10-K

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark one)

/X/	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 2002
Or
/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                              to
Commission file number 0-19604

AAMES FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)	95-4340340 (I.R.S. Employer Identification No.)
350 S. Grand Avenue, Los Angeles, California (Address of principal executive offices)	90071 (Zip Code)

Registrant's telephone number, including area code: (323) 210-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001
Preferred Stock purchase rights

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/  No / /

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

        At September 20, 2002, there were outstanding 6,482,761 shares of the Common Stock of Registrant, and the aggregate market value of the shares held on that date by non-affiliates of the Registrant, based on the closing price ($0.38 per share) of the Registrant's Common Stock as quoted on the Over-the-Counter Bulletin Board was $2,462,879. For purposes of this computation, it has been assumed that the shares beneficially held by directors and executive officers of Registrant were "held by affiliates"; this assumption is not to be deemed to be an admission by such persons that they are affiliates of Registrant.

Documents Incorporated by Reference

        Portions of Registrant's Proxy Statement relating to its 2002 Annual Meeting of Stockholders or an amendment to this Form 10-K are incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Annual Report.

PART I

Item 1. Business

General

        Aames Financial Corporation (the "Company") is a consumer finance company primarily engaged, through its subsidiaries, in the business of originating, selling and servicing home equity mortgage loans collateralized by single family residences. Upon its formation in 1991, the Company acquired Aames Home Loan, a home equity lender making loans in California since it was founded in 1954. In 1995, the Company expanded its retail presence outside of California and began purchasing loans from correspondents. In August 1996, the Company acquired its broker production channel through the acquisition of One Stop Mortgage, Inc. In 1999, the Company consolidated its loan production channels into one company, and the retail and broker production channels (including the former One Stop) now operate under the name "Aames Home Loan."

        The Company's principal market is borrowers whose financing needs are not being met by traditional mortgage lenders for a variety of reasons, including the need for specialized loan products or credit histories that may limit such borrowers' access to credit. The Company believes these borrowers continue to represent an underserved niche of the home equity loan market and present an opportunity to earn a superior return for the risk assumed. The residential mortgage loans originated by the Company, which include fixed and adjustable rate loans, are generally used by borrowers to consolidate indebtedness or to finance other consumer needs, and to a lesser extent, to purchase homes.

        The Company originates loans through its retail and broker production channels. The Company's retail channel produces loans through its traditional retail branch network and through the National Loan Centers, which produces loans primarily through affiliations with sites on the Internet. The Company's broker channel produces loans through its traditional regional broker office network (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or "flow" basis) and by sourcing loans through telemarketing and the Internet. During the years ended June 30, 2002, 2001 and 2000, the Company originated $3.2 billion, $2.4 billion and $2.1 billion, respectively, of mortgage loans. The Company underwrites and appraises every loan it originates.

        As a fundamental part of its business and financing strategy, the Company sells its loans to third party investors in the secondary market as market conditions allow. The Company maximizes opportunities in its loan disposition transactions by disposing of its loan production through a combination of securitizations and whole loan sales, depending on market conditions, profitability and cash flows. During the years ended June 30, 2002, 2001 and 2000, the Company sold $3.2 billion, $2.3 billion and $2.2 billion, respectively, of loans. See "—Loan Disposition."

        During the years ended June 30, 2002 and 2001, the Company sold for cash the servicing rights on the mortgage loans in the securitizations it closed during those periods. The Company retained the servicing on the mortgage loans it securitized through the fiscal year ended June 30, 2000. The Company has generally not added any new mortgage loans to the servicing portfolio (excluding loans serviced on an interim basis) since January 1, 2000 due to the Company's sale of all of its mortgage loan production in servicing released transactions. The Company's servicing portfolio consists mainly of mortgage loans securitized prior to the year ended June 30, 2000 for which the Company retained servicing and, to a lesser extent, loans serviced for others on an interim basis, which includes loans sold where servicing has not yet been transferred and loans held for sale. It is the Company's strategy to maximize opportunities in loan servicing. At June 30, 2002, 2001 and 2000, the Company's servicing portfolio was $2.3 billion, $2.7 billion and $3.6 billion, respectively. Loans serviced in-house at June 30, 2002, 2001 and 2000, which includes loans serviced on an interim basis, were $2.2 billion, $2.5 billion and $3.3 billion, respectively, or 94.6%, 93.2% and 92.6%, respectively. The Company's portfolio of

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loans serviced in-house in securitization trusts was $1.2 billion, $1.8 billion and $3.0 billion at June 30, 2002, 2001 and 2000, respectively.

        The Company continues to focus on increasing its profitability through executing its core business strategy of: (i) increasing the amount and value of its loan production; (ii) reducing its cost of production; (iii) maximizing its opportunities in loan servicing; and (iv) maintaining adequate liquidity and access to the capital markets.

        Increasing the Amount and Value of Its Loan Production.    The Company intends to increase the size of its overall originations while improving its value. The Company's traditional retail branch network, the National Loan Centers, its traditional regional broker office network, and its broker telemarketing and Internet platforms, are all targeted as sources of growth. In its traditional retail branch network, the Company intends to drive this growth by: improving market penetration in its existing markets, introducing new products, improving its customer service levels and branch efficiencies. The Company's traditional regional broker office network operations plan to grow by: improving the service levels it offers to its current group of independent mortgage brokers, continuing to build new relationships with independent mortgage brokers throughout the country and introducing new products that meet the needs of brokers' customer bases. The Company's National Loan Centers, which produce loans through affiliations with sites on the Internet, and its growing broker telemarketing and Internet channel are planning to increase their scale by: identifying additional non-traditional lead sources, increasing their product offerings and expanding their overall operations. Additionally, the Company plans to continue using its knowledge of current customer needs and the historical performance of its loans to improve the value of its offerings to its retail customers and independent mortgage brokers while maximizing the resale value of its production.

        Reducing Its Cost of Production.    The Company intends to reduce its cost of production by leveraging its investment in its origination technology platform, increasing the amount of automation in the loan origination process and increasing the scale of the origination business driving fixed costs down as a percentage of overall production costs. The Company will also continue its on-going effort of identifying opportunities for cost reductions across all levels of the Company's operations.

        Maximizing Its Opportunities in Loan Servicing.    The Company intends to maximize opportunities in loan servicing taking into consideration the overall Company's profitability and liquidity position. Retaining loan servicing generates servicing income and related fees over the life of the loans in the servicing portfolio compared to receiving cash up front in selling servicing rights to third parties in connection with whole loan sales and securitizations. During the fiscal year ended June 30, 2003, the Company expects to maximize profitability and cash flow by selling all of its loan production through whole loan sales and securitization transactions on a servicing released basis. The Company sold all of its loan production during the year ended June 30, 2002 through whole loan sales and securitizations on a servicing released basis. When combined with existing loan servicing run-off, in the form of principal amortization, prepayments and liquidations, the Company's loan servicing portfolio at June 30, 2002 declined $409.0 million, or 15.1%, to $2.3 billion from $2.7 billion at June 30, 2001. Mortgage loans in securitization trusts serviced in-house declined by $619.0 million, or 34.2%, to $1.2 billion at June 30, 2002 from $1.8 billion at June 30, 2001.

        Maintaining Adequate Liquidity and Access to the Capital Markets.    The Company intends to continue to increase and diversify its funding sources by adding additional warehouse or repurchase facilities, expanding its current funding relationships and identifying new funding sources. The Company intends to continue to fund its operations by disposing of a portion of its loan production for cash in the whole loan market, monetizing residual interests, selling the mortgage servicing rights and the rights to prepayment fees on the mortgage loans in its securitizations, monetizing servicing advances and developing new sources for working capital.

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        The strategies discussed above contain forward-looking statements. Such statements are based on current expectations and are subject to risks, uncertainties and assumptions, including those discussed under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors." Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Thus, no assurance can be given that the Company will be able to accomplish the above strategies.

Recent Events

        The Company reported net income of $4.5 million for the year ended June 30, 2002 compared to a net loss of $30.5 million during the year ended June 30, 2001. Total revenue during the year ended June 30, 2002 was $220.1 million, an increase of $31.4 million over the $188.7 million reported for the year ended June 30, 2001. Included in total revenue during the year ended June 30, 2002 and 2001 were residual interest write-downs of $27.0 million and $33.6 million, respectively. Excluding the write-downs of residual interests, total revenues during the year ended June 30, 2002 were $247.1 million, an increase of $24.8 million over the $222.3 million during the year ended June 30, 2001. The Company's total expenses declined by $4.9 million to $212.5 million during the year ended June 30, 2002 from $217.4 million during the year ended June 30, 2001.

        On May 15, 2002, the Company commenced a refinancing of its outstanding 5.5% Convertible Subordinated Debentures due 2006 (the "Existing Debentures") by means of an offer to exchange (the "Exchange Offer") the Company's to be issued 4.0% Convertible Subordinated Debentures due 2012 (the "New Debentures") for any and all of its outstanding Existing Debentures. Of the $114.0 million of total Existing Debentures outstanding as of September 20, 2002, $41.6 million are owned by Specialty Finance Partners ("SFP"), the Company's largest stockholder which is controlled by Capital Z Financial Services Fund, II, L.P. (together with SFP, "Capital Z"). The terms of the Exchange Offer are set forth in an offering memorandum, amendments to the offering memorandum, a letter of transmittal and offering supplements filed previously with the SEC and incorporated into this Form 10-K by reference. As of September 20, 2002, the Company has received tenders of Existing Debentures from holders of approximately $42.9 million principal amount, or approximately 37.5% of the outstanding Existing Debentures. The Exchange Offer is scheduled to expire Friday, October 4, 2002, at 5:00 p.m., New York City time.

Mortgage Loan Production

        The Company's principal loan product is a non-conforming home equity loan with a fixed principal amount and term to maturity which is typically secured by a first or second mortgage on the borrower's residence with either a fixed or adjustable interest rate. Non-conforming home equity loans are loans made to homeowners whose borrowing needs may not be met by traditional financial institutions due to credit exceptions or other factors and generally cannot be directly marketed to agencies such as Fannie Mae and Freddie Mac. During the year ended June 30, 2002, the Company originated its residential loans through its retail and broker production channels. The Company's retail channel produces loans through its traditional retail branch network and through the National Loan Centers, which produce loans primarily through affiliations with sites on the Internet. The Company's broker channel produces loans through its traditional regional broker office network (including purchasing a limited amount of closed loans from mortgage brokers on a continuous or "flow" basis) and by sourcing loans through telemarketing and the Internet.

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        The following table presents certain information about the Company's loan production at or during the years ended June 30, 2002, 2001 and 2000:

			Year Ended June 30,
			2002		2001		2000
Retail loans:
	Traditional retail branch network:
		Total dollar amount	$	1,280,225,000	$	1,104,676,000	$	777,800,000
		Number of loans		14,374		14,571		11,144
		Average loan amount	$	89,065	$	75,813	$	69,795
		Average initial combined LTV		76.37%		74.71%		73.47%
		Weighted average interest rate(1)		9.11%		10.33%		10.05%
		Number of traditional retail branch offices at period end		98		100		100
	National Loan Centers:
		Total dollar amount	$	329,650,000	$	75,875,000	$	5,900,000
		Number of loans		2,734		827		82
		Average loan amount	$	120,574	$	91,747	$	71,951
		Average initial combined LTV		74.92%		76.50%		69.93%
		Weighted average interest rate(1)		8.04%		9.48%		9.73%
		Number of National Loan Centers at period end		2		1		1
	Total retail		$	1,609,875,000	$	1,180,551,000	$	783,700,000
		Number of loans		17,108		15,398		11,226
		Average loan amount	$	94,101	$	76,669	$	69,811
		Average initial combined LTV		76.07%		74.83%		73.43%
		Weighted average interest rate(1)		8.89%		10.27%		10.05%
		Number of traditional retail branch offices and National Loan Centers		100		101		101
Broker loans: (2)
	Traditional regional broker office network:
		Total dollar amount	$	1,510,254,000	$	1,135,754,000	$	1,270,700,000
		Number of loans		11,993		10,404		13,886
		Average loan amount	$	125,928	$	109,165	$	91,509
		Average initial combined LTV		78.70%		78.71%		78.23%
		Weighted average interest rate(1)		9.03%		10.25%		10.35%
		Number of traditional regional broker offices at period end		4		5		7
	Telemarketing and Internet originations:
		Total dollar amount	$	122,380,000	$	55,325,000	$	24,900,000
		Number of loans		800		506		241
		Average loan amount	$	152,975	$	109,339	$	103,321
		Average initial combined LTV		80.70%		78.86%		78.41%
		Weighted average interest rate(1)		9.06%		10.56%		10.62%
	Total broker		$	1,632,634,000	$	1,191,079,000	$	1,295,600,000
		Number of loans		12,793		10,910		14,127
		Average loan amount	$	127,619	$	109,173	$	91,711
		Average initial combined LTV		78.85%		78.89%		78.16%
		Weighted average interest rate(1)		9.04%		10.26%		10.35%
		Number of traditional regional broker offices at period end		4		5		7

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Total loans:
	Total dollar amount	$	3,242,509,000	$	2,371,630,000	$	2,079,300,000
	Number of loans		29,901		26,308		25,353
	Average loan amount	$	108,441	$	90,149	$	82,014
	Average initial combined LTV		77.47%		76.78%		76.00%
	Weighted average interest rate(1)		8.96%		10.27%		10.20%

(1)

Calculated with respect to the interest rate at the time the mortgage loan was originated or purchased by the Company.

(2)

Includes the purchase of closed loans on a flow basis from correspondents of $23.4 million, $40.4 million and $32.7 million during the years ended June 30, 2002, 2001 and 2000, respectively.

        Total Loan Production.    Total loan production during the year ended June 30, 2002 increased $870.9 million to $3.2 billion over $2.4 billion of total loan production during the year ended June 30, 2001 which, in turn, was a $292.3 million increase from $2.1 billion during the year ended June 30, 2000. The increase in the Company's total loan origination volumes during the year ended June 30, 2002 over production volumes during the comparable periods in 2001 and 2000 was due, in part, to the generally more favorable mortgage interest rate environment in place during the year ended June 30, 2002 which contributed to increased financing activities in markets where the Company operates. The Company expects a less favorable mortgage interest rate environment during calendar 2003, which could reduce the overall demand for mortgage loans generally and demand for the Company's mortgage loan products.

        Retail Production.    The Company's total retail production was $1.6 billion during the year ended June 30, 2002, an increase of $429.3 million, or 36.4%, from the $1.2 billion of total retail production reported during the year ended June 30, 2001 which, in turn, was a $396.9 million, or 50.6%, increase over the $783.7 million of total retail production reported during the year ended June 30, 2000.

Traditional Retail Branch Network

        During the year ended June 30, 2002, loan production through the Company's traditional retail branch network was $1.3 billion, an increase of $175.5 million, or 15.9%, over the $1.1 billion of traditional retail branch network loan production reported during the year ended June 30, 2001, which, in turn, was a $326.9 million, or 42.0%, increase over the $777.8 million of traditional retail branch network production reported during the year ended June 30, 2000.

National Loan Centers

        Mortgage loan production from the Company's National Loan Centers, which primarily originate loans through affiliations with certain Internet sites, increased $253.8 million to $329.7 million during the year ended June 30, 2002 from $75.9 million during the year ended June 30, 2001. National Loan Center mortgage loan production during the year ended June 30, 2000 was $5.9 million. As previously reported, on November 1, 2001 the Company acquired certain assets and the operating platform of another mortgage lender which became the Company's second National Loan Center and contributed loan production during the year ended June 30, 2002. The Company expects the National Loan Centers' production to continue to generate an increasing dollar amount and percentage of retail loan production in the coming quarters.

        Broker Production.    The Company's total broker loan production increased $441.6 million, or 37.1%, to $1.6 billion during the year ended June 30, 2002 from $1.2 billion of total broker loan

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production during the year ended June 30, 2001 which, in turn, was a decrease of $104.5 million, or 8.1%, from the $1.3 billion reported during the year ended June 30, 2000.

Traditional Regional Broker Office Network

        During the year ended June 30, 2002, mortgage loan production from the Company's traditional regional broker office network increased $374.5 million, or 33.0%, to $1.5 billion over the $1.1 billion reported during the year ended June 30, 2001 which, in turn, was a decline of $134.9 million, or 10.6%, from the $1.3 billion of traditional regional broker office network production reported during the year ended June 30, 2000.

Broker Telemarketing and Internet

        In the fourth quarter of the year ended June 30, 2000, the Company began using telemarketing and the Internet to increase its broker loan production and further penetrate the non-conforming home equity broker market through its "Broker Direct" program. Through Broker Direct, the Company makes out bound telemarketing calls to brokers who are not currently doing business with the Company or are outside the geographic areas served by the loan officers. The Company also obtains leads through a commercially available internet site as well as through its own internet web site "Aamesdirect.com".

        Broker mortgage loan production through telemarketing and the Internet was $122.4 million during the year ended June 30, 2002, an increase of $67.1 million, over the $55.3 million of broker telemarketing and Internet production reported during the year ended June 30, 2001. Broker mortgage loan production through telemarketing and the Internet was $24.9 million during the year ended June 30, 2000. The Company expects "Broker Direct" to continue to generate an increasing dollar amount and percentage of broker loan production in the coming quarters.

Production Channels

        Retail Loan Channel.    The Company originates home equity mortgage loans through its traditional retail branch network and through its National Loan Centers, which produce loans primarily through affiliations with sites on the Internet. At June 30, 2002, the Company had 98 retail offices and two National Loan Centers serving borrowers throughout the United States. The Company continually monitors its retail operations and evaluates current and potential retail offices on the basis of selected demographic statistics, marketing analyses and other criteria developed by the Company.

        The Company generates applications for loans through its retail loan office network principally through a direct response marketing program, which relies primarily on the use of direct mailings to homeowners, telemarketing and yellow-page listings. The Company generates customer leads for the retail network in two ways: produced by the Company based upon Company derived models and commercially developed customer lists and generated by the local branch by the loan officers who are familiar with the local area. The Company's direct mail invites prospective borrowers to call the Company to apply for a loan. Direct mail is often followed up by telephone calls to potential customers. Contact with the customer is handled through the local branch. On the basis of an initial screening conducted at the time of the call, the Company's loan officer at the local retail loan office makes a preliminary determination of whether the customer and the property meet the Company's lending criteria. The loan officer may complete the application over the telephone, or schedule an appointment in the retail loan office most conveniently located to the customer or in the customer's home, depending on the customer's needs.

        The Company's National Loan Centers obtain leads through several commercially available Internet sites as well as through its own Internet web site "Aames.net". On the basis of information provided by the customer through the Internet, a preliminary determination is made as to whether the

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customer and the property meet the Company's lending criteria. Once the Company receives the lead, a loan officer contacts the prospective customer by telephone and the customer completes the application by telephone or mail.

        Whether in the retail branches or in the National Loan Centers, the loan officer assists the applicant in completing the loan application, arranges for an appraisal, orders a credit report from an independent, nationally recognized credit reporting agency and performs various other tasks in connection with the completion of the loan package. The loan package is underwritten for loan approval on a centralized basis. If the loan package is approved, the loan is funded by the Company. The Company's loan officers are trained to structure loans that meet the applicant's needs while satisfying the Company's lending guidelines.

        The Company believes that its marketing efforts establish name recognition and serve to distinguish the Company from its competitors. The Company continually monitors the sources of its applications to determine the most effective methods and manner of marketing.

        Independent Mortgage Broker Channel.    At June 30, 2002, the Company operated four regional offices and during the year ended 2002, the Company originated loans through approximately 3,100 brokers, no one of which accounted for more than 2.8% of total broker originations. All broker loans originated by the Company are underwritten in accordance with the Company's underwriting guidelines. Once approved, the loan is funded by the Company directly.

        The broker's role is to identify the applicant, assist in completing the loan application, gather necessary information and documents and serve as the Company's liaison with the borrower through the lending process. The Company reviews and underwrites the applications submitted by the broker, approves or denies the application, sets the interest rate and other terms of the loan and, upon acceptance by the borrower and satisfaction of all conditions imposed by the Company, funds the loan. Because brokers conduct their own marketing and employ their own personnel to complete loan applications and maintain contact with borrowers, originating loans through the Company's broker network allows the Company to increase its loan volume without incurring the higher marketing and employee costs associated with increased retail originations.

        Because mortgage brokers generally submit loan files to several prospective lenders simultaneously, consistent underwriting, quick response times and personal service are critical to successfully producing loans through independent mortgage brokers. To meet these requirements, the Company strives to provide quick response time to the loan application (generally within 24 hours). In addition, loan consultants and loan processors, including underwriters, are available in the Company's regional offices to answer questions, assist in the loan application process and facilitate ultimate funding of the loan.

        Underwriting.    The Company generally underwrites the loans it originates to its underwriting guidelines and, to a lesser extent, to the underwriting guidelines of its investors in the secondary markets. The Company's underwriting guidelines are designed to assess the borrower's creditworthiness and the adequacy of the real property as collateral for the loan. The borrower's creditworthiness is assessed by examination of a number of factors, including calculation of debt-to-income ratios, which is the sum of the borrower's monthly debt payments divided by the borrower's monthly income before taxes and other payroll deductions, an examination of the borrower's credit history and credit score through standard credit reporting bureaus, and by evaluating the borrower's payment history with respect to existing mortgages, if any, on the property.

        Credit scores are obtained by the Company in connection with mortgage loan applications to help assess a borrower's creditworthiness. Credit scores are obtained from credit reports provided by various credit reporting organizations, each of which may employ differing computer models and methodologies. The credit score is designed to assess a borrower's credit history at a single point in time, using objective information currently on file for the borrower at a particular credit reporting

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organization. Information utilized to create a credit score may include, among other things, payment history, delinquencies on accounts, level of outstanding indebtedness, length of credit history, types of credit, and bankruptcy experience. Credit scores range from approximately 400 to approximately 800, with higher scores indicating an individual with a more favorable credit history compared to an individual with a lower score. However, a credit score purports only to be a measurement of the relative degree of risk a borrower represents to a lender; that is, a borrower with a higher score is statistically expected to be less likely to default in payment than a borrower with a lower score. Moreover, credit scores were developed to indicate a level of default probability over the period of the next two-years, which does not correspond to the life of a mortgage loan. Furthermore, credit scores were not developed specifically for use in connection with mortgage loans, but for consumer loans in general. Therefore, a credit score does not take into consideration the differences between mortgage loans and consumer loans generally or the specific characteristics of the related mortgage loan including, for example, the LTV or CLTV (defined below), the collateral for the mortgage loan, or the debt to income ratio. There can be no assurance that the credit scores of the mortgagors will be accurate predictors of the likelihood of repayment of the related mortgage loans.

        An assessment of the adequacy of the real property as collateral for the loan is primarily based upon an appraisal of the property and a calculation of the loan-to-value ratios of the loan applied for (the "LTV") and of all mortgages existing on the property, including the loan applied for, (the "combined loan-to-value ratio" or "CLTV") to the appraised value of the property at the time of origination. Appraisers determine a property's value by reference to the sales prices of comparable properties recently sold, adjusted to reflect the condition of the property as determined through inspection. As a lender that generally specializes in loans made to credit impaired borrowers, the Company makes home equity mortgage loans to borrowers with credit histories or other factors that might disqualify them from consideration for a loan from traditional financial institutions. The Company's underwriting guidelines for such credit-impaired borrowers generally require lower combined loan-to-value ratios than would typically be the case if the borrower could qualify for a loan from a traditional financial institution, and at generally higher interest rates than the borrower could qualify for from a traditional financial institution.

        The underwriting of a mortgage loan to be originated by the Company includes a review of the completed loan package, which generally includes the loan application, a current appraisal, a preliminary title report and a credit report. Loan applications must be approved by the Company in accordance with its underwriting criteria.

        The Company requires title insurance coverage issued on an American Land Title Association (or similar) form of title insurance on all residential properties securing mortgage loans it originates or purchases. The loan originator and its assignees are generally named as the insured. Title insurance policies indicate the lien position of the mortgage loan and protect the Company against loss if the title or lien position is not as indicated. The applicant is also required to maintain hazard and, in certain instances, flood insurance, in an amount sufficient to cover the new loan and any senior mortgage, subject to the maximum amount available under the National Flood Insurance Program.

        During the fiscal year ended June 30, 2002, each of the Company's traditional retail branch office network, National Loan Centers and the independent mortgage broker channel employed its own underwriting guidelines. While broadly similar, the underwriting guidelines varied among the origination channels. The following generally summarizes the Company's underwriting guidelines in effect during the year ended June 30, 2002 and through September 13, 2002:

•

Each origination channel employed its own "traditional" underwriting program, under which the borrower's mortgage credit and consumer credit were each scored and weighted to determine the overall credit grade of the borrower with the borrower then being assigned an "A+/A" through "D" credit grade, and

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•

The broker channel and the National Loan Centers each also utilized a credit score/LTV based underwriting program (referred to as the "SNAP program"), under which the borrower's credit score as reported by various reporting agencies and the LTV of the loan were used to determine whether the borrower qualified for the loan requested and the appropriate pricing for that loan. Loans under this program were converted to "traditional" underwriting credit scores for reporting purposes.

        Effective September 16, 2002, the Company has consolidated the underwriting guidelines for the three channels into one set of unified guidelines. These new guidelines have three separate programs or approaches to underwriting and pricing. They are the Traditional Underwriting Guidelines, Credit Score Guidelines, and the Mortgage Only Guidelines. The Traditional Underwriting Guidelines are substantially similar to the Traditional Underwriting Guidelines in use through September 13, 2002. The new Credit Score Guidelines replace the SNAP program and are discussed below. The last program is Mortgage Only, and this program was previously included as a subset of the Traditional Underwriting Guidelines.

        Set forth below is a general description of the different underwriting guidelines designed to provide an overview of the general credit considerations utilized by the Company. The description is not intended to be a detailed explanation of all credit considerations analyzed by the Company in underwriting loans. The Company regularly reviews its underwriting guidelines and makes changes when appropriate to respond to market conditions, the performance of loans representing a particular loan product or changes in laws or regulations.

        "Traditional" Underwriting Guidelines.    Under the traditional underwriting guidelines, the Company assigns a credit grade (A, A-, B, C, C- and D) to each loan it originates depending on the risk profile of the loan, with the higher credit grades exhibiting a lower risk profile and the lower credit grades exhibiting increasingly higher risk profiles. Generally, the higher credit grade loans have higher loan-to-value ratios and carry a lower interest rate. The following chart generally outlines the parameters of the credit grades of the Company's traditional underwriting program. The Company

9

eliminated the D Credit Grade in the new guidelines effective on September 16, 2002 and made certain other changes.

		"A" Credit Grade	"A-" Credit Grade	"B" Credit Grade	"C" Credit Grade	"C-" Credit Grade	"D" Credit Grade
General Repayment		Has good credit.	Has good credit but might have some minor delinquency.	Generally good mortgage pay history but may have marginal consumer credit history.	Marginal credit history which is offset by other positive attributes.	Marginal credit history not offset by other positive attributes.	Designed to provide a borrower with poor credit history an opportunity to correct past credit problems.
Existing Mortgage Loans		Maximum of one 30-day late* in past 12 months.	No more than 59 days late at closing and a maximum of two 30-day lates in the past 12 months.	No more than 89 days late at closing and a maximum of four 30-day lates in the past 12 months or one 60-day late and two 30-day lates.	Can have six 30-day lates and two 60-day lates or one 90-day late in the past 12 months; currently not more than 119 days late at closing.	No more than 149 days delinquent in the past 12 months. Can have multiple 90-day lates or one 120 day late in the past 12 months.	Greater than 150 days delinquent in the past 12 months.
Consumer Credit		Consumer credit is good in the last 12 months. Up to 25% of credit report items derogatory with no 60-day or more lates.	Consumer credit is good in the last 12 months. Up to 35% of credit report items derogatory with no 90-day or more lates.	Consumer credit must be satisfactory in the last 12 months. Up to 40% of credit report items derogatory.	Consumer credit is fair in the last 12 months. The majority of the credit is not currently delinquent. Up to 50% of credit report items derogatory.	Consumer credit is poor in the last 12 months with currently delinquent accounts. Up to 60% of credit report items derogatory.	Consumer credit is poor in the last 12 months. The majority of the credit is derogatory (more than 60%). Percentage of derogatory items not a factor.
		Generally, requires a minimum credit score of 600.	Generally, requires a minimum credit score of 580.	Generally, requires a minimum credit score of 560.	Generally, requires a minimum credit score of 530.	Generally, requires a minimum credit score of 500.	Generally, requires a minimum credit score of 500.
Bankruptcy		2 years since discharge or dismissal with reestablished "A" credit.	2 years since discharge or dismissal with reestablished "A-" credit.	1 year since discharge with reestablished "B" credit or 18 months since discharge without reestablished credit.	Bankruptcy filing 12 months old, discharged or dismissed prior to application.	Bankruptcy filed within last 12 months and discharged or dismissed prior to application.	Current bankruptcy must be paid through loan.
Maximum Loan-to-Value Ratio:
	Owner Occupied	Generally 90% for a 1 to 4 family dwelling.	Generally 90% for a 1 to 4 family dwelling.	Generally 80% for a 1 to 4 family dwelling.	Generally 75% for a 1 to 4 family dwelling.	Generally 70% for a 1 to 4 family dwelling.	Generally 65% for a 1 to 4 family dwelling.
	Non-Owner Occupied	Generally 80% for a 1 to 4 family dwelling.	Generally 75% for a 1 to 4 family dwelling.	Generally 70% for a 1 to 4 family dwelling.	Generally 65% for a 1 to 4 family dwelling.	Generally 65% for a 1 to 4 family dwelling.	Generally 60% for a 1 to 4 family dwelling.

*

A "rolling" late in which a borrower becomes 30 or 60 days delinquent and makes subsequent mortgage payments but remains consistently 30 or 60 days delinquent as the case may be is considered one 30-day late or 60-day late for underwriting purposes.

        "SNAP" Underwriting Program.    The SNAP program in effect through September 13, 2002, used the credit score of the primary borrower (i.e., the borrower with the majority of total income) to determine program eligibility and then to determine the maximum LTV and interest rate for which the borrower may qualify. The minimum acceptable credit score under the SNAP program was 500.

        In most cases, the payment history of the borrower under the existing mortgage loan was also taken into consideration. Borrowers with lower credit scores generally qualified for lower maximum LTVs and were charged higher interest rates than borrowers with higher credit scores. Under the SNAP program, a verification of the borrowers' mortgage payment history under their existing

10

mortgage loan over the most recent 12 months was required in all cases where the primary borrower's credit score was less than 600 (640 for loans less than $100,000). The maximum LTV allowed and the interest rate for the loan indicated by the SNAP program were adjusted based on the borrower's past mortgage payment history. Under the SNAP program, a poor mortgage payment history resulted in a lower maximum LTV and a higher interest rate (comparable to the maximum LTV and interest rate for a borrower with a lower credit score) in order to reflect the increased risk of default indicated by the mortgage payment history. The LTV and credit score adjustments are set forth in the chart below.

	Adjusted Credit Score and Maximum LTV Based Upon Mortgage Lates in Previous Months
Actual Credit Score	2x30	4x30 and 0x60; 2x30 and 1x60	12x30 and 2x60; 12x30 and 1x90	12x60 and 1x120	1x150
700+	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
680	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
660	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
640	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
620	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
600	600	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
580	580	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
560	560	560; 80%max LTV	550; 75%max LTV	520; 70%max LTV	500; 65%max LTV
540	540	540	540	520; 70%max LTV	500; 65%max LTV
520	520	520	520	520; 70%max LTV	500; 65%max LTV
500	500	500	500	500	500

        For example, under the SNAP program, in the case of a borrower with a credit score of 640 who qualifies for a maximum LTV of 90%, the borrower's actual credit score of 640 was used for purposes of qualifying for the loan and determining the applicable interest rate and the 90% maximum LTV allowed would not be adjusted downward. However, if that same borrower with the 640 credit score had two 30-day late payments in the previous 12 months (i.e., 2x30), the credit score used for purposes of qualifying and determining pricing, would fall to 600—and the maximum LTV would have decreased to 80%. In addition, the interest rate for that loan would have been determined as if the borrower's credit score were 600 (instead of the actual credit score of 640). If that same borrower had a mortgage delinquency of 2x30 and 1x60 or 4x30 and 0x60 during the previous 12 months, then the loan would have been priced as if the credit score was 560. If that borrower had a mortgage delinquency of 12x30 and 2x60 or 12x30 and 1x60 or 1x90 for the previous 12 months, then the maximum LTV would have fallen to 75% and the loan would be priced as if the credit score was 550. If that borrower had a mortgage delinquency of 12x90, or 12x60 and 1x90 and 1x120 for the previous 12 months, then the maximum LTV decreases to 70% and the credit score used for pricing falls to 520. If that borrower had a mortgage delinquency of 1x150 or more for the previous 12 months, then the maximum LTV falls to 65% and the loan would be priced as if the credit score were 500.

Credit Score Guidelines—These guidelines, which replaced the SNAP program, require a minimum credit score of 550, a 12 month mortgage (or rental) history, and a minimum of 12 months seasoning for bankruptcy, foreclosure, or notice of default. The table below illustrates these guidelines.

Credit Grade	A+	A	A-	B	C
12 Month Mortgage History	0x30	1x30	3x30	1x60	1x90
Minimum Credit Score	580	560	560	550	550
BK/NOD/FC Seasoning	24 months	24 months	24 months	18 months	12 months
Full Doc Owner Occupied Max LTV	100%	100%	90%	85%	80%
Full Doc Non-Owner Occupied Max LTV	85%	85%	80%	80%	75%

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        Borrowers with credit scores below 550 (but 500 or above) are ineligible for the Credit Score Guidelines, but may be eligible to qualify for a loan under either the Traditional Underwriting Guidelines or the Mortgage Only Guidelines.

Mortgage Only Guidelines—This program is generally aimed at customers that have not paid their consumer credit in a timely basis, but consistently pay their mortgage. The minimum credit score for the mortgage only program is 500. Borrowers with credit scores below 500 generally are not eligible under any of the Company's underwriting guidelines. The main elements of these guidelines are illustrated below.

Credit Grade	A+	A	A-
12 Month Mortgage History	0x30	2x30	3x30
Minimum Credit Score	550	500	500
NOD/FC Seasoning	None Ever	None Ever	2 Years
Bankruptcy Seasoning	2 Years since Discharge	2 Years since Discharge	2 Years since Discharge of Chapter 7 or Chapter 13 filing
Maximum Loan Amount	$300,000	$300,000	$250,000
Maximum LTV	85%	80%	75%

        The following tables present certain information about the Company's total loan production during the years ended June 30, 2002, 2001 and 2000:

LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2002

All Underwriting Programs Combined

Credit Grade(2)	Dollar Amount of Loan		% of Total		Weighted Average Combined Loan-to-Value		Weighted Average Interest Rate(1)
A	$	1,340,729,000	41	%	78	%	8.3	%
A-		879,435,000	27		80		8.9
B		653,078,000	20		76		9.4
C		254,565,000	8		73		10.5
C-		68,458,000	2		78		10.0
D		46,244,000	2		64		11.7
Total	$	3,242,509,000	100	%	77	%	9.0	%

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LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2001

All Underwriting Programs Combined

Credit Grade(2)	Dollar Amount of Loan		% of Total		Weighted Average Combined Loan-to-Value		Weighted Average Interest Rate(1)
A	$	888,272,000	38	%	78	%	9.5	%
A-		552,268,000	23		78		10.0
B		553,131,000	23		76		10.6
C		274,589,000	12		74		11.7
C-		57,389,000	2		71		12.7
D		45,981,000	2		65		13.1
Total	$	2,371,630,000	100	%	77	%	10.3	%

LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2000

All Underwriting Programs Combined

Credit Grade(2)	Dollar Amount of Loan		% of Total		Weighted Average Combined Loan-to-Value		Weighted Average Interest Rate(1)
A	$	772,434,000	38	%	79	%	9.6	%
A-		499,408,000	24		77		9.8
B		508,467,000	24		76		10.4
C		197,119,000	9		63		11.5
C-		43,310,000	2		68		12.6
D		58,562,000	3		61		13.8
Total	$	2,079,300,000	100	%	76	%	10.2	%

(1)

Calculated with respect to the interest rate at the time the loan was originated or purchased by the Company, as applicable.

(2)

Loans underwritten under the "SNAP" underwriting program were assigned a credit grade that the Company believes correlated to the credit grades in the "Traditional" underwriting program.

        Quality Control.    The Company's quality control program is intended to (i) monitor and improve the overall quality of loan production generated by the Company's retail loan channel and independent mortgage broker channel and (ii) identify and communicate to management existing or potential underwriting and loan packaging problems or areas of concern. The quality control file review examines compliance with the Company's underwriting guidelines and federal and state regulations. This is accomplished by focusing on: (i) the accuracy of all credit and legal information; (ii) a collateral analysis which may include a desk or field re-appraisal of the property and review of the original appraisal; (iii) employment and/or income verification; and (iv) legal document review to ensure that the necessary documents are in place.

Loan Disposition

        As a fundamental part of its business and financing strategy, the Company sells loans to third party investors in the secondary markets as market conditions allow. The Company generally seeks to dispose of substantially all of its production within 90 days. The Company applies the net proceeds of the loan dispositions, whether through securitizations or whole loan sales, to pay down its warehouse and repurchase facilities in order to make available capacity under these facilities for future funding of mortgage loans. The Company maximizes opportunities in its loan disposition transactions by selling its loan production through a combination of securitizations and whole loan sales, depending on market

13

conditions, relative profitability and cash flows. The Company generally realizes higher gain on sale on securitizations than it does on whole loan sales for cash. The higher gain on sale in securitization transactions is attributable to the excess servicing spread and mortgage servicing rights associated with retaining a residual interest and the servicing on the mortgage loans in the securitization, respectively, net of transactional costs. In whole loan sales with servicing released, the gain on sale is generally lower than gains realized in securitizations, but the Company receives the gain in the form of cash.

        In a securitization the underlying securities are generally overcollateralized by the Company depositing mortgage loans with a principal balance exceeding the principal balance of the securities. The upfront overcollateralization required in securitizations is generally cash flow negative to the Company in the early years of the securitization. The Company has used the Residual Facility to include securitizations in its loan disposition strategy by reducing the negative cash flow aspects of securitization and by providing another source of cash to the Company through periodic sales of residual interests for cash. During the years ended June 30, 2002, 2001 and 2000, the Company securitized $585.0 million, $1.2 billion and $803.6 million, respectively, of mortgage loans. In the securitizations which closed during the years ended June 30, 2002 and 2001, the Company sold for cash its residual interests through utilization of remaining capacity under the Residual Facility. The initial capacity of the Residual Facility was $75.0 million and at June 30, 2002, the remaining capacity under the Residual Facility was $13.5 million. When the Residual Facility expires either through its full utilization or by its expiration, the Company's evaluation of loan disposition strategies will have to include the negative cash flow considerations associated with the upfront overcollateralization required in securitizations compared to the positive cash flow considerations of whole loan sales for cash.

        The following table sets forth certain information regarding the Company's securitizations and whole loan sales during the periods presented (in thousands):

		Year ended June 30,
		2002		2001		2000
Loans pooled and sold in securitizations		$	584,964	$	1,231,464	$	803,557
Whole loan sales			2,610,041		1,102,465		1,419,199
	Total loans securitized and sold	$	3,195,005	$	2,333,929	$	2,222,756

        Each agreement that the Company has entered into in connection with its securitizations requires either the overcollateralization of the trust or the establishment of a reserve account that may initially be funded by cash deposited by the Company. If delinquencies or losses exceed certain established limits, as applicable, the credit-enhancement aspects of the trust are triggered. In a securitization credit-enhanced by a monoline insurance policy, any further losses experienced in excess of the established overcollateralization amount by holders of the senior interests in the related trust will be paid by the insurer under such policy. To date, there have been no claims on any monoline insurance policy obtained in any of the Company's securitizations. In a senior/subordinated structure, losses in excess of the overcollateralization amount generally are allocated first to the holders of the subordinated interests and then to the holders of the senior interests of the trust. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—The Securitization and Sale of Mortgage Loans."

Loan Servicing

        The Company's servicing portfolio consists mainly of mortgage loans securitized prior to the year ended June 30, 2001 for which the Company retained servicing and loans serviced on an interim basis, consisting of loans held for sale and loans subserviced for others on an interim basis. Servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent borrowers, managing borrower defaults and liquidating foreclosed properties. It is the Company's strategy to maximize opportunities in loan servicing. As a means to maximize profitability and cash flow

14

from securitizations, the Company has sold the servicing rights in securitizations during the years ended June 30, 2002 and 2001 for cash. Moreover, the Company does not retain servicing on loans it sells in whole loan sales for cash.

        The following table sets forth certain information regarding the Company's servicing portfolio for the periods indicated:

			At or During the Year Ended June 30,
			2002		2001		2000
			(in thousands)
Mortgage loans serviced:
	Loans in securitization trusts		$	1,192,000	$	1,811,000	$	3,015,000
	Loans serviced on an interim basis			991,000		722,000		281,000
		Serviced in-house		2,183,000		2,533,000		3,296,000
	Loans in securitization trusts subserviced by others			125,000		184,000		264,000
	Total servicing portfolio		$	2,308,000	$	2,717,000	$	3,560,000
	Percentage serviced in-house			94.6%		93.2%		92.6%
	Loan servicing revenue		$	12,462	$	14,989	$	15,654

        The Company has not added any new loans to the servicing portfolio (excluding loans serviced on an interim basis) since January 1, 2000 due to the Company's sale of all of its mortgage loan production in whole loan sales for cash and securitizations with servicing released since that time. The Company's total loan servicing portfolio at June 30, 2002 decreased $409.0 million, or 15.1% to $2.3 billion from $2.7 billion at June 30, 2001, reflecting loan servicing portfolio runoff, in the form of principal amortization, prepayments and liquidations, during the year ended June 30, 2002. This decline was partially offset by an increase of $269.0 million of mortgage loans serviced by the Company on an interim basis. The Company's portfolio of mortgage loans in securitization trusts serviced in-house declined $619.0 million, or 34.2%, to $1.2 billion at June 30, 2002 from $1.8 billion at June 30, 2001 which, in turn, was a $1.2 billion, or 39.9%, decline from the $3.0 billion of mortgage loans in securitization trusts serviced in-house at June 30, 2000. The Company's loan portfolio of mortgage loans in securitization trusts may be adversely affected by lower mortgage interest rates which could accelerate prepayment activity.

        The Company's servicing portfolio will continue to be impacted in the future by the Company's disposition strategy of its loan production through whole loan sales and securitizations on a servicing released basis, which has resulted in a smaller servicing portfolio. See "Risk Factors."

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        The following table illustrates the mix of credit grades in the Company's servicing portfolio as of June 30, 2002 (dollars in thousands):

Credit Grade(1)	Dollar Amount Of Loan		% of Total		Weighted Average Combined Initial Loan-to-Value		Weighted Average Interest Rate
A	$	682,253	30	%	78	%	8.6	%
A-		782,310	34		77		9.4
B		500,515	22		75		9.9
C		175,707	8		70		10.9
C-		57,842	2		69		11.4
D		106,108	4		62		12.8
Other(2)		3,435	N/M		51		11.1
Total	$	2,308,170	100	%	75	%	9.6	%

(1)

Loans underwritten under the "SNAP" Underwriting Program are assigned, for loan servicing purposes, a credit grade that the Company believes correlates to the credit grades in the "Traditional" underwriting program.

(2)

Consists of older loans that were not assigned a credit grade at origination.

N/M Not meaningful.

        At June 30, 2002, of the Company's $2.3 billion servicing portfolio, 94.6% was serviced in-house compared to 93.2% of the Company's $2.7 billion servicing portfolio serviced in-house at June 30, 2001 and 92.6% of the Company's $3.6 billion servicing portfolio at June 30, 2000. The out-sourced servicing resulted from an arrangement with a loan servicing company entered into in fiscal 1999 whereby the servicing company purchased certain cumulative advances and agreed to make future servicing advances with respect to an aggregate of $388.0 million ($125.0 million at June 30, 2002) in principal amount of loans.

        The agreements between the Company and the securitization trusts typically require the Company, in its role as servicer, to advance interest (but not principal) on delinquent loans to the holders of the senior interests in the related trusts. The agreements also require the Company to make certain servicing advances (e.g., for property taxes or hazard insurance) unless the Company determines that such advances would not be recoverable. Realized losses on the loans are paid out of the related credit loss estimates established by the Company at the time of securitization or paid out of principal and interest payments or overcollateralized amounts as applicable, and if necessary, from the related monoline insurance policy or the subordinated interests.

        In the case of securitizations credit-enhanced by monoline insurance, the agreements also typically provide that the Company may be terminated as servicer by the monoline insurance company (or by the trustee with the consent of the monoline insurance company) upon certain events of default, including the Company's failure to perform its obligations under the servicing agreement, the rate of over 90-day delinquency (including properties acquired by foreclosure and not sold) exceeding specified limits, losses on liquidation of collateral exceeding certain limits, any payment being made by the monoline insurance company under its policy, and certain events of bankruptcy or insolvency. At June 30, 2002, the dollar volume of loans delinquent more than 90 days in seven of the Company's twenty-two securitization trusts exceeded the permitted limit in the related pooling and servicing agreements. All of the aforementioned secuitization trusts plus eight additional securitization trusts have also exceeded certain loss limits. At June 30, 2002, the remaining unpaid principal balance of mortgage loans in the securitization trusts which exceeded the permitted delinquency limit was $438.3 million, or 33.3% of total loans serviced (in-house and subserviced) in securitization trusts. At June 30, 2002, the remaining unpaid principal balance of mortgage loans in the securitization trusts where certain loss limits have been exceeded was $880.2 million, or 66.8% of total loans serviced

16

(in-house and subserviced) in securitization trusts. In addition, under the Company's 1999 Securitization Trusts, the Company is appointed as a servicer on a term-to-term basis, and the monoline insurer has the right not to renew the term at any time. None of the servicing rights of the Company have been terminated. Pursuant to agreements relating to the Company's two 1999 securitization trusts, the monoline insurance company providing credit enhancement requires the Company to maintain a specified net worth and level of liquidity in order to be able to continue to service the loans in those securitization trusts. As previously reported, the Company currently does not satisfy the net worth test and, as a result, the monoline insurer can terminate the Company as servicer with respect to those securitization trusts. The monoline insurer has to date waived the Company's failure to satisfy the net worth test. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors—Our right to service loans may be terminated because of the high delinquencies and losses on the loans in our servicing portfolio." In the case of the Company's senior/subordinated securitization transactions, holders of 51% of the certificates may terminate the servicer upon certain events of default generally relating to certain levels of loss experience, but not delinquency rates. No such events of default have occurred to date in the Company's senior/subordinated securitizations.

        The Company receives a servicing fee based on a percentage of the unpaid principal balance of each loan serviced. Servicing fees are collected by the Company out of the borrowers' monthly payments. In addition, the Company, as servicer, generally receives all late fees and assumption charges paid by borrowers on loans serviced directly by the Company, as well as other miscellaneous fees for performing various loan servicing functions. The Company also generally receives any prepayment fees paid by borrowers. Under the Company's December 1999 securitization trust, the Company's right to receive any prepayment penalties collected on loans in that securitization trust has been subordinated to the right to such prepayment penalties as payment to the securitization trust in order to create additional overcollateralization.

Collections, Delinquencies and Foreclosures

        The Company sends borrowers a monthly billing statement approximately ten days prior to the monthly payment due date. Although borrowers generally make loan payments within ten to fifteen days after the due date (the "grace period"), if a borrower fails to pay the monthly payment within the grace period, the Company commences collection efforts by notifying the borrower of the delinquency. In the case of borrowers in the "B," "C," "C-" and "D" credit grades, collection efforts begin immediately after the due date. The Company continues contact with the borrower to determine the cause of the delinquency and to obtain a commitment to cure the delinquency at the earliest possible time.

        As a general matter, if efforts to obtain payment have not been successful, a pre-foreclosure notice will be sent to the borrower immediately after the due date of the next subsequently scheduled installment (five days after the initial due date for "C-"and "D" credit grades), providing 30 days' notice of impending foreclosure action. During the 30-day notice period, collection efforts continue and the Company evaluates various legal options and remedies to protect the value of the loan, including arranging for extended prepayment terms, accepting a deed-in-lieu of foreclosure, entering into a short sale (a sale for less than the outstanding principal amount) or commencing foreclosure proceedings. If no substantial progress has been made in collecting delinquent payments from the borrower, foreclosure proceedings will begin. Generally, the Company will have commenced foreclosure proceedings when a loan is 45 to 100 days delinquent, depending upon credit grade, other credit considerations or borrower bankruptcy status.

        Servicing and collection practices change over time in accordance with, among other things, the Company's business judgment, changes in portfolio performance and applicable laws and regulations.

17

        The Company has historically experienced delinquency rates that are higher than those prevailing in its industry due to the inclusion of lower credit grade mortgage loans in the securitization trusts. The delinquency rate at June 30, 2002 was 9.6% compared to 13.0% at June 30, 2001. The Company expects the delinquency rate to continue to decline as the Company's portfolio of mortgage loans in securitization trusts continues to decline and become a smaller component of the Company's total servicing portfolio.

        Loans originated or purchased by the Company are secured by mortgages, deeds of trust, security deeds or deeds to collateralize debt, depending upon the prevailing practice in the state in which the property collateralizing the loan is located. Depending on local law, foreclosure is effected by judicial action or nonjudicial sale, and is subject to various notice and filing requirements. In general, the borrower, or any person having a junior encumbrance on the real estate, may cure a monetary default by paying the entire amount in arrears plus other designated costs and expenses incurred in enforcing the obligation during a statutorily prescribed reinstatement period. Generally, state law controls the amount of foreclosure expenses and costs, including attorneys' fees, which may be recovered by a lender, the minimum time required to foreclose and the reinstatement or redemption rights of the borrower.

        Although foreclosure sales are typically public sales, frequently no third-party purchaser bids in excess of the lender's lien because of the difficulty of determining the exact status of title to the property, the possible deterioration of the property during the foreclosure proceedings and a requirement that the purchaser pay for the property in cash or by cashier's check. Thus, the Company often purchases the property from the trustee or referee through a credit bid in an amount up to the principal amount outstanding under the loan, accrued and unpaid interest, servicing advances and the expenses of foreclosure. Depending upon market conditions and other factors including the condition of the property, the ultimate proceeds of the sale may not equal the Company's investment in the property.

        As an alternative to foreclosure, the Company may, under limited circumstances, arrange for a special repayment arrangement, forestall foreclosure to enable a borrower to sell the mortgaged property or accept the payoff of less than the full principal balance and accrued interest owing on a mortgage loan. The Company believes that such loss mitigation efforts reduce overall losses in loan liquidations. However, the loss on such mitigation efforts is realized earlier in the life of the mortgage loan.

        During the fiscal year ended June 30, 2002, net losses on loan liquidations decreased to $67.4 million from $91.8 million in the prior year, primarily due to the decrease in the size of the Company's portfolio of mortgage loans in securitization trusts. Substantially all of the foreclosures handled by the Company occur in connection with mortgage loans in securitization trusts serviced by the Company. The Company expects net losses on loan liquidations to continue to decline as the Company's portfolio of mortgage loans in securitization trusts continues to decline.

        Credit losses incurred by the Company on liquidations were disproportionately higher for correspondent loans purchased in bulk than credit losses incurred on liquidations of loans originated in the Company's traditional retail and broker production channels. During the year ended June 30, 2002, approximately 36.5% of losses on liquidation were from losses on the disposition of real estate collateral for bulk purchased correspondent loans. In turn, bulk purchased correspondent loans comprised approximately 22.2% of the Company's portfolio of mortgage loans in securitization trusts when measured at July 1, 2001. The seasoning of bulk purchased loans in the portfolio of mortgage loans in securitization trusts might continue to contribute disproportionately to losses during the current fiscal year. Further, current market conditions and increased regulation of subprime mortgage lending have resulted in the tightening in underwriting guidelines in the secondary market and the exit of several large subprime home equity lenders from the marketplace. These factors have had the effect of decreasing the availability of credit to delinquent lower credit grade borrowers who in the past had

18

avoided default by refinancing. Management believes that continuance of these factors might contribute to the Company's losses on loan liquidations during the current fiscal year.

        Because foreclosures and losses typically occur months or years after a loan is originated, data relating to delinquencies, foreclosures and losses as a percentage of the current portfolio can understate the risk of future delinquencies, losses or foreclosures.

        The following table sets forth delinquency, foreclosure and loss information relating to the Company's servicing portfolio as of or for the periods indicated:

			At or During the Year Ended June 30,
			2002			2001			2000
			(dollars in thousands)
Percentage of dollar amount of delinquent loans to loans serviced (period end)(1)(2)(3)(4)
	One Month			0.7	%		1.7	%		1.9	%
	Two Months			0.5			0.7			0.8
	Three or More Months
		Not foreclosed(5)		7.4			8.9			9.0
		Foreclosed(6)		1.0			1.7			1.9
	Total			9.6	%		13.0	%		13.6	%
Percentage of dollar amount of loans foreclosed during the period to servicing portfolio(4)(8)				2.2	%		3.0	%		3.6	%
Number of loans foreclosed during the period				780			1,238			1,854
Principal amount of foreclosed loans during the period			$	56,419		$	89,884		$	135,629
Number of loans liquidated during the period				1,624			2,479			2,749
Net losses on liquidations during the period(7)			$	67,444		$	91,754		$	96,119
Percentage of annualized losses to servicing portfolio(4)(8)				2.6	%		3.0	%		2.6	%
Servicing portfolio at period end			$	2,308,000		$	2,717,000		$	3,560,000

(1)

Delinquent loans are loans for which more than one payment is past due.

(2)

The delinquency and foreclosure percentages are calculated on the basis of the total dollar amount of mortgage loans serviced by the Company and any subservicers as of the end of the periods indicated.

(3)

At June 30, 2002, the dollar volume of loans delinquent more than 90 days in seven of the Company's twenty-two REMIC trusts exceeded the permitted limit in the related pooling and servicing agreements. All of the aforementioned REMIC trusts plus eight additional REMIC trusts have also exceeded certain loss limits. At June 30, 2002, the remaining principal balance of mortgage loans in the securitization trusts which exceeded the permitted delinquency limit was $438.3 million, or 33.3% of total loans serviced (in-house and subserviced) in securitization trusts. At June 30, 2002, the remaining principal balance of mortgage loans in the securitization trusts where certain loss limits have been exceeded was $880.2 million, or 66.8% of total loans serviced (in-house and subserviced) in securitization trusts.

(4)

The servicing portfolio used in percentage calculations includes loans serviced on an interim basis of $991.0 million, $722.0 million and $281.0 million at June 30, 2002, 2001, and 2000, respectively.

(5)

Represents loans which are in foreclosure but as to which foreclosure proceedings have not concluded.

(6)

Represents properties acquired following a foreclosure sale and still serviced by the Company at period end.

(7)

Represents losses, net of gains, on properties sold through foreclosure or other default management activities during the periods indicated.

(8)

The percentages were calculated to reflect the dollar volume of loans foreclosed or annualized losses, as the case may be, to the average dollar amount of mortgage loans serviced by the Company and any subservicer during the related periods indicated.

Competition

        The Company faces intense competition in the business of originating, purchasing and selling mortgage loans. The Company's competitors in the industry include consumer finance companies, mortgage banking companies, investment banks, commercial banks, credit unions, thrift institutions,

19

credit card issuers and insurance companies. Many of these competitors are substantially larger and have considerably greater financial, technical and marketing resources than the Company. In addition, the current level of gains realized by the Company and its competitors on the sale of non-conforming loans could attract additional competitors into this market. Competition among industry participants can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and term of the loan, loan origination fees and interest rates. Additional competition may lower the rates the Company can charge borrowers and increase the price paid for purchased loans, thereby potentially lowering gain on future loan sales and securitizations. To the extent any of these competitors significantly expand their activities in the Company's market, the Company could be materially adversely affected. Fluctuations in interest rates and general economic conditions may also affect competition. During periods of rising rates, competitors that have locked in lower rates to potential borrowers may have a competitive advantage. During periods of declining rates, competitors may solicit the Company's customers with loans in its servicing portfolio to refinance their loans.

        The Company believes its competitive strengths include: (i) emphasizing customer service to attract borrowers; (ii) providing a high level of service to brokers and their customers; (iii) offering competitive loan programs for borrowers whose needs are not met by conventional mortgage lenders; (iv) providing convenience to the customer through the Company's nationwide network of retail and broker offices and the Internet; (v) emphasizing customer service in its loan servicing division; and, (vi) responding quickly to changes and developments in the mortgage marketplace.

Regulation

        The Company's operations are subject to extensive regulation, supervision and licensing by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. The Company's consumer lending activities are subject to the Federal Truth-in-Lending Act and Regulation Z (including the Home Ownership and Equity Protection Act of 1994), the Federal Equal Credit Opportunity Act, as amended, and Regulation B, the Fair Credit Reporting Act of 1970, as amended, the Federal Real Estate Settlement Procedures Act ("RESPA") and Regulation X, the Home Mortgage Disclosure Act, the Federal Debt Collection Practices Act and the National Housing Act of 1934, as well as other federal and state statutes and regulations affecting the Company's activities. The Company is also subject to the rules and regulations of, and examinations by, state regulatory authorities with respect to originating, processing, underwriting, selling, securitizing and servicing loans. These rules and regulations, among other things, impose licensing obligations on the Company, establish eligibility criteria for mortgage loans, prohibit discrimination, govern inspections and appraisals of properties and credit reports on loan applicants, regulate assessment, collection, foreclosure and claims handling, investment and interest payments on escrow balances and payment features, mandate certain disclosures and notices to borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan amounts.

        A significant portion of mortgage loans in the Company's portfolio of mortgage loans in securitization trusts are so-called "high cost mortgage loans" where the borrower is charged points and fees or interest rates above certain levels because of higher credit risk. Such high cost mortgage loans are subject to special disclosure requirements and certain substantive prohibitions under the Home Ownership and Equity Protection Act of 1994 and regulations thereunder, and certain state laws. The federal regulations governing high cost mortgage loans establish guidelines for determination of whether an individual loan is a high cost mortgage loan. Federal regulations on high cost mortgage loans make assignees of such mortgage loans liable for violations of the regulations. As a result of the increased regulation and scrutiny of high cost mortgage loans, the Company no longer originates high cost mortgage loans. In addition, there has been recent class action litigation and regulatory actions by certain state agencies against lenders for violations of high cost mortgage regulations. The Company

20

has not to date been subject to any material class action litigation or regulatory action for violations of such high cost mortgage regulations.

        Failure to comply with mortgage banking rules and regulations can lead to loss of approved status, certain rights of rescission for mortgage loans, individual and class action lawsuits and administrative enforcement action. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors—If We are Unable to Comply with Mortgage Banking Rules and Regulations, Our Ability to Make Mortgage Loans May be Restricted."

        In the course of its business, the Company may acquire properties as a result of foreclosure. There is a risk that hazardous or toxic waste could be found on such properties. In such event, the Company could be held responsible for the cost of cleaning up or removing such waste, and such cost could exceed the value of the underlying properties.

        The Company is also subject to various other federal and state laws regulating the issuance and sale of securities, relationships with entities regulated by the Employee Retirement Income Security Act of 1974, as amended, and other aspects of its business.

Employees

        At June 30, 2002, the Company employed 1,801 persons. The Company has satisfactory relations with its employees.

Item 2. Properties

        The executive and administrative offices of the Company are located at 350 S. Grand Avenue, Los Angeles, California, and consist of approximately 178,000 square feet of which approximately 44,800 square feet are sublet. The Company is attempting to sublet additional space in these premises. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Fiscal Years 2002, 2001 and 2000—Expenses." The lease and the sublease on these premises extend through February 2012. The Company also leases approximately 39,000 square feet of office space at its former headquarters location at 3731 Wilshire Boulevard, Los Angeles, California, all of which is sublet through March 2006. The master lease expires in December 2008. The administrative offices of the Company's Irvine office are located at 3347 and 3351 Michelson Drive, Irvine, California, and consist of approximately 93,000 square feet. On September 13, 2002, the Company entered into a new lease on this leased space which extends this lease through November 30, 2008.

        The Company also leases space for its traditional retail branch and broker regional offices. These facilities aggregate approximately 273,000 square feet and are leased under terms which vary as to duration. In general, the leases expire between 2002 and 2008, and provide for rent escalations tied to either increases in the lessors' operating expenses or fluctuations in the consumer price index in the relevant geographical areas.

Item 3. Legal Proceedings

        The Company and certain of its subsidiaries are defendants in Fowler et. al. v. Aames Financial Corporation and Aames Funding Corporation, a putative class action filed on approximately May 11, 2001, in U.S. District Court of California, case 2:01cv04330. Plaintiff, a former loan executive, filed this putative class action on behalf of himself and current and former loan executives employed by the Company, and seeks certification of class, damages consisting of alleged unpaid overtime, statutory liquidated damages and waiting time penalties, attorneys' fees and costs, restitution, disgorgement of profits and injunctive relief. Plaintiff alleges that during his employment, he and other loan executives worked in excess of 8 hours per day or 40 hours per week, that the Company willfully failed to pay overtime in violation of the Federal Fair Labor Standards Act and, with respect to loan executives

21

employed in California, in violation of the California Labor Code and Business & Professional Code §17200, et seq. Aames filed an answer denying the claims and asserting various affirmative defenses on September 4, 2001. Discovery is continuing.

        The Company and certain of its subsidiaries are defendants in Aslami et. al. v. Aames Home Loan, Aames Financial Corporation, et. al., a putative class action filed on approximately April 11, 2000, in Los Angeles County Superior Court, case No. BC228027. Plaintiffs, former customers, filed this action on behalf of themselves and all persons who applied for or obtained loans from the Company during the prior four years. Plaintiffs allege various state law claims premised on their contention that the Company routinely "upcharges" third party fees and underdiscloses annual percentage rates. On April 26, 2002, Plaintiffs filed a third amended complaint limiting the purported class to California borrowers and asserting claims based upon the payment of a yield spread premium to their broker. Plaintiffs contend that such yield spread premium payments constitute kickbacks and/or illegal referrals under California law and/or that the Company failed to properly disclose the nature of a yield spread premium. Plaintiffs seek certification of the class, damages consisting of fees paid to mortgage brokers, statutory treble damages, attorneys' fees and costs, restitution, disgorgement of improperly collected charges, punitive damages and injunctive relief. The Company has answered the amended complaint, again asserting various affirmative defenses. The court has set December 2, 2002 as the date upon which it will consider Plaintiffs' motion to certify a class. No trial has been set.

        Wilmington Trust Company, as successor indenture trustee with respect to the Company's 9.125% Senior notes due 2003 (the "Senior Notes"), brought an action against the Company seeking to prevent the Company from consummating its offer to exchange all outstanding 5.5% Convertible Subordinated Debentures due 2006 for newly issued 4.0% Convertible Subordinated Debentures due 2012 (the "Exchange Offer"). On June 20, 2002, the Supreme Court of the State of New York heard oral arguments relating to Wilmington Trust Company's request for an order preliminarily enjoining the Company from proceeding with the Exchange Offer. On July 1, 2002, the court denied Wilmington Trust Company's request. On July 12, 2002, the Company filed a motion to dismiss Wilmington Trust Company's complaint. On August 1, 2002, Wilmington Trust Company filed an amended complaint seeking a declaratory judgment that if the Company were to proceed with the Exchange Offer an event of default would exist under the indenture governing the Senior Notes. On August 14, 2002, the Company filed a motion to dismiss the amended complaint and request a declaratory judgment that the Exchange Offer would not constitute an event of default under the indenture governing the Senior Notes. Trial is currently set for December 3, 2002. The Company believes the Wilmington Trust Company's suit is without merit and intends to vigorously defend itself.

        The Company cannot predict the outcome of these matters. The Company intends to vigorously defend these actions; however, the Company believes that an unfavorable outcome of one or both of the above cases could have a material adverse effect on the Company's consolidated financial position and results of operations.

        The Company becomes involved, from time to time, in a variety of mortgage lending related claims and other matters incidental to its business in addition to the matters described above. In the opinion of the Company, the resolution of any of these pending incidental matters is not expected to have a material adverse effect on its consolidated financial position and results of operations.

Item 4. Submission of Matters to Vote of Security Holders

None.

22

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

        Since November 28, 2001, the Company's common stock had been quoted on the Over-the-Counter Bulletin Board under the symbol "AMSF". Prior thereto and since November 1995, the Company's common stock had traded under the symbol "AAM" on the New York Stock Exchange (the "NYSE"). As previously reported, the NYSE delisted the Company's common stock on November 15, 2001.

        The following table sets forth the high and low sale prices of the Company's common stock on the NYSE and the range of certain high and low closing bid quotations on the Over-the-Counter Bulletin Board for the periods indicated during the year ended June 30, 2002.

	High		Low
First Quarter*	$	1.40	$	0.79
Second Quarter (through November 14, 2001)*		0.92		0.46
Second Quarter (from November 28, 2001 to December 31, 2001^		0.38		0.25
Third Quarter^		0.75		0.34
Fourth Quarter^		0.80		0.47

        The following table sets forth the range of high and low sale prices of the Company's common stock on the NYSE for the periods indicated during the year ended June 30, 2001:

	High*		Low*
First Quarter	$	3.250	$	0.500
Second Quarter		2.063		0.563
Third Quarter		1.940		0.813
Fourth Quarter		1.860		1.100

^

As reported by MarketWatch.com Inc.

*

As reported by Bloomberg

        As of September 20, 2002, the Company had approximately 200 stockholders of record, which amount does not include stockholders whose shares are held in the name of their broker. No common stock dividends were accrued or paid in the years ended June 30, 2002, 2001 and 2000. The Board of Directors of the Company reviews the Company's dividend policy at least annually in light of the earnings, cash position and capital needs of the Company, general business conditions and other relevant factors. In November 1998, the Board of Directors decided to suspend cash dividends on the common stock until the Company's earnings and cash flows improved. Credit agreements generally limit the Company's ability to pay dividends if such payment would result in an event of default under the agreements or would otherwise cause a breach of a net worth or liquidity covenants. The Company's Indenture relating to its 9.125% Senior Notes due 2003 prohibits the payment of dividends if the aggregate amount of such dividends since October 26, 1996 exceeds the sum of (a) 25% of the Company's net income during that period (minus 100% of any deficit); (b) net cash proceeds from any securities issuances; and (c) proceeds from the sale of certain investments. Under these limitations, the Company will be prohibited from paying cash dividends on its capital stock for the foreseeable future.

23

Item 6. Selected Financial Data

        The selected consolidated financial data set forth below with respect to the Company for the five years ended June 30, 2002 have been derived from the audited consolidated financial statements. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto and other financial information included herein.

		Year Ended June 30,
		2002			2001			2000			1999			1998
		(dollars in thousands, except per share data)
Statement of Operations Data:
Revenue:
	Gain on sale of loans	$	95,530		$	73,435		$	48,098		$	44,855		$	120,828
	Valuation (write-down) of residual interests and mortgage servicing rights		(27,000	)		(33,600	)		(82,490	)		(194,551	)		19,495
	Origination fees		55,986			47,430			37,951			39,689			34,282
	Loan servicing		12,462			14,989			15,654			23,329			10,634
	Interest		83,161			86,477			94,569			70,525			81,250
	Total revenue, including valuation (write-down) of residual interests and mortgage servicing rights		220,139			188,731			113,782			(16,153	)		266,489
	Total expense		212,506			217,366			232,785			261,996			213,683
	Income (loss) before income taxes		7,633			(28,635	)		(119,003	)		(278,149	)		52,806
	Provision (benefit) for income taxes		3,087			1,889			3,369			(30,182	)		25,243
	Net income (loss)	$	4,546		$	(30,524	)	$	(122,372	)	$	(247,967	)	$	27,563
	Basic and diluted net income (loss) to common shareholders	$	(9,242	)	$	(44,445	)	$	(130,498	)	$	(249,917	)	$	27,563
	Net income (loss) per common share — diluted	$	(1.45	)	$	(7.11	)	$	(21.02	)	$	(40.31	)	$	4.36
	Weighted average number of common shares outstanding (in thousands) — diluted		6,394			6,251			6,209			6,200			7,150
	Cash dividends paid per common share	$	—		$	—		$	—		$	0.17		$	0.66
Cash Flow Data:
Cash provided by (used in) operating activities		$	9,390		$	(5,936	)	$	99,391		$	(466,966	)	$	(49,661	)
Cash used in investing activities			(4,192	)		(5,048	)		(2,664	)		(5,229	)		(5,163	)
Cash provided by (used in) financing activities			(15,390	)		28,388			(107,312	)		480,637			40,244
Net increase (decrease) in cash and cash equivalents		$	(10,192	)	$	17,404		$	(10,585	)	$	8,442		$	(14,580	)

24

Other Data:
Loans originated or purchased:
	Retail		1,609,875		1,180,551		783,700		770,000		636,100
	Broker(1)	$	1,632,634	$	1,191,079	$	1,295,600	$	1,182,100	$	1,101,200
	Correspondent(1)		—		—		—		241,500		646,300
	Total	$	3,242,509	$	2,371,630	$	2,079,300	$	2,193,600	$	2,383,600
Loan dispositions:
	Whole loans sold	$	2,610,041	$	1,102,465	$	1,419,199	$	1,236,050	$	416,390
	Loans pooled and sold in securitizations		584,964		1,231,464		803,557		649,999		2,034,300
	Total	$	3,195,005	$	2,333,929	$	2,222,756	$	1,886,049	$	2,450,690
Total servicing portfolio at period end		$	2,308,000	$	2,717,000	$	3,560,000	$	3,841,000	$	4,147,000
Weighted average points on retail loan originations(2)			3.7%		4.0%		4.7%		4.8%		4.3%
Weighted average interest rate(2)			9.0		10.3		10.2		9.8		10.1
Weighted average initial combined loan-to-value ratio(2)(3):
	Retail		76		75		73		72		70
	Broker(1)		79		79		78		76		75
	Correspondent(1)		—		—		—		80		79
At period end:
	Number of traditional retail branches		98		100		100		101		103
	Number of traditional regional broker offices		4		5		7		35		52
	National Loan Centers		2		1		1		—		—

		At June 30,
		2002		2001		2000		1999		1998
Balance Sheet Data:
Cash and cash equivalents		$	17,391	$	27,583	$	10,179	$	20,764	$	12,322
Residual interests and mortgage servicing rights			200,217		244,383		303,302		353,255		522,632
Total assets			766,598		785,397		790,364		1,021,097		815,187
10.5% Senior Notes due February 2002			—		5,750		11,500		17,250		23,000
9.125% Senior Notes due November 2003			150,000		150,000		150,000		150,000		150,000
5.5% Convertible Subordinated Debentures due March 2006			113,970		113,970		113,970		113,970		113,990
	Total long-term debt	$	263,970	$	269,720	$	275,470	$	281,220	$	286,990
Stockholders' equity		$	37,185	$	45,885	$	74,478	$	145,556	$	304,051

(1)

Included in the Broker data is the purchase of closed loans on a continuous or "flow" basis from correspondents of $23.4 million, $40.4 million and $32.7 million during the years ended June 30, 2002, 2001 and 2000, respectively. The Company ceased purchasing mortgage loans in bulk during the year ended June 30, 1999.

25

(2)

Computed on loan production during the fiscal year presented.

(3)

The weighted average initial combined loan-to-value ratio is determined by dividing the sum of all loans secured by the junior and/or senior mortgages on the property by the appraised value at origination.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        The following discussion includes Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk. This section should be read in conjunction with Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data.

Special Note Regarding Forward-looking Information

        This Report contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The words "expect," "estimate," "anticipate," "predict," "believe," and similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this filing and include statements regarding the intent, belief or current expectations of the Company, its directors or officers with respect to, among other things (a) market conditions in the securitization, capital, credit and whole loan markets and their future impact on the Company's operations, (b) trends affecting the Company's liquidity position, including, but not limited to, its access to warehouse, working capital and other credit facilities and its ability to effect securitizations and whole loan sales, (c) the impact of the various cash savings plans and other restructuring strategies being considered by the Company, (d) the Company's on-going efforts in improving its equity position, (e) trends affecting the Company's financial condition and results of operations, and (f) the Company's business and liquidity strategies. The stockholders of the Company are cautioned not to put undue reliance on such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in this Report, for the reasons, among others, discussed under the captions "Item 1. Business and Risk Factors." Readers should carefully review the factors referred to above and the other documents the Company files from time to time with the United States Securities and Exchange Commission, including the quarterly reports on Form 10-Q filed by the Company during fiscal 2003 and any current reports on Form 8-K filed by the Company.

Critical Accounting Policies

        The Company retained the residual interests created in all of the $7.0 billion of securitizations which closed prior to and during the year ended June 30, 2000. The Company did not retain residual interests created in any of the $585.0 million and $1.2 billion of securitizations which closed during the years ended June 30, 2002 and 2001 as all such residual interests were sold for cash under the Residual Facility.

        The Company sells its loans in whole loan sale transactions on a cash basis. In whole loan sale transactions, the buyer acquires all future rights (including mortgage servicing rights) to the loans, without recourse to the Company except for standard representations and warranties. Gains and losses on whole loan sales are recognized when the Company surrenders control over the loans (generally on the settlement date) based upon the difference between the proceeds received and the net carrying amount of the loans.

26

        Accounting for Securitizations.    The Company's loan disposition strategy relies on a combination of securitization transactions and whole loan sales. The following discusses critical accounting policies which arise only in the context of securitization transactions.

        In a securitization, the Company conveys loans that it has originated, and formerly purchased, to a special purpose entity (such as a trust) in exchange for cash proceeds and a residual interest in the trust. The cash proceeds are raised through an offering of the pass-through certificates or bonds evidencing the right to receive principal payments and interest on the certificate balance or on the bonds. The non-cash gain on sale of loans represents the difference between the proceeds (including premiums) from the sale, net of related transaction costs, and the allocated carrying amount of the loans sold. The allocated carrying amount is determined by allocating the original cost basis of the loans (including premiums paid on loans purchased) between the portion sold and any retained interests (residual interests), based on their relative fair values at the date of transfer. The residual interests represent, over the estimated life of the loans, the present value of the estimated cash flows. These cash flows are determined by the excess of the weighted average coupon on each pool of loans sold over the sum of the interest rate paid to investors, the contractual servicing fee, a monoline insurance fee, if any, and an estimate for credit losses. Each agreement that the Company has entered into in connection with its securitizations requires the overcollateralization of the trust that may initially be funded by cash deposited by the Company. The amount and timing of the cash flows expected to be released from the securitization trusts considers the impact of the applicable delinquency and credit loss limits specified in the securitization agreements.

        The Company determines the present value of the cash flows at the time each securitization transaction closes using certain estimates made by management at the time the loans are sold. These estimates include: (i) future rate of prepayment; (ii) credit losses; and (iii) discount rate used to calculate present value. The future cash flows represent management's best estimate. Management monitors the performance of the loans, and any changes in the estimates are reflected in earnings. There can be no assurance of the accuracy of management's estimates.

        The Company's retained residual interests are recorded at estimated fair value and are marked to market through a charge (or credit) to earnings. On a quarterly basis, the Company reviews the fair value of its retained residual interests by analyzing its prepayment, credit loss and discount rate assumptions in relation to its actual experience and current rates of prepayment and credit loss prevalent in the industry. Additionally, on a quarterly basis the Company evaluates the effects, if any, that increasing or decreasing interest rates may have on its retained residual interests. The Company may adjust the value of its retained residual interests or take a charge to earnings related to its retained residual interests, as appropriate, to reflect a valuation or write-down, respectively, of its retained residual interests based upon the actual performance of the Company's retained residual interests as compared to the Company's key assumptions and estimates used to determine fair value. Although management believes that the assumptions used to estimate the fair value of its retained residual interests are reasonable, there can be no assurance as to the accuracy of the assumptions or estimates.

        Rate of Prepayment.    The estimated life of the securitized loans depends on the assumed annual prepayment rate which is a function of estimated voluntary (full and partial) and involuntary (liquidations) prepayments. The prepayment rate represents management's expectations of future prepayment rates based on prior and expected loan performance, the type of loans in the relevant pool (fixed or adjustable rate), the production channel which produced the loan, prevailing interest rates, the presence of prepayment penalties, the loan-to-value ratios and the credit grades of the loans included in the securitization and other industry data. The rate of prepayment may be affected by a variety of economic and other factors including, but not limited to, a declining mortgage interest rate environment.

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        Credit Losses.    In determining the estimate for credit losses on loans securitized, the Company uses assumptions that it believes are reasonable based on information from its prior securitizations, the loan-to-value ratios and credit grades of the loans included in the securitizations, loss and delinquency information by origination channel, and information available from other market participants such as investment bankers, credit providers and credit agencies. On a quarterly basis, the Company re-evaluates its credit loss estimates.

        Discount Rate.    In order to determine the fair value of the cash flow from the residual interests, the Company discounts the cash flows based upon rates prevalent in the market.

        The actual performance of the Company's retained residual interests as compared to the key assumptions and estimates used to evaluate their carrying value resulted in write-downs to the residual interests of $27.0 million, $33.6 million and $77.5 million during the years ended June 30, 2002, 2001 and 2000, respectively.

        The Company previously disclosed that if actual credit losses exceeded its credit loss assumption, the Company would be required to take a charge to earnings to reflect a change in credit loss assumptions. In light of continued higher than expected losses on liquidations and based upon management's assessment of the aforementioned factors considered in developing its credit loss estimate, during the year ended June 30, 2002, the Company adjusted its cumulative loss estimate to 5.5% from 5.3% of the original balance of the mortgage loans in the securitization trusts in which the Company retained a residual interest. The $27.0 million write-down to the Company's retained residual interests during the year ended June 30, 2002 was due primarily to the change in the cumulative loss estimate assumption and the Company's evaluation of higher than anticipated delinquency trends. The Company closely monitors its residual interests and, should higher than expected actual credit losses occur, it will incorporate this factor into its normal quarterly evaluation of the estimated fair value of its residual interests.

        The $33.6 million write-down recorded during the year ended June 30, 2001 was recorded in light of higher than expected actual credit loss experience compared to credit loss assumptions.

        The following table summarizes certain information about the securitization trusts in which the Company has retained a residual interest at June 30, 2002 and 2001 (dollars in thousands):

		June 30,
		2002		2001
Aggregate principal balance of securitized loans at the time of the securitizations		$	7,016,205	$	7,016,205
Outstanding principal balance of securitized loans		$	1,316,956	$	1,998,650
Outstanding principal balance of pass-through certificates or bonds of the securitization trusts		$	1,141,805	$	1,795,278
Weighted average coupon rates of outstanding:
	Securitized loans		10.26%		11.28%
	Pass-through certificates or bonds		5.53%		6.14%

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        Certain historical data and key assumptions and estimates used by the Company in its June 30, 2002 and 2001 reviews of the residual interests retained by the Company were the following:

			June 30,
			2002	2001
Prepayments:
	Actual weighted average annual prepayment rate, as a percentage of outstanding principal balances of securitized loans:
		Fixed rate loans	29.4%	20.5%
		Adjustable rate loans	37.6%	39.2%
	Estimated annual prepayment rates, as a percentage of outstanding principal balances of securitized loans:
		Fixed rate loans	22.3% to 34.4%	22.3% to 29.5%
		Adjustable rate loans	13.8% to 41.0%	37.2% to 46.9%
	Estimated weighted average life of securitized loans		3.7 years	3.1 years
Credit losses:
	Actual credit losses to date, as a percentage of original principal balances of securitized loans		4.7%	3.9%
	Future estimated prospective credit losses, as a percentage of original principal balances of securitized loans		0.8%	1.4%
	Total actual and estimated credit losses, as a percentage of original principal balances of securitized loans		5.5%	5.3%
	Total actual credit losses to date and estimated prospective credit losses (dollars in thousands)		$385,372	$368,479
Weighted average discount rate			13.4%	15.0%

        To estimate the effects of changes in interest rates on the coupon rates of the adjustable rate mortgage loans, the Company considers current underlying indices, periodic interest rate caps, lifetime interest rate caps and contractual interest rate floors. In determining the interest rates for the floating rate pass-through certificates in the securitization trusts, the Company uses each certificates' specific spread over the one-month LIBOR.

        The total actual and estimated credit losses, as a percentage of original principal balance of securitized loans, in each securitization trust, ranged from 2.0% to 9.3% at June 30, 2002 and ranged from 2.1% to 9.0% at June 30, 2001. Actual and estimated credit losses vary between securitization trusts due to differing credit quality i.e., credit grade, production channel and other factors considered by the Company when evaluating credit loss estimates.

        Additionally, upon sale or securitization of servicing retained mortgages, the Company capitalizes the fair value of mortgage servicing rights ("MSRs") assets separate from the loan. The Company determines fair value based on the present value of estimated net future cash flows related to servicing income. The cost allocated to the servicing rights is amortized over the period of estimated net future servicing fee income. The Company periodically reviews the valuation of its MSRs. This review is performed on a disaggregated basis for the predominant risk characteristics of the underlying loans which are loan type.

        During the years ended June 30, 2002 and 2001, the Company sold $585.0 million and $1.2 billion, respectively, of mortgage loans in securitization transactions. During the years ended June 30, 2002 and 2001, all of the residual interests created in the securitization transactions which closed during those years were sold to CZI for $16.4 million and $45.1 million of cash, respectively. The Company retained the residual interests created in the securitizations which closed during the year ended June 30, 2000 and in securitizations prior thereto.

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        Key assumptions and estimates used by the Company in measuring the residual interests at the date of securitization resulting from securitizations completed during the years ended June 30, 2002 and 2001 were as follows:

			June 30,
			2002	2001
Prepayments:
	Estimated annual prepayment rates, as a percentage of outstanding principal balance of securitized loans:
		Fixed rate loans	25.2% to 31.5%	27.1% to 30.0%
		Adjustable rate loans	40.1% to 55.5%	39.9% to 42.6%
	Estimated weighted average life of securitized loans		3.4 years	2.6 years
Credit losses:
	Future estimated prospective credit losses, as a percentage of original principal balances of securitized loans		3.7%	3.0%
	Total estimated prospective credit losses (dollars in thousands)		$21,736	$36,978
Weighted average discount rate			15.0%	15.0%

        During the year ended June 30, 2002, the Company used prospective credit loss factors ranging from 3.5% to 4.1% of the original principal balance of mortgage loans securitized. These estimates vary from prior years' credit loss factors and were based primarily upon the expected positive effects of credit and underwriting changes made by the Company in the loan origination process, the use of private mortgage insurance on certain loans to mitigate credit loss, the Company's decreased reliance on purchasing loans from correspondents and the Company's abandonment of certain lower credit grade loan programs.

Results of Operations—Fiscal Years 2002, 2001 and 2000

        The following table sets forth information regarding the components of the Company's revenue and expenses during the years ended June 30, 2002, 2001 and 2000:

		2002					2001					2000
		$			%		$			%		$			%
		(Dollars in thousands)
Revenue:
	Gain on sale of loans	$	95,530		43.4	%	$	73,435		38.9	%	$	48,098		42.3	%
	Write-down of residual interests and mortgage servicing rights		(27,000	)	(12.3	)		(33,600	)	(17.8	)		(82,490	)	(72.5	)
	Origination fees		55,986		25.4			47,430		25.1			37,951		33.4
	Loan servicing		12,462		5.7			14,989		8.0			15,654		13.7
	Interest		83,161		37.8			86,477		45.8			94,569		83.1
	Total revenue, including write-down of residual interests and mortgage servicing rights		220,139		100.0			188,731		100.0			113,782		100.0
Expenses:
	Personnel		114,800		52.1			98,404		52.1			93,239		81.9
	Production		21,322		9.7			19,034		10.1			26,718		23.5
	General and administrative		38,995		17.7			49,044		26.0			58,489		51.4
	Interest		37,389		17.0			50,884		27.0			52,339		46.0
	Provision for uncollectible receivables		—		—			—		—			2,000		1.8
	Total expenses		212,506		96.5			217,366		115.2			232,785		204.6
Income (loss) before income taxes			7,633		3.5			(28,635	)	(15.2	)		(119,003	)	(104.6	)
Provision for income taxes			3,087		1.4			1,889		1.0			3,369		3.0
	Net income (loss)	$	4,546		2.1	%	$	(30,524	)	(16.2	)%	$	(122,372	)	(107.6	)%

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Revenue

        General.    Total revenue during the year ended June 30, 2002 was $220.1 million compared to $188.7 million during the year ended June 30, 2001 and $113.8 million during the year ended June 30, 2000. Included in total revenue during the years ended June 30, 2002, 2001 and 2000 were write-downs of $27.0 million and $33.6 million and $82.5 million, respectively, to the Company's residual interests and mortgage servicing rights. Excluding the residual interests and mortgage servicing rights write-downs, total revenue during the year ended June 30, 2002 increased $24.8 million to $247.1 million from $222.3 million for the year ended June 30, 2001. The $24.8 million increase in total revenue was attributable primarily to increases in gain on sale of loans and origination fees, partially offset by declines in loan servicing and interest income. Excluding the write-downs of residual interests and mortgage servicing rights, total revenue during the year ended June 30, 2001 increased $26.0 million to $222.3 million from $196.3 million for the year ended June 30, 2000. The $26.0 million increase in total revenue is attributable primarily to increases in gain on sale of loans and origination fees, partially offset by declines in loan servicing and interest income.

        Gain on Sale of Loans.    Gain on sale of loans during the year ended June 30, 2002 increased $22.1 million, or 30.1%, to $95.5 million from $73.4 million during the year ended June 30, 2001. The increase in gain on sale of loans resulted primarily from the $861.1 million, or 36.9%, increase in the volume of the Company's total loan sales to $3.2 billion during the year ended June 30, 2002 over the $2.3 billion of total loan dispositions during the year ended June 30, 2001. During the years ended June 30, 2002 and 2001, the Company relied on a combination of securitizations and whole loan sales for cash as its loan disposition strategy. The mix in the composition of securitizations and whole loan sales for cash differed during the years ended June 30, 2002 and 2001 based upon the Company's review of market conditions, profitability and cash flow needs. When expressed as a percentage of the $3.2 billion of total loan dispositions during the year ended June 30, 2002, whole loan sales for cash and loans sold in securitizations comprised 81.7% and 18.3%, respectively. In comparison, of the $2.3 billion of total loan dispositions during the year ended June 30, 2001, whole loan sales for cash and loans sold in securitizations comprised 52.8% and 47.2%, respectively. Whole loan sales were $2.6 billion during the year ended June 30, 2002, an increase of $1.5 billion over $1.1 billion of whole loan sales during the year ended June 30, 2001. During the year ended June 30, 2002, loans sold in securitizations declined by $646.5 million to $585.0 million from $1.2 billion of securitizations during the year ended June 30, 2001. The Company's higher reliance on whole loan sales for cash as a mortgage loan disposition strategy during the year ended June 30, 2002 was due primarily to the generally more favorable conditions in the whole loan sale markets and, to a lesser extent, to the Company's desire to retain capacity in the Residual Facility. During the year ended June 30, 2002, the Company, as it has from to time to time, entered into forward interest rate swap agreements designed to mitigate interest rate exposure to fixed rate mortgage loans in its inventory and pipeline in anticipation of closing loan disposition transactions during the year. Gain on sale of loans during the year ended June 30, 2002 includes charges of $10.8 million of derivative related losses and is comprised of $10.4 million of losses on closed hedge positions and $0.4 million to mark open hedges at June 30, 2002 to their estimated fair value. Gain on sale of loans during the year ended June 30, 2002 includes $8.2 million of gain on sale of mortgage servicing rights and the rights to prepayment fee income sold for cash to unaffiliated independent mortgage servicing companies relating to all of the mortgage loans in the Company's fiscal 2002 securitizations. Of the $95.5 million in gain on sale of loans during the year ended June 30, 2002, $16.4 million was attributable to residual sales for cash to CZI under the Residual Facility. Gain on sale of loans during the year ended June 30, 2002 includes charges of $0.5 million for amortized expenses related to the Residual Facility, substantially all of which related to amortization of the fee paid by the Company to CZI to obtain the facility.

        Gain on sale of loans during the year ended June 30, 2001 increased $25.3 million, or 52.7%, to $73.4 million from the $48.1 million during the year ended June 30, 2000. The increase in gain on sale of loans resulted primarily from higher gain on sale rates recognized by the Company in its

31

securitization and whole loan sales for cash during the year ended June 30, 2001 when compared to the gain on sale rates recognized on its loan dispositions during the year ended June 30, 2000. To a lesser extent, the increase in gain on sale of loans during the year ended June 30, 2001 over the year ended June 30, 2000 was due to the sale of mortgage servicing rights and the rights to prepayment fees and to the $111.2 million increase in loan dispositions during the year ended June 30, 2001 over the level of loan dispositions reported during the year ended June 30, 2000. During the years ended June 30, 2001 and 2000, the Company relied on a combination of securitizations and whole loan sales for cash as its loan disposition strategy. However, the mix in the composition of securitizations and whole loan sales for cash differed during each of the respective periods based upon the Company's review of market conditions, profitability and cash flow requirements. During the year ended June 30, 2001, $1.2 billion and $1.1 billion of mortgage loans were disposed in securitizations and whole loan sales, respectively, or 52.8% and 47.2% of the $2.3 billion of total loan dispositions during the period. In comparison, during the year ended June 30, 2000, mortgage loan dispositions in whole loan sales for cash were $1.4 billion and loans sold in securitizations were the $803.6 million, or 63.8% and 36.2%, respectively, of the $2.2 billion of total loan dispositions during the period. The increased reliance on securitizations as a mortgage loan disposition strategy during the year ended June 30, 2001 was due to the Company entering into the Residual Facility in August 2000 which enabled the Company to increase its loan dispositions through securitizations by $427.9 million to $1.2 billion during the year ended June 30, 2001 from $803.6 million of mortgage loans sold in securitizations during the year ended June 30, 2000. Whole loan sales for cash declined by $316.7 million to $1.1 billion during the year ended June 30, 2001 from $1.4 billion during the year ended June 30, 2000. Gain on sale of loans during the year ended June 30, 2001 includes $15.7 million of gain on sale of mortgage servicing rights and the rights to prepayment fee income sold to an unaffiliated independent mortgage servicing company relating to all of the mortgage loans in the Company's fiscal 2001 securitizations. The gain on sale rates realized by the Company on whole loan sales for cash were generally higher during the year ended June 30, 2001 compared to gain rates on whole loan sales for cash during the year ended June 30, 2000 due to a combination of pricing and underwriting changes made by the Company and generally better conditions in the whole loan markets during fiscal 2001 when compared to the market conditions existing during the year ended June 30, 2000. During the year ended June 30, 2001, the Company, as it has from to time to time, entered into forward interest rate swap agreements to hedge interest rate exposure to fixed rate mortgage loans in its inventory and pipeline in anticipation of closing loan disposition transactions during the year. Gain on sale of loans during the year ended June 30, 2001 includes charges of $6.0 million related to derivative losses. There were no derivative transactions in place at or during the year ended June 30, 2000. Of the $73.4 million in gain on sale of loans during the year ended June 30, 2001, $45.1 million was attributable to residual sales for cash to CZI under the Residual Facility. Gain on sale of loans during the year ended June 30, 2001 includes charges of $1.9 million for amortized expenses related to the Residual Facility, of which $1.7 million and $0.2 million related to amortization of the fee paid by the Company to CZI to obtain the facility and other costs, respectively. As the Residual Facility commenced in August 2000, gain on sale of loans during fiscal 2000 had no similar activity.

        Origination Fees.    Origination fees are primarily comprised of points and other fees charged by the Company on mortgage loans originated by the Company's retail channel, partially offset by broker compensation, generally referred to as yield spread premium, paid by the Company to mortgage loan brokers in connection with broker loan production. Origination fees are primarily a function of the volume of mortgage loans originated by the Company through its retail channel and the points charged on such loans. Yield spread premiums are generally a function of the volume of mortgage loans originated by the Company through its broker channel and the yield spread premium paid on such loans by the Company to referring brokers.

        Origination fees during the year ended June 30, 2002 were $56.0 million as compared to $47.4 million and $38.0 million during the years ended June 30, 2001 and 2000, respectively. The

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$8.6 million, or 18.1%, increase in origination fee revenue during the year ended June 30, 2002 over the amount reported a year ago was attributable primarily to the $429.3 million, or 36.4%, increase in retail production during the year ended June 30,2002 over production levels reported during the year ended June 30, 2001, partially offset by a decline during fiscal 2002 from fiscal 2001 in average points and fees charged at the time of origination. As previously reported, the Company has, primarily in response to competitive factors and, to a lesser extent, recent regulatory changes, reduced points and fees charged to customers in numerous states and for certain loan products. The $9.5 million, or 25.0%, increase in origination fees during the year ended June 30, 2001 over origination fees during the year ended June 30, 2000 was attributable primarily to a $396.9 million, or 50.6%, increase in retail production during fiscal 2001 over total retail production during the year ended June 30, 2000, partially offset by a decrease during fiscal 2002 from fiscal 2001 in points and fees charged per loan due to the Company's focus on higher credit quality borrowers. The weighted average points charged by the Company during the years ended June 30, 2002, 2001 and 2000 were 3.7%, 4.0% and 4.7%, respectively. The Company expects weighted average points charged to decline further in fiscal 2003 as the Company expects to continue to reduce points and fees charged in certain states in response to pending legislation and regulation restricting points and fees in numerous states.

        Yield spread premium was $13.0 million, $5.8 million and $9.5 million during the years ended June 30, 2002, 2001 and 2000, respectively. The $7.2 million increase in yield spread premium during the year ended June 30, 2002 over yield spread premium during the year ended June 30, 2001 is attributable primarily to the $441.6 million, or 37.1%, increase in total broker production during fiscal 2002 over total production during fiscal 2001. The $3.7 million decrease in yield spread premium during the year ended June 30, 2001 from yield spread premium during the year ended June 30, 2000 is attributable to a $71.8 million decline in total production during fiscal 2001 from total production during fiscal 2000. Yield spread premium, expressed as a percentage of total broker production was .79%, .49% and .75% during the years ended June 30, 2002, 2001 and 2000, respectively.

        Loan Servicing.    Loan servicing revenue consists of prepayment fees, late charges and other fees, and servicing fees earned on securitized pools, reduced by subservicing costs and amortization of the Company's MSRs. See "—Critical Accounting Policies." Loan servicing revenue during the year ended June 30, 2002 was $12.5 million as compared to $15.0 million and $15.7 million during the years ended June 30, 2001 and 2000, respectively. The $2.5 million decrease in loan servicing revenue during the year ended June 30, 2002 from a year ago was due primarily to declines in servicing, late and prepayment fees aggregating $7.6 million, partially offset by declines in subservicing related expenses and amortization of mortgage servicing rights in the aggregate amount of $5.0 million. The declines in servicing, late and prepayment fees during the year ended June 30, 2002 from the comparable period a year ago was due to the $619.0 million decrease in the size of the Company's portfolio of mortgage loans in securitization trusts serviced in-house at June 30, 2002 compared to June 30, 2001, together with a decrease in prepayment fees due to the aging of loans in the portfolio beyond the term of prepayment fees. Subservicing expenses and related resolution, set-up and reperformance expenses during the year ended June 30, 2002 were $1.7 million, down $2.8 million from the $4.5 million of such expenses during the year ended June 30, 2001. Amortization of mortgage servicing rights declined $2.2 million to $3.6 million during the year ended June 30, 2002 from $5.8 million during the year ended June 30, 2001.

        The $0.7 million decrease in loan servicing revenue during the year ended June 30, 2001 from June 30, 2000 was due primarily to declines in servicing, late and prepayment fees aggregating $5.5 million, partially offset by declines in subservicing related expenses and amortization of mortgage servicing rights in the aggregate amount of $4.8 million. The declines in servicing, late and prepayment fees during the year ended June 30, 2001 are due to the $1.2 billion decrease in the size of the mortgage loans in securitization trusts serviced in-house at June 30, 2001 compared to the size of such loans at June 30, 2000, together with a decrease in prepayment fees due to the aging of loans in the portfolio beyond the term of prepayment fees. Subservicing expenses and related resolution, set-up and

33

reperformance expenses during the year ended June 30, 2001 were $4.5 million, down $1.8 million from the $6.3 million of such expenses during the year ended June 30, 2000. Amortization of mortgage servicing rights declined $3.0 million to $5.8 million during the year ended June 30, 2001 from $8.8 million during the year ended June 30, 2000.

        During the years ended June 30, 2002, 2001 and 2000, the Company had in place two arrangements designed to reduce its servicing advance obligations. In the first arrangement, a loan servicing company purchased certain advances and agreed to make future advances with respect to an aggregate $388.0 million ($125.0 million at June 30, 2002) in principal amount of loans. In the second arrangement, which has expired, an investment bank purchased certain servicing related advances and agreed to undertake the obligation to make a substantial portion of the Company's advance obligations.

        The Company has not added any new loans to the servicing portfolio (excluding loans serviced on an interim basis) since January 1, 2000 due to the Company's sale of all of its mortgage loan production in whole loan sales for cash and securitizations with servicing released since that time. The Company's total loan servicing portfolio at June 30, 2002 decreased $409.0 million, or 15.1% to $2.3 billion from $2.7 billion at June 30, 2001, reflecting loan servicing portfolio runoff during the period. Mortgage loans in securitization trusts serviced by the Company in-house declined $619.0 million to $1.2 billion at June 30, 2002 from $1.8 billion at June 30, 2001. Moreover, subsequent to June 30, 2002, the Company transferred to the purchasers or their designated servicers the approximately $571.6 million of loans, which represented loans sold in whole loan sales during the June 2002 quarter but subserviced by the Company at June 30, 2002 on an interim basis. The Company's servicing portfolio will continue to be impacted in the future by the Company's dispositions of its loan production through whole loan sales and securitizations on a servicing released basis, which has resulted in a smaller servicing portfolio. See "Risk Factors." Future loan servicing revenue will be negatively impacted by continuing declines in the size of the loan servicing portfolio, and in prepayment fees due to the aging of loans in the portfolio past the term of any prepayment fees on loans, and, to a lesser extent, by the costs associated with the arrangements the Company entered into to reduce servicing advances on securitization trusts. See "Item 1. Business—Loan Servicing."

        Interest.    Interest income includes interest on loans held for sale, accretion income associated with the Company's residual interests and, to a lesser extent, interest on short-term overnight investments. Interest income was $83.2 million during the year ended June 30, 2002, compared to $86.5 million reported during the year ended June 30, 2001 and $94.6 million reported during the year ended June 30, 2000. Interest income decreased $3.3 million, or 3.8% during the year ended June 30, 2002 from the prior year due primarily to an $8.6 million decline in discount accretion due to lower average outstanding residual interest balances during the year ended June 30, 2002, partially offset by a $5.3 million increase in interest income earned on loans held for sale during the year ended June 30, 2002. The increase in interest earned on loans held for sale during the year ended June 30, 2002 over the amount reported during the year ended June 30, 2001 was due to higher average interest earning balances of loans held for sale outstanding, despite a decline in the weighted average interest rate on such loans during fiscal 2002 when compared to such rates and balances during fiscal 2001. The $8.1 million decrease in interest income during the year ended June 30, 2001 from the year ended June 30, 2000 was due primarily to lower accretion on lower average residual interest balances, partially offset by an increase in interest income earned on loans held for sale resulting from higher weighted average interest rates on higher average outstanding balances of loans held for sale during the year ended June 30, 2001 when compared to such rates and balances during the year ended June 30, 2000.

Expenses

        General.    Total expenses during the year ended June 30, 2002 were $212.5 million compared to $217.4 million during the year ended June 30, 2001 and $232.8 million during the year ended June 30, 2000. The $4.9 million decrease in total expenses during the year ended June 30, 2002 from the prior

34

year was attributable to declines of $10.0 million and $13.5 million in general and administrative and interest expense, respectively, partially offset by increases of $16.4 million and $2.3 million in personnel and production expenses, respectively, from such expenses during the year ended June 30, 2001. The $15.4 million decline in total expenses during the year ended June 30, 2001 from the prior year is attributable to decreases of $7.7 million, $11.5 million and $1.4 million in production, general and administrative (including provision for uncollectible receivables) and interest expense, respectively, partially offset by an increase of $5.2 million in personnel expenses from such expenses during the year ended June 30, 2000.

        Personnel.    Personnel expense includes salaries, payroll taxes and medical and other employee benefits. Personnel expense also includes incentives that are generally related to the Company's loan origination volume, as retail and broker account executives earn incentives on funded loans. Personnel expense during the year ended June 30, 2002 increased $16.4 million, or 16.7%, to $114.8 million from $98.4 million during the year ended June 30, 2001. The increase was comprised primarily of $7.6 million of increased salaries attributable principally to the increased staffing levels in the Company during the year ended June 30, 2002 over the year ended June 30, 2001 due to the acquisition of the Company's second National Loan Center and to other employee head count growth within the Company coupled with a $3.8 million increase in incentive compensation relative to retail and broker executives in connection with the $870.9 million increase in retail and broker production during the year ended June 30, 2002 over such production during the year ended June 30, 2001. Incentive compensation expense relative to other senior management also increased $1.1 million during the year ended June 30, 2002 over a year ago. Finally, payroll taxes, medical and other benefit costs increased $3.9 million during the year ended June 30, 2002 over the expense amount incurred during the year ended June 30, 2001.

        Personnel expenses during the year ended June 30, 2001 increased $5.2 million, or 5.5%, to $98.4 million from $93.2 million during the year ended June 30, 2000. This increase is comprised primarily of $4.2 million of incentive compensation to retail and broker executives relative to the $292.3 million increase in retail and broker production during the year ended June 30, 2001 over production during the year ended June 30, 2000, and to a lesser extent, to $1.7 million of incentive compensation awarded to other senior management and increased payroll taxes, medical and other benefit costs during the year ended June 30, 2001 over levels from a year ago. Personnel expense during the year ended June 30, 2000 included $4.0 million of nonrecurring severance costs.

        Production.    Production expense, primarily advertising, outside appraisal costs, travel and entertainment, and credit reporting fees increased $2.3 million, or 12.0%, to $21.3 million during the year ended June 30, 2002 from $19.0 million during the year ended June 30, 2001. The increase in production expense during the year ended June 30, 2002 from a year ago is due primarily to increased advertising and appraisal expenses incurred relative to the Company's increased total loan production. Production expense decreased $7.7 million, or 28.8%, to $19.0 million during the year ended June 30, 2001 from $26.7 million during the year ended June 30, 2000. The decrease during the year ended June 30, 2001 from the year ended June 30, 2000 is due primarily to the Company's cost reduction efforts, which included reducing its advertising expenses by improving the efficiency and penetration of its advertising strategies through the adoption of the decentralized marketing approach in its traditional retail branch network, partially offset by increases in appraisal and credit investigation expenses.

        Production expense expressed as a percentage of total loan origination volume for the year ended June 30, 2002, 2001 and 2000 was 0.7%, 0.8% and 1.3%, respectively. The decrease in the percentage during the year ended June 30, 2002 from the percentage during the year ended June 30, 2001 is attributable to the $870.9 million, or 36.7% increase in total loan production during the year ended June 30, 2002 over the origination volume reported for the year ended June 30, 2001, partially offset by the 12.0% increase in production expense during the year ended June 30, 2002 over a year ago. The decrease in the percentage during the year ended June 30, 2001 from the percentage during the year

35

ended June 30, 2000 is attributable to the 28.8% decrease in production expense combined with the $292.3 million, or 14.1%, increase in total loan production during the year ended June 30, 2001 from the origination volume reported for the year ended June 30, 2000.

        General and Administrative.    General and administrative expense decreased $10.0 million to $39.0 million during the year ended June 30, 2002 from $49.0 million during the year ended June 30, 2001. General and administrative expense decreased $9.4 million, or 16.2%, during the year ended June 30, 2001 from the year ended June 30, 2000. The decrease in the general and administrative expenses during the year ended June 30, 2002 from the year ended June 30, 2001 was primarily due to declines in professional, legal, occupancy, depreciation and miscellaneous expenses. The decrease in general and administrative expense during the year ended June 30, 2001 from the year ended June 30, 2000 was due to declines in professional, legal, communication, occupancy and miscellaneous expenses.

        On September 13, 2002, the Company entered into a new lease on its Irvine office which extends the lease on 93,000 rentable square feet of space through November 30, 2008. The new lease payments are not materially different from those in place prior to the renewal.

        On December 5, 2001, the Company entered into a sublease involving approximately 39,000 rentable square feet at its former headquarters office located at 3731 Wilshire Boulevard, Los Angeles, California. In accounting for the sublease transaction, the Company charged income for $0.4 million representing the differential between the present values of lease payments payable under the master lease and the lease payments receivable under the sublease, the unamortized portion of abandoned leasehold improvements and expenses associated with the transaction.

        On January 31, 2001, the Company entered into a sublease involving approximately 44,800 rentable square feet at its headquarters office located at 350 South Grand Avenue, Los Angeles, California. In accounting for the sublease transaction, the Company charged income for the differential between the present values of lease payments payable under the master lease and the lease payments receivable under the sublease. The Company also charged income for the unamortized portion of the leasehold improvements that were abandoned and expenses associated with the transaction. Additionally, the Company reversed certain accruals and deferred credits applicable to the sublet space. Consequently, there was no net charge to earnings as a result of this sublease transaction. The Company was required by the terms of the sublease to pledge approximately $1.9 million in the form of a cash deposit to guarantee the differential between the present values of the master lease payment streams and the sublease receivable streams. The cash deposit is refundable to the Company over the term of the sublease if no performance default occurs.

        As part of the Company's on-going cost savings program, the Company is evaluating other subleasing opportunities for space it currently occupies that is subject to operating leases. If the Company agrees to sublease such space at lease rates significantly less than existing base lease terms, or if the lease commitments are bought out as a consequence of a negotiated lease termination, the Company could incur a significant charge to earnings.

        Interest.    Interest expense declined $13.5 million to $37.4 million during the year ended June 30, 2002 from $50.9 million during the year ended June 30, 2001 which, in turn, was a decrease of $1.5 million over the $52.3 million of interest expense reported during the year ended June 30, 2000. The decrease in interest expense during the year ended June 30, 2002 from levels reported a year ago resulted primarily from lower interest rates associated with the Company's revolving warehouse and repurchase facilities used to fund the origination of mortgage loans prior to their disposition despite increased average borrowings under the facilities during fiscal 2002 when compared to such rates and average borrowings during fiscal 2001. The Company's revolving warehouse and repurchase agreements bear interest rates that are indexed to the one-month LIBOR which, during the year ended June 30, 2002, declined from levels during the year ended June 30, 2001. The decrease in interest expense during the year ended June 30, 2001 from the year ended June 30, 2000 resulted primarily from lower

36

interest rates associated with the Company's revolving warehouse and repurchase facilities used to fund the origination of mortgage loans prior to their disposition despite increased average borrowings under the facilities during fiscal 2001 when compared to such rates and average borrowings during fiscal 2000. While the Company's interest costs on its revolving warehouse and repurchase facilities trended down during the year ended June 30, 2002 from a year ago, interest expense is expected to increase in future periods due to the Company's continued reliance on external financing arrangements to fund increased production volumes.

        Provision for Uncollectible Receivables.    During the year ended June 30, 2000, the Company reviewed its accounts receivable consisting of advances made by the Company in connection with the securitization trusts and adjusted such receivables to reflect their collectibility which resulted in a write-down of $2.0 million.

        Income Taxes.    During the years ended June 30, 2002, 2001 and 2000, the Company recorded an income tax provision of $3.1 million, $1.9 million and $3.4 million, respectively, which reflect effective tax rates of 40.4%, 6.6% and 2.8%, respectively. The provisions for income taxes during the years ended June 30, 2002, 2001 and 2000 are related primarily to estimated taxes on excess inclusion income on the Company's REMIC trusts and, to a lesser extent, other miscellaneous state taxes. The investment in the Company by Capital Z during the year ended June 30, 1999 resulted in a change in control for income tax purposes, thereby limiting the Company's ability to use net operating loss carryforwards and certain other future deductions.

Financial Condition

        Loans Held for Sale.    The Company's portfolio of loans held for sale increased to $462.1 million at June 30, 2002 from $417.2 million at June 30, 2001. The increase is attributable to the Company's $3.2 billion of loan production exceeding its $585.0 million of securitizations and $2.6 billion of whole loan sales in the secondary market during the year ended June 30, 2002.

        Accounts Receivable.    Accounts receivable are comprised of interest and servicing advances; servicing and late fees; amounts due from CZI under the Residual Facility; cash due from the securitization trusts; and accrued interest receivable and other miscellaneous receivables. While the Company had existing advance arrangements with two different counterparties to reduce its advance obligations, such arrangements were not applicable to all advance obligations. Therefore, the Company funds advances on a recurring basis not otherwise covered by such arrangements and recovers those advances on a periodic basis. Accounts receivable decreased $9.8 million to $61.3 million at June 30, 2002 from $71.1 million at June 30, 2001. The decrease is primarily attributable to a $4.8 million decrease amounts in due from CZI, a $4.2 million decrease in interest and servicing advances and a $1.1 million decrease in servicing and late fees receivable, partially offset by a $0.5 million increase in accrued interest and other receivables.

        At June 30, 2002, no amounts were due the Company by CZI under the Residual Facility, whereas at June 30, 2001, the Company was owed $4.8 million by CZI under the Residual Facility related to the Company's sale for cash to CZI of the residual interest created in the June 2001 securitization. The $4.2 million decrease in servicing advances at June 30, 2002 from June 30, 2001 is comprised of $30.9 million of servicing related advances made by the Company in its role of servicer of the mortgage loans in the securitization trusts, net of $35.1 million of recoveries of such advances during the year ended June 30, 2002. The level of servicing advances, in any given period, is dependent upon portfolio delinquencies, the level of REO and loans in the process of foreclosure, and the timing and remittance of cash collections on mortgage loans in the securitization trusts. The decline in servicing and late fees receivable at June 30, 2002 from June 30, 2001 is due primarily to declining servicing and late fees earned by the Company as a consequence of the decrease in its portfolio of mortgage loans in securitization trusts serviced in-house to $1.2 billion at June 30, 2002 from $1.8 billion at June 30, 2001.

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The increase in accrued interest and other receivables at June 30, 2002 from June 30, 2001 resulted primarily from interest accruals on higher average balances of loans held for sale at June 30, 2002 over such balances a year ago and, to a lesser extent, from increased settlement balances due from counterparties to mortgage loan disposition transactions at June 30, 2002 when compared to such balances a year ago.

        Residual Interests.    Residual interests decreased $40.5 million to $197.3 million at June 30, 2002 from $237.8 million at June 30, 2001, reflecting a $27.0 million residual interest write-down and $46.0 million of cash received from the securitization trusts, partially offset by $32.5 million of residual interest accretion during the year ended June 30, 2002. During the year ended June 30, 2002, the Company did not retain any residual interests in the $585.0 million of securitizations it consummated. All of such residual interests were sold to CZI for cash under the Residual Facility.

        Mortgage Servicing Rights, net.    Mortgage servicing rights, net, decreased to $2.9 million at June 30, 2002 from $6.5 million at June 30, 2001 reflecting $3.6 million of mortgage servicing rights amortization during the year ended June 30, 2002. During the year ended June 30, 2002, the Company did not capitalize any mortgage servicing rights. The Company sold for cash the servicing rights on the mortgage loans in the $585.0 million of securitizations which closed during the year ended June 30, 2002, and all of the Company's $2.6 billion of loans sold in whole loan sales for cash during the year ended June 30, 2002 were sold with servicing released.

        Equipment and Improvements, net.    Equipment and improvements, net, decreased to $10.9 million at June 30, 2002 from $11.1 million at June 30, 2001 due primarily to depreciation and amortization outpacing equipment and improvement acquisitions during the year ended June 30, 2002.

        Prepaid and Other Assets.    Prepaid and other assets increased to $14.7 million at June 30, 2002 from $14.1 million at June 30, 2001, primarily due to the capitalization of eligible expenses incurred for financing and other arrangements entered into by the Company outpacing amortization coupled with an increase in security deposits during the year ended June 30, 2002. At June 30, 2002, prepaid and other assets included $0.9 million of remaining unamortized costs relating the Residual Facility, of which $0.8 million related to the remaining unamortized facility fee paid by the Company to CZI.

        Borrowings.    Amounts outstanding under borrowings at June 30, 2002 declined $5.8 million to $264.0 million at June 30, 2002 from $269.7 million at June 30, 2001. The $5.8 million decrease reflects the Company's final scheduled sinking fund payment made on its 10.5% Senior Notes due 2002 during the fiscal year ended June 30, 2002.

        Revolving Warehouse and Repurchase Facilities.    Amounts outstanding under revolving warehouse and repurchase facilities decreased to $383.1 million at June 30, 2002 from $393.3 million at June 30, 2001, primarily due to the Company's decreased reliance on its revolving warehouse facilities at June 30, 2002 compared to June 30, 2001. Proceeds from whole loan sales and securitizations are first used to reduce balances outstanding under the Company's revolving warehouse and repurchase facilities and then used for general corporate purposes.

        Income Taxes Payable.    At June 30, 2002 and 2001, the Company had $3.1 million and $1.9 million of taxes currently payable, respectively. The Company's gross deferred tax liabilities increased by $100,000 to $16.7 million at June 30, 2002 from $16.6 million at June 30, 2001 due to the change in the tax effects of temporary differences relating to mark-to-market adjustments, state taxes and, to a lesser extent, miscellaneous other items. The Company's gross deferred tax assets decreased $5.8 million at June 30, 2002 to $154.8 million from $160.6 million at June 30, 2001, primarily due to declines of $5.9 million and $2.9 million in the tax versus financial statement recognition of income and expense related to residual interests and other items, respectively, partially offset by a $3.0 million increase in the temporary difference relating to nonrecognized net operating losses. The Company's tax valuation allowance decreased $5.9 million to $144.3 million at June 30, 2002 from $150.2 million at June 30,

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2001 due to the decrease in the Company's deferred tax assets. At June 30, 2002 and 2001, it was the Company's belief, based upon available evidence, that it was not more likely than not that its deferred tax assets would be realized.

Liquidity and Capital Resources

        The Company's operations require continued access to short-term and long-term sources of cash. The Company's primary operating cash requirements include: (i) the funding of mortgage loan originations and purchases prior to their securitization and sale, (ii) fees, expenses and hedging costs, if any, incurred in connection with the securitization and sale of loans, (iii) over-collateralization requirements in connection with securitizations, (iv) ongoing administrative, operating, and tax expenses, (v) interest and principal payments and liquidity requirements under the Company's revolving warehouse and repurchase facilities, and other existing indebtedness and (vi) advances in connection with the Company's servicing portfolio.

        The Company's primary sources of liquidity are expected to be (i) fundings under revolving warehouse and repurchase facilities, (ii) securitization and sale of mortgage loans and related servicing rights, (iii) monetization of residual interests and (iv) monetization of the Company's servicing advances. The Company historically had access to working capital financing facilities and the issuance of debt and equity securities, to finance its operating cash requirements; however, due to the Company's operating performance in the three most recent fiscal years, the Company does not expect access to those capital resources in the foreseeable future. See "—Risk Factors—If we are unable to maintain adequate financing sources or outside sources of cash are not sufficient, our earnings and financial position will suffer and jeopardize our ability to operate as a going concern."

        Warehouse and Repurchase Facilities.    The Company generally relies on revolving warehouse and repurchase facilities to originate and purchase mortgage loans and hold them prior to securitization or sale. At June 30, 2002, the Company had committed revolving warehouse and repurchase facilities in the amount of $800.0 million and amounts outstanding under the facilities were $383.1 million. Of the $800.0 million of committed revolving warehouse and repurchase facilities available to the Company at June 30, 2002, $300.0 million and $300.0 million expire November 16, 2002, and March 20, 2003, respectively. The remaining $200.0 million committed revolving repurchase facility at June 30, 2002 was renewed on July 31, 2002, at which time the committed amount was increased to $300.0 million, and will expire on July 30, 2003.

        Certain of the Company's warehouse and repurchase lenders advance less than 100% of the principal balance of the mortgage loans, requiring the Company to use working capital to fund the remaining portion of the principal balance of the mortgage loans.

        All of the Company's revolving warehouse and repurchase facilities contain provisions requiring the Company to meet certain periodic financial covenants, including among other things, minimum liquidity, stockholders' equity, leverage, and net income levels. If the Company is unable to meet these financial covenants going forward, or is unable to obtain subsequent amendments or waivers, if required, or for any other reason is unable to maintain existing warehouse or repurchase lines or renew them when they expire, it would have to cease loan production operations which would jeopardize the Company's ability to continue to operate as a going concern.

        Pursuant to agreements relating to the Company's two 1999 securitization trusts, the monoline insurance company providing credit enhancement requires the Company to maintain a specified net worth and level of liquidity in order to be able to continue to service the loans in the trusts. As previously reported, the Company currently does not satisfy the net worth test, and as a result, the monoline insurer can terminate the Company as servicer with respect to those securitization trusts. The monoline insurer has to date waived the Company's failure to satisfy the net worth test and terminate the Company as servicer with respect to those securitization trusts.

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        Under the terms of the Company's Indenture dated October 21, 1996 with respect to its 9.125% Senior Notes due 2003, the Company's ability to incur certain additional indebtedness, including residual financing, is limited to two times stockholders' equity. Funded warehouse indebtedness is not included in the indebtedness limitations. Securitization obligations are generally not included in the indebtedness limitations. The Company is currently restricted from incurring additional indebtedness as defined in the Indenture. The Company's revolving repurchase and warehouse facilities also contain limits on the Company's ability to incur additional indebtedness. Further, until the Company receives investment grade ratings for the notes issued under the Indenture, the amount of assets allocable to post-September 1996 securitizations which the Company may pledge to secure debt is limited by the Indenture to 75% of the difference between such post-September 1996 residuals and servicing advances and $225.0 million. This could restrict the Company's ability to borrow to provide working capital as needed in the future.

        The Securitization and Sale of Mortgage Loans.    The Company's ability to sell loans originated by it in the secondary market through securitization and whole loan sales is necessary to generate cash proceeds to pay down its warehouse and repurchase facilities and fund new originations and purchases. The ability of the Company to sell loans in the secondary market on acceptable terms is essential for the continuation of the Company's loan origination operations. See "Risk Factors—An interruption or reduction in the securitization and whole loan market would hurt our financial performance."

        The Company securitized $585.0 million of loans held for sale during the year ended June 30, 2002 compared to $1.2 billion and $803.6 million of loan securitizations during the years ended June 30, 2001 and 2000, respectively. The gain on sale recognized by the Company on securitizations and whole loan sales is affected by, among other things, market conditions at the time of the loan disposition, and the Company's assumptions used in securitizations. See "Results of Operations—Revenue." The gains on sale recognized on securitizations during the year ended June 30, 2002 were higher than gains recognized on securitizations during the year ended June 30, 2001 due primarily to improved market conditions at the time of the securitizations. See "Critical Accounting Policies—Accounting for Securitizations." In connection with securitization transactions, the Company is generally required to provide credit enhancements in the form of overcollateralization amounts or reserve accounts. In addition, during the life of the related securitization trusts, the Company subordinates a portion of the excess cash flow otherwise due it to the rights of holders of senior interests as a credit enhancement to support the sale of the senior interests. The terms of the securitization trusts generally require that all excess cash flow otherwise payable to the Company during the early months of the trusts be used to increase the cash reserve accounts or to repay the senior interests in order to increase overcollateralization to specified maximums. Overcollateralization requirements for certain pools increase up to approximately twice the level otherwise required when the delinquency rates or realized losses for those pools exceed the specified limit. At June 30, 2002, the Company was required to maintain overcollateralization amounts of $210.8 million, of which $175.2 million was maintained. The remaining $35.6 million is required to be added to the overcollateralization amounts from future spread income from the loans in eight of the securitization trusts. Of the $210.8 million of overcollateralization amounts required at June 30, 2002, $59.3 million is required to be maintained due to the level of delinquency rates and realized losses of mortgage loans being in excess of specified delinquency rates and realized losses in certain securitization trusts.

        In the Company's securitizations structured as a real estate mortgage investment conduit ("REMIC"), the recognition of non-cash gain on sale has a negative impact on the cash flow of the Company since the Company is required to pay federal and state taxes on a portion of these amounts in the period recognized although it does not receive the cash representing the gain until later periods as the related service fees are collected and applicable reserve or overcollateralization requirements are met.

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        Residual Forward Sale Facility.    On August 31, 2000, the Company entered into the Residual Forward Sale Facility (the "Residual Facility") with Capital Z Investments, L.P., a Bermuda partnership ("CZI"), an affiliate of Capital Z, the Company's largest shareholder. Pursuant to the terms of the Residual Facility, the Company may sell up to $75.0 million of its residual interests for cash in future securitizations through the earliest of (i) September 30, 2002, (ii) the full utilization of the $75.0 million amount of the Residual Facility, or (iii) a termination event, as defined in the Residual Facility. The Company believes that the Residual Facility has strengthened its ability to include securitizations in its loan disposition strategy through reducing the negative cash flow aspects of securitizations and by providing another source of cash to the Company through periodically converting residual interests into cash.

        During the year ended June 30, 2002, the Company sold $16.4 million of residual interests to CZI pursuant to the Residual Facility for cash. At June 30, 2002, the remaining amount available under the Residual Facility was approximately $13.5 million. It is the Company's expectation to periodically sell to CZI residual interests created in future securitizations as a means of enhancing its working capital on a periodic basis if the Residual Facility is extended. There can be no assurance that the Residual Facility will be renewed beyond its expiration, however, the Company is in discussion with CZI regarding extending the terms of the Residual Facility.

        In connection with obtaining the Residual Facility, the Company incurred and capitalized $3.3 million of costs, of which $3.0 million related to a facility fee paid to CZI. The capitalized costs are being amortized to gain on sale of loans based upon the ratio of the dollar amount of the residual interests sold to CZI under the Residual Facility to the total Residual Facility amount. During the years ended June 30, 2002 and 2001, amortization of total capitalized Residual Facility costs charged to gain on sale of loans was $0.5 million and $1.9 million, respectively, of which approximately $0.5 million and $1.7 million, respectively, related to the facility fee paid to CZI. At June 30, 2002, the total unamortized capitalized Residual Facility costs remaining to be amortized were $0.9 million, of which $0.8 million related to the facility fee, and are included in prepaid and other assets in the accompanying consolidated balance sheet. If the Residual Facility expires with remaining capacity available or if it were to be terminated prior to its full usage, any remaining unamortized fees would be charged to gain on sale of loans at such time.

        Monetization of Servicing Advances.    In the past, in order to reduce its advance obligations, the Company entered into arrangements with an investment bank pursuant to which the investment bank purchased certain cumulative advances and undertook the obligation to make a substantial portion, but not all, of the Company's advance obligations on its securitization trusts. In the future, the Company may enter into similar arrangements as a means to further reduce its advance obligations or to monetize advance receivables.

        Working Capital Financing Facilities.    On February 11, 2000, the Company obtained $35.0 million by drawing against a working capital facility in the same amount which was collateralized by certain of its residual interests and certain other collateral. On December 31, 2001, the Company fully repaid the $3.6 million then outstanding on the facility and the previously pledged unencumbered residual interests securing the subline were returned to the Company.

        The Issuance of Equity and Debt Securities.    The Company has historically funded negative cash flow primarily from the sale of its equity and debt securities. However, current market conditions have restricted the Company's ability to access its traditional equity and debt sources.

        As previously reported, on February 12, 2002, the Company completed its rights offering to its common stockholders. The Company sold 637,000 shares of Series D Convertible Preferred Stock at a price of $0.85 and raised approximately $542,000 in the offering.

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        The Company has previously raised $179.2 million through the sale of preferred stock in several phases, consisting of $170.8 million to Capital Z and its designees, $4.2 million to certain members of the Company's management and $4.2 million to holders of the Company's common stock. Capital Z invested $75.0 million in February 1999, $25.0 million in August 1999, $20.8 million pursuant to their standby commitment in a rights offering in October 1999, $34.7 million in June 2000, and $15.3 million in July 2000. The Company also issued $2.9 million of preferred stock to certain management investors in February and October 1999, and $1.3 million of preferred stock to certain current and former management investors, and consultants to the Company in August 2000. The Company raised $4.2 million from the sale of Series C Convertible Preferred Stock to common stockholders in a rights offering in October, 1999. The Company also issued warrants to affiliates and employees of an affiliate of Capital Z to purchase an aggregate of 500,000 shares of the Company's common stock for $5.00 per share in February 1999, and warrants to purchase 5.0 million shares of Series D Convertible Preferred Stock at $0.85 per share in July 2001.

        In December 1991, July 1993, June 1995 and October 1996, the Company effected public offerings and in April 1998 effected a private placement of its common stock with net proceeds to the Company aggregating $217.0 million. In February 1996, the Company completed an offering of its 5.5% Convertible Subordinated Debentures due 2006 with net proceeds to the Company of $112.0 million. In October 1996, the Company completed an offering of its 9.125% Senior Notes due 2003 with net proceeds to the Company of $145.0 million. Under the agreements relating to these debt issuances, the Company is required to comply with various operating and financial covenants including covenants which may restrict the Company's ability to pay certain distributions, including dividends. At June 30, 2002, the Company did not have the ability to pay such distributions and does not expect to have the ability to pay dividends for the foreseeable future.

        The Company had cash and cash equivalents of approximately $17.4 million at June 30, 2002.

        If the Company's access to warehouse lines, working capital or the securitization or whole loan markets is restricted, the Company may have to seek additional equity. There can be no assurance that sufficient sources of liquidity will be available to the Company at any given time or that favorable terms will be available. As a result of the limitations described above, the Company may be restricted in the amount of loans that it will be able to produce and sell. This would negatively impact profitability and jeopardize the Company's ability to continue to operate as a going concern. See "—Risk Factors—If we are unable to maintain adequate financing sources or outside sources of cash are not sufficient, our ability to make and service loans will be impaired and our revenues will suffer."

Risk Management

        During the years ended June 30, 2002 and 2001, the Company, as it has from time to time, entered into agreements to hedge economic exposure to its fixed rates loans held for sale. At June 30, 2002 and 2001, the Company had notional amounts of $70.0 million and $25.0 million, respectively, of forward interest rate swap agreements in place to hedge exposure to its fixed rate loans held for sale and

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pipeline of fixed rate loans. The following table summarizes certain information regarding the interest rate swap agreements:

At June 30, 2002
Notional Amount In (000's)		Fixed Pay Rate		Variable Receive Rate
$	10,000	4.150	%	3.924	%
	30,000	3.815		3.431
	30,000	3.760		3.431
$	70,000

June 30, 2001
Notional Amount in (000's)		Fixed Pay Rate		Variable Pay Rate
$	25,000	4.815	%	4.815	%

        Gain on sale of loans during the year ended June 30, 2002 includes charges of $10.8 million of which $10.4 million related to losses on closed forward interest rate swap agreements and $0.4 million related to the Company's mark to the estimated fair value of forward interest rate swap agreements open at June 30, 2002, respectively. Gain on sale of loans during the year ended June 30, 2001 includes charges of $6.0 million all of which related to hedge losses recorded on forward interest rate swap agreements that closed during the period. The Company continually monitors the interest rate environment and its hedging strategies. However, there can be no assurance that the earnings of the Company would not be adversely affected during any period of unexpected changes in interest rates or prepayment rates, including additional charges to earnings on the Company's existing forward interest rate swap agreements or charges to earnings on future derivative contracts into which the Company may enter.

Financial Instruments and Off-Balance Sheet Activities

        Sale of Loans—Securitizations and Whole Loan Sales—Interest Rate Risk.    A significant variable in the determination of gain on sale in a securitization is the spread between the weighted average coupon on the securitized loans and the pass-through interest rate. In the interim period between loan origination and securitization of such loans, the Company is exposed to interest rate risk. The majority of loans are securitized or sold within 90 days of origination. However, a small portion of the loans are held for sale or securitization for as long as 12 months (or longer, in very limited circumstances) prior to securitization or sale. If interest rates rise during the period that the mortgage loans are held, the spread between the weighted average interest rate on the loans to be securitized and the pass-through interest rates on the securities to be sold (the latter having increased as a result of market rate movements) would narrow. Upon securitization, this would result in a reduction of the Company's related gain on sale. The Company is also exposed to rising interest rates for loans originated or purchased which are held pending sale in the whole loan market. From time to time, the Company mitigates exposure to rising interest rates through the use of forward interest rate swap agreements or other hedging activities. These hedging activities help mitigate the risk of absolute movements in interest rates.

43

        The following table illustrates certain information about the Company's rate sensitive assets and liabilities at June 30, 2002 and 2001:

June 30, 2002		2003		2004		2005		2006		2007		Thereafter		Total		Fair Value
		(dollars in thousands)
Rate Sensitive Assets:
Loans held for sale:
	Fixed rates	$	29,295	$	40,347	$	33,216	$	27,782	$	19,439	$	57,379	$	207,458	$	212,848
	Weighted average rate		8.84%		8.83%		8.83%		8.83%		8.83%		8.83%		8.83%
	Variable rates	$	26,579	$	66,449	$	64,731	$	31,391	$	18,804	$	46,656	$	254,610	$	261,200
	Weighted average rate		9.01%		8.99%		9.12%		9.22%		9.23%		9.24%		9.09%
Rate Sensitive Liabilities:
Borrowings:
	Fixed rate	$	—	$	150,000	$	—	$	113,970	$	—	$	—	$	263,970	$	152,573
	Weighted average rate		7.56%		5.50%		5.50%		—%		—%		—%		7.56%
	Variable rate	$	383,119	$	—	$	—	$	—	$	—	$	—	$	383,119	$	383,119
	Weighted average rate		2.90%		—%		—%		—%		—%		—%		2.90%
Derivatives:
Forward interest rate swaps agreements:
	Notional amount	$	70,000		—		—		—		—		—	$	70,000	$	(394	)
	Weighted average pay rate.		3.839%		—		—		—		—		—		3.839%		—
	Weighted average receive rate		3.501%		—		—		—		—		—		3.501%		—

        During the year ended June 30, 2002, certain interest rates generally declined from levels existing during the year ended June 30, 2001. At June 30, 2002, the Company's rate sensitive assets, primarily fixed and variable rate mortgage loans held for sale, reflect these lower rates when compared to interest rates applicable to such loans held for sale at June 30, 2001. The Company's variable rate borrowings, which are comprised of revolving warehouse and repurchase facilities, are indexed to one-month LIBOR. At June 30, 2002 and 2001, the one-month LIBOR was 1.84% and 3.86%, respectively, and the weighted average interest rate on such borrowings was 2.90% and 4.99% at June 30, 2002 and 2001, respectively. During the year ended June 30, 2002, the Company's borrowing costs decreased from those during the year ended June 30, 2001 due to the decrease in LIBOR and to pricing reductions received from certain of its revolving warehouse and repurchase facility lenders.

June 30, 2001		2002		2003		2004		2005		2006		Thereafter		Total		Fair Value
		(dollars in thousands)
Rate Sensitive Assets:
Loans held for sale:
	Fixed rate	$	23,981	$	32,478	$	25,093	$	19,031	$	13,848	$	32,138	$	146,569	$	149,670
	Weighted average rate		9.72%		9.72%		9.72%		9.72%		9.72%		9.72%		9.72%
	Variable rate	$	38,292	$	79,126	$	52,642	$	38,404	$	22,962	$	38,294	$	270,595	$	277,957
	Weighted average rate		9.88%		9.95%		10.47%		10.75%		10.74%		10.69%		10.34%
Rate Sensitive Liabilities:
Borrowings:
	Fixed rate	$	5,750	$	—	$	150,000	$	—	$	113,970	$	—	$	269,720	$	118,354
	Weighted average rate		7.56%		7.56%		5.50%		5.50%		5.50%		—		7.56%
	Variable rate	$	393,301	$	—	$	—	$	—	$	—	$	—	$	393,301	$	393,301
	Weighted average rate		5.02%		—		—		—		—		—		5.02%
Derivatives:
Forward interest rate swap agreements:
	Notional amount	$	25,000		—		—		—		—		—	$	25,000		—
	Pay rate		4.815%		—		—		—		—		—		—		—
	Receive rate		4.815%		—		—		—		—		—		—		—

        During the year ended June 30, 2001, certain interest rates generally declined from levels existing during the year ended June 30, 2000. At June 30, 2001, the Company's rate sensitive assets, primarily fixed and variable rate mortgage loans held for sale, reflect these lower rates when compared to interest rates applicable to such mortgate loans held at June 30, 2000. The Company's variable rate

44

borrowings, which are comprised of revolving warehouse and repurchase facilities, are indexed to the one-month LIBOR. At June 30, 2001, the one-month LIBOR was 3.86%, a 278 basis point decline from the 6.64% one-month LIBOR at June 30, 2000. The weighted average interest rate on borrowings outstanding under revolving warehouse and repurchase facilities at June 30, 2001 declined to 4.99% from 8.17% at June 30, 2000. During the year ended June 30, 2001, interest expense on the Company's revolving warehouse and repurchase facilities declined from interest expense incurred during the year ended June 30, 2000 due to the decline in the one-month LIBOR and to reductions in pricing by certain of its revolving warehouse and repurchase facility lenders.

Rate Sensitive Derivative Financial Instruments

        Residual Interests and MSRs.    The Company had residual interests of $197.3 million and $237.8 million outstanding at June 30, 2002 and 2001, respectively. The Company also had MSRs outstanding at June 30, 2002 and 2001 in the amount of $2.9 million and $6.5 million, respectively. Both of these instruments are recorded at estimated fair value at June 30, 2002 and 2001. The Company values these assets based on the present value of future revenue streams net of expenses using various assumptions. The discount rate used to calculate the present value of the residual interests and MSRs was 13.4% and 15.0% at June 30, 2002. The discount rate used to calculate the present value of the residual interests and MSRs was 15.0% at June 30, 2001. The weighted average life of the mortgage loans used for valuation at June 30, 2002 and 2001 was 3.7 years and 3.1 years, respectively.

        These assets are subject to risk in accelerated mortgage prepayment or credit losses in excess of assumptions used in valuation. Ultimate cash flows realized from these assets would be reduced should prepayments or credit losses exceed assumptions used in the valuation. Conversely, cash flows realized would be greater should prepayments or credit losses be below expectations.

        Fair Value of Financial Instruments.    The Company's financial instruments recorded at contractual amounts that approximate market or fair value primarily consist of loans held for sale, accounts receivables, and revolving warehouse and repurchase agreements. As these amounts are short term in nature and/or generally bear market rates of interest, the carrying amounts of these instruments are reasonable estimates of their fair values. The carrying amount of the Company's borrowings approximates fair value when valued using available quoted market prices.

        Interest Rate Risk.    The Company is exposed to on-balance sheet interest rate risk related to its loans held for sale and residual interests. The Company is exposed to off-balance sheet interest rate risk related to loans which the Company has committed to originate or purchase.

        Warehousing Exposure.    The Company utilizes warehouse and repurchase financing facilities to facilitate the holding of mortgage loans prior to securitization. As of June 30, 2002, the Company had total committed revolving warehouse and repurchase facilities available in the amount of $800.0 million. At June 30, 2001, the Company had total committed revolving warehouse and repurchase facilities available in the amount of $790.3 million (net of $9.7 million outstanding under a $35.0 million subline). The total amount outstanding related to these facilities was $383.1 million and $393.3 million at June 30, 2002 and 2001, respectively. Revolving warehouse and repurchase facilities are typically for a term of one year or less and are designated to fund mortgages originated within specified underwriting guidelines. The majority of the assets remain in the facilities for a period of up to 90 days at which point they are securitized or sold to institutional investors. As these amounts are short term in nature and/or generally bear market rates of interest, the contractual amounts of these instruments are reasonable estimates of their fair values.

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Risk Factors

We have suffered significant losses in the three prior fiscal years which have weakened our financial position and may affect our ability to meet our obligations.

        We have incurred net losses of $30.5 million, $122.4 million and $248.0 million during the years ending June 30, 2001, 2000 and 1999, respectively. These net losses have largely contributed to our retained deficit of $381.0 million as of June 30, 2002. Although we recorded net income of $4.5 million during the year ended June 30, 2002, we cannot make any assurances that we will be profitable in future fiscal years. If we sustain additional net losses, our retained deficit will continue to increase and our ability to meet our obligations could be adversely affected.

Our substantial debt could impair our financial condition and our ability to fulfill our debt obligations.

        We have substantial indebtedness. As of June 30, 2002, we had total indebtedness of approximately $729.4 million, comprised of amounts outstanding under our senior notes, our existing debentures, our revolving warehouse and repurchase facilities and other liabilities of approximately $150.0 million, $114.0 million, $383.1 million and $82.3 million, respectively. At June 30, 2002, our ratio of total debt and liabilities to equity was approximately 19.6 to 1. At June 30, 2002, we also had availability to incur additional indebtedness of approximately $416.9 million under our revolving warehouse and repurchase facilities.

        Our substantial indebtedness could have important consequences to you. For example, it could:

•

require us to dedicate a substantial portion of our cash flow to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate requirements;



•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and



•

place us at a competitive disadvantage compared to our competitors that have proportionately less debt.

        If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital, sell assets or seek protection under the federal bankruptcy laws. We may be unable to obtain financing or sell assets on satisfactory terms.

Restrictive covenants in the agreements governing our indebtedness may reduce our operating flexibility.

        The indentures governing the senior notes and the existing debentures, and the agreements governing the bank credit facilities, contain various covenants that limit our ability to:

•

incur other indebtedness;



•

engage in transactions with affiliates;



•

incur liens;



•

make certain restricted payments;



•

enter into certain business combinations and asset sale transactions;



•

engage in new lines of business; and



•

make investments.

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        These restrictions limit our ability to obtain future financings, make needed capital expenditures, withstand a future downturn in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that may arise. Our revolving credit facilities also require us to maintain specified financial ratios and satisfy other financial conditions. Our ability to meet those financial ratios and conditions can be affected by events beyond our control, such as interest rates and general economic conditions. Accordingly, we may be unable to meet those ratios and conditions. Our breach of our financial covenants under our revolving credit facilities could result in a default under the terms of those facilities, which could cause that indebtedness, and by reason of cross-default provisions, our senior notes, the existing debentures and the new debentures, to become immediately due and payable. If we were unable to repay those amounts, the lenders could initiate a bankruptcy proceeding or liquidation proceeding or proceed against the collateral granted to them to secure that indebtedness. If the lenders under the senior notes or revolving credit facilities so accelerate the repayment of borrowings, we may not have sufficient assets to repay our indebtedness.

If we are unable to maintain adequate financing sources or outside sources of cash are not sufficient, our earnings and financial position will suffer and jeopardize our ability to operate as a going concern.

        We borrow the majority of the money we use to fund our mortgage loans from our revolving warehouse and repurchase facilities. Therefore, we need continued access to short- and long-term external sources of cash to fund our operations. Without continued access to cash, we may be restricted in the amount of mortgage loans that we will be able to produce and sell, and our ability to operate as a going concern would be jeopardized.

        We use cash primarily for:

•

mortgage loan originations and purchases before their securitization or sale in the secondary market;



•

fees and expenses incurred for the securitization of mortgage loans;



•

cash reserve accounts or overcollateralization required in the securitization of loans;



•

tax payments generally due on recognition of non-cash gain on sale recorded in the securitizations of mortgage loans;



•

ongoing administrative and other operating expenses;



•

interest and principal payments under our revolving warehouse and repurchase facilities and other existing indebtedness;



•

delinquent interest and other servicing related expenses we advance on the mortgage loans in our servicing portfolio; and



•

investments in technology initiatives and other capital improvements necessary for the ongoing operation of our business.

        We receive cash primarily from the following sources:

•

Revolving Borrowings. We borrow cash from various commercial loans, called revolving warehouse and repurchase facilities, to fund the mortgage loans that we make or buy. We are required to pay down these revolving warehouse and repurchase facilities when we sell our pledged mortgage loans. We currently have three revolving warehouse and repurchase facilities with a total credit limit of $900.0 million. These revolving warehouse and repurchase facilities expire between November 2002 and July 2003.



•

Sale of Mortgage Loans. We sell some of our mortgage loans for cash in the whole loan sale market and we sell the rest of our mortgage loans in securitization transactions. We receive the

47

difference between the price at which we sell the mortgage loans and the amount owed on our revolving warehouse or repurchase facilities for these loans in cash.

•

Monetization of Residual Interest Assets Created in Securitizations. In a securitization transaction, we retain a subordinated interest, called the residual interest, in the securitized mortgage loans. The holder of the residual interest is entitled to receive the excess spread from the securitization, or the difference between the interest rate received on the mortgages, and the lower interest rate paid the bondholders in the securitization transaction after specified overcollateralization amounts have been met. As the holder of the residual interest, we also retain the right to any mortgage loans that are still outstanding after the bonds from the securitization transaction are paid in full. At the time of the securitization transaction, we determine the value of the residual interest as the present value of expected cash flows from the excess spread, and record the value of the residual interest as an asset. During the year ended June 30, 2002, we sold the residual interest in our securitization transactions for cash under a residual forward sale facility and may monetize residual interests for cash under the Residual Facility or by other means.



•

Monetization of Accounts Receivable. When borrowers fail to make payments on their mortgage loans that we service, we are required to advance the interest due to the bondholders. We also advance delinquent property taxes and property insurance on the mortgage loans that we service if our borrowers do not pay them. These advances become accounts receivable. We are repaid when the borrowers make their delinquent payments or when the loans are foreclosed upon and the mortgaged properties are sold. We have, from time to time, and may going forward sell or otherwise monetize these accounts receivable in order to recover our advances without having to wait until borrowers make their payments or until the mortgage loans are foreclosed upon.

Our right to service loans may be terminated because of the high delinquencies and losses on the mortgage loans in our servicing portfolio, which will hurt our earnings.

        The value of our right to service the $1.2 billion portfolio of mortgage loans in securitization trusts serviced in-house at June 30, 2002 is an asset on our balance sheet called mortgage servicing rights. If we were to lose the right to service some or all of the mortgage loans in our portfolio, we would be required to write down or write off our mortgage servicing rights, which would decrease our earnings and decrease our net worth and the value of your investment.

        Most of our securitization transactions are insured by certain commercial insurance companies called monoline insurers. The policies issued by the monoline insurers protect the securitization bondholder against certain losses. The agreement that we generally enter into with the monoline insurer allows the monoline insurer to terminate us as the servicer in certain cases. For example, we could be terminated as the servicer for any transaction if the dollar amount or percentage of mortgage loans that are more than a certain number of days past due (usually 60 days, 90 days or more) or if the losses on mortgage loans in a particular securitization transaction are over a specified limit. Also, our agreement with the monoline insurer for the securitization transactions we completed in 1999 automatically terminates us periodically unless the monoline insurer renews our servicing right.

        As of June 30, 2002, we are over the limit for delinquent mortgage loans we service for seven of the securitization transactions and we are over the limit for losses for all of those seven securitization transactions plus eight additional securitization transactions. The monoline insurers have the right to terminate us as the servicer for these securitization transactions as well as the securitization transactions from 1999.

        None of our servicing rights have been terminated so far, and our monoline insurers have not indicated that they plan to terminate us. However, the monoline insurers do have the right to terminate

48

us at any time with respect to those securitization transactions described above. If we are terminated, we would be required to write-down or write-off our mortgage servicing rights.

High delinquencies or losses on the mortgage loans in our servicing portfolio may decrease our cash flows.

        In a securitization transaction, the excess spread is initially used to over-collateralize the bonds by paying down the principal balance of the bonds below the principal balance of the mortgage loans collateralizing the bonds in the securitization transaction. Once the bonds are over-collateralized to a certain amount, we start receiving the excess spread. If the mortgage loans are more delinquent or if the loss on mortgage loans is greater than expected, the excess spread that we are supposed to receive from the securitization transaction is diverted to over-collateralize the bonds further.

        In addition, when borrowers do not make their required mortgage loan payments or do not pay their real estate taxes or insurance premiums on loans that we service, we are required to advance those payments out of our working capital.

High losses on the mortgage loans in our servicing portfolio may decrease our earnings.

        All of our mortgage loans are secured by residential property. If borrowers do not repay their loans, we recover the principal and unpaid interest and any servicing expenses incurred by us by foreclosing on the loans and selling the properties. If the value of the property collateralizing a loan is not sufficient to cover the principal amount of the loan and related interest and servicing expenses in the event of foreclosure of that loan and sale of the mortgaged property, we suffer a loss.

        High loan loss levels may affect our net earnings. During the period of time we hold mortgage loans before we sell them, the entire loan loss reduces our earnings. For mortgage loans we have sold in a securitization transaction, we apply certain assumptions to estimate losses to determine the amount of non-cash gain on sale that we record at the closing of a securitization transaction. If actual loan losses exceed our estimated losses, we may be required to write down our residual interests which would decrease our earnings and decrease our net worth and the value of your investment. Higher than expected loan losses contributed to the write-downs of our residual interests of $27.0 million, $33.6 million and $77.5 million during the fiscal years ended June 30, 2002, 2001 and 2000, respectively.

Our mortgage loans are subject to higher risks of loss, which may decrease our earnings.

        Many of our mortgage loans in our securitization trusts were made to borrowers in lower credit grades. In addition, many of the mortgage loans in our securitization trusts have an adjustable interest rate feature. Both low credit grade mortgage loans and adjustable interest rate mortgage loans are more likely to result in a loss. Low credit grade mortgage loans are more likely to become delinquent and result in a foreclosure loss because the borrowers on these loans have a history of late payment or non-payment. Adjustable interest rate mortgage loans are more likely to become delinquent and result in a foreclosure loss because the borrower is qualified for the loan at a reduced interest rate and the amount of the payment in most cases will increase over time. If the payment amounts increase, borrowers may have difficulty making their payments. When loan loss rates are higher than we expected, our earnings can be hurt.

If the securitized mortgage loans that we service pay off faster than expected, our earnings will decrease.

        When we close a securitization transaction, we record the value of the residual interest asset based upon the present value of the excess spread that we expect to receive from the mortgage loans until they are repaid. In order to estimate the present value of the expected excess spread, we estimate (among other factors) how quickly the mortgage loans in the securitization transaction will pay off,

49

which we call the prepayment rate. An increase in the actual rate the mortgage loans pay off would reduce the number of loans that we service in our securitization trusts and the income we earn from servicing. If the actual rate the mortgage loans pay off in our securitization trusts is higher than we expected, we are required to write-down the residual interest that we recorded when we closed the securitization transaction.

Our earnings may decrease by increases or decreases in interest rates.

        An increase in long-term interest rates could, among other things:

•

decrease the demand for consumer credit in general; and



•

reduce the average size of mortgage loans that we make, by decreasing demand for refinancing lower-rate first mortgage loans and increasing demand for second mortgage loans.

        An increase in short-term interest rates could, among other things,

•

increase our borrowing costs, most of which are tied to those rates;



•

reduce our excess spread and the income recognized in a securitization; and



•

reduce the price paid for loans we made at lower interest rates in whole loan sales of mortgage loans.

        A decline in long-term or short-term interest rates could increase the prepayment rate. Any of these changes in interest rates could hurt our earnings.

Adverse changes in the securitization and whole loan market would hurt our financial performance.

        In order for us to continue our mortgage loan origination and purchase operations, we must be able to sell the mortgage loans we make in the securitization and whole loan markets. We use the cash proceeds from these sales to pay down our warehouse and repurchase facilities and make new mortgage loans. The value of our mortgage loans depends on a number of factors, including general economic conditions, interest rates and governmental regulations. In addition, we rely on institutional purchasers, such as investment banks, financial institutions and other mortgage lenders, to purchase our mortgage loans in the whole loan market and the bonds issued in securitization transactions. We cannot be sure that the purchasers will be willing to purchase mortgage loans on satisfactory terms or that the market for such loans will continue. Adverse changes in the securitization and whole loan markets may affect our ability to securitize or sell our mortgage loans for acceptable prices within a reasonable period of time, which would hurt our earnings.

If we are unable to sell a significant portion of our mortgage loans on at least a quarterly basis, our earnings would decrease.

        We earn income on our mortgage loans when they are sold. Our strategy is to sell all of the mortgage loans we make at least quarterly. However, market and other considerations could affect the timing of the sale of our mortgage loans. If we are not able to sell all of the mortgage loans that we make during the quarter in which the loans are made, we would likely not be profitable for that quarter.

Changes in the volume and cost of our broker loans may decrease our loan production and decrease our earnings.

        We depend on independent mortgage brokers for many of our mortgage loans, called broker loans. A significant portion of our loan production is made up of broker loans. Our earnings and financial condition could be hurt by a decrease in the volume or an increase in the cost of our broker loans. A

50

decrease in volume or an increase in the cost of broker loans could result from competition from other lenders and purchasers of broker loans. The independent mortgage brokers are not obligated by contract or otherwise to do business with us and negotiate with many lenders for each prospective borrower. We compete with these other lenders for the independent brokers' business on pricing, service, loan fees, costs and other factors.

Our competitors in the mortgage banking market are often larger and have greater financial resources than we do, which will make it difficult for us to successfully compete.

        We face intense competition in the business of originating, purchasing and selling mortgage loans. Competition among industry participants can take many forms, including convenience in obtaining a mortgage loan, customer service, marketing and distribution channels, amount and term of the loan, mortgage loan origination fees and interest rates. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources and lower costs of capital than we do. In the future, we may also face competition from government-sponsored entities, such as FannieMae and FreddieMac. These government-sponsored entities may enter the subprime mortgage market and target potential customers in our highest credit grades, who constitute a significant portion of our customer base. Additional competition may lower the rates we can charge borrowers and increase the cost to purchase mortgage loans, which would decrease our earnings on the sale or securitization of these loans. Increased competition may also reduce the volume of our mortgage loan originations and mortgage loan sales and increase the demand for our experienced personnel and the potential that such personnel will leave for competitors.

Because a significant amount of the mortgage loans we service are in California and Florida, our operations could be hurt by economic downturns or natural disasters in those states.

        At June 30, 2002, 23.3% and 12.0% of the mortgage loans we serviced were collateralized by residential properties located in California and Florida, respectively. Because of these concentrations in California and Florida, declines in those residential real estate markets may reduce the values of the properties collateralizing the mortgage loans, increase foreclosures and losses and hurt our earnings.

        California historically has been vulnerable to certain natural disaster risks, such as earthquakes and erosion-caused mudslides. Florida historically has been vulnerable to certain other natural disasters, such as tropical storms and hurricanes. Since such natural disasters are not typically covered by the standard hazard insurance policies maintained by borrowers, the borrowers have to pay for repairs due to such disasters. Uninsured borrowers may not repair the property or may stop paying their mortgage loans if the property is damaged. This would cause increased foreclosures and decrease our ability to recover losses on properties affected by such disasters, and hurt our earnings.

The risks associated with our business increase in any economic slowdown or recession.

        Foreclosures and resulting losses generally increase during economic slowdowns or recessions. Periods of economic slowdown or recession may also reduce real estate values. Any decline in real estate values reduces the ability of borrowers to use their home equity to borrow money, and may reduce the demand for our mortgage loans. Declines in real estate values also increase losses in the event of foreclosure.

We may be required to repurchase mortgage loans or indemnify investors if we breach representations and warranties, which would hurt our earnings.

        We are required under agreements governing our securitization transactions and whole loan sales to repurchase or replace mortgage loans which do not conform to representations and warranties we make at the time of sale concerning breaches of fiduciary obligations, misrepresentations, errors and

51

omissions of our employees and officers, incomplete documentation and failures to comply with various laws and regulations applicable to our business. In addition, we may be obligated, in certain whole loan sales, to buy back mortgage loans if the borrower defaults on the first payment of principal and interest due. Such repurchase obligations could hurt our earnings and have a material adverse effect on our financial position.

Our ability to make mortgage loans may be restricted by mortgage banking rules and regulations, which would hurt our earnings.

        Our operations are subject to extensive regulation, supervision and licensing by federal, state and local governmental authorities. Our operations are also subject to various laws, regulations and judicial and administrative decisions. These rules and regulations, among other things, impose licensing obligations on us, establish eligibility criteria for mortgage loans, prohibit discrimination, govern inspections and appraisals of properties and credit reports on mortgage loan applicants, regulate collection, foreclosure and claims handling, investment and interest payments on escrow balances and payment features, mandate certain disclosures and notices to borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan amounts. Failure to comply with these requirements can lead to loss of approved status, certain rights of rescission for mortgage loans, class action lawsuits and administrative enforcement action.

        Because our business is highly regulated, the laws, rules and regulations applicable to us are subject to regular modification and change. There are currently proposed various laws, rules and regulations which, if adopted, could negatively impact our operations and our earnings.

Changes in the mortgage interest deduction could decrease our loan production and hurt our financial performance.

        Members of Congress and government officials have from time-to-time suggested the elimination of the mortgage interest deduction for federal income tax purposes, either entirely or in part, based on borrower income, type of loan or principal amount. Because many of our mortgage loans are made to borrowers for the purpose of consolidating consumer debt or financing other consumer needs, the competitive advantages of tax deductible interest, when compared with alternative sources of financing, could be eliminated or seriously impaired by this change. Accordingly, the reduction or elimination of these tax benefits could have a material adverse effect on the demand for mortgage loans of the kind offered by us.

We will be unable to pay dividends on our capital stock for the foreseeable future.

        The indentures governing certain of our outstanding indebtedness as well as our other credit agreements limit our ability to pay cash dividends on our capital stock. Under the most restrictive of these limitations, we will be prevented from paying cash dividends on our capital stock for the foreseeable future.

The concentrated ownership of our voting stock by our controlling stockholder may have an adverse effect on your ability to influence the direction we will take.

        At June 30, 2002, entities controlled by Capital Z beneficially owned senior preferred stock and 5.5% Convertible Subordinated Debentures due 2006 representing 48.5% of the combined voting power in the election of directors and 93.2% of the combined voting in all matters other than the election of directors. Representatives or nominees of Capital Z have five seats on our nine person Board of Directors, and as current members' terms expire Capital Z has the continuing right to appoint and elect four directors and nominate one additional director. As a result of its beneficial ownership and Board representation, Capital Z has, and will continue to have, sufficient power to determine our

52

direction and policies. Also because of its ownership percentage, Capital Z may unilaterally force the conversion into Common Stock of all shares of Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock or the Series D Convertible Preferred Stock.

Item 8. Financial Statements and Supplementary Data

        The following financial statements are attached to this report:

        Reports of Independent Auditors

        Consolidated Balance Sheets at June 30, 2002 and 2001

        Consolidated Statements of Operations for the Years Ended June 30, 2002, 2001 and 2000

        Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 2002, 2001 and 2000

        Consolidated Statements of Cash Flows for the Years Ended June 30, 2002, 2001 and 2000

        Notes to Consolidated Financial Statements

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

        None.

53

PART III

Item 10. Directors and Executive Officers of Registrant

        Information regarding directors and executive officers of the Registrant will appear in the proxy statement for the 2002 Annual Meeting of Stockholders or an amendment to this Form 10-K, and is incorporated herein by reference.

Item 11. Executive Compensation

        Information regarding executive compensation will appear in the proxy statement for the 2002 Annual Meeting of Stockholders or an amendment to this Form 10-K, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        Information regarding security ownership of certain beneficial owners and management will appear in the proxy statement for the 2002 Annual Meeting of Stockholders or an amendment to this Form 10-K, and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

        Information regarding certain relationships and related transactions will appear in the proxy statement for the 2002 Annual Meeting of Stockholders or an amendment to this Form 10-K, and is incorporated by this reference.

54

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)

The following documents are filed as part of this report:



(1)

Consolidated Financial Statements: Financial Statements listed as part of "Item 8. Financial Statements and Supplementary Data."



(2)

Financial Statement Schedules: Financial Statement Schedules listed in the "Exhibit Index" as Exhibit 11.



(3)

Exhibits: All exhibits listed in the "Exhibit Index" are filed with this report or are incorporated by reference into this report. Management contracts and compensatory plans or arrangements are filed, or incorporated by reference, as exhibits 10.1 through 10.15.




(b)

The Company filed the following Current Reports on Form 8-K during the last quarter of the fiscal year ended June 30, 2002:



(1)

The Company filed a Current Report on Form 8-K on April 29, 2002 (dated March 31, 2002) reporting delinquency and loss statistics in the loan servicing portfolio of Aames Capital Corporation, a wholly owned subsidiary of the Company.



(2)

The Company filed a Current Report on Form 8-K on April 30, 2002 (dated April 30, 2002) announcing its intent to refinance its outstanding 5.5% Convertible Subordinated Debentures due 2006 for 4.0% Convertible Subordinated Debentures due 2012 through an exchange offer.



(3)

The Company filed a Current Report on Form 8-K on May 3, 2002 (dated May 3, 2002) disclosing the results of certain negotiations with holders of its 9.125% Senior Notes due 2003.



(4)

The Company filed a Current Report on Form 8-K on May 15, 2002 (dated May 15, 2002) announcing the commencement of its offer to exchange its outstanding 5.5% Convertible Subordinated Debentures due 2006 for 4.0% Convertible Subordinated Debentures due 2012 through an exchange offer and disclosing the Company's quarterly results for the period ended March 31, 2002.



(5)

The Company filed a Current Report on Form 8-K on May 17, 2002 (dated April 30, 2002) reporting delinquency and loss statistics in the loan servicing portfolio of Aames Capital Corporation, a wholly owned subsidiary of the Company.



(6)

The Company filed a Current Report on Form 8-K on June 14, 2002 (dated June 13, 2002) announcing the extension of its exchange offer.



(7)

The Company filed a Current Report on form 8-K on June 21, 2002 (dated June 21, 2002) announcing the extension of its exchange offer.

55

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AAMES FINANCIAL CORPORATION (Registrant)
Dated: September 27, 2002	By:	/s/  A. JAY MEYERSON A. Jay Meyerson Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  JENNE K. BRITELL Jenne K. Britell	Director	September 27, 2002
/s/  DAVID H. ELLIOTT David H. Elliott	Director	September 27, 2002
/s/  DANIEL C. LIEBER Daniel C. Lieber	Director	September 27, 2002
/s/  A. JAY MEYERSON A. Jay Meyerson	Director and Chief Executive Officer (Principal Executive Officer)	September 27, 2002
/s/  RONALD J. NICOLAS, JR. Ronald J. Nicolas, Jr.	Executive Vice President — Finance and Chief Financial Officer (Principal Financial Officer)	September 27, 2002
/s/  ERIC C. RAHE Eric C. Rahe	Director	September 27, 2002
/s/  MANI A. SADEGHI Mani A. Sadeghi	Chairman of the Board and Director	September 27, 2002
/s/  ROBERT A. SPASS Robert A. Spass	Director	September 27, 2002
/s/  JOSEPH R. TOMEI Joseph R. Tomei	Director	September 27, 2002

56

/s/  JON D. VAN DEUREN Jon D. Van Deuren	Senior Vice President-Finance and Chief Accounting Officer (Principal Accounting Officer)	September 27, 2002
/s/  STEPHEN E. WALL Stephen E. Wall	Director	September 27, 2002

57

CERTIFICATIONS

I, A. Jay Meyerson, certify that:

        1.    I have reviewed this annual report on Form 10-K of Aames Financial Corporation;

        2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

        3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: September 27, 2002

/s/  A. JAY MEYERSON A. Jay Meyerson
Chief Executive Officer
(Principal Executive Officer)

I, Ronald J. Nicolas, Jr., certify that:

        1.    I have reviewed this annual report on Form 10-K of Aames Financial Corporation;

        2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

        3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date: September 27, 2002

/s/  RONALD J. NICHOLAS, JR. Ronald J. Nicolas, Jr.
Chief Financial Officer
(Principal Financial Officer)

58

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Aames Financial Corporation

        We have audited the accompanying consolidated balance sheets of Aames Financial Corporation and subsidiaries (the Company) as of June 30, 2002 and 2001 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended June 30, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based upon our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aames Financial Corporation and subsidiaries at June 30, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2002 in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Los Angeles, California
August 30, 2002

F-1

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		June 30, 2002			June 30, 2001
ASSETS
Cash and cash equivalents		$	17,391,000		$	27,583,000
Loans held for sale, at lower of cost or market			462,068,000			417,164,000
Accounts receivable			61,276,000			71,052,000
Residual interests, at estimated fair value			197,297,000			237,838,000
Mortgage servicing rights, net			2,920,000			6,545,000
Equipment and improvements, net			10,936,000			11,076,000
Prepaid and other			14,710,000			14,139,000
	Total assets	$	766,598,000		$	785,397,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings		$	263,970,000		$	269,720,000
Revolving warehouse and repurchase facilities			383,119,000			393,301,000
Accounts payable and accrued expenses			36,005,000			44,385,000
Accrued dividends on convertible preferred stock			37,763,000			23,975,000
Income taxes payable			8,556,000			8,131,000
	Total liabilities		729,413,000			739,512,000
Commitments and contingencies (Note 12)
Stockholders' equity:
	Series A Preferred Stock, par value $0.001 per share; 500,000 shares authorized; none outstanding		—			—
	Series B Convertible Preferred Stock, par value $0.001 per share; 29,704,000 shares authorized; 26,704,000 shares outstanding		27,000			27,000
	Series C Convertible Preferred Stock, par value $0.001 per share; 61,230,000 shares authorized; 20,186,000 and 20,327,000 shares outstanding		20,000			20,000
	Series D Convertible Preferred Stock, par value $0.001 per share; 108,566,000 shares authorized; 60,020,000 and 59,412,000 shares outstanding		60,000			59,000
	Common Stock, par value $0.001 per share; 400,000,000 shares authorized; 6,482,000 and 6,264,000 shares outstanding		6,000			6,000
	Additional paid-in capital		418,027,000			417,486,000
	Retained deficit		(380,955,000	)		(371,713,000	)
	Total stockholders' equity		37,185,000			45,885,000
	Total liabilities and stockholders' equity	$	766,598,000		$	785,397,000

See accompanying notes to consolidated financial statements.

F-2

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

		Years Ended June 30,
		2002			2001			2000
Revenue:
	Gain on sale of loans	$	95,530,000		$	73,435,000		$	48,098,000
	Write-down of residual interests and mortgage servicing rights		(27,000,000	)		(33,600,000	)		(82,490,000	)
	Origination fees		55,986,000			47,430,000			37,951,000
	Loan servicing		12,462,000			14,989,000			15,654,000
	Interest		83,161,000			86,477,000			94,569,000
	Total revenue, including write-down of residual interests and mortgage servicing rights		220,139,000			188,731,000			113,782,000
Expenses:
	Personnel		114,800,000			98,404,000			93,239,000
	Production		21,322,000			19,034,000			26,718,000
	General and administrative		38,995,000			49,044,000			58,489,000
	Interest		37,389,000			50,884,000			52,339,000
	Provision for uncollectible receivables		—			—			2,000,000
	Total expenses		212,506,000			217,366,000			232,785,000
Income (loss) before income taxes			7,633,000			(28,635,000	)		(119,003,000	)
Provision for income taxes			3,087,000			1,889,000			3,369,000
Net income (loss)		$	4,546,000		$	(30,524,000	)	$	(122,372,000	)
Basic and diluted net loss to common stockholders		$	(9,242,000	)	$	(44,445,000	)	$	(130,498,000	)
Net loss per common share:
	Basic	$	(1.45	)	$	(7.11	)	$	(21.02	)
	Diluted	$	(1.45	)	$	(7.11	)	$	(21.02	)
Dividends per common share		$	—		$	—		$	—
Weighted average number of common shares outstanding:
	Basic		6,394,000			6,251,000			6,209,000
	Diluted		6,394,000			6,251,000			6,209,000

See accompanying notes to consolidated financial statements.

F-3

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

		Series B Convertible Preferred Stock		Series C Convertible Preferred Stock			Series D Convertible Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Total
At June 30 1999		$	27,000	$	15,000		$	—	$	6,000	$	342,278,000		$	(196,770,000	)	$	145,556,000
	Issuance of Common Stock		—		—			—		—		2,000			—			2,000
	Issuance of Series C Convertible Preferred Stock		—		46,000			—		—		59,372,000			—			59,418,000
	Dividends accrued on Convertible Preferred Stock		—		—			—		—		—			(8,126,000	)		(8,126,000	)
	Net loss		—		—			—		—		—			(122,372,000	)		(122,372,000	)
At June 30, 2000			27,000		61,000			—		6,000		401,652,000			(327,268,000	)		74,478,000
	Issuance of Series C Convertible Preferred Stock		—		—			—		—		898,000			—			898,000
	Cancellation of Series C Convertible Preferred Stock		—		(41,000	)		—		—		(34,639,000	)		—			(34,680,000	)
	Issuance of Series D Convertible Preferred Stock		—		—			59,000		—		49,575,000			—			49,634,000
	Dividends accrued on Convertible Preferred Stock		—		—			—		—		—			(13,921,000	)		(13,921,000	)
	Net loss		—		—			—		—		—			(30,524,000	)		(30,524,000	)
At June 30, 2001			27,000		20,000			59,000		6,000		417,486,000			(371,713,000	)		45,885,000
	Issuance of Series D Convertible Preferred Stock		—		—			1,000		—		541,000			—			542,000
	Dividends accrued on Convertible Preferred Stock		—		—			—		—		—			(13,788,000	)		(13,788,000	)
	Net income		—		—			—		—		—			4,546,000			4,546,000
At June 30, 2002			27,000		20,000			60,000		6,000		418,027,000			(380,955,000	)		37,185,000

See accompanying notes to consolidated financial statements.

F-4

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended June 30,
			2002			2001			2000
Operating activities:
	Net income (loss)		$	4,546,000		$	(30,524,000	)	$	(122,372,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation and amortization			4,332,000			4,494,000			5,637,000
	Gain on sale of loans			—			—			(34,596,000	)
	Write-down of residual interests			27,000,000			33,600,000			77,490,000
	Accretion of residual interests			(32,457,000	)		(41,029,000	)		(50,692,000	)
	Mortgage servicing rights originated			—			—			(5,175,000	)
	Mortgage servicing rights amortized			3,625,000			5,801,000			8,757,000
	Mortgage servicing rights charged-off			—			—			5,000,000
	Changes in assets and liabilities:
	Loans held for sale originated or purchased			(3,242,509,000	)		(2,371,630,000	)		(2,079,278,000	)
	Proceeds from sale of loans held for sale			3,197,605,000			2,353,387,000			2,240,226,000
	(Increase) decrease in:
		Accounts receivable		9,776,000			(18,339,000	)		4,251,000
		Residual interests		45,998,000			60,547,000			49,169,000
		Prepaid and other		(571,000	)		588,000			286,000
		Income tax refund receivable		—			—			1,737,000
	Increase (decrease) in:
		Accounts payable and accrued expenses		(8,380,000	)		(2,546,000	)		(1,646,000	)
		Income taxes payable		425,000			(285,000	)		597,000
Net cash provided by (used in) operating activities				9,390,000			(5,936,000	)		99,391,000
Investing activities:
	Purchases of equipment and improvements			(4,192,000	)		(5,048,000	)		(2,664,000	)
Financing activities:
	Net proceeds from issuance of convertible preferred stock			542,000			15,852,000			59,418,000
	Proceeds from sale of common stock or exercise of options			—			—			2,000
	Reductions in borrowings			(5,750,000	)		(5,750,000	)		(5,750,000	)
	Net proceeds from (reductions in) revolving warehouse and repurchase facilities			(10,182,000	)		18,286,000			(160,982,000	)
Net cash provided by (used in) financing activities				(15,390,000	)		28,388,000			(107,312,000	)
Net increase (decrease) in cash and cash equivalents				(10,192,000	)		17,404,000			(10,585,000	)
Cash and cash equivalents at beginning of period				27,583,000			10,179,000			20,764,000
Cash and cash equivalents at end of period			$	17,391,000		$	27,583,000		$	10,179,000
Supplemental disclosures:
	Interest paid		$	37,979,000		$	51,585,000		$	53,392,000
	Income taxes paid		$	2,626,000		$	791,000		$	1,028,000

See accompanying notes to consolidated financial statements.

F-5

AAMES FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

General

        Aames Financial Corporation (the "Company" or "Aames") operates in a single industry segment as a consumer finance company primarily engaged, through its subsidiaries, in the business of originating, selling, and servicing home equity mortgages collateralized by single family residences. The Company's principal market is borrowers whose financing needs are not being met by traditional mortgage lenders for a variety of reasons, including the need for specialized loan products or credit histories that may limit such borrowers' access to credit. Loans originated by the Company are extended on the basis of the equity in the borrower's property and the creditworthiness of the borrower.

        At June 30, 2002, Aames operated 98 retail branch offices, four traditional regional broker offices and two National Loan Centers throughout the United States. The Company originates mortgage loans on a nationwide basis through its retail and broker production channels. During the years ended June 30, 2002 and 2001, the Company originated $3.2 billion and $2.4 billion of mortgage loans, respectively. During the years ended June 30, 2002 and 2001, the Company sold and securitized $3.2 billion and $2.3 billion of mortgage loans, respectively. The aggregate outstanding balance of mortgage loans serviced by the Company was $2.3 billion and $2.7 billion at June 30, 2002 and 2001, respectively, which includes $991.0 million and $722.1 million at June 30, 2002 and 2001, respectively, of loans serviced on an interim basis and $125.0 million and $184.0 million of mortgage loans at June 30, 2002 and 2001, respectively, serviced for the Company by unaffiliated subservicers under subservicing agreements.

        At June 30, 2002, Specialty Finance Partners ("SFP"), a partnership controlled by Capital Z Financial Services Fund, II, L.P., a Bermuda partnership (together with SFP, "Capital Z") owned preferred stock and 5.5% Convertible Subordinated Debentures due 2006 representing 48.5% of the Company's combined voting power in the election of directors and approximately 93.2% of the combined voting power in all matters other than the election of directors. Representatives or nominees of Capital Z have five seats on the Board of Directors, and as current members' terms expire, Capital Z has the continuing right to appoint and elect four directors and nominate one additional director. As a result of its beneficial ownership and Board representation, Capital Z has, and will continue to have, sufficient power to determine the Company's direction and policies.

Principles of Accounting and Consolidation

        The consolidated financial statements of the Company include the accounts of Aames and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

        The Company considers all highly liquid debt instruments with an original maturity of no more than three months to be cash equivalents.

F-6

Loans Held for Sale

        Loans held for sale are mortgage loans the Company plans to securitize or sell as whole loans and are carried at the lower of aggregate cost or market value. Market value is determined by current investor yield requirements.

        The Company maintains a valuation account for certain loans held for sale that are severely delinquent, have significant collateral deficiencies or have other attributes that reduce their sale potential. The valuation account is netted against loans held for sale.

Accounts Receivable

        Accounts receivable consists primarily of interest and servicing advances to securitization trusts. Accounts receivable also includes cash distributions receivable from securitization trusts, servicing and late fees receivable, accrued interest and other miscellaneous receivables. Miscellaneous receivables include the Company's limited partnership interest in a partnership created for monetizing advances made to securitization trusts.

        In its capacity as servicer of loans in the securitization trusts, the Company is required to advance the interest due to the bondholders of the securitization trusts when delinquent borrowers fail to make timely payments on their mortgage loans. The Company is also required to advance to the securitization trusts foreclosure-related expenses and delinquent real estate taxes and property insurance on loans in the securitization trusts. In its capacity as servicer of the loans in the securitization trusts, the Company is not required to make advances which would not be expected to be recoverable from the securitization trusts. The Company records interest advances and servicing advances as accounts receivable on its consolidated balance sheets at the time the cash advance is made and until recovered. The Company, as servicer, is entitled to recover these advances from regular monthly cash flows from the securitization trusts, including monthly payments, loan pay-offs and liquidation proceeds from the sale of real estate collateral underlying the mortgage loan if the properties are foreclosed upon and sold. The Company periodically evaluates the realizability of its interest and servicing advances and other accounts receivable, and charges income for amounts deemed uncollectible. As a means of improving its liquidity, the Company has entered into agreements with unaffiliated third parties pursuant to which they made certain, but not all, of the servicing advances directly to the securitization trusts. Additionally, as a means of recovering interest and servicing advances made by the Company prior to the time borrowers remit their payments or the mortgaged property is foreclosed upon and sold, from time to time, the Company may sell its interest and servicing advances.

F-7

Equipment and Improvements, Net

        Equipment and improvements, net, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are being recorded utilizing straight-line and accelerated methods over the following estimated useful lives:

Computer hardware	Five years
Furniture and fixtures	Five to seven years
Computer software	Three years
Leasehold improvements	Lower of life of lease or asset

Revenue Recognition

        The Company depends on its ability to sell loans in the secondary markets, as market conditions allow, to generate cash proceeds to pay down its warehouse and repurchase facilities and fund new originations and purchases. The ability of the Company to sell loans in the secondary market on acceptable terms is essential for the continuation of the Company's loan origination and purchase operations.

        The Company records a sale of loans and the resulting gain on sale of loans when it surrenders control over the loans to a buyer (the "transferee"). Control is surrendered when (i) the loans are isolated from the Company, put presumptively beyond the reach of the Company and its creditors, even in a bankruptcy or other receivership, (ii) either the transferee has the unconstrained right to pledge or exchange the loans or the transferee is a qualifying special purpose entity and the beneficial interest holders in the qualifying special purpose entity have the unconstrained right to pledge or exchange the beneficial interests, and (iii) the Company does not maintain effective control over the loans through an agreement that entitles and obligates the Company to repurchase or redeem the loans before their maturity or through an agreement that unilaterally entitles the Company to repurchase or redeem the loans.

        The Company sells its loans in whole loan sale transactions on a cash basis. In whole loan sale transactions, the buyer acquires all future rights (including mortgage servicing rights) to the loans, without recourse to the Company except for standard representations and warranties. Gains and losses on whole loan sales are recognized when the Company surrenders control over the loans (generally on the settlement date) based upon the difference between the proceeds received and the net carrying amount of the loans.

        In a securitization, the Company conveys loans to a separate entity (such as a trust) in exchange for cash proceeds and a residual interest in the trust. The cash proceeds are raised through an offering of pass-through certificates or bonds evidencing the right to receive principal payments and interest on the certificate balance or bonds. The non-cash gain on sale of loans represents the difference between the proceeds (including premiums) from the sale, net of related transaction costs, and the allocated carrying amount of the loans sold. The allocated carrying amount is determined by allocating the original cost basis amount of loans (including premiums paid on loans originated) between the portion sold and any retained interests (residual interests), based on their relative fair values at the date of transfer. The residual interests represent, over the estimated life of the loans, the present value of the estimated future cash flows based upon the expected timing that the estimated future cash flows would

F-8

be released from the securitization trusts to the Company, i.e., the "cash out" method for residual interest valuation. These cash flows are determined by the excess of the weighted average coupon on each pool of loans sold over the sum of the interest rate paid to investors, the contractual servicing fee, a monoline insurance fee, if any, and an estimate for credit losses. Each agreement that the Company has entered into in connection with its securitizations requires the overcollateralization of the trust that may initially be funded by cash deposited by the Company. The amount and timing of the cash flows expected to be released from the securitization trusts considers the impact of the applicable delinquency and credit loss limits specified in the securitization agreements.

        The Company determines the present value of the cash flows at the time each securitization transaction closes using certain estimates made by management at the time the loans are sold. These estimates include: (i) a future rate of prepayment; (ii) credit losses; and (iii) a discount rate used to calculate present value. The future cash flows represent management's best estimate. Management monitors performance of the loans and changes in the estimates are reflected in earnings. There can be no assurance of the accuracy of management's estimates.

        On a quarterly basis, the Company reviews the fair value of the residual interests by analyzing its prepayment, credit loss and discount rate assumptions in relation to its actual experience and current rates of prepayment and credit loss prevalent in the industry. The Company may adjust the residual interests or take a charge to earnings related to the residual interests, as appropriate, to reflect a valuation or write-down of its residual interests based upon (i) the actual performance of the Company's residual interests as compared to the Company's key assumptions and estimates used to determine fair value and (ii) changes in assumptions and estimates. Although management believes that the assumptions to estimate the fair values of its residual interests are reasonable, there can be no assurance as to the accuracy of the assumptions or estimates.

        During the years ended June 30, 2002 and 2001, the Company sold or securitized mortgages on a servicing released basis; therefore, the Company did not capitalize mortgage servicing rights.

        Prior to June 30, 2000, the Company capitalized mortgage servicing rights based on an allocation of the carrying amount of the loans securitized on a servicing retained basis. Mortgage servicing rights are amortized in proportion to and over the period of estimated future servicing income.

        The Company periodically reviews its mortgage servicing rights for impairment, based on estimated fair value. The Company determines fair value based on the present value of estimated future net cash flows. In estimating future net cash flows, the Company determines future servicing revenues less future servicing expenses over the expected life of the loans. Servicing revenues include contractual servicing fees and other ancillary income such as prepayment and late fees. Servicing expenses consist of direct servicing costs and allocated indirect expenses relating to the servicing operations. Servicing expenses include an estimate for the cost to carry advances to the securitization trusts, based on the amount of advances which have been made, advances that are expected to be made and the period of time that the advances are expected to be outstanding. The Company uses a 15% discount rate to calculate the present value of the estimated future net cash flows. At June 30, 2002 and 2001, there were no valuation allowances on mortgage servicing rights.

Advertising Expense

        The Company's policy is to charge advertising costs to expense when incurred.

F-9

Income Taxes

        Taxes are provided on substantially all income and expense items included in earnings, regardless of the period in which such items are recognized for tax purposes. The Company uses an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than the enactment of changes in the tax law or rates.

Earnings (Loss) Per Common Share

        Basic earnings (loss) per share of common stock is computed using the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share includes the effects of the conversion of shares related to the Company's 5.5% Convertible Subordinated Debentures due 2006, preferred stock convertible into common shares as well as the average number of stock options outstanding, except when their effect is antidilutive.

        All authorized and outstanding Series B and Series C Stock share amounts in the accompanying consolidated financial statements have been retroactively restated to reflect the 1,000-for-1 stock split effected by the Company on September 24, 1999. All references in the accompanying consolidated balance sheets, consolidated statements of operations and notes to consolidated financial statements to the number of common shares and per common share amounts have been restated to reflect the one-for-five reverse stock split effected on April 14, 2000.

Risk Management, Derivative Instruments and Hedging Activities

        The Company's earnings may be directly affected by the level of and fluctuation in interest rates in the securitization trusts. No derivative financial instruments were in place at and during the year ended June 30, 2002 and 2001 applicable to the securitization trusts.

        From time to time, the Company uses hedge products to mitigate interest rate exposure to its inventory and pipeline of fixed rate loans. The Company has utilized hedge products that included forward interest rate swap agreements and other hedging activities. The use, amount and term of derivative financial instruments are determined by members of the Company's senior management.

        Commencing July 1, 2000, derivative financial instruments are recorded at fair value on the Company's consolidated balance sheet. The Company records the fair value of any derivatives in accounts receivable or accounts payable and accrued expenses or in separate asset or liability line items, as the case may be, depending on materiality considerations. The Company's derivative financial instruments are not designated, and do not qualify, as accounting hedges. Therefore, changes in the fair value of the derivative financial instruments are recorded currently in operations as realized or incurred.

Reclassifications

        Certain amounts related to 2001 and 2000 have been reclassified to conform to the 2002 presentation.

F-10

Note 2. Cash and Cash Equivalents and Cash Held in Trust

        At June 30, 2002 and 2001, the Company had corporate cash and cash equivalents available of $17.4 million and $27.6 million, respectively, none of which were restricted. There were no overnight investments at June 30, 2002 and cash and cash equivalents included $18.9 million of overnight investments at June 30, 2001.

        The Company services mortgage loans in securitization trusts and services mortgage loans on an interim basis, which consist of loans held for sale and loans subserviced for others. In such capacity, certain funds are collected from borrowers and placed in segregated trust accounts which totaled $51.6 million and $74.6 million at June 30, 2002 and 2001, respectively. These accounts and corresponding liabilities are not included in the accompanying consolidated balance sheets.

Note 3. Loans Held for Sale

        The following summarizes the composition of the Company's loans held for sale by interest rate type at June 30, 2002 and 2001:

		June 30,
		2002		2001
Fixed rate mortgages		$	207,458,000	$	146,569,000
Adjustable rate mortgages			254,610,000		270,595,000
	Loans held for sale	$	462,068,000	$	417,164,000

Note 4. Accounts Receivable

        At June 30, 2002 and 2001, accounts receivable were comprised of the following:

		June 30,
		2002		2001
Interest and servicing advances		$	47,350,000	$	51,552,000
Servicing and late fees			4,103,000		5,246,000
Cash due from CZI under Residual Facility			—		4,847,000
Cash due from securitization trusts			3,472,000		3,532,000
Accrued interest and other			6,351,000		5,875,000
	Accounts receivable	$	61,276,000	$	71,052,000

        During the year ended June 30, 2001, the Company entered into an arrangement with an investment bank pursuant to which the investment bank purchased certain cumulative advances and undertook the obligation to make a substantial portion, but not all, of the Company's advance obligations on its securitized pools. As a result of this sale, the Company received approximately $10.0 million in cash.

        The Company's arrangements with the investment bank used to monetize advances expired in June 2002.

F-11

Note 5. Residual Interests

        The activity in the residual interests during the years ended June 30, 2002 and 2001 is summarized as follows:

	Year Ended June 30,
	2002			2001
Residual interests, at beginning of year	$	237,838,000		$	290,956,000
Accretion		32,457,000			41,029,000
Cash received from trusts		(45,998,000	)		(60,547,000	)
Write-down of residual interests		(27,000,000	)		(33,600,000	)
Residual interests, at end of year	$	197,297,000		$	237,838,000

        The Company sold to CZI for $16.4 million and $45.1 million of cash the residual interests created in the $585.0 million and $1.2 billion of securitizations which closed during the years ended June 30, 2002 and 2001, respectively. The Company has not retained any interest in such residual interests sold to CZI.

        The actual performance of the Company's residual interests as compared to the key assumptions and estimates used to evaluate their carrying value resulted in write-downs to the residual interests of $27.0 million, $33.6 million and $77.5 million during the years ended June 30, 2002, 2001 and 2000, respectively. The $27.0 million write-down recorded during the year ended June 30, 2002 primarily reflected the Company's unfavorable assessment of actual credit loss and delinquency experience of certain loans in the securitization trusts as compared to credit loss and delinquency assumptions. The $33.6 million write-down recorded during the year ended June 30, 2001 reflected the Company's unfavorable assessment of actual credit loss and delinquency experience of certain mortgage loans in the securitization trusts as compared to actual credit loss and delinquency assumptions. The $77.5 million write-down recorded during the year ended June 30, 2000 was comprised of unfavorable adjustments of $86.3 million recorded in light of higher than expected actual credit loss experience as compared to credit loss assumptions and an unfavorable $12.3 million adjustment due to the effects of rising interest rates on excess spreads, which were offset by a favorable $21.1 million adjustment due to actual prepayment rate trends compared to prepayment rate assumptions.

        The following table summarizes certain information about the securitization trusts in which the Company has retained a residual interest at June 30, 2002 and 2001 (dollars in thousands):

		June 30,
		2002		2001
Aggregate principal balance of securitized loans at the time of the securitizations		$	7,016,205	$	7,016,205
Outstanding principal balance of securitized loans			1,316,956		1,998,650
Outstanding principal balance of pass-through certificates or bonds of the securitization trusts			1,141,805		1,795,278
Weighted average coupon rates of outstanding:
	Securitized loans		10.26%		11.28%
	Pass-through certificates or bonds		5.53%		6.14%

F-12

        In connection with its securitization transactions, the Company initially deposits with a trustee cash or the required overcollateralization amount and subsequently deposits a portion of the excess spread collected on the related loans. At June 30, 2002 and 2001, the securitization trusts in which the Company has retained a residual interest include overcollateralization of approximately $175.2 million and $203.4 million, respectively. These overcollateralization amounts are subject to increase, as specified in the related securitization documents.

        There is no active market with quoted prices for the Company's residual interests. Therefore, the Company estimates the fair value of its residual interests based upon the present value of expected future cash flows based on certain prepayment, credit loss and discount rate assumptions. There can be no assurance that the Company could realize the fair value of its residual interests in a sale.

        Certain historical data and key assumptions and estimates used by the Company in its June 30, 2002 and 2001 reviews of the residual interests it has retained were the following:

			June 30,
			2002	2001
Prepayments:
	Actual weighted average annual prepayment rate, as a percentage of outstanding principal balances of securitized loans
		Fixed rate loans	29.4%	20.5%
		Adjustable rate loans	37.6%	39.2%
	Estimated annual prepayment rates, as a percentage of outstanding principal balances of securitized loans:
		Fixed rate loans	22.3% to 34.4%	22.3% to 29.5%
		Adjustable rate loans	13.8% to 41.0%	37.2% to 46.9%
	Estimated weighted average life of securitized loans		3.7 years	3.1 years
Credit losses:
	Actual credit losses to date, as a percentage of original principal balances of securitized loans		4.7%	3.9%
	Future estimated prospective credit losses, as a percentage of original principal balances of securitized loans		0.8%	1.4%
	Total actual and estimated prospective credit losses, as a percentage of original principal balances of securitized loans		5.5%	5.3%
	Total actual credit losses to date and estimated prospective credit losses (dollars in thousands)		$385,372	$368,479
Weighted average discount rate			13.4%	15.0%

F-13

        To estimate the effects of changes in interest rates on the coupon rates of the adjustable rate mortgage loans, the Company considers current underlying indices, periodic interest rate caps, lifetime interest rate caps and contractual interest rate floors. In determining the interest rates for the floating rate pass-through certificates in the securitization trusts, the Company uses each certificates' specific spread over the one-month LIBOR.

        At June 30, 2002 and 2001, the total actual and estimated prospective credit losses, as a percentage of original principal balance of securitized loans in securitization trusts in which the Company has retained a residual interest were as follows:

	Actual and Estimated Prospective Credit Losses(1) at June 30,
Mortgage Loans Securitized In:
	2002		2001
1999	5.4	%	4.3	%
1998	6.5		5.6
1997	5.6		5.2
1996	6.2		6.0
1995	7.1		6.7

(1)

Static pool losses are calculated by adding the actual and estimated future credit losses and dividing that sum by the balance of the mortgage loans in each securitization trust at the time of securitization. The amount shown for each year is the weighted average for all securitizations during that period.

        Actual and estimated credit losses vary between securitization trusts due to differing credit quality i.e., credit grade, production channel and other factors considered by the Company when evaluating credit loss estimates.

        The table below illustrates the resulting hypothetical fair values of the Company's residual interests at June 30, 2002 caused by assumed immediate adverse changes to the key assumptions used by the Company to determine fair value (dollars in thousands):

Prepayment speed assumption:
	Fair value after:
		Impact of a +10% change	$	192,354
		Impact of a +20% change		187,003
Credit loss assumption:
	Fair value after:
		Impact of a +10% change		193,428
		Impact of a +20% change		188,704
Residual interest cash flows discount rate:
	Fair value after:
		Impact of a +10% change		188,581
		Impact of a +20% change		179,187
Interest rate on adjustable mortgage loans:
	Fair value after:
		Impact of a +10% change		198,144
		Impact of a +20% change		198,092

F-14

        These sensitivities are hypothetical, are presented for illustrative purposes only, and should be used with caution. The changes in the assumptions regarding prepayments and credit losses were applied to the cash flows of the mortgage loans underlying the retained interests. Changes in assumptions regarding discount rate were applied to the cash flows of the securitization trusts. Generally, changes in fair value based upon a change in assumptions cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. The change in one assumption was calculated without changing any other assumptions. In reality, changes in one assumption may result in changes in others which may magnify or offset the sensitivities. For example, changes in market interest rates may simultaneously impact the prepayment, credit loss and the discount rate assumptions.

        The table below summarizes cash flows received from (paid to) securitization trusts during the years ended June 30, 2002 and 2001:

	Year Ended June 30,
	2002			2001
Proceeds from new securitizations	$	584,964,000		$	1,227,023,000
Servicing fees received		6,600,000			10,416,000
Purchases of delinquent and foreclosed loans		(10,421,000	)		(4,049,000	)
Interest and servicing advances made		(30,872,000	)		(55,053,000	)
Interest and servicing advances collected		35,074,000			25,350,000
Cash received from CZI from sales of residual interests		16,400,000			45,100,000
Proceeds from sale of advances		—			10,000,000

        At June 30, 2002, the principal balance of loans past due 90 days or more in loans held for sale and in the securitization trusts were $10.4 million and $168.2 million, respectively. At June 30, 2001, the principal balance of loans past due 90 days or more in loans held for sale and in the securitization trusts were $10.1 million and $232.6 million, respectively. During the years ended June 30, 2002 and 2001, the Company charged-off $4.4 million and $2.0 million of loans held for sale, respectively, and net losses on liquidations of mortgage loans in the securitization trusts were $63.0 million and $89.8 million, respectively, which includes the net losses on the purchase amount of delinquent and foreclosed loans.

        During the years ended June 30, 2002, 2001 and 2000, the Company sold $585.0 million, $1.2 billion and $803.6 million, respectively, of mortgage loans in securitization transactions. All of the residual interests created in the securitization transactions which closed during the years ended June 30, 2002 and 2001 were sold to CZI for $16.4 million and $45.1 million of cash, respectively. The Company retained the residual interests created in the securitizations which closed during the year ended June 30, 2000 and prior thereto.

F-15

        Key assumptions and estimates used by the Company in measuring the residual interests at the date of securitization resulting from securitizations completed during the years ended June 30, 2002 and 2001 were as follows:

			Year ended June 30,
			2002	2001
Prepayments:
	Estimated annual prepayment rates, as a percentage of outstanding principal balance of securitized loans:
		Fixed rate loans	25.2% to 31.5%	27.1% to 30.0%
		Adjustable rate loans	40.1% to 55.5%	39.9% to 42.6%
	Estimated weighted average life of securitized loans		3.4 years	2.6 years
Credit losses:
	Future estimated prospective credit losses, as a percentage of original principal balances of securitized loans		3.7%	3.0%
	Total estimated prospective credit losses (dollars in thousands)		$21,736	$36,978
Discount rate			15.0%	15.0%

Note 6. Residual Forward Sale Facility

        On August 31, 2000, the Company entered into a Residual Forward Sale Facility (the "Residual Facility") with Capital Z Investments, L.P., a Bermuda partnership ("CZI"), an affiliate of Capital Z, the Company's largest shareholder. Pursuant to the terms of the Residual Facility, the Company may sell up to $75.0 million of its residual interests for cash in future securitizations through the earliest of (i) September 30, 2002, (ii) the full utilization of the $75.0 million Residual Facility amount, or (iii) a termination event, as defined in the Residual Facility. The Company is in discussions with CZI to extend the Facility, however, there can be no assurance that the Residual Facility will be renewed beyond its expiration.

        During the years ended June 30, 2002 and 2001, the Company securitized $585.0 million and $1.2 billion of mortgage loans, respectively, and sold for $16.4 million and $45.1 million of cash the residual interests, respectively, created therein to CZI under the Residual Facility. Included in accounts receivable at June 30, 2001 was $4.8 million due to the Company from CZI all of which was received subsequent to June 30, 2001.

        At June 30, 2002, the available capacity remaining for future use under the Residual Facility was $13.5 million.

        In connection with obtaining the Residual Facility, the Company paid a facility fee of $3.0 million to CZI. Other costs capitalized in connection with obtaining the Residual Facility were $300,000. These costs were capitalized and are being amortized to gain on sale of loans based upon the ratio of the dollar amount of the residual interests sold to CZI under the Residual Facility to the total Residual Facility amount. During the year ended June 30, 2002 and 2001, amortization charged to gain on sale of loans was $0.5 million and $1.9 million, respectively, of which $0.5 million and $1.7 million, respectively, relates to the Facility fee paid to CZI. At June 30, 2002, remaining unamortized costs relating to the Residual Facility were $0.9 million of which $0.8 million related to the remaining unamortized facility fee paid to CZI and are included in prepaid and other assets in the accompanying condensed consolidated balance sheet.

F-16

Note 7. Mortgage Servicing Rights, Net

        The activity in mortgage servicing rights during the years ended June 30, 2002 and 2001 is summarized as follows:

		June 30,
		2002			2001
Mortgage servicing rights, net, at beginning of year.		$	6,545,000		$	12,346,000
	Amortization of mortgage servicing rights		(3,625,000	)		(5,801,000	)
Mortgage servicing rights, net, at end of year		$	2,920,000		$	6,545,000

        The mortgage servicing rights are amortized over the estimated lives of the loans to which they relate.

Note 8. Equipment and Improvements, Net

        Equipment and improvements, net, consisted of the following at June 30, 2002 and 2001:

		June 30,
		2002			2001
Computer hardware		$	13,009,000		$	16,082,000
Furniture and fixtures			9,133,000			8,632,000
Computer software			13,599,000			7,972,000
Leasehold improvements			2,913,000			2,378,000
	Total		38,654,000			35,064,000
Accumulated depreciation and amortization			(27,718,000	)		(23,988,000	)
Equipment and improvements, net		$	10,936,000		$	11,076,000

Note 9. Borrowings

      Amounts outstanding on borrowings consisted of the following at June 30, 2002 and 2001:

		June 30,
		2002		2001
9.125% Senior Notes due November 2003, guaranteed by each of the restricted subsidiaries (as defined in the Indenture) of the Company		$	150,000,000	$	150,000,000
5.5% Convertible Subordinated Debentures due March 2006, convertible into approximately 1.5 million shares of common stock at $78.15 per share. The 5.5% Convertible Subordinated Debentures are subordinate to all existing and future senior indebtedness (as defined in the Indenture) of the Company			113,970,000		113,970,000
10.5% Senior Notes due 2002			—		5,750,000
	Borrowings	$	263,970,000	$	269,720,000

F-17

Note 9. Borrowings (Continued)

        The 10.5% Senior Notes due 2002 were fully extinguished upon the final principal payment of $5,750,000 made by the Company on February 1, 2002.

        Maturities on amounts outstanding on borrowings are as follows:

Fiscal Years Ended June 30,
2003		$	—
2004			150,000,000
2005			—
2006			113,970,000
	Total borrowings	$	263,970,000

        At June 30, 2002 and 2001, the Company had unamortized debt issuance costs of $2.2 million and $3.4 million, respectively, related to the initial issuance of amounts outstanding under borrowings. Unamortized debt issuance costs are included in prepaid and other assets in the accompanying consolidated balance sheets and are amortized to expense over the terms of the related debt issuances.

        In October 1996, the Company completed an offering of its 9.125% Senior Notes due November 2003 which are guaranteed by all but one of the Company's wholly-owned subsidiaries. The guarantees are joint and several, full, complete and unconditional. There are no restrictions on the ability of such subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. The Company is a holding company with limited assets or operations other than its investments in its subsidiaries. Separate financial statements of the guarantors are not presented because the aggregate total assets, net income (loss) and net equity of such subsidiaries are substantially equivalent to the total assets, net income (loss) and net equity of the Company on a consolidated basis.

        On May 15, 2002, the Company commenced a refinancing of its outstanding 5.5% Convertible Subordinated Debentures due 2006 (the "Existing Debentures") by means of an offer to exchange (the "Exchange Offer") the Company's to be issued 4.0% Convertible Subordinated Debentures due 2012 (the "New Debentures") for any and all of its outstanding Existing Debentures. The terms of the Exchange Offer are set forth in an offering memorandum, amendments to the offering memorandum, a letter of transmittal and offering supplements filed previously with the United States Securities and Exchange Commission and incorporated into this Form 10-K by reference. As of August 30, 2002 the Company has received tenders of Existing Debentures from holders of approximately $42.7 million principal amount, or approximately 37.5% of the outstanding Existing Debentures. The Exchange Offer is scheduled to expire Friday, October 4, 2002.

F-18

Note 10. Revolving Warehouse and Repurchase Facilities

        Amounts outstanding under committed revolving warehouse and repurchase facilities consisted of the following at June 30, 2002 and 2001:

			June 30,
			2002		2001
Warehouse facility from an investment bank, collateralized by loans held for sale:
	At June 30, 2002:
		$300.0 million facility, expires March 20, 2003; bears interest at 0.95% to 1.75% over one month LIBOR, depending on collateral	$	144,568,000	$	—
	At June 30, 2001:
		$300.0 million facility; expired March 21, 2002; bore interest at 1.0% to 1.75% over one month LIBOR; depending on collateral; included $9.7 million outstanding under a non-revolving $35.0 million subline(1)		—		207,395,000
Repurchase facility from an investment bank, collateralized by loans held for sale:
	At June 30, 2002:
		$300.0 million facility, expires November 16, 2002; generally bears interest at 0.9% to 1.5% over one month LIBOR, depending on collateral		117,233,000		—
	At June 30, 2001:
		$300.0 million facility; expired October 26, 2001; generally bore interest at 0.9% to 1.5% over one month LIBOR, depending on collateral		—		65,566,000
Repurchase facility from an investment bank, collateralized by loans held for sale:
	At June 30, 2002:
		$200.0 million facility; expired July 31, 2002(2); bears interest at 1.0% to 1.75% over one month LIBOR, depending on document status		121,318,000		—
	At June 30, 2001:
		$200.0 million facility; expired June 30, 2002; bore interest at 1.0% to 1.75% over one month LIBOR, depending on document status		—		120,340,000
		Amounts outstanding under revolving warehouse and repurchase facilities	$	383,119,000	$	393,301,000

(1)

The subline was collateralized by certain residual interests of the Company, bore interest at 3.75% over one month LIBOR and was repaid in entirety on December 31, 2001. The previously pledged residual assets collateralizing the subline were returned to the Company.

(2)

Prior to June 30, 2002, this $200.0 million repurchase facility was extended to July 31, 2002, at which time it was renewed with the committed facility amount increased to $300.0 million and with a new expiration date of July 30, 2003.

        The Company utilizes revolving warehouse and repurchase facilities to finance the origination of mortgage loans prior to sale or securitization. At June 30, 2002 and 2001, the Company had total committed revolving warehouse and repurchase facilities available in the amount of $800.0 million and $790.3 million (net of $9.7 million outstanding on a $35.0 million non-revolving subline), respectively. Revolving warehouse and repurchase facilities typically have a term of less than one year and are

F-19

designated to fund mortgage loans originated within specified underwriting guidelines. All of the Company's revolving warehouse and repurchase facilities contain provisions requiring the Company to meet certain periodic financial covenants, including, among other things, minimum liquidity, stockholders' equity, leverage and net income levels. Additionally, some of the Company's revolving warehouse and repurchase facilities fund less than 100% of the principal balance of the mortgage loans financed requiring the Company to use working capital to fund the remaining portion of the principal balance of the mortgage loans. The majority of the mortgage loans originated under the facilities remain in the facilities for a period generally of up to 90 days at which point they are securitized or sold to institutional investors.

        At June 30, 2002 and 2001, one month LIBOR was 1.84% and 3.86%, respectively.

        The weighted-average interest rates on borrowings outstanding under revolving warehouse and repurchase facilities at June 30, 2002 and 2001 were approximately 2.90% and 4.99%, respectively. During the year ended June 30, 2002, the average amount of borrowings under revolving warehouse and repurchase facilities was $487.6 million and the maximum outstanding under such facilities at any one time during the year ended June 30, 2002 was $661.5 million.

        At June 30, 2002 and 2001, included in prepaid and other assets in the accompanying consolidated balance sheet were $1.0 million and $2.0 million, respectively, of deferred commitment fees relating to the Company's revolving warehouse and repurchase facilities remaining to be amortized to expense over their respective remaining terms.

Note 11. Income Taxes

        The provision for income taxes consisted of the following for the years ended June 30, 2002, 2001 and 2000:

		June 30,
		2002		2001		2000
Current:
	Federal	$	2,867,000	$	1,400,000	$	2,200,000
	State		220,000		489,000		572,000
			3,087,000		1,889,000		2,772,000
Deferred:
	Federal		—		—		597,000
	State		—		—		—
			—		—		597,000
	Total	$	3,087,000	$	1,889,000	$	3,369,000

F-20

        Current and deferred taxes payable were comprised of the following at June 30, 2002 and 2001:

		June 30,
		2002		2001
Current taxes payable:
	Federal	$	1,487,000	$	1,199,000
	State		937,000		800,000
			2,424,000		1,999,000
Deferred taxes payable:
	Federal		6,132,000		6,132,000
	State		—		—
	Total	$	8,556,000	$	8,131,000

        The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities consisted of the following at June 30, 2002 and 2001:

		June 30,
		2002			2001
Deferred tax assets:
	Residual interests		(65,288,000	)		(71,208,000	)
	Net operating loss carry forward		(89,543,000	)		(86,517,000	)
	Other		(—	)		(2,894,000	)
	Total gross deferred tax assets		(154,831,000	)		(160,619,000	)
Tax valuation allowance			144,283,000			150,156,000
Deferred tax liabilities:
	Mark-to-market	$	6,329,000		$	6,979,000
	State taxes		9,176,000			9,616,000
	Other		1,175,000			—
	Total gross deferred tax liabilities		16,680,000			16,595,000
Net deferred tax liabilities		$	6,132,000		$	6,132,000

F-21

        The estimated effective tax rates for the years ended June 30, 2002, 2001 and 2000 were as follows:

	2002
	Permanent Differences		Tax Affected Permanent Differences		Effective Tax Rate Calculation
Tax provision					$	3,087,000
Income before income taxes						7,633,000
Effective tax rate						40.4	%
Federal statutory rate						35.0	%
Tax valuation allowance	$	879,000	$	360,000		4.7
Other, net		127,000		52,000		.7
						40.4	%

	2001
	Permanent Differences		Tax Affected Permanent Differences		Effective Tax Rate Calculation
Tax provision					$	1,889,000
Loss before income taxes						(28,635,000	)
Effective tax rate						6.6	%
Federal statutory rate						(35.0	)%
Tax valuation allowance	$	29,560,000	$	12,394,000		43.3
Other, net		117,000		49,000		(1.7	)
						6.6	%

	2000
	Permanent Differences			Tax Affected Permanent Differences			Effective Tax Rate Calculation
Tax provision							$	3,369,000
Loss before income taxes								(119,003,000	)
Effective tax rate								2.8	%
Federal statutory rate								(35.0	)%
State pre-tax after permanent difference	$	(11,334,000	)	$	(7,378,000	)		(6.2	)
Tax valuation allowance		126,512,000			52,123,000			43.8
Other, net		200,000			130,000			.2
								2.8	%

        The investment in the Company by Capital Z resulted in a change of control for income tax purposes thereby potentially limiting the Company's ability to utilize net operating loss carry forwards and certain other future deductions.

        The Company's residual interest in real estate mortgage investment conduits ("REMIC") creates excess inclusion income for tax purposes which may give rise to a current income tax liability. Available

F-22

loss carry forwards and operating losses may not reduce taxable income below excess inclusion income earned from the REMIC.

Note 12. Commitments and Contingencies

Operating Leases

        The Company leases office space under operating leases expiring at various dates through February 2012. Total rent expense related to such operating leases amounted to $8.5 million, $8.8 million and $9.7 million during the years ended June 30, 2002, 2001 and 2000, respectively. During the years ended June 30, 2002 and 2001, sublease receipts were $1.0 million and $83,000, respectively, and sublease related discount amortization was $266,000 and $67,500, respectively. Certain leases have provisions for renewal options and/or rental increases at specified increments or in relation to increases in the Consumer Price Index (as defined).

        At June 30, 2002, future minimum rental payments required under non-cancelable operating leases and minimum receipts under subleases that have initial or remaining terms in excess of one year are as follows:

	Minimum Rental Payments		Minimum Sublease Receipts		Net Minimum Rental Payments
2003	$	9,938,000	$	1,383,000	$	8,555,000
2004		6,758,000		1,371,000		5,387,000
2005		5,187,000		1,417,000		3,770,000
2006		4,120,000		1,280,000		2,840,000
2007		4,013,000		868,000		3,145,000
Thereafter		18,911,000		4,122,000		14,789,000
	$	48,927,000	$	10,441,000	$	38,486,000

Litigation

        The Company and certain of its subsidiaries are defendants in Fowler et. al. v. Aames Financial Corporation and Aames Funding Corporation, a putative class action filed on approximately May 11, 2001, in U.S. District Court of California, case 2:01cv04330. Plaintiff, a former loan executive, filed this putative class action on behalf of himself and current and former loan executives employed by the Company, and seeks certification of class, damages consisting of alleged unpaid overtime, statutory liquidated damages and waiting time penalties, attorneys' fees and costs, restitution, disgorgement of profits and injunctive relief. Plaintiff alleges that during his employment, he and other loan executives worked in excess of 8 hours per day or 40 hours per week, that the Company willfully failed to pay overtime in violation of the Federal Fair Labor Standards Act and, with respect to loan executives employed in California, in violation of the California Labor Code and Business & Professional Code §17200, et seq. Aames filed an answer denying the claims and asserting various affirmative defenses on September 4, 2001. Discovery is continuing.

        The Company and certain of its subsidiaries are defendants in Aslami et. al. v. Aames Home Loan, Aames Financial Corporation, et. al., a putative class action filed on approximately April 11, 2000, in Los Angeles County Superior Court, case No. BC228027. Plaintiffs, former customers, filed this action

F-23

on behalf of themselves and all persons who applied for or obtained loans from the Company during the prior four years. Plaintiffs allege various state law claims premised on their contention that the Company routinely "upcharges" third party fees and underdiscloses annual percentage rates. On April 26, 2002, Plaintiffs filed a third amended complaint limiting the purported class to California borrowers and asserting claims based upon the payment of a yield spread premium to their broker. Plaintiffs contend that such yield spread premium payments constitute kickbacks and/or illegal referrals under California law and/or that the Company failed to properly disclose the nature of a yield spread premium. Plaintiffs seek certification of the class, damages consisting of fees paid to mortgage brokers, statutory treble damages, attorneys' fees and costs, restitution, disgorgement of improperly collected charges, punitive damages and injunctive relief. The Company has answered the amended complaint, again asserting various affirmative defenses. The court has set December 2, 2002 as the date upon which it will consider Plaintiffs' motion to certify a class. No trial has been set.

        The Company cannot predict the outcome of these matters. The Company is neither able to conclude on the probability of unfavorable outcomes nor can the Company reasonably estimate loss amounts, if any, related to these matters as these matters are in their early stages and due to the uncertainties associated with litigation. The Company intends to vigorously defend these actions; however, the Company believes that an unfavorable outcome of one or both of the above cases could have a material adverse effect on the Company's consolidated financial position and results of operations.

        Wilmington Trust Company, as successor indenture trustee with respect to the Company's 9.125% Senior notes due 2003 (the "Senior Notes"), brought an action against the Company seeking to prevent the Company from consummating its offer to exchange all outstanding 5.5% Convertible Subordinated Debentures due 2006 for newly issued 4.0% Convertible Subordinated Debentures due 2012 (the "Exchange Offer"). On June 20, 2002, the Supreme Court of the State of New York heard oral arguments relating to Wilmington Trust Company's request for an order preliminarily enjoining the Company from proceeding with the Exchange Offer. On July 1, 2002, the court denied Wilmington Trust Company's request. On July 12, 2002, the Company filed a motion to dismiss Wilmington Trust Company's complaint. On August 1, 2002, Wilmington Trust Company filed an amended complaint seeking a declaratory judgment that if the Company were to proceed with the Exchange Offer an event of default would exist under the indenture governing the Senior Notes. On August 14, 2002, the Company filed a motion to dismiss the amended complaint and request a declaratory judgment that the Exchange Offer would not constitute an event of default under the indenture governing the Senior Notes. Trial is currently set for December 3, 2002. The Company believes the Wilmington Trust Company's suit is without merit and intends to vigorously defend itself.

        In the ordinary course of its business, the Company is subject to various claims made against it by borrowers, private investors and others arising from, among other things, losses that are claimed to have been incurred as a result of alleged breaches of fiduciary obligations, misrepresentations, errors and omissions of employees and officers of the Company, incomplete documentation and failures by the Company to comply with various laws and regulations applicable to its business. The Company believes that liability with respect to any of these currently asserted claims or legal action is not likely to be material to the Company's consolidated financial position and results of operations; however, any claims asserted or legal action in the future may result in expenses which could have a material adverse effect on the Company's consolidated financial position and results of operations.

F-24

Note 13. Fair Value of Financial Instruments

        The following disclosures of the estimated fair value of financial instruments as of June 30, 2002 and 2001 are made by the Company using available market information, historical data, and appropriate valuation methodologies. However, considerable judgment is required to interpret market and historical data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange.

        The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

	June 30, 2002						June 30, 2001
	Carrying Amount			Estimated Fair Value			Carrying Amount		Estimated Fair Value
Cash and cash equivalents	$	17,391,000		$	17,391,000		$	27,583,000	$	27,583,000
Loans held for sale, at lower of cost or market		462,068,000			474,048,000			417,164,000		427,627,000
Accounts receivable		61,276,000			61,276,000			71,052,000		71,052,000
Residual interests, at estimated fair value		197,297,000			197,297,000			237,838,000		237,838,000
Mortgage servicing rights, net		2,920,000			2,920,000			6,545,000		6,545,000
Borrowings		263,970,000			152,573,000			269,720,000		118,354,000
Revolving warehouse and repurchase facilities		383,119,000			383,119,000			393,301,000		393,301,000
Forward interest rate swap agreements		(394,000	)		(394,000	)		-0-		-0-

        The fair value estimates as of June 30, 2002 and 2001 are based on pertinent information available to management as of the respective dates. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

        The following describes the methods and assumptions used by the Company in estimating fair values:

•

Cash and cash equivalents are based on the carrying amount which is a reasonable estimate of the fair value.



•

Loans held for sale are based on current investor yield requirements.



•

Accounts receivable are generally short term in nature, therefore the carrying value approximates fair value.



•

Residual interests and mortgage servicing rights are based on the present value of expected future cash flows using assumptions based on the Company's historical experience, industry information and estimated rates of future prepayment and credit loss.



•

Borrowings are based on the quoted market prices for the issues.



•

Amounts outstanding under revolving warehouse and repurchase facilities are short term in nature and generally bear market rates of interest and, therefore, are based on the carrying amount which is a reasonable estimate of fair value.



•

Forward interest rate swap agreements are based on quoted market prices.

F-25

Note 14. Employee Benefit Plans

401(k) Retirement Savings Plan

        The Company sponsors a 401(k) Retirement Savings Plan, a defined contribution plan. Substantially all employees are eligible to participate in the plan after reaching the age of 21 and completion of six months of service. Contributions are made from employees' elected salary deferrals. Effective January 1, 2001, the Company began contributing to the plan on a matching basis, however, the Company's contribution remains at its option. Under the match, the Company's contributions are made based upon 50% of an employee's contribution up to a maximum of 6% of an employee's salary. Prior thereto, employer contributions were determined at the beginning of the plan year at the option of the Company. Contributions made to the Plan by the Company during the years ended June 30, 2002, 2001 and 2000 were $1.0 million, $558,000 and $321,000, respectively.

Stock-Based Compensation

        The Company's Board of Directors adopted the Aames Financial Corporation Stock Option Plan (the "1999 Plan") as of February 10, 1999, as amended, which was subsequently approved by the stockholders during the year ended June 30, 2000. The 1999 Plan supercedes the Company's 1991 Stock Incentive Plan, 1995 Stock Incentive Plan, 1996 Stock Incentive Plan, 1997 Stock Option Plan and 1997 Non-Qualified Stock Option Plan. The 1999 Plan provides for the issuance of options to purchase shares of the Company's common stock to officers, key executives and consultants of the Company. Under the 1999 Plan, the Company may grant incentive and non-qualified options to eligible participants that may vest immediately on the date of grant or in accordance with a vesting schedule, as determined in the sole discretion of the Compensation Committee of the Company's Board of Directors. The exercise price is based on the 20-day average closing price of the common stock on the day before the date of grant. Each option plan provides for a term of 10 years. Subject to adjustment for stock splits, stock dividends and other similar events at June 30, 2002 there were 2,922,401 shares reserved for issuance under the 1999 Plan.

        At June 30, 1999, the Company had reserved 563,936 shares of the common stock for issuance under its 1991 Stock Incentive Plan, 1995 Stock Incentive Plan, 1996 Stock Incentive Plan, 1997 Stock Option Plan and 1997 Non-Qualified Stock Option Plan (the "Terminated Plans"). The Terminated Plans were terminated by the Company in February 1999; however, options granted prior to February 1999 under the Terminated Plans will remain outstanding until they expire. The Company has also granted options outside of these plans, on terms established by the Compensation Committee.

F-26

        A summary of the Company's stock option plans and arrangements as of June 30, 2002, 2001 and 2000 and changes during the years then ended are as follows:

		Option Shares		Option Price Range
2002
Outstanding at beginning of year		13,246,906		$	0.85-147.90
	Granted	3,334,678			0.73-1.28
	Exercised	—			—
	Forfeited	(2,284,918	)		0.85-144.60
Outstanding at end of year		14,296,666		$	0.73-147.90
2001
Outstanding at beginning of year		3,128,779		$	1.00-147.90
	Granted	11,990,817			0.85-1.60
	Exercised	—			—
	Forfeited	(1,872,690	)		0.85-144.60
Outstanding at end of year		13,246,906		$	0.85-147.90
2000
Outstanding at beginning of year		1,005,100		$	0.95-147.90
	Granted	2,873,078			3.95-5.00
	Exercised	(5,797	)		1.00-1.00
	Forfeited	(743,602	)		1.00-144.60
Outstanding at end of year		3,128,779		$	1.00-147.90

        The number of options exercisable at June 30, 2002 and 2001, were 4,738,930 and 3,162,238, respectively. The weighted-average fair value of options granted during the years ended 2002 and 2001 was $0.42 and $0.71, respectively.

        The following table summarizes additional information about the Company's options outstanding and exercisable at June 30, 2002:

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Options Outstanding	Weighted-Average Remaining Life	Weighted-Average Exercise Price	Number Exercisable	Weighted-Average Exercise Price
$0.73–    1.00	9,917,080	8.6	$    0.85	3,423,697	$    0.85
$1.11–    1.60	2,621,493	8.4	1.21	1,072,608	1.21
$5.00–    5.00	1,607,198	7.4	5.00	105,300	5.00
$15.20–  19.45	3,668	2.5	18.57	3,668	18.57
$39.70–  59.05	8,442	3.1	39.88	8,442	39.88
$65.00–  71.55	119,060	5.5	66.99	106,740	67.00
$119.60–147.90	19,725	4.4	135.79	18,475	135.94
$0.73–147.90	14,296,666	8.4	$    2.14	4,738,930	$    3.12

F-27

        The Company applies Accounting Principles Board Opinion 25 and related interpretations in accounting for its stock-based compensation plans and arrangements. No compensation cost has been recognized for its stock option plan. If compensation cost for the stock option plan and arrangements had been determined based on the fair value at the grant dates for awards under this plan consistent with the method prescribed by SFAS 123, the Company's net income (loss) and earnings (loss) per share would have reflected the pro forma amounts indicated below:

		June 30,
		2002			2001			2000
Net income (loss):
	As reported	$	4,546,000		$	(30,524,000	)	$	(122,372,000	)
	Pro forma		4,312,000			(32,063,000	)		(122,619,000	)
Basic and diluted net loss to common stockholders:
	As reported	$	(9,242,000	)	$	(44,445,000	)	$	(130,498,000	)
	Pro forma		(9,476,000	)		(45,984,000	)		(130,745,000	)
Basic loss per share:
	As reported	$	(1.45	)	$	(7.11	)	$	(21.02	)
	Pro forma		(1.48	)		(7.36	)		(21.06	)
Diluted loss per share:
	As reported	$	(1.45	)	$	(7.11	)	$	(21.02	)
	Pro forma		(1.48	)		(7.36	)		(21.06	)

        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	June 30,
	2002	2001
Dividend yield	0.00%	0.00%
Expected volatility	118.00%	122.00%
Risk-free interest rate	4.13%	5.65%
Expected life of option	4.5 years	4.5 years

Note 15. Stockholders' Equity

Year ended June 30, 2002

        During the year ended June 30, 2002, the Company issued 637,000 shares of Series D Convertible Preferred Stock, par value $0.001 per share (the "Series D Stock") to participants in a rights offering. Proceeds from the issuance were approximately $542,000.

Year ended June 30, 2001

        During the year ended June 30, 2001, in the second of a two-phase $50.0 million investment by Capital Z which occurred on July 12, 2000, the Company issued 18.0 million of Series D Convertible Preferred Stock, par value $0.001 per share (the "Series D Stock"), to Capital Z for $0.85 per share, its stated value, and received $15.3 million. Net proceeds, after issuance expenses, were $14.3 million. At the same time, Capital Z exchanged the 40.8 million shares of Series C Stock and the warrants to

F-28

purchase 5.0 million shares of Series C Stock received in the first phase for an equal number of shares and warrants to purchase Series D Stock.

        During the year ended June 30, 2001, the Company issued 179,000 shares of Series C Convertible Preferred Stock in satisfaction of amounts owed for services rendered by former consultants to the Company. Additionally, during the year ended June 30, 2001, the Company issued 588,000 shares of Series D Convertible Preferred Stock to the Company's chief executive officer under his employment agreement at $0.85 per share and received approximately $500,000.

Year ended June 30, 2000

        During the year ended June 30, 2000, the Company received $60.8 million of additional capital. Net proceeds to the Company, after issuance expenses, were $59.4 million. The additional capital was received in a series of transactions with SFP, a partnership controlled by Capital Z, existing shareholders and management of the Company. Such transactions are summarized below.

        In the first of a two-phase $50.0 million investment by Capital Z, the Company issued 40.8 million shares of Series C Convertible Preferred Stock, par value $0.001 per share, (the "Series C Stock") for $0.85 per share to Capital Z and received $34.7 million, and issued warrants to Capital Z to purchase 5.0 million shares of the Series C Stock at $0.85 per share. Net proceeds to the Company, after issuance expenses, were $34.3 million.

        The Company issued 212,000 shares of the Series C for $5.00 per share and received $1.1 million from members of management. No issuance expenses were incurred in this transaction.

        The Company received $4.2 million of additional capital from existing owners of the Company's Common Stock in connection with its rights offering of up to 6.2 million shares of the Series C Stock to stockholders (the "Rights Offering"). The Company also received $20.8 million of additional capital from Capital Z in connection with Capital Z's standby commitment to purchase up to $25.0 million unsubscribed shares in the Rights Offering (the "Standby Commitment"). The Company issued an aggregate of 5.0 million shares in connection with the Rights Offering and the Standby Commitment. Net proceeds to the Company, after issuance expenses, were approximately $24.0 million.

Other information

        The Company also issued warrants to affiliates and employees of an affiliate of Capital Z to purchase an aggregate of 500,000 shares of the Company's common stock for $5.00 per share in February 1999, and warrants to purchase 5.0 million shares of Series D Convertible Preferred Stock at $0.85 per share in July 2001.

        All authorized and outstanding Series B and Series C Stock share amounts in the accompanying consolidated financial statements have been retroactively restated to reflect the 1,000-for-1 stock split effected by the Company on September 24, 1999. Outstanding Common Stock and Series C share amounts and per share information in the accompanying consolidated financial statements have been retroactively restated for the 1-for-5 reverse stock split effected on April 14, 2000.

        The Company's Series B, Series C and Series D Stock rank senior in right to dividends and liquidation to all classes of the Company's common and other preferred stock. The Series C and Series D Stock do not have the right to vote for directors.

F-29

        Since April 1, 1999, the Company's Series B, Series C and Series D Stock have accumulated dividends at a rate of 6.5% per annum. On April 1, 2001, the interest rate applicable to the previously accrued but unpaid dividends increased to 8.125% per annum, which compounds quarterly, from 6.5% per annum applicable to the period from April 1, 1999 to March 31, 2001. At June 30, 2002 and 2001, aggregate accrued and unpaid dividends on the Company's convertible preferred stock were $37.8 million and $24.0 million, respectively.

        In November 1998, the Board of Directors decided to suspend cash dividends on the common stock until the Company's earnings and cash flows improved. Credit agreements generally limit the Company's ability to pay dividends if such payment would result in an event of default under the agreements or would otherwise cause a breach of a net worth or liquidity covenants. The Company's Indenture relating to its 9.125% Senior Notes due November 2003 prohibits the payment of dividends if the aggregate amount of such dividends since October 26, 1996 exceeds the sum of (a) 25% of the Company's net income during that period (minus 100% of any deficit); (b) net cash proceeds from any securities issuances; and (c) proceeds from the sale of certain investments.

Note 16. Transactions Involving Directors, Officers and Affiliates

        During the years ended June 30, 2002, 2001 and 2000, the Company incurred management fees and out-of-pocket expenses in the amount of $1.1 million, $1.5 million and $2.5 million, respectively, relating to advisory services rendered by Equifin Capital Management, LLC ("Equifin"), a company whose three principal officers also serve as directors of the Company. In connection with phase one of the $50.0 million investment of Series D Stock in the Company by Capital Z during the year ended June 30, 2000, the Company paid an $800,000 transaction fee to Equifin. Such transaction fee was deducted from the capital proceeds received.

        During the years ended June 30, 2002, 2001 and 2000, the Company reimbursed Capital Z $24,000, $227,000 and $81,000, respectively, for out-of-pocket expenses. During the year ended June 30, 2000, the Company paid a $1.0 million fee to Capital Z for Capital Z's agreement to act as guarantor on a subline to one of the Company's revolving warehouse and repurchase facilities.

        During the year ended June 30, 2002, SFP entered into an agreement with certain existing bondholders of the Company's 5.5% Convertible Subordinated Debentures due March 2006 pursuant to which SFP subsequently acquired $41.6 million of such debentures of the Company.

        The Residual Facility with CZI is more fully discussed in Note 6.

        During the years ended June 30, 2002, 2001 and 2000, the Company funded $3.5 million, $1.4 million and $0.3 million, respectively, of mortgage loans for certain of its directors and officers. At June 30, 2002 and 2001, there were $0.5 million and $1.1 million of such mortgage loans, respectively, included in loans held for sale in the accompanying consolidated balance sheets pending disposition.

        During the years ended June 30, 2001 and 2000, certain members of management funded a portion of their acquisition of the Company's Series C Convertible Preferred Stock and Series D Convertible Preferred Stock through the execution of notes payable to the Company. Such notes are secured by the related Series C Convertible Preferred Stock and Series D Convertible Preferred Stock certificates, and also contain recourse provisions in the event of nonpayment by the officers. Aggregate principal and accrued interest receivable due the Company were $758,000 and $883,000 at June 30, 2002 and 2001, respectively.

F-30

        During the year ended June 30, 2000, the Company concluded severance arrangements with certain former members of management that had employment or severance agreements that provided for enhanced severance and other benefits upon a change in control, as defined in the agreements. The consolidated statement of operations for the year ended June 30, 2000 includes approximately $4.0 million of expense related to such settlements.

Note 17. Derivative Financial Instruments

Securitizations—Hedging Interest Rate Risk

        In the interim period between loan origination or purchase and securitization of loans, the Company is exposed to interest rate risk. The majority of loans are securitized within 90 days of origination or purchase. However, a portion of the loans are held for sale or securitization for as long as twelve months (or longer, in very limited circumstances) prior to securitization. If interest rates rise during the period that the mortgage loans are held, the spread between the weighted average interest rate on the loans to be securitized and the pass-through interest rates on the securities to be sold (the latter having increased as a result of market interest rate movements) may narrow. From time to time, the Company mitigates this exposure to rising interest rates through forward interest rate swap agreements or other hedging activities. These hedging activities help mitigate the risk of absolute movements in interest rates.

        At June 30, 2002 and 2001, the Company had $70.0 million and $25.0 million (notional), respectively, of forward interest rate swap agreements in place to mitigate interest rate exposure prior to the sale of its inventory and pipeline of fixed rate mortgage loans held for sale. Gain on sale of loans during the years ended June 30, 2002 and 2001 includes $10.8 million and $6.0 million, respectively, of derivative related losses. Of the $10.8 million of such charges during the year ended June 30, 2002, $10.4 million related to losses on forward interest rate swap agreements closed during the period and $0.4 million related to the Company's mark to the estimated fair value of forward interest rate swap agreements open at June 30, 2002, respectively. All of the $6.0 million of such charges during the year ended June 30, 2001 related to losses on forward interest rate swap agreements closed during the period.

Credit Risk

        The Company is exposed to on-balance sheet credit risk related to its loans held for sale and residual interests. The Company is exposed to off-balance sheet credit risk related to loans which the Company has committed to originate. In addition, the Company is exposed to off balance sheet credit risk related to mortgage loans in securitization trusts.

        The Company is a party to financial instruments with off-balance sheet credit risk in the normal course of business, including commitments to extend credit to borrowers. The Company has a first or second lien position on all of its loans, and the combined loan-to-value ratio ("CLTV") permitted by the Company's mortgage underwriting guidelines generally may not exceed 90%. In some cases, the Company originates loans up to 97% CLTV that are insured down to 67% CLTV with mortgage insurance. The CLTV represents the combined first and second mortgage balances as a percentage of the appraised value of the mortgaged property at the time of origination, with the appraised value determined by an appraiser with appropriate professional designations. A title insurance policy is required for all loans.

F-31

Note 18. Net Loss Per Common Share

        The following table sets forth information regarding net loss per common share for the years ended June 30, 2002, 2001 and 2000 (dollars and weighted average number of shares in thousands):

		Year Ended June 30,
		2002			2001			2000
Basic net loss per common share:
	Net income (loss)	$	4,546		$	(30,524	)	$	(122,372	)
	Plus: Accrued dividends on Series B, C and D Convertible       Preferred Stock		(13,788	)		(13,921	)		(8,126	)
Basic net loss to common shareholders			(9,242	)		(44,445	)		(130,498	)
	Plus: Interest on convertible subordinated debentures		—			—			—
Diluted net loss to common shareholders		$	(9,242	)	$	(44,445	)	$	(130,498	)
Basic weighted average number of common shares outstanding			6,394			6,251			6,209
Basic weighted average number of common shares outstanding			6,394			6,251			6,209
	Plus: Options		—			—			—
Convertible Shares			—			—			—
Diluted weighted average number of common shares outstanding			6,394			6,251			6,209
Net loss per common share:
	Basic	$	(1.45	)	$	(7.11	)	$	(21.02	)
	Diluted	$	(1.45	)	$	(7.11	)	$	(21.02	)

Note 19. Advertising Expense

        General and administrative expense during the years ended June 30, 2002, 2001 and 2000 included charges of $10.9 million, $9.0 million and $17.6 million of advertising expense, respectively.

Note 20. Quarterly Financial Data (Unaudited)

        A summary of unaudited quarterly operating results for the years ended June 30, 2002 and 2001 follows (in thousands, except per share amounts):

	Three Months Ended,
	Sept. 30			Dec. 31			Mar. 31			June 30
2002
Revenue	$	53,124		$	54,552		$	57,644		$	54,819
Income before income taxes		1,152			2,389			3,174			918
Net income		626			1,537			2,197			186
Net loss per common share — diluted		(0.59	)		(0.44	)		(0.35	)		(0.04	)
2001
Revenue	$	59,913		$	57,014		$	18,714		$	53,090
Income (loss) before income taxes		729			1,536			(32,317	)		1,417
Net income (loss)		693			1,011			(33,216	)		988
Net loss per common share — diluted		(0.40	)		(0.36	)		(5.88	)		(0.51	)

F-32

EXHIBIT INDEX

3.1	Certificate of Incorporation of Registrant, as amended (1)
3.2	Bylaws of Registrant, as amended (2)
4.1	Specimen certificate evidencing Common Stock of Registrant (1)
4.2	Specimen certificate evidencing Series B Convertible Preferred Stock of Registrant (1)
4.3	Certificate of Designations for Series B Convertible Preferred Stock of Registrant, as amended (3)
4.4	Specimen certificate evidencing Series C Convertible Preferred Stock of Registrant (1)
4.5	Certificate of Designations for Series C Convertible Preferred Stock of Registrant, as amended (3)
4.6	Specimen certificate evidencing Series D Convertible Preferred Stock of Registrant (1)
4.7	Certificate of Designations for Series D Convertible Preferred Stock of Registrant, as amended (3)
4.10	Indenture, dated as of February 26, 1996, between Registrant and The Chase Manhattan Bank, N.A., relating to Registrant's 5.5% Convertible Subordinated Debentures due 2006 (4)
4.11(a)	First Supplemental Indenture, dated as of October 21, 1996, between Registrant, The Chase Manhattan Bank and certain wholly owned subsidiaries of Registrant, relating to Registrant's 9.125% Senior Notes due 2003 (4)
4.11(b)	Second Supplemental Indenture, dated as of February 10, 1999, between Registrant, The Chase Manhattan Bank and certain wholly owned subsidiaries of Registrant, relating to Registrant's 9.125% Senior Notes due 2003 (5)
10.1	Form of Director and Officer Indemnification Agreement (6)
10.2	Employment Agreement between Registrant and A. Jay Meyerson (1)
10.3	Change in Control Agreement, dated as of April 23, 2001, between the Registrant and Ronald J. Nicolas, Jr. (7)
10.6(a)	Non-Financed Management Investment Agreement, dated as of August 23, 2000, between the Registrant and A. Jay Meyerson (1)
10.6(b)	Financed Management Investment Agreement, dated as of August 23, 2000, between the Registrant and A. Jay Meyerson (1)
10.6(c)	Secured Promissory Note, dated as of August 23, 2000, given by A. Jay Meyerson to the Registrant (1)
10.6(d)	Pledge Agreement, dated as of August 23, 2000, between the Registrant and A. Jay Meyerson (1)
10.8(a)	Management Investment Agreement, dated as of October 1, 1999, between the Registrant and Neil Notkin (1)
10.8(b)	Secured Promissory Note, dated as of October 1, 1999, given by Neil Notkin to the Registrant (1)
10.8(c)	Pledge Agreement, dated as of October 1, 1999, between the Registrant and Neil Notkin (1)

10.9(a)	Management Investment Agreement, dated as of October 1, 1999, between the Registrant and Geoffrey Sanders (1)
10.9(b)	Secured Promissory Note, dated as of October 1, 1999, given by Geoffrey Sanders to the Registrant (1)
10.9(c)	Pledge Agreement, dated as of October 1, 1999, between the Registrant and Geoffrey Sanders (1)
10.10(a)	Management Investment Agreement, dated as of October 1, 1999, between the Registrant and Daniel H. Relf
10.10(b)	Secured Promissory Note, dated as of October 1, 1999, given by Daniel H. Relf to the Registrant
10.10(c)	Pledge Agreement, dated as October 1, 1999, between Registrant and Daniel H. Relf
10.15	Amended and Restated 1999 Stock Option Plan (8)
10.16	Office Lease, dated as of September 15, 1998, between Colonnade Wilshire Corp. and the Registrant, for the premises located at 3731 Wilshire Boulevard, Los Angeles, California (2)
10.17(a)	Office Building Lease, dated as of August 7, 1996, between Registrant and California Plaza IIA, LLC, for the premises located at 350 S. Grand Avenue, Los Angeles, California (6)
10.17(b)	First Amendment, dated as of August 15, 1997, to Exhibit 10.17(a) (6)
10.18	Office Building Lease, dated as of September 13, 2002, between Registrant and Jamboree LLC, for the premises located at 3347 and 3351 Michelson Drive, Irvine, California
10.19(a)	Registration Rights Agreement, dated as of February 10, 2000, between the Registrant and Capital Z Financial Services Fund II, L.P. (9)
10.19(b)	Supplement No. 1, dated as of June 7, 2000, to Exhibit 10.19(a) (1)
10.20(a)	Preferred Stock Purchase Agreement, dated as of May 19, 2000, between the Registrant and Specialty Finance Partners (10)
10.20(b)	Letter Agreement, dated June 7, 2000, between the Registrant and Specialty Finance Partners regarding Exhibit 10.20(a) (11)
10.21(a)	Agreement for Management Advisory Services, dated as of February 10, 1999 between Registrant and Equifin Capital Management, LLC (12)
10.21(b)	Amendment No. 1, dated June 7, 2000, to Exhibit 10.21(a) (1)
10.28	Delinquency Advance Purchase Agreement, dated as of May 13, 1999, between ACC and Fairbanks Capital Corp. (2)
10.29	Sub-Servicing Agreement 1997-1, dated as of April 21, 1999, between ACC and Fairbanks Capital Corp. (2)
10.30	Sub-Servicing Agreement 1996-D, dated as of April 21, 1999, between ACC and Fairbanks Capital Corp. (2)
10.31(a)	Amended and Restated Master Loan and Security Agreement, dated as of November 16, 2001, between Aames Capital Corporation, Aames Funding Corporation and Morgan Stanley Mortgage Capital, Inc.
10.32(a)	First Amendment, dated as of June 21, 2001, to The Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans, dated as of December 1, 2000, between Aames Capital Corporation, Registrant's wholly owned subsidiary and Lehman Brothers Bank, FSB (7)

10.32(b)	Second Amendment, dated as of June 21, 2001, to The Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans, dated as of December 1, 2000, between Aames Capital Corporation, Registrant's wholly owned subsidiary and Lehman Brothers Bank, FSB (7)
10.32(c)	Third Amendment, dated as of July 31, 2002, to The Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans, dated as of December 1, 2000, between Aames Capital Corporation, Registrant's wholly owned subsidiary and Lehman Brothers Bank, FSB
10.32(d)	Guaranty, dated as of December 1, 2000, between Registrant and Lehman Brothers Bank, FSB
10.33(a)	Warehouse Loan and Security Agreement, dated as of February 10, 2000 as Amended and Restated to and including March 21, 2002, by and between Aames Capital Corporation, Aames Funding Corporation and Greenwich Capital Financial Products, Inc.
10.33(b)	Amendment No. 1, dated as of May 15, 2002, with respect to Exhibit 10.33(a)
10.33(c)	Guaranty, dated as of March 21, 2002, between Registrant and Greenwich Capital Financial Products, Inc., with respect to Exhibit 10.33(a)
10.34	Residual Forward Sale Facility, dated as of August 31, 2000, between Registrant and Capital Z Investments L.P. (1)
11	Computation of Per Share Loss
21	Subsidiaries of the Registrant (1)
23.1	Consent of Ernst & Young LLP
99.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)

Incorporated by reference from Registrants Annual Report on Form 10-K for the year ended June 30, 2000 and filed with the Commission on September 28, 2000

(2)

Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended June 30, 1999 and filed with the Commission on September 3, 1999

(3)

Included in Exhibit 3.1 hereto

(4)

Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and filed with the Commission on July 3, 1996

(5)

Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998 and filed with the Commission on February 22, 1999

(6)

Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended June 30, 1997 and filed with the Commission on September 29, 1997

(7)

Incorporated by reference from Registrant's Annual Report on Form 10-K for the year ended June 30, 2001 and filed with the Commission on September 28, 2001

(8)

Incorporated by reference from Registrant's Registration Statement on Form S-8 dated as of, and filed with the Commission on, September 15, 2000

(9)

Incorporated by reference to the Form of Warrant to Purchase Common Stock of the Registrant, filed as Exhibit F to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, dated as of December 23, 1998 and filed with the Commission on December 31, 1998

(10)

Incorporated by reference from Registrant's Current Report on Form 8-K dated as of May 19, 2000 and filed with the Commission on May 24, 2000

(11)

Incorporated by reference from Registrant's Current Report on Form 8-K dated as of June 7, 2000 and filed with the Commission on June 9, 2000

(12)

Incorporated by reference from Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and filed with the Commission on May 22, 2000

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PART I

Item 1. Business

LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2002
LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2001
LOAN ORIGINATIONS DURING THE YEAR ENDED JUNE 30, 2000

Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A . Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

PART III

Item 10. Directors and Executive Officers of Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

SIGNATURES
CERTIFICATIONS
REPORT OF INDEPENDENT AUDITORS
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
AAMES FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT INDEX

EX-10.10(A)

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Exhibit 10.10(a)

MANAGEMENT INVESTMENT AGREEMENT

        MANAGEMENT INVESTMENT AGREEMENT (this "Agreement") dated as of October 1, 1999, between Aames Financial Corporation, a Delaware corporation (the "Company"), and Daniel H. Relf, an individual residing at 123 S. Figueroa, #1716, Los Angeles, CA 90012 (the "Management Investor").

        WHEREAS, the Management Investor is a senior management employee of the Company; and

        WHEREAS, the Management Investor desires to purchase from the Company, and the Company desires to sell to the Management Investor, shares of the Company's Series C Convertible Preferred Stock, par value $0.001 per share ("Series C Preferred Stock)," under the terms and conditions set forth in this Agreement.

        NOW THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

        SECTION 1. Sale and Delivery.

        (a)  Upon the terms and subject to the conditions set forth herein, and in reliance upon the representations and warranties of the Management Investor hereinafter set forth, and for the purchase price described in Section 2(b), the Company shall issue, sell and deliver to the Management Investor, and the Management Investor shall purchase from the Company, 100,000 shares of Series C Preferred Stock (such shares of Series C Preferred Stock are referred to collectively herein as the "Shares") at the price per share equal to $1.00.

        (b)  The purchase price for the Shares purchased by the Management Investor shall be paid by delivery by the Management Investor to the Company of (i) $50,000 (the "Closing Payment") and (ii) a 6.5% recourse promissory note having an original principal amount equal to the total purchase price of the Shares minus the Closing Payment such amount (the "Note"), the form of which Note is attached hereto as Exhibit A.

        (c)  The purchase and sale of Shares shall occur at the time and place specified by the Company for such closing, which shall be not more than 60 days after the date hereof (the "Closing Date"), and at the closing of such purchase and sale of Shares:

          (i)  the Company shall deliver to the Management Investor certificates representing the Shares, duly endorsed for transfer, transferring to the Management Investor good and marketable title to such Shares, free and clear of all liens and encumbrances; and

        (ii)  the Management Investor shall deliver to the Company:

        (A)  the Closing Payment;

        (B)  the Note; and

        (C)  a pledge agreement (the "Pledge Agreement") substantially in the form attached hereto as Exhibit B, pursuant to which Pledge Agreement, among other things, the Management Investor's obligations under the Note shall be secured by a pledge of (i) the Shares, (ii) the shares of Common Stock that may be acquired upon conversion of the Shares (the "Underlying Common Shares"), and (iii) certain other collateral described therein.

        SECTION 2. Representations and Warranties of the Management Investor. The Management Investor hereby represents and warrants to the Company as follows:

        (a)  The Shares (and the Underlying Common Shares) to be purchased by such Management Investor will be acquired for investment for the Management Investor's own account and not with a view to the resale or distribution of any part thereof, except in compliance with the provisions of the Securities Act of 1933, as amended (the "Securities Act"), or an exemption therefrom, and in

compliance with the terms of this Agreement. The Management Investor is a senior management employee of the Company and is fully familiar with the business of the Company and with the risks associated with the purchase of the Shares pursuant to this Agreement. The Management Investor is an accredited investor as defined under Rule 501(a) under the Securities Act.

        (b)  The Management Investor understands that the Shares and the Underlying Common Shares are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such Shares (and the Underlying Common Shares) may be resold without registration under the Securities Act only in certain limited circumstances.

        (c)  The Management Investor further agrees that each certificate representing the Shares (and the Underlying Common Shares) shall be stamped or otherwise imprinted with a legend substantially in the following form:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH SECURITIES HAVE BEEN REGISTERED UNDER ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND TO THE OTHER TERMS SET FORTH IN THAT CERTAIN MANAGEMENT INVESTMENT AGREEMENT, DATED AS OF SEPTEMBER 29, 1999, AND BY A CERTAIN RELATED PLEDGE AGREEMENT, BETWEEN THE COMPANY AND                        , A COPY OF WHICH AGREEMENTS HAVE BEEN FILED WITH THE SECRETARY OF THE COMPANY AND ARE AVAILABLE UPON REQUEST."

        SECTION 3. Restrictions on Transfer of Shares. For a period commencing on the Closing Date and ending on the fifth anniversary of the Closing Date, the Management Investor may not sell, transfer, assign, pledge, hypothecate or otherwise dispose of (each, a "transfer") any of the Shares (or the Underlying Common Shares), without the prior express written consent of the Company, provided, however, that the foregoing restriction on transfer shall not apply (i) if Capital Z Financial Services Fund II. L.P. ("Capital Z") Beneficially Owns (as defined in the Purchase Agreement referred to below) less than (A) fifty percent (50%) of the number of shares of Senior Preferred Stock (as defined in the Purchase Agreement referred to below) purchased by Capital Z on the Initial Closing Date (as defined in the Purchase Agreement referred to below) (the "Original Preferred Shares") or (B) if any Original Preferred Shares shall thereafter have been converted into Common Stock, fifty percent (50%) of the sum of (x) the aggregate number of shares Common Stock owned by Capital Z as a result of such conversion(s) plus (y) the aggregate number of shares Common Stock into which any remaining Original Preferred Shares owned by Capital Z may be converted (determined without regard to any limitations on conversion of such shares prior to the Recapitalization (as defined in the Purchase Agreement referred to below)), in each case subject to adjustment for splits, combinations, reclassifications and similar events; (ii) if the Management Investor dies, retires, is terminated by the Company, or terminates his employment with the Company, subject to the provisions of Section 4 hereof; or (iii) a Change of Control (as defined in the New Option Plan (as such term is defined in the Purchase Agreement referred to below)) has occurred, but only if a Capital Z Realization Event (as defined in the New Option Plan) has also occurred on or prior to such Change of Control, and provided, further, that notwithstanding the foregoing restriction on transfer, the Management Investor may transfer, during the twelve-month period ending on the first anniversary of the Closing Date and during each succeeding twelve-month period, up to 25% of the total number of Underlying Common Shares (whether structured as a transfer of Shares, Underlying Shares or a combination thereof)

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acquired hereunder (subject to adjustment for splits, combinations, reclassifications and similar events), it being further agreed that the Management Investor may request the Company's Board of Directors to allow the Management Investor to transfer Shares (or Underlying Common Shares) in excess of the 25% limitation described in this proviso if extraordinary liquidity needs have arisen with respect to the Management Investor, and, in such event, the Company (through its Board of Directors) will consider such request in good faith and will not unreasonably withhold its consent to a waiver of such limitation. The "Purchase Agreement" referred to herein shall mean the Preferred Stock Purchase Agreement by and between the Company and Capital Z, dated as of December 23, 1998, as the same may be amended or modified.

        SECTION 4. Company's Option to Purchase Shares.

        (a)  In the event of the death or retirement from, or termination of employment for any reason with, the Company of the Management Investor (a "Termination Date"), the Company shall have the option, but not the obligation, to purchase all, or any portion, of the Shares (and any Underlying Common Shares that may have been acquired upon conversion of the Shares) then owned by the Management Investor at the Fair Market Value (as hereinafter defined) per Share and/or Underlying Common Share on the Business Day immediately prior to the date on which the Company exercises its option to purchase in accordance with the this Section 4. The Company may exercise the foregoing option at any time within 30 days after the Termination Date, by written notice to the Management Investor, or his legal representative in the case of death, stating a date and time for consummation of the purchase no less than 10 nor more than 30 days after giving of such notice. "Fair Market Value" per Share or per Underlying Common Share, as of any particular date, shall mean (a) in the case of a Share, the product obtained by multiplying (I) the Formula Number (as defined in the Certificate of Designations for the Series C Preferred Stock) in effect as of such date by (II) the Current Market Price (as defined in the Certificate of Designations for the Series C Preferred Stock) for the period of 15 consecutive Trading Days (as defined in the Certificate of Designations for the Series C Preferred Stock) prior to such date, or (b) in the case of an Underlying Share, the Current Market Price for the period of 15 consecutive Trading Days prior to such date.

        (b)  At the closing of the purchase of Shares (and any Underlying Common Shares) by the Company pursuant to Section 4(a), the Management Investor will deliver the Shares (and any Underlying Common Shares) to the Company against payment by the Company to the Management Investor of the purchase price for such Shares (and any Underlying Common Shares). Such purchase price shall be paid in cash, provided that if any principal or accrued but unpaid interest is then outstanding under the Note, the cash portion of the purchase price shall be reduced by the amount of such outstanding principal and accrued interest on the Note (with such reduction being applied first to any accrued interest and then to principal), and, if no principal or accrued interest is then remaining on the Note, the Note shall be canceled.

        SECTION 5. Further Assurances. The Management Investor shall, upon request of the Company, execute and deliver any additional documents and take such further actions as may reasonably be deemed by the Company to be necessary or desirable to carry out the provisions hereof.

        SECTION 6. Notices. All notices, requests, claims, demands and other communications under this Agreement shall be sufficiently given if sent by registered or certified mail, postage prepaid, or overnight air courier service, or telecopy or facsimile transmission (with hard copy to follow) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to the Company, to Aames Financial Corporation, 2 California Plaza, 350 South Grand Avenue, Los Angeles, California 90071, Attention: General Counsel, telecopy number (323) 210-5026; and (ii) if to the Management Investor, to the address set forth for the Management Investor in the preamble to this Agreement or by telecopy to                        .

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        SECTION 7. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

        SECTION 8. Counterparts; Effectiveness. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Company and the Management Investor and delivered to the Company and the Management Investor.

        SECTION 9. Entire Agreement. This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

        SECTION 10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to any applicable conflicts of law principles of such State.

        SECTION 11. Successors and Assigns. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties. Any assignment in violation of the foregoing shall be void.

        SECTION 12. Enforcement. Each party agrees that irreparable damage would occur and that the other party hereto would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that each party shall be entitled to an injunction or injunctions to prevent breaches by the other party hereto of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of Delaware or in Delaware State court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the State of Delaware or any Delaware State court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court sitting in the State of Delaware of in Delaware State court.

        SECTION 13. Severability. If any term or provision hereof, or the application thereof to any circumstance, shall, to any extent, be held by a court of competent jurisdiction to be invalid or unenforceable with respect to such jurisdiction, and only to such extent, and the remainder of the terms and provisions hereof, and the application thereof to any other circumstance, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law, and the parties hereto shall reasonably negotiate in good faith a substitute term or provision that comes as close as possible to the invalidated or unenforceable term or provision, and that puts each party in a position as nearly comparable as possible to the position each such party would have been in but for the finding of invalidity or unenforceability, while remaining valid and enforceable.

        SECTION 14. Amendment; Modification; Waiver. No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party.

        SECTION 15. Expenses. The Company and the Management Investor shall each bear their own legal fees and other costs and expenses with respect to the negotiation, execution and delivery of this Agreement and consummation of the transactions contemplated hereby.

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        IN WITNESS WHEREOF, the Company and the Management Investor have caused this Agreement to be duly executed and delivered as of the date first written above.

AAMES FINANCIAL CORPORATION

By:

Name:
Title:

MANAGEMENT INVESTOR:

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EXHIBIT A TO MANAGEMENT INVESTMENT AGREEMENT
FORM OF SECURED PROMISSORY NOTE

$ , 1999

        FOR VALUE RECEIVED,                        (the "Maker"), hereby promises to pay to the order of Aames Financial Corporation, a Delaware corporation ("Aames"), 2 California Plaza, 350 South Grand Avenue, Los Angeles, CA 90071 or such address as Aames shall have given to the Maker, the principal sum of            DOLLARS and 00/100 ($            ), plus interest, which shall accrue from the date hereof, on the unpaid principal balance of this Note at such address, at the rate of 6.5% per annum (computed on the basis of a 360-day year) until the principal amount hereof has been repaid in full, on            , 2004.

        The Maker shall have the option to prepay the principal amount and accrued interest on this Note, in whole or in part, at any time, without payment of premium or penalty. During the period in which this Note is outstanding, the Maker shall make an annual mandatory prepayment against the outstanding principal balance of, and accrued interest on, this Note an amount equal to 25% of the aggregate cash bonuses (if any) paid to Maker in respect of the fiscal year ended immediately prior to such payment date, net of income taxes payable thereon, such payments to be made within two business days after receipt of the cash bonus paid at the end of such fiscal year and to be applied first, against any accrued and unpaid interest on this Note and then, to the outstanding principal balance of this Note. In addition, upon receipt by the Maker of any proceeds from the transfer of the securities pledged under the Pledge Agreement (as defined below) or dividends, interest payments or other distributions of cash in respect of such pledged securities, the Maker shall make an immediate prepayment in respect of the Note in an amount equal to the after tax amount of such proceeds, dividends, payments or distributions, with such prepayments to be applied first to the payment of all interest accrued on, and then to the payment of unpaid principal of, this Note.

        Payments of principal and interest shall be made in such currency of the United States as at the time of payment shall be legal tender for the payment of public and private debts.

        Aames and the Maker have entered into a pledge agreement dated the date hereof (the "Pledge Agreement") providing, among other things, for the securing of this Note by a pledge of the Pledged Collateral (as defined in the Pledge Agreement).

        If any of the following events (each, an "Event of Default") shall occur:

        (a)  the Maker shall default in the payment of any part of the principal or interest on this Note when the same shall become due and payable, whether at maturity, by acceleration or otherwise and such default continues for more than 10 days after receipt of notice from Aames;

        (b)  the Maker's employment with Aames shall have ceased for any reason whatsoever or for no reason, whether such cessation is voluntary or involuntary, and regardless of whether the Maker may claim such cessation of employment constitutes a wrongful termination of employment;

        (c)  the Maker shall (i) become insolvent or be unable, or admit in writing his inability, to pay his debts as they mature; (ii) make a general assignment for the benefit of creditors; (iii) be adjudicated as bankrupt or insolvent or file a voluntary petition in bankruptcy; (iv) file a petition or an answer seeking an arrangement with creditors to take advantage of any insolvency law; or (v) file an answer admitting to the material obligations or consent to, or default in answering, or fail to have dismissed within 60 days after the filing thereof, a petition filed against him in any bankruptcy or insolvency proceeding; or

        (d)  any breach of the Maker's obligations under the Pledge Agreement shall have occurred and be continuing or any representation or warranty made thereunder shall be false in any material respect,

        then, the holder of this Note may at any time by written notice to the Maker, declare the entire unpaid principal of and the interest accrued on this Note through the date of such Event of Default to be forthwith due and payable, without other notices or demands of any kind, all of which are hereby waived by the Maker.

        The Maker agrees to pay to the holder hereof all expenses incurred by such holder, including reasonable attorneys' fees, in enforcing and collecting this Note.

        The Maker hereby forever waives presentment, demand, presentment for payment, protest, notice of protest, notice of dishonor of this Note and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note.

        This Note shall be paid without deduction by reason of any set-off, defense or counterclaim of the Maker.

        This Note shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to conflicts of law principles thereof, shall be binding upon the heirs or legal representatives of the Maker and shall inure to the benefits of the successors and assigns of Aames.

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EXHIBIT B TO
MANAGEMENT INVESTMENT AGREEMENT

FORM OF PLEDGE AGREEMENT

        PLEDGE AGREEMENT ("Agreement"), dated as of            , 1999, made by                        , an individual residing at                        (the "Pledgor"), to Aames Financial Corporation, a Delaware corporation ("Aames").

        WHEREAS, on the date hereof, the Pledgor is purchasing shares of Aames' Series C Convertible Preferred Stock, par value $0.001 per share ("Series C Preferred Stock"), pursuant to a Management Investment Agreement, dated the date hereof, between Pledgor and Aames (the "Management Investment Agreement"); and

        WHEREAS, as part of the transactions contemplated by the Management Investment Agreement, the Pledgor is executing and delivering to Aames a Secured Promissory Note dated as of the date hereof in favor of Aames (the "Aames Note") as part of the purchase price for the Series C Preferred Stock, and (ii) in accordance with the terms and conditions set forth herein, pledge the Series C Preferred Stock, together with any shares of Aames' common stock, par value $0.001 per share that may be acquired upon conversion of the Series C Preferred Stock (the "Underlying Common Shares", and, together with the shares of Series C Preferred Stock, the "Pledged Shares").

        NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and in order to induce Aames to accept the Aames Note, the Pledgor hereby agrees as follows:

        SECTION 1. Pledge. The Pledgor hereby pledges to Aames, and grants to Aames a security interest in, the following (the "Pledged Collateral"):

          (i)  the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property of any character whatsoever (including, without limitation, shares of Common Stock) from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares; and

        (ii)  all proceeds of any and all of the foregoing collateral (including, without limitation, proceeds that constitute property of the types described above).

        SECTION 2. Security for Obligations. This Agreement secures the payment of all obligations, whether for principal, interest, fees, expenses or otherwise, now or hereafter existing, of the Pledgor under the Aames Note and under this Agreement (all such obligations of the Pledgor being the "Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by the Pledgor to Aames under the Aames Note or this Agreement but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Pledgor.

        SECTION 3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Aames pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Aames. Aames shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to have registered in the name of Aames or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a). For the better perfection of Aames's rights in and to the Pledged Collateral, the Pledgor shall forthwith, upon the pledge of any Pledged Collateral hereunder, cause such Pledged Collateral to be registered in the name of Aames or such nominee or nominees of Aames as Aames shall direct, subject only to the revocable rights specified in Section 6(a). In addition, Aames shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations.

        SECTION 4. Representations and Warranties. The Pledgor represents and warrants as follows:

        (a)  Neither the execution nor the delivery by the Pledgor of this Agreement nor the consummation by the Pledgor of the transactions contemplated hereby, nor compliance with nor fulfillment by the Pledgor of the terms and provisions hereof, will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any lease, contract, instrument, mortgage, deed of trust, trust deed or deed to secure debt evidencing or securing indebtedness for borrowed money, financing lease, law, rule, regulation, judgment, order, award, decree or other restriction of any kind to which the Pledgor is a party or by which he is bound.

        (b)  This Agreement has been duly executed and delivered by the Pledgor and is the legal, valid and binding obligation of the Pledgor, enforceable against the Pledgor in accordance with its terms.

        (c)  There is no action, lawsuit, claim, counterclaim, proceeding, or investigation (or group of related actions, lawsuits, claims, proceedings or investigations) pending or, to the knowledge of the Pledgor, threatened, relating to or challenging the Pledgor's obligations under this Agreement or the pledge of the Pledged Collateral hereunder.

        (d)  The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement.

        (e)  The pledge of the Pledged Shares pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations.

        (f)    No consent of any other person or entity and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest) or (iii) for the exercise by Aames of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with any disposition of any portion of the Pledged Collateral by laws affecting the offering and sale of securities generally).

        (g)  There are no conditions precedent to the effectiveness of the Pledgor's obligations under this Agreement that have not been satisfied or waived.

        SECTION 5. Further Assurances. (a) The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Aames may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Aames to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral.

        (b)  The Pledgor hereby authorizes Aames to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Pledged Collateral without the signature of the Pledgor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Pledged Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

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        SECTION 6. Voting Rights; Dividends, Etc. (a) so long as no Event of Default (as defined in the Aames Note) or event which, with the giving of notice or the lapse of time, or both, would become such an Event of Default shall have occurred and be continuing:

          (i)  The Pledgor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Aames Note; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if, in Aames's judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof.

        (ii)  The Pledgor shall be entitled to any and all dividends paid in respect of the Pledged Collateral; provided, however, that any and all dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Collateral, shall be, and shall be forthwith delivered to Aames to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of Aames, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to Aames as Pledged Collateral in the same form as so received (with any necessary endorsement or assignment); and provided, further, that the after tax amount of any cash dividends, proceeds, or other distributions paid in respect of the Pledged Collateral shall be applied as an immediate prepayment in respect of the Aames Note, with such prepayments to be applied first to the payment of all interest accrued on, and then to the payment of unpaid principal of, the Aames Note.

        (iii)  Aames shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends which it is authorized to receive and retain pursuant to paragraph (ii) above.

        (b)  Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default:

          (i)  All rights of the Pledgor (x) to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) shall, upon notice to the Pledgor by Aames, cease and (y) to receive the dividends payments which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in Aames (or its designee), who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends.

        (ii)  All dividends which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of Aames, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to Aames as Pledged Collateral in the same form as so received (with any necessary endorsement).

        SECTION 7. Transfers and Other Liens. The Pledgor agrees that it will not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral or (ii) create or permit to exist any lien, security interest, option or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement and except for any such sale the proceeds from which are used to repay all unpaid principal of, and accrued interest on, the Aames Note (with such proceeds first being applied to accrued interest and then to principal).

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        SECTION 8. Appointment of Attorney-in-Fact. The Pledgor hereby appoints [            ] the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in Aames's discretion to take any action and to execute any instrument that Aames may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Pledgor under Section 6), including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same.

        SECTION 9. Aames May Perform. If the Pledgor fails to perform any agreement contained herein and does not cure such failure within 10 days after its receipt of written notice from Aames, Aames may itself perform, or cause performance of, such agreement, and the expenses of Aames incurred in connection therewith shall be payable by the Pledgor under Section 12.

        SECTION 10. Aames' Duties. The powers conferred on Aames hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Aames shall have no duty as to any Pledged Collateral as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Aames has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Pledged Collateral. Aames shall be deemed to have exercised reasonable care in the custody and preservation of any Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which Aames accords its own property.

        SECTION 11. Remedies upon Default. If any Event of Default shall have occurred and be continuing:

        (a)  Aames may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code in effect in the State of Delaware at that time (the "Code") (whether or not the Code applies to the affected Collateral), and may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Aames may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Aames shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Aames may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

        (b)  Any cash held by Aames as Pledged Collateral and all cash proceeds received by Aames in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral may, in the discretion of Aames, be held by Aames as collateral for, and/or then or at any time thereafter be applied (after payment of any amounts payable to Aames pursuant to Section 12) in whole or in part by Aames against, all or any part of the Obligations in such order as Aames shall elect. Any surplus of such cash or cash proceeds held by Aames and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus.

        SECTION 12. Expenses. The Pledgor will upon demand pay to Aames the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which Aames may incur in connection with (i) the exercise or enforcement of any of the rights

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of Aames hereunder or (ii) the failure by the Pledgor to perform or observe any of the provisions hereof.

        SECTION 13. Security Interest Absolute. The obligations of the Pledgor under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Pledgor to enforce this Agreement. All rights of Aames and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of:

          (i)  any lack of validity or enforceability of the Aames Note any other agreement or instrument relating thereto;

        (ii)  any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations, or any other amendment or waiver of or any consent to any departure from the Aames Note;

        (iii)  any taking, exchange, release or nonperfection of any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations;

        (iv)  any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any of the Obligations or any other assets of the Pledgor;

        (v)  any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor.

        SECTION 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and no consent to any departure by one party herefrom, shall in any event be effective unless the same shall be in writing and signed by the other party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        SECTION 15. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and sent by express courier, telecopied, telegraphed, telexed or hand-delivered, if to the Pledgor, at his address first set forth above; and, if to Aames, at its address at 2 California Plaza, 350 South Grand Avenue, Los Angeles, CA 90071, Attention: Cary Thompson; or, as to each party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall, when sent by express courier, be effective three days after being sent, when telecopied, telegraphed, telexed or hand-delivered, be effective when telecopied, delivered to the telegraph company, confirmed by telex answerback or delivered, respectively.

        SECTION 16. Continuing Security Interest; Assignments Under Aames Note. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the payment in full of the Obligations and all other amounts payable under this Agreement, (ii) be binding upon the Pledgor, its successors and assigns and (iii) inure to the benefit of, and be enforceable by, Aames and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), Aames may assign or otherwise transfer all or any portion of its rights and obligations under the Aames Note to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to Aames herein or otherwise. Upon the payment in full of the Obligations and all other amounts payable under this Agreement, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to the Pledgor. Upon any such termination, Aames will, at the Pledgor's expense, return to the Pledgor such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms

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hereof and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination.

        SECTION 17. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF DELAWARE. Unless otherwise defined herein or in the Aames Note, terms defined in Article 9 of the Code are used herein as therein defined.

        IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

ACKNOWLEDGED AND AGREED:
AAMES FINANCIAL CORPORATION
By:
	Name: Title:

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Exhibit 10.10(a)

MANAGEMENT INVESTMENT AGREEMENT
EXHIBIT A TO MANAGEMENT INVESTMENT AGREEMENT FORM OF SECURED PROMISSORY NOTE
EXHIBIT B TO MANAGEMENT INVESTMENT AGREEMENT
FORM OF PLEDGE AGREEMENT

EX-10.10(B)

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Exhibit 10.10(b)

SECURED PROMISSORY NOTE

$50,000 October 1, 1999

        FOR VALUE RECEIVED, Daniel H. Relf (the "Maker"), hereby promises to pay to the order of Aames Financial Corporation, a Delaware corporation ("Aames"), 2 California Plaza, 350 South Grand Avenue, Los Angeles, CA 90071 or such address as Aames shall have given to the Maker, the principal sum of FIFTY THOUSAND DOLLARS and 00/100 ($50,000), plus interest, which shall accrue from the date hereof, on the unpaid principal balance of this Note at such address, at the rate of 6.5% per annum (computed on the basis of a 360-day year) until the principal amount hereof has been repaid in full, on October 1, 2004.

        The Maker shall have the option to prepay the principal amount and accrued interest on this Note, in whole or in part, at any time, without payment of premium or penalty. During the period in which this Note is outstanding, the Maker shall make an annual mandatory prepayment against the outstanding principal balance of, and accrued interest on, this Note an amount equal to 25% of the aggregate cash bonuses (if any) paid to Maker in respect of the fiscal year ended immediately prior to such payment date, net of income taxes payable thereon, such payments to be made within two business days after receipt of the cash bonus paid at the end of such fiscal year and to be applied first, against any accrued and unpaid interest on this Note and then, to the outstanding principal balance of this Note. In addition, upon receipt by the Maker of any proceeds from the transfer of the securities pledged under the Pledge Agreement (as defined below) or dividends, interest payments or other distributions of cash in respect of such pledged securities, the Maker shall make an immediate prepayment in respect of the Note in an amount equal to the after tax amount of such proceeds, dividends, payments or distributions, with such prepayments to be applied first to the payment of all interest accrued on, and then to the payment of unpaid principal of, this Note.

        Payments of principal and interest shall be made in such currency of the United States as at the time of payment shall be legal tender for the payment of public and private debts.

        Aames and the Maker have entered into a pledge agreement dated the date hereof (the "Pledge Agreement") providing, among other things, for the securing of this Note by a pledge of the Pledged Collateral (as defined in the Pledge Agreement).

        If any of the following events (each, an "Event of Default") shall occur:

        (a)  the Maker shall default in the payment of any part of the principal or interest on this Note when the same shall become due and payable, whether at maturity, by acceleration or otherwise and such default continues for more than 10 days after receipt of notice from Aames;

        (b)  the Maker's employment with Aames shall have ceased for any reason whatsoever or for no reason, whether such cessation is voluntary or involuntary, and regardless of whether the Maker may claim such cessation of employment constitutes a wrongful termination of employment;

        (c)  the Maker shall (i) become insolvent or be unable, or admit in writing his inability, to pay his debts as they mature; (ii) make a general assignment for the benefit of creditors; (iii) be adjudicated as bankrupt or insolvent or file a voluntary petition in bankruptcy; (iv) file a petition or an answer seeking an arrangement with creditors to take advantage of any insolvency law; or (v) file an answer admitting to the material obligations or consent to, or default in answering, or fail to have dismissed within 60 days after the filing thereof, a petition filed against him in any bankruptcy or insolvency proceeding; or

        (d)  any breach of the Maker's obligations under the Pledge Agreement shall have occurred and be continuing or any representation or warranty made thereunder shall be false in any material respect,

        then, the holder of this Note may at any time by written notice to the Maker, declare the entire unpaid principal of and the interest accrued on this Note through the date of such Event of Default to

be forthwith due and payable, without other notices or demands of any kind, all of which are hereby waived by the Maker.

        The Maker agrees to pay to the holder hereof all expenses incurred by such holder, including reasonable attorneys' fees, in enforcing and collecting this Note.

        The Maker hereby forever waives presentment, demand, presentment for payment, protest, notice of protest, notice of dishonor of this Note and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note.

        This Note shall be paid without deduction by reason of any set-off, defense or counterclaim of the Maker.

        This Note shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles thereof, shall be binding upon the heirs or legal representatives of the Maker and shall inure to the benefits of the successors and assigns of Aames.

Daniel H. Relf

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Exhibit 10.10(b)

SECURED PROMISSORY NOTE

EX-10.10(C)

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EXHIBIT 10.10(c)

PLEDGE AGREEMENT

        PLEDGE AGREEMENT ("Agreement"), dated as of October 1, 1999, made by Daniel H. Relf, an individual residing at 123 S. Figueroa, #1716, Los Angeles, CA 90012 (the "Pledgor"), to Aames Financial Corporation, a Delaware corporation ("Aames").

        WHEREAS, on the date hereof, the Pledgor is purchasing shares of Aames' Series C Convertible Preferred Stock, par value $0.001 per share ("Series C Preferred Stock"), pursuant to a Management Investment Agreement, dated the date hereof, between Pledgor and Aames (the "Management Investment Agreement"); and

        WHEREAS, as part of the transactions contemplated by the Management Investment Agreement, the Pledgor is executing and delivering to Aames a Secured Promissory Note dated as of the date hereof in favor of Aames (the "Aames Note") as part of the purchase price for the Series C Preferred Stock, and in accordance with the terms and conditions set forth herein, pledging the Series C Preferred Stock, together with any shares of Aames' common stock, par value $0.001 per share that may be acquired upon conversion of the Series C Preferred Stock (the "Underlying Common Shares", and, together with the shares of Series C Preferred Stock, the "Pledged Shares").

        NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and in order to induce Aames to accept the Aames Note, the Pledgor hereby agrees as follows:

        SECTION 1. Pledge. The Pledgor hereby pledges to Aames, and grants to Aames a security interest in, the following (the "Pledged Collateral"):

        (i)    the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property of any character whatsoever (including, without limitation, shares of Common Stock) from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of the Pledged Shares; and

        (ii)  all proceeds of any and all of the foregoing collateral (including, without limitation, proceeds that constitute property of the types described above).

        SECTION 2. Security for Obligations. This Agreement secures the payment of all obligations, whether for principal, interest, fees, expenses or otherwise, now or hereafter existing, of the Pledgor under the Aames Note and under this Agreement (all such obligations of the Pledgor being the "Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Obligations and would be owed by the Pledgor to Aames under the Aames Note or this Agreement but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Pledgor.

        SECTION 3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Aames pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Aames. Aames shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to have registered in the name of Aames or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a). For the better perfection of Aames's rights in and to the Pledged Collateral, the Pledgor shall forthwith, upon the pledge of any Pledged Collateral hereunder, cause such Pledged Collateral to be registered in the name of Aames or such nominee or nominees of Aames as Aames shall direct, subject only to the revocable rights specified in Section 6(a).

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In addition, Aames shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations.

        SECTION 4. Representations and Warranties. The Pledgor represents and warrants as follows:

        (a)  Neither the execution nor the delivery by the Pledgor of this Agreement nor the consummation by the Pledgor of the transactions contemplated hereby, nor compliance with nor fulfillment by the Pledgor of the terms and provisions hereof, will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any lease, contract, instrument, mortgage, deed of trust, trust deed or deed to secure debt evidencing or securing indebtedness for borrowed money, financing lease, law, rule, regulation, judgment, order, award, decree or other restriction of any kind to which the Pledgor is a party or by which he is bound.

        (b)  This Agreement has been duly executed and delivered by the Pledgor and is the legal, valid and binding obligation of the Pledgor, enforceable against the Pledgor in accordance with its terms.

        (c)  There is no action, lawsuit, claim, counterclaim, proceeding, or investigation (or group of related actions, lawsuits, claims, proceedings or investigations) pending or, to the knowledge of the Pledgor, threatened, relating to or challenging the Pledgor's obligations under this Agreement or the pledge of the Pledged Collateral hereunder.

        (d)  The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement.

        (e)  The pledge of the Pledged Shares pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations.

        (f)    No consent of any other person or entity and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest) or (iii) for the exercise by Aames of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with any disposition of any portion of the Pledged Collateral by laws affecting the offering and sale of securities generally).

        (g)  There are no conditions precedent to the effectiveness of the Pledgor's obligations under this Agreement that have not been satisfied or waived.

        SECTION 5. Further Assurances. (a) The Pledgor agrees that at any time and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Aames may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Aames to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral.

        (b)  The Pledgor hereby authorizes Aames to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Pledged Collateral without the signature of the Pledgor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Pledged Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

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        SECTION 6. Voting Rights; Dividends, Etc. (a) so long as no Event of Default (as defined in the Aames Note) or event which, with the giving of notice or the lapse of time, or both, would become such an Event of Default shall have occurred and be continuing:

        (i)    The Pledgor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Aames Note; provided, however, that the Pledgor shall not exercise or refrain from exercising any such right if, in Aames's judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof.

        (ii)  The Pledgor shall be entitled to any and all dividends paid in respect of the Pledged Collateral; provided, however, that any and all dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Collateral, shall be, and shall be forthwith delivered to Aames to hold as, Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of Aames, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to Aames as Pledged Collateral in the same form as so received (with any necessary endorsement or assignment); and provided, further, that the after tax amount of any cash dividends, proceeds, or other distributions paid in respect of the Pledged Collateral shall be applied as an immediate prepayment in respect of the Aames Note, with such prepayments to be applied first to the payment of all interest accrued on, and then to the payment of unpaid principal of, the Aames Note.

        (iii)  Aames shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends which it is authorized to receive and retain pursuant to paragraph (ii) above.

        (b)  Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default:

        (i)    All rights of the Pledgor (x) to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) shall, upon notice to the Pledgor by Aames, cease and (y) to receive the dividends payments which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in Aames (or its designee), who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends.

        (ii)  All dividends which are received by the Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) shall be received in trust for the benefit of Aames, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to Aames as Pledged Collateral in the same form as so received (with any necessary endorsement).

        SECTION 7. Transfers and Other Liens. The Pledgor agrees that it will not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral or (ii) create or permit to exist any lien, security interest, option or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement and except for any such sale the proceeds from which are used to repay all unpaid principal of, and accrued interest on, the Aames Note (with such proceeds first being applied to accrued interest and then to principal).

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        SECTION 8. Appointment of Attorney-in-Fact. The Pledgor hereby appoints Aames Financial Corporation the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in Aames's discretion to take any action and to execute any instrument that Aames may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Pledgor under Section 6), including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same.

        SECTION 9. Aames May Perform. If the Pledgor fails to perform any agreement contained herein and does not cure such failure within 10 days after its receipt of written notice from Aames, Aames may itself perform, or cause performance of, such agreement, and the expenses of Aames incurred in connection therewith shall be payable by the Pledgor under Section 12.

        SECTION 10. Aames' Duties. The powers conferred on Aames hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Aames shall have no duty as to any Pledged Collateral as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Aames has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Pledged Collateral. Aames shall be deemed to have exercised reasonable care in the custody and preservation of any Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which Aames accords its own property.

        SECTION 11. Remedies upon Default. If any Event of Default shall have occurred and be continuing:

        (a)  Aames may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code in effect in the State of Delaware at that time (the "Code") (whether or not the Code applies to the affected Collateral), and may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Aames may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Aames shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Aames may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

        (b)  Any cash held by Aames as Pledged Collateral and all cash proceeds received by Aames in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral may, in the discretion of Aames, be held by Aames as collateral for, and/or then or at any time thereafter be applied (after payment of any amounts payable to Aames pursuant to Section 12) in whole or in part by Aames against, all or any part of the Obligations in such order as Aames shall elect. Any surplus of such cash or cash proceeds held by Aames and remaining after payment in full of all the Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus.

        SECTION 12. Expenses. The Pledgor will upon demand pay to Aames the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and

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agents, which Aames may incur in connection with (i) the exercise or enforcement of any of the rights of Aames hereunder or (ii) the failure by the Pledgor to perform or observe any of the provisions hereof.

        SECTION 13. Security Interest Absolute. The obligations of the Pledgor under this Agreement are independent of the Obligations, and a separate action or actions may be brought and prosecuted against the Pledgor to enforce this Agreement. All rights of Aames and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of:

        (i)    any lack of validity or enforceability of the Aames Note any other agreement or instrument relating thereto;

        (ii)  any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations, or any other amendment or waiver of or any consent to any departure from the Aames Note;

        (iii)  any taking, exchange, release or nonperfection of any other collateral, or any taking, release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations;

        (iv)  any manner of application of collateral, or proceeds thereof, to all or any of the Obligations, or any manner of sale or other disposition of any collateral for all or any of the Obligations or any other assets of the Pledgor;

        (v)  any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor.

        SECTION 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by the parties hereto, and no consent to any departure by one party herefrom, shall in any event be effective unless the same shall be in writing and signed by the other party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        SECTION 15. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier, telegraphic or telex communication) and sent by express courier, telecopied, telegraphed, telexed or hand-delivered, if to the Pledgor, at his address first set forth above; and, if to Aames, at its address at 2 California Plaza, 350 South Grand Avenue, Los Angeles, CA 90071, Attention: Cary Thompson; or, as to each party, at such other address as shall be designated by such party in a written notice to the other party. All such notices and communications shall, when sent by express courier, be effective three days after being sent, when telecopied, telegraphed, telexed or hand-delivered, be effective when telecopied, delivered to the telegraph company, confirmed by telex answerback or delivered, respectively.

        SECTION 16. Continuing Security Interest; Assignments Under Aames Note. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until the payment in full of the Obligations and all other amounts payable under this Agreement, (ii) be binding upon the Pledgor, its successors and assigns and (iii) inure to the benefit of, and be enforceable by, Aames and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), Aames may assign or otherwise transfer all or any portion of its rights and obligations under the Aames Note to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to Aames herein or otherwise. Upon the payment in full of the Obligations and all other amounts payable under this Agreement, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to the Pledgor. Upon any such termination, Aames will, at the Pledgor's expense, return to the Pledgor such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms

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hereof and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination.

        SECTION 17. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF DELAWARE. Unless otherwise defined herein or in the Aames Note, terms defined in Article 9 of the Code are used herein as therein defined.

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        IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written.

Pledgor

ACKNOWLEDGED AND AGREED:

AAMES FINANCIAL CORPORATION

By:
	Name:    Barbara S. Polsky Title: Executive Vice President

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EXHIBIT 10.10(c)

PLEDGE AGREEMENT

EX-10.18

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AGREEMENT OF LEASE

BETWEEN

JAMBOREE LLC,

LANDLORD

AND

AAMES FINANCIAL CORPORATION,

TENANT

BASIC LEASE INFORMATION

PARK PLACE LEASE

        1.    Lease Date:    As of September     , 2002.

        2.    Landlord:    Jamboree LLC, a Delaware limited liability company

        3.    Address of Landlord:

3333 Michelson Drive, Suite 210
Irvine, California 92612
Attention:  Ms. Janine R. Padia

        4.    Tenant:    Aames Financial Corporation, Inc., a Delaware corporation.

        5.    Address of Tenant:

Aames Financial Corporation
350 South Grand Avenue, 43^rd Floor
Los Angeles, California 90071
Attention:  Audry A. Patterson

        6.    Premises:    collectively (a) Suite 300, deemed to contain approximately 46,911 rentable square feet and 41,885 usable square feet located on the third (3rd) floor of the building at 3347 Michelson Drive, Irvine, California as depicted on Exhibit B-1 attached hereto and incorporated herein by reference and (b) Suite 100, deemed to contain approximately 46,337 rentable square feet and 41,372 usable square feet located on the first (1^st) floor of the building at 3351 Michelson Drive, Irvine, California as depicted on Exhibit B-2 attached hereto and incorporated herein by reference, on the land described on Exhibit A attached hereto an made a part hereof and on the land depicted on the site plan attached hereto as Exhibit A-1 and incorporated herein by reference, and subject to adjustment as provided in the Lease.

        7.    Scheduled Term Commencement Date:    January 1, 2003

        8.    Scheduled Length of Term:    approximately seventy-one (71) months

        9.    Scheduled Term Expiration Date:    November 30, 2008

        10.  Basic Rent:    The Basic Rent shall be paid according to the following schedule, based upon 93,248 rentable square feet of space deemed to be in the Premises:

        (a)  for the period commencing on the Term Commencement Date through and including January 31, 2006, Two Million Fourteen Thousand One Hundred Fifty-Six and 80/100 ($2,014,156.80) Dollars per annum, payable in equal monthly installments of One Hundred Sixty-Seven Thousand Eight Hundred Forty-Six and 40/100 ($167,846.40) Dollars each; and

        (b)  for the period commencing on February 1, 2006 through and including the Term Expiration Date, Two Million One Hundred Twenty-Six Thousand Fifty-Four and 40/100 ($2,126,054.40) Dollars per annum, payable in equal monthly installments of One Hundred Seventy-Seven Thousand One Hundred Seventy-One and 20/100 ($177,171.20) Dollars each.

Basic Rent shall be payable in equal monthly installments, in advance, on the first day of each and every calendar month during the term of this Lease without any set-off or deduction whatsoever. Notwithstanding the foregoing, so long as this Lease is in full force and effect and Tenant is not in default under this Lease, Tenant shall be entitled to a credit against the Basic Rent for the months of August, September, October and November 2008 in the aggregate amount of Seven Hundred Eight Thousand Six Hundred Eighty-Four and 80/100 ($708,684.80) Dollars, which credit shall be applied against the Basic Rent in four (4) equal monthly installments of One Hundred Seventy-Seven Thousand One Hundred Seventy-One and 20/100 ($177,171.20) Dollars each.

        11.  Rent Commencement Date:    January 1, 2003

        12.  Base Year:    calendar year 2003

        13.  Tenant's Operating Expenses:    Tenant shall pay as additional rent in each calendar year of the Term, the difference between (a) the actual amount of Tenant's Share of Operating Expenses for the subject calendar year, and (b) the actual amount of Tenant's Share of Operating Expenses for the Base Year (the "Base Year Operating Expenses"). The difference between (a) and (b) is referred to in this Lease as "Tenant's Operating Expenses." Tenant shall pay monthly installments of Tenant's Operating Expenses as provided in Article XXV.

        14.  Tenant's Share:    Five and fifty-five hundredths percent (5.55%).

        15.  Permitted Use:    General Offices, provided that Landlord acknowledges that in addition to office/administrative use, Tenant may use the Premises for processing loan applications, which use will involve substantial traffic of brokers, couriers and borrowers provided, however, in no event shall Tenant use or permit the Premises to be used for a use which constitutes an "off the street" retail use, unless Tenant shall pay Landlord (or as Landlord may otherwise direct), within fifteen (15) days following demand therefor, all legal compliance and other costs related thereto.

        16.  Security Deposit:    $228,027.10, subject to reduction as provided in Section 4.03.

        17.  Parking Spaces:    collectively up to 445 non-exclusive non-reserved, surface parking spaces (not within a parking structure) and up to twenty-seven (27) reserved surface parking spaces (not within a parking structure), subject to the terms of Article XXXIII.

        18.  Intentionally Deleted.

        19.  Brokers:    Cushman & Wakefield of California and Winthrop West Coast Realty Services, Inc.

        The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above set forth and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and this Lease, the provisions of the Lease shall control.

INITIAL:
LANDLORD	TENANT

PARK PLACE OFFICE LEASE

        THIS LEASE ("Lease") is made as of this            day of September, 2002, between Jamboree LLC, a Delaware limited liability company ("Landlord"), and Aames Financial Corporation, a Delaware corporation ("Tenant").

R E C I T A L S:

        A.    Landlord is the owner of a complex of buildings and improvements known by street numbers as 3333-3355 Michelson Drive in the City of Irvine, County of Orange, State of California, and referred to herein as the "Facility", which Facility is located on the tract of real property more fully described in Exhibit A attached hereto and incorporated herein by this reference. The Facility and the Project within which the Facility is located is depicted on the site plan attached hereto as Exhibit A-1.

        B.    Landlord desires to lease to Tenant and Tenant desires to hire from Landlord, the Premises, within the Facility, as designated on the floor plan of the Premises attached hereto as Exhibit B and incorporated herein by reference.

        NOW, THEREFORE, in consideration of the rents and covenants provided for below, Landlord and Tenant do hereby agree as follows:

ARTICLE I—DEFINITIONS

        The defined terms for this Lease are set forth on Exhibit C attached hereto and incorporated herein by reference. A defined term is identified by initial capital letters throughout all provisions of this Lease, including, without limitation, the Basic Lease Information, the Recitals and the Exhibits. Reference should be made to Exhibit C for the meaning of a defined term.

ARTICLE II—PREMISES

        2.01    Lease of Premises.    Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the Premises. Landlord and Tenant agree that the letting and hiring of the Premises is upon and subject to the terms, covenants and conditions contained in this Lease and each party covenants as a material part of the consideration of this Lease to keep and perform their respective obligations under this Lease. Tenant acknowledges that this Lease is subject to all existing liens, encumbrances, deeds of trust, reservations, restrictions and other matters of record or of which Tenant has knowledge or notice affecting the Premises and to all Applicable Laws; provided, however, Landlord represents and warrants to Tenant that none of the provisions of any such liens, encumbrances, deeds of trust or reservations or other matters nor any Applicable Laws known to Landlord preclude Landlord from leasing the Premises to Tenant as herein provided.

        2.02    Calculations of Areas.    Throughout the Term, the Facility may change in size as a result of additional development. In such event however, no adjustments relating to Tenant's Share of Operating Expenses and other calculations based on areas of the Facility shall be made by Landlord. All usable square footage of a particular area of the Facility to be measured under this Lease after the date hereof shall be measured by Landlord in accordance with BOMAI Standards and the rentable square footage of any such space(s) in the Facility other than the Tower shall be determined by multiplying the usable square footage of such space by 1.12, and (ii) the usable square footage in the Tower shall be determined by multiplying the usable square footage of such space by 1.18. Tenant shall execute and return to Landlord an appropriate certificate provided by Landlord when necessitated because of any change in or recalculation of the Premises or the Facility or any redesignation of the Common Area within fifteen (15) days of receipt from Landlord.

        2.03    Common Area.    Throughout the Term of this Lease, Tenant shall have the non-exclusive right to the use, in common with others, of the Common Area and the Facility Common Area subject to the provisions of this Lease, all Applicable Laws and the Rules and Regulations referred to in Article XVII and incorporated herein by reference. Tenant's right to use the Common Area and the

Facility Common Area shall terminate upon the termination of this Lease. Landlord reserves for itself and for all other owner(s) and operator(s) of the Common Area, the Facility Common Area and the balance of the Facility, the right from time to time, without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor, except as expressly set forth in Section 11.06 hereof, to: (i) install, use, maintain, repair, replace and relocate pipes, ducts, conduits, wires and appurtenant meters and equipment above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas of the Building; (ii) make changes to the design and layout of the Facility, including, without limitation, changes to buildings, driveways, entrances, passageway, doors and doorways, corridors, elevators, stairs, toilets and other public parts of the Facility, loading and unloading areas, direction of traffic, landscaped areas, walkways and parking spaces and parking areas; and (iii) use or close temporarily the Common Area, the Facility Common Area and/or other portions of the Facility or the Project while engaged in making improvements, repairs or alterations to the Building, the Common Area, the Facility Common Area, the Facility, or any portion thereof and (iv) change the name and numbers of designation by which the Building and the Facility are commonly known. In the event that Landlord shall unilaterally change the name or street Building or the suite number of the Premises, Landlord shall provide Tenant with ninety (90) days advance written notice thereof and Landlord shall reimburse Tenant for all reasonable costs incurred by Tenant as a result thereof, including, without limitation, the cost of Tenant's address change announcements and replacement of existing stock stationery. To the extent the location or amount, or both, of Common Area changes or the Facility Common Area changes in or during any calendar year Landlord shall include the Common Area and the Facility Common Area, as so adjusted and calculated, for purposes of calculating Operating Expenses for such portion of the calendar year as such change was in and all subsequent calendar years. In connection with the exercise of any of the foregoing rights, Landlord shall use its reasonable efforts to exercise such rights in a manner intended to minimize material interference with Tenant's use of the Premises.

        2.04    Access.    Subject to the terms of this Lease, Tenant shall have continuous access twenty-four (24) hours per day, seven (7) days per week to the Premises. Landlord reserves the right to require Tenant to comply with Landlord's security procedures and practices as may be established from time to time by Landlord.

ARTICLE III—TERM AND POSSESSION

        3.01    Term Commencement.    The Term of this Lease shall be for the period designated in the Basic Lease Information and, except as otherwise provided herein, shall continue in full force and effect until the Term Expiration Date. Promptly following the Term Commencement Date, Landlord shall deliver to Tenant a declaration in the form attached hereto as Exhibit D and incorporated herein by reference (the "Commencement Memorandum"). The Commencement Memorandum shall specify the Term Commencement Date, the Term Expiration Date, the rentable and usable square footage deemed to be in the Premises and Tenant's Share and shall be binding upon Tenant as to the matters therein stated unless Tenant objects thereto within ten (10) days of Tenant's receipt of the Commencement Memorandum. Unless otherwise provided herein, Tenant's obligation to pay Basic Rent and its other obligations for payment under this Lease shall commence upon the Term Commencement Date.

        3.02    Intentionally Deleted.

        3.03    Condition of Premises.    Landlord represents and warrants that, as of the date hereof, (i) Landlord does not know (or have reason to know) of any alleged violation of any Applicable Law at the Premises with respect to Hazardous Materials except as is disclosed in that certain Proposition 65 Compliance Notification (which Landlord has delivered to Tenant) and (ii) to the best of Landlord's knowledge, the Base Building (as hereinafter defined) is in good operating condition. In addition, Landlord has or will exercise reasonable good faith efforts to cause the portions of the Facility

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Common Areas within the Building to comply with the provisions of Title III of the Americans with Disabilities Act of 1990 ("ADA"); provided however Tenant shall be responsible, at Tenant's sole cost and expense, for compliance with ADA to the extent the need therefor arises out of or in connection with (a) any act, omission or alteration performed by or on behalf of Tenant (excluding the Tenant Improvements) and any act, omission or alteration failed to be performed by or on behalf of Tenant which is Tenant's responsibility to be performed hereunder, subject to the terms of Section 7.01 hereof, (b) Tenant's particular manner of use of the Premises (as opposed to general office use or other uses expressly permitted hereunder) or (c) Tenant's hiring of a disabled employee who requires special accommodations not otherwise required by law. Tenant is the current occupant of the Premises, is aware of their condition and the condition of the Building and the Facility and Tenant agrees to accept the same in their respective condition and state of repair existing as of the date hereof and understands and agrees that no work is to be performed or materials supplied by Landlord to prepare the Premises for Tenant's continued occupancy except as expressly provided in the Tenant Improvement Agreement attached hereto as Exhibit E and made a part hereof. Tenant further agrees that Landlord shall have no obligation to perform any work, make any installations or incur any expense in order to prepare the Premises for Tenant's occupancy other than as is expressly set forth in the preceding sentence or Section 5.01 of this Lease. Continued possession of the Premises shall be deemed to be conclusive evidence as against Tenant that the Premises, the Building, the Facility and the Project were in good and satisfactory condition, except for the correction of latent defects identified by Tenant within six (6) months of the Term Commencement Date and that the Tenant Improvements were satisfactorily performed. Nothing contained in this Article III shall abrogate or affect Landlord's obligation to perform repairs to the Facility, or any portion thereof, which are expressly set forth in this Lease. Tenant acknowledges that, except as expressly set forth herein, neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises, the Building, the Facility, the Project or any portions thereof or with respect to the suitability of same for the conduct of Tenant's business and Tenant further acknowledges that Landlord will have no obligation to construct or complete any additional buildings or improvements within the Facility or the Project.

ARTICLE IV—RENT

        4.01    Basic Rent.    Tenant shall pay to Landlord throughout the Term, Basic Rent as specified in the Basic Lease Information, payable in equal monthly installments in advance commencing on the Term Commencement Date and continuing on the first day of each calendar month during every year of the Term in lawful money of the United States, without deduction or offset whatsoever, except as otherwise expressly set forth herein. Basic Rent shall be paid to Landlord at the address specified in the Basic Lease Information or to such other firm or to such other place as Landlord may from time to time designate in writing by notice given as herein provided. If payment of Basic Rent is to begin on a day other than the first day of a calendar month as provided in this Section 4.01, then Basic Rent shall be prorated on a per diem basis, and the prorated on a per diem basis installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. If the Term terminates on other than the last day of a calendar month, then the Basic Rent shall be prorated as well and the prorated installment shall be paid on the first day of the calendar month next preceding the date of termination.

        4.02    Operating Expenses.    In addition to Basic Rent, Tenant shall pay as additional rent, Tenant's Operating Expenses as provided in Article XXV, without abatement or offset, except as otherwise expressly set forth herein.

        4.03    Security Deposit.

        (a)  Landlord is currently holding $79,748.70 as the security deposit under the One Stop Lease and Landlord is currently holding $148,278.40 as the security deposit under the United Lending Lease, $228,027.10 in the aggregate (collectively, the "Security Deposit"). Tenant hereby

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authorizes and directs Landlord to transfer the Security Deposit currently being held by Landlord under the One Stop Lease and the United Lending Lease and to hold the same as the security deposit under this Lease as security for the full and faithful performance and observance by Tenant of all of its covenants and obligations under this Lease, including, without limitation, the surrender of possession of the Premises to Landlord as herein provided. Landlord agrees to deposit the Security Deposit in an interest bearing bank account located in the State of California. The interest received on such account shall be added to and held as part of the Security Deposit subject to and in accordance with the provisions of this Lease. Landlord shall not be required to credit Tenant with any interest for any period during which Landlord does not receive interest on the Security Deposit, nor shall Landlord have any liability or obligation for loss of all or any portion of the Security Deposit by reason of the insolvency or failure of the bank in which the Security Deposit is deposited. If Tenant fails to pay Rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, after notice and the expiration of any applicable cure period, Landlord may use, apply or retain all or any portion of the Security Deposit for the payment of any Rent or other charge in default, or for the payment of any other sum which Landlord may expend or be required to expend in connection with Tenant's default, or to compensate Landlord for any loss or damage sustained by Landlord in connection with Tenant's default including, but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency accrue or accrues before or after summary proceedings or other re-entry by Landlord. If Landlord uses or applies all or any portion of the Security Deposit, Tenant shall immediately on demand pay Landlord in cash or readily available funds, a sum equal to the portion of the Security Deposit expended or applied by Landlord as provided in this Section so as to restore the Security Deposit to its original amount. Tenant's failure to deposit the Security Deposit or maintain the Security Deposit in its original amount, shall constitute an Event of Default under Article XIX of this Lease. If Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, Landlord shall return the Security Deposit to Tenant within thirty (30) days after the Term Expiration Date and after delivery of the entire possession of the Premises to Landlord in accordance with the terms of this Lease. Landlord shall not be deemed to be a trustee with respect to the Security Deposit, and shall not be required to keep the Security Deposit separate from its general funds. Tenant shall be entitled to no interest on the Security Deposit. Should Landlord transfer its interest in the Premises during the Term hereof and deposit with the transferee thereof the unappropriated Security Deposit funds, Landlord's obligations with respect to the Security Deposit will be discharged and Tenant shall look solely to the new landlord for the return of the Security Deposit.

        (b)  The Security Deposit shall be reduced by the amount of $28,000.00 (the "Reduction Amount") on the first day of the month in which the first (1^st) anniversary of the Term Commencement Date shall occur (the "Reduction Date") provided that (i) this Lease shall be in full force and effect and Tenant shall not be or have been in default hereunder, (ii) and Tenant shall have made payments of Basic Rent and additional rent in a timely fashion for one (1) year following the Term Commencement Date and (iii) Landlord has not previously drawn on the Security Deposit by reason of default on the part of Tenant.

        4.04    Payment; Late Charges.    Tenant shall pay Landlord all amounts due from Tenant to Landlord hereunder, whether for Rent or otherwise, in lawful money of the United States, without deduction or offset whatsoever, except as otherwise expressly set forth herein, and without notice or demand except as otherwise provided herein. Tenant acknowledges that late payment by Tenant of any payment owed to Landlord under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult and impracticable to fix. Therefore, if any installment of Rent due from Tenant is not received by Landlord within ten (10) days after the date when such payment is due, Tenant shall pay to Landlord, in addition to such installment of Rent or such additional rent, as the case may be an additional sum of five percent (5%) of the overdue Rent

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as a late charge; provided, however, Tenant shall not be required to pay such additional late charge the first (1st) time in any twelve (12) month period during the Term an installment of Rent is not received by Landlord within ten (10) days after the date when such payment is due if such failure is a result of an administrative error. Payment of the late charge is not an alternative means of performance of Tenant's obligation to pay Rent when due, and acceptance of the late charge shall not cure or waive Tenant's default, nor prevent Landlord from exercising, before or after such acceptance, any rights or remedies for a default provided by this Lease. The parties agree that such late charge represents a fair and reasonable estimate of the detriment that Landlord will suffer by reason of late payment by Tenant. If Tenant is subject to late charges more than three (3) times in any period of twelve (12) months during the Term, Landlord shall have the right to require Tenant thereafter to pay all installments of Rent quarterly in advance throughout the remainder of the Term.

        4.05    All Payments as Rent.    Any and all payments of Basic Rent, Tenant's Operating Expenses and any and all taxes, fees, charges, costs, expenses, insurance obligations and all other payments, disbursements or reimbursements which are attributable to, payable by or the responsibility of Tenant under and by reason of this Lease are payable as additional rent and shall constitute "rent" within the meaning of California Civil Code Section 1951(a).

ARTICLE V—RESTRICTIONS ON USE/COMPLIANCE WITH LAWS

        5.01    Use.    Tenant shall use the Premises for the Permitted Use and for no other use or purpose. Nothing in this Lease shall be deemed to give Tenant any exclusive right to such use in the Building, the Facility or the Project. Tenant shall not do or permit to be done in or about the Premises nor bring, keep or permit to be brought or kept therein, anything which is prohibited by the attached Exhibit H or which is in conflict with or will invalidate any insurance policy covering the Building, the Facility, the Project or any part thereof or which will in any way increase the existing rate of, or affect, any fire or other insurance upon the building or its contents, or which will cause a weight load or stress on the floor or any other portion of the Premises in excess of the weight load or stress which the floor or other portion of the Premises is designed to bear. Tenant shall comply with all Applicable Laws affecting the Premises, and the requirements of any board of fire underwriters or other similar body, now or hereafter instituted, and shall also comply with any order, directive or certificate of occupancy issued pursuant to any Applicable Laws, which affect the condition, use or occupancy of the Premises, including but not limited to, any requirements of structural changes or other alterations necessitated by or in connection with Tenant's acts, particular manner of use or occupancy of the Premises or alteration of the Premises. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether or not Landlord is a party to such action, shall be conclusive as between Landlord and Tenant in establishing such violation. Notwithstanding the foregoing, (a) Landlord represents that to Landlord's actual knowledge, without any additional inquiry or investigation, Tenant's intended use of the Premises will not cause any change in the insurance ratings of the Facility or impose any special structural requirements, and (b) Landlord shall be responsible to remove any violation and to correct any condition existing as of the date hereof (whether or not a notice of violation has been issued) in the event such violation or condition must be corrected as a prerequisite to the issuance of a governmental approval for the Tenant Improvements or prevents Tenant from obtaining a Certificate of Occupancy for the Premises; it being understood and agreed, however, if any such violation or condition is deemed to exist within the Premises, or outside of the Premises (including the Base Building) in connection with or as a result of Tenant's particular manner of use of (as opposed to general office use), or particular operation of its business in, the Premises, including the Tenant Improvements, then Tenant shall be responsible for curing such violation or condition, as the case may be. If by reason of Tenant's failure to comply with the provisions of this Article, the fire insurance rate shall at the beginning of this Lease or at any time thereafter be higher than it otherwise would be, then Tenant shall reimburse Landlord, as additional rent hereunder, for that part of all fire insurance premiums thereafter paid by Landlord which shall have been charged because of such failure

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of Tenant, and shall make such reimbursement upon the first day of the month following such outlay by Landlord. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make up" of rates for the Facility, the Building or the Premises issued by the California Fire Insurance Rating Organization, or other body fixing such fire insurance rates, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rates then applicable to the Premises.

ARTICLE VI—ALTERATIONS

        6.01    Tenant Alterations.    Tenant shall not make or perform or permit the making or performance of any alterations, additions or improvements (collectively, "Alterations") to the Premises without Landlord's prior written consent, which consent Landlord shall not unreasonably delay or withhold. Notwithstanding the foregoing, Tenant shall have the right to make Cosmetic Alterations without Landlord's prior written consent, provided that in both cases, Tenant shall provide to Tenant, at least ten (10) days prior to the commencement of such Alterations, notice of the Alterations to be performed and the terms, conditions and provisions of this Lease regarding Alterations are otherwise fully complied with. If Landlord consents to the making of any Alterations by Tenant, the same shall be made by Tenant, at Tenant's sole cost and expense, and all such Alterations shall be done in strict compliance with the provisions of this Article VI. Notwithstanding the foregoing, with respect to Cosmetic Alterations only, Tenant shall not be required to cause drawings, plans and specifications to be prepared with respect to such Cosmetic Alterations if such drawings, plans and specifications are not otherwise required to be prepared in order to obtain any permit or other required governmental or quasi-governmental approval, but Tenant shall furnish Landlord with copies of any existing drawings, plans and specifications actually prepared with respect to such Cosmetic Alterations, if any.

        6.02    Installation of Alterations.    Any Alterations installed by or on behalf of Tenant within the Premises shall be done in strict compliance with all of the following:

        (a)  No such work shall proceed without (i) Landlord's prior approval of Tenant's contractor(s) and subcontractor(s), which approval shall not be unreasonably withheld or delayed; (ii) Landlord's receipt of duplicate original policies of comprehensive public liability (including property damage coverage) insurance and worker's compensation insurance (covering all persons to be employed by Tenant and Tenant's contractors and subcontractors in connection with such Alteration) in such form, with such companies, for such periods and in such amounts as Landlord may reasonably require, naming Landlord, its property manager and their respective agents as additional insureds; (iii) Landlord's receipt and approval of detailed plans and specifications (including layout, architectural, mechanical and structural drawings stamped by a professional engineer or architect licensed in the State of California) for each proposed Alteration, except as expressly set forth in Section 6.01(ii) hereof; (iv) Tenant paying to Landlord all reasonable out of pocket costs and expenses incurred by Landlord in connection with Landlord's review of Tenant's plans and specifications; it being understood and agreed that Landlord shall not engage any third party consultant to review the named Tenant's plans and specifications in connection with Non-Structural Alterations and Cosmetic Alterations; it being further understood and agreed that Tenant shall not be required to pay any such costs and expenses in connection with the Tenant Improvements; and (v) Tenant obtaining, at its expense, all permits, approvals and certificates required by any governmental or quasi-governmental bodies.

        (b)  All such work shall be performed: (i) in accordance with the plans and specifications submitted to and approved by Landlord, which approval shall be granted subject to and in accordance with the terms of Section 6.01 above; (ii) in a lien-free and first-class and workmanlike manner, (iii) in compliance with all Applicable Laws including, without limitation, the Americans with Disabilities Act of 1990, a valid building permit and/or all other permits or licenses when and where required, copies of which shall be furnished to Landlord before the work is commenced;

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(iv) in such a manner so as not to interfere (other than to a de minimus extent) with the occupancy and enjoyment of any other tenant or occupant in the Facility and not to impose any additional expense upon or delay Landlord in the maintenance and operation of the Facility and (v) in such a manner so as not to affect (other than to a de minimus extent) any part of the Building or the Facility other than the Premises. Any work not acceptable to any governmental authority or agency having or exercising jurisdiction over such work, or not reasonably satisfactory to Landlord, shall be promptly replaced and/or corrected at Tenant's expense. Landlord's approval or consent to any such work shall not impose any liability upon Landlord as to completeness, design sufficiency or compliance with Applicable Laws.

        (c)  All materials and equipment to be incorporated in the Premises (i) shall be first quality and (ii) shall not be subject to any lien, encumbrance, chattel mortgage, title retention or security agreement.

        (d)  Provided Landlord has first given Tenant notice of any substandard work or inadequate clean up (other than in event of an emergency) and Tenant fails to correct such work or clean up to Landlord's reasonable satisfaction within a reasonable period of time under the circumstances, Tenant shall promptly reimburse Landlord for any reasonable expense incurred by Landlord in connection with any substandard work performed by Tenant or Tenant's contractors, by reason of delays caused by such work and by reason of inadequate cleanup following completion of such work.

        (e)  Other than as expressly provided in Section 6.01, Tenant or its contractors will in no event be allowed to make Alterations which: (i) affect the plumbing, mechanical, electrical, sanitary, life safety, heating, ventilation or air conditioning or other systems or services of the Facility or the proper functioning thereof, (ii) affect the structural integrity of the Facility; (iii) affect any area outside the Premises including the exterior appearance of the Facility or any of the Common Areas; (iv) in Landlord's reasonable opinion, lessen the value or utility of the Facility; or (v) will violate or require a change in any occupancy certificate or permit applicable to the Premises.

        (f)    All work by Tenant shall be scheduled through Landlord and shall be diligently and continuously pursued from the date of its commencement through its completion. If Tenant's Alterations have not been completed within a reasonable time after the commencement of such Alterations and if Tenant shall thereafter fail to complete such Alterations within sixty (60) days after notice thereof to Tenant, Landlord may cause such Alterations to be completed in which event Tenant shall reimburse Landlord for Landlord's reasonable costs of completing such work upon Landlord's demand, and the amount of Landlord's completion costs to be reimbursed by Tenant, together with interest thereon at the Interest Rate shall constitute additional rent under this Lease and shall be paid by Tenant with the next due monthly Basic Rent payment after Landlord's demand.

        (g)  Tenant (other than the named Tenant herein) shall obtain any bonds reasonably required by Landlord.

        (h)  To the extent applicable, upon completion of any Alteration, Tenant, at Tenant's expense, shall (i) obtain certificates of final approval of such Alteration required by any governmental or quasi- governmental bodies and shall furnish Landlord with copies thereof and (ii) furnish Landlord with "as-built" drawings showing such Alterations.

        (i)    Tenant shall not knowingly, at any time prior to or during the Term, directly or indirectly employ, or permit the employment of, any contractor, mechanic or laborer in the Premises whether in connection with any material Alterations or otherwise, if, in Landlord's reasonable discretion, such employment will interfere (other than to a de minimus extent) with other contractors, mechanics or laborers engaged in the construction, maintenance or operation of the Facility or the

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Project by Landlord, Tenant or others. In the event of any interference, Tenant upon demand of Landlord, shall cause all contractors, mechanics or laborers causing such interference to leave the Facility or the Project, as the case may be, immediately.

        6.03    Removal of Alterations.    Landlord shall not require Tenant to remove any Alteration that exists in the Premises as of the Scheduled Term Commencement Date. The initial Tenant Improvements, including, without limitation, all affixed sinks, dishwashers, microwave ovens and other fixtures and all Alterations made by Tenant (but excluding Tenant's trade fixtures and personal property) shall become the property of Landlord immediately upon installation within the Premises and shall remain on and be surrendered with the Premises upon expiration or termination of the Term, except that Landlord reserves the right to require that Tenant remove all Non-Standard Alterations upon the expiration or termination of the Term; it being understood and agreed, however, that any moveable personal property and equipment brought into the Premises by or on behalf of Tenant following the completion of the Tenant Improvements (which is not affixed to or installed within the Premises) shall be and remain Tenant's personal property. Notwithstanding the foregoing, Landlord shall notify Tenant at the time of the approval of Tenant's plans and specifications of those Non-Standard Alterations which Tenant may be required to remove in accordance with the terms of this Section prior to the expiration of the Term or the termination of this Lease and Tenant shall, upon the expiration of the Term or upon such termination, unless instructed otherwise by Landlord, be required to remove only such Non-Standard Alterations specified in Landlord's notice. If Landlord requires Tenant to remove any Non-Standard Alterations, Tenant, at its cost, shall repair and restore in a good and workmanlike manner any damage caused to the Premises, the Building or the Facility resulting in connection with the removal of any of its Non-Standard Alterations, trade fixtures and/or personal property and shall restore the Premises, the Building or the Facility, as applicable, to the condition same were in when the Premises were received by Tenant, ordinary wear and tear excepted.

        6.04    Intentionally Deleted.

        6.05    Removal of Personal Property.    All articles of personal property owned by Tenant or installed by Tenant at its expense in the Premises (including Tenant's business and trade fixtures, furniture, movable partitions and equipment such as telephones, copy machines, computer terminals, refrigerators and facsimile machines) will be and remain the property of Tenant, and must be removed by Tenant from the Premises, at Tenant's sole cost and expense, on or before the expiration or sooner termination of this Lease. Tenant agrees to repair any damage caused by such removal at its cost on or before the expiration or sooner termination of this Lease.

        6.06    Failure to Remove Items.    If Tenant fails to remove by the expiration or sooner termination of this Lease all of its personal property, trade fixtures, equipment or any Non-Standard Alterations identified by Landlord for removal, Landlord may, at its option, after ten (10) days written notice to Tenant personal property and/or Non-Standard Alterations as abandoned and, at Tenant's sole cost and in addition to Landlord's other rights and remedies under this Lease, at law or in equity: (a) remove and store such items; and/or (b) sell, discard or otherwise dispose of all or any such items at private or public sale for such price as Landlord may obtain or by other commercially reasonable means. Tenant shall be liable for all costs of disposition of Tenant's abandoned property and Landlord shall have no liability to Tenant with respect to any such abandoned property. Landlord agrees to apply the proceeds of any sale of any such property to any amounts due to Landlord under this Lease from Tenant (including Landlord's attorneys' fees and other costs incurred in the removal, storage and/or sale of such items), with any remainder to be paid to Tenant.

ARTICLE VII—REPAIRS

        7.01    Landlord's Obligations.    Landlord agrees to repair and maintain the Building structure including the roof, the foundations and the exterior surfaces of exterior walls and the exterior surfaces

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of common demising walls of the Building, the Common Areas of the Building and the plumbing, heating, ventilating, air conditioning, elevator, electrical and fire/life safety systems installed or furnished by Landlord to the point of connection into the Premises, utility closets, transformers and electrical panels, doorways and access portals (collectively the "Base Building"), in good order, repair and first class condition, unless such maintenance and repairs are (i) attributable to items installed in Tenant's Premises which are above standard interior improvements (such as, for example, custom lighting, special HVAC and/or electrical panels or systems, kitchen or restroom facilities and appliances constructed or installed within Tenant's Premises) or (ii) caused in part or in whole by the act, neglect or omission of any duty by Tenant, its agents, servants, employees or invitees or (iii) Tenant's responsibility pursuant to the terms of this Lease, in any which case Tenant will pay to Landlord, as additional rent, the reasonable cost of such maintenance and repairs. Tenant shall promptly notify Landlord of the necessity of any repairs which Tenant is aware of and which Landlord is responsible for under the provisions of this Lease. Except as otherwise expressly set forth herein, Tenant will not be entitled to any abatement of rent and Landlord will not have any liability by reason of any injury to or interference with Tenant's business arising from the making, or failure to make, any repairs, alterations or improvements in or to any portion of the Building, the Facility or the Premises or in or to fixtures, appurtenances and equipment therein other than any injury or interference arising solely and directly from Landlord's negligence or wilful misconduct. Tenant waives the right to make repairs at Landlord's expense under any Applicable Laws (including, without limitation, the provisions of California Civil Code Sections 1941 and 1942 and any successor statutes or laws of a similar nature).

        7.02    Tenant's Obligations.    Except for Landlord's repair obligations described in Section 7.01 above and Landlord's maintenance obligations described in Section 11.01, Tenant agrees to keep, maintain and preserve all portions of the Premises in first class condition and repair and, when and if needed, at Tenant's sole cost and expense, to make all necessary and reasonable repairs to the Premises and every part thereof. Any such maintenance and repairs will be performed by contractor(s) and subcontractor(s) selected by Tenant and reasonably acceptable to Landlord or contractors as Tenant may choose from an approved list to be submitted by Landlord. Tenant agrees to pay all costs and expenses incurred in such maintenance and repair within thirty (30) days after billing by Landlord or such contractor or contractors. Tenant agrees to cause any mechanics' liens or other liens arising as a result of work performed by Tenant or at Tenant's direction to be eliminated as provided in Article VIII below. Except as expressly provided in Section 7.01 above, Landlord has no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof.

        7.03    Tenant's Failure to Repair.    If Tenant refuses or neglects to repair and maintain the Premises properly as required hereunder, Landlord, at any time following ten (10) days from the date on which Landlord makes a written demand on Tenant to effect such repair and maintenance, may enter upon the Premises and make such repairs and/or maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as additional rent, Landlord's costs for making such repairs plus an amount not to exceed ten percent (10%) of such costs for overhead, within ten (10) days of receipt from Landlord of a written itemized bill therefor. Any amounts not reimbursed by Tenant within such ten (10) day period will bear interest at the Interest Rate until paid by Tenant.

ARTICLE VIII—LIENS

        Except for any liens resulting from Landlord's failure to make required payments subject to and in accordance with the express terms of the Tenant Improvement Agreement attached to this Lease as Exhibit E and made a part hereof, after satisfaction by Tenant of all conditions precedent and other requirements set forth therein and in Article VI of this Lease (collectively, "Landlord Liens"), Tenant agrees not to permit any mechanic's, materialmen's or other liens to be filed against all or any part of the Project, the Facility, the Building or the Premises, nor against Tenant's leasehold interest in the Premises, by reason of or in connection with any repairs, Alterations, improvements or other work

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contracted for or undertaken by or on behalf of Tenant or materials or supplies furnished to or obligations incurred by or on behalf of Tenant, or by reason of any other act or omission of Tenant or Tenant's agents, employees, contractors, licensees or invitees. Tenant agrees to indemnify, protect, defend and hold Landlord harmless from and against any and all claims for any such liens. At Landlord's request, Tenant agrees to provide Landlord with enforceable, conditional and final lien releases (or other evidence reasonably requested by Landlord to demonstrate protection from liens) from all persons furnishing labor and/or materials at the Premises. Landlord will have the right at all reasonable times to post on the Premises and record any notices of non-responsibility which it deems necessary for protection from such liens. If any such liens are filed, Tenant will, at its sole cost, promptly cause such liens to be released of record or bonded so that it no longer affects title to the Project, the Facility, the Building or the Premises. If Tenant fails to cause any such liens to be so released or bonded within thirty (30) days after filing thereof, such failure will be deemed an Event of Default under Article XIX without the benefit of any additional notice or cure period, and Landlord may, without waiving its rights and remedies based on such breach, and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payment in satisfaction of the claims giving rise to such liens. Tenant agrees to pay to Landlord as additional rent within thirty (30) days after receipt of invoice from Landlord, any sum paid by Landlord to remove such liens, together with interest at the Interest Rate from the date of such payment by Landlord.

ARTICLE IX—ASSIGNMENT AND SUBLETTING

        9.01    Right to Assign, Sublease and Encumber.    Landlord and Tenant recognize and specifically agree that this Article IX is an economic provision, like Rent, and that Landlord's right to recapture, and to receive any excess consideration, has been granted by Tenant to Landlord in consideration for other economic concessions granted by Landlord to Tenant in this Lease. Except as expressly set forth in this Article IX, Tenant may not assign or encumber its interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises (any such assignment, encumbrance, sublease, or the like shall sometimes be referred to herein as a "Transfer"), without first obtaining Landlord's prior written consent, which consent Landlord will not unreasonably withhold or delay; provided, however, that a merger, sale of business, acquisition or similar transaction involving Tenant will not constitute a Transfer for purposes of this Article IX. Any Transfer without Landlord's prior written prior consent shall be voidable, at Landlord's election, and shall constitute an Event of Default under Article XIX. No consent to any Transfer shall constitute a further waiver of the provisions of this Section.

        9.02    Proposed Transfer Notice.    If Tenant desires to effect a Transfer covering more than one (1) floor of the Premises or for a term of thirty (30) months or more (each, a "Recapture Transfer"), then at least thirty (30) days prior to the date when Tenant desires the Transfer to be effective, Tenant shall give Landlord a notice identifying the space to be assigned, encumbered, subleased or otherwise transferred (the "Transfer Premises") and the rentable square footage of the Transfer Premises (the "Proposed Transfer Notice"). Delivery to Landlord of a Proposed Transfer Notice shall be deemed an offer from Tenant to Landlord whereby Landlord may, at its option, recapture the Transfer Premises for the balance of the Term hereof. Said option may be exercised by Landlord by notice given to Tenant at any time within thirty (30) days after Landlord's receipt of the Proposed Transfer Notice (the "Recapture Period"); and during such thirty (30) day period Tenant shall not assign this Lease nor sublet such space to any person or entity. If Landlord fails to exercise its option to recapture as aforesaid within such thirty (30) day period, then for the nine (9) month period commencing on the date of Landlord's receipt of the Proposed Transfer Notice, Landlord shall have no right to recapture the Transfer Premises in connection with a proposed Transfer involving only the Transfer Premises. However, if Tenant shall desire to Transfer part of the Transfer Premises or if Tenant shall desire to Transfer the Transfer Premises together with another portion of the Premises, then Landlord shall again

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have the recapture option described in this Section, exercisable by notice to Tenant given within thirty (30) days after a new Proposed Transfer Notice has been delivered to Landlord pursuant to the provisions hereof.

        9.03    Notice of Transfer; Landlord's Options.    If Tenant desires to effect a Transfer which is not a Recapture Transfer, then at least thirty (30) days prior to the date when Tenant desires the Transfer to be effective (the "Transfer Date"), Tenant agrees to give Landlord a notice ("a"Transfer Notice") stating the name, address and business of the proposed assignee, sublessee or other transferee (sometimes referred to herein as "Transferee") and its proposed use of the Premises, reasonable information (including references) concerning the character, ownership and financial condition of the proposed Transferee (including, without limitation, its most recent financial reports), the Transfer Date, any ownership or commercial relationship between Tenant and the proposed Transferee, and the consideration and all other material terms and conditions of the proposed Transfer, all in such detail as Landlord may reasonably require and such additional information related to the proposed Transfer or Transferee as Landlord may reasonably request. Within thirty (30) days of Landlord's receipt of any Transfer Notice and any additional information requested by Landlord, Landlord will elect to either:

        (a)  consent to the proposed Transfer; or

        (b)  refuse such consent, which refusal shall be on reasonable grounds including, without limitation, those set forth in Section 9.04 below.

        9.04    Reasonable Disapproval.    Landlord and Tenant hereby acknowledge that Landlord's disapproval of any proposed Transfer pursuant to Section 9.03(b) will be deemed reasonably withheld if based upon any reasonable factor, including, without limitation, any or all of the following factors: (i) the proposed Transferee is a Governmental Entity, if the proposed Transferee is entitled, directly or indirectly, to diplomatic or sovereign immunity or shall not be subject to the service of process in, and the jurisdiction of, the courts of the State of California; (ii) the portion of the Premises to be sublet or assigned is irregular in shape with inadequate means of ingress and egress; (iii) the use of the Premises by the Transferee (A) is not permitted by the use provisions in Article V hereof, or (B) violates any exclusive use granted by Landlord to another tenant in the Project or the Facility, it being understood that within ten (10) business days of receipt of Tenant's Transfer Notice, together with Tenant's specific written request for a written list of uses which would violate exclusives granted by Landlord to other tenants in the Project or the Facility, Landlord shall provide Tenant with a written list of such uses; (iv)  the Transferee does not have the financial capability to fulfill the obligations imposed by the Transfer and this Lease (or has not furnished Landlord with reasonable proof thereof); (v) the proposed Transferee is engaged in a business or activity, or the Premises or the relevant part thereof, will be used in a manner, which is not in keeping with the then standards of the Building or the Facility; (vi) there shall be more than five (5) subtenants of the Premises excluding Occupants (as hereinafter defined); or (vii) the form of the proposed sublease or instrument of assignment (A) shall not be in form reasonably satisfactory to Landlord, or (B) shall not comply with the applicable provisions of this Article IX.

        9.05    Additional Conditions.    A condition to Landlord's consent to any Transfer of this Lease will be the delivery to Landlord of a true copy of the fully executed instrument of assignment, sublease, transfer or hypothecation, and, in the case of an assignment, the delivery to Landlord of an agreement executed by the Transferee in form and substance reasonably satisfactory to Landlord, whereby the Transferee assumes and agrees to be bound by all of the terms and provisions of this Lease and to perform all of the obligations of Tenant hereunder; it being understood, however, that in the case of a sublease, the Transferee shall not be obligated to pay the amount of the Basic Rent set forth in the Basic Lease Information and instead shall be obligated to pay the amount of rent to be paid during the sublease term. As a condition for granting its consent to any assignment or sublease, Landlord may require that the assignee or sublessee remit directly to Landlord on a monthly basis, all monies due to

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Tenant by said assignee or sublessee; it being understood and agreed, however, if in any month during the Term, Landlord shall receive payment from both Tenant and Tenant's assignee or sublessee, as the case may be, then (i) if Landlord shall receive more than one hundred percent (100%) of the Rent Landlord is entitled to hereunder, Landlord shall refund any excess to Tenant or (ii) if Landlord shall bill and receive from such assignee or subtenant, as the case may be, less than one hundred percent (100%) of the Rent Landlord is entitled to hereunder, Tenant shall not be obligated to pay any amounts paid by such assignee or subtenant. As a condition to Landlord's consent to any sublease, such sublease must provide that it is subject and subordinate to this Lease and to all mortgages; that Landlord may enforce the provisions of the sublease, including collection of rent; that in the event of a default by the sublessee or termination of this Lease for any reason, including, without limitation, a voluntary surrender by Tenant, or in the event of any reentry or repossession of the Premises by Landlord, Landlord may, at its option, either (i) terminate the sublease, or (ii) take over all of the right, title and interest of Tenant, as sublessor, under such sublease, in which case such sublessee will attorn to Landlord, but that nevertheless Landlord will not (1) be liable for any previous act or omission of Tenant under such sublease, (2) be subject to any counterclaim, defense or offset previously accrued in favor of the sublessee against Tenant, or (3) be bound by any previous modification of any sublease made without Landlord's written consent, or by any previous prepayment by sublessee of more than one month's rent.

        9.06    Excess Rent.    If Landlord shall give its consent to any assignment of this Lease or to any sublease or if Tenant shall enter into any other assignment or sublease permitted hereunder, Tenant shall in consideration therefor, pay to Landlord, as additional rent:

        (a)  in the case of an assignment (other than an assignment pursuant to Section 9.12 hereof), an amount equal to fifty percent (50%) of all sums and other consideration paid to Tenant by the assignee on account of the assignment (including, but not limited to, sums paid for the sale of Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or other personal property, less, in the case of a sale thereof, the fair market value thereof after recoupment of all expenses reasonably and actually incurred by Tenant in connection with such assignment, provided that Tenant shall submit to Landlord a receipt evidencing the payment of such expenses (or other proof of payment as Landlord shall require); and

        (b)  in the case of a sublease (other than a sublease pursuant to Section 9.12 hereof), fifty percent (50%) of any rents, additional charges or other consideration payable under the sublease on a per square foot basis to Tenant by the subtenant which is in excess of the Basic Rent and additional rent accruing during the term of the sublease in respect of the subleased space (at the rate per square foot payable by Tenant hereunder) pursuant to the terms hereof (including, but not limited to, sums paid for the sale or rental of Tenant's fixtures, leasehold improvements, equipment, furniture or other personal property, less, in the case of the sale thereof, the fair market value thereof), after recoupment of all expenses reasonably and actually incurred by Tenant in connection with such sublease, provided that Tenant shall submit to Landlord a receipt evidencing the payment of such expenses (or other proof of payment as Landlord shall require).

        The sums payable under this Section 9.06 shall be paid to Landlord after Tenant has recouped any sublease/assignment expenses actually incurred by Tenant in connection with the transaction in question.

        9.07    Effect of Recapture.    If Landlord exercises its option to recapture the Transfer Premises, then the Transfer Premises shall be deemed surrendered on the day following the expiration of the Recapture Period, and the Basic Rent and additional rent due hereunder shall be paid and apportioned to such date. If the Transfer Premises constitutes only a portion of the Premises, Landlord, at Tenant's expense, may make such alterations as Landlord reasonably deems necessary to physically separate the Transfer Premises from the balance of the Premises and to comply with all applicable laws and

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insurance requirements relating to such separation. Tenant shall reimburse Landlord for the reasonable costs thereof within thirty (30) days following demand. If Landlord exercises its recapture option pursuant to this Article, Tenant shall be released from its obligations arising under this Lease (or its obligations that relate to the portion of the Premises being recaptured (i.e., the Transfer Premises), as applicable) from and after the effective date of such recapture, except for any obligation or liability accrued or incurred under this Lease prior thereto which expressly survives the expiration or earlier termination of this Lease. Tenant understands and acknowledges that the option, as provided in this Article IX, to terminate this Lease or recapture the Transfer Premises, as applicable, is a material inducement for Landlord's agreeing to lease the Premises to Tenant upon the terms and conditions herein set forth.

        9.08    No Release.    No Transfer will release Tenant of Tenant's obligations under this Lease or alter the primary liability of Tenant to pay the Rent and to perform all other obligations to be performed by Tenant hereunder. Landlord may require that any Transferee remit directly to Landlord on a monthly basis, all monies due Tenant by said Transferee if Tenant is in default hereunder. However, the acceptance of Rent by Landlord from any other person will not be deemed to be a waiver by Landlord of any provision hereof. Consent by Landlord to one Transfer will not be deemed consent to any subsequent Transfer. In the event of default by any Transferee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such Transferee or successor. Landlord may consent to subsequent assignments of this Lease or sublettings or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining Tenant's consent thereto and any such actions of Landlord will not relieve Tenant of liability under this Lease; provided, however, Landlord shall notify Tenant of any such assignment, subletting, amendment or modification and Landlord shall not diminish Tenant's rights hereunder (other than to a de minimis extent) or reduce Tenant's income without Tenant's consent. If Landlord shall decline to give its consent to any proposed Transfer, or if Landlord shall exercise any of its options under Section 9.03, Tenant shall indemnify, defend and hold harmless Landlord against and from any and all loss, liability, damages, costs and expenses (including reasonable counsel fees) resulting from any claims that may be made against Landlord by the proposed Transferee or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed Transfer, but the foregoing shall not constitute a waiver of any of Tenant's express rights under this Lease.

        9.09    Administrative and Attorneys' Fees.    If Tenant effects a Transfer (other than pursuant to the express terms of Sections 9.12 and 9.13) or requests the consent of Landlord to any Transfer (whether or not such Transfer is consummated), then within ten (10) days following Landlord's written demand therefor, Tenant agrees to pay Landlord a non-refundable administrative fee of One Thousand Five Hundred Dollars ($1,500.00) which fee includes all fees for Landlord's legal services.

        9.10    Effectiveness Conditioned Upon Assumption.    Any Transfer shall be made only if, and shall not be effective until, the Transferee shall execute, acknowledge and deliver to Landlord an agreement in form and substance satisfactory to Landlord whereby the Transferee shall assume the obligations of this Lease on the part of Tenant to be performed or observed and whereby the Transferee shall agree that the provisions in Section 9.01 shall, notwithstanding such Transfer, continue to be binding upon it in respect of all future Transfers. The original named Tenant covenants that, notwithstanding any Transfer, whether or not in violation of the provisions of this Lease, and notwithstanding the acceptance of Rent and/or additional rent by Landlord from an assignee, transferee or any other party, the original named Tenant shall remain fully liable for the payment of the Rent and additional rent and for the other obligations of this Lease on the part of Tenant to be performed or observed.

        9.11    Liability of Tenant.    The joint and several liability of Tenant and any immediate or remote successor in interest of Tenant and the due performance of the obligations of this Lease on Tenant's

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part to be performed or observed shall not be discharged, released or impaired in any respect by any agreement or stipulation made by Landlord extending the time, or modifying any of the obligations, of this Lease, or by any waiver or failure of Landlord to enforce any of the obligations of this Lease.

        9.12    Related Corporation.    Tenant may, without Landlord's consent, permit any Related Corporation to sublet all or part of the Premises or take an assignment of this Lease for any of the purposes permitted to Tenant, provided and upon the condition that Tenant has given Landlord not less than thirty (30) days prior written notice thereof and Tenant shall utilize a form of sublease or assignment, as the case may be, reasonably acceptable to Landlord and meeting the requirements of this Lease, including, without limitation this Article IX. Notwithstanding the foregoing, Tenant may sublease or assign all or any portion of the Premises to Aames Funding Corporation, Aames Home Loan and/or Aames Capital Corporation without having to comply with the provisions of this Section 9.12. Such subletting shall not relieve, release, impair or discharge any of Tenant's obligations under this Lease. Furthermore, such sublease or assignment, as the case may be, shall be subject to Tenant furnishing Landlord, prior to the commencement of the term thereof, with (i) adequate proof that such Related Corporation has been duly organized or formed, as the case may be, and is in good standing in the jurisdiction of its incorporation or formation, as the case may be, and (ii) resolutions of its Board of Directors certified by the appropriate corporate officer or partnership consents, as applicable, authorizing such sublease or assignment, as the case may be.

        9.13    Desk Space Occupancy.    Notwithstanding anything to the contrary contained herein, Tenant shall have the right, without Landlord's consent, to enter into occupancy agreements with attorneys, accountants, loan agents and other professionals (each, an "Occupant") with respect to individual offices within the Premises for not more than ten percent (10%) of the rentable area of the Premises in the aggregate, provided that this Lease shall not have been assigned (other than an assignment to an entity controlled or under common control with Tenant) and that the portion of the Premises occupied by the Occupant shall not be physically separate from the portion of the Premises occupied by Tenant, and no walls, barriers, public corridors or other indication of separate space shall be constructed or placed in the Premises.

ARTICLE X—INSURANCE AND INDEMNIFICATION

        10.01    Limitation on Landlord's Liability.    Subject to the terms of Section 10.03 below, neither Landlord nor Landlord's agents or employees shall be liable to Tenant and Tenant hereby waives all claims against Landlord, its agents and employees for any injury or damage to any person or property in, upon or about the Premises, the Building or the Facility, by or from any cause whatsoever (other than due to negligence or willful misconduct of the Landlord, or its agents or employees) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises, the Building or the Facility, or caused by gas, fire, steam, oil or electricity in, upon or about the Premises or Facility. Subject to the terms of Section 10.03 below, Landlord and Landlord's agents and employees shall not be liable for any damage to any of Tenant's personal property entrusted to Landlord, and its employees, nor for loss of or damage to any of Tenant's personal property by theft or otherwise except when caused by Landlord's gross negligence or willful misconduct. Except as may be expressly set forth herein, Landlord and Landlord's agents and employees shall not be liable for any latent or patent defect in the Premises or the Facility or for any consequential damages arising out of any loss of use of the Premises. Tenant shall give prompt written notice to Landlord in case of damage caused by fire or accident on the Premises. Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder and shall not seek any damages against any of Landlord Indemnified Parties (as hereinafter defined). The liability of Landlord for Landlord's obligations under this Lease shall not exceed and shall be limited to Landlord's interest in the Building and Tenant shall not look to any other property or assets in seeking either to enforce Landlord's obligations under this Lease to satisfy a judgment for Landlord's failure to

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perform such obligations. Notwithstanding the foregoing, Tenant shall have recourse against Landlord to the extent of (i) the net proceeds actually realized by Landlord in connection with the sale of the Building, (ii) any net insurance proceeds actually received by Landlord for fire or other casualty at the Building and (iii) any net condemnation proceeds actually received by Landlord in connection with a taking or appropriation of the Building under the power of eminent domain.

        10.02    Indemnification of Landlord.    Tenant hereby agrees to indemnify, protect, defend and hold Landlord and its partners, shareholders, officers, directors, employees, agents and representatives ("Landlord Indemnified Parties") harmless from and against any and all claims, damages, costs, losses or liability (i) for any death, injury or damage to any person or property whatsoever (A) occurring in, on or about the Premises or any portion thereof, or (B) occurring in, on or about the Premises, the Facility or the Project or any portion thereof, when such injury or damage shall be caused in part or in whole by the act, neglect, fault or omission of any duty with respect to the same by Tenant, its agents, servants, employees, guests, licensees or invitees excluding therefrom any injury or damage to the extent caused by or resulting from the negligence or willful misconduct of Landlord, and (ii) of whatever nature against Landlord arising from any act, omission or negligence of Tenant, its contractors, licensees, agents, servants, employees, invitees or visitors including any claims arising from any act, omission or negligence of Landlord and Tenant to the extent not caused by the negligence or willful misconduct of Landlord. Tenant hereby agrees to indemnify, protect, defend and hold harmless Landlord and all Landlord Indemnified Parties from and against any and all claims, damages, costs, liability or losses by or on behalf of any person, firm or corporation arising from the conduct or management of any work, alteration, addition, improvement or thing whatsoever done by or on behalf of Tenant in or about the Premises or arising from transactions of Tenant concerning the Premises and hereby agrees to indemnify, protect, defend and hold Landlord and all Landlord Indemnified Parties harmless from and against any and all liens or claims arising from any breach or default on the part of Tenant beyond the expiration of any applicable grace or cure period in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease or arising from any act or negligence of its agents, contractors, subcontractors, material men, servants, employees or licensees, and from and against all costs, reasonable attorney's fees, expenses and liabilities incurred in connection with any such claim or action or proceeding brought thereon. In case any action or proceeding is brought against Landlord or any Landlord Indemnified Parties by reason of any claims or liability within the limits of the foregoing indemnities, Tenant shall defend such action or proceeding at Tenant's sole expense by counsel reasonably satisfactory to Landlord. In the event Tenant does not provide such a defense against any and all claims, demands, actions or causes of action, threatened or actual, then Tenant shall in addition to the above, pay to Landlord the reasonable attorneys' fees, legal expenses and costs incurred by Landlord in providing or preparing such defense, and Tenant agrees to cooperate with Landlord in such defense, including, without limitation, the providing of affidavits and testimony upon request of Landlord. Landlord agrees to cooperate with Tenant in such defense in the event that Tenant and not Landlord undertakes such defense.

        10.03    Landlord's Indemnity.    Notwithstanding anything to the contrary contained in Sections 10.01 or 10.02 above, Tenant shall not be required to protect, defend, save harmless or indemnify Landlord from any liability for injury, loss, accident or damage to any person or property resulting from Landlord's negligence or willful misconduct or that of Landlord's agents or employees in connection with Landlord's activities on or about the Premises, the Building or the Facility (including the Common Areas), and, subject to the terms of Section 10.06 below, Landlord hereby indemnifies and agrees to protect, defend and hold Tenant harmless from and against any liability for injury, loss, accident or damage to any person or property resulting from Landlord's negligence or willful misconduct in connection with Landlord's activities in or about the Building or the Facility. Such exclusion from Tenant's indemnity and such agreement by Landlord to so indemnify and hold Tenant harmless are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease to the extent that such policies cover (or, if

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such policies would have been carried as required, would have covered) the result of gross negligence or willful misconduct of Landlord or those of its agents or employees. In case any action or proceeding is brought against Tenant by reason of any claims or liability within the limits of the foregoing indemnity, Landlord shall defend such action or proceeding at Landlord's sole expense by counsel selected by Tenant and satisfactory to Landlord.

        10.04    Survival of Indemnities.    The provisions of Sections 10.01, 10.02 and 10.03 together with any other indemnification provisions in this Lease shall survive the expiration or termination of this Lease with respect to any claims, expenses or liability occurring prior to such expiration or termination. Tenant's covenants, agreements and indemnification obligations in Sections 10.01 and 10.02 above are not intended to and shall not relieve any insurance carrier of its obligations under policies required to be carried by Tenant pursuant to the provisions of this Lease.

        10.05    Tenant's Insurance.    Tenant shall purchase, at its own expense, and keep in force during the Term, the following insurance:

        (a)  "All Risks" property insurance including at least the following perils: fire and extended coverage, smoke damage, vandalism, malicious mischief, sprinkler leakage (including earthquake sprinkler leakage). This insurance policy must be upon all property owned by Tenant, for which Tenant is legally liable, or which is installed by or on behalf of Tenant and which is located in the Building including, without limitation, any tenant improvements made in or to the Premises including, without limitation, the initial Tenant Improvements to be installed pursuant to the Tenant Improvement Agreement attached hereto as Exhibit E and made a part thereof and any Alterations, and all furniture, fittings, installations, fixtures and any other personal property of Tenant, in an amount not less than the full replacement cost thereof.

        (b)  Commercial General Liability Insurance or Comprehensive General Liability Insurance (on an occurrence form) insuring bodily injury, personal injury and property damage including the following divisions and extensions of coverage: Premises and Operations; Owners and Contractors protective; blanket contractual liability (including coverage for Tenant's indemnity obligations under this Lease); products and completed operations; liquor liability (if Tenant serves alcohol on the Premises); and fire and water damage legal liability in an amount sufficient to cover the replacement value of the Premises, including tenant improvements, that are rented under the terms of this Lease. Such insurance must have the following minimum limits of liability: bodily injury, personal injury and property damage—$3,000,000 each occurrence, provided that if liability coverage is provided by a Commercial General Liability policy the general aggregate limit shall apply separately and in total to this location only (per location general aggregate), and provided further, such minimum limits of liability may be adjusted from year to year to reflect commercially reasonable insurance coverages for tenants of first class office complexes comparable to the Facility, rounded to the nearest five hundred thousand dollars.

        (c)  Comprehensive Automobile Liability insuring bodily injury and property damage arising from all of Tenant's owned and hired vehicles, if any, with minimum limits of liability of $1,000,000 per accident.

        (d)  Worker's Compensation as required by the laws of the State of California with the following minimum limits of liability: Coverage A—statutory benefits; Coverage B—$1,000,000 per accident and disease.

        (e)  Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts, and for insurance risks against which, a prudent tenant would protect itself, but only to the extent coverage for such risks and amounts are available in the insurance market at commercially acceptable rates. Landlord makes no representation that the limits of liability required to be carried by Tenant under the

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terms of this Lease are adequate to protect Tenant's interests and Tenant should obtain such additional insurance or increased liability limits as Tenant deems appropriate. Tenant's insurance policies shall in all events: (i) name Landlord, Landlord's property manager and any party holding an interest in this Lease or to which this Lease may be subordinated, as additional insureds; (ii) provide that said insurance shall not be canceled or altered unless thirty (30) days' prior written notice shall have been given to Landlord and such cancellation or alteration shall not be effective until such notice shall have been given to Landlord; and (iii) be issued by companies licensed to do business in the State of California and have a Best key rating of at least "B+" "VIII" or better. All liability insurance under this Section 10.05 shall be primary and noncontributing with any insurance which may be carried by Landlord. The limits of said insurance shall not, however, limit the liability of Tenant under Sections 10.01 and 10.02. Tenant shall deliver to Landlord original certificates from the issuing insurance companies evidencing that said insurance is in full force and effect and complies with the requirements of this Section 10.05.

        10.06    Waiver of Subrogation.    To the extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and Tenant each waive any right to recover against the other for (i) damages for injury to or death of persons, (ii) damage to property, (iii) damage to the Premises or the Facility or any part thereof, (iv) claims arising by reason of the foregoing, but only to the extent that any of the foregoing damage or damages and/or claims referred to above are covered (and only to the extent of such coverage) by insurance actually carried by either Landlord or Tenant. This provision is intended to waive fully, and for the benefit of each party, any rights and or claims which might give rise to a right of subrogation on any insurance carrier. The coverage obtained by each party pursuant to this Lease shall include, without limitation, a waiver of subrogation by the carrier which conforms to the provisions of this Article X.

        10.07    Right to Self Insure.    Tenant shall have the right to self-insure as to its insurance obligations under this Lease. Tenant shall notify Landlord in writing if Tenant shall elect at any time to so self-insure and if Tenant shall so elect, Tenant shall look to itself for any losses it may sustain with respect to the Premises, the Building or the Facility except as expressly provided in Section 10.03 hereof; it being agreed, however, that if Tenant elects to self-insure any of its insurance obligations hereunder, Tenant shall be treated as if Tenant carried all insurance required to be carried by Tenant hereunder for purposes of any claims including Section 10.06 containing Tenant's waiver of subrogation. Tenant's notice to Landlord shall include the name, address and telephone number of the party to whom Landlord should direct all insurance claims and inquiries.

        10.08    Landlord's Insurance.    Landlord shall at all times during the Term of this Lease cause the core and shell of the Building including the Common Areas thereof and the boiler and similar machinery installed therein to be insured against fire and extended coverage perils (but excluding loss or damage by earthquake unless required by the holder of any mortgage or the beneficiary of any deed of trust covering the Building) with losses payable to Landlord and/or the holder of any such mortgage or the beneficiary of any such deed of trust in an amount not less than full replacement cost value or in such lesser amount as will avoid co-insurance provided, however, if (i) such insurance coverage ceases to be available or (ii) the cost of such insurance increases so that owners of similar properties in the Newport Beach/Irvine (including the John Wayne Airport)/South Coast Plaza area generally cease to carry such insurance, Landlord shall maintain such insurance coverage as is customarily maintained by owners of similar properties in the Newport Beach/Irvine (including the John Wayne Airport)/South Coast Plaza area and Landlord shall carry and maintain such other insurance in such amounts as may from time to time be reasonably and customarily carried by owners of facilities similarly situated in the Newport Beach/Irvine (including the John Wayne Airport)/South Coast Plaza area, due regard being given to the height and type of facility, its construction, age, use and occupancy. It is expressly understood and agreed that Landlord will not be obligated to carry insurance on any trade fixtures, furnishings, equipment or other personal property or effects of Tenant, or insurance against

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interruption of Tenant's business, any consequential losses or damages which may be suffered by Tenant or any insurance against vandalism to or theft of any property of Tenant, Tenant hereby expressly assuming the risk of any and all such damage or loss and the obligations to insure against all or any such damage or loss as provided in Sections 10.01 and 10.07 above. The cost of all insurance maintained by Landlord pursuant to this Section 10.08 shall be included in Operating Expenses.

ARTICLE XI—SERVICES AND UTILITIES

        11.01    Maintenance by Landlord.    Landlord shall cause to be maintained the Facility Common Area, including lobbies, stairs, elevators, corridors and restrooms, the windows in the Facility, the mechanical, plumbing and electrical equipment serving the Premises or the Facility, and the structure itself, in first class condition comparable to the respective condition thereof existing as of the date hereof, subject to reasonable wear and tear and damage by fire or other casualty. Notwithstanding the foregoing, Landlord shall cause to be repaired, at Tenant's expense, any damage occasioned by the act of Tenant.

        11.02    Delivery of Services and Utilities.    Subject to other provisions in this Lease, Landlord shall cause to be furnished to the Premises during the periods from 7:00 A.M. to 6:00 P.M., Monday through Friday and 8:00 A.M. to 1:00 P.M., Saturday (but exclusive, in any event, of New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas) (collectively, "Normal Business Hours"), heat and air conditioning required, in Landlord's judgment, for the comfortable use and occupation for the Permitted Use of the Premises. Landlord shall provide water suitable for the Permitted Use of the Premises and up to five (5) watts of electricity (demand load) per usable square foot of space deemed to be in the Premises on a twenty-four (24) hour per day, seven (7) days per week basis. Additional or after-hours heating or air conditioning shall be available to Tenant subject to and in accordance with the terms of Section 11.05. Tenant also agrees at all times to cooperate fully with Landlord and to abide by all the regulations and requirements which Landlord may prescribe for the proper function and protection of heating, ventilating and air conditioning systems. Wherever heat-generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises, and the cost thereof, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord within ten (10) days after written notice by Landlord. Landlord shall provide janitorial services sufficient to keep the Premises in a clean condition, provided that Tenant shall leave the Premises in a reasonably tidy condition at the end of each business day. The cleaning specifications in effect as of the date hereof are attached hereto as Exhibit F and made a part of hereof, which cleaning specifications are subject to change from time to time; provided, however, Landlord shall not materially reduce the level of cleaning service delineated on such cleaning specifications. Subject to events beyond Landlord's reasonable control, Landlord shall provide a minimum of two (2) passenger elevators to serve the Premises at all times.

        11.03    Equipment Requiring Excessive Utilities.    Landlord acknowledges that Tenant, without Landlord's consent, shall have the right to install and operate equipment and machinery normal for modern office purposes including, without limitation, calculators, typewriters, word processors, personal computers, copying machines and computer terminals. Landlord's review and approval hereunder shall be principally directed for determining the adequacy of the existing HVAC system to accommodate Tenant's intended uses. Tenant shall not, without the prior written consent of Landlord, use (except as provided in the first sentence of this Section 11.03) any apparatus or device in the Premises using excess lighting or using current in excess of that which is determined by Landlord as reasonable and normal for the Permitted Use or which will in any way increase the amount of electricity or water usually furnished or supplied for the Permitted Use of the Premises. If Tenant shall require electrical energy in any portion of the Premises, such as Tenant's computer rooms, in excess of five (5) watts per

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usable square foot and such electrical energy is available as determined by Landlord, Landlord (shall install, at Tenant's expense, meter(s) to measure Tenant' consumption of electrical energies in such portions of the Premises in excess of five (5) watts per usable square foot. Tenant shall pay Landlord for all costs incurred in connection with the installation of such submeters upon demand. The cost of electricity utilized by Tenant, in excess of the five (5) watts of electricity per usable square foot of space deemed to be contained in the Premises as provided in Section 11.02, shall be paid for by Tenant to Landlord as additional rent and shall be calculated at the then applicable rate prescribed by the public utility company servicing the Premises for submetered electrical energy plus Landlord's administrative fee (not to exceed five (5%) percent) and all taxes, if any, incurred in connection therewith. If any tax shall be imposed upon Landlord's receipts from the sale or resale of electrical energy to Tenant, the pro rata share applicable to the electrical energy service received by Tenant shall be passed on to and included in the bill of and paid by Tenant. Landlord shall bill Tenant monthly, for the cost of its consumption of electricity in the Premises in excess of five (5) watts per usable square foot and Tenant shall pay such bill within fifteen (15) days following billing receipt therefor.

        11.04    Right to Curtail Services and Utilities.    Landlord in its sole but reasonable discretion may temporarily cease any services or utilities to the Premises or the Facility by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing utilities and services, (ii) failure to furnish or delay in furnishing any such utilities or services when such failure or delay is caused by acts of God or the elements, labor disturbances of any character or any other accidents or breakage or other conditions beyond the reasonable control of Landlord, (iii) the limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other services or utilities whatsoever serving the Premises or the Facility, necessary to comply with Applicable Law or any governmental energy conservation program, and (iv) the making of any repairs, additions, alterations or improvements to the Facility or the Premises until such repairs, additions, alterations, or improvements have been completed. Except as expressly provided in Section 11.06 hereof, no such reduction or cessation of services or utilities shall constitute an eviction or disturbance of Tenant's use or possession of the Facility, or a breach by Landlord of any of its obligations hereunder, or render Landlord liable for damages, including but not limited to any damages, compensation or claims arising from any reduction or cessation of services or entitle Tenant to any compensation or to any abatement or diminution of Rent or relieve Tenant of any of its obligations under this Lease. Notwithstanding the foregoing, except in an emergency, Landlord shall endeavor to provide Tenant with reasonable advance notice of any planned interruption of services of a material nature and Landlord shall use reasonable efforts to minimize interference with Tenant's business operations during the exercise of these rights and Landlord shall use reasonable diligence to cause such services to be restored where it is within Landlord's reasonable control to do so.

        11.05    After Hours and Additional Services.    The Rent does not include any charge to Tenant for the furnishing of any additional service of heat, cooled air or mechanical ventilation or elevator service (beyond the elevator service described in Section 11.02 above) to the Premises during periods other than during Normal Business Hours (hereinafter referred to as "Overtime Periods"). Accordingly, if Landlord shall furnish any (i) passenger elevator facilities (beyond the elevator service described in Section 11.02 above) to Tenant during Overtime Periods or freight elevator facilities or (ii) heat, cooled air or ventilation to the Premises during Overtime Periods, then Tenant shall pay Landlord additional rent for such facilities or services at the standard rates then fixed by Landlord for the Facility or, if no such rates are then fixed, at reasonable rates. Landlord represents that its current rate for heat, cooled air and ventilation to the Premises during Overtime Periods is $75.00 per hour, which rate is subject to reasonable change from time to time. Neither the facilities nor the services referred to in this Section 11.05 shall be furnished to Tenant or the Premises if Landlord has not received advance notice from Tenant specifying the particular facilities or services requested by Tenant at least twenty-four (24) hours prior to the date on which the facilities or services are to be furnished (other than if Tenant is requesting the use of HVAC during periods other than during Normal Business Hours, hereinafter

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referred to as "Extra HVAC Use", in which case Tenant must give Landlord a minimum of two (2) hours advance notice specifying the times of Extra HVAC Use, which notice must be given to Landlord during Normal Business Hours).

        11.06    Failure to Provide Essential Services.    Notwithstanding anything to the contrary contained in this Lease, if Landlord fails to provide essential services which Landlord is obligated to supply to the Premises pursuant to the express terms of this Lease to more than thirty percent (30%) of the Premises, if the failure is a result of any act or omission of Landlord (a "Landlord Act") and if such failure continues for three (3) consecutive business days after notice from Tenant to Landlord of such failure, then for each day that Landlord fails to provide such essential services, the Rent shall be abated in the proportion to the amount of the Premises not receiving essential services (provided and upon the condition that the failure to so provide any essential service is not caused by or in connection with any act or omission of Tenant or any act or omission of any of Tenant's employees, agents, contractors, licensees or invitees). In addition, if Landlord fails to provide essential services which Landlord is obligated to supply to the Premises pursuant to the express terms of this Lease to more than thirty percent (30%) of the Premises for any reason whatsoever other than a Landlord Act and if such failure continues for seven (7) consecutive business days after notice from Tenant to Landlord of such failure, then for each day that Landlord fails to provide such essential services, the Rent shall be abated in the proportion to the amount of the Premises not receiving essential services (provided and upon the condition that the failure to so provide any essential service is not caused by or in connection with any act or omission of Tenant or any act or omission of any of Tenant's employees, agents, contractors, licensees or invitees). Notwithstanding the foregoing, if Landlord is diligently pursuing the repair of any such service and Landlord is providing a substitute service reasonably suitable for Tenant's purposes, (i.e., bringing in portable air-conditioning equipment when the Building air-conditioning system is not functioning), then Tenant shall not be entitled to any abatement of Rent. The above described rental abatement shall constitute Tenant's sole and exclusive remedy with respect to Landlord's failure to provide essential services and Tenant hereby waives all other rights and remedies Tenant may have at law or in equity with respect to the failure to so provide essential services; provided, however, such waiver shall not be deemed to limit Tenant's right to a rental abatement in the event of a fire or other casualty or a taking by condemnation or eminent domain as set forth in Articles XX and XXI hereof.

ARTICLE XII—ESTOPPEL CERTIFICATE

        Within fifteen (15) days following any written request which Landlord or Tenant may make from time to time, the other party shall execute and deliver to Landlord or Tenant, as the case may be, an estoppel certificate substantially in the form attached hereto as Exhibit G and incorporated herein by reference, indicating thereon any exceptions thereto which may exist at that time. Failure by Tenant or Landlord, as the case may be, to execute and deliver such certificate shall constitute an acknowledgment by Tenant or Landlord, as the case may be, that the statements included in Exhibit G are true and correct without exception. Landlord and Tenant intend that any statement delivered pursuant to this Article XII may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Project, the Facility or any interest therein or any potential lender or purchaser of Tenant. Landlord shall have the right to substitute for the attached Exhibit G a certificate in form reasonably required by Landlord's mortgagee, provider of financing or purchaser of property.

ARTICLE XIII—EXTENSION OF TERM

        13.01    Option to Extend Term.    Provided (i) this Lease shall then be in full force and effect and Tenant shall not then be in default hereunder beyond the expiration of any applicable grace or cure period either at the time of the exercise of such option or upon commencement of the Extension Term, and (ii) Tenant shall accept the Premises for the Extension Term "as is", Tenant shall have the right, at

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its option, to extend the Term for one consecutive five (5) year period (the "Extension Term"). The Extension Term shall commence on the day after the Term Expiration Date and shall expire on the day immediately preceding the fifth (5th) anniversary of the Term Expiration Date (the "Extension Term Expiration Date") unless such Extension Term shall sooner end pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law. Tenant shall give Landlord written notice of Tenant's intention to exercise any such option at least one hundred eighty (180) days but not more than two hundred forty (240) days prior to the scheduled Term Expiration Date, the time of exercise being of the essence and upon the giving of such notice, this Lease and the Term shall be extended without execution or delivery of any other or further documents, with the same force and effect as if the Extension Term had originally been included in the Term and the Scheduled Term Expiration Date and the Term Expiration Date shall thereupon be deemed to be the last day of the Extension Term. All of the terms, covenants and conditions of this Lease shall continue in full force and effect during any such Extension Term, including items of additional rent and escalation which shall remain payable on the terms herein set forth, except that the Basic Rent shall be determined in accordance with the terms of Section 13.02 below and after Tenant shall have exercised its right to extend the Term for the Extension Term, Tenant shall have no further right to extend the Term of this Lease pursuant to this Article XIII.

        13.02    Fair Market Rental Value.    The annual Basic Rent payable by Tenant for the Premises during the Extension Term shall be the "Fair Market Rental Value" for the Premises during the Extension Term, determined prior to the exercise of the option to extend the Term in accordance with the terms of Section 13.03 hereof.

        13.03    Appraisal.    The term "Fair Market Rental Value" for the purposes of this Lease shall mean the annual amount per rentable square foot that a willing, comparable, new non-renewal, non-equity, non-expansion tenant (excluding sublease and assignment transactions) will pay for unencumbered space, and a willing comparable landlord of a comparable quality facility located in the Newport Beach/South Coast Plaza, Irvine area would accept, at arm's length (what Landlord is accepting in current transactions for the Facility may be considered), giving appropriate consideration to annual rental rates per rentable square foot (calculated pursuant to BOMAI Standards, as amended pursuant to the terms of Section 2.02 hereof), escalation (including whether or not Tenant is being given a current base year, the type, gross or net, and if gross, whether base year or expense "stop"), and abatement provisions reflecting free rent and/or no rent during the period of construction or any other period during the lease term, the presence or absence of a tenant improvement allowance, brokerage commissions, if any, parking charges, length of the lease term, size and location of premises being leased, and other generally applicable terms and conditions of tenancy for comparable space in comparable facilities in the Newport Beach/South Coast Plaza/Irvine (including the John Wayne Airport) area as evidenced where possible by recently consummated lease transactions in such comparable facilities. Landlord shall determine the Fair Market Rental Value by using its good faith judgment and shall provide written notice of such amount and the corresponding Basic Rent to Tenant within fifteen (15) business days after Tenant provides notice to Landlord electing to extend the Term. Tenant shall have twenty (20) days ("Tenant's Review Period") after receipt of Landlord's notice of the Fair Market Rental Value and the new Basic Rent within which to accept such determination or to object thereto in writing. If Tenant so objects, Landlord and Tenant shall attempt to agree upon such Fair Market Rental Value, using their good faith efforts. If Landlord and Tenant fail to reach an agreement within thirty (30) days following Tenant's Review Period (the "Outside Agreement Date"), Tenant shall have the right to cancel its exercise of its option to extend the Term of this Lease by written notice delivered to Landlord not later than five (5) business days after the Outside Agreement Dates not exercise its right to cancel its election to extend the Term of this Lease, then the determination of Fair Market Rental Value shall be made by appraisal, in accordance with the following terms of this Section 13.03. Failure of Tenant to object to Landlord's determination in writing within such period shall conclusively be deemed Tenant's approval of the Fair Market Rental Value and corresponding new Basic Rent determined by Landlord. Landlord and Tenant shall each select a

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reputable, qualified, licensed appraiser having an office in Orange County (i) who shall be a member in good standing of the Member Appraisal Institute or any successor association or body of comparable standing if such institute is not then in existence (the "Institute"), (ii) who shall have been active over the five (5) year period ending on the date of such appointment in the appraisal of facilities comparable to the Facility in the Newport Beach/South Coast Plaza/Irvine (including the John Wayne Airport) area and (iii) who shall be familiar with the rentals then being charged in the Facility (respectively, "Landlord's Appraiser" and "Tenant's Appraiser"; any appraiser satisfying the criteria set forth in (i), (ii) and (iii) above shall be deemed to be "Qualified") who shall confer promptly after their selection by Landlord and Tenant and shall use their reasonable efforts to agree upon the Fair Market Rental Value of the Premises for the applicable Extension Term. If Landlord's Appraiser and Tenant's Appraiser cannot reach agreement within thirty (30) days after the date of Tenant's notice of the exercise of its option, then, within fifteen (15) days thereafter, Landlord's Appraiser and Tenant's Appraiser shall together designate a third, reputable, Qualified licensed real estate appraiser having an office in Orange County (the "Independent Appraiser"). Upon the failure of Landlord's Appraiser and Tenant's Appraiser to agree upon the designation of the Independent Appraiser, then either Landlord's Appraiser or Tenant's Appraiser may request such appointment by the Institute or by the presiding judge of the Superior Court of Orange County, California upon ten (10) days notice. Concurrently with such appointment, Landlord's Appraiser and Tenant's Appraiser shall each submit a letter to the Independent Appraiser, with a copy to Landlord and Tenant, setting forth such appraiser's estimate of the Fair Market Rental Value of the Premises for the applicable Extension Term (respectively, "Landlord's Appraiser's Letter" and "Tenant's Appraiser's Letter"). The Independent Appraiser shall conduct such investigations and hearings as he/she may deem appropriate and shall, within thirty (30) days after the date of his/her designation, choose either the Fair Market Rental Value set forth in Landlord's Appraiser's Letter or Tenant's Appraiser's Letter to be the Basic Rent for the Premises for the applicable Extension Term and such determination shall be binding upon Landlord and Tenant. Landlord and Tenant shall each pay the fees and expenses of its respective appraiser. The fees and expenses of the Independent Appraiser shall be shared equally by Landlord and Tenant.

ARTICLE XIV—AUDITORIUM/CONFERENCE ROOMS

        During the Term of this Lease, provided that the corporate auditorium in the Tower (the "Auditorium") and the classrooms (collectively, the "Conference Rooms") are available for use by tenants of the Facility and provided that Tenant shall have an Approved Appointment (as hereinafter defined) for each desired use, Landlord shall make the Auditorium or the Conference Rooms available for Tenant's use up to twice per month during Normal Business Hours for up to eight (8) hours each, without charge to Tenant. Tenant acknowledges that its right to use the Auditorium and the Conference Rooms are noncumulative and that if during any month of the Term, Tenant shall fail to use the Auditorium or the Conference Rooms twice per month as aforesaid, Tenant shall have no right at any time thereafter to use the Auditorium or the Conference Rooms more than twice per month. Tenant shall use the Auditorium and the Conference Rooms in accordance with the reasonable rules and regulations Landlord may adopt, from time to time, with respect thereto. Tenant acknowledges and agrees that Landlord shall have no obligation of any kind to provide any set up, food, cleaning or any other service of any kind to the Auditorium, the Conference Rooms or any other locations within the Facility, as the case may be, in connection with Tenant's use thereof and further acknowledges and agrees that if Tenant does not deliver the Auditorium, the Conference Rooms or any other location within the Facility, as the case may be, to Landlord immediately following an Approved Appointment in the condition same was in prior to the Approved Appointment, then Landlord may charge Tenant the published hourly rate then in effect for such usage as Landlord's customary costs incurred to clean the Auditorium and/or the Conference Rooms.

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ARTICLE XV—SURRENDER OF PREMISES; HOLDING OVER

        15.01    Surrender of Premises.    Subject to the provisions of Article VI regarding Alterations, at the end of the Term or other sooner termination of this Lease, Tenant shall peaceably deliver up to Landlord possession of the Premises, broom clean and in good order and condition, together with all improvements, fixtures or additions thereto by whomsoever made, in the same condition as received, or first installed, damage by fire, earthquake, reasonable wear and tear, act of God or the elements alone excepted. Tenant shall, upon or prior to the termination of this Lease, remove all movable furniture and equipment belonging to Tenant, at Tenant's sole cost, title to which shall be in Tenant until such termination, and shall repair any damage caused by such removal. Property not so removed, upon termination, shall be deemed abandoned by Tenant, and title to the same shall thereupon pass to Landlord, but the foregoing shall not be deemed to relieve Tenant of responsibility for the cost of removal of any such property and the repair of any damage caused by such removal.

        15.02    No Merger.    The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at Landlord's option, terminate all or any existing subleases or subtenancies or may, at Landlord's option, operate as an assignment to it of any or all such subleases or subtenancies.

        15.03    Holding Over.    If Tenant shall retain possession of the Premises or any part thereof without Landlord's consent following the expiration of the Term or sooner termination of this Lease for any reason, then, Tenant shall pay to Landlord for each day of such retention (i) from the date of the expiration or earlier termination of this Lease to but not including the sixtieth (60^th) day thereafter (the "Two Month Holdover Date"), Basic Rent at a rate which is equal to one hundred fifty percent (150%) of the Basic Rent, and (ii) thereafter, Basic Rent at a rate which is equal to two hundred percent (200%) of the then Basic Rent. Tenant shall also be liable for the Holdover Percentage of Tenant's Share of Operating Expenses and all other items of additional rent and for the performance of all other Lease obligations for any holdover period. Tenant shall indemnify, protect, defend and hold Landlord harmless from any loss or liability resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by any succeeding tenant founded on such delay; provided, however, that such indemnification shall not include losses or liability incurred prior to the Two Month Holdover Date. Acceptance of Rent and/or any other consideration by Landlord following expiration or termination shall not constitute a renewal of this Lease, and nothing contained in this Article XV shall waive Landlord's right of reentry or any other right. Tenant shall be only a tenant at sufferance, whether or not Landlord accepts any Rent and/or other consideration from Tenant while Tenant is holding over without Landlord's written consent.

ARTICLE XVI—SUBORDINATION AND QUIET ENJOYMENT

        16.01    Subordination.    Provided Landlord obtains from its current lender and any future lender with an interest in the Facility which is superior to Tenant's interest, a non-disturbance agreement on such lender's then customary form for Tenant's benefit, at the election of Landlord or any mortgagee or beneficiary under a deed of trust which covers the Premises, or any lessor under a ground or any underlying lease with respect to the Facility, this Lease shall be subject and subordinate at all times to: (i) all ground leases, master leases or underlying leases and covenants, conditions and restrictions, reciprocal easement agreements, and parking agreements relating to the operation, management and development of the Facility which may now exist or hereafter be executed affecting the Facility, and all amendments, renewals, modifications, consolidations, supplements and extensions thereof, and (ii) the lien of any and all mortgages or deeds of trust which may now exist or hereafter be executed in any amount or amounts for which the Facility, the Premises, ground leases or underlying leases, or any portion thereof or Landlord's interest or estate in any such items, is specified as security and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof and the rights of the parties in all such leases, agreements and

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instruments (collectively, the "Superior Interests"). Notwithstanding the foregoing, Landlord shall have the unconditional right to subordinate or cause to be subordinated any such Superior Interests which may now exist or hereafter be executed in any amount or amounts for purposes stated hereinabove to this Lease. Landlord represents that as of the date hereof, State Street Bank and Trust Company is the only entity which is a beneficiary under a deed of trust which covers the Premises. If any such Superior Interest shall terminate or be foreclosed upon, for any reason, then, at the election of Landlord's successor in interest, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, subject to and in accordance with the terms and conditions of this Lease and any modifications hereto. The provisions of this Section 16.01 shall be self-operative upon any election by Landlord or any mortgagee or beneficiary and no further instrument shall be required to give effect to said provisions. Tenant, however, upon demand of Landlord or any such mortgagee or beneficiary, agrees to execute, from time to time, instruments in confirmation of the foregoing provisions of this Section 16.01, satisfactory to Landlord or any mortgagee or beneficiary, acknowledging such attornment and setting forth the terms and conditions of its tenancy. Nothing contained in this Section 16.01 shall be construed to impair any right otherwise exercisable by Landlord or any such mortgagee or beneficiary.

        16.02    Quiet Enjoyment.    Subject to the provisions of Section 16.01, Landlord covenants and agrees that, if and so long as no Event of Default shall occur, Tenant may peaceably and quietly hold and enjoy the Premises for the Term of this Lease, without hindrance from Landlord or persons claiming, by, through or under Landlord. Tenant's right to use the Premises and the Common Area as provided in this Lease shall be subject to all Applicable Laws now in force or which may hereafter be in force and no such Applicable Laws shall in any way affect this Lease, abate Rent, relieve Tenant of any liabilities or obligations under this Lease, or give rise to any claims whatsoever against Landlord.

ARTICLE XVII—RULES AND REGULATIONS

        Tenant shall comply with all of the rules and regulations contained on Exhibit H attached hereto and incorporated herein by reference, as such rules and regulations may be revised from time to time by Landlord. To the extent reasonably practicable, Landlord shall endeavor to provide Tenant with thirty (30) days prior notice of the adoption of new rules and regulations or any changes or additions to existing rules and regulations; provided, however, no new rule or regulation shall materially reduce Tenant's rights or materially increase Tenant's obligations under this Lease. To the extent that there is any inconsistency between the terms of this Lease and the terms of any new Rule or Regulation, the terms of this Lease shall control. The rules and regulations, as same may be revised from time to time, shall not be enforced against Tenant in a discriminatory manner.

ARTICLE XVIII—ENTRY

        Landlord reserves the right to enter the Premises at all reasonable hours upon reasonable prior notice (except in cases of emergency) by means of a master key for any reasonable purpose. In addition, if Tenant fails to exercise the option to extend the Term as set forth in Article XIII hereof, or, if the Term shall have been extended, nine (9) months prior to the end of the Term, as extended, Landlord shall be permitted to enter the Premises for purposes of showing the Premises to prospective tenants. Landlord must provide Tenant with a minimum of two (2) hours notice, which notice must be given to Tenant during Normal Business Hours, prior to showing the Premises. If Tenant shall not be personally present to open and permit entry into the Premises at any time, Landlord may enter by means of a master key without liability to Tenant and without affecting the Lease. Tenant understands and agrees that all parts (except surfaces facing the interior of the Premises) of all walls, windows and doors bounding the Premises (including exterior Building walls, core corridor walls, doors and entrances), all balconies, terraces and roofs adjacent to the Premises, all space in or adjacent to the Premises used for shafts, stacks, stairways, chutes, pipes, conduits, ducts, fan rooms, heating, air

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cooling, plumbing and other mechanical facilities, service closets and other Building facilities are not part of the Premises, and Landlord shall have the use thereof, as well as access thereto, through the Premises for the purposes of cooperation, maintenance, alteration and repair. In connection with the exercise of any of the foregoing rights, Landlord shall use its reasonable efforts to exercise such rights in a manner intended to minimize material interference with Tenant's use of the Premises; provided however, Landlord shall not be obligated to use overtime or premium pay labor in connection therewith.

ARTICLE XIX—DEFAULT BY TENANT

        19.01    Events of Default.    The occurrence of any of the following and the expiration of the applicable cure period shall constitute an "Event of Default" on the part of Tenant:

        (a)  Failure to pay any installment of Basic Rent, Operating Expenses or any other item of Rent due and payable hereunder within ten (10) days after Tenant's receipt of written notice from Landlord that said payment has not been received.

        (b)  Failure to perform or breach of any obligations, agreement or covenant under this Lease other than as specified in Subsection (a), where such failure or breach continues for thirty (30) days after Tenant's receipt of written notice of such failure, provided, however, that if the default cannot be cured within thirty (30) days, Tenant shall not be in default of the Lease if Tenant promptly after notice from Landlord commences to cure the default within the thirty (30) day period and thereafter diligently prosecutes the same to completion. Such notice shall be in lieu of and not in addition to any notice required under Section 1161 of the California Code of Civil Procedure.

        (c)  Intentionally Deleted.

        (d)  A general assignment by Tenant for the benefit of creditors.

        (e)  The filing of any voluntary petition by Tenant under the Bankruptcy Code, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of sixty (60) days. If under Applicable Laws the trustee in bankruptcy or Tenant may affirm this Lease and continue to perform Tenant's obligations hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease.

        (f)    The employment of a trustee, receiver, liquidator, assignee, custodian, examiner, sequestrator (or similar official) in all cases to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease or the Premises, if such receivership remains undissolved for a period of ninety (90) days after creation thereof.

        (g)  The attachment, execution or other judicial seizure or non-judicial seizure of all or substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease or the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of ninety (90) days after the levy thereof.

        (h)  Tenant's admission in writing of its inability to pay its debts as they become due, Tenant's filing of a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, Tenant's filing of an answer admitting or failing timely to contest a material allegation of such a petition filed against Tenant in any such proceeding or, if within sixty (60) days after the commencement of any proceeding against Tenant seeking any reorganization or arrangement, composition, readjustment,

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liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed.

        If, at any time, (i) Tenant shall be comprised of two (2) or more persons, or (ii) Tenant's obligations under this Lease shall have been guaranteed by any person other than Tenant, or (iii) Tenant's interest in this Lease shall have been assigned, the word "Tenant" as used in clauses (d), (e), (f), (g) and (h), shall be deemed to mean any one or more of the persons primarily or secondarily liable for Tenant's obligations under this Lease. Any monies received by Landlord from or on behalf of Tenant during the pendency of any proceeding of the types referred to in said clauses (d), (e), (f), (g) and (h) shall be deemed paid as compensation for the use and occupation of the Premises and the acceptance of any such compensation by Landlord shall not be deemed an acceptance of Rent or a waiver on the part of Landlord of any rights under this Section 19.01.

        19.02    Remedies Upon Default or Termination.

        (a)  Any failure to pay Basic Rent, Operating Expenses and any other monetary obligation to be paid by Tenant under this Lease which is specifically designated as additional rent in this Lease shall be construed as failure to perform the obligation for payment of Rent.

        (b)  In the event of the occurrence of any Event of Default, Landlord shall have the right immediately to terminate this Lease, and at any time thereafter to recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, pursuant to the order of any court of competent jurisdiction entered after notice to Tenant and an opportunity for Tenant to be heard, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, at law or equity by reason of Tenant's default or of such termination.

        (c)  Even though Tenant has breached this Lease and/or abandoned the Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under Section 19.02(b) hereof, and Landlord may enforce all its rights and remedies under this Lease, including, without limitation, the right to recover Rent as it becomes due; and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord under Section 1951.4 of the Civil Code of the State of California or any successor code section. Acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interests under this Lease shall not constitute Landlord's election to terminate Tenant's right to possession.

        19.03    Damages Upon Termination.    Should Landlord terminate this Lease pursuant to the provisions of Section 19.02(b) hereof, Landlord shall have all the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California, or successor code section. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under Applicable Laws, Landlord shall be entitled to recover from Tenant: (i) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that the Tenant proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the term after the time of award exceeds the amount of such Rent loss that the Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom including, without limitation, attorneys' fees and costs; brokers' commissions; the costs of refurbishment, alterations, renovations and repair of the Premises, as well as the unamortized value of free rent, reduced rent, tenant improvement allowance amounts and any other economic concessions provided, paid for or incurred by Landlord. The "worth at the time of award" of the amounts referred

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to in subsections (i) and (ii) shall be computed with interest at the Interest Rate. The "worth at the time of award" of the amount referred to in subsection (iii) shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%).

        19.04    Operating Expenses.    For purposes of computing unpaid Rent which would have accrued and become payable under this Lease pursuant to the provisions of Section 19.03, for the calendar year of the default and each future calendar year in the Term shall be deemed to be equal to Tenant's Share of Operating Expenses for the calendar year prior to the year in which default occurs compounded at a per annum rate equal to the mean average rate of increase of Operating Expenses for the preceding three (3) calendar years.

        19.05    Performance by Landlord.    All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent, except as otherwise expressly set forth herein. If Tenant shall fail to pay any sum of money, other than Rent, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for thirty (30) days after notice thereof by Landlord, Landlord may, but shall not be obligated to do so, and without waiving or releasing Tenant from any obligations of the Tenant, make any such payment or perform any such act on the Tenant's part to be made or performed. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the Interest Rate, accruing from the date of such payment by Landlord until the date of repayment by Tenant shall be payable as additional rent to Landlord on demand, if such sums are specifically designated to be payable as additional rent in this Lease, and Tenant covenants to pay such sums, and Landlord shall have, in addition to any other right or remedy of Landlord, the same right and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of the Rent.

        19.06    Remedies Cumulative.    All rights, privileges and elections or remedies of the parties are cumulative and not alternative to the extent permitted by law except as otherwise provided herein.

Initial:
Landlord	Tenant

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ARTICLE XX—DAMAGE BY FIRE OR OTHER CASUALTY

        20.01    Notice of Loss.    If the Premises shall be damaged by fire or other casualty, the damage to the Base Building shall be repaired by and at the expense of Landlord promptly following notice by Tenant to Landlord of the damage to the Premises and following Landlord's receipt of insurance proceeds and the Rent until such repairs shall be made shall be reduced in the proportion which the area of the part of the Premises which is not usable (and is not used) by Tenant as a result of Landlord's failure to complete repairs bears to the total area of the Premises; provided, however, should Tenant reoccupy a portion of the Premises for the conduct of its business prior to the date such repairs are made, the Rent shall be reinstated with respect to such reoccupied portion of the Premises and shall be payable by Tenant from the date of such occupancy. Landlord shall have no obligation to repair any damage to, or to replace, any of the Tenant Improvements including, without limitation, the initial Tenant Improvements, installed pursuant to the Tenant Improvement Agreement, any Alterations made by or on behalf of Tenant or any fixtures, furniture, furnishings, equipment or other property or effects of Tenant, all of which shall be repaired by Tenant at its expense; provided however Landlord may (but shall have no obligation to) repair or replace such items as part of the repair or reconstruction of the base building shell improvements, provided Tenant shall deliver to Landlord insurance proceeds and/or funds of Tenant sufficient to pay for the cost of such repair or reconstruction. Within sixty (60) days after notice to Landlord of damage to the Premises or any part thereof by fire or other casualty, Landlord shall deliver to Tenant an estimate prepared by a reputable contractor selected by Landlord setting forth such contractor's estimate as to the reasonable time required to repair such damage. If the estimated time period exceeds nine (9) months, or if Landlord is actually unable to restore the Premises within such nine (9) month period for reasons other than Tenant Delays or Force Majeure Delays, Tenant may elect to terminate this Lease by notice to Landlord given not later than fifteen (15) days following the delivery of such estimate to Tenant. If Tenant elects to terminate this Lease, the Term of this Lease shall expire upon the thirtieth (30th) day after notice of such election is given by Tenant and Tenant shall vacate the Premises and surrender the same to Landlord and Tenant's obligation to pay rent and additional rent under this Lease shall terminate with respect to the portion of the Term occurring after the effective date of such termination.

        20.02    Substantial or Total Damage.    Anything in subsection 20.01 of this Article XX to the contrary notwithstanding, if the Premises are totally damaged or are rendered wholly untenantable, and if Landlord shall decide not to restore the Premises, or if the Building or the Facility shall be so damaged by fire or other casualty that, in Landlord's opinion, either substantial alteration, demolition or reconstruction of the Building or the Facility shall be required (whether or not the Premises shall have been damaged or rendered untenantable) or the Building or the Facility, after its repair, alteration or restoration shall not be economically viable as an office complex, then in any of such events, Landlord, at Landlord's option, may, not later than ninety (90) days following the damage, give Tenant a notice in writing terminating this Lease. If Landlord elects to terminate this Lease, the Term shall expire upon the thirtieth (30th) day after such notice is given, and Tenant shall vacate the Premises and surrender the same to Landlord. If Tenant shall not be in default under this Lease, then upon the termination of this Lease under the conditions provided for in the preceding sentence, Tenant's liability for Rent shall cease as of the day following such damage.

        20.03    Intentionally Deleted.

        20.04    Destruction During Final Year.    Notwithstanding anything to the contrary contained in this Lease, if the Premises, the Building or the Facility is wholly, substantially or materially damaged or destroyed within the final twelve (12) months of the Term of this Lease, Landlord may, at its option, by giving Tenant notice within sixty (60) days after notice to Landlord of the occurrence of such damage or destruction, elect to terminate this Lease. Tenant shall then have the right (notwithstanding anything to the contrary set forth in Section 13.01), which right shall be exercisable within fifteen (15) days thereafter, to exercise its option to extend the Term of this Lease granted pursuant to the terms of

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Section 13.01 hereof (provided and upon the condition that Tenant shall not have previously exercised its right to so extend the Term of this Lease pursuant to the terms of Section 13.01 hereof). If Tenant shall exercise its right to extend the Term as aforesaid, Landlord's option to terminate this Lease shall be null and void and of no further force and effect and Tenant shall have no further right to extend the Term of this Lease pursuant to Section 13.01. In addition, Tenant shall have the option to terminate this Lease if the Premises are wholly damaged, or damaged to the extent that Tenant's use thereof is materially impaired for a period in excess of one (1) month, within the last twelve (12) months of the Term, such option to be exercised by Tenant delivering Landlord written notice thereof within thirty (30) days of such damage.

        20.05    Destruction of Tenant's Personal Property, Tenant's Extra Improvements or Property of Tenant's Employees.    In the event of any damage to or destruction of the Premises, the Building or the Facility, under no circumstance shall Landlord be required to repair any injury, or damage to, or make any repairs to or replacements of any Tenant Improvements, including, without limitation, any of the Tenant Improvements installed pursuant to the Tenant Improvement Agreement, any Alterations made by or on behalf of Tenant, any fixtures, furniture, furnishings, equipment and other property or effects of Tenant installed or placed in the Premises by or on behalf of Tenant, and Tenant shall repair and restore all such Tenant Improvements, personal property, improvement, Alterations, furniture, fixtures, equipment and effects at Tenant's sole cost and expense. Landlord shall have no responsibility for any contents placed or kept in or on the Premises, the Building or the Facility by Tenant or Tenant's Employees.

        20.06    Exclusive Remedy.    This Article XX shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises, the Facility or the Project, and Tenant, as a material inducement to Landlord entering into this Lease, irrevocably waives and releases Tenant's rights under California Civil Code Sections 1932(2) and 1933(4) or any successor statute or laws of a similar nature. No damages, compensation or claims shall be payable by Landlord for any inconvenience, any interruption or cessation of Tenant's business, or any annoyance, arising from any damage to or destruction of all or any portion of the Premises or any of Tenant's property.

        20.07    Delays.    Landlord shall not be liable for reasonable delays which may arise by reason of adjustment of fire insurance on the part of Landlord and/or Tenant, and for reasonable delays on account of "labor troubles" or any other cause beyond Landlord's control.

        20.08    Property Damage.    Any Facility employee to whom any property shall be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's agent with respect to such property and neither Landlord nor its agents shall be liable for any damage to property of Tenant or of others entrusted to employees of the Facility, nor for the loss of or damage to any property of Tenant by theft or otherwise. Neither Landlord nor its agents shall be liable for any injury or damage to persons or property or interruption of Tenant's business resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leaks from any part of the Facility or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in the Facility or caused by construction of any private, public or quasi-public work other than damage caused directly as a result of Landlord's negligence or wilful misconduct; nor, except as otherwise expressly set forth herein, shall Landlord be liable for any latent defect in the Premises or in the Facility. Anything in this Article XX to the contrary notwithstanding, nothing in this Lease shall be construed to relieve Landlord from responsibility directly to Tenant for any loss or damage caused directly to Tenant wholly or in part by the negligence or willful misconduct of Landlord. Nothing in the foregoing sentence shall affect any right of Landlord to the indemnity from Tenant to which Landlord may be entitled. Tenant shall reimburse and compensate Landlord as additional rent within five (5) days after rendition of a statement for all expenditures made by, or damages or fines sustained or incurred by, Landlord due to nonperformance or noncompliance with or

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breach or failure to observe any term, covenant or condition of this Lease upon Tenant's part to be kept, observed, performed or complied with. Tenant shall give immediate notice to Landlord in case of fire or accident in the Premises, the Building or the Facility.

ARTICLE XXI—EMINENT DOMAIN

        21.01    Total or Substantial Taking.    If more than twenty-five percent (25%) of the Premises are taken or appropriated under the power of eminent domain or conveyed in lieu thereof, either party shall have the right to terminate this Lease at its option, and if a material portion of the 3351 Building, the 3347 Building or the Facility shall be taken or appropriated under power of eminent domain or conveyed in lieu thereof, Landlord may terminate this Lease at its option, provided Landlord also terminates the Leases of other tenants of the Building which are leasing comparably sized space for comparable lease terms; provided, however, that notwithstanding any other provision to the contrary, such termination shall be effective only to terminate Tenant's rights of possession and Tenant's obligations to pay Rent. This Lease shall remain in effect in the event that and to the extent that the effectiveness of the Lease is necessary under Applicable Laws to allow the parties to obtain or receive any award of compensation in connection with the exercise of such power of eminent domain. In either of such events, Landlord shall receive (and Tenant shall assign to Landlord upon demand from Landlord) any income, rent, award or any interest therein which may be paid in connection with the exercise of such power of eminent domain except as otherwise provided herein, and Tenant shall have no claim against Landlord for any part of the sums paid by virtue of such proceedings; provided, however, Tenant will have the right to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the taking of Tenant's furniture, fixtures, equipment and other personal property taken, if any, for Tenant's relocation expenses, and for any loss of goodwill or other compensable damage to Tenant's business and if and only if such award shall not reduce Landlord's award, Tenant will also have the right to recover from the condemning authority (but not from Landlord) any compensation as may be separately awarded or recoverable by Tenant for the value of Tenant's leasehold interest.

        21.02    Partial Taking.    If less than all of the Premises is taken and neither party shall have elected to terminate this Lease pursuant to its right to do so under Section 21.01, and the Premises have been damaged as a consequence of such partial taking or appropriation or conveyance, Landlord shall restore the Premises continuing under this Lease, at Landlord's cost and expense; provided, however, that Landlord shall not be required to repair or restore any injury or damage to the property of Tenant or to make any repairs or restoration of any Alterations, additions, fixtures or improvements installed on the Premises by or at the expense of Tenant, except to the extent that Landlord has been compensated for such damage. Thereafter, the Rent for the remainder of the Term shall be proportionately reduced in the proportion which the area of the part of the Premises which is taken, appropriated or conveyed bears to the total area of the Premises.

        21.03    Temporary Taking.    Notwithstanding anything to the contrary contained in this Article XXI, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under the power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy of the Premises after the end of the Term.

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ARTICLE XXII—SALE BY LANDLORD

        The obligations of Landlord under this Lease shall not be binding upon Landlord named herein after the sale, conveyance, assignment or transfer by such Landlord (or upon any subsequent landlord after the sale, conveyance, assignment or transfer by such subsequent landlord) of its interest in the Facility or this Lease, as the case may be, and in the event of any such sale, conveyance, assignment or transfer, Landlord shall be and hereby is entirely freed and relieved of all future covenants and obligations of Landlord hereunder, provided that, the purchaser, grantee, assignee or other transferee has assumed and agreed to carry out all covenants of Landlord hereunder by written agreement or by law. Neither the shareholders, directors or officers of Landlord, if Landlord is a corporation, nor the partners comprising Landlord (nor any of the shareholders, directors or officers of such partners), if Landlord is a partnership (collectively, the "Parties"), shall be liable for the performance of Landlord's obligations under this Lease. Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder and shall not seek any damages against any of the Parties. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee.

ARTICLE XXIII—WAIVER

        If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or of any other term, covenant or condition contained herein. Landlord's acceptance of any item of Rent shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive Landlord's right to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord.

ARTICLE XXIV—NOTICES

        All notices, demands and requests which may be required to be given by either party to the other hereunder shall be in writing and shall be sent either by hand delivery or by a nationally recognized overnight courier service (e.g., Federal Express), in either case return receipt requested, to the address of the appropriate party. Landlord or Tenant may from time to time designate in a notice to the other party hereto additional or different addressees and addresses for purposes of delivery of notices. Notices, demands and requests sent as herein provided shall be deemed given when the same are received or refused. Notices to Tenant shall be sent to the attention of:

Aames Financial Corporation
350 South Grand Avenue, Suite 43rd Floor
Los Angeles, California 90071
Attn: Senior Vice President, Administration

with a copy to:

Aames Financial Corporation
350 South Grand Avenue, Suite 43rd Floor
Los Angeles, California 90071
Attn: General Counsel

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and:

Cushman & Wakefield of California, Inc.
601 South Figueroa Street, 47th Floor
Los Angeles, California 90017
Attn: Tom McDonald

Notices to Landlord shall be sent to the attention of:

Jamboree LLC
c/o Winthrop Management
3333 Michelson Drive, Suite 210
Irvine, California 92612
Attention: Ms. Janine R. Padia

ARTICLE XXV—OPERATING EXPENSES

        In addition to Basic Rent provided to be paid hereunder, Tenant shall pay as additional rent, Tenant's Share of Operating Expenses in the manner set forth below.

        25.01    General.    During and for each calendar year of the Term (or portion thereof) occurring on or after the calendar year 2003, Tenant shall pay the difference between (i) the actual amount of Tenant's Share of Operating Expenses for the subject calendar year, and (ii) the actual amount of Tenant's Share of Operating Expenses for the Base Year, in monthly installments along with its installment payments of Basic Rent. The difference between (i) and (ii) in the preceding sentence shall be referred to in this Lease as "Tenant's Operating Expenses."

        25.02    Payment Of Operating Expenses.    Prior to the Term Commencement Date, and during December of each calendar year thereafter during the Term, or as soon thereafter as practicable, Landlord shall give Tenant written notice of the estimated Operating Expenses for the ensuing calendar year and the calculated estimated Tenant's Operating Expenses for the ensuing year ("Tenant's Estimated Operating Expenses") (failure to deliver such notice shall not excuse Tenant's obligation to pay Tenant's Operating Expenses). Tenant shall thereafter pay equal monthly installments of Tenant's Estimated Operating Expenses for the calendar year to which the estimate applies on the first day of each calendar month during such calendar year, in advance, and continuing thereafter on the first day of each subsequent month of such calendar year. All such payments shall be construed to be payments of Rent for all purposes hereof. If Tenant's Share changes at any time then, Tenant's monthly payments of Operating Expenses under this Section 25.02 shall be modified commencing on the date of such change to reflect Tenant's Share as modified. If at any time during the course of the calendar year, Landlord reasonably determines and documents to Tenant that Tenant's Operating Expenses will vary from Tenant's Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise Tenant's Estimated Operating Expenses for the balance of such calendar year and Tenant shall thereafter pay Tenant's Estimated Operating Expenses as so revised for the balance of the then current calendar year on the first day of each subsequent month of such calendar year.

        25.03    Computation Of Operating Expenses Adjustment.    Within one hundred twenty (120) days (but in no event more than one hundred eighty (180) days) after the end of each calendar year, Landlord shall deliver to Tenant a statement of the actual Operating Expenses for the year just ended in reasonable detail. If such statement shows that Tenant's Operating Expenses amounted to less than Tenant's Share of actual Operating Expenses for the calendar year just ended, then Tenant shall pay the difference within thirty (30) days after receipt of such statement, such payment to constitute additional rent hereunder. If such statement shows that Tenant's Operating Expenses amounted to more than Tenant's Share of actual Operating Expenses for the calendar year just ended, then (provided that no

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Event of Default has occurred and remains uncured) Tenant shall receive a credit for the amount of such payment against Tenant's obligation for payment of Rent next becoming due hereunder. If in connection with an audit performed by another tenant of the Facility, such tenant's share of Operating Expenses is adjusted because costs and expenses that were not properly includable as Operating Expenses were included in such tenant's Operating Expenses and if such items are not properly chargeable to Tenant's Proportionate Share of Operating Expenses (i.e., because of a different definition of Operating Expenses contained in this Lease), then Landlord shall recalculate Tenant's Share of Operating Expenses for the period of time in question and Landlord shall allow Tenant a credit against the Rent for such cost and expenses paid by Tenant which were not properly includable in Tenant's Share Operating Expenses. If this Lease has been terminated or the Term hereof has expired before the date of such statement, then any adjustment to Tenant's Operating Expenses shall be paid by the appropriate party within twenty (20) days after the date of delivery of the statement. Landlord shall utilize and cause to be utilized, accounting records and procedures for each Lease Year conforming to generally accepted accounting principles consistently applied with respect to all of the Operating Expenses for such Lease Year. Any statement of Landlord sent to Tenant under this Article XXV shall be conclusively binding upon Tenant unless, within one hundred twenty (120) days after such statement is sent, Tenant shall (i) pay to Landlord the amount set forth in such statement, without prejudice to Tenant's right to dispute the same, and (ii) send a written notice to Landlord objecting to such statement and specifying the respects in which such statement is claimed to be incorrect and (iii) request an audit. Notwithstanding anything to the contrary contained in this Article XXV, Tenant acknowledges and agrees that Tenant shall have no right to contest or dispute any category or type of expense comprising Operating Expenses (as opposed to the calculation of any such expense) if such category or type of expense, as the case may be, has been included both in the Base Expense Year and the Lease Year in question.

        25.04    Audit Rights.    Tenant may cause an audit of Landlord's books and records to be performed in order to verify the accuracy of Tenant's Operating Expenses provided and on the condition that: (i) Tenant acknowledges the unavailability of Landlord's books and records because of the confidential nature thereof and agrees that any such audit shall be performed by, and the decision of any issues raised in such audit shall be determined by, a reputable independent firm of certified public accountants selected by Tenant and reasonably acceptable to Landlord (the "CPA") and the decision of the CPA shall be conclusively binding upon the parties; it being agreed that such review may not be performed by any person or entity if the compensation of such person or entity is determined or paid, in whole or in part, on a contingency, percentage, bonus or similar basis; (ii) such audit shall be conducted only during regular business hours at the office where Landlord maintains Operating Expense records and only after Tenant shall have given Landlord at least fifteen (15) days notice; (iii) Tenant shall deliver to Landlord a copy of the results of such audit within fifteen (15) days of its receipt by Tenant; it being understood and agreed that (A) Tenant shall use all commercially reasonable good faith efforts to conduct any such audit jointly with other tenants of the Facility conducting an audit with respect to the same time period Tenant intends to audit; and (B) Tenant shall have no right to unreasonably object to the selection of any CPA firm selected by another tenant to conduct such joint audit; (iv) Tenant may not so audit Landlord's books and records if Tenant shall then be, or shall have been in the prior twelve (12) month period, in default of any of the terms, covenants or conditions of this Lease beyond the expiration of any applicable grace or cure period; (v) only the Tenant named herein shall have the right to cause Landlord's books and records to be audited as aforesaid; it being understood and agreed that no subtenant or assignee of Tenant or any other person or entity shall have any right t fees and expenses of such review and involved in any such decision shall be borne by Landlord if the Operating Expenses were overstated, and the amount paid by Tenant pursuant to Landlord's statement exceeded the amount actually payable as determined by the CPA, by more than five percent (5%), otherwise Tenant shall pay all such fees and expenses of such audit and decision as additional rent upon demand; (vii) Tenant shall agree that it shall not divulge or

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disseminate, or permit to be divulged or disseminated, and Tenant shall cause the CPA to agree that it shall not divulge or disseminate, and shall not permit to be divulged or disseminated, any information learned or observed from auditing Landlord's books and records to any other third party whatsoever; and (viii) Tenant may cause an audit to be performed no more than one (1) time in any Lease Year. In connection with any such audit, Landlord shall endeavor to make such personnel available to Tenant as is reasonably necessary for the CPA and its employees to conduct the audit and the CPA and its employees shall be entitled to make photostatic copies of such records, provided that Tenant shall bear the expense of such copying.

        25.05    Minimum Rent.    Anything in this Article XXV to the contrary notwithstanding, under no circumstances shall the Rent payable under this Lease be less than the Rent set forth on the Basic Lease Information page.

ARTICLE XXVI—TAXES PAYABLE BY TENANT

        26.01    Personalty.    Tenant shall pay before delinquency any and all taxes levied or assessed and which become payable by Landlord during the Term, whether or not now customary or within the contemplation of the parties hereto, which are based upon, measured by or otherwise calculated with respect to: (i) the value of Tenant's equipment, furniture, fixtures or other personal property located in the Premises; or (ii) the value of any above building standard alterations, or additions made in or to the Premises excluding the initial Tenant Improvements, regardless of whether title to such improvements, alterations or additions shall be in the name of Tenant or Landlord.

        26.02    Taxes as Rent.    If it shall not be lawful for Tenant so to reimburse Landlord, the Rent shall be revised to net Landlord the same net Rent after imposition of any such tax upon Landlord as would have been payable to Landlord prior to the imposition of any such tax, unless such additional rent payment is unlawful.

        26.03    Other Property Taxes.    Landlord shall have the right, at its option, to increase the monthly Rent payable to Landlord by Tenant under this Lease to provide to Landlord the same effective monthly Rent after imposition of any Property Taxes or fee upon Landlord as Landlord would have received had such Property Taxes or fee not been imposed.

ARTICLE XXVII—LANDLORD'S DEFAULT

        27.01    Notice.    Landlord shall not be deemed to be in default in the performance of any obligation required of it under this Lease unless and until it has failed to perform such obligation within thirty (30) days after written notice by Tenant to Landlord and Landlord specifying when and how Landlord has failed to perform such obligation; provided, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, Landlord shall not be in default if Landlord commences to cure the default within such thirty (30) day period and thereafter diligently prosecutes the same to completion.

        27.02    Landlord's Default.    If Landlord refuses or neglects to repair or maintain any portion of the Premises or the Building which Landlord is obligated to repair or maintain pursuant to the express terms of this Lease within a reasonable period of time given the nature of the need for the repair or maintenance under the circumstances, but in any event within forty-five (45) days after receipt of written notice from Tenant (unless the repair or maintenance reasonably requires more than forty-five (45) days to complete, in which event Landlord shall not be in default unless Landlord shall fail to commence such repair or maintenance within such forty-five (45) day period or Landlord shall fail to diligently prosecute such cure to completion), and if the required repair or maintenance prevents Tenant's access to the Premises or materially and adversely interferes with Tenant's use of the Premises for ten (10) consecutive days, or threatens imminent risk of harm or damage to persons or property, Tenant shall be permitted to perform such repair or maintenance obligations on Landlord's behalf,

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provided Tenant shall first deliver to Landlord an additional ten (10) day prior notice indicating that Tenant will be performing such obligations (including the nature and extent of Tenant's intended performance and the estimated cost thereof) and provided Landlord shall fail to either (i) commence to perform its obligation(s) within such additional ten (10) day period or (ii) deliver to Tenant a notice that Landlord reasonably disputes the need for or the extent of the repair or maintenance demanded by Tenant (a "Landlord Objection Notice") and provided further (a) Tenant shall use only a duly licensed and bonded contractor from a list furnished by Landlord within two (2) business days following Tenant's request therefor (unless Landlord shall fail to furnish such list of approved contractors, in which event Tenant shall use only a duly licensed and bonded contractor reasonably selected by Tenant) and (b) all requisite permits shall be obtained for the desired work. Any work performed by or on behalf of Tenant shall be performed in accordance with the provisions of this Lease governing Alterations by Tenant except for the requirement that Tenant obtain Landlord's consent. If Landlord does not deliver a Landlord Objection Notice, Landlord agrees to reimburse Tenant for all reasonable and actual out-of-pocket costs incurred by Tenant in performing such obligations on behalf of Landlord. If Landlord delivers to Tenant a Landlord's Objection Notice, and the parties are not able despite their good faith efforts to resolve such dispute within thirty (30) days after delivery of Landlord's Objection Notice, the dispute shall be submitted for summary dispute resolution in accordance with the terms of Section 34.22 below. If Tenant shall prevail in any such arbitration, Landlord shall reimburse Tenant for Tenant's reasonable out-of-pocket costs actually incurred in performing Landlord's obligations as provided herein. Notwithstanding anything contained in this Section 27.02 to the contrary, if the required repair or maintenance threatens immediate risk of harm or material damage to persons or property, then Tenant may, at its election, proceed with the required repair or maintenance notwithstanding Landlord's delivery of a Landlord's Objection Notice. In such event, the parties will submit the matter to arbitration for resolution as to the need for and the scope of repair or maintenance performed by Tenant after Tenant completes the repair or maintenance.

        27.03    Remedy for Breach.    Notwithstanding anything to the contrary in this Lease, Tenant's remedy for any breach of this Lease by Landlord shall be limited to an action for damages or specific performance, and Landlord's liability to Tenant for damages resulting from Landlord's breach of any provision or provisions of this Lease shall not exceed the value of Landlord's interest in the Facility. Landlord, its partners whether general or limited, shall never be personally liable for any such judgment.

ARTICLE XXVIII—FORCE MAJEURE

        Landlord shall not be chargeable with, or liable to Tenant for anything or in any amount for any failure to perform or delay caused by any of the following (herein "Force Majeure Delays"): fire; earthquake; explosion; flood; hurricane; the elements; acts of God or the public enemy; actions, restrictions, limitations or interference of governmental authorities or agents; enforcement of Applicable Laws; war; invasion; insurrection; rebellion; riots; strikes or lockouts; inability to perform, control or prevent which is beyond the reasonable control of Landlord; and any such failure or delay due to said causes or any of them shall not be deemed a breach of or default in the performance of this Lease by Landlord; provided, however, lack of funds shall not be deemed a Force Majeure Delay. Other than for a failure by Tenant to pay all Basic Rent and additional rent payable hereunder when due, Tenant shall not be chargeable with, or liable to Landlord for anything or in any amount for, any failure to perform or delay caused by any Force Majeure Delay.

ARTICLE XXIX—LANDLORD'S MORTGAGEES AND LESSORS

        29.01    Modifications.    If, in connection with Landlord's obtaining or entering into any financing or ground lease for any portion of the Building or the Facility, the lender or ground lessor requests modifications to this Lease, Tenant, within fifteen (15) days after request therefor, agrees to execute an

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amendment to this Lease incorporating such modifications, provided such modifications are reasonable and do not reduce (other than to a de minimus extent) the privileges, benefits, rights or remedies of Tenant hereunder or increase Tenant's financial obligations under this Lease or increase (other than to a de minimus extent) the other obligations of Tenant under this Lease or adversely affect (other than to a de minimus extent) the leasehold estate created by this Lease.

        29.02    Cure Rights.    In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises or ground lessor of Landlord whose address has been furnished to Tenant, and Tenant agrees to offer such beneficiary, mortgagee or ground lessor a reasonable opportunity not to exceed any time period granted to Landlord under this Lease to cure the default (including with respect to any such beneficiary or mortgagee, time to obtain possession of the Premises, subject to this Lease and Tenant's rights hereunder, by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure).

ARTICLE XXX—RIGHT OF FIRST OFFER

        30.01    Exercise of Right.    If Landlord shall desire to lease any space in the 3347 Building (any such space is herein referred to as a "ROFO Space") to a third party other than the existing tenant in any such space or to any other person or entity having any preexisting rights in such space as of the date hereof, Landlord shall first give Tenant notice ("Landlord's Notice") of the terms and conditions upon which Landlord is willing to lease such ROFO Space.

        30.02    Effect of Exercise.    Provided this Lease shall be in full force and effect and Tenant shall not be in default hereunder beyond the expiration of any applicable grace or cure period, either at the time of the exercise of the option or upon the inclusion of such ROFO Space in the Premises, Tenant shall have the right, exercisable by notice to Landlord given within ten (10) business days of the date of Landlord's Notice, the time of giving of such notice to be of the essence of this agreement, to lease the entire ROFO Space identified in Landlord's notice, upon the terms and conditions contained in Landlord's Notice, in which event Landlord and Tenant shall enter into an amendment of this Lease reasonably acceptable to Landlord and Tenant to provide for (i) the inclusion of such ROFO Space in the Premises; (ii) an increase in the Rent by an amount equal to the fair market value of the ROFO Space as determined by Landlord in its sole but reasonable judgment, (iii) a modification of the definition of Tenant's Share to accurately represent the percentage that the rentable area deemed to be in the Premises, together with the rentable area deemed to be in the ROFO Space; it being understood and agreed that such rentable area shall be determined in accordance with BOMAI Standards, as modified pursuant to the terms of Section 2.02 hereof, bears to the total rentable area deemed to be contained in the Facility, and (iv) an increase in the number of non-exclusive, un-reserved surface parking spaces by an amount equal to four (4) such spaces per one thousand (1000) usable square feet of space in any such ROFO Space included in the Premises. In all other respects, the terms and conditions contained in this Lease (including the Term, escalations and base years) shall remain unmodified. In the event that Tenant fails to exercise its right as aforesaid within ten (10) business days of the date of Landlord's Notice or, in the event Tenant shall have exercised its right and Landlord and Tenant shall not have executed an amendment of this Lease as aforesaid within thirty (30) days from the date of Landlord's Notice or within ten (10) business days of Landlord's providing the amendment to Tenant for execution, whichever is later, Tenant shall be deemed to have waived its rights under this Article XXX, Landlord shall have the absolute right to lease such ROFO Space to any other person or entity and Tenant shall have no further rights under this Article XXX. Notwithstanding the foregoing, if Tenant shall not exercise its rights to lease any portion of the ROFO Space solely as a result of Tenant's disagreement with Landlord's determination of the Fair Market Rental Value thereof, then provided that Tenant shall have notified Landlord of such disagreement within ten (10) days of the date of Landlord's Notice, the time of giving such notice to be of the essence of this agreement, then

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Landlord shall not within the ninety (90) day period commencing on the date of Landlord's Notice and terminating on the eighty-ninth (89th) day thereafter, enter into a lease with respect to such portion of the ROFO Space in question on financial terms more favorable to the tenant thereunder than those set forth in Landlord's Notice without first offering to effectuate such deal with Tenant and (b) thereafter, Landlord shall not enter into a lease with respect to such portion of the ROFO Space in question on financial terms materially more favorable to the tenant thereunder than those set forth in Landlord's Notice without first giving Tenant a one-time notice of such materially more favorable terms and the one-time right to effectuate such deal with Tenant; it being understood, however, that Landlord shall only be required to give Tenant notice of such materially more favorable terms one time following the expiration of the ninety (90) day period referred to above. As used herein, the term "materially more favorable" shall mean that the Basic Rent shall be more than ten percent (10%) less than the Basic Rent set forth in Landlord's Notice.

ARTICLE XXXI—FINANCIAL STATEMENTS

        Prior to the execution of this Lease by Landlord and at any time during the Term of this Lease upon thirty (30) days prior written notice from Landlord (but not more frequently than once per calendar year), Tenant agrees to provide Landlord with a current annual financial statement for Tenant and any guarantors of Tenant and annual financial statements for the two (2) years prior to the current financial statement year for Tenant and any guarantors of Tenant. Notwithstanding the foregoing, Landlord acknowledges that the Tenant named herein currently does not prepare financial statements but that Aames Financial Corporation, Tenant's parent company, prepares consolidated financial statements which include financial statements for Tenant and that whenever a financial statement is required of the named Tenant, the named Tenant may provide such consolidated financial statement of Aames Financial Corporation. All such financial statements are to be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, audited by an independent certified public accountant.

ARTICLE XXXII—Intentionally Deleted

ARTICLE XXXIII—PARKING

        33.01    Spaces.    Subject to the terms of this Lease and provided Tenant shall pay the fees therefor, Landlord shall provide Tenant with, or cause Tenant to be provided with, the number of non-exclusive, unreserved surface parking spaces (not within a parking structure) and the number of exclusive, reserved surface parking spaces (not within a parking structure), designated in the Summary of Basic Lease Information in the lots shown hatched on the site plan attached hereto as Exhibit I (the "Parking Areas") and made part hereof. Notwithstanding the foregoing, Tenant shall have the option to relinquish its right to lease any of such parking spaces upon not less than sixty (60) days prior written notice to Landlord, following which Tenant shall have no obligation to pay for any of such relinquished parking spaces. Notwithstanding the foregoing, Landlord acknowledges that if Tenant relinquishes any or all of its reserved and unreserved parking spaces during the Term, but thereafter requires the use of such parking spaces, then Landlord upon ten (10) days prior notice from Tenant shall make such parking spaces available to Tenant. Tenant's use of parking spaces within the Parking Facilities may be subject to any sticker, permit system or parking control implemented by Landlord at any time (subject to the terms of Section 33.03 hereof). Landlord or the operator of the Parking Facilities shall have the right to change the location of parking from time to time; provided, however, Landlord shall not relocate Tenant's parking spaces outside of the Parking Areas without the consent of Tenant, which consent shall not be unreasonably withheld or delayed. Tenant acknowledges that access to the Parking Facilities for monthly users is currently by parking identification devices, which are currently transponders. Upon Tenant's request, Landlord shall cause to be issued to Tenant's employees, agents, subtenants or other authorized users, vehicle transponders in an amount not to exceed the maximum

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number of unreserved surface parking spaces allocated to Tenant under this Lease. As a condition of the issuance of any transponders hereunder, Tenant shall pay to Landlord a transponder security deposit of Twenty-Five ($25.00) Dollars for each transponder requested by Tenant. Landlord reserves the right to reasonably increase the amount of the transponder security deposit in conjunction with future requests for transponders, whether such transponders are requested for replacement purposes or for new users. So long as this Lease is in effect, Tenant's visitor's and guests will be entitled to use those parking areas designated for short term visitor parking or unreserved spaces elsewhere within the Parking Facilities. Tenant's visitors and guests shall pay therefor the then current market rates established by the operator of the Parking Facilities. Tenant, at its sole cost and expense, may elect to validate such parking for its visitors and guests. All such visitor parking will be on a non-exclusive, in common basis with all other tenants, visitors and guests of the Facility.

        33.02    Control.    Subject to the terms of the REA, Landlord or the operator of the Parking Facilities shall have the sole and exclusive control of the Parking Facilities. Landlord or the operator of the Parking Facilities may, at any time and from time to time during the Term exclude any person from use or occupancy thereof who is not a tenant or occupant of the Facility or an employee, invitee, subtenant, guest or licensee of Tenant. Tenant shall not cause or permit any obstruction to the free and clear use of the Parking Facilities. Tenant shall not use or allow any of its employees or invitees to use any parking spaces which have been specifically assigned by Landlord or the operator of the Parking Facilities to other tenants or occupants or for other uses such as visitor or short-term parking or which have been designated by any Governmental Entity as being restricted to certain uses. Landlord shall have no liability to Tenant, nor shall Tenant's obligations under this Lease be in any way excused or modified, if Tenant's parking privileges under this Lease are affected or impaired in any way by reason of any moratorium, initiative, referendum, statute, regulation or other governmental decree or action; provided, however, if Tenant's parking privileges under this Lease are adversely affected or impaired in any way pursuant to the terms of the REA, then Landlord shall use its reasonable efforts to enforce Landlord's rights under the REA, including, without limitation, commencing and/or continuing arbitration proceedings, litigation or alternate means of dispute resolution if Landlord, in its reasonable judgment, deems such action to be appropriate. Any governmental charges, surcharges or other monetary obligations which may be imposed in connection with parking privileges appurtenant to this Lease or with the operation of the Parking Facilities shall be included as Rent. Tenant and its invitees, subtenants, employees, agents and guests shall faithfully observe and comply with all Applicable Laws relating to the trafficking, operation, occupancy or use of the parking and the Parking Facilities.

        33.03    General Provisions.    Landlord reserves the right to set and increase monthly fees and/or daily and hourly rates for parking privileges from time to time during the Term of this Lease; it being agreed that parking in reserved parking spaces and non-exclusive, unreserved parking spaces in the Parking Facilities (whether or not within a parking structure) during the Term or the Extension Term shall be at the respective fair market rates therefor determined by Landlord or the operator of the Parking Facilities from time to time, except that (i) from the Term Commencement Date to but not including July 1, 2004 (the "Parking Imposition Date") the rate for Tenant's use of non-exclusive unreserved surface parking spaces (not within a parking structure) shall be $30.00 per space per month, (ii) from the Term Commencement Date to but not including the Parking Imposition Date, the rate for Tenant's use of reserved surface parking spaces (not within a parking structure) shall be $100.00 per space per month; and (iii) from and after the Parking Imposition Date, Tenant shall pay, from time to time, the then market rate for all non-exclusive, unreserved surface parking spaces and for all reserved surface parking spaces, provided that the cost for non-exclusive, unreserved surface parking spaces (not within a parking structure) and for reserved surface parking spaces (not within a parking structure) shall not in any twelve (12) month period increase by more than five dollars ($5.00) per parking space per month. In addition, if Tenant shall be permitted to use more than the number of parking spaces designated in the Summary of Basic Lease Information or if at any time after November 30, 2008 Tenant shall use reserved surface parking spaces, or non-exclusive, unreserved surface parking spaces,

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whether or not within a parking structure, or if Tenant shall use parking spaces of any kind during the Extension Term or attributable to ROFO Space or any additional space in the Facility, Tenant shall pay, from time to time, the then respective market rates therefor. Currently the monthly charge for transponder access to: (a) reserved parking spaces (not within a parking structure) is $100.00 per space per month, (b) non-exclusive, unreserved parking spaces within a parking structure is $70.00 per space per month, and (c) reserved parking spaces within a parking structure is $125.00-$175.00 per space per month. The monthly charges for parking hereinabove set forth are subject to increase from time to time. Tenant shall pay its parking fees to Landlord monthly in advance as additional rent, concurrently with its payments of Basic Rent under this Lease. Landlord may assign any unreserved and unassigned parking spaces and/or make all or any portion of such spaces reserved, if Landlord reasonably determines that it is necessary for orderly and efficient parking or for any other reasonable reason. Failure to pay or cause to be paid the rent including, without limitation, visitor parking charges for any particular parking spaces or failure to comply with any terms and conditions of this Lease applicable to parking may be treated by Landlord as a default under this Lease and, in addition to all other remedies available to Landlord under the Lease, at law or in equity, Landlord may elect to recapture such parking spaces for the balance of the Term of this Lease if Tenant does not cure such failure within the applicable cure period set forth in Article XIX of this Lease. Tenant's parking rights and privileges described herein may not be assigned or transferred, or otherwise conveyed, without Landlord's prior written consent, which consent Landlord shall not unreasonably withhold or delay. In any event, under no circumstance may Tenant's parking rights and privileges be transferred, assigned or otherwise conveyed separate and apart from Tenant's interest in this Lease.

        33.04    Cooperation with Traffic Mitigation Measures.    Tenant agrees to use its reasonable, good faith efforts to cooperate in traffic mitigation programs which may be undertaken in cooperation with local municipalities or governmental agencies. Such programs may include, but will not be limited to, carpools, vanpools and other ridesharing programs, public and private transit, flexible work hours, preferential assigned parking programs and programs to coordinate tenants within the Facility and the Project with existing or proposed traffic mitigation programs.

        33.05    Parking Rules and Regulations.    Tenant shall comply with all rules and regulations regarding parking set forth in Exhibit H attached hereto and Tenant agrees to cause its employees, subtenants, assignees, contractors, suppliers, customers and invitees to comply with such rules and regulations. Landlord reserves the right from time to time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the Parking Facilities as it deems reasonably necessary for the operation of the Parking Facilities. If the rules and regulations regarding parking shall conflict with the terms of this Lease, the terms of this Lease shall control. In addition, Tenant shall complete, and shall cause all of its employees, invitees, subtenants, guests and licensees utilizing the Parking Facilities which are monthly parkers to complete, a parker information form which shall include, without limitation, the name of such parker, such parker's vehicle registration number and other identification information and the parkers' driver's license number and such other information required by Landlord or the operator of the Parking Facilities from time to time.

ARTICLE XXXIV—SIGNAGE

        Subject to the terms of the REA, all covenants, conditions and restrictions affecting or governing the Premises, all Applicable Laws and all applicable municipal and governmental permits and approvals (i) Landlord shall add Tenant's name to the top position of the existing monument sign adjacent to the main entrance of the 3347 Building and the building known as 3345 Michelson Drive, at Tenant's sole cost and expense; (ii) Landlord shall use commercially reasonable efforts to obtain from the City of Irvine (and any other authority claiming to have jurisdiction therefor) approval to install an additional "eye brow sign" with Tenant's name above the first floor level of the 3351 Building (the reasonable costs of processing such application with the City of Irvine to be paid by Landlord) and if such

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approvals are granted, Landlord shall install such "eye brow sign" above the first floor level of the 3351 Building in a location determined by Landlord, at Tenant's cost; and (iii) Landlord shall use commercially reasonable efforts to obtain from the City of Irvine (and any other authority or entity having approval rights or claiming to have jurisdiction therefor) approval to install a corporate name sign on the top of the 3347 Building parapet, at Tenant's sole cost, and if such approvals are granted, Landlord shall install a sign in such location determined by Landlord at Tenant's cost; it being understood and agreed, however, that (a) currently Landlord has no right to install, or permit to be installed, either the "eyebrow sign" or the corporate name sign on the top of the 3347 Building parapet contemplated herein without modifying the existing signage program for the Facility and without obtaining various approvals, including, without limitation, approvals required pursuant to the terms of the REA, all covenants, conditions and restrictions affecting or governing the Premises, all Applicable Laws and all applicable municipal and governmental permits and approvals, and (b) Landlord shall have no liability to Tenant if any such approvals are not granted. Landlord will also designate the location on the Premises, if any, for one or more Tenant identification sign(s), which location shall be reasonably acceptable to Tenant. Tenant agrees to have Landlord install and maintain Tenant's identification sign(s) in such designated location in accordance with the forms of this Article XXXIV at Tenant's sole cost and expense. Tenant has no right to install Tenant identification signs in any other location in, on or about the Premises or the Facility and will not display or erect any other signs, displays or other advertising materials that are visible from the exterior of the Building or the Facility or from within the Building or the Facility in any interior or exterior Common Area. The size, design, color and other physical aspects of any and all permitted sign(s) and the installation, use and maintenance of all Tenant signage will be subject to (a) Landlord's written approval prior to installation, which approval may be withheld in Landlord's discretion, (b) covenants, conditions or restrictions affecting or governing the Premises and all Applicable Laws, (c) any applicable municipal and governmental permits and approvals (d) those requirements set forth in the signage criteria for the Facility from time to time and otherwise set forth herein, and (e) the terms of the REA. Tenant will be responsible for all costs for installation, maintenance, repair and removal of any Tenant identification sign(s). If Tenant fails to remove Tenant's sign(s) upon termination of this Lease and repair any damage caused by such removal or if prior to termination of this Lease, Tenant shall be in default hereunder or under this Lease beyond the expiration of any applicable grace or cure period, Landlord may remove Tenant's signage at Tenant's sole expense. Tenant agrees to reimburse Landlord for all costs incurred by Landlord to effect any installation, maintenance or removal on Tenant's account, which amount will be deemed additional rent, and may include, without limitation, all sums disbursed, incurred or deposited by Landlord including Landlord's costs, expenses and actual attorneys' fees with interest thereon at the Interest Rate from the date of Landlord's demand until paid by Tenant. Any sign rights granted to Tenant under this Lease with respect to the "eye brow sign" or the corporate name sign on the top of the 3347 Building parapet may not be assigned, transferred or otherwise conveyed to any assignee or subtenant of Tenant without Landlord's prior written consent,; provided, however, Landlord shall not unreasonably withhold or delay its consent to a transfer of the "eye brow sign" rights to an approved assignee of the named Tenant if such assignee is a company of comparable stature, prestige and financial standing to the named Tenant.

ARTICLE XXXV—MISCELLANEOUS

        35.01    Successors and Assigns.    Subject to the provisions of Article IX, the terms, covenants and conditions contained herein shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties hereto.

        35.02    Attorneys' Fees.    If any action or proceeding is brought to enforce any term, covenant or condition of this Lease on the part of Landlord or Tenant, the prevailing party in such litigation shall be entitled to its fees and costs, including, but not limited to, reasonable attorneys' fees to be fixed by the court in such action or proceeding, both at trial and on appeal.

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        35.03    Light and Air.    No diminution of light, air or view by any structure which may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of Rent, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenant's obligations hereunder.

        35.04    Public Transportation.    Tenant shall encourage use of public transportation by personnel of Tenant employed on the Premises and shall distribute to such employees written materials provided by or through Landlord explaining the convenience and availability of public transportation facilities adjacent or proximate to the Facility.

        35.05    Headings.    The Article and Section headings herein are for convenience of reference and shall in no way define, increase, limit or describe the scope or intent of any provision of this Lease.

        35.06    Use of Pronouns.    Any pronoun used in place of a noun shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their and each of their respective successors, executors, administrators, assigns, according to the context hereof.

        35.07    Time of the Essence.    Time is of the essence of this Lease.

        35.08    Governing Law.    This Lease shall in all respects to the maximum extent legally permissible be governed by the laws of the State of California.

        35.09    Brokers.    The parties acknowledge that the broker(s) who negotiated this Lease are stated in the Basic Lease Information. Landlord agrees to pay any commission due to the broker stated in the Basic Lease Information pursuant to a separate written agreement between Landlord and such broker. Landlord's obligations under such agreement constitute obligations of Landlord under this Lease and such agreement is incorporated herein by reference and made a part of this Lease. Each party represents and warrants to the other, that, to its knowledge, no other broker, agent or finder (i) negotiated or was instrumental in negotiating or consummating this Lease on its behalf, and (ii) is or might be entitled to a commission or compensation in connection with this Lease. Landlord and Tenant each agree to promptly indemnify, protect, defend and hold harmless the other from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including attorneys' fees and court costs) resulting from any breach by the indemnifying party of the foregoing representation, including, without limitation, any claims that may be asserted by any broker, agent or finder undisclosed by the indemnifying party. The foregoing mutual indemnity shall survive the expiration or earlier termination of this Lease.

        35.10    Modifications.    This Lease may not be modified except by a written instrument by the parties hereto.

        35.11    Unenforceable Provisions.    If for any reason whatsoever any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect.

        35.12    Covenants and Conditions.    All provisions, whether covenants or conditions, on the part of Tenant and Landlord herein shall be deemed and construed to be both covenants and conditions as though the words specifically expressing or imparting covenants and conditions were used in each separate provision hereof.

        35.13    Incorporation.Exhibits A, A-1, B-1, B-2, C, D, E, F, G, H and I and any other Exhibits, Addenda and Riders attached to this Lease are hereby incorporated by this reference and made a part of this Lease.

        35.14    Recordation of Memorandum; Quitclaim and Release Agreement.    Landlord and Tenant agree that in no event and under no circumstances shall this Lease be recorded. A short-form memorandum may be recorded at Landlord's sole election. Tenant represents, warrants and covenants to Landlord that upon the expiration or termination of this Lease, Tenant at its sole cost and expense shall at Landlord's request, deliver to Landlord a fully executed quitclaim and release agreement in

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recordable form wherein Tenant quitclaims, conveys, assigns and releases to Landlord any and all of Tenant's interest in this Lease and the Premises and the Facility.

        35.15    Additional Instruments.    Upon the request of either party at any time, the other party shall execute and file any additional instruments and take any actions as may be reasonably necessary or desirable to carry out the intent and to fulfill the provisions of this Lease.

        35.16    Entire Lease Between Parties.    This Lease and all exhibits and attachments to this Lease and any written modifications or amendments to all of the foregoing entered into by the parties after the date of this Lease, constitutes the entire lease between the parties with respect to the subject matter of this Lease and supersedes all prior and contemporaneous leases and understandings, whether oral or written. Each party to this Lease acknowledges that no representations, inducements, promises or leases, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied in this Lease and that no other lease, statement or promise not contained in this Lease shall be valid or binding. The parties intend by this Lease to establish the relationship of landlord and tenant only, and do not intend to create a partnership, joint venture, joint enterprise, or any business relationship other than that of landlord and tenant.

        35.17    Nondisclosure of Lease Terms.    Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlord's relationship with other tenants. Accordingly, Tenant agrees that it, and its partners, officers, directors, employees and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any newspaper or other publication or any other tenant or apparent prospective tenant of the Building or other portion of the Facility, or real estate agent, either directly or indirectly, without the prior written consent of Landlord, provided, however, that Tenant may disclose the terms of this Lease (i) to prospective subtenants or assignees under this Lease and (ii) in its periodic and current reports filed with the United States Securities and Exchange Commission. Nothing in this paragraph shall prohibit Landlord from disclosing the terms of this Lease to any current or prospective lender, partner or purchaser or to Landlord's attorneys, financial advisors and property management personnel.

        35.18    Joint and Several Obligations.    If more than one person or entity executes this Lease as Tenant, their execution of this Lease will constitute their covenant and agreement that (i) each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (ii) the term "Tenant" as used in this Lease means and includes each of them jointly and severally. The act of or notice from, or notice or refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, expiration, termination or modification of this Lease, will be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed.

        35.19    Tenant as Corporation or Partnership.    If Tenant executes this Lease as a corporation or partnership, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that such entity is duly qualified and in good standing to do business in California and that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf, and in the case of a corporation, in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to Landlord on execution hereof, if requested by Landlord, and in accordance with the by-laws of Tenant, and, in the case of a partnership, in accordance with the partnership agreement and the most current amendments thereto, if any, copies of which are to be delivered to Landlord on execution hereof, if requested by Landlord, and that this Lease is binding upon Tenant in accordance with its terms. In addition, if Tenant is a partnership or if Tenant's interest in this Lease shall be assigned to a partnership, (i) the liability of each of the parties

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comprising the partnership Tenant shall be joint and several, (ii) each of the parties comprising the partnership Tenant hereby consents in advance to, and agrees to be bound by, any written instrument which may hereafter be executed, changing, modifying or discharging this Lease, in whole or in part, or surrendering all or any part of the Premises to Landlord and by any notices, demands, requests or other communications which may hereafter be given by a partnership Tenant, (iii) any bills, statements, notices, demands, requests or other communications given or rendered to a partnership Tenant and to all such parties shall be binding upon a partnership Tenant and all such parties, (iv) if a partnership Tenant shall admit new partners, all of such new partners shall, by their admission to a partnership Tenant shall be deemed to have assumed performance of all of the terms, covenants and conditions of this Lease on Tenant's part to be observed and performed, and (v) a partnership Tenant shall give prompt notice to Landlord of the admission of any such new partners, and upon demand of Landlord, shall cause each such new partner to execute and deliver to Landlord an agreement in form satisfactory to Landlord, wherein each such new partner shall assume performance of all of the terms and conditions of this Lease on Tenant's part to be observed and performed (but neither Landlord's failure to request any such agreement nor the failure of any such new partner to execute or deliver any such agreement shall vitiate the provisions of subdivision 35.19).

        35.20    Examination of Lease.    Submission of this instrument by Landlord to Tenant for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant.

        35.21    Intentionally Deleted.

        35.22    Satellite Antenna.    Tenant shall have the non-exclusive right, at its sole cost and expense, to install a satellite dish, microwave dish or a radio antenna on the roof of the Facility, provided, as a condition to Tenant's right to install, use, operate and maintain any such rooftop equipment, Tenant shall enter into a written license agreement in the form of Exhibit I attached hereto and incorporated herein by reference.

        35.23    Landlord's Authority.    If Landlord executes this Lease as a corporation or partnership, then Landlord and the persons executing this Lease on behalf of Landlord represent and warrant that such entity has full power and authority to execute this Lease.

        35.24    Counterparts.    This Lease may be executed in several counterparts, each of which shall be deemed an original and together shall constitute one and the same instrument.

[Signatures on following page]

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        IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written.

LANDLORD:
WINTHROP CALIFORNIA MANAGEMENT LIMITED PARTNERSHIP as authorized agent for JAMBOREE LLC
By:	WINTHROP WEST COAST REALTY SERVICES, INC.
	By:
		Janine R. Padia Its Vice President and Secretary

TENANT:
AAMES FINANCIAL CORPORATION, a Delaware corporation
By:
	Print Name:
	Print Title:

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EXHIBIT A

LEGAL DESCRIPTION OF LAND COMPRISING THE FACILITY

PARCEL A:

        PARCEL 1, IN THE CITY OF IRVINE, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS SHOWN ON A PARCEL MAP FILED IN BOOK 200 PAGES 42 THROUGH 45, INCLUSIVE, OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

        EXCEPTING THEREFROM, AN UNDIVIDED FIFTY PERCENT (50%) INTEREST IN OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS, NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, THAT MAY BE WITHIN OR UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP, MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER, THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE UPPER 500 FEET OF THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AS RESERVED BY IRVINE INDUSTRIAL COMPLEX, IN DEED RECORDED JULY 23, 1974 IN BOOK 11202 PAGE 450, OFFICIAL RECORDS.

EXHIBIT A-1

SITE PLAN OF THE FACILITY AND THE PROJECT

EXHIBIT B-1

FLOOR PLAN OF THE SUITE 300 PREMISES

EXHIBIT B-2

FLOOR PLAN OF THE SUITE 100 PREMISES

EXHIBIT C

DEFINITIONS

        The following terms shall be defined as set forth below. A term is identified by initial capital letters throughout all provisions of this Lease, including, without limitation, the Recitals and the Exhibits.

        "Anniversary Date" means the anniversary of the Term Commencement Date.

        "Applicable Laws" means any law, statute, directive, regulation, rule, order or ordinance of any governmental or quasi-public entity or authority and any covenants, conditions and restrictions, reciprocal easement agreements, operating agreements, ground leases or master leases which are applicable to the Premises or the Facility or the use or occupancy thereof, and which are now in effect or are hereafter promulgated.

        "Article" means an article of this Lease.

        "Bankruptcy Code" means 11 U.S.C. §§ 101 et seq. or such similar laws or amendments thereto which may be enacted from time to time.

        "Base Year" means the twelve (12) month period set forth in the Basic Lease Information Section of this Lease.

        "Base Year Operating Expenses" means the Operating Expenses incurred for the Base Year.

        "Basic Rent" means the portion of the Rent payable as determined pursuant to Section 4.01 and net of Tenant's Operating Expenses to be paid by Tenant pursuant to Article XXV.

        "Building" means collectively, the 3347 Building and the 3351 Building.

        "BOMAI Standards" means the standards and methods for measuring usable floor area in office buildings as promulgated by the Building Owners and Managers Association International (ANSI Z65.1-1989) ("BOMAI").

        "Common Area" means the total of all areas now or at any time hereafter which, based on Landlord's reasonable discretion, are or become within or part of the Project but outside of the Facility which are made available for general non-exclusive use, convenience and benefit of Landlord, Tenant and all other owners, landlords, tenants and permitted occupants of the Project as now or hereafter improved and configured and their respective employees and invitees and which are neither occupied by buildings nor devoted to the specific use of a particular tenant, including, without limitation:

        (i)      all sidewalks, walkways, pedestrian tunnels, sky walks, plazas, bridges, driveway entrances and exits, curbs, service drives, loading areas, alleys, transportation facilities, if any, outside lighting fixtures, shrubbery, grass, planters and other landscaped areas, common storm drain and sewer systems; and

        (ii)    all Parking Facilities.

        "Control" means ownership of not less than fifty percent (50%) of the voting stock of any corporation in question or not less than fifty percent (50%) of all the legal and equitable interests in any other business entity in question.

        "Cosmetic Alterations" means Alterations which (1) are nonstructural and which do not affect the Facility's mechanical, electrical, plumbing, life-safety or other Building systems or the structural integrity of the Facility, (2) do not affect any part of the Facility other than the Premises, do not affect any service required to be furnished by Landlord to Tenant or to any other tenant or occupant of the Facility and do not reduce the value of utility of the Facility or any part thereof, (3) are of a purely cosmetic or decorative nature (such as painting or installation of wall covering or carpeting), and (4) have an estimated cost for all labor and material in connection with such Alterations in any one instance (or in a series of instances effectuating a single alteration plan) of less than Twenty-Five Thousand ($25,000.000) Dollars.

        "CWDLP" means Crow Winthrop Development Limited Partnership, a Maryland Limited Partnership or any of its successors or assigns.

        "Development Parcel" means that certain parcel or parcels of land contiguous to and which surround the Facility as shown on Exhibit A-1 on which is presently situated all Parking Facilities, the retail center, restaurants and other buildings and related improvements, the Common Area and certain improvements presently under construction.

        "Estimated Operating Expenses" means for any particular calendar year Landlord's estimate of the Operating Expenses for such calendar year made prior to commencement of such calendar year as provided in Article XXV.

        "Event of Default" means any of the events specified in Section 19.01 after the expiration of the applicable cure period set forth therein, if any.

        "Facility" means the complex of buildings and improvements presently located at 3333 to 3355 Michelson Drive, Irvine, California containing 1,499,028 usable square feet of area as well as land underlying such buildings and improvements and all overlying space above such land, buildings and improvements, as the same may be hereafter expanded, altered, improved, contracted or otherwise modified.

        "Facility Common Areas" means the total of all areas now or at any time hereafter which, based on Landlord's reasonable discretion, are or become within or part of the Facility and are made available for the general non-exclusive use, convenience and benefit of Landlord, Tenant and all other tenants of the Facility or other tenants in buildings to be constructed within the Facility and their respective employees and invitees, including, without limitation:

        (i)      all lobbies, entrances, stairs, structural components, exterior walls of the Facility, roofs, elevators, escalators, hallways, passageways and other interior public portions of the Facility which are not specifically leased to Tenant or any other tenant of the Facility;

        (ii)    all exterior walkways, landscaped areas, open space areas, plazas, driveways and transportation facilities on, in or above the Facility; and

        (iii)    all pedestrian linkages, whether covered or not, between any portion of the Facility, whether existing or hereafter constructed, excluding therefrom any portions of such pedestrian linkages which are specifically identified as tenant space.

        "First Transfer" means the first sale or other disposition of the Facility or any interest therein occurring after the date of the mutual execution and delivery hereof.

        "Governmental Entity" means any subdivision, authority, body, agency, instrumentality or other entity created and/or controlled pursuant to the laws of the State of California or any city, town or village of such state or of the federal government.

        "Holdover Percentage" means (1) one hundred percent fifty (150%) for the period commencing on the expiration or earlier termination of this Lease to but not including the Two Month Holdover Date, and (2) two hundred percent (200%) thereafter.

        "Interest Rate" means the greater of eight percent (8%) per annum or four percent (4%) in excess of the prime lending or reference rate of Wells Fargo Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the calendar month immediately prior to the event giving rise to the Interest Rate imposition; provided, however, the Interest Rate will in no event exceed the maximum interest rate permitted under Applicable Laws.

        "Lease" means this instrument.

        "Lease Year" means one (1) full year from the Term Commencement Date to the first Anniversary Date or between two (2) consecutive Anniversary Dates.

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        "Non-Standard Alterations" shall mean Alterations which include: (1) Tenant's trade fixtures, (2) raised flooring, (3) Alterations which penetrate floor slabs or affect the exterior of the 3351 Building, the 3347 Building or any other portion of the Facility, (4) safes or vaults and other installations which would be unusually difficult or expensive to remove, (5) security system(s), (6) exterior storm windows, and (7) other Alterations which are not standard in nature or which involve extraordinary demolition work, as determined by Landlord in its sole but reasonable discretion or which are otherwise inconsistent with those Alterations normally installed in office space in the Facility as determined by Landlord in its sole but reasonable discretion.

        "Non-Structural Alterations" means Alterations which (1) are non-structural and which do not affect the Facility's mechanical, electrical, plumbing, life-safety or other Building systems or the structural integrity of the Facility, (2) do not affect any part of the Facility other than the Premises, do not affect any service required to be furnished by Landlord to Tenant or to any other tenant or occupant of the Facility and do not reduce the value or utility of the Facility or any part thereof and (3) are not Cosmetic Alterations.

        "One Stop Lease" shall mean that certain Agreement of Lease dated as of October 15, 1997 between Landlord, as landlord and to One Stop Mortgage, Inc. ("One Stop"), the predecessor-in-interest of Tenant, as tenant, covering Suite 300 on the third (3^rd) floor of the 3347 Building;

        "Operating Expenses" shall mean all expenses and costs (and taxes, if any, thereon) of every kind and nature determined by Landlord in it sole judgment to the extent they are in accordance with sound management principles respecting the operation of large first class office complexes in the Newport Beach/Irvine (including the John Wayne Airport)/South Coast Plaza area which principles shall be consistently applied (with accruals appropriate to Landlord's business), which Landlord shall pay or become obligated to pay because of, or in connection with, the ownership, management, maintenance, repair, replacement, restoration or operation of (1) the Facility or the Building or the sidewalks and areas adjacent thereto (but not the cost of development of the Facility), (2) the Common Area, the Facility Common Area and all areas which become part of the Common Area or the Facility Common Area, (3) the Parking Facilities, (4) such additional facilities to be constructed as part of the Common Area or the Facility Common Area in subsequent years as may be determined to be desirable for the Facility and (5) the personal property of Landlord used in the operation of the Facility, including, but not limited to the following:

        (i)      Property Taxes;

        (ii)    Any and all assessments and payments imposed with respect to the Facility or the Premises pursuant to any Applicable Laws;

        (iii)    The costs of all utilities and services provided under the Lease, including water and sewer charges and the costs of electricity, heating, ventilation and air conditioning;

        (iv)    All maintenance, janitorial and other service costs for the Premises and for the Facility and the equipment therein, including, without limitation, security services, alarm services, window cleaning, elevator and escalator maintenance, and rubbish removal;

        (v)    All maintenance, repair, restoration, replacement and operation costs of the Common Area, the Facility Common Area and the Parking Facilities, including, without limitation, with respect to signage (other than tenant signage), lighting, landscaping and gardening, parking lot resurfacing, repairing and restriping;

        (vi)    Wages, salaries and related expenses and benefits of all personnel whether Landlord's employees or employees of Landlord's agents, or other third parties' independent contractors, whether on-site or off-site, engaged in the operation, management, maintenance, repair, engineering and security of the Facility, and the rental value of a management office in the

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Facility; provided, however, that Operating Expenses shall not include wages, salaries or commissions paid for any real estate broker, salesperson or agent for leasing areas within the Facility;

        (vii)   the cost of all supplies, tools, materials and equipment, whether leased or owned, used in the operation, security, management, repair and maintenance of the Facility;

        (viii)  A management fee equal to four percent (4%) of gross rent derived from the Facility;

        (ix)    Legal expenses, accounting costs, including costs of audits by certified public accountants and other professional fees and expenses in connection with the operation, ownership, management, maintenance, repair, replacement or restoration of the Facility or the Building;

        (x)    All insurance premiums and costs, including but not limited to, the premiums and cost of fire, casualty and liability coverage and rental abatement or comprehensive rental interruption insurance and earthquake insurance (if Landlord elects to provide such coverage) applicable to the Facility and Landlord's personal property used in connection therewith, however, excluding therefrom any personal property of Landlord used by Landlord exclusively in connection with the use and occupation of portions of the Facility other than the Premises or the Common Areas or the Parking Facilities;

        (xi)    Repairs, service and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Tenant or other third parties, and alterations attributable solely to tenants of the Facility other than Tenant) of the Facility, and replacements costing less than $10,000.00, in and to the Facility and the systems and equipment therein, including, without limitation all systems and equipment, including but not limited to, elevators, plumbing, heating, air conditioning, ventilating, lighting, electrical, security, and fire alarms, fire pumps, fire extinguishers and hose cabinets, mail chutes and those related to guard service, painting, window cleaning, service area, mechanical rooms and Facility exteriors;

        (xii)   All supplies, materials, rental of equipment, security, management, utilities, repairs, replacements and maintenance costs and all other costs and expenses attributable to, related to or used in connection with the Common Area, the Facility Common Area and the Parking Facilities;

        (xiii)  All of Landlord's costs and expenses of contesting by legal proceedings any matter concerning the operation or management of the Facility, or the amount or validity of any Property Taxes levied against all or any part of the Facility;

        (xv)   The costs of personnel, utilities, insurance, materials, supplies, payroll and equipment related to or used in connection with services provided or available to be provided within the Facility for the use and benefit of all tenants, including Tenant, in the Facility, to the extent not recovered from charges made for the cost of such services;

        (xiv)   The cost of capital improvements, modifications or improvements made to the Facility, amortized on a straight line basis over the useful life thereof as determined in accordance with sound accounting principles, together with interest on the amortized costs of each expenditure;

        (xv)   Energy allocation or use charges or surcharges or developmental or environmental charges imposed in connection with the operation or management of the Facility;

        (xvi)   Costs incurred in connection with the implementation and operation of any transportation management program or similar program if required by any Governmental Entity or any applicable governmental authority;

        (xvii)  Cost of supplying and cleaning employees' uniforms and work clothes;

        (xviii)  Reasonable dues and expenses for trade and industry associations;

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        (xix)   Reasonable administrative costs, such as (but not limited to) postage, stationery, photocopy expenses and other management office supplies;

        (xx)   Imputed cost equal to the loss of rent by Landlord for space used for on-site management at an imputed cost which is equal to the rental rate then charged by Landlord for comparable space in the Facility;

        (xxi)   Costs of providing pest control for the Facility;

        (xxii)  Cost of casualty, liability and other insurance;

        (xxiii)  Any and all occupancy, gross receipts or rental taxes paid by Landlord in connection with the Facility, but not income or any other tax imposed or measured by Landlord's income or profits (unless such tax is in lieu of real estate taxes or sales taxes);

        Notwithstanding anything to the contrary herein contained, Operating Expenses shall not include:

        (aa)   depreciation of the Building;

        (bb)   the cost of providing tenant improvements to Tenant or any other tenant or the cost of renovating space for existing or new tenants;

        (cc)   principal, interest or debt required to be paid on any mortgage or deed of trust recorded with respect to the Facility and/or the Premises;

        (dd)   the cost of special services, goods or materials provided to any tenant;

        (ee)   advertising costs incurred in renting individual space in the Facility;

        (ff)    any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord;

        (gg)   material damages incurred due to the violation by any tenant of the terms and conditions of any lease of space in the Facility;

        (hh)   The cost to Landlord of repairs made, or other work done, by Landlord as a result of fire, windstorm or other insurable casualty or by the exercise of eminent domain, other than the aggregate amount of commercially reasonable deductibles under any insurance policy covering fire, windstorm or other casualty;

        (ii)    specific costs incurred for the account of and separately billed to specific tenants and other specific services or Property Taxes which could have been billed to tenants under their leases;

        (jj)    all costs associated with Landlord's general corporate overhead and general administrative expenses that are not related to the operation and maintenance of the Facility;

        (kk)   costs incurred by Landlord in connection with the correction of defends in the original design and construction of the Building or the Facility;

        (ll)    expenses in connection with services or other benefits which are provided to another tenant or occupant of the Building and do not benefit Tenant;

        (mm)  any cost or expense related to the removal, abatement or remediation of any "hazardous material" in or about the Common Area of the Building or the Facility Common Area, including without limitation, hazardous substances in the ground water or soil;

        (nn)   any fines, costs, penalties or interest resulting from the negligence or willful misconduct of Landlord or its agents or employees acting within the scope of their employment or agency, as the case may be;

        (oo)   the costs of any individual capital acquisition in excess of $10,000.00 and the costs of capital improvements as determined in accordance with generally accepted accounting principles,

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except the costs of any capital acquisition or capital improvement, as the case may be, (1) made to, or effectuated with respect to, the Project which, in Landlord's reasonable judgment, should reduce Operating Expenses in excess of the amortized cost of any such capital acquisition or capital improvement, as the case may be, or (2) which is required by any governmental regulation or Applicable Law enacted or promulgated following the Term Commencement Date;

        (pp)   overhead or profits paid to subsidiaries or affiliates of Landlord, or other similar non-arms-length transactions for management or other services provided to the Facility, or for supplies or other materials furnished to the Facility, to the extent that the costs of such services, supplies or materials, as the case may be, exceed market rates or charges therefor;

        (qq)   Landlord's gross receipts, personal and corporate income taxes, inheritance and estate taxes, franchise and gift taxes;

        (rr)    any rental payments and related costs pursuant to any ground lease of land underlying all or any portion of the Building and the Facility Common Areas, excluding any costs related to the REA, which costs shall be included in Operating Expenses;

        (ss)    any costs, fees, dues or contributions for any political or charitable organizations; or

        (tt)    legal fees incurred by Landlord as a result of Landlord's default under the Lease;

        (uu)   costs of advertising or other promotional materials unless agreed to by Tenant in its sole and absolute discretion;

        (vv)   costs for providing any fire, life or safety code enhancements to the Building as a result of legal requirements in effect prior to the Term Commencement Date;

        (ww)  tax penalties or other costs incurred as a result of Landlord's or its employees' gross negligence or wilful misconduct;

        (xx)   costs arising from the presence of hazardous materials or substances which are present in or around the Facility on or prior to the Term Commencement Date (as defined by Applicable Laws in effect on the Term Commencement Date);

        (yy)   the cost of any "warranty" work or replacements;

        (zz)   the cost of insurance on leasehold improvements to the premises of tenants of the Project (unless the cost of such insurance on Tenant's leasehold improvements is also included within Operating Expenses);

        (aaa)  attorneys fees in connection with disputes with any existing or prior tenant of the Facility;

        (bbb)  lease payments under capital leases; and

        (ccc)  any individual cost, expense or charge incurred during the Term in excess of $100,000.00 which is of a nature of a cost, expense or charge not included as an Operating Expense in the Base Year (unless the cost, expense or charge is imputed to have been included in Operating Expenses for the Base Year so that the Operating Expenses or "expense allowance" for such Base Year is appropriately adjusted);

        Operating Expenses with respect to new or modified Common Area shall be allocated to the Facility and the Premises on a reasonable basis. In determining the amount of Operating Expenses for any calendar year, if less than ninety-five (95%) of the rentable area in the Facility shall have been occupied by tenants at any time during such calendar year, Operating Expenses shall be determined for such calendar year to be an amount equal to the like expenses which would normally be expected to be incurred had such occupancy been ninety-five (95%) throughout such calendar year.

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        If any capital improvement is made any lease year in compliance with requirements of any federal, state or local law or environmental regulation, whether or not such law or regulation is valid or mandatory, then the reasonable annual amortization, with interest of the cost of such improvements shall be deemed an Operating Expense in each of the lease years which such amortization occurs unless same is specifically excluded above.

        "Parking Facilities" means all surface, aboveground and underground parking facilities (including, without limitation, accessways, parking spaces, parking structures, pedestrian crossings or paths or ramps) now or hereafter constructed and designated by Landlord for use by tenants of or within the Project.

        "Permitted Use" means use as general offices and related uses and for no other purpose.

        "Phased-In Tax Increases" means collectively (i) twenty percent (20%) of the increases in Property Taxes attributable to the First Transfer for the period commencing on the Transfer Date and terminating on the day preceding the first anniversary of the Transfer Date, (ii) forty percent (40%) of the increases in Property Taxes attributable to the First Transfer for the period commencing on the first anniversary of the Transfer Date and terminating on the day preceding the second anniversary of the Transfer Date, (iii) sixty percent (60%) of the increases in Property Taxes attributable to the First Transfer for the period commencing on the second anniversary of the Transfer Date and terminating on the day preceding the third anniversary of the Transfer Date, and (iv) eighty percent (80%) of the increases in Property Taxes attributable to the First Transfer for the period commencing on the third anniversary of the Transfer Date and terminating on the day preceding the fourth anniversary of the Transfer Date; it being agreed that increases in Property Taxes attributable to the inflationary increase thereof (which subject to the terms of Proposition 13, as presently promulgated, are up to two percent (2%) annually) shall not be deemed to be increases in Property Taxes attributable to the First Transfer.

        "Premises" means that certain space consisting of that approximate number of rentable square feet as set forth in the Basic Lease Information located on the floor(s) designated on the Basic Lease Information and as outlined on the floor plans attached hereto as Exhibit B-1 and Exhibit B-2 incorporated herein by reference. The Premises shall include the interior surface of all walls, but shall not include the exterior walls of the Facility, or any structural components or any Facility Common Area or Common Area. All references to the Premises in this Lease shall mean the Premises under this Lease in any given Lease Year.

        "Project" means the land and improvements, and the overlying space, that presently exist or as same may be expanded, developed or altered from time to time, designated on Exhibit A-1 attached hereto and incorporated herein by reference, presently known as Park Place, including, without limitation, the Facility, the retail center and related improvements, all improvements presently under construction within the area depicted on Exhibit A-1, the Common Area and all Parking Facilities.

        "Property Taxes" means all real and personal property taxes and assessments, general or special, and all other taxes, charges, levies and license and permit fees of any kind or nature whatsoever, foreseen or unforeseen, general or special, ordinary or extraordinary, which are now or any time the term of this Lease levied, assessed, imposed upon, confirmed or become due and payable out of or with respect to the Facility and the improvements, fixtures, equipment and other items of personal property of Landlord therein which are used in the operation and maintenance of the Facility; any taxes which become payable by Landlord, whether or not now customary or within the contemplation of Landlord or Tenant, which are levied in addition to or in lieu of such real or personal property taxes or assessments including, without limitation, any occupancy, gross receipts or rental tax (i) allocable to or measured by Rent or other amounts payable to Landlord hereunder, (ii) with respect to the receipt of such Rents or amounts by Landlord, (iii) with respect to any activity or right of Tenant in the leasing, possession, occupancy, use, operation, management, repair, maintenance, alteration, or improvement of the Premises or (iv) upon this transaction or any document to which Tenant is a party

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creating or transferring an interest or an estate in the Premises; and any interest, penalties or delinquency charges thereon which attach for any reason other than late payment or non-payment thereof by Landlord, unless such late payment or non-payment by Landlord is in connection with a late payment or non-payment by Tenant. Property taxes shall include transit impact development fees, housing impact development fees (fees for services such as fire protection, street, sidewalk and road maintenance, refuse removal and other governmental services), and other fees or taxes payable by Landlord, in connection with the Facility that are levied with respect to the Facility and which are payable with monthly Rent as provided in subparagraph (b) below.

        (a)  Property Taxes shall not include: (i) any taxes or assessments against the personal property of Tenant or any other tenant of the Facility which taxes and assessments are separately billed to Tenant or such other tenant by the tax collecting authority; or (ii) any income tax, franchise tax or transfer tax (exclusive of any transfer tax imposed on this Lease) for which Landlord may be or become personally liable or (iii) for the four (4) year period immediately following the Transfer Date, any increase in Property Taxes other than the Phased-In Tax Increases.

        (b)  In addition to all monthly Rent and other charges to be paid by Tenant under this Lease, Tenant shall reimburse Landlord upon demand for Tenant's Share of any and all transit impact development fees, housing impact development fees and other fees or taxes payable by Landlord, whether or not now customary or within the contemplation of the parties hereto, that are levied with respect to the Facility that are not due or attributable to the development of the Facility and related to the cost of providing governmental or public facilities or services. Property Taxes shall not include transit impact development fees or housing impact development fee which (i) are imposed solely on Landlord as a result of development of the Facility and (ii) are not imposed generally upon other landowners within the taxing agency's jurisdiction.

        (c)  There shall be deducted from Property Taxes the net amount of any refunds actually received by Landlord, after reasonable expenses. To the extent reasonably practicable, all such refunds to be applied against said Property Taxes for the same calendar year to which the Property Taxes apply.

        (d)  The amount of special taxes or special assessments to be Included as Property Taxes shall be limited to the amount of the installments of special taxes or special assessments required to be paid during the calendar year in respect to which these special taxes or special assessments are to be determined; however, Landlord shall elect the longest period of time allowed by the authority imposing the tax or assessment in which to pay installments of special taxes or special assessments.

        (e)  Property Taxes shall include expenses incurred by Landlord in attempting to protest, reduce or minimize Property Taxes for the year in which such expenses are incurred. If for any Lease Year subsequent to the Base Year, Property Taxes are reduced, then commencing in the Lease Year in which such decrease occurs and continuing for all subsequent Lease Years, Base Year Operating Expenses shall be deemed reduced by the amount of such decrease to Property Taxes.

        "REA" means that certain Construction, Operation and Reciprocal Easement Agreement for the Facility recorded July 30, 1985 as Instrument No. 85-279768 in the Official Records of Orange County, California.

        "Related Corporation" means any corporation or other business entity (but not including any Governmental Entity) which Controls, is Controlled by or is under common Control with Tenant.

        "Rent" means all rent and other payments to Landlord under this Lease, including, without limitation, (i) Basic Rent as set forth in Section 4.01, and (ii) such other charges and payments as are designed as Rent, rent or additional rent under this Lease.

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        "Scheduled Term Commencement Date" means the date set forth as the Scheduled Term Commencement Date in the Basic Lease Information of this Lease.

        "Scheduled Term Expiration Date" means the date set forth as the Scheduled Term Expiration Date in the Basic Lease Information of this Lease.

        "Section" means a section of this Lease.

        "Tenant" means the tenant under this Lease as set forth in the Basic Lease Information, or its permitted successors and assigns.

        "Tenant Delays" means any delay resulting from or in connection with an act or omission of Tenant or any person acting by or on behalf of Tenant.

        "Tenant Improvement Agreement" means that certain tenant improvement agreement dated as of the date hereof between Landlord and Tenant attached hereto as Exhibit E and made a part hereof.

        "Tenant Improvements" means improvements to the Premises to prepare the same for Tenant's continued occupancy thereof, which improvements shall be performed by Tenant as provided in the Tenant Improvement Agreement attached to this Lease as Exhibit E and incorporated herein by reference.

        "Tenant's Operating Expenses" means the difference between Tenant's Share of Operating Expenses and Tenant's Share of Base Year Operating Expenses to be determined and paid as provided in Article XXV.

        "Tenant's Share" means the ratio (expressed as percentage) of the usable floor area deemed to be in the Premises to the usable floor area deemed to be in the Facility. Such ratio is five and fifty-five hundredths percent (5.55%).

        "Term" means the term of this Lease.

        "Term Commencement Date" means the actual date on which the Term of this Lease commences.

        "Term Expiration Date" means November 30, 2008.

        "3347 Building" means the building located at and commonly known as 3347 Michelson Drive, Irvine, California.

        "3351 Building" means the building located at and commonly known as 3351 Michelson Drive, Irvine, California.

        "Transfer Date" means the date of the First Transfer.

        "Tower" means the building located at and commonly known as 3333 Michelson Drive, Irvine, California.

        "United Lending Lease" means that certain Agreement of Lease dated as of March 6, 1997 between Crow Winthrop Operating Partnership ("CWOP"), Landlord's predecessor-in-interest, as landlord, and California Lending Group, Inc. d/b/a United Lending Group ("United Lending"), Tenant's predecessor-in-interest, as tenant, covering Suite 100 on the first (1^st) floor of the 3351 Building, as amended pursuant to (a) that certain First Amendment of Lease dated as of January 16, 1998 between Landlord and United Lending, and (b) that certain letter dated April 13, 2000 from Landlord.

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EXHIBIT D

COMMENCEMENT MEMORANDUM

To:
 
 

        Date:                                     

Re:

Lease dated as of                        , 2002 (the "Lease"), between Jamboree LLC, Landlord, and Aames Financial Corporation, Tenant, concerning Suite 300 located at 3347 Michelson Drive, Irvine, CA and Suite 100 located at 3351 Michelson Drive, Irvine, CA (collectively, the "Premises").

To Whom It May Concern:

        In accordance with the subject Lease, we wish to advise and/or confirm as follows:

        1.    That the Premises have been accepted by the Tenant as being substantially complete in accordance with the subject Lease and that, to the Tenant's actual knowledge, there is no deficiency in construction.

        2.    That the Tenant has possession of the subject Premises and acknowledges that under the provisions of the Lease the Term Commencement Date is January 1, 2003, and the Term Expiration Date is November 30, 2008.

        3.    That in accordance with the Lease, rent commenced to accrue on January 1, 2003.

        4.    If the Term Commencement Date of the Lease is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter will be for the full amount of the monthly installment as provided for in the Lease.

        5.    Rent is due and payable in advance on the first day of each and every month the Term of the Lease. Your rent checks should be made payable to                                                                                                  at                                                                                                                           .

        6.    The number of square feet deemed to be in the Premises is approximately 83,257 usable and approximately 93,248 rentable square feet.

        7.    The number of square feet within the Facility is deemed to be approximately 1,499,028 usable square feet.

        8.    Tenant's Share, as adjusted based upon the number of rentable square feet deemed to be within the Premises, is 5.55%.

LANDLORD:
WINTHROP CALIFORNIA MANAGEMENT LIMITED PARTNERSHIP as authorized agent for JAMBOREE LLC
By:	WINTHROP WEST COAST REALTY SERVICES, INC.
	By:
		Janine R. Padia Its Vice President and Secretary

TENANT:
AAMES FINANCIAL CORPORATION, a Delaware corporation
By:
	Print Name:
	Title:

EXHIBIT E

TENANT IMPROVEMENT AGREEMENT

THIS TENANT IMPROVEMENT AGREEMENT ("Tenant Improvement Agreement") is entered into as of the      day of September, 2002 by and between JAMBOREE LLC, a Delaware limited liability company ("Landlord"), and AAMES FINANCIAL CORPORATION, a Delaware corporation ("Tenant").

R E C I T A L S:

        A.    Concurrently with the execution of this Tenant Improvement Agreement, Landlord and Tenant have entered into a lease agreement (the "Lease") covering certain premises (the "Premises") more particularly described in Exhibits B-1 and B-2 attached to the Lease (the "Lease"). All terms not defined herein have the same meaning as set forth in the Lease. To the extent applicable, the provisions of the Lease are incorporated herein by this reference.

        B.    In order to induce Tenant to enter into the Lease and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant agree as follows:

        1.    TENANT IMPROVEMENTS.    As used in the Lease and this Tenant Improvement Agreement, the term "Tenant Improvements" or "Tenant Improvement Work" means those items of general tenant improvement construction shown on the Final Plans (described in Paragraph 4 below), including, but not limited to, partitioning and modifications to Tenant's existing furniture systems to reconfigure same to increase the number of work stations therein, doors, ceilings, floor coverings, wall finishes (including paint and wall covering), electrical (including lighting, switching, telephones, cabling, outlets, etc.), relocation of the data center, plumbing, heating, ventilating and air conditioning, fire protection, cabinets and other millwork and distribution of Building services such as sprinkler and electrical service.

        2.    WORK SCHEDULE.    At least ten (10) days prior to commencing the Tenant Improvement Work, Tenant will deliver to Landlord, for Landlord's review and approval, a schedule (the "Work Schedule") which will set forth the timetable for the planning and completion of the installation of the Tenant Improvements, and will include milestone dates for, among other things, completion of the Space Plans, completion of the Final Plans and projected dates of completion of the Tenant Improvement Work. The Work Schedule will set forth each of the various items of work to be done or approval to be given by Landlord and Tenant in connection with the completion of the Tenant Improvements. The Work Schedule will be submitted to Landlord for its approval, and, once approved by both Landlord and Tenant, all plans and drawings required by this Tenant Improvement Agreement and all work performed pursuant thereto are to be prepared and performed in accordance with the Work Schedule. Notwithstanding anything to the contrary contained herein, Tenant acknowledges that the coordination of, and the scheduling for, cabling work, if any, shall be determined by Landlord in its sole discretion and that such cabling work, if any, shall only be performed after normal business hours and as otherwise directed by Landlord or Landlord's Representative (as hereinafter defined).

        3.    CONSTRUCTION REPRESENTATIVES.    Landlord hereby appoints the following person(s) as Landlord's representative ("Landlord's Representative") to act for Landlord in all matters covered by this Tenant Improvement Agreement: Bob Negohosian. Tenant hereby appoints the following person(s) as Tenant's representative ("Tenant's Representative") to act for Tenant in all matters covered by this Tenant Improvement Agreement: Audry Patterson. All communications with respect to the matters covered by this Tenant Improvement Agreement are to made to Landlord's Representative or Tenant's Representative, as the case may be, in writing in compliance with the notice provisions of the Lease. Either party may change its representative under this Tenant Improvement Agreement at any time by written notice to the other party in compliance with the notice provisions of the Lease.

        4.    TENANT IMPROVEMENT PLANS.

        (a)    Preparation of Space Plans.    In accordance with the Work Schedule, and at Landlord's cost (subject to payment of the Allowance by Landlord pursuant to the express terms of Paragraph 5 hereof), Tenant shall cause an architect and/or space planner acceptable to Landlord ("Tenant's Architect") to prepare preliminary space plans for the layout of the Premises ("Space Plans"). The Space Plans are to be sufficient to convey the architectural design of the Premises and layout of the Tenant Improvements therein and are to be submitted to Landlord in accordance with the Work Schedule for Landlord's approval. If Landlord reasonably disapproves any aspect of the Space Plans, Landlord, within five (5) business days of receipt of the Space Plans, will advise Tenant in writing of such disapproval and the reasons therefor in accordance with the Work Schedule. Within a reasonable period of time thereafter, Tenant will submit to Landlord for Landlord's approval, in accordance with the Work Schedule, a redesign of the Space Plans incorporating the revisions reasonably required by Landlord. If Landlord shall fail to respond in writing to Tenant's written request for approval of Tenant's Space Plans within the time frames provided for herein, then Landlord shall be deemed to have disapproved such Space Plans.

        (b)    Preparation of Final Plans.    Based on the approved Space Plans, and in accordance with the Work Schedule, Tenant's Architect will prepare complete architectural plans, drawings and specifications and complete engineered mechanical, structural and electrical working drawings for all of the Tenant Improvements for the Premises (collectively, the "Final Plans"); it being understood and agreed that Landlord shall have the right (but not the obligation) to "actively participate" in the development of the Final Plans and the performance of the Tenant Improvement Work, including, without limitation, being invited to attend, observe and make recommendations in all work meetings and having the right to review and approve all reasonable plans, drawings, specifications and other documents prepared in connection with the Tenant Improvements including, without limitation, the Final Plans. The Final Plans will show: (a) the subdivision (including partitions and walls), layout, lighting, finish and decoration work (including carpeting and other floor coverings) for the Premises; (b) all internal and external communications and utility facilities which will require conduiting or other improvements from the base Building shell work and/or within common areas; and (c) all other specifications for the Tenant Improvements. The Final Plans will be submitted to Landlord for Landlord's approval. If Landlord disapproves any aspect of the Final Plans and Landlord so notifies Tenant, Tenant will then submit to Landlord for Landlord's approval a redesign of the Final Plans incorporating the revisions reasonably required by Landlord. This process shall continue until the Final Plans have been approved by Landlord. The design of any work affecting any of the Facility systems must be approved by Landlord's consultants who are at such time responsible for maintaining any such system. Notwithstanding anything to the contrary contained herein, Landlord shall not require Tenant to modify its proposed finish or decorating work specifications provided that Tenant's specifications and the Tenant Improvement Work reflected therein conform with the requirements herein and in the Lease set forth and are compatible with and are of at least equal quality as the standards approved by Landlord.

        (c)    Requirements of Tenant's Final Plans.    Tenant's Final Plans will include locations and complete dimensions, and the Tenant Improvements, as shown on the Final Plans, will: (i) be compatible with the Building shell and with the design, construction and equipment of the Building; (ii) if not comprised of the Building standards set forth in the written description thereof (the "Standards"), then compatible with and of at least equal quality as the Standards and approved by Landlord; (iii) comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction, and all applicable insurance regulations; (iv) not require Building service beyond the level normally provided to other tenants in the Building and will not overload the Building floors; and (v) be of a nature and quality consistent with the overall

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objectives of Landlord for the Building, as determined by Landlord in its reasonable but subjective discretion.

        (d)    Submittal of Final Plans.    Once approved by Landlord and Tenant, Tenant's Architect will submit the Final Plans to the appropriate governmental agencies for plan checking and the issuance of a building permit. Tenant's Architect, with Landlord's cooperation at Tenant's cost, will make any changes to the Final Plans which are requested by the applicable governmental authorities to obtain the building permit. After approval of the Final Plans no further changes may be made without the prior written approval of both Landlord and Tenant, and then only after agreement by Tenant to pay any excess costs resulting in connection with such changes.

        5.    PAYMENT FOR THE TENANT IMPROVEMENTS.

        (a)    Tenant Responsibility.    Except as expressly set forth in subparagraph (b) below, Tenant shall be responsible for and pay all costs associated with the design and construction of the Tenant Improvements. Prior to August 1, 2003, Tenant shall have no right to, and shall not, perform (or cause to be performed) work costing in excess of $83,257.00 in the aggregate or incur costs and expenses in connection with the Tenant Improvement Work in excess of $83,257.00 prior to August 1, 2003, unless Tenant shall (i) timely pay, or cause to be paid, all costs and expenses of the contractors, subcontractors and materialmen performing such work which are in excess of $83,257.00 (which excess costs may be reimbursable to Tenant after August 1, 2003, subject to and in accordance with the express terms of subparagraph (b) below), (ii) obtain from all contractors, subcontractors and materialmen evidence of the absence of liens (including, without limitation, conditional lien releases applicable to the work in question), and (iii) obtain invoices, receipts and bills evidencing the costs in question.

        (b)    Allowance.    Notwithstanding the foregoing, Landlord agrees to pay for the cost of the Tenant Improvement Work, as approved by Landlord and made by Tenant within fifteen (15) months of the Term Commencement Date to the extent of the lesser of (x) the actual cost of the Tenant Improvement Work and (y) Three Hundred Thirty-Three Thousand and Twenty-Eight and 00/100 ($333,028.00) Dollars per usable square foot of space deemed to be contained in the Premises (such lesser amount is herein referred to as the "Allowance"). The Allowance is to be used only for:

        (i)    Payment of the cost of preparing the Space Plans and the Final Plans, including mechanical, electrical, plumbing and structural drawings and of all other aspects necessary to complete the Tenant Improvement Plans. The Allowance will not be used for the payment of extraordinary design work not consistent with the scope of Landlord's Building Standards (i.e., above-standard design work) or for payments to any other consultants, designers or architects other than Landlord's architect and/or Tenant's Architect.

        (ii)  The payment of plan check, permit and license fees relating to construction of the Tenant Improvements.

        (iii)  Construction of the Tenant Improvements, including, without limitation, the following:

        (aa) Installation within the Premises of all partitioning, doors, floor coverings, ceilings, wall coverings and painting, millwork and similar items;

        (bb) All electrical wiring, lighting fixtures, outlets and switches, and other electrical work necessary for the Premises;

        (cc) The furnishing and installation of all duct work, terminal boxes, diffusers and accessories necessary for the heating, ventilation and air conditioning systems within the Premises, including the cost of meter and key control for after-hour air conditioning;

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        (dd) Any additional improvements to the Premises required for Tenant's use of the Premises including, but not limited to, odor control, special heating, ventilation and air conditioning, noise or vibration control or other special systems or improvements;

        (ee) All fire and life safety control systems such as fire walls, sprinklers, halon, fire alarms, including piping, wiring and accessories, necessary for the Premises;

        (ff)  All plumbing, fixtures, pipes and accessories necessary for the Premises;

        (gg) Testing and inspection costs;

        (hh) Fees for Tenant's contractor and tenant improvement coordinator including, but not limited to, fees and costs attributable to general conditions associated with the construction of the Tenant Improvements;

        (ii)  expenses and costs relating to alteration of the data center in Suite 300 of the 3347 Building and expenses and costs relating to the relocation of the data center in Suite 100 of the 3351 Building; and

        (jj)  expenses and costs relating to alterations, additions or modifications to Tenant's furniture system.

        (c)    Changes.    If, after the Final Plans have been prepared Tenant requires any changes or substitutions to the Final Plans, any additional costs related thereto are to be charged against the Allowance to the extent not theretofore exhausted, or if the Allowance has been exhausted, such costs are to be promptly paid by Tenant to its general contractor or Landlord, as applicable. Any changes to the Final Plans will be approved by Landlord and Tenant in the manner set forth in Paragraph 4 above. Landlord will have the right to decline Tenant's request for a change to the Final Plans if such changes are inconsistent with the provisions of Paragraph 4 above.

        (d)    Governmental Cost Increases.    If increases in the cost of the Tenant Improvements are due to requirements of any governmental agency, Tenant agrees to pay Landlord the amount of such increase within five (5) days of Landlord's written notice; provided, however, that Landlord will first apply toward any such increase any remaining balance of the Allowance.

        (e)    Disbursement of Allowance.    Provided the Lease is in full force and effect and Tenant is not in default under the Lease beyond the expiration of any applicable cure period, Landlord shall pay in progress payments (and Tenant hereby directs Landlord to pay directly to Tenant's general contractor) the Allowance to pay for the Tenant Improvement Work as follows:

        (i)    No more frequently than once per month, Tenant shall cause Tenant's general contractor to deliver to Landlord, by the fifth (5^th) day of each month (the "Current Month") an application for payment in the form of a typed, itemized, reasonably detailed statement (the "Statement"). The Statement shall be applicable to the period commencing on the first (1^st) day of the month preceding the Current Month and ending on the last day of each month (the "Payment Request Period"). Delivered with the Statement shall be (A) evidence of the absence of liens which are the subject of the Statement as reasonably required by Landlord (including, without limitation, conditional lien releases applicable to all work performed prior to or during the Payment Request Period, (B) invoices, receipts and bills evidencing the costs which are the subject of the Statement (collectively, the "Supporting Items"), (C) a certificate of Tenant's Architect certifying that the portions of the Tenant Improvement Work reflected on such Supporting Items have been completed in accordance with the Final Plans, and (D) a notification of the estimated amount of the statement and invoices which will need to be paid with respect to the next succeeding Payment Request Period (the "Next Funding Notice"). The Statement shall constitute a representation by Tenant that the work identified therein has been approved by Tenant and performed in

4

accordance with the Final Plans, the requirements of the Lease and this Tenant Improvement Agreement and that Tenant's general contractor has been paid in full for all work performed prior to and during the Payment Request Period.

        (ii)  All Statements from the Tenant's general contractor (except for the final payment) shall be for no more than ninety (90%) percent of the cost of the work performed, providing for a ten (10%) percent retainer. Except as hereinafter set forth, Landlord will review the Statement and the Supporting Items for each Payment Request Period and will, within thirty (30) days after receipt of said Statement, the Supporting Items and the Next Funding Notice pay (and Tenant hereby directs Landlord to pay) to the party(ies) entitled thereto, the amount Landlord reasonably approves (provided such amount does not exceed the amount set forth in the Next Funding Notice given by Tenant in the preceding month); in the event Landlord does not approve a Statement or any Supporting Items for reasons related to defective work or work which is not in conformity with the Final Plans, the requirements of the Lease or this Tenant Improvement Agreement, Landlord will only be obligated to pay the portion it approves. Notwithstanding anything to the contrary contained herein, Landlord shall have no obligation to, and shall not, approve or pay progress payments in excess of $83,257.00 in the aggregate prior to August 1, 2003, even if the work in question shall have been completed, a Statement and all Supporting Items shall have been delivered in accordance with the terms hereof and all other applicable terms and conditions shall have been complied with.

        (iii)  Final payment, including the retainer, shall be due and payable thirty-five (35) days after recordation of a valid "Notice of Completion" with respect to the Tenant Improvements, provided Tenant's general contractor has timely delivered to Landlord the last Statement and all Supporting Items and all conditional and unconditional lien releases provided for herein.

        (iv)  Each Statement and the Supporting Items shall only include amounts for work authorized under this Tenant Improvement Agreement and actually performed.

        (v)  Notwithstanding anything to the contrary set forth above, Landlord shall not be required to make final payment until: (A) Tenant's Architect has certified to Landlord that the Tenant Improvements have been completed in accordance with the Final Plans, (B) Tenant has delivered to Landlord one (1) set of reproducible "record set" plans for the Tenant Improvements as prepared by Tenant's Architect or space planner, as applicable, and discs with such plan thereon on CAD format for each floor of the Premises, (C) the time period for the filing of a mechanic's, materialmen's or similar lien by Tenant's general contractor and any subcontractor performing all or any portion of the Tenant Improvement Work shall have expired and (D) after August 1, 2003.

        (f)    Books and Records.    Tenant shall request that Tenant's general contractor maintain complete and accurate books and records in accordance with generally accepted accounting principles of all expenditures made in connection with the Tenant Improvement Work for at least two (2) years. Tenant shall request that Tenant's general contractor make available to Landlord within five (5) business days following Landlord's notice requesting an audit, all books and records maintained by Tenant's general contractor pertaining to the construction and completion of the Tenant Improvements.

        (g)    Unused Allowance Amounts.    In the month following the later of (i) April 1, 2004 and (ii) the date of notice from Landlord that Tenant desires to use the remaining Allowance as a credit against Rent obligations under this Lease, Landlord shall permit Tenant to apply any unused portion of the Allowance as a credit against any obligations of Tenant under the Lease; provided that this Lease is in full force and effect and Tenant is not in default hereunder and that the Tenant Improvements have been completed.

5

        6.    CONSTRUCTION OF TENANT IMPROVEMENTS.    Tenant shall retain a general contractor approved by Landlord to construct the Tenant Improvements. Tenant shall enter into a construction contract in form and substance reasonably acceptable to Landlord for the installation of the Tenant Improvements in accordance with the Final Plans. Landlord shall have the right to approve all change order requests relating to changes in the Final Plans, provided that Landlord shall promptly respond to a change order request. Tenant shall supervise the completion of such work and shall use diligent efforts to secure completion of the Tenant Improvements in a good and workmanlike manner in accordance with the Final Plans and the approved construction contract. Landlord shall approve or disapprove of Tenant's general contractor promptly after Landlord's receipt of qualifications of such proposed contractor. Tenant agrees to use diligent efforts to cause the construction of the Tenant Improvements to commence promptly following the issuance of a building permit for the Tenant Improvements.

        7.    MISCELLANEOUS CONSTRUCTION COVENANTS.

        (a)    No Liens.    Except for any Landlord Liens, at no time shall Tenant do or permit anything to be done whereby the Tenant Improvement Work, the Premises, the Building, the Project or the Facility, or any portion thereof, may be subject to any mechanic's, materialmen's or other lien or encumbrance arising out of or in connection with the Tenant Improvement Work, and if any mechanic's, materialmen's or other lien is filed against the Tenant Improvement Work, the Premises, the Building, the Project or the Facility, or any portion thereof, as a result of or in connection with the performance of the Tenant Improvement Work, Tenant shall immediately cause such lien to be removed of record by either paying off the lien or procuring and recording a release bond in accordance with California Civil Code Section 3143 and Section 3171. If Tenant fails to remove such lien, and such failure continues for ten (10) days after written demand of Landlord to do so, Landlord shall have the right, but not the obligation, in addition to all other rights and remedies available to Landlord under the Lease and this Tenant Improvement Agreement, to procure and cause to be recorded a statutory lien release bond and to deduct from the Allowance all costs incurred in procuring and recording such bond.

        (b)    Diligent Construction.    Tenant will promptly, diligently and continuously pursue construction of the Tenant Improvements to successful completion in compliance with the Final Plans and this Tenant Improvement Agreement.

        (c)    Compliance with Laws.    Tenant shall construct the Tenant Improvements in a safe and lawful manner. Tenant shall, at its sole cost and expense, comply with all applicable laws and all regulations and requirements of, and all licenses and permits issued by, all municipal or other governmental bodies now or hereafter having or claiming to have jurisdiction. Any portion of the Tenant Improvements which is not acceptable to any applicable governmental body, agency or department, or not constructed in accordance with the Final Plans, shall be promptly repaired or replaced by Tenant, at Tenant's expense. Notwithstanding Landlord's approval of such Tenant Improvements or any failure by Landlord to object to any such Tenant Improvements, Landlord shall have no responsibility therefor.

        (d)    Indemnification.    Tenant hereby indemnifies and agrees to defend and hold Landlord and its agents and employees harmless from and against any and all suits, claims, actions, damages, losses, costs and expenses (including, without limitation, claims for workers' compensation) of any nature whatsoever, together with costs and fees of attorneys selected by Landlord, arising out of or in connection with the Tenant Improvements (including, but not limited to, claims for breach of warranty, personal injury or property damage).

        (e)    Insurance.    Construction of the Tenant Improvements shall not proceed without Tenant causing Tenant's general contractor to obtain workers' compensation, commercial general public liability insurance, property damage insurance and such other insurance coverage as is required

6

under the Lease from an insurance company reasonably satisfactory to Landlord. Not less than ten (10) business days before commencing the construction of the Tenant Improvements, certificates of such insurance shall be furnished to Landlord for Landlord's approval. All such policies shall provide that thirty (30) days prior written notice must be given to Landlord before modification, termination or cancellation thereof. All insurance policies maintained pursuant to this Tenant Improvement Agreement shall name Landlord, Landlord's designated managing agent and any lender with an interest in the Premises and any other portion of the Facility or the Facility Common Areas, as additional insureds, and comply with all of the applicable terms and provisions of the Lease relating to insurance.

        (f)    Construction Defects.    Landlord shall have no responsibility for the Tenant Improvements and Tenant will remedy, at Tenant's own expense, and be responsible for any and all defects in the Tenant Improvements that may appear during or after the completion thereof, whether the same shall affect the Tenant Improvements in particular or any parts of the Premises or the Facility in general. Tenant shall reimburse Landlord for any costs or expenses incurred by Landlord by reason of any defect in any portion of the Tenant Improvements constructed by or on behalf of Tenant's general contractor or any subcontractor, or by reason of inadequate cleanup following completion of the Tenant Improvements.

        (g)    Work in Adjacent Areas.    Any work to be performed in areas outside of the Premises shall be performed only after obtaining Landlord's express written consent, which consent may be granted or withheld in Landlord's reasonable discretion, and shall be done only if an agent or employee of Landlord is present; it being understood and agreed that Tenant will pay to Landlord in advance Landlord's then current charges for the supervision of any such employee or agent. Tenant agrees to use its best efforts to minimize interference with, and inconvenience to, other tenants' and Landlord's business operation in the Building, the Facility and the Project as the result of Tenant's construction activities; it being understood and agreed that Tenant shall, among other things, perform during other than business hours any of the Tenant Improvement Work, as the case may be, which Landlord determines (i) is likely to be unreasonably noisy or otherwise disruptive, including, without limitation, coring, drilling and other similar types of construction or (ii) is likely to cause or permit noxious or offensive odors. Tenant shall be responsible for repairing all portions of the Building, the Facility, the Facility Common Areas and the Project damaged in connection with any of its construction activities or the performance of the Tenant Improvements hereunder.

        (h)    Coordination of Labor.    All of Tenant's contractors, subcontractors, employees, servants and agents must work in harmony with and shall not interfere with any labor employed by Landlord or Landlord's contractors or by any other tenant or its contractors with respect to any portion of the Project.

        (i)    Systems.    Tenant shall cause its general contractor to subcontract with subcontractors reasonably acceptable to Landlord (i) for the engineering and installation of the fire and life safety systems, (ii) for the design and installation of the mechanical systems, and (iii) for the design and installation of the electrical system.

        (j)    Freight/Construction Elevator.    Landlord will, consistent with its obligation to other tenants in the Building, if appropriate and necessary, make the freight/construction elevator reasonably available to Tenant in connection with the construction of Tenant Improvements to the Premises. Tenant agrees to pay for any after-hours staffing of the freight/construction elevator, if needed.

        (k)    Coordination with Lease.    Any default by Tenant with respect to any portion of this Tenant Improvement Agreement shall be deemed a breach of the Lease for which Landlord shall have all the rights and remedies as in the case of a breach of the Lease.

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        (l)    Approval of Plans.    Landlord's approval of the Space Plans, the Final Plans or the Tenant Improvement Work shall not constitute a representation or warranty of Landlord of any kind with respect thereto; it being acknowledged and agreed that Landlord shall not be required to check any such plans for building code compliance or any other matter, and Tenant shall be totally responsible for such matters.

        (m)    Tenant's Deliveries.    Tenant shall deliver to Landlord, prior to the commencement of construction of the particular trade or portion of the Tenant Improvement Work, the following information:

        (i)    The names and addresses of the general, mechanical and electrical contractors Tenant intends to engage in the performance of the Tenant Improvement Work;

        (ii)  The date on which the Tenant Improvement Work will commence, together with the estimated dates of completion of Tenant's construction and fixturing work and the date on which Tenant expects to be ready to operate its business in the Premises; and

        (iii)  One fully executed copy of the construction contract.

        (n)    Qualification of Contractors and Subcontractors.    All contractors and subcontractors engaged by or on behalf of Tenant shall be bonded, licensed contractors, possessing good labor relations, capable of performing quality workmanship and working in harmony with all other contractors performing work at the Facility and shall otherwise be subject to the approval of Landlord as required herein.

        (o)    Warranties.    Tenant shall cause the contractors to provide warranties for not less than one (1) year against defects in workmanship, materials and equipment, which warranties shall run to the benefit of Landlord and Tenant and shall be assignable to Landlord.

        IN WITNESS WHEREOF, the undersigned Landlord and Tenant have caused this Tenant Improvement Agreement to be duly executed by their duly authorized representatives as of the date of the Lease.

LANDLORD:
WINTHROP CALIFORNIA MANAGEMENT LIMITED PARTNERSHIP as authorized agent for JAMBOREE LLC
By:	WINTHROP WEST COAST REALTY SERVICES, INC.
	By:
		Janine R. PadiaPadia Its Vice President and Secretary

TENANT:
AAMES FINANCIAL CORPORATION, a Delaware corporation
By:
	Name:
	Title:

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EXHIBIT F

CLEANING SPECIFICATIONS

NIGHTLY—General Office and Common Areas

•

Spot clean or shampoo all carpets as needed.



•

Empty all waste baskets and trash containers.



•

Wipe or wash all soiled waste baskets and trash containers.



•

Replace liners as necessary in office waste receptacles and trash containers.

NIGHTLY—Executive Office Areas

•

Dust desk chairs, chair legs and bases, furniture, fixtures and telephones, tops of partitions, doors, ledges, window-casing, versatile surfaces and baseboards with chemically treated cloths.



•

Vacuum all carpeted areas thoroughly and remove surface litter.



•

Sweep, wet mop all vinyl tile.

EVERY OTHER NIGHT—General Office Areas

•

Dust with chemically treated cloths: furniture, furniture legs, chair legs and bases, fixtures and telephones, tops of partitions, door ledges, window casings, vertical surfaces and baseboards.



•

Vacuum all carpeted areas thoroughly and remove surface litter.



•

Sweep, wet mop all vinyl tile.



•

Spot clean interior office glass.



•

Clean glass doors and windows in doors.



•

Spot clean walls.



•

Remove fingerprints and smudge marks from partitions, doors, door frames and wall switches.

WEEKLY—General Office Areas

•

Conference Rooms—vacuum and check for soiled chairs. Wash chalkboards unless told not to do so by Supervisor or a note placed on the board.

WEEKLY—Executive Office Areas

•

Spot clean all interior windows.

MONTHLY

•

Dust and wash window blinds.



•

All interior glass to be cleaned.



•

Dust and removed lint from vents.

EXHIBIT G

FORM OF ESTOPPEL CERTIFICATE

        The undersigned,                                                                          , a                                                                          , ("Landlord"), with a mailing address c/o                                                                          . and                                                                          , a                                                                           ("Tenant"), hereby certify to                                                                          , as follows:

        1.    Attached hereto is a true, correct and complete copy of that certain lease dated                                                  , 2002, between Landlord and Tenant (the "Lease"), regarding the premises located at                                                                           (the "Premises"). The Lease is now in full force and effect and has not been amended, modified or supplemented, except as set forth in Paragraph 4 below.

        2.    The Term of the Lease commenced on                                                                          , 20    .

        3.    The Term of the Lease shall expire on                                                                          , 20    .

        4.    The Lease has: (Initial one)

        (    )    not been amended, modified, supplemented, extended, renewed or assigned.

        (    )    been amended, modified, supplemented, extended, renewed or assigned by the following described terms or agreements, copies of which are attached hereto:

        5.    Tenant has accepted and is now in possession of the Premises.

        6.    Tenant and Landlord acknowledge that Landlord's interest in the Lease will be assigned to                                                                           and that no modification, adjustment, revision or cancellation of the Lease or amendments thereto shall be effective unless written consent of                                                                           is obtained, and that until further notice, payments under the Lease may continue as heretofore.

        7.    The amount of Monthly Basic Rent is $                  .

        8.    The amount of Tenant's security deposit (if any) is $                  . No other security deposits have been made except as follows:








        9.    Tenant is paying the full lease rental which has been paid in full as of the date hereof. No rent or other charges under the Lease have been paid for more than thirty (30) days in advance of its due date except as follows:






        10.  To Tenant's actual knowledge, all work required to be performed by Landlord under the Lease has been completed except as follows:

        11.  To Tenant's actual knowledge, there are no defaults on the part of the Landlord or Tenant under the Lease except as follows:






        12.  To Tenant's actual knowledge, neither Landlord nor Tenant has any defense as to its obligations under the Lease and claims no set-off or counterclaim against the other party except as follows:






        13.  Tenant has no right to any concession (rental or otherwise) or similar compensation in connection with renting the space it occupies other than as provided in the Lease except as follows:






All provisions of the Lease and the amendments thereto (if any) referred to above are hereby ratified.

The foregoing certification is made with the knowledge that                                                                           is about to fund a loan to Landlord or                                                                           is about to purchase the Project (or part thereof) from Landlord and that                                                                           is relying upon the representations herein made in funding such loan or in purchasing the Project (or part thereof).

        IN WITNESS WHEREOF, this certificate has been duly executed and delivered by the authorized officers of the undersigned as of                                                                          , 20    .

LANDLORD:
WINTHROP CALIFORNIA MANAGEMENT LIMITED PARTNERSHIP as authorized agent for JAMBOREE LLC
By:	WINTHROP WEST COAST REALTY SERVICES, INC.
	By:
		Janine R. Padia Its Vice President and Secretary

TENANT:
AAMES FINANCIAL CORPORATION, a Delaware corporation
By:
	Print Name:
	Title:

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EXHIBIT H

RULES AND REGULATIONS

        A.    General Rules and Regulations. The following rules and regulations govern the use of the Facility, including the Building, each tenant's premises and all Common Area. Each tenant shall be bound by such rules and regulations and shall be responsible for the observance of these rules and regulations by its employees, subtenants, assignees, contractors, suppliers, customers, invitees and guests.

        1.    Sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways of the Facility shall not be obstructed by tenants or used by them for any purpose other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, elevators, stairways, balconies and roof are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of Landlord shall be prejudicial to the safety, character, reputation and interests of the Facility and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of such tenant's business unless such persons are engaged in illegal activity. No tenant and no employee or invitee of and tenant shall go upon the roof of the Tower or any other building in the Facility, except as authorized by Landlord.

        2.    No sign, placard, picture, name, advertisement or notice, visible from the exterior of the premises shall be inscribed, painted, affixed, installed or otherwise displayed by any tenant either on its premises or any part of the Facility without the prior written consent of Landlord. Landlord shall have the right to remove any such sign, placard, picture, name, advertisement or notice without notice to and at the expense of the tenant. If Landlord shall have given such consent to any tenant at any time, whether before or after the execution of the Lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of such Lease and shall be deemed to relate only to the particular sign, placard, picture, name, advertisement or notice so consented to by Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of Landlord with respect to any other such sign, placard, picture, name, advertisement or notice. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of the tenant by a person approved by Landlord.

        3.    All bulletin boards or directories or other name identifications, if any, will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom.

        4.    No curtains, draperies, blinds, shutters, shades, screens or other coverings, awnings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window or door on any premises without the prior written consent of Landlord. In any event, with the prior written consent of Landlord, all such items shall be installed inboard of Landlord's standard window covering and shall in no way be visible from the exterior of the Facility. No articles shall be placed or kept on the window sills so as to be visible from the exterior of the Facility. No articles shall be placed against glass partitions or doors or any window or wall which might appear unsightly from outside tenant's premises.

        5.    Landlord reserves the right to exclude from the Facility between the hours of 6:00 p.m. and 8:00 a.m. and after 2:00 p.m. on Saturdays and at all hours on Sundays and holidays all persons who are not tenants or their accompanied guests in the Facility. Landlord, at its option, may require all persons admitted to or leaving the Facility or certain portions of the Facility during such hours to register. Landlord shall not be responsible for error with regard to the admission to or exclusion from the Facility of any person. During the continuance of any invasion, mob, riot, public excitement or other circumstance rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Facility by closing the doors, or otherwise, for the safety of tenants and protection of the Facility and property in the Facility. Subject to

Landlord's prior reasonable approval, tenant shall not permit the visit to the premises of persons in such numbers or under such conditions as will interfere with the use and enjoyment of the Common Area by others or with the use and enjoyment of the premises leased to other tenants in the Facility.

        6.    No tenant shall employ any person or persons other than the janitor of Landlord for the purpose of cleaning its premises unless otherwise agreed to by Landlord in writing. Except with the written consent of Landlord no person or persons other than those approved by Landlord shall be permitted to enter the Facility for the purpose of cleaning the same. No tenant shall cause any unnecessary labor by reason of such tenant's carelessness or indifference in the preservation of good order and cleanliness of the premises. Janitorial services shall be provided to Landlord by independent contractors who are bonded.

        7.    No tenant shall obtain for use upon its premises food, beverage, or other similar services except through facilities provided by Landlord (and maintained by tenant) and under regulations fixed by Landlord, or accept barbering or bootblacking services in its premises except from persons authorized by Landlord at such reasonable hours and under such reasonable regulations as may be fixed by Landlord. Landlord expressly reserves the right to absolutely prohibit solicitation, canvassing, sales and displays of products, goods and wares in all portions of the Facility except for such activities as may be expressly requested by a tenant and conducted solely within such requesting tenant's premises. Landlord reserves the right to restrict and regulate the use of the Common Area of the Facility and the Building by invitees of tenants providing services to tenants on a periodic or daily basis including food and beverage vendors. Such restrictions may include limitations on time, place, manner and duration of access to a tenant's premises for such purposes. Without limiting the foregoing, Landlord may require that such parties use service elevators, halls, passageways and stairways for such purposes to preserve access within the Building for tenants and the general public. No tenant shall install, maintain operate upon the premises any vending machine without the written consent of Landlord, except for machines which dispense candy, ice water, soft drinks and cigarettes. Microwave ovens for preparation of food for the convenience of a tenant's employees, guests and invitees are permitted, as provided in Paragraph 15 of these rules and regulations.

        8.    Each tenant shall see that all doors of its premises are closed and securely locked and must observe strict care and caution that all water faucets or water apparatus are entirely shut off before the tenant or its employees leave such premises, and that all utilities shall likewise be carefully and for any default or carelessness the tenant shall make good all injuries sustained by other tenants or occupants of the Facility or Landlord. On multiple-tenancy floors, all tenants shall keep the door or doors to the Facility corridors closed at all times except for ingress or egress.

        9.    Tenant shall use its reasonable efforts to not waste electricity, water or air-conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Facility's heating and air-conditioning, and shall refrain from attempting to adjust any controls other than room thermostats installed for tenant's use.

        10.  No tenant shall alter any lock or access device or install any new additional locks or access devices or any bolts on any door of its premises without the prior written consent of Landlord. If Landlord shall give its consent, the tenant shall in each case furnish Landlord with a key for any such lock, bolt or device. Landlord agrees to cooperate with tenant in coordinating security access and control systems for the premises and the facility. In no event shall tenant install or operate such security systems which are in conflict with systems installed or operated by Landlord.

        11.  No tenant shall make or have made additional copies of any keys or access provided by Landlord. Each tenant, upon the termination of the tenancy, shall deliver to Landlord all the keys

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or access devices for the Facility, offices, rooms and toilet rooms which shall have been furnished the tenant or which the tenant shall have had made. In the event of the loss of any keys or access devices so furnished by Landlord, tenant shall pay Landlord therefor.

        12.  The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it.

        13.  No tenant shall use or keep in premises or otherwise on the Facility any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities necessary for the operation or maintenance of office or office equipment. Any permitted corrosion, flammable or other special wastes shall be handled for disposal as-conditioning other than that supplied by Landlord.

        14.  No tenant shall use, keep or permit to be used or kept in its premises any foul or noxious gas or substance or permit or suffer such premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Facility by reason of noise, odors and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought or kept in or about any premises of the Facility.

        15.  Except as otherwise permitted by Landlord, no cooking shall be done or permitted by any tenant on its premises (except that use by tenant of Underwriters' Laboratory approved equipment for the preparation of beverages and food for tenants and their employees, guests and invitees shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations), nor shall premises be used for washing clothes or lodging.

        16.  Except with the prior written consent of Landlord, no tenant shall sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise in or on any premises, nor shall tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from any premises for the service or accommodation of occupants of any other Facility, nor shall the premises of any tenant be used for the storage of merchandise or for manufacturing of any kind, or the business of a public barber shop, beauty parlor, nor shall the premises of any tenant be used for any improper, immoral or objectionable purpose, or any business or activity other than that specifically provided for in such tenant's lease.

        17.  If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with Landlord's instructions in their installation.

        18.  Landlord will direct electricians as to where and how telephone telegraph and electrical wires are to be introduced or installed. No boring or cutting for wires will be allowed without the prior written consent of Landlord. The location of burglar alarms, telephones, call boxes and other equipment affixed to all premises shall be subject to the written approval of Landlord.

        19.  No tenant without Landlord's prior approval shall install any radio or television antenna, loudspeaker or any other device on the exterior walls or the roof of the Facility. No tenant shall interfere with radio or television broadcasting or reception from or in the Facility or elsewhere.

        20.  No tenant shall lay linoleum, tile, carpet or any other floor covering so that the same shall be affixed to the floor of its premises in any manner except as approved in writing by Landlord. The expense of repairing any damage resulting from a violation of this rule or the removal of any floor covering shall be borne by the tenant of whom, or by whose contractors,

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employees or invitees, the damage shall have been caused. No tenant shall place floormats or other objects outside the boundaries of its premises.

        21.  No furniture, freight, equipment, materials, supplies, packages, merchandise or other property will be received in the Facility except between such hours and at such locations designated by Landlord. Such items shall be carried up and down only in such elevators as shall be designated by Landlord. Tenant shall be responsible for receiving, checking, inspecting and paying for deliveries of such merchandise, supplies, goods, materials, equipment and products addressed to tenant and shall be responsible for moving these items to its premises. Landlord will not accept deliveries for tenants.

        22.  Landlord shall have the right to prescribe the weight, size and position of all safes, furniture or other heavy equipment brought into the Facility. Safes or other heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as determined by Landlord to be necessary to distribute properly the weight thereof. Landlord shall not be responsible for loss of or damage to any such safe, equipment or property from any cause, and all damage done to the Facility by moving or maintaining any such safe, equipment or other property shall be repaired at the expense of the tenant.

        23.  No tenant shall place a load upon any floor of the premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. No tenant shall mark, or drive nails, screw or drill into, the partitions, woodwork or plaster or in any way deface such premises or any part thereof, except as may be reasonably necessary in minor decoration of the premises. No tenant shall mark or defile escalators, elevators, water closets, toilet room walls, windows, doors, or any other part of the Facility or the Common Area.

        24.  There shall not be used in any space, or in the public areas of the Common Area, either by any tenant or others, any hand trucks except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. No other vehicles of any kind (except a wheelchair for an individual) shall be brought by any tenant into or kept in or about the premises.

        25.  Each tenant shall store all its trash and garbage within the interior of its premises or within receptacles provided by Landlord. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such time as Landlord shall designate.

        26.  Canvassing, soliciting, distribution of handbills or any other written material, and peddling in the Facility are prohibited and each tenant shall cooperate to prevent the same. No tenant shall make room-to-room solicitation of business from other tenants in the Facility.

        27.  Landlord may in the exterior of the Facility designate and use or authorize the use of areas for shows, festivals or other events, both public and private. Any fees collected from individuals or organizations for the use of such areas may be used by Landlord for any purpose Landlord desires.

        28.  Tenant shall: (a) not effect or execute any agreement or other instrument whereby its premises or any part thereof is restricted on the basis of age, religion, sex or national origin in the sale, lease or occupancy thereof; (b) not discriminate in the use or occupancy of any or all of its premises against any person because of age, race, color, sex, religion or national origin, not shall any person be deprived of the right to use its premises or any of the facilities therein by reason of race, color, sex, religion, national origin, or, except where required by law, age: and (c) comply

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with all federal, state and local laws, ordinances, rules and regulations, in effect from time to time, prohibiting discrimination or segregation by reason of race, religion, color, sex, national origin, or except where dictated by law, age.

        29.  Landlord shall have the right, exercisable upon reasonable advance notice and without liability to any tenant, to change the name and address of the Facility and the arrangement and/or location of the Common Area and to install and maintain a sign or signs on the exterior of any building or in any corridor and passageway.

        30.  Landlord reserves and shall have the right voluntarily or pursuant to government requirements, at Landlord's expense, to make repairs, alterations or improvements in or to the Facility or any part thereof, and such repair, alteration or improvement work to temporarily block or close entrances, doors, windows, corridors, elevators, or other Common Area, provided that such temporary Facility and take any and all measures, including inspections, repairs, alterations, additions and improvements to the Premises or the Facility as may be necessary or desirable for the safety, protection or preservation of the Premises or Facility, the Landlord's interest therein, or as may be necessary or desirable in the operation of the Facility.

        31.  Landlord reserves the right to grant any tenant the exclusive right to conduct any particular business or undertaking in the Facility provided that same shall not prevent Tenant from using the Premises for the Permitted Use.

        32.  Landlord reserves the right to exclude or expel from the Facility any person who, in Landlord's judgment is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Facility.

        33.  Without the prior written consent of Landlord, no tenant shall use the name of the Facility in connection with or in promoting or advertising the business of tenant except as such tenant's address. Landlord may prohibit any advertisement identifying the Facility, the Building or the address of either or including any picture or rendering thereof of by any tenant, which in Landlord's opinion, tends to impair the reputation or desirability of the Facility. Upon receipt of written notice from Landlord objecting to such advertising, tenant shall cease and refrain from such advertising.

        34.  Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

        35.  Tenant assumes any and all responsibility for protecting its premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to its premises closed.

        36.  Tenants authorized to sell or serve food shall not employ persons who do not have and keep a neat, clean appearance or who are sloppy and careless in their food handling work habits.

        37.  The requirements of tenants will be attended to only upon application at the office of the Facility by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employees will admit any person (tenant or otherwise) to any office without specific instructions from Landlord.

        38.  Landlord may waive any one or more of these Rules and regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations against any or all tenants of the Facility.

        39.  Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of

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the Facility and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations which are adopted.

        40.  The Rules and Regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any Premises in the Facility. Whenever in these Rules and Regulations the word "tenant" is used it shall apply to and include the tenant under the lease and its agents, employees, customer and vendors. Similarly, the word "Landlord" shall include the Landlord, its agents, employees, contractors and vendors.

        B.    Parking Rules and Regulations. The following rules and regulations govern the use of the Parking Facilities which serve the Facility. Tenant will be bound by such rules and regulations and agrees to cause its employees, subtenants, assignees, contractors, suppliers, customers and invitees to observe the same:

        1.    Tenant will not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, subtenants, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. No vehicles are to be left in the parking areas overnight and no vehicles are to be parked in the parking areas other than normally sized passenger automobiles, motorcycles and pick-up trucks. No extended term storage of vehicles is permitted.

        2.    Vehicles must be parked entirely within painted stall lines of a single parking stall.

        3.    All directional signs and arrows must be observed.

        4.    The speed limit within all parking areas shall be five (5) miles per hour.

        5.    Parking is prohibited:

        (a)  in areas not striped for parking;

        (b)  in aisles or on ramps, if any;

        (c)  where "no parking" signs are posted;

        (d)  in cross-hatched areas; and

        (e)  in such other areas as may be designated from time to time by Landlord or Landlord's parking operator.

        6.    Landlord reserves the right, without cost or liability to Landlord, to tow any vehicle if such vehicle's audio theft alarm system remains engaged for an unreasonable period of time.

        7.    Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited.

        8.    Landlord may refuse to permit any person to park in the parking facilities who violates these rules with unreasonable frequency, and any violation of these rules shall subject the violator's car to removal, at such car owner's expense. Tenant agrees to use its best efforts to acquaint its employees, subtenants, assignees, contractors, suppliers, customers and invitees with these parking provisions, rules and regulations.

        9.    Parking stickers, access cards, or any other device or form of identification supplied by Landlord as a condition of use of the parking facilities shall remain the property of Landlord. Parking identification devices, if utilized by Landlord, must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Parking identification devices, if any, are not transferable and any device in the possession of an unauthorized holder will be void. Landlord reserves the right to refuse the sale of

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monthly stickers or other parking identification devices to Tenant or any of its agents, employees or representatives who willfully refuse to comply with these rules and regulations and all unposted city, state or federal ordinances, laws or agreements.

        10.  Loss or theft of parking identification devices or access cards must be reported to the management office in the Facility immediately, and a lost or stolen report must be filed by that does not have a parking identification device or valid access card. Any parking identification device or access card which is reported lost or stolen and which is subsequently found in the possession of an unauthorized person will be confiscated and the illegal holder will be subject to prosecution.

        11.  All damage or loss claimed to be the responsibility of Landlord must be reported, itemized in writing and delivered to the management office located within the Facility within ten (10) business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord is not responsible for damage by water or fire, or for the acts or omissions of others, or for articles left in vehicles. In any event, the total liability of Landlord, if any, is limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss to any car. Landlord is not responsible for loss of use.

        12.  The parking operators, managers or attendants are not authorized to make or allow any exceptions to these rules and regulations, without the express written consent of Landlord. Any exceptions to these rules and regulations made by the parking operators, managers or attendants without the express written consent of Landlord will not be deemed to have been approved by Landlord.

        13.  Landlord reserves the right, without cost or liability to Landlord, to tow any vehicles which are used or parked in violation of these rules and regulations.

        14.  Landlord reserves the right from time to time to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the Parking Facilities as it deems reasonably necessary for the operation of the Parking Facilities.

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EXHIBIT I

[PARKING LOCATION]

TABLE OF CONTENTS

ARTICLE		Page
R E C I T A L S		1
ARTICLE I—DEFINITIONS		1
ARTICLE II—PREMISES		1
2.01	Lease of Premises	1
2.02	Calculations of Areas	1
2.03	Common Area	1
2.04	Access	2
ARTICLE III—TERM AND POSSESSION		2
3.01	Term Commencement	2
3.02	Intentionally Deleted	2
3.03	Condition of Premises	2
ARTICLE IV—RENT		3
4.01	Basic Rent	3
4.02	Operating Expenses	3
4.03	Security Deposit	3
4.04	Payment; Late Charges	4
4.05	All Payments as Rent	5
ARTICLE V—RESTRICTIONS ON USE/COMPLIANCE WITH LAWS		5
5.01	Use	5
ARTICLE VI—ALTERATIONS		6
6.01	Tenant Alterations	6
6.02	Installation of Alterations	6
6.03	Removal of Alterations	8
6.04	Intentionally Deleted.	8
6.05	Removal of Personal Property	8
6.06	Failure to Remove Items	8
ARTICLE VII—REPAIRS		8
7.01	Landlord's Obligations	8
7.02	Tenant's Obligations	9
7.03	Tenant's Failure to Repair	9
ARTICLE VIII—LIENS		9
ARTICLE IX—ASSIGNMENT AND SUBLETTING		10
9.01	Right to Assign, Sublease and Encumber	10
9.02	Proposed Transfer Notice	10
9.03	Notice of Transfer; Landlord's Options	11
9.04	Reasonable Disapproval	11
9.05	Additional Conditions	11
9.06	Excess Rent	12
9.07	Effect of Recapture	12
9.08	No Release	13
9.09	Administrative and Attorneys' Fees	13
9.10	Effectiveness Conditioned Upon Assumption	13
9.11	Liability of Tenant	13
9.12	Related Corporation	14
9.13	Desk Space Occupancy	14

ARTICLE X—INSURANCE AND INDEMNIFICATION		14
10.01	Limitation on Landlord's Liability	14
10.02	Indemnification of Landlord	15
10.04	Survival of Indemnities	16
10.05	Tenant's Insurance	16
10.06	Waiver of Subrogation	17
ARTICLE XI—SERVICES AND UTILITIES		18
11.01	Maintenance by Landlord	18
11.02	Delivery of Services and Utilities	18
11.03	Equipment Requiring Excessive Utilities	18
11.04	Right to Curtail Services and Utilities	19
11.05	After Hours and Additional Services	19
ARTICLE XII—ESTOPPEL CERTIFICATE		20
ARTICLE XIII—EXTENSION OF TERM		20
13.01	Option to Extend Term	20
13.02	Fair Market Rental Value	21
13.03	Appraisal.	21
ARTICLE XIV—AUDITORIUM/CONFERENCE ROOMS		22
ARTICLE XV—SURRENDER OF PREMISES; HOLDING OVER		23
15.01	Surrender of Premises	23
15.02	No Merger	23
15.03	Holding Over	23
ARTICLE XVI—SUBORDINATION AND QUIET ENJOYMENT		23
16.01	Subordination	23
16.02	Quiet Enjoyment	24
ARTICLE XVII—RULES AND REGULATIONS		24
ARTICLE XVIII—ENTRY		24
ARTICLE XIX—DEFAULT BY TENANT		25
19.01	Events of Default	25
19.02	Remedies Upon Default or Termination	26
19.03	Damages Upon Termination	26
19.04	Operating Expenses	27
19.05	Performance by Landlord	27
19.06	Remedies Cumulative	27
ARTICLE XX—DAMAGE BY FIRE OR OTHER CASUALTY		28
20.01	Notice of Loss	28
20.02	Substantial or Total Damage	28
20.03	Intentionally Deleted	28
20.04	Destruction During Final Year	28
20.05	Destruction of Tenant's Personal Property, Tenant's Extra Improvements or Property of Tenant's Employees	29
20.06	Exclusive Remedy	29
20.07	Delays	29
20.08	Property Damage	29
ARTICLE XXI—EMINENT DOMAIN		30
21.01	Total or Substantial Taking	30
21.02	Partial Taking	30
21.03	Temporary Taking	30

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ARTICLE XXII—SALE BY LANDLORD		31
ARTICLE XXIII—WAIVER		31
ARTICLE XXIV—NOTICES		31
ARTICLE XXV—OPERATING EXPENSES		32
25.01	General	32
25.02	Payment Of Operating Expenses	32
25.03	Computation Of Operating Expenses Adjustment	32
25.04	Audit Rights	33
25.05	Minimum Rent	34
ARTICLE XXVI—TAXES PAYABLE BY TENANT		34
26.01	Personalty	34
26.02	Taxes as Rent	34
26.03	Other Property Taxes	34
ARTICLE XXVII—LANDLORD'S DEFAULT		34
27.01	Notice	34
27.02	Landlord's Default	34
27.03	Remedy for Breach	35
ARTICLE XXVIII—FORCE MAJEURE		35
ARTICLE XXIX—LANDLORD'S MORTGAGEES AND LESSORS		35
29.01	Modifications	35
29.02	Cure Rights	36
ARTICLE XXX—RIGHT OF FIRST OFFER		36
30.01	Exercise of Right	36
30.02	Effect of Exercise	36
ARTICLE XXXI—FINANCIAL STATEMENTS		37
ARTICLE XXXII—Intentionally Deleted		37
ARTICLE XXXIII—PARKING		37
33.01	Spaces	37
33.02	Control	38
33.03	General Provisions	38
33.04	Cooperation with Traffic Mitigation Measures	39
33.05	Parking Rules and Regulations	39
ARTICLE XXXIV—SIGNAGE		39
ARTICLE XXXV—MISCELLANEOUS		40
35.01	Successors and Assigns	40
35.02	Attorneys' Fees	40
35.03	Light and Air	41
35.04	Public Transportation	41
35.05	Headings	41
35.06	Use of Pronouns	41
35.07	Time of the Essence	41
35.09	Brokers	41
35.10	Modifications	41
35.11	Unenforceable Provisions	41
35.12	Covenants and Conditions	41
35.13	Incorporation	41
35.14	Recordation of Memorandum; Quitclaim and Release Agreement	41
35.15	Additional Instruments	42
35.16	Entire Lease Between Parties	42

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35.17	Nondisclosure of Lease Terms	42
35.18	Joint and Several Obligations	42
35.19	Tenant as Corporation or Partnership	42
35.20	Examination of Lease	43
35.21	Intentionally Deleted	43
35.22	Satellite Antenna	43
35.23	Landlord's Authority	43
35.24	Counterparts	43

EXHIBITS

EXHIBIT A—LEGAL DESCRIPTION OF LAND COMPRISING THE FACILITY
EXHIBIT A-1—SITE PLAN OF THE FACILITY AND THE PROJECT
EXHIBIT B-1—FLOOR PLAN OF THE SUITE 300 PREMISES
EXHIBIT B-2—FLOOR PLAN OF THE SUITE 100 PREMISES
EXHIBIT C—DEFINITIONS
EXHIBIT D—COMMENCEMENT MEMORANDUM
EXHIBIT E—TENANT IMPROVEMENT AGREEMENT
EXHIBIT F—CLEANING SPECIFICATIONS
EXHIBIT G—FORM OF ESTOPPEL CERTIFICATE
EXHIBIT H—RULES AND REGULATIONS
EXHIBIT I—PARKING LOCATION

iv

QuickLinks

BASIC LEASE INFORMATION PARK PLACE LEASE
PARK PLACE OFFICE LEASE
R E C I T A L S
ARTICLE I—DEFINITIONS
ARTICLE II—PREMISES
ARTICLE III—TERM AND POSSESSION
ARTICLE IV—RENT
ARTICLE V—RESTRICTIONS ON USE/COMPLIANCE WITH LAWS
ARTICLE VI—ALTERATIONS
ARTICLE VII—REPAIRS
ARTICLE VIII—LIENS
ARTICLE IX—ASSIGNMENT AND SUBLETTING
ARTICLE X—INSURANCE AND INDEMNIFICATION
ARTICLE XI—SERVICES AND UTILITIES
ARTICLE XII—ESTOPPEL CERTIFICATE
ARTICLE XIII—EXTENSION OF TERM
ARTICLE XIV—AUDITORIUM/CONFERENCE ROOMS
ARTICLE XV—SURRENDER OF PREMISES; HOLDING OVER
ARTICLE XVI—SUBORDINATION AND QUIET ENJOYMENT
ARTICLE XVII—RULES AND REGULATIONS
ARTICLE XVIII—ENTRY
ARTICLE XIX—DEFAULT BY TENANT
ARTICLE XX—DAMAGE BY FIRE OR OTHER CASUALTY
ARTICLE XXI—EMINENT DOMAIN
ARTICLE XXII—SALE BY LANDLORD
ARTICLE XXIII—WAIVER
ARTICLE XXIV—NOTICES
ARTICLE XXV—OPERATING EXPENSES
ARTICLE XXVI—TAXES PAYABLE BY TENANT
ARTICLE XXVII—LANDLORD'S DEFAULT
ARTICLE XXVIII—FORCE MAJEURE
ARTICLE XXIX—LANDLORD'S MORTGAGEES AND LESSORS
ARTICLE XXX—RIGHT OF FIRST OFFER
ARTICLE XXXI—FINANCIAL STATEMENTS
ARTICLE XXXII—Intentionally Deleted
ARTICLE XXXIII—PARKING
ARTICLE XXXIV—SIGNAGE
ARTICLE XXXV—MISCELLANEOUS
EXHIBIT A LEGAL DESCRIPTION OF LAND COMPRISING THE FACILITY
EXHIBIT A-1 SITE PLAN OF THE FACILITY AND THE PROJECT
EXHIBIT B-1 FLOOR PLAN OF THE SUITE 300 PREMISES
EXHIBIT B-2 FLOOR PLAN OF THE SUITE 100 PREMISES
EXHIBIT C DEFINITIONS
EXHIBIT D COMMENCEMENT MEMORANDUM
EXHIBIT E TENANT IMPROVEMENT AGREEMENT
R E C I T A L S
EXHIBIT F CLEANING SPECIFICATIONS
EXHIBIT G FORM OF ESTOPPEL CERTIFICATE
EXHIBIT H RULES AND REGULATIONS
EXHIBIT I [PARKING LOCATION] TABLE OF CONTENTS

EX-10.31(A)

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Exhibit 10.31(a)

         AMENDED AND RESTATED
MASTER LOAN AND SECURITY AGREEMENT

Dated as of November 16, 2001

AAMES CAPITAL CORPORATION
as a Borrower

AAMES FUNDING CORPORATION
as a Borrower

and

MORGAN STANLEY DEAN WITTER MORTGAGE CAPITAL INC.
as Lender

TABLE OF CONTENTS

		Page
SECTION 1.	DEFINITIONS AND ACCOUNTING MATTERS	1
1.01	Certain Defined Terms	1
1.02	Accounting Terms and Determinations	11
SECTION 2.	LOANS, NOTE AND PREPAYMENTS.	11
2.01	Loans	11
2.02	Notes	11
2.03	Procedure for Borrowing	12
2.04	Limitation on Types of Loans; Illegality	12
2.05	Repayment of Loans; Interest	13
2.06	Mandatory Prepayments or Pledge	13
2.07	Extension of Termination Date	14
SECTION 3.	PAYMENTS; COMPUTATIONS; ETC.	14
3.01	Payments	14
3.02	Computations	14
3.03	Requirements of Law	14
3.04	Amendment Fee	15
SECTION 4.	COLLATERAL SECURITY	15
4.01	Collateral; Security Interest	15
4.02	Further Documentation	16
4.03	Changes in Locations, Name, etc	16
4.04	Lender's Appointment as Attorney-in-Fact	16
4.05	Performance by Lender of Borrowers' Obligations	17
4.06	Proceeds	17
4.07	Remedies	18
4.08	Limitation on Duties Regarding Preservation of Collateral	18
4.09	Powers Coupled with an Interest	19
4.10	Release of Security Interest	19
4.11	Interest Rate Protection Agreements	19
SECTION 5.	CONDITIONS PRECEDENT	19
5.01	Initial Loan	19
5.02	Initial and Subsequent Loans	19
SECTION 6.	REPRESENTATIONS AND WARRANTIES	21
6.01	Legal Name	21
6.02	Existence	21
6.03	Financial Condition	22
6.04	Litigation	22
6.05	No Breach	22
6.06	Action	22
6.07	Approvals	22
6.08	Margin Regulations	22
6.09	Taxes	23
6.10	Investment Company Act	23
6.11	Collateral; Collateral Security	23
6.12	Chief Executive Office/Jurisdiction of Organization	23
6.13	Location of Books and Records	23
6.14	True and Complete Disclosure	23
6.15	Tangible Net Worth	24

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6.16	ERISA	24
6.17	Capitalization	24
6.18	Hedges	24
SECTION 7.	COVENANTS OF THE BORROWERS	24
7.01	Financial Statements	24
7.02	Litigation	26
7.03	Existence, etc.	26
7.04	Prohibition of Fundamental Changes	27
7.05	Borrowing Base Deficiency	27
7.06	Notices	27
7.07	Hedging	27
7.08	Reports	28
7.09	Underwriting Guidelines	28
7.10	Transactions with Affiliates	28
7.11	Limitation on Liens	28
7.12	Limitation on Guarantees	28
7.13	Limitation on Distributions	28
7.14	Maintenance of Tangible Net Worth	28
7.15	Maintenance of Ratio of Total Indebtedness to Tangible Net Worth	28
7.16	Servicer; Servicing Tape	29
7.17	Committed Warehouse Facilities	29
7.18	Required Filings	29
7.19	No Adverse Selection	29
7.20	Remittance of Prepayments	29
SECTION 8.	EVENTS OF DEFAULT	29
SECTION 9.	REMEDIES UPON DEFAULT	31
SECTION 10.	NO DUTY OF LENDER	31
SECTION 11.	MISCELLANEOUS	32
11.01	Waiver	32
11.02	Notices	32
11.03	Indemnification and Expenses	32
11.04	Amendments	33
11.05	Successors and Assigns	33
11.06	Survival	33
11.07	Captions	33
11.08	Counterparts	33
11.09	Loan Agreement Constitutes Security Agreement; Governing Law	33
11.10	Submission To Jurisdiction; Waivers	34
11.11	WAIVER OF JURY TRIAL	34
11.12	Acknowledgments	34
11.13	Hypothecation or Pledge of Loans	34
11.14	Servicing	34
11.15	Periodic Due Diligence Review	35
11.16	Set-Off	36
11.17	Intent	36
11.18	Joint and Several Liability	36

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SCHEDULES
	SCHEDULE 1	Representations and Warranties re: Mortgage Loans
	SCHEDULE 2	Filing Jurisdictions and Offices
	SCHEDULE 3	Capitalization
	SCHEDULE 4	Servicing Fields
	SCHEDULE 5	Trade Names
EXHIBITS
	EXHIBIT A	Form of Promissory Note
	EXHIBIT B	Custodial Agreement
	EXHIBIT C	Form of Opinion of Counsel to Borrowers
	EXHIBIT D	Form of Request for Borrowing
	EXHIBIT E-1	Form of Borrower's Release Letter
	EXHIBIT E-2	Form of Warehouse Lender's Release Letter
	EXHIBIT F	Underwriting Guidelines
	EXHIBIT G	Form of Servicer Notice

iv

AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT

        AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT, dated as of November 16, 2001, between AAMES CAPITAL CORPORATION, a California corporation ("Aames Capital"), AAMES FUNDING CORPORATION, a California corporation ("Aames Funding" and together with Aames Capital, each a "Borrower", collectively the "Borrowers")and MORGAN STANLEY DEAN WITTER MORTGAGE CAPITAL INC., a New York corporation (the "Lender").

RECITALS

        Aames Capital and the Lender are parties to that certain Master Loan and Security Agreement, dated as of October 29, 1999 (as amended, supplemented or otherwise modified prior to the date hereof, the "Existing Loan Agreement"). The Borrowers and the Lender hereby agree, in consideration of the mutual premises and mutual obligations set forth herein, that the Existing Loan Agreement is hereby amended and restated as follows by this Amended and Restated Master Loan and Security Agreement (together with the Existing Loan Agreement, the "Loan Agreement"). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Loan Agreement.

        The Borrowers have requested that the Lender from time to time continue to make revolving credit loans to it to finance certain residential mortgage loans owned by the Borrowers, including certain defaulted residential mortgage loans, and the Lender is prepared to make or continue, as applicable, such revolving credit loans upon the terms and conditions hereof. Accordingly, the Existing Loan Agreement is hereby amended and restated in its entirety to provide terms and conditions under which the Lender is prepared to make further loans to the Borrowers from and after the date hereof.

        Section 1.    Definitions and Accounting Matters.

        1.01    Certain Defined Terms.    As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Loan Agreement in the singular to have the same meanings when used in the plural and vice versa):

        "Aames Capital" shall have the meaning provided in the heading hereto.

        "Affiliate" shall mean with respect to any Person, any "affiliate" of such Person, as such term is defined in the Bankruptcy Code.

        "Applicable Collateral Percentage" shall mean, with respect to each Eligible Mortgage Loan, the applicable collateral percentage set forth in the chart below opposite the applicable product type:

Product Type	Applicable Collateral Percentage
First Lien Loan that is a Performing Loan and has been included in the Borrowing Base for 120 days or less	97	%
First Lien Loan that is a Performing Loan and has been included in the Borrowing Base for longer than 120 days but less than 270 days	85	%
Second Lien Loan that is a Performing Loan and has been included in the Borrowing Base for 120 days or less	97	%
Second Lien Loan that is a Performing Loan and has been included in the Borrowing Base for longer than 120 days but less than 270 days	85	%
First Lien Loan or Second Lien Loan that is a Class A Defaulted Loan and has been included in the Borrowing Base for 120 days or less	80	%
First Lien Loan or Second Lien Loan that is a Class B Defaulted Loan and has been included in the Borrowing Base for 120 days or less	75	%
First Lien Loan or Second Lien Loan that is a Class C Defaulted Loan, prior to receipt by the Lender of a BPO for such Class C Defaulted Loan and has been included in the Borrowing Base for 364 days or less	50	%
First Lien Loan or Second Lien Loan that is a Class C Defaulted Loan, after receipt by the Lender of a BPO for such Class C Defaulted Loan and has been included in the Borrowing Base for 364 days or less	65	%
First Lien Loan or Second Lien Loan that is a Class A Defaulted Loan or a Class B Defaulted Loan and has been included in the Borrowing Base for longer than 120 days but less than 270 days	50	%

        "Applicable Margin" shall mean the sum of the weighted average of the applicable rates per annum for each product type of Eligible Mortgage Loan for each day that Loans shall be secured by such Eligible Mortgage Loans, determined by multiplying (a) for each product type set forth in the table below, a fraction equal to the Collateral Value of all Eligible Mortgage Loans of such product type

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divided by the Collateral Value of all Eligible Mortgage Loans, times (b) for each product type set forth in the following table below, the percentage set forth below opposite such product type:

Product Type	Applicable Margin
First Lien Loan that is a Performing Loan and has been included in the Borrowing Base for 120 days or less	0.90	%
First Lien Loan that is a Performing Loan and has been included in the Borrowing Base for longer than 120 days but less than 270 days	1.10	%
Second Lien Loan that is a Performing Loan and has been included in the Borrowing Base for 120 days or less	0.90	%
Second Lien Loan that is a Performing Loan and has been included in the Borrowing Base for longer than 120 days but less than 270 days	1.10	%
First Lien Loan or Second Lien Loan that is a Class A Defaulted Loan and has been included in the Borrowing Base for 120 days or less	1.20	%
First Lien Loan or Second Lien Loan that is a Class B Defaulted Loan and has been included in the Borrowing Base for 120 days or less	1.20	%
First Lien Loan or Second Lien Loan that is a Class C Defaulted Loan and has been included in the Borrowing Base for 364 days or less	1.50	%

        "Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as amended from time to time.

        "Borrower and Borrowers" shall have the meaning provided in the heading hereof.

        "Borrowing Base" shall mean the aggregate Collateral Value of all Eligible Mortgage Loans; provided, that the following limitations shall apply:

          (i)  the aggregate Collateral Value included in the Borrowing Base at any time of First Lien Loans that are Performing Loans and which have been included in the Borrowing Base for greater than 180 days but less than 270 days shall not exceed $10,000,000;

        (ii)  the aggregate Collateral Value included in the Borrowing Base at any time of Second Lien Loans that are Performing Loans shall not exceed $25,000,000;

        (iii)  the aggregate Collateral Value included in the Borrowing Base at any time of First Lien Loans or Second Lien Loans that are Class A Defaulted Loans shall not exceed $10,000,000;

        (iv)  the aggregate Collateral Value included in the Borrowing Base at any time of First Lien Loans or Second Lien Loans that are Class B Defaulted Loans shall not exceed $10,000,000;

        (v)  the aggregate Collateral Value included in the Borrowing Base at any time of First Lien Loans or Second Lien Loans that are Class C Defaulted Loans shall not exceed $15,000,000;

        (vi)  the aggregate Collateral Value included in the Borrowing Base at any time of Mortgage Loans which have an LTV greater than 90% shall not exceed 10% of the outstanding principal balance of the Loan; and

      (vii)  the Collateral Value shall be deemed to be zero with respect to each Mortgage Loan:

        (1)  in respect of which there is a breach of a representation and warranty set forth on Schedule 1 (assuming each representation and warranty is made as of the date the Borrowing Base is determined);

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        (2)  other than any Class C Defaulted Loan, which remains pledged to the Lender hereunder later than 270 days after the date on which it is first included in the Collateral;

        (3)  which is a Class C Defaulted Loan and which remains pledged to the Lender hereunder later than 364 days after the date on which it is first included in the Collateral;

        (4)  which has been released from the possession of the Custodian under the Custodial Agreement to a Borrower for a period in excess of 14 days;

        (5)  which exceed the limitations on Collateral Value set forth in (i) through (vi) above; or

        (6)  which is a Class C Defaulted Loan for which a BPO is unable to be obtained following reasonable efforts to obtain the same, determined in the sole discretion of the Lender.

        "Borrowing Base Deficiency" shall have the meaning provided in Section 2.06 hereof.

        "BPO" shall mean a broker's price opinion relating to the Mortgaged Property securing an Eligible Mortgage Loan, in form and substance satisfactory to the Lender in its sole discretion from a broker chosen by the Lender.

        "Business Day" shall mean any day other than (i) a Saturday or Sunday or (ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New York or the Custodian is authorized or obligated by law or executive order to be closed.

        "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Loan Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.

        "Cash Equivalents" shall mean (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital, surplus and retained earnings in excess of $750,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody's and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition, or (g) shares of money market, mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition or (h) available capacity under committed revolving facilities, other than the Lender's revolving facility.

        "Class" shall mean, as to any Defaulted Loan, its status as a Class A Defaulted, Loan, Class B Defaulted Loan or a Class C Defaulted Loan.

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        "Class A Defaulted Loan" shall mean an Eligible Mortgage Loan for which the related Mortgagor is 30 to 59 days delinquent in scheduled payments of principal and interest as at the end of the preceding calendar month.

        "Class B Defaulted Loan" shall mean an Eligible Mortgage Loan for which the related Mortgagor is 60 to 89 days delinquent in scheduled payments of principal and interest as at the end of the preceding calendar month.

        "Class C Defaulted Loan" shall mean an Eligible Mortgage Loan for which the related Mortgagor is 90 days or more delinquent in scheduled payments of principal and interest or which is subject to foreclosure proceedings as at the end of the preceding calendar month.

        "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.

        "Collateral" shall have the meaning provided in Section 4.01(b) hereof.

        "Collateral Value" shall mean, with respect to each Eligible Mortgage Loan, the lesser of (a) the Applicable Collateral Percentage of the Market Value of such Eligible Mortgage Loan, except in the case of any Class C Defaulted Loan prior to the receipt by the Lender of a BPO relating thereto, in which case the Applicable Collateral Percentage of the outstanding principal balance of such Eligible Mortgage Loan, and (b) 100% of the outstanding principal balance of such Eligible Mortgage Loan.

        "Custodial Agreement" shall mean the Custodial Agreement, dated as of October 29, 1999, among Aames Capital, the Custodian and the Lender, attached as Exhibit B hereto, as the same shall be modified and supplemented and in effect from time to time.

        "Custodial Joinder Agreement" shall mean the Custodial Joinder Agreement, dated as of November 16, 2001, among the Borrowers, the Custodian and the Lender, as the same shall be modified and supplemented and in effect from time to time.

        "Custodian" shall mean Bankers Trust Company, as custodian under the Custodial Agreement, and its successors and permitted assigns thereunder.

        "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default.

        "Defaulted Loan" shall mean a Class A Defaulted Loan, a Class B Defaulted Loan or a Class C Defaulted Loan.

        "Dollars" and "$" shall mean lawful money of the United States of America.

        "Due Diligence Review" shall mean the performance by the Lender of any or all of the reviews permitted under Section 11.15 hereof with respect to any or all of the Mortgage Loans, as desired by the Lender from time to time.

        "Effective Date" shall mean the date upon which the conditions precedent set forth in Section 5.01 shall have been satisfied.

        "Eligible Mortgage Loan" shall mean a Mortgage Loan secured by a first mortgage lien or a second mortgage lien on a one-to-four family residential property, as to which the representations and warranties in Section 6.10 and Part I of Schedule 1 hereof are correct; provided that, in no event shall any Eligible Mortgage Loan be a security for purposes of any securities or blue-sky laws.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

        "ERISA Affiliate" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which any Borrower is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section

5

412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which any Borrower is a member.

        "Eurodollar Rate" shall mean, with respect to each day during any calendar month a Loan is outstanding, the rate per annum equal to the rate appearing at page 5 of the Telerate Screen as one-month LIBOR as of the Remittance Date occurring in such calendar month; provided, that (x) if such date is not a Business Day, the Eurodollar Rate for such calendar month shall be the Eurodollar Rate in effect on the Business Day immediately preceding such date and (y) if the Funding Date for any Loan shall occur on any date other than the Remittance Date, the initial Eurodollar Rate for such Loan until the first Remittance Date to occur after the related Funding Date shall be determined as of the related Funding Date for such Loan; provided, further, that if such rate shall not be so quoted, the Eurodollar Rate shall mean the rate per annum at which the Lender is offered Dollar deposits at or about 10:00 A.M., New York City time, as of the Remittance Date occurring in such calendar month by prime banks in the interbank eurodollar market where the eurodollar and foreign currency exchange operations in respect of its Loans are then being conducted for delivery on such day for a period of 30 days and in an amount comparable to the amount of the Loans to be outstanding on such day.

        "Event of Default" shall have the meaning provided in Section 8 hereof.

        "Federal Funds Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding 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 for the day of such transactions received by the Lender from three federal funds brokers of recognized standing selected by it.

        "Fee Letter" shall mean the letter dated the date hereof between the Aames Capital and the Lender setting forth the amendment fee.

        "First Lien Loan" shall mean an Eligible Mortgage Loan for which the related Mortgage constitutes a first priority lien on the related Mortgaged Property.

        "Funding Date" shall mean the date on which a Loan is made hereunder.

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

        "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over any Borrower, any of its Subsidiaries or any of its properties.

        "Guarantee" shall mean, as to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise); provided that the term "Guarantee" shall not include (i) endorsements for collection or deposit in the ordinary course of business, or (ii) obligations to make servicing advances for delinquent taxes and insurance or other obligations in respect of a Mortgaged Property, to the extent required by the Lender. The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have correlative meanings.

        "Guarantor" shall mean Aames Financial Corporation.

6

        "Indebtedness" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements, sale/buy-back agreements or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; and (i) Indebtedness of general partnerships of which such Person is a general partner.

        "Interest Rate Protection Agreement" shall mean, with respect to any or all of the Mortgage Loans, any short sale of US Treasury Securities, or futures contract, or mortgage related security, or Eurodollar futures contract, or options related contract, or interest rate swap, cap or collar agreement or similar arrangement providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by any Borrower and an Affiliate of the Lender, and acceptable to the Lender.

        "Lender" shall have the meaning provided in the heading hereto.

        "Leverage Ratio" means, at any time, the ratio of (i) the aggregate principal amount of all Indebtedness of Guarantor and its respective Subsidiaries at such time which on a consolidated basis, in accordance with GAAP, would be required to be reflected on a consolidated balance sheet of Guarantor and its respective Subsidiaries as a liability to (ii) the sum of (1) the Tangible Net Worth of Guarantor and its respective Subsidiaries plus (2) with respect to Guarantor and its Subsidiaries only, accrued but unpaid dividends on preferred stock at such time.

        "Lien" shall mean any mortgage, lien, pledge, charge, security interest or similar encumbrance.

        "Loan" shall have the meaning provided in Section 2.01(a) hereof.

        "Loan Agreement" shall mean this Master Loan and Security Agreement, as the same may be amended, supplemented or otherwise modified from time to time.

        "Loan Documents" shall mean, collectively, this Loan Agreement, the Note, the Custodial Agreement and the Custodial Joinder Agreement.

        "Market Value" shall mean, (a) with respect to any Eligible Mortgage Loan other than a Class C Defaulted Loan, as of any date in respect of such Eligible Mortgage Loan, the price at which such Eligible Mortgage Loan could readily be sold, as determined in good faith by the Lender in its sole discretion, which price may be determined to be zero, and (b) with respect to any Eligible Mortgage Loan that is a Class C Defaulted Loan, the market value thereof determined as follows (the Lender's determination of Market Value shall, with respect to both clause (a) and (b), in all cases be conclusive upon the parties absent manifest error on the part of the Lender). Promptly following the inclusion of an Eligible Mortgage Loan in the Borrowing Base as a Class C Defaulted Loan, the Lender shall seek to obtain a BPO for the related Mortgaged Property at the expense of the Borrowers. The Lender shall also seek to obtain a new BPO for the related Mortgaged Property at the expense of the Borrowers promptly after such Class C Defaulted Loan shall have been pledged to the Lender and included in the Borrowing Base for more than 180 days. The Lender shall determine the market value of such Class C Defaulted Loan based upon the net proceeds that the Lender, in its sole discretion exercised in good

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faith, determines are reasonably likely to be obtained upon a sale of such Mortgaged Property in light of the results of the most recently obtained related BPO and the Lender's determination of all ancillary and related costs to be paid prior to or in connection with the maintenance and disposition of such Mortgaged Property.

        "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition or prospects of any Borrower, (b) the ability of any Borrower to perform its obligations under any of the Loan Documents to which it is a party, (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of the Lender under any of the Loan Documents, (e) the timely payment of the principal of or interest on the Loans or other amounts payable in connection therewith or (f) the Collateral.

        "Maximum Credit" shall mean $300,000,000.

        "Moody's" shall mean Moody's Investors Service, Inc.

        "Mortgage" shall mean the mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a first or second lien on the fee in real property securing the Mortgage Note.

        "Mortgage File" shall have the meaning assigned thereto in the Custodial Agreement.

        "Mortgage Loan" shall mean a mortgage loan which the Custodian has been instructed to hold for the Lender pursuant to the Custodial Agreement, and which Mortgage Loan includes, without limitation, a Mortgage Note and related Mortgage.

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        "Mortgage Loan Documents" shall mean, with respect to a Mortgage Loan, the documents comprising the Mortgage File for such Mortgage Loan.

        "Mortgage Loan Schedule" shall have the meaning assigned thereto in the Custodial Agreement.

        "Mortgage Loan Schedule and Exception Report" shall mean the mortgage loan schedule and exception report prepared by the Custodian pursuant to the Custodial Agreement.

        "Mortgage Loan Tape" shall mean a computer-readable file containing information with respect to each Mortgage Loan, to be delivered by the Borrowers to the Lender pursuant to Section 2.03(a) hereof which tape fields are identified on Annex I to the Custodial Agreement.

        "Mortgage Note" shall mean the original executed promissory note or other evidence of the indebtedness of a mortgagor/borrower with respect to a Mortgage Loan.

        "Mortgaged Property" shall mean the real property (including all improvements, buildings, fixtures, building equipment and personal property thereon and all additions, alterations and replacements made at any time with respect to the foregoing) and all other collateral securing repayment of the debt evidenced by a Mortgage Note.

        "Mortgagor" shall mean the obligor on a Mortgage Note.

        "MS & Co." shall mean Morgan Stanley & Co. Incorporated, a registered broker-dealer.

        "MS Indebtedness" shall mean any indebtedness of the Borrowers hereunder and under any other arrangement between any Borrower on the one hand and the Lender or an Affiliate of the Lender on the other hand.

        "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been or are required to be made by any Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA.

        "Net Income" shall mean, for any period, the net income of Aames Capital for such period as determined in accordance with GAAP.

        "1934 Act" shall mean the Securities and Exchange Act of 1934, as amended.

        "Note" shall have the meaning provided in Section 2.02(a) hereof.

        "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

        "Performing Loan" shall mean an Eligible Mortgage Loan for which the related Mortgagor is current or fewer than 30 days delinquent in scheduled payments of principal and interest as at the end of the preceding calendar month.

        "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, unincorporated association or government (or any agency, instrumentality or political subdivision thereof).

        "Plan" shall mean an employee benefit or other plan established or maintained by any Borrower or any ERISA Affiliate and covered by Title IV of ERISA, other than a Multiemployer Plan.

        "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount under this Loan Agreement, the Note or any other Loan Document that is not paid when due to the Lender (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise, but not including by optional prepayment), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 4% per annum plus the Prime Rate.

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        "Prime Rate" shall mean the prime rate announced to be in effect from time to time, as published as the average rate in The Wall Street Journal.

        "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

        "Regulations T, U and X" shall mean Regulations T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time.

        "Remittance Date" shall have the meaning provided in Section 2.05(b) hereof.

        "Responsible Officer" shall mean, as to any Person, the chief executive officer, the chief financial officer or Senior Vice President of Finance of such Person.

        "Requirement of Law" shall mean as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

        "S&P" shall mean Standard and Poor's Ratings Services.

        "Second Lien Loan" shall mean an Eligible Mortgage Loan for which the related Mortgage constitutes a second priority lien on the related Mortgaged Property.

        "Secured Obligations" shall have the meaning provided in Section 4.01(c) hereof.

        "Servicer" shall have the meaning provided in Section 11.14(c) hereof.

        "Servicer Notice" shall have the meaning provided in Section 11.14(c) hereof.

        "Servicing Agreement" shall have the meaning provided in Section 11.14(c) hereof.

        "Servicing Records" shall have the meaning provided in Section 11.14(b) hereof.

        "Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.

        "System" shall mean all hardware or software, or any system consisting of one or more thereof, including, without limitation, any and all enhancements, upgrades, customizations, modifications, maintenance and the like utilized by any Person for the benefit of such Person to perform its obligations and to administer and track, store, process, provide, and where appropriate, insert, true and accurate dates and calculations for dates and spans with respect to the Mortgage Loans.

        "Tangible Net Worth" shall mean, with respect to any Person, as of any date of determination, the amounts which would be included under equity on a consolidated balance sheet of such Person and its Subsidiaries at such date in accordance with GAAP, less the consolidated net book value of all assets of such person and its Subsidiaries (to the extent reflected as an asset in the balance sheet of such Person or any Subsidiary at such date) which will be treated as intangibles under GAAP; provided, that residual securities issued by such person or its Subsidiaries shall not be treated as intangibles for purposes of this definition.

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        "Termination Date" shall mean November 16, 2002 or such earlier date on which this Loan Agreement shall terminate in accordance with the provisions hereof or by operation of law.

        "Test Period" shall have the meaning provided in Section 7.16 hereof.

        "Total Indebtedness" shall mean, for any period, the aggregate Indebtedness of Aames Capital or the Guarantor, as applicable, during such period.

        "Underwriting Guidelines" shall mean the relevant Borrower's underwriting guidelines attached as Exhibit F hereto, as modified from time to time in accordance with Section 7.09.

        "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection.

        1.02    Accounting Terms and Determinations.    Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lender hereunder shall be prepared, in accordance with GAAP.

        Section 2.    Loans, Note and Prepayments.

        2.01    Loans.

        (a)  The Lender agrees to make or continue, as applicable, on the terms and conditions of this Loan Agreement, loans (individually, a "Loan" and, collectively, the "Loans") to the Borrowers in Dollars, from and including the Effective Date to and including the Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the lesser of (i) the Maximum Credit and (ii) the Borrowing Base as in effect from time to time.

        (b)  Subject to the terms and conditions of this Loan Agreement, during such period the Borrowers may borrow, repay and reborrow hereunder; provided, that, notwithstanding the foregoing, the Lender shall have no obligation to make Loans to the Borrowers in excess of the Maximum Credit and, in the event the obligation of the Lender to make Loans to the Borrowers is terminated as permitted hereunder, the Lender shall have no further obligation to make additional Loans hereunder.

        (c)  In no event shall a Loan be made when any Default or Event of Default has occurred and is continuing.

        2.02    Notes.

        (a)  The Loans made by the Lender shall be evidenced by a single promissory note of the Borrowers substantially in the form of Exhibit A hereto (the "Note"), dated the date hereof, payable to the Lender in a principal amount equal to the amount of the Maximum Credit as originally in effect and otherwise duly completed. The Lender shall have the right to have its Note subdivided, by exchange for promissory notes of lesser denominations or otherwise.

        (b)  The date, amount and interest rate of each Loan made by the Lender to the Borrowers, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of the Note, endorsed by the Lender on the schedule attached to the Note or any continuation thereof; provided, that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrowers to make a payment when due of any amount owing hereunder or under the Note in respect of the Loans.

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        2.03    Procedure for Borrowing.

        (a)  The Borrowers may request a borrowing hereunder, on any Business Day during the period from and including the Effective Date to and including the Termination Date, by delivering to the Lender, with a copy to the Custodian, a written request for borrowing, substantially in the form of Exhibit D attached hereto, which request must be received by the Lender prior to 4:00 p.m., New York City time, one (l) Business Day prior to the requested Funding Date. Such request for borrowing shall (i) attach a schedule identifying the Eligible Mortgage Loans that the Borrowers propose to pledge to the Lender and to be included in the Borrowing Base in connection with such borrowing, (ii) specify the requested Funding Date, (iii) be accompanied by a Mortgage Loan Tape containing information with respect to the Eligible Mortgage Loans that the Borrowers propose to pledge to the Lender and to be included in the Borrowing Base in connection with such borrowing, and (iv) attach an officer's certificate signed by a Responsible Officer of each Borrower as required by Section 5.02(b) hereof.

        (b)  The Borrowers shall release to the Custodian no later than 4:00 p.m., New York City time, two (2) Business Days prior to the requested Funding Date, the Mortgage File pertaining to each Eligible Mortgage Loan to be pledged to the Lender and included in the Borrowing Base on such requested Funding Date, in accordance with the terms and conditions of the Custodial Agreement.

        (c)  Pursuant to the Custodial Agreement, the Custodian shall deliver to the Lender and the Borrowers, no later than 12:00 noon, New York City time, on a Funding Date, a Trust Receipt (as defined in the Custodial Agreement) in respect of all Mortgage Loans pledged to the Lender on such Funding Date, and a Mortgage Loan Schedule and Exception Report.

        (d)  Upon the Borrowers' request for a borrowing pursuant to Section 2.03(a), and upon satisfaction of all conditions precedent set forth in Section 5.01 and 5.02 with respect thereto, subject to Section 2.03(f) below, the Lender shall make a Loan to the Borrowers on the requested Funding Date, in the amount so requested.

        (e)  Subject to Section 5 hereof, such borrowing will then be made available to the Borrowers by the Lender transferring, via wire transfer, to the following account of the Borrowers: United California Bank, for the A/C of Aames Capital Corporation, ABA# 122-003-516, Attn: Aames Capital Corporation, in the aggregate amount of such borrowing in funds immediately available to the Borrowers, or such other account as the Borrowers may direct in writing to the Lender.

        (f)    In the case of any Loan made with respect to any Class C Defaulted Loan for which a BPO has not been delivered to the Lender on or prior to the related Funding Date or with respect to any Mortgage Loan that at any time becomes a Class C Defaulted Loan, the Lender shall transmit an invoice to the Borrowers on a monthly basis in the amount of $100 for each such Class C Defaulted Loan to be applied to the cost of obtaining a BPO for each such Class C Defaulted Loan (any excess remaining after payment of the cost of such BPO to be remitted to the Borrowers, and any shortfall towards payment of the BPO to be paid by the Borrowers to the Lender promptly following demand therefor). Any amounts so invoiced by the Lender to the Borrowers shall be payable promptly (and in any event no later than 10 Business Days following receipt thereof).

        2.04    Limitation on Types of Loans; Illegality.    Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Rate:

        (a)  the Lender determines in good faith, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Loans as provided herein; or

        (b)  the Lender determines, which determination shall be conclusive, that the relevant rate of interest referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof upon the basis of

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which the rate of interest for Loans is to be determined is not likely adequately to cover the cost to the Lender of making or maintaining Loans; or

        (c)  it becomes unlawful for the Lender to honor its obligation to make or maintain Loans hereunder using a Eurodollar Rate;

then the Lender shall give the Borrowers prompt notice thereof and, so long as such condition remains in effect, the Lender shall be under no obligation to make additional Loans, and the Borrowers shall, either prepay all such Loans as may be outstanding or pay interest on such Loans at a rate per annum equal to the Federal Funds Rate plus 0.50% plus the Applicable Margin.

        2.05    Repayment of Loans; Interest.

        (a)  The Borrowers hereby promise, jointly and severally, to repay in full on the Termination Date the then aggregate outstanding principal amount of the Loans.

        (b)  The Borrowers hereby promise, jointly and severally, to pay to the Lender interest on the unpaid principal amount of each Loan for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at a rate per annum equal to the Eurodollar Rate plus the Applicable Margin. Notwithstanding the foregoing, the Borrowers hereby promise, jointly and severally, to pay to the Lender interest at the applicable Post-Default Rate on any principal of any Loan and on any other amount payable by the Borrowers hereunder or under the Note that shall not be paid in full when due (whether at stated maturity, by acceleration or by mandatory prepayment or otherwise) for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Loan shall be payable monthly on the fifth Business Day of each month and for the last month of the Loan Agreement on the fifth Business Day of such last month and on the Termination Date (each a "Remittance Date"); provided, that, the Lender may, in its sole discretion, require accrued interest to be paid simultaneously with any prepayment of principal made by the Borrowers on account of any of the Loans outstanding. Interest payable at the Post-Default Rate shall accrue daily and shall be payable upon such accrual.

        (c)  It is understood and agreed that, unless and until a Default or Event of Default shall have occurred and be continuing, the Borrowers shall be entitled to the proceeds of the Mortgage Loans pledged to the Lender hereunder. At any time while a Default has occurred and is continuing, upon notice from the Lender, the Borrowers shall promptly deliver all proceeds of the Mortgage Loans pledged to the Lender hereunder to the Lender. At any time while an Event of Default has occurred and is continuing the Borrowers shall promptly deliver all proceeds of the Mortgage Loans pledged to the Lender hereunder to the Lender

        2.06    Mandatory Prepayments or Pledge.

        (a)  If at any time the aggregate outstanding principal amount of Loans exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as determined by the Lender and notified to the Borrowers on any Business Day, the Borrowers shall no later than one Business Day after receipt of such notice, either prepay the Loans in part or in whole or pledge additional Eligible Mortgage Loans (which Collateral shall be in all respects acceptable to the Lender) to the Lender, such that after giving effect to such prepayment or pledge the aggregate outstanding principal amount of the Loans does not exceed the Borrowing Base.

        (b)  The Borrowers shall prepay the Loans in the amounts of prepayments remitted to the Lender in accordance with Section 7.21 hereof.

        (c)  If at any time MS & Co.'s corporate bond rating has been lowered or downgraded to a rating below A- by S&P or A3 by Moody's and the Borrowers shall repay all amounts owing to the Lender under this Agreement, the Note and the other Loan Documents within 90 days following such downgrade.

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        2.07    Extension of Termination Date.    At the request of the Borrowers made at least thirty (30) days, but in no event earlier than ninety (90) days, prior to the then current Termination Date, the Lender may in its sole discretion extend the Termination Date for a period to be determined by Lender in its sole discretion by giving written notice of such extension to the Borrowers no later than twenty (20) days, but in no event earlier than thirty (30) days, prior to the then current Termination Date. Any failure by the Lender to deliver such notice of extension shall be deemed to be the Lender's determination not to extend the then current Termination Date.

        Section 3.    Payments; Computations; Etc.

        3.01    Payments.

        (a)  Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrowers under this Loan Agreement and the Note, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Lender at the following account maintained by the Lender: Account No. 40615114, for the account of MSMCI, Citibank, N.A., ABA No. 021000089, Attn: Whole Loan Operations, not later than 5:00 p.m., New York City time, on the date on which such payment shall become due (and each such payment made after such time on such due date shall be deemed to have been made on the next succeeding Business Day). Each Borrower acknowledges that it has no rights of withdrawal from the foregoing account.

        (b)  Except to the extent otherwise expressly provided herein, if the due date of any payment under this Loan Agreement or the Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension.

        3.02    Computations.    Interest on the Loans shall be computed on the basis of a 360-day year for the actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable.

        3.03    Requirements of Law.

        (a)  If any Requirement of Law (other than with respect to any amendment made to the Lender's certificate of incorporation and by-laws or other organizational or governing documents) or any change in the interpretation or application thereof or compliance by the Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

          (i)  shall subject the Lender to any tax of any kind whatsoever with respect to this Loan Agreement, the Note or any Loan made by it (excluding net income taxes) or change the basis of taxation of payments to the Lender in respect thereof;

        (ii)  shall impose, modify or hold applicable any reserve, special deposit, compulsory Loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, Loans or other extensions of credit by, or any other acquisition of funds by, any office of the Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder;

        (iii)  shall impose on the Lender any other condition;

and the result of any of the foregoing is to increase the cost to the Lender, by an amount which the Lender deems to be material, of making, participation in continuing or maintaining any Loan or to reduce any amount due or owing hereunder in respect thereof, then, in any such case, the Borrowers shall promptly pay the Lender such additional amount or amounts as will compensate the Lender for such increased cost or reduced amount receivable.

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        (b)  If the Lender shall have determined that the adoption of or any change in any Requirement of Law (other than with respect to any amendment made to the Lender's certificate of incorporation and by-laws or other organizational or governing documents) regarding capital adequacy or in the interpretation or application thereof or compliance by the Lender or any corporation controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on the Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which the Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration the Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by the Lender to be material, then from time to time, the Borrowers, jointly and severally, shall promptly pay to the Lender such additional amount or amounts as will compensate the Lender for such reduction.

        (c)  If the Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrowers of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section submitted by the Lender to the Borrowers shall be conclusive in the absence of manifest error.

        3.04    Amendment Fee.    The Borrowers agree to pay to the Lender on or prior to the Effective Date an amendment fee as set forth in the Fee Letter.

        Section 4.    Collateral Security.

        4.01    Collateral; Security Interest.

        (a)  Pursuant to the Custodial Agreement, the Custodian shall hold the Mortgage Loan Documents as exclusive bailee and agent for the benefit of the Lender pursuant to terms of the Custodial Agreement and shall deliver to the Lender Trust Receipts (as defined in the Custodial Agreement) each to the effect that it has reviewed such Mortgage Loan Documents in the manner and to the extent required by the Custodial Agreement and identifying any deficiencies in such Mortgage Loan Documents as so reviewed.

        (b)  All of each Borrower's right, title and interest in, to and under each of the following items of property, whether now owned or hereafter acquired, now existing or hereafter created and wherever located, is hereinafter referred to as the "Collateral":

          (i)  all Mortgage Loans;

        (ii)  all Mortgage Loan Documents, including without limitation all promissory notes, and all Servicing Records, servicing agreements and any other collateral pledged or otherwise relating to such Mortgage Loans, together with all files, documents, instruments, surveys, certificates, correspondence, appraisals, computer programs, computer storage media, accounting records and other books and records relating thereto;

        (iii)  all mortgage guaranties and insurance (issued by governmental agencies or otherwise) and any mortgage insurance certificate or other document evidencing such mortgage guaranties or insurance relating to any Mortgage Loan and all claims and payments thereunder;

        (iv)  all other insurance policies and insurance proceeds relating to any Mortgage Loan or the related Mortgaged Property;

        (v)  all Interest Rate Protection Agreements, relating to or constituting any and all of the foregoing;

        (vi)  all collateral, however defined, under any other agreement between any Borrower or any of its Affiliates on the one hand and the Lender or any of its Affiliates on the other hand;

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      (vii)  all "general intangibles", "accounts", "instruments", "investment property", "deposit accounts" and "chattel paper" as defined in the Uniform Commercial Code relating to or constituting any and all of the foregoing; and

      (viii)  any and all replacements, substitutions, distributions on or proceeds of any and all of the foregoing.

        (c)  Each Borrower hereby assigns, pledges and grants a security interest in all of its right, title and interest in, to and under the Collateral to the Lender to secure the MS Indebtedness including without limitation the repayment of principal of and interest on all Loans and all other amounts owing to the Lender hereunder, under the Note and under the other Loan Documents (collectively, the "Secured Obligations"). Each Borrower agrees to mark its accounting computer records and tapes to evidence the interests granted to the Lender hereunder.

        4.02    Further Documentation.    At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrowers, the Borrowers will promptly and duly execute and deliver, or will promptly cause to be executed and delivered, such further instruments and documents and take such further action as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Loan Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the Liens created hereby. The Borrowers also hereby authorize the Lender to file any such financing or continuation statement without the signatures of the Borrowers to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Loan Agreement shall be sufficient as a financing statement for filing in any jurisdiction.

        4.03    Changes in Locations, Name, etc.    No Borrower shall (i) change the location of its chief executive office/chief place of business from that specified in Section 6 hereof or (ii) change its name, identity or corporate structure (or the equivalent) or (iii) change the location where it maintains its records with respect to the Collateral or (iv) reincorporate or reorganize under the laws of another jurisdiction unless it shall have given the Lender at least 30 days prior written notice thereof and shall have delivered to the Lender all Uniform Commercial Code financing statements and amendments thereto as the Lender shall request and taken all other actions deemed necessary by the Lender to continue its perfected status in the Collateral with the same or better priority.

        4.04    Lender's Appointment as Attorney-in-Fact.

        (a)  Each Borrower hereby irrevocably constitutes and appoints the Lender and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Borrower and in the name of such Borrower or in its own name, from time to time in the Lender's discretion, for the purpose of carrying out the terms of this Loan Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Loan Agreement, and, without limiting the generality of the foregoing, each Borrower hereby gives the Lender the power and right, on behalf of such Borrower, without assent by, but with notice to, such Borrower, if an Event of Default shall have occurred and be continuing, to do the following:

          (i)  in the name of each Borrower or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any mortgage insurance or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Lender for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Collateral whenever payable;

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        (ii)  to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral; and

        (iii)  (A) to direct any party liable for any payment under any Collateral to make payment of any and all moneys due or to become due thereunder directly to the Lender or as the Lender shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against any Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as the Lender may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Lender were the absolute owner thereof for all purposes, and to do, at the Lender's option and the Borrowers' expense, at any time, and from time to time, all acts and things which the Lender deems necessary to protect, preserve or realize upon the Collateral and the Lender's Liens thereon and to effect the intent of this Loan Agreement, all as fully and effectively as the Borrowers might do.

Each Borrower hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.

        (b)  Each Borrower also authorizes the Lender, at any time and from time to time, to execute, in connection with any sale provided for in Section 4.07 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral and to file any initial financing statement, amendments thereto and continuation statements with or without the signature of any Borrower as authorized by applicable law, as applicable to all or any part of the Collateral.

        (c)  The powers conferred on the Lender are solely to protect the Lender's interests in the Collateral and shall not impose any duty upon the Lender to exercise any such powers. The Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither the Lender nor any of its officers, directors, or employees shall be responsible to the Borrowers for any act or failure to act hereunder, except for its own gross negligence or willful misconduct.

        4.05    Performance by Lender of Borrowers' Obligations.    If any Borrower fails to perform or comply with any of its agreements contained in the Loan Documents and the Lender itself performs or complies, or otherwise causes performance or compliance, with such agreement, the expenses of the Lender incurred in connection with such performance or compliance, together with interest thereon at a rate per annum equal to the Post-Default Rate, shall be payable by the Borrowers to the Lender on demand and shall constitute Secured Obligations.

        4.06    Proceeds.    If an Event of Default shall occur and be continuing, (a) all proceeds of Collateral received by the Borrowers consisting of cash, checks and other near-cash items shall be held by the Borrowers in trust for the Lender, segregated from other funds of the Borrowers, and shall forthwith upon receipt by any Borrower be turned over to the Lender in the exact form received by such Borrower (duly endorsed by such Borrower to the Lender, if required) and (b) any and all such proceeds received by the Lender (whether from a Borrower or otherwise) may, in the sole discretion of the Lender, be held by the Lender as collateral security for, and/or then or at any time thereafter may be applied by the Lender against, the Secured Obligations (whether matured or unmatured), such application to be in such order as the Lender shall elect. Any balance of such proceeds remaining after the Secured Obligations shall have been paid in full and this Loan Agreement shall have been

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terminated shall be paid over to the Borrowers or to whomsoever may be lawfully entitled to receive the same. For purposes hereof, proceeds shall include, but not be limited to, all principal and interest payments, all prepayments and payoffs, insurance claims, condemnation awards, sale proceeds, real estate owned rents and any other income and all other amounts received with respect to the Collateral.

        4.07    Remedies.    If an Event of Default shall occur and be continuing, the Lender may, at its option, enter into one or more Interest Rate Protection Agreements covering all or a portion of the Mortgage Loans pledged to the Lender hereunder, and the Borrowers shall be responsible for all damages, judgments, costs and expenses of any kind which may be imposed on, incurred by or asserted against the Lender relating to or arising out of such Interest Rate Protection Agreements; including without limitation any losses resulting from such Interest Rate Protection Agreements. If an Event of Default shall occur and be continuing, the Lender may exercise, in addition to all other rights and remedies granted to it in this Loan Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, the Lender without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Borrowers or any other Person (each and all of which demands, presentments, protests, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels or as an entirety at public or private sale or sales, at any exchange, broker's board or office of the Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Borrower, which right or equity is hereby waived or released. The Borrowers further agree, at the Lender's request, to assemble the Collateral and make it available to the Lender at places which the Lender shall reasonably select, whether at the Borrowers' premises or elsewhere. The Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Lender hereunder, including without limitation reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Secured Obligations, in such order as the Lender may elect, and only after such application and after the payment by the Lender of any other amount required or permitted by any provision of law, including without limitation Section 9-615(a)(3) of the Uniform Commercial Code, need the Lender account for the surplus, if any, to the Borrowers. To the extent permitted by applicable law, each Borrower waives all claims, damages and demands it may acquire against the Lender arising out of the exercise by the Lender of any of its rights hereunder, other than those claims, damages and demands arising from the gross negligence or willful misconduct of the Lender. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Borrowers shall remain liable for any deficiency (plus accrued interest thereon as contemplated pursuant to Section 2.05(b) hereof) if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Secured Obligations and the fees and disbursements of any attorneys employed by the Lender to collect such deficiency.

        4.08    Limitation on Duties Regarding Preservation of Collateral.    The Lender's duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Lender deals with similar property for its own account. Neither the Lender nor any of its directors,

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officers or employees shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrowers or otherwise.

        4.09    Powers Coupled with an Interest.    All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest.

        4.10    Release of Security Interest.    Upon termination of this Loan Agreement and repayment to the Lender of all Secured Obligations and the performance of all obligations under the Loan Documents the Lender shall release its security interest in any remaining Collateral.

        4.11    Interest Rate Protection Agreements.    In the event that any Person (other than the Lender) shall have a Lien on any Interest Rate Protection Agreement that any Borrower has entered into with respect to both Mortgage Loans pledged to the Lender hereunder and other loans which are not pledged to the Lender hereunder, the Lender agrees that in the event that the Lender shall receive any proceeds, recoveries or other amounts in respect of such Interest Rate Protection Agreement following the exercise of remedies hereunder after an Event of Default, the Lender shall remit to any such Person, as to which the Lender has received notice of such Person's Lien on such Interest Rate Protection Agreement, any excess proceeds of such Interest Rate Protection Agreement following repayment of all obligations owing to the Lender hereunder.

        Section 5.    Conditions Precedent.

        5.01    Initial Loan.    The obligation of the Lender to make its initial Loan hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Loan, of the condition precedent that the Lender shall have received all of the following items, each of which shall be satisfactory to the Lender and its counsel in form and substance:

        (a)    Loan Documents.

        (i)    Loan Agreement.    The Loan Agreement, duly executed and delivered by the Borrowers;

        (ii)    Note.    The Note, duly executed and delivered by the Borrowers;

        (b)    Custodial Joinder Agreement.    The Custodial Joinder Agreement duly executed and delivered by the Borrowers and the Custodian;

        (c)    Organizational Documents.    A good standing certificate and certified copies of the charter and by-laws (or equivalent documents) of each Borrower and of all corporate or other authority for each Borrower with respect to the execution, delivery and performance of the Loan Documents and each other document to be delivered by such Borrower from time to time in connection herewith (and the Lender may conclusively rely on such certificate until it receives notice in writing from such Borrower to the contrary);

        (d)    Legal Opinion.    A legal opinion of the in-house counsel, with respect to corporate matters, and outside counsel to the Borrowers, with respect to enforceability and certain other matters, substantially in the form attached hereto as Exhibit C;

        (e)    Servicing Agreement(s).    Any Servicing Agreement, certified as a true, correct and complete copy of the original, together with a fully executed Servicer Notice, and, if the Servicer is a Borrower or an Affiliate of a Borrower, the letter of the applicable Servicer consenting to termination of such Servicing Agreement upon the occurrence of an Event of Default;

        (f)    Filings, Registrations, Recordings.    Any documents (including, without limitation, financing statements) required to be filed, registered or recorded in order to create, in favor of the Lender, a perfected, first-priority security interest in the Collateral, subject to no Liens other than those created

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hereunder, shall have been properly prepared and executed for filing (including the applicable county(ies) if the Lender determines such filings are necessary in its sole discretion), registration or recording in each office in each jurisdiction in which such filings, registrations and recordations are required to perfect such first-priority security interest; provided, that assignments of the Mortgages securing or related to the Mortgage Loans shall not be required to be recorded prior to the occurrence of an Event of Default;

        (g)    Amendment Fee.    The amendment fee as contemplated by Section 3.04;

        (h)    Financial Statements.    The financial statements referenced in Section 6.02;

        (i)    Underwriting Guidelines.    A certified copy of the Underwriting Guidelines related to each Borrower, which shall be in form and substance satisfactory to the Lender;

        (j)    Consents, Licenses, Approvals, etc.    Copies certified by each Borrower of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by such Borrower of, and the validity and enforceability of, the Loan Documents, which consents, licenses and approvals shall be in full force and effect; and

        (k)    Other Documents.    Such other documents as the Lender may reasonably request.

        5.02    Initial and Subsequent Loans.    The making of each Loan to the Borrowers (including the initial Loan) on any Business Day is subject to the satisfaction of the following further conditions precedent, both immediately prior to the making of such Loan and also after giving effect thereto and to the intended use thereof:

        (a)    No Default.    No Default or Event of Default shall have occurred and be continuing;

        (b)    Representations and Warranties.    Both immediately prior to the making of such Loan and also after giving effect thereto and to the intended use thereof, the representations and warranties made by the Borrowers in Section 6 and Schedule 1 hereof, and elsewhere in each of the Loan Documents, shall be true, correct and complete on and as of the date of the making of such Loan in all material respects (in the case of the representations and warranties in Section 6.10 and Schedule 1, solely with respect to Mortgage Loans included in the Borrowing Base) with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and the Lender shall have received an officer's certificate signed by a Responsible Officer of each Borrower certifying as to the truth, accuracy and completeness of the above, which certificate shall specifically include a statement that such Borrower is in compliance with all governmental licenses and authorizations and is qualified to do business and in good standing in all required jurisdictions.

        (c)    Borrowing Base.    The aggregate outstanding principal amount of the Loans shall not exceed the Borrowing Base;

        (d)    Due Diligence.    Subject to the Lender's right to perform one or more Due Diligence Reviews pursuant to Section 11.15 hereof, the Lender shall have completed its due diligence review of the Mortgage Loan Documents for each Loan and such other documents, records, agreements, instruments, mortgaged properties or information relating to such Mortgage Loans as the Lender in its sole discretion deems appropriate to review and such review shall be satisfactory to the Lender in its sole discretion;

        (e)    Trust Receipt and Mortgage Loan Schedule and Exception Report.    The Lender shall have received a Trust Receipt, substantially in the form of Annex 2 to the Custodial Agreement, dated the Funding Date, from the Custodian, duly completed, with a Mortgage Loan Schedule and Exception Report attached thereto including only such exceptions as are acceptable to the Lender in its sole discretion in respect of Eligible Mortgage Loans to be pledged hereunder on such Business Day;

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        (f)    Release Letter.    The Lender shall have received from each Borrower a Warehouse Lender's Release Letter substantially in the form of Exhibit E-2 hereto (or such other form acceptable to the Lender) or a Borrower's Release Letter substantially in the form of Exhibit E-1 hereto (or such other form acceptable to the Lender) covering each Mortgage Loan to be pledged to the Lender which was previously pledged to another lender;

        (g)    Fees and Expenses.    The Lender shall have received all fees and expenses of counsel to the Lender as contemplated by Section 11.03(b), which amount, at the Lender's option, may be netted from any Loan advanced under this Agreement;

        (h)    No Market Events.    None of the following shall have occurred and/or be continuing:

          (i)  an event or events shall have occurred resulting in the effective absence of a "repo market" or comparable "lending market" for financing debt obligations secured by mortgage loans or securities or an event or events shall have occurred resulting in the Lender not being able to finance any Mortgage Loans through the "repo market" or "lending market" with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events;

        (ii)  an event or events shall have occurred resulting in the effective absence of a "securities market" for securities backed by mortgage loans or an event or events shall have occurred resulting in the Lender not being able to sell securities backed by mortgage loans at prices which would have been reasonable prior to such event or events; or

        (iii)  there shall have occurred a material adverse change in the financial condition of the Lender which affects (or can reasonably be expected to affect) materially and adversely the ability of the Lender to fund its obligations under this Loan Agreement; and

        (i)    No Morgan Stanley Downgrade.    Morgan Stanley Dean Witter & Co.'s corporate bond rating as calculated by S&P or Moody's has not been lowered or downgraded to a rating below A- as indicated by S&P or below A3 as indicated by Moody's.

        (j)    Maintenance of Tangible Net Worth.    The Tangible Net Worth of the Guarantor on a consolidated basis on any given day, shall not be less than (A) $37,000,000 prior to January 1, 2002, and (B) $34,000,000, thereafter.

        Each request for a borrowing by the Borrowers hereunder shall constitute a certification by the Borrowers that all the conditions set forth in this Section 5 (other than Section 5.02(h) and (i)) have been satisfied (both as of the date of such notice, request or confirmation and as of the date of such borrowing).

        Section 6.    Representations and Warranties.    Each Borrower represents and warrants to the Lender that throughout the term of this Loan Agreement:

        6.01    Legal Name.    On the Effective Date the exact legal name of each Borrower is and during the four months immediately preceding July 1, 2001, such name has been, respectively Aames Capital Corporation, and Aames Funding Corporation and no Borrower has used any previous names, assumed names or trade names except as set forth on Schedule 5 attached hereto.

        6.02    Existence.    Each Borrower (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite corporate or other power, and has all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except where the lack of such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect; and (c) is qualified to do business and is in good standing in all other jurisdictions in which the nature of the business conducted by it makes such qualification necessary, except where

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failure so to qualify would not be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect.

        6.03    Financial Condition.    Aames Capital has heretofore furnished to the Lender a copy of its consolidated balance sheet and the consolidated balance sheets of its consolidated Subsidiaries for the fiscal year of Aames Capital ended June 30, 2001 and the related consolidated statements of income and retained earnings and of cash flows for Aames Capital and its consolidated Subsidiaries for such fiscal year, with the opinion thereon of Ernst & Young, LLP. All such financial statements are complete and correct and fairly present, in all material respects, the consolidated financial condition of Aames Capital and its Subsidiaries and the consolidated results of their operations as at such dates and for such fiscal periods, all in accordance with GAAP applied on a consistent basis. Since June 30, 2001 there has been no material adverse change in the consolidated business, operations or financial condition of Aames Capital and its consolidated Subsidiaries taken as a whole from that set forth in said financial statements.

        6.04    Litigation.    There are no actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting any Borrower or any of its Subsidiaries or affecting any of the Property of any of them before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Loan Documents or any action to be taken in connection with the transactions contemplated hereby, or (ii) except as otherwise disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2001 of Aames Financial Corporation (a) makes a claim or claims in an aggregate amount greater than $3,000,000, (b) which, individually or in the aggregate, if adversely determined, could reasonably be likely to have a Material Adverse Effect, or (c) requires filing with the Securities and Exchange Commission in accordance with the 1934 Act or any rules thereunder.

        6.05    No Breach.    Neither (a) the execution and delivery of the Loan Documents nor (b) the consummation of the transactions therein contemplated in compliance with the terms and provisions thereof will conflict with or result in a breach of the charter or by-laws of any Borrower, or any applicable law, rule or regulation, or any order, writ, injunction or decree of any Governmental Authority, or any Servicing Agreement or other material agreement or instrument to which any Borrower or any of its Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such material agreement or instrument or result in the creation or imposition of any Lien (except for the Liens created pursuant to this Loan Agreement) upon any Property of any Borrower or any of its Subsidiaries pursuant to the terms of any such agreement or instrument.

        6.06    Action.    Each Borrower has all necessary corporate or other power, authority and legal right to execute, deliver and perform its obligations under each of the Loan Documents; the execution, delivery and performance by each Borrower of each of the Loan Documents have been duly authorized by all necessary corporate or other action on its part; and each Loan Document has been duly and validly executed and delivered by each Borrower and constitutes a legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms.

        6.07    Approvals.    No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any securities exchange are necessary for the execution, delivery or performance by each Borrower of the Loan Documents or for the legality, validity or enforceability thereof, except for filings and recordings in respect of the Liens created pursuant to this Loan Agreement.

        6.08    Margin Regulations.    Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulations T, U or X.

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        6.09    Taxes.    Each Borrower and each of its Subsidiaries has filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by any of them, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided. The charges, accruals and reserves on the books of each Borrower and each of its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of such Borrower, adequate.

        6.10    Investment Company Act.    No Borrower nor any of their Subsidiaries is an "investment company", or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.

        6.11    Collateral; Collateral Security.

        (a)  No Borrower has assigned, pledged, or otherwise conveyed or encumbered any Mortgage Loan or other Collateral to any other Person, and immediately prior to the pledge of such Mortgage Loan or any other Collateral to the Lender, each Borrower was the sole owner of the Collateral in which a security interest has been granted by it and had good and marketable title thereto, free and clear of all Liens, in each case except for Liens to be released simultaneously with the Liens granted in favor of the Lender hereunder. No Mortgage Loan or other Collateral pledged to the Lender hereunder was acquired (by purchase or otherwise) by any Borrower from an Affiliate of any Borrower other than another Borrower.

        (b)  The provisions of this Loan Agreement are effective to create in favor of the Lender a valid security interest in all right, title and interest of the Borrowers in, to and under the Collateral.

        (c)  Upon receipt by the Custodian of each Mortgage Note, endorsed in blank by a duly authorized officer of the relevant Borrower and (ii) the issuance by the Custodian of a Trust Receipt therefor, the Lender shall have a fully perfected first priority security interest therein, in the Mortgage Loan evidenced thereby and in the Borrowers' interest in the related Mortgaged Property.

        (d)  Upon the filing of financing statements on Form UCC-1 naming the Lender as "Secured Party" and the Borrowers as "Debtors", and describing the Collateral, in the jurisdictions and recording offices listed on Schedule 2 attached hereto, the security interests granted hereunder in the Collateral will constitute fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of the Borrowers in, to and under such Collateral which can be perfected by filing under the Uniform Commercial Code.

        6.12    Chief Executive Office/Jurisdiction of Organization.    On the Effective Date, each Borrower's chief executive office is located at 350 South Grand Avenue, 43rd Floor, Los Angeles, California 90071. On the Effective Date, each Borrower's jurisdiction of organization is California.

        6.13    Location of Books and Records.    The location where each Borrower keeps its books and records, including all computer tapes and records relating to the Collateral is its chief executive office.

        6.14    True and Complete Disclosure.    The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Borrowers to the Lender in connection with the negotiation, preparation or delivery of this Loan Agreement and the other Loan Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole, do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by or on behalf of the Borrowers to the Lender in connection with this Loan Agreement and the other Loan Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is

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stated or certified. There is no fact known to a Responsible Officer of any Borrower, after due inquiry, that could reasonably be expected to have a Material Adverse Effect that has not been disclosed herein, in the other Loan Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Lender for use in connection with the transactions contemplated hereby or thereby.

        6.15    Tangible Net Worth.    On the Effective Date, Aames Capital's Tangible Net Worth is not less than $360,000,000.

        6.16    ERISA.    Each Plan to which any Borrower or its Subsidiaries make direct contributions, and, to the knowledge of such Borrower, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law. No event or condition has occurred and is continuing as to which any Borrower would be under an obligation to furnish a report to the Lender under Section 7.01(d) hereof.

        6.17    Capitalization.    Schedule 3 hereto contains a true, complete and correct list of all issued and outstanding shares of capital stock of all Subsidiaries of Aames Financial Corporation and the record owner thereof.

        6.18    Hedges.    As of the Effective Date, the Borrowers have not assigned, pledged, granted a security interest in or lien on or otherwise encumbered any of its rights, title or interest in and to any Interest Rate Protection Agreement, other than in favor of the Lender.

        Section 7.    Covenants of the Borrowers.    Each Borrower covenants and agrees with the Lender that, so long as any Loan is outstanding and until payment in full of all Secured Obligations:

        7.01    Financial Statements.    Aames Capital shall deliver to the Lender:

        (a)  as soon as available and in any event within 30 days after the end of each calendar month other than the last month of any fiscal quarter, and within 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year, the unaudited consolidated balance sheets of the Aames Capital and its consolidated Subsidiaries and the Guarantor and its consolidated Subsidiaries, as at the end of such month and the related unaudited consolidated statements of income and retained earnings and of cash flows for the Aames Capital and its consolidated Subsidiaries and the Guarantor and its consolidated Subsidiaries, for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, accompanied by a certificate of a Responsible Officer of each of Aames Capital and the Guarantor, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of Aames Capital and its consolidated Subsidiaries or the Guarantor and its consolidated Subsidiaries, as applicable, in accordance with GAAP, consistently applied, as at the end of, and for, such month (subject to normal year-end audit adjustments);

        (b)  as soon as available and in any event within 90 days after the end of each fiscal year of Aames Capital and the Guarantor, the consolidated balance sheets of Aames Capital and its consolidated Subsidiaries and the Guarantor and its consolidated Subsidiaries, as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for Aames Capital and its consolidated Subsidiaries and the Guarantor and its consolidated Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of Aames Capital and its consolidated Subsidiaries or the Guarantor and its consolidated Subsidiaries, as applicable, as at the end of, and for, such fiscal year in accordance with GAAP, and a

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certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default or Event of Default;

        (c)  from time to time such other information regarding the financial condition, operations, or business of the Borrowers or the Guarantor as the Lender may reasonably request; and

        (d)  as soon as reasonably possible, and in any event within thirty (30) days after a Responsible Officer of any Borrower or the Guarantor knows, or with respect to any Plan or Multiemployer Plan to which any Borrower or any of its Subsidiaries or the Guarantor or any of its Subsidiaries makes direct contributions, has reason to believe, that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Borrowers or the Guarantor, as applicable, setting forth details respecting such event or condition and the action, if any, that the Borrowers or any ERISA Affiliate or the Guarantor or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Borrowers or an ERISA Affiliate or the Guarantor or an ERISA Affiliate with respect to such event or condition):

          (i)  any reportable event, as defined in Section 4043(c) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including without limitation the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan;

        (ii)  the distribution under Section 4041(c) of ERISA of a notice of intent to terminate any Plan or any action taken by any Borrower or an ERISA Affiliate or by the Guarantor or an ERISA Affiliate to terminate any Plan;

        (iii)  the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by any Borrower or any ERISA Affiliate or the Guarantor or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan;

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        (iv)  the complete or partial withdrawal from a Multiemployer Plan by any Borrower or any ERISA Affiliate or the Guarantor or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by any Borrower or any ERISA Affiliate or the Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA;

        (v)  the institution of a proceeding by a fiduciary of any Multiemployer Plan against any Borrower or any ERISA Affiliate or the Guarantor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and

        (vi)  the adoption of an amendment to any Plan that would result in the loss of tax-exempt status of the Plan and trust of which such Plan is a part if any Borrower or an ERISA Affiliate or the Guarantor or any ERISA Affiliate fails to provide timely security to such Plan if and as required by the provisions of Section 401(a)(29) of the Code or Section 307 of ERISA.

The Borrowers and the Guarantor will furnish to the Lender, at the time it furnishes each set of financial statements pursuant to paragraphs (a) and (b) above, a certificate of a Responsible Officer of each Borrower or the Guarantor, as applicable, (i) stating that, to the best of such Responsible Officer's knowledge, such Borrower or the Guarantor, as applicable, during such fiscal period or year has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Loan Agreement and the other Loan Documents to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate (and, if any Default or Event of Default has occurred and is continuing, describing the same in reasonable detail and describing the action such Borrower or the Guarantor, as applicable, has taken or proposes to take with respect thereto) and (ii) showing in detail the calculations supporting such Responsible Officer's certification of such Borrower's or the Guarantor's, as applicable, compliance with the requirements of Sections 7.14, 7.15, and 7.17 financial covenants.

        7.02    Litigation.    Each Borrower will promptly, and in any event within 10 days after service of process on any of the following, give to the Lender notice of all litigation, actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting any Borrowers or any of its Subsidiaries or affecting any of the Property of any of them before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Loan Documents or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim or claims in an aggregate amount greater than $3,000,000, (iii) which, individually or in the aggregate, if adversely determined, could be reasonably likely to have a Material Adverse Effect, or (iii) requires filing with the Securities and Exchange Commission in accordance with the 1934 Act and any rules thereunder.

        7.03    Existence, etc.    Each Borrower will:

        (a)  preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this Section 7.03(a) shall prohibit any transaction expressly permitted under Section 7.04 hereof);

        (b)  comply with the requirements of all applicable laws, rules, regulations and orders of Governmental Authorities (including, without limitation, all environmental laws, all laws with respect to unfair and deceptive lending practices and predatory lending practices) if failure to comply with such requirements would be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect;

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        (c)  keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied;

        (d)  not move its chief executive office from the address referred to in Section 6.11 or change its jurisdiction of organization from the jurisdiction referred to in Section 6.11 unless it shall have provided the Lender 30 days' prior written notice of such change;

        (e)  pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; and

        (f)    permit representatives of the Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by the Lender.

        7.04    Prohibition of Fundamental Changes.    No Borrower shall enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) or sell all or substantially all of its assets; provided, that a Borrower may merge or consolidate with (a) any wholly owned subsidiary of such Borrower, or (b) any other Person if such Borrower is the surviving corporation; and provided further, that if after giving effect thereto, no Default would exist hereunder.

        7.05    Borrowing Base Deficiency.    If at any time there exists a Borrowing Base Deficiency the Borrowers shall cure same in accordance with Section 2.06 hereof.

        7.06    Notices.    The Borrowers shall give notice to the Lender:

        (a)  promptly upon receipt of notice or knowledge of the occurrence of any Default or Event of Default;

        (b)  with respect to any Mortgage Loan pledged to the Lender hereunder, a weekly report delivered on each date on which prepayments are to be remitted to the Lender pursuant to Section 7.21 hereof, with respect to the preceding week, detailing any principal prepayments in full of any pledged Mortgage Loans received during such preceding week;

        (c)  with respect to any Mortgage Loan pledged to the Lender hereunder, promptly upon receipt of notice or knowledge that the underlying Mortgaged Property has been damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or otherwise damaged so as to materially and adversely affect the Collateral Value of such pledged Mortgage Loan; and

        (d)  promptly upon receipt of notice or knowledge of (i) any default (other than a payment default) related to any Collateral, (ii) any Lien or security interest (other than security interests created hereby or by the other Loan Documents) on, or claim asserted against, any of the Collateral or (iii) any event or change in circumstances which could reasonably be expected to have a Material Adverse Effect.

        (e)  promptly upon any material and adverse change in the market value of all of the Borrowers' assets taken as a whole.

Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of each Borrower setting forth details of the occurrence referred to therein and stating what action such Borrower has taken or proposes to take with respect thereto.

        7.07    Hedging.    Each Borrower shall deliver to the Lender monthly a written summary of the notional amount of all outstanding Interest Rate Protection Agreements.

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        7.08    Reports.    The Borrowers shall provide the Lender with a quarterly report, which report shall include, among other items, a summary of the Borrowers' delinquency and loss experience with respect to mortgage loans serviced by such Borrower, any Servicer or any designee of either, plus any such additional reports as the Lender may reasonably request with respect to the Borrowers' or any Servicer's servicing portfolio or pending originations of mortgage loans.

        7.09    Underwriting Guidelines.    (a) Each Borrower shall provide to the Lender a copy of any material changes to the Underwriting Guidelines prior to the effectiveness of any such change. The Lender shall use commercially reasonable efforts to notify the Borrowers within seven (7) Business Days following the Lender's receipt of such changes if such changes are acceptable. If such changes are not acceptable to the Lender, in its sole discretion, any Mortgage Loan which is originated in accordance with the Underwriting Guidelines as so changed shall not constitute an Eligible Mortgage Loan.

        (b)  Each Borrower shall originate Mortgage Loans in a manner which is consistent with sound underwriting and appraisal practices, and in compliance with applicable federal and state consumer protection laws including, without limitation, all laws with respect to unfair or deceptive practices and all laws relating to predatory lending practices.

        7.10    Transactions with Affiliates.    No Borrower will enter into any transaction, including without limitation any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under this Loan Agreement, (b) in the ordinary course of such Borrower's business and (c) upon fair and reasonable terms no less favorable to such Borrower than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate, or make a payment that is not otherwise permitted by this Section 7.10 to any Affiliate. In no event shall any Borrower pledge to the Lender hereunder any Mortgage Loan acquired by such Borrower from an Affiliate of such Borrower other than a party to this Agreement.

        7.11    Limitation on Liens.    The Borrowers will defend the Collateral against, and will take such other action as is necessary to remove, any Lien, security interest or claim on or to the Collateral, other than the security interests created under this Loan Agreement, and the Borrowers will defend the right, title and interest of the Lenders in and to any of the Collateral against the claims and demands of all persons whomsoever.

        7.12    Limitation on Guarantees.    No Borrower shall create, incur, assume or suffer to exist any additional Guarantee at any time when, after giving effect to such Guarantee, such Borrower shall have defaulted in any of its obligations under Section 7.14 through 7.16 hereof.

        7.13    Limitation on Distributions.    After the occurrence and during the continuation of any Default, no Borrower shall make any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity or partnership interest of such Borrower, whether now or hereafter outstanding, or make any other distribution in respect of any of the foregoing or to any shareholder or equity owner of such Borrower, either directly or indirectly, whether in cash or property or in obligations of such Borrower or any of such Borrower's consolidated Subsidiaries.

        7.14    Maintenance of Tangible Net Worth.    Aames Capital shall not permit Tangible Net Worth at any time to be less than the sum of (i) $315,000,000 plus (ii) an amount equal to 75% of the aggregate positive Net Income (without deduction for losses) plus (iii) 80% of net proceeds from the issuance of any equity securities of Aames Capital or the making of any capital contributions to Aames Capital.

        7.15    Maintenance of Ratio of Total Indebtedness to Tangible Net Worth.    Aames Capital shall not permit the ratio of Total Indebtedness to Tangible Net Worth at any time to be greater than 3.00 to 1.00.

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        7.16    Servicer; Servicing Tape.    The Borrowers shall provide to the Lender on the fifth Business Day of each month a computer readable file containing servicing information as of the end of the preceding calendar month, including without limitation those fields listed on Schedule 4 hereto or otherwise specified by the Lender from time to time, on a loan-by-loan basis and in the aggregate, with respect to the Mortgage Loans serviced hereunder by the Borrowers or any Servicer; provided, that in the case of any fields requested by the Lender other than those listed on Schedule 4 hereto, the Borrowers shall use reasonable efforts to deliver such data in computer readable form. The Borrowers shall not cause the Mortgage Loans to be serviced by any servicer other than Aames Funding Corporation or another servicer expressly approved in writing by the Lender.

        7.17    Committed Warehouse Facilities.    Aames Capital shall at all times maintain committed revolving facilities, other than Lender's committed revolving facility, greater than or equal to $200,000,000.

        7.18    Required Filings.    Each Borrower shall promptly make available to the Lender copies of all documents which such Borrower or any Affiliate of such Borrower is required to file with the Securities and Exchange Commission in accordance with the 1934 Act or any rules thereunder.

        7.19    No Adverse Selection.    No Borrower has selected the Collateral in a manner so as to adversely affect the Lender's interests.

        7.20    Remittance of Prepayments.    The Borrowers shall remit, with sufficient detail to enable the Lender to appropriately identify the Mortgage Loan to which any amount remitted applies, to the Lender on each Thursday (or the next Business Day if such Thursday is not a Business Day) all principal prepayments in full (but not in part) that the Borrowers have received during the previous week that are not paid directly to the Lender. All principal amounts so remitted shall be applied to the prepayment of the Loans pursuant to Section 2.06(b) hereof.

        Section 8.    Events of Default.    Each of the following events shall constitute an event of default (an "Event of Default") hereunder:

        (a)  the Borrowers shall default in the payment of any principal of or interest on any Loan when due (whether at stated maturity, upon acceleration or at mandatory prepayment); or

        (b)  the Borrowers shall default in the payment of any other amount payable by it hereunder or under any other Loan Document after notification by the Lender of such default, and such default shall have continued unremedied for five Business Days; or

        (c)  any representation, warranty or certification made or deemed made herein or in any other Loan Document by any Borrower or any certificate furnished to the Lender pursuant to the provisions hereof or thereof shall prove to have been false or misleading in any material respect as of the time made or furnished (other than the representations and warranties set forth in Schedule 1, which shall be considered solely for the purpose of determining the Collateral Value of the Mortgage Loans; unless (i) such Borrower shall have made any such representations and warranties with knowledge that they were materially false or misleading at the time made or (ii) any such representations and warranties have been determined by the Lender in its sole discretion to be materially false or misleading on a regular basis); or

        (d)  any Borrower shall fail to comply with the requirements of Section 7.03(a), Section 7.04, Section 7.05, Section 7.06(a), or Sections 7.09 through 7.20 hereof (excluding Section 7.15 hereof); or any Borrower shall otherwise fail to comply with the requirements of Section 7.15 hereof and such default shall continue unremedied for a period of one Business Day; or any Borrower shall otherwise fail to comply with the requirements of Section 7.03 hereof and such default shall continue unremedied for a period of five Business Days; or any Borrower or the Guarantor shall fail to observe or perform any other covenant or agreement contained in this Loan Agreement or any other Loan Document and

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such failure to observe or perform shall continue unremedied for a period of seven (7) Business Days; or

        (e)  a final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against any Borrower or any of its Affiliates by one or more courts, administrative tribunals or other bodies having jurisdiction and the same shall not be satisfied, discharged (or provision shall not be made for such discharge) or bonded, or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof, and no Borrower or any such Affiliate shall, within said period of 30 days, or such longer period during which execution of the same shall have been stayed or bonded, appeal therefrom and cause the execution thereof to be stayed during such appeal; or

        (f)    any Borrower shall admit in writing its inability to pay its debts as such debts become due; or

        (g)  any Borrower or any of its Affiliates shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator or the like of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate or other action for the purpose of effecting any of the foregoing; or

        (h)  a proceeding or case shall be commenced, without the application or consent of any Borrower or any of its Affiliates, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner, liquidator or the like of any Borrower or any such Affiliate or of all or any substantial part of its property, or (iii) similar relief in respect of any Borrower or any such Affiliate under any law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 30 or more days; or an order for relief against any Borrower or any such Affiliate shall be entered in an involuntary case under the Bankruptcy Code; or

        (i)    the Custodial Agreement (without provisions for a replacement custodial agreement acceptable to the Lender) or any Loan Document shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Borrower; or

        (j)    any Borrower shall grant, or suffer to exist, any Lien on any Collateral except the Liens contemplated hereby; or the Liens contemplated hereby shall cease to be first priority perfected Liens on the Collateral in favor of the Lender or shall be Liens in favor of any Person other than the Lender; or

        (k)  any Borrower or any of such Borrower's Affiliates shall be in default under any note, indenture, loan agreement, guaranty, swap agreement or any other contract to which it is a party, including, without limitation, any MS Indebtedness, which has an aggregate face or principal amount of $1,000,000 or more, which default (i) involves the failure to pay a matured obligation, or (ii) permits the acceleration of the maturity of obligations by any other party to or beneficiary of such note, indenture, loan agreement, guaranty, swap agreement or other contract; or

        (l)    any materially adverse change in the Property, business, financial condition or prospects of any Borrower or any of its Affiliates shall occur, in each case as determined by the Lender in its sole discretion, or any other condition shall exist which, in the Lender's sole discretion, constitutes a

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material impairment of any Borrower's ability to perform its obligations under this Loan Agreement, the Note or any other Loan Document; or

        (m)  Aames Financial Corporation's senior unsecured rating has been lowered or downgraded to a rating below CCC- by S&P or Caa3 by Moody's; or

        (n)  the discovery by the Lender of a condition or event which existed at or prior to the execution hereof and which the Lender, in its sole discretion, determines materially and adversely affects: (i) the condition (financial or otherwise) of any Borrower, its Subsidiaries or Affiliates; or (ii) the ability of any Borrower to fulfill its respective obligations under this Loan Agreement;

        (o)  (i) The Guarantor shall permit Tangible Net Worth on a consolidated basis on any given day to be less than (A) $37,000,000 prior to January 1, 2002, and (B) $34,000,000, thereafter;

        (ii)  The Guarantor shall permit the Leverage Ratio at any time to be greater than 12:00 to 1:00;

        (iii)  The Guarantor shall permit Net Income before tax, generated over a period of two consecutive fiscal quarters, measured on the last day of each fiscal quarter, commencing with the two fiscal quarters ending September 30, 2001 and December 31, 2001, to be less than $1.00; and

        (iv)  The Guarantor shall, as of the end of any calendar month, have unencumbered Cash Equivalents, cash and available borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse or working capital facilities, on a consolidated basis in an amount less than $17,500,000.

        Section 9.    Remedies Upon Default.

        (a)  An Event of Default shall be deemed to be continuing unless expressly waived by the Lender in writing. Upon the occurrence of one or more Events of Default hereunder, the Lender's obligation to make additional Loans to the Borrowers shall automatically terminate without further action by any Person. Upon the occurrence of one or more Events of Default other than those referred to in Section 8(g) or (h), the Lender may immediately declare the principal amount of the Loans then outstanding under the Note to be immediately due and payable, together with all interest thereon and fees and expenses accruing under this Loan Agreement. Upon the occurrence of an Event of Default referred to in Sections 8(g) or (h), such amounts shall immediately and automatically become due and payable without any further action by any Person. Upon such declaration or such automatic acceleration, the balance then outstanding on the Note shall become immediately due and payable, without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrowers.

        (b)  Upon the occurrence of one or more Events of Default, the Lender shall have the right to obtain physical possession of the Servicing Records and all other files of the Borrower relating to the Collateral and all documents relating to the Collateral which are then or may thereafter come in to the possession of the Borrowers or any third party acting for the Borrowers and the Borrowers shall deliver to the Lender such assignments as the Lender shall request. The Lender shall be entitled to specific performance of all agreements of the Borrowers contained in this Loan Agreement.

        Section 10.    No Duty of Lender.    The powers conferred on the Lender hereunder are solely to protect the Lender's interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Borrowers for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct.

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        Section 11.    Miscellaneous.

        11.01    Waiver.    No failure on the part of the Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

        11.02    Notices.    Except as otherwise expressly permitted by this Loan Agreement, all notices, requests and other communications provided for herein and under the Custodial Agreement (including without limitation any modifications of, or waivers, requests or consents under, this Loan Agreement) shall be given or made in writing (including without limitation by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or thereof); or, as to any party, at such other address as shall be designated by such party in a written notice to each other party provided, that a copy of all notices given under Section 7.01 shall simultaneously be delivered to Credit Department, Morgan Stanley Dean Witter, 1221 Avenue of the Americas, 35^th Floor, New York, New York 10036; Attention: Christine Egan. Except as otherwise provided in this Loan Agreement and except for notices given under Section 2 (which shall be effective only on receipt), all such communications shall be deemed to have been duly given when transmitted by telex or telecopy or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.

        11.03    Indemnification and Expenses.

        (a)  Each Borrower agrees to hold the Lender, and its Affiliates and their officers, directors, employees, agents and advisors (each an "Indemnified Party") harmless from and indemnify any Indemnified Party against all liabilities, losses, damages, judgments, costs and expenses of any kind which may be imposed on, incurred by or asserted against such Indemnified Party (collectively, the "Costs") relating to or arising out of this Loan Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Loan Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, that, in each case, results from anything other than any Indemnified Party's gross negligence or willful misconduct. Without limiting the generality of the foregoing, the Borrowers agree to hold any Indemnified Party harmless from and indemnify such Indemnified Party against all Costs with respect to all Mortgage Loans relating to or arising out of any violation or alleged violation of any environmental law, rule or regulation or any consumer credit laws, including without limitation, laws with respect to unfair or deceptive lending practices, and predatory lending practices, the Truth in Lending Act and/or the Real Estate Settlement Procedures Act, that, in each case, results from anything other than such Indemnified Party's gross negligence or willful misconduct. In any suit, proceeding or action brought by an Indemnified Party in connection with any Mortgage Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage Loan, each Borrower will save, indemnify and hold such Indemnified Party harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by any Borrower of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from any Borrower. Each Borrower also agrees to reimburse an Indemnified Party as and when billed by such Indemnified Party for all such Indemnified Party's costs and expenses incurred in connection with the enforcement or the preservation of such Indemnified Party's rights under this Loan Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, including without limitation the reasonable fees and disbursements of its counsel. Each Borrower hereby acknowledges

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that, notwithstanding the fact that the Note is secured by the Collateral, the obligation of the Borrowers under the Note is a recourse obligation of the Borrowers.

        (b)  The Borrowers agree, jointly and severally, to pay as and when billed by the Lender all of the out-of-pocket costs and expenses incurred by the Lender in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Loan Agreement, the Note, any other Loan Document or any other documents prepared in connection herewith or therewith. The Borrowers agree, jointly and severally, to pay as and when billed by the Lender all of the out-of-pocket costs and expenses incurred in connection with the consummation and administration of the transactions contemplated hereby and thereby including without limitation (i) all the reasonable fees, disbursements and expenses of counsel to the Lender (ii) all the due diligence, inspection, testing and review costs and expenses incurred by the Lender with respect to Collateral under this Loan Agreement, including, but not limited to, those costs and expenses incurred by the Lender pursuant to Sections 11.03(a), 11.14 and 11.15 hereof and (iii) all reasonable costs and expenses incurred by the Lender in connection with the underwriting or re-underwriting of any Mortgage Loan from time to time.

        11.04    Amendments.    Except as otherwise expressly provided in this Loan Agreement, any provision of this Loan Agreement may be modified or supplemented only by an instrument in writing signed by the Borrowers and the Lender and any provision of this Loan Agreement may be waived by the Lender.

        11.05    Successors and Assigns.    This Loan Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

        11.06    Survival.    The obligations of the Borrowers under Sections 3.03 and 11.03 hereof shall survive the repayment of the Loans and the termination of this Loan Agreement. In addition, each representation and warranty made or deemed to be made by a request for a borrowing, herein or pursuant hereto shall survive the making of such representation and warranty, and the Lender shall not be deemed to have waived, by reason of making any Loan, any Default that may arise because any such representation or warranty shall have proved to be false or misleading, notwithstanding that the Lender may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Loan was made.

        11.07    Captions.    The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Loan Agreement.

        11.08    Counterparts.    This Loan Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Loan Agreement by signing any such counterpart.

        11.09    Loan Agreement Constitutes Security Agreement; Governing Law.    This Loan Agreement shall be governed by New York law without reference to choice of law doctrine, and shall constitute a security agreement within the meaning of the Uniform Commercial Code.

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        11.10    Submission To Jurisdiction; Waivers.    Each Borrower hereby irrevocably and unconditionally:

        (A)  SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

        (B)  CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

        (C)  AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND

        (D)  AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

        11.11    WAIVER OF JURY TRIAL.EACH BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

        11.12    Acknowledgments.    Each Borrower hereby acknowledges that:

        (a)  it has been advised by counsel in the negotiation, execution and delivery of this Loan Agreement, the Note and the other Loan Documents;

        (b)  the Lender has no fiduciary relationship to any Borrower, and the relationship between each Borrower and the Lender is solely that of debtor and creditor; and

        (c)  no joint venture exists between the Lender and any Borrower.

        11.13    Hypothecation or Pledge of Loans.    The Lender shall have free and unrestricted use of all Collateral and nothing in this Loan Agreement shall preclude the Lender from engaging in repurchase transactions with the Collateral or otherwise pledging, repledging, transferring, hypothecating, or rehypothecating the Collateral, on terms, and subject to conditions, within the Lender's absolute discretion. Nothing contained in this Loan Agreement shall obligate the Lender to segregate any Collateral delivered to the Lender by the Borrowers.

        11.14    Servicing.

        (a)  Each Borrower covenants to maintain or cause the servicing of the Mortgage Loans to be maintained in conformity with accepted and prudent servicing practices in the industry for the same type of mortgage loans as the Mortgage Loans and in a manner at least equal in quality to the servicing each Borrower provides for mortgage loans which it owns. In the event that the preceding

34

language is interpreted as constituting one or more servicing contracts, each such servicing contract shall terminate automatically upon the earliest of (i) an Event of Default, (ii) the date on which all the Secured Obligations have been paid in full or (iii) the transfer of servicing approved by the Borrowers.

        (b)  If the Mortgage Loans are serviced by a Borrower, (i) such Borrower agrees that the Lender is the collateral assignee of all servicing records, including but not limited to any and all servicing agreements, files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any other records relating to or evidencing the servicing of Mortgage Loans (the "Servicing Records"), and (ii) such Borrower grants the Lender a security interest in all servicing fees and rights relating to the Mortgage Loans and all Servicing Records to secure the obligation of each Borrower or its designee to service in conformity with this Section and any other obligation of the Borrowers to the Lender. The Borrowers covenants to safeguard such Servicing Records and to deliver them promptly to the Lender or its designee (including the Custodian) at the Lender's request.

        (c)  If the Mortgage Loans are serviced by a third party servicer other than Aames Funding Corporation (such third party servicer, the "Servicer"), the Borrowers (i) shall provide a copy of the servicing agreement to the Lender, which shall be in form and substance acceptable to the Lender (the "Servicing Agreement"), and (ii) shall provide a Servicer Notice to the Servicer substantially in the form of Exhibit G hereto (a "Servicer Notice") and shall cause the Servicer to acknowledge and agree to the same, and (iii) hereby irrevocably assigns to the Lender and the Lender's successors and assigns all right, title, interest of the Borrowers in, to and under, and the benefits of, any Servicing Agreement with respect to the Mortgage Loans. Any successor to the Master Servicer shall be approved in writing by the Lender and shall acknowledge and agree to a Servicer Notice prior to such successor's assumption of servicing obligations with respect to the Mortgage Loans.

        (d)  If the servicer of the Mortgage Loans is a Borrower or the Servicer is an Affiliate of a Borrower, such Borrower shall provide to the Lender a letter from the Borrowers or the Servicer, as the case may be, to the effect that upon the occurrence of an Event of Default, the Lender may terminate any Servicing Agreement and in any event transfer servicing to the Lender's designee, at no cost or expense to the Lender, it being agreed that the Borrowers will pay any and all fees required to terminate the Servicing Agreement and to effectuate the transfer of servicing to the designee of the Lender.

        (e)  After the Funding Date, until the pledge of any Mortgage Loan is relinquished by the Custodian, the Borrowers will have no right to modify or alter the terms of such Mortgage Loan and the Borrowers will have no obligation or right to repossess such Mortgage Loan or substitute another Mortgage Loan, except as provided in the Custodial Agreement.

        (f)    In the event a Borrower or its Affiliate is servicing the Mortgage Loans, such Borrower shall permit the Lender to inspect such Borrower's or its Affiliate's servicing facilities, as the case may be, for the purpose of satisfying the Lender that such Borrower or its Affiliate, as the case may be, has the ability to service the Mortgage Loans as provided in this Loan Agreement.

        11.15    Periodic Due Diligence Review.    Each Borrower acknowledges that the Lender has the right to perform continuing due diligence reviews with respect to the Mortgage Loans and the manner in which they were originated, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and each Borrower agrees that upon reasonable (but no less than one (1) Business Day's) prior notice to the Borrowers, the Lender or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Mortgage Files and any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession or under the control of the Borrowers and/or the Custodian. The Borrowers also shall make available to the Lender a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Mortgage Files and the

35

Mortgage Loans. Without limiting the generality of the foregoing, the Borrowers acknowledge that the Lender may make Loans to the Borrowers based solely upon the information provided by the Borrowers to the Lender in the Mortgage Loan Tape and the representations, warranties and covenants contained herein, and that the Lender, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Mortgage Loans securing such Loan, including without limitation ordering new credit reports and new appraisals on the related Mortgaged Properties and otherwise re-generating the information used to originate such Mortgage Loan. The Lender may underwrite such Mortgage Loans itself or engage a mutually agreed upon third party underwriter to perform such underwriting. It is understood that, in the case of Class C Defaulted Loans, such underwriting is expected to occur quarterly with respect to 10-20% of the Class C Defaulted Loans then included in the Borrowing Base. The Borrowers agree to cooperate with the Lender and any third party underwriter in connection with such underwriting, including, but not limited to, providing the Lender and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession, or under the control, of the Borrowers.

        11.16    Set-Off.    In addition to any rights and remedies of the Lender provided by this Loan Agreement and by law, the Lender shall have the right, without prior notice to the Borrowers, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrowers hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lender or any Affiliate thereof to or for the credit or the account of the Borrowers. The Lender agrees promptly to notify the Borrowers after any such set-off and application made by the Lender; provided, that the failure to give such notice shall not affect the validity of such set-off and application.

        11.17    Intent.    The parties recognize that each Loan is a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended.

        11.18    Joint and Several Liability.    Each Borrower hereby acknowledges and agrees that such Borrower shall be jointly and severally liable to the Lender to the maximum extent permitted by the applicable law for all representations, warranties, covenants, obligations and indemnities of the Borrowers hereunder.

[SIGNATURE PAGE FOLLOWS]

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        IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be duly executed and delivered as of the day and year first above written.

BORROWERS
AAMES CAPITAL CORPORATION
By:	Name: Title:
Address for Notices: 350 South Grand Avenue 43rd Floor Los Angeles, California 90071 Attention: Jon Van Deuren Chief Accounting Officer Telecopier No.: 323-210-5036 Telephone No: 323-210-4855 With a copy to: General Counsel
AAMES FUNDING CORPORATION
By:	Name: Title:
Address for Notices: 350 South Grand Avenue 43rd Floor Los Angeles, California 90071 Attention: Jon Van Deuren Chief Accounting Officer Telecopier No.: 323-210-5036 Telephone No: 323-210-4855 With a copy to: General Counsel
LENDER
MORGAN STANLEY DEAN WITTER MORTGAGE CAPITAL INC.
By:	Name: Title:
Address for Notices: 1585 Broadway New York, New York 10036 Attention: Andy Neuberger Telecopier No.: 212-761-0093 Telephone No.: 212-761-4242

37

Schedule 1
REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS

        Part 1.    Eligible Residential Mortgage Loans

        As to each residential Mortgage Loan included in the Borrowing Base on a Funding Date (and the related Mortgage, Mortgage Note, Assignment of Mortgage and Mortgaged Property), each Borrower shall be deemed to make the following representations and warranties to the Lender as of such date and as of each date the Borrowing Base is determined (certain defined terms used herein and not otherwise defined in the Loan Agreement appearing in Part II to this Schedule 1):

        (a)    Mortgage Loans as Described.    The information set forth in the Mortgage Loan Schedule with respect to the Mortgage Loan is complete, true and correct in all material respects.

        (b)    Payments Current.    Except in the case of a Defaulted Loan and to the extent contemplated by the definition of the applicable Class of Defaulted Loan, not more than one payment required under the Mortgage Loan is delinquent. Except in the case of a Defaulted Loan, the first Monthly Payment shall be made, or shall have been made, with respect to the Mortgage Loan on its Due Date or within the grace period, all in accordance with the terms of the related Mortgage Note.

        (c)    No Outstanding Charges.    Except in the case of a Defaulted Loan, there are no defaults in complying with the terms of the Mortgage securing the Mortgage Loan, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal charges, leasehold payments or ground rents which 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 which remains unpaid and which has been assessed but is not yet due and payable. Neither any Borrower nor the originator from which such Borrower acquired the Mortgage Loan has 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 under the Mortgage Loan, except for interest accruing from the date of the Mortgage Note or date of disbursement of the proceeds of the Mortgage Loan, whichever is earlier, to the day which precedes by one month the Due Date of the first installment of principal and interest thereunder.

        (d)    Original Terms Unmodified.    The terms of the Mortgage Note and Mortgage have not been impaired, waived, altered or modified in any respect, from the date of origination; except by a written instrument which has been recorded, if necessary to protect the interests of the Lender, and which has been delivered to the Custodian and the terms of which are reflected in the Mortgage Loan Schedule. The substance of any such waiver, alteration or modification has been approved by the title insurer, to the extent required, and its terms are reflected on the Mortgage Loan Schedule. No Mortgagor in respect of the Mortgage Loan has been released, in whole or in part, except in connection with an assumption agreement approved by the title insurer, to the extent required by such policy, and which assumption agreement is part of the Mortgage File delivered to the Custodian and the terms of which are reflected in the Mortgage Loan Schedule.

        (e)    No Defenses.    The Mortgage Loan is not subject to any right of rescission, set-off, counterclaim or defense, including without limitation the defense of usury, 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 and, except as permitted by the Underwriting Guidelines, no Mortgagor in respect of the Mortgage Loan was a debtor in any state or Federal bankruptcy or insolvency proceeding at the time the Mortgage Loan was originated. No Borrower has any knowledge nor has any Borrower received any notice that any Mortgagor in respect of the Mortgage Loan is a debtor in any state or federal bankruptcy or insolvency proceeding.

Schedule 1-1

        (f)    Hazard Insurance.    The Mortgaged Property is insured by a fire and extended perils insurance policy, issued by a generally acceptable insurance carrier, and such other hazards as are customary in the area where the Mortgaged Property is located, and to the extent required by the Borrowers as of the date of origination consistent with the Underwriting Guidelines, against earthquake and other risks insured against by Persons operating like properties in the locality of the Mortgaged Property, in an amount not less than the greatest of (i) 100% of the replacement cost of all improvements to the Mortgaged Property, (ii) the outstanding principal balance of the Mortgage Loan, or (iii) the amount necessary to avoid the operation of any co-insurance provisions with respect to the Mortgaged Property, and consistent with the amount that would have been required as of the date of origination in accordance with the Underwriting Guidelines. If any portion of the Mortgaged Property is in an area identified by any federal Governmental Authority as having special flood hazards, and flood insurance is available, a flood insurance policy meeting the current guidelines of the Federal Emergency Management Agency is in effect with a generally acceptable insurance carrier, in an amount representing coverage not less than the least of (1) the outstanding principal balance of the Mortgage Loan, (2) the full insurable value of the Mortgaged Property, and (3) the maximum amount of insurance available under the National Flood Insurance Act of 1968, as amended by the Flood Disaster Protection Act of 1974. All such insurance policies (collectively, the "hazard insurance policy") contain a standard mortgagee clause naming the relevant Borrower, its successors and assigns (including without limitation, subsequent owners of the Mortgage Loan), as mortgagee, and may not be reduced, terminated or canceled without 30 days' prior written notice to the mortgagee. No such notice has been received by any Borrower. All premiums on such insurance policy have been paid. The related Mortgage obligates the Mortgagor to maintain all such insurance and, at such Mortgagor's failure to do so, authorizes the mortgagee to maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from such Mortgagor. Where required by state law or regulation, the Mortgagor has been given an opportunity to choose the carrier of the required hazard insurance, provided the policy is not a "master" or "blanket" hazard insurance policy covering a condominium, or any hazard insurance policy covering the common facilities of a planned unit development. The hazard insurance policy is the valid and binding obligation of the insurer and is in full force and effect. No Borrower has engaged in, and no Borrower has any knowledge of the Mortgagor's having engaged in, any act or omission which would impair the coverage of any such policy, the benefits of the endorsement provided for herein, or the validity and binding effect of either including, without limitation, no unlawful fee, commission, kickback or other unlawful compensation or value of any kind has been or will be received, retained or realized by any attorney, firm or other Person, and no such unlawful items have been received, retained or realized by any Borrower.

        (g)    Compliance with Applicable Laws.    Any and all material requirements of any federal, state or local law including, without limitation, usury, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws applicable to the Mortgage Loan have been complied with, the consummation of the transactions contemplated hereby will not involve the violation of any such laws or regulations, and each Borrower shall maintain or shall cause its agent to maintain in its possession, available for the inspection of the Lender, and shall deliver to the Lender, upon demand, evidence of compliance with all such requirements.

        (h)    No Satisfaction of Mortgage.    The Mortgage has not been satisfied, canceled, subordinated or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such release, cancellation, subordination or rescission. No Borrower has waived the performance by the Mortgagor of any action, if the Mortgagor's failure to perform such action would cause the Mortgage Loan to be in default, nor has any Borrower waived any default resulting from any action or inaction by the Mortgagor.

Schedule 1-2

        (i)    Location and Type of Mortgaged Property.    The Mortgaged Property consists of a single parcel of real property with a detached single family residence erected thereon, or a two- to four-family dwelling, or an individual condominium unit in a condominium project of not more than four stories or such greater number of stories as shall be common for condominium projects in the location of such Mortgaged Property, or an individual unit in a planned unit development or a de minimis planned unit development, provided, however, that any condominium unit or planned unit development shall conform with the applicable Fannie Mae and Freddie Mac requirements regarding such dwellings.

        (j)    Valid First or Second Lien.    The Mortgage is a valid, subsisting, enforceable and perfected first lien, in the case of a First Lien Loan, or second lien, in the case of a Second Lien Loan, on the real property included in the Mortgaged Property, including all buildings on the Mortgaged Property and all installations and mechanical, electrical, plumbing, heating and air conditioning systems located in or annexed to such buildings, and all additions, alterations and replacements made at any time with respect to the foregoing. The lien of the Mortgage is subject only to:

        (1)  the lien of current real property taxes and assessments not yet due and payable;

        (2)  covenants, conditions and restrictions, rights of way, easements and other matters of the public record as of the date of recording acceptable to prudent mortgage lending institutions generally and specifically referred to in the lender's title insurance policy delivered to the originator of the Mortgage Loan and (a) referred to or otherwise considered in the appraisal made for the originator of the Mortgage Loan or (b) which do not adversely affect the Appraised Value of the Mortgaged Property set forth in such appraisal;

        (3)  other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage or the use, enjoyment, value or marketability of the related Mortgaged Property; and

        (4)  in the case of any Second Lien Loan, the lien of the related primary mortgage.

Any security agreement, chattel mortgage or equivalent document related to and delivered in connection with the Mortgage Loan establishes and creates a valid, subsisting and enforceable first lien and first priority security interest on the property described therein and the relevant Borrower has full right to pledge and assign the same to the Lender.

        (k)    Validity of Mortgage Documents.    The Mortgage Note and the Mortgage and any other agreement executed and delivered by a Mortgagor or guarantor, if applicable, in connection with a Mortgage Loan are genuine, and each is the legal, valid and binding obligation of the maker thereof enforceable in accordance with its terms. All parties to the Mortgage Note, the Mortgage and any other such related agreement had legal capacity to enter into the Mortgage Loan and to execute and deliver the Mortgage Note, the Mortgage and any such agreement, and the Mortgage Note, the Mortgage and any other such related agreement have been duly and properly executed by such related parties. No fraud, error, omission, misrepresentation, negligence or similar occurrence with respect to a Mortgage Loan has taken place on the part of any Person, including, without limitation, the Mortgagor, any appraiser, any builder or developer, or any other party involved in the origination of the Mortgage Loan. Each Borrower has reviewed all of the documents constituting the Servicing File and has made such inquiries as it deems necessary to make and confirm the accuracy of the representations set forth herein.

        (l)    Full Disbursement of Proceeds.    All costs, fees and expenses incurred in making or closing the Mortgage Loan and the recording of the Mortgage were paid, and the Mortgagor is not entitled to any refund of any amounts paid or due under the Mortgage Note or Mortgage.

        (m)    Ownership.    The relevant Borrower is the sole owner and holder of the Mortgage Loan. The Mortgage Loan is not assigned or pledged, and the relevant Borrower has good, indefeasible and

Schedule 1-3

marketable title thereto, and has full right to transfer, pledge and assign the Mortgage Loan to the Lender free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest, and has full right and authority subject to no interest or participation of, or agreement with, any other party, to assign, transfer and pledge each Mortgage Loan pursuant to this Loan Agreement and following the pledge of each Mortgage Loan, the Lender will hold such Mortgage Loan free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest except any such security interest created pursuant to the terms of this Loan Agreement.

        (n)    Doing Business.    All parties which have had any interest in the Mortgage Loan, whether as Mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) (i) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located, and (ii) either (A) organized under the laws of such state, (B) qualified to do business in such state, (C) a federal savings and loan association, a savings bank or a national bank having a principal office in such state, or (D) not doing business in such state.

        (o)    LTV.    No Mortgage Loan which is a First Lien Loan has an LTV greater than 100%. No Mortgage Loan which is a Second Lien Loan has an LTV greater than 100% (determined by taking the sum of the first mortgage loan on the related Mortgaged Property and the unpaid principal balance of the Second Lien Loan and treating such amount as the amount of the Mortgage Loan).

        (p)    Title Insurance.    The Mortgage Loan is covered by either (i) an attorney's opinion of title and abstract of title, the form and substance of which is acceptable to prudent mortgage lending institutions making mortgage loans in the area wherein the Mortgaged Property is located or (ii) an ALTA lender's title insurance policy or other generally acceptable form of policy or insurance acceptable to Fannie Mae or Freddie Mac and each such title insurance policy is issued by a title insurer acceptable to Fannie Mae or Freddie Mac and qualified to do business in the jurisdiction where the Mortgaged Property is located, insuring the relevant Borrower, its successors and assigns, as to the first priority lien of the Mortgage in the original principal amount of the Mortgage Loan (or to the extent a Mortgage Note provides for negative amortization, the maximum amount of negative amortization in accordance with the Mortgage), subject only to the exceptions contained in clauses (1), (2) and (3) of paragraph (j) of this Part I of Schedule 1, and in the case of adjustable rate Mortgage Loans, against any loss by reason of the invalidity or unenforceability of the lien resulting from the provisions of the Mortgage providing for adjustment to the Mortgage Interest Rate and Monthly Payment. Where required by state law or regulation, the Mortgagor has been given the opportunity to choose the carrier of the required mortgage title insurance. Additionally, such lender's title insurance policy affirmatively insures ingress and egress and against encroachments by or upon the Mortgaged Property or any interest therein. The title policy does not contain any special exceptions (other than the standard exclusions) for zoning and uses and has been marked to delete the standard survey exception or to replace the standard survey exception with a specific survey reading. The relevant Borrower, its successors and assigns, are the sole insureds of such lender's title insurance policy, and such lender's title insurance policy is valid and remains in full force and effect and will be in force and effect upon the consummation of the transactions contemplated by this Loan Agreement. No claims have been made under such lender's title insurance policy, and no prior holder or servicer of the related Mortgage, including any Borrower, has done, by act or omission, anything which would impair the coverage of such lender's title insurance policy, including, without limitation, no unlawful fee, commission, kickback or other unlawful compensation or value of any kind has been or will be received, retained or realized by any attorney, firm or other Person, and no such unlawful items have been received, retained or realized by any Borrower.

        (q)    No Defaults.    Other than payment delinquencies, there is no default, breach, violation or event of acceleration existing under the Mortgage or the Mortgage Note and no event has occurred which, with the passage of time or with notice and the expiration of any grace or cure period, would

Schedule 1-4

constitute a default, breach, violation or event of acceleration, and no Borrower nor its predecessors have waived any such default, breach, violation or event of acceleration.

        (r)    No Mechanics' Liens.    There are no mechanics' or similar liens or claims which have been filed for work, labor or material (and no rights are outstanding that under the law could give rise to such liens) affecting the Mortgaged Property which are or may be liens prior to, or equal or coordinate with, the lien of the Mortgage.

        (s)    Location of Improvements; No Encroachments.    All improvements which were considered in determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of the Mortgaged Property, and no improvements on adjoining properties encroach upon the Mortgaged Property. No improvement located on or being part of the Mortgaged Property is in violation of any applicable zoning and building law, ordinance or regulation.

        (t)    Origination; Payment Terms.    The Mortgage Interest Rate is adjusted, with respect to adjustable rate Mortgage Loans, on each Interest Rate Adjustment Date to equal the Index plus the Gross Margin (rounded up or down to the nearest .125%), subject to the Mortgage Interest Rate Cap and Mortgage Interest Rate Floor. The Mortgage Note is payable monthly in equal monthly installments of principal and interest (other than in the case of balloon loans), which installments of interest, with respect to adjustable rate Mortgage Loans, are subject to change due to the adjustments to the Mortgage Interest Rate on each Interest Rate Adjustment Date, with interest calculated and payable in arrears, sufficient to amortize the Mortgage Loan fully by the stated maturity date, over an original term of not more than 30 years from commencement of amortization.

        (u)    Customary Provisions.    The Mortgage Note has a stated maturity. The Mortgage contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security provided thereby, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage Loan will be able to deliver good and merchantable title to the Mortgaged Property. There is no homestead or other exemption available to a Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage.

        (v)    Conformance with Underwriting Guidelines and Agency Standards.    The Mortgage Loan was underwritten in accordance with the Underwriting Guidelines. The Mortgage Note and Mortgage are on forms similar to those used by Freddie Mac or Fannie Mae, except with respect to prepayment penalties, and no Borrower has made any representations to a Mortgagor that are inconsistent with the mortgage instruments used.

        (w)    Occupancy of the Mortgaged Property.    As of the Funding Date the Mortgaged Property is lawfully occupied under applicable law. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the 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. No Borrower has received notification from any Governmental Authority that the Mortgaged Property is in material non-compliance with such laws or regulations, is being used, operated or occupied unlawfully or has failed to have or obtain such inspection, licenses or certificates, as the case may be. No Borrower has received notice of any violation or failure to conform with any such law, ordinance, regulation, standard, license or certificate.

        (x)    No Additional Collateral.    The Mortgage Note is not and has not been secured by any collateral except the lien of the corresponding Mortgage and the security interest of any applicable security agreement or chattel mortgage referred to in clause (j) above.

Schedule 1-5

        (y)    Deeds of Trust.    In the event the Mortgage constitutes a deed of trust, a trustee, authorized and duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the Mortgage, and no fees or expenses are or will become payable by the Custodian or the Lender to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor.

        (z)    Delivery of Mortgage Documents.    The Mortgage Note, the Mortgage, the Assignment of Mortgage and any other documents required to be delivered under the Custodial Agreement for each Mortgage Loan have been delivered to the Custodian. A Borrower or its agent is in possession of a complete, true and accurate Mortgage File in compliance with the Custodial Agreement, except for such documents the originals of which have been delivered to the Custodian.

        (aa)    Transfer of Mortgage Loans.    The Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located.

        (bb)    Due-On-Sale.    The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the Mortgagee thereunder.

        (cc)    No Buydown Provisions; No Graduated Payments or Contingent Interests.    The Mortgage Loan does not contain provisions pursuant to which Monthly Payments are paid or partially paid with funds deposited in any separate account established by any Borrower, the Mortgagor, or anyone on behalf of the Mortgagor, or paid by any source other than the Mortgagor nor does it contain any other similar provisions which may constitute a "buydown" provision. The Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan does not have a shared appreciation or other contingent interest feature.

        (dd)    Consolidation of Future Advances.    Any future advances made to the Mortgagor prior to the Funding Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term. The lien of the Mortgage securing the consolidated principal amount is expressly insured as having first lien priority, in the case of a first Mortgage, or second lien priority, in the case of a second mortgage, by a title insurance policy, an endorsement to the policy insuring the Mortgagee's consolidated interest or by other title evidence acceptable to Fannie Mae and Freddie Mac. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan.

        (ee)    Mortgaged Property Undamaged.    The Mortgaged Property is undamaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty so as to affect adversely the value of the Mortgaged Property as security for the Mortgage Loan or the use for which the premises were intended and each Mortgaged Property is in good repair. There have not been any condemnation proceedings with respect to the Mortgaged Property and no Borrower has any knowledge of any such proceedings.

        (ff)    Collection Practices; Escrow Deposits; Interest Rate Adjustments.    The origination and collection practices used by the originator, each servicer of the Mortgage Loan and the relevant Borrower with respect to the Mortgage Loan have been in all respects in compliance with Accepted Servicing Practices, applicable laws and regulations, and have been in all respects legal and proper. With respect to escrow deposits and Escrow Payments, all such payments are in the possession of, or under the control of, the Borrowers and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. All Escrow Payments have been collected in material compliance with state and federal law. An escrow of funds is not prohibited by applicable law and has been established in an amount sufficient to pay for every item that remains unpaid and has been assessed but is not yet due and payable. No escrow deposits or Escrow Payments or other charges or payments due the Borrowers have been capitalized under the Mortgage or the

Schedule 1-6

Mortgage Note. All Mortgage Interest Rate adjustments have been made in compliance with state and federal law and the terms of the related Mortgage Note. Any interest required to be paid pursuant to state, federal and local law has been properly paid and credited.

        (gg)    Conversion to Fixed Interest Rate.    With respect to adjustable rate Mortgage Loans, the Mortgage Loan is not convertible to a fixed interest rate Mortgage Loan.

        (hh)    Other Insurance Policies.    No action, inaction or event has occurred and no state of facts exists or has existed that has resulted or will result in the exclusion from, denial of, or defense to coverage under any applicable special hazard insurance policy, PMI Policy or bankruptcy bond, irrespective of the cause of such failure of coverage. In connection with the placement of any such insurance, no commission, fee, or other compensation has been or will be received by any Borrower or by any officer, director, or employee of any Borrower or any designee of any Borrower or any corporation in which any Borrower or any officer, director, or employee had a financial interest at the time of placement of such insurance.

        (ii)    Soldiers' and Sailors' Civil Relief Act.    The Mortgagor has not notified any Borrower, and no Borrower has no knowledge, of any relief requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940.

        (jj)    Appraisal.    The Mortgage File contains an appraisal of the related Mortgaged Property signed prior to the approval of the Mortgage Loan application by a qualified appraiser, duly appointed by the Borrowers, who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, and whose compensation is not affected by the approval or disapproval of the Mortgage Loan, and the appraisal and appraiser both satisfy the requirements of Fannie Mae or Freddie Mac and Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as amended and the regulations promulgated thereunder, all as in effect on the date the Mortgage Loan was originated.

        (kk)    Disclosure Materials.    The Mortgagor has received all disclosure materials required by applicable law with respect to the making of adjustable rate mortgage loans, and the relevant Borrower maintains such statement in the Mortgage File.

        (ll)    Construction or Rehabilitation of Mortgaged Property.    No Mortgage Loan was made in connection with the construction or rehabilitation of a Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged Property.

        (mm)    No Defense to Insurance Coverage.    No action has been taken or failed to be taken, no event has occurred and no state of facts exists or has existed on or prior to the Funding Date (whether or not known to any Borrower on or prior to such date) which has resulted or will result in an exclusion from, denial of, or defense to coverage under any private mortgage insurance (including, without limitation, any exclusions, denials or defenses which would limit or reduce the availability of the timely payment of the full amount of the loss otherwise due thereunder to the insured) whether arising out of actions, representations, errors, omissions, negligence, or fraud of any Borrower, the related Mortgagor or any party involved in the application for such coverage, including the appraisal, plans and specifications and other exhibits or documents submitted therewith to the insurer under such insurance policy, or for any other reason under such coverage, but not including the failure of such insurer to pay by reason of such insurer's breach of such insurance policy or such insurer's financial inability to pay.

        (nn)    Capitalization of Interest.    The Mortgage Note does not by its terms provide for the capitalization or forbearance of interest.

        (oo)    No Equity Participation.    No document relating to the Mortgage Loan provides for any contingent or additional interest in the form of participation in the cash flow of the Mortgaged

Schedule 1-7

Property or a sharing in the appreciation of the value of the Mortgaged Property. The indebtedness evidenced by the Mortgage Note is not convertible to an ownership interest in the Mortgaged Property or the Mortgagor and no Borrower has financed nor does it own directly or indirectly, any equity of any form in the Mortgaged Property or the Mortgagor.

        (pp)    Withdrawn Mortgage Loans.    If the Mortgage Loan has been released to any Borrower pursuant to a Request for Release as permitted under Section 5 of the Custodial Agreement, then the promissory note relating to the Mortgage Loan was returned to the Custodian within 10 days (or if such tenth day was not a Business Day, the next succeeding Business Day).

        (qq)    Origination Date.    The Origination Date is no earlier than twelve months prior to the date the Mortgage Loan is first included in the Borrowing Base.

        (rr)    No Exception.    The Custodian has not noted any material exceptions on an Exception Report (as defined in the Custodial Agreement) with respect to the Mortgage Loan which would materially adversely affect the Mortgage Loan or the Lender's security interest, granted by the Borrowers, in the Mortgage Loan.

        (ss)    Mortgage Submitted for Recordation.    The Mortgage either has been or will promptly be submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located.

        (tt)    Riegle Act.    The Mortgage Loans is not classified as a "high cost" loan under the Home Ownership and Equity Protection Act of 1994 and is not subject to the provisions of Section 226.32 of the Federal Reserve Board Regulation Z.

        (uu)    Origination.    Each Mortgage Loan was originated by or purchased by a Borrower.

        Part 2.    Defined Terms

        In addition to terms defined elsewhere in the Loan Agreement, the following terms shall have the following meanings when used in this Schedule 1:

        "Acceptable State" shall mean any state notified by the Borrowers to the Lender from time to time and approved in writing by the Lender, which approval has not been revoked by the Lender in their sole discretion, any such notice of revocation to be given no later than 10 Business Days prior to its intended effective date.

        "Accepted Servicing Practices" shall mean, with respect to any Mortgage Loan, those mortgage servicing practices of prudent mortgage lending institutions which service mortgage loans of the same type as such Mortgage Loans in the jurisdiction where the related Mortgaged Property is located.

        "ALTA" means the American Land Title Association.

        "Appraised Value" shall mean the value set forth in an appraisal made in connection with the origination of the related Mortgage Loan as the value of the Mortgaged Property.

        "Best's" means Best's Key Rating Guide, as the same shall be amended from time to time.

        "Due Date" means the day of the month on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace.

        "Escrow Payments" means with respect to any Mortgage Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, fire and hazard insurance premiums, condominium charges, and any other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.

        "Fannie Mae" means the Federal National Mortgage Association, or any successor thereto.

Schedule 1-8

        "Freddie Mac" means the Federal Home Loan Mortgage Corporation, or any successor thereto.

        "Gross Margin" means with respect to each adjustable rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note.

        "Index" means with respect to each adjustable rate Mortgage Loan, the index set forth in the related Mortgage Note for the purpose of calculating the interest rate thereon.

        "Insurance Proceeds" means with respect to each Mortgage Loan, proceeds of insurance policies insuring the Mortgage Loan or the related Mortgaged Property.

        "Interest Rate Adjustment Date" means with respect to each adjustable rate Mortgage Loan, the date, specified in the related Mortgage Note and the Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.

        "Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage Loan, the ratio of the original outstanding principal amount of the Mortgage Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at origination or (b) in the case of a purchase money mortgage loan, the purchase price of the Mortgaged Property.

        "Monthly Payment" means the scheduled monthly payment of principal and interest on a Mortgage Loan as adjusted in accordance with changes in the Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an adjustable rate Mortgage Loan.

        "Mortgage Interest Rate" means the annual rate of interest borne on a Mortgage Note, which shall be adjusted from time to time with respect to adjustable rate Mortgage Loans.

        "Mortgage Interest Rate Cap" means with respect to an adjustable rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set forth in the related Mortgage Note.

        "Mortgagee" means the relevant Borrower or any subsequent holder of a Mortgage Loan.

        "Origination Date" shall mean, with respect to each Mortgage Loan, the date of the Mortgage Note relating to such Mortgage Loan, unless such information is not provided by the relevant Borrower with respect to such Mortgage Loan, in which case the Origination Date shall be deemed to be the date that is 40 days prior to the date of the first payment under the Mortgage Note relating to such Mortgage Loan.

        "PMI Policy" or "Primary Insurance Policy" means a policy of primary mortgage guaranty insurance issued by a Qualified Insurer.

        "Qualified Insurer" means an insurance company duly qualified as such under the laws of the states in which the Mortgaged Property is located, duly authorized and licensed in such states to transact the applicable insurance business and to write the insurance provided, and approved as an insurer by Fannie Mae and Freddie Mac and whose claims paying ability is rated in the two highest rating categories by any of the rating agencies with respect to primary mortgage insurance and in the two highest rating categories by Best's with respect to hazard and flood insurance.

        "Servicing File" means with respect to each Mortgage Loan, the file retained by the Borrowers consisting of originals of all documents in the Mortgage File which are not delivered to a Custodian and copies of the Mortgage Loan Documents set forth in Section 2 of the Custodial Agreement.

Schedule 1-9

Schedule 2
FILING JURISDICTIONS AND OFFICES
Secretary of State, California

Schedule 2-1

Schedule 3
CAPITALIZATION

Schedule 3-1

Schedule 4
SERVICING FIELDS

•

Loan ID



•

Name



•

Paid To Date



•

Current Balance



•

P&I



•

Rate

Schedule 4-1

Schedule 5
Trade Names

Aames Capital Corporation:	Aames Home Loan
Aames Funding Corporation:	The Center for Loan Servicing Wilshire Reconveyance, Inc. Aames Mortgage, Inc.

Schedule 5-1

EXHIBIT A
FORM OF AMENDED AND RESTATED PROMISSORY NOTE

$300,000,000 November 16, 2001
New York, New York

        FOR VALUE RECEIVED, AAMES CAPITAL CORPORATION, a California corporation ("Aames Capital") and AAMES FUNDING CORPORATION, a California corporation ("Aames Funding", and together with Aames Capital, each a "Borrower", collectively the "Borrowers"), hereby promise to pay, jointly and severally, to the order of MORGAN STANLEY DEAN WITTER MORTGAGE CAPITAL INC. (the "Lender"), at the principal office of the Lender at 1585 Broadway, New York, New York, 10036, in lawful money of the United States, and in immediately available funds, the principal sum of THREE HUNDRED MILLION DOLLARS ($300,000,000) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Lender to the Borrowers under the Loan Agreement), on the dates and in the principal amounts provided in the Loan Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Loan Agreement.

        The date, amount and interest rate of each Loan made by the Lender to the Borrowers, nd each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof; provided, that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrowers to make a payment when due of any amount owing under the Loan Agreement or hereunder in respect of the Loans made by the Lender.

        This Note is the Note referred to in the Master Loan and Security Agreement, dated as of November 15, 2001 (as amended, supplemented or otherwise modified and in effect from time to time, the "Loan Agreement") among the Borrowers and the Lender, and evidences Loans made by the Lender thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Loan Agreement.

        The Borrowers agree, jointly and severally, to pay all the Lender's costs of collection and enforcement (including reasonable attorneys' fees and disbursements of Lender's counsel) in respect of this Note when incurred, including, without limitation, reasonable attorneys' fees through appellate proceedings.

        Notwithstanding the pledge of the Collateral, each Borrower hereby acknowledges, admits and agrees that the Borrowers' obligations under this Note are recourse obligations of the Borrowers to which each Borrower pledges its full faith and credit.

        Each Borrower, and any endorsers or guarantors hereof, (a) severally waive diligence, presentment, protest and demand and also notice of protest, demand, dishonor and nonpayments of this Note, (b) expressly agree that this Note, or any payment hereunder, may be extended from time to time, and consent to the acceptance of further Collateral, the release of any Collateral for this Note, the release of any party primarily or secondarily liable hereon, and (c) expressly agree that it will not be necessary for the Lender, in order to enforce payment of this Note, to first institute or exhaust the Lender's remedies against the Borrowers or any other party liable hereon or against any Collateral for this Note. No extension of time for the payment of this Note, or any installment hereof, made by agreement by the Lender with any person now or hereafter liable for the payment of this Note, shall affect the liability under this Note of any Borrower, even if such Borrower is not a party to such agreement; provided, however, that the Lender and each Borrower, by written agreement between them, may affect the liability of such Borrower.

A-1

        This Amended and Restated Promissory Note amends and restates in its entirety the Promissory Note dated October 29, 1999 (the "Existing Promissory Note") and is given as a continuation, rearrangement and extension, and not a novation, release or satisfaction, of the Existing Promissory Note. Aames Capital hereby acknowledges and agrees that simultaneously with the Borrowers' execution and delivery of this Amended and Restated Promissory Note to the Lender, the Lender has delivered to Aames Capital the Existing Promissory Note.

        Any reference herein to the Lender shall be deemed to include and apply to every subsequent holder of this Note. Reference is made to the Loan Agreement for provisions concerning optional and mandatory prepayments, Collateral, acceleration and other material terms affecting this Note.

        Each Borrower hereby acknowledges and agrees that such Borrower shall be jointly and severally liable to the maximum extent permitted by applicable law for all representations, warranties, covenants, obligations and indemnities of the Borrowers under the Loan Documents.

This Note shall be governed by and construed under the laws of the State of New York (without reference to choice of law doctrine) whose laws each Borrower expressly elects to apply to this Note. Each Borrower agrees that any action or proceeding brought to enforce or arising out of this Note may be commenced in the Supreme Court of the State of New York, Borough of Manhattan, or in the District Court of the United States for the Southern District of New York.

AAMES CAPITAL CORPORATION
By:
	Name: Title:
AAMES FUNDING CORPORATION
By:
	Name: Title:

A-2

SCHEDULE OF LOANS

        This Note evidences Loans made under the within-described Loan Agreement to the Borrowers, on the dates, in the principal amounts and bearing interest at the rates set forth below, and subject to the payments and prepayments of principal set forth below:

Date Made
Principal Amount
of Loan Interest
Rate Amount Paid
or Prepaid Unpaid Principal
Amount Notation
Made by

A-3

EXHIBIT B
CUSTODIAL AGREEMENT

[STORED AS A SEPARATE DOCUMENT]

B-1

EXHIBIT C
FORM OF OPINION OF COUNSEL TO BORROWERS
(date)

Morgan Stanley Dean Witter Mortgage Capital Inc.
1585 Broadway
New York, New York 10036

Dear Sirs and Mesdames:

        You have requested our opinion, as counsel to Aames Capital Corporation, a California corporation (the "Borrower"), with respect to certain matters in connection with that certain Amended and Restated Master Loan and Security Agreement, dated November 16, 2001 (the "Loan and Security Agreement"), by and between the Borrower and Morgan Stanley Dean Witter Mortgage Capital Inc. (the "Lender"), being executed contemporaneously with an Amended and Restated Promissory Note, dated November 16, 2001, from the Borrower to the Lender (the "Note"), a Custodial Agreement, dated as of October 29, 1999 (the "Custodial Agreement"), by and among the Borrower, Bankers Trust Company (the "Custodian"), and the Lender. Capitalized terms not otherwise defined herein have the meanings set forth in the Loan and Security Agreement.

        We have examined the following documents:

1.

the Loan and Security Agreement;



2.

the Note;



3.

the Custodial Agreement;



4.

such other documents, records and papers as we have deemed necessary and relevant as a basis for this opinion.

        To the extent we have deemed necessary and proper, we have relied upon the representations and warranties of the Borrower contained in the Loan and Security Agreement. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents submitted to us as originals.

        Based upon the foregoing, it is our opinion that:

        1.    The Borrower is a California corporation duly organized, validly existing and in good standing under the laws of California and is qualified to transact business in, and is in good standing under, the laws of the California.

        2.    The Borrower has the corporate power to engage in the transactions contemplated by the Loan and Security Agreement, the Note, and the Custodial Agreement and all requisite corporate power, authority and legal right to execute and deliver the Loan and Security Agreement, the Note, and the Custodial Agreement and observe the terms and conditions of such instruments. The Borrower has all requisite corporate power to borrow under the Loan and Security Agreement and to grant a security interest in the Collateral under the Loan and Security Agreement.

        3.    The execution, delivery and performance by the Borrower of the Loan and Security Agreement, the Note, and the Custodial Agreement, and the borrowings by the Borrower and the pledge of the Collateral under the Loan and Security Agreement have been duly authorized by all necessary corporate action on the part of the Borrower. Each of the Loan and Security Agreement, the Note and the Custodial Agreement have been executed and delivered by the Borrower and are legal, valid and binding agreements enforceable in accordance with their respective terms against the Borrower, subject to bankruptcy laws and other similar laws of general application affecting rights of creditors and subject to the application of the rules of equity, including those respecting the availability

C-1

of specific performance, none of which will materially interfere with the realization of the benefits provided thereunder or with the Lender's security interest in the Collateral.

        4.    No consent, approval, authorization or order of, and no filing or registration with, any court or governmental agency or regulatory body is required on the part of the Borrower for the execution, delivery or performance by the Borrower of the Loan and Security Agreement, the Note and the Custodial Agreement or for the borrowings by the Borrower under the Loan and Security Agreement or the granting of a security interest to the Lender in the Collateral, under the Loan and Security Agreement.

        5.    The execution, delivery and performance by the Borrower of, and the consummation of the transactions contemplated by, the Loan and Security Agreement, the Note and the Custodial Agreement do not and will not (a) violate any provision of the Borrower's charter or by-laws, (b) violate any applicable law, rule or regulation, (c) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to the Borrower of which I have knowledge (after due inquiry) or (d) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument of which we have knowledge (after due inquiry) to which the Borrower is a party or by which it is bound or to which it is subject, or (except for the Liens created pursuant to the Loan and Security Agreement) result in the creation or imposition of any Lien upon any Property of the Borrower pursuant to the terms of any such agreement or instrument.

        6.    There is no action, suit, proceeding or investigation pending or, to the best of our knowledge, threatened against the Borrower which, in our judgment, either in any one instance or in the aggregate, would be reasonably likely to result in any material adverse change in the properties, business or financial condition, or prospects of the Borrower or in any material impairment of the right or ability of the Borrower to carry on its business substantially as now conducted or in any material liability on the part of the Borrower or which would draw into question the validity of the Loan and Security Agreement, the Note, the Custodial Agreement or the Mortgage Loans or of any action taken or to be taken in connection with the transactions contemplated thereby, or which would be reasonably likely to impair materially the ability of the Borrower to perform under the terms of the Loan and Security Agreement, the Note, the Custodial Agreement or the Mortgage Loans.

        7.    The Loan and Security Agreement is effective to create, in favor of the Lender, a valid security interest under the Uniform Commercial Code in all of the right, title and interest of the Borrower in, to and under the Collateral (and in any security interest, mortgage or other lien that secures the Collateral) as collateral security for the payment of the Secured Obligations (as defined in the Loan and Security Agreement), except that (a) such security interests will continue in Collateral after its sale, exchange or other disposition only to the extent provided in Section 9-315 of the Uniform Commercial Code, and (b) the security interests in Collateral in which the Borrower acquires rights after the commencement of a case under the Bankruptcy Code in respect of the Borrower may be limited by Section 552 of the Bankruptcy Code.

        8.    When (i) the Mortgage Notes are delivered to the Custodian, endorsed in blank by a duly authorized officer of the Borrower, and (ii) the Custodian has issued a Trust Receipt therefor, the security interest referred to in paragraph 7 above in the Mortgage Notes (and in any security interest, mortgage or other lien that secures the Collateral) will constitute a fully perfected first priority security interest in all right, title and interest of the Borrower therein, in the Mortgage Loan evidenced thereby and in the Borrower's interest in the related Mortgaged Property.

        9.    Based upon the filing of the financing statement on Form UCC-1 naming the Lender as "Secured Party" and the Borrower as "Debtor", and describing the Collateral, previously filed in the jurisdiction and recording office listed on Schedule 1 attached hereto the security interests referred to in paragraph 7 above continue to constitute fully perfected security interests under the Uniform

C-2

Commercial Code in all right, title and interest of the Borrower in, to and under such Collateral, which can be perfected by filing under the Uniform Commercial Code.

        10.  The Assignments of Mortgage are in recordable form, except for the insertion of the name of the assignee, and upon the name of the assignee being inserted, are acceptable for recording under the laws of the state where each related Mortgaged Property is located.

        11.  The Borrower is not an "investment company", or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.

Very truly yours,

C-3

EXHIBIT D
FORM OF REQUEST FOR BORROWING

        Amended and Restated Master Loan and Security Agreement, dated as of November 16, 2001 (the "Loan and Security Agreement"), by and between the Borrowers and Morgan Stanley Dean Witter Mortgage Capital Inc. (the "Lender"),

Lender:	Morgan Stanley Dean Witter Mortgage Capital Inc.
Borrowers:	Aames Capital Corporation Aames Funding Corporation

Requested Funding Date:    _____

Transmission Date:    _____

Transmission Time:

Number of Mortgage
Loans to be Pledged:

UPB: $_____

Requested Wire Amount: $_____

Wire Instructions:

The Borrowers hereby certify, as of the requested Funding Date, that:

        a)    no Default or Event of Default has occurred and is continuing on the date hereof nor will occur after giving effect to such Loan as a result of such Loan;

        b)    each of the representations and warranties made by the Borrowers in or pursuant to the Loan Documents is true and correct in all material respects on and as of such date (in the case of the representations and warranties in respect of Mortgage Loans, solely with respect to Mortgage Loans being included the Borrowing Base on such Funding Date) as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and

        c)    each Borrower is in compliance with all governmental licenses and authorizations and is qualified to do business and in good standing in all required jurisdictions.

Requested and Certified by: AAMES CAPITAL CORPORATION
By:
	Name: Title:
AAMES FUNDING CORPORATION
By:
	Name: Title:

D-1

EXHIBIT E-1
FORM OF BORROWER'S RELEASE LETTER
(Date)

Morgan Stanley Dean Witter Mortgage Capital Inc.
1585 Broadway
New York, New York 10036

Attention:  __________

Facsimile:  __________

Re: Amended and Restated Master Loan and Security Agreement, dated as of November 16, 2001 (the "Loan and Security Agreement"), by and between Aames Capital Corporation ("Aames Capital"), Aames Funding Corporation "Aames Funding" and together with Aames Capital, each a "Borrower", collectively, the "Borrowers") and Morgan Stanley Dean Witter Mortgage Capital Inc. (the "Lender")

Ladies and Gentlemen:

        With respect to the mortgage loans described in the attached Schedule A (the "Mortgage Loans") we hereby certify to you that the Mortgage Loans are not subject to a lien of any third party and (b) we hereby release all right, interest or claim of any kind with respect to such Mortgage Loans, such release to be effective automatically without further action by any party upon payment from Morgan Stanley Dean Witter Mortgage Capital Inc., of the amount of the Loan contemplated under the Loan and Security Agreement (calculated in accordance with the terms thereof) in accordance with the wiring instructions set forth in the Loan and Security Agreement.

Very truly yours,
AAMES CAPITAL CORPORATION
By:
	Name: Title:
AAMES FUNDING CORPORATION
By:
	Name: Title:

E-1-1

EXHIBIT E-2
FORM OF WAREHOUSE LENDER'S RELEASE LETTER
(Date)

Morgan Stanley Dean Witter Mortgage Capital Inc.
1585 Broadway
New York, New York 10036

Attention:  __________

Facsimile:  __________

Re: Certain Mortgage Loans Identified on Schedule A hereto and owned by Aames Capital Corporation

        The undersigned hereby releases all right, interest, lien or claim of any kind with respect to the mortgage loan(s) described in the attached Schedule A, such release to be effective automatically without any further action by any party upon payment in one or more installments, in immediately available funds of $                  , in accordance with the following wire instructions:

Very truly yours,
[WAREHOUSE LENDER]
By:
	Name: Title:

E-2-1

EXHIBIT F
UNDERWRITING GUIDELINES

[ATTACHED AS A SEPARATE TAB]

F-1

EXHIBIT G
FORM OF SERVICER NOTICE

________ ___, 200___
[SERVICER], as Servicer
[ADDRESS]

Attention: __________

Re: Amended and Restated Master Loan and Security Agreement, dated as of November 16, 2001 (the "Loan and Security Agreement"), by and between Aames Capital Corporation ("Aames Capital"), Aames Funding Corporation ("Aames Funding" and together with Aames Capital, each a "Borrower", collectively the "Borrowers") and Morgan Stanley Dean Witter Mortgage Capital Inc. (the "Lender").

Ladies and Gentlemen:

        [SERVICER] (the "Servicer") is servicing certain mortgage loans for the Borrowers pursuant to certain Servicing Agreements between the Servicer and the Borrowers. Pursuant to the Loan Agreement between the Lender and the Borrowers, the Servicer is hereby notified that the Borrowers have granted a security interest to the Lender in certain mortgage loans which are serviced by Servicer.

        Upon receipt of a Notice of Event of Default from the Lender in which the Lender shall identify the mortgage loans which are then pledged to the Lender under the Loan Agreement (the "Mortgage Loans"), the Servicer shall segregate all amounts collected on account of such Mortgage Loans, hold them in trust for the sole and exclusive benefit of the Lender, and remit such collections in accordance with the Lender's written instructions. Following such Notice of Event of Default, Servicer shall follow the instructions of Lender with respect to the Mortgage Loans, and shall deliver to Lender any information with respect to the Mortgage Loans reasonably requested by Lender.

        Notwithstanding any contrary information or direction which may be delivered to the Servicer by the Borrowers, the Servicer may conclusively rely on any information, direction or notice of an Event of Default delivered by the Lender, and the Borrowers shall indemnify and hold the Servicer harmless for any and all claims asserted against the Servicer for any actions taken in good faith by the Servicer in connection with the delivery of such information or Notice of Event of Default.

        No provision of this letter may be amended, countermanded or modified without the prior written consent of the Lender. The Lender is an intended third party beneficiary of this letter.

        Please acknowledge receipt and your agreement to the terms of this instruction letter by signing in the signature block below and forwarding an executed copy to the Lender promptly upon receipt. Any notices to the Lender should be delivered to the following address: 1585 Broadway, New York, New

G-1

York 10036; Attention: Mr. Andrew Neuberger, with a copy to Mr. Greg Walker; Telephone: (212) 761-2144; Facsimile: (212) 761-0747.

Very truly yours,
AAMES CAPITAL CORPORATION
By:
	Name: Title:
AAMES FUNDING CORPORATION
By:
	Name: Title:

ACKNOWLEDGED:
as Servicer
By:
	Title: Telephone: Facsimile:

G-2

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Exhibit 10.31(a)

TABLE OF CONTENTS
AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT
Schedule 2 FILING JURISDICTIONS AND OFFICES Secretary of State, California
Schedule 3 CAPITALIZATION
Schedule 4 SERVICING FIELDS
Schedule 5 Trade Names
EXHIBIT A FORM OF AMENDED AND RESTATED PROMISSORY NOTE
SCHEDULE OF LOANS
EXHIBIT B CUSTODIAL AGREEMENT
EXHIBIT C FORM OF OPINION OF COUNSEL TO BORROWERS (date)
EXHIBIT D FORM OF REQUEST FOR BORROWING
EXHIBIT E–1 FORM OF BORROWER'S RELEASE LETTER
EXHIBIT E–2 FORM OF WAREHOUSE LENDER'S RELEASE LETTER
EXHIBIT F UNDERWRITING GUIDELINES
EXHIBIT G FORM OF SERVICER NOTICE

EX-10.32(C)

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EXHIBIT 10.32(c)

THIRD AMENDMENT TO MASTER REPURCHASE AGREEMENT
GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS

        This Amendment, dated as of July 31, 2002 (the "Amendment"), to the Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans, dated as of December 1, 2000, as amended by each of the First Amendment and the Second Amendment to the Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans, dated as of June 21, 2001 (as amended, the "Agreement"), is made by and between LEHMAN BROTHERS BANK, FSB ("Buyer") and AAMES CAPITAL CORPORATION ("Seller" and, together with the Buyer, the "Parties").

RECITALS

        WHEREAS, the Seller and the Buyer are parties to the Agreement, pursuant to which the Buyer has agreed, subject to the terms and conditions set forth in the Agreement, to purchase certain Mortgage Loans owned by the Seller, including, without limitation, all rights of Seller to service and administer such Mortgage Loans. Terms used but not defined herein shall have the respective meanings ascribed to such terms in the Agreement, as amended hereby.

        WHEREAS, the Parties wish to amend the Agreement to modify certain of the terms and conditions governing the purchase and sale of the Mortgage Loans.

        NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

Section 1.Amendment.

        1.1  In connection with the Agreement, the Parties agree that the Agreement shall not terminate on July 31, 2002 and shall be extended until July 30, 2003 as provided below; provided that all provisions hereof (other than such extension of the term) shall not be effective until on and after July 2, 2002.

        1.2  The definitions of "Final Repurchase Date", "Pricing Spread" and "Purchase Price" in Section 2 of the Agreement are hereby deleted in their entirety and replaced with the following:

"Final Repurchase Date" means July 30, 2003 or such earlier date on which all Purchased Mortgage Loans are required to be immediately repurchased pursuant to Section 14(a).

"Pricing Spread" means the rate specified in the Confirmation, which shall be equal to (i) on each date prior to the delivery to the Custodian of the complete Mortgage Files with respect to the related Purchased Mortgage Loans, 1.50% and (ii) on each date on and after the delivery to the Custodian of such Mortgage Files, 1.00%.

"Purchase Price" means on each Purchase Date, the price at which Purchased Mortgage Loans are transferred by Seller to Buyer or its designee (including the Custodian) which shall be equal to, with respect to each Purchased Mortgage Loan that is not a Wet Ink Mortgage Loan, the lowest of (x) 95.5% of the Market Value of such Purchased Mortgage Loan as determined by the Buyer in its sole discretion, (y) 97.0% of the Securitization Value of such Purchased Mortgage Loan as determined by the Buyer in its sole discretion and (z) 98.5% (or, with respect to any Purchased Loan which is a Wet Ink Mortgage Loan, 97.0%) of the outstanding principal amount of such Purchased Mortgage Loan.

        1.3  In Section 3(f) of the Agreement, the reference in the third line to "$200,000,000" is hereby deleted and replaced with "$300,000,000".

        1.4  In Section 13(a) of the Agreement, clauses (xiii), (xix), (xx) and (xxi) are hereby deleted in their entirety and replaced with the following:

        (xiii)Tangible Net Worth of the Seller shall be less than $315,000,000;

        (xix) the aggregate amount of the Seller's cash, Cash Equivalents and available borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse facilities, on a consolidated basis and on any given day, shall be less than $5,000,000 at any time;

        (xx) Seller and its Affiliates shall at any time cease or fail to have warehouse facilities with other lenders or buyers (other than the Buyer pursuant to the Agreement) in an amount equal to or greater than $600,000,000; or

        (xxi) for any two consecutive fiscal quarters of Guarantor after the date of this Agreement, Guarantor and its subsidiaries shall incur a loss on a consolidated basis in accordance with GAAP.

        1.5  In Exhibit V of the Agreement, the representations and warranties in paragraphs (o) and (zz) are hereby deleted in their entirety and replaced with the following:

(o)    Loan-to-Value Ratio. The Mortgage Loans subject to Transactions do not have a weighted average cumulative Loan-to-Value Ratio in excess of 85%. If a Mortgage Loan has a Loan-to-Value Ratio greater than 90% and less than or equal to 100%, the Purchase Price of such Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans secured by a first or a second lien on the related Mortgaged Properties subject to then outstanding Transactions having a Loan-to-Value Ratio greater than 90% and less than or equal to 100% does not, in either case, exceed the greater of (x) 3% of the aggregate Purchase Price for all Mortgage Loans which are subject to then outstanding Transactions and (y) $10,000,000. For purposes of this paragraph, the Loan-to-Value Ratio for A-MI loans is reduced by the amount of coverage of Mortgage Insurance.

(zz)    Wet Ink Mortgage Loans. The Purchase Price of a Wet Ink Mortgage Loan together with the Purchase Price of Purchased Mortgage Loans which are Wet Ink Mortgage Loans does not exceed, during the period beginning on the third from last Business Day of each calendar month, through and including the seventh Business Day of next succeeding calendar month, $80,000,000 and, at all other times, $50,000,000; provided that such amounts referred to above in this clause (zz) shall be reduced to $50,000,000 and $35,000,000, respectively, in the event that the Guarantor has cash, Cash Equivalents and unused borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities in an amount less than either (a) $20,000,000, or (b) $17,500,000 in the event that Seller has unused committed sale capacity on unencumbered assets that could be sold under the Capital Z Residual Sale Agreement in an amount equal to not less than $10,000,000.

        1.6  The following new definitions are hereby inserted in Section 2 of the Agreement in their appropriate alphabetical location:

"Capital Z Residual Sale Agreement" shall mean that certain Residual Sale Agreement, dated August 31, 2000, between Aames Capital Corporation and Capital Z Investments, L.P., as amended, supplemented, restated or modified from time to time.

"Cash Equivalents" shall mean (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial

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bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's") and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

        1.7  In Exhibit V of the Agreement, the following new representation and warranty is hereby inserted in its appropriate alphabetical location:

(bbb)

Mortgage Loans Purchased Through Clean-up Calls of Affiliate Securitizations. The Purchase Price of Mortgage Loans subject to Transactions purchased by the Seller through clean-up calls of securitizations of Affiliates of the Seller which Mortgage Loans are Delinquent for 29 or fewer days does not exceed $20,000,000. No Mortgage Loans subject to Transactions purchased by the Seller through clean-up calls of securitizations of Affiliates of the Seller are Delinquent for 30 or more days.

        Seller acknowledges and agrees that in determining the Market Value of any Mortgage Loans subject to Transactions which were purchased by the Seller through clean-up calls of securitizations of Affiliates of the Seller, the Buyer may in its sole and absolute discretion determine the Market Value of such Mortgage Loans separate and apart from the Market Value of any other Mortgage Loans.

        1.8  The following new affirmative covenants labeled clauses (o) and (p) are hereby inserted in Section 12 of the Agreement in their appropriate alphabetical location:

(o)    In the event that the Seller or any of its Affiliates enters into a warehouse facility or other funding vehicle with any other Person (including, without limitation, a transaction with a new counterparty or a renewal of an existing relationship) that is structured utilizing a "true sale" of mortgage loans to a bankruptcy-remote non-consolidated special purpose entity ("SPE"), Buyer shall have the right to restructure the Agreement and replace the Agreement with a facility structured through an SPE.

(p)    Seller and its Affiliates shall not amend any other warehouse financing agreements (including, but not limited to, credit agreements or repurchase agreements) with other lenders or buyers without the prior written approval of Buyer which approval shall not be unreasonably withheld, so long as the Seller provides to the Buyer the opportunity to amend this Agreement to incorporate similar terms.

Section 2.Covenants, Representations and Warranties of the Parties.

        2.1  Except as expressly amended by Section 1 hereof, the Agreement remains unaltered and in full force and effect. Each of the Parties hereby reaffirms all terms and covenants made in the Agreement as amended hereby.

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        2.2  Each of the Parties hereby represents and warrants to the other that (a) this Amendment constitutes the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, and (b) the execution and delivery by such Party of this Amendment has been duly authorized by all requisite corporate action on the part of such Party and will not violate any provision of the organizational documents of such Party.

Section 3.Effect upon the Agreement.

        3.1  Except as specifically set forth herein, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. All references to the "Agreement" in the Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans shall mean and refer to the Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans as modified and amended hereby.

        3.2  The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Party under the Agreement, or any other document, instrument or agreement executed and/or delivered in connection therewith.

Section 4.Governing Law.

        THIS AMENDMENT SHALL BE CONSTRUED, INTERPRETED AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.

Section 5.Counterparts.

        This Amendment may be executed in any number of counterparts, and all such counterparts shall together constitute the same agreement.

        [SIGNATURE PAGE FOLLOWS]

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        IN WITNESS WHEREOF, the Parties hereto have caused this Amendment to be executed as of the day and year first above written.

SELLER:
AAMES CAPITAL CORPORATION, as Seller
By:
	Name:	Jon Van Deuren
	Title:	Senior Vice President
BUYER:
LEHMAN BROTHERS BANK, FSB, as Buyer
By:
	Name:
	Title:

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EXHIBIT 10.32(c)

THIRD AMENDMENT TO MASTER REPURCHASE AGREEMENT GOVERNING PURCHASES AND SALES OF MORTGAGE LOANS

EX-10.32(D)

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EXHIBIT 10.32(d)

GUARANTY

        This GUARANTY, dated as of December 1, 2000, is made by AAMES FINANCIAL CORPORATION, a corporation organized under the laws of the State of Delaware ("Guarantor"), in favor of Lehman Brothers Bank, FSB, a corporation organized under the laws of the State of New York ("Lehman").

        As an inducement to and in consideration for Lehman to enter into the Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans dated as of the date hereof (the "Repurchase Agreement") between Lehman and Aames Capital Corporation, a wholly-owned subsidiary of the Guarantor ("Aames"), the Guarantor hereby unconditionally and irrevocably guarantees the punctual payment and performance when due, whether at stated maturity, by acceleration or otherwise, of all obligations of Aames now or hereafter existing under the Repurchase Agreement (such obligations being the "Obligations"), and agree to pay any and all expenses incurred by Lehman in enforcing any rights under this Guaranty. This Guaranty is a guaranty of payment and not of collection. Lehman shall not be required to exhaust any right to remedy or take any action against Aames, any guarantor, any other person, any collateral or any credit support.

        The Guarantor guarantees that the Obligations will be paid or performed strictly in accordance with their terms. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of any defense whatsoever available to Aames or a guarantor, including but not limited to the following: (a) any lack of validity or enforceability or any Obligation or any agreement or instrument related thereto; (b) any change in the time, manner or place of payment or performance of, or in any term of, all or any of the Obligations, or any other amendment or waiver of or any consent to the departure from any Obligation or any agreement or instrument related thereto; (c) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Obligations; or (d) any law, regulation or order of any jurisdiction affecting or purporting to affect any terms of any Obligation or of any agreement or instrument relating thereto or any of Lehman's rights with respect thereto (including, without limitation, any stay imposed by the Federal bankruptcy laws).

        This Guaranty is a continuing guaranty and shall remain in full force and effect until the Obligations have been paid in full.

        The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations or this Guaranty. This Guaranty shall continue to be effective or be reinstated, as the case may be, if any payment of any of the Obligations is rescinded or must otherwise be returned by Lehman upon the insolvency, bankruptcy or reorganization of Aames or otherwise, all as though such payment had not been made.

        The Guarantor will not exercise any rights which it may acquire by way of subrogation under this Guaranty, by any payment made hereunder or otherwise, until all the Obligations shall have been paid in full. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all the Obligations shall not have been paid in full, such amount shall be held in trust for the benefit of Lehman and shall forthwith be paid to Lehman to be applied to the Obligations, whether matured or unmatured, in accordance with the terms of such Obligations and any related agreement or instrument.

        Any and all payments made by the Guarantor hereunder shall be made free and clear of and without deduction from any and all present and future taxes, levies, deductions, charges or withholdings and all liabilities with respect thereof, excluding taxes imposed on Lehman's income and franchise taxes imposed on Lehman by the jurisdiction under which Lehman is organized.

        All notices hereunder shall be in writing and sent or delivered:

if to Lehman:

c/o Lehman Brothers Bank, FSB
3 World Financial Center
New York, New York 10285
Attention: Fred Madonna and Steven Becker

if to the Guarantor:

350 South Grand Avenue
Los Angeles, California 90071
Attention: Chief Financial Officer/General Counsel

or to either party at such other address(es) as may be specified in a written notice given in accordance herewith.

        This Guaranty shall be binding upon the Guarantor, its successors and assigns, and shall inure to the benefit of and be enforceable by Lehman and its successors, transferees and assigns.

THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (OTHER THAN CONFLICTS LAWS) OF THE STATE OF NEW YORK.

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        IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its duly authorized officers as of the date first above written.

AAMES FINANCIAL CORPORATION
By:	/s/  JON D. VAN DEUREN Name:  Jon D. Van Deuren Title:    Senior Vice President

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EXHIBIT 10.32(d)

GUARANTY

EX-10.33(A)

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EXHIBIT 10.33(a)

WAREHOUSE LOAN AND SECURITY AGREEMENT

Dated as of February 10, 2000, as Amended
and Restated to and including March 21, 2002

AAMES CAPITAL CORPORATION
as a Borrower

and

AAMES FUNDING CORPORATION
as a Borrower

and

GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
as Lender

TABLE OF CONTENTS

			Page
Section 1.		Definitions and Accounting Matters	1
	1.01	Certain Defined Terms	1
	1.02	Accounting Terms and Determinations	15
Section 2.		Advances, Note and Prepayments	15
	2.01	Advances	15
	2.02	Notes	16
	2.03	Procedure for Borrowing	16
	2.04	Limitation on Types of Advances; Illegality	17
	2.05	Repayment of Advances; Interest	18
	2.06	Mandatory Prepayments or Pledge; Request for Release	18
	2.07	Optional Prepayments	19
	2.08	Requirements of Law	19
Section 3.		Payments; Computations; Taxes	20
	3.01	Payments	20
	3.02	Computations	20
Section 4.		Collateral Security	20
	4.01	Collateral; Security Interest	20
	4.02	Further Documentation	21
	4.03	Changes in Locations, Name, etc	22
	4.04	Lender's Appointment as Attorney-in-Fact	22
	4.05	Performance by Lender of either Borrower's Obligations	23
	4.06	Proceeds	23
	4.07	Remedies	23
	4.08	Limitation on Duties Regarding Presentation of Collateral	24
	4.09	Powers Coupled with an Interest	24
	4.10	Release of Security Interest	24
Section 5.		Conditions Precedent	25
	5.01	Initial Advance	25
	5.02	Initial and Subsequent Advances	26
Section 6.		Representations and Warranties	27
	6.01	Existence	27
	6.02	Financial Condition	28
	6.03	Litigation	28
	6.04	No Breach	28
	6.05	Action	28
	6.06	Approvals	28
	6.07	Margin Regulations	29
	6.08	Taxes	29
	6.09	Investment Company Act	29
	6.10	No Legal Bar	29
	6.11	No Default	29
	6.12	Collateral; Collateral Security	29
	6.13	Chief Executive Office; Chief Operating Office	30
	6.14	Location of Books and Records	30
	6.15	True and Complete Disclosure	30

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	6.16	Tangible Net Worth; Liquidity	30
	6.17	ERISA	30
	6.18	Licenses	30
	6.19	Relevant States	30
	6.20	True Sales	30
	6.21	No Burdensome Restrictions	30
	6.22	Subsidiaries	31
	6.23	Origination and Acquisition of Mortgage Loans	31
	6.24	No Adverse Selection	31
	6.25	Borrowers Solvent; Fraudulent Conveyance	31
	6.26	Insured Closing Letter	31
	6.27	Escrow Letter	31
Section 7.		Covenants of the Borrowers	31
	7.01	Financial Statements	31
	7.02	Litigation	33
	7.03	Existence, Etc	33
	7.04	Prohibition of Fundamental Changes	34
	7.05	Borrowing Base Deficiency	34
	7.06	Notices	34
	7.07	Servicing	35
	7.08	Underwriting Guidelines	35
	7.09	Lines of Business	35
	7.10	Transactions with Affiliates	35
	7.11	Application of Funding	35
	7.12	Limitation on Liens	35
	7.13	Limitation on Sale of Assets	35
	7.14	Limitation on Distributions	35
	7.15	Maintenance of Liquidity	35
	7.16	Maintenance of Tangible Net Worth	36
	7.17	Committed Warehouse Facilities	36
	7.18	[Intentionally Omitted]	36
	7.19	Servicing Transmission	36
	7.20	No Amendment or Waiver	36
	7.21	Maintenance of Property; Insurance	36
	7.22	Further Identification of Collateral	36
	7.23	Mortgage Loan Determined to be Defective	36
	7.24	Interest Rate Protection Agreements	36
	7.25	Covenants of the Borrowers with respect to the Collateral	36
	7.27	Deposit of Collections	37
Section 8.		Events of Default	37
	8.02	Remedies Upon Default	40
Section 9.		No Duty on Lender's Part	41
Section 10.		Miscellaneous	41
	10.01	Waiver	41
	10.02	Notices	41
	10.03	Indemnification and Expenses	41
	10.04	Amendments	42
	10.05	Successors and Assigns	42

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10.06	Survival	42
10.07	Captions	42
10.08	Counterparts	42
10.09	Warehouse Agreement Constitutes Security Agreement; Governing Law	42
10.10	SUBMISSION TO JURISDICTION; WAIVERS	43
10.11	WAIVER OF JURY TRIAL	43
10.12	Acknowledgments	43
10.13	Hypothecation or Pledge of Collateral	43
10.14	Assignments; Participations	43
10.15	Servicing	44
10.16	Periodic Due Diligence Review	45
10.17	Set-Off	46
10.18	Intent	46
10.19	Joint and Several Liability	46

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SCHEDULES

SCHEDULE 1	Representations and Warranties re: Mortgage Loans
SCHEDULE 2	[Intentionally Omitted]
SCHEDULE 3	Filing Jurisdictions and Offices
SCHEDULE 4	Relevant States
SCHEDULE 5	Subsidiaries

EXHIBITS

EXHIBIT A	Form of Promissory Note
EXHIBIT B	[Intentionally Omitted]
EXHIBIT C	Form of Opinion of Counsel to the Borrowers
EXHIBIT D	Form of Notice of Borrowing and Pledge
EXHIBIT E	Underwriting Guidelines
EXHIBIT F	Required Fields for Servicing Transmission
EXHIBIT G	Required Fields for Mortgage Loan Data Transmission
EXHIBIT H	Form of Borrowing Base Certificate
EXHIBIT I	Form of Confidentiality Agreement
EXHIBIT J	Form of Subservicer Instruction Letter
EXHIBIT K	Form of Power of Attorney
EXHIBIT L	Form of Escrow Letter
EXHIBIT M	List of Settlement Agents

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WAREHOUSE LOAN AND SECURITY AGREEMENT

        WAREHOUSE LOAN AND SECURITY AGREEMENT, dated as of February 10, 2000, as amended and restated to and including March 21, 2002, between AAMES CAPITAL CORPORATION, a California corporation, as a Borrower, AAMES FUNDING CORPORATION, a California corporation, as a Borrower (each a "Borrower", collectively, the "Borrowers") and GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation (the "Lender").

RECITALS

        The Borrowers and the Lender have entered into a Warehouse Loan and Security Agreement dated as of February 10, 2000 as amended and restated to and including January 12, 2001 (the "Existing Agreement"), which the Borrowers and the Lender have agreed to amend and restate pursuant to this amended and restated Warehouse Agreement (as defined herein) to include all previously executed amendments to the Existing Agreement and certain additional changes reflected herein. Such amendment and restatement is desired by the parties hereto, in lieu of a further amendment hereto, to enhance the clarity and readability of this Warehouse Agreement.

        The Borrowers wish to obtain financing from time to time to provide interim funding for the origination and acquisition of certain Mortgage Loans (as defined herein).

        The Lender has agreed, subject to the terms and conditions of this Warehouse Agreement, to provide such financing to the Borrowers.

        Accordingly, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Section 1.    Definitions and Accounting Matters.

        1.01    Certain Defined Terms.    As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Warehouse Agreement in the singular to have the same meanings when used in the plural and vice versa):

"Aames Capital" shall mean Aames Capital Corporation and any permitted successors and assigns.

"Aames Funding" shall mean Aames Funding Corporation and any permitted successors and assigns.

"Accepted Servicing Practices" shall mean, with respect to any Mortgage Loan, accepted and prudent mortgage servicing practices of prudent mortgage lending institutions which service mortgage loans of the same type as such Mortgage Loans in the jurisdiction where the related Mortgaged Property is located and in a manner at least equal in quality to the servicing the Borrowers or Borrowers' designees provide to mortgage loans which they own in their own portfolio.

"Advance" shall have the meaning provided in Section 2.01 hereof.

"Affiliate" means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person, excluding any Person which would otherwise meet the definition of Affiliate with respect to the Guarantor unless such Person directly owns at least 70% of the capital stock of the Guarantor as of the Effective Date. For purposes of this definition, "control" (together with the correlative meanings of "controlled by" and "under common control with") means possession, directly or indirectly, of the power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the directors or managing general partners (or their equivalent) or such Person, or (b) to

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directly or indirectly cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract, or otherwise.

"ALTA" means the American Land Title Association.

"Applicable Collateral Percentage" shall mean (A) in the case of Mortgage Loans which are not Wet Loans, (i) for the first 180 days following the date such Eligible Mortgage Loan first becomes subject to the terms of this Warehouse Agreement, with respect to each Advance:

(a)

with respect to Eligible Mortgage Loans as to which scheduled payments of principal and interest are not more than 59 days past due, 97%;



(b)

with respect to Eligible Mortgage Loans as to which scheduled payments of principal and interest are more than 59 days past due, 85%; and

        (ii)  thereafter, 0%; and

        (B)  in the case of Wet Loans (i) for the first six Business Days following the date such Eligible Mortgage Loan first becomes subject to the terms of this Warehouse Agreement, with respect to each Advance, the lesser of (a) 100%, or (b) the percentage of par equal to the full wire amount required to originate such Wet Loan; and (ii) thereafter, 0%.

"Applicable Margin" shall mean, with respect to Advances that are Tranche A Advances, Tranche B Advances and Tranche C Advances the applicable rate per annum set forth below:

Tranche A Advances: (a) 0.95% for any date on which the aggregate outstanding amount of Tranche A Advances plus Tranche C Advances is equal to or greater than $100,000,000, and (b) otherwise, 1.50%.

Tranche B Advances: 1.50%

Tranche C Advances: 1.75%

"Appraised Value" shall mean the value set forth in an appraisal made in connection with the origination of the related Mortgage Loan as the value of the Mortgaged Property.

"Approved Title Insurance Company" shall mean a nationally recognized title insurance company or any other title insurance company approved by the Lender in its sole discretion.

"Assignment of Mortgage" shall mean, with respect to any Mortgage, an assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect the assignment and pledge of the Mortgage.

"Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as amended from time to time.

"Best's" means Best's Key Rating Guide, as the same shall be amended from time to time.

"Borrower" or "Borrowers" shall have the meaning provided in the heading hereof.

"Borrowing Base" shall mean the aggregate Collateral Value of all Collateral that has been, and remains pledged to the Lender hereunder.

"Borrowing Base Certificate" shall mean the certificate prepared by the Lender substantially in the form of Exhibit H, attached hereto.

"Borrowing Base Deficiency" shall have the meaning provided in Section 2.06 hereof.

"Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New York, the Custodian or banking

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and savings and loan institutions in the State of New York, Connecticut or California or the City of New York or the city or state in which the Custodian's offices are located are closed, or (iii) a day on which trading in securities on the New York Stock Exchange or any other major securities exchange in the United States is not conducted.

"Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Warehouse Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.

"Capital Z Residual Sale Agreement" shall mean that certain Residual Sale Agreement, dated August 31, 2000, between Aames Capital and Capital Z Investments, L.P., as amended, supplemental, restated or modified from time to time.

"Cash Equivalents" shall mean (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's") and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.

"Collateral" shall have the meaning assigned to such term in Section 4.01(b) hereof.

"Collateral Value" shall mean (a) with respect to each Wet Loan, the product of the related Applicable Collateral Percentage times the original outstanding principal balance of such Wet Loan, and (b) with respect to each Mortgage Loan which is not a Wet Loan, the lesser of (i) the product of the related Applicable Collateral Percentage times the Market Value thereof and (ii) the product of the outstanding principal balance of such Mortgage Loan times (x) 100% with respect to any Eligible Mortgage Loan as to which scheduled payments of principal and interest are not more than 59 days past due; or (y) 85% with respect to any Eligible Mortgage Loan as to which scheduled payments of principal and interest are more than 59 days past due; provided, further that, the Collateral Value shall be deemed to be zero with respect to each Mortgage Loan:

        (1)  in respect of which there is a material breach of a representation and warranty set forth on Schedule 1 (assuming each representation and warranty is made as of the date Collateral Value is determined) or a Material Exception which was not otherwise waived by the Lender;

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        (2)  which the Lender determines, in its reasonable discretion that such Mortgage Loan is not eligible for sale in the secondary market or for securitization without unreasonable credit enhancement;

        (3)  which has been released from the possession of the Custodian under Section 5(a) of the Custodial Agreement to the Borrower or its bailee for a period in excess of the period specified in the Custodial Agreement;

        (4)  which has been released from the possession of the Custodian under Section 5(b) of the Custodial Agreement under any Transmittal Letter in excess of the time period stated in such Transmittal Letter for release;

        (5)  in respect of which (a) the related Mortgaged Property is the subject of a foreclosure proceeding or (b) the related Mortgage Note has been extinguished under relevant state law in connection with a judgment of foreclosure or foreclosure sale or otherwise;

        (6)  in respect of which the related Mortgagor is the subject of a bankruptcy proceeding;

        (7)  if the Mortgagor has not made its first payment on the related Mortgage Loan within forty-five days of its related Due Date;

        (8)  if such Mortgage Loan is more than 59 days past due with respect to scheduled payments of principal and interest and the Collateral Value of such Mortgage Loan when added to the aggregate Collateral Value of all other Mortgage Loans which are more than 59 days past due with respect to scheduled payments of principal and interest exceeds, at any time, the lesser of (a) $7,500,000, and (b) 5% of the aggregate outstanding amount of all Advances;

        (9)  if, with respect to such Mortgage Loan, the Borrower has provided the Lender with a lost note affidavit and the Collateral Value of such Mortgage Loan when added to the aggregate Collateral Value of all other Mortgage Loans for which a lost note affidavit was provided to the Lender exceeds $1,000,000 at any time;

        (10) if the Borrower has delivered a lost note affidavit to the Lender and such Mortgage Loan is either (i) more than 29 days delinquent with respect to scheduled payments of principal and interest or (ii) remains pledged to the Lender hereunder more than 90 days after the date on which it is first included in the Collateral;

        (11) if such Mortgage Loan is delinquent with respect to scheduled payments of principal and interest for ninety (90) or more days;

        (12) if the Borrower has delivered a lost note affidavit to the Lender or the Custodian for Mortgage Loans securing any Advances which have not been repaid on a date which is not more than ninety (90) days from the related Funding Date;

        (13) if such Mortgage Loan is a Wet Loan and the Collateral Value of such Mortgage Loan when added to the aggregate Collateral Value of all other Wet Loans exceeds (A) $40,000,000 on any day which occurs during the period from the fourth to last Business Day of each calendar month through and including the sixth Business Day of the next succeeding calendar month, or (B) $30,000,000 on any other date; provided that the amounts specified in clauses (A) and (B) hereto shall be reduced by 50% in the event that the Guarantor has cash, Cash Equivalents and unused borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities in an amount less than either

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(a) $20,000,000, or (b) $15,000,000 in the event that, Aames Capital has unused committed sale capacity on unencumbered assets that could be sold under the Capital Z Residual Sale Agreement in an amount equal to not less than $10,000,000;

        (14) if, with respect to such Mortgage Loan, the Custodian is not in possession of all Required Documents and other Mortgage Loan documents required to be delivered pursuant to the Custodial Agreement including, but not limited to, (except with respect to Wet Loans): the original note with complete chain of endorsements or a lost note affidavit in form reasonably acceptable to the Lender; original mortgage or deed of trust with complete chain of assignments (such documents may be copies certified by the Borrower as sent for recordation); modification agreements; and a title policy, title commitment or preliminary title report;

        (15) if such Mortgage Loan is a Concurrent Second Lien Mortgage Loan which has been subject to the terms of this Warehouse Agreement for more than 120 days;

        (16) if such Mortgage Loan is a Concurrent Second Lien Mortgage Loan and the Collateral Value of such Concurrent Second Lien Mortgage Loan when added to the aggregate Collateral Value of all other Concurrent Second Lien Mortgage Loans exceeds, at any time, $9,000,000; or

        (17) if such Mortgage Loan is a Concurrent Second Lien Mortgage Loan which has been subject to the terms of this Warehouse Agreement for more than 60 days and the Collateral Value of such Concurrent Second Lien Mortgage Loan when added to the aggregate Collateral Value of all other Concurrent Second Lien Mortgage Loans that have been subject to the terms of this Warehouse Agreement for more than 60 days exceeds, at any time, $4,500,000.

"Collections" shall mean the collective reference to Tranche A Collections, Tranche B Collections and Tranche C Collections.

"Combined LTV or CLTV" means with respect to any Mortgage Loan, the ratio of (i) the original outstanding principal amount of the Mortgage Loan and any other mortgage loan which is secured by a lien on the related Mortgaged Property at the time of the applicable Borrower's funding of such Mortgage Loan (ii) the lesser of (a) the Appraised Value of the Mortgaged Property at origination or (b) if the Mortgaged Property was purchased within 6 months of the origination of the Mortgage Loan, the purchase price of the Mortgaged Property.

"Commonly Controlled Entity" shall mean an entity, whether or not incorporated, which is under common control with either Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes either Borrower and which is treated as a single employer under Section 414 of the Code.

"Concurrent Second Lien Mortgage Loan" shall mean a Second Lien Mortgage Loan as to which the prior lien on such Mortgaged Property is secured by financing which was obtained by the related Mortgagor from the related Borrower at the same time that such Second Lien Mortgage Loan was originated.

"Contractual Obligation" shall mean as to any Person, any material provision of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound or any material provision of any security issued by such Person.

"Cooperative Corporation" shall mean with respect to any Cooperative Loan, the cooperative apartment corporation that holds legal title to the related Cooperative Project and grants occupancy rights to units therein to stockholders through Proprietary Leases or similar arrangements.

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"Cooperative Loan" shall mean a Mortgage Loan that is secured by a first lien on and a perfected security interest in Cooperative Shares and the related Proprietary Lease granting exclusive rights to occupy the related Cooperative Unit in the building owned by the related Cooperative Corporation.

"Cooperative Project" shall mean with respect to any Cooperative Loan, all real property and improvements thereto and rights therein and thereto owned by a Cooperative Corporation including without limitation the land, separate dwelling units and all common elements.

"Cooperative Shares" shall mean with respect to any Cooperative Loan, the shares of stock issued by a Cooperative Corporation and allocated to a Cooperative Unit and represented by a stock certificate.

"Cooperative Unit" shall mean with respect to any Cooperative Loan, a specific unit in a Cooperative Project.

"Custodial Agreement" shall mean the Custodial Agreement, dated as of January 12, 2001 among Aames Capital Corporation, Aames Funding Corporation, the Custodian and the Lender, as the same shall be modified and supplemented and in effect from time to time.

"Custodian" shall mean Bankers Trust Company, its successors and permitted assigns.

"Custodian Loan Transmission" shall have the meaning provided in the Custodial Agreement.

"Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default.

"Disbursement Account" shall have the meaning ascribed to such term in the Custodial Agreement.

"Dollars" and "$" shall mean lawful money of the United States of America.

"Due Date" means the day of the month on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace.

"Due Diligence Review" shall mean the performance by the Lender of any or all of the reviews permitted under Section 10.16 hereof with respect to any or all of the Mortgage Loans or the Borrowers or related parties, as desired by the Lender from time to time.

"Effective Date" shall mean the date upon which the conditions precedent set forth in Section 5.01 shall have been satisfied.

"Eligible Mortgage Loan" shall mean a Mortgage Loan which is made to a Mortgagor secured by a first or second mortgage lien (as reflected on the Mortgage Loan Data Transmission) on a one-to-four family residential property and as to which (a) the representations and warranties in Section 6.12 and 6.23 and Schedule 1 hereof are correct, (b) was originated or acquired by the Borrowers in accordance with the applicable Borrower's or Lender approved third party's Underwriting Guidelines not more than 60 days prior to the related Funding Date, (c) except with respect to any Wet Loan, contains all required Mortgage Loan Documents without any Material Exception, (d) such other customary criteria for eligibility determined by the Lender shall have been satisfied, and (e) in the case of a Wet Loan, the following additional conditions are satisfied:

        (i)    the proceeds thereof have been funded (or, on the date of the Advance supported by a Notice of Borrowing and Pledge are being funded) by wire transfer or cashier's check, cleared check or draft or other form of immediately available funds to the Settlement Agent for such Wet Loan;

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        (ii)  the Borrowers expect such Wet Loan to close on the disbursement date and become a valid lien securing actual indebtedness by funding to the order of the Mortgagor thereunder;

        (iii)  the proceeds thereof have not been returned to the Lender or its agent from the Settlement Agent for such Wet Loan;

        (iv)  neither Borrower has learned that such Wet Loan will not be closed and funded to the order of the Mortgagor;

        (v)  upon recordation such Mortgage Loan will constitute a first or second lien on the premises described therein; and

        (vi)  the Borrowers shall have obtained an Insured Closing Letter and Escrow Letter with respect to such Wet Loan (or, with respect to any Mortgaged Property located in New York State, a comparable letter as customarily provided for closings occurring in such state).

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

"ERISA Affiliate" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which either Borrower is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which such Borrower is a member.

"Escrow Letter" shall mean a letter substantially in the form of Exhibit L hereto.

"Escrow Payments" means with respect to any Mortgage Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, fire and hazard insurance premiums, condominium charges, and any other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.

"Event of Default" shall have the meaning provided in Section 8 hereof.

"Exception Report" shall mean the exception report prepared by the Custodian pursuant to the Custodial Agreement.

"Federal Funds Rate" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding 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 for the day of such transactions received by the Lender from three primary dealers (other than an affiliate of the Lender).

"FHLMC" means the Federal Home Loan Mortgage Corporation, or any successor thereto.

"First Lien" shall mean with respect to each Mortgaged Property, the lien of the mortgage, deed of trust or other instrument securing a mortgage note which creates a first lien on the Mortgaged Property.

"FNMA" means the Federal National Mortgage Association, or any successor thereto.

"Funding Date" shall mean the date on which an Advance is made hereunder.

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

"Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator having jurisdiction over either Borrower, any of its Subsidiaries or any of its properties.

"Gross Margin" means with respect to each adjustable rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note.

"Guarantee" shall mean, as to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay, by swap agreement or other credit derivatives, or otherwise), provided that the term "Guarantee" shall not include (i) endorsements for collection or deposit in the ordinary course of business, or (ii) obligations to make servicing advances for delinquent taxes and insurance, or other obligations in respect of a Mortgaged Property, to the extent required by the Lender. The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have correlative meanings.

"Guarantor" shall mean Aames Financial Corporation.

"Guaranty" shall mean the guaranty, dated March 21, 2002, executed by the Guarantor in favor of the Lender which evidences the guarantee by the Guarantor of the obligations of the Borrowers under this Warehouse Agreement and the Note.

"Indebtedness" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; (i) Indebtedness of general partnerships of which such Person is a general partner; and (j) any other indebtedness of such Person by a note, bond, debenture or similar instrument.

"Index" means with respect to each adjustable rate Mortgage Loan, the index set forth in the related Mortgage Note for the purpose of calculating the interest rate thereon.

"Instruction Letter" shall mean a letter agreement between the Borrowers and each Subservicer substantially in the form of Exhibit J attached hereto, in which such Persons acknowledge the Lender's security interest in the Mortgage Loans, and agree to remit any

8

collections with respect to the Mortgage Loans as the Lender may so direct from time to time, which Instruction Letter may be delivered by Lender to such Subservicer in its sole discretion.

"Insurance Proceeds" means with respect to each Mortgage Loan, proceeds of insurance policies insuring the Mortgage Loan or the related Mortgaged Property.

"Insured Closing Letter" means a letter of indemnification from an Approved Title Insurance Company addressed to the Borrower with coverage that is customarily acceptable to Persons engaged in the origination of mortgage loans, identifying the Settlement Agent covered thereby.

"Interest Period" shall mean, with respect to any Advance, (i) initially, the period commencing on the Funding Date with respect to such Advance and ending on the calendar day prior to the Payment Date of the next succeeding month, and (ii) thereafter, each period commencing on the Payment Date of a month and ending on the calendar day prior to the Payment Date of the next succeeding month. Notwithstanding the foregoing, no Interest Period may end after the Termination Date.

"Interest Rate Adjustment Date" means with respect to each adjustable rate Mortgage Loan, the date, specified in the related Mortgage Note and the Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.

"Interest Rate Protection Agreement" shall mean with respect to any or all of the Mortgage Loans and/or Advances, any interest rate swap, cap or collar agreement or any other applicable hedging arrangements providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies entered into by either Borrower and reasonably acceptable to the Lender.

"Lender" shall have the meaning assigned thereto in the heading hereto.

"LIBO Base Rate" shall mean with respect to each day an Advance is outstanding (or if such day is not a Business Day, the next succeeding Business Day), the rate per annum equal to the rate published by Bloomberg or if such rate is not available, the rate appearing at page 3750 of the Telerate Screen as one-month LIBOR on such date, and if such rate shall not be so quoted, the rate per annum at which the Lender is offered Dollar deposits at or about 11:00 A.M., eastern time, on such date by prime banks in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Advances are then being conducted for delivery on such day for a period of one month and in an amount comparable to the amount of the Advances to be outstanding on such day.

"LIBO Rate" shall mean with respect to each Interest Period pertaining to an Advance, a rate per annum determined by the Lender in its sole discretion in accordance with the following formula (rounded upwards to the nearest l/100th of one percent), which rate as determined by the Lender shall be conclusive absent manifest error by the Lender:

LIBO Base Rate 1.00 - LIBO Reserve Requirements

        The LIBO Rate shall be calculated each Funding Date and Payment Date commencing with the first Funding Date.

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"LIBO Reserve Requirements" shall mean for any Interest Period for any Advance, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements applicable to the Lender in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto), dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such Governmental Authority. As of the Effective Date, the LIBO Reserve Requirements shall be deemed to be zero.

"Lien" shall mean any mortgage, lien, pledge, charge, security interest or similar encumbrance.

"Loan Documents" shall mean collectively, this Warehouse Agreement, the Guaranty, the Note and the Custodial Agreement and any other document executed in connection therewith.

"Loan Party" shall mean collectively, the Borrowers and the Guarantor.

"Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage Loan, the ratio of the original outstanding principal amount of the Mortgage Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at origination or (b) if the Mortgaged Property was purchased within 6 months of the origination of the Mortgage Loan, the purchase price of the Mortgaged Property.

"Market Value" shall mean the value, determined by the Lender in its sole reasonable discretion, of the Mortgage Loans if sold in its entirety to a single third-party purchaser. In determining Market Value, the Lender may take into account (a) customary factors, including, but not limited to current market conditions and the fact that the Mortgage Loans may be sold under circumstances in which the Borrowers, as originators of the Mortgage Loans, is in default under the Warehouse Agreement, and (b) firm take-out commitments from investment grade purchasers in favor of the Borrowers covering the Mortgage Loans or mortgage loans substantially similar to the Mortgage Loans to the extent recently obtained and during similar market conditions. The Lender's determination of Market Value shall be conclusive upon the parties, absent manifest error on the part of the Lender. The Lender shall have the right to mark to market the Mortgage Loans on a daily basis which Market Value may be determined to be zero. The Borrowers acknowledge that the Lender's determination of Market Value is for the limited purpose of determining Collateral Value for lending purposes hereunder without the ability to perform customary purchaser's due diligence and is not necessarily equivalent to a determination of the fair market value of the Collateral achieved by obtaining competing bids in an orderly market in which the originator/servicer is not in default under a revolving debt facility and the bidders have adequate opportunity to perform customary loan and servicing due diligence.

"Material Adverse Effect" shall mean a material adverse effect on (a) the property, business, operations, financial condition or prospects of the either Borrower or the Guarantor, (b) the ability of either Borrower or the Guarantor to perform in all material respects its obligations under any of the Loan Documents to which it is a party, (c) the validity or enforceability in all material respects of any of the Loan Documents, (d) the rights and remedies of the Lender under any of the Loan Documents, (e) the Collateral (except for changes in Market Value due to market conditions).

"Material Exception" shall have the meaning assigned thereto in the Custodial Agreement.

"Maximum Credit" shall mean three hundred million Dollars.

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"Monthly Payment" means the scheduled monthly payment of principal and interest on a Mortgage Loan as adjusted in accordance with changes in the Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an adjustable rate Mortgage Loan.

"Mortgage" shall mean the mortgage, deed of trust or other instrument, which creates a first lien or second lien (as indicated on the Mortgage Loan Data Transmission) on either (i) with respect to a Mortgage Loan other than a Cooperative Loan, the fee simple or leasehold estate in such real property or (ii) with respect to a Cooperative Loan, the Proprietary Lease and related Cooperative Shares, which in either case secures the Mortgage Note.

"Mortgage File" shall have the meaning assigned thereto in the Custodial Agreement.

"Mortgage Interest Rate" means the annual rate of interest borne on a Mortgage Note, which shall be adjusted from time to time with respect to adjustable rate Mortgage Loans.

"Mortgage Interest Rate Cap" means with respect to an adjustable rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set forth in the related Mortgage Note.

"Mortgage Loan" shall mean a mortgage loan or Cooperative Loan which the Custodian has been instructed to hold for the Lender pursuant to the Custodial Agreement, and which Mortgage Loan includes, without limitation, (i) a Mortgage Note, the related Mortgage and all other Mortgage Loan Documents and (ii) all right, title and interest of the applicable Borrower in and to the Mortgaged Property covered by such Mortgage.

"Mortgage Loan Data Transmission" shall mean a computer-readable magnetic or other electronic format incorporating the fields identified on Exhibit G.

"Mortgage Loan Documents" shall mean, with respect to a Mortgage Loan, the documents comprising the Mortgage File for such Mortgage Loan.

"Mortgage Loan List" shall mean the hard copy report provided by the Borrowers which shall include with respect to each Mortgage Loan to be included as Collateral: (i) the Mortgage Loan number, (ii) the Mortgagor's name, (iii) the original principal amount of the Mortgage Loan and (iv) the current principal balance of the Mortgage Loan.

"Mortgage Note" shall mean the original executed promissory note or other evidence of the indebtedness of a mortgagor/borrower with respect to a Mortgage Loan.

"Mortgaged Property" means the real property (including all improvements, buildings, fixtures, building equipment and personal property thereon and all additions, alterations and replacements made at any time with respect to the foregoing) and all other collateral securing repayment of the debt evidenced by a Mortgage Note.

"Mortgagee" means either Borrower or any subsequent holder of a Mortgage Loan.

"Mortgagor" means the obligor on a Mortgage Note.

"Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been or are required to be made by either Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA.

"Net Income" shall mean, for any period, the net income of the applicable Borrower for such period as determined in accordance with GAAP.

"Net Worth" shall mean, with respect to any Person, the excess of total assets of such Person, over total liabilities of such Person, determined in accordance with GAAP.

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"Note" shall mean the promissory note provided for by Section 2.02(a) hereof for Advances and any promissory note delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time.

"Notice of Borrowing and Pledge" shall have the meaning assigned to such term in Section 2.03(a).

"Payment Date" shall mean the second Business Day following the 15^th day of each month. The first Payment Date under this Warehouse Agreement shall be April 17, 2002.

"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

"Permitted Exceptions" shall mean the exceptions to lien priority including but not limited to: (i) the lien of current real property taxes and assessments not yet due and payable; (ii) covenants, conditions and restrictions, rights of way, easements and other matters of the public record as of the date of recording acceptable to mortgage lending institutions generally and specifically referred to in the lender's title insurance policy delivered to the originator of the Mortgage Loan and (A) referred to or otherwise considered in the appraisal (if any) made for the originator of the Mortgage Loan or (B) which do not adversely affect the appraised value of the Mortgaged Property set forth in such appraisal; (iii) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage or the use, enjoyment, value or marketability of the related Mortgaged Property; and (iv) in the case of a Second Lien Mortgage Loan, a First Lien on the Mortgaged Property.

"Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, limited liability company, trust, unincorporated association or government (or any agency, instrumentality or political subdivision thereof).

"Plan" shall mean an employee benefit or other plan established or maintained by either Borrower or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan.

"PMI Policy" or "Primary Insurance Policy" means a policy of primary mortgage guaranty insurance issued by a Qualified Insurer.

"Post-Default Rate" shall mean, in respect of any principal of any Advance or any other amount under this Warehouse Agreement, the Note or any other Loan Document that is not paid when due to the Lender (whether at stated maturity, by acceleration or mandatory prepayment or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 2% per annum, plus (a) the interest rate otherwise applicable to such Advance or other amount, or (b) if no interest rate is otherwise applicable, the LIBO Rate plus the Applicable Margin.

"Proceeds" All "proceeds" as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on the date hereof from the Collateral which, in any event, shall include, without limitation, all dividends or other income from the Collateral, collections thereon or distributions with respect thereto.

"Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

"Proprietary Lease" shall mean the lease on a Cooperative Unit evidencing the possessory interest of the owner of the Cooperative Shares in such Cooperative Unit.

"Qualified Insurer" means an insurance company duly qualified as such under the laws of the states in which the Mortgaged Property is located, duly authorized and licensed in such states to

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transact the applicable insurance business and to write the insurance provided, and approved as an insurer by FNMA and FHLMC and whose claims paying ability is rated in the two highest rating categories by any of the rating agencies with respect to primary mortgage insurance and in the two highest rating categories by Best's with respect to hazard and flood insurance.

"Qualified Originator" shall mean (a) either Borrower, or (b) any other mutually agreed upon originator of Mortgage Loans; provided, however, that no correspondent of either Borrower shall be a Qualified Originator for the purposes of this Warehouse Agreement.

"Regulations T, U and X" shall mean Regulations T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time.

"Release Balance" shall mean for any Payment Date, an amount equal to the outstanding principal balance of Tranche A Advances and Tranche B Advances repaid by the Borrowers during the preceding calendar month in order to obtain a release of the Lender's Lien on the related Collateral. For purposes hereof, if a Mortgage Loan is released from the Lender's Lien on account of any Tranche A Advance or a Tranche B Advance, such Tranche A Advance or Tranche B Advance as the case may be, shall be deemed repaid, regardless of whether one or more Mortgage Loans are substituted as Collateral for such released Mortgage Loan.

"Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. § 2615.

"Required Documents" shall mean those documents identified in Section 2 of the Custodial Agreement.

"Requirement of Law" shall mean as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

"Responsible Officer" shall mean, as to any Person, the chief executive officer or, with respect to financial matters, the chief financial officer of such Person; provided, that in the event any such officer is unavailable at any time he or she is required to take any action hereunder, Responsible Officer shall mean any officer authorized to act on such officer's behalf as demonstrated by a certificate of corporate resolution.

"Restricted Payments" shall mean with respect to any Person, collectively, all dividends or other distributions of any nature (cash, securities, assets or otherwise), and all payments, by virtue of redemption or otherwise, on any class of equity securities (including, without limitation, warrants, options or rights therefor) issued by such Person, whether such securities are now or may hereafter be authorized or outstanding and any distribution in respect of any of the foregoing, whether directly or indirectly.

"Second Lien" shall mean with respect to each Mortgaged Property, the lien of the mortgage, deed of trust or other instrument securing a mortgage note which creates a second lien on the Mortgaged Property.

"Second Lien Mortgage Loan" shall mean an Eligible Mortgage Loan secured by the lien on the Mortgaged Property, subject to one prior lien on such Mortgaged Property securing financing obtained by the related Mortgagor and to Permitted Exceptions.

"Secured Obligations" shall have the meaning assigned thereto in Section 4.01(c) hereof.

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"Securities Act" shall mean the Securities Act of 1933, as amended.

"Servicer" shall mean Aames Capital in its capacity as servicer or master servicer of the Mortgage Loans.

"Servicing File" means with respect to each Mortgage Loan, the file retained by the applicable Borrower consisting of originals of all material documents in the Mortgage File which are not delivered to a Custodian and copies of the Mortgage Loan Documents set forth in Section 2 of the Custodial Agreement.

"Servicing Records" shall have the meaning assigned thereto in Section 10.15(b) hereof.

"Servicing Transmission" shall mean a computer-readable magnetic or other electronic format acceptable to the parties containing the information identified on Exhibit F.

"Settlement Agent" shall mean, with respect to any Wet Loan, the Person specified in the Notice of Borrowing (which may be a title company, escrow company or attorney in accordance with local law and practice in the jurisdiction where the related Wet Loan is being originated) to which the proceeds of the related Advance are to be distributed by the Custodian in accordance with the instructions of the applicable Borrower provided in the applicable Mortgage Loan Transmission and (i) which is identified on the List of Approved Settlement Agents which is attached as Exhibit M hereto as revised from time to time by the Borrowers and (ii) which the Lender has not designated as an unapproved settlement agent in a written notice to the Borrowers.

"Single Employer Plan" shall mean any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan.

"Subservicer" shall have the meaning provided in Section 10.15(c) hereof.

"Subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.

"System" shall mean all hardware or software, or any system consisting of one or more thereof, including, without limitation, any and all enhancements, upgrades, customizations, modifications, maintenance and the like utilized by any Person for the benefit of such Person to perform its obligations and to administer and track, store, process, provide, and where appropriate, insert, true and accurate dates and calculations for dates and spans with respect to the Mortgage Loans.

"Tangible Net Worth" shall mean, with respect to any Person, as of any date of determination, the consolidated Net Worth of such Person and its Subsidiaries, less the consolidated net book value of all assets of such Person and its Subsidiaries (to the extent reflected as an asset in the balance sheet of such Person or any Subsidiary at such date) which will be treated as intangibles under GAAP; provided, that residual securities issued by such Person or its Subsidiaries shall not be treated as intangibles for purposes of this definition.

"Termination Date" shall mean March 20, 2003, or such earlier date on which this Warehouse Agreement shall terminate in accordance with the provisions hereof or by operation of law.

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"Total Indebtedness" shall mean with respect to any Person, for any period, the aggregate Indebtedness of such Person and its Subsidiaries during such period (excluding any warehouse debt), less the amount of any nonspecific consolidated balance sheet reserves maintained in accordance with GAAP.

"Tranche A Advances" shall mean all Advances made pursuant to Section 2.01(a)(i).

"Tranche A Collections" shall mean all cash collections and other cash proceeds of any Mortgage Loans other than Mortgage Loans pledged to the Lender by Aames Funding.

"Tranche B Advances" shall mean Advances made by the Lender to Aames Funding pursuant to Section 2.01(a)(ii).

"Tranche B Collections" shall mean all cash collections and other cash proceeds of any Collateral pledged to the Lender by Aames Funding.

"Tranche C Advances" shall mean all Advances made in connection with Wet Loans.

"Tranche C Collections" shall mean all cash collections and other cash proceeds of any Wet Loans pledged to the Lender.

"Underwriting Guidelines" shall mean collectively, the underwriting guidelines applicable to the Mortgage Loans which shall be subject to the prior written approval of the Lender and may be amended from time to time in accordance with Section 7.08.

"Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect on the date hereof in the State of New York; provided that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection.

"Warehouse Agreement" shall mean this Warehouse Loan and Security Agreement, as may be amended, supplemented or otherwise modified from time to time as mutually agreed by the parties in writing.

"Wet Loan" shall mean a wet-funded first or second lien Mortgage Loan which is underwritten in accordance with the Underwriting Guidelines and does not contain all the required Mortgage Loan Documents in the Mortgage File.

        1.02    Accounting Terms and Determinations.    Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lender hereunder shall be prepared, in accordance with GAAP.

Section 2.    Advances, Note and Prepayments.

        2.01    Advances.    (a) Subject to fulfillment of the conditions precedent set forth in Sections 5.01 and 5.02 hereof, and provided that no Default shall have occurred and be continuing hereunder, the Lender agrees from time to time, on the terms and conditions of this Warehouse Agreement, to make loans (individually an "Advance"; collectively, the "Advances") to the Borrowers in Dollars as follows:

        (i)    to Aames Capital, with respect to Tranche A Advances, on any Business Day from and including the Effective Date to but excluding the Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the lesser of (A) the Maximum Credit less the outstanding principal balance of Tranche B

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Advances and Tranche C Advances (and further subject to the limitations in the definition of Collateral Value), and (B) the Borrowing Base as in effect from time to time. Subject to the terms and conditions of this Warehouse Agreement, during such period the Borrower may borrow, repay and reborrow Tranche A Advances hereunder; provided that, the Borrower shall not request more than one Tranche A Advance on any Business Day;

        (ii)  to Aames Funding, with respect to Tranche B Advances, on any Business Day from and including the Effective Date to but excluding the Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding $1,000,000 (and further subject to the limitations in the definition of Collateral Value); provided that the Tranche B Advances shall at all times be secured by both (a) Mortgage Loans with a Market Value equal to the aggregate outstanding principal balance of such Tranche B Advances and by (b) Cash Equivalents with a face amount equal to the aggregate outstanding principal balance of such Tranche B Advances. Subject to the terms and conditions of this Warehouse Agreement, during such period Aames Funding may borrow, repay and reborrow Tranche B Advances hereunder; provided that, Aames Funding shall not request more than one Tranche B Advance in any one week period;

        (iii)  to either Borrower, with respect to Tranche C Advances, on any Business Day. Subject to the terms and conditions of this Warehouse Agreement, during such period the Borrowers may borrow, repay and reborrow Tranche C Advances hereunder; provided that the Borrowers shall not request more than three Tranche C Advances in any one day.

        (b)  In no event shall an Advance be made when any Default or Event of Default has occurred and is continuing.

        2.02    Notes.    (a) The Advances made by the Lender shall be evidenced by a single promissory note of the Borrowers substantially in the form of Exhibit A hereto (the "Note"), dated the date hereof, payable to the Lender in a principal amount equal to the amount of the Maximum Credit as originally in effect and otherwise duly completed. The Lender shall, with the consent of the Borrowers, have the right to have its Note subdivided, by exchange for promissory notes of lesser denominations or otherwise.

        (b)  The date, amount and interest rate of each Advance made by the Lender to each Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of the Note, noted by the Lender on the grid attached to the Note or any continuation thereof; provided, that the failure of the Lender to make any such recordation or notation shall not affect the obligations of the Borrowers to make a payment when due of any amount owing hereunder or under the Note in respect of the Advances.

        2.03    Procedure for Borrowing.    (a) Borrowing Procedure for Requesting a Tranche A Advance. Aames Capital may request a Tranche A Advance on any Business Day during the period from and including the Effective Date to the Termination Date, by delivering to the Lender, with a copy to the Custodian, a Mortgage Loan Data Transmission and a Notice of Borrowing and Pledge substantially in the form of Exhibit D hereto (a "Notice of Borrowing and Pledge"), appropriately completed, which must be received no later than 2:00 p.m. (eastern time) on the Business Day prior to the requested Funding Date. Such Notice of Borrowing and Pledge shall include a Mortgage Loan List in respect of the Eligible Mortgage Loans, if applicable, that Aames Capital proposes to pledge to the Lender and to be included in the Borrowing Base in connection with such borrowing, if applicable.

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        (b)    Borrowing Procedure for Requesting a Tranche B Advance    Aames Funding may request a Tranche B Advance on any Business Day during the period from and including the Effective Date to the Termination Date, by delivering to the Lender, with a copy to the Custodian, a Mortgage Loan Data Transmission and a Notice of Borrowing and Pledge appropriately completed, which must be received no later than 2:00 p.m. (eastern time) two Business Days prior to the requested Funding Date. Such Notice of Borrowing and Pledge shall include a Mortgage Loan List in respect of the Eligible Mortgage Loans, and a list of Cash Equivalents that Aames Funding proposes to pledge to the Lender and to be included in the Borrowing Base in connection with such borrowing.

        (c)  Upon the applicable Borrower's request for a borrowing pursuant to Section 2.03(a) or 2.03(b) above, the Lender shall, assuming all conditions precedent set forth in this Section 2.03 and in Section 5.01 and 5.02 have been met, and provided no Default shall have occurred and be continuing (in accordance with Section 2.01), not later than 2:00 p.m. (eastern time) on the requested Funding Date make an Advance (determined by the Lender) in an amount which would not cause the aggregate amount of Advances then outstanding to exceed the lesser of (i) the Maximum Credit or (ii) the Borrowing Base shown on the latest Borrowing Base Certificate of the Lender. Subject to the foregoing, such borrowing will be made available to the applicable Borrower by the Lender transferring, via wire transfer (pursuant to wire transfer instructions provided by such Borrower on or prior to such Funding Date), in the aggregate amount of such borrowing in funds immediately available to such Borrower.

        (d)  Either Borrower may request a Tranche C Advance on any Business Day during the period from and including the Effective Date to the Termination Date, by delivering to Lender the related Notice of Borrowing and Pledge substantially in the form of Exhibit D. Such Notice of Borrowing and Pledge shall clearly indicate that the applicable Mortgage Loans are intended to be Wet Loans and shall include a Mortgage Loan Data Transmission with such fields required for Wet Loans.

Upon receipt of such request for borrowing, the Lender may, in its sole discretion, assuming all conditions precedents set forth in this Warehouse Agreement and the Custodial Agreement have been met, and subject to any additional conditions precedent imposed by the Lender upon the Borrowers from time to time, and provided that no Default shall have occurred and be continuing (in accordance with Section 2.01), not later than 3:30 p.m. (eastern time) on the requested Funding Date make a Tranche C Advance. With respect to any Advance that shall be secured by a Wet Loan pursuant to this Warehouse Agreement, the amount of the applicable Advance shall be disbursed to the Settlement Agent from the Disbursement Account. Accordingly, in connection with any Wet Loan, the Borrowers shall be required to deposit in the Disbursement Account prior to the closing of such Mortgage Loan an amount equal to the excess of (i) the amount required to be remitted in connection with the closing of such Mortgage Loan over (ii) the amount to be advanced by the Lender hereunder with respect to such Mortgage Loan. No later than one Business Day following any Tranche C Advance, the Borrowers shall provide to the Lender a complete Mortgage Loan Data Transmission with respect to each Wet Loan subject to such Advance, which Mortgage Loan Data Transmission shall contain all fields required for non-Wet Loans. The Borrowers and the Lender agree that the procedures for requesting and making a Tranche C Advance may be modified from time to time by a written agreement executed by the Borrowers and the Lender.

        2.04    Limitation on Types of Advances; Illegality.    Anything herein to the contrary notwithstanding, if, on or prior to the determination of any LIBO Base Rate:

        (a)  the Lender determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "LIBO Base Rate" in

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Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Advances as provided herein; or

        (b)  it becomes unlawful for the Lender to honor its obligation to make or maintain Advances hereunder using a LIBO Rate;

then the Lender shall give the Borrowers prompt notice thereof and, so long as such condition remains in effect, the Lender shall be under no obligation to make additional Advances.

        2.05    Repayment of Advances; Interest.    (a) The Borrowers shall repay in full on the Termination Date the then aggregate outstanding principal amount of the Advances (as evidenced by the Note).

        (b)  No later than two (2) Business Days prior to each Payment Date, the Lender shall provide to the Borrowers a report which shall state the interest amount due for the current interest period on the Advance (including the amount of interest which will accrue on such Advance on the Business Day immediately preceding the related Payment Date) setting forth the amount of interest accrued for such period for the Tranche A Advances, the Tranche B Advances and the Tranche C Advances separately. The calculation on such report shall be based upon information provided in the Servicing Transmission and the report provided pursuant to Section 7.19.

        (c)  The Borrowers shall pay to the Lender interest on the unpaid principal amount of each Advance for the period from and including the date of such Advance to but excluding the date such Tranche A Advance, Tranche B Advance and Tranche C Advance shall be paid in full, at a rate per annum equal to the LIBO Rate plus the Applicable Margin related to the Tranche A Advance, the Tranche B Advance and the Tranche C Advance, as applicable. Notwithstanding the foregoing, the Borrowers shall pay to the Lender interest at the applicable Post-Default Rate on any principal of any Advance and on any other amount payable by the Borrowers hereunder or under the Note, that shall not be paid in full when due (whether at stated maturity, by acceleration or by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Advance as calculated in Section 2.05(b) above shall be payable monthly on each Payment Date and on the Termination Date, except that interest payable at the Post-Default Rate shall accrue daily and shall be payable promptly upon receipt of invoice. Promptly after the determination of any interest rate provided for herein or any change therein, the Lender shall give written notice thereof to the Borrowers.

        2.06    Mandatory Prepayments or Pledge; Request for Release.    (a) If at any time the aggregate Collateral Value of all Collateral securing the Advances is less than the outstanding Advances at such time (such deficit a "Borrowing Base Deficiency"), as determined by the Lender and notified to the Borrowers on any Business Day, the Borrowers shall no later than one Business Day after receipt of such written notice, either prepay the Advances in part or in whole or pledge additional Mortgage Loans or such other Collateral as may be acceptable to the Lender in its sole discretion (which Collateral shall be in all respects acceptable to the Lender) to the Lender, such that after giving effect to such prepayment or pledge the aggregate outstanding principal amount of the Advances does not exceed the Borrowing Base. If at any time the aggregate Collateral Value of all Collateral exceeds the outstanding Advances at such time (such excess a "Borrowing Base Excess"), then the Borrowers may by written notice to the Lender, accompanied by a certificate of a Responsible Officer on the date of such request certifying that no Default shall have occurred and be continuing, request the Lender to transfer Mortgage Loans to the Borrowers, so that the Collateral Value of the Collateral, after deduction of any Collateral so transferred, will thereupon not exceed, but in no event be less than, the outstanding Advances.

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        (b)  On the date of each Advance or other date on which there is a change in the Mortgage Loans held by the Custodian, the Custodian shall deliver to the Lender and the Borrowers the Custodian Loan Transmission. The Lender shall deliver to the Borrowers a Borrowing Base Certificate in the form attached hereto as Exhibit H, the calculation in such certificate to be based on the delinquency status and principal balance of the Eligible Mortgage Loans as of the later of the Funding Date balance or such date when more recent information is available. Such information shall be ascertained from the Servicing Transmission which shall be delivered or caused to be delivered by the Borrowers in accordance with Section 7.19 and shall include all Mortgage Loans which were funded on or prior to the last calendar day of the previous month.

        2.07    Optional Prepayments.    (a) The Advances are prepayable without premium or penalty, in whole or in part on each Payment Date after providing not less than five (5) Business Days prior notice. The Advances are prepayable at any other time, in whole or in part, in accordance herewith and subject to clause (b) below. Any amounts prepaid shall be applied to repay the outstanding principal amount of any Advances (together with interest thereon) until paid in full. Amounts repaid may be reborrowed in accordance with the terms of this Warehouse Agreement. If the either Borrower intends to prepay an Advance in whole or in part from any source, such Borrower shall give five (5) Business Days' prior written notice thereof to the Lender. If such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments shall be in an aggregate principal amount of at least $100,000.

        (b)  If either Borrower makes a prepayment of the Advances other than as provided in Section 2.07(a) above, the Borrowers shall indemnify the Lender and hold the Lender harmless from any actual loss or expense which the Lender may sustain or incur arising from (a) the deployment of funds obtained by the Lender to maintain the Advances hereunder or from (b) fees payable to terminate the deposits from which such funds were obtained, in either case, which actual loss or expense shall be equal to an amount equal to the excess, as reasonably determined by the Lender, of (i) its cost of obtaining funds for such Advances for the period from the date of such payment through the following Payment Date over (ii) the amount of interest likely to be realized by such Lender in redeploying the funds not utilized by reason of such payment for such period. This Section 2.07 shall survive termination of this Warehouse Agreement and payment of the Note.

        2.08    Requirements of Law.    (a) If any Requirement of Law (other than with respect to any amendment made to the Lender's certificate of incorporation and by-laws or other organizational or governing documents) or any change in the interpretation or application thereof or compliance by the Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

        (i)    shall subject the Lender to any tax of any kind whatsoever with respect to this Warehouse Agreement, the Note or any Advance made by it (excluding net income taxes) or change the basis of taxation of payments to the Lender in respect thereof;

        (ii)  shall impose, modify or hold applicable any reserve, special deposit, compulsory Advance or similar requirement against assets held by deposits or other liabilities in or for the account of advances. Advances or other extensions of credit by, or any other acquisition of funds by any office of the Lender which is not otherwise included in the determination of the LIBO Base Rate hereunder;

        (iii)  shall impose on the Lender any other condition;

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and the result of any of the foregoing is to increase the cost to the Lender, by an amount which the Lender deems to be material, of making, continuing or maintaining any Advance made after the Effective Date or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrowers shall promptly pay the Lender such additional amount or amounts as will compensate the Lender for such increased cost or reduced amount receivable thereafter incurred or shall prepay the aggregate amount of outstanding Advances. Any prepayment made by the Borrowers as a result of the application of this Section 2.08(a) shall not be subject to the provisions of Section 2.07(b).

        (b)  If the Lender shall have determined that the adoption of or any change in any Requirement of Law (other than with respect to any amendment made to the Lender's certificate of incorporation and by-laws or other organizational or governing documents) regarding capital adequacy or in the interpretation or application thereof or compliance by the Lender or any corporation controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on the Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which the Lender or such corporation (taking into consideration the Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by the Lender to be material, then from time to time, the Borrowers shall promptly pay to the Lender such additional amount or amounts as will thereafter compensate the Lender for such reduction or shall prepay the aggregate amount of outstanding Advances. Any prepayment made by the Borrowers as a result of the application of this Section 2.08(b) shall not be subject to the provisions of Section 2.07(b).

        (c)  If the Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Borrowers of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by the Lender to the Borrowers shall be conclusive in the absence of manifest error.

Section 3.    Payments; Computations; Taxes.

        3.01    Payments.    Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrowers under this Warehouse Agreement and the Note, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Lender at the following account maintained by the Lender at The Chase Manhattan Bank: Account Number 140095961, For the A/C of Greenwich Capital Financial Products, Inc., ABA# 021000021, Attn: Brett Kibbe, not later than 2:00 p.m., eastern time, on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day) or such other account as a Responsible Officer of the Lender may direct through written notice to the Borrowers. The Borrowers acknowledge that they have no rights of withdrawal from the foregoing account.

        3.02    Computations.    Interest on the Advances shall be computed on the basis of a 360-day year for the actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable.

Section 4.    Collateral Security.

        4.01    Collateral; Security Interest.    (a) Pursuant to the Custodial Agreement, the Custodian shall hold the Mortgage Loan Documents as exclusive bailee and agent for the Lender pursuant to the terms of the Custodial Agreement and shall deliver to the Lender Trust Receipts with Exception Reports (as such terms are defined in the Custodial Agreement) to the effect that it has

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reviewed such Mortgage Loan Documents in the manner required by the Custodial Agreement and identifying any deficiencies in such Mortgage Loan Documents as so reviewed.

        (b)  Each of the following items or types of property, whether now owned or hereafter acquired, now existing or hereafter created and wherever located, is hereinafter referred to as the "Collateral":

        (i)    all Mortgage Loans identified on a Notice of Borrowing and Pledge delivered by the Borrowers to the Lender and the Custodian from time to time;

        (ii)  all other Property delivered by the Borrowers to the Lender or the Custodian from time to time to be held as "collateral" hereunder;

        (iii)  all Mortgage Loan Documents, including without limitation all promissory notes, and all Servicing Records (as defined in Section 10.15(b) below), and any other collateral pledged or otherwise relating to such Mortgage Loans, together with all files, material documents, instruments, surveys (if available), certificates, correspondence, appraisals, computer records, computer storage media, Mortgage Loan accounting records and other books and records relating thereto;

        (iv)  the Borrowers' interest in all mortgage guaranties and insurance (issued by governmental agencies or otherwise) and any mortgage insurance certificate or other document evidencing such mortgage guaranties or insurance relating to any Mortgage Loans and all claims and payments thereunder;

        (v)  the Borrowers' interest in all other insurance policies and insurance proceeds relating to any Mortgage Loans or the related Mortgaged Property;

        (vi)  all Interest Rate Protection Agreements relating to any or all of the foregoing;

        (vii) any purchase agreements or other similar agreements constituting any or all of the foregoing;

        (viii)all purchase or take-out commitments relating to or constituting any or all of the foregoing;

        (ix)  all "supporting obligations" within the meaning of the Uniform Commercial Code as in effect from time to time;

        (x)  all "investment property", "accounts", "chattel paper" and "general intangibles" as defined in the Uniform Commercial Code relating to or constituting any or all of the foregoing; and

        (xi)  any and all replacements, substitutions, distributions on or proceeds of any or all of the foregoing.

        (c)  Each Borrower hereby assigns, pledges and grants a security interest to the Lender in all of its right, title and interest in, to and under all the Collateral, whether now owned or hereafter acquired, now existing or hereafter created and wherever located, to secure the repayment of principal of and interest on all Advances and all other amounts owing to the Lender hereunder, under the Note and under the Warehouse Agreement (collectively, the "Secured Obligations"). The Borrowers agree to mark their computer records and tapes to evidence the security interests granted to the Lender hereunder.

        4.02    Further Documentation.    At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrowers, the Borrowers will promptly and duly execute and deliver, or will promptly cause to be executed and delivered, such further instruments and documents and take such further action as the Lender may reasonably request for the purpose

21

of obtaining or preserving the full benefits of this Warehouse Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the Liens created hereby. The Borrowers also hereby authorize the Lender to file any such financing or continuation statement without the signature of either Borrower to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Warehouse Agreement shall be sufficient as a financing statement for filing in any jurisdiction.

        4.03    Changes in Locations, Name, etc.    Neither Borrower shall (i) change the location of its chief executive office/chief place of business from that specified in Section 6 hereof or (ii) change its name, identity or corporate structure (or the equivalent) or change the location where it maintains its records with respect to the Collateral unless it shall have given the Lender at least 30 days prior written notice thereof and shall have delivered to the Lender all Uniform Commercial Code financing statements and amendments thereto as the Lender shall request and taken all other actions deemed reasonably necessary by the Lender to continue its perfected status in the Collateral with the same or better priority.

        4.04    Lender's Appointment as Attorney-in-Fact.    (a) Each Borrower hereby irrevocably constitutes and appoints the Lender and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Borrower and in the name of such Borrower or in its own name, from time to time in the Lender's discretion, for the purpose of carrying out the terms of this Warehouse Agreement, in the form of Exhibit K attached hereto, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Warehouse Agreement, and, without limiting the generality of the foregoing, such Borrower hereby gives the Lender the power and right, on behalf of such Borrower, without assent by, but with notice to, such Borrower, if an Event of Default shall have occurred and be continuing, to do the following:

        (i)    in the name of the applicable Borrower or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any mortgage insurance or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Lender for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Collateral whenever payable;

        (ii)  to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral; and

        (iii)  (A) to direct any party liable for any payment under any Collateral to make payment of any and all moneys due or to become due thereunder directly to the Lender or as the Lender shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against either Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as the Lender may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with

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respect to or otherwise deal with any of the Collateral as fully and completely as though the Lender were the absolute owner thereof for all purposes, and to do, at the Lender's option and the Borrowers' expense, at any time, or from time to time, all acts and things which the Lender deems necessary to protect, preserve or realize upon the Collateral and the Lender's Liens thereon and to effect the intent of this Warehouse Agreement, all as fully and effectively as the Borrowers might do.

The Borrowers hereby ratify all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.

        (b)  The Borrowers also authorize the Lender, at any time and from time to time, to execute, in connection with the sale provided for in Section 4.07 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

        (c)  The powers conferred on the Lender are solely to protect the Lender's interests in the Collateral and shall not impose any duty upon the Lender to exercise any such powers. The Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither the Lender nor any of its officers, directors, or employees shall be responsible to the Borrowers for any act or failure to act hereunder, except for its own gross negligence or willful misconduct.

        4.05    Performance by Lender of either Borrower's Obligations.    If either Borrower fails to perform or comply with any of its material agreements contained in the Loan Documents and the Lender may itself perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable out-of-pocket expenses of the Lender incurred in connection with such performance or compliance, together with interest thereon at a rate per annum equal to the Post-Default Rate, shall be payable by the Borrowers to the Lender on demand and shall constitute Secured Obligations.

        4.06    Proceeds.    If an Event of Default shall occur and be continuing, (a) all proceeds of Collateral received by the Borrowers consisting of cash, checks and other near-cash items shall be held by the Borrowers in trust for the Lender, segregated from other funds of the Borrowers, and shall forthwith upon receipt by the Borrowers be turned over to the Lender in the exact form received by the Borrowers (duly endorsed by the Borrowers to the Lender, if required) and (b) any and all such proceeds received by the Lender will be applied by the Lender against, the Secured Obligations. Any balance of such proceeds remaining after the Secured Obligations shall have been paid in full and this Warehouse Agreement shall have been terminated shall be promptly paid over to the Borrowers or to whomsoever may be contractually entitled to receive the same. For purposes hereof, proceeds shall include, but not be limited to, all principal and interest payments, all prepayments and payoffs, insurance claims, condemnation awards, sale proceeds, real estate owned rents and any other income and all other amounts received with respect to the Collateral.

        4.07    Remedies.    If an Event of Default shall occur and be continuing, the Lender may exercise, in addition to all other rights and remedies granted to it in this Warehouse Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Uniform Commercial Code. Without limiting the generality of the foregoing, the Lender without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Borrowers or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels or as an entirety at public or private sale or sales, at any exchange, broker's

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board or office of the Lender or elsewhere upon such terms and conditions and at prices that are consistent with the prevailing market for similar collateral as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Lender shall act in good faith to seek to obtain the best execution possible under prevailing market conditions. The Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Borrowers, which right or equity is hereby waived or released. The Lender may, on one or more occasions, postpone or adjourn any such sale by public announcement at the time of such sale. The Lender shall give the Borrowers prior or concurrent notice of any such postponement or adjournment. The Borrowers further agree, at the Lender's request, to assemble the Collateral and make it available to the Lender at places which the Lender shall reasonably select, whether at either Borrower's premises or elsewhere. The Lender shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Lender hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Secured Obligations, in such order as the Lender may elect, and only after such application and after the payment by the Lender of any other amount required or permitted by any provision of law, including, without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the Lender account for the surplus, if any, to the Borrowers. To the extent permitted by applicable law, the Borrowers all claims, damages and demands they may acquire against the Lender arising out of the exercise by the Lender of any of its rights hereunder, other than those claims, damages and demands arising from the gross negligence or willful misconduct of the Lender. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Borrowers shall remain liable for any deficiency (plus accrued interest thereon as contemplated pursuant to Section 2.05(c) hereof) if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Secured Obligations and the reasonable fees and disbursements of any attorneys employed by the Lender to collect such deficiency.

        4.08    Limitation on Duties Regarding Presentation of Collateral.    The Lender's duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with it in the same manner as the Lender deals with similar property for its own account. Neither the Lender nor any of its directors, officers or employees shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrowers or otherwise.

        4.09    Powers Coupled with an Interest.    All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest.

        4.10    Release of Security Interest.    Except as may otherwise be provided by any other agreement executed by the Borrowers and the Lender, upon termination of this Warehouse Agreement and repayment to the Lender of all Secured Obligations and the performance of all obligations under the Loan Documents the Lender shall release its security interest in any remaining Collateral; provided that if any payment, or any part thereof, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of either Borrower, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or a trustee or similar officer for such Borrower or any substantial part of its Property, or otherwise, this Warehouse

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Agreement, all rights hereunder and the Liens created hereby shall continue to be effective, or be reinstated, until such payments have been made.

Section 5.    Conditions Precedent.

        5.01    Initial Advance.    The obligation of the Lender to make its initial Advance hereunder is subject to the satisfaction, immediately prior to or concurrently with the making of such Advance, of the following conditions precedent:

        (a)    Warehouse Agreement.    The Lender shall have received this Warehouse Agreement, executed and delivered by a duly authorized officer of the Borrowers.

        (b)    Loan Documents.    The Lender shall have received the following documents, each of which shall be satisfactory to the Lender in form and substance:

        (i)    Note.    The Note, duly completed and executed;

        (ii)    Custodial Agreement.    The Custodial Agreement, duly executed and delivered by the Borrowers and the Custodian. In addition, the Borrowers shall have filed all Uniform Commercial Code and related filings and performed under the Custodial Agreement and taken such other action as the Lender shall have requested in order to perfect the security interests created pursuant to the Warehouse Agreement; and

        (iii)    Guaranty.    The Guaranty, duly executed and delivered by the Guarantor.

        (c)    Organizational Documents.    A good standing certificate and certified copies of the charter and by-laws (or equivalent documents) of each Loan Party and of all corporate or other authority for such Loan Party with respect to the execution, delivery and performance of the Loan Documents and each other document to be delivered by such Loan Party from time to time in connection herewith (and the Lender may conclusively rely on such certificate until it receives notice in writing from the applicable Loan Party to the contrary).

        (d)    Legal Opinion.    A legal opinion of counsel to the Borrowers, substantially in the form attached hereto as Exhibit C.

        (e)    [Intentionally Omitted]

        (f)    Filings, Registrations, Recordings.    Any documents (including, without limitation, financing statements) required to be filed, registered or recorded in order to create, in favor of the Lender, a perfected, first-priority security interest in the Collateral, subject to no Liens other than those created hereunder, shall have been properly prepared and executed for filing (including the applicable county(ies) if the Lender determines such filings are necessary in its reasonable discretion), registration or recording in each office in each jurisdiction in which such filings, registrations and recordations are required to perfect such first-priority security interest.

        (g)    Financial Statements.    The Lender shall have received the available quarterly financial statements referenced in Section 7.01(a).

        (h)    Underwriting Guidelines.    The Lender and the Borrowers shall have agreed upon the Qualified Originators' current Underwriting Guidelines for the Mortgage Loans and the Lender shall have received a copy thereof.

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        (i)    Consents, Licenses, Approvals, etc.    The Lender shall have received copies certified by the Borrowers of all consents, licenses and approvals, if any, required in connection with the execution, delivery and performance by the Borrowers of, and the validity and enforceability of, the Loan Documents, which consents, licenses and approvals shall be in full force and effect.

        (j)    Insurance.    The Lender shall have received evidence in form and substance satisfactory to the Lender showing compliance by the Borrowers as of such initial Funding Date with Section 7.21 hereof.

        (k)    Instruction Letter.    The Lender shall have received Instruction Letters in the form attached hereto as Exhibit J executed by the Borrowers.

        (l)    Other Documents.    The Lender shall have received such other documents as the Lender or its counsel may reasonably request.

        5.02    Initial and Subsequent Advances.    The making of each Advance to the Borrowers (including the initial Advance) on any Business Day is subject to the following further conditions precedent, both immediately prior to the making of such Advance and also after giving effect thereto and to the intended use thereof:

        (a)  no Default or Event of Default shall have occurred and be continuing or would be created by the making of such Advance;

        (b)  both immediately prior to the making of such Advance and also after giving effect thereto and to the intended use thereof, the representations and warranties made by the Borrowers in Section 6 hereof, and in each of the other Loan Documents, shall be true and complete on and as of the date of the making of such Advance in all material respects (in the case of the representations and warranties in Section 6.23 and Schedule 1, solely with respect to Mortgage Loans included in the Borrowing Base) with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). At the request of the Lender, the Lender shall have received an officer's certificate signed by a Responsible Officer of the applicable Borrower certifying as to the truth and accuracy of the above, which certificate shall specifically include a statement that such Borrower is in compliance with all governmental licenses and authorizations and is qualified to do business and in good standing in all required jurisdictions;

        (c)  the aggregate outstanding principal amount of the Advances shall not exceed the Borrowing Base;

        (d)  subject to the Lender's right to perform one or more Due Diligence Reviews pursuant to Section 10.16 hereof, the Lender shall have completed its due diligence view of the Mortgage Loan Documents for each Advance and such other documents, records, agreements, instruments, mortgaged properties or information relating to such Advances and the Borrowers as the Lender in its reasonable discretion deems appropriate to review and such review shall be satisfactory to the Lender in its reasonable discretion;

        (e)  the Lender shall have received a Notice of Borrowing and Pledge, Loan List and Mortgage Loan Data Transmission and all other documents required under Section 2.03;

        (f)    the Lender shall have received from the Custodian a Custodian Loan Transmission and one or more Trust Receipts in respect of Mortgage Loans to be pledged hereunder on such Business Day and an Exception Report, in each case dated such Business Day and duly completed;

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        (g)  if any Mortgage Loans to be pledged hereunder were acquired by the Borrowers, such Mortgage Loans shall conform to the Underwriting Guidelines or the Lender shall have received Underwriting Guidelines for such Mortgage Loans acceptable to the Lender in its reasonable discretion;

        (h)  the Lender shall have received all information requested from the Borrowers relating to Interest Rate Protection Agreements pursuant to Section 7.24, and the Lender shall have reasonably determined that such Interest Rate Protection Agreements adequately protect the Borrowers from interest rate fluctuations;

        (i)    the Lender shall have received, no later than 10:00 a.m. three (3) days prior to the requested Funding Date, an Instruction Letter, executed by the applicable Borrower, with the related Servicing Agreement (as defined in Section 10.15(c)) attached thereto, which such Servicing Agreement shall be in form and substance acceptable to Lender;

        (j)    with respect to making any Tranche A Advances or Tranche B Advances, if at any time after the Effective Date, either Borrower shall have materially amended or modified its Underwriting Guidelines, such Borrower shall have delivered to the Lender a complete copy of such amended or modified Underwriting Guidelines and the Lender shall have consented in writing to such material amendment or modification; and

        (k)  neither of the following shall have occurred and/or be continuing:

(1)

an event or events resulting in the inability of the Lender to finance any Advances with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events or a material adverse change in the financial condition of the Lender which affects (or can reasonably be expected to affect) materially and adversely the ability of the Lender to fund its obligations under or otherwise comply with the terms of this Loan Agreement; or



(2)

any other event beyond the control of the Lender shall have occurred which the Lender reasonably determines may result in the Lender's inability to perform its obligations under this Loan Agreement including, without limitation, acts of God, strikes, lockouts, riots, acts of war or terrorism, epidemics, nationalization, expropriation, currency restrictions, fire, communication line failures, computer viruses, power failures, earthquakes, or other disasters of a similar nature to the foregoing.

Each request for a borrowing by either Borrower hereunder shall constitute a certification by such Borrower to the effect set forth in this Section (both as of the date of such notice, request or confirmation and as of the date of such borrowing).

        Notwithstanding any other terms and conditions of this Warehouse Agreement, Aames Funding shall not be required to satisfy any conditions precedent other than those provided in Section 5.01(a), 5.01(b)(i) and 5.01(b)(ii) until such date as Aames Funding shall request an Advance hereunder, at which time it shall be a condition precedent to the Lender making such Advance that Aames Funding shall have satisfied all conditions provided herein.

Section 6.    Representations and Warranties.    The Borrowers represent and warrant to the Lender that throughout the term of this Warehouse Agreement:

        6.01    Existence.    The Borrowers (a) are corporations duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) have all requisite corporate or other power, and have all governmental licenses, authorizations, consents and approvals, necessary to own their assets and carry on their business as now being or as proposed to be conducted, except where the lack of such licenses, authorizations, consents and approvals would

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not be reasonably likely to have a material adverse effect on their property, business or financial condition, or prospects; and (c) are qualified to do business and are in good standing in all other jurisdictions in which the nature of the business conducted by either Borrower makes such qualification necessary, except where failure so to qualify would not be reasonably likely (either individually or in the aggregate) to have a material adverse effect on its property, business or financial condition, or prospects and (d) are in compliance in all material respect with all Requirements of Law.

        6.02    Financial Condition.    The Guarantor has heretofore furnished to the Lender a copy of its Annual Report on Form 10-K which includes audited consolidated financial statements at and for the fiscal year ended June 30, 2001 with the opinion thereon of Ernst & Young LLP. All such financial statements are materially complete and correct and fairly present the consolidated financial condition of the Guarantor and its Subsidiaries and the consolidated results of their operations for the fiscal year ended on said date, all in accordance with GAAP applied on a consistent basis. The Guarantor has heretofore furnished to the Lender a copy of its Quarterly Report on Form 10-Q which includes unaudited consolidated financial statements at and for the fiscal quarter ended December 31, 2001. All such financial statements are materially complete and correct and fairly present the consolidated financial condition of the Guarantor and its Subsidiaries and the consolidated results of their operations for the fiscal quarter ended on said date, all in accordance with GAAP applied on a consistent basis.

        6.03    Litigation.    There are no actions, suits, arbitrations, investigations or proceedings pending or, to its knowledge, threatened against either Borrower or any of its Subsidiaries or affecting any of the property thereof before any Governmental Authority, (i) as to which individually or in the aggregate there is a reasonable likelihood of an adverse decision which would be reasonably likely to have a material adverse effect on the property, business or financial condition, or prospects of such Borrower (except as disclosed in the Guarantor's Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2001) or (ii) which questions the validity or enforceability of any of the Loan Documents or any action to be taken in connection with the transactions contemplated hereby and there is a reasonable likelihood of a materially adverse effect or decision.

        6.04    No Breach.    Neither (a) the execution and delivery of the Loan Documents or (b) the consummation of the transactions therein contemplated in compliance with the terms and provisions thereof will conflict with or result in a breach of the charter or by-laws of the either Borrower, or any applicable law, rule or regulation, or any order, writ, injunction or decree of any Governmental Authority, or other material agreement or instrument to which such Borrower, or any of its Subsidiaries, is a party or by which any of them or any of their property is bound or to which any of them is subject, or constitute a default under any such material agreement or instrument, or (except for the Liens created pursuant to this Warehouse Agreement) result in the creation or imposition of any Lien upon any property of either Borrower or any of its Subsidiaries, pursuant to the terms of any such agreement or instrument.

        6.05    Action.    Each Borrower has all necessary corporate or other power, authority and legal right to execute, deliver and perform its obligations under each of the Loan Documents to which it is a party; the execution, delivery and performance by such Borrower of each of the Loan Documents to which it is a party has been duly authorized by all necessary corporate or other action on its part; and each Loan Document has been duly and validly executed and delivered by such Borrower and constitutes a legal, valid and binding obligation such the Borrower, enforceable against such Borrower in accordance with its terms.

        6.06    Approvals.    No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority, or any other Person, are necessary for the execution, delivery

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or performance by either Borrower of the Loan Documents to which it is a party or for the legality, validity or enforceability thereof, except for filings and recordings in respect of the Liens created pursuant to this Warehouse Agreement.

        6.07    Margin Regulations.    Neither the making of any Advance hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation T, U or X.

        6.08    Taxes.    Each Borrower and its Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by any of them, except for any such taxes, if any, that are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided. The charges, accruals and reserves on the books of each Borrower and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of such Borrower, adequate.

        6.09    Investment Company Act.    Neither Borrower nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Neither Borrowers is subject to any Federal or state statute or regulation which limits its ability to incur indebtedness.

        6.10    No Legal Bar.    The execution, delivery and performance of this Warehouse Agreement and the Note, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of either Borrower or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien (other than the Liens created hereunder) on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation.

        6.11    No Default.    Neither Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which should reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.

        6.12    Collateral; Collateral Security.    (a) Neither Borrower has assigned, pledged, nor otherwise conveyed or encumbered any Collateral to any other Person, and immediately prior to the pledge of any such Collateral, such Borrower was the sole owner of such Collateral and had good and marketable title thereto, free and clear of all Liens, in each case except for Liens to be released simultaneously with the Liens granted in favor of the Lender hereunder and no Person other than such Borrower has any Lien on any Collateral.

        (b)  The provisions of this Warehouse Agreement are effective to create in favor of the Lender a valid security interest in all right, title and interest of the Borrowers in, to and under the Collateral.

        (c)  Upon receipt by the Custodian of each Mortgage Note, endorsed in blank by a duly authorized officer of the applicable Borrower, the Lender shall have a fully perfected first priority security interest therein, in the Mortgage Loan evidenced thereby and in such Borrower's interest in the related Mortgaged Property.

        (d)  Upon the filing of financing statements on Form UCC-1 naming the Lender as "Secured Party" and the applicable Borrower as "Debtor", and describing the Collateral, in the jurisdictions and recording offices listed on Schedule 3 attached hereto, the security interests granted hereunder in the Collateral will constitute fully perfected first priority security interests under the Uniform Commercial Code in all right, title and interest of such Borrower in, to and under such Collateral, which can be perfected by filing under the Uniform Commercial Code.

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        6.13    Chief Executive Office; Chief Operating Office.    The Borrowers' chief executive office and chief operating office on the Effective Date is located, and for the four months immediately preceding the date hereof has been located, at 350 South Grand Avenue, Los Angeles, California 90071.

        6.14    Location of Books and Records.    The location where the Borrowers keeps their books and records including all computer tapes and records relating to the Collateral is their chief executive office or chief operating office or the offices of the Custodian.

        6.15    True and Complete Disclosure.    The information, reports, financial statements, exhibits and schedules, other than interim financial statements, furnished in writing by or on behalf of the Borrowers to the Lender in connection with the negotiation, preparation or delivery of this Warehouse Agreement and the other Loan Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole, do not, contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. The December 31, 2001 Form 10-Q and financial statements contained therein do not, as of the date of their filing, contain any untrue statement of material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by or on behalf of the Borrowers to the Lender in connection with this Warehouse Agreement and the other Loan Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified.

        6.16    Tangible Net Worth; Liquidity.    (a) Aames Capital's Tangible Net Worth is not less than $315,000,000, and (b) Aames Capital has cash, Cash Equivalents and unused borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities in an amount equal to not less than $1,000,000

        6.17    ERISA.    Each Plan to which the each Borrower or its Subsidiaries make direct contributions, and, to the knowledge of such Borrower, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law. No event or condition has occurred and is continuing as to which such Borrower would be under an obligation to furnish a report to the Lender under Section 7.01(d) hereof.

        6.18    Licenses.    The Lender will not be required solely as a result of financing or taking a pledge of the Collateral to be licensed, registered or approved or to obtain permits or otherwise qualify (i) to do business in any state in which it is not currently so required or (ii) under any state consumer lending, fair debt collection or other applicable state statute or regulation.

        6.19    Relevant States.Schedule 4 sets forth all of the states or other jurisdictions (the "Relevant States") in which the Qualified Originators originate Mortgage Loans in their own names or through brokers on the date of this Warehouse Agreement.

        6.20    True Sales.    Any and all interest of a Qualified Originator in, to and under any Mortgage funded in the name of or acquired by such Qualified Originator has been sold, transferred, conveyed and assigned to the applicable Borrower pursuant to a legal sale and such Qualified Originator retains no interest in such Mortgage Loan.

        6.21    No Burdensome Restrictions.    No Requirement of Law or Contractual Obligation of either Borrower or any of its Subsidiaries has a Material Adverse Effect.

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        6.22    Subsidiaries.    All of the Subsidiaries of the Guarantor at the date hereof are listed on Schedule 5 to this Warehouse Agreement.

        6.23    Origination and Acquisition of Mortgage Loans.    The Mortgage Loans were originated or acquired by the Borrowers, and the origination and collection practices used by the Borrowers or Qualified Originator, as applicable, with respect to the Mortgage Loans have been, in all material respects legal, proper, prudent and customary in the residential mortgage loan servicing business, and in accordance with the Underwriting Guidelines. With respect to Mortgage Loans acquired by the Borrowers, all such Mortgage Loans are in conformity with the Underwriting Guidelines. Each of the Mortgage Loans complies with the representations and warranties listed in Schedule 1 hereto.

        6.24    No Adverse Selection.    The Borrowers used no selection procedures that identified the Mortgage Loans as being less desirable or valuable than other comparable Mortgage Loans owned by the Borrowers.

        6.25    Borrowers Solvent; Fraudulent Conveyance.    As of the date hereof and immediately after giving effect to each Advance, the fair value of the assets of each Borrower is greater than the fair value of the liability (including, without limitation, contingent liabilities if and to the extent required to be recorded as a liability on the financial statements of such Borrower in accordance with GAAP) of such Borrower and such Borrower is and will be solvent, is and will be able to pay its debts as they mature and does not and will not have an unreasonably small capital to engage in the business in which it is engaged and proposes to engage. Each Borrower does not intend to incur, or believe that it has incurred, debt beyond its ability to pay such debts as they mature. Neither Borrower is contemplating the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of such Borrower or any of its assets. Neither Borrower is transferring any Collateral with any intent to hinder, delay or defraud any of its creditors.

        6.26    Insured Closing Letter.    As of the date hereof and as of the date of each delivery of a Wet Loan, the Borrower has obtained an Insured Closing Letter, closing protection letter or similar authorization letter from an Acceptable Title Company (or, with respect to any Mortgaged Property located in New York State, a comparable letter as customarily provided for closings occurring in such state), copies of which, upon request by the Lender, shall be delivered by the Borrower to the Lender prior to the related Funding Date. Upon request by the Lender, all such Insured Closing Letters or similar letters in possession of the Borrowers shall be made available for audit by the Lender or its designee.

        6.27    Escrow Letter.    As of the date hereof and as of the date of each delivery of a Wet Loan, the Settlement Agent has executed an Escrow Letter. Upon request by the Lender, all such escrow agreements in possession of the Borrowers shall be delivered to the Lender or made available for audit by the Lender or its designee, as requested by the Lender.

Section 7.    Covenants of the Borrowers.    The Borrowers covenant and agree with the Lender that, so long as any Advance is outstanding and until payment in full of all Secured Obligations:

        7.01    Financial Statements.    The Borrowers shall, and shall cause the Guarantor to, deliver to the Lender:

        (a)  (i) within 30 days after the end of each month, the consolidated balance sheets of such Loan Party as at the end of such month and the related unaudited consolidated statements of income and retained earnings and of cash flows for such Loan Party and its consolidated Subsidiaries for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, accompanied by a certificate of a Responsible Officer of the applicable Loan Party, which

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certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of such Loan Party and its Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such month (subject to normal year-end audit adjustments);

        (ii)  within 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year of such Loan Party, the consolidated balance sheets of such Loan Party as at the end of such period and the related unaudited consolidated statements of income and retained earnings and of cash flows for such Loan Party and its consolidated Subsidiaries for such period and the portion of the fiscal year through the end of such period, setting forth in each case in comparative form the figures for the previous year, accompanied by a certificate of a Responsible Officer of such Loan Party, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of such Loan Party and its Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments);

        (b)  within 90 days after the end of each fiscal year of such Loan Party, the consolidated balance sheets of such Loan Party and its consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for such Loan Party and its consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of such Loan Party and its consolidated Subsidiaries at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default or Event of Default;

        (c)  from time to time such other information regarding the financial condition, operations, or business of such Loan Party as the Lender may reasonably request; and

        (d)  as soon as reasonably possible, and in any event within thirty (30) days after a Responsible Officer knows, or with respect to any Plan or Multiemployer Plan to which each Borrower or any of its Subsidiaries makes direct contributions, has reason to believe, that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of such Borrower setting forth details respecting such event or condition and the action, if any, that such Borrower or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by such Borrower or an ERISA Affiliate with respect to such event or condition):

        (i)    any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation or otherwise waived the requirement of Section 4043(a) of ERISA that it be notified within thirty (30) days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan;

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        (ii)  the distribution under Section 4041(c) of ERISA of a notice of intent to terminate any Plan or any action taken by such Borrower or an ERISA Affiliate to terminate any Plan;

        (iii)  the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by such Borrower or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan;

        (iv)  the complete or partial withdrawal from a Multiemployer Plan by such Borrower or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by such Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA;

        (v)  the institution of a proceeding by a fiduciary of any Multiemployer Plan against such Borrower or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and

        (vi)  the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if such Borrower or an ERISA Affiliate fails to timely provide security to such Plan in accordance with the provisions of said Sections.

Each Borrower will furnish to the Lender, at the time it furnishes each set of financial statements pursuant to paragraphs (a) and (b) above, a certificate of a Responsible Officer of such Borrower to the effect that, to the best of such Responsible Officer's knowledge, such Borrower during such fiscal period or year has observed or performed all of its covenants and other agreements, and satisfied every material condition, contained in this Warehouse Agreement and the other Loan Documents to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate (and, if any Default or Event of Default has occurred and is continuing, describing the same in reasonable detail and describing the action such Borrower has taken or proposes to take with respect thereto).

        7.02    Litigation.    Each Borrower will promptly, and in any event within 7 days after service process on any of the following, give to the Lender notice of all legal or arbitrable proceedings affecting such Borrower or any of its Subsidiaries that questions or challenges the validity or enforceability of any of the Loan Documents or as to which there is a reasonable likelihood of adverse determination which would result in a Material Adverse Effect.

        7.03    Existence, Etc.    Each of the Borrowers, their Subsidiaries and the Qualified Originators will:

        (a)  preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (other than Subsidiaries which are not material to the business of the Borrowers);

        (b)  comply with the requirements of all applicable laws, rules, regulations and orders of Governmental Authorities (including, without limitation, truth in lending, real estate settlement procedures and all environmental laws) if failure to comply with such requirements would be reasonably likely (either individually or in the aggregate) to have a Material Adverse Effect;

        (c)  keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied;

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        (d)  not move its chief executive office or chief operating office from the addresses referred to in Section 6.13 unless it shall have provided the Lender 30 days prior written notice of such change (other than Subsidiaries which are not material to the business of the Borrowers);

        (e)  pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; and

        (f)    permit representatives of the Lender, during normal business hours upon three (3) Business Days' prior written notice at a mutually desirable time, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by the Lender.

        7.04    Prohibition of Fundamental Changes.    Neither Borrower shall enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) or sell all or substantially all of its assets; provided, that such Borrower may merge or consolidate with (a) any wholly owned subsidiary of such Borrower, or (b) any other Person if such Borrower is the surviving corporation; and provided further, that if after giving effect thereto, no Default would exist hereunder.

        7.05    Borrowing Base Deficiency.    If at any time there exists a Borrowing Base Deficiency the Borrowers shall cure same in accordance with Section 2.06 hereof.

        7.06    Notices.    The Borrowers shall give notice to the Lender promptly:

        (a)  upon either Borrower becoming aware of, and in any event within one (1) Business Day after, the occurrence of any Default or Event of Default or any material event of default or default under any other material agreement of such Borrower which has not been waived or cured;

        (b)  upon, and in any event within three (3) Business Days after, service of process on either Borrower or any of its Subsidiaries, or any agent thereof for service of process, in respect of any legal or arbitrable proceedings affecting such Borrower or any of its Subsidiaries (i) that questions or challenges the validity or enforceability of any of the Loan Documents or (ii) in which the amount in controversy exceeds $1,000,000;

        (c)  upon either Borrower becoming aware of any default related to any Collateral which would reasonably be expected to have a Material Adverse Effect and any event or change in circumstances which should reasonably be expected to have a Material Adverse Effect;

        (d)  upon either Borrower becoming aware during the normal course of its business that the Mortgaged Property in respect of any Mortgage Loan or Mortgage Loans with an aggregate unpaid principal balance of at least $1,000,000 has been damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or otherwise damaged so as to materially and adversely affect the Collateral Value of such Mortgage Loan;

        (e)  upon the entry of a judgment or decree in an amount in excess of $1,000,000;

        (f)    upon either Borrower becoming aware of any event or circumstance which, with notice or the passage of time, could result in a Material Adverse Effect.

Each notice pursuant to this Section 7.06 (other than 7.06(e)) shall be accompanied by a statement of a Responsible Officer of the applicable Borrower setting forth details of the occurrence referred to therein and stating what action such Borrower has taken or proposes to take with respect thereto.

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        7.07    Servicing.    Except as provided in Section 10.15(c), the Borrowers shall not permit any Person other than the Borrowers to service Mortgage Loans without the prior written consent of the Lender, which consent shall not be unreasonably withheld.

        7.08    Underwriting Guidelines.    In the event that either Borrower makes any amendment or modification to the Underwriting Guidelines, such Borrower shall promptly deliver to the Lender a complete copy of the amended or modified Underwriting Guidelines.

        7.09    Lines of Business.    Neither Borrower will engage to any substantial extent in any line or lines of business activity other than the businesses generally carried on by it as of the Effective Date.

        7.10    Transactions with Affiliates.    Neither Borrower will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (i) pursuant to such Borrower's executive loan program as approved from time to time by its Board of Directors or (ii)(a) otherwise permitted under this Warehouse Agreement, (b) in the ordinary course of such Borrower's business and (c) upon fair and reasonable terms no less favorable to such Borrower than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate, or make a payment that is not otherwise permitted by this Section 7.10 to any Affiliate.

        7.11    Application of Funding.    The Borrowers will use the funding hereunder solely to originate, fund, and purchase Mortgage Loans for the purpose of (a) pooling such Mortgage Loans prior to securitization, or (b) sale, in each case in the ordinary course of business.

        7.12    Limitation on Liens.    Neither Borrower will, nor will it permit or allow others to, create, incur or permit to exist any Lien, security interest or claim on or to any of the Collateral. The Borrowers will defend the Collateral against, and will take such other action as is necessary to remove, any Lien, security interest or claim on or to the Collateral, other than the security interests created under this Warehouse Agreement, and the Borrowers will defend the right, title and interest of the Lender in and to any of the Collateral against the claims and demands of all persons whomsoever.

        7.13    Limitation on Sale of Assets.    The Borrowers shall not convey, sell, lease, assign, transfer or otherwise dispose of (collectively, "Transfer"), all or substantially all of its Property, business or assets (including, without limitation, receivables and leasehold interests) whether now owned or hereafter acquired or allow any Subsidiary to Transfer substantially all of its assets to any Person; provided, that either Borrower may after prior written notice to the Lender allow such action with respect to any Subsidiary which is not a material part of the Borrower's overall business operations.

        7.14    Limitation on Distributions.    Without the Lender's consent, Aames Capital shall not make any payment on account of, or set apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of, any stock or senior or subordinate debt of Aames Capital, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Aames Capital, provided, however, nothing herein shall restrict the ability of Aames Capital to pay dividends to the Guarantor.

        7.15    Maintenance of Liquidity.    Aames Capital has cash, Cash Equivalents and unused borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse and repurchase facilities (other than the Capital Z Residual Sale Agreement) in an amount equal to not less than $1,000,000.

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        7.16    Maintenance of Tangible Net Worth.    The Tangible Net Worth of Aames Capital shall be $315,000,000 at all times during the term of this Warehouse Agreement.

        7.17    Committed Warehouse Facilities.    Aames Capital at all times has (a) available capacity under committed revolving facilities, other than the Lender's committed revolving facility, greater than or equal to $100,000,000, and (b) committed wet funding revolving facilities with an entity (other than the Lender) that provide funding in the aggregate of at least $35 million.

        7.18    [Intentionally Omitted]

        7.19    Servicing Transmission.    The Borrowers shall provide to the Lender no later than 11:00 a.m. eastern time two Business Days prior to each Payment Date (or such other day requested by Lender) (i) the Servicing Transmission, on a loan-by-loan basis and in the aggregate, with respect to the Mortgage Loans serviced hereunder by Aames Capital which were funded prior to the first day of the current month, summarizing Aames Capital's delinquency and loss experience with respect to Mortgage Loans serviced by Aames Capital (including, in the case of the Mortgage Loans, the following categories: current, 30-59, 60-89 and 90+) and (ii) any other information reasonably requested by the Lender with respect to the Mortgage Loans.

        7.20    No Amendment or Waiver.    Neither Borrower will, nor will it permit or allow others to amend, modify, terminate or waive any provision of any Mortgage Loan to which such Borrower is a party in any manner which shall reasonably be expected to materially and adversely affect the value of such Mortgage Loan as Collateral.

        7.21    Maintenance of Property; Insurance.    The Borrowers shall (a) keep all property useful and necessary in its business in good working order and condition; and maintain errors and omissions insurance and/or mortgage impairment insurance and blanket bond coverage in such amounts as are in effect on the Effective Date (as disclosed to Lender in writing) and shall not reduce such coverage without the written consent of the Lender, and shall also maintain such other insurance with financially sound and reputable insurance companies, and with respect to property and risks of a character usually maintained by entities engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such entities.

        7.22    Further Identification of Collateral.    The Borrowers will furnish to the Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender or any Lender may reasonably request, all in reasonable detail.

        7.23    Mortgage Loan Determined to be Defective.    Upon discovery by the Borrowers or the Lender of any breach of any representation or warranty listed on Schedule 1 hereto applicable to any Mortgage Loan, the party discovering such breach shall promptly give notice of such discovery to the other.

        7.24    Interest Rate Protection Agreements.    Upon the Lender's request, the Borrowers shall deliver to the Lender any and all information relating to Interest Rate Protection Agreements.

        7.25    Covenants of the Borrowers with respect to the Collateral.    (a) The Borrowers shall permit the Lender to inspect its books and records relating to any of the Collateral and other matters relating to the transactions contemplated hereby, upon reasonable prior notice and during normal business hours.

        (b)  If the Borrowers shall, as a result of its ownership of the Collateral (other than Mortgage Loans), become entitled to receive or shall receive any rights, whether in addition to, in substitution of, as a conversion of, or in exchange for the Collateral (other than Mortgage Loans), or otherwise in respect thereof, the Borrowers shall accept the same as the

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Lender's agent, hold the same in trust for the Lender and deliver the same forthwith to the Lender in the exact form received, duly indorsed by the applicable Borrower to the Lender, if required, together with an undated bond power covering such certificate duly executed in blank and with, if the Lender so requests, signature guaranteed, to be held by the Lender hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Collateral (other than Mortgage Loans) shall be received by either Borrower, such Borrower shall, until such money or property is paid or delivered to the Lender as required hereunder, hold such money or property in trust for the Lender, segregated from other funds of such Borrower, as additional collateral security for the Obligations.

        (c)  At any time and from time to time, upon the written request of Lender, and at the sole expense of the Borrowers, the Borrowers will promptly and duly execute and deliver such further instruments and documents and take such further actions as Lender may reasonably request for the purposes of obtaining or preserving the full benefits of this Warehouse Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any instrument (including any certificated security or promissory note) or chattel paper (in each case as defined in the Uniform Commercial Code), such instrument or chattel paper shall be immediately delivered to Lender, duly endorsed in a manner satisfactory to Lender, to be held as Collateral pursuant to this Warehouse Agreement. Prior to such delivery, the Borrowers shall hold all such instruments or chattel paper in trust for Lender, and shall not commingle any of the foregoing with any assets of the Borrowers.

        (d)  The Borrowers shall pay, and save Lender harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Warehouse Agreement.

        7.26    Certificate of a Responsible Officer of each Borrower.    At the time that each Borrower delivered financial statements to the Lender in accordance with Section 7.01 hereof, such Borrower shall, and shall cause the Guarantor to, forward to the Lender a certificate of a Responsible Officer of such Borrower which demonstrates that such Borrower or the Guarantor, as applicable, is in compliance with the covenants set forth in Sections 7.15, 7.16 and 7.17.

        7.27    Deposit of Collections.    Upon the request of the Lender, after the occurrence of a Default, the Borrowers shall deposit all Collections received on account of the Collateral into one or more segregated accounts holding exclusively proceeds received with respect to the Collateral for the sole benefit of the Lender. The Borrowers shall remit all Collections received by the Borrowers to the Lender no later than the next Payment Date, accompanied by a report with sufficient detail to enable the Lender to appropriately identify the Collateral to which any amount remitted applies. The Lender shall apply all amounts so remitted in accordance with the provisions set forth in Section 3.03 hereof.

Section 8.    Events of Default.    Each of the following events shall constitute an event of default (an "Event of Default") hereunder:

        (a)  either Borrower shall default in the payment of any principal of or interest on any Advance (whether at stated maturity, upon acceleration or at mandatory prepayment) or the Guarantor shall default in the payment of any amount required to be paid by it under the Guaranty; or

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        (b)  any Loan Party shall default in the payment of any other amount payable by it hereunder or under any other Loan Document after notification by the Lender of such default, and such default shall have continued unremedied for three Business Days; or

        (c)  any representation, warranty or certification made or deemed made herein or in any other Loan Document by either Borrower or the Guarantor or any certificate furnished to the Lender pursuant to the provisions thereof, shall prove to have been false or misleading in any material respect as of the time made or furnished (other than the representations and warranties set forth in Schedule 1 which shall be considered solely for the purpose of determining the Collateral Value of the Mortgage Loans; unless such Borrower shall have made any such representations and warranties with knowledge that they were materially false or misleading at the time made); or

        (d)  Aames Capital shall (or, if there are any outstanding Tranche B Advances outstanding, Aames Funding shall) fail to comply with the requirements of any of Sections 7.03, 7.04, 7.05, 7.06, 7.09, 7.10, 7.11, 7.12, 7.13, 7.14, 7.15, 7.16, 7.17, 7.22 or 7.25 hereof or the Guarantor shall fail to comply with the requirements of Section 3(b) of the Guaranty; or either Borrower shall otherwise fail to observe or perform any other agreement contained in this Warehouse Agreement or any other Loan Document and such failure to observe or perform shall continue unremedied for a period of five (5) Business Days; or

        (e)  a final judgment or judgments for the payment of money in excess of $2,000,000 in the aggregate (to the extent that it is, in the reasonable determination of the Lender, uninsured and provided that any insurance or other credit posted in connection with an appeal shall not be deemed insurance for these purposes) shall be rendered against either Borrower or any of its Subsidiaries by one or more courts, administrative tribunals or other bodies having jurisdiction over them and the same shall not be discharged (or provision shall not be made for such discharge) or bonded, or a stay of execution thereof shall not be procured, within 60 days from the date of entry thereof and such Borrower or any such Subsidiary shall not, within said period of 60 days, or such longer period during which execution of the same shall have been stayed or bonded, appeal therefrom and cause the execution thereof to be stayed during such appeal; or

        (f)    any Loan Party or any of its Affiliates shall admit in writing its inability to pay its debts as such debts become due; or

        (g)  any Loan Party or any of its Affiliates shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate or other action for the purpose of effecting any of the foregoing; or

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        (h)  a proceeding or case shall be commenced, without the application or consent of any Loan Party or any of its Affiliates, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of such Loan Party or any such Affiliate or of all or any substantial part of its property, or (iii) similar relief in respect of such Loan Party or any such Affiliate under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against such Loan Party or any such Affiliate shall be entered in an involuntary case under the Bankruptcy Code; or

        (i)    the Custodial Agreement or any Loan Document shall for whatever reason (including an event of default thereunder) be terminated or the lien on the Collateral created by this Warehouse Agreement or either Borrower's material obligations hereunder shall cease to be in full force and effect, or the enforceability thereof shall be contested by either Borrower; or

        (j)    any material adverse change in the Properties, business or financial condition, or prospects of any Loan Party or any of its Affiliates or any Qualified Originator, in each case as determined by the Lender in its sole discretion, or the existence of any other condition which, in the Lender's sole discretion, constitutes a material impairment of either Borrower's ability to perform its obligations under this Warehouse Agreement, the Note or any other Loan Document or the ability of any Affiliate of such Borrower to perform its obligations under any agreement between such Affiliate and the Lender or an Affiliate of the Lender; or

        (k)  (i) any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of either Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) either Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Lenders is likely to, incur any liability in connection with a withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or

        (l)    the Guarantor shall own less than 100% of the outstanding capital stock of the Borrowers; or

        (m)  either Borrower shall grant, or suffer to exist, any Lien on any Collateral except the Liens contemplated hereby; or the Liens contemplated hereby shall cease to be first priority perfected Liens on the Collateral in favor of the Lender or shall be Liens in favor of any Person other than the Lender; or

        (n)  either Borrower or any of its subsidiaries or Affiliates shall default under, or fail to perform as required under, or shall otherwise materially breach the terms of any instrument,

39

agreement or contract between such Borrower or such other entity, on the one hand, and Lender or any of the Lender's Affiliates, on the other; or

        (o)  any Loan Party or its Affiliates shall default under or fail to perform as requested under, the terms of any repurchase agreement, loan and security agreement or similar credit facility or agreement for borrowed funds or any other material agreement entered into by such Loan Party or its Affiliate and any third party, which default or failure entitles any party to require acceleration or prepayment of any indebtedness thereunder; or

        (p)  the Lender shall reasonably request, specifying the reasons for such request, information, and/or written responses to such requests, regarding the financial well-being of any Loan Party and such information and/or responses shall not have been provided within three Business Days of such request; or

        (q)  The discovery by the Lender after the date hereof of a condition or event which existed at or prior to the execution hereof which has not been previously publicly disclosed by Aames Capital or the Guarantor or of which the Lender did not have actual knowledge on the date hereof and which the Lender, in its sole reasonable discretion, determines materially and adversely affects: (i) the condition (financial or otherwise) of either Borrower, its Subsidiaries or Affiliates; or (ii) the ability of either Borrower to fulfill its respective obligations under this Agreement.

        8.02    Remedies Upon Default.    (a) If an Event of Default shall have occurred and be continuing, at any time at the Lender's election, the Lender may apply all or any part of the Proceeds of the Collateral, including any Tranche A Collections and Tranche B Collections, in the payment of the Secured Obligations in the following order of priority:

        (i)    FIRST, to the payment of all reasonable costs and expenses incurred by the Lender in connection with this Warehouse Agreement, the Note, any other Loan Document or any of the Obligations, including, without limitation, all court costs and the reasonable costs or expenses incurred in connection with the exercise by the Lender of any right or remedy under this Warehouse Agreement, the Note or any other Loan Document;

        (ii)  SECOND, to the satisfaction of all other Secured Obligations; and

        (iii)  THIRD, any excess to the Borrower or any other Person as directed by the Borrower in writing.

        (b)  Upon the occurrence of one or more Events of Default (subject to the expiration of the applicable cure period contained therein) other than those referred to in Section 8(g) or (h), the Lender may immediately declare the principal amount of the Advances then outstanding under the Note to be immediately due and payable, together with all interest thereon and reasonable fees and out-of-pocket expenses accruing under this Warehouse Agreement; provided that upon the occurrence of an Event of Default referred to in Sections 8(g) or (h), such amounts shall immediately and automatically become due and payable without any further action by any Person. Upon such declaration or such automatic acceleration, the balance then outstanding on the Note shall become immediately due and payable, without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrowers and may thereupon exercise any remedies available to it at law and pursuant to the Loan Documents. An Event of Default shall be deemed to be continuing unless expressly waived by the Lender in writing.

        (c)  Upon the occurrence of one or more Events of Default, the Lender shall have the right to obtain physical possession of the Servicing Records and all other files of the

40

Borrowers relating to the Collateral and all documents relating to the Collateral which are then or may thereafter come in to the possession of the Borrowers or any third party acting for the Borrowers and the Borrowers shall deliver to the Lender such assignments as the Lender shall request. The Lender shall be entitled to specific performance of all agreements of the Borrowers contained in this Warehouse Agreement.

Section 9.    No Duty on Lender's Part.    The powers conferred on the Lender hereunder are solely to protect the Lender's interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Borrowers for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct.

Section 10.    Miscellaneous.

        10.01    Waiver.    No failure on the part of the Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

        10.02    Notices.    Except as otherwise expressly permitted by this Warehouse Agreement, all notices, requests and other communications provided for herein and under the Custodial Agreement (including, without limitation, any modifications of, or waivers, requests or consents under, this Warehouse Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof); or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. Except as otherwise provided in this Warehouse Agreement and except for notices given under Section 2 (which shall be effective only on receipt), all such communications shall be deemed to have been duly given when transmitted by telex or telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.

        10.03    Indemnification and Expenses.    (a) The Borrowers and the Guarantor agree to hold the Lender harmless from and indemnify the Lender against all liabilities, losses, damages, judgments, costs and expenses of any kind which may be imposed on, incurred by, or asserted against the Lender, relating to or arising out of, this Warehouse Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Warehouse Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, that, in each case, results from anything other than the Lender's gross negligence or willful misconduct. In any suit, proceeding or action brought by the Lender in connection with any Mortgage Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage Loan, the Borrowers will save, indemnify and hold the Lender harmless from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by the Borrowers of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from the Borrowers. The Borrowers also agree to reimburse the Lender as and when billed by the Lender for all the Lender's reasonable out-of-pocket costs and expenses incurred in connection with the enforcement or the preservation of the Lender's rights under this Warehouse Agreement, the Note, any other Loan Document or any transaction contemplated hereby or thereby, including

41

without limitation the reasonable fees and disbursements of its counsel. The Borrowers hereby acknowledge that, notwithstanding the fact that the Note is secured by the Collateral, the obligation of the Borrowers under the Note is a recourse obligation of the Borrowers.

        (b)  The Borrowers agree to pay as and when billed by the Lender all of the out-of pocket costs and expenses incurred by the Lender in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Warehouse Agreement, the Note, any other Loan Document or any other documents prepared in connection herewith or therewith. The Borrowers agree to pay as and when billed by the Lender all of the out-of-pocket costs and expenses incurred in connection with the consummation and administration of the transactions contemplated hereby and thereby including, without limitation, (i) all the reasonable fees, disbursements and expenses of counsel to the Lender in connection with the execution of this Warehouse Agreement, (ii) all the due diligence, inspection, testing and review costs and expenses incurred by the Lender with respect to Collateral under this Warehouse Agreement, including, but not limited to, those costs and expenses incurred by the Lender pursuant to Sections 10.03(a), 10.14 and 10.16 hereof other than any costs and expenses incurred in connection with the Lender's rehypothecation of the Mortgage Loans prior to an Event of Default and (iii) initial and ongoing fees and expenses incurred by the Custodian in connection with the performance of its duties under the Custodial Agreement.

        10.04    Amendments.    Except as otherwise expressly provided in this Warehouse Agreement, any provision of this Warehouse Agreement may be modified or supplemented only by an instrument in writing signed by the Borrowers and the Lender and any provision of this Warehouse Agreement may be waived by the Lender.

        10.05    Successors and Assigns.    This Warehouse Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

        10.06    Survival.    The obligations of the Borrowers under Section 10.03 hereof shall survive the repayment of the Advances and the termination of this Warehouse Agreement. In addition, each representation and warranty made, or deemed to be made by a request for a borrowing, herein or pursuant hereto shall survive the making of such representation and warranty, and the Lender shall not be deemed to have waived, by reason of making any Advance, any Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that the Lender may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such Advance was made.

        10.07    Captions.    The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Warehouse Agreement.

        10.08    Counterparts.    This Warehouse Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Warehouse Agreement by signing any such counterpart.

        10.09    Warehouse Agreement Constitutes Security Agreement; Governing Law.    This Warehouse Agreement shall be governed by New York law without reference to choice of law doctrine (but with reference to Section 5-1401 of the New York General Obligations Law, which by its terms applies to this Warehouse Agreement), and shall constitute a security agreement within the meaning of the Uniform Commercial Code.

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        10.10SUBMISSION TO JURISDICTION; WAIVERS.EACH LOAN PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY:

(A)  SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS WAREHOUSE AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;

        (B)  CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

        (C)  AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND

        (D)  AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

        10.11WAIVER OF JURY TRIAL.EACH OF THE BORROWERS AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS WAREHOUSE AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

        10.12    Acknowledgments.    Each Borrower hereby acknowledges that:

        (a)  it has been advised by counsel in the negotiation, execution and delivery of this Warehouse Agreement, the Note and the other Loan Documents to which it is a party;

        (b)  the Lender has no fiduciary relationship to such Borrower, and the relationship between such Borrower and the Lender is solely that of debtor and creditor; and

        (c)  no joint venture exists among or between the Lender and such Borrower.

        10.13    Hypothecation or Pledge of Collateral.    The Lender shall have free and unrestricted use of all Collateral and nothing in this Warehouse Agreement shall preclude the Lender from engaging in repurchase transactions with the Collateral or otherwise pledging, repledging, transferring, hypothecating, or rehypothecating the Collateral. Nothing contained in this Warehouse Agreement shall obligate the Lender to segregate any Collateral delivered to the Lender by the Borrowers.

        10.14    Assignments; Participations.    (a) Each Borrower may assign any of its rights or obligations hereunder or under the Note with the prior written consent of the Lender which consent shall not be unreasonably withheld. The Lender may assign or transfer to any bank or

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other financial institution that makes or invests in loans or any Affiliate of the Lender all or any of its rights or obligations under this Warehouse Agreement and the other Loan Documents.

        (b)  The Lender may, in accordance with applicable law, at any time sell to one or more lenders or other entities ("Participants") participating interests in any Advance, the Note, its commitment to make Advances, or any other interest of the Lender hereunder and under the other Loan Documents. In the event of any such sale by the Lender of participating interests to a Participant, the Lender's obligations under this Warehouse Agreement to the Borrowers shall remain unchanged, the Lender shall remain solely responsible for the performance thereof, the Lender shall remain the holder of the Note for all purposes under this Warehouse Agreement and the other Loan Documents, and the Borrowers and the Lender shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations under this Warehouse Agreement and the other Loan Documents. The Borrowers agree that if amounts outstanding under this Warehouse Agreement and the Note are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Warehouse Agreement and the Note to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Warehouse Agreement or the Note; provided, that such Participant shall only be entitled to such right of set-off if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Lender the proceeds thereof. The Lender also agrees that each Participant shall be entitled to the benefits of Sections 2.07 and 10.03 with respect to its participation in the Advances outstanding from time to time; provided, that the Lender and all Participants shall be entitled to receive no greater amount in the aggregate pursuant to such Sections than the Lender would have been entitled to receive had no such transfer occurred.

        (c)  The Lender may furnish any information concerning the Borrowers or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants) only after notifying the Borrowers in writing and securing signed confidentiality statements (a form of which is attached hereto as Exhibit I) and only for the sole purpose of evaluating participations and for no other purpose.

        (d)  The Borrowers agree to cooperate with the Lender in connection with any such assignment and/or participation, to execute and deliver such replacement notes, and to enter into such restatements of, and amendments, supplements and other modifications to, this Warehouse Agreement and the other Loan Documents in order to give effect to such assignment and/or participation. Each Borrower further agrees to furnish to any Participant identified by the Lender to the Borrower copies of all reports and certificates to be delivered by such Borrower to the Lender hereunder, as and when delivered to the Lender.

        10.15    Servicing.    (a) The Borrowers covenant to maintain or cause the servicing of the Mortgage Loans to be maintained in conformity with Accepted Servicing Practices. In the event that the preceding language is interpreted as constituting one or more servicing contracts, each such servicing contract shall terminate automatically upon the earliest of (i) an Event of Default, or (ii) the date on which all the Secured Obligations have been paid in full, or (iii) the transfer of servicing to any entity approved by the Lender.

        (b)  During the period the each Borrower is servicing the Mortgage Loans, (i) such Borrower agrees that Lender has a first priority perfected security interest in all servicing records, including but not limited to any and all servicing agreements, files, documents, records, data bases, computer tapes, copies of computer tapes, proof of insurance coverage, insurance policies, appraisals, other closing documentation, payment history records, and any

44

other records or rights relating to or evidencing the servicing of such Mortgage Loans (the "Servicing Records"), and (ii) such Borrower grants the Lender a security interest in all servicing fees and rights relating to the Mortgage Loans and all Servicing Records to secure the obligation of such Borrower or its designee to service in conformity with this Section and any other obligation of such Borrower to the Lender. The Borrowers covenant to safeguard such Servicing Records and to deliver them promptly to the Lender or its designee (including the Custodian) at the Lender's request. It is understood and agreed by the parties that prior to an Event of Default, the Borrowers shall retain the servicing fees with respect to the Mortgage Loans.

        (c)  If the Mortgage Loans are serviced by any other third party servicer (such third party servicer, the "Subservicer"), the applicable Borrower shall provide a copy of the related servicing agreement with a properly executed Instruction Letter to the Lender at least three (3) Business Days prior to the applicable Funding Date or the date on which the Subservicer shall begin subservicing the Mortgage Loans, which shall be in the form and substance acceptable to Lender (the "Servicing Agreement") and shall have obtained the written consent of the Lender for such Subservicer to subservice the Mortgage Loans. Initially, the Subservicer shall be Aames Funding.

        (d)  The Borrowers agree that upon the occurrence of an Event of Default, the Lender may terminate the Borrowers in their capacity as servicer and terminate any Servicing Agreement and transfer such servicing to the Lender or its designee, at no cost or expense to the Lender. In addition, each Borrower shall provide to the Lender an Instruction Letter from such Borrower to the effect that upon the occurrence of an Event of Default, the Lender may terminate any Subservicer or Servicing Agreement and direct that collections with respect to the Mortgage Loans be remitted in accordance with the Lender's instructions. The Borrowers agree to cooperate with the Lender in connection with the transfer of servicing.

        (e)  After the Funding Date, until the pledge of any Mortgage Loan is relinquished by the Custodian, the Borrowers will have no right to modify or alter the terms of the Mortgage Loan or consent to the modification or alteration of the terms of any Mortgage Loan, and the Borrowers will have no obligation or right to repossess any Mortgage Loan or substitute another Mortgage Loan, except as provided in any Custodial Agreement.

        (f)    The Borrowers shall permit the Lender to inspect upon reasonable prior written notice (which shall be no more than five (5) Business Days prior to such date) at a mutually convenient time, the Borrowers' or their Affiliate's servicing facilities, as the case may be, for the purpose of satisfying the Lender that the Borrowers or their Affiliate, as the case may be, has the ability to service the Mortgage Loans as provided in this Warehouse Agreement. In addition, with respect to any Subservicer which is not an Affiliate of either Borrower, the applicable Borrower shall use its best efforts to enable the Lender to inspect the servicing facilities of such Subservicer.

        10.16    Periodic Due Diligence Review.    The Borrowers acknowledge that the Lender has the right to perform continuing due diligence reviews with respect to the Mortgage Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, or otherwise, and each Borrower agrees that upon reasonable (but no less than one (1) Business Day's) prior notice to such Borrower, the Lender or its authorized representatives will be permitted during normal business hours to examine, inspect, make copies of, and make extracts of, the Mortgage Files and any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession, or under the control, of such Borrower and/or the Custodian. The Borrowers also shall make available to the Lender a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Mortgage Files and the

45

Mortgage Loans. Without limiting the generality of the foregoing, the each Borrower acknowledges that the Lender shall make Advances to the Borrowers based solely upon the information provided by the Borrowers to the Lender in the Mortgage Loan Data Transmission and the representations, warranties and covenants contained herein, and that the Lender, at its option, has the right, at any time to conduct a partial or complete due diligence review on some or all of the Mortgage Loans securing such Advance, including, without limitation, ordering new credit reports, new appraisals on the related Mortgaged Properties and otherwise re-generating the information used to originate such Mortgage Loan. The Lender may underwrite such Mortgage Loans itself or engage a mutually agreed upon third party underwriter to perform such underwriting. Each Borrower agrees to cooperate with the Lender and any third party underwriter in connection with such underwriting, including, but not limited to, providing the Lender and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession, or under the control, of such Borrower. In addition, the Lender has the right to perform continuing Due Diligence Reviews of each Borrower and its Affiliates, directors, officers, employees and significant shareholders. The Borrowers and Lender further agree that all out-of-pocket costs and expenses incurred by the Lender in connection with the Lender's activities pursuant to this Section 10.16 shall be paid for as agreed by such parties.

        10.17    Set-Off.    In addition to any rights and remedies of the Lender provided by this Warehouse Agreement and by law, the Lender shall have the right, without prior notice to the Borrowers, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrowers hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all Property and deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lender or any Affiliate thereof to or for the credit or the account of the Borrowers. The Lender may set-off cash, the proceeds of the liquidation of any Collateral and all other sums or obligations owed by the Lender or its Affiliates to the Borrowers against all of the Borrowers' obligations to the Lender or its Affiliates, whether under this Warehouse Agreement or under any other agreement between the parties or between the Borrowers and any affiliate of the Lender, or otherwise, whether or not such obligations are then due, without prejudice to the Lender's or its Affiliate's right to recover any deficiency. The Lender agrees promptly to notify the Borrowers after any such set-off and application made by the Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application.

        10.18    Intent.    The parties recognize that each Advance is a "securities contract" as that term is defined in Section 741 of Title 11 of the United States Code, as amended.

        10.19    Joint and Several Liability.    Each Borrower hereby acknowledges and agrees that such Borrower shall be jointly and severally liable for all representations, warrants, covenants, obligations and indemnities of the Borrowers hereunder.

[SIGNATURE PAGES FOLLOW]

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        IN WITNESS WHEREOF, the parties hereto have caused this Warehouse Agreement to be duly executed and delivered as of the day and year first above written.

BORROWER
AAMES CAPITAL CORPORATION
By:	Name: Title:
Address for Notices: 350 South Grand Avenue Los Angeles, California 90071 Attention: Chief Financial Officer Telecopier No.: (323) 210-5551 Telephone No.: (323) 210-5276
With a copy to:
Attention: Vice President/Treasury Telecopier No.: (323) 210-5036 Telephone No.: (323) 210-5036
With a copy to:
Attention: General Counsel Telecopier No.: (323) 210-5026 Telephone No.: (323) 210-4871
BORROWER
AAMES FUNDING CORPORATION
By:	Name: Title:
Address for Notices:
350 South Grand Avenue Los Angeles, California 90071 Attention: Chief Financial Officer Telecopier No.: (323) 210-5551 Telephone No.: (323) 210-5276
With a copy to:
Attention: Vice President/Treasury Telecopier No.: (323) 210-5036 Telephone No.: (323) 210-5036
With a copy to:

Attention: General Counsel Telecopier No.: (323) 210-5026 Telephone No.: (323) 210-4871
LENDER
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By:	Name: Title:
Address for Notices:
600 Steamboat Road Greenwich, Connecticut 06830 Attention: John Anderson Telecopier No.: (203) 618-2135 Telephone No.: (203) 625-7941
With a copy to:
Attention: General Counsel Telecopier No.: (203) 618-2132 Telephone No.: (203) 625-2700

Schedule 1

REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS

Eligible Mortgage Loans

        As to each Mortgage Loan that forms part of the Collateral hereunder (and the related Mortgage, Mortgage Note, Assignment of Mortgage and Mortgaged Property), each Borrower shall be deemed to make the following representations and warranties to the Lender as of such date and as of each date Collateral Value is determined:

(a)

Mortgage Loans as Described. The information set forth in the Mortgage Loan Data Transmission with respect to the Mortgage Loan is complete, true and correct in all material respects.



(2)

Payments Current. The Mortgagor has made its first Monthly Payment within forty-five days of the related Due Date.



(3)

No Outstanding Charges. There are no defaults in complying with the terms of the Mortgage securing the Mortgage Loan, and all taxes, governmental assessments, insurance premiums, water, sewer and municipal charges, leasehold payments or ground rents which 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 which remains unpaid and which has been assessed but is not yet due and payable. Neither the Borrower nor the Qualified Originator from which the Borrower acquired the Mortgage Loan has 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 under the Mortgage Loan, except for interest accruing from the date of the Mortgage Note or date of disbursement of the proceeds of the Mortgage Loan, whichever is more recent, to the day which precedes by one month the Due Date of the first installment of principal and interest thereunder.



(4)

Original Terms Unmodified. The terms of the Mortgage Note and Mortgage have not been impaired, waived, altered or modified in any respect, from the date of origination; except by a written instrument which has been recorded, if necessary to protect the interests of the Lender, and which has been delivered to the Custodian and the terms of which are reflected in the Mortgage Loan Schedule. The substance of any such waiver, alteration or modification has been approved by the title insurer, to the extent required by the title insurance policy, and its terms are reflected on the Mortgage Loan Schedule. No Mortgagor in respect of the Mortgage Loan has been released, in whole or in part, except in connection with an assumption agreement approved by the title insurer, to the extent required by such policy, and which assumption agreement is part of the Mortgage File delivered to the Custodian and the terms of which are reflected in the Mortgage Loan Schedule.



(5)

No Defenses. The Mortgage Loan is not subject to any right of rescission, setoff, counterclaim or defense, including without limitation the defense of usury, 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 and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto, and no Mortgagor in respect of the Mortgage Loan was a debtor in any state or Federal bankruptcy or insolvency proceeding at the time the Mortgage Loan was originated.



(6)

Hazard Insurance. The Mortgaged Property is insured by a fire and extended perils insurance policy, issued by a Qualified Insurer, and such other hazards as are customary in the area where the Mortgaged Property is located, and to the extent required by the Borrower as of the date of origination consistent with the Underwriting Guidelines, against earthquake and other risks insured against by Persons operating like properties in the locality of the

Mortgaged Property, in an amount not less than the greatest of (i) 100% of the replacement cost of all improvements to the Mortgaged Property, (ii) either (A) the outstanding principal balance of the Mortgage Loan with respect to each First Lien Mortgage Loan or (B) with respect to each Second Lien Mortgage Loan, the sum of the outstanding principal balance of the First Lien Mortgage Loan and the outstanding principal balance of the Second Lien Mortgage Loan, (iii) the amount necessary to avoid the operation of any co-insurance provisions with respect to the Mortgaged Property, and consistent with the amount that would have been required as of the date of origination in accordance with the Underwriting Guidelines or (iv) the amount necessary to fully compensate for any damage or loss to the improvements that are a part of such property on a replacement cost basis. If any portion of the Mortgaged Property is in an area identified by any federal Governmental Authority as having special flood hazards, and flood insurance is available, a flood insurance policy meeting the current guidelines of the Federal Insurance Administration is in effect with a generally acceptable insurance carrier, in an amount representing coverage not less than the least of (1) the outstanding principal balance of the Mortgage Loan, (2) the full insurable value of the Mortgaged Property, and (3) the maximum amount of insurance available under the Flood Disaster Protection Act of 1973, as amended. All such insurance policies (collectively, the "hazard insurance policy") contain a standard mortgagee clause naming the Borrower, its successors and assigns (including without limitation, subsequent owners of the Mortgage Loan), as mortgagee, and may not be reduced, terminated or canceled without 30 days' prior written notice to the mortgagee. No such notice has been received by the Borrower. All premiums due and owing on such insurance policy have been paid. The related Mortgage obligates the Mortgagor to maintain all such insurance and, at such Mortgagor's failure to do so, authorizes the mortgagee to maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from such Mortgagor. Where required by state law or regulation, the Mortgagor has been given an opportunity to choose the carrier of the required hazard insurance, provided the policy is not a "master" or "blanket" hazard insurance policy covering a condominium, or any hazard insurance policy covering the common facilities of a planned unit development. The hazard insurance policy is the valid and binding obligation of the insurer and is in full force and effect. The Borrower has not engaged in, and has no knowledge of the Mortgagor's having engaged in, any act or omission which would impair the coverage of any such policy, the benefits of the endorsement provided for herein, or the validity and binding effect of either including, without limitation, no unlawful fee, commission, kickback or other unlawful compensation or value of any kind has been or will be received, retained or realized by any attorney, firm or other Person, and no such unlawful items have been received, retained or realized by the Borrower.

(7)

Compliance with Applicable Laws. Any and all requirements of any federal, state or local law including, without limitation, usury, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws applicable to the Mortgage Loan have been complied with, the consummation of the transactions contemplated hereby will not involve the violation of any such laws or regulations, and the Borrower shall maintain or shall cause its agent to maintain in its possession, available for the inspection of the Lender, and shall deliver to the Lender, upon two Business Days' request, evidence of compliance with all such requirements.



(8)

No Satisfaction of Mortgage. The Mortgage has not been satisfied, canceled, subordinated or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole-or in part, nor has any instrument been executed that would effect any such release, cancellation, subordination or rescission other than in the case of a release of a portion of the land comprising a Mortgaged Property or a release of a blanket Mortgage which release will not cause the Mortgage Loan to fail to satisfy the Underwriting

2

Guidelines. The Borrower has not waived the performance by the Mortgagor of any action, if the Mortgagor's failure to perform such action would cause the Mortgage Loan to be in default, nor has the Borrower waived any default resulting from any action or inaction by the Mortgagor.

(9)

Location and Type of Mortgaged Property. The Mortgaged Property is located in the state identified in the Mortgage Loan Schedule and consists of a single parcel of real property with a detached single family residence erected thereon, or a two- to four-family dwelling, or an individual condominium unit in a condominium project, or an individual unit in a planned unit development or a de minimis planned unit development, provided, however, that any condominium unit or planned unit development shall conform with the applicable FNMA and FHLMC requirements regarding such dwellings, that a de minimus percentage of the Mortgage Loans may be Cooperative Loans subject to a land trust and that no residence or dwelling is a mobile home or a manufactured dwelling. No portion of the Mortgaged Property is used for commercial purposes.



(10)

Valid Lien. The Mortgage is (or with respect to a Wet Loan shall upon recordation be) a valid, subsisting, enforceable and perfected (A) first lien and first priority security interest with respect to each Mortgage Loan which is indicated by the Borrower to be a First Lien (as reflected on the Mortgage Loan Data Transmission), or (B) second lien and second priority security interest with respect to each Mortgage Loan which is indicated by the Borrower to be a Second Lien (as reflected on the Mortgage Loan Data Transmission), in either case, on the real property included in the Mortgaged Property, including all buildings on the Mortgaged Property and all installations and mechanical, electrical, plumbing, heating and air conditioning systems located in or annexed to such buildings, and all additions, alterations and replacements made at any time with respect to the foregoing and with respect to Cooperative Loans, including the Proprietary Lease and the Cooperative Shares. The lien of the Mortgage is (or with respect a Wet Loan upon funding shall be) subject only to:



(1)

the lien of current real property taxes and assessments not yet due and payable;



(2)

covenants, conditions and restrictions, rights of way, easements and other matters of the public record as of the date of recording acceptable to prudent mortgage lending institutions generally and specifically referred to in the Lender's title insurance policy delivered to the originator of the Mortgage Loan and (a) referred to or otherwise considered in the appraisal made for the originator of the Mortgage Loan or (b) which do not adversely affect the Appraised Value of the Mortgaged Property set forth in such appraisal;



(3)

other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage or the use, enjoyment, value or marketability of the related Mortgaged Property; and



(4)

with respect to each Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan Data Transmission) a First Lien on the Mortgaged Property.

Any security agreement, chattel mortgage or equivalent document related to and delivered in connection with the Mortgage Loan establishes and creates a valid, subsisting and enforceable (A) first lien and first priority security interest with respect to each Mortgage Loan which is indicated by the Borrower to be a First Lien (as reflected on the Mortgage Loan Data Transmission), or (B) second lien and second priority security interest with respect to each Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan Data Transmission), in either case, on the property described

3

therein and the Borrower has full right to pledge and assign the same to the Lender. Except with respect to any First Lien Mortgage Loan which was originated in connection with a Concurrent Second Lien Mortgage Loan, the Mortgaged Property was not, as of the date of origination of the Mortgage Loan, subject to a mortgage, deed of trust, deed to secure debt or other security instrument creating a lien subordinate to the lien of the Mortgage.

(11)

Validity of Mortgage Documents. The Mortgage Note and the Mortgage and any other agreement executed and delivered by a Mortgagor or guarantor, if applicable, in connection with a Mortgage Loan are genuine, and each is the legal, valid and binding obligation of the maker thereof enforceable in accordance with its terms. All parties to the Mortgage Note, the Mortgage and any other such related agreement had legal capacity to enter into the Mortgage Loan and to execute and deliver the Mortgage Note, the Mortgage and any such agreement, and the Mortgage Note, the Mortgage and any other such related agreement have been duly and properly executed by such related parties. No fraud, error, omission, misrepresentation, negligence or similar occurrence with respect to a Mortgage Loan has taken placed on the part of any Person, including, without limitation, the Mortgagor, any appraiser, any builder or developer, or any other party involved in the origination of the Mortgage Loan. The Borrower has reviewed all of the documents constituting the Servicing File and has made such inquiries as it deems necessary to make and confirm the accuracy of the representations set forth herein.



(12)

Full Disbursement of Proceeds. The proceeds of the Mortgage Loan have been (or with respect to a Wet Loan upon origination shall be) fully disbursed and there is no further requirement for future advances thereunder, and any and all requirements as to completion of any on-site or off-site improvement and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing the Mortgage Loan and the recording of the Mortgage were paid (or shall be paid with respect to any Wet Loan), and the Mortgagor is not entitled to any refund of any amounts paid or due under the Mortgage Note or Mortgage.



(13)

Ownership. The Borrower is the sole owner and holder of the Mortgage Loan. All Mortgage Loans acquired by the Borrower from third parties (including affiliates) were acquired in a true and legal sale pursuant to which such third party sold, transferred, conveyed and assigned to the Borrower all of its right, title and interest in, to and under such Mortgage Loan and retained no interest in such Mortgage Loan. In connection with such sale, such third party received reasonably equivalent value and fair consideration and, in accordance with GAAP and for federal income tax purposes, reported the sale of such Mortgage Loan to the Borrower as a sale of its interests in such Mortgage Loan. The Mortgage Loan is not assigned or pledged, and the Borrower has good, indefeasible and marketable title thereto, and has full right to transfer, pledge and assign the Mortgage Loan to the Lender free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest, and has full right and authority subject to no interest or participation of, or agreement with, any other party, to assign, transfer and pledge each Mortgage Loan pursuant to this Warehouse Agreement and following the pledge of each Mortgage Loan, the Lender will hold such Mortgage Loan free and clear of any encumbrance, equity, participation interest, lien, pledge, charge, claim or security interest except any such security interest created pursuant to the terms of this Warehouse Agreement.



(14)

Doing Business. All parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) (i) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located, and (ii) either (A) organized under the laws of such state, (B) qualified to do business in such

4

state, (C) a federal savings and loan association, a savings bank or a national bank having a principal office in such state or (D) not doing business in such state.

(15)

LTV. As of the date of origination of the Mortgage Loan, the LTV or CLTV (if applicable) are as identified on the Mortgage Loan Data Transmission.



(16)

Title Insurance. The Mortgage Loan is covered by either (i) an attorney's opinion of title and abstract of title, the form and substance of which is acceptable to prudent mortgage lending institutions making mortgage loans in the area wherein the Mortgaged Property is located or (ii) an ALTA Lender's title insurance policy or other generally acceptable form of policy or insurance acceptable to FNMA or FHLMC and each such title insurance policy is issued by a title insurer acceptable to FNMA or FHLMC and qualified to do business in the jurisdiction where the Mortgaged Property is located, insuring the Borrower, its successors and assigns, as to the first priority lien of the Mortgage in the original principal amount of the Mortgage Loan (or to the extent a Mortgage Note provides for negative amortization, the maximum amount of negative amortization in accordance with the Mortgage), subject only to the exceptions contained in clauses (1), (2), (3) and, with respect to each Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan Data Transmission) clause (4) of paragraph (j) of this Part I of Schedule 1, and in the case of adjustable rate Mortgage Loans, against any loss by reason of the invalidity or unenforceability of the lien resulting from the provisions of the Mortgage providing for adjustment to the Mortgage Interest Rate and Monthly Payment. Where required by state law or regulation, the Mortgagor has been given the opportunity to choose the carrier of the required mortgage title insurance. Additionally, such Lender's title insurance policy affirmatively insures ingress and egress and against encroachments by or upon the Mortgaged Property or any interest therein. The title policy does not contain any special exceptions (other than the standard exclusions) for zoning and uses and has been marked to delete the standard survey exception or to replace the standard survey exception with a specific survey reading. The Borrower, its successors and assigns, are the sole insureds of such Lender's title insurance policy, and such Lender's title insurance policy is valid and remains in full force and effect and will be in force and effect upon the consummation of the transactions contemplated by this Warehouse Agreement. No claims have been made under such Lender's title insurance policy, and no prior holder or servicer of the related Mortgage, including the Borrower, has done, by act or omission, anything which would impair the coverage of such Lender's title insurance policy, including, without limitation, no unlawful fee, commission, kickback or other unlawful compensation or value of any kind has been or will be received, retained or realized by any attorney, firm or other Person, and no such unlawful items have been received, retained or realized by the Borrower.



(17)

No Defaults. There is no default, breach, violation or event of acceleration existing under the Mortgage or the Mortgage Note and no event has occurred which, 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 neither the Borrower nor its predecessors have waived any default, breach, violation or event of acceleration. With respect to each Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan Data Transmission) (i) the First Lien is in full force and effect, (ii) there is no default, breach, violation or event of acceleration existing under such First Lien mortgage or the related mortgage note, (iii) no event which, 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 thereunder, and either (A) the First Lien mortgage contains a provision which allows or (B) applicable law requires, the mortgagee under the second lien Mortgage

5

Loan to receive notice of, and affords such mortgagee an opportunity to cure any default by payment in full or otherwise under the First Lien mortgage.

(18)

No Mechanics' Liens. At origination, there were no mechanics' or similar liens or claims which have been filed for work, labor or material (and no rights are outstanding that under the law could give rise to such liens) affecting the Mortgaged Property which are or may be liens prior to, or equal or coordinate with the lien of the Mortgage.



(19)

Location of Improvements: No Encroachments. All improvements which were considered in determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of the Mortgaged Property, and no improvements on adjoining properties encroach upon the Mortgaged Property. No improvement located on or being part of the Mortgaged Property is in violation of any applicable zoning and building law, ordinance or regulation.



(20)

Origination: Payment Terms. Principal payments on the Mortgage Loan commenced no more than sixty (60) days after funds were disbursed in connection with the Mortgage Loan. The Mortgage Interest Rate is adjusted, with respect to adjustable rate Mortgage Loans, on each Interest Rate Adjustment Date to equal the Index plus the Gross Margin (rounded up or down to the nearest .125%), subject to the Mortgage Interest Rate Cap. The Mortgage Note is payable on the day set forth in the Mortgage Note in equal monthly installments of principal and interest, which installments of interest, with respect to adjustable rate Mortgage Loans, are subject to change due to the adjustments to the Mortgage Interest Rate on each Interest Rate Adjustment Date, with interest calculated and payable in arrears, sufficient to amortize the Mortgage Loan fully by the stated maturity date, over an original term of not more than 30 years from commencement of amortization. The Due Date of the first payment under the Mortgage Note is no more than 60 days from the date of the Mortgage Note.



(21)

Customary Provisions. The Mortgage Note has a stated maturity. The Mortgage contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security provided thereby, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage Loan will be able to deliver good and merchantable title to the Mortgaged Property. There is no homestead or other exemption available to a Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage.



(22)

Conformance with Underwriting Guidelines and Agency Standards. The Mortgage Loan was underwritten in accordance with the applicable Underwriting Guidelines. The Mortgage Note and Mortgage are on forms similar to those used by FHLMC or FNMA, or, on such forms, copies of which have been delivered to the Lender, which are customary in the mortgage origination and servicing industry and the Borrower has not made any representations to a Mortgagor that are inconsistent with the mortgage instruments used. Any Concurrent Second Lien Mortgage Loan satisfies the Aames Guidelines for the 80-20 Program which are provided pursuant to the applicable Underwriting Guidelines.



(23)

Occupancy of the Mortgaged Property. As of the Funding Date the Mortgaged Property is either vacant or lawfully occupied under applicable law. All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the 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. The Borrower has not received written notification from any

6

governmental authority that the Mortgaged Property is in material non-compliance with such laws or regulations, is being used, operated or occupied unlawfully or has failed to have or obtain such inspection, licenses or certificates, as the case may be. The Borrower has not received notice of any violation or failure to conform with any such law, ordinance, regulation, standard, license or certificate. Except as otherwise set forth in the Mortgage Loan Data Transmission, the Mortgagor represented at the time of origination of the Mortgage Loan that the Mortgagor would occupy the Mortgaged Property as the Mortgagor's primary residence.

(24)

No Additional Collateral. The Mortgage Note is not and has not been secured by any collateral except the lien of the corresponding Mortgage and the security interest of any applicable security agreement or chattel mortgage referred to in clause (j) above.



(25)

Deeds of Trust. In the event the Mortgage constitutes a deed of trust, a trustee, authorized and duly qualified under applicable law to serve as such, has been properly designated and currently so serves and is named in the Mortgage, and no fees or expenses are or will become payable by the Custodian or the Lender to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor.



(26)

Delivery of Mortgage Documents. Except with respect to Wet Loans, the Mortgage Note, the Mortgage, the Assignment of Mortgage and any other documents required to be delivered under the Custodial Agreement for each Mortgage Loan have been delivered to the Custodian. With respect to each Wet Loan, the Custodian is in possession of all documents required to be delivered pursuant to the Custodial Agreement. The Borrower or its agent is in possession of a complete, true and materially accurate Mortgage File in compliance with the Custodial Agreement, except for such documents the originals of which have been delivered to the Custodian.



(27)

Transfer of Mortgage Loans. The Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located.



(28)

Due-On-Sale. The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the mortgagee thereunder.



(29)

No Buydown Provisions: No Graduated Payments or Contingent Interests. The Mortgage Loan does not contain provisions pursuant to which Monthly Payments are paid or partially paid with funds deposited in any separate account established by the Borrower, the Mortgagor, or anyone on behalf of the Mortgagor, or paid by any source other than the Mortgagor nor does it contain any other similar provisions which may constitute a "buydown" provision. The Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan does not have a shared appreciation or other contingent interest feature.



(30)

Consolidation of Future Advances. Any future advances made to the Mortgagor prior to the origination of the Mortgage Loan have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term. The lien of the Mortgage securing the consolidated principal amount is expressly insured as having (A) first lien priority with respect to each Mortgage Loan which is indicated by the Borrower to be a First Lien (as reflected on the Mortgage Loan Data Transmission), or (B) second lien priority with respect to each Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan Data Transmission), in either case, by a title insurance policy, an endorsement to the policy insuring the mortgagee's consolidated interest or by other title

7

evidence acceptable to FNMA and FHLMC. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan.

(31)

Mortgaged Property Undamaged. The Mortgaged Property (and with respect to any Cooperative Loan, the Cooperative Unit) is undamaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty so as to affect adversely the value of the Mortgaged Property as security for the Mortgage Loan or the use for which the premises were intended and each Mortgaged Property is in good repair. There have not been any condemnation proceedings with respect to the Mortgaged Property and the Borrower has no knowledge of any such proceedings.



(32)

Collection Practices: Escrow Deposits: Interest Rate Adjustments. The origination and collection practices used by the originator, each servicer of the Mortgage Loan and the Borrower with respect to the Mortgage Loan have been in all material respects in compliance with Accepted Servicing Practices, applicable laws and regulations, and have been in all respects legal and proper. With respect to escrow deposits and Escrow Payments (other than with respect to each Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage Loan and for which the mortgagee under the First Lien is collecting Escrow Payments (as reflected on the Mortgage Loan Data Transmission), all such payments are in the possession of, or under the control of, the Borrower and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. All Escrow Payments have been collected in full compliance with state and federal law. An escrow of funds is not prohibited by applicable law and has been established in an amount sufficient to pay for every item that remains unpaid and has been assessed but is not yet due and payable. No escrow deposits or Escrow Payments or other charges or payments due the Borrower have been capitalized under the Mortgage or the Mortgage Note. All Mortgage Interest Rate adjustments have been made in strict compliance with state and federal law and the terms of the related Mortgage Note. Any interest required to be paid pursuant to state, federal and local law has been properly paid and credited.



(33)

Conversion to Fixed Interest Rate. With respect to adjustable rate Mortgage Loans, the Mortgage Loan is not convertible to a fixed interest rate Mortgage Loan.



(34)

Other Insurance Policies. No action, inaction or event has occurred and no state of facts exists or has existed that has resulted or will result in the exclusion from, denial of, or defense to coverage under any applicable special hazard insurance policy, PMI Policy or bankruptcy bond, irrespective of the cause of such failure of coverage. In connection with the placement of any such insurance, no commission, fee, or other compensation has been or will be received by the Borrower or by any officer, director, or employee of the Borrower or any designee of the Borrower or any corporation in which the Borrower or any officer, director, or employee had a financial interest at the time of placement of such insurance.



(35)

Soldiers' and Sailors' Civil Relief Act. The Mortgagor has not notified the Borrower, and the Borrower has no knowledge, of any relief requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940.



(36)

Appraisal. The Mortgage File contains an appraisal of the related Mortgaged Property signed prior to the approval of the Mortgage Loan application by a qualified appraiser, duly appointed by the Borrower or the Qualified Originator, who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, and whose compensation is not affected by the approval or disapproval of the Mortgage Loan, and the appraisal and appraiser both satisfy the requirements of FNMA or FHLMC and Title XI of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 as amended and the

8

regulations promulgated thereunder, all as in effect on the date the Mortgage Loan was originated.

(37)

Disclosure Materials. The Mortgagor has executed a statement to the effect that the Mortgagor has received all disclosure materials required by applicable law with respect to the making of adjustable rate mortgage loans, and the Borrower maintains such statement in the Mortgage File.



(38)

Construction or Rehabilitation of Mortgaged Property. No Mortgage Loan was made in connection with the construction or rehabilitation of a Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged Property.



(39)

No Defense to Insurance Coverage. No action has been taken or failed to be taken, no event has occurred and no state of facts exists or has existed on or prior to the Funding Date (whether or not known to the Borrower on or prior to such date) which has resulted or will result in an exclusion from, denial of, or defense to coverage under any private mortgage insurance (including, without limitation, any exclusions, denials or defenses which would limit or reduce the availability of the timely payment of the full amount of the loss otherwise due thereunder to the insured) whether arising out of actions, representations, errors, omissions, negligence, or fraud of the Borrower, the related Mortgagor or any party involved in the application for such coverage, including the appraisal, plans and specifications and other exhibits or documents submitted therewith to the insurer under such insurance policy, or for any other reason under such coverage, but not including the failure of such insurer to pay by reason of such insurer's breach of such insurance policy or such insurer's financial inability to pay.



(40)

Capitalization of Interest. The Mortgage Note does not by its terms provide for the capitalization or forbearance of interest.



(41)

No Equity Participation. No document relating to the Mortgage Loan provides for any contingent or additional interest in the form of participation in the cash flow of the Mortgaged Property or a sharing in the appreciation of the value of the Mortgaged Property. The indebtedness evidenced by the Mortgage Note is not convertible to an ownership interest in the Mortgaged Property or the Mortgagor and the Borrower has not financed nor does it own directly or indirectly, any equity of any form in the Mortgaged Property or the Mortgagor.



(42)

Withdrawn Mortgage Loans. If the Mortgage Loan has been released to the Borrower pursuant to a Request for Release as permitted under Section 5 of the Custodial Agreement, then the promissory note relating to the Mortgage Loan was returned to the Custodian within 10 days (or if such tenth day was not a Business Day, the next succeeding Business Day).



(43)

No Exception. Other than as noted by the Custodian on the Exception Report and other than with respect to any Wet Loan, no Material Exception exists (as defined in the Custodial Agreement) with respect to the Mortgage Loan which would materially adversely affect the Mortgage Loan or the Lender's security interest, granted by the Borrower, in the Mortgage Loan as determined by the Lender in its sole discretion.



(44)

Qualified Originator. The Mortgage Loan has been originated by, and, if applicable, purchased by the Borrower from, a Qualified Originator. No Mortgage Loan was originated by First Alliance.



(45)

Mortgage Submitted for Recordation. The Mortgage has been (or with respect to a Wet Loan shall be) submitted for recordation in the appropriate governmental recording office of the jurisdiction where the Mortgaged Property is located.

9

(46)

First Lien Consent. With respect to each Mortgage Loan which is a Second Lien, (i) if the related first lien provides for negative amortization, the LTV was calculated at the maximum principal balance of such first lien that could result upon application of such negative amortization feature, and (ii) either no consent for the Mortgage Loan is required by the holder of the first lien or such consent has been obtained and is contained in the Mortgage File.



(47)

Acceptable Investment. No specific circumstances or conditions exist with respect to the Mortgage, the Mortgaged Property or the Mortgagor, other than the Mortgagor's credit standing, that should reasonably be expected to (i) cause private institutional investors which invest in Mortgage Loans similar to the Mortgage Loan to regard the Mortgage Loan as an unacceptable investment, (ii) cause the Mortgage Loan to be more likely to become past due in comparison to similar Mortgage Loans, or (iii) adversely affect the value or marketability of the Mortgage Loan in comparison to similar Mortgage Loans;



(48)

Environmental Matters. The Mortgaged Property is free from any and all toxic or hazardous substances and there exists no violation of any local, state or federal environmental law, rule or regulation;



(49)

Ground Leases. With respect to each ground lease to which the Mortgaged Property is subject (a "Ground Lease"): (i) the Mortgagor is the owner of a valid and subsisting interest as tenant under the Ground Lease; (ii) the Ground Lease is in full force and effect, unmodified and not supplemented by any writing or otherwise; (iii) all rent, additional rent and other charges reserved therein have been paid to the extent they are payable to the date hereof; (iv) the Mortgagor enjoys the quiet and peaceful possession of the estate demised thereby, subject to any sublease; (v) the Mortgagor is not in default under any of the terms thereof and there are no circumstances which, with the passage of time or the giving of notice or both, would constitute an event of default thereunder; (vii) the lessor under the Ground Lease is not in default under any of the terms or provisions thereof on the part of the lessor to be observed or performed; (vii) the lessor under the Ground Lease has satisfied all of its repair or construction obligations, if any, to date pursuant to the terms of the Ground Lease; and (ix) the execution, delivery and performance of the Mortgage do not require the consent (other than those consents which have been obtained and are in full force and effect) under, and will not contravene any provision of or cause a default under, the Ground Lease.



(50)

Value of Mortgage Property. The Borrower has no knowledge of any circumstances existing, other than the Mortgagor's credit standing, that should reasonably be expected to adversely affect the value or the marketability of the Mortgaged Property or the Mortgage Loan or to cause the Mortgage Loan to prepay during any period materially faster or slower than the Mortgage Loans originated by the Borrower generally; and



(51)

Section 32 Mortgages; Overages. The Borrower has provided the related Mortgagor with all disclosure materials required by Section 226.32 of the Federal Reserve Board Regulation Z with respect to any Mortgage Loans subject to such Section of the Federal Reserve Board Regulation Z. The Borrower has not made or caused to be made any payment in the nature of an "overage" or "yield spread premium" to a mortgage broker or like Person which has not been fully disclosed to the Mortgagor.



(52)

Cooperative Loans. With respect to each Cooperative Loan, each original Uniform Commercial Code financing statement, continuation statement or other governmental filing or recordation necessary to create or preserve the perfection and priority of the first priority lien and security interest in the Cooperative Shares and Proprietary Lease has been timely and properly made. Any security agreement, chattel mortgage or equivalent document related to the Cooperative Loan and delivered to the Borrower or its designee establishes in the

10

Borrower a valid and subsisting perfected first lien on and security interest in the Mortgaged Property described therein, and the Borrower has full right to sell and assign the same.

(aaa)

Insured Closing Letter and Escrow Letter. With respect to each Wet Loan, the Borrowers shall have obtained, and shall be in possession of an Insured Closing Letter and an Escrow Letter (or, with respect to any Mortgaged Property located in New York State, a comparable letter as customarily provided for closings occurring in such state), which shall be available for delivery to the Lender upon request.

11

Schedule 2

[INTENTIONALLY OMITTED]

Schedule 3

FILING JURISDICTIONS

Aames Capital Corporation

State of California

Aames Funding Corporation




State of California

State of New York

New York County

Schedule 4

RELEVANT STATES

POSTAL CODE	STATE
AK	ALASKA
AR	ARKANSAS
AZ	ARIZONA
CA	CALIFORNIA
CO	COLORADO
CT	CONNECTICUT
DC	DISTRICT OF COLUMBIA
DE	DELAWARE
FL	FLORIDA
GA	GEORGIA
HI	HAWAII
IA	IOWA
ID	IDAHO
IL	ILLINOIS
IN	INDIANA
KS	KANSAS
KY	KENTUCKY
LA	LOUISIANA
MA	MASSACHUSETTS
MD	MARYLAND
ME	MAINE
MI	MICHIGAN
MN	MINNESOTA
MO	MISSOURI
MS	MISSISSIPPI
MT	MONTANA
NC	NORTH CAROLINA
ND	NORTH DAKOTA
NE	NEBRASKA
NH	NEW HAMPSHIRE
NJ	NEW JERSEY
NM	NEW MEXICO
NV	NEVADA
NY	NEW YORK
OH	OHIO
OK	OKLAHOMA
OR	OREGON
PA	PENNSYLVANIA
RI	RHODE ISLAND
SC	SOUTH CAROLINA
SD	SOUTH DAKOTA
TN	TENNESSEE
TX	TEXAS
UT	UTAH
VA	VIRGINIA
VT	VERMONT
WA	WASHINGTON
WI	WISCONSIN
WV	WEST VIRGINIA
WY	WYOMING

Schedule 5

SUBSIDIARIES OF AAMES FINANCIAL CORPORATION

Name of Subsidiary	Jurisdiction of Incorporation
Aames Capital Acceptance Corp.	Delaware
Aames Capital Corporation	California
Aames Funding Corporation	California
One Stop Mortgage, Inc.	Wyoming
Oxford Aviation Corporation, Inc.	California
Rossmore Financial Insurance Services, Inc.	California
Serrano Insurance Services	Nevada
Windsor Management Co.	California

EXHIBIT A

PROMISSORY NOTE

        $300,000,000
March 21, 2002
New York, New York

        FOR VALUE RECEIVED, AAMES CAPITAL CORPORATION, a California corporation and AAMES FUNDING CORPORATION, a California corporation (each a "Borrower", collectively, the "Borrowers"), hereby promise to pay to the order of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. (the "Lender"), at the principal office of the Lender at 600 Steamboat Road, Greenwich, Connecticut 06830, in lawful money of the United States, and in immediately available funds, the principal sum of THREE HUNDRED MILLION DOLLARS ($300,000,000) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Advances made by the Lender to the Borrowers under the Warehouse Agreement), on the dates and in the principal amounts provided in the Warehouse Agreement, and to pay interest on the unpaid principal amount of each such Advance, at such office, in like money and funds, for the period commencing on the date of such Advance until such Advance shall be paid in full, at the rates per annum and on the dates provided in the Warehouse Agreement.

        The date, amount and interest rate of each Advance made by the Lender to the Borrowers, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the schedule attached hereto or any continuation thereof; provided, that the failure of the Lender to make any such recordation or endorsement shall not affect the obligations of the Borrowers to make a payment when due of any amount owing under the Warehouse Agreement or hereunder in respect of the Advances made by the Lender.

        This Note is the Note referred to in the Warehouse Loan and Security Agreement, dated as of February 10, 2000, as amended and restated to and including March 21, 2002 (as amended, supplemented or otherwise modified and in effect from time to time, the "Warehouse Agreement") between the Borrowers, and the Lender, and evidences Advances made by the Lender thereunder. Terms used but not defined in this Note have the respective meanings assigned to them in the Warehouse Agreement.

        The Borrowers agree to pay all the Lender's costs of collection and enforcement (including reasonable attorneys' fees and disbursements of Lender's counsel) in respect of this Note when incurred, including, without limitation, reasonable attorneys' fees through appellate proceedings.

        Notwithstanding the pledge of the Collateral, the Borrowers hereby acknowledge, admit and agree that the Borrowers' obligations under this Note are recourse obligations of the Borrowers to which the Borrowers pledge their full faith and credit.

        The Borrowers, and any indorsers or guarantors hereof, (a) severally waive diligence, presentment, protest and demand and also notice of protest, demand, dishonor and nonpayments of this Note, (b) expressly agree that this Note, or any payment hereunder, may be extended from time to time, and consent to the acceptance of further Collateral, the release of any Collateral for this Note, the release of any party primarily or secondarily liable hereon, and (c) expressly agree that it will not be necessary for the Lender, in order to enforce payment of this Note, to first institute or exhaust the Lender's remedies against the Borrowers or any other party liable hereon or against any Collateral for this Note. No extension of time for the payment of this Note, or any installment hereof, made by agreement by the Lender with any person now or hereafter liable for the payment of this Note, shall affect the liability under this Note of the Borrowers, even if the Borrowers are not a party to such agreement; provided, however, that the Lender and the Borrowers, by written agreement between them, may affect the liability of the Borrowers.

        Any reference herein to the Lender shall be deemed to include and apply to every subsequent holder of this Note. Reference is made to the Warehouse Agreement for provisions concerning optional and mandatory prepayments, Collateral, acceleration and other material terms affecting this Note.

        Any enforcement action relating to this Note may be brought by motion for summary judgment in lieu of a complaint pursuant to Section 3213 of the New York Civil Practice Law and Rules. The Borrowers hereby submit to New York jurisdiction with respect to any action brought with respect to this Note and waives any right with respect to the doctrine of forum non conveniens with respect to such transactions.

        Each Borrower hereby acknowledges and agrees that such Borrower shall be jointly and severally liable for all obligations and indemnities of the Borrowers hereunder.

This Note shall be governed by and construed under the laws of the State of New York (without reference to choice of law doctrine but with reference to Section 5-1401 of the New York General Obligations Law, which by its terms applies to this Note) whose laws the Borrowers expressly elect to apply to this Note. The Borrowers agree that any action or proceeding brought to enforce or arising out of this Note may be commenced in the Supreme Court of the State of New York, Borough of Manhattan, or in the District Court of the United States for the Southern District of New York.

AAMES CAPITAL CORPORATION

By:

Name:
Title:

AAMES FUNDING CORPORATION

By:

Name:
Title:

2

SCHEDULE OF LOANS

        This Note evidences Advances made under the within-described Warehouse Agreement to the Borrowers, on the dates, in the principal amounts and bearing interest at the rates set forth below, and subject to the payments and prepayments of principal set forth below:

Date Made Principal Amount of
Loan Amount Paid
or Prepaid Unpaid Principal Amount Notation
Made by

EXHIBIT B

[INTENTIONALLY OMITTED]

EXHIBIT C

FORM OF OPINION OF COUNSEL TO THE BORROWERS

(date)

Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830

Dear Sirs and Mesdames:

        You have requested [our] [my] opinion, as counsel to Aames Capital Corporation, a California corporation, and Aames Funding Corporation, a California corporation (each a "Borrower", collectively, the "Borrowers"), with respect to certain matters in connection with that certain Warehouse Loan and Security Agreement, dated as of February 10, 2000, as amended and restated to and including March 21, 2002, (the "Loan and Security Agreement"), by and between the Borrowers and Greenwich Capital Financial Products, Inc. (the "Lender"), being executed contemporaneously with a Promissory Note dated March 21, 2002 from the Borrowers to the Lender (the "Note"), and a Custodial Agreement, dated as of January 12, 2001 as amended (the "Custodial Agreement"), by and among the Borrowers, Bankers Trust Company (the "Custodian"), and the Lender. Capitalized terms not otherwise defined herein have the meanings set forth in the Loan and Security Agreement.

        [We] [I] have examined the following documents:

1.

the Loan and Security Agreement;



2.

the Note;



3.

the Custodial Agreement;



4.

the Guaranty executed by Aames Financial Corporation;



6.

unfiled copies of the financing statements listed on Schedule 1 (collectively, the "Financing Statements") naming each Borrower as Debtor and the Lender as Secured Party and describing the Collateral (as defined in the Loan and Security Agreement) as to which security interests may be perfected by filing under the Uniform Commercial Code of the States listed on Schedule 1 (the "Filing Collateral"), which I understand will be filed in the filing offices listed on Schedule 1 (the "Filing Offices");



7.

the reports listed on Schedule 2 as to Uniform Commercial Code financing statements (collectively, the "UCC Search Report"); and



8.

such other documents, records and papers as we have deemed necessary and relevant as a basis for this opinion.

        To the extent [we] [I] have deemed necessary and proper, [we] [I] have relied upon the representations and warranties of the Borrowers contained in the Loan and Security Agreement. [We] [I] have assumed the authenticity of all documents submitted to me as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents.

        Based upon the foregoing, it is [our] [my] opinion that:

1.

Each Borrower and the Guarantor are each corporations duly organized, validly existing and in good standing under the laws of the state of its organization and is qualified to transact business in, duly licensed and in the case of each Borrower is in good standing under, the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Mortgage Loan and the servicing of each Mortgage Loan pursuant to the Loan and Security Agreement.

2.

The Borrowers and the Guarantor each have the corporate power to engage in the transactions contemplated by the Loan and Security Agreement, the Note, the Guaranty and the Custodial Agreement and all requisite corporate power, authority and legal right to execute and deliver the Loan and Security Agreement, the Note, the Guaranty and the Custodial Agreement and observe the terms and conditions of such instruments. The Borrowers have all requisite corporate power to borrow under the Loan and Security Agreement and to grant a security interest in the Collateral pursuant to the Loan and Security Agreement.



3.

The execution, delivery and performance by the Borrowers of the Loan and Security Agreement, the Note, and the Custodial Agreement, and the borrowings by the Borrowers and the pledge of the Collateral under the Loan and Security Agreement and the execution of the Guaranty by the Guarantor have been duly authorized by all necessary corporate action on the part of the Borrowers. Each of the Loan and Security Agreement, the Note, the Guaranty and the Custodial Agreement have been executed and delivered by the Borrowers or the Guarantor, as the case may be, and are legal, valid and binding agreements enforceable in accordance with their respective terms against the Borrowers or the Guarantor, subject to bankruptcy laws and other similar laws of general application affecting rights of creditors and subject to the application of the rules of equity, including those respecting the availability of specific performance, none of which will materially interfere with the realization of the benefits provided thereunder or with the Lender's security interest in the Mortgage Loans.



4.

No consent, approval, authorization or order of, and no filing or registration with, any court or governmental agency or regulatory body is required on the part of the Borrowers for the execution, delivery or performance by the Borrowers of the Loan and Security Agreement, the Note and the Custodial Agreement or for the borrowings by the Borrowers under the Loan and Security Agreement or the granting of a security interest to the Lender in the Collateral, pursuant to the Loan and Security Agreement.



5.

The execution, delivery and performance by each Borrower or the Guarantor of, and the consummation of the transactions contemplated by, the Loan and Security Agreement, the Note, the Guaranty and the Custodial Agreement do not and will not (a) violate any provision of such Borrower's or the Guarantor's charter or by-laws, (b) violate any applicable law, rule or regulation, (c) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to such Borrower or the Guarantor of which I have knowledge (after due inquiry) or (d) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument of which I have knowledge (after due inquiry) to which such Borrower or the Guarantor is a party or by which it is bound or to which it is subject, or (except for the Liens created pursuant to the Loan and Security Agreement) result in the creation or imposition of any Lien upon any Property of such Borrower pursuant to the terms of any such agreement or instrument.



6.

There is no action, suit, proceeding or investigation pending or, to the best of [our] [my]knowledge, threatened against any Loan Party which, in [our] [my] judgment, either in any one instance or in the aggregate, would be reasonably likely to result in any material adverse change in the properties, business or financial condition, or prospects of the Borrowers or the Guarantor or in any material impairment of the right or ability of such Loan Party to carry on its business substantially as now conducted or in any material liability on the part of the Borrowers or which would draw into question the validity of the Loan and Security Agreement, the Note, the Guaranty, the Custodial Agreement or the Mortgage Loans or of any action taken or to be taken in connection with the transactions contemplated thereby, or which would be reasonably likely to impair materially the ability of such Loan Party to

2

perform under the terms of the Loan and Security Agreement, the Note, the Guaranty, the Custodial Agreement or the Mortgage Loans.

7.

The Loan and Security Agreement is effective to create, in favor of the Lender, a valid security interest under the Uniform Commercial Code in all of the right, title and interest of the Borrowers in, to and under the Collateral as collateral security for the payment of the Secured Obligations (as defined in the Loan and Security Agreement), except that (a) such security interests will continue in Collateral after its sale, exchange or other disposition only to the extent provided in Section 9-306 of the Uniform Commercial Code, (b) the security interests in Collateral in which the Borrowers acquires rights after the commencement of a case under the Bankruptcy Code in respect of the Borrowers may be limited by Section 552 of the Bankruptcy Code.



8.

When the Mortgage Notes are delivered to the Custodian, endorsed in blank by a duly authorized officer of the applicable Borrower, the security interest referred to in paragraph 7 above in the Mortgage Notes will constitute a fully perfected first priority security interest in all right, title and interest of such Borrower therein, in the Mortgage Loan evidenced thereby and in such Borrower's interest in the related Mortgaged Property.



9.

(a) Upon the filing of financing statements on Form UCC-1 naming the Lender as "Secured Party" and each Borrower as "Debtor", and describing the Collateral, in the jurisdictions and recording offices listed on Schedule 1 attached hereto, the security interests referred to in paragraph 8 above will constitute fully perfected security interests under the Uniform Commercial Code in all right, title and interest of such Borrower in, to and under such Collateral, which can be perfected by filing under the Uniform Commercial Code.

(b) The UCC Search Report sets forth the proper filing offices and the proper debtors necessary to identify those Persons who have on file in the jurisdictions listed on Schedule 1 financing statements covering the Filing Collateral as of the dates and times specified on Schedule 2. Except for the matters listed on Schedule 2, the UCC Search Report identifies no Person who has filed in any Filing Office a financing statement describing the Filing Collateral prior to the effective dates of the UCC Search Report.

10.

The Assignments of Mortgage are in recordable form, except for the insertion of the name of the assignee, and upon the name of the assignee being inserted, are acceptable for recording under the laws of the state where each related Mortgaged Property is located.



11.

Each Borrower is duly registered as a [                        ] in each state in which Mortgage Loans were originated to the extent such registration is required by applicable law, and has obtained all other licenses and governmental approvals in each jurisdiction to the extent that the failure to obtain such licenses and approvals would render any Mortgage Loan unenforceable or would materially and adversely affect the ability of the Borrowers to perform any of its obligations under, or the enforceability of, the Loan Documents.



12.

Assuming that all other elements necessary to render a Mortgage Loan legal, valid, binding and enforceable were present in connection with the execution, delivery and performance of each Mortgage Loan (including completion of the entire Mortgage Loan fully, accurately and in compliance with all applicable laws, rules and regulations) and assuming further that no action was taken in connection with the execution, delivery and performance of each Mortgage Loan (including in connection with the sale of the related Mortgaged Property) that would give rise to a defense to the legality, validity, binding effect and enforceability of such Mortgage Loan, nothing in the forms of such Mortgage Loans, as attached hereto as Exhibit A, would render such Mortgage Loans other than legal, valid, binding and enforceable.

3

13.

Assuming their validity, binding effect and enforceability in all other respects (including completion of the entire Mortgage Loan fully, accurately and in compliance with all applicable laws, rules and regulations), the forms of Mortgage Loans attached hereto as Exhibit A are in sufficient compliance with             law and Federal consumer protection laws so as not to be rendered void or voidable at the election of the Mortgagor thereunder.

Very truly yours,

4

EXHIBIT D

FORM OF NOTICE OF BORROWING AND PLEDGE

[insert date]

Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Kathleen O'Connor

        Notice of Borrowing and Pledge No.:

Ladies/Gentlemen:

        Reference is made to the Warehouse Loan and Security Agreement, dated as of February 10, 2000, as amended and restated to and including March 21, 2002, (the "Warehouse Agreement"; capitalized terms used but not otherwise defined herein shall have the meaning given them in the Warehouse Agreement), between Aames Capital Corporation, as a Borrower, Aames Funding Corporation, as a Borrower (each a "Borrower") and Greenwich Capital Financial Products, Inc. (the "Lender").

        In accordance with Section 2.03(a), 2.03(b) or 2.03(e) of the Warehouse Agreement, the undersigned Borrower hereby requests that you, the Lender, make Advances to us in connection with our delivery of Mortgage Loans [insert requested Funding Date, which, except for Wet Loans, must be at least two (2) Business Days following the date of the request], in connection with which we shall pledge to you as Collateral the Mortgage Loans (along with all previous pledges defined as Eligible Mortgage Loans for such date) set forth on the Mortgage Loan Schedule attached hereto.

        The Borrower hereby certifies, as of such Funding Date, that:

(a)

no Default or Event of Default has occurred and is continuing on the date hereof nor will occur after giving effect to such Advance as a result of such Advance;



(b)

each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents is true and correct in all material respects on and as of such date [(in the case of the representations and warranties in respect of Mortgage Loans, solely with respect to Mortgage Loans being included the Borrowing Base on the Funding Date)] as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date);



(c)

the Borrower is in compliance with all governmental licenses and authorizations and is qualified to do business and is in good standing in all required jurisdictions; and



(d)

the Borrower has satisfied all conditions precedent in Section 5.02 of the Warehouse Agreement and all other requirements of the Warehouse Agreement.

        [The undersigned duly authorized officer of Borrower further represents and warrants that (1) the documents constituting the Custodial File (as defined in the Custodial Agreement) with respect to the Mortgage Loans that are the subject of the Advance requested herein and more specifically identified on the mortgage loan schedule or computer readable magnetic transmission delivered to both the Lender and the Custodian in connection herewith (the "Receipted Mortgage Loans") have been or are hereby submitted to Custodian and such Required Documents are to be held by the Custodian subject to Lender's first priority security interest thereon, (2) all other documents related to such Receipted Mortgage Loans (including, but not limited to, mortgages, insurance policies, loan applications and appraisals) have been or will be created and held by Borrower in trust for Lender, (3) all documents related to such Receipted Mortgage Loans withdrawn from Custodian shall be held in trust by Borrower for Lender, and Borrower will not attempt to pledge, hypothecate or otherwise transfer such Receipted Mortgage Loans to any other party until the Advance to which such Receipted Mortgage

Loans are related has been paid in full by Borrower and (4) Borrower has granted a first priority perfected security interest in and lien on the Receipted Mortgage Loans.

Borrower hereby represents and warrants that (x) the Receipted Mortgage Loans have an unpaid principal balance as of the date hereof of $                        and (y) the number of Receipted Mortgage Loans is            .]

Notwithstanding anything to the contrary above, for purposes of providing a Notice of Borrowing and Pledge in connection with Wet Loans, the Mortgage Loan Data Transmission shall include only the following fields: (1) Loan Number, (2) Borrower Name, (3) Note Amount, (4) Note Rate, (5) Address of Mortgaged Property, (6) Wire Amount, (7) Wire Instructions and (8) the name of the Settlement Agent.

Very truly yours,
By:
	Authorized Officer

2

[Schedule I
to Notice of Borrowing and Pledge

[COLLATERAL PROPOSED TO BE PLEDGED
TO LENDER ON FUNDING DATE]

[attach Mortgage Loan Schedule]]

EXHIBIT E

UNDERWRITING GUIDELINES

[TO BE PROVIDED BY BORROWERS]

EXHIBIT F

REQUIRED FIELDS FOR SERVICING TRANSMISSION

[TO BE PROVIDED BY LENDER]

EXHIBIT G

REQUIRED FIELDS FOR MORTGAGE LOAN DATA TRANSMISSION

[TO BE PROVIDED BY LENDER]

EXHIBIT H

FORM OF BORROWING BASE CERTIFICATE

[TO BE PROVIDED BY LENDER]

EXHIBIT I

FORM OF CONFIDENTIALITY
AGREEMENT

        In connection with your consideration of a possible or actual acquisition of a participating interest (the "Transaction") in an advance, note or commitment of Greenwich Capital Financial Products, Inc. ("Greenwich") pursuant to a Warehouse Loan and Security Agreement between Greenwich and Aames Capital Corporation (the "Borrower"), dated as of February 10, 2000, as amended and restated to and including March 21, 2002, you have requested the right to review certain non-public information regarding the Borrower that is in the possession of Greenwich. In consideration of, and as a condition to, furnishing you with such information and any other information (whether communicated in writing or communicated orally) delivered to you by Greenwich or its affiliates, directors, officers, employees, advisors, agents or "controlling persons" (within the meaning of the Securities Exchange Act of 1934, as amended (the "1934 Act")) (such affiliates and other persons being herein referred to collectively as Greenwich "Representatives") in connection with the consideration of a Transaction (such information being herein referred to as "Evaluation Material"), Greenwich hereby requests your agreement as follows:

11.

The Evaluation Material will be used solely for the purpose of evaluating a possible Transaction with Greenwich involving you or your affiliates, and unless and until you have completed such Transaction pursuant to a definitive agreement between you or any such affiliate and Greenwich, such Evaluation Material will be kept strictly confidential by you and your affiliates, directors, officers, employees, advisors, agents or controlling persons (such affiliates and other persons being herein referred to collectively as "your Representatives"), except that the Evaluation Material or portions thereof may be disclosed to those of your Representatives who need to know such information for the purpose of evaluating a possible Transaction with Greenwich (it being understood that prior to such disclosure your Representatives will be informed of the confidential nature of the Evaluation Material and shall agree to be bound by this Agreement). You agree to be responsible for any breach of this Agreement by your Representatives.



12.

The term "Evaluation Material" does not include any information which (i) at the time of disclosure or thereafter is generally known by the public (other than as a result of its disclosure by you or your Representatives) or (ii) was or becomes available to you on a nonconfidential basis from a person not otherwise bound by a confidential agreement with Greenwich or its Representatives or is not otherwise prohibited from transmitting the information to you. As used in this Agreement, the term "person" shall be broadly interpreted to include, without limitation, any corporation, company, joint venture, partnership or individual.



13.

In the event that you receive a request to disclose all or any part of the information contained in the Evaluation Material under the terms of a valid and effective subpoena or order issued by a court of competent jurisdiction, you agree to (i) immediately notify Greenwich and the Borrower of the existence, terms and circumstances surrounding such a request, (ii) consult with the Borrower on the advisability of taking legally available steps to resist or narrow such request, and (iii) if disclosure of such information is required, exercise your best efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to such information.



14.

Unless otherwise required by law in the opinion of your counsel, neither you nor your Representative will, without our prior written consent, disclose to any person the fact that the Evaluation Material has been made available to you.



15.

You agree not to initiate or maintain contact (except for those contacts made in the ordinary course of business) with any officer, director or employee of the Borrower regarding the

business, operations, prospects or finances of the Borrower or the employment of such officer, director or employee, except with the express written permission of the Borrower.

16.

You understand and acknowledge that the Borrower is not making any representation or warranty, express or implied, as to the accuracy or completeness of the Evaluation Material or any other information provided to you by Greenwich. The Borrower, its respective affiliates or Representatives, nor any of its respective officers, directors, employees, agents or controlling persons (within the meaning of the 1934 Act) shall have any liability to you or any other person (including, without limitation, any of your Representatives) resulting from your use of the Evaluation Material.



17.

You agree that neither Greenwich or the Borrower has not granted you any license, copyright, or similar right with respect to any of the Evaluation Material or any other information provided to you by Greenwich.



18.

If you determine that you do not wish to proceed with the Transaction, you will promptly deliver to Greenwich all of the Evaluation Material, including all copies and reproductions thereof in your possession or in the possession of any of your Representatives.



19.

Without prejudice to the rights and remedies otherwise available to the Borrower, the Borrower shall be entitled to equitable relief by way of injunction if you or any of your Representatives breach or threaten to breach any of the provisions of this Agreement. You agree to waive, and to cause your Representatives to waive, any requirement for the securing or posting of any bond in connection with such remedy.



20.

The validity and interpretation of this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to agreements made and to be fully performed therein (excluding the conflicts of law rules). You submit to the jurisdiction of any court of the State of New York or the United States District Court for the Southern District of the State of New York for the purpose of any suit, action, or other proceeding arising out of this Agreement.



21.

The benefits of this Agreement shall inure to the respective successors and assigns of the parties hereto, and the obligations and liabilities assumed in this Agreement by the parties hereto shall be binding upon the respective successors and assigns.



22.

If it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) that any term or provision hereof is invalid or unenforceable, (i) the remaining terms and provisions hereof shall be unimpaired and shall remain in full force and effect and (ii) the invalid or unenforceable provision or term shall be replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of such invalid or unenforceable term or provision.



23.

This Agreement embodies the entire agreement and understanding of the parties hereto and supersedes any and all prior agreements, arrangements and understandings relating to the matters provided for herein. No alteration, waiver, amendments, or change or supplement hereto shall be binding or effective unless the same is set forth in writing by a duly authorized representative of each party and may be modified or waived only by a separate letter executed by the Borrower and you expressly so modifying or waiving such Agreement.



24.

For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties hereto. Each such counterpart shall be, and shall be deemed to be, an original instrument, but all such counterparts taken together shall constitute one and the same Agreement.

2

        Kindly execute and return one copy of this letter which will constitute our Agreement with respect to the subject matter of this letter.

	By:
		Greenwich Capital Financial Products, Inc.
Confirmed and agreed to this            day of                         , 200 .
By:
Name Title:

3

EXHIBIT J

FORM OF SUBSERVICER INSTRUCTION LETTER

                                , 2002

                      , as [Subservicer]

Attention:

Re: Warehouse Loan and Security Agreement, dated as of February 10, 2000, as amended and restated to and including March 21, 2002, by and between Greenwich Capital Financial Products, Inc., ("Lender"), Aames Capital Corporation, as a Borrower, and Aames Funding Corporation, as a Borrower (each a "Borrower")

Ladies and Gentlemen:

        Pursuant to the Warehouse Loan and Security Agreement, dated as of February 10, 2000, as amended and restated to and including March 21, 2002, (the "Loan and Security Agreement"), between the Lender and the Borrowers, you are hereby notified that: (i) the undersigned Borrower has pledged to the Lender the assets described on Schedule 1 hereto (the "Eligible Assets"), (ii) each of the Eligible Assets is subject to a security interest in favor of the Lender, and (iii) effective as of the delivery of this letter to the Subservicer, unless otherwise notified by the Lender in writing, any payments or distributions made with respect to such Eligible Assets shall be remitted immediately by the [Subservicer] in accordance with the Lender's wiring instructions provided below:

Account No.:	[                        ]
ABA No.:	[                        ]
	[                        ]
Reference:	[                        ]

        The Subservicer also acknowledges its consent to terminate such Servicing Agreement upon notification by the Lender of an occurrence of an Event of Default.

        Please acknowledge receipt of this instruction letter by signing in the signature block below and forwarding an executed copy to the Lender promptly upon receipt. Any notices to the Lender should

be delivered to the following address: 600 Steamboat Road, Greenwich, Connecticut 06830, Attention: Joe Bartolotta, Telephone: (203) 625-6675, Facsimile: (203) 625-4751.

	Very truly yours,
	[BORROWER]
	By:
	Name: Title:
ACKNOWLEDGED:
, as [Subservicer]
By:
Name: Title: Telephone: Facsimile:

EXHIBIT K

FORM OF POWER OF ATTORNEY

        The Borrowers hereby irrevocably constitute and appoint the Lender and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Borrowers and in the name of each Borrower or in its own name, from time to time in the Lender's discretion, for the purpose of carrying out the terms of that certain Warehouse Loan and Security Agreement, dated as of February 10, 2000, as amended and restated to and including March 21, 2002, among Aames Capital Corporation, as a Borrower, Aames Funding Corporation, as a Borrower (collectively the "Borrowers"), and Greenwich Capital Financial Products, Inc. (the "Lender") (the "Warehouse Agreement"), to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Warehouse Agreement, and, without limiting the generality of the foregoing, the Borrowers hereby give the Lender the power and right, on behalf of the Borrowers, without assent by, but with notice to, the Borrowers, if an Event of Default shall have occurred and be continuing, to do the following:

        (ii)  in the name of the any Borrower or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any mortgage insurance or with respect to any other Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Lender for the purpose of collecting any and all such moneys due under any such mortgage insurance or with respect to any other Collateral whenever payable;

        (iii)  to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral; and

        (iv)  (A) to direct any party liable for any payment under any Collateral to make payment of any and all moneys due or to become due thereunder directly to the Lender or as the Lender shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to sign and endorse any invoices, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against either Borrower with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause (E) above and, in connection therewith, to give such discharges or releases as the Lender may deem appropriate; and (G) generally, to sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Lender were the absolute owner thereof for all purposes, and to do, at the Lender's option and the Borrowers' expense, at any time, or from time to time, all acts and things which the Lender deems necessary to protect, preserve or realize upon the Collateral and the Lender's Liens thereon and to effect the intent of this Warehouse Agreement, all as fully and effectively as the Borrowers might do.

The Borrowers hereby ratify all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.

        The Borrowers also authorize the Lender, at any time and from time to time, to execute, in connection with the sale provided for in Section 4.07 of the Warehouse Agreement and, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.

        The powers conferred on the Lender are solely to protect the Lender's interests in the Collateral and shall not impose any duty upon the Lender to exercise any such powers. The Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and

neither the Lender nor any of its officers, directors, or employees shall be responsible to the Borrowers for any act or failure to act hereunder, except for its own gross negligence or willful misconduct.

	AAMES CAPITAL CORPORATION
	By:
	Name: Title:
	AAMES FUNDING CORPORATION
	By:
	Name: Title:
Accepted and Acknowledged,
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
By:
Name: Title:

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EXHIBIT L

FORM OF ESCROW LETTER
ADDENDUM TO ESCROW INSTRUCTIONS

Escrow #:	Dated:	, 200
Borrower:

        The funds to be used for closing this transaction may be provided via wire transfer from the following account: "Disbursement Account, Bankers Trust Company, as Custodian for Greenwich Capital Financial Products, Inc., Account Number [            ].

        You are to hold the closing funds in trust for Greenwich Capital Financial Products, Inc. until such time as the funds are disbursed in accordance with the escrow instructions. If the loan is not funded within one (1) business day following your receipt of funds pursuant to this letter you are to return such funds via federal funds wire to:

["Disbursement Account, Bankers Trust Company, as Custodian for Greenwich Capital Financial Products, Inc., Account Number [            ]]

        If any loan is rescinded, you are to call Aames Capital Corporation: [phone number for Funding Manager for Appropriate Division] on the date on which notice of such rescission is received to notify Aames of same.

        Between the time the funds are received and the loan is funded you are to accept instructions regarding the use of the funds that are in conflict with the escrow instructions only in writing from [Funding Manager for Appropriate Division].

        This Addendum to Escrow Instructions shall be irrevocable and can only be modified with the express written approval of [Funding Manager for Appropriate Division].

Agreed and Acknowledged:
Settlement Agent:
By:
	Escrow Officer

EXHIBIT M

LIST OF SETTLEMENT AGENTS

Corporate Name
Address Phone Number Name of Settlement Agent at Closing

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EXHIBIT 10.33(a)

TABLE OF CONTENTS
WAREHOUSE LOAN AND SECURITY AGREEMENT

Schedule 1

REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS

Schedule 2

Schedule 3

Schedule 4

RELEVANT STATES

Schedule 5

SUBSIDIARIES OF AAMES FINANCIAL CORPORATION

EXHIBIT A

PROMISSORY NOTE
EXHIBIT B
EXHIBIT C
FORM OF OPINION OF COUNSEL TO THE BORROWERS
EXHIBIT D
FORM OF NOTICE OF BORROWING AND PLEDGE

[Schedule I to Notice of Borrowing and Pledge
EXHIBIT E

UNDERWRITING GUIDELINES

EXHIBIT F

REQUIRED FIELDS FOR SERVICING TRANSMISSION

EXHIBIT G

REQUIRED FIELDS FOR MORTGAGE LOAN DATA TRANSMISSION

EXHIBIT H

FORM OF BORROWING BASE CERTIFICATE

EXHIBIT I

FORM OF CONFIDENTIALITY AGREEMENT

EXHIBIT J

FORM OF SUBSERVICER INSTRUCTION LETTER

EXHIBIT K

FORM OF POWER OF ATTORNEY

EXHIBIT L
EXHIBIT M

EX-10.33(B)

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EXHIBIT 10.33(b)

AMENDMENT NUMBER ONE
to the
Warehouse Loan and Security Agreement
dated as of February 10, 2000,
as Amended and Restated to and including March 21, 2002
by and among
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
and
AAMES CAPITAL CORPORATION
and
AAMES FUNDING CORPORATION

        This AMENDMENT NUMBER ONE is made this 15^th day of May, 2002, by and among GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., having an address at 600 Steamboat Road, Greenwich, Connecticut 06830 (the "Lender"), AAMES CAPITAL CORPORATION, having an address at 350 South Grand Avenue, Los Angeles, California 90071 ("Aames Capital") and AAMES FUNDING CORPORATION, having an address at 350 South Grand Avenue, Los Angeles, California 90071 ("Aames Funding", and together with Aames Capital, the "Borrowers"), to the Warehouse Loan and Security Agreement (the "Warehouse Agreement"), dated as of February 10, 2000, as amended and restated to and including March 21, 2002 by and among the Lender, Aames Capital and Aames Funding. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Warehouse Agreement.

RECITALS

        WHEREAS, the Borrowers and the Lender have agreed to amend the sublimits applicable to Second Lien Mortgage Loans which are subject to Advances under the Warehouse Agreement, as set forth herein.

        NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and of the mutual covenants herein contained, the parties hereto hereby agree as follows:

        SECTION 1. Effective as of May 15, 2002, subclauses (15), (16) and (17) of the definition of Collateral Value in Section 1 of the Warehouse Agreement are hereby deleted and replaced with the following:

        (15) if such Mortgage Loan is a Second Lien Mortgage Loan which has been subject to the terms of this Warehouse Agreement for more than 120 days;

        (16) if such Mortgage Loan is a Second Lien Mortgage Loan and the Collateral Value of such Second Lien Mortgage Loan when added to the aggregate Collateral Value of all other Second Lien Mortgage Loans exceeds, at any time, $15,000,000;

        (17) if such Mortgage Loan is a Second Lien Mortgage Loan (other than a Concurrent Second Lien Mortgage Loan) and the Collateral Value of such Second Lien Mortgage Loan when added to the aggregate Collateral Value of all other Second Lien Mortgage Loans which are not Concurrent Second Lien Mortgage Loans exceeds, at any time, $7,500,000; or

        (18) if such Mortgage Loan is a Second Lien Mortgage Loan that has been subject to the terms of this Warehouse Agreement for 90 or more days and the Collateral Value of such Second Lien Mortgage Loan when added to the aggregate Collateral Value of all other Second Lien Mortgage Loans that have been subject to the terms of this Warehouse Agreement for 90 or more days exceeds, at any time, $7,500,000.

        SECTION 2. In order to induce the Lender to execute and deliver this Amendment, the Borrowers hereby represent to the Lender that as of the date hereof, after giving effect to this Amendment, the Borrowers are in full compliance with all of the terms and conditions of the Warehouse Agreement and no Default or Event of Default has occurred and is continuing under the Warehouse Agreement.

        SECTION 3. This Amendment Number One shall be construed in accordance with the laws of the State of New York (including Section 5-1401 of the New York General Obligations Law) and the obligations, rights, and remedies of the parties hereunder shall be determined in accordance with such laws without regard to conflict of laws doctrine applied in such state (other than Section 5-1401 of the New York General Obligations Law).

        SECTION 4. This Amendment Number One may be executed by each of the parties hereto on any number of separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same instrument.

        SECTION 5. Except as expressly amended and modified by this Amendment Number One, the Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms. Reference to this Amendment need not be made in the Warehouse Agreement or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to, or with respect to, the Warehouse Agreement, any reference in any of such items to the Warehouse Agreement being sufficient to refer to the Warehouse Agreement as amended hereby.

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        IN WITNESS WHEREOF, the Lender and the Borrowers have caused this Amendment Number One to be executed and delivered by their duly authorized officers as of the day and year first above written.

	GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. (Lender)
	By: Name: Title:
	AAMES CAPITAL CORPORATION (Borrower)
	By: Name: Title:
	AAMES FUNDING CORPORATION (Borrower)
	By: Name: Title:
ACKNOWLEDGED AND AGREED:
AAMES FINANCIAL CORPORATION. as "Guarantor" under that certain Guaranty dated as of March 21, 2002 in favor of Lender.
By: Name: Title:

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EXHIBIT 10.33(b)

AMENDMENT NUMBER ONE to the Warehouse Loan and Security Agreement dated as of February 10, 2000, as Amended and Restated to and including March 21, 2002 by and among GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. and AAMES CAPITAL CORPORATION and AAMES FUNDING CORPORATION

EX-10.33(C)

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EXHIBIT 10.33(c)

GUARANTY

        GUARANTY, dated as of March 21, 2002 (the "Guaranty"), made by AAMES FINANCIAL CORPORATION (the "Guarantor") in favor of GREENWICH CAPITAL FINANCIAL PRODUCTS, INC. (the "Lender"), party to the Warehouse Loan and Security Agreement referred to below.

RECITALS

        Pursuant to the Warehouse Loan and Security Agreement dated as of February 20, 2000, as Amended and Restated to and including March 21, 2002 (as amended, supplemented or otherwise modified from time to time, the "Agreement") between Aames Capital Corporation and Aames Funding Corporation (each, a "Borrower" and collectively, the "Borrowers") and the Lender, the Lender has agreed to make Advances to the Borrowers upon the terms and subject to the conditions set forth therein. It is a condition precedent to the obligation of the Lender to make the Advances to the Borrowers under the Agreement that the Guarantor shall have executed and delivered this Guaranty to the Lender.

        NOW, THEREFORE, in consideration of the premises and to induce the Lender to enter into the Agreement and to induce the Lender to make the Advances to the Borrowers under the Agreement, the Guarantor hereby agrees with the Lender as follows:

        1.    Defined Terms. (a) Unless otherwise defined herein, terms defined in the Agreement and used herein shall have the meanings given to them in the Agreement.

        (b)  "Change of Control" means the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of outstanding shares of voting stock of the Guarantor and the proceeds of such acquisition are not received by the Guarantor, at any time, if after giving effect to such acquisition, and any and all other such acquisitions, such Person or Persons owns forty percent (40%) or more of such outstanding voting stock.

        (c)  "Obligations" shall mean the obligations and liabilities of the Borrowers to the Lender, including, without limitation, the obligations whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, or out of or in connection with the Agreement, the Loan Documents and any other document made, delivered or given in connection therewith or herewith, whether on account of principal, interest, reimbursement obligations, all Claims (as defined in Section 101 of the Bankruptcy Code) of the Lender against the Borrowers, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Lender that are required to be paid by the Borrowers pursuant to the terms of the Agreement) or otherwise.

        (d)  "Material Adverse Change" shall mean with respect to any Person, a material adverse change in the business, operations, property, condition (financial or otherwise) or prospects of such Person or (b) the validity or enforceability of this or any of the other documents to which such Person is a party or the rights or remedies of the Lender thereunder or hereunder.

        (e)  The words "hereof," "herein" and "hereunder" and words of similar import when used in this Guaranty shall refer to this Guaranty as a whole and not to any particular provision of this Guaranty, and section and paragraph references are to this Guaranty unless otherwise specified.

        (f)    The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

        2.    Guaranty. (a) The Guarantor hereby, unconditionally and irrevocably, guarantees to the Lender and its successors, indorsees, transferees and assigns, the prompt and complete payment and

performance by the Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations.

        (b)  The Guarantor further agrees to pay any and all expenses (including, without limitation, all reasonable fees and disbursements of counsel) which may be paid or incurred by the Lender in enforcing any rights with respect to, or collecting against, the Guarantor under this Guaranty. This Guaranty shall remain in full force and effect until the Obligations are paid in full.

        (c)  Except for payments required to be made by the Guarantor hereunder, no other payments affect the Guarantor's liability under the Guaranty. No payment or payments made by the Borrowers, the Guarantor, any other guarantor or any other Person or received or collected by the Lender from the Borrowers, the Guarantor, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall, notwithstanding any such payment or payments other than payments made by the Guarantor in respect of the Obligations or payments received or collected from the Guarantor in respect of the Obligations, remain liable for the Obligations up to the maximum liability of the Guarantor hereunder until the Obligations are paid in full and the Agreement is terminated, subject to the provisions of Section 9 hereof.

        (d)  The Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to the Lender on account of its liability hereunder, it will notify the Lender in writing that such payment is made under this Guaranty for such purpose. No payments made by the Guarantor to the Borrowers shall be applied towards the Obligations except for those payments required by this Guaranty.

        3.    Representations, Warranties and Covenants of Guarantor. (a) Guarantor hereby represents and warrants (i) that it is duly organized and validly existing in good standing under the laws of the jurisdiction under which it is organized and is duly qualified to do business and is in good standing in every other jurisdiction as to which the nature of the business conducted by it makes such qualification necessary, (ii) that it has power and authority to enter into and perform this Guaranty, (iii) that execution, delivery and performance of this Guaranty by it have been duly authorized by proper action and are not in contravention of law or of the terms of its articles of incorporation, by-laws, or any agreement, instrument, indenture or other undertaking to which it is a party or by which it is bound, (iv) that all registrations and approvals of any governmental agency, department or commission necessary for the execution, delivery and performance of this Guaranty and for the validity and enforceability thereof, have been obtained and are in full force and effect, (v) that this Guaranty is the legal, valid and binding obligation of the Guarantor, enforceable against Guarantor, in accordance with its terms, subject to bankruptcy, insolvency and similar laws and to the availability of equitable remedies, (vi) that no legal proceedings are pending, or threatened, before any court or governmental agency which would adversely affect its financial condition, operations or any licenses or its ability to perform under this Guaranty, (vii) that Guarantor has received and reviewed copies of the Loan Documents, (viii) that no Default or Event of Default has occurred and is continuing under this Guaranty, and (ix) that the Guarantor has a financial interest in the Borrowers and the Guarantor has determined that it will benefit from the execution of the Loan Documents.

        (b)  The Guarantor covenants and agrees with the Lender that, until the payment in full of the Obligations:

          (i)  Maintenance of Tangible Net Worth. The Tangible Net Worth of the Guarantor, on a consolidated basis and on any given day, shall be equal to or greater than $34,000,000;

        (ii)  Maintenance of Ratio of Total Indebtedness to Tangible Net Worth. The Guarantor shall not permit the ratio of Total Indebtedness (not taking into account the aggregate outstanding amount

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borrowed by the Guarantor under any secured financing facilities for which adequate collateral has been pledged thereunder by the Guarantor) to Tangible Net Worth, on a consolidated basis and on any given day, to be greater than 10:1;

        (iii)  Liquidity. The aggregate amount of the Guarantor's cash, Cash Equivalents and available borrowing capacity on unencumbered assets that could be drawn against (taking into account required haircuts) under committed warehouse or working capital facilities, on a consolidated basis and on any given day, shall be equal to or greater than $17,500,000;

        (iv)  Maintenance of Ratio of Earnings to Total Interest Expense. The Guarantor shall not permit the ratio of earnings before interest and taxes to total interest expense, on a consolidated basis, to be less than 1.10:1 measured on a rolling basis from the immediately preceding two calendar quarters commencing with the two quarters ending December 31, 2001 and March 31, 2002; and

        (v)  Profitability. The Guarantor shall have a GAAP after tax net income of at least $1.00 for the fiscal quarter ended June 30, 2002.

        (c)  At the time that the Guarantor delivers its consolidated financial statements to the Lender in accordance with Section 7.01 of the Agreement, the Guarantor shall forward to the Lender a certificate of a Responsible Officer of the Guarantor which demonstrates that the Guarantor is in compliance with the covenants set forth in clauses (b) (i) through (v) above.

        4.    Right of Set-off. Upon the occurrence of any Event of Default under this Guaranty, the Guarantor hereby irrevocably authorizes the Lender and each of its affiliates at any time and from time to time without notice to the Guarantor, any such notice being expressly waived by the Guarantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Lender or any of its affiliates to or for the credit or the account of the Guarantor, or any part thereof in such amounts as the Lender or any of its affiliates may elect, against and on account of the Obligations and liabilities of the Guarantor to the Lender hereunder and claims of every nature and description of the Lender or any of its affiliates against the Guarantor, in any currency, whether arising hereunder, under the Agreement as the Lender may elect, whether or not the Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Lender shall notify the Guarantor promptly of any such set-off and the application made by the Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have.

        5.    Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder or any set-off or application of funds of the Guarantor by the Lender, the Guarantor shall not be entitled to be subrogated to any of the rights of the Lender against the Borrowers or any other guarantor or any collateral security or guarantee or right of offset held by the Lender or any of its affiliates for the payment of the Obligations, nor shall the Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrowers or any other guarantor in respect of payments made by the Guarantor hereunder, until all amounts owing to the Lender by the Borrowers on account of the Obligations are paid in full and the Agreement is terminated. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Guarantor in trust for the Lender, segregated from other funds of the Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned over to the Lender in the exact form received by the Guarantor (duly indorsed by the Guarantor to the Lender, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Lender may determine.

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        6.    Amendments, Etc. with Respect to the Obligations. The Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Guarantor and without notice to or further assent by the Guarantor, any demand for payment of any of the Obligations made by the Lender may be rescinded by the Lender and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Lender, and the Agreement and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Lender may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. The Lender shall not have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guaranty or any property subject thereto. When making any demand hereunder against the Guarantor, the Lender may, but shall be under no obligation to, make a similar demand on the Borrowers or any other guarantor, and any failure by the Lender to make any such demand or to collect any payments from the Borrowers or any such other guarantor or any release of the Borrowers or such other guarantor shall not relieve the Guarantor of its Obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Lender against the Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. The Lender may release any Collateral pledged to it in its sole discretion, provided, however, in the event the Lender has received amounts from the Guarantor pursuant to this Guaranty, which amounts have not been reimbursed, the Lender shall not voluntarily release any Pledged Securities to the Lender under the Agreement, except as may be provided in the Agreement, without the consent of the Guarantor, which consent shall not unreasonably be withheld. The Guarantor hereby further consents to any renewal or modification of any Obligation or any extension of the time within which such is to be performed and to any other indulgences, whether before or after the date of this Guaranty, and waives notice with respect thereto.

        7.    Waiver of Rights. The Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations, and notice of or proof of reliance by the Lender upon this Guaranty or acceptance of this Guaranty; the Obligations, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guaranty; and all dealings between the Borrowers and the Guarantor, on the one hand, and the Lender, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guaranty. The Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrowers or the Guarantor with respect to the Obligations. The Guarantor hereby waives diligence; presentment; demand for payment or performance; filing of claims with any court in case of the insolvency, reorganization or bankruptcy of either Borrower; protest or notice with respect to the Obligations or the amounts payable by either Borrower thereunder; and all demands whatsoever; any fact, event or circumstance that might otherwise constitute a legal or equitable defense to or discharge of the Guarantor, including (but without typifying or limiting this waiver), failure by the Lender to perfect a security interest in any collateral securing performance of any Obligation or to realize the value of any collateral or other assets which may be available to satisfy any Obligation and any delay by the Lender in exercising any of its rights hereunder or against the Borrowers.

        8.    Guaranty Absolute and Unconditional. The Guarantor understands and agrees that this Guaranty shall be construed as a continuing, absolute and unconditional guarantee of the full and punctual payment and performance by the Borrowers of the Obligations and not only of their collectibility (a) without regard to (i) the validity, regularity or enforceability of the Agreement, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect

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thereto at any time or from time to time held by the Lender, (ii) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrowers against the Lender, (iii) any defense by the Borrowers to the Obligations or any subordination of the Lien on the Collateral or the priority of the Lender in the Collateral, or (iv) any other circumstance whatsoever (with or without notice to or knowledge of the Borrowers or the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrowers from the Obligations, or of the Guarantor from this Guaranty, in bankruptcy or in any other instance and (b) is in no way conditioned upon any requirement that the Lender first attempt to collect any of the Obligations from the Borrowers. The Guarantor understands and agrees that this Guaranty shall be construed as a continuing, absolute and unconditional guarantee without regard to waiver, forbearance, compromise, release, settlement, the dissolution, liquidation, reorganization or other change regarding either Borrower, or either Borrower being the subject of any case or proceeding under any bankruptcy or other law for the protection of debtors or creditors, or any other action or matter that would release a guarantor. When pursuing its rights and remedies hereunder against the Guarantor, the Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Borrowers or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Lender to pursue such other rights or remedies or to collect any payments from the Borrowers or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrowers or any such other Person or any such collateral security, guarantee or right of offset, shall not relieve the Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Lender against the Guarantor. This Guaranty shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantor and the successors and assigns thereof, and shall inure to the benefit of the Lender, and its successors, indorsees, transferees and assigns, until all the Obligations and the Obligations of the Guarantor under this Guaranty shall have been satisfied by payment in full and the Agreement shall be terminated, subject to the provisions of Section 9 hereof.

        9.    Reinstatement. This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or avoided or is restored, repaid or returned by the Lender for any reason after the insolvency, bankruptcy, dissolution, liquidation or reorganization of either Borrower or the Guarantor, or the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, either Borrower or the Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made.

        10.  Events of Default. Each of the following events and occurrences shall constitute an Event of Default under this Guaranty if not cured within three (3) Business Days of their occurrence unless the context of the provision indicates otherwise;

        (a)  The Guarantor shall (i) fail to make any payment required to be made to Lender under this Guaranty or (ii) fail to comply with the requirements of Section 3 of this Guaranty.

        (b)  the Guarantor shall fail to observe or perform any other agreement contained in Guaranty or any other Loan Document and such failure to observe or perform shall continue unremedied for a period of five (5) Business Days.

        (c)  The Guarantor shall fail to pay any money due under any other agreement, note, indenture or instrument evidencing, securing, guaranteeing or otherwise relating to indebtedness of the Guarantor for borrowed money in an aggregate amount of at least $5,000,000 which failure to pay constitutes a default or event of default under any such agreement or indebtedness, or the Guarantor receives notice, or a Responsible Officer has knowledge, of any other default or event of default or other event which with the giving of notice or the passing of time or both would constitute a default or event of default under any such agreement or instrument, with respect to amounts due under such agreement or

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instrument, whether by acceleration or otherwise, in an aggregate amount of $5,000,000 or such lesser amount as shall be included in a cross-acceleration provision of any such agreement or instrument.

        (d)  A proceeding or case shall be commenced, without the application or consent of the Guarantor or any of its Subsidiaries, as applicable, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Guarantor, or any such Subsidiary or of all or any substantial part of its property, or (iii) similar relief in respect of the Guarantor or any such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) or more days; or an order for relief against the Guarantor or any such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code.

        (e)  The Guarantor or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate or other action for the purpose of effecting any of the foregoing.

        (f)    The Guarantor or any Affiliate thereof becomes insolvent or admits in writing to its inability to pay its debts as they mature.

        (g)  Any other event shall occur with respect to the Guarantor which, in the sole good faith discretion of the Lender, has had a Material Adverse Effect.

        (h)  Any Change of Control of the Guarantor shall have occurred without the prior consent of the Lender.

        (i)    The Lender shall reasonably request, specify the reasons for such request, information, and/or written responses to such requests, regarding the financial well-being of the Guarantor and such information and/or responses shall not have been provided within three (3) Business Days of such request.

        11.  Payments. The Guarantor hereby guarantees that payments hereunder will be paid to the Lender without set-off or counterclaim in U.S. Dollars in accordance with the wiring instructions of the Lender.

        12.  Notices. All notices, requests and other communications provided for herein (including without limitation any modifications of, or waivers, requests or consents under, this Guaranty) shall be given or made in writing (including without limitation by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages of the Agreement); or, as to any party, at such other address as shall be designated by such party in a written notice to each other party. All such communications shall be deemed to have been duly given when transmitted by telex or telecopy or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid.

        13.  Severability. Any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or

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unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

        14.  Integration. This Guaranty and the Agreement represent the agreement of the Guarantor with respect to the subject matter hereof and thereof and there are no promises or representations by the Lender relative to the subject matter hereof or thereof not reflected herein or therein.

        15.  Amendments in Writing; No Waiver; Cumulative Remedies. (a) None of the terms or provisions of this Guaranty may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Guarantor and the Lender, provided that any provision of this Guaranty may be waived by the Lender.

        (b)  The Lender shall not by any act (except by a written instrument pursuant to Section 14(a) hereof, delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lender would otherwise have on any future occasion.

        (c)  The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

        16.  Section Headings. The section headings used in this Guaranty are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

        17.  Successors and Assigns. This Guaranty shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of the Lender and its successors and assigns. This Guaranty may not be assigned by the Guarantor without the express written consent of the Lender.

        18.  Governing Law. This Guaranty shall be governed by New York law without reference to choice of law doctrine.

        19.  SUBMISSION TO JURISDICTION; WAIVERS. THE GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY:

(A)  SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY AND THE AGREEMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF, OR THE COURTS OF THE STATE OF NEW YORK, WITHIN THE COUNTY OF NEW YORK, IN THE EVENT THE FEDERAL COURT LACKS OR DECLINES JURISDICTION;

(B)  CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

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(C)  AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND

(D)  AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

20.  WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY, ANY THE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

        21.  Termination. This Guaranty shall terminate upon the final payment in full of the Obligations and the termination of the Agreement.

        [SIGNATURE PAGE FOLLOWS]

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        IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly executed and delivered by its duly authorized officer as of the day and year first above written.

AAMES FINANCIAL CORPORATION

By:

Name:
Title:

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EXHIBIT 10.33(c)

EX-11

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Exhibit 11

AAMES FINANCIAL CORPORATION
Computation of Basic and Diluted Net Loss Per Common Share
For the years ended June 30, 2002, 2001 and 2000
(dollars and weighted average number of shares in thousands)

		Year Ended June 30,
		2002			2001			2000
Basic net loss per common share:
	Net loss	$	4,546		$	(30,524	)	$	(122,372	)
	Accrued preferred dividends on Series B, C, and D Convertible Preferred Stock		(13,788	)		(13,921	)		(8,126	)
	Basic net loss to common stockholders		(9,242	)		(44,445	)		(130,498	)
	Basic weighted average number of common shares outstanding		6,394			6,251			6,209
	Basic net loss per common share	$	(1.45	)	$	(7.11	)	$	(21.02	)
Diluted net loss per common share:
	Basic net loss to common stockholders	$	(9,242	)	$	(44,445	)	$	(130,498	)
	Interest on convertible subordinated debentures		—			—			—
	Diluted net loss		(9,242	)		(44,445	)		(130,498	)
	Basic weighted average number of common shares outstanding		6,394			6,251			6,209
	Plus: Effects of options		—			—			—
	Convertible shares		—			—			—
			6,394			6,251			6,209
	Diluted net loss per common share	$	(1.45	)	$	(7.11	)	$	(21.02	)

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Exhibit 11

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

        We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-95811 and 333-45826) and related Prospectuses of Aames Financial Corporation of our report dated August 30, 2002 with respect to the consolidated financial statements of Aames Financial Corporation included in this Annual Report (Form 10-K) for the year ended June 30, 2002.

ERNST & YOUNG LLP

Los Angeles, California
September 26, 2002

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Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

EX-99.1

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Exhibit 99.1

Certification by the Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002

        I, A. Jay Meyerson, Chief Executive Officer, and I, Ronald J. Nicolas, Jr., Chief Financial Officer, of Aames Financial Corporation, a Delaware corporation (the "Company"), each hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

        (1)  The Company's periodic report on Form 10-K for the year ended June 30, 2002 (the "Form 10-K") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

        (2)  The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

* * *

CHIEF EXECUTIVE OFFICER	CHIEF FINANCIAL OFFICER
/s/  A. JAY MEYERSON A. Jay Meyerson Date: September 27, 2002	/s/  RONALD J. NICOLAS, JR. Ronald J. Nicolas, Jr. Date: September 27, 2002

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Exhibit 99.1