<PAGE>   1

                                                                    EXHIBIT 99.1


                              AMENDED AND RESTATED

                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                          CAPITAL PACIFIC HOLDINGS, LLC



<PAGE>   2



                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               Page


<S>                                                                                                            <C>
ARTICLE I - FORMATION OF COMPANY................................................................................  1
       1.1        Formation.....................................................................................  1
       1.2        Name..........................................................................................  1
       1.3        Office........................................................................................  1
       1.4        Certificate...................................................................................  1
       1.5        Registered Agent and Office...................................................................  2
       1.6        Qualification in Other Jurisdictions..........................................................  2

ARTICLE II - PURPOSE OF COMPANY.................................................................................  2
       2.1        Purpose.......................................................................................  2
       2.2        Powers........................................................................................  2

ARTICLE III - MANAGEMENT/MEMBERS................................................................................  4
       3.1        Company Management............................................................................  4
       3.2        Business Plan.................................................................................  5
       3.3        Major Decisions...............................................................................  6
       3.4        Authorized Representatives....................................................................  7
       3.5        Bank Accounts.................................................................................  8
       3.6        Reports and Tax Returns.......................................................................  9
       3.7        Limitations and Authority.....................................................................  9

ARTICLE IV - BUY-SELL PROCEDURE; PUT/CALL....................................................................... 10
       4.1        Election to Proceed........................................................................... 10

ARTICLE V - CAPITALIZATION OF THE COMPANY....................................................................... 10
       5.1        Capital Contributions......................................................................... 10
       5.2        Member Loans.................................................................................. 11
       5.3        Capital Accounts.............................................................................. 11
       5.4        Withdrawals................................................................................... 11
       5.5        No Other Compensation/Expenses................................................................ 11

ARTICLE VI - PROFITS, LOSSES AND DISTRIBUTIONS.................................................................. 12
       6.1        Allocation of Profits and Losses.............................................................. 12
       6.2        Special Allocations........................................................................... 12
       6.3        Other Allocation Rules........................................................................ 14
       6.4        Tax Allocations; Section 704(c) of the Code................................................... 14
       6.5        Available Cash/Distributions.................................................................. 15
       6.6        Allocation and Tax Elections with Respect to

</TABLE>



                                        i

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<TABLE>
<S>                                                                                                            <C>
                  Transferred Company Interests................................................................. 15
       6.7        Certain Distribution Rules.................................................................... 15
       6.8        Distributions in Kind......................................................................... 16
       6.9        Limitation on Distributions................................................................... 16

ARTICLE VII - ACCOUNTING CONSIDERATIONS......................................................................... 16
       7.1        Determination of Profits and Losses........................................................... 16
       7.2        Fiscal Year................................................................................... 16
       7.3        Books of Account; Company Accountant.......................................................... 16
       7.4        Tax Controversies............................................................................. 17
       7.5        Right to Make Section 754 Election............................................................ 17
       7.6        Taxation as Partnership....................................................................... 17

ARTICLE VIII - TRANSFER OF COMPANY INTEREST;
                  ADMISSION OF NEW MEMBERS...................................................................... 18
       8.1        Assignment of Interest........................................................................ 18
       8.2        Effective Date of Transfer.................................................................... 19
       8.3        Substitute Member(s).......................................................................... 19
       8.4        Nonsubstituted Assignees...................................................................... 19

ARTICLE IX - DURATION, WITHDRAWAL AND VOLUNTARY DISSOLUTION..................................................... 19
       9.1        Term of Company............................................................................... 19
       9.2        No Withdrawal................................................................................. 20
       9.3        Events of Dissolution......................................................................... 20
       9.4        Continuity of Company Business................................................................ 20
       9.5        Distribution Upon Dissolution................................................................. 20
       9.6        Rights of Members Against Each Other.......................................................... 21

ARTICLE X - MATERIAL FAILURE.................................................................................... 21
       10.1       Definition of Material Failure................................................................ 21
       10.2       Remedies Upon Material Failure................................................................ 22

ARTICLE XI - AMENDMENTS......................................................................................... 22
       11.1       Amendments.................................................................................... 22

ARTICLE XII - LIABILITY, EXCULPATION AND INDEMNIFICATION........................................................ 23
       12.1       Liability..................................................................................... 23
       12.2       Exculpation................................................................................... 23
       12.3       Duties and Liabilities of Covered Persons..................................................... 24
       12.4       Indemnification............................................................................... 24
       12.5       Expenses...................................................................................... 24
       12.6       Insurance..................................................................................... 25

ARTICLE XIII - MISCELLANEOUS.................................................................................... 25
</TABLE>



                                       ii

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<TABLE>
<S>                                                                                                            <C>
       13.1       Mailing of Notices............................................................................ 25
       13.2       Outside Activities............................................................................ 25
       13.3       Partition..................................................................................... 25
       13.4       Entire Agreement.............................................................................. 25
       13.5       Amendment and Waivers......................................................................... 26
       13.6       Governing Law................................................................................. 26
       13.7       Severability.................................................................................. 26
       13.8       Successors and Assigns........................................................................ 26
       13.9       Interpretation................................................................................ 26
       13.10      Counterparts.................................................................................. 26
       13.11      No Third Party Beneficiary.................................................................... 26
       13.12      Failure to Pursue Remedies.................................................................... 26
       13.13      Cumulative Remedies........................................................................... 27
       13.14      Litigation Without Termination................................................................ 27
       13.15      Attorneys' Fees............................................................................... 27
       13.16      Consents...................................................................................... 27

</TABLE>

                                LIST OF EXHIBITS

EXHIBIT A                  INITIAL BUSINESS PLAN

EXHIBIT B                  FORMS OF DEEDS

EXHIBIT C                  FORMS OF GENERAL ASSIGNMENTS

EXHIBIT D                  PERCENTAGE INTERESTS




                                       iii

<PAGE>   5

                              AMENDED AND RESTATED
                       LIMITED LIABILITY COMPANY AGREEMENT

                                       OF

                          CAPITAL PACIFIC HOLDINGS, LLC


         THIS LIMITED LIABILITY COMPANY AGREEMENT of CAPITAL PACIFIC HOLDINGS,
LLC (the "AGREEMENT") is made as of October ___, 1997 by and among CAPITAL
PACIFIC HOLDINGS, INC., a Delaware corporation ("CPH"), CALIFORNIA HOUSING
FINANCE, L.P., a Delaware limited partnership ("CHF"), and the other parties
listed under "NON-MANAGING MEMBERS" on the signature page(s) of this Agreement
(collectively, the "OTHER MEMBERS"). CPH, CHF and the Other Members sometimes
are referred to in this Agreement as the "PARTIES" or individually as "MEMBER"
and collectively as "MEMBERS."

                                    ARTICLE I

                              FORMATION OF COMPANY

         1.1 Formation. CPH and the Other Members have formed a limited
liability company (hereinafter the "COMPANY") pursuant to the Delaware Limited
Liability Company Act, 6 Del. Co. ss. 18-101, et seq., (as amended from time to
time, the "ACT"). The Members desire to enter into this Agreement for the
purposes of amending and restating in its entirety the existing agreement
governing the Company.

         1.2 Name. The name under which the Company shall do business is Capital
Pacific Holdings, LLC.

         1.3 Office. The principal office and place of business of the Company
shall be c/o Capital Pacific Holdings, Inc., 4100 MacArthur Boulevard, Suite
200, Newport Beach, California 92660, or at such other location or locations as
the Members may determine from time to time.

         1.4 Certificate. CPH has caused to be filed, on behalf of the Company,
with the Office of the Secretary of State of the State of Delaware pursuant to
the Act, the Certificate of Formation of the Company (the "CERTIFICATE"). CPH
further shall cause to be filed any and all amendments to the Certificate, and
restatements of the Certificate, as may be required from time to time under the
Act.




<PAGE>   6



         1.5 Registered Agent and Office. The Company's registered agent and
office in Delaware shall be Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware 19805. At any time, CPH may designate another registered
agent and/or registered office.

         1.6 Qualification in Other Jurisdictions. CPH shall cause the Company
to be qualified, formed or registered under assumed or fictitious name statutes
or similar laws in any jurisdiction in which the Company transacts business in
which such qualification, formation or registration is required or desirable
from time to time. CPH, as an authorized person within the meaning of the Act,
shall execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.


                                   ARTICLE II

                               PURPOSE OF COMPANY

         2.1 Purpose. Unless otherwise agreed in writing by CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively), the business purpose of
the Company shall be to engage in homebuilding and related activities.

         2.2 Powers.

             (a) In furtherance of such business purposes, the Company shall
have power to have and to exercise all the powers conferred by the State of
Delaware upon limited liability companies formed under the Act. The Company
shall have the power and authority to take any and all such actions necessary,
appropriate, proper, advisable, convenient or incidental to or for the
furtherance of the purpose set forth in Section 2.1, including, but not limited
to, the power:

                (i) to conduct its business, carry on its operations and have
and exercise the powers granted to a limited liability company by the Act in any
state, territory, district or possession of the United States, or in any foreign
country that may be necessary, convenient or incidental to the accomplishment of
the purpose of the Company;

                (ii) to acquire by purchase, lease, contribution of property or
otherwise, own, hold, operate, maintain, finance, improve, lease, sell, convey,
mortgage, transfer, demolish or dispose of any real or personal property that
may be necessary, convenient or incidental to the accomplishment of the purpose
of the Company;

                (iii) to enter into, perform and carry out contracts of any
kind, including, without limitation, contracts with any Member or any Affiliate
(as defined in Section 3.3(f))




                                        2

<PAGE>   7
thereof, or any agent of the Company necessary to, in connection with,
convenient to, or incidental to the accomplishment of the purpose of the
Company;

                (iv)  to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, mortgage, lend, pledge, or
otherwise dispose of, and otherwise use and deal in and with, shares or other
interests in or obligations of domestic or foreign corporations, associations,
general or limited partnerships (including, without limitation, the power to be
admitted as a partner thereof and to exercise the rights and perform the duties
created thereby), trusts, limited liability companies (including, without
limitation, the power to be admitted as a member or appointed as a manager
thereof and to exercise the rights and perform the duties created thereby), or
individuals or direct or indirect obligations of the United States or of any
government, state, territory, governmental district or municipality or of any
instrumentality of any of them;

                (v)   to lend money for any proper purpose, to invest and
reinvest its funds, and to take and hold real and personal property for the
payment of funds so loaned or invested;

                (vi)  to sue and be sued, complain and defend, and participate
in administrative or other proceedings, in its name;

                (vii) to appoint employees and agents of the Company, and
define their duties and fix their compensation;

               (viii) to indemnify any person or entity in accordance with the
Act and to obtain any and all types of insurance;

                (ix)  to cease its activities and cancel the Certificate;

                 (x)  to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other action
with respect to any lease, contract or security agreement in respect of any
assets of the Company;

                (xi)  to borrow money and issue evidences of indebtedness, and
to secure the same by a mortgage, pledge or other lien on the assets of the
Company;

                (xii) to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of or against the
Company or to hold such proceeds against the payment of contingent liabilities;
and

                (xiii) to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to the
accomplishment of the purposes of the Company.




                                        3

<PAGE>   8




             (b) The Company may merge with, or consolidate into, another
Delaware limited liability company or other business entity (as defined in
Section 18-209(a) of the Act) upon the approval of CPH, CHF and a
majority-in-interest of the Non-Managing Members, which may be withheld in the
sole discretion of each Member, respectively.

             (c) Notwithstanding the foregoing, the Company shall not do
business in any jurisdiction that would jeopardize the limitation on liability
afforded to the Members under the Act or this Agreement.


                                   ARTICLE III

                               MANAGEMENT/MEMBERS

         3.1 Company Management.

             (a) CPH As Manager. CPH shall be the sole "MANAGING MEMBER" of the
Company and, as such, shall manage the business and affairs of the Company in
accordance with this Agreement. Except as otherwise set forth in this Agreement
and subject to the limitations expressly set forth herein and in the Business
Plan, CPH shall manage and control the business and affairs of the Company,
shall make all decisions affecting the business and affairs of the Company and
shall take all such actions as CPH may deem necessary or appropriate to
accomplish the purposes of the Company as set forth herein. No Member other than
CPH shall have any power or authority to bind the Company except as expressly
set forth in this Agreement.

             (b) CPH's Duties. CPH shall at all times act in a fiduciary
capacity toward the Company, CHF and each of the Other Members in exercising
CPH's power and authority under this Agreement, provided that the foregoing is
not intended to modify any other provision of this Agreement. CPH shall fully
and faithfully discharge its obligations and responsibilities and shall devote
such time and attention to the Company's affairs as may be reasonably necessary
for the proper management and supervision of the Company's operations and the
discharge of CPH's duties under this Agreement. For example, CPH's duties shall
include responsibility for overseeing the Company's real estate development
activities and preparation of development and marketing plans and strategies for
the Company. CPH shall make CPH's personnel and assets and licenses, and the
personnel and assets and licenses of CPH's Affiliates, available to the Company
in order that CPH's obligations under this Agreement may be adequately
discharged, all at the Company's expense as set forth in this Agreement but
subject to allocation pursuant to Section 6.05(c) of the Investment and
Stockholder Agreement to which the Members are parties, dated September __, 1997
(the "Investment Agreement"). CPH and each of the Other Members hereby license
all of their respective trademarks, tradenames and



                                        4

<PAGE>   9



other proprietary rights to the Company to the extent necessary or convenient to
the Company's operation of its business pursuant to the provisions of this
Agreement.

         3.2 Business Plan.

             (a) Conduct of Business. CPH shall conduct the business of the
Company in accordance with the Business Plan and using CPH's good faith business
judgment. Notwithstanding the previous sentence, the Members specifically agree
and acknowledge that CPH does not represent, warrant or guaranty that any or all
of the economic or financial objectives or goals of the Business Plan will be
achieved by the Company, and CPH shall have no liability for the Company's
failure to meet such economic or financial objectives or goals, subject to CPH's
liability for its Material Failures (as defined in Section 10.1).

             (b) Preparation and Approval of Business Plan. The term "Business
Plan" as used in this Agreement shall mean the business plan of the operation of
the Company's business as shall from time to time be approved by CPH, CHF and a
majority-in-interest of the Non- Managing Members. The parties agree that the
Business Plan for the remainder of the current Fiscal Year (as defined in
Section 7.2) ending February 1998 shall be the business plan attached hereto as
Exhibit "A". CPH shall cause to be prepared and delivered to Members, at least
thirty (30) days prior to the end of each Fiscal Year, a proposed revised
business plan for the next Fiscal Year for the review of the Members. The
proposed revised business plan for each Fiscal Year shall not become effective
as the "Business Plan" until it is approved by CHF and a majority-in-interest of
the Non-Managing Members (which approval may not be unreasonably withheld). In
the event that the Members do not approve a proposed revised business plan for
any Fiscal Year, CPH shall continue to conduct the business of the Company in
accordance with the then-existing Business Plan, as modified with the portions
of the proposed revised business plan for the next Fiscal Year as have been
agreed by CPH, CHF and a majority-in-interest of the Non-Managing Members (which
approval shall not be unreasonably withheld). Notwithstanding the foregoing,
each Member shall have the sole discretion to give or withhold its approval of a
proposed business plan to the extent it contemplates any of the actions
specified in Section 3.7 below. All references in this Agreement to the Business
Plan shall be interpreted to refer to the Business Plan as approved and amended
in accordance with the provisions of this Section 3.2.

             (c) Intra-Year Revisions to Business Plan. During the course of any
Fiscal Year, CPH may make revisions to the Business Plan for such Fiscal Year
from time to time to reflect the actual historical performance of the Company
and changes in anticipated performance of the Company; provided, however, that,
in the event that the Company experiences (or is reasonably likely to
experience) increases in costs (which are not offset by increases in revenues)
or decreases in revenues (which are not offset by decreases in costs), which in
either case are likely to result in a decrease in the net cash flow of the
Company for a Fiscal Year in excess of 25% (determined on an aggregate basis
taking into account all prior adjustments under this




                                        5

<PAGE>   10



paragraph) of the projected net cash flow of the Company for such Fiscal Year as
set forth in the Business Plan for such Fiscal Year before any adjustments
thereto under this paragraph (a "25% Net Cash Flow Deficit Position"), then (i)
CPH shall promptly report any such event (or CPH's belief that such event is
reasonably likely to occur) to the Members and (ii) all revisions to the
Business Plan proposed by CPH in response to any such event shall be subject to
the approval of CHF and a majority-in-interest of the Non-Managing Members
(which approval shall not be unreasonably withheld); and provided further, that
no amendment of a Business Plan shall be made (i) as to any action specified in
Section 3.3 below without the approval of CHF and a majority-in-interest of the
Non-Managing Members (which approval shall not be unreasonably withheld), or
(ii) as to any action specified in Section 3.7 below without the approval of CHF
and a majority-in-interest of the Non-Managing Members (which approval may be
withheld in the sole discretion of each Member, respectively).

             (d) Acquisitions of Additional Property. The Company may not,
directly or indirectly, acquire any new properties or projects not contemplated
in the Business Plan except as permitted under Section 6.02 of the Investment
Agreement. All revisions to the Business Plan proposed by CPH, which revisions
consist of acquiring any additional project or property not already contemplated
by the Business Plan and the acquisition of which have been approved pursuant to
Section 6.02 of the Investment Agreement, shall be subject to the approval of
CHF and a majority-in-interest of the Non-Managing Members (which approval may
not be unreasonably withheld). A project or property shall be considered to be
"contemplated by the Business Plan" if such project or property is within the
geographic, economic and market parameters of a project set forth in the
Business Plan (i.e., the description of a project contemplated by the Business
Plan may be set forth by reference to an approximate number of units in a
particular market area and within an approximate price range or directed to a
particular market segment).

         3.3 Major Decisions. The following decisions shall be considered "MAJOR
DECISIONS" of the Company and shall be made only upon the approval of CPH, CHF
and a majority-in-interest of the Non-Managing Members, which approval may not
be unreasonably withheld:

             (a) financing or encumbering any substantial assets of the Company
other than as contemplated in the Business Plan;

             (b) amending or modifying any credit agreement, loan agreement or
other evidence of indebtedness of the Company except as appropriate in the
ordinary course of implementing the Business Plan;

             (c) conveyance of any substantial assets, other than as
contemplated in the Business Plan;





                                        6

<PAGE>   11



             (d) approval of all income tax elections, tax returns and audits
not otherwise provided for in this Agreement or contemplated in the Business
Plan, except as otherwise required by the provisions of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), or the regulations
promulgated thereunder (the "Treasury Regulations");

             (e) making, execution or delivery on behalf of the Company any
guarantee, indemnity bond or surety bond, or obligating the Company as a surety,
guarantor or accommodation party to any obligation, except as appropriate in the
ordinary course of implementing the Business Plan or otherwise agreed to by CPH,
CHF and a majority-in-interest of the Non-Managing Members (which agreement may
not be unreasonably withheld);

             (f) extension of any material credit on behalf of the Company to
any person, firm or corporation, except as appropriate in the ordinary course of
implementing the Business Plan;

             (g) engagement by the Company or any delegate of the Company of any
Affiliate of a Member to provide services to the Company or entering into any
other transaction between the Company or any delegate of the Company and an
Affiliate of a Member, and the approval of the amount of any fees payable to
such Affiliate, except as provided in Section 3.4. For purposes of this
Agreement, "AFFILIATE" of a person or entity (or words of similar import,
whether or not capitalized) includes (1) any officer, director, employee,
trustee, shareholder, member, partner or relative within the third degree of
kindred of the person or entity in question; (2) any corporation, partnership,
limited liability company, trust or other entity controlling, controlled by or
under common control with the person or entity in question or any Affiliate of
the person or entity in question (whether directly or indirectly through one or
more intermediaries); and (3) any officer, director, trustee, employee,
shareholder, member or partner of any person or entity described in (2) above.
For the purpose of this definition, "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies, whether through the ownership of voting securities or by contract or
otherwise; and

             (h) distribution of any property in kind to any Member, except as
appropriate in the ordinary course of implementing the Business Plan.

         3.4 Authorized Representatives and Engagement of Affiliates.

             (a) Delegation to Affiliates. Each Member may authorize, as may be
reasonably appropriate, other persons or entities who are Members or are not
Members to perform any action falling within the scope of such Member's
responsibilities, provided that the delegatee is an Affiliate directly or
indirectly wholly-owned by the delegating Member. The consideration or other
financial benefits payable to a delegatee shall not exceed an amount equal to
reimbursement of costs actually incurred by the delegatee in good faith
furtherance of the Business Plan plus a nominal fee specifically set forth in
the Business Plan or otherwise agreed




                                        7

<PAGE>   12



by CPH, CHF and a majority-in-interest of the Non-Managing members (which
approval may be withheld in the sole discretion of each Member, respectively).
No delegation of a duty by a Member shall relieve such Member of its obligations
under this Agreement for performance of such duty. CPH, in its discretion, will
cause the Company to indemnify, defend and hold harmless each delegatee, as
agent of the Company, for all liability that the delegatee may incur in
connection with performing the delegated duties provided that as the delegatee
acts in good faith and in a manner that the delegatee reasonably believes to be
within the scope of authority conferred upon the delegatee.

             (b) Transactions with Affiliates. Except as otherwise specifically
set forth in the Business Plan or in Section 3.4(a) or (c), the Company shall
not enter into any transactions with any of its Affiliates or the Affiliates of
any other Member (each, an "Affiliate Transaction"). In the event that the
Company does enter into such an Affiliate Transaction, the consideration or
other financial benefits payable to such Affiliate shall not exceed an amount
equal to reimbursement of costs actually incurred by such Affiliate in good
faith furtherance of the Business Plan in connection with such Affiliate
Transaction plus a nominal fee specifically set forth in the Business Plan or
otherwise agreed by CPH, CHF and a majority-in-interest of the Non-Managing
Members (which approval may be withheld in the sole discretion of each Member,
respectively).

             (c) Bayhill Escrow. Notwithstanding the provisions of Section
3.4(b) above, the Company shall be entitled to enter into transactions with
Bayhill Escrow, an Affiliate of CPH, on terms contemplated in the Business Plan
or otherwise on terms which CPH in good faith reasonably believes to be fair to
the Company and competitive with terms available to the Company from
non-Affiliates.

         3.5 Bank Accounts. All Company funds shall be deposited in the
Company's name in such account or accounts ("ACCOUNTS") as may be selected by
CPH. Such funds shall be subject to withdrawal or disbursement only upon the
signature of signatories designated from time to time by CPH. CPH shall be
authorized to make expenditures from the Accounts on behalf of the Company only
if such expenditures are with respect to the Company's Business, are in the
ordinary course of implementing the Business Plan or otherwise approved by CHF
and a majority-in-interest of the Non-Managing Members (which approval may not
be unreasonably withheld) or are expenditures made in emergency circumstances in
which CPH believes in good faith that the expenditures are necessary in order to
protect the business interests of the Company or prevent serious personal injury
or property damage (in which event CPH shall promptly notify each Member of the
emergency expenditure and supply such information with respect thereto as the
Members may reasonably request). The funds within the Accounts shall be
segregated from, and not commingled with, any accounts of any Member or
Affiliate thereof.






                                        8

<PAGE>   13



         3.6 Reports and Tax Returns.

             (a) CPH shall prepare and distribute to the Members the following
financial information:

                 (i) When reasonably available from the Company's Accountants
after the end of the Company's tax year (and any short tax period) and
completion of the Company's audit, federal and state Company income tax returns
and Forms K-1. CPH agrees to use reasonable efforts to complete and deliver such
reports within seventy-five (75) days after the end of the Fiscal Year. If CPH
cannot reasonably deliver such reports within that time frame, CPH shall
promptly notify the Members and file for any necessary tax filing extensions
with respect thereto, and deliver evidence thereof to the Members, prior to the
applicable filing deadline.

                 (ii) Within forty-five (45) days after the end of each fiscal
quarter, CPH shall provide the Members with a balance sheet and statement of
income of the Company for such quarter, and CPH's calculation of the amount of
Available Cash, if any, to be distributed to the Members.

                 (iii) Within ninety (90) days after the end of each Fiscal
Year, CPH shall provide the Members with a balance sheet and statement of income
of the Company for such Fiscal Year, audited by the Company Accountant (as
defined in Section 7.3).

                 (iv) CPH shall supply the Member with copies of CPH's
management reports and similar documents and other information as may be
reasonably requested from time to time.

                 (v) In addition, CPH shall cause to be prepared and filed on
behalf of the Company income, sales, use, property, payroll and other tax
returns required of the Company in accordance with all applicable statutes and
regulations and tax accounting principles, consistently applied.

         3.7 Limitations and Authority. Notwithstanding any other provision of
this Agreement, no Member shall have any authority to do or cause the Company to
do any of the following, and the Company shall not do any of the following,
unless provided in the Business Plan or approved by CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively, whether such following
matter is proposed for inclusion in the Business Plan or an amendment thereof or
otherwise): (1) commit a material violation of this Agreement or do any act
which would make it impossible to carry on the business of the Company; (2)
allow any Member to possess any Company assets or assign the rights of the
Company in specific Company assets for other than a Company purpose; (3) admit a
person or entity as a Member or issue any additional




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<PAGE>   14



membership interests or rights to acquire membership interests in the Company or
cause the Company to repurchase or redeem any membership interests; (4) permit
the Company to merge or consolidate with any other entity; (5) make, execute or
deliver on behalf of the Company any assignment for the benefit of creditors;
(6) commence, settle or compromise of any lawsuit or any other action or
proceeding affecting the Company other than in the ordinary course of business
or as otherwise contemplated in the Business Plan; (7) file any petition, or
consent to the appointment of a trustee or receiver or any judgment or order,
under the federal bankruptcy laws; or (8) take any action outside the purposes
specified in Section 2.1; or (9) take any action or make any expenditure that
would violate any material covenants of the Company to third parties, including
lenders, partners or bondholders (collectively, the "Third Party Limitations").


                                   ARTICLE IV

                          BUY-SELL PROCEDURE; PUT/CALL

         Election to Proceed. Either CPH or CHF may elect to resort to the
buy-sell procedure pertaining to the Members' interests in the Company as set
forth in Section 7.03 of the Investment Agreement.


                                    ARTICLE V

                          CAPITALIZATION OF THE COMPANY

         5.1 Capital Contributions. Prior to the execution of this Agreement,
CPH and each of the Other Members have contributed to the Company as capital
contributions all of their respective properties, contracts, rights and other
assets of every kind, including without limitation, both tangible and intangible
assets (and the Company has assumed all of their respective liabilities)
pursuant to deeds and general assignments in the forms attached hereto as
Exhibit "B" and Exhibit "C" and other documents of transfer and assumption.
Notwithstanding the foregoing, the Members acknowledge that CPH and each of the
Other Members have not contributed to the Company their respective business
licenses, trademarks and tradenames (subject to the licenses thereof set forth
in Section 3.1(b) above), nor has CPH contributed the stock of the Other Members
owned by CPH (collectively, the "Excluded Assets"), and, in addition, the
Members acknowledge that the employees of CPH and the Other Members shall remain
employees of those entities, respectively, and shall not become the employees of
the Company. The Members further acknowledge that future costs of the Members
will be allocated among the Company and related entities pursuant to Section
6.05(c) of the Investment Agreement. The agreed values of the capital
contributions of CPH and each of the Other Members, respectively, shall be
credited to the respective capital accounts of CPH and the Other Members. Upon
execution of this Agreement, CHF shall contribute to the Company as a capital




                                       10

<PAGE>   15



contribution the sum of $30,000,000 which shall be credited to CHF's capital
account. Except as may be provided by applicable Delaware law, no Member shall
be required to make any additional capital contributions to the Company.

         5.2 Member Loans. Except as otherwise specified in this Agreement or
contemplated in the Business Plan, a Member may make a loan to the Company only
upon such terms and conditions as may be determined and approved by CPH, CHF and
a majority-in-interest of the Non-Managing Members, which approval may be given
or withheld in the sole discretion of each Member, respectively. No loan to the
Company by a Member shall either increase the capital account of the lending
Member or entitle the lending Member to any increased share in the Company's
profits. Any such loan shall be payable and collectible only out of Company
assets, and the other Members shall not be personally obligated to repay any
part thereof.

         5.3 Capital Accounts. An individual capital account shall be
established for each Member and shall be determined and maintained throughout
the full term of the Company in accordance with the provisions of Section
1.704-1(b) of the Treasury Regulations. Except as otherwise provided in Section
1.704-1(b) of the Treasury Regulations, the capital account of each Member shall
consist of capital contributions made by such Member to the Company, increased
by the amount of any Net Profits, as defined in Section 6.1(a), allocated to
such Member and any items in the nature of income or gain specially allocated to
such Member pursuant to Section 6.2, and decreased by any distributions in
reduction of Company capital to such Member and further decreased by the amount
of any Net Losses, as defined in Section 6.1(a), allocated to such Member. The
Members shall make such adjustments to the capital account of the Members they
shall reasonably deem necessary to comply with the Code and the Treasury
Regulations.

         5.4 Withdrawals. The capital contributions of the Members shall not be
subject to withdrawal except by the agreement of CPH, CHF and a
majority-in-interest of the Non- Managing Members (which may be given or
withheld in the sole discretion of each Member, respectively) or as expressly
provided for in this Agreement.

         5.5 No Other Compensation/Expenses. No Member shall be entitled to any
interest, salary or drawing with respect to its capital contribution nor shall
any Member or Affiliate be entitled to any fees or other compensation except as
expressly set forth in this Agreement or contemplated in the Business Plan.
Notwithstanding the foregoing, each Member shall be entitled to be reimbursed
for actual expenses incurred by such Member in good faith furtherance of the
Business Plan plus a nominal fee specifically set forth in the Business Plan, to
the extent such expenses are contemplated by the Business Plan or otherwise
approved by CPH, CHF and a majority-in-interest of the Non-Managing Members,
which approval may be withheld in the sole discretion of each Member,
respectively.







                                       11

<PAGE>   16



                                   ARTICLE VI

                        PROFITS, LOSSES AND DISTRIBUTIONS

         6.1 Allocation of Profits and Losses.

             (a) Definition of Net Profits and Net Losses. For purposes of this
Agreement, the terms "NET PROFITS" and "NET LOSSES" shall mean net taxable
income and gains, and net losses and deductions, respectively, of the Company,
determined in accordance with the Treasury Regulations promulgated pursuant to
Section 704 of the Code, excluding any items specifically allocated pursuant to
Section 6.2.

             (b) Net Losses. After giving effect to the special allocations set
forth in Sections 6.2 and 9.5(a) below, Net Losses for any Fiscal Year shall be
allocated to the Members in proportion to their respective "PERCENTAGE
INTERESTS" as specified in Exhibit "A" attached hereto.

             (c) Net Profits. After giving effect to the special allocations set
forth in Sections 6.2 and 9.5(a), Net Profits for any Fiscal Year shall be
allocated to the Members in proportion to respective their Percentage Interests.

         6.2 Special Allocations. The following special allocations shall be
made in the following order:

             (a) Loss Limitations. Notwithstanding Section 6.1(b), no Net Losses
shall be allocated to a Member to the extent it would increase or cause such
Member to have an Adjusted Capital Account Deficit (as defined in Section 6.2(b)
below). Any such Net Losses shall be specially allocated to the other Members
proportional to their Percentage Interests. Notwithstanding Section 6.1(c), if
any Net Losses are specially allocated pursuant to the preceding sentence,
subsequent allocations of Net Profits shall be made to offset, in reverse order,
such prior special allocations of Net Losses.

             (b) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in Treasury
Regulations 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income and
gain (consisting of a pro rata portion of each item of Company income, including
gross income, and gain for such year) shall be specially allocated to such
Member in an amount and manner sufficient to eliminate, to the extent required
by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member
as quickly as possible, provided that an allocation pursuant to this Section
6.2(b) shall be made if and only to the extent that such member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Article VI have been tentatively made as if this Section 6.2(b) were not in
the Agreement. For purposes of this Agreement, an "ADJUSTED




                                       12

<PAGE>   17



CAPITAL ACCOUNT DEFICIT" shall mean any deficit in a Member's capital account
balance after (x) reducing such balance by the amounts set forth in Treasury
Regulations Sections 1.704-1(b)(2(ii)(d)(4), (5) or (6), and (y) increasing such
balance by any amounts such Member is obligated to restore or is deemed to be
obligated to restore pursuant to the penultimate sentence of Treasury
Regulations Sections 1-704.2(g)(1) and 1.704-2(i)(5).


             (c) Nonrecourse Deductions. Nonrecourse deductions for any Fiscal
Year shall have the meaning set forth in Section 1.704-2(b)(1) of the Treasury
Regulations and shall be allocated among the Members in proportion to their
Percentage Interests.

             (d) Member Nonrecourse Deductions. Any Member nonrecourse
deductions for any Fiscal Year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member nonrecourse debt to
which the Member nonrecourse deductions are attributable in accordance with
Section 1.704-2(i)(1) of the Treasury Regulations.

             (e) Member Minimum Gain Chargeback. In order to comply with the
"minimum gain chargeback" requirements of Sections 1.704-2(f)(1) and
1.704-2(i)(4) of the Treasury Regulations, and notwithstanding any other
provision of this Agreement, in the event there is a net decrease in a Member's
share of Company minimum gain or Member nonrecourse debt minimum gain as those
terms are defined in Section 1.704-2 of the Treasury Regulations, such Members
shall be allocated items of income and gain, for that year (and if necessary,
other years) as required by and in accordance with Sections 1.704-2(f)(1) and
1.704-2(1)(4) of the Treasury Regulations before any other allocation is made.

             (f) Conforming Allocations. The allocations set forth above in this
Section 6.2 (the "REGULATORY ALLOCATIONS") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income, gain, loss or deduction pursuant to this Section 6.2. Therefore,
notwithstanding any other provision of this Article VI (other than the
Regulatory Allocations), the Members shall make such offsetting special
allocations of Company income, gain, loss and deduction in whatever manner CPH
determines to be appropriate (but only to the extent consistent with Section
514(c)(9)(E) of the Code and the Treasury Regulations thereunder) so that, after
such offsetting allocations are made, each Member's capital account balance is,
to the extent possible, equal to the capital account balance each Member would
have if the Regulatory Allocations were not part of the Agreement and all
Company items were allocated pursuant to Sections 6.1.





                                       13

<PAGE>   18

         6.3 Other Allocation Rules.

             (a) For purposes of determining Net Profits, Net Losses and any
other items allocable to any period, Net Profits, Net Losses and any such other
items shall be determined on a daily, monthly or other basis, as determined by
CPH using any method permissible under Section 706 of the Code and the Treasury
Regulations thereunder, subject to approval by CHF which shall not be
unreasonably withheld.

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

             (c) The Members are aware of the income tax consequences of the
allocations made by this Article VI and hereby agree to be bound by the
provisions of this Article VI in reporting their shares of Company income and
loss for income tax purposes.

         6.4 Tax Allocations; Section 704(c) of the Code.

             (a) In accordance with Section 704(c) of the Code and the Treasury
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for income tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal income
tax purposes and its book value as reflected in the capital accounts.

             (b) In the event the book value as reflected in the capital
accounts of any Company asset is adjusted as permitted under Treasury
Regulations Section 1.704-1(b)(2)(iv)(f), subsequent allocations of income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its adjusted book value in the same manner as under Section 704(c)
of the Code and the Treasury Regulations thereunder.

             (c) Any elections or other decisions relating to allocations under
this Section 6.4, including the selection of any allocation method permitted
under Treasury Regulations 1.704-3, shall be made by CPH in any manner that
reasonably reflects the purpose and intention of this Agreement, subject to
approval by CHF which will not be unreasonably withheld. Allocations pursuant to
this Section 6.4 are solely for purposes of federal, state and local taxes and
shall not affect, or in any way be taken into account in computing, any Member's
capital account or share of Net Profits, Net Losses, other items or
distributions pursuant to any provision of this Agreement.





                                       14

<PAGE>   19



         6.5 Available Cash/Distributions.

             (a) Available Cash. "AVAILABLE CASH" means, on any given date, all
proceeds received by the Company (or released from reserves) (including, without
limitation, all sales proceeds, interest income, rental income, investment
income and loan proceeds or other financing proceeds), whether pursuant to
operations or capital transactions or otherwise, as reduced by (i) all costs and
expenses incurred, including, without limitation, expenses incurred in any sale
or disposition transaction and interest expense on third-party and Member loans,
(ii) payments of any indebtedness or liabilities of the Company for which such
proceeds are required or contemplated in the Business Plan to be used (including
any release payments or other amortization payments required to be made in
respect of any third-party or Member loan), (iii) repayment in full of the
principal balance of any loans from Members, with interest thereon, (iv) the
setting aside of reserves in amounts contemplated in the Business Plan, (v) the
setting aside of reserves appropriate or desirable for working capital and other
future expenses and the discharge of liabilities or obligations of the Company
as CPH may reasonably deem necessary from time to time (provided that CHF shall
have the right to approve the setting aside of such additional reserves in
excess of amounts contemplated in the Business Plan, which approval shall not be
unreasonably withheld), and (vi) any amount that cannot be distributed to the
Members due to Third-Party Limitations.

             (b) Cash Distributions. All Available Cash shall be distributed
quarterly to the Members on a pari passu basis in accordance with their
respective Percentage Interests.

         6.6 Allocation and Tax Elections with Respect to Transferred Company
Interests. If, pursuant to this Agreement, interests in the Company are
transferred at any time other than at the end of a Fiscal Year of the Company,
the Company's Net Profits and Net Losses and, subject to prior distribution,
Available Cash for such Fiscal Year attributable to the interest transferred
shall be allocated between the transferor and transferee of such interests in a
manner which is consistent with the provisions of Code Section 706(d)(1). At the
sole discretion of CPH, the Members shall make the election referred to in
Section 754 of the Code, as amended, or any corresponding or similar provisions
of any subsequent revenue act, or under any similar state statute. Each Member
agrees to supply the Company promptly with the information necessary to give
effect to such election.

         6.7 Certain Distribution Rules.

             (a) All distributions pursuant to this Article VI shall be at such
times and in such amounts as otherwise set forth in this Article VI; provided,
however, that CPH shall cause the Company to distribute to the Members
(including CHF) (in proportion to their Percentage Interests) an amount of cash
from time to time as shall be sufficient such that the pro rata portion of such
distributions to CPH and the Other Members shall enable CPH and its subsidiaries
to fund their federal and state income and franchise tax liabilities.




                                       15

<PAGE>   20




             (b) All amounts withheld pursuant to the Code or any provision of
any state or local tax law with respect to any payment, distribution or
allocation to the Company or the Members shall be treated as amounts distributed
to the Members pursuant to this Article VI for all purposes of this Agreement.
CPH is authorized to withhold from distributions and to pay over to any federal,
state or local government any amounts required to be so withheld pursuant to the
Code or any provision of any other federal, state or local law and shall
allocate such amounts to those Members with respect to which such amounts were
withheld. Any foreign taxes withheld in connection with operations of the
Company outside of the United States shall be a deduction from the Members'
capital accounts.

         6.8 Distributions in Kind. In making distributions to the Members, upon
the agreement of CPH, CHF and a majority-in-interest of the Non-Managing Members
(which may not be unreasonably withheld), any portion or interest in any Company
property, whether real or personal, tangible or intangible, may be distributed
in kind to a Member in lieu of a distribution of cash (but only with the
agreement of such Member, which agreement may not be unreasonably withheld).
CPH, CHF and a majority-in-interest of the Non-Managing Members shall agree upon
the net fair market value (gross market value less encumbrances assumed or taken
subject to by the distributee Member) of such in kind distribution, and as
between the Members such net fair market value shall be deemed the equivalent of
a cash distribution of Company profits. The capital accounts of the Members
prior to any distribution in kind shall be adjusted, to the extent necessary, in
accordance with the provisions of Section 1.704-1(b) of the Treasury Regulations
in the manner set forth in this Article VI.

         6.9 Limitation on Distributions. Notwithstanding any other provision of
this Agreement, no distribution shall be made to a Member on account of its
interest in the Company if such distribution would violate Section 18-607 of the
Act or other applicable law.


                                   ARTICLE VII

                            ACCOUNTING CONSIDERATIONS

         7.1 Determination of Profits and Losses. Net Profits and Losses shall
be determined as soon as practicable after the close of the Company's Fiscal
Year.

         7.2 Fiscal Year. The fiscal year of the Company shall be first day of
March through the last day of February (the "FISCAL YEAR").

         7.3 Books of Account; Company Accountant. CPH, at the Company's
expense, shall cause complete and accurate accounts of all transactions of the
Company to be kept in proper books at the Company's principal place of business.
The accounting records shall be maintained in accordance with generally accepted
accounting principles, consistently applied ("GAAP").




                                       16

<PAGE>   21



CPH shall, at the Company's expense, cause the Company to employ an independent
certified public accountant for the Company (the "COMPANY ACCOUNTANT"). The
Company Accountant shall be Arthur Andersen LLP or such other qualified firm as
CPH may propose subject to the approval of CHF and a majority-in-interest of the
Non-Managing Members, which approval shall not be unreasonably withheld. CPH
shall cause the Company Accountant to perform on behalf of the Company an annual
audit of the Company's books and to provide certified copies of such audit to
each of the Members. Notwithstanding the foregoing, any Member shall have the
right, at its own expense, to cause an audit of the Company's books at any
reasonable time, but not more often than once each year. In addition, the
Members shall have the right, at any reasonable time and without disturbing the
business or operations of the Company, to inspect and copy the Company's books
and records at the Company's principal place of business or other reasonable
place specified by CPH.

         7.4 Tax Controversies. For the purposes of receiving notices from the
Internal Revenue Service (the "IRS") on behalf of the Company, keeping each
Member informed of all administrative and judicial proceedings relating to
adjustment of Company's items at the Company level, and for all other relevant
purposes, CPH shall hereby be designated the Tax Matters Member ("TMM"), for
purposes of Section 6231(a)(7) of the Code, with all of the rights, duties,
powers and obligations incident thereto; provided, however, in no event shall
any agreement be made with the IRS affecting the calculation of the taxes of a
Member without the consent of such Member, which consent shall not be
unreasonably withheld. The TMM shall keep the other Members fully informed of
all matters in which it is involved as TMM. All expenses of the TMM in its
capacity as such will be paid by the Company. In no case shall the TMM or the
Company be liable for any additional tax payable by a Member or for any costs of
separate counsel chosen by such Member to represent the Member with respect to
any aspects of such challenge.

         7.5 Right to Make Section 754 Election. Subject to Section 6.6 hereof,
the Tax Matters Member may, in its sole discretion, make or revoke, on behalf of
the Company, an election in accordance with 754 of the Code, so as to adjust the
basis of Company property in the case of a distribution of property within the
meaning of 734 of the Code, and in the case of a transfer of a Company interest
within the meaning of 743 of the Code. Each Member shall, upon request of the
Tax Matters Member, supply the information necessary to give effect to such an
election.

         7.6 Taxation as Partnership. The Company shall be treated as a
partnership for U.S. federal income tax purposes, and CPH shall take all
reasonable actions, at the Company's expense, necessary to preserve such tax
treatment. No change in such tax status of the Company shall be made without the
prior written consent of CPH, CHF and a majority-in-interest of the Non-Managing
Members, which approval may be withheld in the sole discretion of each Member,
respectively.





                                       17

<PAGE>   22




                                  ARTICLE VIII

                          TRANSFER OF COMPANY INTEREST;
                            ADMISSION OF NEW MEMBERS

         8.1 Assignment of Interest.

             (a) Consent Required. No Member shall (voluntarily, involuntarily
or by operation of law), without the prior express written consent of CPH, CHF
and a majority-in-interest of the Non-Managing Members (which consent may be
given or withheld in the sole discretion of each Member, respectively), give,
sell, assign, transfer, mortgage, hypothecate, encumber, bequeath or devise its
interest in the Company (any such disposition is hereinafter referred to as a
"TRANSFER"). The Members specifically agree that in the event a Member is
willing to give its consent to a transfer in its sole and absolute discretion,
such consent may be subject to any condition such Member may specify in its sole
discretion, including without limitation, the transfer by the proposed assignor
to the proposed assignee of an identical interest in each Mirror Company (as
defined in the Investment Agreement) such that at all times the respective
percentage interests of the Members in the Company and in each Mirror Company
shall be identical. Any purported transfer of all or any portion of an interest
in the Company (the "SPECIFIED INTEREST") without such written consent shall be
void and of no effect against the Company, the other Members, any creditor of
the Company or any claimant against the Company. Should a Member elect not to
give its express written consent to a transfer as described above, such Member
shall state in writing that he does not so consent, in order that the Company
shall have a record of his decision. Such Member need not give any reason for
his decision. If a Member does not consent in writing to a transfer as described
above, but fails to memorialize such decision in writing, such failure shall not
be construed as a consent to the transfer.

             (b) Certain Permissible Transfers. Notwithstanding the provisions
of Section 8.1(a), but subject to the provisions of Section 8.3(a) and (b), a
Member shall have the right, without compliance with the foregoing terms of this
Section 8.1, to transfer its Specified Interest to any person or entity that
directly or indirectly controls, or is controlled by, or is under common control
with, a Member (a "CONTROL AFFILIATE"). For the purposes of determining the
existence of a Control Affiliate, "CONTROL" shall mean beneficial ownership of
fifty percent (50%) or more of the entity in question or the possession of
direct or indirect power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of voting securities or by
contract or otherwise.

             (c) Managing Member Ownership. Notwithstanding any other provision
of this Agreement, no transfer of an interest in the Company shall result in the
reduction of the Percentage Interest of CPH or its successor "Managing
Member(s)" below twenty percent (20%).




                                       18

<PAGE>   23




         8.2 Effective Date of Transfer. Every transfer of a Specified Interest
shall be deemed to be effective as of the close of business on the day in which
such event shall have occurred.

         8.3 Substitute Member(s). Subject to Section 8.1, no transferee of a
Specified Interest, other than one who is already a Member, shall have the right
to become a Member ("SUBSTITUTE MEMBER") in place of his transferor unless and
until all of the following conditions are satisfied:

             (a) The transferor and transferee have executed and delivered to
the remaining Member a written instrument of assignment, fully executed and
acknowledged, setting forth the intention of the transferor and transferee that
the transferee become a Substitute Member in place of the transferor;

             (b) The transferor and transferee have executed and acknowledged
such other instruments as CPH may deem necessary or advisable to effect the
admission of such person as a substituted Member in accordance with the
provisions of applicable Delaware law, including, without limitation, the
written acceptance and adoption by such person of the provisions of this
Agreement; and

             (c) CPH, CHF and a majority-in-interest of the Non-Managing Members
have consented in writing to the admission of such person as a Substitute Member
(which consent may be given or withheld in the sole discretion of each Member,
respectively).

         8.4 Nonsubstituted Assignees. Subject to the provisions of Section 8.1,
any transferee who has not become a Substitute Member pursuant to this Article
shall be deemed to take only the right of his assignor or transferor to share in
profits, losses and distributions of the Company and shall acquire no right to
any legal interest in the Company nor the right to exercise any right or power
granted to a Member under this Agreement.


                                   ARTICLE IX

                 DURATION, WITHDRAWAL AND VOLUNTARY DISSOLUTION

         9.1 Term of Company. The Company became operative upon the filing of
the Certificate with the Secretary of the State of Delaware and shall continue
until the Company is dissolved by written election of CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively), or December 31, 2050,
whichever shall first occur; provided, however, the term may be extended beyond
such date by the agreement of CPH, CHF and a majority-in-interest of the
Non-Managing Members (which agreement may be given or withheld in the sole
discretion of each Member, respectively).




                                       19

<PAGE>   24




         9.2 No Withdrawal. A Member shall not be permitted to withdraw from the
Company except upon the transfer of his Interest pursuant to Article IV or
Article VIII or Article X.

         9.3 Events of Dissolution. The Company shall be dissolved and its
affairs wound up upon the happening of any of the following events:

             (a) The expiration of the term of the Company;

             (b) The written election to dissolve the Company executed by CPH,
CHF and a majority-in-interest of the Non-Managing Members, which approval may
be withheld in the sole discretion of each Member, respectively;

             (c) The entry of a judicial decree of dissolution under Section
18-802 of the Act;

             (d) The bankruptcy, withdrawal or dissolution of CPH (or its
successor "Managing Member") or CHF or another event under the Act that
terminates the continued membership of CPH (or its successor "Managing Member")
or CHF (a Member referred to in this subsection (d) being herein called a
"DISSOLUTION MEMBER"); or

             (e) The sale or disposition of all of the Company's assets.

         9.4 Continuity of Company Business. In the event of (a) any transfer of
a Member's interest in the Company pursuant to Article IV, Article VIII or
Article X (whether or not such transferee is admitted as a new Member), or (b)
an occurrence under Section 9.3(d) above, the Company shall not dissolve if
there remain at least two Members, and a majority-in-interest of the remaining
Members, as the case may be, elect to continue the business of the Company, in
which event the Company shall continue to be governed by all of the terms of
this Agreement.

         9.5 Distribution Upon Dissolution.

             (a) Upon dissolution of the Company, CPH (or CHF in the case of
dissolution pursuant to Section 9.3(d) hereof in circumstances in which CPH is
the Dissolution Member) shall cause the Company's business to be wound up and
all its assets distributed in liquidation. Subject to Section 6.2 hereof, during
the period of liquidation, the Members shall allocate Net Profits and Net Losses
and all gain realized from the sale or other disposition of the Company's assets
in a manner such that the balances in the Members' capital accounts equal, as
nearly possible, each Member's respective Percentage Interest;

             (b) The proceeds from liquidation of the Company after payment of
the costs of liquidation shall be applied in the order of priority as follows:




                                       20

<PAGE>   25




                 (i) Secured debts to third parties, unless such secured
indebtedness is assumed by a purchaser of the Company's encumbered property or
the conveyance of such encumbered property to such purchaser is made subject to
such indebtedness;

                 (ii) Unsecured debts of the Company to third parties;

                 (iii) To establish any reserves which CPH (or other liquidating
party selected by the Members) may deem necessary, appropriate or desirable for
any liabilities, obligations, or debts of the Company or of the Members arising
out of or in connection with the Company which are not yet payable or have not
yet been paid, whether known or unknown, foreseen or unforeseen;

                 (iv) To the Members, an amount up to the unpaid principal and
interest under any loans made by the Members to the Company pursuant to Section
5.2, in proportion to the amount owing in respect of each such loan made; and

                 (v) The balance, if any, to the Members in accordance with
their respective positive capital account balances.

             (c) If any Member has a negative capital account balance upon
liquidation, such Member shall not be required to make any contribution to
reduce such negative capital account balance.

         9.6 Rights of Members Against Each Other. Except as set forth in
Article X below, no Member shall have any claim or recourse against any other
Member in the event that the assets of the Company are insufficient to repay all
sums advanced to the Company or are insufficient to repay any capital
contribution to the Company or interest thereon.


                                    ARTICLE X

                                MATERIAL FAILURE

         10.1 Definition of Material Failure. "MATERIAL FAILURE" shall mean any
material violation of this Agreement by any Member (such Member, the "FAILING
MEMBER"); provided, however, that in the event such violation is curable, such
violation shall only be a "MATERIAL FAILURE" if such violation is not cured
within the Cure Period (as defined below) or the Failing Member shall cease to
actively and diligently pursue the cure of such material violation. For purposes
of this Agreement, the term "CURE PERIOD" shall mean a period of (a) in the
event of the first material violation of this Agreement by a Failing Member
during any 12-month period, a period of thirty (30) days after such Failing
Member becomes aware of such violation, and (b) for each subsequent material
violation by such Failing Member during such 12-month period,




                                       21

<PAGE>   26



a period of ten (10) days after such Failing Member becomes aware of such
violation; provided further, however, that the failure to cure such a curable
violation within the applicable Cure Period shall not constitute a Material
Failure if and to the extent such delay is caused by acts of God or the public
enemy, expropriation or confiscations of facilities, compliance with any order
or request of any governmental authority, acts of war, rebellion or sabotage,
fires, floods, explosions, accidents, riots, strikes or concerted acts of
workers or other causes not within the reasonable control of such Member.
"MATERIAL FAILURE" also shall include a "BANKRUPTCY INSOLVENCY EVENT" which, as
used herein, means the dissolution, termination of existence, insolvency,
business failure, cessation of business, appointment of receiver of all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding under any bankruptcy, insolvency or similar
federal or state laws (or any private proceeding customarily considered one
relating to insolvency) by a Member, or the filing of any involuntary petition
of bankruptcy against such entities which shall not be contested and discharged
within ninety (90) days, or the entry of a decree or order adjudging such
entities bankrupt or insolvent or approving a petition seeking the
reorganization or such persons or entities under any bankruptcy, insolvency or
similar federal or state law, or the occurrence of any action similar to the
foregoing under any state or federal law.

         10.2 Remedies Upon Material Failure. Upon the occurrence of any
Material Failure, as defined in Section 10.1, the Non-Failing Member(s) may
pursue any remedy available at law or in equity.


                                   ARTICLE XI

                                   AMENDMENTS

         11.1 Amendments. Any amendment to this Agreement shall be adopted and
be effective as an amendment hereto if approved by CPH, CHF and a
majority-in-interest of the Non-Managing Members (which approval may be withheld
in the sole discretion of each Member, respectively); provided, however, that no
amendment reducing a Member's Percentage Interest or other financial interest in
the Company shall be effective against such Member without its approval (which
approval may be withheld in the sole discretion of such Member), and no
amendment shall be made, and any such purported amendment shall be void and
ineffective, to the extent the result thereof would be to cause the Company to
be treated as anything other than a partnership for purposes of United States
income taxation without the approval of CPH and a majority-in-interest of the
Non-Managing Members (which approval may be withheld in the sole discretion of
each Member, respectively). Notwithstanding the foregoing, the Members agree not
to unreasonably withhold their consent to amendments reasonably requested by CPH
or CHF in order for the Company to comply with tax or other laws or regulations
applicable to the Company from time to time or ministerial or other non-




                                       22

<PAGE>   27



material amendments reasonably requested by CPH or CHF which will not adversely
impact a Member's rights, privileges or preferences under this Agreement.


                                   ARTICLE XII

                   LIABILITY, EXCULPATION AND INDEMNIFICATION

         12.1 Liability.

             (a) Except as otherwise provided by the Act, the debts, obligations
and liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and no
Member, Affiliate of a Member or officer, director, partner, shareholder,
employee or agent of a Member or Affiliate (each, a "COVERED PERSON") shall be
obligated personally for any such debt, obligation or liability of the Company
solely by reason of being a Covered Person.

             (b) Except as otherwise expressly required by law, a Member shall
have no liability in excess of (i) its share of any assets and undistributed
profits of the Company, and (ii) the amount of any distributions improperly or
erroneously distributed to it. Specifically, no Member shall have any liability
for the repayment of any capital contribution of any other Member.

         12.2 Exculpation.

             (a) No Covered Person shall be liable to the Company or any other
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Covered Person in good faith on behalf of
the Company and in a manner believed by the Covered Person in good faith to be
within the scope of authority conferred on such Covered Person by this Agreement
(or a delegation of such authority as permitted under this Agreement), except
that a Covered Person shall be liable for any such loss, damage or claim
incurred by reason of such Covered Person's Material Failure, bad faith or
willful misconduct.

             (b) A Covered Person shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any person or entity as to
matters the Covered Person reasonably believes are within such other person's or
entity's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts, unless such Covered Person is aware that
any such information is untrue or incorrect.





                                       23

<PAGE>   28



         12.3 Duties and Liabilities of Covered Persons.

             (a) To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting under this
Agreement shall not be liable to the Company or to any other Covered Person for
its good faith reliance on the provisions of this Agreement. The provisions of
this Agreement, to the extent that they restrict the duties and liabilities of a
Covered Person otherwise existing at law or in equity, are agreed by the parties
hereto to replace such other duties and liabilities of such Covered Person.

             (b) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between Covered Persons, or (ii) whenever
this Agreement or any other agreement contemplated herein provides that a
Covered Person shall act in a manner that is fair and reasonable to the Company
or under terms that are fair and reasonable to the Company, the Covered Person
shall resolve such conflict of interest, taking such action or providing such
terms based upon a consideration in each case of the relative interests of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. Unless otherwise expressly provided herein, in the
absence of Material Failure, bad faith or willful misconduct by the Covered
Person, the resolution, action or term so made, taken or provided by the Covered
Person shall not constitute a breach of this Agreement or any other agreement
contemplated herein or of any duty or obligation of the Covered Person at law or
in equity or otherwise.

         12.4 Indemnification. To the fullest extent permitted by applicable
law, the Company shall indemnify, defend and hold harmless each Covered Person
for any loss, damage, claim or expenses incurred by such Covered Person by
reason of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Company and in a manner reasonably believed to be
within the scope of authority conferred on such Covered Person by this
Agreement, except that no Covered Person shall be entitled to be indemnified in
respect of any loss, damage or claim incurred by such Covered Person by reason
of Material Failure, bad faith or willful misconduct with respect to such acts
or omissions; provided, however, that any indemnity under this Section 12.4
shall be provided out of and to the extent of Company assets only, and no
Covered Person shall have any personal liability on account thereof.

         12.5 Expenses. To the fullest extent permitted by applicable law,
expenses (including reasonable legal fees) incurred by a Covered Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Company prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Company of an undertaking
by or on behalf of the Covered Person to repay such amount if it shall be
determined that the Covered Person is not entitled to be indemnified as
authorized in Section 12.4 hereof.




                                       24

<PAGE>   29




         12.6 Insurance. CPH shall cause the Company to purchase and maintain
liability, property and other insurance to the extent and in such amounts as
contemplated in the Business Plan or as otherwise suggested from time to time by
CPH or CHF, subject to approval by CPH and CHF (which shall not be unreasonably
withheld), providing coverage for such persons and entities as the Members shall
determine, regardless of whether the Company would have the power to indemnify
such persons or entities against such liability under the provisions of this
Agreement or applicable law.


                                  ARTICLE XIII

                                  MISCELLANEOUS

         13.1 Mailing of Notices. Any notice, request, demand, report, offer,
acceptance, contract, certificate or other instrument which may be required or
permitted to be delivered to or served upon the Members hereto shall be deemed
sufficiently given or furnished to or served upon any such party provided that
(a) it is in writing and addressed to any such party at the address set forth
below, or at such other address of which any Member may notify the other Members
in accordance with this Section, and (b) it is delivered personally to such
party, sent by telecopy (with a copy by prepaid overnight courier), or mailed to
such party by prepaid overnight courier or certified mail, return receipt
requested. Until changed pursuant to a written notice thereof sent to all
Members, the mailing address of each Member as shown on Exhibit "D" attached
hereto. All notices required or permitted to be given pursuant to this Agreement
shall be deemed effective and given upon receipt.

         13.2 Outside Activities. Notwithstanding any provision of this
Agreement to the contrary, the Members shall be entitled to engage in any other
business activity not specifically prohibited by or inconsistent with the
provisions of the Investment Agreement.

         13.3 Partition. No Member shall have the right to partition any
property of the Company, nor shall a Member make application to any court or
authority having jurisdiction over such matters or commence or prosecute any
action or proceeding for partition and the sale thereof. Upon any breach of the
provisions of this Section by a Member, each other Member (in addition to all
rights, remedies at law and in equity that he may have) shall be entitled to a
decree or order restraining and enjoining such application, action or
proceeding.

         13.4 Entire Agreement. This Agreement, together with the Investment
Agreement and other agreements entered into in connection therewith, shall
constitute the entire agreement of the Members with respect to the Company. All
prior agreements with respect to the Company between the Members, whether
written or oral, are merged herein and shall be of no force and effect.





                                       25

<PAGE>   30



         13.5 Amendment and Waivers. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by each person who is
then a Member. No waiver of any of the provisions of this Agreement shall be
deemed to constitute a waiver of any other provisions, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.

         13.6 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, including all matters regarding the interpretation or effect
of this Agreement, without regard to the conflict of laws provisions.

         13.7 Severability. The parties hereto agree that if any paragraph,
section, sentence, clause or phrase contained in this Agreement shall become
illegal, null and void or against public policy, for any reason, or shall be
held by any court of competent jurisdiction to be incapable of being construed
or limited in a manner to make it enforceable, or is otherwise held by such
court to be illegal, null or void or against public policy, the remaining
paragraphs, sections, sentences, clauses or phrases contained in this Agreement
shall not be affected thereby.

         13.8 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, but the rights and obligations of the parties hereto shall not be
assignable by any party hereto except as expressly provided otherwise in this
Agreement.

         13.9 Interpretation. All uses of the words "Articles(s)" and
"Section(s)" in this Agreement are references to articles and sections of this
Agreement, unless otherwise specified. The headings of this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement. Throughout this Agreement, nouns, pronouns and
verbs shall be construed as masculine, feminine, neuter, singular or plural,
whichever shall be applicable.

         13.10 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of identical original counterparts, each
of which shall for all purposes be deemed an original, and all of such
counterparts shall together constitute but one and the same agreement.

         13.11 No Third Party Beneficiary. Any agreement to pay any amount and
any assumption of liability herein contained, express or implied, shall be only
for the benefit of the Members and their respective heirs, successors and
permitted assigns, and such agreements and assumptions shall not inure to the
benefit of the obligees of any indebtedness or any other party whomsoever.

         13.12 Failure to Pursue Remedies. The failure of any party to seek
redress for violation of, upon the strict performance of, any provision of this
Agreement shall not prevent a




                                       26

<PAGE>   31



subsequent act, which would have originally constituted a violation from having
the effect of an original violation.

         13.13 Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive its rights to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.

         13.14 Litigation Without Termination. Any Member shall be entitled to
maintain, on its own behalf or on behalf of the Company, any action or
proceeding against any other Member or the Company (including any action for
damages, specific performance or declaratory relief) for or by reason of breach
of such party of this Agreement or any other agreement entered into in
connection with the same, notwithstanding the fact that any or all of the
parties to such proceeding may then be Members in the Company, and without
resulting in a termination of the Company.

         13.15 Attorneys' Fees. If the Company or any Member obtains a judgment
against any other Member in connection with a dispute arising under or in
connection with this Agreement, such party shall be entitled to recover its
costs and reasonable attorneys' fees (including the reasonable value of in-house
attorney services) and disbursements incurred in connection therewith and in any
appeal or enforcement proceeding thereafter, in addition to all other
recoverable costs.

         13.16 Consents. Whenever in this Agreement a Member is permitted or
required to make a decision (including a decision whether to give or withhold
its consent, approval or agreement), then (i) if such decision may be made in
its "sole discretion" or under a grant of similar authority or latitude, the
Member shall be entitled to consider only such interests and factors as it
desires, including its own interests, and shall have no duty or obligation to
give any consideration to any interest of or factors affecting the Company or
any other person or entity, (ii) if no standard is stated, then the Member shall
act reasonably, and (iii) if the Member is to act reasonably or in its
"reasonable discretion" or under a similar standard, the Member shall act under
such reasonable standard and shall not be subject to any other or different
standard imposed by this Agreement or other applicable law. Whenever in this
Agreement a Member is permitted or required to make a decision (including a
decision whether to give or withhold its consent, approval or agreement), such
decision shall be made and communicated without unreasonable delay.




                                       27

<PAGE>   32



         IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first written above, which date for all purposes shall be
considered to be the date of this Agreement.

                                        CPH:

                                        CAPITAL PACIFIC HOLDINGS, INC., a 
                                        Delaware corporation


                                        By:
                                            -----------------------------------
                                            Hadi Makarechian, Chairman of the 
                                            Board


                                        NON-MANAGING MEMBERS:

                                        CHF:

                                        CALIFORNIA HOUSING FINANCE, L.P.:

                                        By: CALIFORNIA HOUSING FINANCE, L.L.C.,
                                            a Delaware limited liability
                                            company, its General Partner

                                            By: FARALLON CAPITAL MANAGEMENT,
                                                LLC, a Delaware limited
                                                liability company, its Manager


                                                By:
                                                     --------------------------

                                        Other Members:

                                        CAPITAL PACIFIC HOMES, INC., a Delaware 
                                        corporation (formerly Durable Homes of
                                        California, Inc.)


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of the 
                                             Board






                                       28

<PAGE>   33



                                        CAPITAL PACIFIC HOMES, INC.,
                                        a Nevada corporation (formerly Durable 
                                        Homes, Inc.)


                                        By:
                                            -----------------------------------
                                            Hadi Makarechian, Chairman of 
                                            the Board


                                        CAPITAL PACIFIC MORTGAGE, INC., a 
                                        Delaware corporation (doing business as
                                        Capital Communities Mortgage)


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of 
                                             the Board


                                        CLARK WILSON HOMES, INC., a Texas 
                                        corporation


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of 
                                             the Board


                                        FAIRWAY FINANCIAL COMPANY, a Texas 
                                        corporation


                                        By:
                                             ----------------------------------
                                             Clark N. Wilson, Chairman of 
                                             the Board


                                        J.M. PETERS CALIFORNIA, INC., a Delaware
                                        corporation


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of
                                             the Board







                                       29

<PAGE>   34



                                        J.M. PETERS HOMES OF ARIZONA, INC., 
                                        a Delaware corporation


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of 
                                             the Board


                                        J.M. PETERS NEVADA, INC., a Delaware 
                                        corporation


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of 
                                             the Board


                                        NEWPORT DESIGN CENTER, a California 
                                        corporation


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of
                                             the Board


                                        PARKLAND ESTATES COMPANY, INC., a 
                                        Delaware corporation


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of 
                                             the Board


                                        PETERS RANCHLAND COMPANY, INC., a 
                                        Delaware corporation


                                        By:
                                             ----------------------------------
                                             Hadi Makarechian, Chairman of 
                                             the Board




                                       30

<PAGE>   35



                                   EXHIBIT "A"
                                   -----------

                              INITIAL BUSINESS PLAN





                                       A-1

<PAGE>   36



                                   EXHIBIT "B"
                                   -----------

                                 FORMS OF DEEDS





                                       B-1

<PAGE>   37



                                   EXHIBIT "C"
                                   -----------

                          FORMS OF GENERAL ASSIGNMENTS





                                       C-1

<PAGE>   38
                                   EXHIBIT "D"
                                   -----------

                              PERCENTAGE INTERESTS
                          AND INITIAL CAPITAL ACCOUNTS
                          ----------------------------


                                                          PERCENTAGE
MANAGING MEMBER                                            INTEREST
---------------                                           ----------

Capital Pacific Holdings, Inc.                            __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660


NON-MANAGING MEMBERS
--------------------

California Housing Finance, L.P.                          __________%
c/o Farallon Capital Management, L.L.C.
One Maritime Plaza, Suite 1325
San Francisco, California 94111

Capital Pacific Homes, Inc.                               __________%
(formerly Durable Homes
California, Inc.)
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660

Capital Pacific Homes, Inc.                               __________%
(formerly Durable Homes, Inc.)
3200 Soaring Gulls Drive
Suite 7
Las Vegas, NV  89129

Capital Pacific Mortgage, Inc.                            __________%
(doing business as Capital
Communities Mortgage)
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660

Clark Wilson Homes, Inc.                                  __________%
1717 West 6th St., Suite 140
Austin, TX  78703






                                       D-1

<PAGE>   39



Fairway Financial Company                                 __________%
1717 West 6th St., Suite 140
Austin, TX  78703

J.M. Peters California, Inc.                              __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660

J.M. Peters Homes of Arizona, Inc.                        __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660

J.M. Peters Nevada, Inc.                                  __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660

Newport Design Center                                     __________%
1500 Quail Street, Suite 100
Newport Beach, CA  92660

Parkland Estates Company, Inc.                            __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660

Peters Ranchland Company, Inc.                            __________%
4100 MacArthur Blvd., Suite 200
Newport Beach, CA  92660

                            INITIAL CAPITAL ACCOUNTS
                            ------------------------

Capital Pacific Holdings, Inc.
  and the Other Members in
  the aggregate                                           $63,538,000*

California Housing Finance, L.P.                          $30,000,000

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

* The parties agree that the initial capital account of CPH and the Other
Members shall in the aggregate be $63,538,000 but that if assets with a book
value in excess of such amount are contributed by CPH and the Other Members,
such additional value shall not increase the aggregate capital account or
Percentage Interest of CPH and the Other Members and CPH may effect post
contribution writedowns of the book value of such assets up to the amount of
such additional value without decreasing such capital account.



                                       D-2