.2, a certificate of the chief executive
officer, president, chief operating officer or chief financial officer of the
Borrower and the Parent, respectively, to the effect that no Default hereunder
and that no default under any other material agreement to which the Borrower,
the Parent or any of the Subsidiaries is a party or by which it is bound, or by
which, to the best knowledge of the Borrower, the Parent or any Subsidiary, any
of its properties or assets, taken as a whole, may be materially affected, and
no event which, with the giving of notice or the lapse of time, or both, would
constitute such an Event of Default or default, exists, or, if such cannot be so
certified, specifying in reasonable detail the exceptions, if any, to such
statement. Such certificate shall be accompanied by a detailed calculation
indicating compliance with the covenants contained in Sections 6.9, 7.13 and
7.14.

         Section 5.5 Rental Obligations; Capitalized Lease Obligations.

    Within 15 days after the end of each of the Parent's fiscal quarters, a
certificate of the chief executive officer, president, chief operating officer
or chief financial officer of the Parent setting forth the dollar amount of
expenditures made by the Borrower, the Parent and its Subsidiaries in respect of
rental obligations and Capitalized Lease Obligations for the fiscal period
ending on such date and a calculation indicating that the Borrower, the Parent
and its Subsidiaries are in compliance with the provisions of Sections 7.14 and
7.18.

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         Section 5.6 Accountants' Reports.

    Promptly upon receipt thereof, copies of all other reports or
correspondence submitted to the Borrower or the Parent by its independent
accountants in connection with any annual or interim audit or review of the
books of the Borrower or the Parent made by such accountants, including, without
limitation, accountant's management letters.

         Section 5.7 Copies of Documents.

    Promptly upon their becoming available, copies of any: (i) financial
statements, projections, non-routine reports, notices (other than routine
correspondence), requests for waivers and proxy statements, in each case,
delivered by the Borrower, the Parent or any of the Subsidiaries to any lending
institution other than the Lenders; (ii) correspondence or notices received by
the Borrower or the Parent from any federal, state or local governmental
authority that regulates the operations of the Borrower, the Parent or any of
its Subsidiaries, relating to an actual or threatened change or development that
would be materially adverse to the Borrower, the Parent or any Subsidiary, taken
as a whole; (iii) registration statements and any amendments and supplements
thereto, and any regular and periodic reports, if any, filed by the Borrower or
the Parent or any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental authority succeeding to
any or all of the functions of the said Commission; (iv) letters of comment or
correspondence sent to the Borrower or the Parent or any of the Subsidiaries by
any such securities exchange or such Commission in relation to the Borrower or
the Parent or any of the Subsidiaries and its affairs; (v) written reports
submitted by the Borrower or the Parent or any of the Subsidiaries by its
independent accountants in connection with any annual or interim audit of the
books of the Borrower or the Parent or the Subsidiaries made by such
accountants; (vi) proxy statements, notices and other correspondence delivered
by the Parent to its shareholders; (vii) any appraisals received by the Borrower
or the Parent or any of the Subsidiaries with respect to the properties or
assets of the Borrower or the Parent or the Subsidiaries; and (viii) any other
information reasonably requested by the Agent or any Lender.

         Section 5.8 Notices of Defaults.

    Promptly, notice of the occurrence of any Default or Event of Default,
any event that after any necessary notice and/or cure period may become a
Default or Event of Default under Section 8.4(b) or any event that would
constitute or cause a material adverse change in the condition, financial or
otherwise, or the operations of the Borrower or the Parent or any of the
Subsidiaries, including, without limitation, a default or a cancellation under
any lease of property where inventory is stored.

         Section 5.9 ERISA Notices.

         (a) Concurrently with such filing, a copy of each Form 5500 that is
filed with respect to each Pension Plan with the IRS; and

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<PAGE>

         (b) Promptly, upon their becoming available, copies of: (i) all
correspondence with the PBGC, the Secretary of Labor or any representative of
the IRS with respect to any Pension Plan, relating to an actual or threatened
change or development that would be materially adverse to the Borrower or the
Parent or any Subsidiary; (ii) copies of all actuarial valuations received by
the Borrower or the Parent with respect to any Pension Plan; and (iii) copies of
any notices of Plan termination filed by any Pension Plan Administrator (as
those terms are used in ERISA) with the PBGC and of any notices from the PBGC to
the Borrower or the Parent with respect to the intent of the PBGC to institute
involuntary termination proceedings; and

         (c) Promptly upon receipt by the Borrower or the Parent of any
correspondence from a Multiemployer Plan with respect to withdrawal liability.

         Section 5.10 Additional Information and Reports.

    To the Collateral Monitoring Agent only, unless requested by any Lender with
respect to a specific delivery or deliveries and then only for such specific
delivery or deliveries so requested (except in the case of the reports
identified in clauses (c)(ii), (iii) and (v) and (e) below, which Borrower shall
at all times deliver to each Lender),

         (a) Daily, a Borrowing Base Certificate in the form attached hereto as
Exhibit P, with ineligible Accounts and ineligible Inventory in Item 6 of such
Borrowing Base Certificate being recalculated on a weekly basis only at the time
the reports identified in Section 5.10(b) are delivered.

         (b) Weekly, with respect to each week ending Friday delivered by
Wednesday of the following week:

              (i) an Accounts Receivable Aging Report;

              (ii) an Available to Sell Report designated in Dollars in the form
    attached hereto as Exhibit D-1;

              (iii) an Available to Sell Report designated in units of Inventory
    in the form attached hereto as Exhibit D-2;

              (iv) an Inventory Analysis Report on LDP Cost vs LCM Cost in the
    form attached hereto as Exhibit D-3; and

              (v) a divisional status report detailing by division: (A) open
    customer orders detailed by "this year versus last year" and "TLC/FLC versus
    warehouse"; and (B) inventory detailed as to inventory on hand and in
    transit.

         (c) Monthly, delivered not more than 25 days (except as otherwise
provided below) after the end of each calendar month:

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<PAGE>

              (i) all the reports identified in clauses (b)(i) through (b)(iv)
    above, prepared on a monthly basis as to the preceding calendar month;

              (ii) a key item report ("Key Item Report"), as of the last day of
    the immediately preceding month with respect to the Borrower and each
    Guarantor in the form attached hereto as Exhibit D-4; provided, however,
    that such statement may be delivered not more than 30 days after the end of
    each calendar month; provided further that such statement shall not be
    required during the months of February and March;

              (iii) a statement with respect to compliance with the financial
    covenants set forth in Section 6.9 (other than the covenant in Section
    6.9(a)); provided, however, that such statement may be delivered not more
    than 30 days after the end of each calendar month;

              (iv) a reconciliation between the general ledger and the Accounts
    Receivable Aging Report and the month-end Borrowing Base Certificate; and

              (v) the report on the accounts receivable delivered to CIT
    pursuant to the Amended and Restated Accounts Receivable Purchase Agreement
    dated November 8, 1995 between the Borrower and CIT;

              (vi) a Gross Margin Report in form satisfactory to the Collateral
    Monitoring Agent and the Lenders; and

              (vii) an accounts payable aging report in form satisfactory to the
    Collateral Monitoring Agent;

each of which shall be certified as true and correct by the chief executive
officer, president, chief operating officer or the chief financial officer of
the Borrower or the Parent, as the case may be.

         (d) Promptly after a request by the Agent, such other information
regarding the business, affairs and condition of the Borrower, the Parent and
the Subsidiaries as the Agent may from time to time reasonably request.

         (e) By no later than December 15 each year during the term hereof, (A)
Projections for the next fiscal year, (B) a business plan for such fiscal year
and (C) preliminary forecasted annual unaudited consolidated financial
statements for the current fiscal year.

         Section 5.11 Confidentiality of Information.

    The Agent, the Collateral Monitoring Agent, the Issuing Bank and the Lenders
acknowledge that any information provided to any of them pursuant to this
Article 5 which is marked "confidential" shall be delivered to the recipient
with the understanding that, subject to the provisions of Section 10.13(g), the
recipient will hold all such information with respect to the Parent confidential
and that the Parent, as a company whose shares are publicly traded, is relying

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on such understanding in delivering that information; provided, however, that,
notwithstanding the foregoing, each of the Agent, the Collateral Monitoring
Agent, the Issuing Bank and the Lenders may disclose or disseminate such
information to: (a) its directors, officers, employees, agents, attorneys,
accountants and other professional advisors who would ordinarily have access to
such information in the normal course of the performance of their duties or
services with the understanding that each of such individuals will use its best
efforts to hold all such information confidential; and (b) such third parties as
it may, in its discretion, deem reasonably necessary or desirable in connection
with or in response to (i) compliance with any law, ordinance or governmental
order, regulation, rule, policy, subpoena, investigation or request, or (ii) any
order, decree, judgment, subpoena, notice of discovery or similar ruling or
pleading issued, filed, served or purported on its face to be issued, filed or
served (x) by or under authority of any court, tribunal, arbitration board of
any governmental agency, commission, authority, board or similar entity, or (y)
in connection with any proceeding, case or matter pending (or on its face
purported to be pending) before any court, tribunal, arbitration board or any
governmental agency, commission, authority, board or similar entity. The Agent,
the Collateral Monitoring Agent, the Issuing Bank and the Lenders shall have no
continuing obligations with respect to confidentiality of information following
an Event of Default.

    ARTICLE 6. AFFIRMATIVE COVENANTS.

    While the Commitments are outstanding and, so long as the Borrower is
indebted to the Lenders, the Agent, the Collateral Monitoring Agent or the
Issuing Bank and until payment in full of the Loans and Acceptances and the
termination or expiration of all L/Cs, Steamship Guaranties and Airway Releases,
and full and complete performance of all of its other obligations arising
hereunder, the Borrower and the Parent shall and the Parent shall cause each
Subsidiary to:

         Section 6.1 Books and Records.

    Keep proper books of record and account in a manner reasonably satisfactory
to the Agent and the Lenders in which full, true and correct entries shall be
made of all dealings or transactions in relation to its business and activities.

         Section 6.2 Inspections and Field Examinations.

    Permit the Collateral Monitoring Agent and the Lenders (in the case of the
Lenders, only when accompanying the Collateral Monitoring Agent) to make or
cause to be made, inspections and field examinations of any books, records and
papers of the Borrower, the Parent and each of the Subsidiaries and to make
extracts therefrom and copies thereof, or to make inspections and examinations
of any properties and facilities of the Borrower, the Parent and the
Subsidiaries, on reasonable notice, at all such reasonable times and as often as
the Agent and the Lenders may reasonably require (and in any event not less than
three times in any twelve-month period with respect to field examinations), in
order to assure that each the Borrower and the Parent is and will be in
compliance with its obligations under the Loan Documents or to evaluate the
Lenders' investment in the then Outstanding Obligations.

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<PAGE>

         Section 6.3 Maintenance and Repairs.

    Maintain in good repair, working order and condition, subject to normal wear
and tear, all material properties and assets from time to time owned by it and
used in or necessary for the operation of its business, and make all reasonable
repairs, replacements, additions and improvements thereto.

         Section 6.4 Continuance of Business.

         (a) Do, or cause to be done at its expense, all things reasonably
necessary to preserve and keep in full force and effect its corporate existence
and all permits, rights and privileges necessary for the proper conduct of its
business, except where the failure to keep any of the foregoing in effect will
not have a material adverse effect on the business of the Borrower, and continue
generally to engage in the same line of business and comply in all material
respects with all applicable laws, regulations and orders.

         (b) Do, or cause to be done at its expense, all things reasonably
necessary to preserve and maintain all patents, Trademarks, copyrights and
trade-style names which are of material value to the operation of its business.

         Section 6.5 Copies of Corporate Documents.

    Without limiting the prohibitions set forth in Section 7.12, promptly
deliver to the Agent and each Lender copies of any amendments or modifications
to the Borrower's, the Parent's and any Subsidiary's certificate of
incorporation and by-laws, certified with respect to the certificate of
incorporation by the Secretary of State of its state of incorporation and, with
respect to the by-laws, by the secretary or assistant secretary of such
corporation.

         Section 6.6 Perform Obligations.

    Pay and discharge all of its obligations and liabilities, including, without
limitation, all taxes, assessments and governmental charges upon its income and
properties when due, unless and to the extent only that such obligations,
liabilities, taxes, assessments and governmental charges shall be contested in
good faith and by appropriate proceedings and that, to the extent required by
generally accepted accounting principles then in effect, proper and adequate
book reserves relating thereto are established by the Borrower, or, as the case
may be, by the Parent or the appropriate Subsidiary, and then only to the extent
that a bond is filed in cases where the filing of a bond is necessary to avoid
the creation of a Lien against any of its properties.

         Section 6.7 Notice of Litigation.

    Promptly notify the Agent and the Lenders in writing of any litigation,
legal proceeding or dispute, other than disputes in the ordinary course of
business or, whether or not in the ordinary course of business, involving
amounts in excess of One Hundred Thousand Dollars ($100,000), affecting the
Borrower, the Parent or any Subsidiary whether or not fully covered by
insurance, and regardless of the subject matter thereof (excluding, however, any
actions relating

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<PAGE>

to workers' compensation claims or negligence claims relating to use of motor
vehicles, if fully covered by insurance, subject to deductibles).

         Section 6.8 Insurance.

         (a) (i) Maintain with responsible insurance companies acceptable to the
Agent such insurance on such of its properties, in such amounts and against such
risks as is customarily maintained by similar businesses similarly situated,
naming the Agent as loss payee for the ratable benefit of the Lenders; (ii) file
with the Agent upon its request a detailed list of the insurance then in effect,
stating the names of the insurance companies, the amounts and rates of the
insurance, the dates of the expiration thereof and the properties and risks
covered thereby; (iii) within 10 days after notice in writing from the Agent,
obtain such additional insurance as the Agent may reasonably request; and (iv)
provide for endorsements or certifications (1) scheduling the coverage under
such insurance, (2) identifying the Agent as "loss payee" for the ratable
benefit of the Lenders, and (3) specifying that such insurance shall be
non-cancelable unless not less than 30 days' notice is given to the Agent;

         (b) Carry all insurance available through the PBGC or any private
insurance companies covering its obligations to the PBGC; and

         (c) (i) Maintain with one or more responsible insurance companies
acceptable to the Agent and the Lenders, term life insurance on the life of
Morris Goldfarb, in the amount of not less than $20,000,000 naming the Agent for
the ratable benefit of the Lenders as assignee of such insurance and (ii) file
with the Agent upon its request a detailed list of the insurance on the life of
Morris Goldfarb, then in effect, stating the names of the insurance companies,
the amounts and rates of insurance and the expiration dates thereof.

         Section 6.9 Financial Covenants.

         (a) Have or maintain, with respect to the Parent on a consolidated
basis, EBITDA on a cumulative basis from the first day of each fiscal year
through the date set forth below at not less than, or, in the case of a loss,
not more than, the respective amounts set forth below opposite each such last
day of the fiscal quarter:

                       Date                         EBITDA
                       ----                         ------
                  April 30, 2002                ($ 7,300,000)
                  July 31, 2002                 ($ 2,500,000)
                  October 31, 2002               $10,300,000
                  January 31, 2003               $ 8,800,000

and the respective amounts for each of Fiscal Year 2004, Fiscal Year 2005 and
the Stub Period shall be preliminarily determined by the Majority Lenders and
the Borrower based on the Projections and business plan (in each case delivered
pursuant to Section 5.10(e)) for Fiscal Year 2004, Fiscal Year 2005 and Fiscal
Year 2006, respectively and the unaudited financial statements (delivered
pursuant to Section 5.10(e)) for Fiscal Year 2003, Fiscal Year 2004 and

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<PAGE>

Fiscal Year 2005, respectively, but in no event shall the periods be of
different durations or the amounts be less than (if such amount is negative) or
greater than (if such amount is positive) the amounts for the periods
corresponding to the periods set forth above unless the Majority Lenders
determine (in their reasonable discretion) that such periods and amounts warrant
adjustment based on the financial condition of the Borrower as set forth in the
applicable Projections, business plan or unaudited financial statements, which
preliminary determination shall be made within 60 days of receipt by the Lenders
of such Projections, business plan and unaudited financial statements, and such
determination shall become effective after receipt and satisfactory review by
the Lenders of the Financial Statements for Fiscal Year 2003, Fiscal Year 2004,
and Fiscal Year 2005, respectively.

         (b) Have or maintain, with respect to the Parent on a consolidated
basis, Tangible Net Worth as of the dates set forth below at not less than the
respective amounts set forth opposite each such date:

                                                   Minimum
                        Date                 Tangible Net Worth
                        ----                 ------------------
                  April 30, 2002                 $46,500,000
                  July 31, 2002                  $48,700,000
                  October 31, 2002               $56,200,000
                  January 31, 2003               $53,500,000

and the respective amounts for each of Fiscal Year 2004, Fiscal Year 2005 and
the Stub Period shall be determined in the sole discretion of the Majority
Lenders within 60 days of receipt by the Lenders of the Projections and business
plan (in each case delivered pursuant to Section 5.10(e)) for Fiscal Year 2004,
Fiscal Year 2005 and Fiscal Year 2006, respectively and the unaudited financial
statements (delivered pursuant to Section 5.10(e)) for Fiscal Year 2003, Fiscal
Year 2004 and Fiscal Year 2005, respectively, and such determination shall
become effective after receipt and satisfactory review by the Lenders of the
Financial Statements for Fiscal Year 2003, Fiscal Year 2004 and Fiscal Year
2005, respectively.

         (c) Have no Loans and Acceptances outstanding for 45 consecutive days
during each period from December 1 through April 30 during the term hereof;
provided, however, that if Acceptances are outstanding during any such period,
the Borrower shall nevertheless be deemed to have satisfied such requirement if
the Collateral Monitoring Agent is holding for the account of the Borrower
during such 45 consecutive day period excess cash in an amount which would be
sufficient to repay such outstanding Acceptances.

         (d) Maintain Direct Debt outstanding at an amount not to exceed 75% of
Eligible Accounts plus any cash held by the Collateral Monitoring Agent for the
account of the Borrower for 45 consecutive days during each period from November
1 through April 30 during the term hereof.

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         Section 6.10 Notice of Certain Events.

         (a) Promptly notify the Agent in writing of the occurrence of any
Reportable Event, as defined in Section 4043 of ERISA, with respect to a Pension
Plan maintained by the Borrower or an ERISA Affiliate, if a notice of such
Reportable Event is required under ERISA to be delivered to the PBGC within 30
days after the occurrence thereof, together with a description of such
Reportable Event and a statement of the action the Borrower or the Parent, as
the case may be, intends to take with respect thereto, together with a copy of
the notice thereof given to the PBGC.

         (b) Promptly notify the Agent in writing of the receipt by the Borrower
or the Parent of an assessment of withdrawal liability in connection with a
complete or partial withdrawal with respect to any Multiemployer Plan and the
statement of the action that the Loan Party or ERISA Affiliate intends to take
with respect thereto.

         (c) Promptly notify the Agent in writing if the Borrower or the Parent
or any other Loan Party receives: (i) any notice of any violation or
administrative or judicial complaint or order having been filed or about to be
filed against the Borrower or the Parent or such other Loan Party alleging
violations of any Environmental Law and Regulation, or (ii) any notice from any
governmental body or any other Person alleging that the Borrower or the Parent
or such other Loan Party is or may be subject to any Environmental Liability;
and promptly upon receipt thereof, provide the Agent with a copy of such notice
together with a statement of the action the Borrower or the Parent or such other
Loan Party intends to take with respect thereto.

         Section 6.11 Comply with ERISA.

    Comply with all applicable provisions of ERISA now or hereafter in effect
unless the failure to so comply will not have a material effect on the business
of the Borrower or any ERISA Affiliate.

         Section 6.12 Environmental Compliance.

    Operate all property owned or leased by it such that no obligation,
including a clean-up obligation, shall arise under any Environmental Law and
Regulation, which obligation would constitute a Lien on any property of the
Borrower or the Parent or any other Loan Party; provided, however, that in the
event that any such claim is made or any such obligation arises, the Borrower,
the Parent or such other Loan Party shall, at its own cost and expense,
immediately satisfy such claim or obligation.

         Section 6.13 Management Letters.

    If the Borrower, the Parent or any Subsidiary receives a management letter
with respect to the Borrower, the Parent or any Subsidiary prepared by Ernst &
Young L.L.P. or another firm of independent certified public accountants,
provide a copy of such management letter to the Lenders within five (5) days
following receipt.

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<PAGE>

         Section 6.14 Tax Refunds.

    Instruct, or otherwise arrange with, the IRS, state tax authorities and
other relevant authorities for all tax refunds payable to the Parent, the
Borrower or any Subsidiaries to be paid as a cash refund, rather than as applied
as a credit against their current or future tax liabilities. The Parent, the
Borrower and all Subsidiaries will apply for all available tax refunds within 60
days following the date hereof and will thereafter diligently prosecute such
applications to conclusion.

         Section 6.15 Additional Subsidiaries.

    If any Subsidiary organized under the laws of the United States of America
or any state thereof is formed or acquired after the Closing Date, (a) notify
the Agent and the Lenders in writing thereof within five Business Days after the
date on which such Subsidiary is formed or acquired and (i) cause such
Subsidiary to (A) execute and deliver the Guarantee Agreement (or otherwise
become a party thereto in the manner provided therein) and (B) become a party to
each applicable Security Document in the manner provided therein, in each case
within five Business Days after the date on which such Subsidiary is formed or
acquired, and (ii) promptly take such actions to create and perfect Liens on
such Subsidiary's assets to secure the Obligations as the Agent or the Majority
Lenders shall reasonably request and (b) if any equity securities issued by any
such Subsidiary are owned or held by or on behalf of the Parent, the Borrower or
any Subsidiary or any loans, advances or other debt is owed or owing by any such
Subsidiary to the Parent, the Borrower or any Subsidiary, cause such equity
securities and promissory notes and other instruments evidencing such loans,
advances and other debt to be pledged pursuant to the Security Agreement within
five Business Days after the date on which such Subsidiary is formed or
acquired.

    ARTICLE 7. NEGATIVE COVENANTS.

    So long as the Borrower is indebted to the Lenders or the Agent, and until
payment in full of the Loans and Acceptances and the termination or expiration
of all the L/Cs, and Steamship Guaranties and Airway Releases, and full and
complete performance of all of its other obligations arising hereunder, the
Borrower shall not and the Parent shall not and shall not permit any of its
Subsidiaries to do, agree to do, or permit to be done, any of the following:

         Section 7.1 Indebtedness.

    Create, incur, permit to exist or have outstanding any Indebtedness, except:

         (a) Indebtedness of the Borrower to the Lenders, the Agent, the
Collateral Monitoring Agent and the Issuing Bank and other Obligations under
this Agreement;

         (b) Taxes, assessments and governmental charges, non-interest bearing
accounts payable and accrued liabilities, in any case not more than 90 days past
due from the original due date thereof, and non-interest bearing deferred
liabilities other than for borrowed

                                       69
<PAGE>

money (e.g., deferred compensation and deferred taxes), in each case incurred
and continuing in the ordinary course of business;

         (c) Indebtedness secured by the security interests referred to in
Section 7.2(c) and Capitalized Lease Obligations, in each case incurred only if,
after giving effect thereto, the limit on Capital Expenditures set forth in
Section 7.13 would not be breached;

         (d) Indebtedness of the Borrower under Bank Swap Contracts; provided,
that the amount of Indebtedness pursuant to this Section 7.1(d) shall not exceed
a notional amount in the aggregate of $4,000,000 at any time;

         (e) As set forth on Exhibit M which shall include, without limitation,
with respect to each such item of Indebtedness, its terms, maturity, conditions,
the collateral security therefor and the use of the proceeds thereof;

         (f) Indebtedness of the Parent, the Borrower or any Subsidiary to the
extent permitted under Section 7.9(c); and

         (g) Permitted Subordinated Funded Debt in an aggregate principal amount
not to exceed $20,000,000 at any time; provided, however, that after giving
effect to each incurrence of such Permitted Subordinated Funded Debt (i) no
Default or Event of Default shall exists of result therefrom, (ii) on a pro
forma basis the Fixed Charge Coverage Ratio shall be not less than 1.50 to 1.00,
and (iii) the net proceeds therefrom are applied in accordance with Section
2.7(e).

         Section 7.2 Liens.

    Create, or assume or permit to exist, any Lien on any of the properties or
assets of the Borrower or the Parent or any of its Subsidiaries, whether now
owned or hereafter acquired, except:

         (a) Those created and granted by the Security Documents;

         (b) Permitted Liens;

         (c) Purchase money mortgages or security interests, conditional sale
arrangements and other similar security interests, on motor vehicles and
equipment acquired by the Borrower or the Parent or any Subsidiary (hereinafter
referred to individually as a "Purchase Money Security Interest") with the
proceeds of the Indebtedness referred to in Section 7.1(c); provided, however,
that:

              (i) The transaction in which any Purchase Money Security Interest
    is proposed to be created is not then prohibited by this Agreement;

              (ii) Any Purchase Money Security Interest shall attach only to the
    property or asset acquired in such transaction and shall not extend to or
    cover any other

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<PAGE>

    assets or properties of the Borrower, the Parent, or, as the case may be,
    any Subsidiary; and

              (iii) The Indebtedness secured or covered by any Purchase Money
    Security Interest shall not exceed the lesser of the cost or fair market
    value of the property or asset acquired and shall not be renewed, extended
    or prepaid from the proceeds of any borrowing by the Borrower, the Parent or
    any Subsidiary;

         (d) The interests of the lessor under any Capitalized Lease permitted
hereunder; and

         (e) As set forth on Exhibit E.

         Section 7.3 Guaranties.

    Except as set forth on Exhibit M, assume, endorse, be or become liable for,
or guarantee, the obligations of any Person, except by the endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business; provided, however, that the Parent may guaranty (i) the obligations of
Siena and the Borrower in respect of trade accounts payable, Capitalized Lease
Obligations and rental obligations permitted to be incurred in accordance with
the provisions of Sections 7.1(b), 7.14 and 7.18, respectively and (ii) up to
$500,000 in the aggregate of the obligations of Hong Kong and Global permitted
to be incurred in accordance with the terms hereof. For the purposes hereof, the
term "guarantee" shall include any agreement, whether such agreement is on a
contingency or otherwise, to purchase, repurchase or otherwise acquire
Indebtedness of any other Person, or to purchase, sell or lease, as lessee or
lessor, property or services, in any such case primarily for the purpose of
enabling another person to make payment of Indebtedness, or to make any payment
(whether as an advance, capital contribution, purchase of an equity interest or
otherwise) to assure a minimum equity, asset base, working capital or other
balance sheet or financial condition, in connection with the Indebtedness of
another Person, or to supply funds to or in any manner invest in another Person
in connection with such Person's Indebtedness.

         Section 7.4 Mergers; Acquisitions.

         (a) Merge or consolidate with any Person (whether or not the Borrower
or the Parent or any Subsidiary is the surviving entity), or acquire all or
substantially all of the assets or any of the capital stock of any Person, or

         (b) Create any new Subsidiary or Affiliate.

         Section 7.5 Redemptions; Distributions.

         (a) Except in connection with existing stock option plans of the
Parent, purchase, redeem, retire or otherwise acquire, directly or indirectly,
or make any sinking fund payments with respect to, any shares of any class of
stock of the Borrower, the Parent or any Subsidiary now or hereafter outstanding
or set apart any sum for any such purpose; or

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         (b) Declare or pay any dividends or make any distribution of any kind
on the Borrower's or the Parent's outstanding stock, or set aside any sum for
any such purpose, except that the Borrower or the Parent may declare or pay any
dividend payable solely in shares of its respective common stock; provided,
however, that if any such issuance would result in the issuance of fractional
shares, the Borrower or the Parent, as the case may be, may pay dividends in
cash in the amount of such fractional shares to the holders thereof in lieu of
issuing fractional shares to such holders provided that the amount of such cash
dividends in the aggregate shall not exceed $10,000.

         Section 7.6 Stock Issuance.

    Issue any additional shares or any right or option to acquire any shares, or
any security convertible into any shares, of the Capital Stock of the Parent or
any Subsidiary (including the Borrower), except (a) in connection with stock
dividends as permitted under Section 7.5(b), (b) the issuance of any rights or
options to acquire any security of the Parent to any director, officer, employee
or consultant of the Parent pursuant to the Parent's 1989 Stock Option Plan, as
amended, the 1997 Stock Option Plan, as amended and the 1999 Non-Employee
Directors' Plan, as amended, or any other similar employee stock option plan or
non-employee director's stock option plan established by the Parent after the
Closing Date and the issuance of any shares of Capital Stock of the Parent upon
the exercise of any such right or option, (c) issuances of Capital Stock of the
Parent in connection with any acquisition of assets or capital stock of any
Person permitted by Section 7.4 and (d) other issuances of Capital Stock of the
Parent, provided that (x) after giving effect to such issuance, no Default or
Event of Default exists or would result therefrom and (y) the net proceeds
therefrom are applied in accordance with Section 2.7(d).

         Section 7.7 Changes in Business.

    Make any material change in the business conducted by the Borrower, the
Parent or its Subsidiaries, as the case may be, or in the nature of its
operation, or liquidate or dissolve the Borrower, the Parent or its Subsidiaries
(or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, assets or business except
in the ordinary course of business and for a fair consideration or dispose of
any shares of stock (except by the Parent) or any Indebtedness, whether now
owned or hereafter acquired, or discount, sell, pledge, hypothecate or otherwise
dispose of accounts receivable.

         Section 7.8 Prepayments.

    Make any voluntary or optional prepayment of any Indebtedness (other than
Indebtedness hereunder to the Lenders) for borrowed money incurred or permitted
to exist under the terms hereof.

         Section 7.9 Investments.

    Except as otherwise permitted under this Agreement, make, or suffer to
exist, any investment in any Person, including, without limitation, any
Subsidiary, any joint venture or any

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shareholder, director, officer or employee of the Borrower, the Parent or any of
the Subsidiaries, except:

         (a) Investments in:

              (i) obligations issued or guaranteed by the United States of
    America;

              (ii) certificates of deposit, bankers acceptances and other "money
    market instruments" issued by any bank or trust company organized under the
    laws of the United States of America or any State thereof and having capital
    and surplus in an aggregate amount of not less than $100,000,000;

              (iii) open market commercial paper bearing the highest credit
    rating issued by Standard & Poor's Corporation or by another nationally
    recognized credit rating agency;

              (iv) repurchase agreements entered into with any bank or trust
    company organized under the laws of the United States of America or any
    State thereof and having capital and surplus in an aggregate amount of not
    less than $100,000,000 relating to United States of America government
    obligations; and

              (v) shares of "money market funds", each having net assets of not
    less than $100,000,000;

in each case maturing or being due or payable in full not more than 180 days
after the Borrower's, the Parent's or any Subsidiary's acquisition thereof;

         (b) Investments in the form of loans to employees of the Borrower, the
Parent or any Subsidiary, provided that the outstanding principal amount of all
such loans to any one employee shall at no time exceed $100,000 and that the
aggregate outstanding principal amount of all such loans shall at no time exceed
$200,000;

         (c) Without duplication, (i) Investments by the Parent or any
Subsidiary in the Borrower; (ii) Investments by the Borrower or the Parent in
any Subsidiary as in effect as of January 31, 2002 and set forth on Schedule
7.9; (iii) an advance or advances in the ordinary course of business during the
term hereof to G-III Brands; (iv) an advance or advances in the ordinary course
of business during the term hereof to any Subsidiary (other than G-III Brands)
by the Borrower which shall not exceed $6,000,000 in the aggregate outstanding
at any time; and (v) advances to Balihides by the Borrower in an aggregate
principal amount not to exceed $3,477,765.67; provided, that (A) such advances
shall be evidenced by one or more promissory notes and such promissory notes
shall be pledged to the Agent on terms and conditions satisfactory to the Agent
and there shall be no restrictions whatsoever on the ability of Balihides to
repay such advance or advances; and (B) in the case of the advance or advances
made subsequent to the Closing Date, (I) the proceeds of such advance or
advances shall be used by Balihides to repay the entire outstanding balance
under a certain line of credit provided by PT Hanil Tamara Bank of Korea to
Balihides, (II) such line or credit (or a portion thereof equal to

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the amount of such prepayment) shall be terminated contemporaneously with such
repayment and (III) such advance or advances shall be evidenced by a promissory
note and such promissory note shall be pledged to the Agent on terms and
conditions satisfactory to the Agent and there shall be no restrictions
whatsoever on the ability of Balihides to repay such advance or advances;

         (d) Investments in retail stores existing on the date hereof;

         (e) Investments by the Borrower in Bank Swap Contracts to the extent
permitted by Section 7.1(d);

         (f) Investments in the Qingdao Garments Production Co., Ltd.
("Qingdao") not to exceed $1,000,000 on a cost basis (excluding the earnings or
losses attributed to such investment); provided, that in the event that any
amounts advanced for such purpose that are evidenced by one or more promissory
notes, that such promissory notes shall be pledged to the Agent on terms and
conditions satisfactory to the Agent and there shall be no restriction
whatsoever on the ability of Qingdao to repay such amount or amounts; and

         (g) Other investments in any factories, ventures or retail stores as in
effect on the date hereof as set forth on Schedule 7.9.

         Section 7.10 Fiscal Year.

    Change its fiscal year.

         Section 7.11 ERISA Obligations.

         (a) Be or become obligated (after a final determination) to the PBGC in
excess of $50,000 other than in respect of annual premium payments;

         (b) Be or become obligated (after a final determination) to the IRS in
excess of $50,000 with respect to excise or other penalty taxes provided for in
Section 4975 of the Code;

         (c) Incur a complete withdrawal or partial withdrawal with respect to
any Multiemployer Plan if such withdrawal would result in a material adverse
change in the business, operations or condition, financial or otherwise, of the
Borrower, the Parent or its Subsidiaries; or

         (d) Fail to make any contribution or payment to any Multiemployer Plan
which the Borrower or the Parent is required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining thereto if such
failure would result in a material adverse change in the business, operations or
condition, financial or otherwise, of the Borrower, the Parent or its
Subsidiaries.

         Section 7.12 Amendments of Documents.

         Modify, amend, supplement or terminate, or agree to modify, amend,
supplement or terminate, its certificate of incorporation or by-laws.

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         Section 7.13 Capital Expenditures.

    Make or be or become obligated to make Capital Expenditures for the Parent,
Borrower and the Subsidiaries, in an amount in excess of (a) $1,750,000 in the
aggregate during any Fiscal Year during the term hereof and (b) $800,000 in the
aggregate during the Stub Period. Capital Expenditures shall not include
expenditures to the extent that such expenditures constitute a reinvestment of
proceeds from any asset sale permitted under this Agreement.

         Section 7.14 Capitalized Lease Obligations.

    Make or be or become obligated to make expenditures in respect of
Capitalized Lease Obligations in excess of (a) aggregate annual payments of
$750,000 with respect to all Leases entered into during any Fiscal Year during
the term hereof, and (b) aggregate payments of $250,000 with respect to all
Leases entered into during the Stub Period; provided, however, that the amounts
permitted in (a) and (b) above shall apply only to Leases relating to Capital
Expenditures permitted under Section 7.13.

         Section 7.15 Management Fees.

    Pay, or be or become obligated to pay, any Management Fees to any Person, or
any interest on any deferred obligation therefor, including, without limitation,
to any shareholder, director, officer or employee of the Borrower other than in
usual and customary amounts with respect to the services rendered or management
supervision provided.

         Section 7.16 Transactions with Affiliates.

    Except as expressly permitted by this Agreement, directly or indirectly: (a)
make any investment in an Affiliate; (b) transfer, sell, lease, assign or
otherwise dispose of any assets to an Affiliate; (c) merge into or consolidate
with or purchase or acquire assets from an Affiliate; (d) enter into any other
transaction directly or indirectly with or for the benefit of any Affiliate
(including, without limitation, guarantees and assumptions of obligations of an
Affiliate); or (e) enter into any agreement providing for above-market prices
for goods or services to or from an Affiliate; provided, however, that: (i)
payments on investments expressly permitted by Section 7.9 may be made, (ii) any
Affiliate who is a natural person may serve as an employee or director of the
Borrower or any Subsidiary and receive reasonable compensation for his services
in such capacity, and (iii) the Borrower, the Parent or any Subsidiary may enter
into any transaction with an Affiliate providing for the leasing of property,
the rendering or receipt of services or the purchase or sale of product,
inventory and other assets in the ordinary course of business if the monetary or
business consideration arising therefrom would be substantially as advantageous
to the Borrower, the Parent or a Subsidiary as the monetary or business
consideration that it would obtain in a comparable arm's length transaction with
a Person not an Affiliate.

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         Section 7.17 Activities Leading to Forfeiture Proceeding.

    Neither the Borrower nor any of its Subsidiaries or Affiliates shall engage
in or propose to be engaged in the conduct of any business or activity which
could result in a Forfeiture Proceeding.

         Section 7.18 Rental Obligations.

    Enter into any Lease (other than Capitalized Leases that are governed by
Section 7.14), other than Leases which require the Borrower, the Parent or any
Subsidiary to pay in the aggregate not in excess of (a) $750,000 during any
Fiscal Year during the term hereof, and (b) $250,000 during the Stub Period;
provided, however, that such limitations shall not apply to the portion of any
lease payment due which is determined as a percentage of the revenues of the
applicable retail store of the Borrower, the Parent or any Subsidiary.

         Section 7.19 Retail Stores.

    Open any additional retail stores during the period from the date hereof
through the Commitment Termination Date; provided, however, that the Borrower
may (i) open seasonal, outlet-type stores so long as (A) not more than four (4)
such stores are open at any time, (B) the occupancy of each such store shall not
exceed five (5) months, (C) the Borrower shall not make any capital expenditures
in connection with such stores, and (D) rent payable to the lessors of such
stores shall be determined on a "percentage of sales" basis only (i.e., no fixed
minimum rent) and the Borrower shall not guarantee to the lessor any minimum
sales and (ii) during any Fiscal Year, enter into leases, the aggregate rent
payable with respect to which shall not exceed $150,000 per year, for store
space to conduct sample sales.

         Section 7.20 License Agreements.

    Enter into any licensing agreement which would prohibit or limit the Agent's
exercise of rights to liquidate Collateral other than license agreements
pursuant to which the minimum royalty payable by the Borrower during each of the
first three years of the term thereof shall be less than or equal to $500,000
per year and that otherwise contain terms and conditions satisfactory to the
Agent.

    ARTICLE 8. EVENTS OF DEFAULT.

    If any one or more of the following events ("Events of Default") shall occur
and be continuing, the Commitments shall terminate and the entire unpaid balance
of the principal of and interest on the Notes outstanding and all other
Obligations and Indebtedness of the Borrower to the Lenders, the Collateral
Monitoring Agent, the Issuing Bank and the Agent arising hereunder and under the
other Loan Documents, shall immediately become due and payable upon written
notice to that effect given to the Borrower by the Agent (except that in the
case of the occurrence of any Event of Default described in Section 8.6 no such
notice shall be required), without presentment or demand for payment, notice of
non-payment, protest or further notice or demand of any kind, all of which are
expressly waived by the Borrower:

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         Section 8.1 Payments.

    Failure by the Borrower to (i) make any payment or mandatory prepayment of
principal or interest upon any Note when due, (ii) make any payment of any Fee
when due, (iii) make any payment arising under any Application, L/C, Acceptance,
Steamship Guarantee or Airway Release, (iv) make any required payment under
Section 2.7, or (v) make any required payment under Section 2.17, 2.18 and 10.1
and, with respect to clause (v) only, such failure shall continue unremedied for
a period of 10 days in the case of Section 2.17 and 2.18 and three (3) days in
the case of Section 10.1, in each case after receipt by Borrower of a demand
therefor; or

         Section 8.2 Certain Covenants.

    Failure to perform or observe any of the agreements of the Borrower, the
Parent or any Subsidiary contained in Section 6.9 or Article 7; or

         Section 8.3 Other Covenants.

    (a) Failure by the Borrower to perform or observe any other term, condition
or covenant hereof or of any of the other Loan Documents to which it is a party,
which shall remain unremedied for a period of 15 days after the earlier of (i)
when the Borrower becomes aware of such failure and (ii) notice thereof shall
have been given to the Borrower by the Agent; or

    (b) Failure by any Loan Party other than the Borrower to perform or observe
any term, condition or covenant of any of the Loan Documents to which it is a
party, which shall remain unremedied for a period of 15 days after the earlier
of (i) when such Loan Party becomes aware of such failure and (ii) notice
thereof shall have been given to the Borrower by the Agent; or

         Section 8.4 Other Defaults.

         (a) Other than the defaults set forth on Exhibit G, failure to perform
or observe any term, condition or covenant of any bond, note, debenture, loan
agreement, indenture, guaranty, trust agreement, mortgage or similar instrument
to which the Borrower, the Parent or any Subsidiary is a party or by which it is
bound, or by which any of its properties or assets may be affected (a "Debt
Instrument"), so that, as a result of any such failure to perform, the
Indebtedness included therein or secured or covered thereby may be declared due
and payable prior to the date on which such Indebtedness would otherwise become
due and payable; or

         (b) Any event or condition referred to in any Debt Instrument shall
occur or fail to occur, so that, as a result thereof, the Indebtedness included
therein or secured or covered thereby may be declared due and payable prior to
the date on which such Indebtedness would otherwise become due and payable; or

         (c) Failure to pay any Indebtedness for borrowed money due at final
maturity or pursuant to demand under any Debt Instrument;

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provided, however, that if any creditor or beneficiary under any bond, note,
debenture, loan agreement, indenture, guaranty, trust agreement, mortgage or
similar instrument shall assert a default (including, without limitation, those
set forth on Exhibit G) and shall either (i) declare due and payable the
Indebtedness evidenced or secured thereby or (ii) shall commence the exercise of
remedies on the basis of such default, such declaration or exercise shall
constitute an Event of Default hereunder, upon the happening of which the
Lenders may take action notwithstanding Section 10.16; and provided, further,
that the provisions of this Section 8.4 shall not be applicable to any Debt
Instrument that on the date this Section 8.4 would otherwise be applicable
thereto, relates to or evidences Indebtedness in a principal amount of less than
$50,000; or

         Section 8.5 Representations and Warranties.

    Any representation or warranty made in writing to the Lenders or the Agent
in any of the Loan Documents or in connection with the making of the Loans or
the issuance of any L/Cs, Acceptances, Steamship Guaranties or Airway Releases,
or any certificate, statement or report made or delivered in compliance with
this Agreement, shall have been false or misleading in any material respect when
made or delivered or deemed made or deemed delivered; or

         Section 8.6 Bankruptcy.

         (a) The Borrower, the Parent or any Subsidiary shall make an assignment
for the benefit of creditors, file a petition in bankruptcy, be adjudicated
insolvent, petition or apply to any tribunal for the appointment of a receiver,
custodian, or any trustee for it or him or a substantial part of its or his
assets, or shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or the Borrower, the
Parent or any Subsidiary shall take any corporate action to authorize any of the
foregoing actions; or there shall have been filed any such petition or
application, or any such proceeding shall have been commenced against it or him,
that remains unstayed or undismissed for a period of 60 days or more; or any
order for relief shall be entered in any such proceeding; or the Borrower, the
Parent or any Subsidiary by any act or omission shall indicate its or his
consent to, approval of or acquiescence in any such petition, application or
proceeding or the appointment of a custodian, receiver or any trustee for it or
him or any substantial part of any of its or his properties, or shall suffer any
custodianship, receivership or trusteeship to continue unstayed or undischarged
for a period of 60 days or more; or

         (b) The Borrower, the Parent or any Subsidiary shall generally not pay
its or his debts as such debts become due; or

         (c) The Borrower, the Parent or any Subsidiary shall have concealed,
removed, or permitted to be concealed or removed, any part of its or his
property, with intent to hinder, delay or defraud its or his creditors or any of
them or made or suffered a transfer of any of its or his property that may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall
have made any transfer of its or his property to or for the benefit of a
creditor at a time when other creditors similarly situated have not been paid;
or shall have

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suffered or permitted, while insolvent, any creditor to obtain a Lien upon any
of its or his property through legal proceedings or distraint that is not stayed
or vacated within 60 days from the date thereof; or

         Section 8.7 Judgments.

    Any judgment against the Borrower, the Parent or any Subsidiary or any
attachment, levy or execution against any of its properties for any amount in
excess of $200,000 in respect of any judgment after deducting from such judgment
the amount of any insurance proceeds payable to the judgment debtor with respect
thereto, shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 30 days or more; or

         Section 8.8 ERISA.

         (a) The institution by the PBGC of proceedings for the involuntary
termination of any Pension Plan by reason of, or that could result in, an
"accumulated funding deficiency" under Section 412 of the Code which would have
a material adverse effect on the business, operations or condition, financial or
otherwise, of the Borrower, the Parent or its Subsidiaries; or

         (b) Failure by the Borrower or the Parent to make required
contributions, in accordance with the applicable provisions of ERISA, to each of
the Employee Benefit Plans or Plans hereafter established or assumed by it
including any Plan which is a Multiemployer Plan, if such failure would result
in the imposition of a Lien, which would have a material adverse effect on the
business, financial condition or properties of the Borrower, the Parent and its
Subsidiaries, on the assets of the Borrower or the Parent or an ERISA Affiliate
or would otherwise have a material adverse effect on the business, financial
condition or properties of the Borrower, the Parent and the Subsidiaries, taken
as a whole; or

         Section 8.9 Ownership of Stock.

    Morris and/or Aron Goldfarb (or, in the event of the death of either of
them, his estate, legal representative or heirs) shall at any time own,
beneficially and of record, less than 33-1/3% in the aggregate of all of the
issued and outstanding shares of capital stock of the Parent having ordinary
voting rights for the election of directors; or

         Section 8.10 Management.

    Morris Goldfarb shall cease for any reason whatsoever, including, without
limitation, death or disability (as such disability shall be determined in the
sole and absolute judgment of the Majority Lenders) to be and continuously
perform the duties of chief executive officer of the Borrower or, if such
cessation shall occur as a result of the death or such disability, no successor
satisfactory to the Agent and the Lenders, in their sole discretion, shall have
become and shall have commenced to perform the duties of chief executive officer
of the Borrower within 90 days after such cessation; provided, however, that if
any satisfactory successor or interim management shall have been so elected and
shall have commenced performance of such duties within such

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period, the name of such successor or successors shall be deemed to have been
inserted in place of Morris Goldfarb in this Section 8.10; or

         Section 8.11 Liens.

    Any of the Liens created and granted to the Agent for the ratable benefit of
the Lenders under the Security Documents shall fail to be valid, first,
perfected Liens, subject to no prior or equal Lien, except as permitted by
Section 7.2; or

         Section 8.12 Amount of Obligations.

    On the last day of any month, the Obligations exceed the Borrowing Base
whether or not such excess is repaid pursuant to Section 2.7(c) at any time; or

         Section 8.13 Forfeiture Proceedings.

    Any Forfeiture Proceeding shall have been commenced or the Borrower shall
have given any Lender written notice of the commencement of any Forfeiture
Proceeding as provided in Section 5.11 or any Lender has a good faith basis to
believe that a Forfeiture Proceeding has been threatened or commenced.

         Section 8.14 Material Adverse Change.

    There shall have occurred a material adverse change in the financial
condition or business prospects of the Borrower, the Parent and the
Subsidiaries, taken as a whole, since the date hereof.

    ARTICLE 9. AGENCY PROVISIONS.

         Section 9.1 Appointment, Powers and Immunities.

    Each Lender hereby irrevocably appoints and authorizes each of the
Collateral Monitoring Agent, the Issuing Bank and the Agent to act as its agent
hereunder, under the Security Documents and the other Loan Documents with such
powers as are specifically delegated to such parties, respectively, by the terms
hereof, the Security Documents and the other Loan Documents together with such
other powers as are reasonably incidental thereto. Each of the Collateral
Monitoring Agent, the Issuing Bank and the Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement, the
Security Documents and the other Loan Documents and shall be a trustee for any
Lender. None of the Collateral Monitoring Agent, the Issuing Bank or the Agent
shall be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement, the Security
Documents, or the other Loan Documents, in any Application, certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement, the Security Documents or the other Loan Documents, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency hereof, the
Security Documents or the other Loan Documents or any other document referred to
or provided for herein or therein or for the collectibility of the Loans

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or for the validity, effectiveness or value of any interest or security covered
by the Security Documents or for the value of any Collateral or for the validity
or effectiveness of any assignment, mortgage, pledge, security agreement,
financing statement, document or instrument, or for the filing, recording,
re-filing, continuing or re-recording of any thereof or for any failure by the
Borrower or any of the other Loan Parties to perform any of its obligations
hereunder or under the other Loan Documents. Each of the Collateral Monitoring
Agent, the Issuing Bank and the Agent may employ agents and attorneys-in-fact
and shall not be answerable, except as to money or securities received by it or
its authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. None of the Collateral
Monitoring Agent, the Issuing Bank or the Agent nor any of their directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder, under the Security
Documents or the other Loan Documents or in connection herewith or therewith,
except for its or their own gross negligence or willful misconduct.

         Section 9.2 Reliance.

    Each of the Collateral Monitoring Agent, the Issuing Bank and the Agent
shall be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, telegram or cable) believed by it to
be genuine and correct and to have been signed or sent by or on behalf of the
proper person or persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by them. As to any matters
not expressly provided for by this Agreement, the Security Documents or the
other Loan Documents, each of the Collateral Monitoring Agent, the Issuing Bank
or the Agent shall in all cases be fully protected in acting, or in refraining
from acting, hereunder, under the Security Documents or the other Loan Documents
in accordance with instructions signed by the Majority Lenders, and such
instructions of the Majority Lenders and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders.

         Section 9.3 Events of Default.

    Neither the Collateral Monitoring Agent or the Agent shall be deemed to have
knowledge of the occurrence of a Default unless the such party has received
notice from a Lender or the Borrower specifying such Default and stating that
such notice is a "Notice of Default". In the event that either the Agent or the
Collateral Monitoring Agent receives such a notice of the occurrence of a
Default, the Agent or the Collateral Monitoring shall promptly give notice
thereof to the Lenders. The Agent shall (subject to Section 9.7) take such
action with respect to such Default as shall be directed by the Majority
Lenders.

         Section 9.4 Rights as a Lender.

    Each of the Collateral Monitoring Agent, the Issuing Bank and the Agent in
its capacity as a Lender hereunder, shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as an agent hereunder, and the term "Lender" or "Lenders" shall, unless
the context otherwise indicates, include each of the Collateral Monitoring
Agent, the Issuing Bank and the Agent in its individual capacity. Each of the
Collateral Monitoring Agent, the Issuing Bank and Agent and their Affiliates may
(without

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having to account therefor to any Lender) accept deposits from, lend money to
and generally engage in any kind of banking, trust or other business with the
Borrower or its Affiliates, as if it were not acting as an agent of the Lenders
hereunder, and may accept fees from the Borrower or its Affiliates, for services
in connection with this Agreement, the Security Documents or any of the other
Loan Documents or otherwise without having to account for the same to the
Lenders; provided, however, that each of the Collateral Monitoring Agent,
Issuing Bank and the Agent will not accept more than its Lender's Share of any
fee paid by the Borrower to the Lenders or to the Agent for the account of the
Lenders in connection with this Agreement.

         Section 9.5 Indemnification.

    The Lenders shall indemnify each of the Collateral Monitoring Agent, the
Issuing Bank and the Agent (to the extent not reimbursed by the Borrower under
Sections 10.1 and 10.2), ratably in accordance with their respective
Commitments, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever that may be imposed on, incurred by or asserted
against any of the Collateral Monitoring Agent, the Issuing Bank or the Agent in
any way relating to or arising out of this Agreement, the Security Documents or
any of the other Loan Documents or any other documents contemplated by or
referred to herein or therein or the transactions contemplated by or referred to
herein or therein or the transactions contemplated hereby and thereby
(including, without limitation, the costs and expenses that the Borrower is
obligated to pay under Sections 10.1 and 10.2, but excluding normal
administrative costs and expenses incident to the performance of their agency
duties hereunder or under the Security Documents unless a default by the
Borrower with respect to the payment thereof has occurred and is continuing) or
the enforcement of any of the terms hereof or of the Security Documents, or of
any such other documents, provided that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.

         Section 9.6 Non-Reliance.

    Each Lender agrees that it has, independently and without reliance on the
Collateral Monitoring Agent, the Issuing Bank or the Agent or any other Lender,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis of the Borrower and decision to enter into this
Agreement and that it will, independently and without reliance upon the
Collateral Monitoring Agent, the Issuing Bank or the Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement, the Security Documents or the other Loan Documents.
None of the Collateral Monitoring Agent, the Issuing Bank or the Agent shall be
required to keep itself informed as to the performance or observance by the
Borrower of this Agreement, the Security Documents or the other Loan Documents
or any other document referred to or provided for herein or therein or to
inspect the properties or books of the Borrower. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Collateral Monitoring Agent, the Issuing Bank or the Agent
hereunder or under the Security Documents, or the other Loan Documents, none of
the Collateral Monitoring Agent, the Issuing Bank or the

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Agent shall have any duty or responsibility to provide any Lender with any
credit or other information concerning the affairs, financial condition or
business of the Borrower, that may come into the possession of the Collateral
Monitoring Agent, the Issuing Bank or the Agent or any of its Affiliates.

         Section 9.7 Failure to Act.

    Except for action expressly required of the Collateral Monitoring Agent, the
Issuing Bank or the Agent hereunder, or under the Security Documents, each of
the Collateral Monitoring Agent, the Issuing Bank or the Agent shall in all
cases be fully justified in failing or refusing to act hereunder or thereunder
unless it shall be indemnified to its satisfaction by the Lenders against any
and all liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.

         Section 9.8 Resignation or Removal.

    Subject to the appointment and acceptance of a successor as provided below,
each of the Collateral Monitoring Agent, the Issuing Bank or the Agent (i) may
resign at any time by giving not less than 10 days' prior written notice thereof
to the Lenders and the Borrower and (ii) may be removed at any time with or
without cause by the Majority Lenders. Upon any such resignation or removal, the
Majority Lenders shall have the right to appoint a successor. If no successor
Collateral Monitoring Agent, Issuing Bank or Agent shall have been so appointed
by the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring party's giving of notice of resignation or the Majority
Lenders' removal of the retiring party, then the retiring Collateral Monitoring
Agent, the Issuing Bank or Agent, as the case may be, may, on behalf of the
Lenders, after consultation with the Borrower, appoint a successor which shall
be one of the Lenders. Upon the acceptance of any appointment as successor
hereunder or under the Security Documents, such successor Collateral Monitoring
Agent, Issuing Bank or Agent, as the case may be, shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
party, and the retiring party shall be discharged from its duties and
obligations hereunder and under the Security Documents. After any retiring
party's resignation or removal hereunder as Collateral Monitoring Agent, Issuing
Bank or Agent, as the case may be, the provisions of this Article 9 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Collateral Monitoring Agent, the
Issuing Bank or Agent hereunder.

         Section 9.9 Sharing of Collateral and Payments.

    Upon or following any acceleration by the Agent and the Lenders of the
Obligations, and following the purchase by each Lender of its proportional share
of the Obligations pursuant to Section 2.16(b), in the event that any Lender
shall obtain payment in respect of any such Obligation, or interest thereon, or
receive any Collateral or proceeds thereof with respect to any such Obligation,
whether voluntarily or involuntarily, and whether through the exercise of a
right of banker's lien, set-off or counterclaim against the Borrower or any
other Loan Party or otherwise, in a greater proportion than any such payment
obtained by any other Lender in respect of the aggregate amount of the
corresponding Obligation held by such Lender, then the Lender

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so receiving such greater proportionate payment or such greater proportionate
amount of Collateral, shall purchase for cash from the other Lender or Lenders
such portion of each such other Lender's or Lenders' Loan, or shall provide the
other Lenders with the benefits of any such Collateral, or the proceeds thereof,
as shall be necessary to cause such Lender receiving the proportionate
overpayment to share the excess payment or benefits of such Collateral or
proceeds ratably with each Lender. For the purposes of this Section, payments on
Obligations received by each Lender and receipt of Collateral by each Lender
shall be in the same proportion as the proportion of: (A) the Obligations owing
to such Lender in respect of the Obligations held by such Lender to (B) the
Obligations owing to all of the Lenders in respect of all of the Obligations;
provided, however, that, with respect to the foregoing, if all or any portion of
such excess payment or benefits is thereafter recovered from the Lender that
received the proportionate overpayment, such purchase of Obligations or payment
of benefits, as the case may be, shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest.

         Section 9.10  Additional Provisions as to the Collateral Monitoring
                       Agent.

         (a) The Collateral Monitoring Agent shall prepare and submit to the
Lenders, monthly on or before the 20th day of the following month, reports as
to:

              (i) a summary of projected Availability vs actual Availability
    (including a calculation of the Borrowing Base amount);

              (ii) an accounts receivable aging analysis;

              (iii) an accounts receivable concentration summary;

              (iv) ineligible calculations for both Accounts and Inventory; and

              (v) accounts receivable statistics (including sales, turnover and
    dilution) on both a monthly and cumulative basis.

         (b) Whenever the Collateral Monitoring Agent conducts a field
examination, the Collateral Monitoring Agent will deliver to the Lenders a
report prepared by the Collateral Monitoring Agent as to the results of such
field examination as promptly as possible, but in any event no later than 30
days following the Collateral Monitoring Agent's receipt of the field
examination reports. The Collateral Monitoring Agent agrees to conduct, at the
Borrower's expense: (i) at least three (3) field examinations of the Borrower's
Accounts per annum during the term hereof, and (ii) at the Collateral Monitoring
Agent's discretion, field examinations of the Borrower's Inventory, provided
that the Collateral Monitoring Agent shall conduct at least two (2) such
examinations of Inventory per annum during the term hereof. Upon reasonable
advance request of the Collateral Monitoring Agent, the Lenders shall have the
right to examine at the Collateral Monitoring Agent's offices, or to request
copies (prepared at the requesting Lender's cost) of, all field reports,
resulting correspondence with the Borrower and other work product relating to
such field examination. The Collateral Monitoring Agent agrees to respond

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to, and to refer to the Borrower when appropriate and then to respond to,
reasonable inquiries made by the Lenders arising with respect to field
examinations or reports.

         (c) The Collateral Monitoring Agent may include Inventory labeled as
"Season X" in Eligible Inventory if the Borrower establishes to the satisfaction
of the Collateral Monitoring Agent that existing orders for such Inventory
exceed such Inventory currently on hand; provided, however, that prior to
including such Inventory in Eligible Inventory (x) the Collateral Monitoring
Agent has given the Lenders at least 24 hours notice that the Agent intends to
include such Inventory in Eligible Inventory, and (y) the Collateral Monitoring
Agent has not been notified of objections by the Lenders to the inclusion of
such Inventory in Eligible Inventory within the 24-hour period following the
giving of such notice.

         (d) Without limiting the generality of any other provision hereof, the
Collateral Monitoring Agent shall specifically not have authority to:

              (i) increase or decrease the percentages of Eligible Accounts or
    Eligible Inventory to be included in the Borrowing Base, other than by
    adjustment of the reserves provided for in the definition of "Borrowing
    Base"; provided, however, that the Collateral Monitoring Agent may establish
    additional reserves if (x) the Collateral Monitoring Agent has given the
    Lenders at least 24 hours notice that the Agent intends to establish such
    additional reserves and (y) the Collateral Monitoring Agent has not been
    notified of objections by the Lenders to the establishing of such additional
    reserves within the 24-hour period following the giving of such notice; and
    provided, further, that once an additional reserve has been established the
    Collateral Monitoring Agent may adjust that reserve in its discretion.

              (ii) release Collateral;

              (iii) waive any violation or default under this Agreement, the
    Security Documents, the Loan Documents or otherwise on behalf of the
    Lenders; or

              (iv) modify the amount of any Fees or interest payable pursuant to
    this Loan Agreement.

    ARTICLE 10. MISCELLANEOUS PROVISIONS.

         Section 10.1 Fees and Expenses; Indemnity.

    The Borrower will promptly (and in any event within 30 days after its
receipt of an invoice or statement therefor) pay all costs of the Collateral
Monitoring Agent, the Issuing Bank, the Agent and each of the Lenders in
preparing the Loan Documents and all costs and expenses of the Collateral
Monitoring Agent and the Lenders of the issuance of the Notes, L/Cs,
Applications, Acceptances, Steamship Guaranties and Airway Releases and of the
Borrower's and the other Loan Parties' performance of and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with (including, without limitation, all costs of filing or recording
any assignments, mortgages, financing statements and other

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documents except any such costs incurred in connection with an assignment or
participation pursuant to Section 10.13), and the reasonable fees and expenses
and disbursements of counsel to the Collateral Monitoring Agent, the Issuing
Bank, the Agent and the Lenders in connection with the preparation, execution
and delivery, administration, interpretation and enforcement hereof, the other
Loan Documents, the L/Cs, Applications, Acceptances, Steamship Guaranties and
Airway Releases and all other agreements, instruments and documents relating to
this transaction, the consummation of the transactions contemplated by all such
documents, the preservation of all rights of the Lenders and the Collateral
Monitoring Agent, the Issuing Bank, and the Agent the negotiation, preparation,
execution and delivery of any amendment, modification or supplement of or to, or
any consent or waiver under, any such document (or any such instrument that is
proposed but not executed and delivered) and with any claim or action
threatened, made or brought against any of the Lenders or the Collateral
Monitoring Agent, the Issuing Bank and the Agent arising out of or relating to
any extent to this Agreement, the other Loan Documents or the transactions
contemplated hereby or thereby and including, without limitation, the allocated
costs of internal counsel to the Lenders with respect to the amending and
restating of the Original Loan Agreement. In addition, the Borrower will
promptly pay all costs and expenses (including, without limitation, reasonable
fees, costs and disbursements of counsel) suffered or incurred by each Lender in
connection with its enforcement hereof, the Loan Documents and the Notes held by
it, the L/Cs, Applications, Acceptances, Steamship Guaranties and Airway
Releases or any other sum due to it under this Agreement or any of the other
Loan Documents or any of its other rights hereunder or thereunder. In addition
to the foregoing, the Borrower shall indemnify each Lender and the Collateral
Monitoring Agent, the Issuing Bank and the Agent and each of their respective
directors, officers, employees, attorneys, agents and Affiliates against, and
hold each of them harmless from, any loss, liabilities, damages, claims, costs
and expenses (including reasonable attorneys' fees and disbursements, including
cost allocated by in-house counsel to any Lender) suffered or incurred by any of
them arising out of, resulting from or in any manner connected with, the
execution, delivery and performance of this Agreement and each of the other Loan
Documents, the Loans and any and all transactions related to or consummated in
connection with the Loans, L/Cs, Applications, Acceptances, Steamship Guaranties
and Airway Releases, including, without limitation, losses, liabilities,
damages, claims, costs and expenses suffered or incurred by any Lender or the
Collateral Monitoring Agent, the Issuing Bank and the Agent or any of their
respective directors, officers, employees, attorneys, agents or Affiliates
arising out of or related to any Environmental Matter, Environmental Liability
or Environmental Proceeding, or in investigating, preparing for, defending
against, or providing evidence, producing documents or taking any other action
in respect of any commenced or threatened litigation, administrative proceeding
or investigation under any federal securities law or any other statute of any
jurisdiction, or any regulation, or at common law or otherwise. The indemnity
set forth herein shall be in addition to any other obligations or liabilities of
the Borrower to the Agent and the Lenders hereunder or at common law or
otherwise. The provisions of this Section 10.1 shall survive the payment of the
Notes, L/Cs, Acceptances, Steamship Guaranties and Airway Releases and the
termination hereof.

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         Section 10.2 Taxes.

    If, under any law in effect on the date of the closing of any Loan
hereunder, or under any retroactive provision of any law subsequently enacted,
it shall be determined that any federal, state or local tax is payable in
respect of the issuance of any Note, L/C, Acceptance, Steamship Guarantee and
Airway Release, or in connection with the filing or recording of any
assignments, mortgages, financing statements, or other documents (whether
measured by the amount of Indebtedness secured or otherwise) as contemplated by
this Agreement, then the Borrower will pay any such tax and all interest and
penalties, if any, and will indemnify the Lenders and the Collateral Monitoring
Agent, the Issuing Bank and the Agent against and save each of them harmless
from any loss or damage resulting from or arising out of the nonpayment or delay
in payment of any such tax. If any such tax or taxes shall be assessed or levied
against any Lender or any other holder of a Note, or issuer of an L/C,
Acceptance, Steamship Guarantee or Airway Release, such Lender, or such other
holder or issuer, as the case may be, may notify the Borrower and make immediate
payment thereof, together with interest or penalties in connection therewith,
and shall thereupon be entitled to and shall receive immediate reimbursement
therefor from the Borrower. Notwithstanding any other provision contained in
this Agreement, the covenants and agreements of the Borrower in this Section
10.2 shall survive payment of the Notes, L/Cs, Acceptances, Steamship Guaranties
and Airway Releases and the termination hereof.

         Section 10.3 Payments.

    As set forth in Article 2, all payments by the Borrower on account of
principal, interest, Fees and other charges (including any indemnities) shall be
made to the Collateral Monitoring Agent at its Payment Office, in lawful money
of the United States of America in immediately available funds, by wire transfer
or otherwise, not later than 1:00 p.m. New York City time on the date such
payment is due. Any such payment made on such date but after such time shall, if
the amount paid bears interest, be deemed to have been made on, and interest
shall continue to accrue and be payable thereon until, the next succeeding
Business Day. If any payment of principal or interest becomes due on a day other
than a Business Day, such payment may be made on the next succeeding Business
Day and such extension shall be included in computing interest in connection
with such payment. All payments hereunder and under the Notes, L/Cs,
Acceptances, Steamship Guaranties and Airway Releases shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid under this Agreement and the Notes, L/Cs, Acceptances, Steamship Guaranties
and Airway Releases (after withholding for or on account of: (i) any present or
future taxes, levies, imposts, duties or other similar charges of whatever
nature imposed by any government or any political subdivision or taxing
authority thereof, other than any tax (except those referred to in clause (ii)
below) on or measured by the net income of the Lender to which any such payment
is due pursuant to applicable federal, state and local income tax laws, and (ii)
deduction of amounts equal to the taxes on or measured by the net income of such
Lender payable by such Lender with respect to the amount by which the payments
required to be made under this sentence exceed the amounts otherwise specified
to be paid in this Agreement and the Notes, L/Cs, Acceptances, Steamship
Guaranties and Airway

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Releases). Upon payment in full of any Note, the Lender holding such Note shall
mark the Note "Paid" and return it to the Borrower.

         Section 10.4 Survival of Agreements and Representations.

    All agreements, representations and warranties made herein shall survive the
delivery hereof, the Notes and any other instruments evidencing Obligations.

         Section 10.5 Lien on and Set-off of Deposits.

         As security for the due payment and performance of all the Obligations,
the Borrower hereby grants to Agent for the ratable benefit of the Lenders a
Lien on any and all deposits or other sums at any time credited by or due from
the Agent or any Lender to the Borrower, whether in regular or special
depository accounts or otherwise, and any and all monies, securities and other
property of the Borrower, and the proceeds thereof, now or hereafter held or
received by or in transit to any Lender, the Collateral Monitoring Agent, the
Issuing Bank or the Agent from or for the Borrower, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and any such deposits,
sums, monies, securities and other property, may at any time after the
occurrence and during the continuance of any Event of Default be set-off,
appropriated and applied by any Lender or the Agent against any of the
Obligations, whether or not any of such Obligations is then due or is secured by
any collateral, or, if it is so secured, whether or not the collateral held by
the Agent is considered to be adequate, all as set forth in and pursuant to
Section 2.16.

         Section 10.6 Modifications, Consents and Waivers; Entire Agreement.

    No modification, amendment or waiver of or with respect to any provision
hereof, any Notes, the Security Documents, or any of the other Loan Documents
and all other agreements, instruments and documents delivered pursuant hereto or
thereto, nor consent to any departure by the Borrower from any of the terms or
conditions thereof, shall in any event be effective unless it shall be in
writing and signed by the Agent and each Lender and the Borrower except that:
(i) any modification or amendment of, or waiver or consent with respect to,
Article 4 may be signed only by the Agent and the Majority Lenders and the
Borrower (provided, however, that the consummation of a transaction by a Lender
shall be deemed, with respect to such Loan only, to have the effect of the
execution by such Lender of a waiver of, or consent to a departure from, any
term or provision of Article 4 that has not been satisfied as of the date of the
consummation of such transaction); and (ii) any modification or amendment of, or
waiver or consent with respect to, Articles 1, 5, 6, 7, 8 and 10 (other than
this Section 10.6) may be signed only by the Agent and the Majority Lenders and
the Borrower; provided further, however, no such modification or amendment of
any of the following definitions appearing in Article 1 shall be effective
without the written consent of the Agent, each of the Lenders and the Borrower:
"Borrowing Base", "Borrowing Base Maximum", "Direct Debt Sublimit", "Eligible
Account", "Eligible Inventory", "Majority Lenders" or "Overadvance". Any such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. No consent to or demand on the Borrower in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Agreement and the other Loan Documents

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embody the entire agreement and understanding among the Lenders, the Collateral
Monitoring Agent, the Issuing Bank, the Agent and the Borrower and supersede all
prior agreements and understandings relating to the subject matter hereof.

         Section 10.7 Remedies Cumulative.

    Each and every right granted to the Collateral Monitoring Agent, the Issuing
Bank, the Agent and the Lenders hereunder or under any other document delivered
hereunder or in connection herewith, or allowed it by law or equity, shall be
cumulative and may be exercised from time to time. No failure on the part of the
Collateral Monitoring Agent, the Issuing Bank, the Agent or any Lender or the
holder of any Note or the issuer of any L/C, Acceptance, Steamship Guarantee or
Airway Release to exercise, and no delay in exercising, any right shall operate
as a waiver thereof, nor shall any single or partial exercise of any right
preclude any other or future exercise thereof or the exercise of any other
right. The due payment and performance of the Obligations shall be without
regard to any counterclaim, right of offset or any other claim whatsoever that
the Borrower may have against any Lender, the Collateral Monitoring Agent, the
Issuing Bank or the Agent and without regard to any other obligation of any
nature whatsoever that any Lender, the Collateral Monitoring Agent, the Issuing
Bank or the Agent may have to the Borrower, and no such counterclaim or offset
shall be asserted by the Borrower in any action, suit or proceeding instituted
by any Lender, the Collateral Monitoring Agent, the Issuing Bank or the Agent
for payment or performance of the Obligations or otherwise.

         Section 10.8 Further Assurances.

    At any time and from time to time, upon the request of the Agent, the
Borrower shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Agent may reasonably request in order to fully
effect the purposes hereof, the other Loan Documents and any other agreements,
instruments and documents delivered pursuant hereto or in connection with the
Loans, including, without limitation, the execution and delivery to the Agent of
mortgages in form and substance reasonably satisfactory to the Agent and the
Lenders covering all real property or interests therein acquired by the
Borrower, and all leases of real property entered into by the Borrower as tenant
or lessee, after the date hereof, promptly after such acquisition or the
entering into of any such lease.

         Section 10.9 Notices.

    All notices, requests, reports and other communications pursuant to this
Agreement shall be in writing, either by letter (delivered by hand or commercial
messenger service or sent by certified mail, return receipt requested, except
for routine reports delivered in compliance with Article 5 which may be sent by
ordinary first-class mail) or telegram or telecopy, addressed as follows:

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         (a)  If to the Borrower or any other Loan Party:

                   G-III Leather Fashions, Inc.
                   512 Seventh Avenue
                   New York, New York 10018
                   Attention: Wayne S. Miller,
                              Senior Vice President,
                              Treasurer and Secretary
                   Telecopier No.: (212) 719-0921

              with a copy to:

                   Fulbright & Jaworski L.L.P.
                   666 Fifth Avenue
                   New York, New York 10103
                   Attention: Neil Gold, Esq.
                   Telecopier No.: (212) 318-3400

         (b)  If to any Lender:

                   To its address set forth below its name on the signature
                   pages hereof, with a copy to the Agent; and

         (c)  If to the Collateral Monitoring Agent:

                   Fleet Capital Corporation
                   570 Walnut Avenue
                   Cranford, New Jersey 07016
                   Attention:  Laura Eichhorn,
                               Vice President
                   Telecopier No.: (908) 709-6352

         (d)  If to the Issuing Bank:

                   Fleet National Bank
                   1185 Avenue of the Americas
                   New York, New York 10036
                   Attention:    Stephen Leavenworth,
                                 Vice President
                   Telecopier No.: (212) 819-4105

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         (e)  If to the Agent:

                   Fleet National Bank
                   1185 Avenue of the Americas
                   New York, New York 10036
                   Attention:    Stephen Leavenworth,
                                 Vice President
                   Telecopier No.: (212) 819-4105

              with a copy (with respect to notices, requests, reports and other
              communications to the Collateral Monitoring Agent, the Issuing
              Bank or the Agent other than in the case of Borrowing Notices and
              reports and other documents delivered in compliance with Article
              5), to:

                   Emmet, Marvin & Martin, LLP
                   120 Broadway
                   New York, New York 10271
                   Attention: Richard S. Talesnick
                   Telecopier No.: (212) 238-3100

Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is telecopied to such party at the telecopier
number specified above or delivered by hand or such commercial messenger service
to such party at its address specified above, or, if sent by mail, on the third
Business Day after the day deposited in the mail, postage prepaid, or in the
case of telegraphic notice, when delivered to the telegraph company, addressed
as aforesaid. Any party may change the person, address or telecopier number to
whom or which notices are to be given hereunder, by notice duly given hereunder;
provided, however, that any such notice shall be deemed to have been given
hereunder only when actually received by the party to which it is addressed.

         Section 10.10 Counterparts.

    This Agreement may be signed in any number of counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.

         Section 10.11 Severability.

    The provisions of this Agreement are severable, and if any clause or
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Agreement in any jurisdiction. Each of the
covenants, agreements and conditions contained in this Agreement is independent
and compliance by the Borrower with any of them shall not excuse non-compliance
by the Borrower with any other. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be

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otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.

         Section 10.12 Binding Effect; No Assignment or Delegation by Borrower.

    This Agreement shall be binding upon and inure to the benefit of the
Borrower and its successors and to the benefit of the Lenders, the Collateral
Monitoring Agent, the Issuing Bank and the Agent and their respective successors
and assigns. The rights and obligations of the Borrower under this Agreement
shall not be assigned or delegated without the prior written consent of the
Agent, the Collateral Monitoring Agent, the Issuing Bank and the Lenders, and
any purported assignment or delegation without such consent shall be void.

         Section 10.13  Assignments and Participation by Lenders; Issuance of
                        L/Cs by Lender Affiliates.

         (a) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Loans owing to it or the
other Obligations or L/Cs issued by it, amounts outstanding in respect of
Obligations, and the Note or Notes held by it); provided, however, that (i) each
such assignment shall be of a uniform, and not a varying, percentage of the
assigned rights and obligations, (ii) except in the case of an assignment to a
Person that, immediately prior to such assignment, was a Lender or an assignment
of all of a Lender's rights and obligations under this Agreement, the amount of
the Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 (unless
such lesser amount is equal to the assigning Lender's then outstanding
Commitment) in the aggregate and provided that in the event of concurrent
assignments to two or more Related Funds, all such concurrent assignments (which
in any event shall not be less than $2,500,000) shall be aggregated in
determining compliance with this requirement, and (iii) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any Note
or Notes subject to such assignment and a processing and recordation fee of
$3,500; provided, however, that no such fee shall be payable in the case of an
assignment to a Related Fund. For purposes of this Section, "Related Fund" shall
mean, with respect to any Bank which is a fund that invests in loans, any other
fund that invests in loans and is controlled by the same investment advisor as
such Bank or by any affiliate that is controlled by such investment advisor.

         (b) Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (i) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an

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Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).

         (c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Loan Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, or the perfection or priority of any lien
or security interest created or purported to be created under or in connection
with, this Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; (ii) such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under any Loan Document or any other
instrument or document furnished pursuant thereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of such
financial statements and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement and
the other Loan Documents as are delegated to the Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.

         (d) The Agent shall maintain at its address referred to in Section 10.9
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitment of, and principal amount of the Obligations owing to or L/Cs issued
by, each Lender from time to time (the "Register"). No such Assignment and
Acceptance shall be effective unless and until it is recorded in the Register.
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrower, the Agent, the Collateral Monitoring
Agent, the Issuing Bank and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.

         (e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Note, Application or other instrument evidencing an Obligation
subject to such assignment and the appropriate processing and reconciliation
fee, the Agent shall, if such Assignment and

                                       93
<PAGE>

Acceptance has been completed and is in substantially the form of Exhibit N: (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Borrower. In
the case of any assignment by a Lender, within five Business Days after its
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Agent in exchange for the surrendered Note, Application or other
instrument evidencing an Obligation a new such instrument to the order of such
Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Lender has retained a
portion of its Commitment hereunder, a new such instrument to the order of the
assigning Lender in an amount equal to the Lender's Commitment retained by it
hereunder. Such new instrument shall be in an aggregate principal amount equal
to the aggregate principal amount of such surrendered instrument, shall be dated
the effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit N.

         (f) (i) Each Lender may sell participations to one or more Persons
(other than the Borrower or any of its Affiliates) in all or a portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Lender's Commitment, the Loans owing to it, amounts
outstanding in respect of outstanding Obligations, and the Note held by it) at
any time and from time to time and without the consent of the Borrower; and

              (ii) Fleet may arrange for the issuance of L/Cs which it is
obligated to issue hereunder by an Affiliate of such Lender;

provided, however, that: (v) such Lender's obligations under this Agreement
(including, without limitation, its Lender's Commitment hereunder) shall remain
unchanged, (w) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (x) such Lender shall remain the
holder of any such Note and the issuer of the L/C or other Obligation in respect
of Direct Debt (whenever issued) for all purposes of this Agreement, (y) the
Borrower, the Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and (z) no participant under any such
participation shall have any right to approve any amendment, waiver or other
modification of any provision of this Agreement or any other Loan Document, or
any consent to any departure by the Borrower therefrom, except to the extent
that such amendment, waiver, modification or consent would reduce the principal
of, or interest on, the Note or other Obligation in respect of Direct Debt or
any fees or other amounts payable hereunder, in each case to the extent subject
to such participation, postpone any date fixed for any payment of principal of,
or interest on, the Note, Obligation in respect of Direct Debt or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation.

         (g) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.13, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve

                                       94
<PAGE>

the confidentiality of any confidential information relating to the Borrower
received by it from such Lender.

         (h) Any Lender may at any time grant, pledge or assign a security
interest in all or any portion of the Loans owing to it and the Note held by it
to secure obligations of such Lender, including any pledge or assignment to
secure obligations in favor of any Federal Reserve Bank in accordance with
Regulation A of the Board of Governors of the Federal Reserve System, and this
Section 10.13 shall not apply to any such pledge or assignment of a security
interest, provided that no such pledge or assignment of a security interest
shall release a Lender from any of its obligations hereunder or substitute any
such pledgee or assignee for such Lender as a party hereto.

         (i) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Bank") may grant to a special purpose funding vehicle (a
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Agent and the Borrower, the option to provide to the Borrower all or any
part of any Loan that such Granting Bank would otherwise be obligated to make to
the Borrower pursuant to this Agreement; provided that (i) nothing herein shall
constitute a commitment by any SPC to make any Loan, and (ii) if an SPC elects
not to exercise such option or otherwise fails to provide all or any part of
such Loan, the Granting Bank shall be obligated to make such Loan pursuant to
the terms hereof. The making of a Loan by an SPC hereunder shall utilize the
Commitment of the Granting Bank to the same extent, and as if, such Loan were
made by such Granting Bank. Each party hereto hereby agrees that no SPC shall be
liable for any indemnity or similar payment obligation under this Agreement (all
liability for which shall remain with the Granting Bank). In furtherance of the
foregoing, each party hereto hereby agrees (which agreement shall survive the
termination of this Agreement) that, prior to the date that is one year and one
day after the payment in full of all outstanding commercial paper or other
senior indebtedness of any SPC, it will not institute against, or join any other
person in instituting against, such SPC any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof. In addition, notwithstanding anything to the
contrary contained in this Section 10.13(i), any SPC may (i) with notice to, but
without the prior written consent of, the Borrower and the Agent and without
paying any processing fee therefor, assign all or a portion of its interests in
any Loans to the Granting Bank or to any financial institutions (consented to by
the Borrower and Agent) providing liquidity or credit support to or for the
account of such SPC to support the funding or maintenance of Loans and (ii)
disclose on a confidential basis any non-public information relating to its
Loans to any rating agency, commercial paper dealer or provider of any surety,
guarantee or credit or liquidity enhancement to such SPC. This Section 10.13(i)
may not be amended without the written consent of each Granting Bank, all or any
of whose Loans are being funded by an SPC at the time of such amendment. It is
understood and acknowledged that the Granting Bank shall for all purposes,
including, without limitation, the approval of any amendment or waiver of any
provision of any Loan Document or the obligation to pay any amount otherwise
payable by the Granting Bank under the Loan Documents, continue to be the Lender
of record hereunder.

                                       95
<PAGE>

         Section 10.14  GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF TRIAL
                        BY JURY.

         (a) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL OTHER DOCUMENTS
AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH AND THEREWITH,
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS RULES PERTAINING TO CONFLICTS OF
LAWS.

         (b) THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS
AGREEMENT, AND EACH OTHER LOAN DOCUMENT MAY BE BROUGHT IN ANY COURT OF THE STATE
OF NEW YORK, COUNTY OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK. THE BORROWER BY THE EXECUTION AND DELIVERY OF
THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. THE
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS,
NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR PROCEEDING BY DELIVERY
THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER PROVIDED FOR IN SECTION 10.9. THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY
SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. THE BORROWER SHALL
NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR
ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS SUCH
DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING
IN THIS SECTION 10.14 SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE
RIGHT OF ANY LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY
LAW.

         (c) EACH OF THE BORROWER, THE AGENT, THE COLLATERAL MONITORING AGENT,
THE ISSUING BANK AND THE LENDERS MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY NOTE OR
ANY OTHER LOAN DOCUMENT EXECUTED OR TO BE EXECUTED IN CONNECTION HEREWITH OR ANY
COURSE OF CONDUCT,

                                       96
<PAGE>

COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY
PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS,
STATEMENTS OR ACTIONS OF THE AGENT, THE COLLATERAL MONITORING AGENT, THE ISSUING
BANK OR THE LENDERS RELATING TO THE ADMINISTRATION OF THE LOANS OR THE OTHER
OBLIGATIONS, OR ENFORCEMENT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, AND
AGREES THAT NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS
PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE
BORROWER CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF THE AGENT, THE
COLLATERAL MONITORING AGENT, THE ISSUING BANK OR ANY LENDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE AGENT, THE COLLATERAL MONITORING AGENT, THE
ISSUING BANK OR ANY LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR
THE AGENT, THE COLLATERAL MONITORING AGENT, THE ISSUING BANK AND THE LENDERS TO
ENTER INTO THIS AGREEMENT AND MAKE LOANS, ISSUE L/CS AND MAKE AVAILABLE
STEAMSHIP GUARANTIES, AIRWAY RELEASES AND ACCEPTANCES.

         Section 10.15 Limitation on Interest.

    All agreements between the Borrower, the Agent, the Collateral Monitoring
Agent, the Issuing Bank and the Lenders are hereby limited so that in no
contingency or event whatsoever, whether by reason of acceleration of the Loans
and the other Obligations of the Borrower to the Agent, the Collateral
Monitoring Agent, the Issuing Bank or the Lenders hereunder or under the Notes
or otherwise, shall the amount paid or agreed to be paid to the Agent, the
Collateral Monitoring Agent, the Issuing Bank or the Lenders for the use or the
forbearance of the Loans or such other Obligations exceed the maximum
permissible under applicable law. As used herein, "applicable law" shall mean
the law in effect as of the date hereof; provided, however, that in the event
there is a change in law which results in a higher permissible rate of interest,
then this Agreement and the Notes shall be governed by such new law as of its
effective date. In this regard, it is expressly agreed that it is the intent of
the parties hereto in the execution, delivery and acceptance of this Agreement
and the Notes to contract in strict compliance with the laws of New York State
from time to time in effect. If, under or from any circumstances whatsoever,
fulfillment of any provision hereof or of any of the other Loan Document at the
time of performance of such provision shall be due, shall involve transcending
the limit of such validity prescribed by applicable law, then the obligation to
be fulfilled shall automatically be reduced to the limits of such validity, and
if under or from circumstances whatsoever the Lenders should ever receive as
interest an amount which would exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the principal
balance evidenced by the Notes and not to the payment of interest. This
provision shall control every

                                       97
<PAGE>

other provision of all agreements between Borrower, the Agent, the Collateral
Monitoring Agent, the Issuing Bank and the Lenders.

         Section 10.16 Additional Agreements by Borrower and Loan Parties.

    Each of the Borrower and the Loan Parties agrees that in the event that the
Borrower or any Loan Party is the subject of any insolvency, bankruptcy,
receivership, dissolution, reorganization or similar proceeding, federal or
state, voluntary or involuntary, under any present or future law or act, the
Collateral Monitoring Agent, the Issuing Bank, the Agent and the Lenders shall
be entitled to the automatic and absolute lifting of any automatic stay as to
the enforcement of their rights and remedies under this Agreement and the
Security Documents, including specifically, but not limited to the stay imposed
by Section 362 of the United States Bankruptcy Code, as amended, and each of the
Borrower and the Loan Parties hereby consents to the immediate lifting of any
such automatic stay, and will not contest any motion by the Collateral
Monitoring Agent, the Issuing Bank, the Agent or the Lenders to lift such stay.

         Section 10.17 Release by Borrower and Loan Parties.

    Each of the Borrower and the Loan Parties agrees that the Borrower and the
Loan Parties on behalf of themselves and their respective Subsidiaries,
Affiliates, successors and assigns hereby release and forever discharge the
Collateral Monitoring Agent, the Issuing Bank, the Agent and the Lenders, their
respective parents, subsidiaries and affiliates, and the officers, directors,
employees, agents and attorneys of each of them from any and all liability,
actions, claims, causes of action, suits, debts, damages, executions and demands
whatsoever, in law or in equity which the Borrower or the Loan Parties or any of
their respective Subsidiaries, Affiliates, successors or assigns might have,
arising out of, based upon, in connection with or otherwise relating to any
matter whatsoever, including without limitation, the Obligations, from the
beginning of time to the date hereof.

                            [Signature pages follow.]

                                       98
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                       G-III LEATHER FASHIONS, INC.

                                       By: /s/ Wayne S. Miller
                                           -------------------------------------
                                           Senior Vice President

Agreed:

G-III HONG KONG LTD.

By: /s/ Wayne S. Miller
    -------------------------------------
    Director

G-III APPAREL GROUP, LTD.

By: /s/ Wayne S. Miller
    -------------------------------------
    Senior Vice President

SIENA LEATHER LTD.

By: /s/ Wayne S. Miller
    -------------------------------------
    Vice President

GLOBAL INTERNATIONAL TRADING
COMPANY

By: /s/ Wayne S. Miller
    -------------------------------------
    Vice President

                      [Signatures continued on next page.]

                                      S-1
<PAGE>

INDAWA HOLDING CORP.

By: /s/ Wayne S. Miller
    -------------------------------------
    Vice President

GLOBAL APPAREL SOURCING, LTD.

By: /s/ Wayne S. Miller
    -------------------------------------
    Vice President

G-III RETAIL OUTLETS INC.

By: /s/ Wayne S. Miller
    -------------------------------------
    Vice President

P.T. BALIHIDES

By: /s/ Guiseppe De Marco
    -------------------------------------
    President Director

WEE BEEZ INTERNATIONAL LIMITED

By: /s/ Wayne S. Miller
    -------------------------------------
    Director

KOSTROMA LTD.

By: /s/ Wayne S. Miller
    -------------------------------------
    Director

G-III LICENSE COMPANY, LLC, by G-III Apparel Group, Ltd., as manager

By: /s/ Wayne S. Miller
    -------------------------------------
    Senior Vice President

                      [Signatures continued on next page.]

                                      S-2
<PAGE>

G-III BRANDS, LTD.

By: /s/ Philip H. Litwinoff
    -------------------------------------
    Chief Financial Officer

                      [Signatures continued on next page.]

                                       S-3
<PAGE>

COMMITMENT:

$20,828,125.00                         FLEET NATIONAL BANK,
(as a percentage: 24.50%)              AS AGENT, COLLATERAL MONITORING
                                       AGENT, ISSUING BANK AND AS A LENDER

                                       BY: /S/ STEPHEN LEAVENWORTH
                                           -------------------------------------
                                           VICE PRESIDENT

                                       Lending Office for Prime Rate Loans
                                       and Eurodollar Loans:

                                       1185 Avenue of the Americas
                                       New York, New York 10036
                                       Attention: Stephen Leavenworth,
                                                  Vice President

                                       Address for Notices:

                                       1185 Avenue of the Americas
                                       New York, New York 10036
                                       Attention: Stephen Leavenworth,
                                                  Vice President

                                       Telex No.:  232369
                                       Answer-Back Code: NBNA UR
                                       Telecopier: (212) 819-4105

                                       Wire Transfer Instructions:

                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------

                                       S-4
<PAGE>

COMMITMENT:

$17,742,476.61                         JPMORGAN CHASE BANK
(as a percentage:
20.87%

                                       BY: /S/ JUAN CARLOS ZAINO
                                           -------------------------------------
                                           JUAN C. ZAINO
                                           Title: VICE PRESIDENT

                                       Lending Office for Prime Rate Loans
                                       and Eurodollar Loans:

                                       1411 Broadway
                                       5th Floor
                                       New York, New York 10018
                                       Attention: Juan Zaino,
                                                  Vice President

                                       Address for Notices:

                                       1411 Broadway
                                       5th Floor
                                       New York, New York 10018
                                       Attention: Juan Zaino,
                                                  Vice President

                                       Telex No.: 175666
                                       Answer-Back Code: CBC.UT
                                       Telecopier: (212) 391-7118

                                       Wire Transfer Instructions:

                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------

                                       S-5
<PAGE>

COMMITMENT:

$16,971,065.06                         THE CIT GROUP/COMMERCIAL
(as a percentage:                      SERVICES, INC.
19.97%)

                                       BY: /S/ LISA MURAKAMI
                                           -------------------------------------
                                           VICE PRESIDENT

                                       Lending Office for Prime Rate Loans
                                       and Eurodollar Loans:

                                       1211 Avenue of the Americas
                                       New York, New York 10036
                                       Attention: Lisa Murakami,
                                                  Vice President

                                       Address for Notices:

                                       1211 Avenue of the Americas
                                       New York, New York 10036
                                       Attention: Lisa Murakami,
                                                  Vice President

                                       Telex No.:
                                       Answer-Back Code:
                                       Telecopier: (212) 382-6814

                                       Wire Transfer Instructions:

                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------

                                       S-6
<PAGE>

COMMITMENT:

$8,958,333.33                          ISRAEL DISCOUNT BANK OF
(as a percentage:                      NEW YORK
10.54%)

                                       BY: /S/ HOWARD WEINBERG
                                           -------------------------------------
                                           SENIOR VICE PRESIDENT

                                       BY: /S/ MATILDE REYES
                                           -------------------------------------
                                           VICE PRESIDENT

                                       Lending Office for Prime Rate Loans
                                       and Eurodollar Loans:

                                       511 Fifth Avenue
                                       New York, New York 10017
                                       Attention: Matilde Reyes,
                                                  Vice President

                                       Address for Notices:

                                       511 Fifth Avenue
                                       New York, New York 10017
                                       Attention: Matilde Reyes,
                                                  Vice President

                                       Telex No.:
                                       Answer-Back Code:
                                       Telecopier: (212) 551-8720

                                       Wire Transfer Instructions:

                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------

                                      S-7
<PAGE>

COMMITMENT:

$13,000,000.00                         HSBC BANK USA
(as a percentage:
15.29%)

                                       BY: /S/ MICHAEL BEHUNIAK
                                           -------------------------------------
                                           VICE PRESIDENT

                                       Lending Office for Prime Rate Loans
                                       and Eurodollar Loans:

                                       452 Fifth Avenue
                                       New York, New York 10018
                                       Attention: Michael Behuniak,
                                                  First Vice President

                                       Address for Notices:

                                       452 Fifth Avenue
                                       New York, New York 10018
                                       Attention: Michael Behuniak,
                                                  First Vice President

                                       Telex No.:
                                       Answer-Back Code:
                                       Telecopier: (212) 525-6905

                                       Wire Transfer Instructions:

                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------

                                      S-8
<PAGE>

COMMITMENT:

$7,500,000.00                          BANK LEUMI USA
(as a percentage:
8.82%)

                                       BY: /S/ JOHN KOENIGSBERG
                                           -------------------------------------
                                           FIRST VICE PRESIDENT

                                       BY: /S/ PHYLLIS ROSENFELD
                                           -------------------------------------
                                           VICE PRESIDENT

                                       Lending Office for Prime Rate Loans
                                       and Eurodollar Loans:

                                       562 Fifth Avenue
                                       New York, New York 10036
                                       Attention: Phyllis Rosenfeld,
                                                  Vice President

                                       Address for Notices:

                                       562 Fifth Avenue
                                       New York, New York 10036
                                       Attention: Phyllis Rosenfeld,
                                                  Vice President

                                       Telex No.:
                                       Answer-Back Code:
                                       Telecopier: (212) 626-1311

                                       Wire Transfer Instructions:

                                       -----------------------------------------

                                       -----------------------------------------

                                       -----------------------------------------

                                       S-9

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